Improving Health, Health Care and Quality of Life

DaVita 4th Quarter 2009 Results

DENVER, Feb 10, 2010 (BUSINESS WIRE) -- DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2009. Net income attributable to DaVita Inc. for the quarter and year ended December 31, 2009 was $109.7 million and $422.7 million, or $1.06 per share and $4.06 per share, respectively. This compares to net income attributable to DaVita Inc. for the quarter and year ended December 31, 2008 of $98.4 million and $374.2 million, or $0.94 per share and $3.53 per share, respectively.

Financial and operating highlights include:

 

  • Cash Flow: For the year ended December 31, 2009 operating cash flow was $667 million and free cash flow was $485 million. For the three months ended December 31, 2009 operating cash flow was $153 million and free cash flow was $97 million.
  • Operating Income: Operating income for the quarter and year ended December 31, 2009 was $239 million and $940 million, respectively, as compared to $223 million and $869 million, respectively, for the same periods of 2008.
  • Volume: Total treatments for the fourth quarter of 2009 were 4,360,638, or 55,198 treatments per day, representing a per day increase of 5.2% over the fourth quarter of 2008. Non-acquired treatment growth in the quarter was 4.8% over the prior year's fourth quarter.
  • Effective Tax Rate: Our effective tax rate was 35.5% and 36.7% for the quarter and year ended December 31, 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 38.5% and 39.7% for the quarter and year ended December 31, 2009, respectively, which was within the range of our previously stated guidance. Our effective tax rate for 2010 is projected to be in the range of 36.5% to 37.5% and our 2010 effective tax rate attributable to DaVita Inc. is projected to be in a range of 39.5% to 40.5%.
  • Share Repurchases: During the fourth quarter of 2009, we repurchased a total of 1,049,435 shares of our common stock for $59.1 million, or an average price of $56.32 per share. For the year ended December 31, 2009, we repurchased a total of 2,902,619 shares of our common stock for $153.5 million, or an average price of $52.88 per share. All of these share repurchases were consummated pursuant to previously announced authorizations by our Board of Directors. On November 3, 2009, we announced that our Board of Directors authorized an additional $500 million for share repurchases. To date, we have not repurchased any shares of our common stock under this authorization. As a result of these transactions, our total authorization for share repurchases is currently $500 million.
  • Center Activity: As of December 31, 2009, we operated or provided administrative services at 1,530 outpatient dialysis centers serving approximately 118,000 patients, of which 1,498 centers are consolidated in our financial statements. During the fourth quarter of 2009, we acquired seven centers, opened 17 new centers, merged five centers, and sold one center.

 

Outlook

Currently we still expect our operating income for 2010 to be in the range of $950 million to $1,020 million and we also expect our operating cash flows for 2010 to be in the range of $675 million to $725 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.

DaVita will be holding a conference call to discuss its results for the fourth quarter ended December 31, 2009 on February 11, 2010 at 9:30 a.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, http://www.davita.com, for the following 30 days.

This release contains forward-looking statements, including statements related to our 2010 operating income, operating cash flow, our 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 or other government based programs, including, for example the implementation of a bundled payment rate system which will 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
  • 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

December 31,

  Year ended

December 31,

    2009   2008   2009   2008
Net operating revenues   $ 1,568,204     $ 1,461,010     $ 6,108,800     $ 5,660,173  
Operating expenses and charges:                
Patient care costs     1,095,046       1,011,344       4,248,668       3,920,487  
General and administrative     137,161       133,659       531,531       508,240  
Depreciation and amortization     56,865       56,244       228,986       216,917  
Provision for uncollectible accounts     41,796       36,796       161,786       146,229  
Equity investment income     (1,376 )     (142 )     (2,442 )     (796 )
Total operating expenses and charges     1,329,492       1,237,901       5,168,529       4,791,077  
Operating income     238,712       223,109       940,271       869,096  
Debt expense     (44,831 )     (55,825 )     (185,755 )     (224,716 )
Other income     682       2,080       3,708       12,411  
Income before income taxes     194,563       169,364       758,224       656,791  
Income tax expense     68,980       59,618       278,465       235,471  
Net income     125,583       109,746       479,759       421,320  
Less: Net income attributable to noncontrolling interests     (15,859 )     (11,381 )     (57,075 )     (47,160 )
Net income attributable to DaVita Inc.   $ 109,724     $ 98,365     $ 422,684     $ 374,160  
Earnings per share:                
Basic earnings per share attributable to DaVita Inc.   $ 1.07     $ 0.95     $ 4.08     $ 3.56  
Diluted earnings per share attributable to DaVita Inc.   $ 1.06     $ 0.94     $ 4.06     $ 3.53  
Weighted average shares for earnings per share:                
Basic     102,711,126       103,897,138       103,603,885       105,149,448  
Diluted     103,735,571       104,530,333       104,167,685       105,939,725  
                                 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

     
    Year ended

December 31,

    2009   2008
Cash flows from operating activities:        
Net income   $ 479,759     $ 421,320  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization     228,986       216,917  
Stock-based compensation expense     44,422       41,235  
Tax benefits from stock award exercises     18,241       13,988  
Excess tax benefits from stock award exercises     (6,950 )     (8,013 )
Deferred income taxes     50,869       94,912  
Equity investment income, net     (204 )     (796 )
Loss on disposal of assets     9,761       15,216  
Non-cash debt and non-cash rent charges     11,184       11,794  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:        
Accounts receivable     (32,313 )     (149,939 )
Inventories     15,115       (2,715 )
Other receivables and other current assets     (35,104 )     (40,960 )
Other long-term assets     7,288       (11,929 )
Accounts payable     (104,879 )     57,422  
Accrued compensation and benefits     (9,138 )     (31,602 )
Other current liabilities     (43,543 )     8,871  
Income taxes     44,578       (30,087 )
Other long-term liabilities     (11,362 )     8,067  
Net cash provided by operating activities     666,710       613,701  
Cash flows from investing activities:        
Additions of property and equipment     (274,605 )     (317,962 )
Acquisitions     (87,617 )     (101,959 )
Proceeds from asset sales     7,697       530  
Purchase of investments available for sale     (2,062 )     (2,009 )
Purchase of investments held-to-maturity     (22,664 )     (21,048 )
Proceeds from sale of investments available for sale     16,693       21,291  
Proceeds from maturities of investments held-to-maturity     16,380       21,355  
Purchase of equity investments     (2,100 )     -  
Distributions received on equity investments     2,547       908  
Purchase of intangible assets     (329 )     (65 )
Other investment activity     -       1,220  
Net cash used in investing activities     (346,060 )     (397,739 )
Cash flows from financing activities:        
Borrowings     18,767,592       17,089,018  
Payments on long-term debt     (18,828,824 )     (17,102,569 )
Deferred financing costs     (42 )     (130 )
Purchase of treasury stock     (153,495 )     (232,715 )
Excess tax benefits from stock award exercises     6,950       8,013  
Stock award exercises and other share issuances, net     67,908       40,247  
Distributions to noncontrolling interests     (67,748 )     (59,357 )
Contributions from noncontrolling interests     13,071       19,074  
Proceeds from sales of additional noncontrolling interests     9,375       10,701  
Purchases from noncontrolling interests     (6,859 )     (24,409 )
Net cash used in financing activities     (192,072 )     (252,127 )
Net increase (decrease) in cash and cash equivalents     128,578       (36,165 )
Cash and cash equivalents at beginning of period     410,881       447,046  
Cash and cash equivalents at end of period   $ 539,459     $ 410,881  
                 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

         
ASSETS   December 31,

2009

  December 31,

2008

Cash and cash equivalents   $ 539,459     $ 410,881  
Short-term investments     26,475       35,532  
Accounts receivable, less allowance of $229,317 and $211,222     1,105,903       1,075,457  
Inventories     70,041       84,174  
Other receivables     263,456       239,165  
Other current assets     40,234       33,761  
Income tax receivable     -       32,130  
Deferred income taxes     256,953       217,196  
Total current assets     2,302,521       2,128,296  
Property and equipment, net     1,104,925       1,048,075  
Amortizable intangibles, net     136,732       160,521  
Equity investments     22,631       19,274  
Long-term investments     7,616       5,656  
Other long-term assets     32,615       47,330  
Goodwill     3,951,196       3,876,931  
    $ 7,558,236     $ 7,286,083  
LIABILITIES AND EQUITY        
Accounts payable   $ 176,657     $ 282,883  
Other liabilities     461,092       495,239  
Accrued compensation and benefits     286,121       312,216  
Current portion of long-term debt     100,007       72,725  
Income taxes payable     23,064       -  
Total current liabilities     1,046,941       1,163,063  
Long-term debt     3,532,217       3,622,421  
Other long-term liabilities     87,692       101,442  
Alliance and product supply agreement, net     30,647       35,977  
Deferred income taxes     334,855       244,884  
Total liabilities     5,032,352       5,167,787  
Commitments and contingencies        
Noncontrolling interests subject to put provisions     331,725       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; 134,862,283 shares        
issued; 103,062,698 and 103,753,673 shares outstanding)     135       135  
Additional paid-in capital     621,685       584,358  
Retained earnings     2,312,134       1,889,450  
Treasury stock, at cost (31,799,585 and 31,108,610 shares)     (793,340 )     (691,857 )
Accumulated other comprehensive loss     (5,548 )     (14,339 )
Total DaVita Inc. shareholders' equity     2,135,066       1,767,747  
Noncontrolling interests not subject to put provisions     59,093       59,152  
Total equity     2,194,159       1,826,899  
    $ 7,558,236     $ 7,286,083  
                 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

         
    Three months ended   Year ended

December 31, 2009

    December 31,

2009

  September 30,

2009

  December 31,

2008

 
1. Consolidated Financial Results:                
Revenues   $ 1,568     $ 1,574     $ 1,461     $ 6,109  
Operating income   $ 238.7     $ 245.0     $ 223.1     $ 940.3  
Operating income margin     15.2 %     15.6 %     15.3 %     15.4 %
Net income attributable to DaVita Inc.   $ 109.7     $ 110.9     $ 98.4     $ 422.7  
Diluted earnings per share attributable to DaVita Inc.   $ 1.06     $ 1.06     $ 0.94     $ 4.06  
                 
2. Consolidated Business Metrics:                
Expenses                
Patient care costs as a percent of consolidated revenue(1)     69.8 %     69.6 %     69.2 %     69.5 %
General and administrative expenses as a percent of consolidated revenue (1)     8.7 %     8.6 %     9.1 %     8.7 %
                 
Bad debt expense as a percent of consolidated revenue     2.7 %     2.7 %     2.5 %     2.6 %
                 
Consolidated effective tax rate attributable to DaVita Inc.(2)     38.5 %     40.0 %     37.7 %     39.7 %
                 
3. Segment Financial Results: (dollar amounts rounded to nearest million)                
Dialysis and related lab services                
Revenues   $ 1,483     $ 1,491     $ 1,389     $ 5,792  
Direct operating expenses     1,229       1,231       1,150       4,792  
Dialysis segment margin   $ 254     $ 260     $ 240     $ 1,000  
                 
Other - Ancillary services and strategic initiatives                
Revenues   $ 85     $ 83     $ 72     $ 317  
Direct operating expenses     91       87       77       335  
Ancillary segment loss   $ (6 )   $ (4 )   $ (6 )   $ (18 )
                 
Total segment margin   $ 248     $ 256     $ 234     $ 982  
Reconciling items:                
Stock-based compensation     (11 )     (11 )     (11 )     (44 )
Equity investment income     1       1       -       2  
Consolidated operating income   $ 239     $ 245     $ 223     $ 940  
                                 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

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

         
    Three months ended   Year ended

December 31, 2009

    December 31,

2009

  September 30,

2009

  December 31,

2008

 
4. Segment Business Metrics:                
Dialysis and related lab services                
Volume                
Treatments     4,360,638       4,339,195       4,172,468       17,010,450  
Number of treatment days     79.0       79.0       79.5       312.5  
Treatments per day     55,198       54,927       52,484       54,433  
Per day year over year increase     5.2 %     6.1 %     4.9 %     5.4 %
Non-acquired growth year over year     4.8 %     5.2 %     4.0 %     4.6 %
                 
Revenue                
Dialysis and related lab services revenue per treatment   $ 339.43     $ 343.14     $ 332.61     $ 339.97  
Per treatment (decrease) increase from previous quarter     (1.1 %)     0.8 %     (1.1 %)     -  
Per treatment increase from previous year     2.1 %     2.0 %     1.4 %     1.9 %
Percent of consolidated revenue     94.5 %     94.7 %     95.1 %     94.8 %
                 
Expenses                
Patient care costs                
Percent of segment revenue     68.9 %     69.0 %     68.6 %     68.8 %
Per treatment   $ 234.18     $ 237.21     $ 228.29     $ 234.34  
Per treatment (decrease) increase from previous quarter     (1.3 %)     1.4 %     (1.8 %)     -  
Per treatment increase from previous year     2.6 %     2.0 %     2.3 %     2.1 %
                 
General and administrative expenses                
Percent of segment revenue     7.5 %     7.1 %     7.7 %     7.4 %
Per treatment   $ 25.66     $ 24.39     $ 25.59     $ 25.09  
Per treatment increase (decrease) from previous quarter     5.2 %     (3.0 %)     2.9 %     -  
Per treatment increase (decrease) from previous year     0.3 %     (2.0 %)     (5.4 %)     1.3 %
                 
5. Cash Flow:                
Operating cash flow   $ 152.6     $ 167.5     $ 198.5     $ 666.7  
Operating cash flow last twelve months   $ 666.7     $ 712.7     $ 613.7      
Free cash flow(2)   $ 96.7     $ 125.5     $ 144.8     $ 485.2  
Free cash flow, last twelve months(2)   $ 485.2     $ 533.3     $ 450.7      
Capital expenditures:                
Development and relocations   $ 33.9     $ 42.4     $ 54.7     $ 160.8  
Routine maintenance/IT other   $ 35.1     $ 25.0     $ 39.4     $ 113.8  
Acquisition expenditures   $ 23.6     $ 20.7     $ 24.8     $ 87.6  
                 
6. Accounts Receivable:                
Net receivables   $ 1,106     $ 1,143     $ 1,075      
DSO     68       70       70      
                             

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

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

         
    Three months ended   Year ended

December 31, 2009

    December 31,

2009

  September 30,

2009

  December 31,

2008

 
7. Debt and Capital Structure:                
Total debt(3)   $ 3,630   $ 3,654   $ 3,691    
Net debt, net of cash(3)   $ 3,090   $ 3,072   $ 3,281    
Leverage ratio (see Note 1 on page 9)   2.56x   2.57x   2.88x    
Overall effective weighted average interest rate during the quarter   4.69%   4.79%   5.77%    
Overall effective weighted average interest rate at end of the quarter   4.68%   4.76%   5.10%    
Effective weighted average interest rate on the Senior Secured Credit Facilities at end of the quarter   2.63%   2.81%   3.48%    
Economically fixed interest rates as a percentage of our total debt   59%   61%   69%    
Share repurchases   $ 59.1   $ 62.4   $ 63.0   $ 153.5
                 
8. Clinical: (quarterly averages)                
Dialysis adequacy -% of patients with Kt/V > 1.2   95%   95%   94%    
90 day patients average Hb>=10 <=12   64%   64%   53%    
Patients with arteriovenous fistulas placed   65%   64%   62%    
                 

_________________

(1) 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.

(2) 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.

(3) This is a non-GAAP financial measure. It excludes $2.7 million, for the quarter ended December 31, 2009, the unamortized balance of a debt premium associated with our senior notes that is not actually outstanding debt principal.

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
December 31, 2009

Net income attributable to DaVita Inc.   $ 422,684
Income taxes   278,465
Debt expense   185,755
Depreciation and amortization   228,986
Noncontrolling interests and equity investment income, net   54,633
Other   10,058
Stock-based compensation expense   44,422
"Consolidated EBITDA"   $ 1,225,003
     
    December 31, 2009
Total debt, excluding debt premium of $2.7 million   $ 3,629,526
Letters of credit issued   51,889
    3,681,415
Less: cash and cash equivalents   (539,459)
Consolidated net debt   $ 3,141,956
Last twelve months "Consolidated EBITDA"   $ 1,225,003
Leverage ratio   2.56x
     

In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 4.00 to 1.0 as of December 31, 2009. At that date the Company's leverage ratio did not exceed 4.00 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 is not a measure 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   Year ended

December 31, 2009

    December 31,

2009

  September 30,

2009

  December 31,

2008

 
Income before income taxes   $ 194,563     $ 200,465     $ 169,364     $ 758,224  
Income tax expense   $ 68,980     $ 74,195     $ 59,618     $ 278,465  
Effective income tax rate     35.5 %     37.0 %     35.2 %     36.7 %
                 
                 
    Three months ended   Year ended

December 31, 2009

    December 31,

2009

  September 30,

2009

  December 31,

2008

 
Income before income taxes   $ 194,563     $ 200,465     $ 169,364     $ 758,224  
Less: Noncontrolling owners' income primarily attributable to non-tax paying entities     (16,149 )     (15,585 )     (11,509 )     (57,803 )
Income before income taxes attributable to DaVita Inc.   $ 178,414     $ 184,880     $ 157,855     $ 700,421  
                 
Income tax expense   $ 68,980     $ 74,195     $ 59,618     $ 278,465  
Less income tax attributable to noncontrolling interests     (290 )     (245 )     (128 )     (728 )
Income tax attributable to DaVita Inc.   $ 68,690     $ 73,950     $ 59,490     $ 277,737  
                 
Effective income tax rate attributable to DaVita Inc.     38.5 %     40.0 %     37.7 %     39.7 %
                                 

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 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   Year ended

December 31, 2009

    December 31,

2009

  September 30,

2009

  December 31,

2008

 
Cash provided by operating activities   $ 152,591     $ 167,487     $ 198,549     $ 666,710  
Less: Income distributions to noncontrolling interests     (20,860 )     (16,993 )     (14,379 )     (67,748 )
Cash provided by operating activities attributable to DaVita Inc.   $ 131,731     $ 150,494     $ 184,170     $ 598,962  
Less: Expenditures for routine maintenance and information technology     (35,066 )     (25,040 )     (39,412 )     (113,763 )
Free cash flow   $ 96,665     $ 125,454     $ 144,758     $ 485,199  
                                 
    Rolling 12-Month Period
    December 31,

2009

  September 30,

2009

  December 31,

2008

Cash provided by operating activities   $ 666,710     $ 712,668     $ 613,701  
Less: Income distributions to noncontrolling interests     (67,748 )     (61,267 )     (57,770 )
Cash provided by operating activities attributable to DaVita Inc.   $ 598,962     $ 651,401     $ 555,931  
Less: Expenditures for routine maintenance and information technology     (113,763 )     (118,109 )     (105,233 )
Free cash flow.   $ 485,199     $ 533,292     $ 450,698  

SOURCE: DaVita Inc.

DaVita Inc.
Jim Gustafson
Investor Relations
310-536-2585


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