DaVita Inc. Reports 4th Quarter and Year Ended 2003 Results
EL SEGUNDO, Calif., Feb. 11 /PRNewswire-FirstCall/ -- DaVita Inc. (NYSE: DVA), today announced results for the quarter and year ended December 31, 2003. Net earnings for the fourth quarter and the full year, excluding refinancing charges and Medicare lab recoveries, were $53.9 million and $177.3 million or $0.79 and $2.51 per share, respectively. However, the fourth quarter benefited from a year-to-date reduction in the annualized effective tax rate that added $0.02 to fourth quarter earnings per share. (Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO ) Net earnings, on a GAAP basis including these items, for the three and twelve months ended December 31, 2003, were $62.8 million and $175.8 million, or $0.92 and $2.49 per share, respectively. Financial and operating highlights include: -- Cash Flow: For the 12 months ended December 31, 2003, operating cash flow was $294 million and free cash flow was $249 million. -- Operating Income: Operating income for the three and twelve months ended December 31, 2003, excluding Medicare lab recoveries of $24 million for prior years' services, was $97 million and $355 million, respectively. -- Medicare Lab Recoveries: The fourth quarter results include $24 million of additional revenue and pre-tax income from recoveries of prior period Medicare billings of our Florida lab, principally associated with services provided from 1998 to 2000. In 2002, we recorded Medicare lab recoveries of $59 million for prior years' services. Cumulatively, this brings our Medicare lab recoveries to nearly 90% of total disputed billings for the period from 1995 through 2001. -- Volume: Total treatments for the fourth quarter were 1,666,225, or 20,959 treatments per day, an increase of 8.5% compared to the fourth quarter of last year. Non-acquired treatment growth was 4.3%. -- Effective Tax Rate: The final effective annual income tax rate for 2003 was 39.0%, resulting in an effective rate of 37.5% for the fourth quarter. -- Facility Activity: As of December 31, 2003, we operate or provide administrative services at 566 outpatient dialysis centers serving approximately 48,500 patients. During the fourth quarter we acquired 11 centers and opened 8 de novo centers. For the full year, we acquired 27 centers, including a controlling interest in two centers in which we previously held a minority interest, and opened 30 de novo centers. We also closed five centers. Recent transactions: -- On October 14, 2003 we completed the redemption of the remaining $145 million of 7% convertible notes for cash except for $526,000 of notes that were converted into approximately 16,000 shares of stock. -- On November 18, 2003, we completed a second refinancing of our senior credit facilities resulting in lower interest rates and modification of certain covenants. Outlook: -- Our 2004 operating income outlook is $360 to $385 million. "While at this time, we are not changing our 2004 range, we are entering 2004 with solid momentum. As a result, the probability that our performance will be at the higher end of this range or exceed the range is greater than the probability that we will be at the lower end of the range," Kent Thiry, Chairman and CEO stated. DaVita will be holding a conference call to discuss its fourth quarter and year ended 2003 results on February 11, 2004, at 1:00 p.m. Eastern Standard 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 press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding certain nonrecurring charges and prior period recoveries and by allowing consistency and comparability in our financial reporting to prior periods for which these non-GAAP measures were previously reported. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. Included in this press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures. This release also contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulation, general economic and other market conditions, and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended September 30, 2003. The forward-looking statements should be considered in light of these risks and uncertainties. These risks 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, such as the ongoing review by the US Attorney's Office and HHS Office of Inspector General in Philadelphia. The 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 AND COMPREHENSIVE INCOME (dollars in thousands, except per share data) Three months ended Years ended December 31, December 31, 2003 2002 2003 2002 Net operating revenues $553,446 $503,096 $2,016,418 $1,854,632 Operating expenses and charges: Patient care costs 359,965 317,061 1,360,556 1,217,685 General and administrative 40,338 41,338 159,628 154,073 Depreciation and amortization 19,985 16,895 74,687 64,665 Provision for uncollectible accounts 9,469 7,623 35,700 26,877 Minority interests and equity income, net 2,499 1,802 7,312 7,506 Total operating expenses and charges 432,256 384,719 1,637,883 1,470,806 Operating income 121,190 118,377 378,535 383,826 Debt expense 11,766 19,458 66,828 71,636 Refinancing charges 9,261 26,501 48,930 Other income 335 492 3,060 3,997 Income before income taxes 100,498 99,411 288,266 267,257 Income tax expense 37,700 40,600 112,475 109,928 Net income $62,798 $58,811 $175,791 $157,329 Earnings per share: Basic $0.98 $0.97 $2.79 $2.19 Diluted $0.92 $0.81 $2.49 $1.96 Weighted average shares for earnings per share: Basic 64,253,852 60,773,914 62,897,079 71,831,158 Diluted 68,440,856 79,098,156 75,840,235 90,480,206 STATEMENTS OF COMPREHENSIVE INCOME Net income $62,798 $58,811 $175,791 $157,329 Unrealized loss on securities, net of tax of $590 (924) (924) Comprehensive income $61,874 $58,811 $174,867 $157,329 DAVITA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Years ended December 31, 2003 2002 Cash flows from operating activities: Net income $175,791 $157,329 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 74,687 64,665 Refinancing charges 26,501 48,930 Loss (gain) on divestitures 2,130 (1,151) Deferred income taxes 20,914 62,172 Non-cash debt expense 3,124 3,217 Stock option expense and tax benefits 20,180 22,212 Equity investment (income) (1,596) (1,791) Minority interests in income of consolidated subsidiaries 8,908 9,299 Distributions to minority interests (7,663) (6,165) Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: Accounts receivable (41,369) (17,699) Medicare lab recoveries (19,000) Inventories 3,159 (342) Other current assets (13,297) (19,089) Other long-term assets 4,692 527 Accounts payable (6,875) 10,822 Accrued compensation and benefits 5,821 6,837 Other current liabilities 9,958 2,585 Income taxes 17,810 (4,821) Other long-term liabilities 9,773 4,458 Net cash provided by operating activities 293,648 341,995 Cash flows from investing activities: Additions of property and equipment, net (100,272) (102,712) Acquisitions and divestitures, net (97,370) (18,511) Investments in and advances to affiliates, net 4,456 5,064 Intangible assets (790) (342) Net cash used in investing activities (193,976) (116,501) Cash flows from financing activities: Borrowings 4,766,276 2,354,105 Payments on long-term debt (4,797,994) (1,855,199) Debt redemption premium (14,473) (40,910) Deferred financing costs (4,193) (10,812) Net proceeds from issuance of common stock 23,056 29,257 Purchase of treasury shares (107,162) (642,171) Net cash used in financing activities (134,490) (165,730) Net (decrease) increase in cash and cash equivalents (34,818) 59,764 Cash and cash equivalents at beginning of year 96,475 36,711 Cash and cash equivalents at end of year $61,657 $96,475 DAVITA INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) December 31, 2003 2002 ASSETS Cash and cash equivalents $61,657 $96,475 Accounts receivable, less allowance of $52,554 and $48,927 387,933 344,292 Medicare lab recoveries 19,000 Inventories 32,853 34,929 Other current assets 43,875 28,667 Deferred income taxes 59,740 40,163 Total current assets 605,058 544,526 Property and equipment, net 342,447 298,475 Amortizable intangibles, net 49,971 63,159 Investments in third-party dialysis businesses 3,095 3,227 Other long-term assets 10,771 1,520 Goodwill 934,188 864,786 $1,945,530 $1,775,693 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $71,868 $77,890 Other liabilities 112,654 101,389 Accrued compensation and benefits 100,909 95,435 Current portion of long-term debt 50,557 7,978 Income taxes payable 26,832 9,909 Total current liabilities 362,820 292,601 Long-term debt 1,117,002 1,311,252 Other long-term liabilities 19,310 9,417 Deferred income taxes 106,240 65,930 Minority interests 33,287 26,229 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; 89,870,803 and 88,874,896 shares issued) 90 89 Additional paid-in capital 539,575 519,369 Retained earnings 389,128 213,337 Treasury stock, at cost (25,368,019 and 28,216,177 shares) (620,998) (662,531) Accumulated other comprehensive loss (924) Total shareholders' equity 306,871 70,264 $1,945,530 $1,775,693 DAVITA INC. SUPPLEMENTAL FINANCIAL DATA (dollars in millions, except for per share and per treatment data) Q4 2003 Q3 2003 Q4 2002 YE 2003 Financial Results: Net earnings excluding refinancing charges and Medicare lab recoveries for prior years' services $53.9 $48.5 $33.7 $177.3 Basic EPS $0.84 $0.74 $0.55 $2.82 EPS assuming dilution $0.79* $0.67 $0.49 $2.51 *The fourth quarter benefited from a year-to-date reduction in the annualized effective tax rate that added $0.02 to fourth quarter earnings per share. Operating income, excluding Medicare lab recoveries $97.2 $95.2 $76.8 $354.5 Operating income margin 18.4% 18.5% 16.6% 17.8% Business Metrics: Volume Treatments 1,666,225 1,625,058 1,537,821 6,373,894 Number of treatment days 79.5 79 79.6 312.9 Treatments per day 20,959 20,570 19,319 20,370 Per day year over year increase 8.5% 7.1% 3.8% 6.7% Non-acquired growth 4.3% 3.8% 2.9% 3.9% Revenue Total revenue $553 $513 $503 $2,016 Less Medicare lab recoveries for prior years' services $(24) $(41) $(24) Revenue excluding Medicare lab recoveries $529 $513 $462 $1,992 Dialysis revenue per treatment $306.36 $306.20 $291.02 $302.75 Per treatment increase from previous quarter 0.0% 1.6% 0.0% -- Per treatment increase from prior year 5.3% 5.3% 2.8% 4.1% Expenses A. Patient care costs Percent of revenue 68.0% 67.8% 68.7% 68.3% Per treatment $216.04 $214.08 $206.17 $213.46 Per treatment increase from previous quarter 0.9% 0.6% 1.4% -- B. General & administrative expenses Percent of revenue 7.6% 7.8% 9.0% 8.0% Per treatment $24.21 $24.57 $26.88 $25.04 Per treatment (decrease) increase from previous quarter (1.5%) (8.9%) 10.1% -- C. Bad debt expense as a percent of current-period revenue 1.8% 1.8% 1.8% 1.8% D. Consolidated effective tax rate 37.5% 39.5% 40.8% 39.0% DAVITA INC. SUPPLEMENTAL FINANCIAL DATA, CONTINUED (dollars in millions, except for per share and per treatment data) Q4 2003 Q3 2003 Q4 2002 YE 2003 Cash Flow Operating cash flow, excluding Medicare lab recoveries $34.6 $99.6 $41.2 $293.6 Free cash flow, excluding Medicare lab recoveries $19.2 $90.1 $24.5 $248.8 Capital expenditures: Development $22.7 $12.9 $19.6 $57.9 Routine maintenance /IT/other $15.4 $9.5 $16.7 $44.9 Acquisition expenditures, net $30.4 $19.9 $6.5 $97.4 Accounts Receivable Net receivables $388 $357 $344 DSO 69 65 70 Debt/Capital Structure Total debt $1,168 $1,323 $1,319 Net debt, net of cash $1,106 $1,051 $1,223 Leverage ratio - last quarter annualized (see Note 1) 2.3x 2.3x 3.2x Shares repurchased (in millions) 0.7 2.7 1.9 3.4 Average repurchase price $34.20 $30.34 $23.80 $31.13 Clinical (quarterly averages) Dialysis adequacy - % of patients with Kt/V greater than 1.2 93% 93% 92% Anemia measure - % of patients with HCT greater than 33 85% 83% 83% Note 1. Leverage ratio is defined as net debt (total debt net of cash) to operating income excluding depreciation, amortization, minority interests and prior period Medicare lab revenue. The operating income reconciliation is provided below. DAVITA INC. RECONCILIATIONS FOR NON-GAAP MEASURES (dollars in thousands) 1. Net earnings excluding refinancing charges and Medicare lab recoveries: Q4 2003 Q3 2003 Q4 2002 YE 2003 Net earnings $62,798 $38,060 $58,811 $175,791 Add back: Refinancing charges 9,261 17,240 26,501 Less: Medicare lab recoveries for prior years' services (24,000) (41,555) (24,000) Related income tax expense 5,837 (6,818) 16,435 (981) $53,896 $48,482 33,691 $177,311 2.Operating income excluding Medicare lab recoveries, and excluding depreciation, amortization, and minority interests: Q4 2003 Q3 2003 Q4 2002 YE 2003 Operating income $121,190 $95,211 $118,377 $378,535 Less: Medicare lab recoveries for prior years' services (24,000) (41,555) (24,000) $97,190 $95,211 $76,822 $354,535 Add back: Depreciation and amortization 19,985 19,336 16,895 74,687 Minority interests and equity income, net 2,499 1,706 1,802 7,312 $119,674 $116,253 $95,519 $436,534 3.Operating cash flow, excluding Medicare lab recoveries collected in the period: Q4 2003 Q3 2003 Q4 2002 YE 2003 Cash provided by operating activities $34,576 $99,645 $66,318 $293,648 Less: Medicare lab recoveries collected in the period (41,555) Related income tax expense 16,435 $34,576 $99,645 $41,198 $293,648 4. Free cash flow, excluding Medicare lab recoveries collected in the period: 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 development activities and meet our debt service requirements.Free cash flow is not a measure of financial performance under generally accepted accounting principlesin 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. Q4 2003 Q3 2003 Q4 2002 YE 2003 Cash provided by operating activities $34,576 $99,645 $66,318 $293,648 Less: Expenditures for routine maintenance and information technology (15,362) (9,533) (16,706) (44,898) Medicare lab recoveries collected in the period (41,555) Related income tax expense 16,435 $19,214 $90,112 $24,492 $248,750 SOURCE DaVita Inc.