Improving Health, Health Care and Quality of Life

DaVita 2nd Quarter 2011 Results

DENVER, Aug 03, 2011 (BUSINESS WIRE) -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2011. Net income attributable to DaVita Inc. for the three and six months ended June 30, 2011 was $114.4 million and $208.9 million, or $1.17 and $2.13 per share, respectively, excluding an after-tax non-cash goodwill impairment charge of approximately $14.4 million, or $0.14 per share related to HomeChoice Partners, which provides infusion therapy services. This compares to net income attributable to DaVita Inc. for the three and six months ended June 30, 2010 of $110.4 million and $219.8 million, or $1.06 and $2.10 per share, respectively, excluding after-tax debt redemption charges of $2.5 million, or $0.02 per share.

Net income attributable to DaVita Inc. for the three and six months ended June 30, 2011 including the after-tax non-cash goodwill impairment charge was $100.0 million and $194.5 million or $1.03 and $1.99 per share, respectively. Net income attributable to DaVita Inc. for the three and six months ended June 30, 2010 including the after-tax 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, 2011 operating cash flow was $816 million and free cash flow was $518 million. For the three months ended June 30, 2011 operating cash flow was $204 million and free cash flow was $125 million.
  • Operating Income: Operating income for the three and six months ended June 30, 2011 was $271 million and $507 million, respectively, excluding the pre-tax non-cash goodwill impairment charge of $24 million. Operating income for the three and six months ended June 30, 2011 including this item was $247 million and $483 million, respectively. Operating income for the three and six months ended June 30, 2010 was $242 million and $485 million, respectively.
  • Volume: Total treatments for the second quarter of 2011 were 4,777,817, or 61,254 treatments per day, representing a per day increase of 7.1% over the second quarter of 2010. Non-acquired treatment growth in the quarter was 4.6% over the prior year's second quarter. Our normalized non-acquired treatment growth in the quarter was also 4.6% over the prior year's second quarter.
  • Effective Tax Rate: Our effective tax rate was 35.7% and 35.6% for the three and six months ended June 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 40.0% for the three and six months ended June 30, 2011. We still expect our effective tax rate attributable to DaVita Inc. for 2011 to be in the range of 39.0% to 40.0%.
  • Share Repurchases: During the first six months of 2011, we repurchased a total of 3,710,086 shares of our common stock for $316.1 million, or an average price of $85.20 per share. As of June 30, 2011, a total of $25.5 million of share repurchases had not yet been settled in cash. We also repurchased 84,600 additional shares of our common stock for $7.3 million, or an average price of $85.83 per share during the period July 1, 2011 through July 31, 2011. As a result of these transactions, our remaining board authorization for share repurchases as of July 31, 2011 is approximately $358 million.
  • Center Activity: As of June 30, 2011, we operated or provided administrative services at 1,669 outpatient dialysis centers serving approximately 131,000 patients, of which 1,637 centers are consolidated in our financial statements. During the second quarter of 2011, we acquired and opened a total of 27 centers.

Outlook

We are raising our operating income guidance for 2011 to now be in the range of $1,080 million to $1,120 million. This guidance excludes the non-cash goodwill impairment charge recorded in the second quarter of 2011. Our previous operating income guidance for 2011 was in the range of $1,040 million to $1,100 million. We are raising our operating cash flow guidance for 2011 to now be in the range of $900 million to $980 million. Our previous operating cash flow guidance for 2011 was in the range of $840 million to $940 million. We are also raising our operating income guidance for 2012 to now be in the range of $1,200 million to $1,300 million. Our previous operating income guidance for 2012 was in the range of $1,100 million to $1,200 million. The guidance above assumes the DSI acquisition closes in the third quarter of 2011. 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 second quarter ended June 30, 2011 on August 3, 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, 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 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 first quarter ended March 31, 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,
  • investigations by various governmental entities and potential other related 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 June 30,   Six months ended June 30,
    2011   2010   2011   2010
                 
Net operating revenues   $ 1,711,529     $ 1,586,907     $ 3,317,487     $ 3,146,325  
Operating expenses and charges:                
Patient care costs     1,165,220       1,110,552       2,281,216       2,193,341  
General and administrative     163,793       136,104       315,395       273,381  
Depreciation and amortization     64,470       58,353       126,507       115,821  
Provision for uncollectible accounts     49,417       42,367       91,706       83,930  
Equity investment income     (2,417 )     (2,834 )     (3,936 )     (5,179 )
Goodwill impairment charge     24,000       -       24,000       -  

Total operating expenses and charges

    1,464,483       1,344,542       2,834,888       2,661,294  
Operating income     247,046       242,365       482,599       485,031  
Debt expense    

(59,897

)

   

(43,655

)

    (118,492 )    

(88,238

)

Debt redemption charges     -       (4,127 )     -      

(4,127

)

Other income     556       739       1,397       1,570  
Income before income taxes     187,705       195,322       365,504       394,236  
Income tax expense     67,040       71,429       130,087       145,343  
Net income     120,665       123,893       235,417       248,893  

Less: Net income attributable to noncontrolling interests

   

(20,650

)

   

(16,040

)

   

(40,900

)

   

(31,617

)

Net income attributable to DaVita Inc.   $ 100,015     $ 107,853     $ 194,517     $ 217,276  
Earnings per share:                

Basic earnings per share attributable to DaVita Inc.

  $ 1.05     $ 1.05     $ 2.03     $ 2.11  

Diluted earnings per share attributable to DaVita Inc.

  $ 1.03     $ 1.04     $ 1.99     $ 2.08  
Weighted average shares for earnings per share:                
Basic     95,488,449       103,003,623       95,872,466       103,182,403  
Diluted     97,657,578       104,449,065       98,014,315       104,605,489  
 
 
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
 
    Six months ended
    June 30,
    2011   2010
         
Cash flows from operating activities:        
Net income   $ 235,417     $ 248,893  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization     126,507       115,821  
Stock-based compensation expense     23,058       22,399  
Tax benefits from stock award exercises     33,765       12,896  
Excess tax benefits from stock award exercises     (19,009 )     (1,647 )
Deferred income taxes     24,225       (10,697 )
Equity investment income, net     472       (2,781 )
Loss on disposal of assets and other non-cash charges     10,842       3,085  
Goodwill impairment charge     24,000       -  
Debt redemption charges     -       4,127  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:        
Accounts receivable     (83,075 )     33,724  
Inventories     9,369       2,005  
Other receivables and other current assets     23,791       33,053  
Other long-term assets     2,164       (587 )
Accounts payable     41,436       62,255  
Accrued compensation and benefits     68,008       65,495  
Other current liabilities     (25,716 )     (26,127 )
Income taxes     34,799       (5,103 )
Other long-term liabilities     4,140       955  
         
Net cash provided by operating activities     534,193       557,766  
         
Cash flows from investing activities:        
Additions of property and equipment, net     (154,929 )     (99,351 )
Acquisitions     (151,196 )     (91,701 )
Proceeds from asset sales     2,954       17,681  
Purchase of investments available for sale     (1,868 )     (745 )
Purchase of investments held-to-maturity     (19,684 )     (15,836 )
Proceeds from sale of investments available for sale     1,149       900  
Proceeds from maturities of investments held-to-maturity     19,683       19,249  
Purchase of equity investments and other assets     (5,005 )     (350 )
Distributions received on equity investments     340       350  
         
Net cash used in investing activities     (308,556 )     (169,803 )
         
Cash flows from financing activities:        
Borrowings     19,169,580       9,689,658  
Payments on long-term debt     (19,201,362 )     (9,938,312 )
Interest rate cap premiums and other deferred financing costs     (13,457 )     -  
Debt call premium     -       (3,314 )
Purchase of treasury stock     (290,593 )     (100,048 )
Distributions to noncontrolling interests     (46,423 )     (37,301 )
Stock award exercises and other share issuances, net     7,410       34,113  
Excess tax benefits from stock award exercises     19,009       1,647  
Contributions from noncontrolling interests     6,490       3,408  
Proceeds from sales of additional noncontrolling interests     2,067       2,845  
Purchases from noncontrolling interests     (8,650 )     (5,402 )
         
Net cash used in financing activities     (355,929 )     (352,706 )
         
Net (decrease) increase in cash and cash equivalents     (130,292 )     35,257  
Cash and cash equivalents at beginning of period     860,117       539,459  
         
Cash and cash equivalents at end of period   $ 729,825     $ 574,716  
 
 
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
 
    June 30,   December 31,
    2011   2010
ASSETS        
Cash and cash equivalents   $ 729,825     $ 860,117  
Short-term investments     23,014       23,003  
Accounts receivable, less allowance of $225,150 and $235,629     1,132,051       1,048,976  
Inventories     68,629       76,008  
Other receivables     274,783       304,366  
Other current assets     49,784       43,994  
Income tax receivables     5,451       40,330  
Deferred income taxes     229,827       226,060  
Total current assets     2,513,364       2,622,854  
Property and equipment, net     1,223,662       1,170,808  
Amortizable intangibles, net     152,856       162,635  
Equity investments     30,106       25,918  
Long-term investments     10,083       8,848  
Other long-term assets     35,264       32,054  
Goodwill     4,227,386       4,091,307  
    $ 8,192,721     $ 8,114,424  
         
LIABILITIES AND EQUITY        
Accounts payable   $ 254,129     $ 181,033  
Other liabilities     317,291       342,943  
Accrued compensation and benefits     388,965       325,477  
Current portion of long-term debt     75,226       74,892  
Total current liabilities     1,035,611       924,345  
Long-term debt     4,210,823       4,233,850  
Other long-term liabilities     104,644       89,290  
Alliance and product supply agreement, net     22,652       25,317  
Deferred income taxes     456,361       421,436  
Total liabilities     5,830,091       5,694,238  
Commitments and contingencies        
Noncontrolling interests subject to put provisions     416,504       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; 93,481,011 and 96,001,535 shares outstanding)     135       135  
Additional paid-in capital     614,304       620,546  
Retained earnings     2,912,334       2,717,817  
Treasury stock, at cost (41,381,272 and 38,860,748 shares)     (1,634,127 )     (1,360,579 )
Accumulated other comprehensive (loss) income     (11,787 )     503  
Total DaVita Inc. shareholders' equity     1,880,859       1,978,422  
Noncontrolling interests not subject to put provisions     65,267       58,712  
Total equity     1,946,126       2,037,134  
         
    $ 8,192,721     $ 8,114,424  
 
 
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, 2011

   

June 30,
2011

 

March 31,
2011

 

June 30,
2010

 
1. Consolidated Financial Results:                
Revenues   $ 1,712     $ 1,606     $ 1,587     $ 3,317  
Operating income   $ 247.0     $ 235.6     $ 242.4     $ 482.6  
Operating income, excluding the pre-tax non-cash goodwill impairment charge(1)   $ 271.0     $ 235.6     $ 242.4     $ 506.6  
Operating income margin     14.4 %     14.7 %     15.3 %     14.5 %
Operating income margin, excluding the pre-tax non-cash goodwill impairment charge(1)     15.8 %     14.7 %     15.3 %     15.3 %
Net income attributable to DaVita Inc.   $ 100.0     $ 94.5     $ 107.9     $ 194.5  
Net income attributable to DaVita Inc., excluding the after-tax non-cash goodwill impairment charge and debt redemption charges(1)   $ 114.4     $ 94.5     $ 110.4     $ 208.9  
Diluted earnings per share attributable to DaVita Inc.   $ 1.03     $ 0.96     $ 1.04     $ 1.99  
Diluted earnings per share attributable to DaVita Inc., excluding the after-tax non-cash goodwill impairment charge and debt redemption charges(1)   $ 1.17     $ 0.96     $ 1.06     $ 2.13  
                 
2. Consolidated Business Metrics:                
Expenses                
Patient care costs as a percent of consolidated revenue(2)     68.1 %     69.5 %     70.0 %     68.8 %
General and administrative expenses as a percent of consolidated revenue (2)     9.6 %     9.4 %     8.6 %     9.5 %
                 
Bad debt expense as a percent of consolidated revenue     2.9 %     2.6 %     2.7 %     2.8 %
                 
Consolidated effective tax rate attributable to DaVita Inc.(1)     40.0 %     40.0 %     39.75 %     40.0 %
                 
3. Segment Financial Results: (dollar amounts rounded to nearest million)                
Revenues:                
Dialysis and related lab services   $ 1,591     $ 1,505     $ 1,496     $ 3,096  
Other - Ancillary services and strategic initiatives     123       106       93       229  
Total segment revenue     1,714       1,611       1,589       3,325  
Less elimination of intersegment revenue     (2 )     (5 )     (2 )     (8 )
Total consolidated revenue   $ 1,712     $ 1,606     $ 1,587     $ 3,317  
                 
Operating income                
Dialysis and related lab services   $ 283     $ 250     $ 254     $ 533  
Other - Ancillary services and strategic initiatives     (25 )     (6 )     (2 )     (31 )
Total segment operating income   $ 258     $ 244     $ 252     $ 502  
Reconciling items:                
Stock-based compensation     (13 )     (10 )     (12 )     (23 )
Equity investment income     2       2       3       4  
Consolidated operating income   $ 247     $ 236     $ 242     $ 483  
 
 
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, 2011

   

June 30,
2011

 

March 31,
2011

 

June 30,
2010

 
4. Segment Business Metrics:                
Dialysis and related lab services                
Volume                
Treatments     4,777,817       4,602,375       4,462,565       9,380,191  
Number of treatment days     78.0       77.0       78.0       155.0  
Treatments per day     61,254       59,771       57,212       60,517  
Per day year over year increase     7.1 %     7.2 %     5.5 %     7.1 %
Non-acquired growth year over year     4.6 %     4.0 %     4.1 %     4.4 %
                 
Revenue                
Dialysis and related lab services revenue per treatment   $ 332.34     $ 326.40     $ 334.64     $ 329.43  
Per treatment increase (decrease) from previous quarter     1.8 %     (1.4 %)     (2.6 %)    
Per treatment decrease from previous year     (0.7 %)     (5.0 %)     (1.7 %)     (2.8 %)
Percent of consolidated revenue     92.9 %     93.7 %     94.3 %     93.3 %
                 
Expenses                
Patient care costs                
Percent of segment revenue     66.9 %     68.3 %     69.2 %     67.6 %
Per treatment   $ 222.86     $ 223.32     $ 232.16     $ 223.09  
Per treatment decrease from previous quarter     (0.2 %)     (0.7 %)     (2.1 %)    
Per treatment decrease from previous year     (4.0 %)     (5.8 %)     (0.9 %)     (4.9 %)
                 
General and administrative expenses                
Percent of segment revenue     8.3 %     8.3 %     7.3 %     8.3 %
Per treatment   $ 27.79     $ 27.19     $ 24.36     $ 27.50  
Per treatment increase (decrease) from previous quarter     2.2 %     (1.7 %)     (6.5 %)    
Per treatment increase (decrease) from previous year     14.1 %     4.4 %     (3.1 %)     9.2 %
                 
5. Cash Flow:                
Operating cash flow   $ 204.4     $ 329.8     $ 295.9     $ 534.2  
Operating cash flow, last twelve months   $ 816.1     $ 907.6     $ 877.8      
Free cash flow(1)   $ 125.1     $ 266.5     $ 249.5     $ 391.6  
Free cash flow, last twelve months(1)   $ 518.4     $ 642.9     $ 692.3      
Capital expenditures:                
Routine maintenance/IT/other   $ 55.1     $ 41.1     $ 27.8     $ 96.2  
Development and relocations   $ 39.4     $ 27.6     $ 29.0     $ 67.0  
Acquisition expenditures   $ 69.7     $ 81.5     $ 90.6     $ 151.2  
                 
6. Accounts Receivable:                
Net receivables   $ 1,132     $ 1,069     $ 1,071      
DSO     63       62       64      
 
 
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, 2011

 

   

June 30,
2011

 

March 31,
2011

 

June 30,
2010

 
7. Debt and Capital Structure:                
Total debt(3)   $ 4,294     $ 4,301     $ 3,382      
Net debt, net of cash(3)   $ 3,564     $ 3,295     $ 2,808      
Leverage ratio (see Note 1 on page 9)   2.69x   2.58x   2.31x    
Overall weighted average effective interest rate during the quarter     5.33 %     5.20 %     4.68 %    
Overall weighted average effective interest rate at end of the quarter     5.34 %     5.34 %     4.62 %    
Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter     4.68 %     4.67 %     2.66 %    
Economically fixed interest rates as a percentage of our total debt at June 30, 2011(4) and March 31, 2011(4) and fixed interest rates at June 30, 2010     100 %     100 %     56 %    
Share repurchases   $ 302.4     $ 13.6     $ 100     $ 316.1
                 
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 %     68 %     66 %    
 

_________________

(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 $7.6 million and $8.0 million, respectively, of a debt discount associated with our Term Loan B for the quarters ended June 30, 2011 and March 31, 2011 that is not actually outstanding debt principal. The quarter ended June 30, 2010 excludes $1.8 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 June 30, 2011 and March 31, 2011, 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 June 30, 2011
Net income attributable to DaVita Inc.   $ 382,924  
Income taxes     244,983  
Interest expense     198,358  
Depreciation and amortization     245,064  
Non-cash goodwill impairment charge     24,000  
Debt refinancing and redemption charges     70,255  
Noncontrolling interests     87,819  
Equity investment income, net     1,387  
Amortization of deferred financing costs     9,588  
Other     32,327  
Stock-based compensation expense     46,209  
"Consolidated EBITDA"   $ 1,342,914  
     
    June 30, 2011
Total debt, excluding debt discount of $7.6 million   $ 4,293,691  
Letters of credit issued     45,789  
      4,339,480  
Less: cash and cash equivalents     (729,825 )
Consolidated net debt   $ 3,609,655  
Last twelve months "Consolidated EBITDA"   $ 1,342,914  

Leverage ratio

   

2.69x

 
 

In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.25 to 1.0 as of June 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.Net income attributable to DaVita Inc. excluding after-tax non-cash goodwill impairment charge and debt redemption charges and diluted earnings per share attributable to DaVita Inc. excluding after-tax non-cash goodwill impairment charge and debt redemption charges.

We believe that net income attributable to DaVita Inc. excluding after-tax non-cash goodwill impairment charge and 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 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 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 non-cash goodwill impairment charge and debt redemption charges:   Three months ended   Six months ended
    June 30,   March 31,   June 30,   June 30,   June 30,
    2011   2011   2010   2011   2010
Net income attributable to DaVita Inc.   $ 100,015     $ 94,502   $ 107,853     $ 194,517     $ 217,276  
Add: Non-cash goodwill impairment charge     24,000       -     -       24,000       -  
Add: Debt redemption charges     -       -     4,127       -       4,127  
Less: Related income tax     (9,600 )     -     (1,605 )     (9,600 )     (1,605 )
    $ 114,415     $ 94,502   $ 110,375     $ 208,917     $ 219,798  
 
 
Diluted earnings per share attributable to DaVita Inc. excluding after-tax non-cash goodwill impairment charge and debt redemption charges:   Three months ended   Six months ended
    June 30,   March 31,   June 30,   June 30,   June 30,
    2011   2011   2010   2011   2010
Diluted earnings per share attributable to DaVita Inc.   $ 1.03   $ 0.96   $ 1.04   $ 1.99   $ 2.08
Add: Non-cash goodwill impairment charge     0.14     -     -     0.14     -
Add: Debt redemption charges     -     -     0.02     -     0.02
    $ 1.17   $ 0.96   $ 1.06   $ 2.13   $ 2.10
 

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

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

We believe that operating income excluding 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 United States generally accepted accounting principles (GAAP) and should not be considered as an alternative to operating income.

 
Operating income excluding an pre-tax non-cash goodwill impairment charge:   Three months ended   Six months ended
    June 30,   March 31,   June 30,   June 30,   June 30,
    2011   2011   2010   2011   2010
Operating income   $ 247,046   $ 235,553   $ 242,365   $ 482,599   $ 485,031
Add: Non-cash goodwill impairment charge     24,000     -     -     24,000     -
    $ 271,046   $ 235,553   $ 242,365   $ 506,599   $ 485,031
 

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  

Six months
ended
June 30, 2011

   

June 30,
2011

 

March 31,
2011

 

June 30,
2010

 
Income before income taxes   $ 187,705     $ 177,799     $ 195,322     $ 365,504  
Income tax expense   $ 67,040     $ 63,047     $ 71,429     $ 130,087  
Effective income tax rate     35.7 %     35.5 %     36.6 %     35.6 %
 
 
    Three months ended  

Six months
ended
June 30, 2011

   

June 30,
2011

 

March 31,
2011

 

June 30,
2010

 
Income before income taxes   $ 187,705     $ 177,799     $ 195,322     $ 365,504  
Less: Noncontrolling owners' income primarily attributable to non-tax paying entities     (21,020 )     (20,297 )     (16,319 )     (41,317 )
Income before income taxes attributable to DaVita Inc.   $ 166,685     $ 157,502     $ 179,003     $ 324,187  
                 
Income tax expense     67,040     $ 63,047     $ 71,429     $ 130,087  
Less income tax attributable to noncontrolling interests     (370 )     (47 )     (279 )     (417 )
Income tax attributable to DaVita Inc.   $ 66,670     $ 63,000     $ 71,150     $ 129,670  
                 
Effective income tax rate attributable to DaVita Inc.     40.0 %     40.0 %     39.75 %     40.0 %
 

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  

Six months
ended
June 30, 2011

   

June 30,
2011

 

March 31,
2011

 

June 30,
2010

 
Cash provided by operating activities   $ 204,410     $ 329,783     $ 295,919     $ 534,193  
Less: Income distributions to noncontrolling interests     (24,236 )     (22,187 )     (18,643 )     (46,423 )
Cash provided by operating activities attributable to DaVita Inc.     180,174       307,596       277,276       487,770  
Less: Expenditures for routine maintenance and information technology     (55,096 )     (41,079 )     (27,760 )     (96,175 )
Free cash flow   $ 125,078     $ 266,517     $ 249,516     $ 391,595  
 
 
    Rolling 12-Month Period
    June 30,   March 31,   June 30,
    2011   2011   2010
Cash provided by operating activities   $ 816,110     $ 907,619     $ 877,844  
Less: Income distributions to noncontrolling interests     (92,713 )     (87,120 )     (75,154 )
Cash provided by operating activities attributable to DaVita Inc.     723,397       820,499       802,690  
Less: Expenditures for routine maintenance and information technology     (204,948 )     (177,612 )     (110,429 )
Free cash flow   $ 518,449     $ 642,887     $ 692,261  
 

SOURCE: DaVita Inc.

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


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