dva-10q_20160331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

For the Quarterly Period Ended March 31, 2016

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 April 29, 2016, the number of shares of the Registrant’s common stock outstanding was approximately 206.5 million shares.

 

 

 

 


 

DAVITA HEALTHCARE PARTNERS INC.

INDEX

 

 

 

 

  

Page No.

 

PART I. FINANCIAL INFORMATION

  

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements:

  

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2016 and March 31, 2015

  

1

 

  

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and March 31, 2015

  

2

 

  

 

 

Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

  

3

 

  

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and March 31, 2015

  

4

 

  

 

 

Consolidated Statements of Equity for the three months ended March 31, 2016 and for the year ended December 31, 2015

  

5

 

  

 

 

Notes to Condensed Consolidated Financial Statements

  

6

 

  

Item 2.

 

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

  

32

 

  

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

46

 

  

Item 4.

 

Controls and Procedures

  

48

 

  

 

PART II. OTHER INFORMATION

  

 

 

 

Item 1.

 

Legal Proceedings

  

49

 

  

Item 1A.

 

Risk Factors

  

51

 

  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

76

 

  

Item 6.

 

Exhibits

  

77

 

  

 

 

Signature

  

78

 

  

 

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

 

 

 

i


 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(dollars in thousands, except per share data)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Patient service revenues

 

$

2,477,738

 

 

$

2,271,815

 

Less: Provision for uncollectible accounts

 

 

(109,205

)

 

 

(99,164

)

Net patient service revenues

 

 

2,368,533

 

 

 

2,172,651

 

Capitated revenues

 

 

887,047

 

 

 

850,515

 

Other revenues

 

 

325,556

 

 

 

264,799

 

Total net revenues

 

 

3,581,136

 

 

 

3,287,965

 

Operating expenses and charges:

 

 

 

 

 

 

 

 

Patient care costs and other costs

 

 

2,582,333

 

 

 

2,362,612

 

General and administrative

 

 

386,429

 

 

 

341,801

 

Depreciation and amortization

 

 

169,355

 

 

 

153,789

 

Provision for uncollectible accounts

 

 

2,517

 

 

 

1,827

 

Equity investment income

 

 

(1,387

)

 

 

(2,908

)

Goodwill impairment charge

 

 

77,000

 

 

 

 

Settlement charge

 

 

 

 

 

495,000

 

Total operating expenses and charges

 

 

3,216,247

 

 

 

3,352,121

 

Operating income (loss)

 

 

364,889

 

 

 

(64,156

)

Debt expense

 

 

(102,884

)

 

 

(97,392

)

Other income (loss), net

 

 

2,976

 

 

 

(533

)

Income (loss) before income taxes

 

 

264,981

 

 

 

(162,081

)

Income tax expense (benefit)

 

 

126,822

 

 

 

(85,933

)

Net income (loss)

 

 

138,159

 

 

 

(76,148

)

Less: Net income attributable to noncontrolling interests

 

 

(40,725

)

 

 

(34,469

)

Net income (loss) attributable to DaVita HealthCare Partners Inc.

 

$

97,434

 

 

$

(110,617

)

Earnings per share:

 

 

 

 

 

 

 

 

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

 

$

0.48

 

 

$

(0.52

)

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

 

$

0.47

 

 

$

(0.52

)

Weighted average shares for earnings per share:

 

 

 

 

 

 

 

 

Basic

 

 

204,366,869

 

 

 

213,387,253

 

Diluted

 

 

207,928,096

 

 

 

213,387,253

 

 

See notes to condensed consolidated financial statements.

 

 

 

1


 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Net income (loss)

 

$

138,159

 

 

$

(76,148

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

Unrealized losses on interest rate swap and cap agreements:

 

 

 

 

 

 

 

 

Unrealized losses on interest rate swap and cap agreements

 

 

(5,469

)

 

 

(5,760

)

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

 

 

465

 

 

 

812

 

Unrealized gains (losses) on investments:

 

 

 

 

 

 

 

 

Unrealized gains on investments

 

 

229

 

 

 

382

 

Reclassification of net investment realized gains into net income

 

 

(93

)

 

 

(157

)

Foreign currency translation adjustments

 

 

11,181

 

 

 

(17,885

)

Other comprehensive income (loss)

 

 

6,313

 

 

 

(22,608

)

Total comprehensive income (loss)

 

 

144,472

 

 

 

(98,756

)

Less: Comprehensive income attributable to noncontrolling interests

 

 

(40,725

)

 

 

(34,469

)

Comprehensive income (loss) attributable to DaVita HealthCare Partners Inc.

 

$

103,747

 

 

$

(133,225

)

 

See notes to condensed consolidated financial statements.

 

 

 

2


 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,041,427

 

 

$

1,499,116

 

Short-term investments

 

 

396,468

 

 

 

408,084

 

Accounts receivable, less allowance of $280,988 and $264,144

 

 

1,855,285

 

 

 

1,724,228

 

Inventories

 

 

192,689

 

 

 

185,575

 

Other receivables

 

 

525,548

 

 

 

435,885

 

Other current assets

 

 

187,287

 

 

 

190,322

 

Income taxes receivable

 

 

856

 

 

 

60,070

 

Total current assets

 

 

4,199,560

 

 

 

4,503,280

 

Property and equipment, net

 

 

2,911,205

 

 

 

2,788,740

 

Intangible assets, net

 

 

1,678,707

 

 

 

1,687,326

 

Equity investments

 

 

75,059

 

 

 

73,368

 

Long-term investments

 

 

97,770

 

 

 

94,122

 

Other long-term assets

 

 

66,269

 

 

 

73,560

 

Goodwill

 

 

9,485,628

 

 

 

9,294,479

 

 

 

$

18,514,198

 

 

$

18,514,875

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

480,288

 

 

$

513,950

 

Other liabilities

 

 

779,141

 

 

 

682,123

 

Accrued compensation and benefits

 

 

728,476

 

 

 

741,926

 

Medical payables

 

 

317,747

 

 

 

332,102

 

Current portion of long-term debt

 

 

137,966

 

 

 

129,037

 

Total current liabilities

 

 

2,443,618

 

 

 

2,399,138

 

Long-term debt

 

 

8,979,855

 

 

 

9,001,308

 

Other long-term liabilities

 

 

464,250

 

 

 

439,229

 

Deferred income taxes

 

 

792,038

 

 

 

726,962

 

Total liabilities

 

 

12,679,761

 

 

 

12,566,637

 

Commitments and contingencies:

 

 

 

 

 

 

 

 

Noncontrolling interests subject to put provisions

 

 

912,705

 

 

 

864,066

 

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;

   217,338,629 and 217,120,346 shares issued and 206,392,776 and 209,754,247

   shares outstanding, respectively)

 

 

217

 

 

 

217

 

Additional paid-in capital

 

 

1,089,305

 

 

 

1,118,326

 

Retained earnings

 

 

4,454,269

 

 

 

4,356,835

 

Treasury stock (10,945,853 and 7,366,099 shares, respectively)

 

 

(786,352

)

 

 

(544,772

)

Accumulated other comprehensive loss

 

 

(53,513

)

 

 

(59,826

)

Total DaVita HealthCare Partners Inc. shareholders’ equity

 

 

4,703,926

 

 

 

4,870,780

 

Noncontrolling interests not subject to put provisions

 

 

217,806

 

 

 

213,392

 

Total equity

 

 

4,921,732

 

 

 

5,084,172

 

 

 

$

18,514,198

 

 

$

18,514,875

 

 

See notes to condensed consolidated financial statements.

 

 

3


 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands) 

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

138,159

 

 

$

(76,148

)

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

 

 

 

 

 

 

 

 

Settlement charge

 

 

 

 

 

495,000

 

Depreciation and amortization

 

 

169,355

 

 

 

153,789

 

Goodwill impairment charge

 

 

77,000

 

 

 

 

Stock-based compensation expense

 

 

13,097

 

 

 

12,762

 

Tax benefits from stock award exercises

 

 

8,668

 

 

 

9,366

 

Excess tax benefits from stock award exercises

 

 

(4,383

)

 

 

(7,584

)

Deferred income taxes

 

 

47,519

 

 

 

(203,940

)

Equity investment income, net

 

 

5,238

 

 

 

2,539

 

Other non-cash charges

 

 

11,507

 

 

 

7,865

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(78,097

)

 

 

(151,743

)

Inventories

 

 

(4,924

)

 

 

(9,193

)

Other receivables and other current assets

 

 

(75,326

)

 

 

(18,619

)

Other long-term assets

 

 

(965

)

 

 

153

 

Accounts payable

 

 

7,782

 

 

 

(10,933

)

Accrued compensation and benefits

 

 

(32,909

)

 

 

30,638

 

Other current liabilities

 

 

55,673

 

 

 

60,772

 

Income taxes

 

 

72,400

 

 

 

106,970

 

Other long-term liabilities

 

 

19,208

 

 

 

8,395

 

Net cash provided by operating activities

 

 

429,002

 

 

 

410,089

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions of property and equipment

 

 

(173,187

)

 

 

(121,421

)

Acquisitions

 

 

(405,154

)

 

 

(40,650

)

Proceeds from asset and business sales

 

 

4,657

 

 

 

2,565

 

Purchase of investments available for sale

 

 

(4,435

)

 

 

(1,448

)

Purchase of investments held-to-maturity

 

 

(228,198

)

 

 

(290,774

)

Proceeds from sale of investments available for sale

 

 

5,155

 

 

 

1,217

 

Proceeds from investments held-to-maturity

 

 

252,701

 

 

 

205,650

 

Purchase of equity investments

 

 

(5,850

)

 

 

(7,426

)

Net cash used in investing activities

 

 

(554,311

)

 

 

(252,287

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings

 

 

13,098,553

 

 

 

13,353,767

 

Payments on long-term debt and other financing costs

 

 

(13,123,124

)

 

 

(13,382,203

)

Purchase of treasury stock

 

 

(274,926

)

 

 

(70,063

)

Distributions to noncontrolling interests

 

 

(50,409

)

 

 

(41,499

)

Stock award exercises and other share issuances, net

 

 

3,167

 

 

 

5,648

 

Excess tax benefits from stock award exercises

 

 

4,383

 

 

 

7,584

 

Contributions from noncontrolling interests

 

 

10,190

 

 

 

15,898

 

Proceeds from sales of additional noncontrolling interests

 

 

3,557

 

 

 

 

Purchase of noncontrolling interests

 

 

(4,300

)

 

 

 

Deferred financing costs

 

 

(188

)

 

 

 

Net cash used in financing activities

 

 

(333,097

)

 

 

(110,868

)

Effect of exchange rate changes on cash and cash equivalents

 

 

717

 

 

 

(904

)

Net (decrease) increase in cash and cash equivalents

 

 

(457,689

)

 

 

46,030

 

Cash and cash equivalents at beginning of the year

 

 

1,499,116

 

 

 

965,241

 

Cash and cash equivalents at end of the period

 

$

1,041,427

 

 

$

1,011,271

 

 

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, 2014

 

$

829,965

 

 

 

215,641

 

 

$

216

 

 

$

1,108,211

 

 

$

4,087,103

 

 

 

 

 

$

 

 

$

(25,017

)

 

$

5,170,513

 

 

$

189,798

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

96,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

269,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

269,732

 

 

 

61,168

 

Other comprehensive

   loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,809

)

 

 

(34,809

)

 

 

 

 

Stock purchase shares issued

 

 

 

 

 

 

 

 

 

 

 

 

(6,079

)

 

 

 

 

 

 

414

 

 

 

30,608

 

 

 

 

 

 

 

24,529

 

 

 

 

 

Stock unit shares issued

 

 

 

 

 

 

348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-settled SAR shares

   issued

 

 

 

 

 

 

1,131

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-settled stock-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,899

 

 

 

 

 

Excess tax benefits from stock

   awards exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,157

 

 

 

 

 

Distributions to noncontrolling

   interests

 

 

(103,355

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,280

)

Contributions from

   noncontrolling interests

 

 

25,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,849

 

Sales and assumptions of

   additional noncontrolling

   interests

 

 

10,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,875

 

Purchase of noncontrolling

   interests

 

 

(8,538

)

 

 

 

 

 

 

 

 

 

 

(55,826

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,826

)

 

 

(2,018

)

Changes in fair value of

   noncontrolling interests

 

 

13,035

 

 

 

 

 

 

 

 

 

 

 

(13,035

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,035

)

 

 

 

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,780

)

 

 

(575,380

)

 

 

 

 

 

 

(575,380

)

 

 

 

 

Balance at December 31, 2015

 

$

864,066

 

 

 

217,120

 

 

$

217

 

 

$

1,118,326

 

 

$

4,356,835

 

 

 

(7,366

)

 

$

(544,772

)

 

$

(59,826

)

 

$

4,870,780

 

 

$

213,392

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

26,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97,434

 

 

 

13,949

 

Other comprehensive

   income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,313

 

 

 

6,313

 

 

 

 

 

Stock unit shares issued

 

 

 

 

 

 

 

 

 

 

 

 

(1,206

)

 

 

 

 

 

 

17

 

 

 

1,206

 

 

 

 

 

 

 

 

 

 

 

 

Stock-settled SAR shares

   issued

 

 

 

 

 

 

219

 

 

 

 

 

 

(6,695

)

 

 

 

 

 

 

93

 

 

 

6,695

 

 

 

 

 

 

 

 

 

 

 

 

Stock-settled stock-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,855

 

 

 

 

 

Excess tax benefits from stock

   awards exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,383

 

 

 

 

 

Distributions to noncontrolling

   interests

 

 

(29,151

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,258

)

Contributions from

   noncontrolling interests

 

 

7,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,801

 

Sales and assumptions of

   additional noncontrolling

   interests

 

 

7,719

 

 

 

 

 

 

 

 

 

 

 

885