Document
false0000927066 0000927066 2020-02-10 2020-02-10

 
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 10, 2020
 

 
DAVITA INC.
(Exact name of registrant as specified in its charter)
 
DE
1-14106
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)
 
(720) 631-2100
(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))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading symbol(s):
 
Name of each exchange on which registered:
Common Stock, $0.001 par value
 
DVA
 
New York Stock Exchange
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 10, 2020, DaVita Inc. (the "Company") issued a press release announcing its financial results for the quarter and year ended December 31, 2019. A copy of the press release is furnished as Exhibit 99.1 to this report.
 
The information contained in this Item 2.02 (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 10, 2020 announcing the registrant’s financial results for the quarter and year ended December 31, 2019.
104.0
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.





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 10, 2020
By:
/s/ James K. Hilger
 
 
James K. Hilger
 
 
Chief Accounting Officer




Exhibit


https://cdn.kscope.io/66ec8af70d922d8b6ddf8aebf63bc778-davitalogorgbfa61.jpg


Contact:        Jim Gustafson
Investor Relations                    
DaVita Inc.
(310) 536-2585
DaVita Inc. 4th Quarter 2019 Results
Denver, Colorado, February 10, 2020 — DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2019.
Fourth quarter 2019 highlights:
Consolidated revenues of $2.899 billion.
Operating income of $463 million or 16.0% operating margin.
Diluted earnings per share from continuing operations of $1.86.
Operating cash flow from continuing operations of $678 million and free cash flow from continuing operations of $415 million.
Repurchased 8,368,506 shares of our common stock at an average cost of $64.80 per share.

 
Three months ended
December 31,
 
Year ended
December 31,
 
2019
 
2018
 
2019
 
2018
Net income attributable to DaVita Inc.:
(dollars in millions, except per share data)
 
Net income from continuing operations
$
242

 
$
160

 
$
707

 
$
624

 
Per share
$
1.86

 
$
0.96

 
$
4.60

 
$
3.62

 
Adjusted net income from continuing operations(1)
$
242

 
$
149

 
$
830

 
$
616

 
Per share adjusted(1)
$
1.86

 
$
0.90

 
$
5.40

 
$
3.57

 
Net income (loss)
$
245

 
$
(150
)
 
$
811

 
$
159

 
Per share
$
1.88

 
$
(0.90
)
 
$
5.27

 
$
0.92

 
Three months ended
December 31,
 
Year ended
December 31,
 
2019
 
2018
 
2019
 
2018
Operating income:
(dollars in millions)
 
Operating income
$
463

 
$
388

 
$
1,643

 
$
1,526

 
Adjusted operating income(1)
$
463

 
$
370

 
$
1,768

 
$
1,513

 
(1)
For the definitions of non-GAAP financial measures see the note titled “Note on Non-GAAP Financial Measures” and related reconciliations beginning on page 15.

1



U.S. dialysis metrics:
Volume: Total U.S. dialysis treatments for the fourth quarter of 2019 were 7,681,462, or an average of 96,744 treatments per day, representing a per day increase of 1.7% over the fourth quarter of 2018. Normalized non-acquired treatment growth in the fourth quarter of 2019 as compared to the fourth quarter of 2018 was 2.1%.
 
Three months ended
 
Quarter
change
 
Year ended
 
Annual
change
 
December 31, 2019
 
September 30, 2019
 
 
December 31, 2019
 
December 31, 2018
 
Per treatment metrics:
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
348.31

 
$
349.41

 
$
(1.10
)
 
$
349.02

 
$
350.47

 
$
(1.45
)
Patient care costs
$
237.44

 
$
236.32

 
$
1.12

 
$
239.27

 
$
247.32

 
$
(8.05
)
General and administrative
$
27.27

 
$
30.63

 
$
(3.36
)
 
$
28.41

 
$
28.40

 
$
0.01

Primary drivers of the changes in the table above are as follows:
Revenue: The quarter change was primarily due to lower calcimimetics revenue. The annual change was primarily due to lower calcimimetics revenue and was also negatively impacted by additional Medicare bad debt revenue recognized in 2018, partially offset by an increase in Medicare rates.
Patient care costs: The quarter change was primarily due to higher direct center operating expenses and medical supply costs, partially offset by lower pharmaceutical costs. The annual change was primarily due to lower pharmaceutical costs, partially offset by higher benefit costs and direct center operating expenses.
General and administrative: The quarter change was primarily due to lower compensation expense. The annual change was primarily due to higher compensation expenses, partially offset by lower advocacy costs.
Certain items impacting the quarter and year:
Share repurchases: The following table summarizes repurchases of our common stock during the quarter and year ended December 31, 2019:
 
Three months ended December 31, 2019
 
Year ended December 31, 2019
 
Shares repurchased
 
Amount paid
(in millions)
 
Paid per
share
 
Shares repurchased
 
Amount paid
(in millions)
 
Paid per
share
Tender offer(1)

 
$

 
$

 
21,801,975

 
$
1,234

 
$
56.60

Open market repurchases
8,368,506

 
542

 
64.80

 
19,218,257

 
1,168

 
60.79

 
8,368,506

 
$
542

 
$
64.80

 
41,020,232

 
$
2,402

 
$
58.57

 
(1)
The amount paid for shares repurchased associated with our modified "Dutch auction" tender offer during the year ended December 31, 2019 includes the clearing price of $56.50 per share plus related fees and expenses of approximately $2 million.
Subsequent to December 31, 2019 through February 7, 2020, we have repurchased 290,904 shares of our common stock for $22 million at an average cost of $74.92 per share. As of February 7, 2020, we have a total of $1.682 billion available for additional share repurchases under our current repurchase authorization. Although this share repurchase authorization does not have an expiration date, we remain subject to share repurchase limitations, including under the terms of our senior secured credit facilities and the indentures governing our senior notes.



2



Financial and operating metrics:
 
Three months ended
December 31,
 
Year ended
December 31,
 
2019
 
2018
 
2019
 
2018
Cash flow:
(dollars in millions)
 
Operating cash flow
$
681

 
$
389

 
$
2,072

 
$
1,772

 
Operating cash flow from continuing operations
$
678

 
$
307

 
$
1,973

 
$
1,481

 
Free cash flow from continuing operations (new definition)(1)
$
415

 
$
11

 
$
1,127

 
$
480


(1)
For the definitions of non-GAAP financial measures see the note titled “Note on Non-GAAP Financial Measures” and related reconciliations beginning on page 15.
 
Three months ended
December 31, 2019
 
Year ended
December 31, 2019
Effective income tax rate on:
 
 
Income from continuing operations
21.4
%
 
23.4
%
 
Income from continuing operations attributable to DaVita Inc.
25.2
%
 
28.3
%
 
Adjusted income from continuing operations attributable to
 DaVita Inc.(1)
25.2
%
 
27.5
%
 
(1)
For the definitions of non-GAAP financial measures see the note titled “Note on Non-GAAP Financial Measures” and related reconciliations beginning on page 15.
Our effective tax rate for the fourth quarter and year ended December 31, 2019 benefited from a decrease in our estimated state tax rate.
Center activity: As of December 31, 2019, we provided dialysis services to a total of approximately 235,500 patients at 3,012 outpatient dialysis centers, of which 2,753 centers were located in the United States and 259 centers were located in ten countries outside of the United States. During the fourth quarter of 2019, we opened a total of 31 new dialysis centers and closed 14 dialysis centers in the United States. In addition, we opened three new dialysis centers and acquired seven dialysis centers outside of the United States during the fourth quarter of 2019.

3



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 diluted net income from continuing operations per share attributable to DaVita Inc., effective tax rate on income from continuing operations or free cash flow from continuing operations on a basis consistent with United States generally accepted accounting principles (GAAP) nor a reconciliation of 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 foreign currency fluctuations, any of which may be significant. The guidance for effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. also excludes the amount of third party owners' income and related taxes attributable to non-tax paying entities.
 
Current 2020 guidance
 
Prior 2020 guidance
 
Low
 
High
 
Low
 
High
 
(dollars in millions, except per share data)
Revenue
$
11,500

 
$
11,700

 

 

Operating income margin
13.0
%
 
14.0
%
 

 

Effective income tax rate on adjusted income from
 continuing operations attributable to DaVita Inc.
28.0
%
 
29.5
%
 

 

Adjusted diluted net income from continuing
 operations per share attributable to DaVita Inc.
$
5.75

 
$
6.25

 
$
5.25

 
$
5.75

Capital expenditures from continuing operations
$
700

 
$
750

 
$
700

 
$
750

Free cash flow from continuing operations
$
600

 
$
800

 

 

We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2019, on February 10, 2020, at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9042 from outside the U.S., and provide the operator the password 'Earnings'. A replay of the conference call will be available on our website at investors.davita.com for the following 30 days.

4



DaVita Inc. and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), including statements in this release, filings with the Securities and Exchange Commission (“SEC”), reports to stockholders and in meetings with investors and analysts. All such statements in this release, during the related presentation or other meetings, other than statements of historical fact, are forward-looking statements and as such are intended to be covered by the safe harbor for “forward-looking statements” provided by the PSLRA. Without limiting the foregoing, statements including the words “expect,” “intend,” “will,” “plan,” “anticipate,” “believe,” “we are confident that,” “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 solely on information available to us on the date of this release. 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 future periods and the assumptions underlying any such projections.
Our actual results and other events 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:
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 reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation; the extent to which such developments result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in higher-paying commercial plans, or other material impacts to our business; or our making incorrect assumptions about how our patients will respond to any such developments;
a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs and the impact of the Medicare Advantage benchmark structure;
risks arising from potential and proposed federal and/or state legislation, regulation and ballot, executive action or other initiatives, including such initiatives related to healthcare and/or labor matters;
the impact of the political environment and related developments on the current healthcare 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 practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to calcimimetics;
legal and compliance risks, such as our continued compliance with complex government regulations;
continued increased competition from dialysis providers and others, and other potential marketplace changes;
our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates, such as accountable care organizations, independent practice associations and integrated delivery systems;
our ability to complete acquisitions, mergers or dispositions that we might announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services in markets outside the United States, or to businesses outside of dialysis;
uncertainties related to potential payments and/or adjustments under certain provisions of the equity purchase agreement for the sale of our DaVita Medical Group business, such as post-closing adjustments and indemnification obligations;
noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;

5



the variability of our cash flows; the risk that we may not be able to generate sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;
factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, as well as our use of a considerable amount of available funds to repurchase stock;
risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
impairment of our goodwill, investments or other assets;
uncertainties related to our use of the proceeds from the DaVita Medical Group sale transaction and other available funds, including external financing and cash flow from operations, which may be or have been used in ways that we cannot assure will improve our results of operations or enhance the value of our common stock; and
uncertainties associated with the other risk factors set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 as updated by our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, and the other risks and uncertainties discussed in any subsequent reports that we file or furnish with SEC from time to time.
The financial information presented in this release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

6



DAVITA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share data)
 
Three months ended
December 31,
 
Year ended
December 31,
 
2019
 
2018
 
2019
 
2018
Dialysis patient service revenues
$
2,768,035

 
$
2,729,803

 
$
10,918,421

 
$
10,709,981

Provision for uncollectible accounts
(2,026
)
 
(13,749
)
 
(21,715
)
 
(49,587
)
Net dialysis patient service revenues
2,766,009

 
2,716,054

 
10,896,706

 
10,660,394

Other revenues
132,575

 
105,070

 
491,773

 
744,457

Total revenues
2,898,584

 
2,821,124

 
11,388,479

 
11,404,851

Operating expenses and charges:
 

 
 

 
 

 
 

Patient care costs
2,000,625

 
2,027,069

 
7,914,485

 
8,195,513

General and administrative
278,425

 
268,532

 
1,103,312

 
1,135,454

Depreciation and amortization
158,467

 
155,157

 
615,152

 
591,035

Provision for uncollectible accounts

 

 

 
(7,300
)
Equity investment (income) loss
(1,521
)
 
10,610

 
(12,679
)
 
4,484

Investment and other asset impairments

 

 

 
17,338

Goodwill impairment charges

 

 
124,892

 
3,106

Gain on changes in ownership interest, net

 
(28,152
)
 

 
(60,603
)
Total operating expenses and charges
2,435,996

 
2,433,216

 
9,745,162

 
9,879,027

Operating income
462,588

 
387,908

 
1,643,317

 
1,525,824

Debt expense
(92,050
)
 
(128,300
)
 
(443,824
)
 
(487,435
)
Debt prepayment, refinancing and redemption charges

 

 
(33,402
)
 

Other income (loss), net
11,485

 
(494
)
 
29,348

 
10,089

Income from continuing operations before income taxes
382,023

 
259,114

 
1,195,439

 
1,048,478

Income tax expense
81,690

 
51,748

 
279,628

 
258,400

Net income from continuing operations
300,333

 
207,366

 
915,811

 
790,078

Net income (loss) from discontinued operations, net of tax
2,629

 
(309,209
)
 
105,483

 
(457,038
)
Net income (loss)
302,962

 
(101,843
)
 
1,021,294

 
333,040

Less: Net income attributable to noncontrolling interests
(58,091
)
 
(47,929
)
 
(210,313
)
 
(173,646
)
Net income (loss) attributable to DaVita Inc.
$
244,871

 
$
(149,772
)
 
$
810,981

 
$
159,394

Earnings per share attributable to DaVita Inc.:
 

 
 

 
 

 
 

Basic net income from continuing operations per share
$
1.87

 
$
0.97

 
$
4.61

 
$
3.66

Basic net income (loss) per share
$
1.89

 
$
(0.90
)
 
$
5.29

 
$
0.93

Diluted net income from continuing operations per share
$
1.86

 
$
0.96

 
$
4.60

 
$
3.62

Diluted net income (loss) per share
$
1.88

 
$
(0.90
)
 
$
5.27

 
$
0.92

Weighted average shares for earnings per share:
 
 
 
 
 

 
 

Basic
129,446,558

 
165,984,925

 
153,180,908

 
170,785,999

Diluted
130,504,514

 
166,477,914

 
153,812,064

 
172,364,581

Amounts attributable to DaVita Inc.:
 
 
 
 
 
 
 
Net income from continuing operations
$
242,242

 
$
160,332

 
$
706,832

 
$
624,321

Net income (loss) from discontinued operations
2,629

 
(310,104
)
 
104,149

 
(464,927
)
Net income (loss) attributable to DaVita Inc.
$
244,871

 
$
(149,772
)
 
$
810,981

 
$
159,394


7



DAVITA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
 
 
Three months ended
December 31,
 
Year ended
December 31,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
302,962

 
$
(101,843
)
 
$
1,021,294

 
$
333,040

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Unrealized gains (losses) on interest rate cap agreements:
 

 
 

 
 

 
 

Unrealized gains (losses)
2,822

 
(953
)
 
1,151

 
(133
)
Reclassifications into net income (loss)
1,595

 
1,606

 
6,377

 
6,286

Unrealized gains (losses) on foreign currency translation:
 
 
 

 
 
 
 

Foreign currency translation adjustments
25,688

 
(6,469
)
 
(20,102
)
 
(45,944
)
Other comprehensive income (loss)
30,105

 
(5,816
)
 
(12,574
)
 
(39,791
)
Total comprehensive income (loss)
333,067

 
(107,659
)
 
1,008,720

 
293,249

Less: Comprehensive income attributable to noncontrolling interests
(58,091
)
 
(47,929
)
 
(210,313
)
 
(173,646
)
Comprehensive income (loss) attributable to DaVita Inc.
$
274,976

 
$
(155,588
)
 
$
798,407

 
$
119,603


8



DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
 
Year ended December 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 

Net income
$
1,021,294

 
$
333,040

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
615,152

 
591,035

Impairment charges
124,892

 
61,981

Valuation adjustment on disposal group

 
316,840

Debt prepayment, refinancing and redemption charges
33,402

 

Stock-based compensation expense
67,850

 
73,061

Deferred income taxes
41,723

 
273,660

Equity investment income, net
8,582

 
26,449

Gain (loss) on sales of business interests, net
23,022

 
(85,699
)
Other non-cash charges, net
49,579

 
82,374

Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
 
 
 
Accounts receivable
(79,957
)
 
(81,176
)
Inventories
10,158

 
73,505

Other receivables and other current assets
2,790

 
236,995

Other long-term assets
6,965

 
3,497

Accounts payable
(84,539
)
 
(35,959
)
Accrued compensation and benefits
(14,697
)
 
84,165

Other current liabilities
181,940

 
(157,462
)
Income taxes
95,645

 
(23,635
)
Other long-term liabilities
(31,446
)
 
(1,031
)
Net cash provided by operating activities
2,072,355

 
1,771,640

Cash flows from investing activities:
 
 
 

Additions of property and equipment
(766,546
)
 
(987,138
)
Acquisitions
(100,861
)
 
(183,156
)
Proceeds from asset and business sales
3,877,392

 
150,205

Purchase of other debt and equity investments
(5,458
)
 
(8,448
)
Purchase of investments held-to-maturity
(101,462
)
 
(5,963
)
Proceeds from sale of other debt and equity investments
3,676

 
9,526

Proceeds from investments held-to-maturity
95,376

 
34,862

Purchase of equity investments
(9,366
)
 
(19,177
)
Distributions received on equity investments
2,589

 
3,646

Net cash provided by (used in) investing activities
2,995,340

 
(1,005,643
)
Cash flows from financing activities:
 
 
 
Borrowings
38,525,850

 
59,934,750

Payments on long-term debt and other financing costs
(40,606,041
)
 
(59,239,973
)
Purchase of treasury stock
(2,383,816
)
 
(1,161,511
)
Distributions to noncontrolling interests
(233,123
)
 
(196,441
)
Stock award exercises and other share issuances, net
11,382

 
13,577

Contributions from noncontrolling interests
57,317

 
52,311

Proceeds from sales of additional noncontrolling interest

 
15

Purchases of noncontrolling interests
(68,019
)
 
(28,082
)
Net cash used in financing activities
(4,696,450
)
 
(625,354
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1,760
)
 
(3,350
)
Net increase in cash, cash equivalents and restricted cash
369,485

 
137,293

Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued
operations
(423,813
)
 
240,793

Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations
793,298

 
(103,500
)
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year
415,420

 
518,920

Cash, cash equivalents and restricted cash of continuing operations at end of the year
$
1,208,718

 
$
415,420


9



DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except share data)
 
December 31, 2019
 
December 31, 2018
ASSETS
 

 
 

Cash and cash equivalents
$
1,102,372

 
$
323,038

Restricted cash and equivalents
106,346

 
92,382

Short-term investments
11,572

 
2,935

Accounts receivable, net
1,795,598

 
1,858,608

Inventories
97,949

 
107,381

Other receivables
489,695

 
469,796

Prepaid and other current assets
66,866

 
111,840

Income tax receivable
19,772

 
68,614

Current assets held for sale, net

 
5,389,565

Total current assets
3,690,170

 
8,424,159

Property and equipment, net
3,473,384

 
3,393,669

Operating lease right-of-use assets
2,830,047

 

Intangible assets, net
135,684

 
118,846

Equity method and other investments
241,983

 
224,611

Long-term investments
36,519

 
35,424

Other long-term assets
115,972

 
71,583

Goodwill
6,787,635

 
6,841,960

 
$
17,311,394

 
$
19,110,252

LIABILITIES AND EQUITY
 

 
 

Accounts payable
$
403,840

 
$
463,270

Other liabilities
756,174

 
595,850

Accrued compensation and benefits
695,052

 
658,913

Current portion of operating lease liabilities
343,912

 

Current portion of long-term debt
130,708

 
1,929,369

Income tax payable
42,412

 

Current liabilities held for sale

 
1,243,759

Total current liabilities
2,372,098

 
4,891,161

Long-term operating lease liabilities
2,723,800

 

Long-term debt
7,977,526

 
8,172,847

Other long-term liabilities
160,809

 
450,669

Deferred income taxes
577,543

 
562,536

Total liabilities
13,811,776

 
14,077,213

Commitments and contingencies
 
 
 
Noncontrolling interests subject to put provisions
1,180,376

 
1,124,641

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; 125,842,853 and 166,387,307 shares issued and outstanding, respectively)
126

 
166

Additional paid-in capital
749,043

 
995,006

Retained earnings
1,431,738

 
2,743,194

Accumulated other comprehensive loss
(47,498
)
 
(34,924
)
Total DaVita Inc. shareholders' equity
2,133,409

 
3,703,442

Noncontrolling interests not subject to put provisions
185,833

 
204,956

Total equity
2,319,242

 
3,908,398

 
$
17,311,394

 
$
19,110,252


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, 2019
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
1. Consolidated business metrics:
 
 
 
 
 
 
 
Operating income margin
16.0
%
 
13.0
%
 
13.8
%
 
14.4
%
Adjusted operating income margin excluding certain items(1)(5)
16.0
%
 
15.9
%
 
13.1
%
 
15.5
%
General and administrative expenses as a percent of
consolidated revenues
(2) 
9.6
%
 
10.3
%
 
9.5
%
 
9.7
%
Effective income tax rate on income from continuing
operations
21.4
%
 
23.8
%
 
20.0
%
 
23.4
%
Effective income tax rate on income from continuing
operations attributable to DaVita Inc.
(1) 
25.2
%
 
30.3
%
 
24.3
%
 
28.3
%
Effective income tax rate on adjusted income from continuing
operations attributable to DaVita Inc.
(1)
25.2
%
 
27.6
%
 
23.1
%
 
27.5
%
 
 
 
 
 
 
 
 
2. Summary of financial results:
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
U.S. net dialysis patient services and other
$
2,687

 
$
2,691

 
$
2,633

 
$
10,563

Other—Ancillary services
 
 
 
 
 
 
 
U.S. other
122

 
118

 
100

 
464

International net dialysis patient service and other
132

 
131

 
124

 
508

 
255

 
248

 
224

 
972

Eliminations
(43
)
 
(36
)
 
(35
)
 
(146
)
Total consolidated revenues
$
2,899

 
$
2,904

 
$
2,821

 
$
11,388

Operating income (loss):
 
 
 
 
 
 
 
U.S. dialysis
$
508

 
$
501

 
$
437

 
$
1,925

Other—Ancillary services
 
 
 
 
 
 
 
U.S.
(21
)
 
(15
)
 
(19
)
 
(66
)
International
2

 
(83
)
 
(10
)
 
(123
)
 
(19
)
 
(98
)
 
(29
)
 
(189
)
Corporate administrative support expenses
(27
)
 
(25
)
 
(20
)
 
(92
)
Total consolidated operating income
$
463

 
$
378

 
$
388

 
$
1,643



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, 2019
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
3. Summary of reportable segment financial results:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. dialysis
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Net dialysis patient service revenues
$
2,676

 
$
2,681

 
$
2,628

 
$
10,531

Other revenues
11

 
10

 
5

 
32

Total operating revenues
2,687

 
2,691

 
2,633

 
10,563

Operating expenses:
 
 
 
 
 
 
 
Patient care costs
1,824

 
1,813

 
1,872

 
7,219

General and administrative
209

 
235

 
210

 
857

Depreciation and amortization
150

 
148

 
147

 
583

Equity investment income
(5
)
 
(5
)
 
(5
)
 
(22
)
Gain on changes in ownership interests, net

 

 
(28
)
 

Total operating expenses
2,179

 
2,191

 
2,196

 
8,638

Segment operating income
$
508

 
$
501

 
$
437

 
$
1,925

Reconciliation for non-GAAP measure:
 
 
 
 
 
 
 
Gain on changes in ownership interests, net

 

 
(28
)
 

Adjusted segment operating income(1)
$
508

 
$
501

 
$
409

 
$
1,925

 
 
 
 
 
 
 
 
4. U.S. dialysis business metrics:
 
 
 
 
 
 
 
Volume:
 
 
 
 
 
 
 
Treatments
7,681,462

 
7,673,191

 
7,552,412

 
30,172,699

Number of treatment days
79.4

 
79.0

 
79.4

 
313.0

Average treatments per day
96,744

 
97,129

 
95,119

 
96,398

Per day year over year increase
1.7
%
 
2.7
%
 
3.1
%
 
2.5
%
Normalized non-acquired treatment growth year over year
2.1
%
 
2.2
%
 
2.6
%
 
 
Operating net revenues:
 
 
 
 
 
 
 
U.S. dialysis services net revenue per treatment
$
348.31

 
$
349.41

 
$
347.97

 
$
349.02

Expenses:
 
 
 
 
 
 
 
Patient care costs per treatment
$
237.44

 
$
236.32

 
$
247.81

 
$
239.27

General and administrative expenses per treatment
$
27.27

 
$
30.63

 
$
27.86

 
$
28.41

Accounts receivable:
 
 
 
 
 
 
 
Net receivables
$
1,671

 
$
1,719

 
$
1,703

 
 
DSO
58

 
60

 
60

 
 
 
 
 
 
 
 
 
 
5. Discontinued operations
 
 
 
 
 
 
 
Operating results:
 
 
 
 
 
 
 
Net revenues
$

 
$

 
$
1,231

 
$
2,713

Expenses
2

 
2

 
1,282

 
2,544

Valuation adjustment

 

 
219

 

Goodwill impairment charges

 

 
42

 

(Loss) income from discontinued operations before taxes
(2
)
 
(2
)
 
(313
)
 
169

Loss on sale of discontinued operations, before taxes

 

 

 
(23
)
Income tax (benefit) expense
(5
)
 
5

 
(3
)
 
41

Net income (loss) from discontinued operations, net of tax
$
3

 
$
(7
)
 
$
(309
)
 
$
105


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, 2019
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
6. Cash flow:
 
 
 
 
 
 
 
Operating cash flow
$
681

 
$
641

 
$
389

 
$
2,072

Operating cash flow from continuing operations
$
678

 
$
648

 
$
307

 
$
1,973

Operating cash flow from continuing operations, last twelve
months
$
1,973

 
$
1,602

 
$
1,481

 
 
Free cash flow from continuing operations (new definition)(1)
$
415

 
$
437

 
$
11

 
$
1,127

Free cash flow from continuing operations, last twelve
months
(new definition)(1)
$
1,127

 
$
722

 
$
480

 
 
Capital expenditures from continuing operations:
 
 
 
 
 
 
 
Routine maintenance/IT/other
$
130

 
$
84

 
$
139

 
$
355

Development and relocations
$
89

 
$
90

 
$
123

 
$
373

Acquisition expenditures
$
24

 
$
11

 
$
65

 
$
99

Proceeds from sale of self-developed properties
$
19

 
$
12

 
$
13

 
$
58

 
 
 
 
 
 
 
 
7. Debt and capital structure:
 
 
 
 
 
 
 
Total debt(3)(4)
$
8,181

 
$
8,212

 
$
10,154

 
 
Net debt, net of cash and cash equivalents(3)(4)
$
7,079

 
$
6,959

 
$
9,831

 
 
Leverage ratio (see calculation on page 14)
3.08x

 
3.21x

 
4.52x

 
 
Weighted average effective interest rate:
 
 
 
 
 
 
 
During the quarter
4.55
%
 
5.09
%
 
5.07
%
 
 
At end of the quarter
4.46
%
 
4.66
%
 
5.19
%
 
 
On the senior secured credit facilities at end of the quarter
3.93
%
 
4.30
%
 
5.11
%
 
 
Debt with fixed and capped rates as a percentage of total
 debt:
 
 
 
 
 
 
 
Debt with rates fixed by its terms
44
%
 
44
%
 
48
%
 
 
Debt with rates capped by cap agreements
87
%
 
86
%
 
82
%
 
 
Amount spent on share repurchases
$
542

 
$
1,748

 
$

 
$
2,402

Number of shares repurchased
8,368,506

 
30,591,750

 

 
41,020,232

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)
General and administrative expenses includes certain corporate support, long-term incentive compensation and advocacy costs.
(3)
The reported balance sheet amounts at December 31, 2019, September 30, 2019 and December 31, 2018, exclude approximately $72.8, $76.0 and $52.0, respectively, of debt discount associated with the Term Loan B and other deferred financing costs related to our senior secured credit facilities and senior notes in effect at that time. The reported balance sheet amounts exclude DMG debt which was classified as held for sale liabilities as of December 31, 2018.
(4)
The reported total debt and net debt, net of cash and cash equivalents, excludes DMG cash and debt classified as held for sale assets and liabilities, respectively, as of December 31, 2018.
(5)
Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated revenues.

13



DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under our new senior secured credit facilities (the New Credit Agreement) dated August 12, 2019 and our prior senior secured credit facilities (the Prior 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, not to exceed certain limits under the New Credit Agreement, including short-term investments, divided by “Consolidated EBITDA”. The leverage ratio determines the interest rate margin payable by the Company for its new Term Loan A and new revolving line of credit under the New Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratios were calculated using "Consolidated EBITDA" and "Consolidated net debt" as defined in the credit agreement that was in effect at the end of each period. The calculation below is based on the last twelve months of “Consolidated EBITDA”, as of the end of the reported period and 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 in effect at that time. 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,
2019
 
September 30,
2019
 
December 31,
2018
Net income(1)
$
706,832

 
$
624,922

 
$
159,394

Income taxes
279,628

 
249,686

 
358,168

Interest expense
397,934

 
437,513

 
451,251

Depreciation and amortization
615,151

 
611,841

 
591,035

Impairment charges
124,892

 
124,892

 
61,981

Noncontrolling interests and equity investment income, net
223,175

 
210,641

 
183,855

Stock-settled stock-based compensation
63,404

 
56,784

 
73,081

Debt prepayment, refinancing and redemption charges
33,402

 
33,402

 

Gain on changes in ownership interest, net

 
(28,152
)
 
(85,699
)
Valuation adjustment

 

 
316,840

Other
(12,025
)
 
24,088

 
41,084

“Consolidated EBITDA”
$
2,432,393

 
$
2,345,617

 
$
2,150,990

 
 
 
 
 
 
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
Total debt, excluding debt discount and other deferred financing costs(2)
$
8,181,074

 
$
8,211,895

 
$
10,190,763

Letters of credit issued
72,759

 
72,777

 
36,987

 
8,253,833

 
8,284,672

 
10,227,750

Less: Cash and cash equivalents including short-term investments(3)
(750,000
)
 
(750,000
)
 
(501,695
)
Consolidated net debt
$
7,503,833

 
$
7,534,672

 
$
9,726,055

Last twelve months “Consolidated EBITDA”
$
2,432,393

 
$
2,345,617

 
$
2,150,990

Leverage ratio
3.08x

 
3.21x

 
4.52x

Maximum leverage ratio permitted under New and Prior Credit Agreement
5.00x

 
5.00x

 
5.00x

 
(1)
The reported net income for December 31, 2019 and September 30, 2019 is our reported net income from continuing operations attributable to DaVita Inc. as the New Credit Agreement requires divestitures to be reflected on a proforma basis, as such DMG is excluded from our leverage ratio calculation. The reported net income for December 31, 2018 is our reported net income attributable to DaVita Inc.
(2)
The reported total debt amounts at December 31, 2019, September 30, 2019 and December 31, 2018, exclude $72,840, $75,979 and $52,000, respectively, of debt discount associated with the Term Loan B and other deferred financing costs.
(3)
Excluding DMG’s-physician owned entities' cash for the twelve months ended December 31, 2018 and amounts not readily convertible to cash related to the Company's non-qualified deferred compensation plans for all periods presented. The Company's New Credit Agreement limits the amount deducted for cash and cash equivalents to the lesser of all unrestricted cash and cash equivalents of the Company or $750,000.

14



DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
Note on Non-GAAP Financial Measures
As used in this press release, the term “adjusted” refers to non-GAAP measures as follows, each as reconciled to its most comparable GAAP measure as presented in the non-GAAP reconciliations in the notes to this press release: (i) for income measures, the term “adjusted” refers to operating performance measures that exclude certain items such as impairment charges, (gain) loss on ownership changes, restructuring charges, debt prepayment charges and gains and charges associated with settlements; and (ii) the term “effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.” represents the Company’s effective tax rate excluding applicable non-GAAP items and noncontrolling owners’ income, which primarily relates to non-tax paying entities.
These non-GAAP or “adjusted” measures are presented because management believes these measures are useful adjuncts to GAAP results. However, these non-GAAP measures should not be considered alternatives to the corresponding measures determined under GAAP. 
Specifically, management uses adjusted operating income, adjusted net income from continuing operations attributable to DaVita Inc. and adjusted diluted net income from continuing operations per share attributable to DaVita Inc. to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe these non-GAAP measures also 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. Furthermore, we believe these presentations enhance a user's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normalized prior period results.
In addition, the effective income tax rate on income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities.
The effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income and certain non-deductible and other charges which we do not believe are indicative of our ordinary results. Accordingly, we believe these adjusted effective income tax rates are useful to management, investors and analysts in evaluating our performance and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.
Finally, under our new definition, free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and all capital expenditures (including development capital expenditures, routine maintenance and information technology); plus contributions from noncontrolling interests and sale leaseback proceeds. Management uses this measure to assess our ability to fund acquisitions and meet our debt service obligations and we believe this measure is equally useful to investors and analysts as an adjunct to cash flows from operating activities from continuing operations and other measures under GAAP.
It is important to bear in mind that these non-GAAP "adjusted" measures are not measures of financial performance or liquidity under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures.
The following Notes 2 through 5 provide reconciliations of the non-GAAP financial measures presented in this press release to their most comparable GAAP measures.

15



DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(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.
 
Three months ended
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
 
Dollars
 
Per share
 
Dollars
 
Per share
 
Dollars
 
Per share
Net income from continuing operations attributable to
DaVita Inc.
$
242,242

 
$
1.86

 
$
150,113

 
$
0.99

 
$
160,332

 
$
0.96

Operating charges:
 
 
 
 
 
 
 
 
 
 
 
Goodwill impairment charges

 

 
83,855

 
0.55

 

 

Gain on changes in ownership interests, net

 

 

 

 
(28,152
)
 
(0.17
)
Equity investment:
 
 
 
 
 
 
 
 
 
 
 
Loss due to business sale in APAC JV

 

 

 

 
8,715

 
0.05

Loss due to impairments in the APAC JV

 

 

 

 
1,530

 
0.01

Debt prepayment, refinancing and redemption charges

 

 
21,242

 
0.14

 

 

Related income tax

 

 
(23,236
)
 
(0.15
)
 
6,719

 
0.04

Adjusted net income from continuing operations attributable
to DaVita Inc.
$
242,242

 
$
1.86

 
$
231,974

 
$
1.53

 
$
149,144

 
$
0.90

 
Year ended
 
December 31, 2019
 
December 31, 2018
 
Dollars
 
Per share
 
Dollars
 
Per share
Net income from continuing operations attributable to DaVita Inc.
$
706,832

 
$
4.60

 
$
624,321

 
$
3.62

Operating charges:
 
 
 
 
 
 
 
Goodwill impairment charges
124,892

 
0.81

 
3,106

 
0.02

Impairment of other assets

 

 
17,338

 
0.10

Gain on changes in ownership interests, net

 

 
(60,603
)
 
(0.35
)
Equity investment:
 
 
 
 
 
 
 
Loss due to business sale in APAC JV

 

 
8,715

 
0.05

Loss due to impairments in the APAC JV

 

 
7,525

 
0.04

General and administrative:
 
 
 
 
 
 
 
Restructuring charges

 

 
11,366

 
0.07

Debt prepayment, refinancing and redemption charges
33,402

 
0.22

 

 

Related income tax
(35,231
)
 
(0.23
)
 
4,181

 
0.02

Adjusted net income from continuing operations attributable to DaVita Inc.
$
829,895

 
$
5.40

 
$
615,949

 
$
3.57

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)

Note 3:    Adjusted operating income
 
Three months ended
 
Year ended
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Consolidated:
 
 
 
 
 
 
 
 
 
Operating income
$
462,588

 
$
378,336

 
$
387,908

 
$
1,643,317

 
$
1,525,824

Operating charges:
 
 
 
 
 
 
 
 
 
Goodwill impairment charges

 
83,855

 

 
124,892

 
3,106

Impairment of other assets

 

 

 

 
17,338

Gain on changes in ownership interests, net

 

 
(28,152
)
 

 
(60,603
)
Equity investment:
 
 
 
 
 
 
 
 
 
Loss due to business sale in APAC JV

 

 
8,715

 

 
8,715

Loss due to impairments in the APAC JV

 

 
1,530

 

 
7,525

General and administrative:
 
 
 
 
 
 
 
 
 
Restructuring charges

 

 

 

 
11,366

Adjusted operating income
$
462,588

 
$
462,191

 
$
370,001

 
$
1,768,209

 
$
1,513,271


 
Three months ended
 
Year ended
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Consolidated:
 
 
 
 
 
 
 
 
 
U.S. dialysis:
 
 
 
 
 
 
 
 
 
Segment operating income
$
508,146

 
$
500,742

 
$
436,893

 
$
1,924,826

 
$
1,709,721

Gain on changes in ownership interests, net

 

 
(28,152
)
 

 
(28,152
)
Adjusted U.S. dialysis operating income
$
508,146

 
$
500,742

 
$
408,742

 
$
1,924,826

 
$
1,681,570

Other - Ancillary services:
 
 
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
 
 
Segment operating loss
$
(20,878
)
 
$
(14,928
)
 
$
(18,993
)
 
$
(66,377
)
 
$
(70,396
)
Impairment of other assets

 

 

 

 
17,338

Restructuring charges

 

 

 

 
11,366

Gain on changes in ownership interests

 

 

 

 
(33,699
)
Adjusted operating loss
$
(20,878
)
 
$
(14,928
)
 
$
(18,993
)
 
$
(66,377
)
 
$
(75,390
)
International
 
 
 
 
 
 
 
 
 
Segment operating income (loss)
$
2,109

 
$
(82,797
)
 
$
(10,489
)
 
$
(122,797
)
 
$
(23,394
)
Goodwill impairment charges

 
83,855

 

 
124,892

 
3,106

Loss on changes in ownership interests

 

 

 

 
1,248

Equity investment:
 
 
 
 
 
 
 
 
 
Loss due to business sale in the APAC JV