DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Net income for the quarter ended September 30, 2005 included pre-tax Medicare lab recoveries related to prior years' services of $1.1 million and a net swap valuation loss of $1.7 million.
Financial and operating highlights include:
-- Cash Flow: Operating cash flow for the quarter ended September 30,
2005 was $85 million and free cash flow was $75 million. For the
rolling 12-month period ended September 30, 2005 operating cash flow
was $334 million and free cash flow was $287 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 rolling 12-month period operating cash flow was
$390 million and free cash flow was $343 million.
-- Operating Income: Operating income for the three months and nine
months ended September 30, 2005, was $111.2 million and
$324.9 million, respectively, excluding Medicare lab prior years'
recoveries of $1.1 million and $3.8 million, respectively.
-- Operating Income Margins: Operating income margins declined from
17.6% for the third quarter of 2004 to 16.5% for 2005. The decrease
was primarily attributable to increases in labor and benefit costs,
and higher G&A costs, driven primarily by legal and compliance
professional fees, as well as integration costs associated with the
Gambro Healthcare acquisition.
-- Volume: Total treatments for the third quarter were 2,037,584 or
25,792 treatments per day, an increase of 12.9% per day as compared to
the third quarter of last year. Non-acquired treatment growth was
5.2% for the third quarter.
-- Effective Tax Rate: The effective income tax rate for third quarter
2005 was 37.5%. We expect the annual effective tax rate to be 38.0%
for 2005, and within a range of 39% - 40% for 2006, exclusive of
valuation allowance adjustments.
-- Center Activity: As of September 30, 2005, we operated or provided
administrative services at 724 outpatient centers serving
approximately 58,100 patients. During the third quarter we acquired
11 centers, opened 8 de novo centers and divested one wholly owned
center.
Summary of Recent Transactions:
On October 5, 2005, we completed our acquisition of Gambro Healthcare, one of the largest dialysis service providers in the U.S. for an aggregate purchase price of $3.055 billion. In connection with the acquisition we:
-- entered into a new credit agreement for $3.05 billion and used
borrowings of $2.85 billion under the facilities along with available
cash of $252 million to purchase Gambro Healthcare and pay related
fees of $47 million;
-- entered into an Alliance and Product Supply Agreement with Gambro AB
and Gambro Renal Products, Inc. for the next ten years, during which
we are committed to purchase a significant majority of our
hemodialysis products, supplies and equipment; and
-- on October 6, 2005 we completed the sale of 70 freestanding renal
dialysis centers to Renal Advantage. The sale of an additional three
centers to Renal Advantage will be made upon receipt of Illinois state
regulatory approval and is expected to close within the next 60 days.
Also one other center was sold to a separate physician group and two
management services agreements were terminated. We are receiving
approximately $328 million for all of the divested centers, and
resulting tax payments are estimated at approximately $95 million.
As of September 30, 2005, proforma for the Gambro Healthcare acquisition and divestitures, we would have operated or provided administrative services to over 1,200 outpatient centers in 41 states serving approximately 94,000 patients.
Outlook
Our 2006 operating income is currently projected to be in the $600-$670 million range, before the impact of FASB No. 123R related to stock option expensing. Major variables include integration of the Gambro Healthcare operations, government reimbursement rates, intensities of physician prescribed pharmaceuticals, payor contracting, and growth assumptions.
Kent Thiry, CEO, stated, "This is a difficult time to provide guidance because there is an unusual amount of change going on, internally and externally. The integration is off to a strong start and we remain confident the combination of these two teams was the correct long-term decision for shareholders. In addition we remain confident that the combination will lead to even better patient care."
DaVita will be holding a conference call to discuss its third quarter results for 2005 on October 31, 2005, at 11:30 AM 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. 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, 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 reimbursement rates,
-- changes in pharmaceutical practice patterns or reimbursement
policies,
-- 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,
Eastern District of Missouri and our ability to cause Gambro
Healthcare to comply with its corporate integrity agreement, and
-- our ability to complete and integrate acquisitions, including Gambro
Healthcare.
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 Nine months ended
September 30, September 30,
2005 2004 2005 2004
Net operating revenues $676,820 $595,531 $1,935,825 $1,682,592
Operating expenses
and charges:
Patient care costs 457,994 396,909 1,303,297 1,135,477
General and
administrative 60,820 50,600 174,939 138,931
Depreciation and
amortization 26,372 22,257 77,080 63,454
Provision for
uncollectible
accounts 12,034 10,520 34,457 29,964
Minority interests
and equity income,
net 7,262 3,593 17,403 9,814
Total operating
expenses and
charges 564,482 483,879 1,607,176 1,377,640
Operating income 112,338 111,652 328,649 304,952
Debt expense (24,297) (13,741) (66,728) (36,635)
Swap valuation (loss)
gain (1,718) 4,543
Refinancing charges (6,872)
Other income 2,074 1,010 5,777 3,120
Income before income
taxes 88,397 98,921 265,369 271,437
Income tax expense 33,180 38,535 100,875 105,785
Net income $55,217 $60,386 $164,494 $165,652
Earnings per share:
Basic $0.55 $0.61 $1.64 $1.67
Diluted $0.53 $0.59 $1.58 $1.61
Weighted average
shares:
Basic 101,307,461 99,168,930 100,399,902 98,972,666
Diluted 104,371,789 102,889,781 103,803,975 103,193,267
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended
September 30,
2005 2004
Cash flows from operating activities:
Net income $164,494 $165,652
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 77,080 63,454
Stock options, principally tax benefits 37,021 30,465
Minority interests in income of
consolidated subsidiaries 18,225 11,345
Distributions to minority interests (12,261) (6,966)
Deferred income taxes (8,950) 11,831
Refinancing charges 6,872
Swap valuation gains (4,543)
Non-cash debt expense 2,397 1,497
(Gain) loss on divestitures (2,213) 59
Equity investment income (822) (1,531)
Changes in operating assets and liabilities,
other than from acquisitions and divestitures:
Accounts receivable (39,953) (33,998)
Medicare lab recoveries (1,131) 10,707
Inventories (2,670) 5,065
Other current assets (2,899) (755)
Other long-term assets (2,134) 2,109
Accounts payable 2,753 7,773
Accrued compensation and benefits 27,366 22,409
Other current liabilities 27,279 43,360
Income taxes 19,670 136
Other long-term liabilities (3,371) (8)
Net cash provided by
operating activities 302,210 332,604
Cash flows from investing activities:
Additions of property and equipment, net (97,529) (89,872)
Acquisitions and divestitures, net (130,113) (245,284)
Investments in and advances to affiliates,
net 14,294 4,862
Intangible assets (779) (635)
Net cash used in investing activities (214,127) (330,929)
Cash flows from financing activities:
Borrowings 1,742,433 3,123,171
Payments on long-term debt (1,753,351) (2,903,648)
Deferred financing costs (30,561) (3,934)
Purchase of treasury stock (86,559)
Stock option exercises 38,613 34,580
Net cash (used in) provided by
financing activities (2,866) 163,610
Net increase in cash and cash equivalents 85,217 165,285
Cash and cash equivalents at
beginning of period 251,979 61,657
Cash and cash equivalents at end of period $337,196 $226,942
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September 30, December 31,
2005 2004
ASSETS
Cash and cash equivalents $337,196 $251,979
Accounts receivable, less allowance
of $68,379 and $58,166 502,887 462,095
Medicare lab recoveries 1,131
Inventories 36,032 31,843
Other current assets 47,163 44,210
Deferred income taxes 104,772 78,593
Total current assets 1,029,181 868,720
Property and equipment, net 452,033 412,064
Amortizable intangibles, net 83,683 60,719
Investments in third-party dialysis businesses 2,526 3,332
Other long-term assets 44,889 10,898
Goodwill 1,256,223 1,156,226
$2,868,535 $2,511,959
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $99,080 $96,231
Other liabilities 184,666 157,214
Accrued compensation and benefits 162,219 133,919
Current portion of long-term debt 4,349 53,364
Income taxes payable 20,677 1,007
Total current liabilities 470,991 441,735
Long-term debt 1,360,665 1,322,468
Other long-term liabilities 25,096 22,570
Deferred income taxes 163,491 148,859
Minority interests 75,759 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 565,071 542,714
Retained earnings 775,781 611,287
Treasury stock, at cost
(33,239,209 and 36,295,339 shares) (579,455) (632,732)
Accumulated comprehensive income valuations 11,001 1,730
Total shareholders' equity 772,533 523,134
$2,868,535 $2,511,959
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Nine months
Three months ended ended
September June 30, September September
30, 2005 2005 30, 2004 30, 2005
Financial Results:
Net income, excluding
Medicare lab prior
years' recoveries, swap
valuations and
refinancing charges $55.6 $52.6 $55.3 $163.6
Basic EPS $0.55 $0.52 $0.56 $1.63
Diluted EPS $0.53 $0.51 $0.54 $1.58
Operating income, excluding
Medicare lab prior years'
recoveries $111.2 $107.7 $103.4 $324.9
Operating income margin 16.5% 16.7% 17.6% 16.8%
Other comprehensive income
Unrealized gain (loss)
on securities, net of
tax benefit (expense)
of $(7.1), $5.7, $1.6,
and $(8.2) $11.1 $(9.0) $(2.5) $13.0
Business Metrics:
Volume
Treatments 2,037,584 1,964,098 1,804,534 5,870,469
Number of treatment days 79.0 78.0 79.0 234.0
Treatments per day 25,792 25,181 22,842 25,087
Per day year over
year increase 12.9% 15.2% 11.0% 13.9%
Non-acquired growth 5.2% 5.5% 4.8% 5.5%
Revenue
Total operating revenue $677 $649 $596 $1,936
Medicare lab prior years'
recoveries $1 $3 $8 $4
Total operating revenue,
excluding Medicare lab
prior years' recoveries $676 $646 $587 $1,932
Dialysis revenue per
treatment $315.69 $312.52 $313.60 $313.11
Per treatment increase
from previous quarter 1.0% 0.5% 0.7% -
Per treatment increase
from prior year 0.7% 0.3% 2.4% 0.3%
Expenses
A. Patient care costs
Percent of revenue 67.8% 67.3% 67.6% 67.5%
Per treatment $224.77 $221.66 $219.95 $222.01
Per treatment increase
from previous quarter 1.4% 1.0% - -
Per treatment increase
from previous year 2.2% 0.7% 2.7% 1.0%
B. General & administrative
expenses
Percent of revenue 9.0% 9.3% 8.6% 9.1%
Per treatment $29.85 $30.48 $28.04 $29.80
Per treatment increase
(decrease) from
previous quarter (2.1%) 5.0% 4.5% -
Per treatment increase
from previous year 6.5% 13.6% 14.1% 10.8%
C. Bad debt expense as a
percent of current-period
revenue 1.8% 1.8% 1.8% 1.8%
D. Consolidated effective
tax rate 37.5% 38.0% 39.0% 38.0%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Nine months
Three months ended ended
September June 30, September September
30, 2005 2005 30, 2004 30, 2005
Cash Flow
Operating cash flow $84.6 $106.2 $115.9 $302.2
Operating cash flow,
excluding Medicare
lab prior years'
recoveries and tax
benefit from stock
option exercises $75.3 $92.8 $110.4 $263.6
Free cash flow, excluding
Medicare lab prior years'
recoveries and tax
benefit from stock option
exercises $65.6 $78.2 $99.5 $231.7
Capital expenditures:
Development $24.9 $22.2 $22.8 $65.2
Routine maintenance/
IT/other $11.4 $18.6 $11.0 $37.7
Acquisition expenditures,
net $46.1 $81.5 $213.50 $130.1
Accounts Receivable
Net receivables $503 $490 $435
DSO 70 70 68
Debt/Capital Structure
Total debt $1,365 $1,366 $1,388
Net debt, net of cash $1,028 $1,053 $1,161
Leverage ratio -
(see Note 1) 1.78x 1.86x 2.14x
Clinical (quarterly averages)
Dialysis adequacy -
% of patients with
Kt/V > 1.2 94% 94% 94%
Patients with arteriovenous
fistula 46% 45% 41%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
The leverage ratio under the Company's senior secured credit agreement as in effect for the quarter ended September 30, 2005 (the Prior Credit Agreement), is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by "EBITDA". The leverage ratio determines the interest rate margin payable by the Company under the Prior 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 indentures governing our recently issued senior notes. Such calculation is on a basis that is materially consistent with the definition of "EBITDA" contained in the Prior Credit Agreement, except that EBITDA under our Prior Credit Agreement is based on the last twelve-months and is not based on annualized EBITDA, and pro forma incremental "EBITDA" relating to acquisitions is included in the calculation of "EBITDA" under the Prior Credit Agreement and is not included in the following calculations.
Three months ended
September 30, June 30, September 30,
2005 2005 2004
Net income $55,217 $52,943 $60,386
Debt expense 24,297 24,897 13,741
Income taxes 33,180 32,420 38,535
Depreciation and amortization 26,372 25,860 22,257
Minority interests and
equity income, net 7,262 6,125 3,593
Swap valuation loss 1,718 2,131
"Consolidated EBITDA" as
defined in the indentures $148,046 $144,376 $138,512
Annualized "Consolidated
EBITDA" as defined in the
indentures $592,184 $577,504 $554,048
September 30, June 30, September 30,
2005 2005 2004
Total debt $1,365,014 $1,365,867 $1,387,964
Letters of credit issued 23,959 22,959 22,984
1,388,973 1,388,826 1,410,948
Less: cash and cash
equivalents (337,196) (312,761) (226,942)
Consolidated net debt $1,051,777 $1,076,065 $1,184,006
Annualized "Consolidated
EBITDA" as defined in the
indentures $592,184 $577,504 $554,048
Leverage Ratio 1.78x 1.86x 2.14x
As a result of the Gambro Healthcare acquisition and our related borrowings under our new senior secured credit agreement, we anticipate that our post-acquisition leverage ratio will initially be in the range of 4.5x to 5.0x, which is in compliance with the leverage ratio covenants contained within the new credit agreement. The leverage ratio calculation in our new credit agreement is materially consistent with our Prior Credit Agreement, existing at September 30, 2005.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Net income excluding Medicare lab recoveries related to prior years'
services, swap valuations and refinance charges:
Nine months
Three months ended ended
September June 30, September September
30, 2005 2005 30, 2004 30, 2005
Net income $55,217 $52,943 $60,386 $164,494
Less: Medicare lab recoveries
for prior years' services (1,131) (2,641) (8,293) (3,771)
Related income tax expense 440 1,027 3,234 1,467
Net income excluding
Medicare lab recoveries 54,526 51,329 55,327 162,190
Swap valuation loss (gain) 1,718 2,131 (4,543)
Refinancing charges 6,872
Related income tax expense (668) (829) (906)
$55,576 $52,631 $55,327 $163,613
2. Operating income, excluding Medicare lab recoveries related to prior
years' services:
Nine months
Three months ended ended
September June 30, September September
30, 2005 2005 30, 2004 30, 2005
Operating income $112,338 $110,315 $111,652 $328,649
Less: Medicare lab prior
years' recoveries (1,131) (2,641) (8,293) (3,771)
$111,207 $107,674 $103,359 $324,878
3. Operating cash flow, excluding Medicare lab recoveries related to prior
years' services, and tax benefit from stock option exercises:
Three months ended
September 30, June 30, September 30,
2005 2005 2004
Cash provided by operating
activities $84,609 $106,195 $115,852
Less: Medicare lab prior years'
recoveries (2,641)
Related income tax expense 1,027
Operating cash flow, excluding
Medicare lab prior years'
recoveries 84,609 104,581 115,852
Less: Tax benefit from stock
option exercises (9,313) (11,774) (5,417)
$75,296 $92,807 $110,435
Rolling 12-
Nine months month period
ended ended
September 30, September 30,
2005 2005
Cash provided by operating
activities $302,210 $389,551
Less: Medicare lab prior years'
Medicare lab prior years'
recoveries (2,641) (10,934)
Related income tax expense 1,027 4,261
Operating cash flow, excluding
Medicare lab prior years'
recoveries 300,596 382,878
Less: Tax benefit from stock
option exercises (37,021) (49,326)
$263,575 $333,552
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
September 30, June 30, September 30,
2005 2005 2004
Cash provided by operating
activities $84,609 $106,195 $115,852
Less: Expenditures for routine
maintenance and information
technology (9,656) (14,614) (10,956)
Free cash flow 74,953 91,581 104,896
Less: Medicare lab prior years'
recoveries (2,641)
Related income tax expense 1,027
Free cash flow, excluding
Medicare lab prior years'
recoveries 74,953 89,967 104,896
Less: Tax benefit from stock
option exercises (9,313) (11,774) (5,417)
$65,640 $78,193 $99,479
Rolling 12-
Nine months month period
ended ended
September 30, September 30,
2005 2005
Cash provided by operating
activities $302,210 $389,551
Less: Expenditures for routine
maintenance and information
technology (31,904) (46,787)
Free cash flow 270,306 342,764
Less: Medicare lab prior
years' recoveries (2,641) (10,934)
Related income tax expense 1,027 4,261
Free cash flow, excluding
Medicare lab prior years'
recoveries 268,692 336,091
Less: Tax benefit from stock
option exercises (37,021) (49,326)
$231,671 $286,765
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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