DaVita Inc. 2nd Quarter 2018 Results

 

DENVER, Aug. 1, 2018 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2018.

  • Net income from continuing operations attributable to DaVita Inc. for the quarter ended June 30, 2018 was $200 million, or $1.15 per share. Adjusted net income from continuing operations attributable to DaVita Inc. for the quarter ended June 30, 2018 was $183 million, or $1.05 per share.
  • Net income from continuing operations attributable to DaVita Inc. for the six months ended June 30, 2018 was $391 million, or $2.19 per share. Adjusted net income from continuing operations attributable to DaVita Inc. for the six months ended June 30, 2018 was $374 million, or $2.10 per share.
  • Net income from continuing operations attributable to DaVita Inc. for the quarter ended June 30, 2017 was $151 million, or $0.78 per share. Adjusted net income from continuing operations attributable to DaVita Inc. for the quarter ended June 30, 2017 was $156 million, or $0.80 per share.
  • Net income from continuing operations attributable to DaVita Inc. for six months ended June 30, 2017 was $592 million, or $3.04 per share. Adjusted net income from continuing operations attributable to DaVita Inc. for the six months ended June 30, 2017 was $303 million, or $1.56 per share.

For the definitions of non-GAAP financial measures such as adjusted net income from continuing operations attributable to DaVita Inc., see the note titled "Note on Non-GAAP Financial Measures" below.

Financial and operating highlights include:

Cash flow: For the rolling twelve months ended June 30, 2018, consolidated operating cash flow was $1,823 million, of which $1,454 million was from continuing operations. For the three months ended June 30, 2018, consolidated operating cash flow was $562 million, of which $606 million was from continuing operations. Free cash flow from continuing operations was $470 million and $902 million for the quarter and rolling twelve months ended June 30, 2018, respectively.

Operating income and adjusted operating income: Operating income for the quarter ended June 30, 2018 was $438 million and adjusted operating income for the same period was $419 million. Operating income for the quarter ended June 30, 2017 was $391 million, and adjusted operating income for the same period was $402 million.

Operating income for the six months ended June 30, 2018 was $849 million and adjusted operating income for the same period was $829 million. Operating income for the six months ended June 30, 2017 was $1,267 million, and adjusted operating income for the same period was $781 million.

Gain on changes in ownership interests, net: We sold our Paladina Health direct primary care business in June 2018 and exited an international business for a net gain of $34 million.

Other asset and goodwill impairment charges: During the quarter ended June 30, 2018, we recognized an asset impairment charge of $11 million related to the restructuring of our pharmacy business. In addition, we recognized a goodwill impairment charge of $3 million related to one of our international businesses.

Volume: Total U.S. dialysis treatments for the second quarter of 2018 were 7,331,590, or 93,995 treatments per day, representing a per day increase of 4.2% over the second quarter of 2017. Normalized non-acquired treatment growth in the second quarter of 2018 as compared to the second quarter of 2017 was 3.4%.

Effective income tax rate: Our effective income tax rate on income from continuing operations was 26.2% and 24.8% for the three and six months ended June 30, 2018. These effective tax rates are impacted by the amount of third party owners' income attributable to non-tax paying entities. The effective income tax rate on income from continuing operations attributable to DaVita Inc. was 29.5% and 28.3% for the three and six months ended June 30, 2018.

Our effective tax rate was impacted by the impairment charges and the net gain on business ownership changes. Excluding these items our adjusted effective tax rate attributable to DaVita Inc. for the three and six months ended June 30, 2018 would have been 30.7% and 28.9%, respectively. Our adjusted effective tax rate increased this quarter due to non-deductible advocacy costs as well as the impact of increased non-deductible expenses due to changes from the Tax Cuts and Jobs Act of 2017.

Center activity: As of June 30, 2018, we provided dialysis services to a total of approximately 225,500 patients at 2,833 outpatient dialysis centers, of which 2,580 centers were located in the United States and 253 centers were located in 10 countries outside of the United States. During the second quarter of 2018, we opened a total of 43 new dialysis centers, acquired one dialysis center, and closed two centers in the United States. We also acquired 14 dialysis centers, opened one new dialysis center, and closed three dialysis centers outside of the United States.

New revenue accounting standard: On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers, using the cumulative effect method. Results for reporting periods beginning on January 1, 2018 are presented under this new guidance, while prior periods continue to be presented under the prior guidance. Due to a policy election we made allowing us to apply the new guidance only to contracts not completed as of January 1, 2018, we recognized $12 million and $36 million in the three and six months ended June 30, 2018, respectively, relating to Medicare bad debt revenue from 2017 dates of service.

Pending sale of DMG: As previously announced in December 2017, we entered into an agreement to sell our DMG division to Optum, a subsidiary of UnitedHealth Group Inc. for $4.9 billion in cash, subject to net working capital and other customary adjustments. The transaction is subject to regulatory approvals and other customary closing conditions, and we continue to expect it to close in 2018. As a result, the DMG business is classified as held for sale and the results of operations are reported as discontinued operations for all periods presented.

Share repurchases: During the quarter ended June 30, 2018, we repurchased a total of 7,797,712 shares of our common stock for approximately $512 million at an average price of $65.60 per share. We have also repurchased 3,871,905 shares of our common stock for $273 million at an average price of $70.48 per share from July 1, 2018 through July 31, 2018. As of July 31, 2018, we have repurchased a total of 15,866,921 shares of our common stock for approximately $1,083 million at an average price of $68.24 during 2018.

On July 11, 2018, our Board of Directors approved an additional share repurchase authorization in the amount of approximately $1,390 million. This recently approved authorization was in addition to the approximately $110 million remaining at that time under our Board of Directors' prior share repurchase authorization approved in October 2017. As of July 31, 2018, we have a total of approximately $1,426 million in outstanding Board repurchase authorizations remaining under our stock repurchase program. These share repurchase authorizations have no expiration dates.

New debt capacity: On March 29, 2018, we entered into an agreement to increase our borrowing capacity under our existing Senior Secured Credit Agreement. Pursuant to this agreement, the Company entered into an additional $995 million Term Loan A-2 which bears interest at LIBOR plus 1.00%. As of June 30, 2018, the Company has drawn $952 million of the Term Loan A-2. The remaining amount of $43 million on Term Loan A-2 was drawn subsequent to June 30, 2018.

Outlook

The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current forward-looking measures. We do not provide guidance for Kidney Care consolidated operating income or effective tax rate on income from continuing operations on a GAAP basis nor a reconciliation of those forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures on a forward-looking basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These non-GAAP financial measures do not include certain items, including goodwill and asset impairment charges, gain (loss) on ownership changes and foreign currency fluctuations.

  • We still expect our Kidney Care adjusted consolidated operating income for 2018 to be in the range of $1.5 billion to $1.6 billion, although our guidance now includes expected costs associated with countering the union policy efforts, including ballot initiatives, which had previously been excluded from our guidance.
     
  • We still expect our operating cash flow from continuing operations for 2018 to be in the range of $1.4 billion to $1.6 billion.
     
  • We now expect our 2018 effective tax rate on income from continuing operations attributable to DaVita Inc. to be approximately 28.5% to 29.5%.

    Our previous guidance for our 2018 effective tax rate on income from continuing operations attributable to DaVita Inc. was approximately 26.5% to 27.5%.

We will be holding a conference call to discuss our results for the second quarter ended June 30, 2018 on August 1, 2018 at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9042 from outside the U.S., and provide the operator the password 'Earnings'. A replay of the conference call will be available on our website at investors.davita.com, for the following 30 days.

Note on Non-GAAP Financial Measures

As used in this press release the term "adjusted" refers to non-GAAP measures as follows, each as reconciled to its most comparable GAAP measure as presented in the non-GAAP reconciliations in the notes to this press release: (i) for income measures, the term "adjusted" refers to operating performance measures that exclude certain items such as impairment charges, gains (losses) on ownership changes, restructuring charges, accruals for legal matters, recent federal tax reform legislation, and gains and charges associated with settlements; and (ii) the term "effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc." represents the Company's effective tax rate excluding applicable non-GAAP items and noncontrolling owners' income, which primarily relates to non-tax paying entities.

These non-GAAP or "adjusted" measures are presented because management believes these measures are useful adjuncts to GAAP results. However, these non-GAAP measures should not be considered alternatives to the corresponding measures determined under GAAP.

Specifically, we use adjusted operating income, adjusted net income from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc. to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe these non-GAAP measures are useful to management, investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. We also believe these presentations enhance a user's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normalized prior period results.

In addition, the effective income tax rate on income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities, and the effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income and certain non-deductible and other charges which we do not believe are indicative of our ordinary results. Accordingly, we believe these adjusted effective income tax rates are useful to management, investors and analysts in evaluating our performance concerning and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.

Finally, free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and capital expenditures for routine maintenance and information technology from continuing operations. We believe this non-GAAP measure is useful to management, investors and analysts as an adjunct to cash flow from operating activities from continuing operations and other measures under GAAP, since free cash flow from continuing operations is meaningful for assessing our ability to fund acquisition and development activities and meet our debt service obligations.

It is important to bear in mind that these non-GAAP "adjusted" measures are not measures of financial performance or liquidity under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures. Reconciliations of the non-GAAP measures presented herein to their most comparable GAAP measures are included at Notes 2, 3, 4 and 5 at the end of this press release.

DaVita Inc. and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), including statements in this release, filings with the Securities and Exchange Commission ("SEC"), reports to stockholders and in meetings with investors and analysts. All such statements in this release, during the related presentation or other meetings, other than statements of historical fact, are forward-looking statements and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the PSLRA. Without limiting the foregoing, statements including the words "expect," "intend," "will," "plan," "anticipate," "believe," "forecast," "guidance," "outlook," "goals," and similar expressions are intended to identify forward-looking statements.

The forward-looking statements should be considered in light of these risks and uncertainties. All forward-looking statements in this release are based on information available to us on the date of this presentation. We undertake no obligation to publicly update or revise any of our guidance, the assessment of the underlying assumptions or other forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise.

These forward-looking statements could include but are not limited to statements related to our guidance and expectations for our 2018 Kidney Care adjusted consolidated operating income, our 2018 operating cash flows from continuing operations, our 2018 effective tax rate on income from continuing operations attributable to DaVita Inc., our expected costs associated with countering the union policy efforts, including ballot initiatives, our expectations related to our stock repurchase program, and uncertainties associated with the other risk factors set forth in our most recent annual report on Form 10-K for the year ended December 31, 2017, and the other risks discussed in our subsequent periodic and current reports filed with the SEC from time to time.

Our actual results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things, and are qualified in their entirety by reference to the full text of those risk factors in our SEC filings relating to:

  • the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, including as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations;
  • the extent to which the ongoing implementation of healthcare exchanges or changes in or new legislation, regulations or guidance, or enforcement thereof, including among other things those regarding the exchanges, results in a reduction in reimbursement rates for our services from and/or the number of patients enrolled in 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 the Medicare Advantage benchmark structure;
  • risks arising from potential and proposed federal and/or state legislation or regulation, including healthcare-related and labor-related legislation or regulation;
  • the impact of the changing political environment and related developments on the current health care marketplace and on our business, including with respect to the future of the Affordable Care Act, the exchanges and many other core aspects of the current health care marketplace;
  • uncertainties related to the impact of federal tax reform legislation;
  • changes in pharmaceutical practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to calcimimetics;
  • legal compliance risks, such as our continued compliance with complex government regulations and the provisions of our current corporate integrity agreement and current or potential investigations by various government entities and related government or private-party proceedings, and restrictions on our business and operations required by our corporate integrity agreement and other current or potential settlement terms, and the financial impact thereof and our ability to recover any losses related to such legal matters from third parties;
  • continued increased competition from large- and medium-sized dialysis providers and others who compete, or will compete directly with us;
  • our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, including our ability to achieve anticipated savings from our recent restructurings;
  • our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates, such as accountable care organizations, independent practice associations and integrated delivery systems;
  • our ability to complete acquisitions, mergers or dispositions that we might announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services in markets outside the United States, or to businesses outside of dialysis;
  • noncompliance by us or our business associates with any privacy laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
  • the variability of our cash flows;
  • the risk that we may not be able to generate sufficient cash in the future to service our indebtedness or to fund our other liquidity needs;
  • factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, including market conditions, the price of our common stock, our cash flow position, borrowing capacity and leverage ratios, and legal, regulatory and contractual requirements;
  • the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, yet we might not be able to operate them profitably anytime soon, if at all;
  • risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
  • impairment of our goodwill, investments or other assets;
  • the risks and uncertainties associated with the timing, conditions and receipt of regulatory approvals and satisfaction of other closing conditions of the DMG sale transaction and potential disruption in connection with the DMG sale transaction making it more difficult to maintain business and operational relationships;
  • the risk that laws regulating the corporate practice of medicine could restrict the manner in which DMG conducts its business;
  • the risk that the cost of providing services under DMG's agreements may exceed our compensation;
  • the risk that reductions in reimbursement rates, including Medicare Advantage rates, and future regulations may negatively impact DMG's business, revenue and profitability;
  • the risk that DMG may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability;
  • the risk that a disruption in DMG's healthcare provider networks could have an adverse effect on DMG's business operations and profitability;
  • the risk that reductions in the quality ratings of health maintenance organization plan customers of DMG could have an adverse effect on DMG's business; and
  • the risk that health plans that acquire health maintenance organizations may not be willing to contract with DMG or may be willing to contract only on less favorable terms.

 

    Contact:                   Jim Gustafson

                               Investor Relations

                               DaVita Inc.

                               (310) 536-2585

 

                                                                                                  DAVITA INC.

                                                                                       CONSOLIDATED STATEMENTS OF INCOME

                                                                                                  (unaudited)

                                                                                 (dollars in thousands, except per share data)


                                                                Three months ended                                            Six months ended
                                                                     June 30,                                                    June 30,

                                                           2018                                 2017                        2018                 2017
                                                           ----                                 ----                        ----                 ----

    Dialysis and related lab patient
     service revenues                                            $2,718,403                                            $2,494,609                      $5,309,477  $4,917,395

    Provision for uncollectible
     accounts                                          (49,406)                             (109,600)                                 (23,861)        (216,658)
                                                        -------                               --------                                   -------          --------

    Net dialysis and related lab
     patient service revenues                         2,668,997                              2,385,009                                 5,285,616         4,700,737

    Other revenues                                      217,956                                314,390                                   450,781           629,913
                                                        -------

    Total revenues                                    2,886,953                              2,699,399                                 5,736,397         5,330,650
                                                      ---------                              ---------                                 ---------         ---------

    Operating expenses and charges:

    Patient care costs and other
     costs                                            2,069,089                              1,894,664                                 4,104,674         3,746,709

    General and administrative                          264,094                                262,796                                   530,623           525,691

    Depreciation and amortization                       147,079                                140,026                                   289,878           272,910

    Equity investment (income) loss                     (9,795)                                   825                                   (9,950)              148

    Provision for uncollectible
     accounts                                           (2,100)                                 (606)                                  (8,100)            1,304

    Investment and other asset
     impairments                                         11,245                                      -                                   11,245            15,168

    Goodwill impairment charges                           3,106                                 10,498                                     3,106            34,696

    Gain on changes in ownership
     interests, net                                    (33,957)                                     -                                 (33,957)          (6,273)

    Gain on settlement, net                                   -                                     -                                        -        (526,827)

    Total operating expenses and
     charges                                          2,448,761                              2,308,203                                 4,887,519         4,063,526
                                                      ---------                              ---------                                 ---------         ---------

    Operating income                                    438,192                                391,196                                   848,878         1,267,124

    Debt expense                                      (119,692)                             (107,934)                                (233,208)        (212,331)

    Other income, net                                     1,994                                  4,798                                     6,576             8,784
                                                          -----                                  -----                                     -----             -----

    Income from continuing
     operations before income taxes                     320,494                                288,060                                   622,246         1,063,577

    Income tax expense                                   83,868                                101,915                                   154,605           383,580
                                                         ------                                -------                                   -------           -------

    Net income from continuing
     operations                                         236,626                                186,145                                   467,641           679,997

    Net income (loss) from
     discontinued operations, net of
     tax                                                 69,696                               (24,520)                                   63,910          (18,087)
                                                         ------                                -------                                    ------           -------

    Net income                                          306,322                                161,625                                   531,551           661,910

    Less: Net income attributable to
     noncontrolling interests                          (39,046)                              (34,624)                                 (85,589)         (87,212)
                                                        -------                                -------                                   -------           -------

    Net income attributable to
     DaVita Inc.                                                   $267,276                                              $127,001                        $445,962    $574,698
                                                                   ========                                              ========                        ========    ========

    Earnings per share:

    Basic net income from continuing
     operations per share
     attributable to DaVita Inc.                                      $1.16                                                 $0.79                           $2.23       $3.09
                                                                      =====                                                 =====                           =====       =====

    Basic net income per share
     attributable to DaVita Inc.                                      $1.56                                                 $0.66                           $2.54       $3.00
                                                                      =====                                                 =====                           =====       =====

    Diluted net income from
     continuing operations per share
     attributable to DaVita Inc.                                      $1.15                                                 $0.78                           $2.19       $3.04
                                                                      =====                                                 =====                           =====       =====

    Diluted net income per share
     attributable to DaVita Inc.                                      $1.53                                                 $0.65                           $2.51       $2.95
                                                                      =====                                                 =====                           =====       =====

    Weighted average shares for earnings per share:

    Basic                                           171,617,238                            191,088,216                               175,267,270       191,728,913
                                                    ===========                            ===========                               ===========       ===========

    Diluted                                         174,105,884                            193,987,983                               177,949,934       194,630,936
                                                    ===========                            ===========                               ===========       ===========

    Amounts attributable to DaVita Inc.:

    Net income from continuing
     operations                                                    $199,603                                              $151,292                        $390,618    $592,197

    Net income (loss) from
     discontinued operations                             67,673                               (24,291)                                   55,344          (17,499)

    Net income attributable to
     DaVita Inc.                                                   $267,276                                              $127,001                        $445,962    $574,698
                                                                   ========                                              ========                        ========    ========

 

 

                                                                                          DAVITA INC.

                                                                        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                                                                          (unaudited)

                                                                                     (dollars in thousands)


                                                            Three months ended                                          Six months ended
                                                               June 30,                                               June 30,

                                                       2018                            2017                      2018                   2017
                                                       ----                            ----                      ----                   ----

    Net income                                               $306,322                                         $161,625                        $531,551  $661,910

    Other comprehensive (loss) income, net of tax:

    Unrealized (losses) gains on interest rate cap
     agreements:

    Unrealized (losses) gains on
     interest rate cap agreements                     (268)                          (1,815)                                  782             (5,002)

    Reclassifications of net realized
     losses on interest rate cap
     agreements into net income                       1,537                             1,265                                 3,074               2,529

    Unrealized gains on investments:

    Unrealized gains on investments                       -                            1,057                                     -              2,614

    Reclassification of net investment
     realized gains into net income                       -                             (71)                                    -              (211)

    Unrealized (losses) gains on foreign currency
     translation:

    Foreign currency translation
     adjustments                                   (50,529)                           49,142                              (30,648)             62,403


    Other comprehensive (loss) income              (49,260)                           49,578                              (26,792)             62,333
                                                    -------                            ------                               -------              ------

    Total comprehensive income                      257,062                           211,203                               504,759             724,243

    Less: Comprehensive income
     attributable to noncontrolling
     interests                                     (39,046)                         (34,624)                              (85,589)           (87,210)
                                                    -------                           -------                               -------             -------

    Comprehensive income attributable
     to DaVita Inc.                                          $218,016                                         $176,579                        $419,170  $637,033
                                                             ========                                         ========                        ========  ========

 

                                                          DAVITA INC.

                                             CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                          (unaudited)

                                                    (dollars in thousands)


                                                                        Six months ended
                                                                           June 30,

                                                                2018                         2017
                                                                ----                         ----

    Cash flows from operating activities:

    Net income                                                          $531,551                    $661,910

    Adjustments to reconcile net income to net cash
     provided by operating activities:

    Depreciation and amortization                            289,878                        390,244

    Impairment charges                                        14,351                        100,483

    Stock-based compensation expense                          19,861                         17,504

    Deferred income taxes                                     56,882                         40,938

    Equity investment income, net                              (434)                         9,367

    Gain on sales of business
     interests, net                                         (59,053)                       (6,273)

    Other non-cash charges, net                               44,337                         28,611

    Changes in operating assets and liabilities, net of
     effect of acquisitions and divestitures:

    Accounts receivable                                    (101,746)                     (113,208)

    Inventories                                               71,632                       (31,067)

    Other receivables and other current
     assets                                                 (91,685)                     (108,852)

    Other long-term assets                                     3,454                       (12,124)

    Accounts payable                                          35,228                       (55,897)

    Accrued compensation and benefits                         23,818                       (63,727)

    Other current liabilities                                 58,321                         13,991

    Income taxes                                              24,356                        123,637

    Other long-term liabilities                                3,824                         19,520
                                                               -----                         ------

    Net cash provided by operating
     activities                                              924,575                      1,015,057
                                                             -------                      ---------

    Cash flows from investing activities:

    Additions of property and equipment                    (473,977)                     (398,940)

    Acquisitions                                            (89,465)                     (619,839)

    Proceeds from asset and business
     sales                                                   116,241                         70,236

    Purchase of investments available
     for sale                                                (4,195)                       (6,812)

    Purchase of investments held-to-
     maturity                                                (3,726)                     (220,591)

    Proceeds from sale of investments
     available for sale                                        5,662                          5,049

    Proceeds from investments held-to-
     maturity                                                 32,628                        320,484

    Purchase of equity investments                          (10,241)                       (1,194)

    Distributions received on equity
     investments                                               3,009                              -
                                                               -----                            ---

    Net cash used in investing
     activities                                            (424,064)                     (851,607)
                                                            --------                       --------

 

                                                            DAVITA INC.

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

                                                            (unaudited)

                                                       (dollars in thousands)


                                                                              Six months ended
                                                                                  June 30,

                                                                       2018                          2017
                                                                       ----                          ----

    Cash flows from financing activities:

    Borrowings                                                   28,128,131                      25,529,555

    Payments on long-term debt and other
     financing costs                                           (27,556,348)                    (25,593,587)

    Purchase of treasury stock                                    (805,179)                      (231,674)

    Stock award exercises and other share
     issuances, net                                                   3,132                           8,163

    Distributions to noncontrolling
     interests                                                     (94,006)                      (116,075)

    Contributions from noncontrolling
     interests                                                       31,569                          39,872

    Proceeds from sales of additional
     noncontrolling interests                                            15                               -

    Purchases of noncontrolling interests                          (13,223)                        (1,432)
                                                                    -------                          ------

    Net cash used in financing activities                         (305,909)                      (365,178)

    Effect of exchange rate changes on cash,
     cash equivalents and restricted cash                           (3,473)                          4,192

    Net increase (decrease) in cash, cash
     equivalents and restricted cash                                191,129                       (197,536)

    Less: Net increase in cash, cash
     equivalents and restricted cash from
     discontinued operations                                        229,901                          32,720
                                                                    -------                          ------

    Net decrease in cash, cash equivalents
     and restricted cash from continuing
     operations                                                    (38,772)                      (230,256)

    Cash, cash equivalents and restricted
     cash of continuing operations at
     beginning of the year                                          518,920                         683,463
                                                                    -------                         -------

    Cash, cash equivalents and restricted
     cash of continuing operations at end of
     the period                                                                $480,148                     $453,207
                                                                               ========                     ========

 

                                                                   DAVITA INC.

                                                           CONSOLIDATED BALANCE SHEETS

                                                                   (unaudited)

                                                  (dollars in thousands, except per share data)


                                                                        June 30,                 December 31,
                                                                             2018                             2017
                                                                             ----                             ----

                                      ASSETS

    Cash and cash equivalents                                                           $389,264                        $508,234

    Restricted cash and equivalents                                        90,884                             10,686

    Short-term investments                                                  4,528                             32,830

    Accounts receivable, net                                            1,842,108                          1,714,750

    Inventories                                                           112,729                            181,799

    Other receivables                                                     471,802                            372,919

    Income tax receivable                                                  23,540                             49,440

    Prepaid and other current assets                                       97,426                            112,058

    Current assets held for sale                                        6,053,081                          5,761,642

    Total current assets                                                9,085,362                          8,744,358

    Property and equipment, net of accumulated
     depreciation of $3,328,176 and $3,103,662                          3,229,098                          3,149,213

    Intangible assets, net of accumulated
     amortization of $362,054 and $356,774                                100,255                            113,827

    Equity method and other investments                                   249,020                            245,534

    Long-term investments                                                  34,200                             37,695

    Other long-term assets                                                 59,070                             47,287

    Goodwill                                                            6,678,559                          6,610,279

                                                                                     $19,435,564                     $18,948,193
                                                                                     ===========                     ===========

                              LIABILITIES AND EQUITY

    Accounts payable                                                                    $542,272                        $509,116

    Other liabilities                                                     568,536                            552,662

    Accrued compensation and benefits                                     633,092                            616,116

    Current portion of long-term debt                                   1,768,514                            178,213

    Current liabilities held for sale                                   1,271,364                          1,185,070

    Total current liabilities                                           4,783,778                          3,041,177

    Long-term debt                                                      8,175,573                          9,158,018

    Other long-term liabilities                                           418,123                            365,325

    Deferred income taxes                                                 526,425                            486,247

    Total liabilities                                                  13,903,899                         13,050,767

    Commitments and contingencies:

    Noncontrolling interests subject to put
     provisions                                                         1,047,158                          1,011,360

    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; 182,815,212 and 182,462,278
     shares issued and 170,820,196 and 182,462,278
     shares outstanding, respectively)                                        183                                182

    Additional paid-in capital                                          1,022,783                          1,042,899

    Retained earnings                                                   4,088,043                          3,633,713

    Treasury stock (11,995,016 and zero shares,
     respectively)                                                      (809,900)                                 -

    Accumulated other comprehensive (loss) income                        (21,925)                            13,235
                                                                          -------                             ------

    Total DaVita Inc. shareholders' equity                              4,279,184                          4,690,029

    Noncontrolling interests not subject to put
     provisions                                                           205,323                            196,037
                                                                          -------                            -------

    Total equity                                                        4,484,507                          4,886,066
                                                                        ---------                          ---------

                                                                                     $19,435,564                     $18,948,193
                                                                                     ===========                     ===========

 

                                                                                            DAVITA INC.

                                                                                    SUPPLEMENTAL FINANCIAL DATA

                                                                                            (unaudited)

                                                                (dollars in millions, except for per share and per treatment data)


                                                                        Three months ended                                 Six months
                                                                                                                          ended
                                                                                                                     June 30, 2018
                                                                                                                     -------------

                                                       June 30,              March 31,               June 30,
                                                            2018                    2018                2017 (1)
                                                            ----                    ----                 -------

    1. Consolidated Financial Results:

       Consolidated revenues(2)                                     $2,887                                         $2,849                   $2,699  $5,736

       Operating income                                               $438                                           $411                     $391    $849

       Adjusted operating income excluding
        certain items(3)                                              $419                                           $411                     $402    $829

       Operating income margin                             15.2%                            14.4%                                  14.5%   14.8%

       Adjusted operating income margin
        excluding certain items(3) (7)                     14.5%                            14.4%                                  14.9%   14.5%

       Net income from continuing operations
        attributable to DaVita Inc.                                   $200                                           $191                     $151    $391

       Adjusted net income from continuing
        operations attributable to DaVita Inc.
        excluding certain items(3)                                    $183                                           $191                     $156    $374

       Diluted net income from continuing
        operations per share attributable to
        DaVita Inc.                                                  $1.15                                          $1.05                    $0.78   $2.19

       Adjusted diluted net income from
        continuing operations per share
        attributable to DaVita Inc. excluding
        certain items (3)                                            $1.05                                          $1.05                    $0.80   $2.10


    2. Consolidated Business Metrics:

    Expenses

       General and administrative expenses as a
        percent of consolidated revenues(4)                 9.1%                             9.4%                                   9.7%    9.3%

       Effective income tax rate on income from
        continuing operations                              26.2%                            23.4%                                  35.4%   24.8%

       Effective income tax rate on income from
        continuing operations attributable to
        DaVita Inc.(3)                                     29.5%                            27.0%                                  40.2%   28.3%

       Effective income tax rate on adjusted
        income from continuing operations
        attributable to DaVita Inc.(3)                     30.7%                            27.0%                                  40.1%   28.9%


    3. Summary of Division Financial Results:

    Revenues(2)

    Kidney Care:

    U.S. dialysis and related lab patient
     services and other                                             $2,588                                         $2,538                   $2,325  $5,126

    Other-Ancillary services and strategic initiatives

    U.S. other                                               221                               237                                     314      458

    International dialysis patient service
     and other                                               107                               103                                      79      210

                                                             328                               340                                     394      668

    Eliminations                                            (29)                             (29)                                   (19)    (58)

    Total consolidated revenues                                     $2,887                                         $2,849                   $2,699  $5,736
                                                                    ======                                         ======                   ======  ======

 

                                                                                                DAVITA INC.

                                                                                  SUPPLEMENTAL FINANCIAL DATA - continued

                                                                                                (unaudited)

                                                                    (dollars in millions, except for per share and per treatment data)


                                                                                Three months ended                                         Six months
                                                                                                                                           ended
                                                                                                                                       June 30, 2018
                                                                                                                                       -------------

                                                          June 30,              March 31,                 June 30,
                                                               2018                    2018                  2017 (1)
                                                               ----                    ----                   -------

    3. Summary of Division Financial Results: (continued)

    Operating income (loss)

    Kidney Care:

    U.S. dialysis and related lab services                               $449                                              $433                            $450     $883

       Other-Ancillary services and strategic initiatives

    U.S.                                                          4                                 (5)                                 (36)               (1)

    International                                               (1)                                (2)                                 (13)               (3)
                                                                ---                                 ---                                   ---                ---

                                                                  3                                 (7)                                 (48)               (4)
                                                                ---                                 ---                                   ---                ---

    Corporate administrative support                           (14)                               (16)                                 (11)              (30)

    Total consolidated operating income                                  $438                                              $411                            $391     $849
                                                                         ====                                              ====                            ====     ====


    4. Summary of Reportable Segment Financial Results:

    U.S. Dialysis and Related Lab Services

    Revenue:(2)

    Net dialysis and related lab patient
     service revenues                                                  $2,583                                            $2,533                          $2,320   $5,116

    Other revenues                                                5                                   5                                     5                 10

    Total operating revenues                                  2,588                               2,538                                 2,325              5,126

    Operating expenses:

    Patient care costs                                        1,810                               1,779                                 1,561              3,590

    General and administrative                                  196                                 196                                   189                392

    Depreciation and amortization                               138                                 135                                   130                273

    Equity investment income                                    (6)                                (5)                                  (5)              (11)

    Total operating expenses                                  2,139                               2,105                                 1,875              4,243

    Segment operating income                                             $449                                              $433                            $450     $883
                                                                         ====                                              ====                            ====     ====


    5. U.S. Dialysis and Related Lab Services Business
     Metrics:

    Volume

    Treatments                                            7,331,590                           7,174,026                             7,035,894         14,505,615

    Number of treatment days                                   78.0                                77.5                                  78.0              155.5

    Treatments per day                                       93,995                              92,568                                90,204             93,284

    Per day year over year increase                            4.2%                               4.8%                                 4.3%              4.5%

    Normalized non-acquired treatment
     growth year over year                                     3.4%                               3.4%                                 3.6%

    Operating net revenues(2)

    Dialysis and related lab services net
     revenue per treatment                                            $352.37                                           $353.05                         $329.79  $352.71

    Revenue per treatment changes from
     previous quarter                                        (0.2)%                               7.1%                               (1.0)%

    Revenue per treatment changes from
     previous year                                             6.8%                               6.0%                               (1.6)%              6.4%

    Percent of consolidated revenues                          89.0%                              88.4%                                85.6%             88.7%

 

                                                                                                   DAVITA INC.

                                                                                     SUPPLEMENTAL FINANCIAL DATA - continued

                                                                                                   (unaudited)

                                                                       (dollars in millions, except for per share and per treatment data)


                                                                                       Three months ended                                         Six months
                                                                                                                                                ended
                                                                                                                                            June 30, 2018
                                                                                                                                            -------------

                                                                June 30,                March 31,               June 30,
                                                                     2018                      2018                2017 (1)
                                                                     ----                      ----                 -------

    5. U.S. Dialysis and Related Lab Services Business Metrics:
     (continued)

    Expenses

    Patient care costs

    Percent of total segment operating net revenues                 69.9%                              70.1%                               67.1%                  70.0%

    Per treatment                                                             $246.90                                         $248.02                             $221.82       $247.46

    Per treatment changes from previous quarter                    (0.5)%                              11.0%                              (2.5)%

    Per treatment changes from previous year                        11.3%                               9.0%                              (1.3)%                  10.2%

    General and administrative expenses

    Percent of total segment operating net revenues                  7.6%                               7.7%                                8.1%                   7.7%

    Per treatment                                                              $26.80                                          $27.28                              $26.85        $27.04

    Per treatment changes from previous quarter                    (1.8)%                               6.3%                              (2.9)%

    Per treatment changes from previous year                       (0.2)%                             (1.3)%                              (1.9)%                 (0.7)%

    Accounts receivable

    Net receivables                                                 1,646                               1,620                                1,420

    DSO                                                                59                                  59                                   56


    6. Discontinued Operations

    Operating results

    Net revenues(2)                                                            $1,252                                          $1,228                              $1,196        $2,480

    Expenses                                                        1,193                               1,226                                1,158                   2,419

    Goodwill impairment charges                                         -                                  -                                  51                       -
                                                                      ---                                ---                                 ---                     ---

    Income (loss) from discontinued operations before
     taxes                                                             60                                   2                                 (13)                     61

    Income tax (expense) benefit                                       10                                 (7)                                (12)                      2


    Net income (loss) from discontinued operations,
     net of tax                                                                   $70                                            $(6)                              $(25)          $64
                                                                                  ===                                             ===                                ====           ===


    7. Cash Flow:

    Operating cash flow                                                        $562.0                                          $362.5                              $149.9        $924.6

    Operating cash flow from continuing operations                             $605.6                                          $206.3                              $144.3        $811.9

    Operating cash flow from continuing operations,
     last twelve months                                                      $1,453.9                                          $992.6                            $1,716.6

    Free cash flow from continuing operations(3)                               $470.2                                           $61.6                               $14.8        $531.7

    Free cash flow from continuing operations, last
     twelve months(3)                                                          $902.2                                          $446.9                            $1,200.1

    Capital expenditures from continuing operations:

    Routine maintenance/IT/other                                                $86.8                                           $99.3                               $56.7        $186.1

    Development and relocations                                                $132.4                                          $102.1                              $106.8        $234.5

    Acquisition expenditures                                                    $72.5                                           $15.7                              $522.6         $88.2

    Proceeds from sale of self-developed properties                   7.6                                            $18.2                                   3.5           25.8


                                                                                    Three months ended                                     Six months
                                                                                                                                                ended
                                                                                                                                            June 30, 2018
                                                                                                                                            -------------

                                                                June 30,                March 31,               June 30,
                                                                     2018                      2018                2017 (1)
                                                                     ----                      ----                 -------

    8. Debt and Capital Structure:

    Total debt(5)(6)                                                          $10,002                                          $9,526                              $9,161

    Net debt, net of cash and cash equivalents(5)(6)                           $9,613                                          $9,167                              $8,449

    Leverage ratio (see calculation on page 16)                     3.99x                              3.75x                               3.38x

    Overall weighted average effective interest rate
     during the quarter                                             4.91%                              4.87%                               4.69%

    Overall weighted average effective interest rate
     at end of the quarter                                          4.99%                              4.98%                               4.76%

    Weighted average effective interest rate on the
     senior secured credit facilities at end of the
     quarter                                                        4.72%                              4.67%                               4.20%

    Fixed and economically fixed interest rates as a
     percentage of our total debt                                     49%                                51%                                 53%

    Fixed and economically fixed interest rates,
     including our interest rate cap agreements, as a
     percentage of our total debt                                     84%                                88%                                 91%

    Certain columns, rows or percentages may not sum
         or recalculate due to the use of rounded
                         numbers.


                                                 (1)    As a result of
                                                         the pending
                                                         sale of DMG
                                                         announced in
                                                         December
                                                         2017, the DMG
                                                         business has
                                                         been
                                                         classified as
                                                         held for sale
                                                         and its
                                                         results of
                                                         operations
                                                         are presented
                                                         as
                                                         discontinued
                                                         operations
                                                         for all
                                                         periods
                                                         presented.


                                                 (2)    On January 1,
                                                         2018, the
                                                         Company
                                                         adopted FASB
                                                         Accounting
                                                         Standards
                                                         Codification
                                                         Topic 606
                                                         Revenue from
                                                         Contracts
                                                         with
                                                         Customers
                                                         using the
                                                         cumulative
                                                         effect method
                                                         for those
                                                         contracts
                                                         which were
                                                         not completed
                                                         as of January
                                                         1, 2018.
                                                         Results for
                                                         reporting
                                                         periods
                                                         beginning on
                                                         and after
                                                         January 1,
                                                         2018 are
                                                         presented
                                                         under Topic
                                                         606, while
                                                         prior period
                                                         amounts
                                                         continue to
                                                         be reported
                                                         in accordance
                                                         with our
                                                         historical
                                                         accounting
                                                         under Revenue
                                                         Recognition
                                                         (Topic 605).


                                                 (3)    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,
                                                         and for a
                                                         definition of
                                                         adjusted
                                                         amounts, see
                                                         attached
                                                         reconciliation
                                                         schedules.


                                                 (4)    Consolidated
                                                         percentages
                                                         of revenues
                                                         are comprised
                                                         of the
                                                         dialysis and
                                                         related lab
                                                         services
                                                         business and
                                                         other
                                                         ancillary
                                                         services and
                                                         strategic
                                                         initiatives.
                                                         General and
                                                         administrative
                                                         expenses
                                                         includes
                                                         certain
                                                         corporate
                                                         support and
                                                         long-term
                                                         incentive
                                                         compensation.


                                                 (5)    The reported
                                                         balance sheet
                                                         amounts at
                                                         June 30,
                                                         2018, March
                                                         31, 2018, and
                                                         June 30,
                                                         2017, exclude
                                                         $57.9
                                                         million,
                                                         $62.0 million
                                                         and $71.9
                                                         million,
                                                         respectively,
                                                         of a debt
                                                         discount
                                                         associated
                                                         with our Term
                                                         Loan B and
                                                         other
                                                         deferred
                                                         financing
                                                         costs. The
                                                         reported
                                                         balance sheet
                                                         amounts
                                                         exclude DMG
                                                         debt which is
                                                         classified as
                                                         held for sale
                                                         liabilities
                                                         for all
                                                         periods
                                                         presented.


                                                 (6)    The reported
                                                         total debt
                                                         and net debt,
                                                         net of cash
                                                         and cash
                                                         equivalents
                                                         excludes DMG
                                                         cash and debt
                                                         classified as
                                                         held for sale
                                                         assets and
                                                         liabilities,
                                                         respectively,
                                                         for all
                                                         periods
                                                         presented.


                                                 (7)    Adjusted
                                                         operating
                                                         income margin
                                                         is a
                                                         calculation
                                                         of adjusted
                                                         operating
                                                         income
                                                         divided by
                                                         consolidated
                                                         revenues.

DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)

Note 1: Calculation of the Leverage Ratio

Under the 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, including short-term investments, 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 users to enhance their understanding of the Company's leverage ratio under its Credit Agreement. The leverage ratio calculated by the Company is a non-GAAP measure and should not be considered a substitute for debt to net income attributable to DaVita Inc., net income attributable to DaVita Inc. or total debt as determined in accordance with United States generally accepted accounting principles (GAAP). The Company's calculation of its leverage ratio might not be calculated in the same manner as, and thus might not be comparable to, similarly titled measures by other companies.

                                                Rolling twelve
                                                 months ended
                                                June 30, 2018
                                                -------------

    Net income attributable to DaVita Inc.                           $534,882

    Income taxes                                     (290,623)

    Interest expense                                   416,933

    Depreciation and amortization                      677,119

    Impairment charges                                 895,457

    Noncontrolling interests and equity
     investment income, net                            184,438

    Stock-settled stock-based compensation              37,346

    Gain on changes in ownership interest,
     net                                              (76,182)

    Other                                               14,957

    "Consolidated EBITDA"                                          $2,394,327
                                                                   ==========


                                                June 30, 2018
                                                -------------

    Total debt, excluding debt discount and
     other deferred financing costs of $57.9
     million                                                      $10,038,699

    Letters of credit issued                            36,917
                                                        ------

                                                    10,075,616

    Less: Cash and cash equivalents
     including short-term investments
     (excluding DMG's physician owned
     entities cash)                                  (526,819)

    Consolidated net debt                                          $9,548,797
                                                                   ==========

    Last twelve months "Consolidated EBITDA"                       $2,394,327
                                                                   ==========

    Leverage ratio                                       3.99x
                                                         =====

In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.50 to 1.00 as of June 30, 2018. At that date the Company's leverage ratio did not exceed 4.50 to 1.00.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands, except for per share data)

The following Notes 2 through 5 provide reconciliations of the non-GAAP financial measures presented in this press release to their most comparable GAAP measures. For more information on the nature, purposes and limitations of these non-GAAP measures, see our "Note on Non-GAAP Financial Measures" on page 3.

Note 2: Adjusted net income from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc.

                                                                              Three months ended                                                   Six months ended

                                                          June 30,                   March 31,                     June 30,              June 30,                June 30,
                                                               2018                          2018                      2017                  2018                      2017
                                                               ----                          ----                      ----                  ----                      ----

    Net income from continuing operations
     attributable to DaVita Inc.                                    $199,603                                        $191,015                                       $151,292              $390,618 $592,197

    Goodwill impairment charges                               3,106                               -                             10,498                                3,106       34,696

    Impairment of other assets                               11,245                               -                                  -                              11,245       15,168

    Gain on settlement, net                                       -                              -                                  -                                   -   (526,827)

    Equity investment income related to
     gain on settlement                                           -                              -                                  -                                   -     (2,677)

    Gain on changes in ownership
     interests                                             (33,957)                              -                                  -                            (33,957)     (6,273)

    Noncontrolling interests associated with adjustments:

    Goodwill impairment charges                                   -                              -                            (2,985)                                    -     (9,865)

    Gain on settlement, net                                       -                              -                                  -                                   -      24,029

    Related income tax                                        2,652                               -                            (2,850)                                2,652      182,312
                                                              -----                             ---                             ------                                -----      -------

    Adjusted net income from continuing
     operations attributable to DaVita
     Inc.                                                           $182,649                                        $191,015                                       $155,955              $373,664 $302,760
                                                                    ========                                        ========                                       ========              ======== ========

    Diluted net income from continuing
     operations per share attributable to
     DaVita Inc.                                                       $1.15                                           $1.05                                          $0.78                 $2.19    $3.04

    Goodwill impairment charges                                0.02                               -                               0.05                                 0.02         0.18

    Impairment of other assets                                 0.06                               -                                  -                                0.06         0.08

    Gain on settlement, net                                       -                              -                                  -                                   -      (2.70)

    Equity investment income related to
     gain on settlement                                           -                              -                                  -                                   -      (0.01)

    Gain on changes in ownership
     interests                                               (0.20)                              -                                  -                              (0.19)      (0.03)

    Noncontrolling interests associated with adjustments:

    Goodwill impairment charges                                   -                              -                             (0.02)                                   -      (0.05)

    Gain on settlement, net                                       -                              -                                  -                                   -        0.12

    Related income tax                                         0.02                               -                             (0.01)                                0.01         0.94


    Adjusted diluted net income from
     continuing operations per share
     attributable to DaVita Inc.                                       $1.05                                           $1.05                                          $0.80                 $2.10    $1.56
                                                                       =====                                           =====                                          =====                 =====    =====


                                                                      Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

                                                                                                                     DAVITA INC.

                                                                                                  RECONCILIATIONS FOR NON-GAAP MEASURES - continued

                                                                                                                     (unaudited)

                                                                                                               (dollars in thousands)


    Note 3: Adjusted operating income


                                                                           Three months ended                                                Six months ended

                                                          June 30,                  March 31,                    June 30,                June 30,               June 30,
                                                               2018                           2018                      2017                    2018                      2017
                                                               ----                           ----                      ----                    ----                      ----

    Consolidated:

    Operating income                                                $438,192                                         $410,686                                   $391,196                     $848,878 $1,267,124

       Goodwill impairment charges                            3,106                                -                               10,498                          3,106             34,696

       Impairment of other assets                            11,245                                -                                    -                        11,245             15,168

       Gain on settlement, net                                    -                               -                                    -                             -         (526,827)

       Equity investment income related to gain
        on settlement                                             -                               -                                    -                             -           (2,677)

       Gain on changes in ownership interests              (33,957)                               -                                    -                      (33,957)           (6,273)


    Adjusted operating income                                       $418,586                                         $410,686                                   $401,694                     $829,272   $781,211
                                                                    ========                                         ========                                   ========                     ========   ========


                                                                           Three months ended                                                Six months ended

                                                          June 30,                  March 31,                    June 30,                June 30,               June 30,

                                                               2018                           2018                      2017                    2018                      2017
                                                               ----                           ----                      ----                    ----                      ----

    Kidney Care:

    U.S. dialysis and related lab services:

    Segment operating income                                        $449,443                                         $433,380                                   $450,472                     $882,822 $1,395,212

    Gain on settlement, net                                       -                               -                                    -                             -         (526,827)

    Equity investment income related to gain
     on settlement                                                -                               -                                    -                             -           (2,677)


    Adjusted U.S. dialysis and related lab
     services operating income                              449,443                          433,380                               450,472                        882,822            865,708
                                                            -------                          -------                               -------                        -------            -------

    Other - Ancillary services and strategic initiatives:

    U.S.

    Segment operating income (loss)                           3,953                          (5,186)                             (35,545)                       (1,233)          (88,572)

    Goodwill impairment charges                                   -                               -                               10,498                              -            34,696

    Gain on changes in ownership interests                 (35,205)                               -                                    -                      (35,205)                 -

    Impairment of other assets                               11,245                                -                                    -                        11,245             15,168
                                                             ------                              ---                                  ---                        ------             ------

    Adjusted operating loss                                (20,007)                         (5,186)                             (25,047)                      (25,193)          (38,708)
                                                            -------                           ------                               -------                        -------            -------

    International

    Segment operating loss                                  (1,138)                         (1,804)                             (12,700)                       (2,942)          (17,893)

    Goodwill impairment charge                                3,106                                -                                    -                         3,106                  -

    Loss (gain) on changes in ownership
     interests                                                1,248                                -                                    -                         1,248            (6,273)


    Adjusted operating income (loss)                          3,216                          (1,804)                             (12,700)                         1,412           (24,166)
                                                              -----                           ------                                                               -----            -------

    Adjusted Other -Ancillary services and
     strategic initiatives operating loss                  (16,791)                         (6,990)                             (37,747)                      (23,781)          (62,874)
                                                            -------                           ------                               -------                        -------            -------

    Corporate administrative support:

    Segment operating loss                                 (14,066)                        (15,704)                              (11,031)                      (29,769)          (21,623)


    Adjusted Kidney Care operating income                           $418,586                                         $410,686                                   $401,694                     $829,272   $781,211
                                                                    ========                                         ========                                   ========                     ========   ========


                                                                       Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

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

Note 4: Effective income tax rates and adjusted effective income tax rates

The effective income tax rate on income from continuing operations and on income from continuing operations attributable to DaVita Inc. is computed as follows:

                                                                         Three months ended                                              Six months
                                                                                                                                          ended
                                                                                                                                      June 30, 2018
                                                                                                                                      -------------

                                                 June 30,                March 31,                June 30,
                                                      2018                      2018                     2017
                                                      ----                      ----                     ----

    Income from continuing operations
     before income taxes                                      $320,494                                          $301,752                             $288,060  $622,246
                                                              ========                                          ========                             ========  ========

    Income tax expense                                         $83,868                                           $70,737                             $101,915  $154,605
                                                               =======                                           =======                             ========  ========

    Effective income tax rate on income
     from continuing operations                      26.2%                               23.4%                                 35.4%                  24.8%
                                                      ====                                 ====                                   ====                    ====


                                                                      Three months ended                                         Six months
                                                                                                                                      ended
                                                                                                                                  June 30, 2018
                                                                                                                                  -------------

                                                 June 30,                March 31,                June 30,
                                                      2018                      2018                     2017
                                                      ----                      ----                     ----

    Income from continuing operations
     before income taxes                                      $320,494                                          $301,752                             $288,060  $622,246

    Less: Noncontrolling owners' income
     primarily attributable to non-tax
     paying entities                              (37,374)                            (40,088)                               (35,135)               (77,462)
                                                   -------                              -------                                -------                 -------

    Income before income taxes
     attributable to DaVita Inc.                              $283,120                                          $261,664                             $252,925  $544,784
                                                              ========                                          ========                             ========  ========


    Income tax expense                                         $83,868                                           $70,737                             $101,915  $154,605

    Less: Income tax attributable to
     noncontrolling interests                        (351)                                (88)                                 (282)                  (439)
                                                      ----                                  ---                                   ----                    ----

    Income tax expense attributable to
     DaVita Inc.                                               $83,517                                           $70,649                             $101,633  $154,166
                                                               =======                                           =======                             ========  ========


    Effective income tax rate on income
     from continuing operations
     attributable to DaVita Inc.                     29.5%                               27.0%                                 40.2%                  28.3%
                                                      ====                                 ====                                   ====                    ====


                                        Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

 

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

The effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. is computed as follows:

                                                                                     Three months ended                                              Six months
                                                                                                                                                      ended
                                                                                                                                                  June 30, 2018
                                                                                                                                                  -------------

                          June 30,                          March 31,                 June 30,
                            2018                                  2018                      2017
                            ----                                  ----                      ----

    Income from continuing operations
     before income taxes                                                  $320,494                                          $301,752                              $288,060  $622,246

    Goodwill impairment charges                                  3,106                                    -                                10,498                    3,106

    Impairment of other assets                                  11,245                                    -                                     -                  11,245

    Gain on changes in ownership
     interests                                                (33,957)                                   -                                     -                (33,957)

    Noncontrolling owners' income
     primarily attributable to non-tax
     paying entities                                          (37,374)                            (40,088)                               (35,135)                (77,462)

    Noncontrolling interests associated with adjustments

    Goodwill impairment charges                                      -                                   -                               (2,985)                       -

    Adjusted income from continuing
     operations before income taxes
     attributable to DaVita Inc.                                          $263,514                                          $261,664                              $260,438  $525,178
                                                                          ========                                          ========                              ========  ========

    Income tax expense (benefit)                                           $83,868                                           $70,737                              $101,915  $154,605

    Add income tax related to:

    Goodwill impairment charges                                    598                                    -                                 2,850                      598

    Impairment of other assets                                   2,895                                    -                                     -                   2,895

    Gain on changes in ownership
     interests, net                                            (6,145)                                   -                                     -                 (6,145)

    Less income tax related to:

    Noncontrolling interests                                     (351)                                (88)                                 (282)                   (439)
                                                                  ----                                  ---                                   ----                     ----

    Income tax on adjusted income from
     continuing operations attributable
     to DaVita Inc.                                                        $80,865                                           $70,649                              $104,483  $151,514
                                                                           =======                                           =======                              ========  ========

    Effective income tax rate on adjusted
     income from continuing operations
     attributable to DaVita Inc.                                 30.7%                               27.0%                                 40.1%                   28.9%
                                                                  ====                                 ====                                   ====                     ====


                                                     Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

 

                                                                                              DAVITA INC.

                                                                           RECONCILIATIONS FOR NON-GAAP MEASURES - continued

                                                                                              (unaudited)

                                                                                        (dollars in thousands)


    Note 5:   Free cash flow from continuing operations


                                                                         Three months ended                                    Six months
                                                                                                                                    ended
                                                                                                                                June 30, 2018
                                                                                                                                -------------

                                                        June 30,                  March 31,                    June 30,
                                                             2018                           2018                      2017
                                                             ----                           ----                      ----

    Cash provided by continuing operating
     activities                                                   $605,601                                         $206,291                     $144,256  $811,892

    Less: Distributions to noncontrolling
     interests                                           (48,539)                        (45,467)                            (72,759)          (94,006)


    Cash provided by continuing operating
     activities attributable to DaVita
     Inc.                                                 557,062                          160,824                              71,497            717,886

    Less: Expenditures for routine
     maintenance and information
     technology                                          (86,871)                        (99,268)                            (56,651)         (186,139)

    Free cash flow from continuing
     operations                                                   $470,191                                          $61,556                      $14,846  $531,747
                                                                  ========                                          =======                      =======  ========

 

                                                          Rolling 12-Month Period

                                    June 30,                        March 31,                            June 30,
                                         2018                                 2018                                2017
                                         ----                                 ----                                ----

    Cash provided by
     continuing
     operating
     activities                                  $1,453,942                                          $992,597              $1,716,611

    Less: Distributions
     to noncontrolling
     interests                      (188,823)                             (213,043)                             (214,325)

    Cash provided by
     continuing
     operating
     activities
     attributable to
     DaVita Inc.                    1,265,119                                779,554                             1,502,286

    Less: Expenditures
     for routine
     maintenance and
     information
     technology                     (362,883)                             (332,663)                             (302,195)

    Free cash flow from
     continuing
     operations                                    $902,236                                          $446,891              $1,200,091
                                                   ========                                          ========              ==========


                        Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

 

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SOURCE DaVita Inc.

Company Codes: NYSE:DVA

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