DaVita 4th Quarter 2011 Results

DENVER--(BUSINESS WIRE)--Feb. 16, 2012-- DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2011. Income from continuing operations attributable toDaVita Inc. for the quarter and year ended December 31, 2011 was $149.4 million and $496.2 million, or $1.58 and $5.14 per share, respectively, which for the year ended December 31, 2011 excludes an after-tax non-cash goodwill impairment charge of approximately $14.4 million, or $0.15 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 year ended December 31, 2011 including this item was $481.8 million, or $4.99 per share.

Income from continuing operations attributable to DaVita Inc. for the quarter and year endedDecember 31, 2010 was $111.9 million and $450.8 million, or $1.13 and $4.37 per share, respectively, which excludes after-tax debt refinancing and redemption charges of $42.9 million and$45.4 million, or $0.43 per share and $0.44 per share, respectively. Income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2010 including these items was $68.9 million and $405.4 million, or $0.70 per share and $3.93 per share, respectively.

Financial and operating highlights include:

  • Cash Flow: For the year ended December 31, 2011 operating cash flow was $1,180 million and free cash flow was $855 million. For the three months ended December 31, 2011 operating cash flow was $151 million and free cash flow was $32 million.
  • Operating Income: Operating income for the quarter and year ended December 31, 2011 was $330 millionand $1,155 million, respectively, which for the year ended December 31, 2011, excludes the pre-tax non-cash goodwill impairment charge of $24 million. Operating income for the year ended December 31, 2011 including this item was $1,131 million.
    Operating income for the quarter and year ended December 31, 2010 was $255 million and $997 million, respectively.
  • Volume: Total U.S. treatments for the fourth quarter of 2011 were 5,227,167, or 66,167 treatments per day, representing a per day increase of 12.4% over the fourth quarter of 2010. Non-acquired treatment growth in the quarter was 4.4% over the prior year’s fourth quarter. Our normalized non-acquired treatment growth in the quarter was 4.8% over the prior year’s fourth quarter.
  • Effective Tax Rate: Our effective tax rate was 34.1% and 35.4% for the quarter and year ended December 31, 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 38.0% and 39.6% for the quarter and year ended December 31, 2011, respectively. We currently expect our 2012 effective tax rate attributable toDaVita Inc. to be in the range of 40.0% to 41.0%.
  • Center Activity: As of December 31, 2011, we operated or provided administrative services at 1,809 outpatient dialysis centers located in the United States serving approximately 142,000 patients and 11 outpatient dialysis centers that are located in three countries outside of the United States. A total of 1,784 centers are consolidated in our financial statements, of which eight centers are located outside of the United States. During the fourth quarter of 2011, we acquired and opened a total of 45 centers, and divested two centers in connection with the acquisition of DSI.

Outlook

Our operating income guidance for 2012 is still expected to be in the range of $1,200 million to $1,300 million. We also expect our operating cash flows for 2012 to be in the range of $950 million to $1,050 million. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current projections.

We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2011 on February 16, 2012 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 2012 operating income, our 2012 operating cash flows and our 2012 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 annual report on Form 10-K for the year endedDecember 31, 2010, our quarterly report on Form 10-Q for the third quarter ended September 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 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 government 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 December 31,   Year ended December 31,
      2011       2010       2011       2010  
Net operating revenues   $ 1,862,318     $ 1,646,924     $ 6,982,214     $ 6,438,050  
Operating expenses and charges:                
Patient care costs     1,213,912       1,133,008       4,680,772       4,467,107  
General and administrative     193,210       157,578       691,243       579,000  
Depreciation and amortization     72,987       59,910       266,628       233,730  
Provision for uncollectible accounts     54,318       43,201       197,565       170,652  
Equity investment income     (2,221 )     (2,031 )     (8,776 )     (8,999 )
Goodwill impairment charge     -       -       24,000       -  
Total operating expenses and charges     1,532,206       1,391,666       5,851,432       5,441,490  
Operating income     330,112       255,258       1,130,782       996,560  
Debt expense     (61,750 )     (53,879 )     (241,090 )     (181,607 )
Debt refinancing and redemption charges     -       (70,255 )     -       (74,382 )
Other income     787       1,091       2,982       3,419  
Income from continuing operations before income taxes     269,149       132,215       892,674       743,990  
Income tax expense     91,710       39,863       315,744       260,052  
Income from continuing operations     177,439       92,352       576,930       483,938  
Discontinued operations:                
Income (loss) from operations of discontinued operations, net of tax     (239 )     93       1,221       281  
Loss on disposal of discontinued operations, net of tax     (1,068 )     -       (4,756 )     -  
Net income.     176,132       92,445       573,395       484,219  
Less: Net income attributable to noncontrolling interests     (28,009 )     (23,425 )     (95,394 )     (78,536 )
Net income attributable to DaVita Inc.   $ 148,123     $ 69,020     $ 478,001     $ 405,683  
Earnings per share:                
Basic income from continuing operations per share attributable to DaVita Inc.   $ 1.60     $ 0.71     $ 5.09     $ 3.99  
Basic net income per share attributable to DaVita Inc.   $ 1.59     $ 0.71     $ 5.05     $ 4.00  
Diluted income from continuing operations per share attributable to DaVita Inc.   $ 1.58     $ 0.70     $ 4.99     $ 3.93  
Diluted net income per share attributable to DaVita Inc.   $ 1.56     $ 0.70     $ 4.96     $ 3.94  
Weighted average shares for earnings per share:                
Basic     93,485,001       97,099,341       94,658,027       101,504,373  
Diluted     94,968,029       99,058,745       96,532,110       103,059,171  
Amounts attributable to DaVita Inc.:                
Income from continuing operations   $ 149,430     $ 68,927     $ 481,755     $ 405,402  
Discontinued operations     (1,307 )     93       (3,754 )     281  
Net income   $ 148,123     $ 69,020     $ 478,001     $ 405,683  
                 
                 
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
     
    Year ended
December 31,
      2011       2010  
Cash flows from operating activities:        
Net income   $ 573,395     $ 484,219  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization     267,315       234,378  
Stock-based compensation expense     48,718       45,551  
Tax benefits from stock award exercises     38,199       26,706  
Excess tax benefits from stock award exercises     (20,834 )     (6,283 )
Deferred income taxes     53,438       75,399  
Equity investment income, net     354       (3,298 )
Loss on disposal of assets and other non-cash charges     20,329       9,585  
Goodwill impairment charge     24,000       -  
Debt refinancing and redemption charges     -       74,382  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:        
Accounts receivable     (88,848 )     55,379  
Inventories     10,270       (3,892 )
Other receivables and other current assets     53,697       (44,719 )
Other long-term assets     2,039       901  
Accounts payable     84,400       4,228  
Accrued compensation and benefits     77,074       39,588  
Other current liabilities     (51,979 )     (111,444 )
Income taxes     77,418       (45,737 )
Other long-term liabilities     11,061       4,740  
Net cash provided by operating activities     1,180,046       839,683  
Cash flows from investing activities:        
Additions of property and equipment, net     (400,156 )     (273,602 )
Acquisitions     (1,077,442 )     (188,502 )
Proceeds from asset sales     75,183       22,727  
Purchase of investments available for sale     (5,971 )     (1,125 )
Purchase of investments held-to-maturity     (37,628 )     (56,615 )
Proceeds from sale of investments available for sale     1,149       900  
Proceeds from maturities of investments held-to-maturity     47,695       59,932  
Purchase of equity investments and other assets     (2,398 )     (709 )
Distributions received on equity investments     340       361  
Net cash used in investing activities     (1,399,228 )     (436,633 )
Cash flows from financing activities:        
Borrowings     36,395,105       24,809,258  
Payments on long-term debt     (36,249,584 )     (24,134,502 )
Interest rate cap premiums and other deferred financing costs     (17,861 )     -  
Debt refinancing costs including tender and call premiums     -       (113,810 )
Purchase of treasury stock     (323,348 )     (618,496 )
Distributions to noncontrolling interests     (100,653 )     (83,591 )
Stock award exercises and other share issuances, net     11,316       53,760  
Excess tax benefits from stock award exercises     20,834       6,283  
Contributions from noncontrolling interests     21,010       9,510  
Proceeds from sales of additional noncontrolling interests     9,687       3,410  
Purchases from noncontrolling interests     (13,689 )     (14,214 )
Net cash used in financing activities     (247,183 )     (82,392 )
Net (decrease) increase in cash and cash equivalents     (466,365 )     320,658  
Cash and cash equivalents at beginning of period     860,117       539,459  
Cash and cash equivalents at end of period   $ 393,752     $ 860,117  
                 
                 
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
         
    December 31,
2011		   December 31,
2010
ASSETS        
Cash and cash equivalents   $ 393,752     $ 860,117  
Short-term investments     17,399       23,003  
Accounts receivable, less allowance of $250,343 and $235,629     1,195,163       1,048,976  
Inventories     75,731       76,008  
Other receivables     269,832       304,366  
Other current assets     49,349       43,994  
Income tax receivables     -       40,330  
Deferred income taxes     280,382       226,060  
Total current assets     2,281,608       2,622,854  
Property and equipment, net     1,432,651       1,170,808  
Amortizable intangibles, net     159,491       162,635  
Equity investments     27,325       25,918  
Long-term investments     9,890       8,848  
Other long-term assets     34,231       32,054  
Goodwill     4,946,976       4,091,307  
    $ 8,892,172     $ 8,114,424  
LIABILITIES AND EQUITY        
Accounts payable   $ 289,653     $ 181,033  
Other liabilities     325,734       342,943  
Accrued compensation and benefits     412,972       325,477  
Current portion of long-term debt     87,345       74,892  
Income tax payable     37,412       -  
Total current liabilities     1,153,116       924,345  
Long-term debt     4,417,624       4,233,850  
Other long-term liabilities     132,006       89,290  
Alliance and product supply agreement, net     19,987       25,317  
Deferred income taxes     423,098       421,436  
Total liabilities     6,145,831       5,694,238  
Commitments and contingencies        
Noncontrolling interests subject to put provisions     478,216       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; 93,641,363 and 96,001,535 shares outstanding)     135       135  
Additional paid-in capital     596,300       620,546  
Retained earnings     3,195,818       2,717,817  
Treasury stock, at cost (41,220,920 and 38,860,748 shares)    

(1,631,694

)

    

(1,360,579

)
Accumulated other comprehensive (loss) income    

(19,484

)

     503  
Total DaVita Inc. shareholders’ equity     2,141,075       1,978,422  
Noncontrolling interests not subject to put provisions     127,050       58,712  
Total equity     2,268,125       2,037,134  
    $ 8,892,172     $ 8,114,424  
         
         
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
         
    Three months ended  

Year ended
December 31, 2011
   

December 31,
2011

  

September 30,
2011

  

December 31,
2010

  
1. Consolidated Financial Results:                
Revenues   $ 1,862     $ 1,808     $ 1,647     $ 6,982  
Operating income   $ 330.1     $ 318.7     $ 255.3     $ 1,130.8  
Operating income, excluding the pre-tax non-cash goodwill impairment charge(1)   $ 330.1     $ 318.7     $ 255.3     $ 1,154.8  
Operating income margin     17.7 %     17.6 %     15.5 %     16.2 %
Operating income margin, excluding the pre-tax non-cash goodwill impairment charge(1)     17.7 %     17.6 %     15.5 %     16.5 %
Income from continuing operations attributable to DaVita Inc.   $ 149.4     $ 138.2     $ 68.9     $ 481.8  
Income from continuing operations attributable to DaVita Inc., excluding the after-tax non-cash goodwill impairment charge and debt refinancing and redemption charges(1)   $ 149.4     $ 138.2     $ 111.9     $ 496.2  
Diluted income from continuing operations per share attributable to DaVita Inc.   $ 1.58     $ 1.45     $ 0.70     $ 4.99  
Diluted income from continuing operations per share attributable to DaVita Inc., excluding the after-tax non-cash goodwill impairment charge and debt refinancing and redemption charges(1)   $ 1.58     $ 1.45     $ 1.13     $ 5.14  
                 
2. Consolidated Business Metrics:                
Expenses                
Patient care costs as a percent of consolidated revenue(2)     65.2 %     65.8 %     68.8 %     67.0 %
General and administrative expenses as a percent of consolidated revenue(2)     10.4 %     10.1 %     9.6 %     9.9 %
                 
Bad debt expense as a percent of consolidated revenue     2.9 %     2.9 %     2.6 %     2.8 %
                 
Consolidated effective tax rate attributable to DaVita Inc.(1)     38.0 %     40.5 %     36.5 %     39.6 %
                 
3. Segment Financial Results: (dollar amounts rounded to nearest million)                
Revenues                
Dialysis and related lab services   $ 1,720     $ 1,675     $ 1,542     $ 6,485  
Other – Ancillary services and strategic initiatives     148       137       107       514  
Total segment revenue     1,868       1,812       1,649       6,999  
Less elimination of intersegment revenue     (6 )     (4 )     (2 )     (17 )
Total consolidated revenue   $ 1,862     $ 1,808     $ 1,647     $ 6,982  
                 
Operating Income                
Dialysis and related lab services   $ 353     $ 332     $ 268     $ 1,225  
Other – U.S. Ancillary services and strategic initiatives     (5 )     2       (2 )     (34 )
– International operations     (8 )     (5 )     -       (20 )
Total other – Ancillary services and strategic initiatives     (13 )     (3 )     (2 )     (54 )
Total segment operating income   $ 340     $ 329     $ 266     $ 1,171  
Reconciling items:                
Stock-based compensation     (12 )     (13 )     (12 )     (49 )
Equity investment income     2       3       2       9  
Consolidated operating income   $ 330     $ 319     $ 255     $ 1,131  
                                 
                                 
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, 2011
   

December 31,
2011

  

September 30,
2011

  

December 31,
2010

  
4. Segment Business Metrics:                
Dialysis and related lab services                
Volume                
Treatments     5,227,167       5,008,094       4,649,610       19,599,472  
Number of treatment days     79.0       79.0       79.0       313.0  
Treatments per day     66,167       63,394       58,856       62,618  
Per day year over year increase     12.4 %     9.6 %     6.8 %     9.1 %
Non-acquired growth year over year     4.4 %     5.0 %     4.4 %     4.6 %
                 
Revenue                
Dialysis and related lab services revenue per treatment   $ 328.54     $ 333.86     $ 331.14     $ 330.31  
Per treatment (decrease) increase from previous quarter     (1.6 %)     0.5 %     (2.3 %)    
Per treatment decrease from previous year     (0.8 %)     (1.5 %)     (2.4 %)     (2.0 %)
Percent of consolidated revenue     92.2 %     92.5 %     93.5 %     92.7 %
                 
Expenses                
Patient care costs                
Percent of segment revenue     63.4 %     64.5 %     67.8 %     65.7 %
Per treatment   $ 208.66     $ 215.66     $ 224.86     $ 217.32  
Per treatment decrease from previous quarter     (3.2 %)     (3.2 %)     (3.4 %)    
Per treatment decrease from previous year     (7.2 %)     (7.4 %)     (4.1 %)     (6.2 %)
                 
General and administrative expenses                
Percent of segment revenue     8.9 %     8.8 %     8.4 %     8.5 %
Per treatment   $ 29.45     $ 29.28     $ 27.70     $ 28.12  
Per treatment increase from previous quarter     0.6 %     9.3 %     4.1 %    
Per treatment increase from previous year     6.3 %     10.0 %     7.4 %     7.2 %
                 
5. Cash Flow:                
Operating cash flow   $ 150.7     $ 495.2     $ 120.6     $ 1,180.0  
Operating cash flow, last twelve months   $ 1,180.0     $ 1,149.9     $ 839.7      
Free cash flow(1)   $ 32.1     $ 423.1     $ 37.3     $ 855.0  
Free cash flow, last twelve months(1)   $ 855.0     $ 860.2     $ 599.9      
Capital expenditures:                
Routine maintenance/IT/other   $ 85.3     $ 51.1     $ 60.8     $ 224.4  
Development and relocations   $ 63.1     $ 45.7     $ 44.5     $ 175.8  
Acquisition expenditures   $ 150.3     $ 775.9     $ 50.9     $ 1,077.4  
                 
6. Accounts Receivable:                
Net receivables   $ 1,195     $ 1,165     $ 1,049      
DSO     61       60       61      
                 
                 
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, 2011
   

December 31,
2011

  

September 30,
2011

  

December 31,
2010

  
7. Debt and Capital Structure:                
Total debt(3)   $ 4,513     $ 4,508     $ 4,317      
Net debt, net of cash(3)   $ 4,119     $ 3,967     $ 3,457      

Leverage ratio (see Note 1 on page 9)

    

2.72x

      

2.73x

      

2.72x

      
Overall weighted average effective interest rate during the quarter     5.27 %     5.30 %     4.86 %    
Overall weighted average effective interest rate at end of the quarter     5.27 %     5.27 %     4.94 %    
Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter     4.61 %     4.61 %     4.05 %    
Effectively fixed interest rates as a percentage of our total debt at December 31, 2011(4) and September 30, 2011(4) and fixed interest rates at December 31, 2010     100 %     100 %     77 %    
Share repurchases   $ -     $ 7.3     $ 420.0     $ 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 quarters ended December 31, 2011 and September 30, 2011, excludes $7.8 million and $8.3 million, respectively, of debt discounts associated with our Term Loan B and our Term Loan A-2 that are not actually outstanding debt principal. The quarter ended December 31, 2010, excludes $8.4 million of a debt discount associated with our Term Loan B that is not actually outstanding debt principal.
(4)   The Term Loan A-2 and Term Loan B are subject to LIBOR floors of 1.00% and 1.50%, respectively. Because LIBOR, as of December 31, 2011, was lower than either of these floors, the interest rates on the Term Loan A-2 and the Term Loan B are treated as “fixed” for purposes of the table above. We have included both of these Term loans in the fixed rate totals in the table above until such time as the LIBOR-based component of our interest rate exceeds 1.00% on the Term Loan A-2 and 1.50% on the Term Loan B. at such time, we will then be subject to LIBOR-based interest rate volatility on the LIBOR variable component of our interest rate on all of the Term Loan A-2, as well as for the Term Loan B, but limited to a maximum rate of 4.00% on $1.25 billion of outstanding principal debt on the Term Loan B. The remaining $483 million outstanding principal balance of the Term Loan B is subject to LIBOR-based interest rate volatility above a floor of 1.50%.
     
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.
     
   

Year ended
December 31, 2011
Net income attributable to DaVita Inc.   $ 478,001  
Income taxes     315,726  
Interest expense     224,909  
Depreciation and amortization     267,315  
Non-cash goodwill impairment charge     24,000  
Noncontrolling interests and equity investment income, net     95,748  
Other, including pro-forma EBITDA associated with acquisitions     80,029  
Stock-based compensation expense     48,718  
“Consolidated EBITDA”   $ 1,534,446  
     
    December 31, 2011
Total debt, excluding debt discount of $7.8 million   $ 4,512,811  
Letters of credit issued     47,711  
      4,560,522  
Less: cash and cash equivalents     (393,752 )
Consolidated net debt   $ 4,166,770  
Last twelve months “Consolidated EBITDA”   $ 1,534,446  

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

We believe that income from continuing operations attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and after-tax debt refinancing and 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: (1) 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 (2) charges that resulted from the refinancing of our Senior Secured Credit Facilities and the redemption of the aggregate principal amounts of our outstanding 6 ⅝% senior notes due 2013 and the aggregate principal amount of our outstanding 7 ¼% senior subordinated notes due 2015, as well as a partial redemption of $200 million aggregate principal amount of our outstanding 6⅝% 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 after-tax debt refinancing and redemption charges:   Three months ended   Year ended
    December 31,

2011

   September 30,

2011

   December 31,

2010

   December 31,

2011

   December 31,

2010
Net income attributable to DaVita Inc.   $ 148,123   $ 135,361   $ 69,020     $ 478,001     $ 405,683  
Discontinued operations attributable to DaVita Inc.     1,307     2,831     (93 )     3,754       (281 )
Income from continuing operations attributable to DaVita Inc.     149,430     138,192     68,927       481,755       405,402  
Add: Non-cash goodwill impairment charge     -     -     -       24,000       -  
Add: Debt refinancing and redemption charges     -     -     70,255       -       74,382  
Less: Related income tax     -     -     (27,329 )     (9,600 )     (28,935 )
    $ 149,430   $ 138,192   $ 111,853     $ 496,155     $ 450,849  
         
         
Diluted income from continuing operations per share attributable to DaVita Inc. excluding an after-tax non-cash goodwill impairment charge and after-tax debt refinancing and redemption charges:   Three months ended   Year ended
    December 31,

2011

   September 30,

2011

   December 31,

2010

   December 31,

2011

   December 31,

2010
Diluted net income per share attributable to DaVita Inc.   $ 1.56   $ 1.42   $ 0.70     $ 4.96     $ 3.94  
Discontinued operations     0.01     0.03     -       0.04       (0.01 )
Rounding     0.01     -     -       (0.01 )     -  
Diluted income from continuing operations per share attributable to DaVita Inc.     1.58     1.45     0.70       4.99       3.93  
Add: Non-cash goodwill impairment charge     -     -     -       0.15       -  
Add: Debt refinancing and redemption charges     -     -     0.43       -       0.44  
    $ 1.58   $ 1.45   $ 1.13     $ 5.14     $ 4.37  
                                     
                                     
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   Year ended
    December 31,

2011

   September 30,

2011

   December 31,

2010

   December 31,

2011

   December 31,

2010
Operating income   $ 330,112   $ 318,712   $ 255,258   $ 1,130,782   $ 996,560
Add: Non-cash goodwill impairment charge     -     -     -     24,000     -
    $ 330,112   $ 318,712   $ 255,258   $ 1,154,782   $ 996,560
                               
                               
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  

Year ended
December 31,
2011
    December 31,

2011

   September 30,

2011

   December 31,

2010

  
Income from continuing operations before income taxes   $ 269,149     $ 258,662     $ 132,215     $ 892,674  
Income tax expense   $ 91,710     $ 94,204     $ 39,863     $ 315,744  
Effective income tax rate     34.1 %     36.4 %     30.2 %     35.4 %
         
         
    Three months ended  

Year ended
December 31,
2011
    December 31,

2011

   September 30,

2011

   December 31,

2010

  
Income from continuing operations before income taxes   $ 269,149     $ 258,662     $ 132,215     $ 892,674  
Less: Noncontrolling owners’ income primarily attributable to non-tax paying entities     (28,128 )     (26,604 )     (23,602 )     (96,049 )
Income before income taxes attributable to DaVita Inc.   $ 241,021     $ 232,058     $ 108,613     $ 796,625  
                 
Income tax expense     91,710       94,204     $ 39,863     $ 315,744  
Less income tax attributable to noncontrolling interests     (119 )     (119 )     (177 )     (655 )
Income tax attributable to DaVita Inc.   $ 91,591     $ 94,085     $ 39,686     $ 315,089  
                 
Effective income tax rate attributable to DaVita Inc.     38.0 %     40.5 %     36.5 %     39.6 %
                                 
                                 
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  

Year ended
December 31,
2011
   

December 31,
2011

  

September 30,
2011

  

December 31,
2010

  
Cash provided by operating activities   $ 150,659     $ 495,194     $ 120,551     $ 1,180,046  
Less: Income distributions to noncontrolling interests     (33,245 )     (20,985 )     (22,479 )     (100,653 )
Cash provided by operating activities attributable to DaVita Inc.     117,414       474,209       98,072       1,079,393  
Less: Expenditures for routine maintenance and information technology     (85,304 )     (51,107 )     (60,798 )     (224,366 )
Free cash flow   $ 32,110     $ 423,102     $ 37,274     $ 855,027  
     
     
    Rolling 12-Month Period
   

December 31,
2011

  

September 30,
2011

  

December 31,
2010
Cash provided by operating activities   $ 1,180,046     $ 1,149,938     $ 839,683  
Less: Income distributions to noncontrolling interests     (100,653 )     (89,887 )     (83,591 )
Cash provided by operating activities attributable to DaVita Inc.     1,079,393       1,060,051       756,092  
Less: Expenditures for routine maintenance and information technology     (224,366 )     (199,860 )     (156,228 )
Free cash flow   $ 855,027     $ 860,191     $ 599,864  

 

Source: DaVita Inc.

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