DaVita Inc. (NYSE: DVA) today announced results for the quarter
ended September 30, 2012. Net income attributable to DaVita Inc.
for the three and nine months ended September 30, 2012 was $144.7
million and $427.8 million, or $1.50 per share and $4.46 per share,
respectively, excluding for the nine months ended September 30,
2012 an after-tax legal proceeding contingency accrual and related
expense of $47.6 million, or $0.50 per share, that occurred in the
second quarter of 2012. Net income attributable to DaVita Inc. for
the nine months ended September 30, 2012 including this item was
$380.2 million, or $3.96 per share.
Our operating results for the three and nine months ended
September 30, 2012, include an additional $5.4 million of after-tax
debt expense, or $0.06 per share, resulting from the proposed
amendments under our senior secured credit facilities as well as
issuing the New Senior Notes in advance of the potential
acquisition of HCP.
Net income attributable to DaVita Inc. for the three and nine
months ended September 30, 2011 was $135.4 million and $344.3
million, or $1.42 per share and $3.54 per share, respectively,
excluding for the nine months ended September 30, 2011 an after-tax
non-cash goodwill impairment charge of approximately $14.4 million,
or $0.14 per share, that was recorded in the second quarter of 2011
related to our infusion therapy business. Net income attributable
to DaVita Inc. for the nine months ended September 30, 2011
including this item was $329.9 million or $3.40 per share.
Financial and operating highlights include:
- Cash Flow: For the rolling
twelve months ended September 30, 2012, operating cash flow was
$1,051 million and free cash flow was $665 million. For the three
months ended September 30, 2012, operating cash flow was $367
million and free cash flow was $271 million. For a definition of
free cash flow see Note 4 to the reconciliations of non-GAAP
measures.
- Operating Income: Operating
income for the three and nine months ended September 30, 2012 was
$341 million and $987 million, respectively, excluding for the nine
months ended September 30, 2012 the pre-tax legal proceeding
contingency accrual and related expenses of $78 million. Operating
income for the nine months ended September 30, 2012 including this
item was $909 million.
Operating income for the three and nine months ended September
30, 2011 was $319 million and $825 million, respectively, excluding
for the nine months ended September 30, 2011 the pre-tax non-cash
goodwill impairment charge of $24 million. Operating income for the
nine months ended September 30, 2011 including this item was $801
million.
- Volume: Total U.S. treatments
for the third quarter of 2012 were 5,550,645, or 71,162 treatments
per day, representing a per day increase of 12.3% over the third
quarter of 2011. Non-acquired treatment growth, as well as our
normalized non-acquired treatment growth in the quarter, were both
4.4% over the prior year’s third quarter.
- Effective Tax Rate: Our
effective tax rate was 36.4% for both the three and nine months
ended September 30, 2012, respectively. This effective tax rate is
impacted by the amount of third party owners’ income attributable
to non-tax paying entities. The effective tax rate attributable to
DaVita Inc. was 40.5% and 40.8% for the three and nine months ended
September 30, 2012, respectively. We still expect our 2012
effective tax rate attributable to DaVita Inc. to be in the range
of 40.0% to 41.0%.
- Acquisition: As previously
announced on May 21, 2012, we entered into a definitive merger
agreement to acquire HealthCare Partners (HCP), one of the
country’s largest operators of medical groups and physician
networks. The total purchase price to be paid by DaVita Inc. will
consist of $3.66 billion in cash and approximately 9.38 million
shares of DaVita common stock, subject to post-close adjustments.
In addition to the total merger consideration payable at close,
DaVita will pay to the owners of HCP a total of up to $275 million
of additional cash consideration in the form of two separate
earn-out payments if certain financial performance targets are
achieved by HCP in 2012 and 2013. We expect the transaction to
close in early November 2012 and anticipate HCP operating results
will be included in our consolidated operating results beginning in
November 2012.
- Debt Transactions: As previously
announced, in August 2012 we entered into amendments to our
existing senior secured credit facilities to permit additional
borrowings under the credit agreement in an aggregate principal
amount of $3.0 billion to be used to finance a portion of the HCP
transaction. For further details regarding these amendments, see
our SEC filing on Form 8-K dated August 28, 2012.
On August 28, 2012 we issued $1.25 billion
aggregate principal amount of 5 ¾% senior notes due 2022 (New
Senior Notes). All of the proceeds from the issuance of the New
Senior Notes along with related fees and interest through November
30, 2012 were deposited into escrow pending the consummation of the
HCP acquisition. For further details regarding this transaction,
see our SEC filings on Form 8-K dated August 28, 2012 and August
16, 2012.
- Center Activity: As of September
30, 2012, we operated or provided administrative services at 1,912
outpatient dialysis centers located in the United States serving
approximately 150,000 patients and 24 outpatient dialysis centers
serving approximately 1,200 patients that are located in five
countries outside of the United States. During the third quarter of
2012, we acquired 10 centers and opened a total of 21 centers
located in the United States. We also opened two centers and
provided administrative services to three additional centers
outside of the United States.
Outlook
We are updating our operating income guidance for 2012 for our
dialysis services and related ancillary businesses to now be in the
range of $1,315 million to $1,330 million. Our previous operating
income guidance for our dialysis services and related ancillary
businesses was in the range of $1,275 million to $1,325 million.
Following the expected close of the HCP acquisition in early
November 2012, we expect the incremental operating income
contribution from HCP to be in the range of $25 million to $30
million per month for the remainder of the year. Our operating
income guidance for our dialysis services and related ancillary
businesses for 2012 excludes the legal proceeding contingency
accrual and related expenses of $78 million and transaction
expenses related to the HCP acquisition.
Our consolidated operating income guidance for 2013 is expected
to be in the range of $1,750 million to $1,900 million including
the operating results of HCP. Our operating income guidance for
2013 for our dialysis services and related ancillary businesses is
expected to be in the range of $1,350 million to $1,450 million and
our operating income guidance for 2013 for HCP is expected to be in
the range of $400 million to $450 million. We also expect our
consolidated operating cash flows for 2013 to be in the range of
$1,350 million to $1,500 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.
We will be holding a conference call to discuss our results for
the third quarter ended September 30, 2012 on October 30, 2012 at
5:00 p.m. 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, within the
meaning of the federal securities laws, including statements
related to our guidance and expectations for our 2012 and 2013
operating income, our 2013 operating cash flows and our 2012
effective tax rate attributable to DaVita Inc., and the anticipated
timing and closing of the HCP transaction. Factors that could
impact future results include the uncertainties associated with
governmental regulations, general economic and other market
conditions, competition, accounting estimates, the variability of
our cash flows and the risk factors set forth in our SEC filings,
including our quarterly report on Form 10-Q for the quarter ended
June 30, 2012 and subsequent quarterly reports to be filed on Form
10-Q or current reports on Form 8-K. 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,
- continued downward pressure on average
realized payment rates from commercial payors, which may result in
the loss of revenues or patients,
- a reduction in the number of patients
under higher-paying commercial plans,
- a reduction in government payment rates
under the Medicare End Stage Renal Disease program or other
government-based programs,
- the impact of health care reform
legislation that was enacted in the United States in March
2010,
- changes in pharmaceutical or anemia
management 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,
- current or potential investigations by
various government entities and related government or private-party
proceedings,
- continued increased competition from
large and medium-sized dialysis providers that compete directly
with us,
- the emergence of new models of care
introduced by the government or private sector, such as accountable
care organizations, independent practice association and integrated
delivery systems, and changing affiliation models for physicians
plans, such as employment by hospitals, that may erode our patient
base and reimbursement rates,
- our ability to complete any
acquisitions or mergers, including the consummation of the HCP
transaction, dispositions that we might be considering or announce,
or to integrate and successfully operate any business we may
acquire, including the HCP business, or to expand our operations
and services to markets outside the United States, or to businesses
outside of dialysis,
- variability of DaVita’s cash flows,
or
- risks arising from the use of
accounting estimates in our financial statements.
In addition, upon closing of the HCP transaction, certain other
risks and uncertainties related to HCP will also affect these
forward-looking statements, including those relating to:
- the loss of key HCP employees following
the HCP transaction,
- potential disruption from the HCP
transaction making it more difficult to maintain business and
operational relationships with customers, partners, affiliated
physicians and physician groups and others,
- the risk that the cost of providing
services under HCP’s agreements will exceed HCP’s
compensation,
- the risk that laws regulating the
corporate practice of medicine could restrict the manner in which
HCP conducts its business,
- the risk that reductions in
reimbursement rates and future regulations may negatively impact
HCP’s business, revenue and profitability,
- the risk that HCP may not be able to
successfully establish a presence in new geographic regions,
- the risk that reductions in the quality
ratings of health maintenance organization plan customers of HCP
could have an adverse effect on HCP’s business,
- the fact that HCP faces certain
competitive threats that could reduce its profitability, or
- the risk that a disruption in HCP’s
healthcare provider networks could have an adverse effect on HCP’s
operations and profitability.
We base our forward-looking statements on information currently
available to us at the time of this release, and 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. For the reasons
stated in the reconciliation schedules, we believe our presentation
of non-GAAP financial measures provides useful supplemental
information for investors.
DAVITA INC. CONSOLIDATED STATEMENTS OF INCOME
(unaudited) (dollars in thousands, except per share
data) Three months ended Nine
months ended September 30, September 30,
2012 2011 2012 2011
Dialysis patient service operating revenues $ 1,838,363 $ 1,669,086
$ 5,410,200 $ 4,749,469 Less: Provision for uncollectible accounts
related to patient service operating revenues (59,803 )
(50,039 ) (167,227 ) (138,520 ) Net patient
service operating revenues 1,778,560 1,619,047 5,242,973 4,610,949
Other revenues 184,406 138,783
516,368 370,427 Total net operating revenues
1,962,966 1,757,830 5,759,341
4,981,376 Operating expenses and charges:
Patient care costs 1,340,918 1,189,638 3,916,324 3,466,860 General
and administrative 201,198 182,638 623,208 498,033 Depreciation and
amortization 80,586 67,558 234,368 193,641 Provision for
uncollectible accounts 2,469 1,903 6,294 4,727 Equity investment
income (3,064 ) (2,619 ) (8,314 ) (6,555 ) Legal proceeding
contingency accrual and related expenses ─ ─ 78,000 ─ Goodwill
impairment charge ─ ─ ─ 24,000 Total operating
expenses and charges 1,622,107 1,439,118
4,849,880 4,180,706 Operating
income 340,859 318,712 909,461 800,670 Debt expense
(70,494
)
(60,848
)
(192,584
)
(179,340
)
Other income 819 798 2,698
2,195 Income from continuing operations before
income taxes 271,184 258,662 719,575 623,525 Income tax expense
98,634 94,204 262,138
224,034 Income from continuing operations 172,550
164,458 457,437 399,491 Discontinued operations: Income from
operations of discontinued operations, net of tax ─ 1,076 ─ 1,460
Loss on disposal of discontinued operations, net of tax ─
(3,688
)
─
(3,688
)
Net income 172,550 161,846 457,437 397,263
Less: Net income attributable to
noncontrolling interests
(27,829
)
(26,485
)
(77,259
)
(67,385
)
Net income attributable to DaVita Inc. $ 144,721 $ 135,361
$ 380,178 $ 329,878
Earnings per share:
Basic income from continuing operations per share attributable to
DaVita Inc. $ 1.52 $ 1.48 $ 4.03 $ 3.50
Basic net income per share attributable to DaVita Inc. $ 1.52
$ 1.45 $ 4.03 $ 3.47 Diluted income
from continuing operations per share attributable to DaVita Inc. $
1.50 $ 1.45 $ 3.96 $ 3.43 Diluted net
income per share attributable to DaVita Inc. $ 1.50 $ 1.42
$ 3.96 $ 3.40
Weighted average shares for
earnings per share: Basic 94,979,858
93,441,620 94,309,099 95,053,339
Diluted 96,634,620 95,171,225
96,124,226 97,057,773
Amounts attributable
to DaVita Inc.: Income from continuing operations $ 144,721 $
138,192 $ 380,178 $ 332,325 Discontinued operations ─
(2,831
)
─
(2,447
)
Net income $ 144,721 $ 135,361 $ 380,178 $
329,878
DAVITA INC. CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(dollars in thousands, except per share
data)
Three months ended Nine months
ended September 30, September 30, 2012
2011 2012 2011 Net income $
172,550 $ 161,846 $ 457,437 $ 397,263
Other comprehensive (loss) income, net of tax: Unrealized losses on
interest rate swap and cap agreements: Unrealized losses on
interest rate swap and cap agreements (1,741 ) (10,869 ) (6,104 )
(27,839 ) Less: Reclassifications of net swap and cap agreements
realized losses into net income 2,530 2,702 7,586 7,124
Unrealized gains (losses) on investments: Unrealized gains (losses)
on investments 445 (902 ) 1,387 (587 ) Less: Reclassification of
net investment realized gains into net income ─ ─ (75 ) (57 )
Foreign currency translation adjustments (135 ) ─
(1,593 ) ─ Other comprehensive income (loss) 1,099
(9,069 ) 1,201 (21,359 )
Total comprehensive income 173,649 152,777 458,638 375,904 Less:
Comprehensive income attributable to the noncontrolling interests
(27,829 ) (26,485 ) (77,259 ) (67,385 )
Comprehensive income attributable to DaVita Inc. $ 145,820 $
126,292 $ 381,379 $ 308,519
DAVITA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (dollars in thousands)
Nine months ended September 30, 2012
2011 Cash flows from operating activities: Net income
$ 457,437 $ 397,263 Adjustments to reconcile net income to cash
provided by operating activities: Depreciation and amortization
234,368 194,328 Stock-based compensation expense 34,857 36,392 Tax
benefits from stock award exercises 60,252 35,096 Excess tax
benefits from stock award exercises
(39,346
)
(19,640
)
Deferred income taxes
(1,374
)
38,377 Equity investment income, net 10 238 Other non-cash charges
and loss on disposal of assets 17,244 16,398 Goodwill impairment
charge ─ 24,000 Changes in operating assets and liabilities, other
than from acquisitions and divestitures: Accounts receivable
(51,349
)
(61,483
)
Inventories 1,958 11,767 Other receivables and other current assets
65,047 81,737 Other long-term assets 3,429 2,408 Accounts payable
(18,200 ) 56,652 Accrued compensation and benefits 113,101 121,631
Other current liabilities 87,223
(8,733
)
Income taxes
(69,108
)
88,454 Other long-term liabilities 5,064
14,502 Net cash provided by operating activities
900,613 1,029,387
Cash flows from investing
activities: Additions of property and equipment, net
(378,949
)
(251,879
)
Acquisitions
(419,114
)
(927,124 ) Proceeds from asset sales 2,118 51,623 Purchase of
investments available for sale (3,452 ) (2,118 ) Purchase of
investments held-to-maturity (5,257 ) (29,740 ) Proceeds from sale
of investments available for sale 6,796 1,149 Proceeds from
maturities of investments held-to-maturity 12,375 29,747 Purchase
of equity investments and other assets (1,276 ) (5,005 )
Distributions received on equity investments 2
340 Net cash used in investing activities (786,757 )
(1,133,007 )
Cash flows from financing activities:
Borrowings 26,992,105 27,506,051 Payments on long-term debt
(25,799,807 ) (27,350,513 ) Restricted cash (1,268,767 ) ─ Interest
rate cap premiums and other deferred financing costs (22,189 )
(17,863 ) Purchase of treasury stock ─ (323,348 ) Distributions to
noncontrolling interests (81,978 ) (67,408 ) Stock award exercises
and other share issuances, net 8,395 9,886 Excess tax benefits from
stock award exercises 39,346 19,640 Contributions from
noncontrolling interests 19,368 14,779 Proceeds from sales of
additional noncontrolling interests 1,844 2,675 Purchases from
noncontrolling interests (13,774 ) (9,190 ) Net cash
used in financing activities (125,457 ) (215,291 ) Effect of
exchange rate changes on cash and cash equivalents 43
─ Net decrease in cash and cash equivalents (11,558 )
(318,911 ) Cash and cash equivalents at beginning of period
393,752 860,117 Cash and cash equivalents at
end of period $ 382,194 $ 541,206
DAVITA INC. CONSOLIDATED BALANCE SHEETS
(unaudited) (dollars in thousands, except per share
data) September 30, December
31, 2012 2011 ASSETS Cash
and cash equivalents $ 382,194 $ 393,752 Short-term investments
5,836 17,399 Accounts receivable, less allowance of $232,127 and
$250,343 1,248,050 1,195,163 Inventories 78,322 75,731 Other
receivables 207,439 269,832 Other current assets 46,989 49,349
Income tax receivable 33,625 ─ Deferred income taxes 323,219
280,382 Total current assets 2,325,674
2,281,608 Property and equipment, net 1,654,657 1,432,651
Amortizable intangibles, net 177,542 159,491 Equity investments
28,705 27,325 Long-term investments 13,249 9,890 Other long-term
assets 30,558 34,231 Restricted cash 1,268,767 ─ Goodwill
5,324,960 4,946,976 $ 10,824,112 $
8,892,172
LIABILITIES AND EQUITY Accounts payable $
272,627 $ 289,653 Other liabilities 416,897 325,734 Accrued
compensation and benefits 529,492 412,972 Current portion of
long-term debt 117,821 87,345 Income tax payable ─
37,412 Total current liabilities 1,336,837 1,153,116
Long-term debt 5,620,716 4,417,624 Other long-term liabilities
145,246 132,006 Alliance and product supply agreement, net 15,990
19,987 Deferred income taxes 484,918 423,098
Total liabilities 7,603,707 6,145,831 Commitments and
contingencies Noncontrolling interests subject to put provisions
550,020 478,216 Equity: Preferred stock ($0.001 par value,
5,000,000 shares authorized; none issued) Common stock ($0.001 par
value, 450,000,000 shares authorized; 134,862,283 shares issued;
95,346,980 and 93,641,363 shares outstanding) 135 135 Additional
paid-in capital 543,751 596,300 Retained earnings 3,575,996
3,195,818 Treasury stock, at cost (39,515,303 and 41,220,920
shares) (1,564,178 ) (1,631,694 ) Accumulated other comprehensive
loss (18,283 ) (19,484 ) Total DaVita Inc.
shareholders’ equity 2,537,421 2,141,075 Noncontrolling interests
not subject to put provisions 132,964 127,050
Total equity 2,670,385 2,268,125
$ 10,824,112 $ 8,892,172
DAVITA
INC. SUPPLEMENTAL FINANCIAL DATA (unaudited)
(dollars in millions, except for per share and per treatment
data) Three months ended Nine
months ended September 30, 2012 September 30,
2012
June 30,
2012
September 30,
2011
1. Consolidated Financial Results: Consolidated operating
revenues $ 2,023 $ 1,984 $ 1,808 $ 5,927 Consolidated net operating
revenues $ 1,963 $ 1,930 $ 1,758 $ 5,759 Operating income $ 340.9 $
247.9 $ 318.7 $ 909.5 Operating income excluding the legal
proceeding contingency accrual and related expenses(1) $ 340.9 $
325.9 $ 318.7 $ 987.5 Operating income margin 16.9 % 12.5 % 17.6 %
15.3 % Operating income margin excluding the legal proceeding
contingency accrual and related expenses(1) 16.9 % 16.4 % 17.6 %
16.7 % Net income attributable to DaVita Inc. $ 144.7 $ 95.3 $
135.4 $ 380.2 Net income attributable to DaVita Inc. excluding the
legal proceeding contingency accrual and related expenses(1) $
144.7 $ 142.9 $ 135.4 $ 427.8 Diluted net income per share
attributable to DaVita Inc. $ 1.50 $ 0.99 $ 1.42 $ 3.96 Diluted net
income per share attributable to DaVita Inc.(1), excluding the
legal proceeding contingency accrual and related expenses $ 1.50 $
1.49 $ 1.42 $ 4.46
2. Consolidated Business Metrics:
Expenses Patient care costs as a percent of consolidated
operating revenues(2) 66.3 % 66.1 % 65.8 % 66.1 % General and
administrative expenses as a percent of consolidated operating
revenues(2) 9.9 % 10.8 % 10.1 % 10.5 % Total provision for
uncollectible accounts as a percent of consolidated operating
revenues 3.1 % 2.8 % 2.9 % 2.9 % Consolidated effective tax
rate 36.4 % 36.2 % 36.4 % 36.4 % Consolidated effective tax rate
attributable to DaVita Inc.(1) 40.5 % 41.5 % 40.5 % 40.8 %
3. Segment Financial Results: (dollar amounts rounded to nearest
million) Operating revenues Dialysis and related lab
services patient service operating revenues $ 1,842 $ 1,813 $ 1,672
$ 5,423 Less: Provision for uncollectible accounts related to
patient service operating revenues (60 ) (54 )
(50 ) (167 ) Dialysis and related lab services net patient
service operating revenues $ 1,782 $ 1,759 $ 1,622 $ 5,256 Other
revenues 3 3 3 8
Total net dialysis and related lab services operating
revenues 1,785 1,762 1,625 5,264 Other – Ancillary services and
strategic initiatives 180 170 135 503 Other – Ancillary services
and strategic initiatives net patient service operating revenues
(related to international dialysis operations and a vascular access
clinic) 5 5 2 12
Total net segment operating revenues 1,970 1,937 1,762 5,779
Elimination of intersegment revenues (7 ) (7 )
(4 ) (20 ) Total net consolidated operating revenues $ 1,963
$ 1,930 $ 1,758 $ 5,759
DAVITA INC. SUPPLEMENTAL FINANCIAL DATA—continued
(unaudited) (dollars in millions, except for per share
and per treatment data) Three months ended
Nine months ended September 30, 2012 September
30,
2012
June 30,
2012
September 30,
2011
3. Segment Financial Results: (dollar amounts rounded to
nearest million)(continued) Operating Income Dialysis
and related lab services operating income $ 361 $ 286 $ 333 $ 1,002
Other – Ancillary services and strategic initiatives, including
international dialysis operations operating losses (11 )
(19 ) (3 ) (48 ) Total segment operating
income $ 350 $ 267 $ 330 $ 954 Reconciling items: Other corporate
level general and administrative expenses including stock-based
compensation (12 ) (22 ) (13 ) (53 ) Equity investment income
3 3 2 8
Consolidated operating income $ 341 $ 248 $ 319
$ 909
4. Segment Business Metrics:
Dialysis and related lab services Volume Treatments
5,550,645 5,451,901 5,008,094 16,316,821 Number of treatment days
78.0 78.0 79.0 234.0 Treatments per day 71,162 69,896 63,394 69,730
Per day year over year increase 12.3 % 14.3 % 9.6 % 13.5 %
Non-acquired growth year over year 4.4 % 4.7 % 5.0 % 4.9 %
Operating revenues before provision for uncollectible
accounts Dialysis and related lab services revenue per
treatment $ 331.93 $ 332.67 $ 333.86 $ 332.34 Per treatment
(decrease) increase from previous quarter (0.2 %) 0.1 % 0.5 % ─ Per
treatment (decrease) increase from previous year (0.6 %) 0.1 % (1.5
%) 0.4 % Percent of consolidated revenues 91.0 % 91.3 % 92.5 % 91.4
%
Expenses Patient care costs Percent of total
segment operating revenues 64.3 % 64.1 % 64.5 % 64.1 % Per
treatment $ 213.90 $ 213.68 $ 215.66 $ 213.25 Per treatment
increase (decrease) from previous quarter 0.1 % 0.7 % (3.2 %) ─ Per
treatment decrease from previous year (0.8 %) (4.1 %) (7.4 %) (3.3
%) General and administrative expenses Percent of total
segment operating revenues 8.6 % 8.6 % 8.8 % 8.8 % Per treatment $
28.55 $ 28.80 $ 29.28 $ 29.23 Per treatment (decrease) increase
from previous quarter (0.9 %) (5.2 %) 9.3 % ─ Per treatment
(decrease) increase from previous year (2.5 %) 7.5 % 10.0 % 5.8 %
DAVITA INC. SUPPLEMENTAL FINANCIAL
DATA—continued (unaudited) (dollars in millions,
except for per share and per treatment data)
Three months ended Nine months ended September 30,
2012 September 30,
2012
June 30,
2012
September 30,
2011
5. Cash Flow: Operating cash flow $ 366.6 $ 202.1 $ 495.2 $
900.6 Operating cash flow, last twelve months $ 1,051.3 $ 1,179.8 $
1,149.9 Free cash flow(1) $ 271.4 $ 111.4 $ 423.1 $ 632.7 Free cash
flow, last twelve months(1) $ 664.8 $ 816.5 $ 860.2 Capital
expenditures: Routine maintenance/IT/other $ 63.7 $ 66.6 $ 51.1 $
185.9 Development and relocations $ 64.7 $ 71.4 $ 45.7 $ 193.0
Acquisition expenditures $ 72.3 $ 214.1 $ 775.9 $ 419.1
6. Accounts Receivable: Net receivables $ 1,248 $ 1,250 $
1,165 DSO 59 60 59
7. Debt and Capital Structure: Total
debt(3) $ 5,745 $ 4,505 $ 4,508 Net debt, net of cash and cash
equivalents including restricted cash at September 30, 3012(3) $
4,094 $ 4,232 $ 3,967 Leverage ratio (see calculation on page 11)
2.61x 2.70x 2.73x Overall weighted average effective interest rate
during the quarter 5.31 % 5.27 % 5.30 % Overall weighted average
effective interest rate at end of the quarter 5.38 % 5.28 % 5.27 %
Weighted average effective interest rate on the Senior Secured
Credit Facilities at end of the quarter 4.61 % 4.61 % 4.61 % Fixed
and economically fixed interest rates as a percentage of our total
debt(4) 66 % 57 % 57 % Share repurchases $ - $ - $ 7.3
8.
Clinical: (quarterly averages) Dialysis adequacy -% of patients
with Kt/V > 1.2 at the end of the quarter 98 % 98 % 97 %
Patients with arteriovenous fistulas placed 71 % 70 % 69 %
_________________
(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.
(2) Consolidated percentages of revenues are comprised of the
dialysis and related lab services business, other ancillary
services and strategic initiatives, stock-based compensation
expenses, and in case of general and administrative expenses,
includes other certain corporate level general and administrative
expenses.
(3) The reported balance sheet amounts at September 30, 2012,
June 30, 2012 and September 30, 2011, are net of $6.6 million, $7.0
million and $8.3 million, respectively, of debt discounts
associated with our Term Loan B and our Term Loan A-2.
(4) The Term Loan A-2 and Term Loan B are subject to LIBOR
floors of 1.00% and 1.50%, respectively. Because LIBOR, for all
periods presented above, was lower than either of these floors, the
interest rates on the Term Loan A-2 and the Term Loan B are set at
their respective floors. At such time as the LIBOR-based component
of our interest rate exceeds 1.00% on the Term Loan A-2 and 1.50%
on the Term Loan B, we will then be subject to LIBOR-based interest
rate volatility on the LIBOR variable component of our interest
rate on all of the Term Loan A-2, as well as for the Term Loan B,
but limited to a maximum rate of 4.00% on $1.25 billion of
outstanding principal debt on the Term Loan B. The remaining $469
million outstanding principal balance of the Term Loan B is subject
to LIBOR-based interest rate volatility above a floor of 1.50%.
DAVITA INC.SUPPLEMENTAL FINANCIAL
DATA—continued(unaudited)(dollars in
thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company’s 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
for its Term Loan A and revolving line of credit 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 routine acquisitions that
occurred during the period. The Company’s management believes the
presentation of “Consolidated EBITDA” is useful to investors to
enhance their understanding of the Company’s leverage ratio under
its Credit Agreement.
Rolling twelve months ended September
30, 2012 Net income attributable to DaVita Inc. $
528,301 Income taxes 353,047 Interest expense 236,727 Depreciation
and amortization 307,355 Noncontrolling interests and equity
investment income, net 105,394 Stock-based compensation 47,183
Other items 23,624 “Consolidated EBITDA” $ 1,601,631
September 30, 2012 Total debt, excluding debt discount of
$6.6 million $ 5,745,136 Letters of credit issued 87,953 5,833,089
Less: Cash and cash equivalents and including restricted cash
(1,650,962) Consolidated net debt $ 4,182,127 Last twelve months
“Consolidated EBITDA” $ 1,601,631 Leverage ratio 2.61x
In accordance with the Credit Agreement, the Company’s
leverage ratio cannot exceed 4.25 to 1.0 as of September 30, 2012.
At that date the Company’s leverage ratio did not exceed 4.25 to
1.0.
DAVITA INC.RECONCILIATIONS FOR
NON-GAAP MEASURES(unaudited)(dollars in
thousands)
1. Net income attributable to DaVita Inc. excluding an
after-tax legal proceeding contingency accrual and related expenses
and an after-tax non-cash goodwill impairment charge and diluted
earnings per share attributable to DaVita Inc. excluding an
after-tax legal proceeding contingency accrual and related expenses
and an after-tax non-cash goodwill impairment charge.
We believe that net income attributable to DaVita Inc. excluding
an after-tax legal proceeding contingency accrual and related
expenses and an after-tax non-cash goodwill impairment charge
enhances a user’s understanding of our normal net income
attributable to DaVita Inc. and diluted earnings per share
attributable to DaVita Inc. for these periods by providing a
measure that is meaningful because it excludes an unusual charge
for a legal proceeding contingency accrual that resulted from an
agreement we reached in principle to settle federal program claims
relating to our historical Epogen practices during the second
quarter of 2012 and also excludes a non-cash goodwill impairment
charge that resulted from a decrease in the implied fair value of
goodwill below its carrying amount associated with our infusion
therapy business during the second quarter of 2011 and accordingly,
is more comparable to prior periods and indicative of consistent
net income attributable to DaVita Inc. and diluted earnings per
share to DaVita Inc. These measures are not measures of financial
performance under United States generally accepted accounting
principles (GAAP) and should not be considered as an alternative to
net income attributable to DaVita Inc., and diluted earnings per
share attributable to DaVita Inc.
Net income attributable to DaVita Inc. excluding an
after-tax legal proceeding contingency accrual and related expenses
and an after-tax non-cash goodwill impairment charge:
Three months ended Nine months ended
September 30, June 30, September
30, September 30, September 30,
2012 2012 2011 2012 2011 Net
income attributable to DaVita Inc. $ 144,721 $ 95,337 $ 135,361 $
380,178 $ 329,878 Add: Legal proceeding contingency accrual and
related expenses ─ 78,000 ─ 78,000 ─ Non-cash goodwill impairment
charge ─ ─ ─ ─ 24,000 Less: Related income tax ─ (30,420 ) ─
(30,420 ) (9,600 ) $ 144,721 $ 142,917 $
135,361 $ 427,758 $ 344,278
Diluted
earnings per share attributable to DaVita Inc. excluding an
after-tax legal proceeding contingency accrual and related expenses
and an after-tax non-cash goodwill impairment charge:
Three months ended Nine months ended
September 30, June 30, September
30, September 30, September 30,
2012 2012 2011 2012 2011 Diluted
earnings per share attributable to DaVita Inc. $ 1.50 $ 0.99 $ 1.42
3.96 $ 3.40 Add: Legal proceeding contingency accrual and related
expenses ─ 0.50 ─ 0.50 ─ Non-cash goodwill impairment charge ─ ─ ─
─ 0.14 $ 1.50 $ 1.49 $ 1.42 $ 4.46 $ 3.54
DAVITA INC.RECONCILIATIONS FOR
NON-GAAP MEASURES(unaudited)(dollars in
thousands)
2. Operating income excluding a pre-tax legal
proceeding contingency accrual and related expenses and a pre-tax
non-cash goodwill impairment charge.
We believe that operating income excluding a pre-tax legal
proceeding contingency accrual and related expenses and a pre-tax
non-cash goodwill impairment charge enhances a user’s understanding
of our normal operating income for these periods by providing a
measure that is meaningful because it excludes an unusual charge
for a legal proceeding contingency accrual that resulted from an
agreement we reached in principle to settle federal program claims
relating to our historical Epogen practices during the second
quarter of 2012 and also excludes a non-cash goodwill impairment
charge that resulted from a decrease in the implied fair value of
goodwill below its carrying amount associated with our infusion
therapy business during the second quarter of 2011 and accordingly,
is more comparable to prior periods and indicative of consistent
operating income. This measure is not a measure of financial
performance under GAAP and should not be considered as an
alternative to operating income.
Operating income excluding a pre-tax legal proceeding
contingency accrual and related expenses and a pre-tax non-cash
goodwill impairment charge: Three months ended
Nine months ended September 30, June
30, September 30, September 30,
September 30, 2012 2012 2011
2012 2011 Operating income $ 340,859 $ 247,882 $
318,712 $ 909,461 $ 800,670 Add: Legal proceeding contingency
accrual and related expenses ─ 78,000 ─ 78,000 ─ Non-cash goodwill
impairment charge ─ ─ ─ ─ 24,000 $ 340,859 $ 325,882 $
318,712 $ 987,461 $ 824,670
DAVITA INC.RECONCILIATIONS FOR
NON-GAAP MEASURES(unaudited)(dollars in
thousands)
3. Effective Income Tax Rates
We believe that reporting the effective income tax rate
attributable to DaVita Inc. enhances an investor’s understanding of
DaVita’s effective income tax rate for the periods presented
because it excludes noncontrolling owners’ income that primarily
relates to non-tax paying entities and accordingly is more
comparable to prior periods presentations regarding DaVita’s
effective income tax rate and is meaningful to an investor to fully
understand the related income tax effects on DaVita Inc.’s
operating results. This is not a measure under GAAP and should not
be considered as an alternative to the effective income tax rate
calculated in accordance with GAAP.
Effective income tax rate as compared to the effective income
tax rate attributable to DaVita Inc. is as follows:
Three months ended Nine months ended
September 30, 2012 September 30,
2012
June 30,
2012
September 30,
2011
Income from continuing operations before income taxes $ 271,184
$ 188,013 $ 258,662 $ 719,575 Income
tax expense $ 98,634 $ 68,009 $ 94,204 $
262,138 Effective income tax rate 36.4 % 36.2
% 36.4 % 36.4 %
Three months
ended Nine months ended September 30, 2012
September 30,
2012
June 30,
2012
September 30,
2011
Income from continuing operations before income taxes $ 271,184 $
188,013 $ 258,662 $ 719,575 Less: Noncontrolling owners’ income
primarily attributable to non-tax paying entities (27,954 )
(25,051 ) (26,604 ) (77,888 ) Income before
income taxes attributable to DaVita Inc. $ 243,230 $ 162,962
$ 232,058 $ 641,687 Income tax expense
98,634 68,009 $ 94,204 $ 262,138 Less: Income tax attributable to
noncontrolling interests (125 ) (384 ) (119 )
(629 ) Income tax attributable to DaVita Inc. $ 98,509
$ 67,625 $ 94,085 $ 261,509
Effective income tax rate attributable to DaVita Inc. 40.5 %
41.5 % 40.5 % 40.8 %
DAVITA INC.RECONCILIATIONS FOR
NON-GAAP MEASURES(unaudited)(dollars in
thousands)
4. Free cash flow
Free cash flow represents net cash provided by operating
activities less distributions to noncontrolling interests and
capital expenditures for routine maintenance and information
technology. We believe free cash flow is a useful adjunct to cash
flow from operating activities and other measurements under GAAP,
since free cash flow is a meaningful measure of our ability to fund
acquisition and development activities and meet our debt service
requirements. In addition, free cash flow excluding distributions
to noncontrolling interests provides an investor with an
understanding of free cash flows that are attributable to DaVita
Inc. Free cash flow is not a measure of financial performance under
GAAP 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 Nine months ended
September 30, 2012 September 30,
2012
June 30,
2012
September 30,
2011
Cash provided by operating activities $ 366,634 $ 202,105 $ 495,194
$ 900,613 Less: Distributions to noncontrolling interests
(31,500 ) (24,073 ) (20,985 ) (81,978 ) Cash
provided by operating activities attributable to DaVita Inc.
335,134 178,032 474,209 818,635 Less: Expenditures for routine
maintenance and information technology (63,718 )
(66,603 ) (51,107 ) (185,930 ) Free cash flow $
271,416 $ 111,429 $ 423,102 $ 632,705
Rolling 12-Month Period September
30, June 30, September 30,
2012 2012 2011 Cash provided by operating
activities $ 1,051,272 $ 1,179,832 $ 1,149,938 Less: Distributions
to noncontrolling interests (115,223 ) (104,708 )
(89,887 ) Cash provided by operating activities attributable
to DaVita Inc. 936,049 1,075,124 1,060,051 Less: Expenditures for
routine maintenance and information technology (271,234 )
(258,623 ) (199,860 ) Free cash flow $ 664,815
$ 816,501 $ 860,191
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