DaVita 3rd Quarter 2009 Results

EL SEGUNDO, Calif., Nov 03, 2009 (BUSINESS WIRE) -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended September 30, 2009. Net income attributable to DaVita Inc. for the three and nine months ended September 30, 2009 was $110.9 million and $313.0 million, or $1.06 per share and $3.00 per share, respectively. This compares to net income attributable to DaVita Inc. for the three and nine months ended September 30, 2008 of $93.9 million and $275.8 million, or $0.89 per share and $2.59 per share, respectively.

Financial and operating highlights include: -- Cash Flow: For the rolling 12 months ended September 30, 2009 operating cash flow was $713 million and free cash flow was $533 million. For the three months ended September 30, 2009 operating cash flow was $167 million and free cash flow was $125 million.

-- Operating Income: Operating income for the three and nine months ended September 30, 2009 was $245 million and $702 million, respectively, as compared to $222 million and $646 million, respectively, for the same periods of 2008.

-- Volume: Total treatments for the third quarter of 2009 were 4,339,195, or 54,927 treatments per day, representing a per day increase of 6.1% over the third quarter of 2008. Non-acquired treatment growth in the quarter was 5.2% over the prior year's third quarter.

-- Effective Tax Rate: Our effective tax rate was 37.0% and 37.2% for the three and nine months ended September 30, 2009, 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 40.0% for the three and nine months ended September 30, 2009 which was in the range of our previously stated guidance. Our effective tax rate for 2009 is projected to be in the range of 36.5% to 37.5% and our 2009 effective tax rate attributable to DaVita Inc. is still projected to be in a range of 39.5% to 40.5%.

-- Share Repurchases: During the third quarter of 2009, we repurchased a total of 1,108,784 shares of our common stock for $62.4 million, or an average price of $56.25 per share. For the first nine months of 2009 we repurchased a total of 1,853,184 shares of our common stock for $94.4 million, or an average price of $50.93 per share. In addition, we repurchased 1,049,435 shares of our common stock for $59.1 million, or an average price of $56.32 per share, from October 1, 2009 through October 7, 2009. All of these share repurchases were consummated pursuant to previously announced authorizations by our Board of Directors. On October 8, 2009, our Board of Directors authorized an additional $500 million for share repurchases. We have not repurchased any additional shares of our common stock under this authorization. Therefore, the total outstanding authorization for share repurchases is currently $500 million.

-- Center Activity: As of September 30, 2009, we operated or provided administrative services at 1,513 outpatient dialysis centers serving approximately 117,000 patients, of which 1,481 centers are consolidated in our financial statements. During the third quarter of 2009, we acquired four centers, opened 21 new centers, merged five centers, closed one center and provided administrative and management services to one additional third-party owned center.

Outlook We are raising our operating income guidance range for 2009 from $900-$930 million to $930-$950 million. Also, we may modestly exceed the upper end of our previous operating cash flow guidance of $550-$600 million. Currently we expect our operating income for 2010 to be in the range of $950 million to $1.02 billion. 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 third quarter ended September 30, 2009 on November 3, 2009 at 5:00 p.m. Eastern Time.

The dial in number is [phone]. 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 2009 and 2010 operating income, 2009 operating cash flow and 2009 expected effective tax rate and the expected effective tax rate attributable to DaVita Inc. Factors which 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 Form 10-K for the year ended December 31, 2008 and subsequent quarterly reports on Form 10-Q.

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 revenue or patients, -- a reduction in the number of patients under higher-paying commercial plans, -- a reduction in government payment rates or changes to the structure of payments under the Medicare ESRD program, including the implementation of a bundled payment rate system which result in lower reimbursement for services we provide to Medicare patients, -- 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 Nine months ended September 30, September 30, 2009 2008 2009 2008 Net operating revenues $ 1,573,915 $ 1,447,135 $ 4,540,596 $ 4,199,163 Operating expenses and charges: Patient care costs 1,095,857 1,005,648 3,153,622 2,909,143 General and administrative 134,931 128,617 394,370 374,581 Depreciation and amortization 56,813 54,970 172,121 160,673 Provision for uncollectible accounts 42,021 37,305 119,990 109,433 Equity investment income (708 ) (1,177 ) (1,066 ) (654 ) Total operating expenses and charges 1,328,914 1,225,363 3,839,037 3,553,176 Operating income 245,001 221,772 701,559 645,987 Debt expense (45,535 ) (54,505 ) (140,924 ) (168,891 ) Other income 999 2,481 3,026 10,331 Income before income taxes 200,465 169,748 563,661 487,427 Income tax expense 74,195 62,010 209,485 175,853 Net income 126,270 107,738 354,176 311,574 Less: Net income attributable to noncontrolling interests (15,340 ) (13,828 ) (41,216 ) (35,779 ) Net income attributable to DaVita Inc. $ 110,930 $ 93,910 $ 312,960 $ 275,795 Earnings per share: Basic earnings per share attributable to DaVita Inc. $ 1.07 $ 0.90 $ 3.01 $ 2.61 Diluted earnings per share attributable to DaVita Inc. $ 1.06 $ 0.89 $ 3.00 $ 2.59 Weighted average shares for earnings per share: Basic 104,127,334 104,556,770 103,904,768 105,569,971 Diluted 104,607,318 105,577,823 104,315,019 106,421,184 DAVITA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) Nine months ended September 30, 2009 2008 Cash flows from operating activities: Net income $ 354,176 $ 311,574 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 172,121 160,673 Stock-based compensation expense 33,850 29,975 Tax benefits from stock award exercises 12,434 10,174 Excess tax benefits from stock award exercises (8,115 ) (5,054 ) Deferred income taxes 45,417 56,157 Equity investment income (1,066 ) (654 ) Loss on disposal of assets 7,826 9,688 Non-cash debt and non-cash rent charges 7,497 9,971 Changes in operating assets and liabilities, other than from acquisitions and divestitures: Accounts receivable (68,235 ) (130,022 ) Inventories 15,858 (1,248 ) Other receivables and other current assets (2,164 ) (28,684 ) Other long-term assets 5,641 (12,761 ) Accounts payable (58,995 ) (12,800 ) Accrued compensation and benefits 20,733 (11,752 ) Other current liabilities (68,383 ) 29,838 Income taxes 55,226 (3,086 ) Other long-term liabilities (9,702 ) 3,163 Net cash provided by operating activities 514,119 415,152 Cash flows from investing activities: Additions of property and equipment (205,653 ) (223,851 ) Acquisitions (64,001 ) (77,157 ) Proceeds from asset sales 6,256 451 Purchase of investments available for sale (1,737 ) (1,695 ) Purchase of investments held-to-maturity (16,942 ) (19,005 ) Proceeds from sale of investments available for sale 16,537 5,323 Proceeds from maturities of investments held-to-maturity 16,123 18,728 Distributions received on equity investments 929 802 Purchase of intangible assets and other (260 ) (65 ) Net cash used in investing activities (248,748 ) (296,469 ) Cash flows from financing activities: Borrowings 13,924,642 12,937,047 Payments on long-term debt (13,961,667 ) (12,938,297 ) Deferred financing costs (42 ) (130 ) Purchase of treasury stock (61,223 ) (169,673 ) Excess tax benefits from stock award exercises 8,115 5,054 Stock award exercises and other share issuances, net 30,309 33,670 Distributions to noncontrolling interests (46,888 ) (43,391 ) Contributions from noncontrolling interests 11,117 13,525 Proceeds from sales of additional noncontrolling interests 7,733 8,422 Purchases from noncontrolling interests (6,668 ) (24,009 ) Net cash used in financing activities (94,572 ) (177,782 ) Net increase (decrease) in cash and cash equivalents 170,799 (59,099 ) Cash and cash equivalents at beginning of period 410,881 447,046 Cash and cash equivalents at end of period $ 581,680 $ 387,947 DAVITA INC. CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in thousands, except per share data) ASSETS September 30, December 31, 2009 2008 Cash and cash equivalents $ 581,680 $ 410,881 Short-term investments 20,680 35,532 Accounts receivable, less allowance of $225,931 and $211,222 1,142,861 1,075,457 Inventories 69,014 84,174 Other receivables 235,785 239,165 Other current assets 34,816 33,761 Income tax receivable - 32,130 Deferred income taxes 223,697 217,196 Total current assets 2,308,533 2,128,296 Property and equipment, net 1,088,446 1,048,075 Amortizable intangibles, net 141,925 160,521 Investments in third-party dialysis businesses 24,011 19,274 Long-term investments 7,567 5,656 Other long-term assets 34,262 47,330 Goodwill 3,932,964 3,876,931 $ 7,537,708 $ 7,286,083 LIABILITIES AND EQUITY Accounts payable $ 256,707 $ 282,883 Other liabilities 426,856 495,239 Accrued compensation and benefits 314,677 312,216 Current portion of long-term debt 100,677 72,725 Income taxes payable 14,592 - Total current liabilities 1,113,509 1,163,063 Long-term debt 3,555,853 3,622,421 Other long-term liabilities 100,722 101,442 Alliance and product supply agreement, net 31,980 35,977 Deferred income taxes 304,675 244,884 Total liabilities 5,106,739 5,167,787 Commitments and contingencies Noncontrolling interests subject to put provisions 292,636 291,397 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; 135 135 134,862,283 shares issued; 103,232,774 and 103,753,673 shares outstanding) Additional paid-in capital 638,253 584,358 Retained earnings 2,202,410 1,889,450 Treasury stock, at cost (31,629,509 and 31,108,610 shares) (756,157 ) (691,857 ) Accumulated other comprehensive loss (7,838 ) (14,339 ) Total DaVita Inc. shareholders' equity 2,076,803 1,767,747 Noncontrolling interests not subject to put provisions 61,530 59,152 Total equity 2,138,333 1,826,899 $ 7,537,708 $ 7,286,083 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, 2009 September 30, June 30, September 30, 2009 2009 2008 1. Consolidated Financial Results: Revenues $ 1,574 $ 1,519 $ 1,447 $ 4,541 Operating income $ 245.0 $ 236.0 $ 221.8 $ 701.6 Operating income margin 15.6 % 15.5 % 15.3 % 15.5 % Net income attributable to DaVita Inc. $ 110.9 $ 105.8 $ 93.9 $ 313.0 Diluted earnings per share attributable to DaVita Inc. $ 1.06 $ 1.02 $ 0.89 $ 3.00 2. Consolidated Business Metrics: Expenses Patient care costs as a percent of consolidated revenue(3) 69.6 % 69.2 % 69.5 % 69.5 % General and administrative expenses as a percent of consolidated 8.6 % 8.7 % 8.9 % 8.7 % revenue(3) Bad debt expense as a percent of consolidated revenue 2.7 % 2.7 % 2.6 % 2.6 % Consolidated effective tax rate attributable to DaVita Inc.(1) 40.0 % 40.0 % 39.7 % 40.0 % 3. Segment Financial Results: (dollar amounts rounded to nearest million) Dialysis and related lab services Revenues $ 1,491 $ 1,441 $ 1,378 $ 4,309 Direct operating expenses 1,231 1,191 1,143 3,563 Dialysis segment margin $ 260 $ 250 $ 235 $ 746 Other - Ancillary services and strategic initiatives Revenues $ 83 $ 78 $ 69 $ 232 Direct operating expenses 87 81 73 243 Ancillary segment loss $ (4 ) $ (3 ) $ (4 ) $ (12 ) Total segment margin $ 256 $ 247 $ 231 $ 734 Reconciling items: Stock-based compensation (11 ) (11 ) (11 ) (34 ) Equity investment income 1 - 1 1 Consolidated operating income $ 245 $ 236 $ 222 $ 702 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, 2009 September 30, June 30, September 30, 2009 2009 2008 4. Segment Business Metrics: Dialysis and related lab services: Volume Treatments 4,339,195 4,228,179 4,091,099 12,649,812 Number of treatment days 79.0 78.0 79.0 233.5 Treatments per day 54,927 54,207 51,786 54,175 Per day year over year increase 6.1 % 5.2 % 5.1 % 5.4 % Non-acquired growth year over year 5.2 % 4.5 % 3.8 % 4.5 % Revenue Dialysis and related lab services revenue per treatment $ 343.14 $ 340.35 $ 336.42 $ 340.14 Per treatment increase from previous quarter 0.8 % 1.1 % 0.1 % - Per treatment increase from previous year 2.0 % 1.3 % 0.9 % 1.9 % Percent of consolidated revenue 94.7 % 94.9 % 95.2 % 94.9 % Expenses Patient care costs Percent of segment revenue 69.0 % 68.6 % 69.0 % 68.8 % Per treatment $ 237.21 $ 233.93 $ 232.50 $ 234.40 Per treatment increase from previous quarter 1.4 % 0.9 % 0.7 % - Per treatment increase from previous year 2.0 % 1.3 % 3.9 % 1.9 % General and administrative expenses Percent of segment revenue 7.1 % 7.4 % 7.4 % 7.3 % Per treatment $ 24.39 $ 25.14 $ 24.88 $ 24.90 Per treatment decrease from previous quarter (3.0 %) (0.2 %) - - Per treatment (decrease) increase from previous year (2.0 %) 1.1 % (1.5 %) 1.6 % 5. Cash Flow Operating cash flow $ 167.5 $ 212.4 $ 160.2 $ 514.1 Operating cash flow last twelve months $ 712.7 $ 705.4 $ 651.3 Free cash flow(1) $ 125.5 $ 173.6 $ 119.0 $ 388.5 Free cash flow, last twelve months(1) $ 533.3 $ 526.8 $ 490.6 Capital expenditures: Development and relocations $ 42.4 $ 42.5 $ 51.6 $ 127.0 Routine maintenance/IT other $ 25.0 $ 22.5 $ 27.2 $ 78.7 Acquisition expenditures $ 20.7 $ 3.5 $ 30.4 $ 64.0 6. Accounts Receivable Net receivables $ 1,143 $ 1,128 $ 1,057 DSO 70 70 70 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, 2009 September 30, June 30, September 30, 2009 2009 2008 7. Debt and Capital Structure Total debt(2) $ 3,654 $ 3,669 $ 3,704 Net debt, net of cash(2) $ 3,072 $ 3,124 $ 3,316 Leverage ratio (see Note 1 below) 2.57x 2.66x 2.98x Overall effective weighted average interest rate during the quarter 4.79 % 4.92 % 5.66 % Overall effective weighted average interest rate at end of the 4.76 % 4.87 % 6.09 % quarter Effective weighted average interest rate on the Senior Secured 2.81 % 3.02 % 5.39 % Credit Facilities at end of the quarter Economically fixed interest rates as a percentage of our total debt 61 % 64 % 70 % Share repurchases $ 62.4 $ - $ - $ 94.4 8. Clinical (quarterly averages) Dialysis adequacy -% of patients with Kt/V > 1.2 95 % 95 % 94 % 90 day patients with Hb >= 10 88 % 88 % 87 % Patients with arteriovenous fistulas placed 64 % 63 % 61 % _________________ (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) This is a non-GAAP financial measure. It excludes $2.9 million, for the quarter ended September 30, 2009, the unamortized balance of a debt premium associated with our senior notes that is not actually outstanding debt principal. (3) Consolidated percentages of revenue and per treatment amounts are comprised of the dialysis and related lab services business, other ancillary services and strategic initiatives, as well as stock-based compensation expenses. 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 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 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, 2009 Net income attributable to DaVita Inc. $ 411,325 Income taxes 269,103 Debt expense 196,749 Depreciation and amortization 228,365 Noncontrolling interests and equity investment income, net 51,389 Other 13,797 Stock-based compensation expense 45,108 "Consolidated EBITDA" $ 1,215,836 September 30, 2009 Total debt, excluding debt premium of $2.9 million $ 3,653,622 Letters of credit issued 47,894 3,701,516 Less: cash and cash equivalents (581,680 ) Consolidated net debt $ 3,119,836 Last twelve months "Consolidated EBITDA" $ 1,215,836 Leverage ratio 2.57x In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 4.25 to 1.0 as of September 30, 2009. 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. Effective Income Tax Rates We believe that reporting the effective income tax rate attributable to DaVita Inc. enhances a user'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 more meaningful to a user to fully understand the related income tax effects on DaVita Inc. operating results. 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 the effective income tax rate.

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, 2009 September 30, June 30, September 30, 2009 2009 2008 Income before income taxes $ 200,465 $ 190,139 $ 169,748 $ 563,661 Income tax expense $ 74,195 $ 70,507 $ 62,010 $ 209,485 Effective income tax rate 37.0 % 37.1 % 36.5 % 37.2 % Three months ended Nine months ended September 30, 2009 September 30, June 30, September 30, 2009 2009 2008 Income before income taxes $ 200,465 $ 190,139 $ 169,748 $ 563,661 Less: Noncontrolling owners' income primarily attributable to (15,585 ) (13,913 ) (13,888 ) (41,654 ) non-tax paying entities Income before income taxes attributable to DaVita Inc. $ 184,880 $ 176,226 $ 155,860 $ 522,007 Income tax expense $ 74,195 $ 70,507 $ 62,010 $ 209,485 Less income tax attributable to noncontrolling interests (245 ) (100 ) (60 ) (438 ) Income tax attributable to DaVita Inc. $ 73,950 $ 70,407 $ 61,950 $ 209,047 Effective income tax rate attributable to DaVita Inc. 40.0 % 40.0 % 39.7 % 40.0 % DAVITA INC. RECONCILIATIONS FOR NON-GAAP MEASURES (unaudited) (dollars in thousands) 2. Free cash flow Free cash flow represents net cash provided by operating activities less income 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 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. In addition, free cash flow excluding income distributions to noncontrolling interests also provides a user with an understanding of free cash flows that are attributable to DaVita Inc.

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 Nine months ended September 30, 2009 September 30, June 30, September 30, 2009 2009 2008 Cash provided by operating activities $ 167,487 $ 212,383 $ 160,195 $ 514,119 Less: Income distributions to noncontrolling interests (16,993 ) (16,328 ) (13,968 ) (46,888 ) Cash provided by operating activities attributable to DaVita Inc. $ 150,494 $ 196,055 $ 146,227 $ 467,231 Less: Expenditures for routine maintenance and information technology (25,040 ) (22,502 ) (27,217 ) (78,697 ) Free cash flow $ 125,454 $ 173,553 $ 119,010 $ 388,534 Rolling 12-Month Period September 30, June 30, September 30, 2009 2009 2008 Cash provided by operating activities $ 712,668 $ 705,376 $ 651,291 Less: Income distributions to noncontrolling interests (61,267 ) (58,242 ) (56,204 ) Cash provided by operating activities attributable to DaVita Inc. $ 651,401 $ 647,134 $ 595,087 Less: Expenditures for routine maintenance and information technology (118,109 ) (120,286 ) (104,509 ) Free cash flow. $ 533,292 $ 526,848 $ 490,578 SOURCE: DaVita Inc.

CONTACT: DaVita Inc. LeAnne Zumwalt Investor Relations [phone] Copyright Business Wire 2009 -0- KEYWORD: United States

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