dva-10q_20150930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

For the Quarterly Period Ended September 30, 2015

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-14106

 

DAVITA HEALTHCARE PARTNERS INC.

 

2000 16th Street

Denver, CO 80202

Telephone number (303) 405-2100

 

Delaware

 

51-0354549

(State of incorporation)

 

(I.R.S. Employer

Identification No.)

 

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  x    No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  £

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

 

Large accelerated filer

x

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

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

As of October 30, 2015, the number of shares of the Registrant’s common stock outstanding was approximately 211.0 million shares and the aggregate market value of the common stock outstanding held by non-affiliates based upon the closing price of these shares on the New York Stock Exchange was approximately $16.4 billion.

 

 

 

 

 


DAVITA HEALTHCARE PARTNERS 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, 2015 and September 30, 2014

  

1

 

  

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and September 30, 2014

  

2

 

  

 

 

Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014

  

3

 

  

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and September 30, 2014

  

4

 

  

 

 

Consolidated Statements of Equity for the nine months ended September 30, 2015 and for the year ended December 31, 2014

  

5

 

  

 

 

Notes to Condensed Consolidated Financial Statements

  

6

 

  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

31

 

  

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

49

 

  

Item 4.

 

Controls and Procedures

  

50

 

  

 

PART II. OTHER INFORMATION

  

 

 

 

Item 1.

 

Legal Proceedings

  

51

 

  

Item 1A.

 

Risk Factors

  

52

 

  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

77

 

  

Item 6.

 

Exhibits

  

78

 

  

 

 

Signature

  

79

 

  

 

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

 

 

 

i


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Patient service revenues

 

$

2,414,034

 

 

$

2,242,533

 

 

$

7,049,428

 

 

$

6,543,880

 

Less: Provision for uncollectible accounts

 

 

(109,452

)

 

 

(98,971

)

 

 

(314,581

)

 

 

(270,220

)

Net patient service revenues

 

 

2,304,582

 

 

 

2,143,562

 

 

 

6,734,847

 

 

 

6,273,660

 

Capitated revenues

 

 

926,847

 

 

 

848,546

 

 

 

2,643,552

 

 

 

2,435,480

 

Other revenues

 

 

294,236

 

 

 

259,716

 

 

 

869,849

 

 

 

757,949

 

Total net revenues

 

 

3,525,665

 

 

 

3,251,824

 

 

 

10,248,248

 

 

 

9,467,089

 

Operating expenses and charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient care costs and other costs

 

 

2,501,015

 

 

 

2,326,534

 

 

 

7,309,703

 

 

 

6,752,844

 

General and administrative

 

 

353,492

 

 

 

322,822

 

 

 

1,047,318

 

 

 

905,519

 

Depreciation and amortization

 

 

162,062

 

 

 

149,196

 

 

 

474,694

 

 

 

437,682

 

Provision for uncollectible accounts

 

 

2,511

 

 

 

3,961

 

 

 

6,497

 

 

 

9,680

 

Equity investment income

 

 

(2,783

)

 

 

(5,225

)

 

 

(10,724

)

 

 

(18,692

)

Loss contingency accrual and settlement charge

 

 

 

 

 

 

17,000

 

 

 

495,000

 

 

 

17,000

 

Total operating expenses and charges

 

 

3,016,297

 

 

 

2,814,288

 

 

 

9,322,488

 

 

 

8,104,033

 

Operating income

 

 

509,368

 

 

 

437,536

 

 

 

925,760

 

 

 

1,363,056

 

Debt expense

 

 

(103,481

)

 

 

(99,878

)

 

 

(305,121

)

 

 

(312,345

)

Debt redemption and refinancing charges

 

 

 

 

 

 

 

 

 

 

(48,072

)

 

 

(97,548

)

Other income (loss), net

 

 

2,484

 

 

 

(1,246

)

 

 

4,262

 

 

 

2,145

 

Income before income taxes

 

 

408,371

 

 

 

336,412

 

 

 

576,829

 

 

 

955,308

 

Income tax expense

 

 

147,064

 

 

 

116,628

 

 

 

183,893

 

 

 

342,366

 

Net income

 

 

261,307

 

 

 

219,784

 

 

 

392,936

 

 

 

612,942

 

Less: Net income attributable to noncontrolling interests

 

 

(45,435

)

 

 

(35,662

)

 

 

(117,204

)

 

 

(97,848

)

Net income attributable to DaVita HealthCare Partners Inc.

 

$

215,872

 

 

$

184,122

 

 

$

275,732

 

 

$

515,094

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share attributable to DaVita HealthCare

   Partners Inc.

 

$

1.02

 

 

$

0.87

 

 

$

1.30

 

 

$

2.43

 

Diluted net income per share attributable to DaVita HealthCare

   Partners Inc.

 

$

1.00

 

 

$

0.85

 

 

$

1.27

 

 

$

2.38

 

Weighted average shares for earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

212,374,897

 

 

 

212,617,238

 

 

 

212,914,126

 

 

 

212,086,735

 

Diluted

 

 

216,691,461

 

 

 

217,236,493

 

 

 

217,421,213

 

 

 

216,695,033

 

 

See notes to condensed consolidated financial statements.

 

 

 

1


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

 

$

261,307

 

 

$

219,784

 

 

$

392,936

 

 

$

612,942

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on interest rate swap and

   cap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on interest rate swap and

   cap agreements

 

 

(1,851

)

 

 

537

 

 

 

(10,064

)

 

 

(7,177

)

Reclassifications of net swap and cap agreements realized

   losses into net income

 

 

771

 

 

 

1,403

 

 

 

2,372

 

 

 

9,759

 

Unrealized (losses) gains on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on investments

 

 

(1,651

)

 

 

(392

)

 

 

(1,368

)

 

 

517

 

Reclassification of net investment realized gains into

   net income

 

 

(203

)

 

 

 

 

 

(376

)

 

 

(207

)

Foreign currency translation adjustments

 

 

(7,023

)

 

 

(13,838

)

 

 

(19,883

)

 

 

(11,871

)

Other comprehensive loss

 

 

(9,957

)

 

 

(12,290

)

 

 

(29,319

)

 

 

(8,979

)

Total comprehensive income

 

 

251,350

 

 

 

207,494

 

 

 

363,617

 

 

 

603,963

 

Less: Comprehensive income attributable to noncontrolling

   interests

 

 

(45,435

)

 

 

(35,662

)

 

 

(117,204

)

 

 

(97,848

)

Comprehensive income attributable to DaVita HealthCare

   Partners Inc.

 

$

205,915

 

 

$

171,832

 

 

$

246,413

 

 

$

506,115

 

 

See notes to condensed consolidated financial statements.

 

 

 

2


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,047,419

 

 

$

965,241

 

Short-term investments

 

 

922,848

 

 

 

337,399

 

Accounts receivable, less allowance of $261,850 and $242,674

 

 

1,699,892

 

 

 

1,525,849

 

Inventories

 

 

173,050

 

 

 

136,085

 

Other receivables

 

 

416,932

 

 

 

400,916

 

Other current assets

 

 

175,715

 

 

 

186,842

 

Income tax receivable

 

 

48,963

 

 

 

83,839

 

Deferred income taxes

 

 

253,067

 

 

 

240,626

 

Total current assets

 

 

4,737,886

 

 

 

3,876,797

 

Property and equipment, net of accumulated depreciation of $2,305,141 and $2,029,506

 

 

2,621,918

 

 

 

2,469,099

 

Intangibles, net of accumulated amortization of $751,806 and $621,891

 

 

1,826,782

 

 

 

1,949,498

 

Equity investments

 

 

67,883

 

 

 

65,637

 

Long-term investments

 

 

90,393

 

 

 

89,389

 

Other long-term assets

 

 

62,387

 

 

 

77,000

 

Goodwill

 

 

9,487,579

 

 

 

9,415,295

 

 

 

$

18,894,828

 

 

$

17,942,715

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

487,945

 

 

$

445,453

 

Other liabilities

 

 

632,331

 

 

 

510,223

 

Accrued compensation and benefits

 

 

835,518

 

 

 

698,475

 

Medical payables

 

 

340,143

 

 

 

314,347

 

Current portion of long-term debt

 

 

114,617

 

 

 

120,154

 

Total current liabilities

 

 

2,410,554

 

 

 

2,088,652

 

Long-term debt

 

 

9,082,096

 

 

 

8,383,280

 

Other long-term liabilities

 

 

406,035

 

 

 

389,806

 

Deferred income taxes

 

 

906,807

 

 

 

890,701

 

Total liabilities

 

 

12,805,492

 

 

 

11,752,439

 

Commitments and contingencies:

 

 

 

 

 

 

 

 

Noncontrolling interests subject to put provisions

 

 

897,139

 

 

 

829,965

 

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;

   216,632,600 and 215,640,968 shares issued and 211,009,593 and 215,640,968 shares

   outstanding, respectively)

 

 

217

 

 

 

216

 

Additional paid-in capital

 

 

1,106,342

 

 

 

1,108,211

 

Retained earnings

 

 

4,362,835

 

 

 

4,087,103

 

Treasury stock (5,623,007 shares)

 

 

(424,705

)

 

 

 

 

Accumulated other comprehensive loss

 

 

(54,336

)

 

 

(25,017

)

Total DaVita HealthCare Partners Inc. shareholders’ equity

 

 

4,990,353

 

 

 

5,170,513

 

Noncontrolling interests not subject to put provisions

 

 

201,844

 

 

 

189,798

 

Total equity

 

 

5,192,197

 

 

 

5,360,311

 

 

 

$

18,894,828

 

 

$

17,942,715

 

 

See notes to condensed consolidated financial statements.

 

 

 

3


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

392,936

 

 

$

612,942

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Settlement charge and loss contingency accrual

 

 

495,000

 

 

 

17,000

 

Settlement payments

 

 

(493,775

)

 

 

 

 

Depreciation and amortization

 

 

474,694

 

 

 

437,335

 

Debt redemption and refinancing charges

 

 

48,072

 

 

 

97,548

 

Stock-based compensation expense

 

 

42,794

 

 

 

44,323

 

Tax benefits from stock award exercises

 

 

31,069

 

 

 

45,527

 

Excess tax benefits from stock award exercises

 

 

(19,555

)

 

 

(32,665

)

Deferred income taxes

 

 

(1,994

)

 

 

(2,167

)

Equity investment income, net

 

 

10,563

 

 

 

6,007

 

Other non-cash charges and loss on disposal of assets

 

 

26,583

 

 

 

30,604

 

Changes in operating assets and liabilities, other than from acquisitions and divestitures:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(178,148

)

 

 

16,610

 

Inventories

 

 

(35,856

)

 

 

(25,198

)

Other receivables and other current assets

 

 

54,924

 

 

 

7,563

 

Other long-term assets

 

 

1,940

 

 

 

2,622

 

Accounts payable

 

 

11,473

 

 

 

2,332

 

Accrued compensation and benefits

 

 

123,081

 

 

 

147,570

 

Other current liabilities

 

 

96,671

 

 

 

72,932

 

Income taxes

 

 

35,282

 

 

 

72,283

 

Other long-term liabilities

 

 

4,773

 

 

 

(23,770

)

Net cash provided by operating activities

 

 

1,120,527

 

 

 

1,529,398

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions of property and equipment

 

 

(462,213

)

 

 

(443,507

)

Acquisitions

 

 

(90,709

)

 

 

(218,117

)

Proceeds from asset and business sales

 

 

6,865

 

 

 

3,620

 

Purchase of investments available for sale

 

 

(6,667

)

 

 

(7,138

)

Purchase of investments held-to-maturity

 

 

(1,555,604

)

 

 

(163,046

)

Proceeds from sale of investments available for sale

 

 

1,961

 

 

 

1,321

 

Proceeds from investments held-to-maturity

 

 

969,549

 

 

 

27,781

 

Purchase of intangible assets

 

 

 

 

 

(50

)

Purchase of equity investments

 

 

(13,623

)

 

 

(32,483

)

Distributions received on equity investments

 

 

57

 

 

 

434

 

Net cash used in investing activities

 

 

(1,150,384

)

 

 

(831,185

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings

 

 

41,371,392

 

 

 

46,619,292

 

Payments on long-term debt and other financing costs

 

 

(40,732,075

)

 

 

(46,587,984

)

Deferred financing costs and debt redemption and refinancing costs

 

 

(59,354

)

 

 

(122,154

)

Purchase of treasury stock

 

 

(384,110

)

 

 

 

 

Distributions to noncontrolling interests

 

 

(125,938

)

 

 

(105,143

)

Stock award exercises and other share issuances, net

 

 

19,802

 

 

 

14,524

 

Excess tax benefits from stock award exercises

 

 

19,555

 

 

 

32,665

 

Contributions from noncontrolling interests

 

 

28,212

 

 

 

38,083

 

Proceeds from sales of additional noncontrolling interests

 

 

 

 

 

 

3,777

 

Purchase of noncontrolling interests

 

 

(23,605

)

 

 

(12,069

)

Net cash provided by (used in) financing activities

 

 

113,879

 

 

 

(119,009

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,844

)

 

 

1,582

 

Net increase in cash and cash equivalents

 

 

82,178

 

 

 

580,786

 

Cash and cash equivalents at beginning of the year

 

 

965,241

 

 

 

946,249

 

Cash and cash equivalents at end of the period

 

$

1,047,419

 

 

$

1,527,035

 

 

See notes to condensed consolidated financial statements.

 

4


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

controlling

 

 

 

controlling

 

 

DaVita HealthCare Partners Inc. Shareholders’ Equity

 

 

interests

 

 

 

interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

not

 

 

 

subject to

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

 

subject to

 

 

 

put

 

 

Common

 

 

paid-in

 

 

Retained

 

 

 

 

 

 

 

 

 

 

comprehensive

 

 

 

 

 

 

put

 

 

 

provisions

 

 

stock

 

 

capital

 

 

earnings

 

 

Treasury stock

 

 

loss

 

 

Total

 

 

provisions

 

Balance at December 31, 2013

 

$

697,300

 

 

 

213,163

 

 

$

213

 

 

$

1,070,922

 

 

$

3,363,989

 

 

 

 

 

$

 

 

$

(2,645

)

 

$

4,432,479

 

 

$

173,062

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

88,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

723,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

723,114

 

 

 

51,791

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,372

)

 

 

(22,372

)

 

 

 

 

Stock purchase shares issued

 

 

 

 

 

 

298

 

 

 

 

 

 

 

19,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,010

 

 

 

 

 

Stock unit shares issued

 

 

 

 

 

 

304

 

 

 

1

 

 

 

(28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

Stock-settled SAR shares

   issued

 

 

 

 

 

 

1,876

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-settled stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54,969

 

 

 

 

 

Excess tax benefits from stock

   awards exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,271

 

 

 

 

 

Distributions to noncontrolling

   interests

 

 

(93,884

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,455

)

Contributions from

   noncontrolling interests

 

 

41,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,779

 

Sales and assumptions of

   additional noncontrolling

   interests

 

 

25,220

 

 

 

 

 

 

 

 

 

 

 

355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

355

 

 

 

4,165

 

Purchases from noncontrolling

   interests

 

 

(6,111

)

 

 

 

 

 

 

 

 

 

 

(5,357

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,357

)

 

 

(6,544

)

Other reclassification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

Changes in fair value of

   noncontrolling interests

 

 

77,139

 

 

 

 

 

 

 

 

 

 

 

(77,139

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(77,139

)

 

 

 

 

Balance at December 31, 2014

 

$

829,965

 

 

 

215,641

 

 

$

216

 

 

$

1,108,211

 

 

$

4,087,103