SEC Filing | DaVita Inc.

View:

Document

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 September 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/47a17f4fef4d1ce66952b80e2ac6efda-logoa27.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 November 1, 2019, the number of shares of the Registrant’s common stock outstanding was approximately 129.7 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 nine months ended September 30, 2019 and September 30, 2018	1
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and September 30, 2018	2
	Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018	4
	Consolidated Statements of Equity for the three and nine months ended September 30, 2019 and September 30, 2018	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	58

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 6.	Exhibits	65
	Signature	67

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 September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Dialysis and related lab patient service revenues	$	2,781,169		$	2,670,701		$	8,150,386		$	7,980,178
Provision for uncollectible accounts	(3,977		)	(11,977		)	(19,689		)	(35,838		)
Net dialysis and related lab patient service revenues	2,777,192			2,658,724			8,130,697			7,944,340
Other revenues	126,886			188,606			359,198			639,387
Total revenues	2,904,078			2,847,330			8,489,895			8,583,727
Operating expenses and charges:
Patient care costs	1,991,172			2,063,770			5,913,860			6,168,444
General and administrative	298,736			336,299			824,887			866,922
Depreciation and amortization	155,915			146,000			456,685			435,878
Provision for uncollectible accounts	—			800			—			(7,300		)
Equity investment (income) loss	(3,936		)	3,824			(11,158		)	(6,126		)
Investment and other asset impairments	—			6,093			—			17,338
Goodwill impairment charges	83,855			—			124,892			3,106
Loss (gain) on changes in ownership interest, net	—			1,506			—			(32,451		)
Total operating expenses and charges	2,525,742			2,558,292			7,309,166			7,445,811
Operating income	378,336			289,038			1,180,729			1,137,916
Debt expense	(88,589		)	(125,927		)	(351,774		)	(359,135		)
Debt prepayment, refinancing and redemption charges	(21,242		)	—			(33,402		)	—
Other income, net	5,280			4,007			17,863			10,583
Income from continuing operations before income taxes	273,785			167,118			813,416			789,364
Income tax expense	65,254			52,047			197,938			206,652
Net income from continuing operations	208,531			115,071			615,478			582,712
Net (loss) income from discontinued operations, net of tax	(6,843		)	(211,739		)	102,854			(147,829		)
Net income (loss)	201,688			(96,668		)	718,332			434,883
Less: Net income attributable to noncontrolling interests	(58,418		)	(40,128		)	(152,222		)	(125,717		)
Net income (loss) attributable to DaVita Inc.	$	143,270		$	(136,796	)	$	566,110		$	309,166
Earnings per share attributable to DaVita Inc.:
Basic net income from continuing operations per share	$	1.00		$	0.44		$	2.88		$	2.69
Basic net income (loss) per share	$	0.95		$	(0.82	)	$	3.51		$	1.79
Diluted net income from continuing operations per share	$	0.99		$	0.44		$	2.87		$	2.66
Diluted net income (loss) per share	$	0.95		$	(0.82	)	$	3.50		$	1.77
Weighted average shares for earnings per share:
Basic	150,675,465			166,770,664			161,147,122			172,403,944
Diluted	151,295,950			167,262,358			161,636,011			174,348,421
Amounts attributable to DaVita Inc.:
Net income from continuing operations	$	150,113		$	73,371		$	464,590		$	463,989
Net (loss) income from discontinued operations	(6,843		)	(210,167		)	101,520			(154,823		)
Net income (loss) attributable to DaVita Inc.	$	143,270		$	(136,796	)	$	566,110		$	309,166

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Net income (loss)	$	201,688		$	(96,668	)	$	718,332		$	434,883
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on interest rate cap agreements:
Unrealized (losses) gains	(1,060		)	37			(1,672		)	819
Reclassifications of net realized losses into net income (loss)	1,569			1,606			4,782			4,680
Unrealized losses on foreign currency translation:
Foreign currency translation adjustments	(44,502		)	(8,827		)	(45,790		)	(39,475		)
Other comprehensive loss	(43,993		)	(7,184		)	(42,680		)	(33,976		)
Total comprehensive income (loss)	157,695			(103,852		)	675,652			400,907
Less: Comprehensive income attributable to noncontrolling interests	(58,418		)	(40,128		)	(152,222		)	(125,717		)
Comprehensive income (loss) attributable to DaVita Inc.	$	99,277		$	(143,980	)	$	523,430		$	275,190

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)



	September 30, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	1,253,256		$	323,038
Restricted cash and equivalents	103,885			92,382
Short-term investments	100,713			2,935
Accounts receivable, net	1,901,225			1,858,608
Inventories	98,641			107,381
Other receivables	474,145			469,796
Income tax receivable	16,236			68,614
Prepaid and other current assets	50,617			111,840
Current assets held for sale, net	—			5,389,565
Total current assets	3,998,718			8,424,159
Property and equipment, net of accumulated depreciation of $3,792,683 and $3,524,098, respectively	3,419,238			3,393,669
Operating lease right-of-use assets	2,781,288			—
Intangible assets, net of accumulated amortization of $78,437 and $80,566, respectively	117,666			118,846
Equity method and other investments	219,386			224,611
Long-term investments	35,041			35,424
Other long-term assets	114,834			71,583
Goodwill	6,765,659			6,841,960
	$	17,451,830		$	19,110,252
LIABILITIES AND EQUITY
Accounts payable	$	332,136		$	463,270
Other liabilities	716,023			595,850
Accrued compensation and benefits	662,826			658,913
Current portion of operating lease liabilities	374,214			—
Current portion of long-term debt	121,441			1,929,369
Current liabilities held for sale	—			1,243,759
Total current liabilities	2,206,640			4,891,161
Long-term operating lease liabilities	2,682,125			—
Long-term debt	8,014,475			8,172,847
Other long-term liabilities	135,087			450,669
Deferred income taxes	604,921			562,536
Total liabilities	13,643,248			14,077,213
Commitments and contingencies
Noncontrolling interests subject to put provisions	1,296,059			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; 166,540,590 and 166,387,307 shares issued and 133,888,864 and 166,387,307 shares outstanding, respectively)	167			166
Additional paid-in capital	906,990			995,006
Retained earnings	3,349,180			2,743,194
Treasury stock (32,651,726 and zero shares, respectively)	(1,860,157		)	—
Accumulated other comprehensive loss	(77,604		)	(34,924		)
Total DaVita Inc. shareholders' equity	2,318,576			3,703,442
Noncontrolling interests not subject to put provisions	193,947			204,956
Total equity	2,512,523			3,908,398
	$	17,451,830		$	19,110,252

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



	Nine months ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	718,332		$	434,883
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	456,685			435,878
Impairment charges	124,892			20,444
Debt prepayment, refinancing and redemption charges	33,402			—
Stock-based compensation expense	47,811			59,605
Deferred income taxes	72,590			200,056
Equity investment loss, net	5,131			8,611
Gain (loss) on sales of business interests, net	23,022			(57,547		)
Other non-cash charges, net	24,291			164,856
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	(182,684		)	(74,622		)
Inventories	9,519			88,355
Other receivables and other current assets	51,319			(757		)
Other long-term assets	2,324			2,142
Accounts payable	(106,662		)	(12,800		)
Accrued compensation and benefits	(57,930		)	40,225
Other current liabilities	140,046			45,624
Income taxes	57,279			21,749
Other long-term liabilities	(27,542		)	5,546
Net cash provided by operating activities	1,391,825			1,382,248
Cash flows from investing activities:
Additions of property and equipment	(547,183		)	(705,659		)
Acquisitions	(77,348		)	(113,526		)
Proceeds from asset and business sales	3,863,619			135,268
Purchase of other debt and equity investments	(5,160		)	(5,791		)
Purchase of investments held-to-maturity	(98,322		)	(3,728		)
Proceeds from sale of other debt and equity investments	5,893			8,783
Proceeds from investments held-to-maturity	—			32,628
Purchase of equity investments	(8,770		)	(12,874		)
Distributions received on equity investments	1,296			3,580
Net cash provided by (used in) investing activities	3,134,025			(661,319		)
Cash flows from financing activities:
Borrowings	38,519,991			41,674,279
Payments on long-term debt and other financing costs	(40,570,003		)	(40,828,443		)
Purchase of treasury stock	(1,837,022		)	(1,161,511		)
Distributions to noncontrolling interests	(157,170		)	(139,673		)
Stock award exercises and other share issuances, net	7,333			8,803
Contributions from noncontrolling interests	44,095			43,179
Proceeds from sales of additional noncontrolling interest	—			15
Purchases of noncontrolling interests	(10,988		)	(19,988		)
Net cash used in financing activities	(4,003,764		)	(423,339		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(4,178		)	(5,790		)
Net increase in cash, cash equivalents and restricted cash	517,908			291,800
Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued operations	(423,813		)	270,565
Net increase in cash, cash equivalents and restricted cash from continuing operations	941,721			21,235
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	$	1,357,141		$	540,155

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(dollars and shares in thousands)



	Three months ended September 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 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
Comprehensive income:
Net income	38,778									143,270										143,270			19,640
Other comprehensive loss																	(43,993		)	(43,993		)
Stock unit shares issued				8																—
Stock-settled stock-based compensation expense							18,724													18,724
Changes in noncontrolling interest from:
Distributions	(37,868		)																				(23,588		)
Contributions	8,946																						3,868
Acquisitions and divestitures	(91		)																				10
Partial purchases	8						(202		)											(202		)	246
Fair value remeasurements	100,553						(100,553		)											(100,553		)
Purchase of treasury stock												(30,592	)	(1,747,968		)				(1,747,968		)
Balance at September 30, 2019	$	1,296,059		166,541	$	167	$	906,990		$	3,349,180	(32,652	)	$	(1,860,157	)	$	(77,604	)	$	2,318,576		$	193,947



	Nine months ended September 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	102,078									566,110										566,110			50,144
Other comprehensive loss																	(42,680		)	(42,680		)
Stock unit shares issued				154	1		(3,246		)											(3,245		)
Stock-settled stock-based compensation expense							47,723													47,723
Changes in noncontrolling interest from:
Distributions	(98,103		)																				(59,067		)
Contributions	24,714																						19,381
Acquisitions and divestitures	1,782																						(1,981		)
Partial purchases	(2,240		)				10,732													10,732			(19,480		)
Fair value remeasurements	143,225						(143,225		)											(143,225		)
Purchase of treasury stock												(32,652	)	(1,860,157		)				(1,860,157		)
Balance at September 30, 2019	$	1,296,059		166,541	$	167	$	906,990		$	3,349,180	(32,652	)	$	(1,860,157	)	$	(77,604	)	$	2,318,576		$	193,947

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY - continued

(unaudited)

(dollars and shares in thousands)

Three months ended September 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
loss

Amount