SEC Filing | DaVita Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 1-14106

https://cdn.kscope.io/134a07d574895138e6484c5eb89b0cee-logoa21.jpg

DAVITA INC.



Delaware		51-0354549
(State of incorporation)		(I.R.S. Employer Identification No.)



2000 16th Street
Denver,	CO	80202

Telephone number (720) 631-2100

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	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of July 31, 2019, the number of shares of the Registrant’s common stock outstanding was approximately 160.3 million shares.

DAVITA INC.

INDEX



		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:
	Consolidated Statements of Income for the three and six months ended June 30, 2019 and June 30, 2018	1
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and June 30, 2018	2
	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3
	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018	4
	Consolidated Statements of Equity for the three and six months ended June 30, 2019 and June 30, 2018	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	55

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 6.	Exhibits	80
	Signature	83

Note: Items 3, 4 and 5 of Part II are omitted because they are not applicable.

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Dialysis and related lab patient service revenues	$	2,734,065		$	2,718,403		$	5,369,217		$	5,309,477
Provision for uncollectible accounts	(10,249		)	(49,406		)	(15,712		)	(23,861		)
Net dialysis and related lab patient service revenues	2,723,816			2,668,997			5,353,505			5,285,616
Other revenues	118,889			217,956			232,312			450,781
Total revenues	2,842,705			2,886,953			5,585,817			5,736,397
Operating expenses and charges:
Patient care costs	1,957,753			2,069,089			3,922,688			4,104,674
General and administrative	275,338			264,094			526,151			530,623
Depreciation and amortization	152,242			147,079			300,770			289,878
Provision for uncollectible accounts	—			(2,100		)	—			(8,100		)
Equity investment income	(4,514		)	(9,795		)	(7,222		)	(9,950		)
Impairment of other assets	—			11,245			—			11,245
Goodwill impairment charges	—			3,106			41,037			3,106
Gain on changes in ownership interest, net	—			(33,957		)	—			(33,957		)
Total operating expenses and charges	2,380,819			2,448,761			4,783,424			4,887,519
Operating income	461,886			438,192			802,393			848,878
Debt expense	(131,666		)	(119,692		)	(263,185		)	(233,208		)
Debt prepayment charges	(12,160		)	—			(12,160		)	—
Other income, net	5,643			1,994			12,583			6,576
Income from continuing operations before income taxes	323,703			320,494			539,631			622,246
Income tax expense	75,938			83,868			132,684			154,605
Net income from continuing operations	247,765			236,626			406,947			467,641
Net income from discontinued operations, net of tax	79,392			69,696			109,697			63,910
Net income	327,157			306,322			516,644			531,551
Less: Net income attributable to noncontrolling interests	(53,606		)	(39,046		)	(93,804		)	(85,589		)
Net income attributable to DaVita Inc.	$	273,551		$	267,276		$	422,840		$	445,962
Earnings per share attributable to DaVita Inc.:
Basic net income from continuing operations per share	$	1.17		$	1.16		$	1.89		$	2.23
Basic net income per share	$	1.64		$	1.56		$	2.54		$	2.54
Diluted net income from continuing operations per share	$	1.16		$	1.15		$	1.89		$	2.19
Diluted net income per share	$	1.64		$	1.53		$	2.54		$	2.51
Weighted average shares for earnings per share:
Basic	166,346,041			171,617,238			166,366,886			175,267,270
Diluted	166,799,525			174,105,884			166,789,978			177,949,934
Amounts attributable to DaVita Inc.:
Net income from continuing operations	$	194,223		$	199,603		$	314,477		$	390,618
Net income from discontinued operations	79,328			67,673			108,363			55,344
Net income attributable to DaVita Inc.	$	273,551		$	267,276		$	422,840		$	445,962

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net income	$	327,157		$	306,322		$	516,644		$	531,551
Other comprehensive income, net of tax:
Unrealized (losses) gains on interest rate cap agreements:
Unrealized (losses) gains	(31		)	(268		)	(611		)	782
Reclassifications of net realized losses into net income	1,606			1,537			3,212			3,074
Unrealized gains (losses) on foreign currency translation:
Foreign currency translation adjustments	12,365			(50,529		)	(1,288		)	(30,648		)
Other comprehensive income (loss)	13,940			(49,260		)	1,313			(26,792		)
Total comprehensive income	341,097			257,062			517,957			504,759
Less: Comprehensive income attributable to noncontrolling interests	(53,606		)	(39,046		)	(93,804		)	(85,589		)
Comprehensive income attributable to DaVita Inc.	$	287,491		$	218,016		$	424,153		$	419,170

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)



	June 30, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	3,575,638		$	323,038
Restricted cash and equivalents	106,772			92,382
Short-term investments	5,213			2,935
Accounts receivable, net	2,010,801			1,858,608
Inventories	96,819			107,381
Other receivables	525,004			469,796
Income tax receivable	15,783			68,614
Prepaid and other current assets	54,599			111,840
Current assets held for sale, net	—			5,389,565
Total current assets	6,390,629			8,424,159
Property and equipment, net of accumulated depreciation of $3,649,978 and $3,524,098	3,405,315			3,393,669
Operating lease right-of-use assets	2,790,885			—
Intangible assets, net of accumulated amortization of $75,283 and $80,566	120,574			118,846
Equity method and other investments	225,677			224,611
Long-term investments	35,051			35,424
Other long-term assets	97,443			71,583
Goodwill	6,865,386			6,841,960
	$	19,930,960		$	19,110,252
LIABILITIES AND EQUITY
Accounts payable	$	388,955		$	463,270
Other liabilities	726,011			595,850
Accrued compensation and benefits	628,022			658,913
Current portion of operating lease liabilities	372,625			—
Current portion of long-term debt	3,591,331			1,929,369
Current liabilities held for sale	—			1,243,759
Total current liabilities	5,706,944			4,891,161
Long-term operating lease liabilities	2,689,249			—
Long-term debt	5,377,798			8,172,847
Other long-term liabilities	134,605			450,669
Deferred income taxes	593,562			562,536
Total liabilities	14,502,158			14,077,213
Commitments and contingencies
Noncontrolling interests subject to put provisions	1,185,733			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; 166,532,889 and 166,387,307 shares issued and 164,472,913 and 166,387,307 shares outstanding, respectively)	167			166
Additional paid-in capital	989,021			995,006
Retained earnings	3,205,910			2,743,194
Treasury stock (2,059,976 and zero shares, respectively)	(112,189		)	—
Accumulated other comprehensive loss	(33,611		)	(34,924		)
Total DaVita Inc. shareholders' equity	4,049,298			3,703,442
Noncontrolling interests not subject to put provisions	193,771			204,956
Total equity	4,243,069			3,908,398
	$	19,930,960		$	19,110,252

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



	Six months ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	516,644		$	531,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	300,770			289,878
Impairment charges	41,037			14,351
Stock-based compensation expense	29,045			19,861
Deferred income taxes	60,706			56,882
Equity investment income (loss), net	2,631			(434		)
Loss (gain) on sales of business interests, net	23,022			(59,053		)
Other non-cash charges, net	25,857			44,337
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	(288,437		)	(101,746		)
Inventories	11,542			71,632
Other receivables and other current assets	(5,142		)	(91,685		)
Other long-term assets	(410		)	3,454
Accounts payable	(68,887		)	35,228
Accrued compensation and benefits	(88,473		)	23,818
Other current liabilities	151,780			58,321
Income taxes	57,551			24,356
Other long-term liabilities	(18,121		)	3,824
Net cash provided by operating activities	751,115			924,575
Cash flows from investing activities:
Additions of property and equipment	(373,918		)	(473,977		)
Acquisitions	(65,970		)	(89,465		)
Proceeds from asset and business sales	3,851,381			116,241
Purchase of other debt and equity investments	(4,812		)	(4,195		)
Purchase of investments held-to-maturity	(3,322		)	(3,726		)
Proceeds from sale of other debt and equity investments	5,893			5,662
Proceeds from investments held-to-maturity	—			32,628
Purchase of equity investments	(6,715		)	(10,241		)
Distributions received on equity investments	155			3,009
Net cash provided by (used in) investing activities	3,402,692			(424,064		)
Cash flows from financing activities:
Borrowings	32,367,300			28,128,131
Payments on long-term debt and other financing costs	(33,531,409		)	(27,556,348		)
Purchase of treasury stock	(73,078		)	(805,179		)
Distributions to noncontrolling interests	(95,714		)	(94,006		)
Stock award exercises and other share issuances, net	2,107			3,132
Contributions from noncontrolling interests	31,281			31,569
Proceeds from sales of additional noncontrolling interest	—			15
Purchases of noncontrolling interests	(11,040		)	(13,223		)
Net cash used in financing activities	(1,310,553		)	(305,909		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(77		)	(3,473		)
Net increase in cash, cash equivalents and restricted cash	2,843,177			191,129
Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued operations	(423,813		)	229,901
Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations	3,266,990			(38,772		)
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 period	$	3,682,410		$	480,148

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(dollars and shares in thousands)



	Three months ended June 30, 2019
	Non- controlling interests subject to put provisions			DaVita Inc. Shareholders’ Equity																			Non- controlling interests not subject to put provisions

				Common stock			Additional paid-in capital			Retained earnings		Treasury stock					Accumulated other comprehensive loss
				Shares	Amount							Shares		Amount						Total
Balance at March 31, 2019	$	1,143,044		166,396	$	166	$	990,380		$	2,932,359	—		$	—		$	(47,551	)	$	3,875,354		$	211,319
Comprehensive income:
Net income	37,911									273,551										273,551			15,695
Other comprehensive loss																	13,940			13,940
Stock purchase shares issued				—			—													—
Stock unit shares issued				137	1		(3,142		)											(3,141		)
Stock-settled SAR shares issued				—																—
Stock-settled stock-based compensation expense							16,908													16,908
Changes in noncontrolling interest from:
Distributions	(32,670		)																				(18,814		)
Contributions	9,353																						2,981
Acquisitions and divestitures	111						—													—			(1,991		)
Partial purchases	(281		)				13,140													13,140			(15,419		)
Fair value remeasurements	28,265						(28,265		)											(28,265		)
Purchase of treasury stock												(2,060	)	(112,189		)				(112,189		)
Balance at June 30, 2019	$	1,185,733		166,533	$	167	$	989,021		$	3,205,910	(2,060	)	$	(112,189	)	$	(33,611	)	$	4,049,298		$	193,771



	Six months ended June 30, 2019
	Non- controlling interests subject to put provisions			DaVita Inc. Shareholders’ Equity																			Non- controlling interests not subject to put provisions
				DaVita Inc. Shareholders’ Equity
				Common stock			Additional paid-in capital			Retained earnings		Treasury stock					Accumulated other comprehensive loss
				Shares	Amount		Additional paid-in capital			Retained earnings		Shares		Amount			Accumulated other comprehensive loss			Total
Balance at January 1, 2019	$	1,124,641		166,387	$	166	$	995,006		$	2,743,194	—		$	—		$	(34,924	)	$	3,703,442		$	204,956
Cumulative effect of change in accounting principle	(38		)							39,876										39,876			(6		)
Comprehensive income:
Net income	63,300									422,840										422,840			30,504
Other comprehensive loss																	1,313			1,313
Stock purchase shares issued				—			—													—
Stock unit shares issued				146	1		(3,246		)											(3,245		)
Stock-settled SAR shares issued				—																—
Stock-settled stock-based compensation expense							28,999													28,999
Changes in noncontrolling interest from:
Distributions	(60,235		)																				(35,479		)
Contributions	15,768																						15,513
Acquisitions and divestitures	1,873						—													—			(1,991		)
Partial purchases	(2,248		)				10,934													10,934			(19,726		)
Fair value remeasurements	42,672						(42,672		)											(42,672		)
Purchase of treasury stock												(2,060	)	(112,189		)				(112,189		)
Balance at June 30, 2019	$	1,185,733		166,533	$	167	$	989,021		$	3,205,910	(2,060	)	$	(112,189	)	$	(33,611	)	$	4,049,298		$	193,771

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY - continued

(unaudited)

(dollars and shares in thousands)

Three months ended June 30, 2018

Non-
controlling
interests
subject to
put provisions

DaVita Inc. Shareholders’ Equity

Non-
controlling
interests not
subject to
put provisions

Common stock

Additional
paid-in
capital

Retained
earnings

Treasury stock

Accumulated
other
comprehensive
income

Amount

Total

Balance at March 31, 2018

1,034,501

182,661