DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Income from continuing operations for the year ended December 31, 2006, excluding the valuation gain on the Company's Product Supply Agreement with Gambro Renal Products was $266.1 million, or $2.52 per share, as compared to income from continuing operations of $207.4 million, or $1.99 per share, for the same period of 2005. Income from continuing operations for the year ended December 31, 2006 included incremental after-tax stock-based compensation expense of $14.2 million or $0.12 per share, related to SFAS No. 123®.
Income from continuing operations for the year ended December 31, 2006, including the valuation gain on the Product Supply Agreement was $289.3 million, or $2.73 per share.
Financial and operating highlights include:
-- Cash Flow: For the year ended December 31, 2006 operating cash flow
was $605 million and free cash flow was $496 million, in each case
excluding an $85 million income tax payment associated with the
divestiture of centers in conjunction with the Gambro Healthcare
acquisition. Including this item, operating cash flow for the year
ended December 31, 2006 was $520 million and free cash flow was
$410 million.
-- Operating Income: Operating income for the three months ended
December 31, 2006 was $189 million. Operating income for the year
ended December 31, 2006, excluding the pre-tax valuation gain on the
Product Supply Agreement of approximately $38 million, was
$701 million.
-- Volume: Total treatments for the fourth quarter of 2006 were 3,723,198
or 47,369 treatments per day. Non-acquired treatment growth in the
quarter was 5.5% over the prior year's fourth quarter.
-- Center Activity: As of December 31, 2006, we operated or provided
administrative services at 1,300 outpatient dialysis centers serving
approximately 103,000 patients, which includes 34 third-party owned
centers serving approximately 2,850 patients. During the fourth
quarter of 2006 we acquired 7 centers, including two centers in which
we previously held a minority interest, opened 26 new centers, provided
administrative services to one additional center and closed one center.
-- Effective Tax Rate: The effective annual income tax rate for 2006 from
continuing operations was 39.2%. We currently expect the annual
effective tax rate for 2007 to be in the range of 39.5% - 40.0%.
Outlook
We are revising our 2007 operating income guidance: Operating income is now projected to be in the range of $700-$760 million. Our previous guidance was for operating income to be in the range of $680-$750 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, 2006 on February 14, 2007 at noon 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 2007 operating results. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, 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, 2006. 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,
-- 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 subpoena from the U.S. Attorney's Office
for the Eastern District of New York, the subpoenas from the U.S.
Attorney's Office for the Eastern District of Missouri and DVA Renal
Healthcare's compliance with its corporate integrity agreement,
-- our ability to complete and integrate acquisitions of businesses, and
-- the successful integration of DVA Renal 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 Year ended
December 31, December 31,
2006 2005 2006 2005
Net operating
revenues $1,272,617 $1,133,315 $4,880,662 $2,973,918
Operating expenses
and charges:
Patient care
costs 872,556 799,291 3,390,351 2,035,243
General and
administrative 124,457 97,524 453,516 272,463
Depreciation and
amortization 45,209 42,648 173,295 116,836
Provision for
uncollectible
accounts 32,908 29,165 126,203 61,916
Minority interests
and equity income,
net 8,976 5,905 35,833 22,089
Valuation gain on
Product Supply
Agreement -- -- (37,968) --
Total operating
expenses and
charges 1,084,106 974,533 4,141,230 2,508,547
Operating income 188,511 158,782 739,432 465,371
Debt expense (69,907) (72,886) (276,706) (139,586)
Swap valuation gain -- 5 -- 4,548
Refinancing charges -- (1,298) -- (8,170)
Other income 2,915 3,193 13,033 8,934
Income from
continuing operations
before income taxes 121,519 87,796 475,759 331,097
Income tax expense 47,390 31,385 186,430 123,675
Income from
continuing
operations 74,129 56,411 289,329 207,422
Discontinued operations
(Loss) income from
operations of
discontinued
operations, net of
tax -- (326) -- 13,157
Gain on disposal
of discontinued
operations, net
of tax -- 8,064 362 8,064
Net income $74,129 $64,149 $289,691 $228,643
Earnings per share:
Basic earnings per
share from continuing
operations $0.71 $0.55 $2.79 $2.06
Basic earnings per
share $0.71 $0.63 $2.80 $2.27
Diluted earnings per
share from continuing
operations $0.70 $0.54 $2.73 $1.99
Diluted earnings per
share $0.70 $0.61 $2.74 $2.20
Weighted average shares
for earnings per share:
Basic 104,194,000 101,838,000 103,520,000 100,762,000
Diluted 106,219,000 104,888,000 105,793,000 104,068,000
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Year ended
December 31,
2006 2005
Cash flows from operating activities:
Net income $289,691 $228,643
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 173,295 119,719
Valuation gain on Product Supply Agreement (37,968) --
Stock-based compensation expense 26,389 3,353
Tax benefits from stock award exercises 40,375 38,484
Excess tax benefits from stock-based
compensation (37,251) --
Deferred income taxes 2,342 (63,357)
Minority interests in income of consolidated
subsidiaries 38,141 24,714
Distributions to minority interests (32,271) (16,246)
Equity investment income (2,308) (1,406)
Loss (gain) on disposal of discontinued
operations and other dispositions 239 (15,856)
Non-cash debt and non-cash rent charges 27,736 5,157
Refinancing charges -- 8,170
Swap valuation gain -- (4,548)
Changes in operating assets and liabilities,
net of effect of acquisitions and divestitures:
Accounts receivable (74,737) (62,021)
Inventories (18,587) 11,980
Other receivables and other current assets (34,044) 1,893
Other long term assets (9,791) (2,039)
Accounts payable 40,712 28,869
Accrued compensation and benefits 101,555 21,664
Other current liabilities 88,841 72,615
Income taxes (67,329) 90,958
Other long-term liabilities 4,541 (5,192)
Net cash provided by operating activities 519,571 485,554
Cash flows from investing activities:
Additions of property and equipment, net (262,708) (161,365)
Acquisitions and purchases of other ownership
interests (86,504) (3,202,404)
Proceeds from divestitures and asset sales 22,179 298,849
Investments in and advances to affiliates,
net 20,567 20,308
Purchase of intangible assets (5,597) (751)
Net cash used in investing activities (312,063) (3,045,363)
Cash flows from financing activities:
Borrowings 6,354,784 6,832,557
Payments on long-term debt (6,761,743) (4,058,951)
Deferred financing costs (2) (77,884)
Excess tax benefits from stock-based
compensation 37,251 --
Stock option exercises and other share
issuances, net 40,593 43,919
Net cash (used in) provided by financing
activities (329,117) 2,739,641
Net (decrease) increase in cash and cash
equivalents (121,609) 179,832
Cash and cash equivalents at beginning of
period 431,811 251,979
Cash and cash equivalents at end of period $310,202 $431,811
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
December 31, December 31,
2006 2005
ASSETS
Cash and cash equivalents $310,202 $431,811
Accounts receivable, less allowance
of $171,757 and $138,598 932,385 853,560
Inventories 89,119 69,130
Other receivables 148,842 116,620
Other current assets 29,858 38,463
Deferred income taxes 199,090 144,824
Total current assets 1,709,496 1,654,408
Property and equipment, net 849,966 750,078
Amortizable intangibles, net 203,721 235,944
Investments in third-party dialysis businesses 1,813 3,181
Other long-term assets 58,967 41,768
Goodwill 3,667,853 3,594,383
$6,491,816 $6,279,762
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $251,686 $212,049
Other liabilities 473,219 381,964
Accrued compensation and benefits 341,766 231,994
Current portion of long-term debt 20,871 71,767
Income taxes payable 24,630 91,959
Total current liabilities 1,112,172 989,733
Long-term debt 3,730,380 4,085,435
Other long-term liabilities 50,076 26,416
Alliance and product supply agreement
and other intangibles, net 105,263 163,431
Deferred income taxes 125,642 75,499
Minority interests 122,359 88,639
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 630,091 569,751
Retained earnings 1,129,621 839,930
Treasury stock, at cost
(30,225,675 and 32,927,026 shares) (526,920) (574,013)
Accumulated other comprehensive income 12,997 14,806
Total shareholders' equity 1,245,924 850,609
$6,491,816 $6,279,762
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Year ended
December September December December
31, 30, 31, 31,
2006 2006 2005 2006
Financial Results excluding
the valuation gain on the
Product Supply Agreement
for the third quarter of
2006 and for the year ended
December 31, 2006:
Income from continuing
operations (1) $74.1 $69.9 $56.4 $266.1
Net income (1) $74.1 $71.7 $64.1 $266.5
Diluted earnings per share
from continuing operations $0.70 $0.66 $0.54 $2.52
Diluted earnings per share $0.70 $0.68 $0.61 $2.52
Operating income (1) $188.5 $179.1 $158.8 $701.5
Operating income margin 14.8% 14.5% 14.0% 14.4%
Other comprehensive income
Unrealized (loss) gain
on securities, net of
tax (expense) benefit
of $0.7, $6.6,
($2.4) and $1.2 ($1.1) ($10.3) $3.8 ($1.8)
Business Metrics:
Volume
Treatments 3,723,198 3,668,999 3,498,231 14,495,796
Number of treatment
days 78.6 79.0 79.0 312.6
Treatments per day 47,369 46,443 44,281 46,372
Per day year-over-year
increase 7.0% 90.2% 95.8% 60.5%
Non-acquired growth
year-over-year 5.5% 4.2% 2.8% 4.8%
Revenue
Total operating revenue $1,273 $1,237 $1,133 $4,881
Dialysis revenue per
treatment, including
the lab $334.45 $331.48 $319.98 $330.44
Per treatment increase
(decrease) from
previous quarter 0.9% 0.7% (2.1%) --
Per treatment increase
(decrease) from previous
year 4.5% 1.4% (0.8%) 2.4%
Expenses
A. Patient care costs
Percent of revenue 68.6% 69.3% 70.5% 69.5%
Per treatment $234.36 $233.59 $228.48 $233.89
Per treatment increase
(decrease) from
previous quarter 0.3% (0.17%) 1.3% --
Per treatment increase
from previous year 2.6% 3.5% 2.9% 3.9%
B. General & administrative
expenses
Percent of revenue 9.8% 9.2% 8.6% 9.3%
Per treatment $33.43 $30.92 $27.88 $31.29
Per treatment increase
(decrease) from
previous quarter 8.1% (0.03%) (11.6%) --
Per treatment increase
(decrease) from previous
year 19.9% (1.9%) (6.3%) 3.9%
C. Bad debt expense as
a percent of
current-period revenue 2.6% 2.6% 2.6% 2.6%
D. Consolidated effective
tax rate from continuing
operations 39.0% 38.9% 35.7% 39.2%
(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.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Year ended
December September December December
31, 30, 31, 31,
2006 2006 2005 2006
Cash Flow
Operating cash flow $190.1 $96.9 $183.3 $519.6
Operating cash flow,
excluding the income tax
payment on divested
centers (1) $190.1 $96.9 $183.3 $604.9
Operating cash flow last
twelve months $519.6 $512.8 $485.6 --
Operating cash flow,
excluding the income
tax payment on divested
centers last
twelve months (1) $604.9 $598.1 $485.6 --
Free cash flow (1) $158.9 $67.4 $151.6 $410.4
Free cash flow, excluding
the income tax payment on
divested centers (1) $158.9 $67.4 $151.6 $495.8
Free cash flow last
twelve months (1) $410.4 $403.2 $421.9 --
Free cash flow, excluding
the income tax payment
on divested centers last
twelve months (1) $495.8 $488.5 $421.9 --
Capital expenditures:
Development and
relocations $44.5 $35.1 $27.8 $143.3
Routine
maintenance/IT/other $32.5 $31.5 $32.3 $115.8
Acquisition expenditures $10.9 $6.0 $3,072.3 $86.5
Accounts Receivable
Net receivables $932 $903 $854
DSO 70 70 71
Debt/Capital Structure
Total debt $3,751 $3,825 $4,157
Net debt, net of cash $3,441 $3,564 $3,725
Leverage ratio
(see Note 1) 3.66x 3.96x 4.45x
Clinical (quarterly averages)
Dialysis adequacy - % of
patients with Kt/V > 1.2 93% 93% 94%
Patients with
albumin >/= 3.5 - 84% 84% 84% 82%
(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.
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 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 that 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, 2006
Income from continuing operations $289,329
Income taxes 186,430
Debt expense 276,706
Depreciation and amortization 173,295
Minority interests and equity income, net 35,833
Valuation gain on Product Supply Agreement (37,968)
Other 2,622
Stock-based compensation expense 26,389
"Consolidated EBITDA" $952,636
December 31,
2006
Total debt $3,751,251
Letters of credit issued 50,131
3,801,382
Less: cash and cash equivalents (310,202)
Consolidated net debt $3,491,180
Last twelve months "Consolidated EBITDA" $952,636
Leverage ratio 3.66x
In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 6.0 to 1.0 as of December 31, 2006. At that date, the Company's leverage ratio did not exceed 6.0 to 1.0.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Income from continuing operations and net income excluding the
valuation gain on the Product Supply Agreement:
We believe that income from continuing operations and net income excluding
the valuation gain on the Product Supply Agreement enhances a user's
understanding of our normal income from continuing operations and net
income for these periods by providing a measure that is more meaningful
because it excludes a non-recurring non-cash item that resulted from an
amendment of the Product Supply Agreement and accordingly is more
comparable to prior periods and indicative of consistent income from
continuing operations and net 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 income from
continuing operations and net income.
Three months ended Year ended
December September December December
31, 30, 31, 31,
2006 2006 2005 2006
Income from continuing
operations $74,129 $93,091 $56,411 $289,329
Less: Valuation gain -- (37,968) -- (37,968)
Add: Related income tax -- 14,770 -- 14,770
$74,129 $69,893 $56,411 $266,131
Net income $74,129 $94,856 $64,149 $289,691
Less: Valuation gain -- (37,968) -- (37,968)
Add: Related income tax -- 14,770 -- 14,770
$74,129 $71,658 $64,149 $ 266,493
2. Operating income excluding the pre-tax valuation gain on the Product
Supply Agreement:
We believe that operating income excluding 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 a non-recurring non-cash item that resulted
from an amendment of the Product Supply Agreement and accordingly is more
comparable to 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
31, 30, 31, 31,
2006 2006 2005 2006
Operating income $188,511 $217,094 $158,782 $739,432
Less: Valuation gain -- (37,968) -- (37,968)
$188,511 $179,126 $158,782 $ 701,464
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
3. Operating cash flow, excluding the income tax payment on divested
centers:
We believe that operating cash flow excluding the income tax payment on
divested centers enhances a user's understanding of our normal operating
cash flows for these periods by providing a measure that is more
meaningful because it excludes non-recurring transactions that can cause
unusual fluctuations in our operating cash flows and accordingly is more
comparable to prior periods and indicative of consistent operating cash
flow 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 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,
2006 2006 2005 2006
Cash provided by operating
activities $190,108 $96,937 $183,344 $519,571
Income tax payment on
divested centers -- -- -- 85,328
$190,108 $96,937 $183,344 $604,899
Rolling 12-Month Period
December 31, September 30, December 31,
2006 2006 2005
Cash provided by
operating activities $519,571 $512,807 $485,554
Income tax payment on
divested centers 85,328 85,328 --
$604,899 $598,135 $485,554
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
4. Free cash flow and free cash flow, excluding the income tax payment on
divested centers:
Free cash flow represents net cash provided by operating activities less
capital expenditures for routine maintenance and information technology.
We believe free cash flow and free cash flow excluding the income tax
payment on divested centers are useful adjuncts 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 and because free cash flow excluding
the income tax payment on divested centers excludes a non-recurring
transaction that can cause unusual fluctuations in our free cash flows and
accordingly is more comparable to prior periods and indicative of
consistent free cash items. Free cash flow and free cash flow excluding
the income tax payment on divested centers are not measures 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
December 31, September 30, December 31,
2006 2006 2005
Cash provided by
operating activities $190,108 $96,937 $183,344
Less: Expenditures for
routine maintenance and
information technology (31,214) (29,551) (31,735)
Free cash flow $158,894 $67,386 $151,609
Rolling 12-Month Period
December 31, September 30, December 31,
2006 2006 2005
Cash provided by operating
activities $519,571 $512,807 $485,554
Less: Expenditures for
routine maintenance and
information technology (109,131) (109,652) (63,639)
Free cash flow $410,440 $403,155 $421,915
Income tax payment on
divested centers 85,328 85,328 --
$495,768 $488,483 $421,915
First Call Analyst:
FCMN Contact: LeAnne.Zumwalt@davita.com
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk,
SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations, DaVita Inc.,
+1-650-696-8910
Web site: http://www.davita.com/
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