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DaVita 3rd Quarter 2012 Results

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:

  • Cash Flow: For the rolling twelve months ended September 30, 2012, operating cash flow was $1,051 million and free cash flow was $665 million. For the three months ended September 30, 2012, operating cash flow was $367 million and free cash flow was $271 million. For a definition of free cash flow see Note 4 to the reconciliations of non-GAAP measures.
  • Operating Income: Operating income for the three and nine months ended September 30, 2012 was $341 million and $987 million, respectively, excluding for the nine months ended September 30, 2012 the pre-tax legal proceeding contingency accrual and related expenses of $78 million. Operating income for the nine months ended September 30, 2012 including this item was $909 million.

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.

  • Volume: Total U.S. treatments for the third quarter of 2012 were 5,550,645, or 71,162 treatments per day, representing a per day increase of 12.3% over the third quarter of 2011. Non-acquired treatment growth, as well as our normalized non-acquired treatment growth in the quarter, were both 4.4% over the prior year’s third quarter.
  • Effective Tax Rate: Our effective tax rate was 36.4% for both the three and nine months ended September 30, 2012, 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 40.8% for the three and nine months ended September 30, 2012, respectively. We still expect our 2012 effective tax rate attributable to DaVita Inc. to be in the range of 40.0% to 41.0%.
  • Acquisition: As previously announced on May 21, 2012, we entered into a definitive merger agreement to acquire HealthCare Partners (HCP), one of the country’s largest operators of medical groups and physician networks. The total purchase price to be paid by DaVita Inc. will consist of $3.66 billion in cash and approximately 9.38 million shares of DaVita common stock, subject to post-close adjustments. In addition to the total merger consideration payable at close, DaVita will pay to the owners of HCP a total of up to $275 million of additional cash consideration in the form of two separate earn-out payments if certain financial performance targets are achieved by HCP in 2012 and 2013. We expect the transaction to close in early November 2012 and anticipate HCP operating results will be included in our consolidated operating results beginning in November 2012.
  • Debt Transactions: As previously announced, in August 2012 we entered into amendments to our existing senior secured credit facilities to permit additional borrowings under the credit agreement in an aggregate principal amount of $3.0 billion to be used to finance a portion of the HCP transaction. For further details regarding these amendments, see our SEC filing on Form 8-K dated August 28, 2012.

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.

  • Center Activity: As of September 30, 2012, we operated or provided administrative services at 1,912 outpatient dialysis centers located in the United States serving approximately 150,000 patients and 24 outpatient dialysis centers serving approximately 1,200 patients that are located in five countries outside of the United States. During the third quarter of 2012, we acquired 10 centers and opened a total of 21 centers located in the United States. We also opened two centers and provided administrative services to three additional centers outside of the United States.

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.

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