Improving Health, Health Care and Quality of Life

DaVita 2nd Quarter 2010 Results

DENVER, Aug 02, 2010 (BUSINESS WIRE) --

DaVita Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2010. Net income attributable to DaVita Inc. for the three and six months ended June 30, 2010 excluding after-tax debt redemption charges of $2.5 million, or $0.02 per share, was $110.4 million and $219.8 million, or $1.06 and $2.10 per share, respectively. This compares to net income attributable to DaVita Inc. for the three and six months ended June 30, 2009 of $105.8 million and $202.0 million, or $1.02 and $1.94 per share, respectively.

 

Net income attributable to DaVita Inc. for the three and six months ended June 30, 2010, including debt redemption charges, was $107.9 million and $217.3 million, or $1.04 and $2.08 per share, respectively.

Financial and operating highlights include:

 

  • Cash Flow: For the rolling twelve months ended June 30, 2010 operating cash flow was $878 million and free cash flow was $692 million. For the three months ended June 30, 2010 operating cash flow was $296 million and free cash flow was $250 million.
  • Operating Income: Operating income for the three and six months ended June 30, 2010 was $242 million and $485 million, respectively, as compared to $236 million and $457 million, respectively, for the same period of 2009.
  • Volume: Total treatments for the second quarter of 2010 were 4,462,565, or 57,212 treatments per day, representing a per day increase of 5.5% over the second quarter of 2009. Non-acquired treatment growth in the quarter was 4.1% over the prior year's second quarter.
  • Effective Tax Rate: Our effective tax rate was 36.6% and 36.9% for the three and six months ended June 30, 2010, 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 39.75% and 40.0% for the three and six months ended June 30, 2010, respectively, which was within the range of our previously stated guidance. Our effective tax rate for 2010 is still projected to be in the range of 36.5% to 37.5% and our 2010 effective tax rate attributable to DaVita Inc. is still projected to be in a range of 39.5% to 40.5%.
  • Senior Notes: On June 7, 2010, we redeemed $200 million aggregate principal amount of our outstanding 6 5/8% senior notes due 2013 at a price of 101.656% plus accrued interest. As a result of this transaction, we incurred pre-tax debt redemption charges as discussed above of $4.1 million, which includes the call premium and the net write-off of other deferred financing costs.
  • Share Repurchases: During the first six months of 2010, we repurchased a total of 1,587,160 shares of our common stock for $100 million, or an average price of $63.04 per share. As a result of these transactions, the remaining balance in our current authorization for share repurchases is approximately $400 million.
  • Center Activity: As of June 30, 2010, we operated or provided administrative services at 1,582 outpatient dialysis centers serving approximately 122,000 patients, of which 1,551 centers are consolidated in our financial statements. During the second quarter of 2010, we acquired 23 centers, opened 18 new centers, closed one center and sold one center.

 

Outlook

We are narrowing our operating income guidance for 2010 to a range of $970 million to $1,020 million. We are also revising our operating cash flow guidance for 2010. Our operating cash flow is now projected to be in the range of $725 million to $825 million. Our previous operating cash flow guidance for 2010 was 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 second quarter ended June 30, 2010 on August 2, 2010 at 5:00 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 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 Annual Report on Form 10-K for the year ended December 31, 2009, our quarterly report on Form 10-Q for the first quarter ended March 31, 2010 and subsequent quarterly reports filed 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 End Stage Renal Disease 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, and the impact of health care reform legislation that was enacted in the U.S. in March 2010,
  • 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,
  • the resolution of ongoing investigations by various federal and state governmental agencies, and
  • continued increased competition from large and medium-sized dialysis providers that compete directly with us.

 

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 INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)

         
    Three months ended

June 30,

  Six months ended

June 30,

    2010   2009   2010   2009
Net operating revenues   $ 1,586,907     $ 1,519,041     $ 3,146,325     $ 2,966,681  
Operating expenses and charges:                
Patient care costs     1,110,552       1,051,879       2,193,341       2,057,765  
General and administrative     136,104       132,166       273,381       259,439  
Depreciation and amortization     58,353       58,185       115,821       115,308  
Provision for uncollectible accounts     42,367       41,233       83,930       77,969  
Equity investment income     (2,834 )     (376 )     (5,179 )     (358 )
Total operating expenses and charges     1,344,542       1,283,087       2,661,294       2,510,123  
Operating income     242,365       235,954       485,031       456,558  
Debt expense     (43,655 )     (47,088 )     (88,238 )     (95,389 )
Debt redemption charges     (4,127 )     -       (4,127 )     -  
Other income     739       1,273       1,570       2,027  
Income before income taxes     195,322       190,139       394,236       363,196  
Income tax expense     71,429       70,507       145,343       135,290  
Net income     123,893       119,632       248,893       227,906  
Less: Net income attributable to noncontrolling interests     (16,040 )     (13,813 )     (31,617 )     (25,876 )
Net income attributable to DaVita Inc.   $ 107,853     $ 105,819     $ 217,276     $ 202,030  
Earnings per share:                
Basic earnings per share attributable to DaVita Inc.   $ 1.05     $ 1.02     $ 2.11     $ 1.95  
Diluted earnings per share attributable to DaVita Inc.   $ 1.04     $ 1.02     $ 2.08     $ 1.94  
Weighted average shares for earnings per share:                
Basic     103,003,623       103,705,683       103,182,403       103,791,579  
Diluted     104,449,065       103,925,843       104,605,489       104,166,964  
                                 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

     
    Six months ended

June 30,

    2010   2009
Cash flows from operating activities:        
Net income   $ 248,893     $ 227,906  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization     115,821       115,308  
Stock-based compensation expense     22,399       22,412  
Tax benefits from stock award exercises     12,896       9,974  
Excess tax benefits from stock award exercises     (1,647 )     (7,591 )
Deferred income taxes     (10,697 )     30,006  
Equity investment income, net     (2,781 )     (358 )
Loss on disposal of assets and other non-cash charges     3,085       11,380  
Debt redemption charges     4,127       -  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:        
Accounts receivable     33,724       (54,073 )
Inventories     2,005       19,044  
Other receivables and other current assets     33,053       4,026  
Other long-term assets     (587 )     3,324  
Accounts payable     62,255       (51,960 )
Accrued compensation and benefits     65,495       37,077  
Other current liabilities     (26,127 )     (42,359 )
Income taxes     (5,103 )     35,535  
Other long-term liabilities     955       (13,019 )
Net cash provided by operating activities     557,766       346,632  
Cash flows from investing activities:        
Additions of property and equipment     (99,351 )     (138,205 )
Acquisitions     (91,701 )     (43,314 )
Proceeds from asset sales     17,681       5,784  
Purchase of investments available for sale     (745 )     (1,429 )
Purchase of investments held-to-maturity     (15,836 )     (15,193 )
Proceeds from sale of investments available for sale     900       16,537  
Proceeds from maturities of investments held-to-maturity     19,249       15,620  
Purchase of equity investments and other assets     (350 )     (260 )
Distributions received on equity investments     350       88  
Net cash used in investing activities     (169,803 )     (160,372 )
Cash flows from financing activities:        
Borrowings     9,689,658       9,114,319  
Payments on long-term debt     (9,938,312 )     (9,136,951 )
Debt call premium     (3,314 )     -  
Purchase of treasury stock     (100,048 )     (32,016 )
Excess tax benefits from stock award exercises     1,647       7,591  
Stock award exercises and other share issuances, net     34,113       16,691  
Distributions to noncontrolling interests     (37,301 )     (29,895 )
Contributions from noncontrolling interests     3,408       6,504  
Proceeds from sales of additional noncontrolling interests     2,845       5,475  
Purchases from noncontrolling interests     (5,402 )     (4,704 )
Deferred financing costs     -       (42 )
Net cash used in financing activities     (352,706 )     (53,028 )
Net increase in cash and cash equivalents     35,257       133,232  
Cash and cash equivalents at beginning of period     539,459       410,881  
Cash and cash equivalents at end of period   $ 574,716     $ 544,113  
                 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

         
ASSETS   June 30,

2010

  December 31,

2009

Cash and cash equivalents   $ 574,716     $ 539,459  
Short-term investments     22,926       26,475  
Accounts receivable, less allowance of $234,376 and $229,317     1,070,633       1,105,903  
Inventories     69,386       70,041  
Other receivables     231,614       263,456  
Other current assets     39,222       40,234  
Deferred income taxes     256,653       256,953  
Total current assets     2,265,150       2,302,521  
Property and equipment, net     1,106,028       1,104,925  
Amortizable intangibles, net     126,988       136,732  
Equity investments     25,412       22,631  
Long-term investments     7,190       7,616  
Other long-term assets     33,202       32,615  
Goodwill     4,013,711       3,951,196  
    $ 7,577,681     $ 7,558,236  
LIABILITIES AND EQUITY        
Accounts payable   $ 238,219     $ 176,657  
Other liabilities     429,399       461,092  
Accrued compensation and benefits     348,640       286,121  
Current portion of long-term debt     96,590       100,007  
Income taxes payable     5,970       23,064  
Total current liabilities     1,118,818       1,046,941  
Long-term debt     3,287,523       3,532,217  
Other long-term liabilities     89,572       87,692  
Alliance and product supply agreement, net     27,982       30,647  
Deferred income taxes     349,617       334,855  
Total liabilities     4,873,512       5,032,352  
Commitments and contingencies        
Noncontrolling interests subject to put provisions     347,361       331,725  
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; 102,592,141 and 103,062,698 shares outstanding)     135       135  
Additional paid-in capital     638,373       621,685  
Retained earnings     2,529,410       2,312,134  
Treasury stock, at cost (32,270,142 and 31,799,585 shares)     (865,186 )     (793,340 )
Accumulated other comprehensive loss     (1,461 )     (5,548 )
Total DaVita Inc. shareholders' equity     2,301,271       2,135,066  
Noncontrolling interests not subject to put provisions     55,537       59,093  
Total equity     2,356,808       2,194,159  
    $ 7,577,681     $ 7,558,236  
                 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

         
    Three months ended  

Six months
ended

June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
1. Consolidated Financial Results:                
Revenues   $ 1,587     $ 1,559     $ 1,519     $ 3,146  
Operating income   $ 242.4     $ 242.7     $ 236.0     $ 485.0  
Operating income margin     15.3 %     15.6 %     15.5 %     15.4 %
Net income attributable to DaVita Inc.   $ 107.9     $ 109.4     $ 105.8     $ 217.3  
Net income attributable to DaVita Inc. excluding debt redemption charges(1)   $ 110.4     $ 109.4     $ 105.8     $ 219.8  
Diluted earnings per share attributable to DaVita Inc.   $ 1.04     $ 1.04     $ 1.02     $ 2.08  
Diluted earnings per share attributable to DaVita Inc. excluding debt redemption charges(1)   $ 1.06     $ 1.04     $ 1.02     $ 2.10  
                 
2. Consolidated Business Metrics:                
Expenses                
Patient care costs as a percent of consolidated revenue(2)     70.0 %     69.4 %     69.2 %     69.7 %
General and administrative expenses as a percent of consolidated revenue (2)     8.6 %     8.8 %     8.7 %     8.7 %
                 
Bad debt expense as a percent of consolidated revenue     2.7 %     2.7 %     2.7 %     2.7 %
                 
Consolidated effective tax rate attributable to DaVita Inc.(1)     39.75 %     40.25 %     40.0 %     40.0 %
                 
3. Segment Financial Results: (dollar amounts rounded to nearest million)                
Dialysis and related lab services                
Revenues   $ 1,496     $ 1,478     $ 1,441     $ 2,975  
Direct operating expenses     1,242       1,225       1,191       2,468  
Dialysis segment operating income   $ 254     $ 253     $ 250     $ 507  
                 
Other - Ancillary services and strategic initiatives                
Revenues   $ 91     $ 81     $ 78     $ 172  
Direct operating expenses     93       83       81       176  
Ancillary segment operating loss   $ (2 )   $ (2 )   $ (3 )   $ (4 )
                 
Total segment operating income   $ 252     $ 251     $ 247     $ 502  
Reconciling items:                
Stock-based compensation     (12 )     (10 )     (11 )     (22 )
Equity investment income     3       2       -       5  
Consolidated operating income   $ 242     $ 243     $ 236     $ 485  

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

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

         
    Three months ended  

Six months
ended
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
4. Segment Business Metrics:                
Dialysis and related lab services                
Volume                
Treatments     4,462,565       4,294,121       4,228,179       8,756,685  
Number of treatment days     78.0       77.0       78.0       155.0  
Treatments per day     57,212       55,768       54,207       56,495  
Per day year over year increase     5.5 %     4.5 %     5.2 %     5.0 %
Non-acquired growth year over year     4.1 %     4.2 %     4.5 %     4.2 %
                 
Revenue                
Dialysis and related lab services revenue per treatment   $ 334.64     $ 343.70     $ 340.35     $ 339.08  
Per treatment (decrease) increase from previous quarter     (2.6 %)     1.3 %     1.1 %    
Per treatment (decrease) increase from previous year     (1.7 %)     2.1 %     1.3 %     0.15 %
Percent of consolidated revenue     94.3 %     94.8 %     94.9 %     94.5 %
                 
Expenses                
Patient care costs                
Percent of segment revenue     69.2 %     68.8 %     68.6 %     69.0 %
Per treatment   $ 232.09     $ 237.00     $ 233.93     $ 234.50  
Per treatment (decrease) increase from previous quarter     (2.1 %)     1.2 %     0.9 %    
Per treatment (decrease) increase from previous year     (0.8 %)     2.2 %     1.3 %     0.7 %
                 
General and administrative expenses                
Percent of segment revenue     7.3 %     7.6 %     7.4 %     7.4 %
Per treatment   $ 24.34     $ 26.03     $ 25.14     $ 25.17  
Per treatment (decrease) increase from previous quarter     (6.5 %)     1.4 %     (0.2 %)    
Per treatment (decrease) increase from previous year     (3.2 %)     3.4 %     1.1 %     -  
                 
5. Cash Flow:                
Operating cash flow   $ 295.9     $ 261.8     $ 212.4     $ 557.8  
Operating cash flow, last twelve months   $ 877.8     $ 794.3     $ 705.4      
Free cash flow(1)   $ 249.5     $ 220.6     $ 173.6     $ 470.1  
Free cash flow, last twelve months(1)   $ 692.3     $ 616.3     $ 526.8      
Capital expenditures:                
Routine maintenance/IT other   $ 27.8     $ 22.6     $ 22.5     $ 50.3  
Development and relocations   $ 29.0     $ 22.8     $ 42.5     $ 51.8  
Acquisition expenditures   $ 90.6     $ 1.1     $ 3.5     $ 91.7  
                 
6. Accounts Receivable:                
Net receivables   $ 1,071     $ 1,104     $ 1,128      
DSO     64       66       70      
                             

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

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

         
    Three months ended  

Six months
ended 
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
7. Debt and Capital Structure:                
Total debt(3)   $ 3,382     $ 3,606     $ 3,669      
Net debt, net of cash(3)   $ 2,808     $ 2,850     $ 3,124      

Leverage ratio (see Note 1 below)

  2.31x   2.36x   2.66x    
Overall weighted average effective interest rate during the quarter     4.68 %     4.67 %     4.92 %    
Overall weighted average effective interest rate at end of the quarter     4.62 %     4.66 %     4.87 %    
Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter     2.66 %     2.57 %     3.02 %    
Economically fixed interest rates as a percentage of our total debt     56 %     59 %     64 %    
Share repurchases   $ 100     $ -     $ -     $ 100
                 
8. Clinical: (quarterly averages)                
Dialysis adequacy -% of patients with Kt/V > 1.2     96 %     96 %     95 %    
90 day patients average Hb>=10 <=12     67 %     65 %     67 %    
Patients with arteriovenous fistulas placed     66 %     66 %     63 %    
                             

_________________

                           

(1) These are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see attached reconciliation schedules.

(2) Consolidated percentages of revenue are comprised of the dialysis and related lab services business, other ancillary services and strategic initiatives, as well as stock-based compensation expenses.

(3) This is a non-GAAP financial measure. It excludes $1.8 million, for the quarter ended June 30, 2010, 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 
June 30, 2010

Net income attributable to DaVita Inc.   $ 437,930  
Income taxes     288,518  
Debt expense     178,604  
Depreciation and amortization     229,499  
Noncontrolling interests and equity investment income, net     55,553  
Other     5,514  
Stock-based compensation expense     44,411  
"Consolidated EBITDA"   $ 1,240,029  
     
    June 30, 2010
Total debt, excluding debt premium of $1.8 million   $ 3,382,341  
Letters of credit issued     51,889  
      3,434,230  
Less: cash and cash equivalents     (574,716 )
Consolidated net debt   $ 2,859,514  
Last twelve months "Consolidated EBITDA"   $ 1,240,029  
Leverage ratio   2.31x
     

In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 3.75 to 1.0 as of June 30, 2010. At that date the Company's leverage ratio did not exceed 3.75 to 1.0.

 

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

1.Net income attributable to DaVita Inc. excluding debt redemption charges and diluted earnings per share attributable to DaVita Inc. excluding debt redemption charges.

 

We believe that net income attributable to DaVita Inc. excluding debt redemption charges and diluted earnings per share attributable to DaVita Inc. excluding debt redemption charges enhances a user's understanding of our normal net income attributable to DaVita Inc. and diluted earnings per share attributable to DaVita Inc. for these periods by providing a measure that is more meaningful because it excludes an unusual charge that resulted from the redemption of $200 million aggregate principal amount of our outstanding 6 5/8% senior notes due 2013 and accordingly, is more comparable to prior periods and indicative of consistent net income attributable to DaVita Inc. and diluted earnings per share attributable to DaVita Inc. These measures are not measures of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to net income attributable to DaVita Inc. and diluted earnings per share attributable to DaVita Inc.

                 
Net income attributable to DaVita Inc. excluding debt redemption charges:  

Three months ended

 

Six months
ended
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
Net income attributable to DaVita Inc.   $ 107,853     $ 109,423   $ 105,819   $ 217,276  
Add: Debt redemption charges     4,127       -     -     4,127  
Less: Related income tax     (1,605 )     -     -     (1,605 )
    $ 110,375     $ 109,423   $ 105,819   $ 219,798  
                             
                             
Diluted earnings per share attributable to DaVita Inc. excluding debt redemption charges:  

Three months ended

 

Six months
ended
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
Diluted earnings per share attributable to DaVita Inc.   $ 1.04     $ 1.04   $ 1.02   $ 2.08  
Add: Net after-tax debt redemption charges     0.02       -     -     0.02  
    $ 1.06     $ 1.04   $ 1.02   $ 2.10  
                             

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

2. Effective Income Tax Rates

 

We believe that reporting the effective income tax rate attributable to DaVita 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 more meaningful to an investor to fully understand the related income tax effects on DaVita Inc.'s operating results. This is not a measure under United States generally accepted accounting principles ("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 Inc. is as follows:

                 
    Three months ended  

Six months
ended
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
Income before income taxes   $ 195,322     $ 198,914     $ 190,139     $ 394,236  
Income tax expense   $ 71,429     $ 73,914     $ 70,507     $ 145,343  
Effective income tax rate     36.6 %     37.2 %     37.1 %     36.9 %
                                 
                                 
    Three months ended  

Six months
ended
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
Income before income taxes   $ 195,322     $ 198,914     $ 190,139     $ 394,236  
Less: Noncontrolling owners' income primarily attributable to non-tax paying entities     (16,319 )     (15,781 )     (13,913 )     (32,100 )
Income before income taxes attributable to DaVita Inc.   $ 179,003     $ 183,133     $ 176,226     $ 362,136  
                 
Income tax expense   $ 71,429     $ 73,914     $ 70,507     $ 145,343  
Less income tax attributable to noncontrolling interests     (279 )     (204 )     (100 )     (483 )
Income tax attributable to DaVita Inc.   $ 71,150     $ 73,710     $ 70,407     $ 144,860  
                 
Effective income tax rate attributable to DaVita Inc.     39.75 %     40.25 %     40.0 %     40.0 %
                                 

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

3.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 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 income distributions to noncontrolling interests provides an investor with an understanding of free cash flows that are attributable to DaVita 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.

             
    Three months ended  

Six months
ended
June 30, 2010

    June 30,

2010

  March 31,

2010

  June 30,

2009

 
Cash provided by operating activities   $ 295,919     $ 261,847     $ 212,383     $ 557,766  
Less: Income distributions to noncontrolling interests     (18,643 )     (18,658 )     (16,328 )     (37,301 )
Cash provided by operating activities attributable to DaVita Inc.     277,276       243,189       196,055       520,465  
Less: Expenditures for routine maintenance and information technology     (27,760 )     (22,563 )     (22,502 )     (50,323 )
Free cash flow   $ 249,516     $ 220,626     $ 173,553     $ 470,142  
                                 
                                 
        Rolling 12-Month Period
        June 30,

2010

  March 31,

2010

  June 30,

2009

Cash provided by operating activities       $ 877,844     $ 794,308     $ 705,376  
Less: Income distributions to noncontrolling interests         (75,154 )     (72,839 )     (58,242 )
Cash provided by operating activities attributable to DaVita Inc.         802,690       721,469       647,134  
Less: Expenditures for routine maintenance and information technology         (110,429 )     (105,171 )     (120,286 )
Free cash flow       $ 692,261     $ 616,298     $ 526,848  

SOURCE: DaVita Inc.

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

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