Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 29, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | DVA | |
Entity Registrant Name | DAVITA INC | |
Entity Central Index Key | 0000927066 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 103,900,000 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME (USD $) | ||
In Thousands, except Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Net operating revenues | $1,559,418 | $1,447,640 |
Operating expenses and charges: | ||
Patient care costs | 1,082,789 | 1,005,886 |
General and administrative | 137,277 | 127,273 |
Depreciation and amortization | 57,468 | 57,123 |
Provision for uncollectible accounts | 41,563 | 36,736 |
Equity investment (income) loss | (2,345) | 18 |
Total operating expenses and charges | 1,316,752 | 1,227,036 |
Operating income | 242,666 | 220,604 |
Debt expense | (44,583) | (48,301) |
Other income | 831 | 754 |
Income before income taxes | 198,914 | 173,057 |
Income tax expense | 73,914 | 64,783 |
Net income | 125,000 | 108,274 |
Less: Net income attributable to noncontrolling interests | (15,577) | (12,063) |
Net income attributable to DaVita Inc. | $109,423 | $96,211 |
Earnings per share: | ||
Basic earnings per share attributable to DaVita Inc. | 1.05 | 0.93 |
Diluted earnings per share attributable to DaVita Inc. | 1.04 | 0.92 |
Weighted average shares for earnings per share: | ||
Basic | 103,364,869 | 103,878,417 |
Diluted | 104,765,600 | 104,409,026 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
ASSETS | ||
Cash and cash equivalents | $755,909 | $539,459 |
Short-term investments | 22,907 | 26,475 |
Accounts receivable, less allowance of $230,769 and $229,317 | 1,103,786 | 1,105,903 |
Inventories | 68,038 | 70,041 |
Other receivables | 225,038 | 263,456 |
Other current assets | 34,485 | 40,234 |
Deferred income taxes | 251,088 | 256,953 |
Total current assets | 2,461,251 | 2,302,521 |
Property and equipment, net | 1,093,850 | 1,104,925 |
Amortizable intangibles, net | 129,285 | 136,732 |
Equity investments | 23,965 | 22,631 |
Long-term investments | 7,584 | 7,616 |
Other long-term assets | 33,397 | 32,615 |
Goodwill | 3,942,386 | 3,951,196 |
Assets, Total | 7,691,718 | 7,558,236 |
LIABILITIES AND EQUITY | ||
Accounts payable | 177,764 | 176,657 |
Other liabilities | 412,515 | 461,092 |
Accrued compensation and benefits | 299,709 | 286,121 |
Current portion of long-term debt | 98,844 | 100,007 |
Income taxes payable | 58,643 | 23,064 |
Total current liabilities | 1,047,475 | 1,046,941 |
Long-term debt | 3,509,713 | 3,532,217 |
Other long-term liabilities | 89,634 | 87,692 |
Alliance and product supply agreement, net | 29,315 | 30,647 |
Deferred income taxes | 346,460 | 334,855 |
Total liabilities | 5,022,597 | 5,032,352 |
Commitments and contingencies | ||
Noncontrolling interests subject to put provisions | 350,485 | 331,725 |
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; 134,862,283 shares issued; 103,793,205 and 103,062,698 shares outstanding) | 135 | 135 |
Additional paid-in capital | 617,891 | 621,685 |
Retained earnings | 2,421,557 | 2,312,134 |
Treasury stock, at cost (31,069,078 and 31,799,585 shares) | (775,115) | (793,340) |
Accumulated other comprehensive loss | (3,320) | (5,548) |
Total DaVita Inc. shareholders' equity | 2,261,148 | 2,135,066 |
Noncontrolling interests not subject to put provisions | 57,488 | 59,093 |
Total equity | 2,318,636 | 2,194,159 |
Liabilities and Stockholders' Equity, Total | $7,691,718 | $7,558,236 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
In Thousands, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Accounts receivable, allowance | $230,769 | $229,317 |
Preferred stock, par value | 0.001 | 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, issued | 0 | 0 |
Common stock, par value | 0.001 | 0.001 |
Common stock, shares authorized | 450,000,000 | 450,000,000 |
Common stock, shares issued | 134,862,283 | 134,862,283 |
Common stock, shares outstanding | 103,793,205 | 103,062,698 |
Treasury stock, shares | 31,069,078 | 31,799,585 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash flows from operating activities: | ||
Net income | $125,000 | $108,274 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Depreciation and amortization | 57,468 | 57,123 |
Stock-based compensation expense | 10,233 | 11,009 |
Tax benefits from stock award exercises | 7,873 | 2,161 |
Excess tax benefits from stock award exercises | (1,378) | (779) |
Deferred income taxes | (3,311) | 16,430 |
Equity investment (income) loss | (1,334) | 18 |
(Gain) loss on disposal of assets and other non-cash charges | (695) | 7,051 |
Changes in operating assets and liabilities, other than from acquisitions and divestitures: | ||
Accounts receivable | 594 | (13,757) |
Inventories | 1,818 | 13,055 |
Other receivables and other current assets | 44,343 | 41,417 |
Other long-term assets | (782) | 1,422 |
Accounts payable | 1,800 | (65,411) |
Accrued compensation and benefits | 17,349 | (21,403) |
Other current liabilities | (45,063) | (54,116) |
Income taxes | 47,617 | 40,339 |
Other long-term liabilities | 315 | (8,584) |
Net cash provided by operating activities | 261,847 | 134,249 |
Cash flows from investing activities: | ||
Additions of property and equipment | (42,585) | (73,203) |
Acquisitions | (1,069) | (39,828) |
Proceeds from asset sales | 16,264 | 4,199 |
Purchase of investments available for sale | (521) | (514) |
Purchase of investments held-to-maturity | (12,522) | (6) |
Proceeds from sale of investments available for sale | 880 | 10,669 |
Proceeds from maturities of investments held-to-maturity | 15,990 | 20 |
Purchase of equity investments | (350) | |
Distributions received on equity investments | 350 | |
Net cash used in investing activities | (23,563) | (98,663) |
Cash flows from financing activities: | ||
Borrowings | 4,877,000 | 2,619,540 |
Payments on long-term debt | (4,902,041) | (2,630,739) |
Purchase of treasury stock | (32,016) | |
Excess tax benefits from stock award exercises | 1,378 | 779 |
Stock award exercises and other share issuances, net | 21,073 | 9,102 |
Distributions to noncontrolling interests | (18,658) | (13,567) |
Contributions from noncontrolling interests | 1,613 | 4,460 |
Proceeds from sales of additional noncontrolling interests | 108 | 3,081 |
Purchases from noncontrolling interests | (2,307) | (1,424) |
Net cash used in financing activities | (21,834) | (40,784) |
Net increase (decrease) in cash and cash equivalents | 216,450 | (5,198) |
Cash and cash equivalents at beginning of period | 539,459 | 410,881 |
Cash and cash equivalents at end of period | $755,909 | $405,683 |
CONSOLIDATED STATEMENTS OF EQUI
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (USD $) | ||||||||||
In Thousands | Non-controlling interests subject to put provisions
| Common stock
| Additional paid-in capital
| Retained earnings
| Treasury stock
| Accumulated other comprehensive income (loss)
| Total
| Non-controlling interests not subject to put provisions
| Comprehensive income
| Total
|
Beginning Balance (in shares) at Dec. 31, 2008 | 134,862 | (31,109) | ||||||||
Beginning Balance at Dec. 31, 2008 | $291,397 | $135 | $584,358 | $1,889,450 | ($691,857) | ($14,339) | $1,767,747 | $59,152 | ||
Comprehensive income: | ||||||||||
Net income | 38,381 | 422,684 | 422,684 | 18,694 | 479,759 | |||||
Unrealized losses on interest rate swaps, net of tax | (2,578) | (2,578) | (2,578) | |||||||
Less reclassification of net swap realized losses into net income, net of tax | 10,542 | 10,542 | 10,542 | |||||||
Unrealized gains on investments, net of tax | 986 | 986 | 986 | |||||||
Less reclassification of net investment realized losses (gains) into net income, net of tax | (159) | (159) | (159) | |||||||
Total comprehensive income | 488,550 | |||||||||
Stock purchase shares issued | 2,135 | 2,387 | 4,522 | |||||||
Stock purchase shares issued (in shares) | 107 | |||||||||
Stock unit shares issued | (1,570) | 1,570 | ||||||||
Stock unit shares issued (in shares) | 69 | |||||||||
Stock options and SSARs exercised | 15,598 | 48,055 | 63,653 | |||||||
Stock options and SSARs exercised (in shares) | 2,036 | |||||||||
Stock-based compensation expense | 44,422 | 44,422 | ||||||||
Excess tax benefits from stock awards exercised | 6,150 | 6,150 | ||||||||
Distributions to noncontrolling interests | (44,277) | (23,471) | ||||||||
Contributions from noncontrolling interests | 10,502 | 2,569 | ||||||||
Sales and assumptions of additional noncontrolling interests | 13,483 | (529) | (529) | 4,039 | ||||||
Purchases from noncontrolling interests | (2,594) | (3,721) | (3,721) | (544) | ||||||
Changes in fair value of noncontrolling interests | 24,819 | (24,819) | (24,819) | |||||||
Other adjustments | 14 | (339) | (339) | (1,346) | ||||||
Purchase of treasury stock (in shares) | (2,903) | |||||||||
Purchase of treasury stock | (153,495) | (153,495) | ||||||||
Ending Balance at Dec. 31, 2009 | 331,725 | 135 | 621,685 | 2,312,134 | (793,340) | (5,548) | 2,135,066 | 59,093 | 2,194,159 | |
Ending Balance (in shares) at Dec. 31, 2009 | 134,862 | (31,800) | ||||||||
Comprehensive income: | ||||||||||
Net income | 9,608 | 109,423 | 109,423 | 5,969 | 125,000 | 125,000 | ||||
Unrealized losses on interest rate swaps, net of tax | (173) | (173) | (173) | |||||||
Less reclassification of net swap realized losses into net income, net of tax | 2,187 | 2,187 | 2,187 | |||||||
Unrealized gains on investments, net of tax | 200 | 200 | 200 | |||||||
Less reclassification of net investment realized losses (gains) into net income, net of tax | 14 | 14 | 14 | |||||||
Total comprehensive income | 127,228 | |||||||||
Stock purchase shares issued | 2,130 | 2,151 | 4,281 | |||||||
Stock purchase shares issued (in shares) | 86 | |||||||||
Stock unit shares issued | (84) | 84 | ||||||||
Stock unit shares issued (in shares) | 4 | |||||||||
Stock options and SSARs exercised | 4,129 | 15,990 | 20,119 | |||||||
Stock options and SSARs exercised (in shares) | 641 | |||||||||
Stock-based compensation expense | 10,233 | 10,233 | ||||||||
Excess tax benefits from stock awards exercised | 419 | 419 | ||||||||
Distributions to noncontrolling interests | (11,509) | (7,149) | ||||||||
Contributions from noncontrolling interests | 975 | 638 | ||||||||
Sales and assumptions of additional noncontrolling interests | 52 | 52 | 257 | |||||||
Purchases from noncontrolling interests | (1,200) | 213 | 213 | (1,320) | ||||||
Changes in fair value of noncontrolling interests | 20,886 | (20,886) | (20,886) | |||||||
Ending Balance at Mar. 31, 2010 | $350,485 | $135 | $617,891 | $2,421,557 | ($775,115) | ($3,320) | $2,261,148 | $57,488 | $2,318,636 | |
Ending Balance (in shares) at Mar. 31, 2010 | 134,862 | (31,069) |
Condensed consolidated interim
Condensed consolidated interim financial statements | |
3 Months Ended
Mar. 31, 2010 | |
Condensed consolidated interim financial statements | 1. Condensed consolidated interim financial statements The condensed consolidated interim financial statements included in this report are prepared by the Company without audit. In the opinion of management, all adjustments consisting only of normal recurring items necessary for a fair presentation of the results of operations are reflected in these consolidated interim financial statements. All significant intercompany accounts and transactions have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve revenue recognition and provisions for uncollectible accounts, impairments and valuation adjustments, fair value estimates, accounting for income taxes, variable compensation accruals, purchase accounting valuation estimates and stock-based compensation. The results of operations for the three months ended March31, 2010 are not necessarily indicative of the operating results for the full year. The consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December31, 2009. Prior year balances and amounts have been classified to conform to the current year presentation. The Company has evaluated subsequent events through the date these condensed consolidated financial statements were issued and have included all necessary disclosures. |
Earnings per share
Earnings per share | |
3 Months Ended
Mar. 31, 2010 | |
Earnings per share | 2. Earnings per share Basic net income per share is calculated by dividing net income attributable to DaVita Inc. net of the increase in noncontrolling interest redemption rights in excess of fair value, by the weighted average number of common shares and vested stock units outstanding. Diluted net income per share includes the dilutive effect of outstanding stock options, stock-settled stock appreciation rights and unvested stock units (under the treasury stock method). The reconciliations of the numerators and denominators used to calculate basic and diluted earnings per share are as follows: Three months ended March31, 2010 2009 (shares in thousands) Basic: Net income attributable to DaVita Inc. $ 109,423 $ 96,211 Increase in noncontrolling interest redemption rights in excess of fair value $ (869 ) $ Net income for basic earnings per share calculation $ 108,554 $ 96,211 Weighted average shares outstanding during the period 103,356 103,869 Vested stock units 9 9 Weighted average shares for basic earnings per share calculation 103,365 103,878 Basic net income per share attributable to DaVita Inc $ 1.05 $ 0.93 Diluted: Net income for diluted earnings per share calculation $ 109,423 $ 96,211 Increase in noncontrolling interest redemption rights in excess of fair value $ (869 ) $ Net income for diluted earnings per share calculation $ 108,554 $ 96,211 Weighted average shares outstanding during the period 103,356 103,869 Vested stock units 9 9 Assumed incremental shares from stock plans 1,401 531 Weighted average shares for diluted earnings per share calculation 104,766 104,409 Diluted net income per share attributable to DaVita Inc. $ 1.04 $ 0.92 Shares subject to anti-dilutive awards excluded from calculation (1) 651 12,811 (1) Shares associated with stock options and stock-settled stock appreciation rights that are excluded from the diluted denominator calculation because they are anti-dilutive under the treasury stock method. |
Stock-based compensation and ot
Stock-based compensation and other common stock transactions | |
3 Months Ended
Mar. 31, 2010 | |
Stock-based compensation and other common stock transactions | 3. Stock-based compensation and other common stock transactions Stock-based compensation recognized in a period represents the amortization during that period of the estimated grant-date fair value of current and prior stock-based awards over their vesting terms, adjusted for expected forfeitures. Shares issued upon exercise of stock awards are generally issued from shares in treasury. The Company has used the Black-Scholes-Merton valuation model for estimating the grant-date fair value of stock options and stock-settled stock appreciation rights granted in all periods. During the three months ended March31, 2010, the Company granted 1,225 stock-settled stock appreciation rights with a grant-date fair value of $19,402 and a weighted-average expected life of approximately 3.6 years, and also granted 291 stock units with a grant-date fair value of $18,419 and a weighted-average expected life of approximately 2.7 years. For the three months ended March31, 2010 and 2009, the Company recognized $10,233 and $11,009, respectively, in stock-based compensation expense for stock options, stock-settled stock appreciation rights, stock units and discounted employee stock plan purchases, which are primarily included in general and administrative expenses. The estimated tax benefit recorded for stock-based compensation through March31, 2010 and 2009 was $3,880 and $4,171, respectively. As of March31, 2010, there was $100,585 of total estimated unrecognized compensation cost related to nonvested stock-based compensation arrangements under our equity compensation and stock purchase plans. The Company expects to recognize this cost over a weighted average remaining period of 1.6 years. During the three months ended March31, 2010 and 2009, the Company received $20,119 and $8,035, respectively, in cash proceeds from stock option exercises and $7,873 and $2,161, respectively, in actual tax benefits upon the exercise of stock awards. In connection with a proposal to stockholders requesting approval of an increase in the number of shares authorized for issuance under the Companys equity compensation plan, the Board of Directors has committed to our stockholders that over the three-year period commencing on April1, 2010 it will not grant a number of shares subject to stock awards under the Companys equity compensation plan, including stock options, stock appreciation rights, restricted stock units or other stock awards, at an average annual rate greater than 4.02% of the number of shares of our common stock that we believe will be outstanding over such three-year period. This 4.02% rate is the average of the 2009 and 2010 three-year average median grant rate plus one standard deviation as published by RiskMetrics Group for the Russell 3000 companies in the GICS 3510 industry segment. Awards that are settled in cash, awards that are granted pursuant to stockholder approved exchange programs, awards sold under our employee stock purchase plan and awards assumed or substituted in business combination transactions will be excluded from our grant rate calculation. For purposes of calculating the number of shares granted, any full-value awards (i.e., restr |
Long-term debt
Long-term debt | |
3 Months Ended
Mar. 31, 2010 | |
Long-term debt | 4. Long-term debt Long-term debt was comprised of the following: March31, 2010 December31, 2009 Senior secured credit facilities: Term loan A $ 131,250 $ 153,125 Term loan B 1,705,875 1,705,875 Senior and senior subordinated notes 1,750,000 1,750,000 Acquisition obligations and other notes payable 12,839 15,891 Capital lease obligations 6,106 4,635 Total debt principal outstanding 3,606,070 3,629,526 Premium on the 6 5/8% senior notes 2,487 2,698 3,608,557 3,632,224 Less current portion (98,844 ) (100,007 ) $ 3,509,713 $ 3,532,217 Scheduled maturities of long-term debt at March31, 2010 are as follows: 2010 (remainder of the year) 76,671 2011 66,912 2012 1,706,956 2013 901,124 2014 546 2015 850,318 Thereafter 3,543 On April30, 2010, the Company notified the Trustee that it is exercising its right to redeem $200,000 aggregate principal amount of its outstanding 65/8% senior notes due 2013, at a price of 101.656% and the redemption date is expected to be in June 2010. The Company expects to expense net pre-tax refinancing charges of approximately $4,000 in the second quarter of 2010, associated with the transaction. During the first three months of 2010, the Company made mandatory principal payments totaling $21,875 on the term loan A. The Company has entered into several interest rate swap agreements as a means of hedging its exposure to and volatility from variable-based interest rate changes as part of its overall risk management strategy. These agreements are not held for trading or speculative purposes, and have the economic effect of converting portions of our variable rate debt to a fixed rate. These agreements are designated as cash flow hedges, and as a result, hedge-effective gains or losses resulting from changes in the fair values of these swaps are reported in other comprehensive income until such time as each specific swap tranche is realized, at which time the amounts are reclassified into net income. Net amounts paid or received for each specific swap tranche that have settled have been reflected as adjustments to debt expense. These agreements do not contain credit-risk contingent features. As of March31, 2010, the Company maintained a total of six interest rate swap agreements with amortizing notional amounts totaling $350,000. These agreements had the economic effect of modifying the LIBOR-based variable interest rate on an equivalent amount of the Companys debt to fixed rates ranging from 4.05% to 4.70%, resulting in an overall weighted average effective interest rate of 5.83% on the hedged portion of the Companys Senior Secured Credit Facilities, including the term loan B margin of 1.50%. The swap agreements expire by September30, 2010 and require quarterly interest payments. The Company estimates that approximately $5,600 of existing unrealized pre-tax losses in other comprehensive income at March31, 2010 will be |
Contingencies
Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
Contingencies | 5. Contingencies The majority of the Companys revenues are from government programs and may be subject to adjustment as a result of: (1)examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (2)differing interpretations of government regulations by different fiscal intermediaries or regulatory authorities; (3)differing opinions regarding a patients medical diagnosis or the medical necessity of services provided; and (4)retroactive applications or interpretations of governmental requirements. In addition, the Companys revenues from commercial payors may be subject to adjustment as a result of potential claims for refunds, as a result of government actions or as a result of other claims by commercial payors. Inquiries by the Federal Government In December 2008, the Company received a subpoena for documents from the Office of Inspector General, U.S. Department of Health and Human Services, or OIG, relating to the pharmaceutical products Zemplar, Hectorol, Venofer, Ferrlecit and Epogen, or EPO, as well as other related matters. The subpoena covers the period from January 2003 to the present. The Company has been in contact with the United States Attorneys Office, or U.S. Attorneys Office, for the Northern District of Georgia and the U.S. Department of Justice in Washington, DC, since November 2008 relating to this matter, and has been advised that this is a civil inquiry. On June17, 2009, the Company learned that the allegations were made as part of a civil qui tam complaint filed by individuals and brought pursuant to the federal False Claims Act. The case remains under seal in the United States District Court for the Northern District of Georgia. The Company is cooperating with the inquiry and is producing the requested records. To the Companys knowledge, no proceedings have been initiated by the federal government against the Company at this time. Although the Company cannot predict whether or when proceedings might be initiated, or when these matters may be resolved, it is not unusual for investigations such as these to continue for a considerable period of time. Responding to the subpoena will continue to require managements attention and significant legal expense. Any negative findings could result in substantial financial penalties against the Company and exclusion from future participation in the Medicare and Medicaid programs. In February 2007, the Company received a request for information from the OIG for records relating to EPO claims submitted to Medicare. In August 2007, the Company received a subpoena from the OIG seeking similar documents. The requested documents relate to services provided from 2001 to 2004 by a number of the Companys centers. The request and subpoena were sent from the OIGs offices in Houston and Dallas, Texas. The Company is cooperating with the inquiry and is producing the requested records. The Company has been in contact with the U.S. Attorneys Office for the Eastern District of Texas, which has stated that this is a civil inquiry related to EPO claims. On July6, 2009, the United States District Court for |
Investments in debt and equity
Investments in debt and equity securities | |
3 Months Ended
Mar. 31, 2010 | |
Investments in debt and equity securities | 6. Investments in debt and equity securities Based on the Companys intentions and strategy involving investments in debt and equity securities, the Company classifies certain debt securities as held-to-maturity and records them at amortized cost. Equity securities that have readily determinable fair values and certain other debt securities classified as available for sale are recorded at fair value. The Companys investments consist of the following: March31, 2010 December31, 2009 Held to maturity Available for sale Total Held to maturity Available for sale Total Certificates of deposit, money market funds and U.S. treasury notes due within one year $ 21,707 $ $ 21,707 $ 25,275 $ $ 25,275 Investments in mutual funds 8,784 8,784 8,816 8,816 $ 21,707 $ 8,784 $ 30,491 $ 25,275 $ 8,816 $ 34,091 Short-term investments $ 21,707 $ 1,200 $ 22,907 $ 25,275 $ 1,200 $ 26,475 Long-term investments 7,584 7,584 7,616 7,616 $ 21,707 $ 8,784 $ 30,491 $ 25,275 $ 8,816 $ 34,091 The cost of the certificates of deposit, money market funds and U.S. treasury notes at March31, 2010 and December31, 2009 approximates their fair value. As of March31, 2010 and December31, 2009, the available for sale investments included $145 and $(205), respectively, of gross pre-tax unrealized gains (losses). During the three months ended March31, 2010, the Company recorded gross pre-tax unrealized gains of $200, after tax, in other comprehensive income associated with changes in the fair value of these investments. During the three months ended March31, 2010, the Company sold equity securities in mutual funds for net proceeds of $880, and recognized a pre-tax loss of $22, or $14 after tax, that was previously recorded in other comprehensive income. The pre-tax loss is included in other income. As of March31, 2010, investments totaling approximately $18,500 classified as held to maturity are investments used to maintain certain capital requirements of the special need plans of VillageHealth, which is a wholly-owned subsidiary of the Company. As of December31, 2009, the Company discontinued the VillageHealth special needs plans and is in the process of paying out all incurred claims. The Company expects to liquidate these investments as soon as all of the claims are paid and the various state regulatory agencies approve the release of these investments. The investments in mutual funds classified as available for sale are held in trust to fund existing obligations associated with several of the Companys non-qualified deferred compensation plans. |
Fair value of financial instrum
Fair value of financial instruments | |
3 Months Ended
Mar. 31, 2010 | |
Fair value of financial instruments | 7. Fair value of financial instruments The Company measures the fair value of certain assets, liabilities and noncontrolling interests subject to put provisions based upon certain valuation techniques that include observable or unobservable inputs and assumptions that market participants would use in pricing these assets, liabilities and commitments. The Company also has classified certain assets, liabilities and noncontrolling interests subject to put provisions that are measured at fair value into the appropriate fair value hierarchy levels. The following table summarizes the Companys assets and liabilities measured at fair value on a recurring basis as of March31, 2010: Total Quotedpricesin activemarketsfor identical assets (Level 1) Significantother observableinputs (Level 2) Significant unobservable inputs (Level 3) Assets Available for sale securities $ 8,784 $ 8,784 $ $ Liabilities Interest rate swap agreements $ 7,071 $ $ 7,071 $ Temporary equity Noncontrolling interests subject to put provisions $ 350,485 $ $ $ 350,485 The available for sale securities represent investments in various open-ended registered investment companies, or mutual funds, and are recorded at fair value based upon the quoted market prices as reported by each mutual fund. See Note 6 to the condensed consolidated financial statements for further discussion. The interest rate swap agreements are recorded at fair value based upon valuation models and a variety of techniques as reported by various broker dealers that are based upon relevant observable market inputs such as current interest rates, forward yield curves, and other credit and liquidity market conditions. The Company does not believe the ultimate amount that could be realized upon settlement of these interest rate swap agreements would be materially different than the fair values as currently reported. See Note 4 to the condensed consolidated financial statements for further discussion. See Note 8 to the condensed consolidated financial statements for a discussion of the Companys methodology for estimating the fair value of noncontrolling interests subject to put obligations. The Company has other financial instruments in addition to the above that consist primarily of cash, accounts receivable, notes receivable, accounts payable, other accrued liabilities, and debt. The balances of the non-debt financial instruments are presented in the condensed consolidated financial statements at March31, 2010 at their approximate fair values due to the short-term nature of their settlements. Borrowings under the Companys Senior Secured Credit Facilities totaled $1,837,125 as of March31, 2010 and the fair value was $1,814,161 based upon quoted market prices. The fair value of the Companys senior and senior subordinated notes was approximately $1,775,875 at March31, 2010, based upon quoted market prices, as compared to the carrying amount of $1,750,000. |
Noncontrolling interests subjec
Noncontrolling interests subject to put provisions and other commitments | |
3 Months Ended
Mar. 31, 2010 | |
Noncontrolling interests subject to put provisions and other commitments | 8. Noncontrolling interests subject to put provisions and other commitments The Company has potential obligations to purchase the noncontrolling interests held by third parties in several of its joint ventures and non-wholly-owned subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Company would be required to purchase the third-party owners noncontrolling interests at either the appraised fair market value or a predetermined multiple of earnings or cash flow attributable to the noncontrolling interests put to the Company, which is intended to approximate fair value. The methodology the Company uses to estimate the fair values of noncontrolling interests subject to put provisions assumes either the higher of a liquidation value of net assets or an average multiple of earnings, based on historical earnings, patient mix and other performance indicators, as well as other factors. The estimated fair values of the noncontrolling interests subject to put provisions can fluctuate and the implicit multiple of earnings at which these noncontrolling interests obligations may be settled will vary significantly depending upon market conditions including potential purchasers access to the capital markets, which can impact the level of competition for dialysis and non-dialysis related businesses, the economic performance of these businesses and the restricted marketability of the third-party owners noncontrolling interests. The amount of noncontrolling interests subject to put provisions that contractually employ a predetermined multiple of earnings rather than fair value are immaterial. Additionally, the Company has certain other potential commitments to provide operating capital to several dialysis centers that are wholly-owned by third parties or centers in which the Company owns an equity investment as well as to physician-owned vascular access clinics that the Company operates under management and administrative services agreements of approximately $6,200. Certain consolidated joint ventures are contractually scheduled to dissolve after terms ranging from ten to fifty years. Accordingly, the noncontrolling interests in these joint ventures are considered mandatorily redeemable instruments for which the classification and measurement requirements have been indefinitely deferred. Future distributions upon dissolution of these entities would be valued below the related noncontrolling interest carrying balances in the condensed consolidated balance sheet. |
Income taxes
Income taxes | |
3 Months Ended
Mar. 31, 2010 | |
Income taxes | 9. Income taxes As of March31, 2010, the Companys total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold is $18,718, of which $12,286 would impact the Companys effective tax rate if recognized. The balance represents a decrease of $11,975 from the December31, 2009 balance, primarily due to a tax accounting method change initiated during the quarter ending March31, 2010. This decrease did not impact the Companys effective tax rate. It is reasonably possible that $6,433 of unrecognized tax benefits may be recognized within the next 12 months, primarily related to tax accounting method changes. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. At March31, 2010 and December31, 2009, the Company had approximately $4,243 and $3,226, respectively, accrued for interest and penalties related to unrecognized tax benefits, net of federal tax benefits. |
Segment reporting
Segment reporting | |
3 Months Ended
Mar. 31, 2010 | |
Segment reporting | 10. Segment reporting The Company operates principally as a dialysis and related lab services business but also operates other ancillary services and strategic initiatives. These ancillary services and strategic initiatives consist of pharmacy services, infusion therapy services, disease management services, vascular access services, ESRD clinical research programs and physician services. For internal management reporting, the dialysis and related lab services business and each of the ancillary services and strategic initiatives have been defined as separate operating segments by management as separate financial information is regularly produced and reviewed by the Companys chief operating decision maker in making decisions about allocating resources and assessing financial results. The Companys chief operating decision maker is its Chief Executive Officer. The dialysis and related lab services business qualifies as a separately reportable segment and all of the other ancillary services and strategic initiatives operating segments have been combined and disclosed in the other segments category. The Companys operating segment financial information is prepared on an internal management reporting basis that the Chief Executive Officer uses to allocate resources and analyze the performance of operating segments. For internal management reporting, segment operations include direct segment operating expenses with the exception of stock-based compensation expense and equity investment income (loss). The following is a summary of segment revenues, segment operating income (loss), and a reconciliation of segment income to consolidated income before income taxes: Three months ended March31, 2010 2009 Segment revenues: Dialysis and related lab services (1) $ 1,478,424 $ 1,376,563 Other Ancillary services and strategic initiatives 80,994 71,077 Consolidated revenues $ 1,559,418 $ 1,447,640 Segment operating income (loss): Dialysis and related lab services $ 252,562 $ 236,952 Other Ancillary services and strategic initiatives (2,008 ) (5,321 ) Total segment income $ 250,554 $ 231,631 Reconciliation of segment income to consolidated income before income taxes: Stock-based compensation $ (10,233 ) $ (11,009 ) Equity investment income (loss) 2,345 (18 ) Consolidated operating income 242,666 220,604 Debt expense (44,583 ) (48,301 ) Other income 831 754 Consolidated income before income taxes $ 198,914 $ 173,057 (1) Includes management fees related to providing management and administrative services to dialysis centers that are wholly-owned by third parties or centers in which the Company owns an equity investment. Depreciation and amortization expense for the dialysis and related lab services for the three months ended March31, 2010 was $55,817, and was $1,651 for the ancillary services and strategic in |
Changes in DaVita Inc.'s owners
Changes in DaVita Inc.'s ownership interest in consolidated subsidiaries | |
3 Months Ended
Mar. 31, 2010 | |
Changes in DaVita Inc.'s ownership interest in consolidated subsidiaries | 11. Changes in DaVita Inc.s ownership interest in consolidated subsidiaries The effects of changes in DaVita Inc.s ownership interest on the Companys equity are as follows: Three months ended March31, 2010 2009 Net income attributable to DaVita Inc. $ 109,423 $ 96,211 Increase (decrease) in paid-in capital for sales of noncontrolling interest in one and four joint ventures 52 (175 ) Increase (decrease) in paid-in capital for the purchase of noncontrolling interest in one and one joint venture 213 (795 ) Net transfer from (to) noncontrolling interests 265 (970 ) Change from net income attributable to DaVita Inc. and transfers from (to) noncontrolling interests $ 109,688 $ 95,241 |
Variable interest entities
Variable interest entities | |
3 Months Ended
Mar. 31, 2010 | |
Variable interest entities | 12. Variable interest entities Effective January1, 2010, the FASB eliminated the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, and required additional disclosures about an enterprises involvement in variable interest entities. An entity is required to perform an analysis to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity by having both the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance and the obligation to absorb losses of the entity, or the right to receive benefits from the entity. In addition, the FASB established new guidance for determining whether an entity is a variable interest entity, requiring an ongoing reassessment of whether an enterprise is the primary beneficiary of a variable interest entity, and adding an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that the holders of the equity investment are at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entitys economic performance. Except for the new disclosures requirements, there was no other impact to the Companys financial statements as a result of implementing these new requirements. The Company is deemed to be the primary beneficiary of all but one of the variable interest entities (VIEs) with which it is associated. These VIEs are principally operating subsidiaries owned by related party nominee owners for the Companys benefit in jurisdictions in which the Company does not qualify for direct ownership under applicable regulations. These include dialysis operating entities in New York state and physician practice management entities in various other states. For the VIEs that the Company consolidates, the Company bears virtually all of the economic risks and rewards of ownership under the terms of the applicable arrangements. The Company has contractual arrangements with its respective related party nominee owners which indemnify them from the economic losses, and entitle the Company to the economic benefits, that may result from ownership of these VIEs. DaVita Inc. manages these VIE subsidiaries and provides operating and capital funding as necessary to accomplish its operational and strategic objectives. Accordingly, since the Company bears virtually all of the risks and rewards attendant to their ownership, the Company consolidates these variable interest entities as their primary beneficiary. Total assets of these consolidated operating VIEs were approximately $21,000 and their liabilities to unrelated third parties were approximately $17,000 at March31, 2010. The Company is also a member in a single partnership that qualifies as a VIE but which the Company does not consolidate.This partnership is anoperating dialysisbusiness that is under the joint control of DaVita Inc. andan independent third partyandis |
Condensed consolidating financi
Condensed consolidating financial statements | |
3 Months Ended
Mar. 31, 2010 | |
Condensed consolidating financial statements | 13. Condensed consolidating financial statements The following information is presented in accordance with Rule 3-10 of Regulation S-X. The operating and investing activities of the separate legal entities included in the consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other services. The senior notes and the senior subordinated notes were issued by the Company and are guaranteed by substantially all of the Companys direct and indirect wholly-owned subsidiaries. Each of the guarantor subsidiaries has guaranteed the notes on a joint and several, full and unconditional basis. Non-wholly-owned subsidiaries, joint venture partnerships and other third parties are not guarantors of these obligations. Condensed Consolidating Statements of Income For the three months ended March31, 2010 DaVitaInc. Guarantor subsidiaries Non-Guarantor subsidiaries Consolidating adjustments Consolidated total Net operating revenues $ 103,668 $ 1,295,164 $ 270,570 $ (109,984 ) $ 1,559,418 Operating expenses 60,035 1,138,931 227,770 (109,984 ) 1,316,752 Operating income 43,633 156,233 42,800 242,666 Debt (expense) (44,698 ) (42,223 ) (205 ) 42,543 (44,583 ) Other income 43,255 119 (42,543 ) 831 Income tax expense 16,960 55,740 1,214 73,914 Equity earnings in subsidiaries 84,193 25,593 (109,786 ) Net income 109,423 83,863 41,500 (109,786 ) 125,000 Less: Net income attributable to noncontrolling interests (15,577 ) (15,577 ) Net income attributable to DaVita Inc. $ 109,423 $ 83,863 $ 41,500 $ (125,363 ) $ 109,423 For the three months ended March31, 2009 Net operating revenues $ 92,823 $ 1,221,993 $ 232,368 $ (99,544 ) $ 1,447,640 Operating expenses 60,660 1,064,201 201,719 (99,544 ) 1,227,036 Operating income 32,163 157,792 30,649 220,604 Debt (expense) (48,605 ) (40,309 ) (456 ) 41,069 (48,301 ) Other income 41,737 86 (41,069 ) 754 Income tax expense 10,169 53,896 718 64,783 Equity earnings in subsidiaries 81,085 16,668 (97,753 ) Net income 96,211 80,255 29,561 (97,753 ) 108,274 Less: Net income attributable to noncontrolling interests (12,063 ) (12,063 ) Net income attributable to DaVita Inc. $ 96,211 $ 80,255 $ 2 |