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Share Name | Share Symbol | Market | Type |
---|---|---|---|
DaVita Inc | NYSE:DVA | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
1.16 | 0.85% | 137.11 | 138.88 | 136.44 | 136.90 | 562,493 | 01:00:00 |
DaVita Inc. (NYSE: DVA) today announced results for the quarter ended September 30, 2012. Net income attributable to DaVita Inc. for the three and nine months ended September 30, 2012 was $144.7 million and $427.8 million, or $1.50 per share and $4.46 per share, respectively, excluding for the nine months ended September 30, 2012 an after-tax legal proceeding contingency accrual and related expense of $47.6 million, or $0.50 per share, that occurred in the second quarter of 2012. Net income attributable to DaVita Inc. for the nine months ended September 30, 2012 including this item was $380.2 million, or $3.96 per share.
Our operating results for the three and nine months ended September 30, 2012, include an additional $5.4 million of after-tax debt expense, or $0.06 per share, resulting from the proposed amendments under our senior secured credit facilities as well as issuing the New Senior Notes in advance of the potential acquisition of HCP.
Net income attributable to DaVita Inc. for the three and nine months ended September 30, 2011 was $135.4 million and $344.3 million, or $1.42 per share and $3.54 per share, respectively, excluding for the nine months ended September 30, 2011 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. Net income attributable to DaVita Inc. for the nine months ended September 30, 2011 including this item was $329.9 million or $3.40 per share.
Financial and operating highlights include:
Operating income for the three and nine months ended September 30, 2011 was $319 million and $825 million, respectively, excluding for the nine months ended September 30, 2011 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.
On August 28, 2012 we issued $1.25 billion aggregate principal amount of 5 ¾% senior notes due 2022 (New Senior Notes). All of the proceeds from the issuance of the New Senior Notes along with related fees and interest through November 30, 2012 were deposited into escrow pending the consummation of the HCP acquisition. For further details regarding this transaction, see our SEC filings on Form 8-K dated August 28, 2012 and August 16, 2012.
Outlook
We are updating our operating income guidance for 2012 for our dialysis services and related ancillary businesses to now be in the range of $1,315 million to $1,330 million. Our previous operating income guidance for our dialysis services and related ancillary businesses was in the range of $1,275 million to $1,325 million. Following the expected close of the HCP acquisition in early November 2012, we expect the incremental operating income contribution from HCP to be in the range of $25 million to $30 million per month for the remainder of the year. Our operating income guidance for our dialysis services and related ancillary businesses for 2012 excludes the legal proceeding contingency accrual and related expenses of $78 million and transaction expenses related to the HCP acquisition.
Our consolidated operating income guidance for 2013 is expected to be in the range of $1,750 million to $1,900 million including the operating results of HCP. Our operating income guidance for 2013 for our dialysis services and related ancillary businesses is expected to be in the range of $1,350 million to $1,450 million and our operating income guidance for 2013 for HCP is expected to be in the range of $400 million to $450 million. We also expect our consolidated operating cash flows for 2013 to be in the range of $1,350 million to $1,500 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 third quarter ended September 30, 2012 on October 30, 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 guidance and expectations for our 2012 and 2013 operating income, our 2013 operating cash flows and our 2012 effective tax rate attributable to DaVita Inc., and the anticipated timing and closing of the HCP transaction. 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 quarter ended June 30, 2012 and subsequent quarterly reports to be filed on Form 10-Q or current reports on Form 8-K. The forward-looking statements should be considered in light of these risks and uncertainties.
These risks and uncertainties include those relating to:
In addition, upon closing of the HCP transaction, certain other risks and uncertainties related to HCP will also affect these forward-looking statements, including those relating to:
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 Nine months ended September 30, September 30, 2012 2011 2012 2011 Dialysis patient service operating revenues $ 1,838,363 $ 1,669,086 $ 5,410,200 $ 4,749,469 Less: Provision for uncollectible accounts related to patient service operating revenues (59,803 ) (50,039 ) (167,227 ) (138,520 ) Net patient service operating revenues 1,778,560 1,619,047 5,242,973 4,610,949 Other revenues 184,406 138,783 516,368 370,427 Total net operating revenues 1,962,966 1,757,830 5,759,341 4,981,376 Operating expenses and charges: Patient care costs 1,340,918 1,189,638 3,916,324 3,466,860 General and administrative 201,198 182,638 623,208 498,033 Depreciation and amortization 80,586 67,558 234,368 193,641 Provision for uncollectible accounts 2,469 1,903 6,294 4,727 Equity investment income (3,064 ) (2,619 ) (8,314 ) (6,555 ) Legal proceeding contingency accrual and related expenses ─ ─ 78,000 ─ Goodwill impairment charge ─ ─ ─ 24,000 Total operating expenses and charges 1,622,107 1,439,118 4,849,880 4,180,706 Operating income 340,859 318,712 909,461 800,670 Debt expense(70,494
)
(60,848
)
(192,584
)
(179,340
)
Other income 819 798 2,698 2,195 Income from continuing operations before income taxes 271,184 258,662 719,575 623,525 Income tax expense 98,634 94,204 262,138 224,034 Income from continuing operations 172,550 164,458 457,437 399,491 Discontinued operations: Income from operations of discontinued operations, net of tax ─ 1,076 ─ 1,460 Loss on disposal of discontinued operations, net of tax ─(3,688
)
─(3,688
)
Net income 172,550 161,846 457,437 397,263Less: Net income attributable to noncontrolling interests
(27,829
)
(26,485
)
(77,259
)
(67,385
)
Net income attributable to DaVita Inc. $ 144,721 $ 135,361 $ 380,178 $ 329,878 Earnings per share: Basic income from continuing operations per share attributable to DaVita Inc. $ 1.52 $ 1.48 $ 4.03 $ 3.50 Basic net income per share attributable to DaVita Inc. $ 1.52 $ 1.45 $ 4.03 $ 3.47 Diluted income from continuing operations per share attributable to DaVita Inc. $ 1.50 $ 1.45 $ 3.96 $ 3.43 Diluted net income per share attributable to DaVita Inc. $ 1.50 $ 1.42 $ 3.96 $ 3.40 Weighted average shares for earnings per share: Basic 94,979,858 93,441,620 94,309,099 95,053,339 Diluted 96,634,620 95,171,225 96,124,226 97,057,773 Amounts attributable to DaVita Inc.: Income from continuing operations $ 144,721 $ 138,192 $ 380,178 $ 332,325 Discontinued operations ─(2,831
)
─(2,447
)
Net income $ 144,721 $ 135,361 $ 380,178 $ 329,878 DAVITA INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)(dollars in thousands, except per share data)
Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Net income $ 172,550 $ 161,846 $ 457,437 $ 397,263 Other comprehensive (loss) income, net of tax: Unrealized losses on interest rate swap and cap agreements: Unrealized losses on interest rate swap and cap agreements (1,741 ) (10,869 ) (6,104 ) (27,839 ) Less: Reclassifications of net swap and cap agreements realized losses into net income 2,530 2,702 7,586 7,124 Unrealized gains (losses) on investments: Unrealized gains (losses) on investments 445 (902 ) 1,387 (587 ) Less: Reclassification of net investment realized gains into net income ─ ─ (75 ) (57 ) Foreign currency translation adjustments (135 ) ─ (1,593 ) ─ Other comprehensive income (loss) 1,099 (9,069 ) 1,201 (21,359 ) Total comprehensive income 173,649 152,777 458,638 375,904 Less: Comprehensive income attributable to the noncontrolling interests (27,829 ) (26,485 ) (77,259 ) (67,385 ) Comprehensive income attributable to DaVita Inc. $ 145,820 $ 126,292 $ 381,379 $ 308,519 DAVITA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) Nine months ended September 30, 2012 2011 Cash flows from operating activities: Net income $ 457,437 $ 397,263 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 234,368 194,328 Stock-based compensation expense 34,857 36,392 Tax benefits from stock award exercises 60,252 35,096 Excess tax benefits from stock award exercises(39,346
)
(19,640
)
Deferred income taxes(1,374
)
38,377 Equity investment income, net 10 238 Other non-cash charges and loss on disposal of assets 17,244 16,398 Goodwill impairment charge ─ 24,000 Changes in operating assets and liabilities, other than from acquisitions and divestitures: Accounts receivable(51,349
)
(61,483
)
Inventories 1,958 11,767 Other receivables and other current assets 65,047 81,737 Other long-term assets 3,429 2,408 Accounts payable (18,200 ) 56,652 Accrued compensation and benefits 113,101 121,631 Other current liabilities 87,223(8,733
)
Income taxes(69,108
)
88,454 Other long-term liabilities 5,064 14,502 Net cash provided by operating activities 900,613 1,029,387 Cash flows from investing activities: Additions of property and equipment, net(378,949
)
(251,879
)
Acquisitions(419,114
)
(927,124 ) Proceeds from asset sales 2,118 51,623 Purchase of investments available for sale (3,452 ) (2,118 ) Purchase of investments held-to-maturity (5,257 ) (29,740 ) Proceeds from sale of investments available for sale 6,796 1,149 Proceeds from maturities of investments held-to-maturity 12,375 29,747 Purchase of equity investments and other assets (1,276 ) (5,005 ) Distributions received on equity investments 2 340 Net cash used in investing activities (786,757 ) (1,133,007 ) Cash flows from financing activities: Borrowings 26,992,105 27,506,051 Payments on long-term debt (25,799,807 ) (27,350,513 ) Restricted cash (1,268,767 ) ─ Interest rate cap premiums and other deferred financing costs (22,189 ) (17,863 ) Purchase of treasury stock ─ (323,348 ) Distributions to noncontrolling interests (81,978 ) (67,408 ) Stock award exercises and other share issuances, net 8,395 9,886 Excess tax benefits from stock award exercises 39,346 19,640 Contributions from noncontrolling interests 19,368 14,779 Proceeds from sales of additional noncontrolling interests 1,844 2,675 Purchases from noncontrolling interests (13,774 ) (9,190 ) Net cash used in financing activities (125,457 ) (215,291 ) Effect of exchange rate changes on cash and cash equivalents 43 ─ Net decrease in cash and cash equivalents (11,558 ) (318,911 ) Cash and cash equivalents at beginning of period 393,752 860,117 Cash and cash equivalents at end of period $ 382,194 $ 541,206 DAVITA INC. CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in thousands, except per share data) September 30, December 31, 2012 2011 ASSETS Cash and cash equivalents $ 382,194 $ 393,752 Short-term investments 5,836 17,399 Accounts receivable, less allowance of $232,127 and $250,343 1,248,050 1,195,163 Inventories 78,322 75,731 Other receivables 207,439 269,832 Other current assets 46,989 49,349 Income tax receivable 33,625 ─ Deferred income taxes 323,219 280,382 Total current assets 2,325,674 2,281,608 Property and equipment, net 1,654,657 1,432,651 Amortizable intangibles, net 177,542 159,491 Equity investments 28,705 27,325 Long-term investments 13,249 9,890 Other long-term assets 30,558 34,231 Restricted cash 1,268,767 ─ Goodwill 5,324,960 4,946,976 $ 10,824,112 $ 8,892,172 LIABILITIES AND EQUITY Accounts payable $ 272,627 $ 289,653 Other liabilities 416,897 325,734 Accrued compensation and benefits 529,492 412,972 Current portion of long-term debt 117,821 87,345 Income tax payable ─ 37,412 Total current liabilities 1,336,837 1,153,116 Long-term debt 5,620,716 4,417,624 Other long-term liabilities 145,246 132,006 Alliance and product supply agreement, net 15,990 19,987 Deferred income taxes 484,918 423,098 Total liabilities 7,603,707 6,145,831 Commitments and contingencies Noncontrolling interests subject to put provisions 550,020 478,216 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; 95,346,980 and 93,641,363 shares outstanding) 135 135 Additional paid-in capital 543,751 596,300 Retained earnings 3,575,996 3,195,818 Treasury stock, at cost (39,515,303 and 41,220,920 shares) (1,564,178 ) (1,631,694 ) Accumulated other comprehensive loss (18,283 ) (19,484 ) Total DaVita Inc. shareholders’ equity 2,537,421 2,141,075 Noncontrolling interests not subject to put provisions 132,964 127,050 Total equity 2,670,385 2,268,125 $ 10,824,112 $ 8,892,172 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, 2012 September 30,2012
June 30,2012
September 30,2011
1. Consolidated Financial Results: Consolidated operating revenues $ 2,023 $ 1,984 $ 1,808 $ 5,927 Consolidated net operating revenues $ 1,963 $ 1,930 $ 1,758 $ 5,759 Operating income $ 340.9 $ 247.9 $ 318.7 $ 909.5 Operating income excluding the legal proceeding contingency accrual and related expenses(1) $ 340.9 $ 325.9 $ 318.7 $ 987.5 Operating income margin 16.9 % 12.5 % 17.6 % 15.3 % Operating income margin excluding the legal proceeding contingency accrual and related expenses(1) 16.9 % 16.4 % 17.6 % 16.7 % Net income attributable to DaVita Inc. $ 144.7 $ 95.3 $ 135.4 $ 380.2 Net income attributable to DaVita Inc. excluding the legal proceeding contingency accrual and related expenses(1) $ 144.7 $ 142.9 $ 135.4 $ 427.8 Diluted net income per share attributable to DaVita Inc. $ 1.50 $ 0.99 $ 1.42 $ 3.96 Diluted net income per share attributable to DaVita Inc.(1), excluding the legal proceeding contingency accrual and related expenses $ 1.50 $ 1.49 $ 1.42 $ 4.46 2. Consolidated Business Metrics: Expenses Patient care costs as a percent of consolidated operating revenues(2) 66.3 % 66.1 % 65.8 % 66.1 % General and administrative expenses as a percent of consolidated operating revenues(2) 9.9 % 10.8 % 10.1 % 10.5 % Total provision for uncollectible accounts as a percent of consolidated operating revenues 3.1 % 2.8 % 2.9 % 2.9 % Consolidated effective tax rate 36.4 % 36.2 % 36.4 % 36.4 % Consolidated effective tax rate attributable to DaVita Inc.(1) 40.5 % 41.5 % 40.5 % 40.8 % 3. Segment Financial Results: (dollar amounts rounded to nearest million) Operating revenues Dialysis and related lab services patient service operating revenues $ 1,842 $ 1,813 $ 1,672 $ 5,423 Less: Provision for uncollectible accounts related to patient service operating revenues (60 ) (54 ) (50 ) (167 ) Dialysis and related lab services net patient service operating revenues $ 1,782 $ 1,759 $ 1,622 $ 5,256 Other revenues 3 3 3 8 Total net dialysis and related lab services operating revenues 1,785 1,762 1,625 5,264 Other – Ancillary services and strategic initiatives 180 170 135 503 Other – Ancillary services and strategic initiatives net patient service operating revenues (related to international dialysis operations and a vascular access clinic) 5 5 2 12 Total net segment operating revenues 1,970 1,937 1,762 5,779 Elimination of intersegment revenues (7 ) (7 ) (4 ) (20 ) Total net consolidated operating revenues $ 1,963 $ 1,930 $ 1,758 $ 5,759 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, 2012 September 30,2012
June 30,2012
September 30,2011
3. Segment Financial Results: (dollar amounts rounded to nearest million)(continued) Operating Income Dialysis and related lab services operating income $ 361 $ 286 $ 333 $ 1,002 Other – Ancillary services and strategic initiatives, including international dialysis operations operating losses (11 ) (19 ) (3 ) (48 ) Total segment operating income $ 350 $ 267 $ 330 $ 954 Reconciling items: Other corporate level general and administrative expenses including stock-based compensation (12 ) (22 ) (13 ) (53 ) Equity investment income 3 3 2 8 Consolidated operating income $ 341 $ 248 $ 319 $ 909 4. Segment Business Metrics: Dialysis and related lab services Volume Treatments 5,550,645 5,451,901 5,008,094 16,316,821 Number of treatment days 78.0 78.0 79.0 234.0 Treatments per day 71,162 69,896 63,394 69,730 Per day year over year increase 12.3 % 14.3 % 9.6 % 13.5 % Non-acquired growth year over year 4.4 % 4.7 % 5.0 % 4.9 % Operating revenues before provision for uncollectible accounts Dialysis and related lab services revenue per treatment $ 331.93 $ 332.67 $ 333.86 $ 332.34 Per treatment (decrease) increase from previous quarter (0.2 %) 0.1 % 0.5 % ─ Per treatment (decrease) increase from previous year (0.6 %) 0.1 % (1.5 %) 0.4 % Percent of consolidated revenues 91.0 % 91.3 % 92.5 % 91.4 % Expenses Patient care costs Percent of total segment operating revenues 64.3 % 64.1 % 64.5 % 64.1 % Per treatment $ 213.90 $ 213.68 $ 215.66 $ 213.25 Per treatment increase (decrease) from previous quarter 0.1 % 0.7 % (3.2 %) ─ Per treatment decrease from previous year (0.8 %) (4.1 %) (7.4 %) (3.3 %) General and administrative expenses Percent of total segment operating revenues 8.6 % 8.6 % 8.8 % 8.8 % Per treatment $ 28.55 $ 28.80 $ 29.28 $ 29.23 Per treatment (decrease) increase from previous quarter (0.9 %) (5.2 %) 9.3 % ─ Per treatment (decrease) increase from previous year (2.5 %) 7.5 % 10.0 % 5.8 % 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, 2012 September 30,2012
June 30,2012
September 30,2011
5. Cash Flow: Operating cash flow $ 366.6 $ 202.1 $ 495.2 $ 900.6 Operating cash flow, last twelve months $ 1,051.3 $ 1,179.8 $ 1,149.9 Free cash flow(1) $ 271.4 $ 111.4 $ 423.1 $ 632.7 Free cash flow, last twelve months(1) $ 664.8 $ 816.5 $ 860.2 Capital expenditures: Routine maintenance/IT/other $ 63.7 $ 66.6 $ 51.1 $ 185.9 Development and relocations $ 64.7 $ 71.4 $ 45.7 $ 193.0 Acquisition expenditures $ 72.3 $ 214.1 $ 775.9 $ 419.1 6. Accounts Receivable: Net receivables $ 1,248 $ 1,250 $ 1,165 DSO 59 60 59 7. Debt and Capital Structure: Total debt(3) $ 5,745 $ 4,505 $ 4,508 Net debt, net of cash and cash equivalents including restricted cash at September 30, 3012(3) $ 4,094 $ 4,232 $ 3,967 Leverage ratio (see calculation on page 11) 2.61x 2.70x 2.73x Overall weighted average effective interest rate during the quarter 5.31 % 5.27 % 5.30 % Overall weighted average effective interest rate at end of the quarter 5.38 % 5.28 % 5.27 % Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter 4.61 % 4.61 % 4.61 % Fixed and economically fixed interest rates as a percentage of our total debt(4) 66 % 57 % 57 % Share repurchases $ - $ - $ 7.3 8. Clinical: (quarterly averages) Dialysis adequacy -% of patients with Kt/V > 1.2 at the end of the quarter 98 % 98 % 97 % Patients with arteriovenous fistulas placed 71 % 70 % 69 %_________________
(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 revenues are comprised of the dialysis and related lab services business, other ancillary services and strategic initiatives, stock-based compensation expenses, and in case of general and administrative expenses, includes other certain corporate level general and administrative expenses.
(3) The reported balance sheet amounts at September 30, 2012, June 30, 2012 and September 30, 2011, are net of $6.6 million, $7.0 million and $8.3 million, respectively, of debt discounts associated with our Term Loan B and our Term Loan A-2.
(4) The Term Loan A-2 and Term Loan B are subject to LIBOR floors of 1.00% and 1.50%, respectively. Because LIBOR, for all periods presented above, was lower than either of these floors, the interest rates on the Term Loan A-2 and the Term Loan B are set at their respective floors. At 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, 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 $469 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.
Rolling twelve months ended September 30, 2012 Net income attributable to DaVita Inc. $ 528,301 Income taxes 353,047 Interest expense 236,727 Depreciation and amortization 307,355 Noncontrolling interests and equity investment income, net 105,394 Stock-based compensation 47,183 Other items 23,624 “Consolidated EBITDA” $ 1,601,631 September 30, 2012 Total debt, excluding debt discount of $6.6 million $ 5,745,136 Letters of credit issued 87,953 5,833,089 Less: Cash and cash equivalents and including restricted cash (1,650,962) Consolidated net debt $ 4,182,127 Last twelve months “Consolidated EBITDA” $ 1,601,631 Leverage ratio 2.61xIn accordance with the Credit Agreement, the Company’s leverage ratio cannot exceed 4.25 to 1.0 as of September 30, 2012. At that date the Company’s leverage ratio did not exceed 4.25 to 1.0.
DAVITA INC.RECONCILIATIONS FOR NON-GAAP MEASURES(unaudited)(dollars in thousands)
1. Net income attributable to DaVita Inc. excluding an after-tax legal proceeding contingency accrual and related expenses and an after-tax non-cash goodwill impairment charge and diluted earnings per share attributable to DaVita Inc. excluding an after-tax legal proceeding contingency accrual and related expenses and an after-tax non-cash goodwill impairment charge.
We believe that net income attributable to DaVita Inc. excluding an after-tax legal proceeding contingency accrual and related expenses and an after-tax non-cash goodwill impairment charge 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 meaningful because it excludes an unusual charge for a legal proceeding contingency accrual that resulted from an agreement we reached in principle to settle federal program claims relating to our historical Epogen practices during the second quarter of 2012 and also 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 net income attributable to DaVita Inc. and diluted earnings per share to DaVita Inc. These measures are not measures of financial performance under United States generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income attributable to DaVita Inc., and diluted earnings per share attributable to DaVita Inc.
Net income attributable to DaVita Inc. excluding an after-tax legal proceeding contingency accrual and related expenses and an after-tax non-cash goodwill impairment charge: Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2012 2012 2011 2012 2011 Net income attributable to DaVita Inc. $ 144,721 $ 95,337 $ 135,361 $ 380,178 $ 329,878 Add: Legal proceeding contingency accrual and related expenses ─ 78,000 ─ 78,000 ─ Non-cash goodwill impairment charge ─ ─ ─ ─ 24,000 Less: Related income tax ─ (30,420 ) ─ (30,420 ) (9,600 ) $ 144,721 $ 142,917 $ 135,361 $ 427,758 $ 344,278 Diluted earnings per share attributable to DaVita Inc. excluding an after-tax legal proceeding contingency accrual and related expenses and an after-tax non-cash goodwill impairment charge: Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2012 2012 2011 2012 2011 Diluted earnings per share attributable to DaVita Inc. $ 1.50 $ 0.99 $ 1.42 3.96 $ 3.40 Add: Legal proceeding contingency accrual and related expenses ─ 0.50 ─ 0.50 ─ Non-cash goodwill impairment charge ─ ─ ─ ─ 0.14 $ 1.50 $ 1.49 $ 1.42 $ 4.46 $ 3.54DAVITA INC.RECONCILIATIONS FOR NON-GAAP MEASURES(unaudited)(dollars in thousands)
2. Operating income excluding a pre-tax legal proceeding contingency accrual and related expenses and a pre-tax non-cash goodwill impairment charge.
We believe that operating income excluding a pre-tax legal proceeding contingency accrual and related expenses and 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 meaningful because it excludes an unusual charge for a legal proceeding contingency accrual that resulted from an agreement we reached in principle to settle federal program claims relating to our historical Epogen practices during the second quarter of 2012 and also 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 legal proceeding contingency accrual and related expenses and a pre-tax non-cash goodwill impairment charge: Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2012 2012 2011 2012 2011 Operating income $ 340,859 $ 247,882 $ 318,712 $ 909,461 $ 800,670 Add: Legal proceeding contingency accrual and related expenses ─ 78,000 ─ 78,000 ─ Non-cash goodwill impairment charge ─ ─ ─ ─ 24,000 $ 340,859 $ 325,882 $ 318,712 $ 987,461 $ 824,670DAVITA 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 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 months ended September 30, 2012 September 30,2012
June 30,2012
September 30,2011
Income from continuing operations before income taxes $ 271,184 $ 188,013 $ 258,662 $ 719,575 Income tax expense $ 98,634 $ 68,009 $ 94,204 $ 262,138 Effective income tax rate 36.4 % 36.2 % 36.4 % 36.4 % Three months ended Nine months ended September 30, 2012 September 30,2012
June 30,2012
September 30,2011
Income from continuing operations before income taxes $ 271,184 $ 188,013 $ 258,662 $ 719,575 Less: Noncontrolling owners’ income primarily attributable to non-tax paying entities (27,954 ) (25,051 ) (26,604 ) (77,888 ) Income before income taxes attributable to DaVita Inc. $ 243,230 $ 162,962 $ 232,058 $ 641,687 Income tax expense 98,634 68,009 $ 94,204 $ 262,138 Less: Income tax attributable to noncontrolling interests (125 ) (384 ) (119 ) (629 ) Income tax attributable to DaVita Inc. $ 98,509 $ 67,625 $ 94,085 $ 261,509 Effective income tax rate attributable to DaVita Inc. 40.5 % 41.5 % 40.5 % 40.8 %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 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 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 ended September 30, 2012 September 30,2012
June 30,2012
September 30,2011
Cash provided by operating activities $ 366,634 $ 202,105 $ 495,194 $ 900,613 Less: Distributions to noncontrolling interests (31,500 ) (24,073 ) (20,985 ) (81,978 ) Cash provided by operating activities attributable to DaVita Inc. 335,134 178,032 474,209 818,635 Less: Expenditures for routine maintenance and information technology (63,718 ) (66,603 ) (51,107 ) (185,930 ) Free cash flow $ 271,416 $ 111,429 $ 423,102 $ 632,705 Rolling 12-Month Period September 30, June 30, September 30, 2012 2012 2011 Cash provided by operating activities $ 1,051,272 $ 1,179,832 $ 1,149,938 Less: Distributions to noncontrolling interests (115,223 ) (104,708 ) (89,887 ) Cash provided by operating activities attributable to DaVita Inc. 936,049 1,075,124 1,060,051 Less: Expenditures for routine maintenance and information technology (271,234 ) (258,623 ) (199,860 ) Free cash flow $ 664,815 $ 816,501 $ 860,191
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