EX-99.1 2 dmgsale-ex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
Unaudited Pro Forma Financial Information    
The unaudited pro forma consolidated balance sheet of DaVita Inc. (the "Company") as of March 31, 2019 is based on the Company's historical consolidated financial statements as of March 31, 2019, after giving effect to the June 19, 2019 sale of its DaVita Medical Group division ("DMG") as if it had occurred on March 31, 2019. The unaudited pro forma consolidated statements of income for the quarter ended March 31, 2019 and the year ended December 31, 2018 are based on the Company's historical consolidated financial statements for such periods after giving effect to the June 19, 2019 sale of DMG as if it had occurred immediately prior to January 1, 2018.
The preparation of this unaudited pro forma consolidated financial information is based on financial statements prepared in accordance with accounting principles generally accepted in the United States, or "GAAP" standards, which are subject to change and interpretation. These principles require the use of estimates that affect the reported amounts of liabilities and expenses, and actual results could differ materially from those estimates.
The pro forma adjustments to those financial statements prepared under GAAP are based on available information and certain assumptions that the Company believes are reasonable as of the date of this Current Report on Form 8-K. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial statements. Actual results could differ materially as a result of changes to these assumptions.
These pro forma consolidated financial statements are presented for informational purposes only and do not purport to represent what the results of operations or financial condition would have been had the June 19, 2019 sale of DMG actually occurred on the dates indicated, nor do they purport to project the results of operations or financial condition of the Company for any future period or as of any future date.
In addition, the pro forma consolidated financial statements were based on and should be read in conjunction with the Company's audited consolidated financial statements as of and for the year ended December 31, 2018 and related notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 22, 2019, as well as the Company’s unaudited condensed consolidated financial statements as of and for the quarter ended March 31, 2019 and related notes thereto included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2019.





















1


DAVITA INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
As of March 31, 2019
(dollars in thousands, except per share data)
 
As Reported
 
Pro Forma Adjustments
 
As Adjusted
ASSETS
 
 
 
 
 
Cash and cash equivalents
$
459,242

 
—

(1) 
$
459,242

Restricted cash and equivalents
102,192

 
 
 
102,192

Short-term investments
4,035

 
 
 
4,035

Accounts receivable, net
1,953,422

 
 
 
1,953,422

Inventories
104,236

 
 
 
104,236

Other receivables
489,581

 
 
 
489,581

Income tax receivable
42,650

 
 
 
42,650

Prepaid and other current assets
64,770

 
 
 
64,770

Current assets held for sale, net
6,004,948

 
(6,004,948
)
(2) 
—

Total current assets
9,225,076

 
 
 
3,220,128

Property and equipment, net of accumulated depreciation of $3,538,992 and $3,524,098
3,392,266

 
 
 
3,392,266

Operating lease right-of-use assets
2,736,536

 
 
 
2,736,536

Intangible assets, net of accumulated amortization of $82,265 and $80,566
118,324

 
 
 
118,324

Equity method and other investments
226,309

 
 
 
226,309

Long-term investments
34,414

 
 
 
34,414

Other long-term assets
73,651

 
 
 
73,651

Goodwill
6,799,368

 
 
 
6,799,368

 
$
22,605,944

 
 
 
$
16,600,996

LIABILITIES AND EQUITY
 

 
 
 
 
Accounts payable
$
365,192

 
 
 
$
365,192

Other liabilities
572,944

 
40,000

(3) 
612,944

Accrued compensation and benefits
495,327

 
 
 
495,327

Current portion of operating leases liabilities
367,413

 
 
 
367,413

Current portion of long-term debt
4,676,691

 
(3,848,176
)
(4) 
828,515

Current liabilities held for sale
1,753,310

 
(1,753,310
)
(2) 
—

Total current liabilities
8,230,877

 
 
 
2,669,391

Long-term operating leases liabilities
2,625,776

 
 
 
2,625,776

Long-term debt
5,787,013

 
(604,050
)
(4) 
5,182,963

Other long-term liabilities
143,756

 
 
 
143,756

Deferred income taxes
588,805

 
 
 
588,805

Total liabilities
17,376,227

 
 
 
11,210,691

Commitments and contingencies:
 
 
 
 
 
Noncontrolling interests subject to put provisions
1,143,044

 
 
 
1,143,044

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;
166,387,307 and 182,462,278 shares issued and outstanding, respectively)
166

 
 
 
166

Additional paid-in capital
990,380

 
 
 
990,380

Retained earnings
2,932,359

 
177,734

(5) 
3,110,093

Accumulated other comprehensive loss
(47,551
)
 
 
 
(47,551
)
Total DaVita Inc. shareholders' equity
3,875,354

 
 
 
4,053,088

Noncontrolling interests not subject to put provisions
211,319

 
(17,146
)
(6) 
194,173

Total equity
4,086,673

 
 
 
4,247,261

 
$
22,605,944

 
 
 
$
16,600,996


2


DAVITA INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the quarter ended March 31, 2019
(dollars in thousands, except per share data)

As Reported
 
Pro Forma Adjustments

As Adjusted
Dialysis and related lab patient service revenues
$
2,635,152

 
 
 
$
2,635,152

Provision for uncollectible accounts
(5,463
)
 
 
 
(5,463
)
Net dialysis and related lab patient service revenues
2,629,689

 
 
 
2,629,689

Other revenues
113,423

 
 
 
113,423

Total revenues
2,743,112

 
 
 
2,743,112

Operating expenses and charges:
 

 
 
 
 
Patient care costs
1,964,935

 
 
 
1,964,935

General and administrative
250,813

 
 
 
250,813

Depreciation and amortization
148,528

 
 
 
148,528

Provision for uncollectible accounts
—

 
 
 
4,484

Equity investment income
(2,708
)
 
 
 
(2,708
)
Goodwill impairment charges
41,037

 
 
 
41,037

Total operating expenses and charges
2,402,605

 
 
 
2,402,605

Operating income
340,507

 
 
(7) 
340,507

Debt expense
(131,519
)
 
56,076

(8) 
(75,443
)
Other income, net
6,940

 
 
 
6,940

Income from continuing operations before income taxes
215,928

 
 
 
272,004

Income tax expense
56,746

 
14,433

(8) 
71,179

Net income from continuing operations
159,182

 
 
 
200,825

Net income from discontinued operations, net of tax
30,305

 
(30,305
)
(9) 
—

Net income
189,487

 
 
 
200,825

Less: Net income attributable to noncontrolling interests
(40,198
)
 
1,270

(10) 
(38,928
)
Net income attributable to DaVita Inc.
$
149,289

 
 
 
$
161,897

Earnings per share attributable to DaVita Inc.:
  
 
 
 
 
Basic net income from continuing operations per share
$
0.72

 
 
 
$
0.97

Basic net income per share
$
0.90

 
 
 
$
0.97

Diluted net income from continuing operations per share
$
0.72

 
 
 
$
0.97

Diluted net income per share
$
0.90

 
 
 
$
0.97

Weighted average shares for earnings per share:
 

 
 
 
 
Basic
166,387,958

 
 
 
166,387,958

Diluted
166,780,657

 
 
 
166,780,657

Amounts attributable to DaVita Inc.:
 
 
 
 
 
Net income from continuing operations
$
120,254

 
41,643

(8) 
$
161,897

Net income from discontinued operations
29,035

 
(29,035
)
(11) 
—

Net income attributable to DaVita Inc.
$
149,289

 
 
 
$
161,897








3


DAVITA INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 2018
(dollars in thousands, except per share data)


As Reported
 
Pro Forma Adjustments

As Adjusted
Dialysis and related lab patient service revenues
$
10,709,981

 
 
 
$
10,709,981

Provision for uncollectible accounts
(49,587
)
 
 
 
(49,587
)
Net dialysis and related lab patient service revenues
10,660,394

 
 
 
10,660,394

Other revenues
744,457

 
 
 
744,457

Total revenues
11,404,851

 
 
 
11,404,851

Operating expenses and charges:
 

 
 
 
 
Patient care costs and other costs
8,195,513

 
 
 
8,195,513

General and administrative
1,135,454

 
 
 
1,135,454

Depreciation and amortization
591,035

 
 
 
591,035

Provision for uncollectible accounts
(7,300
)
 
 
 
(7,300
)
Equity investment income
4,484

 
 
 
4,484

Investment and other asset impairments
17,338

 
 
 
17,338

Goodwill impairment charges
3,106

 
 
 
3,106

Gain on changes in ownership interest, net
(60,603
)
 
 
 
(60,603
)
Total operating expenses and charges
9,879,027

 
 
 
9,879,027

Operating income
1,525,824

 
 
(7) 
1,525,824

Debt expense
(487,435
)
 
204,971

(8) 
(282,464
)
Other income, net
10,089

 
 
 
10,089

Income from continuing operations before income taxes
1,048,478

 
 
 
1,253,449

Income tax expense
258,400

 
52,760

(8) 
311,160

Net income from continuing operations
790,078

 
 
 
942,289

Net loss from discontinued operations, net of tax
(457,038
)
 
457,038

(9) 
—

Net income
333,040

 
 
 
942,289

Less: Net income attributable to noncontrolling interests
(173,646
)
 
7,889

(10) 
(165,757
)
Net income attributable to DaVita Inc.
$
159,394

 
 
 
$
776,532

Earnings per share attributable to DaVita Inc.:
 

 
 
 
 
Basic net income from continuing operations per share
$
3.66

 
 
 
$
4.55

Basic net income per share
$
0.93

 
 
 
$
4.55

Diluted net income from continuing operations per share
$
3.62

 
 
 
$
4.51

Diluted net income per share
$
0.92

 
 
 
$
4.51

Weighted average shares for earnings per share:
 

 
 
 
 
Basic
170,785,999

 
 
 
170,785,999

Diluted
172,364,581

 
 
 
172,364,581

Amounts attributable to DaVita Inc.:
 
 
 
 
 
Net income from continuing operations
$
624,321

 
152,211

(8) 
$
776,532

Net loss from discontinued operations
(464,927
)
 
464,927

(11) 
—

Net income attributable to DaVita Inc.
$
159,394

 
 
 
$
776,532






4


NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements reflect the adjustments described below.
Unaudited Pro Forma Consolidated Balance Sheets
“As Reported” represents the historical consolidated balance sheet of DaVita Inc. as of March 31, 2019. Adjustments presented in the pro forma consolidated balance sheet give effect to the transaction as if it had occurred on March 31, 2019 but using the preliminary purchase price at which the transaction was actually consummated on June 19, 2019. See additional explanations in the footnotes and additional Note below.
Explanatory footnotes to these pro forma adjustments are as follows:
1.
To adjust cash and cash equivalents for the receipt of approximately $4,465 million in preliminary net cash proceeds from the sale of DMG, reduced by approximately $4,465 million preliminary net cash proceeds used to pay down a portion of the Company's senior secured term debt, as further described in footnote 4 below.
2.
Reflects the sale of the DMG business, which was previously classified as a discontinued operation held for sale.
3.
Reflects an accrual for estimated transaction costs and other net obligations associated with the transaction not paid at closing.
4.
Reflects pro-rata partial principal prepayments of $583 million on Term Loan A, $892 million of Term Loan A-2, and $2,990 million of Term Loan B under the Company’s senior secured credit facilities using preliminary net cash proceeds from the sale of DMG, as well as a write-down of debt discount and deferred financing costs classified within long-term debt of $13 million. The terms of the Company's senior secured credit agreement as amended require that net cash proceeds from the sale in excess of $750 million be used to prepay debt outstanding under the Company's credit facilities. The Company intends to use all of the net cash proceeds from the sale (not only the amount in excess of $750 million) to prepay debt outstanding under its credit facilities at or soon after the closing of the sale.
5.
This amount represents the difference between (i) preliminary net cash proceeds received on the June 19, 2019 closing of the DMG sale, net of estimated remaining transaction costs and other obligations not paid at closing, and (ii) the sum of net assets classified as held for sale related to the DMG business as of March 31, 2019 and debt discount and deferred financing costs written down of $13 million (see footnote 4 above), that difference then increased by the elimination of noncontrolling interests attributable to DMG (see footnote 6 below).
The preliminary net cash proceeds included in these unaudited pro forma adjustments were based on an estimate of working capital purchase price adjustments as of the transaction’s closing date, while the cost bases of held for sale assets and liabilities sold are presented as of a different date in these unaudited pro forma balance sheet adjustments. As a result, the net gain or loss ultimately recognized on the sale of the DMG business is expected to differ significantly from the amount presented here.
In addition, the final sale price remains subject to certain post-closing adjustments, including final reconciliations of net working capital and other balances as of the transaction’s closing date. Accordingly, the ultimate amount of net cash proceeds received and retained from the sale may differ significantly from that presented above.
6.
Reflects the elimination of noncontrolling interests attributable to DMG.
Unaudited Pro Forma Consolidated Statements of Income
“As Reported” represents the historical consolidated statements of income of DaVita Inc. for the quarter ended March 31, 2019 and year ended December 31, 2018. Adjustments presented in these unaudited pro forma consolidated statements of income give effect to the transaction as if it had occurred immediately prior to January 1, 2018.
Explanatory footnotes to these unaudited pro forma adjustments are as follows:
7.
The gain directly attributable to the sale of the DMG operations classified as discontinued operations does not have an impact on the Company’s operating income as presented on the unaudited pro forma consolidated statements of income.
8.
To reflect the reduction of debt expense (including interest expense and amortization of debt discount and deferred financing costs) resulting from the pro forma prepayment in full of $775 million on Term Loan A, $3,378 million on Term Loan B, and $300 million on the revolving line of credit under the Company’s senior secured credit facilities, and related increase in income tax expense, based on the preliminary net cash proceeds from the June 19, 2019 sale of DMG described in footnote 1 above as if these debt principal payments were made immediately prior to January

5


1, 2018 using actual interest rates in effect for each of the quarter ended March 31, 2019 and year ended December 31, 2018.
9.
To eliminate net income (loss) from DMG discontinued operations, net of tax.
10.
To eliminate net income attributable to noncontrolling interests related to DMG.
11.
To eliminate net income (loss) from discontinued operations attributable to DaVita Inc.

6