Exhibit 99.1
| Contact: | LeAnne Zumwalt | |
| Investor Relations | ||
| DaVita Inc. | ||
| (650) 696-8910 |
DAVITA 3rd QUARTER 2007 RESULTS
El Segundo, California, November 1, 2007 – DaVita Inc. (NYSE: DVA), today announced results for the quarter ended September 30, 2007. Income from continuing operations for the three and nine months ended September 30, 2007 was $94.5 million and $296.1 million, or $0.88 and $2.76 per share, respectively.
Income from continuing operations for the three months ended September 30, 2007 excluding after-tax gains from insurance settlements and after-tax gains on the sale of investment securities was $89.3 million, or $0.83 per share, as compared with $69.9 million, or $0.66 per share, for the same period of 2006.
Income from continuing operations for the nine months ended September 30, 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 $254.6 million, or $2.38 per share, as compared with $192.0 million or $1.82 per share for the same period of 2006.
Financial and operating highlights include:
| • | Cash Flow: For the rolling 12-months ended September 30, 2007 operating cash flow was $500 million and free cash flow was $396 million. For the three months ended September 30, 2007, operating cash flow was $96 million and free cash flow was $74 million. |
| • | Operating Income: Operating income for the three months ended September 30, 2007 was $212 million including pre-tax gains from insurance settlements of $6.8 million, and was $206 million excluding these items. Operating income for the nine months ended September 30, 2007 was $667 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 $605 million excluding these items. |
| • | Volume: Total treatments for the third quarter of 2007 were 3,842,763 or 49,266 treatments per day, as compared to 3,668,999 or 46,443 treatments per day for the third quarter of 2006. Non-acquired treatment growth in the quarter was 5.2% over the prior year’s third quarter. |
| • | Center Activity: As of September 30, 2007, we operated or provided administrative services at 1,344 outpatient dialysis centers serving approximately 106,500 patients, of which 1,307 centers are consolidated in our financial statements. Of the remaining 37 centers, we own minority interests in 4 centers and provide administrative services to 33 centers, in which we have no ownership interest. These 37 centers serve approximately 3,400 patients. In the fourth quarter of 2007, we will discontinue providing administrative services to 20 of these centers with approximately 2,300 patients. During the third quarter of 2007, we acquired 6 centers, opened 18 new centers, closed one center, and provided administrative services to one additional center. |
| • | Effective Tax Rate: We still expect the annual effective tax rate for 2007 to be in the range of 39.0% - 40.0%. |
Outlook
Operating income for the fourth quarter of 2007 is expected to be in the range of $190-200 million. We are narrowing our operating income for 2007 to a range of $800-810 million. 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 believe at this time 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 third quarter ended September 30, 2007 on November 1, 2007 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, www.davita.com, for the following 30 days.
This release contains forward–looking statements, including statements related to our 2007 and 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 June 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, |
| • | possible reductions in private and 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 DVA Renal Healthcare’s compliance with its corporate integrity agreement, |
| • | the resolution of ongoing investigations by various federal and state governmental agencies, and |
| • | the successful integration of DVA Renal Healthcare’s billing and collection operations. |
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.
2
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
| Net operating revenues |
$ | 1,318,381 | $ | 1,237,041 | $ | 3,909,282 | $ | 3,608,045 | ||||||||
| Operating expenses and charges: |
||||||||||||||||
| Patient care costs |
890,243 | 857,049 | 2,662,841 | 2,517,795 | ||||||||||||
| General and administrative |
120,596 | 113,447 | 356,249 | 329,059 | ||||||||||||
| Depreciation and amortization |
49,230 | 44,478 | 142,078 | 128,086 | ||||||||||||
| Provision for uncollectible accounts |
34,107 | 31,985 | 101,686 | 93,295 | ||||||||||||
| Minority interests and equity income, net |
11,793 | 10,956 | 34,757 | 26,857 | ||||||||||||
| Valuation gain on Alliance and Product Supply Agreement |
— | (37,968 | ) | (55,275 | ) | (37,968 | ) | |||||||||
| Total operating expenses and charges |
1,105,969 | 1,019,947 | 3,242,336 | 3,057,124 | ||||||||||||
| Operating income |
212,412 | 217,094 | 666,946 | 550,921 | ||||||||||||
| Debt expense |
(62,715 | ) | (67,904 | ) | (194,496 | ) | (206,799 | ) | ||||||||
| Other income |
6,278 | 3,271 | 17,131 | 10,118 | ||||||||||||
| Income from continuing operations before income taxes |
155,975 | 152,461 | 489,581 | 354,240 | ||||||||||||
| Income tax expense |
61,520 | 59,370 | 193,520 | 139,040 | ||||||||||||
| Income from continuing operations |
94,455 | 93,091 | 296,061 | 215,200 | ||||||||||||
| Discontinued operations |
||||||||||||||||
| Gain on disposal of discontinued operations, net of tax |
— | 1,765 | — | 362 | ||||||||||||
| Net income |
$ | 94,455 | $ | 94,856 | $ | 296,061 | $ | 215,562 | ||||||||
| Earnings per share: |
||||||||||||||||
| Basic earnings per share from continuing operations |
$ | 0.89 | $ | 0.90 | $ | 2.80 | $ | 2.08 | ||||||||
| Basic earnings per share |
$ | 0.89 | $ | 0.91 | $ | 2.80 | $ | 2.09 | ||||||||
| Diluted earnings per share from continuing operations |
$ | 0.88 | $ | 0.88 | $ | 2.76 | $ | 2.04 | ||||||||
| Diluted earnings per share |
$ | 0.88 | $ | 0.90 | $ | 2.76 | $ | 2.04 | ||||||||
| Weighted average shares for earnings per share: |
||||||||||||||||
| Basic |
106,171,473 | 103,784,510 | 105,558,536 | 103,295,407 | ||||||||||||
| Diluted |
107,561,139 | 105,923,976 | 107,129,135 | 105,643,406 | ||||||||||||
3
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
| Nine months ended September 30, |
||||||||
| 2007 | 2006 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 296,061 | $ | 215,562 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
142,078 | 128,086 | ||||||
| Valuation gain on Alliance and Product Supply Agreement |
(55,275 | ) | (37,968 | ) | ||||
| Stock-based compensation expense |
25,260 | 18,896 | ||||||
| Tax benefits from stock award exercises |
27,000 | 29,261 | ||||||
| Excess tax benefits from stock award exercises |
(23,632 | ) | (27,146 | ) | ||||
| Deferred income taxes |
25,645 | 1,249 | ||||||
| Minority interests in income of consolidated subsidiaries |
35,703 | 28,812 | ||||||
| Distributions to minority interests |
(35,216 | ) | (25,552 | ) | ||||
| Equity investment income |
(946 | ) | (1,955 | ) | ||||
| (Gain) loss on disposal of discontinued operations and other dispositions |
(4,944 | ) | 508 | |||||
| Non-cash debt and non-cash rent charges |
11,810 | 13,562 | ||||||
| Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: |
||||||||
| Accounts receivable |
(32,425 | ) | (46,135 | ) | ||||
| Inventories |
15,144 | (29,118 | ) | |||||
| Other receivables and other current assets |
(42,818 | ) | (18,155 | ) | ||||
| Other long term assets |
(11,921 | ) | (5,329 | ) | ||||
| Accounts payable |
(6,458 | ) | 16,557 | |||||
| Accrued compensation and benefits |
(17,347 | ) | 67,889 | |||||
| Other current liabilities |
(26,151 | ) | 63,643 | |||||
| Income taxes |
(13,072 | ) | (65,924 | ) | ||||
| Other long-term liabilities |
1,214 | 2,720 | ||||||
| Net cash provided by operating activities |
309,710 | 329,463 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of investments |
(42,202 | ) | — | |||||
| Additions of property and equipment, net |
(176,078 | ) | (181,425 | ) | ||||
| Acquisitions and purchases of other ownership interests |
(81,782 | ) | (75,580 | ) | ||||
| Proceeds from divestitures and asset sales |
4,643 | 21,348 | ||||||
| Proceeds from sale and maturities of investments |
36,918 | — | ||||||
| Investments in and advances to affiliates, net |
16,204 | 14,605 | ||||||
| Purchase of intangible assets |
(556 | ) | (5,749 | ) | ||||
| Net cash used in investing activities |
(242,853 | ) | (226,801 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Borrowings |
10,405,556 | 4,493,339 | ||||||
| Payments on long-term debt |
(10,451,891 | ) | (4,826,163 | ) | ||||
| Deferred financing costs |
(4,462 | ) | 296 | |||||
| Purchase of treasury stock |
(6,350 | ) | — | |||||
| Excess tax benefits from stock award exercises |
23,632 | 27,146 | ||||||
| Stock award exercises and other share issuances, net |
47,756 | 31,187 | ||||||
| Net cash provided by (used in) financing activities |
14,241 | (274,195 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
81,098 | (171,533 | ) | |||||
| Cash and cash equivalents at beginning of period |
310,202 | 431,811 | ||||||
| Cash and cash equivalents at end of period |
$ | 391,300 | $ | 260,278 | ||||
4
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
| September 30, 2007 |
December 31, 2006 |
|||||||
| ASSETS | ||||||||
| Cash and cash equivalents |
$ | 391,300 | $ | 310,202 | ||||
| Short-term investments |
22,177 | 4,734 | ||||||
| Accounts receivable, less allowance of $193,644 and $171,757 |
976,285 | 932,385 | ||||||
| Inventories |
75,611 | 89,119 | ||||||
| Other receivables |
186,282 | 148,842 | ||||||
| Other current assets |
27,653 | 25,124 | ||||||
| Deferred income taxes |
241,212 | 199,090 | ||||||
| Total current assets |
1,920,520 | 1,709,496 | ||||||
| Property and equipment, net |
894,164 | 849,966 | ||||||
| Amortizable intangibles, net |
185,761 | 203,721 | ||||||
| Investments in third-party dialysis businesses |
2,227 | 1,813 | ||||||
| Long-term investments |
7,844 | 13,174 | ||||||
| Other long-term assets |
42,097 | 45,793 | ||||||
| Goodwill |
3,728,822 | 3,667,853 | ||||||
| $ | 6,781,435 | $ | 6,491,816 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Accounts payable |
$ | 245,976 | $ | 251,686 | ||||
| Other liabilities |
444,196 | 473,219 | ||||||
| Accrued compensation and benefits |
322,289 | 341,766 | ||||||
| Current portion of long-term debt |
9,711 | 20,871 | ||||||
| Income taxes payable |
19,408 | 24,630 | ||||||
| Total current liabilities |
1,041,580 | 1,112,172 | ||||||
| Long-term debt |
3,695,586 | 3,730,380 | ||||||
| Other long-term liabilities |
59,310 | 50,076 | ||||||
| Alliance and product supply agreement |
42,640 | 105,263 | ||||||
| Deferred income taxes |
167,035 | 125,642 | ||||||
| Minority interests |
148,018 | 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 shares authorized; 134,862,283 shares issued; 106,658,297 and 104,636,608 shares outstanding) |
135 | 135 | ||||||
| Additional paid-in capital |
688,590 | 630,091 | ||||||
| Retained earnings |
1,429,573 | 1,129,621 | ||||||
| Treasury stock, at cost (28,203,986 and 30,225,675 shares) |
(496,042 | ) | (526,920 | ) | ||||
| Accumulated other comprehensive income |
5,010 | 12,997 | ||||||
| Total shareholders’ equity |
1,627,266 | 1,245,924 | ||||||
| $ | 6,781,435 | $ | 6,491,816 | |||||
5
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, 2007 |
|||||||||||||||
| September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
||||||||||||||
| Financial Results excluding gains from insurance settlements, the valuation gain on the product supply agreement and gains on sale of investment securities: |
||||||||||||||||
| Income from continuing operations (1) |
$ | 89.3 | $ | 88.7 | $ | 69.9 | $ | 254.6 | ||||||||
| Net income (1) |
$ | 89.3 | $ | 88.7 | $ | 71.7 | $ | 254.6 | ||||||||
| Diluted earnings per share from continuing operations |
$ | 0.83 | $ | 0.83 | $ | 0.66 | $ | 2.38 | ||||||||
| Diluted earnings per share |
$ | 0.83 | $ | 0.83 | $ | 0.68 | $ | 2.38 | ||||||||
| Operating income (1) |
$ | 205.6 | $ | 205.9 | $ | 179.1 | $ | 604.9 | ||||||||
| Operating income margin |
15.6 | % | 15.7 | % | 14.5 | % | 15.5 | % | ||||||||
| Other comprehensive income |
||||||||||||||||
| Unrealized loss on securities, net of tax benefit of $5.1, $0.5, $6.6 and $5.1 |
$ | (8.0 | ) | $ | (0.8 | ) | $ | (10.3 | ) | $ | (8.0 | ) | ||||
| Business Metrics: |
||||||||||||||||
| Volume |
||||||||||||||||
| Treatments |
3,842,763 | 3,792,419 | 3,668,999 | 11,335,453 | ||||||||||||
| Number of treatment days |
78.0 | 78.0 | 79.0 | 233.4 | ||||||||||||
| Treatments per day |
49,266 | 48,621 | 46,443 | 48,567 | ||||||||||||
| Per day year over year increase |
6.1 | % | 5.3 | % | 90.2 | % | 5.5 | % | ||||||||
| Non-acquired growth year over year |
5.2 | % | 4.6 | % | 4.2 | % | 4.8 | % | ||||||||
| Revenue |
||||||||||||||||
| Total operating revenue |
$ | 1,318 | $ | 1,313 | $ | 1,237 | $ | 3,909 | ||||||||
| Dialysis revenue per treatment, including the lab |
$ | 333.57 | $ | 337.94 | $ | 331.48 | $ | 336.42 | ||||||||
| Per treatment (decrease) increase from previous quarter |
(1.3 | %) | 0.03 | % | 0.7 | % | — | |||||||||
| Per treatment increase from previous year |
0.6 | % | 2.7 | % | 1.4 | % | 2.2 | % | ||||||||
| Expenses |
||||||||||||||||
| A. Patient care costs |
||||||||||||||||
| Percent of revenue |
67.5 | % | 67.9 | % | 69.3 | % | 68.1 | % | ||||||||
| Per treatment |
$ | 231.67 | $ | 234.95 | $ | 233.59 | $ | 234.91 | ||||||||
| Per treatment decrease from previous quarter |
(1.4 | %) | (1.4 | %) | (0.2 | %) | — | |||||||||
| Per treatment (decrease) increase from previous year |
(0.8 | %) | 0.4 | % | 3.5 | % | 0.5 | % | ||||||||
| Per treatment (excluding gains from insurance settlements of $1.76 and $0.60 for the third quarter and nine months ended September 30, 2007, respectively) |
$ | 233.43 | — | — | $ | 235.51 | ||||||||||
| B. General & administrative expenses |
||||||||||||||||
| Percent of revenue |
9.1 | % | 9.3 | % | 9.2 | % | 9.1 | % | ||||||||
| Per treatment |
$ | 31.38 | $ | 32.28 | $ | 30.92 | $ | 31.43 | ||||||||
| Per treatment (decrease) increase from previous quarter |
(2.8 | %) | 5.5 | % | (0.03 | %) | — | |||||||||
| Per treatment increase (decrease) from previous year |
1.5 | % | 4.4 | % | (1.9 | %) | 2.9 | % | ||||||||
| 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 |
39.4 | % | 39.3 | % | 38.9 | % | 39.5 | % | ||||||||
| (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. |
6
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, | ||||||||||||||
| September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
|||||||||||||
| Cash Flow |
|||||||||||||||
| Operating cash flow |
$ | 95.8 | $ | 125.9 | $ | 96.9 | $ | 309.7 | |||||||
| Operating cash flow, last twelve months |
$ | 499.8 | $ | 501.0 | $ | 512.8 | $ | — | |||||||
| Free cash flow (1) |
$ | 73.5 | $ | 101.7 | $ | 67.4 | $ | 236.7 | |||||||
| Free cash flow, last twelve months (1) |
$ | 395.6 | $ | 389.5 | $ | 403.2 | $ | — | |||||||
| Capital expenditures: |
|||||||||||||||
| Development and relocations |
$ | 48.5 | $ | 30.8 | $ | 35.1 | $ | 101.9 | |||||||
| Routine maintenance/IT/other |
$ | 22.6 | $ | 24.7 | $ | 31.5 | $ | 74.2 | |||||||
| Acquisition expenditures |
$ | 75.5 | $ | 6.1 | $ | 6.0 | $ | 81.8 | |||||||
| Accounts Receivable |
|||||||||||||||
| Net receivables |
$ | 976 | $ | 960 | $ | 903 | |||||||||
| DSO |
70 | 69 | 70 | ||||||||||||
| Debt/Capital Structure |
|||||||||||||||
| Total debt, excluding debt premium of $5 million |
$ | 3,701 | $ | 3,703 | $ | 3,825 | |||||||||
| Net debt, net of cash, excluding debt premium of $5 million |
$ | 3,309 | $ | 3,306 | $ | 3,564 | |||||||||
| Leverage ratio (see Note 1) |
3.10 | x | 3.23 | x | 3.96 | x | |||||||||
| Clinical (quarterly averages) |
|||||||||||||||
| Dialysis adequacy - % of patients with Kt/V > 1.2 |
93.6 | % | 93.4 | % | 93.3 | % | |||||||||
| Patients with albumin > 3.5 |
82.9 | % | 83.8 | % | 83.7 | % | |||||||||
| Patients with HCT > 33 |
82.8 | % | 83.8 | % | 84.3 | % | |||||||||
| (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. |
7
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 that the presentation of “Consolidated EBITDA” is useful to investors to enhance their understanding of the Company’s leverage ratio under its Credit Agreement.
| Rolling 12-months ended September 30, 2007 |
||||
| Income from continuing operations |
$ | 370,190 | ||
| Income taxes |
240,910 | |||
| Debt expense including the write-off of deferred financing costs |
264,223 | |||
| Depreciation and amortization |
187,287 | |||
| Minority interests and equity income, net |
43,733 | |||
| Valuation gain on Product Supply Agreement |
(55,275 | ) | ||
| Other |
(147 | ) | ||
| Stock-based compensation expense |
32,753 | |||
| “Consolidated EBITDA” |
$ | 1,083,674 | ||
| September 30, 2007 |
||||
| Total debt, excluding debt premium of $5 million |
$ | 3,700,638 | ||
| Letters of credit issued |
50,131 | |||
| 3,750,769 | ||||
| Less: cash and cash equivalents |
(391,300 | ) | ||
| Consolidated net debt |
$ | 3,359,469 | ||
| Last twelve months “Consolidated EBITDA” |
$ | 1,083,674 | ||
| Leverage ratio |
3.10 | x | ||
In accordance with the Company’s Credit Agreement, the Company’s leverage ratio cannot exceed 5.50 to 1.0 as of September 30, 2007. At that date, the Company’s leverage ratio did not exceed 5.50 to 1.0.
8
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Income from continuing operations and net income excluding gains from insurance settlements, the valuation gain on the product supply agreement and gains on the sale of investment securities:
Income from continuing operations and 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 income from continuing operations and 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 gain on the product supply agreement with Gambro Renal Products reflects a non-recurring, non-cash item that resulted from the 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 amounts of income from continuing operations and net income are 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. These measures are not measures of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to income from continuing operations and net income.
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
September 30, 2007 |
September 30, 2006 |
||||||||||||||||
| Income from continuing operations |
$ | 94,455 | $ | 125,024 | $ | 93,091 | $ | 296,061 | $ | 215,200 | ||||||||||
| Less: Gains on insurance settlements |
(6,779 | ) | — | — | (6,779 | ) | — | |||||||||||||
| Valuation gain |
— | (55,275 | ) | (37,968 | ) | (55,275 | ) | (37,968 | ) | |||||||||||
| Gain on the sale of investment securities |
(1,634 | ) | (4,234 | ) | — | (5,868 | ) | — | ||||||||||||
| Add: Related income tax |
3,273 | 23,149 | 14,770 | 26,422 | 14,770 | |||||||||||||||
| $ | 89,315 | $ | 88,664 | $ | 69,893 | $ | 254,561 | $ | 192,002 | |||||||||||
| Net income |
$ | 94,455 | $ | 125,024 | $ | 94,856 | $ | 296,061 | $ | 215,562 | ||||||||||
| Less: Gains on insurance settlements |
(6,779 | ) | — | — | (6,779 | ) | — | |||||||||||||
| Valuation gain |
— | (55,275 | ) | (37,968 | ) | (55,275 | ) | (37,968 | ) | |||||||||||
| Gain on the sale of investment securities |
(1,634 | ) | (4,234 | ) | — | (5,868 | ) | — | ||||||||||||
| Add: Related income tax |
3,273 | 23,149 | 14,770 | 26,422 | 14,770 | |||||||||||||||
| $ | 89,315 | $ | 88,664 | $ | 71,658 | $ | 254,561 | $ | 192,364 | |||||||||||
9
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
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 gain on the product supply agreement with Gambro Renal Products reflects a non-recurring non-cash item that resulted from the 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. These measures are not measures of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to income from continuing operations and net income.
| Three months ended | Nine months September 30, 2007 |
|||||||||||||||
| September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
||||||||||||||
| Operating income |
$ | 212,412 | $ | 261,217 | $ | 217,094 | $ | 666,946 | ||||||||
| Less: Gains from insurance settlements |
(6,779 | ) | — | — | (6,779 | ) | ||||||||||
| Valuation gain |
— | (55,275 | ) | (37,968 | ) | (55,275 | ) | |||||||||
| $ | 205,633 | $ | 205,942 | $ | 179,126 | $ | 604,892 | |||||||||
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 | Nine months September 30, 2007 |
|||||||||||||||
| September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
||||||||||||||
| Cash provided by operating activities |
$ | 95,778 | $ | 125,901 | $ | 96,937 | $ | 309,710 | ||||||||
| Less: Expenditures for routine maintenance and information technology |
(22,229 | ) | (24,157 | ) | (29,551 | ) | (72,975 | ) | ||||||||
| Free cash flow |
$ | 73,549 | $ | 101,744 | $ | 67,386 | $ | 236,735 | ||||||||
| Rolling 12-Month Period | ||||||||||||
| September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
||||||||||
| Cash provided by operating activities |
$ | 499,818 | $ | 500,977 | $ | 512,807 | ||||||
| Less: Expenditures for routine maintenance and information technology |
(104,189 | ) | (111,511 | ) | (109,652 | ) | ||||||
| Free cash flow |
$ | 395,629 | $ | 389,466 | $ | 403,155 | ||||||
10