DENVER, Nov 04, 2010 (BUSINESS WIRE) --

DaVita Inc. (NYSE: DVA) today announced results for the quarter ended September 30, 2010. Net income attributable to DaVita Inc. for the three months ended September 30, 2010 was $119.4 million, or $1.15 per share. This compares to net income attributable to DaVita Inc. for the three months ended September 30, 2009 of $110.9 million, or $1.06 per share.

Net income attributable to DaVita Inc. for the nine months ended September 30, 2010, excluding after-tax debt redemption charges of $2.5 million, was $339.2 million, or $3.25 per share as compared with $313.0 million, or $3.00 per share, respectively, for the same period of 2009. Net income attributable to DaVita Inc. for the nine months ended September 30, 2010, including this item, was $336.7 million, or $3.22 per share.

Financial and operating highlights include:

• Cash Flow: For the rolling twelve months ended September 30, 2010 operating cash flow was $872 million and free cash flow was $658 million. For the three months ended September 30, 2010 operating cash flow was $161 million and free cash flow was $91 million.
• Operating Income: Operating income for the three and nine months ended September 30, 2010 was $257 million and $742 million, respectively, as compared to $245 million and $702 million, respectively, for the same period of 2009.
• Volume: Total treatments for the third quarter of 2010 were 4,578,622, or 57,957 treatments per day, representing a per day increase of 5.5% over the third quarter of 2009. Non-acquired treatment growth in the quarter was 3.7% over the prior year's third quarter.
• Effective Tax Rate: Our effective tax rate was 34.4% and 36.0% for the three and nine months ended September 30, 2010, respectively. This effective tax rate is impacted by the amount of third party owners' income attributable to non-tax paying entities. The effective tax rate attributable to DaVita Inc. was 38.5% and 39.5% for the three and nine months ended September 30, 2010, respectively, which was within the range of our previously stated guidance. Our effective tax rate for 2010 is now projected to be approximately 36.0% and our 2010 effective tax rate attributable to DaVita Inc. is projected to be approximately 39.5%.
• Share Repurchases: During the third quarter of 2010, we repurchased a total of 1,448,000 shares of our common stock for $98.5 million, or an average price of $68.02 per share. During the first nine months of 2010, we repurchased a total of 3,035,160 shares of our common stock for $198.5 million, or an average price of $65.41 per share. In addition, we also repurchased a total of 4,244,300 shares of our common stock from October 1, 2010 through October 22, 2010 for $301.5 million, or an average price of $71.03 per share, which completed all of our previous board authorization for share repurchases. On November 3, 2010, our Board of Directors authorized an additional $800 million of share repurchases of our common stock.
• Debt Refinancing: On October 20, 2010 we completed our $4.55 billion debt refinancing transactions. See note 2 of the supplemental financial data for further details.
• Center Activity: As of September 30, 2010, we operated or provided administrative services at 1,598 outpatient dialysis centers serving approximately 124,000 patients, of which 1,566 centers are consolidated in our financial statements. During the third quarter of 2010, we acquired 10 centers, opened 12 new centers, and closed seven centers.

Outlook

We are narrowing our operating income guidance for 2010 to be in the range of $995 million to $1,015 million. We are also revising our operating cash flow guidance for 2010. Our operating cash flow is now projected to be in the range of $800 million to $875 million. Our previous operating cash flow guidance for 2010 was in the range of $725 million to $825 million. The increase in our operating cash flow guidance was primarily due to reduced tax payments resulting from accelerated tax deductions. 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. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current projections.

DaVita will be holding a conference call to discuss its results for the third quarter ended September 30, 2010 on November 4, 2010 at 5:00 p.m. Eastern Time. The dial in number is (800) 399-4406. A replay of the conference call will be available on DaVita's official web page, www.davita.com, for the following 30 days.

This release contains forward-looking statements, within the meaning of the federal securities laws, including statements related to our 2010 operating income, operating cash flow, our expected effective tax rate and the expected effective tax rate attributable to DaVita Inc. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, competition, accounting estimates, the variability of our cash flows and the risk factors set forth in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2009, our quarterly report on Form 10-Q for the second quarter ended June 30, 2010 and subsequent quarterly reports filed on Form 10-Q.The forward-looking statements should be considered in light of these risks and uncertainties.

These risks and uncertainties include those relating to:

• the concentration of profits generated from commercial payor plans,
• continued downward pressure on average realized payment rates from commercial payors, which may result in the loss of revenue or patients,
• a reduction in the number of patients under higher-paying commercial plans,
• a reduction in government payment rates or changes to the structure of payments under the Medicare End Stage Renal Disease program or other government-based programs, including, for example, the implementation of a bundled payment rate system 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. 
SUPPLEMENTAL FINANCIAL DATA--continued
(unaudited)
(dollars in thousands)

Note 1: Calculation of the Leverage Ratio

Under the Company's prior Senior Secured Credit Facilities (Credit Agreement), the leverage ratio is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by "Consolidated EBITDA". The leverage ratio determines the interest rate margin payable by the Company for its term loan A and revolving line of credit under the Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement. The calculation below is based on the last twelve months of "Consolidated EBITDA", pro forma for the routine acquisitions that occurred during the period. The Company's management believes the presentation of "Consolidated EBITDA" is useful to investors to enhance their understanding of the Company's leverage ratio under its Credit Agreement.

DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA--continued
(unaudited)

Note 2: Debt Refinancing

On October 20, 2010, we entered into a new $3,000 million Senior Secured Credit Agreement consisting of a five year $250 million revolving line of credit, a five year $1,000 million Term Loan A and a six year $1,750 million Term Loan B.

On October 20, 2010, the Company also issued $775 million aggregate principal amount of 6 â...oe% senior notes due 2018 and $775 million aggregate principal amount of 6 5/8% senior notes due 2020 (the "New Senior Notes").

We received total proceeds of $4,300 million from these transactions and used a portion of the proceeds to pay-off the outstanding principal balances of our existing Senior Secured Credit Facility plus accrued interest totaling $1,795 million and to purchase pursuant to a cash tender offer a portion of the outstanding principal balances of our existing 6 5/8% senior notes due 2013 and 7 ¼% senior subordinated notes due 2015 (the "Existing Notes") plus accrued interest totaling $1,297 million. We also paid fees, discounts and other expenses as well as cash tender premiums totaling approximately $109 million.

On November 19, 2010, we will redeem the remaining outstanding principal balances of the Existing Notes that were not tendered pursuant to the cash tender offer along with accrued interest for $265 million. In addition, we will pay call premiums totaling $7 million.

As a result of these transactions we received approximately $827 million in excess cash which we intend to use for general purposes and other opportunities, including share repurchases, potential acquisitions and other growth investments.

In connection with these transactions we expect to expense one time refinancing charges ranging from $65 million to $75 million which includes the write off of existing deferred financing costs, the cash tender and call premiums, and other expenses.

The following table illustrates the sources and uses of funds for these transactions.

Long-term debt as of September 30, 2010, assuming we had completed the above transactions would have been comprised of the following:

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

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

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

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:

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.

SOURCE: DaVita Inc.

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