dva-10q_20150630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

For the Quarterly Period Ended June 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 July 31, 2015, the number of shares of the Registrant’s common stock outstanding was approximately 215.5 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 $17.0 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 six months ended June 30, 2015 and June 30, 2014

  

1

 

  

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and June 30, 2014

  

2

 

  

 

 

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

  

3

 

  

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014

  

4

 

  

 

 

Consolidated Statements of Equity for the six months ended June 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

  

30

 

  

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

47

 

  

Item 4.

 

Controls and Procedures

  

48

 

  

 

PART II. OTHER INFORMATION

  

 

 

 

Item 1.

 

Legal Proceedings

  

49

 

  

Item 1A.

 

Risk Factors

  

49

 

  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

71

 

  

Item 6.

 

Exhibits

  

73

 

  

 

 

Signature

  

74

 

  

 

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

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Patient service revenues

 

$

2,363,579

 

 

$

2,187,249

 

 

$

4,635,394

 

 

$

4,301,347

 

Less: Provision for uncollectible accounts

 

 

(105,965

)

 

 

(88,052

)

 

 

(205,129

)

 

 

(171,249

)

Net patient service revenues

 

 

2,257,614

 

 

 

2,099,197

 

 

 

4,430,265

 

 

 

4,130,098

 

Capitated revenues

 

 

866,190

 

 

 

799,369

 

 

 

1,716,705

 

 

 

1,586,934

 

Other revenues

 

 

310,814

 

 

 

273,923

 

 

 

575,613

 

 

 

498,233

 

Total net revenues

 

 

3,434,618

 

 

 

3,172,489

 

 

 

6,722,583

 

 

 

6,215,265

 

Operating expenses and charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient care costs and other costs

 

 

2,446,076

 

 

 

2,246,538

 

 

 

4,808,688

 

 

 

4,426,310

 

General and administrative

 

 

352,025

 

 

 

298,636

 

 

 

693,826

 

 

 

582,697

 

Depreciation and amortization

 

 

158,843

 

 

 

145,907

 

 

 

312,632

 

 

 

288,486

 

Provision for uncollectible accounts

 

 

2,159

 

 

 

3,208

 

 

 

3,986

 

 

 

5,719

 

Equity investment income

 

 

(5,033

)

 

 

(6,095

)

 

 

(7,941

)

 

 

(13,467

)

Settlement charge

 

 

 

 

 

 

 

 

495,000

 

 

 

 

Total operating expenses and charges

 

 

2,954,070

 

 

 

2,688,194

 

 

 

6,306,191

 

 

 

5,289,745

 

Operating income

 

 

480,548

 

 

 

484,295

 

 

 

416,392

 

 

 

925,520

 

Debt expense

 

 

(104,248

)

 

 

(106,132

)

 

 

(201,640

)

 

 

(212,467

)

Debt redemption and refinancing charges

 

 

(48,072

)

 

 

(97,548

)

 

 

(48,072

)

 

 

(97,548

)

Other income, net

 

 

2,311

 

 

 

1,693

 

 

 

1,778

 

 

 

3,391

 

Income before income taxes

 

 

330,539

 

 

 

282,308

 

 

 

168,458

 

 

 

618,896

 

Income tax expense

 

 

122,762

 

 

 

100,887

 

 

 

36,829

 

 

 

225,738

 

Net income

 

 

207,777

 

 

 

181,421

 

 

 

131,629

 

 

 

393,158

 

Less: Net income attributable to noncontrolling interests

 

 

(37,300

)

 

 

(33,738

)

 

 

(71,769

)

 

 

(62,186

)

Net income attributable to DaVita HealthCare Partners Inc.

 

$

170,477

 

 

$

147,683

 

 

$

59,860

 

 

$

330,972

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share attributable to DaVita HealthCare Partners Inc.

 

$

0.80

 

 

$

0.70

 

 

$

0.28

 

 

$

1.56

 

Diluted net income per share attributable to DaVita HealthCare Partners Inc.

 

$

0.78

 

 

$

0.68

 

 

$

0.27

 

 

$

1.53

 

Weighted average shares for earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

212,991,606

 

 

 

212,258,994

 

 

 

213,188,268

 

 

 

211,817,893

 

Diluted

 

 

217,606,198

 

 

 

216,720,944

 

 

 

217,790,617

 

 

 

216,420,713

 

 

See notes to condensed consolidated financial statements.

 

 

 

1


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

 

$

207,777

 

 

$

181,421

 

 

$

131,629

 

 

$

393,158

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on interest rate swap and cap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap and cap agreements

 

 

(2,453

)

 

 

(5,209

)

 

 

(8,213

)

 

 

(7,714

)

Reclassifications of net swap and cap agreements realized loss into net income

 

 

789

 

 

 

4,997

 

 

 

1,601

 

 

 

8,356

 

Unrealized (losses) gains on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on investments

 

 

(99

)

 

 

578

 

 

 

283

 

 

 

909

 

Reclassification of net investment realized gains into net income

 

 

(16

)

 

 

 

 

 

(173

)

 

 

(207

)

Foreign currency translation adjustments

 

 

5,025

 

 

 

1,939

 

 

 

(12,860

)

 

 

1,967

 

Other comprehensive income (loss)

 

 

3,246

 

 

 

2,305

 

 

 

(19,362

)

 

 

3,311

 

Total comprehensive income

 

 

211,023

 

 

 

183,726

 

 

 

112,267

 

 

 

396,469

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

(37,300

)

 

 

(33,738

)

 

 

(71,769

)

 

 

(62,186

)

Comprehensive income attributable to DaVita HealthCare Partners Inc.

 

$

173,723

 

 

$

149,988

 

 

$

40,498

 

 

$

334,283

 

 

See notes to condensed consolidated financial statements.

 

 

 

2


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

933,735

 

 

$

965,241

 

Short-term investments

 

 

942,141

 

 

 

337,399

 

Accounts receivable, less allowance of $265,797 and $242,674

 

 

1,666,969

 

 

 

1,525,849

 

Inventories

 

 

159,353

 

 

 

136,085

 

Other receivables

 

 

456,502

 

 

 

400,916

 

Other current assets

 

 

189,528

 

 

 

186,842

 

Income tax receivable

 

 

193,681

 

 

 

83,839

 

Deferred income taxes

 

 

239,012

 

 

 

240,626

 

Total current assets

 

 

4,780,921

 

 

 

3,876,797

 

Property and equipment, net of accumulated depreciation of $2,207,320 and $2,029,506

 

 

2,564,708

 

 

 

2,469,099

 

Intangibles, net of accumulated amortization of $706,413 and $621,891

 

 

1,868,432

 

 

 

1,949,498

 

Equity investments

 

 

67,173

 

 

 

65,637

 

Long-term investments

 

 

92,864

 

 

 

89,389

 

Other long-term assets

 

 

121,774

 

 

 

77,000

 

Goodwill

 

 

9,450,946

 

 

 

9,415,295

 

 

 

$

18,946,818

 

 

$

17,942,715

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

490,460

 

 

$

445,453

 

Other liabilities

 

 

716,250

 

 

 

510,223

 

Accrued compensation and benefits

 

 

678,853

 

 

 

698,475

 

Medical payables

 

 

339,932

 

 

 

314,347

 

Current portion of long-term debt

 

 

108,795

 

 

 

120,154

 

Total current liabilities

 

 

2,334,290

 

 

 

2,088,652

 

Long-term debt

 

 

9,101,052

 

 

 

8,383,280

 

Other long-term liabilities

 

 

400,475

 

 

 

389,806

 

Deferred income taxes

 

 

900,959

 

 

 

890,701

 

Total liabilities

 

 

12,736,776

 

 

 

11,752,439

 

Commitments and contingencies:

 

 

 

 

 

 

 

 

Noncontrolling interests subject to put provisions

 

 

863,126

 

 

 

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;

   216,533,208 and 215,640,968 shares issued and 215,466,069 and 215,640,968 shares

   outstanding, respectively)

 

 

217

 

 

 

216

 

Additional paid-in capital

 

 

1,128,161

 

 

 

1,108,211

 

Retained earnings

 

 

4,146,963

 

 

 

4,087,103

 

Treasury stock (1,067,139 shares)

 

 

(84,113

)

 

 

 

Accumulated other comprehensive loss

 

 

(44,379

)

 

 

(25,017

)

Total DaVita HealthCare Partners Inc. shareholders’ equity

 

 

5,146,849

 

 

 

5,170,513

 

Noncontrolling interests not subject to put provisions

 

 

200,067

 

 

 

189,798

 

Total equity

 

 

5,346,916

 

 

 

5,360,311

 

 

 

$

18,946,818

 

 

$

17,942,715

 

 

See notes to condensed consolidated financial statements.

 

 

 

3


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

131,629

 

 

$

393,158

 

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

 

 

 

 

 

 

 

 

Settlement charge

 

 

495,000

 

 

 

 

Settlement payments

 

 

(493,775

)

 

 

 

Depreciation and amortization

 

 

312,632

 

 

 

288,470

 

Debt redemption and refinancing charges

 

 

48,072

 

 

 

97,548

 

Stock-based compensation expense

 

 

28,299

 

 

 

29,699

 

Tax benefits from stock award exercises

 

 

28,040

 

 

 

42,110

 

Excess tax benefits from stock award exercises

 

 

(16,913

)

 

 

(30,238

)

Deferred income taxes

 

 

4,418

 

 

 

13,826

 

Equity investment income, net

 

 

5,257

 

 

 

2,257

 

Other non-cash charges and loss on disposal of assets

 

 

24,718

 

 

 

22,861

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(142,950

)

 

 

(65,079

)

Inventories

 

 

(22,780

)

 

 

(10,731

)

Other receivables and other current assets

 

 

(50,362

)

 

 

(95,580

)

Other long-term assets

 

 

378

 

 

 

2,158

 

Accounts payable

 

 

50,823

 

 

 

(46,022

)

Accrued compensation and benefits

 

 

(26,316

)

 

 

19,912

 

Other current liabilities

 

 

177,733

 

 

 

31,970

 

Income taxes

 

 

(109,460

)

 

 

2,886

 

Other long-term liabilities

 

 

(2,912

)

 

 

(17,707

)

Net cash provided by operating activities

 

 

441,531

 

 

 

681,498

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions of property and equipment

 

 

(290,873

)

 

 

(278,593

)

Acquisitions

 

 

(45,059

)

 

 

(98,442

)

Proceeds from asset and business sales

 

 

3,415

 

 

 

215

 

Purchase of investments available for sale

 

 

(3,872

)

 

 

(6,117

)

Purchase of investments held-to-maturity

 

 

(1,039,632

)

 

 

(121,333

)

Proceeds from sale of investments available for sale

 

 

1,550

 

 

 

1,277

 

Proceeds from investments held-to-maturity

 

 

434,684

 

 

 

64,561

 

Purchase of intangible assets

 

 

 

 

 

(10

)

Purchase of equity investments

 

 

(7,550

)

 

 

(4,750

)

Distributions received on equity investments

 

 

 

 

 

337

 

Net cash used in investing activities

 

 

(947,337

)

 

 

(442,855

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings

 

 

28,144,986

 

 

 

33,136,743

 

Payments on long-term debt and other financing costs

 

 

(27,476,994

)

 

 

(32,788,307

)

Deferred financing costs and debt redemption and refinancing costs

 

 

(58,539

)

 

 

(106,937

)

Purchase of treasury stock

 

 

(84,113

)

 

 

 

Distributions to noncontrolling interests

 

 

(79,040

)

 

 

(65,818

)

Stock award exercises and other share issuances, net

 

 

4,680

 

 

 

7,274

 

Excess tax benefits from stock award exercises

 

 

16,913

 

 

 

30,238

 

Contributions from noncontrolling interests

 

 

18,040

 

 

 

28,265

 

Proceeds from sales of additional noncontrolling interests

 

 

 

 

 

933

 

Purchase of noncontrolling interests

 

 

(10,840

)

 

 

(5,743

)

Net cash provided by financing activities

 

 

475,093

 

 

 

236,648

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(793

)

 

 

(567

)

Net (decrease) increase in cash and cash equivalents

 

 

(31,506

)

 

 

474,724

 

Cash and cash equivalents at beginning of the year

 

 

965,241

 

 

 

946,249

 

Cash and cash equivalents at end of the period

 

$

933,735

 

 

$

1,420,973

 

 

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

 

 

 

 

 

$

 

 

$

(25,017

)

 

$

5,170,513

 

 

$

189,798

 

Comprehensive income: