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DaVita 4th Quarter 2007 Results
Date:2/13/2008

EL SEGUNDO, Calif., Feb. 13 /PRNewswire-FirstCall/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2007. Net income for the three months ended December 31, 2007 was $85.7 million, or $0.79 per share, as compared to $74.1 million, or $0.70 per share, for the same period of 2006.

(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO)

Net income for the year ended December 31, 2007 excluding after-tax gains from insurance settlements, the after-tax valuation gain on the Company's product supply agreement with Gambro Renal Products and after-tax gains on the sale of investment securities was $340.3 million, or $3.17 per share, as compared with $266.5 million or $2.52 per share for the same period of 2006.
Financial and operating highlights include:

-- Cash Flow: For the year ended December 31, 2007 operating cash flow

was $533 million and free cash flow was $421 million. For the three

months ended December 31, 2007 operating cash flow was $223 million and

free cash flow was $185 million.

-- Operating Income: Operating income for the three months ended December

31, 2007 was $195 million, as compared to $189 million for 2006.

Operating income for the year ended December 31, 2007 was $862 million

including pre-tax gains from insurance settlements of $6.8 million, and

the pre-tax valuation gain on the Company's product supply agreement

with Gambro Renal Products of $55 million, and was $800 million

excluding these items, as compared to $701 million for 2006.

-- Volume: Total treatmen 15.6% 14.8% 15.2%

Other comprehensive income

Unrealized loss on

securities, net of tax

benefits of $4.8,

$5.1, $0.7 and $9.9 $(7.5) $(8.0) $(1.1) $(15.5)

Business Metrics:

Volume

Treatments 3,983,542 3,842,763 3,723,198 15,318,995

Number of treatment days 79.6 78.0 78.6 313

Treatments per day 50,045 49,266 47,369 48,942

Per day year over

year increase 5.6% 6.1% 7.0% 5.5%

Non-acquired growth

year over year 4.6% 5.2% 5.5% 4.6%

Revenue

Total operating revenue $1,355 $1,318 $1,273 $5,264

Dialysis revenue per

treatment, including

the lab $328.11 $333.57 $334.45 $334.26

Per treatment (decrease)

increase from previous

quarter (1.6%) (1.3%) 0.9% -

Per treatment (decrease)

increase from previous year (1.9%) 0.6% 4.5% 1.2%

Expenses

A. Patient care costs

Percent of revenue 68.5% 67.5% 68.6% 68.2%

Per treatment $232.83 $231.67 $234.36 $234.37

Per treatment increase

(decrease) from previous

quarter 0.5% (1.4%) 0.3% -

Per treatment (decrease)

increase from previous year (0.7%) (0.8%) 2.6% 0.2%

Per treatment (excluding

gains from insurance

settlements of $1.76 and

$0.44 for the third quarter

and year ended December 31,

2007, respectively) - $233.43 - $ 234.81

B. General & administrative

expenses

Percent of revenue 10.0% 9.1% 9.8% 9.3%

Per treatment $ 33.89 $31.38 $33.43 $32.07

Per treatment increase

(decrease) from previous

quarter 8.0% (2.8%) 8.1% -

Per treatment increase

from previous year 1.4% 1.5% 19.9% 2.5%

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 37.9% 39.4% 39.0% 39.2%

Cash Flow

Operating cash flow $223.3 $95.8 $190.1 $533.0

Operating cash flow,

last twelve months $533.0 $499.8 $519.6 $-

Free cash flow (1) $184.6 $73.5 $158.9 $421.4

Free cash flow,

last twelve months (1) $421.4 $395.6 $410.4 $-

Capital expenditures:

Development and

relocations $60.4 $48.5 $44.5 $162.3

Routine maintenance/

IT/other $39.7 $22.6 $32.5 $113.9

Acquisition expenditures $45.3 $75.5 $10.9 $127.1

Accounts Receivable

Net receivables $928 $976 $932

DSO 66 70 70

Debt/Capital Structure

Total debt, excluding

debt premium of

$4.5 million $3,703 $3,701 $3,751

Net debt, net of cash,

excluding debt premium of

$4.5 million $3,256 $3,309 $3,441

Leverage ratio (see Note 1) 2.99x 3.10x 3.66x

Clinical (quarterly averages)

Dialysis adequacy - % of

patients with Kt/V > 1.2 94.4% 93.6% 92.9%

Patients with albumin

>/= 3.5 83.7% 82.9% 84.0%

Patients with HCT

>/= 33 82.4% 82.8% 84.7%

(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.

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 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 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, 2007

Net income $381,778

Income taxes 245,744

Debt expense including the write-off of

deferred financing costs,(excluding other cash

charges of $180) 256,967

Depreciation and amortization 193,470

Minority interests and equity income, net 45,485

Valuation gain on Product Supply Agreement (55,275)

Other (300)

Stock-based compensation expense 34,149

"Consolidated EBITDA" $1,102,018

December 31,

2007

Total debt, excluding debt premium of $4.5 million $3,702,839

Letters of credit issued 41,002

3,743,841

Less: cash and cash equivalents (447,046)

Consolidated net debt $3,296,795

Last twelve months "Consolidated EBITDA" $1,102,018

Leverage ratio 2.99x

In accordance with the Company's Credit Agreement, the Company's leverage

ratio cannot exceed 5.25 to 1.0 as of December 31, 2007. At that date,

the Company's leverage ratio did not exceed 5.25 to 1.0.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

1. Net income excluding gains from insurance settlements, the valuation

gain on the product supply agreement and gains on the sale of investment

securities

Net income excluding gains from insurance settlements, the valuation gain

on the product supply agreement and gains on the sale of investment

securities held by us, excludes certain unusual or non-recurring items in

order to present a measure of net income that is more reflective of the

normal day-to-day operations of our business. Gains from insurance

settlements relates to insurance proceeds from Hurricane Katrina and from

a fire that destroyed one of our centers. The valuation gains on the

product supply agreement with Gambro Renal Products reflect non-cash

items. In 2006, the valuation gain resulted from the modification of the

product supply agreement, that reduced our required purchase obligations,

and in 2007, the valuation gain resulted from an additional modification

of the product supply agreement, which resulted in the termination of our

obligation to purchase dialysis machines from Gambro Renal Products Inc.

under that agreement. Gains on the sale of investment securities related

to the sale of our common stock in NxStage. We believe that the exclusion

of each of these items enhances a user's understanding of our normal

operations and performance and that the adjusted amount of net income is

more comparable to prior periods and therefore more indicative of our

performance for purposes of period over period comparison. Our management

eliminates these items when evaluating our operating performance. 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 net income.

Three months ended Year ended

Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,

2007 2007 2006 2007 2006

Net income $85,717 $ 94,455 $74,129 $381,778 $289,691

Less: Gains

on insurance

settlements - (6,779) - (6,779) -

Valuation gain - - - (55,275) (37,968)

Gain on the

sale of

investment

securities - (1,634) - (5,868) -

Add: Related

income tax - 3,273 - 26,422 14,770

$85,717 $ 89,315 $74,129 $340,278 $266,493

2. Operating income excluding pre-tax gains from insurance settlements,

and the pre-tax valuation gain on the product supply agreement

Operating income excluding gains from insurance settlements, and the

valuation gain on the product supply agreement, excludes certain unusual

or non-recurring items in order to present a measure of operating income

that is more reflective of the normal day-to-day operations of our

business. Gains from insurance settlements relates to insurance proceeds

from Hurricane Katrina and from a fire that destroyed one of our centers.

The valuation gains on the product supply agreement with Gambro Renal

Products reflect non-cash items. In 2006, the valuation gain resulted from

the modification of the product supply agreement, that reduced our

required purchase obligations, and in 2007, the valuation gain resulted

from an additional modification of the product supply agreement, which

resulted in the termination of our obligation to purchase dialysis

machines from Gambro Renal Products Inc. under that agreement. We believe

that the exclusion of each of these items enhances a user's understanding

of our normal operations and performance and that the adjusted amount of

operating income is more comparable to prior periods and therefore more

indicative of our performance for purposes of period over period

comparison. Our management eliminates these items when evaluating our

operating performance. This measure is not a measure of financial

performance under United States generally accepted accounting principles

and should not be considered as an alternative operating income.

Three months ended Year ended

Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,

2007 2007 2006 2007 2006

Operating

income $195,263 $212,412 $188,511 $862,209 $739,432

Less: Gains

from

insurance

settlements - (6,779) - (6,779) -

Valuation gain - - - (55,275) (37,968)

$195,263 $205,633 $188,511 $800,155 $701,464

3. Free cash flow

Free cash flow represents net cash provided by operating activities less

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 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. Free cash flow 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

December 31, September 30, December 31,

2007 2007 2006

Cash provided by operating

activities $223,326 $95,778 $190,108

Less: Expenditures for

routine maintenance and

information technology (38,688) (22,229) (31,214)

Free cash flow $184,638 $73,549 $158,894

Rolling 12-Month Period

December 31, September 30, December 31,

2007 2007 2006

Cash provided by

operating activities $533,036 $499,818 $519,571

Less: Expenditures for

routine maintenance and

information technology (111,663) (104,189) (109,131)

Free cash flow $421,373 $395,629 $410,440

ts for the fourth quarter of 2007 were 3,983,542

or 50,045 treatments per day, as compared to 3,723,198 or 47,369

treatments per day for the fourth quarter of 2006. Non-acquired

treatment growth in the quarter was 4.6% over the prior year's fourth

quarter.

-- Effective Tax Rate: The annual effective tax rate for the year ended

December 31, 2007 was 39.2% and was 37.9 % for the three months ended

December 31, 2007. We currently project our annual effective tax rate

for 2008 to be in the range of 39.0% to 40.0%.

-- Center Activity: As of December 31, 2007, we operated or provided

administrative services at 1,359 outpatient dialysis centers serving

approximately 107,000 patients, of which 1,336 centers are consolidated

in our financial statements. During the fourth quarter of 2007, we

acquired 6 centers, opened 25 new centers, closed 3 centers and

discontinued providing administrative services to 20 centers. We also

acquired a 50% non-controlling ownership interest in 6 centers.

Outlook

Our operating income guidance for 2008, excluding the impact of any potential Medicare legislation, is still projected to be in the range of $790-850 million; however, we continue to believe that operating income is more likely to be in the lower end of the range for 2008. We are entering into a period of unusual earnings uncertainty. Therefore, the guidance range for 2008 does not capture as high a percentage of the potential outcomes as usual. 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 ended December 31, 2007 on February 13, 2008 at 5PM 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, http://www.davita.com, for the following 30 days.

This release contains forward-looking statements, including statements related to our 2008 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, 2007. 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 and possible reductions in government payment rates,

-- changes in the structure of and payment rates under the Medicare ESRD

Program which may further reduce Medicare payment rates,

-- 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 and compliance with the corporate integrity

agreement applicable to the dialysis centers acquired from Gambro

Healthcare and assumed in connection with such acquisition, and

-- the resolution of ongoing investigations by various federal and state

governmental agencies.

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,

2007 2006 2007 2006

Net operating revenues $1,354,869 $1,272,617 $5,264,151 $ 4,880,662

Operating expenses

and charges:

Patient care costs 927,503 872,556 3,590,344 3,390,351

General and

administrative 134,987 124,457 491,236 453,516

Depreciation and

amortization 51,392 45,209 193,470 173,295

Provision for

uncollectible accounts 34,996 32,908 136,682 126,203

Minority interests

and equity income, net 10,728 8,976 45,485 35,833

Valuation gain on

Alliance and Product

Supply Agreement - - (55,275) (37,968)

Total operating

expenses and charges 1,159,606 1,084,106 4,401,942 4,141,230

Operating income 195,263 188,511 862,209 739,432

Debt expense (62,651) (69,907) (257,147) (276,706)

Other income 5,329 2,915 22,460 13,033

Income from continuing

operations before

income taxes 137,941 121,519 627,522 475,759

Income tax expense 52,224 47,390 245,744 186,430

Income from

continuing

operations 85,717 74,129 381,778 289,329

Discontinued operations

Gain on disposal of

discontinued

operations, net

of tax - - - 362

Net income $85,717 $74,129 $381,778 $289,691

Earnings per share:

Basic earnings

per share

from continuing

operations $0.80 $0.71 $3.61 $2.79

Basic earnings per share $0.80 $0.71 $3.61 $2.80

Diluted earnings per

share from continuing

operations $0.79 $0.70 $3.55 $2.73

Diluted earnings per share $0.79 $0.70 $3.55 $2.74

Weighted average

shares for earnings

per share:

Basic 106,885,553 104,193,829 105,893,052 103,520,254

Diluted 108,250,536 106,219,281 107,418,240 105,793,246

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

Year ended

December 31,

2007 2006

Cash flows from operating activities:

Net income $381,778 $289,691

Adjustments to reconcile net income

to cash provided by operating activities:

Depreciation and amortization 193,470 173,295

Valuation gain on Alliance and

Product Supply Agreement (55,275) (37,968)

Stock-based compensation expense 34,149 26,389

Tax benefits from stock award exercises 32,788 40,375

Excess tax benefits from stock award exercises (25,541) (37,251)

Deferred income taxes 18,601 2,342

Minority interests in income of

consolidated subsidiaries 46,702 38,141

Distributions to minority interests (48,029) (32,271)

Equity investment income (1,217) (2,308)

(Gain) loss on disposal of discontinued

operations and other dispositions (2,825) 239

Non-cash debt and non-cash rent charges 12,713 27,736

Changes in operating assets and liabilities,

net of effect of acquisitions and divestitures:

Accounts receivable 15,911 (74,737)

Inventories 11,271 (18,587)

Other receivables and other current assets (61,049) (34,044)

Other long term assets (14,528) (9,791)

Accounts payable (9,216) 40,712

Accrued compensation and benefits 9,691 101,555

Other current liabilities 657 88,841

Income taxes (12,779) (67,329)

Other long-term liabilities 5,764 4,541

Net cash provided by operating activities 533,036 519,571

Cash flows from investing activities:

Additions of property and equipment, net (272,212) (262,708)

Acquisitions and purchases of other

ownership interests (127,094) (86,504)

Proceeds from divestitures and asset sales 12,289 22,179

Purchase of investments available-for-sale (52,085) (3,726)

Purchase of investments held-to-maturity (23,061) -

Proceeds from sale of investments

available-for-sale 32,274 3,030

Maturities of investments 4,795 -

Purchase of a non-controlling ownership

interest in an unconsolidated joint venture (17,550) -

Contributions from minority owners 18,463 21,263

Purchase of intangible assets (2,291) (5,597)

Net cash used in investing activities (426,472) (312,063)

Cash flows from financing activities:

Borrowings 13,113,640 6,354,784

Payments on long-term debt (13,160,942)(6,761,743)

Deferred financing costs (4,511) (2)

Purchase of treasury stock (6,350) -

Excess tax benefits from stock award exercises 25,541 37,251

Stock award exercises and other share issuances, net 62,902 40,593

Net cash provided by (used in)

financing activities 30,280 (329,117)

Net increase (decrease) in cash and cash equivalents 136,844 (121,609)

Cash and cash equivalents at beginning of period 310,202 431,811

Cash and cash equivalents at end of period $447,046 $310,202

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

December 31, December 31,

2007 2006

ASSETS

Cash and cash equivalents $ 447,046 $310,202

Short-term investments 40,278 4,734

Accounts receivable, less allowance

of $195,953 and $171,757 927,949 932,385

Inventories 80,173 89,119

Other receivables 198,744 148,842

Other current assets 34,482 25,124

Deferred income taxes 247,578 199,090

Total current assets 1,976,250 1,709,496

Property and equipment, net 939,326 849,966

Amortizable intangibles, net 183,042 203,721

Investments in third-party dialysis businesses 19,446 1,813

Long-term investments 22,562 13,174

Other long-term assets 35,401 45,793

Goodwill 3,767,933 3,667,853

$6,943,960 $6,491,816

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable $ 225,461 $251,686

Other liabilities 486,151 473,219

Accrued compensation and benefits 334,961 341,766

Current portion of long-term debt 23,431 20,871

Income taxes payable 16,492 24,630

Total current liabilities 1,086,496 1,112,172

Long-term debt 3,683,887 3,730,380

Other long-term liabilities 83,448 50,076

Alliance and product supply agreement, net 41,307 105,263

Deferred income taxes 166,055 125,642

Minority interests 150,517 122,359

Commitments and contingencies

Shareholders' equity:

Preferred stock ($0.001 par value, 5,000,000

shares authorized; none issued)

Common stock ($0.001 par value, 450,000,000

and 195,000,000 shares authorized;

134,862,283 shares issued; 107,130,127

and 104,636,608 shares outstanding) 135 135

Additional paid-in capital 707,080 630,091

Retained earnings 1,515,290 1,129,621

Treasury stock, at cost

(27,732,156 and 30,225,675 shares) (487,744) (526,920)

Accumulated other comprehensive

(loss) income (2,511) 12,997

Total shareholders' equity 1,732,250 1,245,924

$6,943,960 $6,491,816

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(dollars in millions, except for per share and per treatment data)

Three months ended Year ended

Dec. 31, Sept. 30, Dec. 31, Dec. 31,

2007 2007 2006 2007

Financial Results

excluding gains from insurance

settlements, the valuation gain

on the product supply agreement

and gains on sale of investment

securities:

Net income (1) $85.7 $89.3 $74.1 $340.3

Diluted earnings per share $0.79 $0.83 $0.70 $3.17

Operating income (1) $195.3 $205.6 $188.5 $800.2

Operating income margin 14.4%
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SOURCE DaVita Inc.
Copyright©2008 PR Newswire.
All rights reserved

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