Improving Health, Health Care and Quality of Life

DaVita 4th Quarter 2010 Results

DENVER, Feb 10, 2011 (BUSINESS WIRE) -- DaVita Inc. (NYSE:DVA) today announced results for the quarter and year ended December 31, 2010. Net income attributable to DaVita Inc. for the quarter and year ended December 31, 2010, excluding after-tax debt refinancing and redemption charges of $42.9 million and $45.4 million respectively, was $111.9 million and $451.1 million, or $1.13 per share and $4.38 per share, respectively. This compares to net income attributable to DaVita Inc. for the quarter and year ended December 31, 2009 of $109.7 million and $422.7 million, or $1.06 per share and $4.06 per share, respectively.

Net income attributable to DaVita Inc. for the quarter and year ended December 31, 2010, including the after-tax debt refinancing and redemption charges was $69.0 million and $405.7 million, or $0.70 per share and $3.94 per share, respectively.

Financial and operating highlights include:

 

  • Cash Flow: For the year ended December 31, 2010 operating cash flow was $840 million and free cash flow was $597 million. For the three months ended December 31, 2010 operating cash flow was $121 million and free cash flow was $36 million.
  • Operating Income: Operating income for the quarter and year ended December 31, 2010 was $255 million and $997 million, respectively, as compared to $239 million and $940 million, respectively, for the same periods of 2009.
  • Volume: Total treatments for the fourth quarter of 2010 were 4,657,498, or 58,956 treatments per day, representing a per day increase of 6.8% over the fourth quarter of 2009. Non-acquired treatment growth in the quarter was 4.4% over the prior year's fourth quarter.
  • Effective Tax Rate: Our effective tax rate was 30.2% and 35.0% for the quarter and year ended December 31, 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 36.5% and 39.0% for the quarter and year ended December 31, 2010, respectively. We expect our effective tax rate attributable to DaVita Inc. for 2011 to be in the range of 39.5% to 40.5%.
  • Share Repurchases: During the fourth quarter of 2010, we repurchased a total of 5,883,600 shares of our common stock for $420.0 million, or an average price of $71.38 per share. For the year ended December 31, 2010, we repurchased a total of 8,918,760 shares of our common stock for $618.5 million, or an average price of $69.35 per share. We have not repurchased any additional shares of our common stock subsequent to December 31, 2010. As a result of these transactions, our remaining board authorization for share repurchases is currently $681.5 million.
  • Acquisition: As previously announced on February 4, 2011, we entered into a definitive agreement to acquire DSI Renal, Inc. ("DSI"), for approximately $690 million, subject to adjustments. The transaction is subject to approval by the Federal Trade Commission including Hart-Scott-Rodino antitrust clearance. We anticipate that we will have to divest some centers as a condition of the transaction. We expect to close the transaction in the second or third quarter of this year.
  • Debt Transactions: As previously disclosed in our third quarter earnings release, on October 20, 2010, we completed $4.55 billion of debt refinancing transactions.

In January 2011, we entered into interest rate swap agreements with amortizing notional amounts totaling $1.0 billion that went effective on January 31, 2011. These agreements have the economic effect of modifying the LIBOR variable component of our interest rate on an equivalent amount of our Term Loan A debt to fixed rates ranging from 1.59% to 1.64%, resulting in an overall weighted average effective interest rate of 4.36% including the Term Loan A margin of 2.75%. The swap agreements expire on September 30, 2014 and require monthly interest payments.

In addition, in January 2011, we also entered into interest rate cap agreements with notional amounts totaling $1.25 billion that went effective on January 31, 2011. These agreements have the economic effect of capping the LIBOR variable component of our interest rate at a maximum of 4.00% on an equivalent amount of our Term Loan B debt. The cap agreements expire on September 30, 2014.

 

  • Center Activity: As of December 31, 2010, we operated or provided administrative services at 1,612 outpatient dialysis centers serving approximately 125,000 patients, of which 1,580 centers are consolidated in our financial statements. During the fourth quarter of 2010, we acquired seven centers, opened 14 new centers, sold two centers and closed five centers.

Outlook

Because of the uncertainties of operating under the new Medicare bundled payment system and the ongoing uncertainties associated with our payor mix, we will not be providing a specific guidance range for 2011 operating income at this time. However, excluding the impact of our recently announced acquisition of DSI that is not expected to close until the second or third quarter of this year, our current projections indicate that 2011 operating income will be flat or modestly down compared to 2010. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below and actual results may vary significantly from these current projections.

We will be holding a conference call to discuss our results for the fourth quarter and year ended December 31, 2010 on February 10, 2011 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 2011 operating income, our 2011 expected effective tax rate attributable to DaVita Inc. and the anticipated closing of the acquisition. 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 third quarter ended September 30, 2010. 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 beginning January 2011, which will lower reimbursement for services we provide to Medicare patients, and 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,
  • the resolution of ongoing investigations by various federal and state governmental agencies,
  • continued increased competition from large and medium-sized dialysis providers that compete directly with us, and
  • 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.

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

December 31,

  Year ended

December 31,

      2010       2009       2010       2009  
Net operating revenues   $ 1,649,417     $ 1,568,204     $ 6,447,391     $ 6,108,800  
Operating expenses and charges:                
Patient care costs     1,135,012       1,095,046       4,474,735       4,248,668  
General and administrative     157,578       137,161       579,000       531,531  
Depreciation and amortization     60,071       56,865       234,378       228,986  
Provision for uncollectible accounts     43,382       41,796       171,250       161,786  
Equity investment income     (2,031 )     (1,376 )     (8,999 )     (2,442 )
Total operating expenses and charges     1,394,012       1,329,492       5,450,364       5,168,529  
Operating income     255,405       238,712       997,027       940,271  
Debt expense     (53,879 )     (44,831 )     (181,607 )     (185,755 )
Debt refinancing and redemption charges     (70,255 )     -       (74,382 )     -  
Other income     1,091       682       3,420       3,708  
Income before income taxes     132,362       194,563       744,458       758,224  
Income tax expense     39,917       68,980       260,239       278,465  
Net income     92,445       125,583       484,219       479,759  
Less: Net income attributable to noncontrolling interests     (23,425 )     (15,859 )     (78,536 )     (57,075 )
Net income attributable to DaVita Inc.   $ 69,020     $ 109,724     $ 405,683     $ 422,684  
Earnings per share:                
Basic earnings per share attributable to DaVita Inc.   $ 0.71     $ 1.07     $ 4.00     $ 4.08  
Diluted earnings per share attributable to DaVita Inc.   $ 0.70     $ 1.06     $ 3.94     $ 4.06  
Weighted average shares for earnings per share:                
Basic     97,099,341       102,711,126       101,504,373       103,603,885  
Diluted     99,058,745       103,735,571       103,059,171       104,167,685  
                                 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 
  Year ended

December 31,

    2010       2009  
Cash flows from operating activities:      
Net income $ 484,219     $ 479,759  
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation and amortization   234,378       228,986  
Stock-based compensation expense   45,551       44,422  
Tax benefits from stock award exercises   26,706       18,241  
Excess tax benefits from stock award exercises   (6,283 )     (6,950 )
Deferred income taxes   75,399       50,869  
Equity investment income, net   (3,298 )     (204 )
Loss on disposal of assets and other non-cash charges   9,585       20,945  
Debt refinancing and redemption charges   74,382       -  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:      
Accounts receivable   55,379       (32,313 )
Inventories   (3,892 )     15,115  
Other receivables and other current assets   (44,719 )     (35,104 )
Other long-term assets   901       7,288  
Accounts payable   4,228       (104,879 )
Accrued compensation and benefits   39,588       (9,138 )
Other current liabilities   (111,444 )     (43,543 )
Income taxes   (45,737 )     44,578  
Other long-term liabilities   4,740       (11,362 )
Net cash provided by operating activities   839,683       666,710  
Cash flows from investing activities:      
Additions of property and equipment, net   (273,602 )     (274,605 )
Acquisitions   (188,502 )     (87,617 )
Proceeds from asset sales   22,727       7,697  
Purchase of investments available for sale   (1,125 )     (2,062 )
Purchase of investments held-to-maturity   (56,615 )     (22,664 )
Proceeds from sale of investments available for sale   900       16,693  
Proceeds from maturities of investments held-to-maturity   59,932       16,380  
Purchase of equity investments and other assets   (709 )     (2,429 )
Distributions received on equity investments   361       2,547  
Net cash used in investing activities   (436,633 )     (346,060 )
Cash flows from financing activities:      
Borrowings   24,809,258       18,767,592  
Payments on long-term debt   (24,134,502 )     (18,828,824 )
Debt refinancing costs including tender and call premiums   (113,810 )     (42 )
Purchase of treasury stock   (618,496 )     (153,495 )
Distributions to noncontrolling interests   (83,591 )     (67,748 )
Stock award exercises and other share issuances, net   53,760       67,908  
Excess tax benefits from stock award exercises   6,283       6,950  
Contributions from noncontrolling interests   9,510       13,071  
Proceeds from sales of additional noncontrolling interests   3,410       9,375  
Purchases from noncontrolling interests   (14,214 )     (6,859 )
Net cash used in financing activities   (82,392 )     (192,072 )
Net increase in cash and cash equivalents   320,658       128,578  
Cash and cash equivalents at beginning of period   539,459       410,881  
Cash and cash equivalents at end of period $ 860,117     $ 539,459  
               

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

         
ASSETS December 31,

2010

    December 31,

2009

Cash and cash equivalents $ 860,117       $ 539,459  
Short-term investments   23,003         26,475  
Accounts receivable, less allowance of $235,629 and $229,317   1,048,976         1,105,903  
Inventories   76,008         70,041  
Other receivables   304,366         263,456  
Other current assets   43,994         40,234  
Income tax receivables   40,330         -  
Deferred income taxes   226,060         256,953  
Total current assets   2,622,854         2,302,521  
Property and equipment, net   1,170,808         1,104,925  
Amortizable intangibles, net   162,635         136,732  
Equity investments   25,918         22,631  
Long-term investments   8,848         7,616  
Other long-term assets   32,054         32,615  
Goodwill   4,091,307         3,951,196  
  $ 8,114,424       $ 7,558,236  
LIABILITIES AND EQUITY        
Accounts payable $ 181,033       $ 176,657  
Other liabilities   342,943         461,092  
Accrued compensation and benefits   325,477         286,121  
Current portion of long-term debt   74,892         100,007  
Income taxes payable   -         23,064  
Total current liabilities   924,345         1,046,941  
Long-term debt   4,233,850         3,532,217  
Other long-term liabilities   89,290         87,692  
Alliance and product supply agreement, net   25,317         30,647  
Deferred income taxes   421,436         334,855  
Total liabilities   5,694,238         5,032,352  
Commitments and contingencies        
Noncontrolling interests subject to put provisions   383,052         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; 96,001,535 and 103,062,698 shares outstanding)   135         135  
Additional paid-in capital   620,546         621,685  
Retained earnings   2,717,817         2,312,134  
Treasury stock, at cost (38,860,748 and 31,799,585 shares)   (1,360,579 )       (793,340 )
Accumulated other comprehensive income (loss)   503         (5,548 )
Total DaVita Inc. shareholders' equity   1,978,422         2,135,066  
Noncontrolling interests not subject to put provisions   58,712         59,093  
Total equity   2,037,134         2,194,159  
  $ 8,114,424       $ 7,558,236  
                 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

         
  Three months ended    

Year ended

December 31,
2010

  December 31,

2010

    September 30,

2010

    December 31,

2009

   
1. Consolidated Financial Results:                    
Revenues $ 1,649       $ 1,652       $ 1,568       $ 6,447  
Operating income $ 255.4       $ 256.6       $ 238.7       $ 997.0  
Operating income margin   15.5 %       15.5 %       15.2 %       15.5 %
Net income attributable to DaVita Inc. $ 69.0       $ 119.4       $ 109.7       $ 405.7  
Net income attributable to DaVita Inc., excluding debt refinancing and redemption charges(1) $ 111.9       $ 119.4       $ 109.7       $ 451.1  
Diluted earnings per share attributable to DaVita Inc. $ 0.70       $ 1.15       $ 1.06       $ 3.94  
Diluted earnings per share attributable to DaVita Inc., excluding debt refinancing and redemption charges(1) $ 1.13       $ 1.15       $ 1.06       $ 4.38  
                     
2. Consolidated Business Metrics:                    
Expenses                    
Patient care costs as a percent of consolidated revenue(2)   68.8 %       69.4 %       69.8 %       69.4 %
General and administrative expenses as a percent of consolidated revenue (2)   9.6 %       9.0 %       8.7 %       9.0 %
                     
Bad debt expense as a percent of consolidated revenue   2.6 %       2.7 %       2.7 %       2.7 %
                     
Consolidated effective tax rate attributable to DaVita Inc.(1)   36.5 %       38.5 %       38.5 %       39.0 %
                     
3. Segment Financial Results: (dollar amounts rounded to nearest million)                    
Dialysis and related lab services                    
Revenues $ 1,545       $ 1,553       $ 1,483       $ 6,073  
Direct operating expenses   1,277         1,288         1,230         5,034  
Dialysis segment operating income $ 268       $ 266       $ 253       $ 1,039  
                     
Other - Ancillary services and strategic initiatives                    
Revenues $ 105       $ 98       $ 85       $ 374  
Direct operating expenses   107         98         90         380  
Ancillary segment operating loss $ (2 )     $ -       $ (5 )     $ (6 )
                     
Total segment operating income $ 265       $ 266       $ 248       $ 1,034  
Reconciling items:                    
Stock-based compensation   (12 )       (11 )       (11 )       (46 )
Equity investment income   2         2         1         9  
Consolidated operating income $ 255       $ 257       $ 239       $ 997  
                                     

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,
2010

  December 31,

2010

    September 30,

2010

    December 31,

2009

   
4. Segment Business Metrics:                    
Dialysis and related lab services                    
Volume                    
Treatments   4,657,498         4,578,622         4,360,638         17,992,805  
Number of treatment days   79.0         79.0         79.0         313.0  
Treatments per day   58,956         57,957         55,198         57,485  
Per day year over year increase   6.8 %       5.5 %       5.2 %       5.6 %
Non-acquired growth year over year   4.4 %       3.7 %       4.8 %       4.1 %
                     
Revenue                    
Dialysis and related lab services revenue per treatment $ 331.12       $ 338.70       $ 339.43       $ 336.92  
Per treatment (decrease) increase from previous quarter   (2.2 %)       1.2 %       (1.1 %)      
Per treatment (decrease) increase from previous year   (2.4 %)       (1.3 %)       2.1 %       (0.9 %)
Percent of consolidated revenue   93.7 %       94.0 %       94.5 %       94.2 %
                     
Expenses                    
Patient care costs                    
Percent of segment revenue   67.8 %       68.7 %       68.9 %       68.6 %
Per treatment $ 224.91       $ 232.93       $ 234.40       $ 231.65  
Per treatment (decrease) increase from previous quarter   (3.4 %)       0.3 %       (1.3 %)      
Per treatment (decrease) increase from previous year   (4.0 %)       (1.9 %)       2.7 %       (1.3 %)
                     
General and administrative expenses                    
Percent of segment revenue   8.3 %       7.8 %       7.6 %       7.8 %
Per treatment $ 27.65       $ 26.58       $ 25.76       $ 26.18  
Per treatment increase from previous quarter   4.0 %       9.1 %       4.8 %      
Per treatment increase from previous year   7.3 %       8.2 %       0.7 %       4.1 %
                     
5. Cash Flow:                    
Operating cash flow $ 120.6       $ 161.4       $ 152.6       $ 839.7  
Operating cash flow, last twelve months $ 839.7       $ 871.7       $ 666.7        
Free cash flow(1) $ 36.0       $ 90.9       $ 96.7       $ 597.0  
Free cash flow, last twelve months(1) $ 597.0       $ 657.7       $ 485.2        
Capital expenditures:                    
Routine maintenance/IT other $ 62.1       $ 46.7       $ 35.1       $ 159.1  
Development and relocations $ 44.5       $ 23.3       $ 33.9       $ 119.7  
Acquisition expenditures $ 50.9       $ 45.9       $ 23.6       $ 188.5  
                     
6. Accounts Receivable:                    
Net receivables $ 1,049       $ 1,083       $ 1,106        
DSO   61         63         68      

 

                                 

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,
2010

  December 31,

2010

    September 30,

2010

    December 31,

2009

   
7. Debt and Capital Structure:                    
Total debt(3) $ 4,317       $ 3,361       $ 3,630        
Net debt, net of cash(3) $ 3,457       $ 2,826       $ 3,090        
Leverage ratio (see Note 1 on page 9) 2.72x     2.31x     2.56x      
Overall weighted average effective interest rate during the quarter   4.86 %       4.45 %       4.69 %      
Overall weighted average effective interest rate at end of the quarter   4.94 %       4.18 %       4.68 %      
Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter   4.05 %       1.80 %       2.63 %      
Fixed interest rates at December 31, 2010 and September 30, 2010 and economically fixed interest rates as a percentage of our total debt at December 31, 2009(4)   77 %       46 %       59 %      
Share repurchases $ 420.0       $ 98.5       $ 59.1       $ 618.5
                     
8. Clinical: (quarterly averages)                    
Dialysis adequacy -% of patients with Kt/V > 1.2   96 %       96 %       95 %      
90 day patients average Hb>=10 <=12   73 %       69 %       64 %      
Patients with arteriovenous fistulas placed   67 %       67 %       65 %      
                                 

_________________

(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 an $8.4 million debt discount associated with out Term Loan B for the quarter ended December 31, 2010 that is not actually outstanding debt principal. The quarters ended September 30, 2010 and December 31, 2009, exclude $1.6 million and $2.7 million, respectively, 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 quarter ended December 31, 2010, since the Term Loan B bears interest at LIBOR (floor of 1.50%) plus a margin of 3.00%.

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
December 31, 2010

Net income attributable to DaVita Inc. $ 405,683  
Income taxes   260,239  
Interest expense   171,293  
Depreciation and amortization   234,378  
Debt refinancing and redemption charges   74,382  
Noncontrolling interests   78,536  
Equity investment income, net   (3,298 )
Amortization of deferred financing costs   9,341  
Other   11,680  
Stock-based compensation expense   45,551  
"Consolidated EBITDA" $ 1,287,785  
   
  December 31, 2010
Total debt, excluding debt discount of $8.4 million $ 4,317,123  
Letters of credit issued   45,789  
    4,362,912  
Less: cash and cash equivalents   (860,117 )
Consolidated net debt $ 3,502,795  
Last twelve months "Consolidated EBITDA" $ 1,287,785  
Leverage ratio 2.72x
   

In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.25 to 1.0 as of December 31, 2010. 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.Net income attributable to DaVita Inc. excluding after-tax debt refinancing and redemption charges and diluted earnings per share attributable to DaVita Inc. excluding after-tax debt refinancing and redemption charges.

We believe that net income attributable to DaVita Inc. excluding after-tax debt refinancing and redemption charges and diluted earnings per share attributable to DaVita Inc. excluding after-tax debt refinancing and 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 charges that resulted from the refinancing of our Senior Secured Credit Facilities and the redemption of the aggregate principal amount of our outstanding 6 5/8% senior notes due 2013 and the aggregate principal amount of our outstanding 7 ¼% senior subordinated notes 2015 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 (GAAP) 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 after-tax debt refinancing and redemption charges:

Three months ended

 

Year ended
December 31,
2010

  December 31,

2010

  September 30,

2010

  December 31,

2009

 
Net income attributable to DaVita Inc. $ 69,020     $ 119,387   $ 109,724   $ 405,683  
Add: Debt refinancing and redemption charges   70,255       -     -     74,382  
Less: Related income tax   (27,329 )     -     -     (28,935 )
  $ 111,946     $ 119,387   $ 109,724   $ 451,130  
                           
Diluted earnings per share attributable to DaVita Inc. excluding after-tax debt refinancing and redemption charges: Three months ended    

Year ended
December 31,
2010

  December 31,

2010

    September 30,

2010

    December 31,

2009

   
Diluted earnings per share attributable to DaVita Inc. $ 0.70     $ 1.15     $ 1.06     $ 3.94
Add: Net after-tax debt refinancing and redemption charges   0.43       -       -       0.44
  $ 1.13     $ 1.15     $ 1.06     $ 4.38
                     

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 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    

Year ended
December 31,
2010

  December 31,

2010

    September 30,

2010

    December 31,

2009

   
Income before income taxes $ 132,362       $ 217,860       $ 194,563       $ 744,458  
Income tax expense $ 39,917       $ 74,979       $ 68,980       $ 260,239  
Effective income tax rate   30.2 %       34.4 %       35.5 %       35.0 %
                                     
  Three months ended  

Year ended
December 31,
2010

  December 31,

2010

  September 30,

2010

  December 31,

2009

 
Income before income taxes $ 132,362     $ 217,860     $ 194,563     $ 744,458  
Less: Noncontrolling owners' income primarily attributable to non-tax paying entities   (23,602 )     (23,703 )     (16,149 )     (79,405 )
Income before income taxes attributable to DaVita Inc. $ 108,760     $ 194,157     $ 178,414     $ 665,053  
               
Income tax expense $ 39,917     $ 74,979     $ 68,980     $ 260,239  
Less income tax attributable to noncontrolling interests   (177 )     (209 )     (290 )     (869 )
Income tax attributable to DaVita Inc. $ 39,740     $ 74,770     $ 68,690     $ 259,370  
               
Effective income tax rate attributable to DaVita Inc.   36.5 %     38.5 %     38.5 %     39.0 %
                               

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    

Year ended
December 31,
2010

  December 31,

2010

    September 30,

2010

    December 31,

2009

   
Cash provided by operating activities $ 120,551       $ 161,366       $ 152,591       $ 839,683  
Less: Income distributions to noncontrolling interests   (22,479 )       (23,811 )       (20,860 )       (83,591 )
Cash provided by operating activities attributable to DaVita Inc.   98,072         137,555         131,731         756,092  
Less: Expenditures for routine maintenance and information technology   (62,083 )       (46,690 )       (35,066 )       (159,096 )
Free cash flow $ 35,989       $ 90,865       $ 96,665       $ 596,996  
                                     
  Rolling 12-Month Period
  December 31,

2010

    September 30,

2010

    December 31,

2009

Cash provided by operating activities $ 839,683       $ 871,723       $ 666,710  
Less: Income distributions to noncontrolling interests   (83,591 )       (81,972 )       (67,748 )
Cash provided by operating activities attributable to DaVita Inc.   756,092         789,751         598,962  
Less: Expenditures for routine maintenance and information technology   (159,096 )       (132,079 )       (113,763 )
Free cash flow $ 596,996       $ 657,672       $ 485,199  
                           

SOURCE: DaVita Inc.

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


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