Improving Health, Health Care and Quality of Life

DaVita 3rd Quarter 2011 Results

DENVER, Nov 03, 2011 (BUSINESS WIRE) -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended September 30, 2011. Income from continuing operations attributable to DaVita Inc. for the three and nine months ended September 30, 2011 was $138.2 million and $346.7 million, or $1.45 and $3.57 per share, respectively, which for the nine months ended September 30, 2011 excludes an after-tax non-cash goodwill impairment charge of approximately $14.4 million, or $0.14 per share, that was recorded in the second quarter of 2011 related to our infusion therapy business. Income from continuing operations attributable to DaVita Inc. for the nine months ended September 30, 2011 including this item was $332.3 million, or $3.43 per share.

Income from continuing operations attributable to DaVita Inc. for the three and nine months ended September 30, 2010 was $119.5 million and $339.0 million, or $1.15 and $3.25 per share, respectively, which for the nine months ended September 30, 2010 excludes after-tax debt redemption charges of $2.5 million, or $0.02 per share. Income from continuing operations attributable to DaVita Inc. for the nine months ended September 30, 2010 including this item was $336.5 million, or $3.22 per share.

On September 2, 2011, we completed our acquisition of DSI Renal, Inc. (DSI) for approximately $724 million in net cash, plus the assumption of certain liabilities, subject to certain post-close adjustments. The operating results of DSI are included in our operating results effective September 1, 2011.

The operating results of the historical DaVita divested centers are reflected as discontinued operations for all periods presented. In addition, the operating results for the DSI centers divested and to be divested are reflected as discontinued operations in our consolidated financial statements beginning September 1, 2011.

Financial and operating highlights include:

 

  • Cash Flow: For the rolling twelve months ended September 30, 2011 operating cash flow was $1,150 million and free cash flow was $835 million. For the three months ended September 30, 2011 operating cash flow was $495 million and free cash flow was $408 million.
  • Operating Income: Operating income for the three and nine months ended September 30, 2011 was $319 million and $825 million, respectively, which for the nine months ended September 30, 2011 excludes the pre-tax non-cash goodwill impairment charge of $24 million. Operating income for the nine months ended September 30, 2011 including this item was $801 million.
    Operating income for the three and nine months ended September 30, 2010 was $257 million and $741 million, respectively.
  • Volume: Total treatments for the third quarter of 2011 were 5,008,094, or 63,394 treatments per day, representing a per day increase of 9.6% over the third quarter of 2010. Non-acquired treatment growth in the quarter was 5.0% over the prior year's third quarter. Our normalized non-acquired treatment growth in the quarter was 4.6% over the prior year's third quarter.
  • Effective Tax Rate: Our effective tax rate was 36.4% and 35.9% for the three and nine months ended September 30, 2011, 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 40.5% and 40.2% for the three and nine months ended September 30, 2011, respectively. We still expect our effective tax rate attributable to DaVita Inc. for 2011 to be in the range of 39.0% to 40.0%.
  • Center Activity: As of September 30, 2011, we operated or provided administrative services at 1,777 outpatient dialysis centers serving approximately 138,000 patients, of which 1,745 centers are consolidated in our financial statements. During the third quarter of 2011, we acquired and opened a total of 138 centers, including 113 centers associated with the acquisition of DSI and divested a total of 28 centers in order to complete the acquisition of DSI.
  • Debt Transactions: OnAugust 26, 2011, we entered into an Increase Joinder Agreement under our existing Senior Secured Credit Agreement. Pursuant to the Increase Joinder Agreement, we increased the revolving credit facility by $100 million, to a total of $350 million, and entered into an additional $200 million Term Loan A-2. The Term Loan A-2 matures in October 2016.

Outlook

Our operating income guidance for 2011 is still expected to be in the range of $1,125 million to $1,155 million. This guidance excludes the non-cash goodwill impairment charge recorded in the second quarter of 2011. We are raising our operating cash flow guidance for 2011 to now be in the range of $1,020 million to $1,100 million. Our previous operating cash flow guidance for 2011 was in the range of $900 million to $980 million. We also expect our operating cash flows for 2012 to be flat or slightly down as compared to 2011, primarily due to the timing of certain working capital items. We are also confirming our operating income guidance range for 2012 of $1,200 million to $1,300 million, as previously provided. 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 third quarter ended September 30, 2011 on November 3, 2011 at 5:30 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, http://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 2011 and 2012 operating income, our 2011 and 2012 operating cash flows and our 2011 expected effective tax rate attributable to DaVita Inc. Factors that 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 quarterly report on Form 10-Q for the second quarter ended June 30, 2011 and subsequent quarterly reports to be 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 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 ability to maintain contracts with physician medical directors,
  • legal compliance risks, including our continued compliance with complex government regulations,
  • current or potential investigations by various governmental entities and related government or private-party proceedings,
  • continued increased competition from large and medium-sized dialysis providers that compete directly with us,
  • our ability to complete any acquisitions, mergers or dispositions that we might be considering or announce, or integrate and successfully operate any business we may acquire, and
  • expansion of our operations and services to markets outside the United States, or to businesses outside of dialysis.

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 September 30,   Nine months ended September 30,
      2011       2010       2011       2010  
Net operating revenues   $ 1,807,869     $ 1,649,557     $ 5,119,896     $ 4,791,126  
Operating expenses and charges:                
Patient care costs     1,189,638       1,144,474       3,466,860       3,334,099  
General and administrative     182,638       148,041       498,033       421,422  
Depreciation and amortization     67,558       58,325       193,641       173,820  
Provision for uncollectible accounts     51,942       43,761       143,247       127,451  
Equity investment income     (2,619 )     (1,789 )     (6,555 )     (6,968 )
Goodwill impairment charge     -       -       24,000       -  
Total operating expenses and charges     1,489,157       1,392,812       4,319,226       4,049,824  
Operating income     318,712       256,745       800,670       741,302  
Debt expense     (60,848 )     (39,490 )     (179,340 )     (127,728 )
Debt redemption charges     -       -       -       (4,127 )
Other income     798       759       2,195       2,328  
Income from continuing operations before income taxes     258,662       218,014       623,525       611,775  
Income tax expense     94,204       75,038       224,034       220,189  
Income from continuing operations     164,458       142,976       399,491       391,586  
Discontinued operations:                
Income (loss) from operations of discontinued operations, net of tax     1,076       (95 )     1,460       188  
Loss on disposal of discontinued operations, net of tax     (3,688 )     -       (3,688 )     -  
Net income.     161,846       142,881       397,263       391,774  
Less: Net income attributable to noncontrolling interests     (26,485 )     (23,494 )     (67,385 )     (55,111 )
Net income attributable to DaVita Inc.   $ 135,361     $ 119,387     $ 329,878     $ 336,663  
Earnings per share:                
Basic income from continuing operations per share attributable to DaVita Inc.   $ 1.48     $ 1.16     $ 3.50     $ 3.27  
Basic net income per share attributable to DaVita Inc.   $ 1.45     $ 1.16     $ 3.47     $ 3.27  
Diluted income from continuing operations per share attributable to DaVita Inc.   $ 1.45     $ 1.15     $ 3.43     $ 3.22  
Diluted net income per share attributable to DaVita Inc.   $ 1.42     $ 1.15     $ 3.40     $ 3.22  
Weighted average shares for earnings per share:                
Basic     93,441,620       102,608,844       95,053,339       102,989,010  
Diluted     95,171,225       104,022,458       97,057,773       104,408,939  
Amounts attributable to DaVita Inc.:                
Income from continuing operations   $ 138,192     $ 119,482     $ 332,325     $ 336,475  
Discontinued operations     (2,831 )     (95 )     (2,447 )     188  
Net income   $ 135,361     $ 119,387     $ 329,878     $ 336,663  
                                 
                                 
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
     
    Nine months ended
September 30,
      2011       2010  
Cash flows from operating activities:        
Net income   $ 397,263     $ 391,774  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization     194,328       174,307  
Stock-based compensation expense     36,392       33,492  
Tax benefits from stock award exercises     35,096       15,755  
Excess tax benefits from stock award exercises     (19,640 )     (2,079 )
Deferred income taxes     38,377       61,499  
Equity investment income, net     238       (3,048 )
Loss on disposal of assets and other non-cash charges     16,398       5,650  
Goodwill impairment charge     24,000       -  
Debt redemption charges     -       4,127  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:        
Accounts receivable     (61,483 )     21,680  
Inventories     11,767       3,041  
Other receivables and other current assets     81,737       16,596  
Other long-term assets     2,408       187  
Accounts payable     56,652       95,350  
Accrued compensation and benefits     121,631       72,501  
Other current liabilities     (8,733 )     (118,305 )
Income taxes     88,454       (55,703 )
Other long-term liabilities     14,502       2,308  
         
Net cash provided by operating activities     1,029,387       719,132  
         
Cash flows from investing activities:        
Additions of property and equipment, net     (251,879 )     (169,376 )
Acquisitions     (927,124 )     (137,643 )
Proceeds from asset sales     51,623       18,471  
Purchase of investments available for sale     (2,118 )     (955 )
Purchase of investments held-to-maturity     (29,740 )     (23,540 )
Proceeds from sale of investments available for sale     1,149       900  
Proceeds from maturities of investments held-to-maturity     29,747       26,916  
Purchase of equity investments and other assets     (5,005 )     (436 )
Distributions received on equity investments     340       350  
         
Net cash used in investing activities     (1,133,007 )     (285,313 )
         
Cash flows from financing activities:        
Borrowings     27,506,051       14,736,519  
Payments on long-term debt     (27,350,513 )     (15,006,754 )
Interest rate cap premiums and other deferred financing costs     (17,863 )     (46 )
Debt call premium     -       (3,314 )
Purchase of treasury stock     (323,348 )     (148,669 )
Distributions to noncontrolling interests     (67,408 )     (61,112 )
Stock award exercises and other share issuances, net     9,886       39,416  
Excess tax benefits from stock award exercises     19,640       2,079  
Contributions from noncontrolling interests     14,779       5,365  
Proceeds from sales of additional noncontrolling interests     2,675       3,205  
Purchases from noncontrolling interests     (9,190 )     (5,402 )
         
Net cash used in financing activities     (215,291 )     (438,713 )
         
Net decrease in cash and cash equivalents     (318,911 )     (4,894 )
Cash and cash equivalents at beginning of period     860,117       539,459  
         
Cash and cash equivalents at end of period   $ 541,206     $ 534,565  
                 
                 
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
         
    September 30,
2011
  December 31,
2010
ASSETS        
Cash and cash equivalents   $ 541,206     $ 860,117  
Short-term investments     24,661       23,003  
Accounts receivable, less allowance of $231,666 and $235,629     1,165,010       1,048,976  
Inventories     73,293       76,008  
Other receivables     242,218       304,366  
Other current assets     67,454       43,994  
Income tax receivables     -       40,330  
Deferred income taxes     256,325       226,060  
Total current assets     2,370,167       2,622,854  
Property and equipment, net     1,335,789       1,170,808  
Amortizable intangibles, net     159,789       162,635  
Equity investments     30,340       25,918  
Long-term investments     8,857       8,848  
Other long-term assets     31,761       32,054  
Goodwill     4,769,965       4,091,307  
    $ 8,706,668     $ 8,114,424  
         
LIABILITIES AND EQUITY        
Accounts payable   $ 259,459     $ 181,033  
Other liabilities     363,176       342,943  
Accrued compensation and benefits     461,988       325,477  
Current portion of long-term debt     82,497       74,892  
Income tax payable     38,800       -  
Total current liabilities     1,205,920       924,345  
Long-term debt     4,417,468       4,233,850  
Other long-term liabilities     134,075       89,290  
Alliance and product supply agreement, net     22,370       25,317  
Deferred income taxes     393,540       421,436  
Total liabilities     6,173,373       5,694,238  
Commitments and contingencies        
Noncontrolling interests subject to put provisions     450,903       383,052  
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; 93,442,783 and 96,001,535 shares outstanding)     135       135  
Additional paid-in capital     611,833       620,546  
Retained earnings     3,047,695       2,717,817  
Treasury stock, at cost (41,419,500 and 38,860,748 shares)     (1,639,554 )     (1,360,579 )
Accumulated other comprehensive (loss) income     (20,856 )     503  
Total DaVita Inc. shareholders' equity     1,999,253       1,978,422  
Noncontrolling interests not subject to put provisions     83,139       58,712  
Total equity     2,082,392       2,037,134  
         
    $ 8,706,668     $ 8,114,424  
                 
                 
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, 2011

   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 
1. Consolidated Financial Results:                
Revenues   $ 1,808     $ 1,709     $ 1,650     $ 5,120  
Operating income   $ 318.7     $ 246.6     $ 256.7     $ 800.7  
Operating income, excluding the pre-tax non-cash goodwill impairment charge(1)   $ 318.7     $ 270.6     $ 256.7     $ 824.7  
Operating income margin     17.6 %     14.4 %     15.6 %     15.6 %
Operating income margin, excluding the pre-tax non-cash goodwill impairment charge(1)     17.6 %     15.8 %     15.6 %     16.1 %
Income from continuing operations attributable to DaVita Inc.   $ 138.2     $ 99.8     $ 119.5     $ 332.3  
Income from continuing operations attributable to DaVita Inc., excluding the after-tax non-cash goodwill impairment charge(1)   $ 138.2     $ 114.2     $ 119.5     $ 346.7  
Diluted earnings per share from continuing operations attributable to DaVita Inc.   $ 1.45     $ 1.03     $ 1.15     $ 3.43  
Diluted earnings per share from continuing operations attributable to DaVita Inc., excluding the after-tax non-cash goodwill impairment charge(1)   $ 1.45     $ 1.17     $ 1.15     $ 3.57  
                 
2. Consolidated Business Metrics:                
Expenses                
Patient care costs as a percent of consolidated revenue(2)     65.8 %     68.1 %     69.4 %     67.7 %
General and administrative expenses as a percent of consolidated revenue (2)     10.1 %     9.6 %     9.0 %     9.7 %
                 
Bad debt expense as a percent of consolidated revenue     2.9 %     2.9 %     2.7 %     2.8 %
                 
Consolidated effective tax rate attributable to DaVita Inc.(1)     40.5 %     40.0 %     38.5 %     40.2 %
                 
3. Segment Financial Results: (dollar amounts rounded to nearest million)                
Revenues                
Dialysis and related lab services   $ 1,675     $ 1,588     $ 1,551     $ 4,765  
Other - Ancillary services and strategic initiatives     137       123       101       366  
Total segment revenue     1,812       1,711       1,652       5,131  
Less elimination of intersegment revenue     (4 )     (3 )     (2 )     (11 )
Total consolidated revenue   $ 1,808     $ 1,709     $ 1,650     $ 5,120  
                 
Operating Income                
Dialysis and related lab services   $ 328     $ 282     $ 266     $ 860  
Other - Ancillary services and strategic initiatives     2       (25 )     -       (30 )
Total segment operating income   $ 330     $ 257     $ 266     $ 830  
Reconciling items:                
Stock-based compensation     (13 )     (13 )     (11 )     (36 )
Equity investment income     2       2       2       7  
Consolidated operating income   $ 319     $ 247     $ 257     $ 801  
                                 
                                 
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, 2011

   

September 30,
2011

 

June 30, 
2011

 

September 30,
2010

 
4. Segment Business Metrics:                
Dialysis and related lab services                
Volume                
Treatments     5,008,094       4,769,661       4,571,219       14,372,305  
Number of treatment days     79.0       78.0       79.0       234.0  
Treatments per day     63,394       61,150       57,864       61,420  
Per day year over year increase     9.6 %     7.1 %     5.5 %     7.9 %
Non-acquired growth year over year     5.0 %     4.6 %     3.7 %     4.6 %
                 
Revenue                
Dialysis and related lab services revenue per treatment   $ 333.86     $ 332.30     $ 338.79     $ 330.95  
Per treatment increase from previous quarter     0.5 %     1.8 %     1.2 %    
Per treatment decrease from previous year     (1.5 %)     (0.7 %)     (1.3 %)     (2.4 %)
Percent of consolidated revenue     92.5 %     92.8 %     93.9 %     92.9 %
                 
Expenses                
Patient care costs                
Percent of segment revenue     64.5 %     66.9 %     68.6 %     66.5 %
Per treatment   $ 215.70     $ 222.81     $ 232.88     $ 220.48  
Per treatment (decrease) increase from previous quarter     (3.2 %)     (0.2 %)     0.3 %    
Per treatment decrease from previous year     (7.4 %)     (4.0 %)     (1.9 %)     (5.8 %)
                 
General and administrative expenses                
Percent of segment revenue     9.0 %     8.4 %     7.8 %     8.6 %
Per treatment   $ 30.20     $ 27.84     $ 26.62     $ 28.47  
Per treatment increase from previous quarter     8.5 %     2.2 %     9.1 %    
Per treatment increase from previous year     13.4 %     14.1 %     8.2 %     10.7 %
                 
5. Cash Flow:                
Operating cash flow   $ 495.2     $ 204.4     $ 161.4     $ 1,029.4  
Operating cash flow, last twelve months   $ 1,149.9     $ 816.1     $ 871.7      
Free cash flow(1)   $ 407.7     $ 125.1     $ 90.9     $ 799.3  
Free cash flow, last twelve months(1)   $ 835.3     $ 518.4     $ 657.7      
Capital expenditures:                
Routine maintenance/IT/other   $ 66.5     $ 55.1     $ 46.7     $ 162.7  
Development and relocations   $ 45.7     $ 39.4     $ 23.3     $ 112.7  
Acquisition expenditures   $ 775.9     $ 69.7     $ 45.9     $ 927.1  
                 
6. Accounts Receivable:                
Net receivables   $ 1,165     $ 1,132     $ 1,083      
DSO     60       63       63      
                             
                             
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, 2011

   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 
7. Debt and Capital Structure:                
Total debt(3)   $ 4,508     $ 4,294     $ 3,361      
Net debt, net of cash(3)   $ 3,967     $ 3,564     $ 2,826      

Leverage ratio (see Note 1 on page 9)

   

2.73

x

   

2.69

x

   

2.31

x

   
Overall weighted average effective interest rate during the quarter     5.30 %     5.33 %     4.45 %    
Overall weighted average effective interest rate at end of the quarter     5.27 %     5.34 %     4.18 %    
Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter     4.61 %     4.68 %     1.80 %    
Effectively fixed interest rates as a percentage of our total debt at September 30, 2011(4) and June 30, 2011(4) and fixed interest rates at September 30, 2010     100 %     100 %     46 %    
Share repurchases   $ 7.3     $ 302.4     $ 98.5     $ 323.3
                 
8. Clinical: (quarterly averages)                
Dialysis adequacy -% of patients with Kt/V > 1.2 at the end of the quarter     97 %     97 %     96 %    
Patients with arteriovenous fistulas placed     69 %     69 %     67 %    

________________

(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)   The quarter ended September 30, 2011, excludes $8.3 million of debt discounts associated with our Term Loan B and our Term Loan A-2 that is not actually outstanding debt principal. The quarter ended June 30, 2011, excludes $7.6 million of a debt discount associated with our Term Loan B that is not actually outstanding debt principal. The quarter ended September 30, 2010 excludes $1.6 million of the unamortized balance of a debt premium associated with our senior notes that is not actually outstanding debt principal.
(4)   This includes the Term Loan B outstanding amount for the quarters ended September 30, 2011 and June 30, 2011, since the Term Loan B bears interest at LIBOR (floor of 1.50%) plus a margin of 3.00% and the current LIBOR rate is below that percentage. In addition, this also includes the Term Loan A-2 outstanding amount for the quarter ending September 30, 2011, since the Term Loan A-2 bears interest at LIBOR (floor of 1.00%) plus a margin of 3.50% and the current LIBOR rate is below that percentage as well.
     
     
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA--continued
(unaudited)
(dollars in thousands)
 

Note 1: Calculation of the Leverage Ratio

 

Under the Company's 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.

     
   

Rolling twelve
months ended
September 30, 2011

Net income attributable to DaVita Inc.   $ 398,898  
Income taxes     264,208  
Interest expense     217,779  
Depreciation and amortization     254,136  
Non-cash goodwill impairment charge     24,000  
Debt refinancing and redemption charges     70,255  
Noncontrolling interests     90,810  
Equity investment income, net     (12 )
Amortization of deferred financing costs     9,903  
Other, including pro-forma EBITDA associated with acquisitions     91,989  
Stock-based compensation expense     48,450  
"Consolidated EBITDA"   $ 1,470,416  

 

   
     
    September 30, 2011
Total debt, excluding debt discount of $8.3 million   $ 4,508,222  
Letters of credit issued     42,811  
      4,551,033  
Less: cash and cash equivalents     (541,206 )
Consolidated net debt   $ 4,009,827  
Last twelve months "Consolidated EBITDA"   $ 1,470,416  

Leverage ratio

   

2.73

x

 

 

 

In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.25 to 1.0 as of September 30, 2011. At that date the Company's leverage ratio did not exceed 4.25 to 1.0.

     
     
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
 

1.Income from continuing operations attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and debt redemption charges and diluted income from continuing operations per share attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and debt redemption charges.

 

We believe that income from continuing operations attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and debt redemption charges enhances a user's understanding of our normal income from continuing operations attributable to DaVita Inc. and diluted income from continuing operations per share attributable to DaVita Inc. for these periods by providing a measure that is more meaningful because it 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 during the second quarter of 2011 and also from the redemption of $200 million aggregate principal amount of our outstanding 6 5/8% senior notes due 2013 that occurred in the second quarter of 2010 and accordingly, is more comparable to prior periods and indicative of consistent income from continuing operations attributable to DaVita Inc. and diluted income from continuing operations per share attributable to DaVita 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 income from continuing operations attributable to DaVita Inc. and diluted income from continuing operations per share attributable to DaVita Inc.

         
Income from continuing operations attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and debt redemption charges:   Three months ended   Nine months ended
   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 

September 30,
2011

 

September 30,
2010

Net income attributable to DaVita Inc.   $ 135,361   $ 100,015     $ 119,387   $ 329,878     $ 336,663  
Discontinued operations attributable to DaVita Inc.     2,831     (253 )     95     2,447       (188 )
Income from continuing operations attributable to DaVita Inc.     138,192     99,762       119,482     332,325       336,475  
Add: Non-cash goodwill impairment charge     -     24,000       -     24,000       -  
Add: Debt redemption charges     -     -       -     -       4,127  
Less: Related income tax     -     (9,600 )     -     (9,600 )     (1,605 )
    $ 138,192   $ 114,162     $ 119,482   $ 346,725     $ 338,997  
                     
                     
Diluted income from continuing operations per share attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and debt redemption charges:   Three months ended   Nine months ended
   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 

September 30,
2011

 

September 30,
2010

Diluted net income per share attributable to DaVita Inc.   $ 1.42   $ 1.03     $ 1.15   $ 3.40     $ 3.22  
Discontinued operations     0.03     -       -     0.03       -  
Diluted income from continuing operations per share attributable to DaVita Inc.     1.45     1.03       1.15     3.43       3.22  
Add: Non-cash goodwill impairment charge     -     0.14       -     0.14       -  
Add: Debt redemption charges     -     -       -     -       0.02  
Add: Other rounding     -     -       -     -       0.01  
    $ 1.45   $ 1.17     $ 1.15   $ 3.57     $ 3.25  
                                     
                                     
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
 

2.Operating income excluding a pre-tax non-cash goodwill impairment charge.

 

We believe that operating income excluding a pre-tax non-cash goodwill impairment charge enhances a user's understanding of our normal operating income for these periods by providing a measure that is more meaningful because it 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 during the second quarter of 2011 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.

         
Operating income excluding a pre-tax non-cash goodwill impairment charge:   Three months ended   Nine months ended
   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 

September 30,
2011

 

September 30,
2010

Operating income   $ 318,712   $ 246,624   $ 256,745   $ 800,670   $ 741,302
Add: Non-cash goodwill impairment charge     -     24,000     -     24,000     -
    $ 318,712   $ 270,624   $ 256,745   $ 824,670   $ 741,302
                               
                               
DAVITA 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 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 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  

Nine months
ended
September 30, 2011

   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 
Income from continuing operations before income taxes   $ 258,662     $ 187,283     $ 218,014     $ 623,525  
Income tax expense   $ 94,204     $ 66,871     $ 75,038     $ 224,034  
Effective income tax rate     36.4 %     35.7 %     34.4 %     35.9 %
                 
                 
    Three months ended  

Nine months
ended
September 30, 2011

   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 
Income from continuing operations before income taxes   $ 258,662     $ 187,283     $ 218,014     $ 623,525  
Less: Noncontrolling owners' income primarily attributable to non-tax paying entities     (26,604 )     (21,020 )     (23,703 )     (67,921 )
Income before income taxes attributable to DaVita Inc.   $ 232,058     $ 166,263     $ 194,311     $ 555,604  
                 
Income tax expense     94,204       66,871     $ 75,038     $ 224,034  
Less income tax attributable to noncontrolling interests     (119 )     (370 )     (209 )     (536 )
Income tax attributable to DaVita Inc.   $ 94,085     $ 66,501     $ 74,829     $ 223,498  
                 
Effective income tax rate attributable to DaVita Inc.     40.5 %     40.0 %     38.5 %     40.2 %
                                 
                                 
DAVITA 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 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  

Nine months
ended
September 30, 2011

   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

 
Cash provided by operating activities   $ 495,194   $ 204,410   $ 161,366   $ 1,029,387
Less: Income distributions to noncontrolling interests   (20,985)   (24,236)   (23,811)   (67,408)
Cash provided by operating activities attributable to DaVita Inc.   474,209   180,174   137,555   961,979
Less: Expenditures for routine maintenance and information technology   (66,523)   (55,096)   (46,690)   (162,698)
Free cash flow   $ 407,686   $ 125,078   $ 90,865   $ 799,281
                 
                 
    Rolling 12-Month Period
   

September 30,
2011

 

June 30,
2011

 

September 30,
2010

Cash provided by operating activities   $ 1,149,938   $ 816,110   $ 871,723
Less: Income distributions to noncontrolling interests   (89,887)   (92,713)   (81,972)
Cash provided by operating activities attributable to DaVita Inc.   1,060,051   723,397   789,751
Less: Expenditures for routine maintenance and information technology   (224,781)   (204,948)   (132,079)
Free cash flow   $ 835,270   $ 518,449   $ 657,672

SOURCE: DaVita Inc.

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


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