DaVita Inc. (NYSE: DVA) today announced results for the quarter
ended September 30, 2011. Income from continuing operations
attributable to DaVita Inc. for the three and nine months ended
September 30, 2011 was $138.2 million and $346.7 million, or $1.45
and $3.57 per share, respectively, which for the nine months ended
September 30, 2011 excludes an after-tax non-cash goodwill
impairment charge of approximately $14.4 million, or $0.14 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 nine months ended September 30,
2011 including this item was $332.3 million, or $3.43 per
share.
Income from continuing operations attributable to DaVita Inc.
for the three and nine months ended September 30, 2010 was $119.5
million and $339.0 million, or $1.15 and $3.25 per share,
respectively, which for the nine months ended September 30, 2010
excludes after-tax debt redemption charges of $2.5 million, or
$0.02 per share. Income from continuing operations attributable to
DaVita Inc. for the nine months ended September 30, 2010 including
this item was $336.5 million, or $3.22 per share.
On September 2, 2011, we completed our acquisition of DSI Renal,
Inc. (DSI) for approximately $724 million in net cash, plus the
assumption of certain liabilities, subject to certain post-close
adjustments. The operating results of DSI are included in our
operating results effective September 1, 2011.
The operating results of the historical DaVita divested centers
are reflected as discontinued operations for all periods presented.
In addition, the operating results for the DSI centers divested and
to be divested are reflected as discontinued operations in our
consolidated financial statements beginning September 1, 2011.
Financial and operating highlights include:
- Cash Flow: For the rolling
twelve months ended September 30, 2011 operating cash flow was
$1,150 million and free cash flow was $835 million. For the three
months ended September 30, 2011 operating cash flow was $495
million and free cash flow was $408 million.
- Operating Income: Operating
income for the three and nine months ended September 30, 2011 was
$319 million and $825 million, respectively, which for the nine
months ended September 30, 2011 excludes the pre-tax non-cash
goodwill impairment charge of $24 million. Operating income for the
nine months ended September 30, 2011 including this item was $801
million.Operating income for the three and nine months ended
September 30, 2010 was $257 million and $741 million,
respectively.
- Volume: Total treatments for the
third quarter of 2011 were 5,008,094, or 63,394 treatments per day,
representing a per day increase of 9.6% over the third quarter of
2010. Non-acquired treatment growth in the quarter was 5.0% over
the prior year’s third quarter. Our normalized non-acquired
treatment growth in the quarter was 4.6% over the prior year’s
third quarter.
- Effective Tax Rate: Our
effective tax rate was 36.4% and 35.9% for the three and nine
months ended September 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 40.5% and 40.2% for the three and
nine months ended September 30, 2011, respectively. We still expect
our effective tax rate attributable to DaVita Inc. for 2011 to be
in the range of 39.0% to 40.0%.
- Center Activity: As of September
30, 2011, we operated or provided administrative services at 1,777
outpatient dialysis centers serving approximately 138,000 patients,
of which 1,745 centers are consolidated in our financial
statements. During the third quarter of 2011, we acquired and
opened a total of 138 centers, including 113 centers associated
with the acquisition of DSI and divested a total of 28 centers in
order to complete the acquisition of DSI.
- Debt Transactions: On August 26,
2011, we entered into an Increase Joinder Agreement under our
existing Senior Secured Credit Agreement. Pursuant to the Increase
Joinder Agreement, we increased the revolving credit facility by
$100 million, to a total of $350 million, and entered into an
additional $200 million Term Loan A-2. The Term Loan A-2 matures in
October 2016.
Outlook
Our operating income guidance for 2011 is still expected to be
in the range of $1,125 million to $1,155 million. This guidance
excludes the non-cash goodwill impairment charge recorded in the
second quarter of 2011. We are raising our operating cash flow
guidance for 2011 to now be in the range of $1,020 million to
$1,100 million. Our previous operating cash flow guidance for 2011
was in the range of $900 million to $980 million. We also expect
our operating cash flows for 2012 to be flat or slightly down as
compared to 2011, primarily due to the timing of certain working
capital items. We are also confirming our operating income guidance
range for 2012 of $1,200 million to $1,300 million, as previously
provided. 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 third quarter ended September 30, 2011 on November 3, 2011 at
5:30 p.m. Eastern Time. The dial in number is (800) 399-4406. A
replay of the conference call will be available on DaVita’s
official web page, www.davita.com, for the following 30 days.
This release contains forward-looking statements, within the
meaning of the federal securities laws, including statements
related to our 2011 and 2012 operating income, our 2011 and 2012
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 second quarter ended June
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 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,
- current or potential investigations by
various governmental 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 September 30,
Nine months ended September 30, 2011
2010 2011
2010 Net operating revenues $ 1,807,869 $
1,649,557 $ 5,119,896 $ 4,791,126 Operating expenses and charges:
Patient care costs 1,189,638 1,144,474 3,466,860 3,334,099 General
and administrative 182,638 148,041 498,033 421,422 Depreciation and
amortization 67,558 58,325 193,641 173,820 Provision for
uncollectible accounts 51,942 43,761 143,247 127,451 Equity
investment income (2,619 ) (1,789 ) (6,555 ) (6,968 ) Goodwill
impairment charge - - 24,000
- Total operating expenses and charges
1,489,157 1,392,812 4,319,226
4,049,824 Operating income 318,712 256,745 800,670
741,302 Debt expense (60,848 ) (39,490 ) (179,340 ) (127,728 ) Debt
redemption charges - - - (4,127 ) Other income 798
759 2,195 2,328 Income
from continuing operations before income taxes 258,662 218,014
623,525 611,775 Income tax expense 94,204
75,038 224,034 220,189 Income
from continuing operations 164,458 142,976 399,491 391,586
Discontinued operations: Income (loss) from operations of
discontinued operations, net of tax 1,076 (95 ) 1,460 188 Loss on
disposal of discontinued operations, net of tax (3,688 )
- (3,688 ) - Net income. 161,846
142,881 397,263 391,774 Less: Net income attributable to
noncontrolling interests (26,485 ) (23,494 )
(67,385 ) (55,111 ) Net income attributable to DaVita Inc. $
135,361 $ 119,387 $ 329,878 $ 336,663
Earnings per share: Basic income from continuing operations
per share attributable to DaVita Inc. $ 1.48 $ 1.16 $
3.50 $ 3.27 Basic net income per share attributable
to DaVita Inc. $ 1.45 $ 1.16 $ 3.47 $ 3.27
Diluted income from continuing operations per share
attributable to DaVita Inc. $ 1.45 $ 1.15 $ 3.43
$ 3.22 Diluted net income per share attributable to
DaVita Inc. $ 1.42 $ 1.15 $ 3.40 $ 3.22
Weighted average shares for earnings per share: Basic
93,441,620 102,608,844 95,053,339
102,989,010 Diluted 95,171,225
104,022,458 97,057,773
104,408,939
Amounts attributable to DaVita Inc.:
Income from continuing operations $ 138,192 $ 119,482 $ 332,325 $
336,475 Discontinued operations (2,831 ) (95 )
(2,447 ) 188 Net income $ 135,361 $ 119,387
$ 329,878 $ 336,663
DAVITA
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (dollars in thousands) Nine
months endedSeptember 30, 2011
2010 Cash flows from operating
activities: Net income $ 397,263 $ 391,774 Adjustments to
reconcile net income to cash provided by operating activities:
Depreciation and amortization 194,328 174,307 Stock-based
compensation expense 36,392 33,492 Tax benefits from stock award
exercises 35,096 15,755 Excess tax benefits from stock award
exercises (19,640 ) (2,079 ) Deferred income taxes 38,377 61,499
Equity investment income, net 238 (3,048 ) Loss on disposal of
assets and other non-cash charges 16,398 5,650 Goodwill impairment
charge 24,000 - Debt redemption charges - 4,127 Changes in
operating assets and liabilities, other than from acquisitions and
divestitures: Accounts receivable (61,483 ) 21,680 Inventories
11,767 3,041 Other receivables and other current assets 81,737
16,596 Other long-term assets 2,408 187 Accounts payable 56,652
95,350 Accrued compensation and benefits 121,631 72,501 Other
current liabilities (8,733 ) (118,305 ) Income taxes 88,454 (55,703
) Other long-term liabilities 14,502 2,308
Net cash provided by operating activities
1,029,387 719,132
Cash flows from
investing activities: Additions of property and equipment, net
(251,879 ) (169,376 ) Acquisitions (927,124 ) (137,643 ) Proceeds
from asset sales 51,623 18,471 Purchase of investments available
for sale (2,118 ) (955 ) Purchase of investments held-to-maturity
(29,740 ) (23,540 ) Proceeds from sale of investments available for
sale 1,149 900 Proceeds from maturities of investments
held-to-maturity 29,747 26,916 Purchase of equity investments and
other assets (5,005 ) (436 ) Distributions received on equity
investments 340 350 Net cash
used in investing activities (1,133,007 ) (285,313 )
Cash flows from financing activities: Borrowings
27,506,051 14,736,519 Payments on long-term debt (27,350,513 )
(15,006,754 ) Interest rate cap premiums and other deferred
financing costs (17,863 ) (46 ) Debt call premium - (3,314 )
Purchase of treasury stock (323,348 ) (148,669 ) Distributions to
noncontrolling interests (67,408 ) (61,112 ) Stock award exercises
and other share issuances, net 9,886 39,416 Excess tax benefits
from stock award exercises 19,640 2,079 Contributions from
noncontrolling interests 14,779 5,365 Proceeds from sales of
additional noncontrolling interests 2,675 3,205 Purchases from
noncontrolling interests (9,190 ) (5,402 ) Net
cash used in financing activities (215,291 ) (438,713
) Net decrease in cash and cash equivalents (318,911 )
(4,894 ) Cash and cash equivalents at beginning of period
860,117 539,459 Cash and cash
equivalents at end of period $ 541,206 $ 534,565
DAVITA INC. CONSOLIDATED BALANCE SHEETS
(unaudited) (dollars in thousands, except per share
data) September 30,2011 December
31,2010 ASSETS Cash and cash equivalents $
541,206 $ 860,117 Short-term investments 24,661 23,003 Accounts
receivable, less allowance of $231,666 and $235,629 1,165,010
1,048,976 Inventories 73,293 76,008 Other receivables 242,218
304,366 Other current assets 67,454 43,994 Income tax receivables -
40,330 Deferred income taxes 256,325 226,060
Total current assets 2,370,167 2,622,854 Property and
equipment, net 1,335,789 1,170,808 Amortizable intangibles, net
159,789 162,635 Equity investments 30,340 25,918 Long-term
investments 8,857 8,848 Other long-term assets 31,761 32,054
Goodwill 4,769,965 4,091,307 $
8,706,668 $ 8,114,424
LIABILITIES AND
EQUITY Accounts payable $ 259,459 $ 181,033 Other liabilities
363,176 342,943 Accrued compensation and benefits 461,988 325,477
Current portion of long-term debt 82,497 74,892 Income tax payable
38,800 - Total current liabilities
1,205,920 924,345 Long-term debt 4,417,468 4,233,850 Other
long-term liabilities 134,075 89,290 Alliance and product supply
agreement, net 22,370 25,317 Deferred income taxes 393,540
421,436 Total liabilities 6,173,373 5,694,238
Commitments and contingencies Noncontrolling interests subject to
put provisions 450,903 383,052 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; 93,442,783 and 96,001,535 shares outstanding) 135
135 Additional paid-in capital 611,833 620,546 Retained earnings
3,047,695 2,717,817 Treasury stock, at cost (41,419,500 and
38,860,748 shares) (1,639,554 ) (1,360,579 ) Accumulated other
comprehensive (loss) income (20,856 ) 503
Total DaVita Inc. shareholders’ equity 1,999,253 1,978,422
Noncontrolling interests not subject to put provisions
83,139 58,712 Total equity 2,082,392
2,037,134 $ 8,706,668 $
8,114,424
DAVITA INC. SUPPLEMENTAL
FINANCIAL DATA (unaudited) (dollars in millions,
except for per share and per treatment data)
Three months ended
Nine months ended
September 30, 2011
September 30,2011
June 30,2011
September 30,2010
1. Consolidated Financial Results: Revenues $ 1,808 $ 1,709
$ 1,650 $ 5,120 Operating income $ 318.7 $ 246.6 $ 256.7 $ 800.7
Operating income, excluding the pre-tax non-cash goodwill
impairment charge(1) $ 318.7 $ 270.6 $ 256.7 $ 824.7 Operating
income margin 17.6 % 14.4 % 15.6 % 15.6 % Operating income margin,
excluding the pre-tax non-cash goodwill impairment charge(1) 17.6 %
15.8 % 15.6 % 16.1 % Income from continuing operations attributable
to DaVita Inc. $ 138.2 $ 99.8 $ 119.5 $ 332.3 Income from
continuing operations attributable to DaVita Inc., excluding the
after-tax non-cash goodwill impairment charge(1) $ 138.2 $ 114.2 $
119.5 $ 346.7 Diluted earnings per share from continuing operations
attributable to DaVita Inc. $ 1.45 $ 1.03 $ 1.15 $ 3.43 Diluted
earnings per share from continuing operations attributable to
DaVita Inc., excluding the after-tax non-cash goodwill impairment
charge(1) $ 1.45 $ 1.17 $ 1.15 $ 3.57
2. Consolidated
Business Metrics: Expenses Patient care costs as a
percent of consolidated revenue(2) 65.8 % 68.1 % 69.4 % 67.7 %
General and administrative expenses as a percent of consolidated
revenue (2) 10.1 % 9.6 % 9.0 % 9.7 % Bad debt expense as a
percent of consolidated revenue 2.9 % 2.9 % 2.7 % 2.8 %
Consolidated effective tax rate attributable to DaVita Inc.(1) 40.5
% 40.0 % 38.5 % 40.2 %
3. Segment Financial Results:
(dollar amounts rounded to nearest million) Revenues
Dialysis and related lab services $ 1,675 $ 1,588 $ 1,551 $ 4,765
Other – Ancillary services and strategic initiatives 137
123 101 366 Total
segment revenue 1,812 1,711 1,652 5,131 Less elimination of
intersegment revenue (4 ) (3 ) (2 ) (11
) Total consolidated revenue $ 1,808 $ 1,709 $ 1,650
$ 5,120
Operating Income Dialysis and
related lab services $ 328 $ 282 $ 266 $ 860 Other – Ancillary
services and strategic initiatives 2 (25 )
- (30 ) Total segment operating income $ 330 $
257 $ 266 $ 830 Reconciling items: Stock-based compensation (13 )
(13 ) (11 ) (36 ) Equity investment income 2 2
2 7 Consolidated operating
income $ 319 $ 247 $ 257 $ 801
DAVITA INC. SUPPLEMENTAL FINANCIAL
DATA—continued (unaudited) (dollars in millions,
except for per share and per treatment data)
Three months ended
Nine months ended
September 30, 2011
September 30,2011
June 30, 2011
September 30,2010
4. Segment Business Metrics: Dialysis and related lab
services Volume Treatments 5,008,094 4,769,661 4,571,219
14,372,305 Number of treatment days 79.0 78.0 79.0 234.0 Treatments
per day 63,394 61,150 57,864 61,420 Per day year over year increase
9.6 % 7.1 % 5.5 % 7.9 % Non-acquired growth year over year 5.0 %
4.6 % 3.7 % 4.6 %
Revenue Dialysis and related lab
services revenue per treatment $ 333.86 $ 332.30 $ 338.79 $ 330.95
Per treatment increase from previous quarter 0.5 % 1.8 % 1.2 % Per
treatment decrease from previous year (1.5 %) (0.7 %) (1.3 %) (2.4
%) Percent of consolidated revenue 92.5 % 92.8 % 93.9 % 92.9 %
Expenses Patient care costs Percent of segment
revenue 64.5 % 66.9 % 68.6 % 66.5 % Per treatment $ 215.70 $ 222.81
$ 232.88 $ 220.48 Per treatment (decrease) increase from previous
quarter (3.2 %) (0.2 %) 0.3 % Per treatment decrease from previous
year (7.4 %) (4.0 %) (1.9 %) (5.8 %) General and
administrative expenses Percent of segment revenue 9.0 % 8.4 % 7.8
% 8.6 % Per treatment $ 30.20 $ 27.84 $ 26.62 $ 28.47 Per treatment
increase from previous quarter 8.5 % 2.2 % 9.1 % Per treatment
increase from previous year 13.4 % 14.1 % 8.2 % 10.7 %
5.
Cash Flow: Operating cash flow $ 495.2 $ 204.4 $ 161.4 $
1,029.4 Operating cash flow, last twelve months $ 1,149.9 $ 816.1 $
871.7 Free cash flow(1) $ 407.7 $ 125.1 $ 90.9 $ 799.3 Free cash
flow, last twelve months(1) $ 835.3 $ 518.4 $ 657.7 Capital
expenditures: Routine maintenance/IT/other $ 66.5 $ 55.1 $ 46.7 $
162.7 Development and relocations $ 45.7 $ 39.4 $ 23.3 $ 112.7
Acquisition expenditures $ 775.9 $ 69.7 $ 45.9 $ 927.1
6.
Accounts Receivable: Net receivables $ 1,165 $ 1,132 $ 1,083
DSO 60 63 63
DAVITA INC. SUPPLEMENTAL
FINANCIAL DATA—continued (unaudited) (dollars in
millions, except for per share and per treatment data)
Three months ended
Nine months ended
September 30, 2011
September 30,2011
June 30,2011
September 30,2010
7. Debt and Capital Structure: Total debt(3) $ 4,508 $ 4,294
$ 3,361 Net debt, net of cash(3) $ 3,967 $ 3,564 $ 2,826
Leverage ratio (see Note 1 on page 9)
2.73
x
2.69
x
2.31
x
Overall weighted average effective interest rate during the quarter
5.30 % 5.33 % 4.45 % Overall weighted average effective interest
rate at end of the quarter 5.27 % 5.34 % 4.18 % Weighted average
effective interest rate on the Senior Secured Credit Facilities at
end of the quarter 4.61 % 4.68 % 1.80 % Effectively fixed interest
rates as a percentage of our total debt at September 30, 2011(4)
and June 30, 2011(4) and fixed interest rates at September 30, 2010
100 % 100 % 46 % Share repurchases $ 7.3 $ 302.4 $ 98.5 $ 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
quarter ended September 30, 2011, excludes $8.3 million of debt
discounts associated with our Term Loan B and our Term Loan A-2
that is not actually outstanding debt principal. The quarter ended
June 30, 2011, excludes $7.6 million of a debt discount associated
with our Term Loan B that is not actually outstanding debt
principal. The quarter ended September 30, 2010 excludes $1.6
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 September 30, 2011 and June 30, 2011, since the
Term Loan B bears interest at LIBOR (floor of 1.50%) plus a margin
of 3.00% and the current LIBOR rate is below that percentage. In
addition, this also includes the Term Loan A-2 outstanding amount
for the quarter ending September 30, 2011, since the Term Loan A-2
bears interest at LIBOR (floor of 1.00%) plus a margin of 3.50% and
the current LIBOR rate is below that percentage as well.
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
September 30, 2011
Net income attributable to DaVita Inc. $ 398,898 Income taxes
264,208 Interest expense 217,779 Depreciation and amortization
254,136 Non-cash goodwill impairment charge 24,000 Debt refinancing
and redemption charges 70,255 Noncontrolling interests 90,810
Equity investment income, net (12 ) Amortization of deferred
financing costs 9,903 Other, including pro-forma EBITDA associated
with acquisitions 91,989 Stock-based compensation expense
48,450 “Consolidated EBITDA” $ 1,470,416
September 30, 2011 Total debt, excluding debt
discount of $8.3 million $ 4,508,222 Letters of credit issued
42,811 4,551,033 Less: cash and cash equivalents
(541,206 ) Consolidated net debt $ 4,009,827 Last
twelve months “Consolidated EBITDA” $ 1,470,416
Leverage ratio
2.73
x
In accordance with the Credit
Agreement, the Company’s leverage ratio cannot exceed 4.25 to 1.0
as of September 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. Income from continuing
operations attributable to DaVita Inc. excluding an after-tax
non-cash goodwill impairment charge and debt redemption charges and
diluted income from continuing operations per share attributable to
DaVita Inc. excluding an after-tax non-cash goodwill impairment
charge and debt redemption charges.
We believe that income from continuing
operations attributable to DaVita Inc. excluding an after-tax
non-cash goodwill impairment charge and debt 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 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 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 debt redemption charges: Three months ended
Nine months ended
September 30,2011
June 30,2011
September 30,2010
September 30,2011
September 30,2010
Net income attributable to DaVita Inc. $ 135,361 $ 100,015 $
119,387 $ 329,878 $ 336,663 Discontinued operations attributable to
DaVita Inc. 2,831 (253 ) 95 2,447
(188 ) Income from continuing operations attributable
to DaVita Inc. 138,192 99,762 119,482 332,325 336,475 Add: Non-cash
goodwill impairment charge - 24,000 - 24,000 - Add: Debt redemption
charges - - - - 4,127 Less: Related income tax -
(9,600 ) - (9,600 ) (1,605 ) $ 138,192 $
114,162 $ 119,482 $ 346,725 $ 338,997
Diluted income from continuing operations per share
attributable to DaVita Inc. excluding an after-tax non-cash
goodwill impairment charge and debt redemption charges:
Three months ended Nine months ended
September 30,2011
June 30,2011
September 30,2010
September 30,2011
September 30,2010
Diluted net income per share attributable to DaVita Inc. $ 1.42 $
1.03 $ 1.15 $ 3.40 $ 3.22 Discontinued operations 0.03
- - 0.03 - Diluted
income from continuing operations per share attributable to DaVita
Inc. 1.45 1.03 1.15 3.43 3.22 Add: Non-cash goodwill impairment
charge - 0.14 - 0.14 - Add: Debt redemption charges - - - - 0.02
Add: Other rounding - - - -
0.01 $ 1.45 $ 1.17 $ 1.15 $ 3.57
$ 3.25
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 Nine
months ended
September 30,2011
June 30,2011
September 30,2010
September 30,2011
September 30,2010
Operating income $ 318,712 $ 246,624 $ 256,745 $ 800,670 $ 741,302
Add: Non-cash goodwill impairment charge - 24,000
- 24,000 - $ 318,712 $ 270,624 $ 256,745 $
824,670 $ 741,302
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
Nine monthsendedSeptember
30, 2011
September 30,2011
June 30,2011
September 30,2010
Income from continuing operations before income taxes $ 258,662
$ 187,283 $ 218,014 $ 623,525 Income
tax expense $ 94,204 $ 66,871 $ 75,038 $
224,034 Effective income tax rate 36.4 % 35.7
% 34.4 % 35.9 %
Three months
ended
Nine monthsendedSeptember
30, 2011
September 30,2011
June 30,2011
September 30,2010
Income from continuing operations before income taxes $ 258,662 $
187,283 $ 218,014 $ 623,525 Less: Noncontrolling owners’ income
primarily attributable to non-tax paying entities (26,604 )
(21,020 ) (23,703 ) (67,921 ) Income before
income taxes attributable to DaVita Inc. $ 232,058 $ 166,263
$ 194,311 $ 555,604 Income tax expense
94,204 66,871 $ 75,038 $ 224,034 Less income tax attributable to
noncontrolling interests (119 ) (370 ) (209 )
(536 ) Income tax attributable to DaVita Inc. $ 94,085
$ 66,501 $ 74,829 $ 223,498
Effective income tax rate attributable to DaVita Inc. 40.5 %
40.0 % 38.5 % 40.2 %
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
Nine months
endedSeptember 30, 2011
September 30,2011
June 30,2011
September 30,2010
Cash provided by operating activities $ 495,194 $ 204,410 $ 161,366
$ 1,029,387 Less: Income distributions to noncontrolling interests
(20,985) (24,236) (23,811) (67,408) Cash provided by operating
activities attributable to DaVita Inc. 474,209 180,174 137,555
961,979 Less: Expenditures for routine maintenance and information
technology (66,523) (55,096) (46,690) (162,698) Free cash flow $
407,686 $ 125,078 $ 90,865 $ 799,281
Rolling
12-Month Period
September 30,2011
June 30,2011
September 30,2010
Cash provided by operating activities $ 1,149,938 $ 816,110 $
871,723 Less: Income distributions to noncontrolling interests
(89,887) (92,713) (81,972) Cash provided by operating activities
attributable to DaVita Inc. 1,060,051 723,397 789,751 Less:
Expenditures for routine maintenance and information technology
(224,781) (204,948) (132,079) Free cash flow $ 835,270 $ 518,449 $
657,672
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