Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Form 8-K  

 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported): August 1, 2017
 

 
DAVITA INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
1-14106
No. 51-0354549
(State or other jurisdiction
of incorporation)
(Commission File Number)
(IRS Employer
Identification No.)
 
2000 16th Street
Denver, CO 80202
(Address of principal executive offices including Zip Code)
 
(303) 405-2100
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name or former address, if changed since last report)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 240.425)
 
☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
☐    Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 





Item 2.02 Results of Operations and Financial Condition.
 
On August 1, 2017, DaVita Inc. issued a press release announcing its financial results for the three and six months ended June 30, 2017. A copy of the press release is furnished as Exhibit 99.1 to this report.
 
The information contained in this Form 8-K (including Exhibit 99.1 attached hereto) is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section and shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
Item 9.01. Financial Statements and Exhibits.
 
(d) Exhibits.
 
 
 
Exhibit
Number
Description
99.1
Press Release dated August 1, 2017 announcing the registrant’s financial results for the three and six months ended June 30, 2017.





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
DAVITA INC.
 
 
 
Date: August 1, 2017
By:
/s/ James K. Hilger
 
 
James K. Hilger
 
 
Chief Accounting Officer






EXHIBIT INDEX
 
 
 
Exhibit Number 
Description 
99.1
Press Release dated August 1, 2017, announcing the registrant’s financial results for the three and six months ended June 30, 2017.




Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11723357&doc=3



Contact:        Jim Gustafson
Investor Relations                    
DaVita Inc.
(310) 536-2585

DaVita Inc. 2nd Quarter 2017 Results

Denver, Colorado, August 1, 2017 - DaVita Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2017.
Net income attributable to DaVita Inc. for the quarter ended June 30, 2017 was $127 million, or $0.65 per share, and for the six months ended June 30, 2017 was $575 million, or $2.95 per share.
Adjusted net income attributable to DaVita Inc. for the quarter ended June 30, 2017 was $179 million, or $0.92 per share, and for the six months ended June 30, 2017 was $332 million, or $1.71 per share.
Adjusted net income attributable to DaVita Inc., further adjusted to exclude amortization for the quarter ended June 30, 2017, was $208 million, or $1.07 per share, and for the six months ended June 30, 2017, was $390 million, or $2.00 per share.
Net income attributable to DaVita Inc. for the quarter ended June 30, 2016 was $53 million, or $0.26 per share, and for the six months ended June 30, 2016 was $151 million, or $0.73 per share.
Adjusted net income attributable to DaVita Inc. for the quarter ended June 30, 2016 was $210 million, or $1.01 per share, and for the six months ended June 30, 2016 was $400 million, or $1.93 per share.
Adjusted net income attributable to DaVita Inc., further adjusted to exclude amortization for the quarter ended June 30, 2016 was $238 million, or $1.14 per share, and for the six months ended June 30, 2016 was $452 million, or $2.17 per share.
For the definitions of non-GAAP financial measures such as adjusted net income attributable to DaVita Inc. and adjusted net income attributable to DaVita Inc., as further adjusted to exclude amortization, 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, 2017, operating cash flow was $2.029 billion and free cash flow was $1.467 billion. For the three months ended June 30, 2017, operating cash flow was $146 million and free cash flow was $18 million.
Operating income and adjusted operating income: Operating income for the three months ended June 30, 2017 was $378 million, and adjusted operating income for the same period was $436 million. Operating income for the six months ended June 30, 2017 was $1.267 billion, and adjusted operating income for the same period was $828 million.
Operating income for the three months ended June 30, 2016 was $329 million, and adjusted operating income for the same period was $475 million. Operating income for the six months ended June 30, 2016 was $694 million, and adjusted operating income for the same period was $933 million.
Volume: Total U.S. dialysis treatments for the second quarter of 2017 were 7,035,894, or 90,204 treatments per day, representing a per day increase of 4.3% over the second quarter of 2016. Normalized non-acquired treatment growth in the second quarter of 2017 as compared to the second quarter of 2016 was 3.6%.

1



The number of member months for which DMG provided care during the second quarter of 2017 was approximately 2.2 million, of which approximately 0.9 million, 1.0 million and 0.3 million related to senior, commercial and Medicaid members, respectively. 
Goodwill impairment charges: During the quarter ended June 30, 2017, we recognized goodwill impairment charges of $51 million in our DMG reporting units as a result of a reduction in expected future government reimbursement rates (including the effect of Medicare Advantage final benchmark payment rates for 2018 announced on April 3, 2017) and our expected ability to mitigate them, as well as increasing medical costs.
We also recognized an additional goodwill impairment charge of $10 million related to our vascular access reporting unit, of which $3 million was attributed to noncontrolling interests, as a result of continuing adjustments to its business model in light of recent Medicare reimbursement changes.
Effective tax rate: Our effective tax rate was 41.4% and 37.8% for the three and six months ended June 30, 2017, respectively. The effective tax rate attributable to DaVita Inc. was 47.2% and 41.1% for the three and six months ended June 30, 2017, respectively.
Our effective tax rate for the three and six months ended June 30, 2017 was impacted by the non-deductible goodwill impairment charges in our DMG reporting units, non-deductible estimated accruals for legal matters and the amount of third-party owners’ income attributable to non-tax paying entities. The effective tax rate for the six months ended June 30, 2017 was also impacted by an adjustment to true-up the gain on the formation of the Asia Pacific joint venture (APAC JV).
The adjusted effective tax rate attributable to DaVita Inc. for the three and six months ended June 30, 2017, excluding these items was 39.5% and 39.7%, respectively.
Center activity: As of June 30, 2017, we provided dialysis services to a total of approximately 214,700 patients at 2,662 outpatient dialysis centers, of which 2,445 centers were located in the United States and 217 centers were located in 11 countries outside of the United States. During the second quarter of 2017, we acquired 44 dialysis centers, including the dialysis centers acquired from Renal Ventures, opened a total of 27 new dialysis centers, closed two centers and divested six centers in the United States. We also opened four new dialysis centers and acquired 52 dialysis centers outside of the United States.
Share repurchases: During the quarter ended June 30, 2017, we repurchased a total of 3,574,573 shares of our common stock for $232 million, or an average price of $64.81 per share. We have not repurchased any shares of our common stock subsequent to June 30, 2017. As a result of these transactions we have a total of approximately $445 million in outstanding Board repurchase authorizations.
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 the most comparable GAAP measure 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, and gains and charges associated with settlements; (ii) the term “adjusted net income excluding amortization” represents the Company’s net income excluding certain items as well as amortization of intangibles associated with acquisitions; and (iii) the term “adjusted effective income tax rate attributable to DaVita Inc.” represents the Company’s effective tax rate excluding certain non-GAAP items and noncontrolling owners’ income that 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. Non-GAAP or “adjusted” measures should not be considered as an alternative to the corresponding measures determined under GAAP. Management uses these non-GAAP measures 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 that these non-GAAP measures are useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. 
The Company’s adjusted net income attributable to DaVita Inc., adjusted diluted net income per share, adjusted net income attributable to DaVita Inc. excluding amortization, adjusted diluted net income per share excluding amortization, adjusted operating income, adjusted effective income tax rate attributable to DaVita Inc., and free cash flow discussed in this press release are reconciled to their most comparable GAAP measures at Notes 2, 3, 4, and 5.

2



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 consolidated operating income, Kidney Care operating income, DMG operating income or effective tax rate attributable to DaVita Inc. 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 the gain related to the VA settlement, goodwill and asset impairment charges, an adjustment to the accrual for legal matters, the gain on the APAC JV ownership changes and currency fluctuations.
We are updating our adjusted consolidated operating income guidance for 2017 to be in the range of $1.675 billion to $1.775 billion.
Our previous adjusted consolidated operating income guidance for 2017 was in the range of $1.635 billion to $1.775 billion.
We are updating our adjusted operating income guidance for Kidney Care for 2017 to be in the range of $1.565 billion to $1.625 billion.
Our previous adjusted operating income guidance for Kidney Care for 2017 was in the range of $1.525 billion to $1.625 billion.
We still expect our adjusted operating income guidance for DMG for 2017 to be in the range of $110 million to $150 million, and we still expect it is more likely than not to be in the lower half of the range.
We still expect our consolidated operating cash flow guidance for 2017 to be in the range of $1.750 billion to $1.950 billion, which includes the net benefit of the settlement with the U.S. Department of Veterans Affairs (VA) in the first quarter of 2017.
We are updating our 2017 guidance for adjusted effective tax rate attributable to DaVita Inc. to be approximately 39.0% to 40.0%.
Our previous 2017 adjusted effective tax rate attributable to DaVita Inc. guidance was 39.5% to 40.5%.
We will be holding a conference call to discuss our results for the second quarter ended June 30, 2017 on August 1, 2017 at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9087 from outside the U.S. A replay of the conference call will be available on our website at investors.davita.com, for the following 30 days.

3



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,” “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 2017 adjusted consolidated operating income, our 2017 Kidney Care adjusted operating income, DMG’s 2017 adjusted operating income, our 2017 consolidated operating cash flows and our 2017 adjusted effective tax rate attributable to DaVita Inc. and uncertainties associated with the other risk factors set forth in our most recent quarterly report on Form 10-Q for the quarter ended March 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, which may result in the loss of revenues or patients;
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, that could have a material adverse effect on our operations and profitability;
the impact of the 2016 Congressional and Presidential elections and subsequent developments in 2017 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;
changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing;
legal compliance risks, including 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 that compete directly with us;
our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance;
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 be considering or announce, or to integrate and successfully operate any business we may acquire or have acquired, including DMG, or to successfully expand our operations and services to markets outside the United States, or to businesses outside of dialysis and DMG’s business;

4



noncompliance by us or our business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
the variability of our cash flows;
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 or other intangible assets;
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.

5



DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data.)
 

 
Three months ended
June 30,
 
Six months ended
 June 30,
 
2017
 
2016
 
2017
 
2016
Patient service revenues
$
2,682,467

 
$
2,583,514

 
$
5,283,845

 
$
5,065,448

Less: Provision for uncollectible accounts
(115,485
)
 
(111,428
)
 
(228,468
)
 
(220,633
)
     Net patient service revenues
2,566,982

 
2,472,086

 
5,055,377

 
4,844,815

Capitated revenues
1,022,078

 
899,985

 
1,940,114

 
1,787,993

Other revenues
288,417

 
345,580

 
579,269

 
665,979

Total net revenues
3,877,477

 
3,717,651

 
7,574,760

 
7,298,787

Operating expenses and charges:
 

 
 

 
 

 
 

     Patient care costs and other costs
2,859,911

 
2,671,025

 
5,582,731

 
5,253,358

     General and administrative
382,315

 
386,895

 
774,095

 
773,324

     Depreciation and amortization
200,038

 
180,381

 
390,244

 
349,736

     Provision for uncollectible accounts
(606
)
 
3,566

 
1,304

 
6,083

     Equity investment (income) loss
(3,614
)
 
505

 
(7,549
)
 
(882
)
     Goodwill and asset impairment charges
61,117

 
176,000

 
100,483

 
253,000

     Gain on changes in ownership interests, net

 
(29,791
)
 
(6,273
)
 
(29,791
)
     Gain on settlement, net

 

 
(526,827
)
 

          Total operating expenses and charges
3,499,161

 
3,388,581

 
6,308,208

 
6,604,828

Operating income
378,316

 
329,070

 
1,266,552

 
693,959

Debt expense
(107,962
)
 
(102,894
)
 
(212,391
)
 
(205,778
)
Other income, net
5,253

 
3,215

 
9,496

 
6,191

Income before income taxes
275,607

 
229,391

 
1,063,657

 
494,372

Income tax expense
113,982

 
134,888

 
401,747

 
261,710

Net income
161,625

 
94,503

 
661,910

 
232,662

     Less: Net income attributable to noncontrolling interests
(34,624
)
 
(41,121
)
 
(87,212
)
 
(81,846
)
Net income attributable to DaVita Inc.
$
127,001

 
$
53,382

 
$
574,698

 
$
150,816

Earnings per share:
 

 
 

 
 

 
 

     Basic net income per share attributable to DaVita Inc.
$
0.66

 
$
0.26

 
$
3.00

 
$
0.74

     Diluted net income per share attributable to DaVita Inc.
$
0.65

 
$
0.26

 
$
2.95

 
$
0.73

Weighted average shares for earnings per share:
 
 
 
 
 
 
 
     Basic
191,088,216

 
204,497,970

 
191,728,913

 
204,432,315

     Diluted
193,987,983

 
208,047,172

 
194,630,936

 
207,987,530



6



DAVITA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2017
 
2016
 
2017
 
2016
Net income
161,625

 
94,503

 
661,910

 
232,662

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Unrealized losses on interest rate cap and swap agreements:
 

 
 

 
 

 
 

Unrealized losses on interest rate cap and swap agreements
(1,815
)
 
(2,616
)
 
(5,002
)
 
(8,085
)
Reclassifications of net rate cap and swap agreements realized
losses into net income
1,265

 
448

 
2,529

 
913

Unrealized gains on investments:
 

 
 
 
 

 
 

Unrealized gains on investments
1,057

 
638

 
2,614

 
867

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

 
(211
)
 
(93
)
Unrealized gains on foreign currency translation:
 

 
 

 
 

 
 

Foreign currency translation adjustments
49,142

 
(4,844
)
 
62,403

 
6,337

Other comprehensive income (loss)
49,578

 
(6,374
)
 
62,333

 
(61
)
Total comprehensive income
211,203

 
88,129

 
724,243

 
232,601

Less: Comprehensive income attributable to noncontrolling
interests
(34,624
)
 
(41,270
)
 
(87,210
)
 
(81,995
)
Comprehensive income attributable to DaVita Inc.
$
176,579

 
$
46,859

 
$
637,033

 
$
150,606



7



DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
 
Six months ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 

 
 

Net income
$
661,910

 
$
232,662

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

 
 

Depreciation and amortization
390,244

 
349,736

Goodwill and asset impairment charges
100,483

 
253,000

Stock-based compensation expense
17,504

 
23,717

Deferred income taxes
40,938

 
19,952

Equity investment income, net
9,367

 
14,275

Gain on sales of business interests, net
(6,273
)
 
(29,791
)
Other non-cash charges
28,615

 
23,120

Changes in operating assets and liabilities, other than from acquisitions and divestitures:
 
 
 

Accounts receivable
(113,208
)
 
(104,005
)
Inventories
(31,067
)
 
(9,213
)
Other receivables and other current assets
(112,469
)
 
(107,610
)
Other long-term assets
(12,124
)
 
(431
)
Accounts payable
(55,897
)
 
22,809

Accrued compensation and benefits
(63,727
)
 
41,098

Other current liabilities
13,991

 
112,825

Income taxes
123,637

 
135,026

Other long-term liabilities
19,520

 
(31,531
)
Net cash provided by operating activities
1,011,444

 
945,639

Cash flows from investing activities:
 

 
 

     Additions of property and equipment
(398,940
)
 
(358,627
)
     Acquisitions
(619,839
)
 
(473,314
)
     Proceeds from asset and business sales
70,236

 
17,393

     Purchase of investments available for sale
(6,812
)
 
(7,873
)
     Purchase of investments held-to-maturity
(220,632
)
 
(518,965
)
     Proceeds from sale of investments available for sale
5,049

 
5,337

     Proceeds from investments held-to-maturity
320,484

 
545,685

     Purchase of equity investments
(1,194
)
 
(8,785
)
     Proceeds from sale of equity investments

 
40,920

Net cash used in investing activities
(851,648
)
 
(758,229
)
Cash flows from financing activities:
 

 
 

     Borrowings
25,529,555

 
26,134,952

     Payments on long-term debt and other financing costs
(25,593,587
)
 
(26,196,373
)
     Purchase of treasury stock
(231,674
)
 
(274,926
)
     Distributions to noncontrolling interests
(116,075
)
 
(94,153
)
     Stock award exercises and other share issuances, net
8,163

 
9,465

     Contributions from noncontrolling interests
39,872

 
13,117

     Purchase of noncontrolling interests
(1,432
)
 
(6,240
)
     Other

 
10,604

Net cash used in financing activities
(365,178
)
 
(403,554
)
Effect of exchange rate changes on cash and cash equivalents
4,192

 
444

Net decrease in cash and cash equivalents
(201,190
)
 
(215,700
)
Cash and cash equivalents at beginning of the year
913,187

 
1,499,116

Cash and cash equivalents at end of the period
$
711,997

 
$
1,283,416


8



DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
 
June 30,
2017
 
December 31,
2016
ASSETS
 

 
 

Cash and cash equivalents
$
711,997

 
$
913,187

Short-term investments
211,436

 
310,198

Accounts receivable, less allowance of $240,918 and $252,056
2,053,812

 
1,917,302

Inventories
199,304

 
164,858

Other receivables
644,755

 
453,483

Prepaid and other current assets
202,464

 
210,604

Income taxes receivable

 
10,596

Total current assets
4,023,768

 
3,980,228

Property and equipment, net of accumulated depreciation of $3,130,797 and $2,832,160
3,248,030

 
3,175,367

Intangible assets, net of accumulated amortization of $1,035,664 and $940,731
1,462,894

 
1,527,767

Equity method and other investments
542,468

 
502,389

Long-term investments
114,693

 
103,679

Other long-term assets
60,140

 
44,510

Goodwill
9,889,791

 
9,407,317

 
$
19,341,784

 
$
18,741,257

LIABILITIES AND EQUITY
 

 
 

Accounts payable
$
439,741

 
$
522,415

Other liabilities
885,274

 
856,847

Accrued compensation and benefits
760,284

 
815,761

Medical payables
390,387

 
336,381

Current portion of long-term debt
182,323

 
165,041

Income tax payable
115,316

 

Total current liabilities
2,773,325

 
2,696,445

Long-term debt
8,910,814

 
8,947,327

Other long-term liabilities
520,886

 
465,358

Deferred income taxes
855,159

 
809,128

Total liabilities
13,060,184

 
12,918,258

Commitments and contingencies:
 

 
 

Noncontrolling interests subject to put provisions
1,009,704

 
973,258

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; 194,774,810 and
194,554,491 shares issued and 191,200,237 and 194,554,491 shares outstanding, respectively)
195

 
195

Additional paid-in capital
1,058,090

 
1,027,182

Retained earnings
4,285,011

 
3,710,313

Treasury stock (3,574,573 shares at June 30, 2017)
(231,674
)
 

Accumulated other comprehensive loss
(27,308
)
 
(89,643
)
Total DaVita Inc. shareholders’ equity
5,084,314

 
4,648,047

Noncontrolling interests not subject to put provisions
187,582

 
201,694

Total equity
5,271,896

 
4,849,741

 
$
19,341,784

 
$
18,741,257


9



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, 2017
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
1. Consolidated Financial Results:
 
 
 
 
 
 
 
Consolidated net revenues
$
3,877

 
$
3,697

 
$
3,718

 
$
7,575

Operating income
$
378

 
$
888

 
$
329

 
$
1,267

Adjusted operating income excluding certain items(1)
$
436

 
$
392

 
$
475

 
$
828

Operating income margin
9.7
%
 
24.0
%
 
8.8
%
 
16.7
%
Adjusted operating income margin excluding certain items(1) (5)
11.2
%
 
10.6
%
 
12.8
%
 
10.9
%
Net income attributable to DaVita Inc.
$
127

 
$
448

 
$
53

 
$
575

Adjusted net income attributable to DaVita Inc. excluding certain items(1)
$
179

 
$
154

 
$
210

 
$
332

Diluted net income per share attributable to DaVita Inc.
$
0.65

 
$
2.29

 
$
0.26

 
$
2.95

Adjusted diluted net income per share attributable to DaVita Inc. excluding certain items (1)
$
0.92

 
$
0.79

 
$
1.01

 
$
1.71

 
 
 
 
 
 
 
 
2. Consolidated Business Metrics:
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
General and administrative expenses as a percent of consolidated net revenues(2) 
9.9
%
 
10.6
%
 
10.4
%
 
10.2
%
Consolidated effective tax rate
41.4
%
 
36.5
%
 
58.8
%
 
37.8
%
Consolidated effective tax rate attributable to DaVita Inc.(1) 
47.2
%
 
39.1
%
 
71.6
%
 
41.1
%
Adjusted consolidated effective tax rate attributable to DaVita Inc.(1)
39.5
%
 
40.0
%
 
37.2
%
 
39.7
%
 
 
 
 
 
 
 
 
3. Summary of Division Financial Results:
 
 
 
 
 
 
 
    Net revenues
 
 
 
 
 
 
 
Kidney Care:
 
 
 
 
 
 
 
U.S. dialysis and related lab services
$
2,325

 
$
2,271

 
$
2,264

 
$
4,596

Other—Ancillary services and strategic initiatives
 
 
 
 
 
 
 
U.S. ancillary services and strategic initiatives
314

 
315

 
372

 
630

International
79

 
63

 
51

 
142

 
394

 
378

 
423

 
772

Eliminations within Kidney Care
(19
)
 
(18
)
 
(12
)
 
(38
)
Total Kidney Care
2,699

 
2,631

 
2,675

 
5,331

DMG
1,196

 
1,087

 
1,060

 
2,283

Eliminations between Kidney Care and DMG
(18
)
 
(21
)
 
(17
)
 
(39
)
Total net consolidated revenues
$
3,877

 
$
3,697

 
$
3,718

 
$
7,575

Operating income (loss)
 
 
 
 
 
 
 
Kidney Care:
 
 
 
 
 
 
 
U.S. dialysis and related lab services
$
450

 
$
945

 
$
449

 
$
1,395

Other—Ancillary services and strategic initiatives
 
 
 
 
 
 
 
U.S. ancillary services and strategic initiatives
(36
)
 
(53
)
 

 
(89
)
International
(13
)
 
(5
)
 
(13
)
 
(18
)
 
(48
)
 
(58
)
 
(13
)
 
(106
)
Corporate administrative support
(11
)
 
(11
)
 
(5
)
 
(22
)
Total Kidney Care
391

 
876

 
431

 
1,267

DMG
(13
)
 
12

 
(102
)
 
(1
)
              Total consolidated operating income
$
378

 
$
888

 
$
329

 
$
1,267


10



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, 2017
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
4. Summary of Reportable Segment Financial Results:
 
 
 
 
 
 
 
U.S. Dialysis and Related Lab Services
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Patient services revenues
$
2,430

 
$
2,373

 
$
2,367

 
$
4,802

Provision for uncollectible accounts
(109
)
 
(107
)
 
(107
)
 
(216
)
Net patient service operating revenues
2,320

 
2,266

 
2,260

 
4,586

Other revenues
5

 
5

 
4

 
10

Total net operating revenues
2,325

 
2,271

 
2,264

 
4,596

Operating expenses:
 
 
 
 
 
 
 
Patient care costs
1,561

 
1,548

 
1,515

 
3,109

General and administrative
189

 
188

 
185

 
377

Depreciation and amortization
130

 
125

 
119

 
255

Equity investment income
(5
)
 
(8
)
 
(4
)
 
(13
)
Gain on settlement, net

 
(527
)
 

 
(527
)
Total operating expenses
1,875

 
1,326

 
1,815

 
3,201

Segment operating income
$
450

 
$
945

 
$
449

 
$
1,395

Reconciliation for non-GAAP measure:
 
 
 
 
 
 
 
Gain on settlement, net

 
(527
)
 

 
(527
)
Equity investment income related to gain on settlement

 
(3
)
 

 
(3
)
Adjusted segment operating income(1)
$
450

 
$
415

 
$
449

 
$
865

 
 
 
 
 
 
 
 
DMG
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
DMG capitated revenues
$
987

 
$
890

 
$
874

 
$
1,877

Patient services revenues
195

 
185

 
174

 
380

Provision for uncollectible accounts
(6
)
 
(6
)
 
(4
)
 
(12
)
Net patient service operating revenues
190

 
179

 
169

 
369

Other revenues
19

 
18

 
17

 
37

Total net operating revenues
1,196

 
1,087

 
1,060

 
2,283

Operating expenses:
 

 
 

 
 

 
 
Patient care costs
983

 
892

 
840

 
1,875

General and administrative
120

 
129

 
118

 
248

Depreciation and amortization
60

 
57

 
54

 
117

Goodwill and asset impairment charges
51

 

 
176

 
51

Gain on sales of business interests, net

 

 
(30
)
 

Equity investment (income) loss
(4
)
 
(3
)
 
4

 
(8
)
Total operating expenses
1,209

 
1,075

 
1,162

 
2,284

Segment operating (loss) income
$
(13
)
 
$
12

 
$
(102
)
 
$
(1
)
Reconciliation for non-GAAP measure:
 
 
 
 
 
 
 
Goodwill impairment charge
51

 

 
176

 
51

Accruals for legal matters
(4
)
 

 

 
(4
)
Gain on sale of Tandigm ownership interests

 

 
(40
)
 

Loss on sale of DMG Arizona

 

 
10

 

Adjusted segment operating income(1)
$
34

 
$
12

 
$
44

 
$
46


11



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, 2017
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
5. U.S. Dialysis and Related Lab Services Business Metrics:
 
 
 
 
 
 
 
Volume
 
 
 
 
 
 
 
Treatments
7,035,894

 
6,804,384

 
6,745,610

 
13,840,278

Number of treatment days
78.0

 
77.0

 
78.0

 
155.0

Treatments per day
90,204

 
88,369

 
86,482

 
89,292

Per day year over year increase
4.3
 %
 
3.7
 %
 
4.4
 %
 
4.0
 %
Normalized non-acquired treatment growth year over year
3.6
 %
 
3.8
 %
 
4.3
 %
 
3.7
 %
Operating revenues before provision for uncollectible accounts
 
 
 
 
 
 
 
Dialysis and related lab services revenue per treatment
$
345.32

 
$
348.70

 
$
350.90

 
$
346.98

Per treatment (decrease) increase from previous quarter
(1.0
)%
 
(1.0
)%
 
0.1
 %
 
 
Per treatment (decrease) increase from previous year
(1.6
)%
 
(0.5
)%
 
0.7
 %
 
(1.1
)%
Percent of consolidated net revenues
59.3
 %
 
60.8
 %
 
60.5
 %
 
60.0
 %
Expenses
 
 
 
 
 
 
 
Patient care costs
 
 
 
 
 
 
 
Percent of total segment operating net revenues
67.1
 %
 
68.1
 %
 
66.9
 %
 
67.6
 %
Per treatment
$
221.82

 
$
227.47

 
$
224.75

 
$
224.60

Per treatment (decrease) increase from previous quarter
(2.5
)%
 
(0.1
)%
 
(0.2
)%
 
 
Per treatment (decrease) increase from previous year
(1.3
)%
 
1.0
 %
 
1.2
 %
 
(0.2
)%
General and administrative expenses
 
 
 
 
 
 
 
Percent of total segment operating net revenues
8.1
 %
 
8.3
 %
 
8.2
 %
 
8.2
 %
Per treatment
$
26.85

 
$
27.65

 
$
27.37

 
$
27.24

Per treatment (decrease) increase from previous quarter
(2.9
)%
 
(4.1
)%
 
1.5
 %
 
 
Per treatment (decrease) increase from previous year
(1.9
)%
 
2.5
 %
 
1.4
 %
 
0.3
 %
Accounts receivable
 
 
 
 
 
 
 
Net receivables
$
1,420

 
$
1,335

 
$
1,273

 
 
DSO
56

 
54

 
52

 
 
Provision for uncollectible accounts as a percentage of
revenues
4.5
 %
 
4.5
 %
 
4.5
 %
 
4.5
 %
 
 
 
 
 
 
 
 
6. DMG Business Metrics:
 
 
 
 
 
 
 
Capitated membership
 
 
 
 
 
 
 
Total members
726,000

 
735,400

 
761,400

 
 
Total member months
 
 
 
 
 
 
 
Senior
918,200

 
920,200

 
957,400

 
1,838,500

Commercial
983,000

 
995,900

 
1,037,500

 
1,978,900

Medicaid
291,200

 
305,200

 
333,000

 
596,300

Total member months
2,192,400

 
2,221,300

 
2,327,900

 
4,413,700

Capitated revenues by sources
 
 
 
 
 
 
 
Senior revenues
$
753

 
$
660

 
$
638

 
$
1,413

Commercial revenues
194

 
188

 
189

 
381

Medicaid revenues
41

 
42

 
47

 
83

Total capitated revenues
$
987

 
$
890

 
$
874

 
$
1,877



12



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, 2017
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
6. DMG Business Metrics: (continued)
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
Total care dollars under management(1)
$
1,355

 
$
1,354

 
$
1,348

 
$
2,709

Ratio of operating (loss) income to total care dollars under
management
(1)
(1.0
)%
 
0.9
%
 
(7.6
)%
 
 %
Ratio of adjusted operating income to total care dollars under
management
(1)(6)
2.5
 %
 
0.9
%
 
3.3
 %
 
1.7
 %
 
 
 
 
 
 
 
 
7. Cash Flow:
 
 
 
 
 
 
 
Operating cash flow
$
146.3

 
$
865.2

 
$
516.6

 
$
1,011.4

Operating cash flow, last twelve months
$
2,029.2

 
$
2,399.6

 
$
2,061.3

 
 
Free cash flow(1)
$
17.9

 
$
733.7

 
$
391.3

 
$
751.7

Free cash flow, last twelve months(1)
$
1,467.3

 
$
1,840.7

 
$
1,509.4

 
 
Capital expenditures:
 
 
 
 
 
 
 
Routine maintenance/IT/other
$
55.6

 
$
88.1

 
$
81.5

 
$
143.7

Development and relocations
$
128.8

 
$
126.4

 
$
103.9

 
$
255.3

Acquisition expenditures
$
542.6

 
$
77.2

 
$
68.2

 
$
619.8

 
 
 
 
 
 
 
 
8. Debt and Capital Structure:
 
 
 
 
 
 
 
Total debt(3)
$
9,165

 
$
9,165

 
$
9,189

 
 
Net debt, net of cash and cash equivalents(3)
$
8,453

 
$
7,693

 
$
7,906

 
 
Leverage ratio (see calculation on page 15)
3.38x

 
3.03x

 
2.93x

 
 
Overall weighted average effective interest rate during the
quarter
4.69
 %
 
4.55
%
 
4.42
 %
 
 
Overall weighted average effective interest rate at end of the
quarter
4.76
 %
 
4.64
%
 
4.43
 %
 
 
Weighted average effective interest rate on the senior secured
credit facilities at end of the quarter
4.20
 %
 
3.95
%
 
3.52
 %
 
 
Fixed and economically fixed interest rates as a percentage of
our total debt
53
 %
 
53
%
 
      60%(4)

 
 
Fixed and economically fixed interest rates, including our
interest rate cap agreements, as a percentage of our total debt
91
 %
 
91
%
 
      90%(4)

 
 
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.
_________________
(1)
These are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, and for a definition of adjusted amounts, see attached reconciliation schedules.
(2)
Consolidated percentages of revenues are comprised of the dialysis and related lab services business, DMG’s business and other ancillary services and strategic initiatives. General and administrative expenses includes certain corporate support and long-term incentive compensation, as well as estimated accruals for certain legal matters for the three and six months ended June 30, 2017.
(3)
The reported balance sheet amounts at June 30, 2017, March 31, 2017, and June 30, 2016, exclude $71.9 million, $75.9 million and $87.9 million, respectively, of a debt discount associated with our Term Loan A, Term Loan B and senior notes, and other deferred financing costs.
(4)
The Term Loan B is subject to a LIBOR floor of 0.75%. At June 30, 2017 and March 31, 2017, the actual LIBOR-based variable component of our interest rate exceeded 0.75% on the Term Loan B, and was subject to LIBOR-based interest rate volatility on the LIBOR variable component of our interest rate on all of the Term Loan B. However, we are limited to a maximum rate of 3.50% on the outstanding principal debt on the Term Loan B as a result of interest rate cap agreements. Actual LIBOR, for the three months ended June 30, 2016 was lower than the embedded LIBOR floor during such period and the interest rate on the Term Loan B was set at its floor during such period. The Term Loan A bears interest at LIBOR plus an interest margin of 2.00%. We are limited to a maximum rate of

13



3.50% on $105.0 million of the Term Loan A as a result of interest rate cap agreements. In addition, the uncapped portion of the Term Loan A, which is subject to the variability of LIBOR, is $720.0 million.
(5)
Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated net revenues.
(6)
Ratio of adjusted operating income to total care dollars under management is a calculation of adjusted operating income divided by total care dollars under management.


14



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, 2017
Net income attributable to DaVita Inc.
$
1,303,758

Income taxes
595,850

Interest expense
386,841

Depreciation and amortization
760,760

Goodwill and other asset impairment charges
143,891

Noncontrolling interests and equity investment income, net
172,836

Stock-settled stock-based compensation
32,243

Gain on changes in ownership interest, net
(380,647
)
Gain on settlement, net
(529,504
)
Other
19,966

“Consolidated EBITDA”
$
2,505,994

 
 
 
June 30, 2017
Total debt, excluding debt discount and other deferred financing costs of $71.9 million
$
9,165,014

Letters of credit issued
95,909

 
$
9,260,923

Less: Cash and cash equivalents including short-term investments (excluding DMG’s
physician owned entities cash)
(801,611
)
Consolidated net debt
$
8,459,312

Last twelve months “Consolidated EBITDA”
$
2,505,994

Leverage ratio
3.38x


In accordance with the Credit Agreement, the Company’s leverage ratio cannot exceed 4.50 to 1.00 as of June 30, 2017. At that date the Company’s leverage ratio did not exceed 4.50 to 1.00.


15



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

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

We believe that adjusted net income and adjusted diluted net income per share attributable to DaVita Inc., excluding goodwill and other asset impairment charges, a net settlement gain, a gain on the APAC JV ownership changes, estimated accruals for certain legal matters, a gain on the partial sale of Tandigm, and a loss on the sale of DMG Arizona, enhances a user’s understanding of our normal net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc. for these periods by providing a measure that is meaningful because it excludes certain items which we do not believe are indicative of our ordinary results, and accordingly, is comparable to prior periods and indicative of normal net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc. These measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc.

 
Three months ended
 
Six months ended
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Net income attributable to DaVita Inc.
$
127,001

 
$
447,697

 
$
53,382

 
$
574,698

 
$
150,816

Goodwill impairment charges
61,117

 
24,198

 
176,000

 
85,315

 
253,000

Impairment of assets

 
15,168

 

 
15,168

 

Gain on settlement, net

 
(526,827
)
 

 
(526,827
)
 

Equity investment income related to gain on settlement

 
(2,677
)
 

 
(2,677
)
 

Gain on APAC JV ownership changes

 
(6,273
)
 

 
(6,273
)
 

Accruals for legal matters
(3,600
)
 

 

 
(3,600
)
 
16,000

Gain on sale of Tandigm ownership interests

 

 
(40,280
)
 

 
(40,280
)
Loss on sale of DMG Arizona

 

 
10,489

 

 
10,489

Noncontrolling interests associated with adjustments:
 
 
 
 
 
 
 
 
 
Goodwill impairment charges
(2,985
)
 
(6,880
)
 

 
(9,865
)
 

Gain on settlement, net

 
24,029

 

 
24,029

 

Related income tax
(2,850
)
 
185,162

 
10,414

 
182,312

 
10,414

Adjusted net income attributable to DaVita Inc.
$
178,683

 
$
153,597

 
$
210,005

 
$
332,280

 
$
400,439

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




















16



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

 
Three months ended
 
Six months ended
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Diluted net income per share attributable to DaVita Inc.
$
0.65

 
$
2.29

 
$
0.26

 
$
2.95

 
$
0.73

Goodwill impairment charges
0.32

 
0.12

 
0.84

 
0.44

 
1.21

Impairment of assets

 
0.08

 

 
0.08

 

Gain on settlement, net

 
(2.70
)
 

 
(2.70
)
 

Equity investment income related to gain on settlement

 
(0.01
)
 

 
(0.01
)
 

Gain on APAC JV ownership changes

 
(0.03
)
 

 
(0.03
)
 

Accruals for legal matters
(0.02
)
 

 

 
(0.02
)
 
0.08

Gain on sale of Tandigm ownership interests

 

 
(0.19
)
 

 
(0.19
)
Loss on sale of DMG Arizona

 

 
0.05

 

 
0.05

Noncontrolling interests associated with adjustments
 
 
 
 
 
 
 
 

Goodwill impairment charges
(0.02
)
 
(0.03
)
 

 
(0.05
)
 

Gain on settlement, net

 
0.12

 

 
0.12

 

Related income tax
(0.01
)
 
0.95

 
0.05

 
0.94

 
0.05

Adjusted diluted net income per share attributable to DaVita Inc.
$
0.92

 
$
0.79

 
$
1.01

 
$
1.71

 
$
1.93

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


17



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

In addition, we have excluded amortization of intangible assets associated with acquisitions from our adjusted net income attributable to DaVita Inc., net of tax, and from our adjusted diluted net income per share attributable to DaVita Inc. as we believe this presentation enhances a user’s understanding of our operating results for these periods by providing a different reflection of the Company’s operating performance since it excludes the amortization of intangible assets that relate to the fair value measurement of acquired intangible assets associated with our acquisitions, and accordingly is indicative of consistent adjusted net income excluding amortization of acquired intangibles, attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc. These measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc.

 
Three months ended
 
Six months ended
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Adjusted net income per share attributable to DaVita Inc.
$
178,683

 
$
153,597

 
$
210,005

 
$
332,280

 
$
400,439

Add: Amortization of intangible assets associated with
acquisitions for:
 
 
 
 
 
 
 
 
 
Dialysis and ancillary operations
3,818

 
3,725

 
3,674

 
7,543

 
7,483

DMG operations
44,274

 
43,955

 
40,296

 
88,229

 
76,374

Less: Related income tax
(18,996
)
 
(19,072
)
 
(16,269
)
 
(38,068
)
 
(32,224
)
 
$
207,779

 
$
182,205

 
$
237,706

 
$
389,984

 
$
452,072

 
 
 
 
 
 
 
 
 
 
Adjusted diluted net income per share attributable to
DaVita Inc.
$
0.92

 
$
0.79

 
$
1.01

 
$
1.71

 
$
1.93

Add: Amortization of intangible assets per share associated
with acquisitions for:
 
 
 
 
 
 
 
 
 
Dialysis and ancillary operations
0.02

 
0.02

 
0.02

 
0.04

 
0.04

DMG operations
0.23

 
0.22

 
0.19

 
0.45

 
0.36

Tax effect of adjustments
(0.10
)
 
(0.10
)
 
(0.08
)
 
(0.20
)
 
(0.16
)
Adjusted net income per share attributable to DaVita Inc.
$
1.07

 
$
0.93

 
$
1.14

 
$
2.00

 
$
2.17

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

18



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

Note 3:    Adjusted operating income.

Adjusted operating income is defined as operating income before certain items we do not believe are indicative of ordinary results, including goodwill and other asset impairment charges, a net settlement gain, a gain on the APAC JV ownership changes, estimated accruals for certain legal matters, a gain on the partial sale of Tandigm, and a loss on the sale of DMG Arizona.

We use adjusted operating income as a measure to assess operating and financial performance. We believe that this measure enhances a user’s understanding of the normal operating income and of our consolidated enterprise and of our individual reportable segments.

Adjusted operating income is not a measure of financial performance computed in accordance with GAAP and should not be considered in isolation nor as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity. In addition, the calculation of adjusted operating income is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. Adjusted operating income may not be indicative of historical operating results, and we do not intend these calculations to be predictive of future results of operations or cash flows.
 
Three months ended
 
Six months ended
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Consolidated:
 
 
 
 
 
 
 
 
 
Operating income
$
378,316

 
$
888,236

 
$
329,070

 
$
1,266,552

 
$
693,959

Goodwill impairment charges
61,117

 
24,198

 
176,000

 
85,315

 
253,000

Impairment of assets

 
15,168

 

 
15,168

 

Gain on settlement, net

 
(526,827
)
 

 
(526,827
)
 

Equity investment income related to gain on settlement

 
(2,677
)
 

 
(2,677
)
 

Gain on APAC JV ownership changes

 
(6,273
)
 

 
(6,273
)
 

Accruals for legal matters
(3,600
)
 

 

 
(3,600
)
 
16,000

Gain on sale of Tandigm ownership interests

 

 
(40,280
)
 

 
(40,280
)
Loss on sale of DMG Arizona

 

 
10,489

 

 
10,489

Adjusted operating income
$
435,833

 
$
391,825

 
$
475,279

 
$
827,658

 
$
933,168

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
















19



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

 
Three months ended
 
Six months ended
 
June 30,
2017
 
March 31,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Kidney Care:
 
 
 
 
 
 
 
 
 
U.S. dialysis and related lab services:
 
 
 
 
 
 
 
 
 
Segment operating income
$
450,472

 
$
944,740

 
$
449,190

 
$
1,395,212

 
$
889,245

Gain on settlement, net

 
(526,827
)
 

 
(526,827
)