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): February 13, 2018
 

 
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 February 13, 2018, DaVita Inc. issued a press release announcing its financial results for the quarter and year ended December 31, 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
Press Release dated February 13, 2018 announcing the registrant’s financial results for the quarter and year ended December 31, 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: February 23, 2018
By:
/s/ James K. Hilger
 
 
James K. Hilger
 
 
Chief Accounting Officer






EXHIBIT INDEX
 
 
 
Exhibit Number 
Description 
Press Release dated February 13, 2018 announcing the registrant’s financial results for the three and nine months ended December 31, 2017.




Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12049923&doc=3


Contact:        Jim Gustafson
Investor Relations                    
DaVita Inc.
(310) 536-2585
DaVita Inc. 4th Quarter 2017 Results
Denver, Colorado, February 13, 2018 — DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2017.
Net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2017 was $156 million, or $0.85 per share, and $901 million, or $4.71 per share, respectively. Net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2016 was $143 million, or $0.73 per share, and $1.032 billion, or $5.04 per share, respectively.
Adjusted net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2017 was $170 million, or $0.92 per share, and $635 million, or $3.32 per share, respectively. Adjusted net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2016 was $177 million, or $0.90 per share, and $692 million, or $3.38 per share, respectively.
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:
On December 5, 2017, we entered into an agreement to sell our DMG division to Optum, a subsidiary of UnitedHealth Group Inc. This transaction is subject to regulatory approvals and other customary closing conditions. As a result, the DMG business has been reclassified as held for sale and the results of operations are reported as discontinued operations. In addition, prior periods have been revised to conform to the current period presentation.
Cash flow: For the year ended December 31, 2017, consolidated operating cash flow was $1.907 billion, of which $1.556 billion was from continuing operations. For the three months ended December 31, 2017, consolidated operating cash flow was $343 million, of which $287 million was from continuing operations. Free cash flow from continuing operations was $150 million and $1.042 billion for the quarter and year ended December 31, 2017, respectively.
Operating income and adjusted operating income: Operating income for the quarter ended December 31, 2017 was $150 million, and adjusted operating income for the same period was $430 million. Operating income for the year ended December 31, 2017 was $1.813 billion, and adjusted operating income for the same period was $1.616 billion.
Operating income for the quarter ended December 31, 2016 was $363 million, and adjusted operating income for the same period was $423 million. Operating income for the year ended December 31, 2016 was $2.030 billion, and adjusted operating income for the same period was $1.715 billion.
Volume: Total U.S. dialysis treatments for the fourth quarter of 2017 were 7,244,555, or 92,287 treatments per day, representing a per day increase of 5.8% over the fourth quarter of 2016. Normalized non-acquired treatment growth in the fourth quarter of 2017 as compared to the fourth quarter of 2016 was 3.5%.
Impairment charges: During the quarter ended December 31, 2017, we recognized a non-cash other-than-temporary impairment charge of $280 million on our investment in our Asia Pacific joint venture (APAC JV). This charge resulted

1



from changes in expectations for the joint venture based on the APAC JV’s continuing market research and assessments concerning the available market opportunities.
Effective income tax rate: Our effective income tax rate attributable to continuing operations was (320.9)% and 23.1% for the quarter and year ended December 31, 2017, respectively. The effective income tax rate attributable to DaVita Inc. was (2,590.5)% and 26.4% for the quarter and year ended December 31, 2017, respectively.
As a result of the recent U.S. tax reform legislation, we recorded a reduction in tax expense of $252 million for the quarter and year ended December 31, 2017 related to the remeasurement of our net deferred tax liabilities to the new federal tax rate. Our effective income tax rate for the quarter and year ended December 31, 2017 was also impacted by the non-deductible portion of impairment charges on our investment in our APAC JV and the amount of third-party owners' income attributable to non-tax paying entities.
The adjusted effective income tax rate attributable to DaVita Inc. for the quarter and year ended December 31, 2017 excluding these items was 40.4% and 39.1%, respectively.
Center activity: As of December 31, 2017, we provided dialysis services to a total of approximately 220,600 patients at 2,747 outpatient dialysis centers, of which 2,510 centers were located in the United States and 237 centers were located in 11 countries outside of the United States. During the fourth quarter of 2017, we acquired nine dialysis centers, opened a total of 36 new dialysis centers, and closed four centers in the United States. We also acquired six dialysis centers, opened two dialysis centers and closed one dialysis center outside of the United States.
Share repurchases: We repurchased a total of 12,966,672 shares of our common stock during the year ended December 31, 2017 for a total of $811 million at an average price of $62.54 per share. During the quarter ended December 31, 2017, we repurchased a total of 7,409,849 shares of our common stock for approximately $462 million at an average price of $62.37 per share. We have also repurchased 857,234 shares of our common stock for $65 million at an average price of $75.58 per share from January 1, 2018 through February 12, 2018.
On October 10, 2017, our Board of Directors approved an additional share repurchase authorization in the amount of approximately $1.253 billion. This recently approved authorization was in addition to the amounts remaining at that time under our Board of Directors' prior share repurchase authorization announced in July 2016. As of February 12, 2018, we have a total of approximately $1.054 billion in outstanding Board repurchase authorizations remaining under our stock repurchase program. These share repurchase authorizations have no expiration dates.
Outlook
The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described herein, and actual results may vary significantly from these current forward-looking measures. The guidance below does not include the impact of currency fluctuations.
We still expect our Kidney Care consolidated operating income for 2018 to be in the range of $1.5 billion to $1.6 billion.
We expect our operating cash flow from continuing operations for 2018 to be in the range of $1.4 billion to $1.6 billion.
We are updating our 2018 effective tax rate attributable to DaVita Inc. to be approximately 26.5% to 27.5%.
Our previous guidance for 2018 effective tax rate attributable to DaVita Inc. was approximately 26.0% to 27.5%.
We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2017 on February 13, 2018 at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9087 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.

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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, restructuring charges, accruals for legal matters, recent federal tax reform legislation, and gains and charges associated with settlements; and (ii) the term “adjusted effective income tax rate attributable to DaVita Inc.” represents the Company’s effective tax rate excluding applicable 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 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 from continuing operations attributable to DaVita Inc., adjusted diluted net income from continuing operations attributable to DaVita Inc. per share, adjusted operating income, effective income tax rate attributable to DaVita Inc., adjusted effective income tax rate attributable to DaVita Inc., and free cash flow from continuing operations discussed in this press release are reconciled to their most comparable GAAP measures at Notes 2, 3, 4, and 5 at the end of this press release.


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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 2018 Kidney Care consolidated operating income, our 2018 operating cash flows from continuing operations and our 2018 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 September 30, 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, that could have a material adverse effect on our operations and profitability;
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 or anemia management practice patterns, payment policies, or pharmaceutical pricing;
legal compliance risks, including, without limitation, 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, 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;

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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 to 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 involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
the variability of our cash flows;
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 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 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, potential disruption in connection with the DMG sale transaction making it more difficult to maintain business and operational relationships, and uncertainties related to our use of proceeds from the DMG sale transaction, including our ability to repurchase stock;
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.

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DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data.)
 
Three months ended
December 31,
 
Year ended
 December 31,
 
2017
 
2016
 
2017
 
2016
Dialysis and related lab patient service revenues
$
2,614,732

 
$
2,471,495

 
$
10,093,670

 
$
9,727,360

Less: Provision for uncollectible accounts
(149,373
)
 
(109,604
)
 
(485,398
)
 
(431,308
)
Net dialysis and related lab patient service revenues
2,465,359

 
2,361,891

 
9,608,272

 
9,296,052

Other revenues
315,554

 
337,528

 
1,268,362

 
1,411,415

Total net revenues
2,780,913

 
2,699,419

 
10,876,634

 
10,707,467

Operating expenses and charges:
 

 
 

 
 

 
 

Patient care costs and other costs
1,941,687

 
1,882,778

 
7,640,005

 
7,431,582

General and administrative
265,424

 
285,100

 
1,064,026

 
1,072,841

Depreciation and amortization
144,367

 
131,090

 
559,911

 
509,497

Provision for uncollectible accounts
(5,652
)
 
1,821

 
(7,033
)
 
11,677

Equity investment loss (income)
3,184

 
(8,223
)
 
8,640

 
(16,874
)
Investment and other asset impairments
280,066

 

 
295,234

 
14,993

Goodwill impairment charges
1,500

 
43,408

 
36,196

 
28,415

Gain on changes in ownership interests, net

 

 
(6,273
)
 
(374,374
)
Gain on settlement, net

 

 
(526,827
)
 

Total operating expenses and charges
2,630,576

 
2,335,974

 
9,063,879

 
8,677,757

Operating income
150,337

 
363,445

 
1,812,755

 
2,029,710

Debt expense
(108,997
)
 
(103,932
)
 
(430,634
)
 
(414,116
)
Other income, net
5,485

 
156

 
17,665

 
7,511

Income from continuing operations before income taxes
46,825

 
259,669

 
1,399,786

 
1,623,105

Income tax (benefit) expense
(150,267
)
 
83,171

 
323,859

 
431,761

Net income from continuing operations
197,092

 
176,498

 
1,075,927

 
1,191,344

Net income (loss) from discontinued operations, net of tax
143,587

 
11,772

 
(245,372
)
 
(158,262
)
Net income
340,679

 
188,270

 
830,555

 
1,033,082

Less: Net income attributable to noncontrolling interests
(37,283
)
 
(30,544
)
 
(166,937
)
 
(153,208
)
Net income attributable to DaVita Inc.
$
303,396

 
$
157,726

 
$
663,618

 
$
879,874

Earnings per share:
 

 
 

 
 

 
 

Basic net income from continuing operations per share
attributable to DaVita Inc.
$
0.86

 
$
0.74

 
$
4.78

 
$
5.12

Basic net income per share attributable to DaVita Inc.
$
1.66

 
$
0.81

 
$
3.52

 
$
4.36

Diluted net income from continuing operations per share
attributable to DaVita Inc.
$
0.85

 
$
0.73

 
$
4.71

 
$
5.04

Diluted net income per share attributable to DaVita Inc.
$
1.64

 
$
0.80

 
$
3.47

 
$
4.29

Weighted average shares for earnings per share:
 
 
 
 
 

 
 

Basic
182,261,673

 
193,999,701

 
188,625,559

 
201,641,173

Diluted
184,825,329

 
196,743,187

 
191,348,533

 
204,904,656

Amounts attributable to DaVita Inc.:
 
 
 
 
 
 
 
Net income from continuing operations
$
156,210

 
$
142,696

 
$
901,277

 
$
1,032,373

Net income (loss) from discontinued operations
147,186

 
15,030

 
(237,659
)
 
(152,499
)
Net income attributable to DaVita Inc.
$
303,396

 
$
157,726

 
$
663,618

 
$
879,874


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DAVITA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
 
 
Three months ended
December 31,
 
Year ended
December 31,
 
2017
 
2016
 
2017
 
2016
Net income
$
340,679

 
$
188,270

 
$
830,555

 
$
1,033,082

Other comprehensive income (loss):
 

 
 

 
 

 
 

Unrealized gains (losses) on interest rate cap and swap agreements:
 

 
 

 
 

 
 

Unrealized gains (losses) on interest rate cap and swap agreements
42

 
4,568

 
(5,437
)
 
(3,670
)
Reclassifications of net cap and swap agreements realized losses
into net income
1,265

 
1,265

 
5,058

 
2,566

Unrealized gains (losses) on investments:
 

 
 
 
 
 
 

Unrealized gains (losses) on investments
228

 
(561
)
 
3,705

 
1,427

Reclassification of net investment realized losses (gains) into net
income
1

 
(279
)
 
(220
)
 
(423
)
Foreign currency translation adjustments:
 

 
 

 
 
 
 

Foreign currency translation adjustments
8,222

 
(45,000
)
 
99,770

 
(39,614
)
Reclassification of foreign currency translation into net income

 
2,574

 

 
10,087

Other comprehensive income (loss)
9,758

 
(37,433
)
 
102,876

 
(29,627
)
Total comprehensive income
350,437

 
150,837

 
933,431

 
1,003,455

Less: Comprehensive income attributable to noncontrolling interests
(37,283
)
 
(30,527
)
 
(166,935
)
 
(153,398
)
Comprehensive income attributable to DaVita Inc.
$
313,154

 
$
120,310

 
$
766,496

 
$
850,057



7



DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
 
Year ended
December 31,
 
2017
 
2016
Cash flows from operating activities:
 

 
 

Net income
$
830,555

 
$
1,033,082

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

Depreciation and amortization
777,485

 
720,252

Impairment charges
981,589

 
296,408

Stock-based compensation expense
35,092

 
38,338

Deferred income taxes
(395,217
)
 
52,010

Equity investment income, net
28,925

 
17,766

Gain on sales of business interests, net
(23,402
)
 
(404,165
)
Other non-cash charges, net
66,925

 
(7,338
)
Changes in operating assets and liabilities, net of effect of acquisitions and
divestitures:
 
 
 
Accounts receivable
(156,305
)
 
(152,240
)
Inventories
(18,625
)
 
22,920

Other receivables and other current assets
(117,154
)
 
(54,038
)
Other long-term assets
(11,945
)
 
35,893

Accounts payable
26,876

 
11,897

Accrued compensation and benefits
(78,239
)
 
68,272

Other current liabilities
1,908

 
176,494

Income taxes
(52,176
)
 
77,376

Other long-term liabilities
11,157

 
30,517

Net cash provided by operating activities
1,907,449

 
1,963,444

 
 
 
 
Cash flows from investing activities:
 
 
 

Additions of property and equipment
(905,250
)
 
(829,095
)
Acquisitions
(803,879
)
 
(563,856
)
Proceeds from asset and business sales
92,336

 
64,725

Purchase of investments available-for-sale
(13,117
)
 
(13,539
)
Purchase of investments held-to-maturity
(230,989
)
 
(1,133,192
)
Proceeds from sale of investments available-for-sale
6,408

 
18,963

Proceeds from investments held-to-maturity
492,470

 
1,240,502

Purchase of equity investments
(4,816
)
 
(27,096
)
Proceeds from sale of equity investments

 
40,920

Distributions received on equity investments
106

 

Net cash used in investing activities
(1,366,731
)
 
(1,201,668
)


8



DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(unaudited)
(dollars in thousands)
 
Year ended
December 31,
 
2017
 
2016
Cash flows from financing activities:
 
 
 
Borrowings
50,991,960

 
51,991,490

Payments on long-term debt and other financing costs
(50,837,112
)
 
(52,116,120
)
Purchase of treasury stock
(802,949
)
 
(1,097,822
)
Distributions to noncontrolling interests
(211,467
)
 
(192,401
)
Stock award exercises and other share issuances, net
21,252

 
23,543

Excess tax benefits from stock award exercises

 
13,251

Contributions from noncontrolling interests
74,552

 
47,590

Proceeds from sales of additional noncontrolling interests
2,864

 

Purchases of noncontrolling interests
(5,357
)
 
(21,512
)
Net cash used in financing activities
(766,257
)
 
(1,351,981
)
Effect of exchange rate changes on cash and cash equivalents
254

 
4,276

Net decrease in cash and cash equivalents
(225,285
)
 
(585,929
)
Less: Net decrease in cash and cash equivalents from discontinued operations
(58,743
)
 
(15,788
)
Net decrease in cash and cash equivalents from continuing operations
(166,542
)
 
(570,141
)
Cash and cash equivalents of continuing operations at beginning of the year
674,776

 
1,244,917

Cash and cash equivalents of continuing operations at end of the year
$
508,234

 
$
674,776


9



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

 
 

Cash and cash equivalents
$
508,234

 
$
674,776

Short-term investments
43,516

 
306,981

Accounts receivable, less allowance of $218,399 and $238,897
1,714,750

 
1,503,950

Inventories
181,799

 
160,419

Other receivables
372,919

 
288,156

Income tax receivable
49,440

 

Prepaid and other current assets
112,058

 
99,510

Current assets held for sale
5,761,642

 
960,956

Total current assets
8,744,358

 
3,994,748

Property and equipment, net
3,149,213

 
2,864,121

Intangible assets, net
113,827

 
73,504

Equity investments
245,534

 
492,039

Long-term investments
37,695

 
29,997

Other long-term assets
47,287

 
33,857

Goodwill
6,610,279

 
6,015,375

Long-term assets held for sale

 
5,252,135

 
$
18,948,193

 
$
18,755,776

LIABILITIES AND EQUITY
 

 
 

Accounts payable
$
509,116

 
$
456,619

Other liabilities
552,662

 
578,892

Accrued compensation and benefits
616,116

 
706,564

Current portion of long-term debt
178,213

 
160,262

Income tax payable

 
1,394

Current liabilities held for sale
1,185,070

 
807,233

Total current liabilities
3,041,177

 
2,710,964

Long-term debt
9,158,018

 
8,944,676

Other long-term liabilities
365,325

 
317,383

Deferred income taxes
486,247

 
530,869

Long-term liabilities held for sale

 
428,885

Total liabilities
13,050,767

 
12,932,777

Commitments and contingencies
 
 
 
Noncontrolling interests subject to put provisions
1,011,360

 
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; 182,462,278 and 194,554,491 shares issued and outstanding, respectively)
182

 
195

Additional paid-in capital
1,042,899

 
1,027,182

Retained earnings
3,633,713

 
3,710,313

Accumulated other comprehensive income (loss)
13,235

 
(89,643
)
Total DaVita Inc. shareholders' equity
4,690,029

 
4,648,047

Noncontrolling interests not subject to put provisions
196,037

 
201,694

Total equity
4,886,066

 
4,849,741

 
$
18,948,193

 
$
18,755,776


10



DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
 
Three months ended
 
Year ended December 31,
 2017
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
1. Consolidated Financial Results:
 
 
 
 
 
 
 
Consolidated net revenues
$
2,781

 
$
2,765

 
$
2,699

 
$
10,877

Operating income
$
150

 
$
395

 
$
363

 
$
1,813

Adjusted operating income excluding certain items(1)
$
430

 
$
404

 
$
423

 
$
1,616

Operating income margin
5.4
 %
 
14.3
%
 
13.5
%
 
16.7
%
Adjusted operating income margin excluding certain items(1) (5)
15.5
 %
 
14.6
%
 
15.7
%
 
14.9
%
Net income from continuing operations attributable to DaVita Inc.
$
156

 
$
153

 
$
143

 
$
901

Adjusted net income from continuing operations attributable to
DaVita Inc. excluding certain items
(1)
$
170

 
$
162

 
$
177

 
$
635

Diluted net income from continuing operations per share
attributable to DaVita Inc.
$
0.85

 
$
0.80

 
$
0.73

 
$
4.71

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

 
$
0.85

 
$
0.90

 
$
3.32

 
 
 
 
 
 
 
 
2. Consolidated Business Metrics:
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
General and administrative expenses as a percent of
consolidated net revenues
(2) 
9.5
 %
 
9.9
%
 
10.6
%
 
9.8
%
Consolidated effective tax rate
(320.9
)%
 
31.3
%
 
32.0
%
 
23.1
%
Consolidated effective tax rate attributable to DaVita Inc.(1) 
(2,590.5
)%
 
37.2
%
 
36.8
%
 
26.4
%
Adjusted consolidated effective tax rate attributable to
DaVita Inc.
(1)
40.4
 %
 
35.9
%
 
36.1
%
 
39.1
%
 
 
 
 
 
 
 
 
3. Summary of Division Financial Results:
 
 
 
 
 
 
 
Net revenues
 
 
 
 
 
 
 
Kidney Care:
 
 
 
 
 
 
 
U.S. dialysis and related lab services
$
2,393

 
$
2,370

 
$
2,323

 
$
9,360

Other—Ancillary services and strategic initiatives
 
 
 
 
 
 
 
U.S. ancillary services and strategic initiatives
316

 
323

 
338

 
1,268

International
95

 
91

 
58

 
328

 
410

 
414

 
396

 
1,596

Eliminations
(23
)
 
(19
)
 
(19
)
 
(80
)
Total net consolidated revenues
$
2,781

 
$
2,765

 
$
2,699

 
$
10,877

Operating income (loss)
 
 
 
 
 
 
 
Kidney Care:
 
 
 
 
 
 
 
U.S. dialysis and related lab services
$
459

 
$
443

 
$
436

 
$
2,297

Other—Ancillary services and strategic initiatives
 
 
 
 
 
 
 
U.S. ancillary services and strategic initiatives
(2
)
 
(19
)
 
(59
)
 
(110
)
International
(294
)
 
(17
)
 
(14
)
 
(329
)
 
(296
)
 
(37
)
 
(73
)
 
(439
)
Corporate administrative support
(12
)
 
(11
)
 

 
(45
)
Total consolidated operating income
$
150

 
$
395

 
$
363

 
$
1,813

Prior periods have been revised to conform to current presentation of DMG as discontinued operations.

11



DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA - continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
 
Three months ended
 
Year ended December 31,
 2017
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
4. Summary of Reportable Segment Financial Results:
 
 
 
 
 
 
 
U.S. Dialysis and Related Lab Services
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Dialysis and related lab patient services revenues
$
2,536

 
$
2,484

 
$
2,427

 
$
9,822

Provision for uncollectible accounts
(148
)
 
(118
)
 
(109
)
 
(482
)
Net dialysis and related lab patient service operating
revenues
2,388

 
2,366

 
2,318

 
9,340

Other revenues
5

 
5

 
5

 
20

Total net operating revenues
2,393

 
2,370

 
2,323

 
9,360

Operating expenses:
 
 
 
 
 
 
 
Patient care costs
1,619

 
1,607

 
1,568

 
6,334

General and administrative
186

 
197

 
199

 
760

Depreciation and amortization
134

 
132

 
124

 
521

Equity investment income
(5
)
 
(8
)
 
(4
)
 
(25
)
Gain on settlement, net

 

 

 
(527
)
Total operating expenses
1,934

 
1,928

 
1,887

 
7,063

Segment operating income
$
459

 
$
443

 
$
436

 
$
2,297

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

 

 

 
(527
)
Equity investment income related to gain on settlement

 

 

 
(3
)
Adjusted segment operating income(1)
$
459

 
$
443

 
$
436

 
$
1,768

 
 
 
 
 
 
 
 
5. U.S. Dialysis and Related Lab Services Business Metrics:
 
 
 
 
 
 
 
Volume
 
 
 
 
 
 
 
Treatments
7,244,555

 
7,186,280

 
6,889,069

 
28,271,113

Number of treatment days
78.5

 
79.0

 
79.0

 
312.5

Treatments per day
92,287

 
90,966

 
87,203

 
90,468

Per day year over year increase
5.8
 %
 
4.3
 %
 
3.7
 %
 
4.5
 %
Normalized non-acquired treatment growth year over year
3.5
 %
 
3.3
 %
 
4.0
 %
 


Operating net revenues
 
 
 
 
 
 
 
Dialysis and related lab services revenue per treatment
$
350.10

 
$
345.61

 
$
352.38

 
$
347.43

Less: Provision for uncollectible accounts per treatment
(20.42
)
 
(16.42
)
 
(15.87
)
 
(17.05
)
Dialysis and related lab services net revenue per treatment
$
329.68

 
$
329.19

 
$
336.51

 
$
330.38

Net revenue per treatment changes from previous quarter
0.1
 %
 
(0.2
)%
 
(0.1
)%
 
 
Net revenue per treatment changes from previous year
(2.0
)%
 
(2.2
)%
 
1.2
 %
 
(1.6
)%
Percent of consolidated net revenues
85.5
 %
 
85.2
 %
 
85.6
 %
 
85.5
 %
Prior periods have been revised to conform to current presentation of DMG as discontinued operations.


12



DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA - continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
 
Three months ended
 
Year ended December 31,
 2017
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
5. U.S. Dialysis and Related Lab Services Business Metrics:
(continued)
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Patient care costs
 
 
 
 
 
 
 
Percent of total segment operating net revenues
67.6
 %
 
67.8
 %
 
67.5
%
 
67.7
 %
Per treatment
223.47

 
223.58

 
227.68

 
224.05

Per treatment changes from previous quarter
 %
 
0.8
 %
 
0.2
%
 
 
Per treatment changes from previous year
(1.8
)%
 
(1.6
)%
 
3.6
%
 
(1.0
)%
General and administrative expenses
 
 
 
 
 
 
 
Percent of total segment operating net revenues
7.8
 %
 
8.3
 %
 
8.5
%
 
8.1
 %
Per treatment
25.67

 
27.36

 
28.82

 
26.87

Per treatment changes from previous quarter
(6.2
)%
 
1.9
 %
 
5.3
%
 
 
Per treatment changes from previous year
(10.9
)%
 
 %
 
5.9
%
 
(2.8
)%
Accounts receivable
 
 
 
 
 
 
 
Net receivables
1,524

 
1,532

 
1,358

 
 
DSO
60

 
60

 
55

 
 
Provision for uncollectible accounts as a percentage of
revenues
5.83
 %
 
4.75
 %
 
4.50
%
 
4.91
 %
 
 
 
 
 
 
 
 
6. Discontinued Operations
 
 
 
 
 
 
 
Operating results
 
 
 
 
 
 
 
Net revenues
$
1,215

 
$
1,178

 
$
1,037

 
$
4,676

Expenses
1,238

 
1,165

 
1,018

 
4,635

Goodwill impairment charges

 
601

 

 
652

(Loss) income from discontinued operations before taxes
(23
)
 
(587
)
 
18

 
(610
)
Income tax benefit (expense)
167

 
216

 
(7
)
 
365

Net income (loss) from discontinued operations, net of tax
$
144

 
$
(371
)
 
$
12

 
$
(245
)
 
 
 
 
 
 
 
 
7. Cash Flow:
 
 
 
 
 
 
 
Operating cash flow
$
342.9

 
$
553.1

 
$
482.2

 
$1,907.4
Operating cash flow from continuing operations
$
286.7

 
$
355.3

 
$
431.9

 
$1,555.9
Operating cash flow from continuing operations, last
twelve months
$
1,555.9

 
$
1,701.1

 
$
1,676.4

 
 
Free cash flow from continuing operations(1)
$
149.9

 
$
220.6

 
$
289.7

 
$
1,042.3

Free cash flow from continuing operations, last twelve
months
(1)
$
1,042.3

 
$
1,182.0

 
$
1,190.2

 
 
Capital expenditures from continuing operations:
 
 
 
 
 
 
 
Routine maintenance/IT/other
91.4

 
85.4

 
94.9

 
302.7

Development and relocations
151.8

 
131.2

 
130.2

 
507.4

Acquisition expenditures
57.0

 
30.4

 
66.5

 
668.5

Prior periods have been revised to conform to current presentation of DMG as discontinued operations.

13



DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA - continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
 
Three months ended
 
Year ended December 31,
 2017
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
8. Debt and Capital Structure:
 
 
 
 
 
 
 
Total debt(3)
$
9,400

 
$
9,132

 
$
9,185

 
 
Net debt, net of cash and cash equivalents(3)(4)
$
8,892

 
$
8,603

 
$
8,510

 
 
Leverage ratio (see calculation on page 15)
3.63x

 
3.45x

 
3.16x

 
 
Overall weighted average effective interest rate during the
quarter
4.80
%
 
4.77
%
 
4.49
%
 
 
Overall weighted average effective interest rate at end of the
quarter
4.88
%
 
4.78
%
 
4.52
%
 
 
Weighted average effective interest rate on the senior secured
credit facilities at end of the quarter
4.45
%
 
4.22
%
 
3.68
%
 
 
Fixed and economically fixed interest rates as a percentage of
our total debt
52
%
 
53
%
 
53
%
 
 
Fixed and economically fixed interest rates, including our
interest rate cap agreements, as a percentage of our total debt
89
%
 
92
%
 
91
%
 
 
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.
Prior periods have been revised to conform to current presentation of DMG as discontinued operations.
_________________
(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 and other ancillary services and strategic initiatives. General and administrative expenses includes certain corporate support and long-term incentive compensation, and for the three months ended September 30, 2017 and year ended December 31, 2017, includes restructuring charges.
(3)
The reported balance sheet amounts at December 31, 2017, September 30, 2017, and December 31, 2016, exclude $64.0 million, $67.9 million and $79.9 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.
(4)
The reported net debt, net of cash and cash equivalents excludes DMG cash classified as held for sale assets for all periods presented.
(5)
Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated net revenues.

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
December 31, 2017
Net income attributable to DaVita Inc.
$
663,618

Income taxes
(40,998
)
Interest expense
395,215

Depreciation and amortization
777,485

Impairment charges
981,589

Noncontrolling interests and equity investment income, net
196,309

Stock-settled stock-based compensation
34,981

Gain on changes in ownership interest, net
(23,402
)
Gain on settlement, net
(529,504
)
Other
4,673

“Consolidated EBITDA”
$
2,459,966

 
 
 
December 31, 2017
Total debt, excluding debt discount and other deferred financing costs of $64.0 million
$
9,438,029

Letters of credit issued
104,679

 
9,542,708

Less: Cash and cash equivalents including short-term investments (excluding DMG’s
physician owned entities cash)
(619,343
)
Consolidated net debt
$
8,923,365

Last twelve months “Consolidated EBITDA”
$
2,459,966

Leverage ratio
3.63x

In accordance with the Credit Agreement, the Company’s leverage ratio cannot exceed 4.50 to 1.00 as of December 31, 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 from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc.
We believe that adjusted net income from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc., excluding the impact of recent federal tax reform legislation, goodwill impairment charges, investment and other asset impairment charges, restructuring charges, a net settlement gain, gain on the APAC JV ownership changes, and estimated accruals for certain legal matters, enhances a user’s understanding of our normal net income from continuing operations attributable to DaVita Inc. and diluted net income from continuing operations 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 from continuing operations attributable to DaVita Inc. and diluted net income from continuing operations 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 from continuing operations attributable to DaVita Inc. and diluted net income from continuing operations per share attributable to DaVita Inc.
 
Three months ended
 
Year ended
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Net income from continuing operations attributable to
DaVita Inc.
$
156,210

 
$
152,870

 
$
142,696

 
$
901,277

 
$
1,032,373

Tax reform
(251,510
)
 

 

 
(251,510
)
 

Goodwill impairment charges

 

 
28,415

 
34,696

 
28,415

Equity investment loss related to APAC JV goodwill
impairment

 
6,293

 

 
6,293

 

Impairment of investments
280,066

 

 
14,993

 
280,066

 
14,993

Impairment of other assets

 

 

 
15,168

 

Restructuring charges

 
1,700

 

 
1,700

 

Equity investment loss related to restructuring
charges

 
1,000

 

 
1,000

 

Gain on settlement, net

 

 

 
(526,827
)
 

Equity investment income related to gain on
settlement

 

 

 
(2,677
)
 

Gain on APAC JV ownership changes

 

 

 
(6,273
)
 
(374,374
)
Accruals for legal matters

 

 
15,770

 

 
15,770

Noncontrolling interests associated with adjustments:
 
 
 
 
 
 
 
 
 
Goodwill impairment charges

 

 
(8,078
)
 
(9,865
)
 
(8,078
)
Gain on settlement, net

 

 

 
24,029

 

Related income tax
(14,418
)
 
(76
)
 
(16,792
)
 
167,818

 
(16,792
)
Adjusted net income from continuing operations
attributable to DaVita Inc.
$
170,348

 
$
161,787

 
$
177,004

 
$
634,895

 
$
692,307

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
 
Year ended
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Diluted net income from continuing operations per share
attributable to DaVita Inc.
$
0.85

 
$
0.80

 
$
0.73

 
$
4.71

 
$
5.04

Tax reform
(1.36
)
 

 

 
(1.31
)
 

Goodwill impairment charges

 

 
0.14

 
0.18

 
0.14

Equity investment loss related to APAC JV goodwill
impairment

 
0.03

 

 
0.03

 

Impairment of investments
1.52

 

 
0.08

 
1.46

 
0.07

Impairment of other assets

 

 

 
0.08

 

Restructuring charges

 
0.01

 

 
0.01

 

Equity investment loss related to restructuring
charges

 
0.01

 

 
0.01

 

Gain on settlement, net

 

 

 
(2.75
)
 

Equity investment income related to gain on
settlement

 

 

 
(0.01
)
 

Gain on APAC JV ownership changes

 

 

 
(0.03
)
 
(1.83
)
Accruals for legal matters

 

 
0.08

 

 
0.08

Noncontrolling interests associated with adjustments:
 
 
 
 
 
 
 
 
 
Goodwill impairment charges

 

 
(0.04
)
 
(0.05
)
 
(0.04
)
Gain on settlement, net

 

 

 
0.13

 

Related income tax
(0.08
)
 

 
(0.09
)
 
0.88

 
(0.08
)
Adjusted diluted net income from continuing
operations per share attributable to DaVita Inc.
$
0.92

 
$
0.85

 
$
0.90

 
$
3.32

 
$
3.38

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)
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 impairment charges, investment and other asset impairment charges, restructuring charges, a net settlement gain, gain on the APAC JV ownership changes, and estimated accruals for certain legal matters.
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
 
Year ended
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Consolidated:
 
 
 
 
 
 
 
 
 
Operating income
$
150,337

 
$
395,294

 
$
363,445

 
$
1,812,755

 
$
2,029,710

Goodwill impairment charges

 

 
28,415

 
34,696

 
28,415

Equity investment loss related to APAC JV goodwill
impairment

 
6,293

 

 
6,293

 

Impairment of investments
280,066

 

 
14,993

 
280,066

 
14,993

Impairment of other assets

 

 

 
15,168

 

Restructuring charges

 
1,700

 

 
1,700

 

Equity investment loss related to restructuring
charges

 
1,000

 

 
1,000

 

Gain on settlement, net

 

 

 
(526,827
)
 

Equity investment income related to gain on
settlement

 

 

 
(2,677
)
 

Gain on APAC JV ownership changes

 

 

 
(6,273
)
 
(374,374
)
Accruals for legal matters

 

 
15,770

 

 
15,770

Adjusted operating income
$
430,403

 
$
404,287

 
$
422,623

 
$
1,615,901

 
$
1,714,514

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







18



DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(unaudited)
(dollars in thousands)
 
Three months ended
 
Year ended
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Kidney Care:
 
 
 
 
 
 
 
 
 
U.S. dialysis and related lab services:
 
 
 
 
 
 
 
 
 
Segment operating income
$
459,210

 
$
442,777

 
$
435,581

 
$
2,297,198

 
$
1,777,014

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
459,210

 
442,777

 
435,581

 
1,767,694

 
1,777,014

Other - Ancillary services and strategic initiatives:
 
 
 
 
 
 
 
 
 
U.S. ancillary services and strategic initiatives
 
 
 
 
 
 
 
 
 
Segment operating loss
(2,452
)
 
(19,245
)
 
(58,562
)
 
(110,269
)
 
(65,586
)
Goodwill impairment charges

 

 
28,415

 
34,696

 
28,415

Impairment of other assets

 

 

 
15,168

 

Accruals for legal matters

 

 
15,770

 

 
15,770

Adjusted operating loss
(2,452
)
 
(19,245
)
 
(14,377
)
 
(60,405
)
 
(21,401
)
International dialysis
 
 
 
 
 
 
 
 
 
Segment operating (loss) income
(294,043
)
 
(17,273
)
 
(13,273
)
 
(329,209
)
 
331,910

Impairment of investments
280,066

 

 
14,993

 
280,066

 
14,993

Equity investment loss related to APAC JV
goodwill impairment

 
6,293

 

 
6,293

 

Restructuring charges

 
1,700

 

 
1,700

 

Equity investment loss related to
restructuring charges

 
1,000

 

 
1,000

 

Gain on APAC JV ownership changes

 

 

 
(6,273
)
 
(374,374
)
Adjusted operating (loss) income
(13,977
)
 
(8,279
)
 
1,720

 
(46,422
)
 
(27,471
)
Adjusted Other - Ancillary services and strategic
initiatives
 operating loss
(16,428
)
 
(27,524
)
 
(12,657
)
 
(106,827
)
 
(48,872
)
Corporate administrative support:
 
 
 
 
 
 
 
 
 
Segment operating loss
(12,378
)
 
(10,965
)
 
(301
)
 
(44,966
)
 
(13,628
)
Adjusted Kidney Care operating income
$
430,403

 
$
404,287

 
$
422,623

 
$
1,615,901

 
$
1,714,514

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

19



DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(unaudited)
(dollars in thousands)
Note 4:    Effective income tax rates and adjusted effective income tax rates.
We believe that reporting the effective income tax rate attributable to DaVita Inc. as well as the adjusted effective income tax rate attributable to DaVita Inc., excluding the impact of recent federal tax reform legislation, goodwill impairment charges, investment and other asset impairment charges, restructuring charges, a net settlement gain, gain on the APAC JV ownership changes, and estimated accruals for certain legal matters, net of tax, enhances a user’s understanding of DaVita Inc.’s effective income tax rate and DaVita Inc.’s adjusted effective income tax rate for the periods presented because it excludes noncontrolling owners’ income that primarily relates to non-tax paying entities and certain non-deductible charges which we do not believe are indicative of our ordinary results, and, therefore, these adjusted measures are meaningful to a user to fully understand the related income tax effects on DaVita Inc.’s operating results. These are not measures under GAAP and should not be considered as an alternative to the effective income tax rate calculated in accordance with GAAP.
Effective income tax rate as compared to the effective income tax rate attributable to DaVita Inc. is as follows:
 
Three months ended
 
Year ended
December 31,
2017
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
Income from continuing operations before income taxes
$
46,825

 
$
289,384

 
$
259,669

 
$
1,399,786

Income tax (benefit) expense
$
(150,267
)
 
$
90,546

 
$
83,171

 
$
323,859

Effective income tax rate
(320.9
)%
 
31.3
%
 
32.0
%
 
23.1
%
 
Three months ended
 
Year ended
December 31,
2017
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
Income from continuing operations before income taxes
$
46,825

 
$
289,384

 
$
259,669

 
$
1,399,786