Attached files
file | filename |
---|---|
EX-4.3 - EX-4.3 - DAVITA INC. | d744659dex43.htm |
EX-4.4 - EX-4.4 - DAVITA INC. | d744659dex44.htm |
EX-4.6 - EX-4.6 - DAVITA INC. | d744659dex46.htm |
EX-4.5 - EX-4.5 - DAVITA INC. | d744659dex45.htm |
EXCEL - IDEA: XBRL DOCUMENT - DAVITA INC. | Financial_Report.xls |
EX-32.2 - EX-32.2 - DAVITA INC. | d744659dex322.htm |
EX-31.1 - EX-31.1 - DAVITA INC. | d744659dex311.htm |
EX-32.1 - EX-32.1 - DAVITA INC. | d744659dex321.htm |
EX-12.1 - EX-12.1 - DAVITA INC. | d744659dex121.htm |
EX-31.2 - EX-31.2 - DAVITA INC. | d744659dex312.htm |
EX-10.1 - EX-10.1 - DAVITA INC. | d744659dex101.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarterly Period Ended June 30, 2014
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 29, 2014, the number of shares of the Registrants common stock outstanding was approximately 214.8 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 $15.3 billion.
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
INDEX
Note: Items 3, 4 and 5 of Part II are omitted because they are not applicable.
i
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Patient service revenues |
$ | 2,187,249 | $ | 2,048,651 | $ | 4,301,347 | $ | 4,028,524 | ||||||||
Less: Provision for uncollectible accounts |
(88,052 | ) | (72,191 | ) | (171,249 | ) | (142,248 | ) | ||||||||
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|
|||||||||
Net patient service revenues |
2,099,197 | 1,976,460 | 4,130,098 | 3,886,276 | ||||||||||||
Capitated revenues |
799,369 | 710,074 | 1,586,934 | 1,472,689 | ||||||||||||
Other revenues |
273,923 | 185,139 | 498,233 | 342,290 | ||||||||||||
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|
|||||||||
Total net revenues |
3,172,489 | 2,871,673 | 6,215,265 | 5,701,255 | ||||||||||||
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Operating expenses and charges: |
||||||||||||||||
Patient care costs and other costs |
2,246,538 | 2,014,320 | 4,426,310 | 3,975,211 | ||||||||||||
General and administrative |
298,636 | 268,110 | 582,697 | 552,520 | ||||||||||||
Depreciation and amortization |
145,907 | 130,589 | 288,486 | 256,498 | ||||||||||||
Provision for uncollectible accounts |
3,208 | 1,260 | 5,719 | 2,138 | ||||||||||||
Equity investment income |
(6,095 | ) | (7,649 | ) | (13,467 | ) | (17,016 | ) | ||||||||
Loss contingency reserve |
| | | 300,000 | ||||||||||||
Contingent earn-out obligation adjustment |
| (56,977 | ) | | (56,977 | ) | ||||||||||
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Total operating expenses and charges |
2,688,194 | 2,349,653 | 5,289,745 | 5,012,374 | ||||||||||||
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|||||||||
Operating income |
484,295 | 522,020 | 925,520 | 688,881 | ||||||||||||
Debt expense |
(106,132 | ) | (108,096 | ) | (212,467 | ) | (213,913 | ) | ||||||||
Debt refinancing charges |
(97,548 | ) | | (97,548 | ) | | ||||||||||
Other income (loss), net |
1,693 | (1,374 | ) | 3,391 | (776 | ) | ||||||||||
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Income from continuing operations before income taxes |
282,308 | 412,550 | 618,896 | 474,192 | ||||||||||||
Income tax expense |
100,887 | 129,192 | 225,738 | 144,336 | ||||||||||||
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Income from continuing operations |
181,421 | 283,358 | 393,158 | 329,856 | ||||||||||||
Discontinued operations: |
||||||||||||||||
Loss from operations of discontinued operations, net of tax |
| | | (139 | ) | |||||||||||
Gain on disposal of discontinued operations, net of tax |
| | | 13,375 | ||||||||||||
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Net income |
181,421 | 283,358 | 393,158 | 343,092 | ||||||||||||
Less: Net income attributable to noncontrolling interests |
(33,738 | ) | (28,982 | ) | (62,186 | ) | (58,552 | ) | ||||||||
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Net income attributable to DaVita HealthCare Partners Inc. |
$ | 147,683 | $ | 254,376 | $ | 330,972 | $ | 284,540 | ||||||||
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Earnings per share: |
||||||||||||||||
Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.70 | $ | 1.21 | $ | 1.56 | $ | 1.29 | ||||||||
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Basic net income per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.70 | $ | 1.21 | $ | 1.56 | $ | 1.36 | ||||||||
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Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.68 | $ | 1.18 | $ | 1.53 | $ | 1.26 | ||||||||
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Diluted net income per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.68 | $ | 1.18 | $ | 1.53 | $ | 1.33 | ||||||||
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Weighted average shares for earnings per share: |
||||||||||||||||
Basic |
212,258,994 | 209,797,334 | 211,817,893 | 209,385,380 | ||||||||||||
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Diluted |
216,720,944 | 214,849,164 | 216,420,713 | 214,490,452 | ||||||||||||
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Amounts attributable to DaVita HealthCare Partners Inc.: |
||||||||||||||||
Income from continuing operations |
$ | 147,683 | $ | 254,376 | $ | 330,972 | $ | 271,291 | ||||||||
Discontinued operations |
| | | 13,249 | ||||||||||||
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Net income |
$ | 147,683 | $ | 254,376 | $ | 330,972 | $ | 284,540 | ||||||||
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See notes to condensed consolidated financial statements.
1
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income |
$ | 181,421 | $ | 283,358 | $ | 393,158 | $ | 343,092 | ||||||||
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Other comprehensive income (loss), net of tax: |
||||||||||||||||
Unrealized losses on interest rate swap and cap agreements: |
||||||||||||||||
Unrealized (loss) gain on interest rate swap and cap agreements |
(5,209 | ) | 11,685 | (7,714 | ) | 9,316 | ||||||||||
Reclassifications of net swap and cap agreements realized loss into net income |
4,997 | 3,462 | 8,356 | 5,969 | ||||||||||||
Unrealized gains on investments: |
||||||||||||||||
Unrealized gain on investments |
578 | 101 | 909 | 719 | ||||||||||||
Reclassification of net investment realized gains into net income |
| | (207 | ) | (94 | ) | ||||||||||
Foreign currency translation adjustments |
1,939 | (1,841 | ) | 1,967 | (3,947 | ) | ||||||||||
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Other comprehensive income |
2,305 | 13,407 | 3,311 | 11,963 | ||||||||||||
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Total comprehensive income |
183,726 | 296,765 | 396,469 | 355,055 | ||||||||||||
Less: Comprehensive income attributable to noncontrolling interests |
(33,738 | ) | (28,982 | ) | (62,186 | ) | (58,552 | ) | ||||||||
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Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 149,988 | $ | 267,783 | $ | 334,283 | $ | 296,503 | ||||||||
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See notes to condensed consolidated financial statements.
2
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
June 30, 2014 |
December 31, 2013 |
|||||||
ASSETS | ||||||||
Cash and cash equivalents |
$ | 1,420,973 | $ | 946,249 | ||||
Short-term investments |
63,835 | 6,801 | ||||||
Accounts receivable, less allowance of $244,878 and $237,143 |
1,550,252 | 1,485,163 | ||||||
Inventories |
99,650 | 88,805 | ||||||
Other receivables |
455,620 | 349,090 | ||||||
Other current assets |
164,591 | 176,414 | ||||||
Income tax receivable |
6,965 | 10,315 | ||||||
Deferred income taxes |
399,361 | 409,441 | ||||||
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Total current assets |
4,161,247 | 3,472,278 | ||||||
Property and equipment, net of accumulated depreciation of $1,936,494 and $1,778,259 |
2,290,844 | 2,189,411 | ||||||
Intangibles, net of accumulated amortization of $565,839 and $483,773 |
2,022,875 | 2,024,373 | ||||||
Equity investments |
42,842 | 40,686 | ||||||
Long-term investments |
87,614 | 79,557 | ||||||
Other long-term assets |
66,106 | 79,598 | ||||||
Goodwill |
9,254,043 | 9,212,974 | ||||||
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$ | 17,925,571 | $ | 17,098,877 | |||||
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LIABILITIES AND EQUITY | ||||||||
Accounts payable |
$ | 405,751 | $ | 435,465 | ||||
Other liabilities |
465,242 | 464,422 | ||||||
Accrued compensation and benefits |
626,617 | 603,013 | ||||||
Medical payables |
304,551 | 287,452 | ||||||
Loss contingency reserve |
397,000 | 397,000 | ||||||
Senior notes (6 3⁄8% Senior Notes) |
291,907 | | ||||||
Current portion of long-term debt |
117,080 | 274,697 | ||||||
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Total current liabilities |
2,608,148 | 2,462,049 | ||||||
Long-term debt |
8,390,578 | 8,141,231 | ||||||
Other long-term liabilities |
386,033 | 380,337 | ||||||
Deferred income taxes |
823,745 | 812,419 | ||||||
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Total liabilities |
12,208,504 | 11,796,036 | ||||||
Commitments and contingencies |
||||||||
Noncontrolling interests subject to put provisions |
760,242 | 697,300 | ||||||
Equity: |
||||||||
Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued) |
||||||||
Common stock ($0.001 par value, 450,000,000 shares authorized; 214,759,091 and 213,163,248 shares issued and outstanding at June 30, 2014 and at December 31, 2013, respectively) |
215 | 213 | ||||||
Additional paid-in capital |
1,089,929 | 1,070,922 | ||||||
Retained earnings |
3,694,961 | 3,363,989 | ||||||
Accumulated other comprehensive income (loss) |
666 | (2,645 | ) | |||||
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Total DaVita HealthCare Partners Inc. shareholders equity |
4,785,771 | 4,432,479 | ||||||
Noncontrolling interests not subject to put provisions |
171,054 | 173,062 | ||||||
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Total equity |
4,956,825 | 4,605,541 | ||||||
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$ | 17,925,571 | $ | 17,098,877 | |||||
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See notes to condensed consolidated financial statements.
3
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended June 30, |
||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 393,158 | $ | 343,092 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Loss contingency reserve |
| 300,000 | ||||||
Depreciation and amortization |
288,470 | 256,382 | ||||||
Debt refinancing charges |
97,548 | | ||||||
Stock-based compensation expense |
29,699 | 32,266 | ||||||
Tax benefits from stock award exercises |
42,110 | 36,524 | ||||||
Excess tax benefits from stock award exercises |
(30,238 | ) | (28,442 | ) | ||||
Deferred income taxes |
13,826 | (102,039 | ) | |||||
Equity investment income, net |
2,257 | (496 | ) | |||||
Other non-cash (income) charges and loss on disposal of assets |
22,861 | (69,050 | ) | |||||
Changes in operating assets and liabilities, other than from acquisitions and divestitures: |
||||||||
Accounts receivable |
(65,079 | ) | (17,829 | ) | ||||
Inventories |
(10,731 | ) | 924 | |||||
Other receivables and other current assets |
(95,580 | ) | (65,349 | ) | ||||
Other long-term assets |
2,158 | (1,220 | ) | |||||
Accounts payable |
(46,022 | ) | (94,894 | ) | ||||
Accrued compensation and benefits |
19,912 | (14,279 | ) | |||||
Other current liabilities |
31,970 | 82,905 | ||||||
Income taxes |
2,886 | (9,182 | ) | |||||
Other long-term liabilities |
(17,707 | ) | 36,713 | |||||
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Net cash provided by operating activities |
681,498 | 686,026 | ||||||
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Cash flows from investing activities: |
||||||||
Additions of property and equipment, net |
(278,593 | ) | (258,396 | ) | ||||
Acquisitions |
(98,442 | ) | (152,112 | ) | ||||
Proceeds from asset and business sales |
215 | 64,363 | ||||||
Purchase of investments available for sale |
(6,117 | ) | (3,286 | ) | ||||
Purchase of investments held-to-maturity |
(121,333 | ) | (1,032 | ) | ||||
Proceeds from sale of investments available for sale |
1,277 | 1,091 | ||||||
Proceeds from sale of investments held to maturity |
64,561 | 1,376 | ||||||
Purchase of intangible assets and equity investment |
(4,760 | ) | (7 | ) | ||||
Distributions received on equity investments |
337 | 116 | ||||||
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Net cash used in investing activities |
(442,855 | ) | (347,887 | ) | ||||
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Cash flows from financing activities: |
||||||||
Borrowings |
33,136,743 | 33,445,567 | ||||||
Payments on long-term debt and other financing costs |
(32,788,307 | ) | (33,696,216 | ) | ||||
Deferred financing costs and debt redemption costs |
(106,937 | ) | (716 | ) | ||||
Distributions to noncontrolling interests |
(65,818 | ) | (65,206 | ) | ||||
Stock award exercises and other share issuances, net |
7,274 | 8,819 | ||||||
Excess tax benefits from stock award exercises |
30,238 | 28,442 | ||||||
Contributions from noncontrolling interests |
28,265 | 20,132 | ||||||
Proceeds from sales of additional noncontrolling interests |
933 | 5,903 | ||||||
Purchases from noncontrolling interests |
(5,743 | ) | (474 | ) | ||||
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Net cash provided by (used in) financing activities |
236,648 | (253,749 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
(567 | ) | (234 | ) | ||||
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Net increase in cash and cash equivalents |
474,724 | 84,156 | ||||||
Cash and cash equivalents at beginning of the year |
946,249 | 533,748 | ||||||
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Cash and cash equivalents at end of the year |
$ | 1,420,973 | $ | 617,904 | ||||
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See notes to condensed consolidated financial statements.
4
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(dollars and shares in thousands)
Non- controlling interests subject to put provisions |
DaVita HealthCare Partners Inc. Shareholders Equity |
Non- controlling interests not subject to put provisions |
||||||||||||||||||||||||||||||||||||||
Common stock |
Additional paid-in capital |
Retained earnings |
Treasury stock | Accumulated other comprehensive income (loss) |
Total | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2012 |
$ | 580,692 | 269,725 | $ | 270 | $ | 1,208,665 | $ | 3,731,835 | (58,728 | ) | $ | (1,162,336 | ) | $ | (15,297 | ) | $ | 3,763,137 | $ | 153,788 | |||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||
Net income |
78,215 | 633,446 | 633,446 | 45,540 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income |
12,652 | 12,652 | ||||||||||||||||||||||||||||||||||||||
Stock purchase shares issued |
238 | 12,817 | 12,817 | |||||||||||||||||||||||||||||||||||||
Stock unit shares issued |
7 | (3,286 | ) | 164 | 3,247 | (39 | ) | |||||||||||||||||||||||||||||||||
Stock-settled SAR shares issued |
313 | (29,025 | ) | 1,444 | 28,561 | (464 | ) | |||||||||||||||||||||||||||||||||
Stock-based compensation expense |
59,998 | 59,998 | ||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock awards exercised |
36,197 | 36,197 | ||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
(80,353 | ) | (58,973 | ) | ||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests |
22,053 | 14,943 | ||||||||||||||||||||||||||||||||||||||
Sales and assumptions of additional noncontrolling interests |
23,642 | (1,442 | ) | (1,442 | ) | 10,770 | ||||||||||||||||||||||||||||||||||
Purchases from noncontrolling interests |
(512 | ) | (3,119 | ) | (3,119 | ) | (147 | ) | ||||||||||||||||||||||||||||||||
Expiration of put option and other reclassification |
(7,141 | ) | 7,141 | |||||||||||||||||||||||||||||||||||||
Changes in fair value of noncontrolling interests |
80,704 | (80,704 | ) | (80,704 | ) | |||||||||||||||||||||||||||||||||||
Treasury stock retirement |
(57,120 | ) | (57 | ) | (129,179 | ) | (1,001,292 | ) | 57,120 | 1,130,528 | | |||||||||||||||||||||||||||||
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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 |
43,590 | 330,972 | 330,972 | 18,596 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income |
3,311 | 3,311 | ||||||||||||||||||||||||||||||||||||||
Stock unit shares issued |
290 | (27 | ) | (27 | ) | |||||||||||||||||||||||||||||||||||
Stock-settled SAR shares issued |
1,306 | 2 | (2 | ) | | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
29,699 | 29,699 | ||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock awards exercised |
30,238 | 30,238 | ||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
(41,733 | ) | (24,085 | ) | ||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests |
18,240 | 10,025 | ||||||||||||||||||||||||||||||||||||||
Sales and assumptions of additional noncontrolling interests |
918 | 15 | 15 | |||||||||||||||||||||||||||||||||||||
Purchase and gains from noncontrolling interests |
(446 | ) | 1,247 | 1,247 | (6,544 | ) | ||||||||||||||||||||||||||||||||||
Adjustment in ownership interests |
210 | 210 | ||||||||||||||||||||||||||||||||||||||
Changes in fair value of noncontrolling interests |
42,373 | (42,373 | ) | (42,373 | ) | |||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||
Balance at June 30, 2014 |
$ | 760,242 | 214,759 | $ | 215 | $ | 1,089,929 | $ | 3,694,961 | | $ | | $ | 666 | $ | 4,785,771 | $ | 171,054 | ||||||||||||||||||||||
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See notes to condensed consolidated financial statements.
5
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars and shares in thousands, except per share data)
Unless otherwise indicated in this Quarterly Report on Form 10-Q the Company, we, us, our and similar terms refer to DaVita HealthCare Partners Inc. and its consolidated subsidiaries.
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 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 the accrual of an estimated loss contingency reserve and its impact on the Companys income taxes, revenue recognition and accounts receivable, impairments of long-lived assets, fair value estimates, accounting for income taxes, variable compensation accruals, consolidation of variable interest entities, purchase accounting valuation estimates, long-term incentive program compensation and medical liability claims. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the operating results for the full year. The condensed 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 December 31, 2013. Prior year balances and amounts have been reclassified to conform to the current year presentation. The Company has evaluated subsequent events through the date these condensed consolidated financial statements were issued and has included all necessary disclosures.
2. Earnings per share
Basic net income per share is calculated by dividing net income attributable to the Company, adjusted for any change in noncontrolling interests 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-settled stock appreciation rights and unvested stock units (under the treasury stock method).
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The reconciliations of the numerators and denominators used to calculate basic and diluted earnings per share are as follows:
Three months ended June 30, |
Six months ended June 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Basic: |
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Income from continuing operations attributable to DaVita HealthCare Partners Inc. |
$ | 147,683 | $ | 254,376 | $ | 330,972 | $ | 271,291 | ||||||||
Increase in noncontrolling interests redemption rights in excess of fair value |
| (259 | ) | | (259 | ) | ||||||||||
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Income from continuing operations for basic earnings per share calculation |
$ | 147,683 | $ | 254,117 | $ | 330,972 | $ | 271,032 | ||||||||
Discontinued operations attributable to DaVita HealthCare Partners Inc. |
| | | 13,249 | ||||||||||||
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Net income attributable to DaVita HealthCare Partners Inc. for basic earnings per share calculation |
$ | 147,683 | $ | 254,117 | $ | 330,972 | $ | 284,281 | ||||||||
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Weighted average shares outstanding during the period |
214,451 | 211,986 | 214,010 | 211,574 | ||||||||||||
Vested stock units |
2 | 5 | 2 | 5 | ||||||||||||
Contingently returnable shares held in escrow for the DaVita HealthCare Partners merger |
(2,194 | ) | (2,194 | ) | (2,194 | ) | (2,194 | ) | ||||||||
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Weighted average shares for basic earnings per share calculation |
212,259 | 209,797 | 211,818 | 209,385 | ||||||||||||
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Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.70 | $ | 1.21 | $ | 1.56 | $ | 1.29 | ||||||||
Basic income from discontinued operations per share attributable to DaVita HealthCare Partners Inc. |
$ | | $ | | $ | | $ | 0.07 | ||||||||
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Basic net income per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.70 | $ | 1.21 | $ | 1.56 | $ | 1.36 | ||||||||
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Diluted: |
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Income from continuing operations attributable to DaVita HealthCare Partners Inc. |
$ | 147,683 | $ | 254,376 | $ | 330,972 | $ | 271,291 | ||||||||
Increase in noncontrolling interests redemption rights in excess of fair value |
| (259 | ) | | (259 | ) | ||||||||||
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Income from continuing operations for diluted earnings per share calculation |
$ | 147,683 | $ | 254,117 | $ | 330,972 | $ | 271,032 | ||||||||
Discontinued operations attributable to DaVita HealthCare Partners Inc. |
| | | 13,249 | ||||||||||||
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Net income attributable to DaVita HealthCare Partners Inc. for diluted earnings per share calculation |
$ | 147,683 | $ | 254,117 | $ | 330,972 | $ | 284,281 | ||||||||
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Weighted average shares outstanding during the period |
214,451 | 211,986 | 214,010 | 211,574 | ||||||||||||
Vested stock units |
2 | 5 | 2 | 5 | ||||||||||||
Assumed incremental shares from stock plans |
2,268 | 2,858 | 2,409 | 2,911 | ||||||||||||
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Weighted average shares for diluted earnings per share calculation |
216,721 | 214,849 | 216,421 | 214,490 | ||||||||||||
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Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.68 | $ | 1.18 | $ | 1.53 | $ | 1.26 | ||||||||
Diluted income from discontinued operations per share attributable to DaVita HealthCare Partners Inc. |
$ | | $ | | $ | | $ | 0.07 | ||||||||
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Diluted net income per share attributable to DaVita HealthCare Partners Inc. |
$ | 0.68 | $ | 1.18 | $ | 1.53 | $ | 1.33 | ||||||||
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Anti-dilutive stock-settled awards excluded from calculation(1) |
990 | 4,520 | 1,995 | 3,353 | ||||||||||||
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(1) | Shares associated with stock-settled stock appreciation rights that are excluded from the diluted denominator calculation because they are anti-dilutive under the treasury stock method. |
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Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
3. Accounts receivable
Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the ultimate collectability of the Companys accounts receivable, the Company analyzes its historical cash collection experience and trends for each of its government payors and commercial payors to estimate the adequacy of the allowance for doubtful accounts and the amount of the provision for uncollectible accounts. Management regularly updates its analysis based upon the most recent information available to determine its current provision for uncollectible accounts and the adequacy of its allowance for doubtful accounts. For receivables associated with dialysis patient services covered by government payors, like Medicare, the Company receives 80% of the payment directly from Medicare as established under the governments bundled payment system, in the case of dialysis services receivables, and determines an appropriate allowance for doubtful accounts and provision for uncollectible accounts on the remaining balance due depending upon the Companys estimate of the amounts ultimately collectible from other secondary coverage sources or from the patients. For receivables associated with services to patients covered by commercial payors that are either based upon contractual terms or for non-contracted health plan coverage, the Company provides an allowance for doubtful accounts by recording a provision for uncollectible accounts based upon its historical collection experience, potential inefficiencies in its billing processes and for which collectability is determined to be unlikely. Approximately 1% of the Companys net accounts receivable are associated with patient pay and it is the Companys policy to record an allowance for 100% of these outstanding dialysis accounts receivable balances when those amounts due are outstanding for more than four months.
During the six months ended June 30, 2014, the Companys allowance for doubtful accounts increased by approximately $7,735. This was mainly due to an increase relating to the U.S. dialysis and related lab services, primarily as a result of additional non-covered Medicare write-offs. There were no unusual transactions impacting the allowance for doubtful accounts.
4. Investments in debt and equity securities and other investments
Based on the Companys intentions and strategy concerning investments in debt 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, including those of mutual funds, common stock and other debt securities, are classified as available-for-sale and recorded at fair value.
The Companys investments in securities consist of the following:
June 30, 2014 | December 31, 2013 | |||||||||||||||||||||||
Held to maturity |
Available for sale |
Total | Held to maturity |
Available for sale |
Total | |||||||||||||||||||
Certificates of deposit and money market funds due within one year |
$ | 62,374 | $ | | $ | 62,374 | $ | 5,601 | $ | | $ | 5,601 | ||||||||||||
Investments in mutual funds and common stock |
| 25,685 | 25,685 | | 19,421 | 19,421 | ||||||||||||||||||
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$ | 62,374 | $ | 25,685 | $ | 88,059 | $ | 5,601 | $ | 19,421 | $ | 25,022 | |||||||||||||
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Short-term investments |
$ | 62,374 | $ | 1,461 | $ | 63,835 | $ | 5,601 | $ | 1,200 | $ | 6,801 | ||||||||||||
Long-term investments |
| 24,224 | 24,224 | | 18,221 | 18,221 | ||||||||||||||||||
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$ | 62,374 | $ | 25,685 | $ | 88,059 | $ | 5,601 | $ | 19,421 | $ | 25,022 | |||||||||||||
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Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The cost of the certificates of deposit and money market funds at June 30, 2014 and December 31, 2013 approximates their fair value. As of June 30, 2014 and December 31, 2013, the available-for-sale investments included $6,161 and $5,096 of gross pre-tax unrealized gains, respectively. During the six months ended June 30, 2014, the Company recorded gross pre-tax unrealized gains of $1,405, or $909 after tax, in other comprehensive income associated with changes in the fair value of these investments. During the six months ended June 30, 2014, the Company sold investments in mutual funds for net proceeds of $1,277 and recognized a pre-tax gain of $340, or $207 after-tax, which was previously recorded in other comprehensive income. During the six months ended June 30, 2013, the Company sold investments in mutual funds for net proceeds of $1,091 and recognized a pre-tax gain of $155, or $94 after-tax, which was previously recorded in other comprehensive income.
The investments in mutual funds classified as available-for-sale are held within a trust to fund existing obligations associated with several of the Companys non-qualified deferred compensation plans.
As of June 30, 2014, the Company held $5,000 of preferred stock in a privately held company that is accounted for under the cost method as this investment does not have a readily determinable fair value.
Certain HCP entities are required to maintain minimum cash balances in order to comply with regulatory requirements in conjunction with medical claim reserves. As of June 30, 2014, this minimum cash balance was approximately $58,000.
5. Goodwill
Changes in goodwill by reportable segments were as follows:
Six months ended June 30, 2014 | ||||||||||||||||
U.S. dialysis and related lab services |
HCP | Other-ancillary services and strategic initiatives |
Consolidated total | |||||||||||||
Balance at December 31, 2013 |
$ | 5,469,473 | $ | 3,516,162 | $ | 227,339 | $ | 9,212,974 | ||||||||
Acquisitions |
2,915 | 38,639 | 820 | 42,374 | ||||||||||||
Other adjustments |
| (2,277 | ) | 972 | (1,305 | ) | ||||||||||
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Balance at June 30, 2014 |
$ | 5,472,388 | $ | 3,552,524 | $ | 229,131 | $ | 9,254,043 | ||||||||
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Year ended December 31, 2013 | ||||||||||||||||
U.S. dialysis and related lab services |
HCP | Other-ancillary services and strategic initiatives |
Consolidated total | |||||||||||||
Balance at December 31, 2012 |
$ | 5,309,152 | $ | 3,506,571 | $ | 137,027 | $ | 8,952,750 | ||||||||
Acquisitions |
163,037 | 17,833 | 90,397 | 271,267 | ||||||||||||
Divestitures |
(2,728 | ) | | | (2,728 | ) | ||||||||||
Other adjustments |
12 | (8,242 | ) | (85 | ) | (8,315 | ) | |||||||||
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Balance at December 31, 2013 |
$ | 5,469,473 | $ | 3,516,162 | $ | 227,339 | $ | 9,212,974 | ||||||||
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Each of the Companys operating segments described in Note 16 to these condensed consolidated financial statements represents an individual reporting unit for goodwill impairment testing purposes, except that each sovereign jurisdiction within our international operations segments is considered a separate reporting unit.
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Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Within the U.S. dialysis and related lab services operating segment, the Company considers each of its dialysis centers to constitute an individual business for which discrete financial information is available. However, since these dialysis centers have similar operating and economic characteristics, and the allocation of resources and significant investment decisions concerning these businesses are highly centralized and the benefits broadly distributed, the Company has aggregated these centers and deemed them to constitute a single reporting unit.
The Company has applied a similar aggregation to the HCP operations in each region, to the vascular access service centers in its vascular access services reporting unit, to the physician practices in its physician services reporting unit, and to the dialysis centers within each sovereign international jurisdiction. For the Companys additional operating segments, no component below the operating segment level is considered a discrete business and therefore these operating segments directly constitute individual reporting units.
HCPs current and expected future operating results have eroded recently, primarily as a result of reductions in its Medicare Advantage reimbursement rates. As a result, the Company has determined that two of its HCP reporting units, HCP California and HCP Nevada, are at risk of goodwill impairment. HCP California and HCP Nevada have goodwill of $2,511,477 and $517,618, respectively.
The Company obtained preliminary third-party valuations of these two businesses as of June 30, 2014, noting that the estimated fair values of HCP California and HCP Nevada exceed their total carrying values by approximately 6.0% and 10.9%, respectively. Further reductions in HCPs reimbursement rates or other significant adverse changes in its expected future cash flows or valuation assumptions could result in a goodwill impairment charge in the future.
For example, a sustained, long-term reduction of 3% in operating income for HCP California and HCP Nevada could reduce their estimated fair values by up to 3.1% and 2.9%, respectively. Separately, an increase in their respective discount rates of 100 basis points could reduce the estimated fair values of HCP California and HCP Nevada by up to 7.7% and 6.1%, respectively.
During the first six months of 2014, the Company did not record any goodwill impairment charges. Except as described above, none of the goodwill associated with the Companys various other reporting units was considered at risk of impairment as of June 30, 2014. Since the dates of the Companys last annual goodwill impairment tests, there have been certain developments, events, changes in operating performance and other changes in circumstances that have affected the Companys businesses. However, these did not cause management to believe it is more likely than not that the fair value of any of its reporting units would be less than its carrying amount.
6. Health care costs payable
The health care costs shown in the following table include estimates for the cost of professional medical services provided by non-employed physicians and other providers, as well as inpatient and other ancillary costs for all markets, where state regulation allows for the assumption of global risk. Health care costs payable are included in medical payables.
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Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The following table shows the components of changes in the health care costs payable for the six months ended June 30, 2014:
Six months ended June 30, 2014 |
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Health care costs payable, beginning of the period |
$ | 172,310 | ||
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Add: Components of incurred health care costs |
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Current year |
775,604 | |||
Prior years |
5,602 | |||
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Total incurred health care costs |
781,206 | |||
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Less: Claims paid |
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Current year |
589,968 | |||
Prior years |
153,223 | |||
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Total claims paid |
743,191 | |||
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Health care costs payable, end of the period |
$ | 210,325 | ||
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Our prior year estimates of health care costs payable increased by $5,602 resulting from certain medical claims being settled for amounts more than originally estimated. When significant increases (decreases) in prior-year health care cost estimates occur that we believe significantly impact our current year operating results, we disclose that amount as unfavorable (favorable) development of prior-years health care cost estimates. Actual claim payments for prior year services have not been materially different from our year-end estimates.
7. Income taxes
As of June 30, 2014, the Companys total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold is $60,372, of which $32,945 would impact the Companys effective tax rate if recognized. This balance represents a decrease of $166 from the December 31, 2013 balance of $60,538.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. At June 30, 2014 and December 31, 2013, the Company had approximately $11,969 and $10,742, respectively, accrued for interest and penalties related to unrecognized tax benefits, net of federal tax benefits.
As of June 30, 2014, it is reasonably possible that $27,427 of unrecognized tax benefits may be recognized within the next 12 months, primarily related to the filing of tax accounting method changes which will not impact the Companys effective tax rate.
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
8. Long-term debt
Long-term debt was comprised of the following:
June 30, 2014 |
December 31, 2013 |
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Senior Secured Credit Facilities: |
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New Term Loan A |
$ | 1,000,000 | $ | | ||||
New Term Loan B |
3,500,000 | | ||||||
Prior Term Loan A |
| 800,000 | ||||||
Prior Term Loan A-3 |
| 1,282,500 | ||||||
Prior Term Loan B |
| 1,697,500 | ||||||
Prior Term Loan B-2 |
| 1,633,500 | ||||||
Senior notes |
4,066,907 | 2,800,000 | ||||||
Acquisition obligations and other notes payable |
66,511 | 67,352 | ||||||
Capital lease obligations |
183,647 | 152,751 | ||||||
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Total debt principal outstanding |
8,817,065 | 8,433,603 | ||||||
Discount on long-term debt |
(17,500 | ) | (17,675 | ) | ||||
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8,799,565 | 8,415,928 | |||||||
Less current portion |
(408,987 | ) | (274,697 | ) | ||||
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$ | 8,390,578 | $ | 8,141,231 | |||||
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Classification of long-term debt at June 30, 2014 was as follows:
Senior notes |
$ | 291,907 | ||
Current portion |
117,080 | |||
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Total current portion |
408,987 | |||
Long-term debt |
8,390,578 | |||
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$ | 8,799,565 | |||
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Scheduled maturities and pay-outs of long-term debt at June 30, 2014 were as follows:
2014 (remainder of the year, including the 6 3⁄8% Senior Notes) |
347,712 | |||
2015 |
112,182 | |||
2016 |
115,645 | |||
2017 |
141,972 | |||
2018 |
153,282 | |||
2019 |
727,238 | |||
Thereafter |
7,219,034 |
During the first six months of 2014, the Company made mandatory principal payments under its then existing Senior Secured Credit Facilities (before entering into a new senior secured credit agreement and repaying all outstanding amounts under the then existing Senior Secured Credit Facilities) totaling $37,500 on the Term Loan A, $16,875 on the Term Loan A-3, $4,375 on the Term Loan B and $4,125 on the Term Loan B-2.
12
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
In June 2014, the Company entered into a $5,500,000 senior secured credit agreement (the New Credit Agreement). The New Credit Agreement consists of a five year Revolving Credit Facility in the aggregate principal amount of $1,000,000 (the New Revolver), a five year Term Loan A facility in the aggregate principal amount of $1,000,000 (the New Term Loan A) and a seven year Term Loan B facility in the aggregate principal amount of $3,500,000 (the New Term Loan B and collectively with the New Revolver and the New Term Loan A, the New Loans). In addition, the Company can increase the existing revolving commitments and enter into one or more incremental term loan facilities in an amount not to exceed the sum of $1,500,000 (less the amount of other permitted indebtedness incurred or issued in reliance on such amount), plus an amount of indebtedness such that the senior secured leverage ratio is not in excess of 3.50 to 1.00 after giving effect to such borrowings. The New Revolver and the New Term Loan A initially bears interest at LIBOR plus an interest rate margin of 1.75% which is subject to adjustment depending upon the Companys leverage ratio and can range from 1.50% to 2.00%. The New Term Loan A requires annual principal payments beginning on September 30, 2014 of $25,000 in 2014, $50,000 in 2015, $62,500 in 2016, $87,500 in 2017 and $100,000 in 2018 with the balance of $675,000 due in 2019. The New Term Loan B bears interest at LIBOR (Floor of 0.75%) plus an interest rate margin of 2.75%. The New Term Loan B requires annual principal payments of $17,500 in 2014 and $35,000 for each year from 2015 through 2020, with the balance of $3,272,500 due in 2021. These New Loans under the New Credit Agreement are guaranteed by certain of the Companys direct and indirect wholly-owned domestic subsidiaries holding most of the Companys domestic assets and are secured by substantially all of the Companys and the guarantors assets. The New Credit Agreement contains certain customary affirmative and negative covenants such as various restrictions or limitations on the amount of investments, acquisitions, the payment of dividends and redemptions and the incurrence of other indebtedness. Many of these restrictions and limitations will not apply as long as the Companys leverage ratio is below 3.50 to 1.00. In addition, the New Credit Agreement places limitations on the amount of tangible net assets of the non-guarantor subsidiaries and also requires compliance with a maximum leverage ratio covenant.
In addition, in June 2014, the Company issued $1,750,000 5 1⁄8% Senior Notes due 2024 (the 5 1⁄8% Senior Notes). The 5 1⁄8% Senior Notes pay interest on January 15 and July 15 of each year beginning January 15, 2015. The 5 1⁄8% Senior Notes are unsecured obligations and will rank equally in right of payment with our existing and future unsecured senior indebtedness. The 5 1⁄8% Senior Notes are guaranteed by each of the Companys domestic subsidiaries that guarantees the Companys New Credit Agreement. The Company may redeem up to 35% of the 5 1⁄8% Senior Notes at any time prior to July 15, 2017 at a certain specified price from the proceeds of one or more equity offerings. In addition, the Company may redeem the 5 1⁄8% Senior Notes at any time prior to July 15, 2019 at make whole redemption prices and after such date at certain specified redemption prices.
The Company received total proceeds from these borrowings of $6,250,000, $4,500,000 from the issuance of the New Term Loans and $1,750,000 from the issuance of the 5 1⁄8% Senior Notes. The Company used a portion of the proceeds to pay off the total outstanding principal balances under its then existing Senior Secured Credit Facilities plus accrued interest totaling $5,362,428 and in addition, to purchase pursuant to a cash tender offer $483,093 of the outstanding principal balances of the Companys $775,000 6 3⁄8% Senior Notes due 2018 (6 3⁄8% Senior Notes) plus accrued interest and cash tender premium totaling $512,386. The total amount paid for the 6 3⁄8% Senior Notes from the cash tender offer was $1,051.25 per 1,000 of principal amount of the 6 3⁄8% Senior Notes, which resulted in the Company paying a cash tender premium of $24,759 for the redemption of this portion of the 6 3⁄8% Senior Notes. The Company also incurred an additional $81,569 in fees, discounts and other professional expenses associated with these transactions.
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Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
In July 2014, the Company also purchased an additional $188 principal amount of the 6 3⁄8% Senior Notes plus accrued interest totaling $194 pursuant to the cash tender offer at a price of $1,021.25 per 1,000 of principal amount of the 6 3⁄8% Senior Notes, which resulted in the Company paying an additional cash tender premium of $4.
In addition, in July 2014, the Company redeemed the remaining outstanding principal balance of the 6 3⁄8% Senior Notes of $291,719 at a redemption price of $1,047.81 per 1,000 of principal amount of the 6 3⁄8% Senior Notes plus accrued interest and a redemption premium which totaled $309,954. This resulted in an additional redemption premium of $13,947 being recorded as debt refinancing charges.
As a result of these transactions, the Company recorded debt refinancing charges of $97,548 that consist of the cash tender premiums, the redemption premium, the write-off of existing deferred financing costs, the write-off of certain new refinancing costs, other professional fees and losses associated with the termination of several of the Companys interest rate swap agreements.
In addition, as a result of these transactions, the Company terminated $1,137,500 notional amounts of amortizing swaps and also terminated $600,000 of forward swaps during June 2014, that resulted in the Company recognizing a loss of $3,140, of which $2,972 was previously recorded in other comprehensive income due to the Companys previously outstanding principal debt being paid-off as described above, and as a result of future forecasted transactions that are no longer probable. The loss is included as a component of the Companys debt refinancing charges. During the six months ended June 30, 2014, the Company recognized debt expense of $6,137 from these swaps.
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 interest rate risk management strategy. These agreements are not held for trading or speculative purposes and have the economic effect of converting the LIBOR variable component of the Companys interest rate to a fixed rate. These swap 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 the hedged forecasted cash flows occur, 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. In addition, the Company has entered into several interest rate cap agreements that have the economic effect of capping the Companys maximum exposure to LIBOR variable interest rate changes on specific portions of the Companys floating rate debt, as described below. Certain cap agreements are also designated as cash flow hedges and, as a result, changes in the fair values of these cap agreements are reported in other comprehensive income. Certain other cap agreements are ineffective cash flow hedges, and as a result, changes in the fair value of these cap agreements are reported in net income. The amortization of the original cap premium is recognized as a component of debt expense on a straight-line basis over the term of the cap agreements. The swap and cap agreements do not contain credit-risk contingent features.
As of June 30, 2014, the Company maintains several interest rate swap agreements that were entered into in March 2013 with amortizing notional amounts of these swap agreements totaling $878,750. These agreements have the economic effect of modifying the LIBOR variable component of the Companys interest rate on an equivalent amount of the Companys New Term Loan A to fixed rates ranging from 0.49% to 0.52%, resulting in an overall weighted average effective interest rate of 2.26%, including the New Term Loan A margin of 1.75%. The overall weighted average effective interest rate also includes the effects of $121,250 of unhedged New Term Loan A debt that bears interest at LIBOR plus an interest rate margin of 1.75%. The swap agreements expire on
14
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
September 30, 2016 and require monthly interest payments. During the six months ended June 30, 2014, the Company recognized debt expense of $1,592 from these swaps. As of June 30, 2014, the total fair value of these swap agreements was a net asset of approximately $849. The Company estimates that approximately $2,696 of existing unrealized pre-tax losses in other comprehensive income at June 30, 2014 will be reclassified into income over the next twelve months.
As of June 30, 2014, the Company maintains several interest rate cap agreements that were entered into in March 2013 with notional amounts totaling $2,735,000 on the Companys New Term Loan B debt. These agreements have the economic effect of capping the LIBOR variable component of the Companys interest rate at a maximum of 2.50% on an equivalent amount of the Companys New Term Loan B. During the six months ended June 30, 2014, the Company recognized debt expense of $1,220 from these caps. The cap agreements expire on September 30, 2016. As of June 30, 2014, the total fair value of these cap agreements was an asset of approximately $2,692. During the six months ended June 30, 2014, the Company recorded a loss of $4,874 in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements.
As of June 30, 2014, the Company also maintains five other interest rate cap agreements with notional amounts totaling $1,250,000. These agreements have the economic effect of capping the LIBOR variable component of our interest rate at a maximum of 4.00% on an equivalent amount of our New Term Loan B debt. However, as a result of the interest rate cap agreements that were entered into in March 2013, as described above, these interest rate cap agreements became ineffective cash flow hedges and as a result any changes in the fair value associated with these interest rate cap agreements will be charged to income. During the six months ended June 30, 2014, the Company recognized debt expense of $1,794 from these caps. The cap agreements expire on September 30, 2014.
The following table summarizes the Companys derivative instruments as of June 30, 2014 and December 31, 2013:
June 30, 2014 | December 31, 2013 | |||||||||||||||
Derivatives designated as hedging |
Balance sheet location |
Fair value | Balance sheet location |
Fair value | ||||||||||||
Interest rate swap agreements |
Other short-term liabilities | $ | 2,696 | Other short-term liabilities | $ | 12,069 | ||||||||||
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Interest rate swap agreements |
Other long-term assets | $ | 3,545 | Other long-term assets | $ | 10,004 | ||||||||||
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Interest rate cap agreements |
Other long-term assets | $ | 2,692 | Other long-term assets | $ | 7,567 | ||||||||||
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15
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The following table summarizes the effects of the Companys interest rate swap and cap agreements for the three and six months ended June 30, 2014 and 2013:
Amount of gains (losses) recognized in OCI on interest rate swap and cap agreements |
Location of losses reclassified from accumulated OCI into income |
Amount of losses reclassified from accumulated OCI into income |
||||||||||||||||||||||||||||||||
Derivatives designated |
Three months ended June 30, |
Six months ended June 30, |
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||
Interest rate swap agreements |
$ | (5,022 | ) | $ | 13,266 | $ | (7,786 | ) | $ | 12,302 | Debt expense (including |
$ | (6,694 | ) | $ | (4,159 | ) | $ | (10,700 | ) | $ | (7,366 | ) | |||||||||||
Interest rate cap agreements |
(3,527 | ) | 5,858 | (4,874 | ) | 2,945 | Debt expense (including |
(1,507 | ) | (1,507 | ) | (3,014 | ) | (2,404 | ) | |||||||||||||||||||
Tax benefit (expense) |
3,340 | (7,439 | ) | 4,946 | (5,931 | ) | 3,204 | 2,204 | 5,358 | 3,801 | ||||||||||||||||||||||||
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Total |
$ | (5,209 | ) | $ | 11,685 | $ | (7,714 | ) | $ | 9,316 | $ | (4,997 | ) | $ | (3,462 | ) | $ | (8,356 | ) | $ | (5,969 | ) | ||||||||||||
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As of June 30, 2014, the interest rate on the Companys New Term Loan B debt is effectively fixed because of an embedded LIBOR floor which is higher than actual LIBOR as of such date and the New Term Loan B is also subject to interest rate caps if LIBOR should rise above 2.50%. See above for further details. Interest rates on the Companys senior notes are fixed by their terms. The LIBOR variable component of the Companys interest rate on a majority of the Companys New Term Loan A is economically fixed as a result of interest rate swaps.
As a result of embedded LIBOR floors on the New Term Loan B debt agreement and the swap and cap agreements, the Companys overall weighted average effective interest rate on the Senior Secured Credit Facilities was 3.51%, based upon the current margins in effect of 1.75% for the New Term Loan A and 2.75% for the New Term Loan B, as of June 30, 2014.
The Companys overall weighted average effective interest rate during the second quarter of 2014 was 4.85% and as of June 30, 2014 was 4.56%.
As of June 30, 2014, the Company had undrawn revolving credit facilities totaling $1,000,000 of which approximately $83,000 was committed for outstanding letters of credit. In addition, HCP has an outstanding letter of credit of approximately $1,000 that is secured by a certificate of deposit.
9. Contingencies
The majority of the Companys revenues are from government programs and may be subject to adjustment as a result of: (i) examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (ii) differing interpretations of government regulations by different Medicare contractors or regulatory authorities; (iii) differing opinions regarding a patients medical diagnosis or the medical necessity of services provided; and (iv) 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.
16
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Inquiries by the Federal Government and Certain Related Civil Proceedings
Vainer Private Civil Suit: In December 2008, the Company received a subpoena for documents from the Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) relating to the pharmaceutical products Zemplar, Hectorol, Venofer, Ferrlecit and erythropoietin (EPO), as well as other related matters. The subpoena covered the period from January 2003 to December 2008. The Company has been in contact with the 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 was a civil inquiry. On June 17, 2009, the Company learned that the allegations underlying this inquiry were made as part of a civil complaint filed by individuals and brought pursuant to the qui tam provisions of the federal False Claims Act. On April 1, 2011, the U.S. District Court for the Northern District of Georgia ordered the case to be unsealed. At that time, the Department of Justice and U.S. Attorneys Office filed a notice of declination stating that the federal government would not be intervening and not pursuing the relators allegation in litigation. On July 25, 2011, the relators, Daniel Barbir and Dr. Alon Vainer, filed their amended complaint in the U.S. District Court for the Northern District of Georgia, purportedly on behalf of the federal government. The allegations in the complaint relate to the Companys drug administration practices for the Companys dialysis operations for Vitamin D and iron agents for a period from 2003 through 2010. The complaint seeks monetary damages and civil penalties as well as costs and expenses. The Company is vigorously defending this matter and intends to continue to do so. The Company can make no assurances as to the time or resources that will be needed to devote to this litigation or its final outcome.
2010 U.S. Attorney Physician Relationship Investigation: In May 2010, the Company received a subpoena from the OIGs office in Dallas, Texas. The civil subpoena covers the period from January 2005 to May 2010, and seeks production of a wide range of documents relating to the Companys dialysis operations, including documents related to, among other things, financial relationships with physicians and joint ventures, and whether those relationships and joint ventures comply with the federal anti-kickback statute and the False Claims Act. The Company has been advised by the attorneys conducting this civil investigation that they believe that some or all of the Companys joint ventures do not comply with the anti-kickback statute and the False Claims Act. The Company disagrees that its joint venture structure generally, which the Company believes is widely used in the dialysis industry and other segments of the healthcare industry substantially in the form that the Company uses it, violates the federal anti-kickback statute or the False Claims Act. As to individual transactions, the Company made significant effort to ensure that its joint venture structures and process complied with the rules, but the Company is talking with the government about addressing its concerns. The focus of this investigation overlaps substantially with the 2011 U.S. Attorney Physician Relationship Investigation described below. The Company has agreed to a framework for a global resolution with the United States Attorneys Office for the District of Colorado, the Civil Division of the United States Department of Justice and the Office of the Inspector General for both the 2010 and the 2011 U.S. Attorney Physician Relationship Investigations. The final settlement remains subject to negotiation of specific terms. The settlement will include the payment of approximately $389,000, entry into a corporate integrity agreement, the appointment of an independent compliance monitor, and the imposition of certain other business restrictions related to a subset of the Companys joint venture arrangements. Under the terms of the framework for resolution, the Company has agreed to unwind a limited subset of joint ventures that were created through partial divestiture to nephrologists, and agreed not to enter into this type of partial divestiture joint venture with nephrologists in the future. In 2013, the Company accrued an estimated loss contingency reserve of $397,000 related to this matter. The final settlement remains subject to negotiation of specific terms and will continue to require managements attention and significant legal expense. The Company can make no assurances as to the final outcome.
17
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
2011 U.S. Attorney Physician Relationship Investigation: In August 2011, the Company announced it had learned that the U.S. Attorneys Office for the District of Colorado would be investigating certain activities of its dialysis business in connection with information being provided to a grand jury. This investigation relates to the Companys relationships with physicians, including its joint ventures, and whether those relationships and joint ventures comply with the federal anti-kickback statute, and overlaps substantially with the 2010 U.S. Attorney Physician Relationship Investigation described above. As noted above, the Company has agreed to a framework for a global resolution with the United States Attorneys Office for the District of Colorado, the Civil Division of the United States Department of Justice and the Office of the Inspector General for both the 2010 and the 2011 U.S. Attorney Physician Relationship Investigations. The final settlement remains subject to negotiation of specific terms and will continue to require managements attention and significant legal expense. The Company can make no assurances as to the final outcome.
2011 U.S. Attorney Medicaid Investigation: In October 2011, the Company announced that it would be receiving a request for documents, which could include an administrative subpoena from the OIG. Subsequent to the Companys announcement of this 2011 U.S. Attorney Medicaid Investigation, the Company received a request for documents in connection with the inquiry by the U.S. Attorneys Office for the Eastern District of New York. The request relates to payments for infusion drugs covered by Medicaid composite payments for dialysis. It is the Companys understanding that this inquiry is civil in nature. The Company understands that certain other providers that operate dialysis clinics in New York may be receiving or have received a similar request for documents. The Company has cooperated with the government and produced the requested documents. In April 2014, we reached an agreement in principle to resolve this matter. The specific terms of a settlement remain subject to ongoing negotiation.
Swoben Private Civil Suit: In April 2013, the Companys HealthCare Partners (HCP) subsidiary was served with a civil complaint filed by a former employee of SCAN Health Plan (SCAN), a health maintenance organization (HMO). On July 13, 2009, pursuant to the qui tam provisions of the federal False Claims Act and the California False Claims Act, James M. Swoben, as relator, filed a qui tam action in the United States District Court for the Central District of California purportedly on behalf of the United States of America and the State of California against SCAN, and certain other defendants whose identities were under seal. The allegations in the complaint relate to alleged overpayments received from government healthcare programs. In or about August 2012, SCAN entered into a settlement agreement with the United States of America and the State of California. The United States and the State of California partially intervened in the action for the purpose of settlement with and dismissal of the action against SCAN. In or about November 2011, the relator filed his Third Amended Complaint under seal alleging violations of the federal False Claims Act and the California False Claims Act, which named additional defendants, including HCP and certain health insurance companies (the defendant HMOs). The allegations in the complaint against HCP relate to patient diagnosis coding to determine reimbursement in the Medicare Advantage program, referred to as Hierarchical Condition Coding (HCC) and Risk Adjustment Factor (RAF) scores. The complaint sought monetary damages and civil penalties as well as costs and expenses. The United States Department of Justice reviewed these allegations and in January 2013 declined to intervene in the case. On June 26, 2013, HCP and the defendant HMOs filed their respective motions to dismiss the Third Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), challenging the legal sufficiency of the claims asserted in the complaint. On July 30, 2013, the court granted HCPs motion and dismissed with prejudice all of the claims in the Third Amended Complaint and judgment was entered in September 2013. The court specifically determined that further amendments to the complaint would be futile because, in part, the allegations were publicly disclosed in reports and other sources relating to audits conducted by the Centers of Medicare & Medicaid Services. In October 2013, the plaintiff appealed to the United States Court of Appeals for the Ninth Circuit and the courts disposition of the appeal is pending.
18
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Except for the private civil complaints filed by the relators as described above, to the Companys knowledge, no proceedings have been initiated against the Company at this time in connection with any of the inquiries by the federal government. Although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved, it is not unusual for inquiries such as these to continue for a considerable period of time through the various phases of document and witness requests and on-going discussions with regulators. Responding to the subpoenas or inquiries and defending the Company in the relator proceedings will continue to require managements attention and significant legal expense. Any negative findings in the inquiries or relator proceedings could result in substantial financial penalties or awards against the Company, exclusion from future participation in the Medicare and Medicaid programs and, to the extent criminal proceedings may be initiated against the Company, possible criminal penalties. At this time, the Company cannot predict the ultimate outcome of these inquiries, or the potential outcome of the relators claims (except as described above), or the potential range of damages, if any.
In re DaVita HealthCare Partners Inc. Derivative Litigation: On January 7, 2014, the U.S. District Court for the District of Colorado consolidated the two previously disclosed shareholder derivative lawsuits: the Haverhill Retirement System action filed on May 17, 2013 and the Clark Shareholder action filed on August 7, 2012. The court appointed Haverhill lead plaintiff. The complaints filed against the directors of the Company and against the Company, as nominal defendant allege, among other things, that our directors breached fiduciary duties to the Company relating to the 2010 and 2011 U.S. Attorney Physician Relationship Investigations described above, the Vainer qui tam private civil suit described above and the Woodard qui tam private civil suit for which the Company previously announced a settlement in July 2012. At this time, the Company cannot predict the ultimate outcome of these matters or the potential range of damages, if any.
Other
The Company has received several notices of claims from commercial payors and other third parties related to historical billing practices and claims against DVA Renal Healthcare (formerly known as Gambro Healthcare), a subsidiary of the Company, related to historical Gambro Healthcare billing practices and other matters covered by its 2004 settlement agreement with the Department of Justice and certain agencies of the U.S. government. The Company has received no further indication that any of these claims are active, and some of them may be barred by applicable statutes of limitations. To the extent any of these claims might proceed, the Company intends to defend against them vigorously; however, the Company may not be successful and these claims may lead to litigation and any such litigation may be resolved unfavorably. At this time, the Company cannot predict the ultimate outcome of these matters or the potential range of damages, if any.
A wage and hour claim, which has been styled as a class action, is pending against the Company in the Superior Court of California. The Company was served with the complaint in this lawsuit in April 2008, and it has been amended since that time. The complaint, as amended, alleges that the Company failed to provide meal periods, failed to pay compensation in lieu of providing rest or meal periods, failed to pay overtime, and failed to comply with certain other California Labor Code requirements. In September 2011, the court denied the plaintiffs motion for class certification. Plaintiffs appealed that decision. In January 2013, the Court of Appeals affirmed the trial courts decision on some claims, but remanded the case to the trial court for clarification of its decision on one of the claims. The Company reached an agreement with the plaintiffs to settle the claim that was remanded to the trial court, and that settlement has been finalized. The amount of the settlement is not material to the Companys consolidated financial statements. The Company intends to continue to vigorously defend against the remaining claims. Any potential settlement of the remaining claims is not anticipated to be material to the Companys consolidated financial statements.
19
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and professional and general liability claims, as well as audits and investigations by various government entities, in the ordinary course of business. The Company believes that the ultimate resolution of any such pending proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on its financial condition, results of operations or cash flows.
10. 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 majority-owned joint ventures, non-owned and minority-owned entities. 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 the higher of either a liquidation value of net assets or an average multiple of earnings, based on historical earnings, patient mix and other performance indicators that can affect future results, as well as other factors. The estimated fair values of the noncontrolling interests subject to put provisions is a critical accounting estimate that involves significant judgments and assumptions and may not be indicative of the actual values at which the noncontrolling interest may ultimately be settled, which could vary significantly from the Companys current estimates. The estimated fair values of noncontrolling interest 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 employ a contractually 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 a minority equity investment as well as to physician-owned vascular access clinics or medical practices that the Company operates under management and administrative service agreements of approximately $2,000.
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 consolidated balance sheet.
11. Long-term incentive compensation
Long-term incentive program (LTIP) compensation includes both stock-based awards (principally stock-settled stock appreciation rights, restricted stock units and performance stock units) as well as long-term performance-based cash awards. Long-term incentive compensation expense, which was primarily general and administrative in nature, was attributed to the dialysis and related lab services business, the HCP business, corporate support costs, and the ancillary services and strategic initiatives.
20
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The Companys stock-based compensation awards are measured at their estimated fair values on the date of grant if settled in shares or at their estimated fair values at the end of each reporting period if settled in cash. The value of stock-based awards so measured is recognized as compensation expense on a cumulative straight-line basis over the vesting terms of the awards, adjusted for expected forfeitures.
During the six months ended June 30, 2014, the Company granted 1,248 stock-settled stock appreciation rights with an aggregate grant-date fair value of $19,997 and a weighted-average expected life of approximately 4.2 years, and also granted 316 stock units with an aggregate grant-date fair value of $22,809 and a weighted-average expected life of approximately 3.4 years.
For the six months ended June 30, 2014 and 2013, the Company recognized $52,960 and $38,773, respectively, in total LTIP expense, of which $29,699 and $32,266, respectively, was stock-based compensation expense for stock appreciation rights, stock units and discounted employee stock plan purchases, which are primarily included in general and administrative expenses. The estimated tax benefits recorded for stock-based compensation through June 30, 2014 and 2013 was $10,997 and $12,171, respectively. As of June 30, 2014, there was $162,351 of total estimated unrecognized compensation cost for outstanding LTIP awards, including $99,331 related to stock-based compensation arrangements under the Companys equity compensation and stock purchase plans. The Company expects to recognize the performance-based cash component of these LTIP costs over a weighted average remaining period of 1.1 years and the stock-based component of these LTIP costs over a weighted average remaining period of 1.4 years.
For the six months ended June 30, 2014 and 2013, the Company received $42,110 and $36,524, respectively, in actual tax benefits upon the exercise of stock awards.
12. Comprehensive income
For the three months ended June 30, 2014 |
For the six months ended June 30, 2014 |
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Interest rate swap and cap agreements |
Investment securities |
Foreign currency translation adjustments |
Accumulated other comprehensive income (loss) |
Interest rate swap and cap agreements |
Investment securities |
Foreign currency translation adjustments |
Accumulated other comprehensive income (loss) |
|||||||||||||||||||||||||
Beginning balance |
$ | (1,490 | ) | $ | 3,244 | $ | (3,393 | ) | $ | (1,639 | ) | $ | (2,344 | ) | $ | 3,120 | $ | (3,421 | ) | $ | (2,645 | ) | ||||||||||
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Unrealized (losses) gains |
(8,549 | ) | 875 | 1,939 | (5,736 | ) | (12,660 | ) | 1,405 | 1,967 | (9,289 | ) | ||||||||||||||||||||
Related income tax benefit (expense) |
3,340 | (297 | ) | | 3,044 | 4,946 | (496 | ) | | 4,451 | ||||||||||||||||||||||
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(5,209 | ) | 578 | 1,939 | (2,692 | ) | (7,714 | ) | 909 | 1,967 | (4,838 | ) | |||||||||||||||||||||
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Reclassification from accumulated other comprehensive income into net income |
8,201 | | | 8,201 | 13,714 | (340 | ) | | 13,374 | |||||||||||||||||||||||
Related tax |
(3,204 | ) | | | (3,204 | ) | (5,358 | ) | 133 | | (5,225 | ) | ||||||||||||||||||||
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4,997 | | | 4,997 | 8,356 | (207 | ) | | 8,149 | ||||||||||||||||||||||||
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Ending balance |
$ | (1,702 | ) | $ | 3,822 | $ | (1,454 | ) | $ | 666 | $ | (1,702 | ) | $ | 3,822 | $ | (1,454 | ) | $ | 666 | ||||||||||||
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21
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
For the three months ended June 30, 2013 |
For the six months ended June 30, 2013 |
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Interest rate swap and cap agreements |
Investment securities |
Foreign currency translation adjustments |
Accumulated other comprehensive income (loss) |
Interest rate swap and cap agreements |
Investment securities |
Foreign currency translation adjustments |
Accumulated other comprehensive income (loss) |
|||||||||||||||||||||||||
Beginning balance |
$ | (15,264 | ) | $ | 1,834 | $ | (3,311 | ) | $ | (16,741 | ) | $ | (15,402 | ) | $ | 1,310 | $ | (1,205 | ) | $ | (15,297 | ) | ||||||||||
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Unrealized gains (losses) |
19,124 | 166 | (1,841 | ) | 17,449 | 15,247 | 1,178 | (3,947 | ) | 12,478 | ||||||||||||||||||||||
Related income tax (expense) benefit |
(7,439 | ) | (65 | ) | | (7,504 | ) | (5,931 | ) | (459 | ) | | (6,390 | ) | ||||||||||||||||||
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11,685 | 101 | (1,841 | ) | 9,945 | 9,316 | 719 | (3,947 | ) | 6,088 | |||||||||||||||||||||||
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|
|||||||||||||||||
Reclassification from accumulated other comprehensive income into net income |
5,666 | | | 5,666 | 9,770 | (155 | ) | | 9,615 | |||||||||||||||||||||||
Related tax |
(2,204 | ) | | | (2,204 | ) | (3,801 | ) | 61 | | (3,740 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
3,462 | | | 3,462 | 5,969 | (94 | ) | | 5,875 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending balance |
$ | (117 | ) | $ | 1,935 | $ | (5,152 | ) | $ | (3,334 | ) | $ | (117 | ) | $ | 1,935 | $ | (5,152 | ) | $ | (3,334 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reclassification of net swap and cap realized losses into income are recorded as debt expense in the corresponding condensed consolidated statements of income. See Note 8 to the condensed consolidated financial statements for further details.
The reclassification of net investment realized gains into income are recorded in other income in the corresponding condensed consolidated statements of income. See Note 4 to the condensed consolidated financial statements for further details.
13. Acquisitions
During the first six months of 2014, the Company acquired dialysis businesses and other businesses consisting of one dialysis center located in the U.S., three dialysis centers located outside the U.S. and other medical businesses for a total of $98,442 in net cash and deferred purchase price obligations totaling $14,156. The assets and liabilities for all acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Companys condensed consolidated financial statements and operating results from the designated effective dates of the acquisitions. Certain income tax amounts are pending final evaluation and quantification of any pre-acquisition tax contingencies. In addition, valuation of medical claims reserves and certain other working capital items relating to several of these acquisitions are pending final quantification.
The following table summarizes the assets acquired and liabilities assumed in these transactions and recognized at their acquisition dates at estimated fair values:
Six months ended June 30, 2014 |
||||
Tangible assets, principally leasehold improvements and equipment, net of cash |
$ | 858 | ||
Amortizable intangible and other long-term assets |
69,366 | |||
Goodwill |
42,374 | |||
|
|
|||
Aggregate purchase price |
$ | 112,598 | ||
|
|
22
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Amortizable intangible assets acquired during the first six months of 2014 had weighted-average estimated useful lives of 9.9 years. The total amount of goodwill deductible for tax purposes associated with these acquisitions was approximately $27,789.
Contingent earn-out obligations
The Company has several contingent earn-out obligations associated with acquisitions that could result in the Company paying the former shareholders of those acquired companies a total of up to $136,300 or a portion of that amount if certain EBITDA performance targets and quality margins are met over the next two years, if certain percentages of operating income are met over the next three years or if certain percentages of other annual EBITDA targets are met. As of June 30, 2014, the Company has estimated the fair value of these contingent earn-out obligations to be $38,335.
Contingent earn-out obligations will be remeasured to fair value at each reporting date until the contingencies are resolved with changes in the liability due to the re-measurement recorded in earnings. See Note 15 to the condensed consolidated financial statements for further details. Of the total contingent earn-out obligations of $38,335 recognized at June 30, 2014, a total of $13,682 is included in other liabilities and the remaining $24,653 is included in other long-term liabilities in the Companys condensed consolidated balance sheet.
The following is a reconciliation of changes in the contingent earn-out obligations for the six months ended June 30, 2014:
Beginning balance, January 1, 2014 |
$ | 28,058 | ||
Contingent earn-out obligations associated with acquisitions |
13,772 | |||
Remeasurement of fair value for other contingent earn-outs |
(1,969 | ) | ||
Payments of contingent earn-outs |
(1,526 | ) | ||
|
|
|||
$ | 38,335 | |||
|
|
14. Variable interest entities
The Company relies on the operating activities of certain entities that it does not directly own or control, but over which it has indirect influence and of which it is considered the primary beneficiary. These entities are subject to the consolidation guidance applicable to variable interest entities (VIEs).
Under U.S. generally accepted accounting principles (GAAP), VIEs typically include (i) those for which the entitys equity is not sufficient to finance its activities without additional subordinated financial support; (ii) those for which the equity holders as a group lack the power to direct the activities that most significantly influence the entitys economic performance, the obligation to absorb the entitys expected losses, or the right to receive the entitys expected returns; or (iii) those for which the voting rights of some investors are not proportional to their obligations to absorb the entitys losses.
Under U.S. GAAP, the Company has determined that substantially all of the entities it is associated with that qualify as VIEs must be included in its consolidated financial statements. The Company manages these entities and provides operating and capital funding as necessary for the entities to accomplish their operational and strategic objectives. A number of these entities are subject to nominee share ownership or share transfer
23
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DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
restriction agreements that effectively transfer the majority of the economic risks and rewards of their ownership to the Company. In other cases the Companys management agreements with these entities include both financial terms and protective and participating rights to the entities operating, strategic and non-clinical governance decisions which transfer substantial powers over and economic responsibility for the entities to the Company. In some cases such entities are subject to broad exclusivity or noncompetition restrictions that benefit the Company. Further, in some cases the Company has contractual arrangements with its related party nominee owners that effectively indemnify these parties from the economic losses from, or entitle the Company to the economic benefits of, these entities.
The analyses upon which these consolidation determinations rest are complex, involve uncertainties, and require significant judgment on various matters, some of which could be subject to different interpretations. At June 30, 2014, these condensed consolidated financial statements include total assets of VIEs of $515,618 and total liabilities and noncontrolling interests of VIEs to third parties of $307,133.
The Company also sponsors certain deferred compensation plans whose trusts qualify as VIEs and the Company consolidates each of these plans as their primary beneficiary. The assets of these plans are recorded in short-term or long-term investments with matching offsetting liabilities recorded in accrued compensation and benefits and other long-term liabilities. See Note 4 for disclosures on the assets of these consolidated non-qualified deferred compensation plans.
15. Fair value of financial instruments
The Company measures the fair value of certain assets, liabilities and noncontrolling interests subject to put provisions (temporary equity) based upon certain valuation techniques that include observable or unobservable inputs and assumptions that market participants would use in pricing these assets, liabilities, temporary equity and commitments. The Company also has classified certain assets, liabilities and temporary equity that are measured at fair value into the appropriate fair value hierarchy levels as defined by the FASB.
The following table summarizes the Companys assets, liabilities and temporary equity measured at fair value on a recurring basis as of June 30, 2014:
Total | Quoted prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Assets |
||||||||||||||||
Available-for-sale securities |
$ | 25,685 | $ | 25,685 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest rate cap agreements |
$ | 2,692 | $ | | $ | 2,692 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest rate swap agreements |
$ | 3,545 | $ | | $ | 3,545 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Funds on deposit with third parties |
$ | 72,575 | $ | 72,575 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Contingent earn-out obligations |
$ | 38,335 | $ | | $ | | $ | 38,335 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest rate swap agreements |
$ | 2,696 | $ | | $ | 2,696 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Temporary equity |
||||||||||||||||
Noncontrolling interests subject to put provisions |
$ | 760,242 | $ | | $ | | $ | 760,242 | ||||||||
|
|
|
|
|
|
|
|
24
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
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 quoted prices reported by each mutual fund. See Note 4 to these condensed consolidated financial statements for further discussion.
The interest rate swap and cap agreements are recorded at fair value based upon valuation models utilizing the income approach and commonly accepted valuation techniques that use inputs from closing prices for similar assets and liabilities in active markets as well as other relevant observable market inputs at quoted intervals such as current interest rates, forward yield curves, implied volatility and credit default swap pricing. The Company does not believe the ultimate amount that could be realized upon settlement of these interest rate swap and cap agreements would be materially different from the fair values currently reported. See Note 8 to the condensed consolidated financial statements for further discussion.
The funds on deposit with third parties represent funds held with various third parties as required by regulation or contract and invested by those parties in various investments, which are measured at estimated fair value based primarily on quoted market prices.
The estimated fair value measurements of contingent earn-out obligations are primarily based on unobservable inputs including projected EBITDA, estimated probabilities of achieving gross margin of certain medical procedures and the estimated probability of earn-out payments being made using an option pricing technique and a simulation model for expected EBITDA and operating income. In addition, a probability adjusted model was used to estimate the fair values of the quality results amounts. The estimated fair value of these contingent earn-out obligations will be remeasured as of each reporting date and could fluctuate based upon any significant changes in key assumptions, such as changes in the Company credit risk adjusted rate that is used to discount obligations to present value.
See Note 10 to these condensed consolidated financial statements for a discussion of the Companys methodology for estimating the fair value of noncontrolling interests subject to put obligations.
Other financial instruments consist primarily of cash, accounts receivable, accounts payable, other accrued liabilities and debt. The balances of the non-debt financial instruments are presented in the consolidated financial statements at June 30, 2014 at their approximate fair values due to the short-term nature of their settlements. The carrying balance of the Companys Senior Secured Credit Facilities totaled $4,482,500 as of June 30, 2014, and the fair value was approximately $4,526,300 based upon quoted market prices. The fair value of the Companys senior notes was approximately $4,229,200 at June 30, 2014 based upon quoted market prices, as compared to the carrying amount of $4,066,907.
16. Segment reporting
The Company operates two major divisions, Kidney Care and HCP. The Kidney Care division is comprised of the Companys U.S. dialysis and related lab services business and various other ancillary services and strategic initiatives, including its international dialysis operations. The HCP division is comprised of the Companys HealthCare Partners integrated healthcare business.
As of June 30, 2014, the Companys ancillary services and strategic initiatives consisted primarily of pharmacy services, disease management services, vascular access services, ESRD clinical research programs, physician services, direct primary care and the Companys international dialysis operations.
25
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The Companys operating segments have been defined based on the separate financial information that is regularly produced and reviewed by the Companys chief operating decision maker in making decisions about allocating resources to and assessing the financial results of the Companys different business units. The chief operating decision maker for the Company is its Chief Executive Officer.
The Companys separate operating segments include its U.S. dialysis and related lab services business, its HCP operations in each region, each of its ancillary services and strategic initiatives, and its international operations in the European and Middle Eastern, Asia Pacific, and Latin American regions. The U.S. dialysis and related lab services business and the HCP business each qualify as separately reportable segments, and all of the other ancillary services and strategic initiatives operating segments, including the international operating segments, have been combined and disclosed in the other segments category.
The Companys operating segment financial information included in this report is prepared on the internal management reporting basis that the chief operating decision maker uses to allocate resources and assess the financial results of the operating segments. For internal management reporting, segment operations include direct segment operating expenses but exclude corporate support expenses, which consist primarily of indirect labor, benefits and long-term incentive based compensation of certain departments which provide support to all of the Companys different operating lines of business. Corporate support expenses in the second quarter of 2014 have been reduced by internal management fees paid by the Companys ancillary lines of businesses.
26
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The following is a summary of segment net revenues, segment operating margin (loss), and a reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Segment net revenues: |
||||||||||||||||
U.S. dialysis and related lab services |
||||||||||||||||
Patient service revenues: |
||||||||||||||||
External sources |
$ | 2,096,605 | $ | 1,980,267 | $ | 4,125,349 | $ | 3,889,050 | ||||||||
Intersegment revenues |
9,084 | 8,158 | 16,916 | 15,669 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total dialysis and related lab services revenues |
2,105,689 | 1,988,425 | 4,142,265 | 3,904,719 | ||||||||||||
Less: Provision for uncollectible accounts |
(84,227 | ) | (69,585 | ) | (165,690 | ) | (136,656 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net dialysis and related lab services patient service revenues |
2,021,462 | 1,918,840 | 3,976,575 | 3,768,063 | ||||||||||||
Other revenues(1) |
3,579 | 3,424 | 6,732 | 6,319 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net dialysis and related lab services revenues |
2,025,041 | 1,922,264 | 3,983,307 | 3,774,382 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
HCP |
||||||||||||||||
HCP revenues: |
||||||||||||||||
Capitated revenues |
783,182 | 692,357 | 1,554,724 | 1,438,428 | ||||||||||||
Net patient service revenues |
58,076 | 49,433 | 114,297 | 103,035 | ||||||||||||
Other revenues(2) |
46,029 | 19,216 | 58,553 | 23,302 | ||||||||||||
Intersegment capitated and other revenues |
204 | | 357 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
887,491 | 761,006 | 1,727,931 | 1,564,765 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
OtherAncillary services and strategic initiatives |
||||||||||||||||
Net patient service revenuesU.S. |
4,709 | 3,050 | 8,862 | 6,490 | ||||||||||||
Net patient service revenuesInternational |
24,035 | 13,294 | 47,281 | 24,357 | ||||||||||||
Capitated revenues |
16,187 | 17,717 | 32,210 | 34,261 | ||||||||||||
Other external sourcesU.S. |
222,716 | 160,988 | 429,671 | 309,745 | ||||||||||||
Other external sourcesInternational |
1,598 | 1,512 | 3,276 | 2,924 | ||||||||||||
Intersegment revenues |
4,474 | 3,397 | 9,293 | 6,176 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total ancillary services and strategic initiatives revenues |
273,719 | 199,958 | 530,593 | 383,953 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net segment revenues |
3,186,251 | 2,883,228 | 6,241,831 | 5,723,100 | ||||||||||||
Elimination of intersegment revenues |
(13,762 | ) | (11,555 | ) | (26,566 | ) | (21,845 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated net revenues |
$ | 3,172,489 | $ | 2,871,673 | $ | 6,215,265 | $ | 5,701,255 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Segment operating margin (loss): |
||||||||||||||||
U.S. dialysis and related lab services |
$ | 407,948 | $ | 401,415 | $ | 794,648 | $ | 486,228 | ||||||||
HCP |
82,048 | 81,382 | 136,002 | 189,466 | ||||||||||||
OtherAncillary services and strategic initiatives |
(1,920 | ) | (6,791 | ) | (243 | ) | (21,392 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total segment margin |
488,076 | 476,006 | 930,407 | 654,302 | ||||||||||||
Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes: |
||||||||||||||||
Contingent earn-out obligation adjustment |
| 56,977 | | 56,977 | ||||||||||||
Corporate support expenses |
(3,781 | ) | (10,963 | ) | (4,887 | ) | (22,398 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated operating income |
484,295 | 522,020 | 925,520 | 688,881 | ||||||||||||
Debt expense |
(106,132 | ) | (108,096 | ) | (212,467 | ) | (213,913 | ) | ||||||||
Debt refinancing charges |
(97,548 | ) | | (97,548 | ) | | ||||||||||
Other income (loss) |
1,693 | (1,374 | ) | 3,391 | (776 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated income from continuing operations before income taxes |
$ | 282,308 | $ | 412,550 | $ | 618,896 | $ | 474,192 | ||||||||
|
|
|
|
|
|
|
|
27
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
(1) | Includes management fees for providing management and administrative services to dialysis centers that are wholly-owned by third parties or centers in which the Company owns a minority equity investment. |
(2) | Includes payments received for medical consulting services and management fees for providing management and administrative services to an unconsolidated joint venture that provides medical services in which the Company owns a 50% interest, as well as revenue related to the maintenance of existing physician networks. |
For the three months ended June 30, 2014, depreciation and amortization expense for the U.S. dialysis and related lab services, HCP and the ancillary services and strategic initiatives was $99,163, $42,260 and $4,484, respectively.
For the six months ended June 30, 2014, depreciation and amortization expense for the U.S. dialysis and related lab services, HCP and the ancillary services and strategic initiatives was $195,606, $83,997 and $8,883, respectively.
For the three months ended June 30, 2013, depreciation and amortization expense for the U.S. dialysis and related lab services, HCP and the ancillary services and strategic initiatives was $88,588, $38,590 and $3,411, respectively.
For the six months ended June 30, 2013, depreciation and amortization expense for the U.S. dialysis and related lab services, HCP and the ancillary services and strategic initiatives was $173,540, $76,607 and $6,351, respectively.
Summary of assets by segment is as follows:
June 30, 2014 |
December 31, 2013 |
|||||||
Segment assets |
||||||||
U.S. dialysis and related lab services |
$ | 10,876,860 | $ | 10,248,993 | ||||
HCP |
6,369,644 | 6,265,767 | ||||||
OtherAncillary services and strategic initiatives |
679,067 | 584,117 | ||||||
|
|
|
|
|||||
Consolidated assets |
$ | 17,925,571 | $ | 17,098,877 | ||||
|
|
|
|
For the three and six months ended June 30, 2014, the total amount of expenditures for property and equipment, excluding capital leases was $136,660 and $249,869, respectively, for the U.S. dialysis and related lab services, was $5,777 and $10,279, respectively, for HCP and was $9,594 and $18,445, respectively, for the ancillary services and strategic initiatives.
For the three and six months ended June 30, 2013, the total amount of expenditures for property and equipment, excluding capital leases was $128,699 and $230,775, respectively, for the U.S. dialysis and related lab services, and was $7,840 and $14,379, respectively, for HCP and was $5,133 and $13,242, respectively, for the ancillary services and strategic initiatives.
28
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
17. Changes in DaVita HealthCare Partners Inc.s ownership interest in consolidated subsidiaries
The effects of changes in DaVita HealthCare Partners Inc.s ownership interest on the Companys equity are as follows:
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 147,683 | $ | 254,376 | $ | 330,972 | $ | 284,540 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(Decrease) increase in paid-in capital for sales of noncontrolling interests |
(66 | ) | (78 | ) | 15 | (887 | ) | |||||||||
Increase (decrease) in paid-in capital for the purchase of noncontrolling interests and adjustments to ownership interest |
1,247 | (474 | ) | 1,457 | (474 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net transfers to noncontrolling interests |
1,181 | (552 | ) | 1,472 | (1,361 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Change from net income attributable to DaVita HealthCare Partners Inc. and transfers to noncontrolling interests |
$ | 148,864 | $ | 253,824 | $ | 332,444 | $ | 283,179 | ||||||||
|
|
|
|
|
|
|
|
18. New accounting standards
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organizations operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organizations results from continuing operations. The amendments in this ASU enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The adoption of this standard will not have a material impact on the Companys condensed consolidated financial statements.
29
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
19. 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 Companys consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other administrative services. The Companys senior notes are guaranteed by substantially all of its domestic wholly-owned subsidiaries. Each of the guarantor subsidiaries has guaranteed the notes on a joint and several basis. However, the guarantor subsidiaries can be released from their obligations in the event of a sale or other disposition of all or substantially all of the assets of such subsidiary, including by merger or consolidation or the sale of all equity interests in such subsidiary owned by the Company, if such subsidiary guarantor is designated as an unrestricted subsidiary or otherwise ceases to be a restricted subsidiary, and if such subsidiary guarantor no longer guaranties any other indebtedness of the Company. Non-wholly-owned subsidiaries, certain wholly-owned subsidiaries, foreign subsidiaries, joint ventures, partnerships, non-owned entities and third parties are not guarantors of these obligations.
Condensed Consolidating Statements of Income
For the three months ended June 30, 2014 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Patient service revenues |
$ | | $ | 1,517,268 | $ | 668,312 | $ | 1,669 | $ | 2,187,249 | ||||||||||
Less: Provision for uncollectible accounts |
| (57,281 | ) | (30,771 | ) | | (88,052 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net patient service revenues |
| 1,459,987 | 637,541 | 1,669 | 2,099,197 | |||||||||||||||
Capitated revenues |
| 414,366 | 385,030 | (27 | ) | 799,369 | ||||||||||||||
Other revenues |
181,199 | 424,755 | 35,712 | (367,743 | ) | 273,923 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total net revenues |
181,199 | 2,299,108 | 1,058,283 | (366,101 | ) | 3,172,489 | ||||||||||||||
Operating expenses |
122,815 | 2,033,828 | 897,652 | (366,101 | ) | 2,688,194 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
58,384 | 265,280 | 160,631 | | 484,295 | |||||||||||||||
Debt expense, including debt refinancing charges |
(202,258 | ) | (94,169 | ) | (10,180 | ) | 102,927 | (203,680 | ) | |||||||||||
Other income (expense) |
99,532 | 4,166 | 922 | (102,927 | ) | 1,693 | ||||||||||||||
Income tax (benefit) expense |
(17,958 | ) | 111,415 | 7,430 | | 100,887 | ||||||||||||||
Equity earnings in subsidiaries |
174,067 | 110,205 | | (284,272 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
147,683 | 174,067 | 143,943 | (284,272 | ) | 181,421 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| | | (33,738 | ) | (33,738 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 147,683 | $ | 174,067 | $ | 143,943 | $ | (318,010 | ) | $ | 147,683 | |||||||||
|
|
|
|
|
|
|
|
|
|
30
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
For the three months ended June 30, 2013 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Patient service revenues |
$ | | $ | 1,476,135 | $ | 581,208 | $ | (8,692 | ) | $ | 2,048,651 | |||||||||
Less: Provision for uncollectible accounts |
| (37,218 | ) | (34,973 | ) | | (72,191 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net patient service revenues |
| 1,438,917 | 546,235 | (8,692 | ) | 1,976,460 | ||||||||||||||
Capitated revenues |
| 337,312 | 374,451 | (1,689 | ) | 710,074 | ||||||||||||||
Other revenues |
166,650 | 374,577 | 21,183 | (377,271 | ) | 185,139 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total net revenues |
166,650 | 2,150,806 | 941,869 | (387,652 | ) | 2,871,673 | ||||||||||||||
Operating expenses |
71,881 | 1,827,141 | 838,283 | (387,652 | ) | 2,349,653 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
94,769 | 323,665 | 103,586 | | 522,020 | |||||||||||||||
Debt expense |
(107,337 | ) | (95,600 | ) | (11,247 | ) | 106,088 | (108,096 | ) | |||||||||||
Other income (expense) |
100,947 | 3,714 | 53 | (106,088 | ) | (1,374 | ) | |||||||||||||
Income tax expense |
29,458 | 97,729 | 2,005 | | 129,192 | |||||||||||||||
Equity earnings in subsidiaries |
195,455 | 61,405 | | (256,860 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
254,376 | 195,455 | 90,387 | (256,860 | ) | 283,358 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| | | (28,982 | ) | (28,982 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 254,376 | $ | 195,455 | $ | 90,387 | $ | (285,842 | ) | $ | 254,376 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2014 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Patient service revenues |
$ | | $ | 3,030,545 | $ | 1,267,669 | $ | 3,133 | $ | 4,301,347 | ||||||||||
Less: Provision for uncollectible accounts |
| (107,160 | ) | (64,089 | ) | | (171,249 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net patient service revenues |
| 2,923,385 | 1,203,580 | 3,133 | 4,130,098 | |||||||||||||||
Capitated revenues |
| 818,913 | 768,428 | (407 | ) | 1,586,934 | ||||||||||||||
Other revenues |
344,242 | 818,310 | 68,003 | (732,322 | ) | 498,233 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total net revenues |
344,242 | 4,560,608 | 2,040,011 | (729,596 | ) | 6,215,265 | ||||||||||||||
Operating expenses |
235,112 | 4,014,282 | 1,769,947 | (729,596 | ) | 5,289,745 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
109,130 | 546,326 | 270,064 | | 925,520 | |||||||||||||||
Debt expense, including debt refinancing charges |
(307,541 | ) | (188,806 | ) | (19,932 | ) | 206,264 | (310,015 | ) | |||||||||||
Other income (expense) |
199,475 | 8,935 | 1,245 | (206,264 | ) | 3,391 | ||||||||||||||
Income tax expense |
431 | 215,546 | 9,761 | | 225,738 | |||||||||||||||
Equity earnings in subsidiaries |
330,339 | 179,430 | | (509,769 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
330,972 | 330,339 | 241,616 | (509,769 | ) | 393,158 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| | | (62,186 | ) | (62,186 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 330,972 | $ | 330,339 | $ | 241,616 | $ | (571,955 | ) | $ | 330,972 | |||||||||
|
|
|
|
|
|
|
|
|
|
31
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
For the six months ended June 30, 2013 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Patient service revenues |
$ | | $ | 2,928,355 | $ | 1,117,866 | $ | (17,697 | ) | $ | 4,028,524 | |||||||||
Less: Provision for uncollectible accounts |
| (101,075 | ) | (41,173 | ) | | (142,248 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net patient service revenues |
| 2,827,280 | 1,076,693 | (17,697 | ) | 3,886,276 | ||||||||||||||
Capitated revenues |
| 697,336 | 778,126 | (2,773 | ) | 1,472,689 | ||||||||||||||
Other revenues |
302,025 | 733,034 | 38,840 | (731,609 | ) | 342,290 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total net revenues |
302,025 | 4,257,650 | 1,893,659 | (752,079 | ) | 5,701,255 | ||||||||||||||
Operating expenses |
192,385 | 3,908,364 | 1,663,704 | (752,079 | ) | 5,012,374 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
109,640 | 349,286 | 229,955 | | 688,881 | |||||||||||||||
Debt expense |
(212,668 | ) | (190,315 | ) | (21,970 | ) | 211,040 | (213,913 | ) | |||||||||||
Other income (expense) |
201,168 | 9,681 | (585 | ) | (211,040 | ) | (776 | ) | ||||||||||||
Income tax expense |
34,055 | 94,517 | 15,764 | | 144,336 | |||||||||||||||
Equity earnings in subsidiaries |
220,455 | 127,482 | | (347,937 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
284,540 | 201,617 | 191,636 | (347,937 | ) | 329,856 | ||||||||||||||
Discontinued operations |
| | 13,236 | | 13,236 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
284,540 | 201,617 | 204,872 | (347,937 | ) | 343,092 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| | | (58,552 | ) | (58,552 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 284,540 | $ | 201,617 | $ | 204,872 | $ | (406,489 | ) | $ | 284,540 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Comprehensive Income
For the three months ended June 30, 2014 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Net income |
$ | 147,683 | $ | 174,067 | $ | 143,943 | $ | (284,272 | ) | $ | 181,421 | |||||||||
Other comprehensive income |
2,305 | | | | 2,305 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
149,988 | 174,067 | 143,943 | (284,272 | ) | 183,726 | ||||||||||||||
Less: comprehensive income attributable to the noncontrolling interests |
| | | (33,738 | ) | (33,738 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 149,988 | $ | 174,067 | $ | 143,943 | $ | (318,010 | ) | $ | 149,988 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the three months ended June 30, 2013 |
||||||||||||||||||||
Net income |
$ | 254,376 | $ | 195,455 | $ | 90,387 | $ | (256,860 | ) | $ | 283,358 | |||||||||
Other comprehensive income |
13,407 | | | | 13,407 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
267,783 | 195,455 | 90,387 | (256,860 | ) | 296,765 | ||||||||||||||
Less: comprehensive income attributable to the noncontrolling interests |
| | | (28,982 | ) | (28,982 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 267,783 | $ | 195,455 | $ | 90,387 | $ | (285,842 | ) | $ | 267,783 | |||||||||
|
|
|
|
|
|
|
|
|
|
32
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
For the six months ended June 30, 2014 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Net income |
$ | 330,972 | $ | 330,339 | $ | 241,616 | $ | (509,769 | ) | $ | 393,158 | |||||||||
Other comprehensive income |
3,311 | | | | 3,311 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
334,283 | 330,339 | 241,616 | (509,769 | ) | 396,469 | ||||||||||||||
Less: comprehensive income attributable to the noncontrolling interests |
| | | (62,186 | ) | (62,186 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 334,283 | $ | 330,339 | $ | 241,616 | $ | (571,955 | ) | $ | 334,283 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the six months ended June 30, 2013 |
||||||||||||||||||||
Net income |
$ | 284,540 | $ | 201,617 | $ | 204,872 | $ | (347,937 | ) | $ | 343,092 | |||||||||
Other comprehensive income |
11,963 | | | | 11,963 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
296,503 | 201,617 | 204,872 | (347,937 | ) | 355,055 | ||||||||||||||
Less: comprehensive income attributable to the noncontrolling interests |
| | | (58,552 | ) | (58,552 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 296,503 | $ | 201,617 | $ | 204,872 | $ | (406,489 | ) | $ | 296,503 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets
As of June 30, 2014 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Cash and cash equivalents |
$ | 1,081,021 | $ | 137,229 | $ | 202,723 | $ | | $ | 1,420,973 | ||||||||||
Accounts receivable, net |
| 953,474 | 596,778 | | 1,550,252 | |||||||||||||||
Other current assets |
83,242 | 971,776 | 135,004 | | 1,190,022 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
1,164,263 | 2,062,479 | 934,505 | | 4,161,247 | |||||||||||||||
Property and equipment, net |
187,939 | 1,394,182 | 708,723 | | 2,290,844 | |||||||||||||||
Amortizable intangibles, net |
92,421 | 1,867,978 | 62,476 | | 2,022,875 | |||||||||||||||
Investments in subsidiaries |
8,784,145 | 1,589,418 | | (10,373,563 | ) | | ||||||||||||||
Intercompany receivables |
3,645,401 | | 545,592 | (4,190,993 | ) | | ||||||||||||||
Other long-term assets and investments |
59,487 | 62,812 | 74,263 | | 196,562 | |||||||||||||||
Goodwill |
| 7,875,336 | 1,378,707 | | 9,254,043 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 13,933,656 | $ | 14,852,205 | $ | 3,704,266 | $ | (14,564,556 | ) | $ | 17,925,571 | |||||||||
Current liabilities |
496,066 | 1,744,652 | 367,430 | | 2,608,148 | |||||||||||||||
Intercompany payables |
| 3,115,717 | 1,075,276 | (4,190,993 | ) | | ||||||||||||||
Long-term debt and other long-term liabilities |
8,157,874 | 1,207,691 | 234,791 | | 9,600,356 | |||||||||||||||
Noncontrolling interests subject to put provisions |
493,945 | | | 266,297 | 760,242 | |||||||||||||||
Total DaVita HealthCare Partners Inc. shareholders equity |
4,785,771 | 8,784,145 | 1,589,418 | (10,373,563 | ) | 4,785,771 | ||||||||||||||
Noncontrolling interests not subject to put provisions |
| | 437,351 | (266,297 | ) | 171,054 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
4,785,771 | 8,784,145 | 2,026,769 | (10,639,860 | ) | 4,956,825 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 13,933,656 | $ | 14,852,205 | $ | 3,704,266 | $ | (14,564,556 | ) | $ | 17,925,571 | |||||||||
|
|
|
|
|
|
|
|
|
|
33
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
As of December 31, 2013 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Cash and cash equivalents |
$ | 602,188 | $ | 175,004 | $ | 169,057 | $ | | $ | 946,249 | ||||||||||
Accounts receivable, net |
| 939,543 | 545,620 | | 1,485,163 | |||||||||||||||
Other current assets |
27,910 | 908,010 | 104,946 | | 1,040,866 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
630,098 | 2,022,557 | 819,623 | | 3,472,278 | |||||||||||||||
Property and equipment, net |
177,633 | 1,377,924 | 633,854 | | 2,189,411 | |||||||||||||||
Amortizable intangibles, net |
77,531 | 1,882,685 | 64,157 | | 2,024,373 | |||||||||||||||
Investments in subsidiaries |
8,231,059 | 1,389,558 | | (9,620,617 | ) | | ||||||||||||||
Intercompany receivables |
3,983,214 | | 480,993 | (4,464,207 | ) | | ||||||||||||||
Other long-term assets and investments |
61,391 | 67,402 | 71,048 | | 199,841 | |||||||||||||||
Goodwill |
| 7,837,421 | 1,375,553 | | 9,212,974 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 13,160,926 | $ | 14,577,547 | $ | 3,445,228 | $ | (14,084,824 | ) | $ | 17,098,877 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Current liabilities |
$ | 328,875 | $ | 1,774,634 | $ | 358,540 | $ | | $ | 2,462,049 | ||||||||||
Intercompany payables |
| 3,421,198 | 1,043,009 | (4,464,207 | ) | | ||||||||||||||
Long-term debt and other long-term liabilities |
7,948,390 | 1,150,656 | 234,941 | | 9,333,987 | |||||||||||||||
Noncontrolling interests subject to put provisions |
451,182 | | | 246,118 | 697,300 | |||||||||||||||
Total DaVita HealthCare Partners Inc. shareholders equity |
4,432,479 | 8,231,059 | 1,389,558 | (9,620,617 | ) | 4,432,479 | ||||||||||||||
Noncontrolling interests not subject to put provisions |
| | 419,180 | (246,118 | ) | 173,062 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
4,432,479 | 8,231,059 | 1,808,738 | (9,866,735 | ) | 4,605,541 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 13,160,926 | $ | 14,577,547 | $ | 3,445,228 | $ | (14,084,824 | ) | $ | 17,098,877 | |||||||||
|
|
|
|
|
|
|
|
|
|
34
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2014 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income |
$ | 330,972 | $ | 330,339 | $ | 241,616 | $ | (509,769 | ) | $ | 393,158 | |||||||||
Changes in operating assets and liabilities and non-cash items included in net income |
(191,299 | ) | 7,007 | (37,137 | ) | 509,769 | 288,340 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
139,673 | 337,346 | 204,479 | | 681,498 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Additions of property and equipment, net |
(25,377 | ) | (123,519 | ) | (129,697 | ) | | (278,593 | ) | |||||||||||
Acquisitions |
| (97,057 | ) | (1,385 | ) | | (98,442 | ) | ||||||||||||
Proceeds from asset and business sales |
| 215 | | | 215 | |||||||||||||||
Purchases/proceeds from investment sales and other items |
(58,496 | ) | (5,263 | ) | (2,276 | ) | | (66,035 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
(83,873 | ) | (225,624 | ) | (133,358 | ) | | (442,855 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Long-term debt and related financing costs, net |
353,406 | (7,158 | ) | 2,188 | | 348,436 | ||||||||||||||
Intercompany borrowing |
139,052 | (137,529 | ) | (1,523 | ) | | | |||||||||||||
Other items |
(69,425 | ) | (4,810 | ) | (37,553 | ) | | (111,788 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
423,033 | (149,497 | ) | (36,888 | ) | | 236,648 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash |
| | (567 | ) | | (567 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
478,833 | (37,775 | ) | 33,666 | | 474,724 | ||||||||||||||
Cash and cash equivalents at beginning of period |
602,188 | 175,004 | 169,057 | | 946,249 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | 1,081,021 | $ | 137,229 | $ | 202,723 | $ | | $ | 1,420,973 | ||||||||||
|
|
|
|
|
|
|
|
|
|
35
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
For the six months ended June 30, 2013 |
DaVita HealthCare Partners Inc. |
Guarantor subsidiaries |
Non-Guarantor subsidiaries |
Consolidating adjustments |
Consolidated total |
|||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income |
$ | 284,540 | $ | 201,617 | $ | 204,872 | $ | (347,937 | ) | $ | 343,092 | |||||||||
Changes in operating assets and liabilities and non-cash items included in net income |
(271,776 | ) | 288,254 | (21,481 | ) | 347,937 | 342,934 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
12,764 | 489,871 | 183,391 | | 686,026 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Additions of property and equipment, net |
(24,213 | ) | (131,671 | ) | (102,512 | ) | | (258,396 | ) | |||||||||||
Acquisitions |
| (119,818 | ) | (32,294 | ) | | (152,112 | ) | ||||||||||||
Proceeds from asset sales |
60,650 | 3,713 | | | 64,363 | |||||||||||||||
Purchases of investments and other items |
(2,201 | ) | 359 | 100 | | (1,742 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities |
34,236 | (247,417 | ) | (134,706 | ) | | (347,887 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Long-term debt and related financing costs, net |
(238,400 | ) | (5,496 | ) | (7,472 | ) | | (251,368 | ) | |||||||||||
Intercompany borrowing |
250,330 | (284,739 | ) | 34,409 | | | ||||||||||||||
Other items |
37,264 | 5,429 | (45,074 | ) | | (2,381 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
49,194 | (284,806 | ) | (18,137 | ) | | (253,749 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash |
| | (234 | ) | | (234 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
96,194 | (42,352 | ) | 30,314 | | 84,156 | ||||||||||||||
Cash and cash equivalents at beginning of period |
195,037 | 166,107 | 172,604 | | 533,748 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | 291,231 | $ | 123,755 | $ | 202,918 | $ | | $ | 617,904 | ||||||||||
|
|
|
|
|
|
|
|
|
|
36
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
20. Supplemental data
The following information is presented as supplemental data as required by the indentures governing our senior notes.
Condensed Consolidating Statements of Income
For the three months ended June 30, 2014 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Patient service operating revenues |
$ | 2,187,249 | $ | 29,361 | $ | | $ | 2,157,888 | ||||||||
Less: Provision for uncollectible accounts |
(88,052 | ) | (1,979 | ) | | (86,073 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net patient service operating revenues |
2,099,197 | 27,382 | | 2,071,815 | ||||||||||||
Capitated revenues |
799,369 | 368,551 | | 430,818 | ||||||||||||
Other revenues |
273,923 | 2,313 | | 271,610 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net operating revenues |
3,172,489 | 398,246 | | 2,774,243 | ||||||||||||
Operating expenses |
2,688,194 | 386,281 | (16 | ) | 2,301,929 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
484,295 | 11,965 | 16 | 472,314 | ||||||||||||
Debt expense, including refinancing charges |
(203,680 | ) | (3,423 | ) | | (200,257 | ) | |||||||||
Other income |
1,693 | 25 | | 1,668 | ||||||||||||
Income tax expense |
100,887 | 2,712 | 7 | 98,168 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
181,421 | 5,855 | 9 | 175,557 | ||||||||||||
Minority interests |
(33,738 | ) | | | (33,738 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 147,683 | $ | 5,855 | $ | 9 | $ | 141,819 | ||||||||
|
|
|
|
|
|
|
|
For the six months ended June 30, 2014 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Patient service operating revenues |
$ | 4,301,347 | $ | 60,500 | $ | | $ | 4,240,847 | ||||||||
Less: Provision for uncollectible accounts |
(171,249 | ) | (2,589 | ) | | (168,660 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net patient service operating revenues |
4,130,098 | 57,911 | | 4,072,187 | ||||||||||||
Capitated revenues |
1,586,934 | 734,680 | | 852,254 | ||||||||||||
Other revenues |
498,233 | 2,879 | | 495,354 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net operating revenues |
6,215,265 | 795,470 | | 5,419,795 | ||||||||||||
Operating expenses |
5,289,745 | 775,799 | 236 | 4,513,710 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
925,520 | 19,671 | (236 | ) | 906,085 | |||||||||||
Debt expense, including refinancing charges |
(310,015 | ) | (6,618 | ) | | (303,397 | ) | |||||||||
Other income |
3,391 | 33 | | 3,358 | ||||||||||||
Income tax expense |
225,738 | 4,157 | (94 | ) | 221,675 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
393,158 | 8,929 | (142 | ) | 384,371 | |||||||||||
Minority interests |
(62,186 | ) | | | (62,186 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to DaVita HealthCare Partners Inc. |
$ | 330,972 | $ | 8,929 | $ | (142 | ) | $ | 322,185 | |||||||
|
|
|
|
|
|
|
|
(1) | After the elimination of the unrestricted subsidiaries and the physician groups |
37
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Condensed Consolidating Statements of Comprehensive Income
For the three months ended June 30, 2014 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Net income |
$ | 181,421 | $ | 5,855 | $ | 9 | $ | 175,557 | ||||||||
Other comprehensive income |
2,305 | | | 2,305 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income |
183,726 | 5,855 | 9 | 177,862 | ||||||||||||
Less: comprehensive income attributable to the noncontrolling interests |
(33,738 | ) | | | (33,738 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 149,988 | $ | 5,855 | $ | 9 | $ | 144,124 | ||||||||
|
|
|
|
|
|
|
|
For the six months ended June 30, 2014 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Net income |
$ | 393,158 | $ | 8,929 | $ | (142 | ) | $ | 384,371 | |||||||
Other comprehensive income |
3,311 | | | 3,311 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income |
396,469 | 8,929 | (142 | ) | 387,682 | |||||||||||
Less: comprehensive income attributable to the noncontrolling interests |
(62,186 | ) | | | (62,186 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income attributable to DaVita HealthCare Partners Inc. |
$ | 334,283 | $ | 8,929 | $ | (142 | ) | $ | 325,496 | |||||||
|
|
|
|
|
|
|
|
(1) | After the elimination of the unrestricted subsidiaries and the physician groups |
Condensed Consolidating Balance Sheets
As of June 30, 2014 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Cash and cash equivalents |
$ | 1,420,973 | $ | 117,313 | $ | | $ | 1,303,660 | ||||||||
Accounts receivable, net |
1,550,252 | 239,428 | | 1,310,824 | ||||||||||||
Other current assets |
1,190,022 | 27,776 | | 1,162,246 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
4,161,247 | 384,517 | | 3,776,730 | ||||||||||||
Property and equipment, net |
2,290,844 | 5,006 | | 2,285,838 | ||||||||||||
Amortizable intangibles, net |
2,022,875 | 6,794 | | 2,016,081 | ||||||||||||
Other long-term assets |
196,562 | 69,311 | 3,089 | 124,162 | ||||||||||||
Goodwill |
9,254,043 | 9,181 | | 9,244,862 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 17,925,571 | $ | 474,809 | $ | 3,089 | $ | 17,447,673 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current liabilities |
$ | 2,608,148 | $ | 175,238 | $ | | $ | 2,432,910 | ||||||||
Payables to parent |
| 202,448 | 3,089 | (205,537 | ) | |||||||||||
Long-term debt and other long-term liabilities |
9,600,356 | 83,106 | | 9,517,250 | ||||||||||||
Noncontrolling interests subject to put provisions |
760,242 | | | 760,242 | ||||||||||||
Total DaVita HealthCare Partners Inc. shareholders equity |
4,785,771 | 14,017 | | 4,771,754 | ||||||||||||
Noncontrolling interests not subject to put provisions |
171,054 | | | 171,054 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Shareholders equity |
4,956,825 | 14,017 | | 4,942,808 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 17,925,571 | $ | 474,809 | $ | 3,089 | $ | 17,447,673 | ||||||||
|
|
|
|
|
|
|
|
38
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
As of December 31, 2013 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Cash and cash equivalents |
$ | 946,249 | $ | 127,309 | $ | | $ | 818,940 | ||||||||
Accounts receivable, net |
1,485,163 | 235,463 | | 1,249,700 | ||||||||||||
Other current assets |
1,040,866 | 35,640 | | 1,005,226 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
3,472,278 | 398,412 | | 3,073,866 | ||||||||||||
Property and equipment, net |
2,189,411 | 5,541 | | 2,183,870 | ||||||||||||
Amortizable intangibles, net |
2,024,373 | 7,283 | | 2,017,090 | ||||||||||||
Other long-term assets |
199,841 | 64,013 | 3,325 | 132,503 | ||||||||||||
Goodwill |
9,212,974 | 8,981 | | 9,203,993 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 17,098,877 | $ | 484,230 | $ | 3,325 | $ | 16,611,322 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current liabilities |
$ | 2,462,049 | $ | 193,079 | $ | | $ | 2,268,970 | ||||||||
Payables to parent |
| 194,958 | 3,325 | (198,283 | ) | |||||||||||
Long-term debt and other long-term liabilities |
9,333,987 | 94,727 | | 9,239,260 | ||||||||||||
Noncontrolling interests subject to put provisions |
697,300 | | | 697,300 | ||||||||||||
Total DaVita HealthCare Partners Inc. shareholders equity |
4,432,479 | 1,466 | | 4,431,013 | ||||||||||||
Noncontrolling interests not subject to put provisions |
173,062 | | | 173,062 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Shareholders equity |
4,605,541 | 1,466 | | 4,604,075 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 17,098,877 | $ | 484,230 | $ | 3,325 | $ | 16,611,322 | ||||||||
|
|
|
|
|
|
|
|
(1) | After the elimination of the unrestricted subsidiaries and the physician groups |
39
Table of Contents
DAVITA HEALTHCARE PARTNERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2014 |
Consolidated Total |
Physician Groups |
Unrestricted Subsidiaries |
Company and Restricted Subsidiaries(1) |
||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
$ | 393,158 | $ | 8,929 | $ | (142 | ) | $ | 384,371 | |||||||
Changes in operating and intercompany assets and liabilities and non-cash items included in net income |
288,340 | (27,961 | ) | 142 | 316,159 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) operating activities |
681,498 | (19,032 | ) | | 700,530 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Additions of property and equipment |
(278,593 | ) | (20 | ) | | (278,573 | ) | |||||||||
Acquisitions and divestitures, net |
(98,442 | ) | | | (98,442 | ) | ||||||||||
Proceeds from discontinued operations |
215 | | | 215 | ||||||||||||
Investments and other items |
(66,035 | ) | (2,276 | ) | | (63,759 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(442,855 | ) | (2,296 | ) | | (440,559 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities: |
||||||||||||||||
Long-term debt |
348,436 | | | 348,436 | ||||||||||||
Intercompany |
| 11,332 | | (11,332 | ) | |||||||||||
Other items |
(111,788 | ) | | | (111,788 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by financing activities |
236,648 | 11,332 | | 225,316 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash |
(567 | ) | | | (567 | ) | ||||||||||
Net increase (decrease) in cash |
474,724 | (9,996 | ) |