UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarter Ended
June 30, 2003
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-4034
DAVITA INC.
21250 Hawthorne Blvd., Suite 800
Torrance, California 90503-5517
Telephone number (310) 792-2600
| Delaware | 51-0354549 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
The Registrant 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 and has been subject to such filing requirements for the past 90 days.
The Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
As of July 31, 2003, there were approximately 66.5 million shares of the Registrant’s common stock (par value $0.001) outstanding.
DAVITA INC.
| Page No. | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
Condensed Consolidated Financial Statements: |
|||
| Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 |
1 | |||
| 2 | ||||
| Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and June 30, 2002 |
3 | |||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| Item 3. |
14 | |||
| Item 4. |
14 | |||
| 15 | ||||
| PART II. OTHER INFORMATION | ||||
| Item 1. |
20 | |||
| Item 2. |
20 | |||
| Item 4. |
20 | |||
| Item 6. |
21 | |||
| 22 | ||||
Note: Items 3 and 5 of Part II are omitted because they are not applicable.
i
DAVITA INC.
(unaudited)
(dollars in thousands, except per share data)
| June 30, 2003 |
December 31, 2002 |
|||||||
| ASSETS | ||||||||
| Cash and cash equivalents |
$ | 315,606 | $ | 96,475 | ||||
| Accounts receivable, less allowance of $49,361 and $48,927 |
346,209 | 344,292 | ||||||
| Inventories |
30,111 | 34,929 | ||||||
| Other current assets |
26,275 | 28,667 | ||||||
| Deferred income taxes |
47,666 | 40,163 | ||||||
| Total current assets |
765,867 | 544,526 | ||||||
| Property and equipment, net |
314,374 | 298,475 | ||||||
| Amortizable intangibles, net |
61,198 | 63,159 | ||||||
| Investments in third-party dialysis businesses |
3,266 | 3,227 | ||||||
| Other long-term assets |
2,972 | 1,520 | ||||||
| Goodwill |
901,714 | 864,786 | ||||||
| $ | 2,049,391 | $ | 1,775,693 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Accounts payable |
$ | 83,821 | $ | 77,890 | ||||
| Other liabilities |
115,106 | 101,389 | ||||||
| Accrued compensation and benefits |
94,812 | 95,435 | ||||||
| Current portion of long-term debt |
47,314 | 7,978 | ||||||
| Income taxes payable |
20,486 | 9,909 | ||||||
| Total current liabilities |
361,539 | 292,601 | ||||||
| Long-term debt |
1,409,687 | 1,311,252 | ||||||
| Other long-term liabilities |
12,914 | 9,417 | ||||||
| Deferred income taxes |
78,187 | 65,930 | ||||||
| Minority interests |
28,390 | 26,229 | ||||||
| Shareholders’ equity: |
||||||||
| Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued) |
||||||||
| Common stock ($0.001 par value, 195,000,000 shares authorized; 89,790,206 and 88,874,896 shares issued) |
90 | 89 | ||||||
| Additional paid-in capital |
532,133 | 519,369 | ||||||
| Retained earnings |
288,270 | 213,337 | ||||||
| Treasury stock, at cost (28,185,827 and 28,216,177 shares) |
(661,819 | ) | (662,531 | ) | ||||
| Total shareholders’ equity |
158,674 | 70,264 | ||||||
| $ | 2,049,391 | $ | 1,775,693 | |||||
See notes to condensed consolidated financial statements.
1
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands, except per share data)
| Three months ended June 30, |
Six months ended June 30, | |||||||||||
| 2003 |
2002 |
2003 |
2002 | |||||||||
| Net operating revenues |
$ | 489,883 | $ | 442,677 | $ | 949,690 | $ | 870,342 | ||||
| Operating expenses and charges: |
||||||||||||
| Dialysis centers and labs |
335,986 | 300,552 | 652,696 | 592,186 | ||||||||
| General and administrative |
42,583 | 39,634 | 79,370 | 75,687 | ||||||||
| Depreciation and amortization |
17,921 | 15,698 | 35,366 | 31,503 | ||||||||
| Provision for uncollectible accounts |
8,780 | 5,882 | 17,017 | 11,137 | ||||||||
| Minority interests and equity income, net |
1,813 | 2,164 | 3,107 | 4,299 | ||||||||
| Total operating expenses and charges |
407,083 | 363,930 | 787,556 | 714,812 | ||||||||
| Operating income |
82,800 | 78,747 | 162,134 | 155,530 | ||||||||
| Debt expense |
19,495 | 17,139 | 38,951 | 32,211 | ||||||||
| Refinancing charges |
48,930 | 48,930 | ||||||||||
| Other income |
890 | 2,620 | 1,675 | 2,887 | ||||||||
| Income before income taxes |
64,195 | 15,298 | 124,858 | 77,276 | ||||||||
| Income tax expense |
25,675 | 6,928 | 49,925 | 32,928 | ||||||||
| Net earnings |
$ | 38,520 | $ | 8,370 | $ | 74,933 | $ | 44,348 | ||||
| Comprehensive income |
$ | 38,520 | $ | 8,370 | $ | 74,933 | $ | 44,348 | ||||
| Earnings per share: |
||||||||||||
| Basic |
$ | 0.63 | $ | 0.10 | $ | 1.23 | $ | 0.55 | ||||
| Diluted |
$ | 0.55 | $ | 0.10 | $ | 1.07 | $ | 0.52 | ||||
| Weighted average shares for earnings per share: |
||||||||||||
| Basic |
61,305,955 | 79,784,841 | 61,097,841 | 81,366,393 | ||||||||
| Diluted |
79,188,721 | 83,022,414 | 78,964,493 | 89,814,524 | ||||||||
See notes to condensed consolidated financial statements.
2
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
| Six months ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net earnings |
$ | 74,933 | $ | 44,348 | ||||
| Adjustments to reconcile net earnings to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
35,366 | 31,503 | ||||||
| Impairments and valuation adjustments, net |
(2,390 | ) | ||||||
| Loss (gain) on divestitures |
343 | (462 | ) | |||||
| Deferred income taxes |
4,754 | 11,843 | ||||||
| Non-cash debt expense |
1,958 | 1,526 | ||||||
| Stock options, principally tax benefits |
5,699 | 16,304 | ||||||
| Equity investment income |
(967 | ) | (960 | ) | ||||
| Minority interests in income of consolidated subsidiaries |
4,074 | 5,260 | ||||||
| Refinancing charges |
48,930 | |||||||
| Distributions to minority interests |
(3,685 | ) | (4,138 | ) | ||||
| Changes in operating assets and liabilities, excluding acquisitions and divestitures: |
||||||||
| Accounts receivable |
(740 | ) | (20,471 | ) | ||||
| Inventories |
5,327 | 2,436 | ||||||
| Other current assets |
2,495 | (4,533 | ) | |||||
| Other long-term assets |
(2,774 | ) | 151 | |||||
| Accounts payable |
5,852 | 9,315 | ||||||
| Accrued compensation and benefits |
(716 | ) | 6,367 | |||||
| Other current liabilities |
13,554 | (536 | ) | |||||
| Income taxes |
10,577 | (3,694 | ) | |||||
| Other long-term liabilities |
3,377 | 1,118 | ||||||
| Net cash provided by operating activities |
159,427 | 141,917 | ||||||
| Cash flows from investing activities: |
||||||||
| Additions of property and equipment, net |
(42,077 | ) | (43,691 | ) | ||||
| Acquisitions and divestitures, net |
(47,035 | ) | (1,426 | ) | ||||
| Investments in affiliates, net |
2,663 | 1,857 | ||||||
| Intangible assets |
754 | (30 | ) | |||||
| Net cash used in investing activities |
(85,695 | ) | (43,290 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Borrowings |
1,350,195 | 1,323,335 | ||||||
| Payments on long-term debt |
(1,212,574 | ) | (819,107 | ) | ||||
| Debt redemption premium |
(40,910 | ) | ||||||
| Deferred financing costs |
(10,781 | ) | ||||||
| Purchase of treasury stock |
(474,438 | ) | ||||||
| Proceeds from issuance of common stock |
7,778 | 23,583 | ||||||
| Net cash provided by financing activities |
145,399 | 1,682 | ||||||
| Net increase in cash |
219,131 | 100,309 | ||||||
| Cash and cash equivalents at beginning of period |
96,475 | 36,711 | ||||||