DaVita 4th Quarter 2011 Results

DENVER--()--DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2011. Income from continuing operations attributable to DaVita 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 ended December 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 million and $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 to DaVita 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 ended December 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  

Contacts

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

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Contacts

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