DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Net income for the year ended December 31, 2004 including the lab recoveries (GAAP basis), was $222.3 million and $2.16 per share.
Financial and operating highlights include:
-- Cash Flow: Cash flow for the 12 months ended December 31, 2004, was our strongest ever with operating cash flow and free cash flow of $361 million and $314 million, excluding the tax benefit from stock option exercises and the after-tax benefit of prior years' Medicare lab recoveries. Including those items, 12-month operating cash flow was $420 million.
-- Operating Income: Operating income for the three months was $105.2 million. Operating income for the year ended December 31, 2004 was $401.8 million, excluding Medicare lab recoveries of $8.3 million for prior years' services.
-- Volume: Total treatments for the fourth quarter were 1,895,952 or 23,999 treatments per day, an increase of 14.5% per day compared to the fourth quarter of last year. Total treatments for 2004 were 7,062,424 or 22,528 treatments per day, representing an increase of 10.6% per day as compared to 2003. Non-acquired treatment growth was 6.0% and 5.0% for the fourth quarter and full year 2004, respectively.
-- Effective Tax Rate: The final effective annual income tax rate for 2004 was 38.6%. The fourth quarter benefited from a year-to-date reduction in the annualized effective tax rate that added $0.01 to fourth quarter earnings per share. At this time, the effective tax rate for 2005 is projected to be at a comparable level.
-- Center Activity: As of December 31, 2004, we operated or provided administrative services at 658 outpatient centers serving approximately 54,000 patients. During the fourth quarter we acquired 6 centers, opened 19 de novo centers and provided administrative services to 2 additional centers. We also closed 4 centers and terminated one administrative services agreement.
Outlook
Our previous 2005 operating income guidance was for operating income to improve from 0 to 6% over the 2004 operating income performance. Our new 2005 operating income guidance is for operating income to be up 2 to 6% over 2004, exclusive of the effects of the proposed Gambro Healthcare acquisition and related debt financing, as well as the anticipated expensing of stock options in accordance with FASB No. 123R. In connection with the Gambro acquisition the Company will be assessing financing alternatives, which could include closing some or all of the financing in advance of the closing of the acquisition. At this time, we expect the Gambro acquisition together with related debt financing to be dilutive to EPS in the first year, neutral in the second year and accretive thereafter.
DaVita will be holding a conference call to discuss its fourth quarter and year ended results for 2004 on February 9, 2005, at 12:00 PM 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. 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 September 30, 2004. 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 PPO and private indemnity patients,
-- 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,
-- 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 HHS Office of the Inspector General and the recently announced subpoena from the U.S. Attorney's Office for the Eastern District of New York, and
-- the consummation of the Gambro acquisition, terms of the related financing, and subsequent integration of the business.
This 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
(unaudited)
(dollars in thousands, except per share data)
Three months ended Years ended
December 31, December 31,
2004 2003 2004 2003
Net operating revenues $616,003 $553,446 $2,298,595 $2,016,418
Operating expenses and
charges:
Patient care
costs 419,593 359,965 1,555,070 1,360,556
General and
administrative 53,151 40,338 192,082 159,628
Depreciation and
amortization 23,212 19,985 86,666 74,687
Provision for
uncollectible
accounts 10,996 9,469 40,960 35,700
Minority interests
and equity income,
net 3,880 2,499 13,694 7,312
Total operating
expenses and
charges 510,832 432,256 1,888,472 1,637,883
Operating income 105,171 121,190 410,123 378,535
Debt expense 15,777 11,766 52,412 66,828
Refinancing Charges 9,261 26,501
Other income 1,053 335 4,173 3,060
Income before income taxes 90,447 100,498 361,884 288,266
Income tax expense 33,845 37,700 139,630 112,475
Net income $56,602 $62,798 $222,254 $175,791
Earnings per share:
Basic $0.58 $0.65 $2.25 $1.86
Diluted $0.56 $0.61 $2.16 $1.66
Weighted average
shares for
earnings per
share:
Basic 97,984,401 96,380,778 98,726,674 94,345,618
Diluted 101,777,418 102,661,284 102,861,044 113,760,352
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Years ended December 31,
2004 2003
Cash flows from operating activities:
Net income $222,254 $175,791
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 86,666 74,687
Stock options, principally tax benefits 42,770 20,180
Deferred income taxes 29,115 20,914
Minority interests in income of
consolidated subsidiaries 15,135 8,908
Distributions to minority interests (10,461) (7,663)
Equity investment income (1,441) (1,596)
Loss on divestitures 764 2,130
Non-cash debt expense 2,088 3,124
Refinancing charges 26,501
Changes in operating assets and liabilities,
other than from acquisitions and divestitures:
Accounts receivable (61,424) (41,369)
Medicare lab recoveries 19,000 (19,000)
Inventories 4,257 3,159
Other current assets 1,780 (13,297)
Other long-term assets 3,345 4,692
Accounts payable 17,764 (6,875)
Accrued compensation and benefits 32,899 5,821
Other current liabilities 42,784 9,958
Income taxes (25,995) 17,810
Other long-term liabilities (1,355) 9,773
Net cash provided by operating
activities 419,945 293,648
Cash flows from investing activities:
Additions of property and equipment,
net (128,328) (100,272)
Acquisitions and divestitures, net (265,042) (97,370)
Investments in and advances to
affiliates, net 14,344 4,456
Intangible assets (635) (790)
Net cash used in investing
activities (379,661) (193,976)
Cash flows from financing activities:
Borrowings 4,444,160 4,766,276
Payments on long-term debt (4,236,861) (4,797,994)
Debt redemption premium (14,473)
Deferred financing costs (4,153) (4,193)
Purchase of treasury stock (96,540) (107,162)
Stock option exercises 43,432 23,056
Net cash provided by (used in)
financing activities 150,038 (134,490)
Net increase (decrease) in cash and
cash equivalents 190,322 (34,818)
Cash and cash equivalents at beginning
of period 61,657 96,475
Cash and cash equivalents at end of period $251,979 $61,657
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
December 31,
2004 2003
ASSETS
Cash and cash equivalents $251,979 $ 61,657
Accounts receivable, less allowance
of $58,166 and $52,554 462,095 387,933
Medicare lab recoveries 19,000
Inventories 31,843 32,853
Other current assets 44,210 43,875
Deferred income taxes 78,593 59,740
Total current assets 868,720 605,058
Property and equipment, net 412,064 342,447
Amortizable intangibles, net 60,719 49,971
Investments in third-party dialysis businesses 3,332 3,095
Other long-term assets 10,898 10,771
Goodwill 1,156,226 934,188
$2,511,959 $1,945,530
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 96,231 $ 71,868
Other liabilities 157,214 112,654
Accrued compensation and benefits 133,919 100,909
Current portion of long-term debt 53,364 50,557
Income taxes payable 1,007 26,832
Total current liabilities 441,735 362,820
Long-term debt 1,322,468 1,117,002
Other long-term liabilities 22,570 19,310
Deferred income taxes 148,859 106,240
Minority interests 53,193 33,287
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 and 134,806,205 shares
issued) 135 135
Additional paid-in capital 542,714 539,575
Retained earnings 611,287 389,083
Treasury stock, at cost (36,295,339
and 38,052,028 shares) (632,732) (620,998)
Accumulated comprehensive income
valuations 1,730 (924)
Total shareholders' equity 523,134 306,871
$2,511,959 $1,945,530
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q4 2004 Q3 2004 YE 2004 YE 2003
Financial Results:
Net income excluding
Medicare lab
recoveries for prior
years' services and
refinancing charges. $56.6 $55.3 $217.2 $177.3
Basic EPS $.58 $.56 $2.20 $1.88
EPS assuming
dilution $.56* $.54 $2.11 $1.67
Operating income,
excluding Medicare
lab recoveries $105.2 $103.4 $401.8 $354.5
Operating income
margin 17.1% 17.6% 17.5% 17.8%
Other comprehensive
income
Unrealized gain
(loss) on
securities, net
of tax (expense)
benefit of $(1.3),
$1.6, $(1.7)
and $0.6 $2.1 $(2.5) $2.7 $(0.9)
Business Metrics:
Volume
Treatments 1,895,952 1,804,534 7,062,424 6,373,894
Number of
treatment days 79.0 79.0 313.5 312.9
Treatments per
day 23,999 22,842 22,528 20,370
Per day year
over year
increase 14.5% 11.0% 10.6% 6.7%
Non-acquired
growth 6.0% 4.8% 5.0% 3.9%
Revenue
Total operating
revenue $616 $596 $2,299 $2,016
Less Medicare
lab recoveries
for prior years'
services $8 $8 $24
Revenue excluding
Medicare lab
recoveries $616 $587 $2,290 $1,992
Dialysis revenue
per treatment $311.22 $313.60 $311.86 $302.75
Per treatment
change from
previous quarter (0.8%) 0.7% -- --
Per treatment
change from prior
year 1.6% 2.4% 3.0% 4.1%
Expenses
A. Patient care costs
Percent of revenue,
excluding Medicare
lab recoveries 68.1% 67.6% 67.9% 68.3%
Per treatment $221.31 $219.95 $220.19 $213.46
Per treatment
change from
previous quarter 0.6% 0.0% -- --
Per treatment
change from
previous year 2.4% 2.7% 3.2% 5.3%
B. General &
administrative
expenses
Percent of
revenue,
excluding
Medicare lab
recoveries 8.6% 8.6% 8.4% 8.0%
Per treatment $28.03 $28.04 $27.20 $25.04
Per treatment
change from
previous quarter 0.0% 4.5% -- --
Per treatment
change from
previous year 15.8% 14.1% 8.6% (3.8%)
C. Bad debt expense
as a percent of
current-period
revenue 1.8% 1.8% 1.8% 1.8%
D. Consolidated
effective tax rate 37.4% 39.0% 38.6% 39.0%
* Earnings per share benefited from a year-to-date reduction in the
annualized tax rate that added $0.01 to the fourth quarter of 2004.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q4 2004 Q3 2004 YE 2004 YE 2003
Cash Flow
Operating cash flow,
excluding Medicare lab
recoveries $82.3 $115.9 $403.3 $293.6
Operating cash flow,
excluding Medicare lab
recoveries and tax benefit
from stock option
exercises $70.0 $110.4 $360.5 $273.5
Free cash flow, excluding
Medicare lab recoveries $67.4 $104.9 $356.7 $248.8
Free cash flow, excluding
Medicare lab recoveries
and tax benefit from stock
option exercises $55.1 $99.5 $314.0 $228.6
Capital expenditures:
Development $25.0 $22.8 $82.9 $57.9
Routine maintenance/
IT/other $14.9 $11.0 $46.6 $44.9
Acquisition expenditures,
net $19.8 $213.5 $265.0 $97.4
Accounts Receivable
Net receivables $462 $435
DSO 70 68
Debt/Capital Structure
Total debt $1,376 $1,388
Net debt, net of cash
balance $1,124 $1,161
Leverage ratio - last
quarter annualized
(see Note 1) 2.1x 2.2x
Share repurchases
(in millions) .3 3.1 3.4 5.2
Average repurchase price $30.14 $28.69 $28.82 $20.76
Clinical (quarterly averages)
Dialysis adequacy - % of
patients with Kt/V > 1.2 94% 94%
Anemia measure - % of
patients with HCT > 33 86% 87%
Note 1. Leverage ratio is defined as net debt (total debt net of cash) to
operating income excluding Medicare lab recoveries, depreciation,
amortization, and minority interests. The operating income
reconciliation is provided below.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Net income excluding Medicare lab recoveries and refinancing charges:
Q4 2004 Q3 2004 YE 2004 YE 2003
Net income $56,602 $60,386 $222,254 $175,791
Less: Medicare lab
recoveries for prior
years' services (8,293) (8,293) (24,000)
Add back: Refinancing
charges 26,501
Related income tax
expense 3,234 3,234 (981)
$56,602 $55,327 $217,195 $177,311
2.Operating income excluding Medicare lab recoveries, and excluding
depreciation, amortization, and minority interests (used to calculate
leverage ratio):
Q4 2004 Q3 2004 YE 2004 YE 2003
Operating income $105,171 $111,652 $410,123 $378,535
Less: Medicare lab
recoveries for prior
years' services (8,293) (8,293) (24,000)
105,171 103,359 401,830 354,535
Add back: Depreciation
and
amortization 23,212 22,257 86,666 74,687
Minority
interests
and equity
income, net 3,880 3,593 13,694 7,312
$132,263 $129,209 $502,190 $436,534
3.Operating cash flow, excluding Medicare lab recoveries related to prior
years' services, and tax benefit from stock option exercises:
Q4 2004 Q3 2004 YE 2004 YE 2003
Cash provided by operating
activities $87,341 $115,852 $419,945 $293,648
Less: Medicare lab
recoveries for prior
years' services (8,293) (27,293)
Related income tax expense 3,234 10,644
Operating cash flow,
excluding Medicare lab
recoveries $82,282 $115,852 $403,296 $293,648
Less: Tax benefit from
stock option exercises (12,305) (5,417) (42,770) (20,180)
$69,977 $110,435 $360,526 $273,468
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
4. 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.
Q4 2004 Q3 2004 YE 2004 YE 2003
Cash provided by operating
activities $87,341 $115,852 $419,945 $293,648
Less: Expenditures for
routine maintenance and
information technology (14,883) (10,956) (46,554) (44,898)
Free cash flow $72,458 $104,896 $373,391 $248,750
Medicare lab recoveries
related to prior years'
services (8,293) (27,293)
Related income tax
expense 3,234 10,644
Free cash flow, excluding
Medicare lab recoveries $67,399 $104,896 $356,742 $248,750
Less: Tax benefit from
stock option exercises (12,305) (5,417) (42,770) (20,180)
$55,094 $99,479 $313,972 $228,570
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SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-310-536-2420
Web site: http://www.davita.com/