Davita healthcare partners inc. 4th quarter
2012 results
Denver--(business wire)--davita healthcare partners inc. (nyse: 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 of those 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. 2011 less: net income attributable to noncontrolling interests year endeddecember 31, december 31,2012 december 31,2011 year endeddecember 31, 2012 december 31,2012 september 30,2012 december 31,2011 year endeddecember 31, 2012 december 31,2012 september 30, 2012 december 31,2011 year endeddecember 31, 2012 december 31,2012 september 30,2012 december 31,2011 year endeddecember 31, 2012 december 31,2012 september 30,2012 december 31,2011 _________________ davita healthcare partners inc.supplemental financial data—continued(unaudited)(dollars in thousands) note 1: calculation of the leverage ratio under the 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. year endeddecember 31, 2012 in accordance with the credit agreement, the company’s leverage ratio cannot exceed 5.00 to 1.00 as of december 31, 2012. at that date the company’s leverage ratio did not exceed 5.00 to 1.00. davita healthcare partners inc.reconciliations for non-gaap measures(unaudited)(dollars in thousands) 1. net income and diluted net income per share attributable to davita healthcare partners inc. excluding transaction expenses associated with the acquisition of hcp, debt refinancing charges, legal settlement and related expenses and a non-cash goodwill impairment charge, which are all net of related tax. we believe that net income attributable to davita healthcare partners inc. excluding transaction expenses associated with the acquisition of hcp, debt refinancing charges, legal settlement and related expenses and a non-cash goodwill impairment charge, which are all net of related tax, enhances a user’s understanding of our normal net income attributable to davita healthcare partners inc. and diluted net income per share attributable to davita healthcare partners inc. for these periods by providing a measure that is meaningful because it excludes an unusual amount of transaction expenses associated with the acquisition of hcp, debt refinancing charges related to the amendment of our credit agreement and the repayment of our term loan a-2, an unusual charge for a legal settlement that we reached to settle federal program claims relating to our historical epogen practices 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 in 2011 and accordingly, is more comparable to prior periods and indicative of consistent net income attributable to davita healthcare partners inc. and diluted net income per share to davita healthcare partners 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 healthcare partners inc. and diluted earnings per share attributable to davita healthcare partners inc. december 31,2012 september 30,2012 december 31,2011 december 31,2012 december 31,2011 december 31,2012 september 30,2012 december 31,2011 december 31,2012 december 31,2011 in addition, we have also excluded amortization of intangible assets associated with acquisitions from our adjusted net income attributable to davita healthcare partners inc. and from our adjusted diluted earnings per share attributable to davita healthcare partners inc. as we believe this presentation enhances a user’s understanding of our operating results for these periods by providing an accurate reflection of the company’s operating performance since it excludes the amortization of intangible assets that relate to the remeasurement of acquired intangible assets associated with our acquisitions to fair value, and accordingly is indicative of consistent net income attributable to davita healthcare partners inc. and diluted earnings per share attributable to davita healthcare partners inc. these measures are not measures of financial performance under gaap and should not be considered as an alternative to net income attributable to davita healthcare partners inc. and diluted earnings per share attributable to davita healthcare partners inc. december 31,2012 september 30,2012 december 31,2011 december 31,2012 december 31,2011 davita healthcare partners inc.reconciliations for non-gaap measures(unaudited)(dollars in thousands) 2. operating income excluding pre-tax transaction expenses related to the acquisition of hcp and a pre-tax legal settlement and related expenses. we believe that operating income excluding pre-tax transaction expenses associated with the acquisition of hcp and a pre-tax legal settlement and related expenses 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 amount of transaction expenses associated with the acquisition of hcp, an unusual charge for a legal settlement that was reached to settle federal program claims relating to our historical epogen practices 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. december 31,2012 september 30,2012 december 31,2011 december 31,2012 december 31,2011 davita healthcare partners 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 healthcare partners 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 healthcare partners 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 healthcare partners inc. is as follows: year endeddecember 31, 2012 december 31,2012 september 30,2012 december 31,2011 year endeddecember 31, 2012 december 31,2012 september 30,2012 december 31,2011 davita healthcare partners 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 healthcare partners 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. year endeddecember 31, 2012 december 31,2012 september 30,2012 december 31,2011 december 31,2012 september 30,2012 december 31,2011 davita healthcare partners inc.reconciliations for non-gaap measures(unaudited)(dollars in thousands) 5. total care dollars under management in california, as a result of its managed care administrative services agreement with hospitals, hcp does not assume the direct financial risk for institutional (hospital) services, but is responsible for managing the care dollars associated with both the professional (physician) and institutional services being provided for the per member per month (pmpm) fee attributable to both professional and institutional services. in those cases, hcp recognizes the surplus of institutional revenue less institutional expense as hcp revenue. in addition to revenues recognized for financial reporting purposes, hcp measures its total care dollars under management, which includes the per member per month (pmpm) fee payable to third parties for institutional (hospital) services where hcp manages the care provided to its members by the hospitals and other institutions, which are not included in gaap revenues. hcp uses total care dollars under management as a supplement to gaap revenues as it allows hcp to measure profit margins on a comparable basis across both the global capitation model (where hcp assumes the full financial risk for all services, including institutional services) and the risk sharing models (where hcp operates under managed care administrative services agreements where hcp does not assume the full risk), hcp believes that presenting amounts in this manner is useful because it presents its operations on a unified basis without the complication caused by models that hcp has adopted in its california market as a result of various regulations related to the assumption of institutional risk. total care dollars under management is not a measure of financial performance computed in accordance with gaap and should not be considered in isolation or as a substitute for revenues calculated in accordance with gaap. total care dollars under management includes pmpm payments to third parties that are not recorded in our accounting records and have not been reviewed and are not otherwise subject to procedures by our independent auditors. the following table reconciles total care dollars under management to medical revenues to the periods indicated. “total care dollars under management” is a non-gaap measure. for the period november 1, 2012through december 31, 2012
