Contact:

Jim Gustafson

Investor Relations

DaVita Inc.

(310) 536-2585

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data.)

Three months ended
March 31,

2017

2016

Patient service revenues

$

2,601,378

$

2,481,933

Less: Provision for uncollectible accounts

(112,983)

(109,205)

     Net patient service revenues

2,488,395

2,372,728

Capitated revenues

918,036

887,047

Other revenues

290,852

321,361

Total net revenues

3,697,283

3,581,136

Operating expenses and charges:

     Patient care costs and other costs

2,722,820

2,582,333

     General and administrative

391,780

386,429

     Depreciation and amortization

190,206

169,355

     Provision for uncollectible accounts

1,910

2,517

     Equity investment income

(3,935)

(1,387)

     Goodwill and asset impairment charges

39,366

77,000

     Gain on changes in ownership interests

(6,273)

—

     Gain on settlement, net

(526,827)

—

          Total operating expenses and charges

2,809,047

3,216,247

Operating income

888,236

364,889

Debt expense

(104,429)

(102,884)

Other income, net

4,243

2,976

Income before income taxes

788,050

264,981

Income tax expense

287,765

126,822

Net income

500,285

138,159

     Less: Net income attributable to noncontrolling interests

(52,588)

(40,725)

Net income attributable to DaVita Inc.

$

447,697

$

97,434

Earnings per share:

     Basic net income per share attributable to DaVita Inc.

$

2.33

$

0.48

     Diluted net income per share attributable to DaVita Inc.

$

2.29

$

0.47

Weighted average shares for earnings per share:

     Basic

192,376,735

204,366,869

     Diluted

195,281,014

207,928,096

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 (dollars in thousands)

Three months ended
March 31,

2017

2016

Net income

$

500,285

$

138,159

Other comprehensive income (loss), net of tax:

Unrealized losses on interest rate cap and swap agreements:

Unrealized losses on interest rate cap and swap agreements

(3,188)

(5,469)

Reclassifications of net rate cap and swap agreements realized losses into net income

1,265

465

Unrealized gains on investments:

Unrealized gains on investments

1,557

229

Reclassification of net investment realized gains into net income

(140)

(93)

Unrealized gains on foreign currency translation:

Foreign currency translation adjustments

13,261

11,181

Other comprehensive income

12,755

6,313

Total comprehensive income

513,040

144,472

Less: Comprehensive income attributable to noncontrolling interests

(52,586)

(40,725)

Comprehensive income attributable to DaVita Inc.

$

460,454

$

103,747

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

Three months ended March 31,

2017

2016

Cash flows from operating activities:

Net income

$

500,285

$

138,159

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

Depreciation and amortization

190,206

169,355

Goodwill and asset impairment charges

39,366

77,000

Stock-based compensation expense

9,601

13,097

Deferred income taxes

20,091

47,519

Equity investment income, net

1,423

5,238

Other non-cash charges

9,467

11,507

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

Accounts receivable

16,168

(78,097)

Inventories

(8,909)

(4,924)

Other receivables and other current assets

(84,511)

(75,326)

Other long-term assets

(2,310)

(965)

Accounts payable

(26,214)

7,782

Accrued compensation and benefits

(62,825)

(32,909)

Other current liabilities

(9,633)

55,673

Income taxes

258,490

76,685

Other long-term liabilities

14,479

19,208

Net cash provided by operating activities

865,174

429,002

Cash flows from investing activities:

     Additions of property and equipment

(214,535)

(173,187)

     Acquisitions

(77,236)

(405,154)

     Proceeds from asset and business sales

46,612

4,657

     Purchase of investments available for sale

(2,358)

(4,435)

     Purchase of investments held-to-maturity

(121,670)

(228,198)

     Proceeds from sale of investments available for sale

4,025

5,155

     Proceeds from investments held-to-maturity

116,285

252,701

     Purchase of equity investments

(1,135)

(5,850)

Net cash used in investing activities

(250,012)

(554,311)

Cash flows from financing activities:

     Borrowings

12,803,015

13,098,553

     Payments on long-term debt and other financing costs

(12,839,156)

(13,118,741)

     Purchase of treasury stock

—

(274,926)

     Distributions to noncontrolling interests

(43,316)

(50,409)

     Stock award exercises and other share issuances, net

3,330

3,167

     Contributions from noncontrolling interests

17,989

10,190

     Proceeds from sales of additional noncontrolling interests

—

3,557

     Purchase of noncontrolling interests

(799)

(4,300)

     Deferred financing costs

—

(188)

Net cash used in financing activities

(58,937)

(333,097)

Effect of exchange rate changes on cash and cash equivalents

2,820

717

Net increase (decrease) in cash and cash equivalents

559,045

(457,689)

Cash and cash equivalents at beginning of the year

913,187

1,499,116

Cash and cash equivalents at end of the period

$

1,472,232

$

1,041,427

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

March 31, 2017

December 31, 2016

ASSETS

Cash and cash equivalents

$

1,472,232

$

913,187

Short-term investments

313,265

310,198

Accounts receivable, less allowance of $242,462 and $252,056

1,900,561

1,917,302

Inventories

174,159

164,858

Other receivables

539,656

453,483

Prepaid and other current assets

204,027

210,604

Income taxes receivable

—

10,596

Total current assets

4,603,900

3,980,228

Property and equipment, net of accumulated depreciation of $2,954,237 and $2,832,160

3,171,199

3,175,367

Intangible assets, net of accumulated amortization of $987,468 and $940,731

1,487,029

1,527,767

Equity investments

521,848

502,389

Long-term investments

108,368

103,679

Other long-term assets

43,450

44,510

Goodwill

9,452,470

9,407,317

$

19,388,264

$

18,741,257

LIABILITIES AND EQUITY

Accounts payable

$

464,790

$

522,415

Other liabilities

783,806

856,847

Accrued compensation and benefits

756,002

815,761

Medical payables

389,681

336,381

Current portion of long-term debt

170,217

165,041

Income tax payable

249,081

—

Total current liabilities

2,813,577

2,696,445

Long-term debt

8,918,878

8,947,327

Other long-term liabilities

504,380

465,358

Deferred income taxes

830,990

809,128

Total liabilities

13,067,825

12,918,258

Commitments and contingencies:

Noncontrolling interests subject to put provisions

979,848

973,258

Equity:

Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)

Common stock ($0.001 par value, 450,000,000 shares authorized; 194,596,120 and 194,554,491 shares issued and outstanding, respectively)

195

195

Additional paid-in capital

1,058,610

1,027,182

Retained earnings

4,158,010

3,710,313

Accumulated other comprehensive loss

(76,886)

(89,643)

Total DaVita Inc. shareholders' equity

5,139,929

4,648,047

Noncontrolling interests not subject to put provisions

200,662

201,694

Total equity

5,340,591

4,849,741

$

19,388,264

$

18,741,257

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

1. Consolidated Financial Results:

Consolidated net revenues

$

3,697

$

3,716

$

3,581

Operating income

$

888

$

381

$

365

Adjusted operating income excluding certain items⁽¹⁾

$

392

$

445

$

458

Operating income margin

24.0

%

10.3

%

10.2

%

Adjusted operating income margin excluding certain items^{(1) (5)}

10.6

%

12.0

%

12.8

%

Net income attributable to DaVita Inc.

$

448

$

158

$

97

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

$

154

$

192

$

190

Diluted net income per share attributable to DaVita Inc.

$

2.29

$

0.80

$

0.47

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

$

0.79

$

0.98

$

0.92

2. Consolidated Business Metrics:

Expenses

General and administrative expenses as a percent of consolidated net revenues⁽²⁾

10.6

%

11.1

%

10.8

%

Consolidated effective tax rate

36.5

%

32.3

%

47.9

%

Consolidated effective tax rate attributable to DaVita Inc.⁽¹⁾

39.1

%

36.3

%

56.5

%

Adjusted consolidated effective tax rate attributable to DaVita Inc.⁽¹⁾

40.0

%

36.5

%

40.0

%

3. Summary of Division Financial Results:

Net revenues

Kidney Care:

U.S. dialysis and related lab services

$

2,271

$

2,323

$

2,227

Ancillary services and strategic initiatives, including international dialysis operations:

U.S. ancillary services and strategic initiatives

315

338

345

International dialysis

63

58

46

378

396

391

Elimination of intersegment

(39)

(40)

(26)

Total Kidney Care

2,610

2,679

2,592

DMG

1,087

1,037

989

Total net consolidated revenues

$

3,697

$

3,716

$

3,581

Operating income (loss)

Kidney Care:

U.S. Dialysis and related lab services

$

945

$

436

$

440

Other - Ancillary services and strategic initiatives, including international dialysis operations:

U.S. ancillary services and strategic initiatives

(53)

(59)

(1)

International dialysis

(5)

(14)

(10)

(58)

(73)

(11)

Corporate support and related long-term incentive compensation

(11)

—

(7)

Reduction of a receivable associated with the DMG acquisition escrow provision

—

(4)

—

Total Kidney Care

876

359

422

DMG

12

22

(57)

Total consolidated operating income

$

888

$

381

$

365

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA-continued

(unaudited)

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

4. Summary of Reportable Segment Financial Results:

U.S. Dialysis and Related Lab Services

Revenue:

Patient services revenues

$

2,373

$

2,427

$

2,328

Provision for uncollectible accounts

(107)

(109)

(105)

Net patient service operating revenues

2,266

2,318

2,223

Other revenues

5

5

4

Total net operating revenues

2,271

2,323

2,227

Operating expenses:

Patient care costs

1,548

1,568

1,496

General and administrative

188

199

179

Depreciation and amortization

125

124

116

Equity investment income

(8)

(4)

(4)

Gain on settlement, net

(527)

—

—

Total operating expenses

1,326

1,887

1,787

Segment operating income

$

945

$

436

$

440

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⁾

$

415

$

436

$

440

DMG

Revenue:

DMG capitated revenues

$

890

$

845

$

866

Patient services revenues

185

179

116

Provision for uncollectible accounts

(6)

(6)

(4)

Net patient service operating revenues

179

173

112

Other revenues

18

19

11

Total net operating revenues

$

1,087

$

1,037

$

989

Operating expenses:

Patient care costs

$

892

$

834

$

794

General and administrative

129

123

127

Depreciation and amortization

57

58

46

Goodwill and asset impairment charges

—

—

77

Equity investment (income) loss

(3)

—

2

Total operating expenses

1,075

1,015

1,046

Segment operating income (loss)

$

12

$

22

$

(57)

Reconciliation for non-GAAP measure:

    Add:

Goodwill impairment charge

—

—

77

Accrual for legal matters

—

—

16

Adjusted segment operating income⁽¹⁾

$

12

$

22

$

36

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA-continued

(unaudited)

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

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

Volume

Treatments

6,804,384

6,889,069

6,639,874

Number of treatment days

77.0

79.0

77.9

Treatments per day

88,369

87,203

85,236

Per day year over year increase

3.7

%

3.7

%

4.3

%

Normalized non-acquired treatment growth year over year

3.8

%

4.0

%

4.1

%

Operating revenues before provision for uncollectible accounts

Dialysis and related lab services revenue per treatment

$

348.70

$

352.38

$

350.60

Per treatment (decrease) increase from previous quarter

(1.0)

%

(0.1)

%

0.7

%

Per treatment (decrease) increase from previous year

(0.5)

%

1.2

%

1.4

%

Percent of consolidated net revenues

60.8

%

61.9

%

61.8

%

Expenses

Patient care costs

Percent of total segment operating net revenues

68.1

%

67.5

%

67.2

%

Per treatment

$

227.47

$

227.68

$

225.30

Per treatment (decrease) increase from previous quarter

0.2

%

2.5

%

Per treatment increase from previous year

1.0

%

3.6

%

1.0

%

General and administrative expenses

Percent of total segment operating net revenues

8.3

%

8.5

%

8.0

%

Per treatment

$

27.65

$

28.82

$

26.97

Per treatment (decrease) increase from previous quarter

(4.1)

%

5.3

%

(0.9)

%

Per treatment increase (decrease) from previous year

2.5

%

5.9

%

(7.8)

%

Accounts receivable

Net receivables

$

1,335

$

1,358

$

1,297

DSO

54

55

54

Provision for uncollectible accounts as a percentage of revenues

4.5

%

4.5

%

4.5

%

6. DMG Business Metrics:

Capitated membership

Total members

735,400

749,300

787,100

Total member months

Senior

920,200

913,300

975,300

Commercial

995,900

1,018,400

1,048,600

Medicaid

305,200

318,800

342,500

Total member months

2,221,300

2,250,500

2,366,400

Capitated revenues by sources

Senior revenues

$

660

$

617

$

648

Commercial revenues

188

175

172

Medicaid revenues

42

53

46

Total capitated revenues

$

890

$

845

$

866

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA-continued

(unaudited)

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

6. DMG Business Metrics: (continued)

Other

Total care dollars under management⁽¹⁾

$

1,342

$

1,295

$

1,272

Ratio of operating income (loss) to total care dollars under management⁽¹⁾

0.9

%

1.7

%

(4.5)

%

Ratio of adjusted operating income to total care dollars under management⁽¹⁾⁽⁶⁾

0.9

%

1.7

%

2.8

%

7. Cash Flow:

Operating cash flow

$

865.2

$

482.2

$

429.0

Operating cash flow, last twelve months

$

2,399.6

$

1,963.4

$

1,576.1

Free cash flow⁽¹⁾

$

733.7

$

329.4

$

305.3

Free cash flow, last twelve months⁽¹⁾

$

1,840.7

$

1,412.3

$

1,041.2

Capital expenditures:

Routine maintenance/IT/other

$

88.1

$

105.4

$

73.3

Development and relocations

$

126.4

$

148.5

$

99.9

Acquisition expenditures

$

77.2

$

66.5

$

405.2

8. Debt and Capital Structure:

Total debt⁽³⁾

$

9,165

$

9,192

$

9,210

Net debt, net of cash and cash equivalents⁽³⁾

$

7,693

$

8,279

$

8,168

Leverage ratio (see calculation on page 15)

3.03x

     3.16x

     3.07x

Overall weighted average effective interest rate during the quarter

4.55

%

4.49

%

4.40

%

Overall weighted average effective interest rate at end of the quarter

4.64

%

4.52

%

4.40

%

Weighted average effective interest rate on the senior secured credit facilities at end of the quarter

3.95

%

3.68

%

3.46

%

Fixed and economically fixed interest rates as a percentage of our total debt

53

%

53

%

60

%⁽⁴⁾

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

91

%

91

%

90

%⁽⁴⁾

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

(1)

These are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, and for a definition of adjusted amounts, see attached reconciliation schedules.

(2)

Consolidated percentages of revenues are comprised of the dialysis and related lab services business, DMG's business and other ancillary services and strategic initiatives. General and administrative expenses includes certain corporate support and long-term incentive compensation, as well as an adjustment to reduce the receivable associated with the DMG acquisition escrow provision relating to an income tax item for the fourth quarter of 2016, and the estimated accruals for certain legal matters for the fourth quarter of 2016 and first quarter of 2016.

(3)

The reported balance sheet amounts at March 31, 2017, December 31, 2016, and March 31, 2016, exclude $75.9 million, $79.9 million and $92.0 million, respectively, of a debt discount associated with our Term Loan A, Term Loan B and senior notes, and other deferred financing costs.

(4)

The Term Loan B is subject to a LIBOR floor of 0.75%. At March 31, 2017, the actual LIBOR-based variable component of our interest rate exceeded 0.75% on the Term Loan B, and was subject to LIBOR-based interest rate volatility on the LIBOR variable component of our interest rate on all of the Term Loan B. However, we are limited to a maximum rate of 3.50% on the outstanding principal debt on the Term Loan B as a result of interest rate cap agreements. Actual LIBOR, for the three months ended March 31, 2016 was lower than the embedded LIBOR floor during such period and the interest rate on the Term Loan B was set at its floor during such period. The Term Loan A bears interest at LIBOR plus an interest margin of 2.00%. We are limited to a maximum rate of 3.50% on $96.3 million of the Term Loan A as a result of interest rate cap agreements. In addition, the uncapped portion of the Term Loan A, which is subject to the variability of LIBOR, is $747.5 million.

(5)

Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated net revenues.

(6)

Ratio of adjusted operating income to total care dollars under management is a calculation of adjusted operating income divided by total care dollars under management.

Rolling twelve months
ended
March 31, 2017

Net income attributable to DaVita Inc.

$

1,230,137

Income taxes

616,756

Interest expense

384,501

Depreciation and amortization

741,104

Goodwill and other asset impairment charges

258,774

Noncontrolling interests and equity investment income, net

178,108

Stock-settled stock-based compensation

34,682

Gain on changes in ownership interest, net

(410,438)

Gain on settlement, net

(529,504)

Other

(2,908)

"Consolidated EBITDA"

$

2,501,212

March 31, 2017

Total debt, excluding debt discount and other deferred financing costs of $75.9 million

$

9,164,957

Letters of credit issued

95,909

$

9,260,866

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

(1,675,454)

Consolidated net debt

$

7,585,412

Last twelve months "Consolidated EBITDA"

$

2,501,212

Leverage ratio

3.03x

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

Net income attributable to DaVita Inc.

$

447,697

$

157,726

$

97,434

Gain on settlement, net

(526,827)

—

—

Equity investment income related to gain on settlement

(2,677)

—

—

Gain on APAC JV ownership changes

(6,273)

—

—

Goodwill impairment charges

24,198

28,415

77,000

Impairment of assets

15,168

—

—

Impairment of minority equity investment

—

14,993

—

Accruals for legal matters

—

15,770

16,000

Reduction in the receivable associated with the DMG acquisition escrow provision

—

3,894

—

Noncontrolling interests associated with adjustments

Goodwill impairment charges

(6,880)

(8,078)

—

Gain on settlement, net

24,029

—

—

Related income tax

185,162

(20,686)

—

Adjusted net income attributable to DaVita Inc.

$

153,597

$

192,034

$

190,434

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

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES - (continued)

(unaudited)

(dollars in thousands except for per share data)

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

Diluted net income per share attributable to DaVita Inc.

$

2.29

$

0.80

$

0.47

Gain on settlement, net

(2.70)

—

—

Equity investment income related to gain on settlement

(0.01)

—

—

Gain on APAC JV ownership changes

(0.03)

—

—

Goodwill impairment charges

0.12

0.15

0.37

Impairment of assets

0.08

—

—

Impairment of minority equity investment

—

0.08

—

Accruals for legal matters

—

0.08

0.08

Reduction in the receivable associated with the DMG acquisition escrow provision

—

0.02

—

Noncontrolling interests associated with adjustments

Goodwill impairment charges

(0.03)

(0.04)

—

Gain on settlement, net

0.12

—

—

Related income tax

0.95

(0.11)

—

Adjusted diluted net income per share attributable to DaVita Inc.

$

0.79

$

0.98

$

0.92

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

Adjusted net income attributable to DaVita Inc.

$

153,597

$

192,034

$

190,434

Add:

   Amortization of intangible assets associated with acquisitions for the dialysis and ancillary operations

3,725

3,480

3,809

   Amortization of intangible assets associated with acquisitions for the DMG operations

43,955

44,290

36,078

Less: Related income tax

(19,072)

(17,436)

(15,955)

$

182,205

$

222,368

$

214,366

Adjusted diluted net income per share attributable to DaVita Inc.

$

0.79

$

0.98

$

0.92

Add:

Amortization of intangible assets per share associated with acquisitions for the dialysis and ancillary operations

0.02

0.02

0.02

Amortization of intangible assets per share associated with acquisitions for the DMG operations

0.22

0.22

0.17

Tax effect of adjustments

(0.10)

(0.09)

(0.08)

$

0.93

$

1.13

$

1.03

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

Three months ended

March 31, 2017

December 31, 2016

March 31, 2016

Consolidated:

Operating income

$

888,236

$

381,428

$

364,889

Gain on settlement, net

(526,827)

—

—

Equity investment income related to gain on settlement

(2,677)

—

—

Gain on APAC JV ownership changes

(6,273)

—

—

Goodwill impairment charges

24,198

28,415

77,000

Impairment of assets

15,168

—

—