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.
