DaVita HealthCare Partners Inc. 4th Quarter 2012 Results

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DaVita HealthCare Partners Inc. 4th Quarter 2012 Results

DENVER--(BUSINESS WIRE)-- DaVita HealthCare Partners Inc. (NYS: DVA) today announced results for the quarter and year ended December 31, 2012. Adjusted net income attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012 was $173.3 million, or $1.68 per share, excluding transaction expenses associated with the acquisition of HealthCare Partners Holdings, LLC (HCP), debt refinancing charges and expenses associated with a legal settlement, which net of related tax impacts totaled $17.5 million, or $0.17 per share. Net income attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012 including these items was $155.8 million, or $1.51 per share.

Adjusted net income attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2012 was $612.4 million, or $6.25 per share, excluding transaction expenses associated with the acquisition of HCP, debt refinancing charges and a legal settlement and related expenses, which net of related tax impacts totaled $76.4 million, or $0.78 per share. Net income attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2012 including these items was $536.0 million, or $5.47 per share.


Net income attributable to DaVita HealthCare Partners Inc. for the quarter and year ended December 31, 2011 was $148.1 million and $492.4 million, or $1.56 per share and $5.11 per share, respectively, for which the year ended December 31, 2011 amounts exclude an after-tax non-cash goodwill impairment charge totaling approximately $14.4 million, or $0.15 per share. Net income attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2011 including this item was $478.0 million, or $4.96 per share.

Financial and operating highlights include:

  • Cash Flow: For the year ended December 31, 2012, operating cash flow was $1,101 million and free cash flow was $715 million. For the three months ended December 31, 2012, operating cash flow was $200 million and free cash flow was $83 million. For a definition of free cash flow see Note 4 to the reconciliations of non-GAAP measures.
  • Operating Income: Adjusted operating income for the quarter ended December 31, 2012 was $408 million, excluding the transaction expenses associated with the acquisition of HCP of $13 million and expenses associated with a legal settlement of $7 million. Operating income for the quarter ended December 31, 2012 including these items was $388 million.

    Adjusted operating income for the year ended December 31, 2012 was $1,414 million, excluding transactions expenses associated with the acquisition of HCP of $31 million and a legal settlement and related expenses of $86 million. Operating income for the year ended December 31, 2012 including these items was $1,297 million.

    Operating income for the quarter and year ended December 31, 2011 was $330 million and $1,155 million, respectively.
  • Adjusted Diluted Net Income Per Share: Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012, excluding transaction expenses associated with the acquisition of HCP, debt refinancing charges, expenses associated with a legal settlement and amortization of intangible assets associated with acquisitions, which net of related tax impacts totaled $35.0 million, was $1.85 per share.

    Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2012, excluding transaction expenses associated with the acquisition of HCP, debt refinancing charges, a legal settlement and related expenses, and the amortization of intangible assets associated with acquisitions, which net of related tax impacts totaled $105.4 million, was $6.55 per share.

    Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2011, excluding after-tax amortization of intangible assets associated with acquisitions totaling $3.7 million, was $1.60 per share.

    Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2011, excluding a goodwill impairment charge and the amortization of intangible assets associated with acquisitions, which net of related tax impacts totaled $28.2 million, was $5.25 per share.
  • Volume: Total U.S. dialysis treatments for the fourth quarter of 2012 were 5,736,776, or 72,161 treatments per day, representing a per day increase of 9.1% over the fourth quarter of 2011. Non-acquired treatment growth in the quarter was 4.7% over the prior year's fourth quarter. Our normalized non-acquired treatment growth in the quarter was 4.4% over the prior year's fourth quarter.
  • Effective Tax Rate: Our effective tax rate was 34.7% and 35.9% for the quarter and year ended December 31, 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 HealthCare Partners Inc. was 38.5% and 40.1% for the quarter and year ended December 31, 2012, respectively. We expect our 2013 effective tax rate attributable to DaVita HealthCare Partners Inc. to be in the range of 39.5% to 40.5%.
  • Acquisition: On November 1, 2012 we completed our acquisition of HCP pursuant to an Agreement and Plan of Merger dated May 20, 2012, as amended, whereby HCP became a wholly-owned subsidiary of DaVita Inc. For further details regarding this transaction, see our report on Form 8-K filed with the SEC on November 1, 2012. The operating results of HCP are included in our consolidated financial results from November 1, 2012.
  • Debt Transactions: In conjunction with the acquisition of HCP, on November 1, 2012, we borrowed an additional $3,000 million under an amended Credit Agreement. The amended Credit Agreement consist of a new five year Term Loan A-3 facility in an aggregate principal amount of $1,350 million and a new seven year Term Loan B-2 facility in an aggregate principal amount of $1,650 million. The new Term Loan A-3 initially bears interest at LIBOR plus an interest rate margin of 2.50% subject to adjustment depending upon our leverage ratio and can range from 2.00% to 2.50%. The Term Loan A-3 matures in 2017. The Term Loan B-2 bears interest at LIBOR (floor at 1.00%) plus an interest rate margin of 3.00% and matures in 2019. In addition, we amended certain financial covenants and various other provisions of our Credit Agreement to provide operating and financial flexibility.

    On August 28, 2012, we also issued $1,250 million of New Senior Notes. The New Senior Notes will pay interest on February 15 and August 15 of each year, beginning February 15, 2013. The New Senior Notes are unsecured senior obligations and rank equally to other unsecured senior indebtedness and are guaranteed by certain domestic subsidiaries of DaVita HealthCare Partners Inc.

    We received total proceeds of $4,250 million from these additional borrowings, $3,000 million from the borrowings on the new Term Loan A-3 and new Term Loan B-2, and an additional $1,250 million from the New Senior Notes. We used a portion of the proceeds to finance the merger of HCP, pay-off the existing Term Loan A-2 outstanding principal balance and to pay-off a portion of HCP's existing debt as well as to pay fees and expenses of approximately $71.8 million.
  • Dialysis Center Activity: As of December 31, 2012, we operated or provided administrative services at 1,954 outpatient dialysis centers located in the United States serving approximately 153,000 patients and 36 outpatient dialysis centers serving approximately 2,200 patients that are located in eight countries outside of the United States. During the fourth quarter of 2012, we acquired 22 dialysis centers and opened a total of 22 dialysis centers located in the United States. We also acquired 10 dialysis centers and opened two dialysis centers outside of the United States.

Outlook

Our consolidated operating income guidance for 2013 is still 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 fourth quarter ended December 31, 2012 on February 14, 2013 at 12:30 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 2013 operating income, our 2013 operating cash flows and our 2013 effective tax rate attributable to DaVita HealthCare Partners Inc. Factors that could impact future results include the uncertainties associated with the risk factors set forth in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2011, and our subsequent quarterly and annual reports and our 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 but are not limited to, and are qualified in their entirety by reference to the full text ofthose risk factors in our SEC filings relating to:

  • the concentration of profits generated by, the continued downward pressure on average realized payment rates from, and a reduction in the number of patients under higher-paying commercial payor plans, which may result in the loss of revenues or patients,
  • 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 continued compliance with complex government regulations, and current or potential investigations by various government entities and related government or private-party proceedings,
  • our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector, that may erode our patient base and reimbursement rates,
  • our ability to complete any acquisitions, mergers or dispositions that we might be considering or announce, or to integrate and successfully operate any business we may acquire, or to expand our operations and services to markets outside the United States,
  • risks arising from the use of accounting estimates in our financial statements.
  • the risk that the cost of providing services under HCP's agreements may exceed our compensation,
  • the risk that reductions in reimbursement rates and future regulations may negatively impact HCP's revenue and profitability,
  • the risk that HCP may not be able to successfully establish a presence in new geographic regions, or successfully address competitive threats that could reduce its profitability, the risk that a disruption in HCP's healthcare provider networks could have an adverse effect on HCP's business operations and profitability,
  • 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, or
  • the risk that health plans that acquire health maintenance organizations may not be willing to contract with HCP or may be willing to contract only on less favorable terms.

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 HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
 
  Three months ended December 31,  Year ended December 31,
2012 20112012 

2011

Patient service revenues$1,929,802$1,715,818$7,351,900$6,470,540
Less: Provision for uncollectible accounts (67,950) (51,714) (235,218) (190,234)
Net patient service revenues1,861,8521,664,1047,116,6826,280,306
HCP capitated revenues419,431419,431
Other revenues 196,570  130,221  650,167  451,500 
Total net operating revenues 2,477,853  1,794,325  8,186,280  6,731,806 
Operating expenses and charges:
Patient care costs1,702,7631,201,3875,578,8534,633,620
General and administrative278,469192,019894,575684,715
Depreciation and amortization109,27872,387341,969264,225
Provision for uncollectible accounts8051,0194,3393,309
Equity investment income(8,063)(2,221)(16,377)(8,776)
Legal settlement and related expenses 6,545   85,837  
Total operating expenses and charges 2,089,797  1,464,591  6,889,196  5,577,093 
Operating income388,056329,7341,297,0841,154,713
Debt expense(98,032)(61,750)(288,554)(241,090)
Debt refinancing charges(8,901)(10,963)
Other income 1,039  787  3,737  2,982 
Income from continuing operations before income taxes282,162268,7711,001,304916,605
Income tax expense 97,902  91,552  359,845  325,292 
Income from continuing operations184,260177,219641,459591,313
Discontinued operations:
Loss from operations of discontinued operations, net of tax(460)(19)(222)(13,162)
Loss on disposal of discontinued operations, net of tax  (1,068)  (4,756)
Net income183,800176,132641,237573,395

Less: Net income attributable to noncontrolling interests

 (27,961) (28,009) (105,220) (95,394)
Net income attributable to DaVita HealthCare Partners Inc.$155,839 $148,123 $536,017 $478,001 
Earnings per share:
Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc.$1.55 $1.60 $5.58 $5.25 
Basic net income per share attributable to DaVita HealthCare Partners Inc.$1.54 $1.59 $5.58 $5.05 
Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc.$1.51 $1.57 $5.47 $5.14 
Diluted net income per share attributable to DaVita HealthCare Partners Inc.$1.51 $1.56 $5.47 $4.96 
Weighted average shares for earnings per share:
Basic 101,107,780  93,485,001  96,017,939  94,658,027 
Diluted 103,470,985  94,968,029  97,971,080  96,532,110 
Amounts attributable to DaVita HealthCare Partners Inc.:
Income from continuing operations$156,283$149,235$536,236$496,182
Discontinued operations (444) (1,112) (219) (18,181)
Net income$155,839 $148,123 $536,017 $478,001 
 
 
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
 
  Three months ended December 31,  Year ended December 31,
2012 20112012 2011
Net income$183,800 $176,132 $641,237 $573,395 
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(100)(1,210)(6,204)(29,049)
Less: Reclassifications of net swap and cap agreements realized losses into net income2,5432,59710,1309,721
 
Unrealized gains (losses) on investments:
Unrealized gains (losses) on investments155(15)1,541(602)
Less: Reclassification of net investment realized gains into net income(75)(57)
 
Foreign currency translation adjustments 388   (1,205) 
Other comprehensive income (loss) 2,986  1,372   Read Full Story

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