EL SEGUNDO, Calif., Feb. 14 /PRNewswire-FirstCall/ -- DaVita Inc. , today announced results for the quarter and year ended December 31, 2006. Income from continuing operations for the three months ended December 31, 2006 was $74.1 million, or $0.70 per share, as compared with $56.4 million, or $0.54 per share, for the same period of 2005. Income from continuing operations for the three months ended December 31, 2006 included incremental after-tax stock-based compensation expense of $4.5 million, or $0.04 per share, related to SFAS No. 123(R).
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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(R).
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 caus
