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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

For the Quarterly Period Ended September 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 October 31, 2014, the number of shares of the Registrant’s common stock outstanding was approximately 214.9 million shares and the aggregate market value of the common stock outstanding held by non-affiliates based upon the closing price of these shares on the New York Stock Exchange was approximately $16.8 billion.

 

 

 


Table of Contents

DAVITA HEALTHCARE PARTNERS INC.

INDEX

 

         Page No.  
PART I. FINANCIAL INFORMATION   

Item 1.

  Condensed Consolidated Financial Statements:   
  Consolidated Statements of Income for the three and nine months ended September 30, 2014 and September 30, 2013      1   
  Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and September 30, 2013      2   
  Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013      3   
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and September 30, 2013      4   
  Consolidated Statements of Equity for the nine months ended September 30, 2014 and for the year ended December 31, 2013      5   
  Notes to Condensed Consolidated Financial Statements      6   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      43   

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk      67   

Item 4.

  Controls and Procedures      68   
PART II. OTHER INFORMATION   

Item 1.

 

Legal Proceedings

     70   

Item 1A.

 

Risk Factors

     70   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     100   

Item 6.

 

Exhibits

     101   
 

Signature

     102   

 

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

September 30,
    Nine months ended

September 30,
 
     2014     2013     2014     2013  

Patient service revenues

   $ 2,242,533      $ 2,126,699      $ 6,543,880      $ 6,155,223   

Less: Provision for uncollectible accounts

     (98,971     (74,477     (270,220     (216,725
  

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service revenues

     2,143,562        2,052,222        6,273,660        5,938,498   

Capitated revenues

     848,546        747,264        2,435,480        2,219,953   

Other revenues

     259,716        200,100        757,949        542,390   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     3,251,824        2,999,586        9,467,089        8,700,841   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses and charges:

        

Patient care costs and other costs

     2,326,534        2,095,334        6,752,844        6,070,545   

General and administrative

     322,822        305,138        905,519        857,658   

Depreciation and amortization

     149,196        132,765        437,682        389,263   

Provision for uncollectible accounts

     3,961        1,498        9,680        3,636   

Equity investment income

     (5,225     (9,223     (18,692     (26,239

Loss contingency reserve

     17,000        97,000        17,000        397,000   

Contingent earn-out obligation adjustment

     —          —          —          (56,977
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses and charges

     2,814,288        2,622,512        8,104,033        7,634,886   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     437,536        377,074        1,363,056        1,065,955   

Debt expense

     (99,878     (108,421     (312,345     (322,334

Debt refinancing charges

     —          —          (97,548     —     

Other (loss) income, net

     (1,246     2,113        2,145        1,337   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     336,412        270,766        955,308        744,958   

Income tax expense

     116,628        100,930        342,366        245,266   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     219,784        169,836        612,942        499,692   

Discontinued operations:

        

Loss from operations of discontinued operations, net of tax

     —          —          —          (139

Gain on disposal of discontinued operations, net of tax

     —          —          —          13,375   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     219,784        169,836        612,942        512,928   

Less: Net income attributable to noncontrolling interests

     (35,662     (33,208     (97,848     (91,760
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

   $ 184,122      $ 136,628      $ 515,094      $ 421,168   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc.

   $ 0.87      $ 0.65      $ 2.43      $ 1.95   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.87      $ 0.65      $ 2.43      $ 2.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc.

   $ 0.85      $ 0.64      $ 2.38      $ 1.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.85      $ 0.64      $ 2.38      $ 1.96   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares for earnings per share:

        

Basic

     212,617,238        210,394,560        212,086,735        209,725,439   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     217,236,493        214,902,860        216,695,033        214,631,587   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to DaVita HealthCare Partners Inc.:

        

Income from continuing operations

   $ 184,122      $ 136,628      $ 515,094      $ 407,919   

Discontinued operations

     —          —          —          13,249   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 184,122      $ 136,628      $ 515,094      $ 421,168   
  

 

 

   

 

 

   

 

 

   

 

 

 

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
September 30,
    Nine months ended
September 30,
 
     2014     2013     2014     2013  

Net income

   $ 219,784      $ 169,836      $ 612,942      $ 512,928   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

        

Unrealized gains (losses) on interest rate swap and cap agreements:

        

Unrealized gain (loss) on interest rate swap and cap agreements

     537        (7,733     (7,177     1,583   

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

     1,403        3,464        9,759        9,433   

Unrealized (loss) gains on investments:

        

Unrealized (loss) gain on investments

     (392     648        517        1,367   

Reclassification of net investment realized gains into net income

     —          —          (207     (94

Foreign currency translation adjustments

     (13,838     2,741        (11,871     (1,206
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (12,290     (880     (8,979     11,083   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     207,494        168,956        603,963        524,011   

Less: Comprehensive income attributable to noncontrolling interests

     (35,662     (33,208     (97,848     (91,760
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

   $ 171,832      $ 135,748      $ 506,115      $ 432,251   
  

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     September 30,
2014
    December 31,
2013
 
ASSETS     

Cash and cash equivalents

   $ 1,527,035      $ 946,249   

Short-term investments

     142,122        6,801   

Accounts receivable, less allowance of $235,192 and $237,143

     1,468,563        1,485,163   

Inventories

     114,677        88,805   

Other receivables

     346,712        349,090   

Other current assets

     172,255        176,414   

Income tax receivable

     —          10,315   

Deferred income taxes

     407,071        409,441   
  

 

 

   

 

 

 

Total current assets

     4,178,435        3,472,278   

Property and equipment, net of accumulated depreciation of $1,997,894 and $1,778,259

     2,359,203        2,189,411   

Intangibles, net of accumulated amortization of $577,124 and $483,773

     1,997,772        2,024,373   

Equity investments

     66,728        40,686   

Long-term investments

     87,307        79,557   

Other long-term assets

     67,330        79,598   

Goodwill

     9,344,641        9,212,974   
  

 

 

   

 

 

 
   $ 18,101,416      $ 17,098,877   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Accounts payable

   $ 442,183      $ 435,465   

Other liabilities

     503,198        464,422   

Accrued compensation and benefits

     761,912        603,013   

Medical payables

     306,076        287,452   

Loss contingency reserve

     414,000        397,000   

Current portion of long-term debt

     121,530        274,697   

Income tax payable

     48,732        —     
  

 

 

   

 

 

 

Total current liabilities

     2,597,631        2,462,049   

Long-term debt

     8,380,903        8,141,231   

Other long-term liabilities

     368,475        380,337   

Deferred income taxes

     844,189        812,419   
  

 

 

   

 

 

 

Total liabilities

     12,191,198        11,796,036   

Commitments and contingencies

    

Noncontrolling interests subject to put provisions

     758,743        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; 214,878,274 and 213,163,248 shares issued and outstanding at September 30, 2014 and at December 31, 2013, respectively)

     215        213   

Additional paid-in capital

     1,107,368        1,070,922   

Retained earnings

     3,879,083        3,363,989   

Accumulated other comprehensive loss

     (11,624     (2,645
  

 

 

   

 

 

 

Total DaVita HealthCare Partners Inc. shareholders’ equity

     4,975,042        4,432,479   

Noncontrolling interests not subject to put provisions

     176,433        173,062   
  

 

 

   

 

 

 

Total equity

     5,151,475        4,605,541   
  

 

 

   

 

 

 
   $ 18,101,416      $ 17,098,877   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

3


Table of Contents

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

     Nine months ended

September 30,
 
     2014     2013  

Cash flows from operating activities:

    

Net income

   $ 612,942      $ 512,928   

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

    

Loss contingency reserve

     17,000        397,000   

Depreciation and amortization

     437,335        389,387   

Debt refinancing charges

     97,548        —     

Stock-based compensation expense

     44,323        47,095   

Tax benefits from stock award exercises

     45,527        40,870   

Excess tax benefits from stock award exercises

     (32,665     (31,722

Deferred income taxes

     (2,167     (52,085

Equity investment income, net

     6,007        1,074   

Other non-cash charges (income) and loss on disposal of assets

     30,604        (54,203

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

    

Accounts receivable

     16,610        20,856   

Inventories

     (25,198     (5,494

Other receivables and other current assets

     7,563        (35,757

Other long-term assets

     2,622        17,861   

Accounts payable

     2,332        (71,581

Accrued compensation and benefits

     147,570        114,877   

Other current liabilities

     72,932        91,503   

Income taxes

     72,283        (15,212

Other long-term liabilities

     (23,770     51,757   
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,529,398        1,419,154   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Additions of property and equipment, net

     (443,507     (399,527

Acquisitions

     (218,117     (234,802

Proceeds from asset and business sales

     3,620        62,282   

Purchase of investments available for sale

     (7,138     (6,630

Purchase of investments held-to-maturity

     (163,046     (1,034

Proceeds from sale of investments available for sale

     1,321        1,091   

Proceeds from sale of investments held-to-maturity

     27,781        1,376   

Purchase of intangible assets and equity investment

     (50     (53

Purchase of an equity investment

     (32,483     —     

Distributions received on equity investments

     434        211   
  

 

 

   

 

 

 

Net cash used in investing activities

     (831,185     (577,086
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings

     46,619,292        49,941,883   

Payments on long-term debt and other financing costs

     (46,587,984     (50,325,455

Deferred financing costs and debt redemption costs

     (122,154     (719

Distributions to noncontrolling interests

     (105,143     (99,736

Stock award exercises and other share issuances, net

     14,524        12,432   

Excess tax benefits from stock award exercises

     32,665        31,722   

Contributions from noncontrolling interests

     38,083        30,041   

Proceeds from sales of additional noncontrolling interests

     3,777        6,083   

Purchases from noncontrolling interests

     (12,069     (474
  

 

 

   

 

 

 

Net cash used in financing activities

     (119,009     (404,223

Effect of exchange rate changes on cash and cash equivalents

     1,582        (899
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     580,786        436,946   

Cash and cash equivalents at beginning of the year

     946,249        533,748   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the year

   $ 1,527,035      $ 970,694   
  

 

 

   

 

 

 

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          —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    65,262              515,094              515,094        32,586   

Other comprehensive income

                  (8,979     (8,979  

Stock unit shares issued

      298          (27             (27  

Stock-settled SAR shares issued

      1,417        2        (2             —      

Stock-based compensation expense

          44,323                44,323     

Excess tax benefits from stock awards exercised

          32,665                32,665     

Distributions to noncontrolling interests

    (67,150                     (37,993

Contributions from noncontrolling interests

    26,926                        11,157   

Sales and assumptions of additional noncontrolling interests

    852            355                355        4,165   

Purchase and gains from noncontrolling interests

    (4,809         (716             (716     (6,544

Adjustment in ownership interests

          210                210     

Changes in fair value of noncontrolling interests

    40,362            (40,362             (40,362  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

  $ 758,743        214,878      $ 215      $ 1,107,368      $ 3,879,083        —       $ —       $ (11,624   $ 4,975,042      $ 176,433   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 Company’s 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 nine months ended September 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 Company’s 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 adjustments and 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
September 30,
    Nine months ended
September 30,
 
    2014     2013     2014     2013  

Basic:

       

Income from continuing operations attributable to DaVita HealthCare Partners Inc.

  $ 184,122      $ 136,628      $ 515,094      $ 407,919   

Increase in noncontrolling interests redemption rights in excess of fair value

    —          259        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations for basic earnings per share calculation

  $ 184,122      $ 136,887      $ 515,094      $ 407,919   

Discontinued operations attributable to DaVita HealthCare Partners Inc.

    —          —          —          13,249   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc. for basic earnings per share calculation

  $ 184,122      $ 136,887      $ 515,094      $ 421,168   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding during the period

    214,810        212,584        214,280        211,914   

Vested stock units

    1        5        1        5   

Contingently returnable shares held in escrow for the DaVita HealthCare Partners merger

    (2,194     (2,194     (2,194     (2,194
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares for basic earnings per share calculation

    212,617        210,395        212,087        209,725   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc.

  $ 0.87      $ 0.65      $ 2.43      $ 1.95   

Basic income from discontinued operations per share attributable to DaVita HealthCare Partners Inc.

  $ —        $ —        $ —        $ 0.06   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.87      $ 0.65      $ 2.43      $ 2.01   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

       

Income from continuing operations attributable to DaVita HealthCare Partners Inc.

  $ 184,122      $ 136,628      $ 515,094      $ 407,919   

Increase in noncontrolling interests redemption rights in excess of fair value

    —          259        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations for diluted earnings per share calculation

  $ 184,122      $ 136,887      $ 515,094      $ 407,919   

Discontinued operations attributable to DaVita HealthCare Partners Inc.

    —          —          —          13,249   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc. for diluted earnings per share calculation

  $ 184,122      $ 136,887      $ 515,094      $ 421,168   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding during the period

    214,810        212,584        214,280        211,914   

Vested stock units

    1        5        1        5   

Assumed incremental shares from stock plans

    2,425        2,314        2,414        2,713   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares for diluted earnings per share calculation

    217,236        214,903        216,695        214,632   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc.

  $ 0.85      $ 0.64      $ 2.38      $ 1.90   

Diluted income from discontinued operations per share attributable to DaVita HealthCare Partners Inc.

  $ —        $ —        $ —        $ 0.06   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.85      $ 0.64      $ 2.38      $ 1.96   
 

 

 

   

 

 

   

 

 

   

 

 

 

Anti-dilutive stock-settled awards excluded from calculation(1)

    1,422        4,908        1,804        3,871   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 Company’s 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 government’s bundled payment system and determines an appropriate allowance for doubtful accounts and provision for uncollectible accounts on the remaining balance due depending upon the Company’s 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 Company’s net accounts receivable are associated with patient pay and it is the Company’s 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 nine months ended September 30, 2014, the Company’s allowance for doubtful accounts decreased by approximately $1,951. This was primarily due to an increase in Medicare and commercial collections, partially offset by an increase in dialysis provision for uncollectible accounts. There were no unusual transactions impacting the allowance for doubtful accounts.

4. Investments in debt and equity securities and other investments

Based on the Company’s 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 Company’s investments in securities consist of the following:

 

     September 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

   $ 140,722       $ —        $ 140,722       $ 5,601       $ —        $ 5,601   

Investments in mutual funds and common stock

     —          26,237         26,237         —          19,421         19,421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 140,722       $ 26,237       $ 166,959       $ 5,601       $ 19,421       $ 25,022   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments

   $ 140,722       $ 1,400       $ 142,122       $ 5,601       $ 1,200       $ 6,801   

Long-term investments

     —          24,837         24,837         —          18,221         18,221   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 140,722       $ 26,237       $ 166,959       $ 5,601       $ 19,421       $ 25,022   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

8


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 September 30, 2014 and December 31, 2013 approximates their fair value. As of September 30, 2014 and December 31, 2013, the available-for-sale investments included $5,594 and $5,096 of gross pre-tax unrealized gains, respectively. During the nine months ended September 30, 2014, the Company recorded gross pre-tax unrealized gains of $838, or $517 after tax, in other comprehensive income associated with changes in the fair value of these investments. During the nine months ended September 30, 2014, the Company sold investments in mutual funds for net proceeds of $1,321 and recognized a pre-tax gain of $340, or $207 after-tax, which was previously recorded in other comprehensive income. During the nine months ended September 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 Company’s non-qualified deferred compensation plans.

As of September 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 September 30, 2014, this minimum cash balance was approximately $56,000.

5. Goodwill

Changes in goodwill by reportable segments were as follows:

 

     Nine months ended September 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

     85,779        48,548        12,072        146,399   

Divestitures

     (1,851     —          —          (1,851

Other adjustments

     —          (2,277     (10,604     (12,881
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ 5,553,401      $ 3,562,433      $ 228,807      $ 9,344,641   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     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
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

   $ 5,469,473      $ 3,516,162      $ 227,339      $ 9,212,974   
  

 

 

   

 

 

   

 

 

   

 

 

 

Each of the Company’s 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 Company’s 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.

HCP’s current and expected future operating results have been eroded, primarily as a result of recent reductions in its Medicare Advantage reimbursement rates. As a result, the Company has determined that three of its HCP reporting units, HCP California, HCP Nevada and HCP New Mexico, are at risk of goodwill impairment. HCP California, HCP Nevada and HCP New Mexico have goodwill of $2,511,477, $517,618, and $72,130, respectively.

The Company’s preliminary valuations of these three businesses as of September 30, 2014, resulted in the estimated fair values of HCP California, HCP Nevada and HCP New Mexico exceeding their total carrying values by approximately 5.3%, 11.3% and 8.3%, respectively. Further reductions in HCP’s 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, HCP Nevada and HCP New Mexico could reduce their estimated fair values by up to 2.4%, 2.9% and 2.7%, respectively. Separately, an increase in their respective discount rates of 100 basis points could reduce the estimated fair values of HCP California, HCP Nevada and HCP New Mexico by up to 5.1%, 6.0% and 5.7%, respectively.

During the first nine months of 2014, the Company did not record any goodwill impairment charges. Except as described above, none of the goodwill associated with the Company’s various other reporting units was considered at risk of impairment as of September 30, 2014. Since the dates of the Company’s last annual goodwill impairment tests, there have been certain developments, events, changes in operating performance and other changes in key circumstances that have affected the Company’s 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 nine months ended September 30, 2014:

 

    Nine months ended
September 30, 2014
 

Health care costs payable, beginning of the period

  $ 172,310   
 

 

 

 

Add: Components of incurred health care costs

 

Current year

    1,180,740   

Prior years

    6,442   
 

 

 

 

Total incurred health care costs

    1,187,182   
 

 

 

 

Less: Claims paid

 

Current year

    993,731   

Prior years

    156,525   
 

 

 

 

Total claims paid

    1,150,256   
 

 

 

 

Health care costs payable, end of the period

  $ 209,236   
 

 

 

 

Our prior year estimates of health care costs payable increased by $6,442 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-year’s 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 September 30, 2014, the Company’s total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold is $33,207, all of which would impact the Company’s effective tax rate if recognized. This balance represents a decrease of $27,331 from the December 31, 2013 balance of $60,538, of which $27,427 is due to a change of accounting method and did not impact the Company’s effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. At September 30, 2014 and December 31, 2013, the Company had approximately $10,802 and $10,742, respectively, accrued for interest and penalties related to unrecognized tax benefits, net of federal tax benefits.

 

11


Table of Contents

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:

 

     September 30,
2014
    December 31,
2013
 

Senior Secured Credit Facilities:

    

New Term Loan A

   $ 987,500      $ —    

New Term Loan B

     3,491,250        —    

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

     3,775,000        2,800,000   

Acquisition obligations and other notes payable

     70,847        67,352   

Capital lease obligations

     194,689        152,751   
  

 

 

   

 

 

 

Total debt principal outstanding

     8,519,286        8,433,603   

Discount on long-term debt

     (16,853     (17,675
  

 

 

   

 

 

 
     8,502,433        8,415,928   

Less current portion

     (121,530     (274,697
  

 

 

   

 

 

 
   $ 8,380,903      $ 8,141,231   
  

 

 

   

 

 

 

Scheduled maturities and pay-outs of long-term debt at September 30, 2014 were as follows:

 

2014 (remainder of the year)

     35,170   

2015

     113,185   

2016

     116,633   

2017

     142,834   

2018

     154,782   

2019

     728,303   

Thereafter

     7,228,379   

During the first nine 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. During the third quarter of 2014 we made mandatory principal payments under our New Senior Secured Credit Facility (the New Credit Agreement), as described below, totaling $12,500 on the New Term Loan A and $8,750 on the New Term Loan B.

In June 2014, the Company entered into a $5,500,000 senior secured 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

 

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)

 

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 bear interest at LIBOR plus an interest rate margin of 1.75% which is subject to adjustment depending upon the Company’s 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 Company’s direct and indirect wholly-owned domestic subsidiaries holding most of the Company’s domestic assets and are secured by substantially all of the Company’s 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 Company’s 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 18% Senior Notes due 2024 (the 5 18% Senior Notes). The 5 18% Senior Notes pay interest on January 15 and July 15 of each year beginning January 15, 2015. The 5 18% Senior Notes are unsecured obligations and will rank equally in right of payment with our existing and future unsecured senior indebtedness. The 5 18% Senior Notes are guaranteed by each of the Company’s domestic subsidiaries that guarantees the Company’s New Credit Agreement. The Company may redeem up to 35% of the 5 18% 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 18% 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 18% 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 Company’s $775,000 6 38% Senior Notes due 2018 (6 38% Senior Notes) plus accrued interest and cash tender premium totaling $512,386. The total amount paid for the 6 38% Senior Notes from the cash tender offer was $1,051.25 per 1,000 of principal amount of the 6 38% Senior Notes, which resulted in the Company paying a cash tender premium of $24,759 for the redemption of this portion of the 6 38% Senior Notes. The Company also incurred an additional $81,569 in fees, discounts and other professional expenses associated with these transactions.

In July 2014, the Company also purchased an additional $188 principal amount of the 6 38% 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 38% 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 38% Senior Notes of $291,719 at a redemption price of $1,047.81 per 1,000 of principal amount of the 6 38% Senior

 

13


Table of Contents

DAVITA HEALTHCARE PARTNERS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

 

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.

In addition, 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 Company’s 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 Company’s debt refinancing charges. During the nine months ended September 30, 2014, the Company recognized debt expense of $6,137 from these swaps.

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 Company’s interest rate swap agreements.

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 Company’s 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 Company’s maximum exposure to LIBOR variable interest rate changes on specific portions of the Company’s 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 September 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 $866,875. These agreements have the economic effect of modifying the LIBOR variable component of the Company’s interest rate on an equivalent amount of the Company’s 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 $120,625 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 September 30, 2016 and require monthly interest payments. During the nine months ended September 30, 2014, the Company recognized debt expense of $2,387 from these swaps. As of September 30, 2014, the total fair value of these swap agreements was a net asset of approximately $2,702. The Company estimates that approximately $2,035 of existing unrealized pre-tax losses in other comprehensive income at September 30, 2014 will be reclassified into income over the next twelve months.

As of September 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 Company’s New Term Loan B debt. These

 

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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)

 

agreements have the economic effect of capping the LIBOR variable component of the Company’s interest rate at a maximum of 2.50% on an equivalent amount of the Company’s New Term Loan B. During the nine months ended September 30, 2014, the Company recognized debt expense of $1,829 from these caps. The cap agreements expire on September 30, 2016. As of September 30, 2014, the total fair value of these cap agreements was an asset of approximately $2,514. During the nine months ended September 30, 2014, the Company recorded a loss of $5,052 in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements.

Previously, the Company maintained five other interest rate cap agreements with notional amounts totaling $1,250,000. These agreements had 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, these interest rate cap agreements expired on September 30, 2014. During the nine months ended September 30, 2014, the Company recognized $2,691 of debt expense related to these cap agreements.

The following table summarizes the Company’s derivative instruments as of September 30, 2014 and December 31, 2013:

 

     September 30, 2014      December 31, 2013  

Derivatives designated as hedging
instruments

   Balance sheet
location
     Fair value      Balance sheet
location
     Fair value  

Interest rate swap agreements

     Other short-term liabilities       $ 2,035         Other short-term liabilities       $ 12,069   
     

 

 

       

 

 

 

Interest rate swap agreements

     Other long-term assets       $ 4,737         Other long-term assets       $ 10,004   
     

 

 

       

 

 

 

Interest rate cap agreements

     Other long-term assets       $ 2,514         Other long-term assets       $ 7,567   
     

 

 

       

 

 

 

The following table summarizes the effects of the Company’s interest rate swap and cap agreements for the three and nine months ended September 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
as cash flow hedges

  Three months ended
September 30,
    Nine months ended
September 30,
      Three months ended
September 30,
    Nine months ended
September 30,
 
      2014             2013         2014     2013           2014             2013         2014     2013  

Interest rate swap agreements

  $ 1,058      $ (10,010   $ (6,728   $ 2,292     Debt expense

(including
refinancing
charges)

  $ (795   $ (4,162   $ (11,495   $ (11,528
                 
                 

Interest rate cap agreements

    (178     (2,646     (5,052     299     Debt expense

(including
refinancing
charges)

    (1,507     (1,507     (4,521     (3,911
                 
                 

Tax benefit (expense)

    (343     4,923        4,603        (1,008       899        2,205        6,257        6,006   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 537      $ (7,733   $ (7,177   $ 1,583        $ (1,403   $ (3,464   $ (9,759   $ (9,433
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2014, the interest rate on the Company’s 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.

 

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)

 

Interest rates on the Company’s senior notes are fixed by their terms. The LIBOR variable component of the Company’s interest rate on a majority of the Company’s 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 Company’s overall weighted average effective interest rate on the Senior Secured Credit Facilities was 3.43%, 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 September 30, 2014.

The Company’s overall weighted average effective interest rate during the third quarter of 2014 was 4.52% and as of September 30, 2014 was 4.46%.

As of September 30, 2014, the Company had undrawn revolving credit facilities totaling $1,000,000 of which approximately $96,000 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 Company’s 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 patient’s medical diagnosis or the medical necessity of services provided; and (iv) retroactive applications or interpretations of governmental requirements. In addition, the Company’s 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.

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. Attorney’s 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. Attorney’s 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 Company’s drug administration practices for the Company’s 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.

 

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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)

 

2010 U.S. Attorney Physician Relationship Investigation: As previously disclosed, the U.S. Attorney’s Office for the District of Colorado and the OIG have been investigating, among other things, the Company’s 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. This investigation has been described in the Company’s prior Reports on Forms 10-K and 10-Q and referred to as the 2010 U.S. Attorney Physician Relationship Investigation. This investigation overlapped substantially with the investigation described below under the caption 2011 U.S. Attorney Physician Relationship Investigation. The Company disclosed earlier this year it had reached an agreement in principle with the government to resolve these matters.

As described more fully in the Company’s current report on Form 8-K filed on October 23, 2014, the Company entered into a final settlement agreement on October 22, 2014 (the Settlement Agreement) with the United States of America, acting through the United States Department of Justice and on behalf of the OIG, the Defense Health Agency on behalf of TRICARE, through its General Counsel (collectively, the United States) and relator David Barbetta, to resolve the pending 2010 and 2011 U.S. Attorney Physician Relationship Investigations. In connection with the resolution of these matters, the Company has agreed to pay to the United States $350 million plus accrued interest from the date of the Company’s agreement in principle with the United States, plus a civil forfeiture of $39 million. In addition, the Company has agreed in principle to a settlement of certain state Medicaid claims in the amount of $11.5 million plus interest. Under the Settlement Agreement, among other things, the United States agrees to release the Company from any civil or administrative monetary liability arising from allegations that the Company caused the submission of claims to the federal health care programs that were ineligible for reimbursement due to certain violations of the Anti-Kickback Statute in connection with certain of its dialysis center joint venture arrangements, and the United States and the relator agree to dismissal of the civil action filed by the relator under the qui tam provisions of the federal False Claims Act. The Company also has entered into a five-year corporate integrity agreement (the Corporate Integrity Agreement) with the OIG. The Corporate Integrity Agreement, among other things, (i) requires that the Company maintain certain elements of its compliance programs, (ii) imposes certain expanded compliance-related requirements during the term of the Corporate Integrity Agreement, including the appointment of a compliance monitor, and (iii) contains certain business restrictions related to a subset of the Company’s joint venture arrangements, including the Company’s agreeing to: (1) unwind 11 joint venture transactions that were created through partial divestitures to or partial acquisitions from nephrologists and that cover 26 of the Company’s 2,119 clinics; (2) not enter into certain types of partial divestiture joint venture transactions with nephrologists during the term of the Corporate Integrity Agreement; and (3) certain other restrictions. In the event of a breach of the Corporate Integrity Agreement, the Company could become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs. The costs associated with compliance with the Corporate Integrity Agreement could be substantial and may be greater than we currently anticipate. In 2013, the Company accrued an estimated loss contingency reserve of $397,000 related to this matter. In the third quarter of 2014, the Company accrued an additional $17,000 related to this matter which resulted in an increase in the reserve from $397,000 to $414,000.

2011 U.S. Attorney Physician Relationship Investigation: In August 2011, the Company announced it had learned that the U.S. Attorney’s 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 related to the Company’s relationships with physicians, including its joint ventures, and whether those relationships and joint ventures comply with the federal anti-kickback statute, and overlapped substantially with the 2010 U.S. Attorney Physician Relationship Investigation described above. As described above, both the 2010 and 2011 U.S. Attorney Physician Relationship Investigations have now been resolved. The United States has informed the Company that it has declined to proceed with any criminal charges in connection with this matter.

 

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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)

 

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 Company’s 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. Attorney’s 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 Company’s 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 have not been finalized.

Swoben Private Civil Suit: In April 2013, the Company’s 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 HCP’s 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 court’s disposition of the appeal is pending.

Except for the private civil complaints filed by the relators as described above, to the Company’s 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 management’s 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.

 

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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 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. The Company has entered into a settlement with the lead plaintiff, subject to court approval. The terms of the settlement, which will be described in a court-approved notice, include enhancements to the Company’s corporate governance practices and provides that the Company will not oppose the derivative plaintiff’s application for an award of fees and expenses, the dollar amount of which is not material to the Company.

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 court’s 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 Company’s 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 Company’s consolidated financial statements.

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.

 

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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)

 

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 interests may ultimately be settled, which could vary significantly from the Company’s current estimates. The estimated fair values of noncontrolling interests 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.

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. In addition, the Company has certain other potential commitments related to service agreements of approximately $1,000.

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.

The Company’s 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.

 

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)

 

During the nine months ended September 30, 2014, the Company granted 1,502 stock-settled stock appreciation rights with an aggregate grant-date fair value of $24,606 and a weighted-average expected life of approximately 4.2 years, and also granted 329 stock units with an aggregate grant-date fair value of $23,767 and a weighted-average expected life of approximately 3.4 years, 105 of which are performance-based.

For the nine months ended September 30, 2014 and 2013, the Company recognized $88,323 and $58,204, respectively, in total LTIP expense, of which $44,323 and $47,095, 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 September 30, 2014 and 2013 was $16,075 and $17,466, respectively. As of September 30, 2014, there was $147,760 of total estimated unrecognized compensation cost for outstanding LTIP awards, including $87,729 related to stock-based compensation arrangements under the Company’s 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 nine months ended September 30, 2014 and 2013, the Company received $45,527 and $40,870, respectively, in actual tax benefits upon the exercise of stock awards.

12. Comprehensive income

 

    For the three months ended
September 30, 2014
    For the nine months ended
September 30, 2014
 
    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

  $ (1,702   $ 3,822      $ (1,454   $ 666      $ (2,344   $ 3,120      $ (3,421   $ (2,645
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses)

    880        (567     (13,838     (13,525     (11,780     838        (11,871     (22,813

Related income tax (expense) benefit

    (343     175        —         (168     4,603        (321     —          4,282   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    537        (392     (13,838     (13,693     (7,177     517        (11,871     (18,531
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reclassification from accumulated other comprehensive income into net income

    2,302        —          —          2,302        16,016        (340     —          15,676   

Related tax

    (899     —          —          (899     (6,257     133        —          (6,124
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,403        —          —          1,403        9,759        (207     —          9,552   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 238      $ 3,430      $ (15,292   $ (11,624   $ 238      $ 3,430      $ (15,292   $ (11,624
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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
September 30, 2013
    For the nine months ended
September 30, 2013
 
    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

  $ (117   $ 1,935      $ (5,152   $ (3,334   $ (15,402   $ 1,310      $ (1,205   $ (15,297
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized (losses) gains

    (12,656     1,059        2,741        (8,856     2,591        2,236        (1,206     3,621   

Related income tax benefit (expense)

    4,923        (411     —          4,512        (1,008     (869     —          (1,877
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (7,733     648        2,741        (4,344     1,583        1,367        (1,206     1,744   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reclassification from accumulated other comprehensive income into net income

    5,669        —          —          5,669        15,439        (155     —          15,284   

Related tax

    (2,205     —          —          (2,205     (6,006     61        —          (5,945
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    3,464        —          —          3,464        9,433        (94     —          9,339   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ (4,386   $ 2,583      $ (2,411   $ (4,214   $ (4,386   $ 2,583      $ (2,411   $ (4,214
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 nine months of 2014, the Company acquired dialysis businesses and other businesses consisting of sixteen dialysis centers located in the U.S., four dialysis centers located outside the U.S. and other medical businesses for a total of $218,117 in net cash and deferred purchase price obligations totaling $23,777. 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 Company’s 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.

 

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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 assets acquired and liabilities assumed in these transactions and recognized at their acquisition dates at estimated fair values:

 

     Nine months ended
September 30, 2014
 

Tangible assets, principally leasehold improvements and equipment, net of cash

   $ 4,424   

Amortizable intangible-customer relationships

     74,351   

Other amortizable intangible and long-term assets

     18,316   

Goodwill

     146,399   

Noncontrolling interest

     (1,596
  

 

 

 

Aggregate purchase price

   $ 241,894   
  

 

 

 

Amortizable intangible assets acquired during the first nine months of 2014 had weighted-average estimated useful lives of 9.7 years. The total amount of goodwill deductible for tax purposes associated with these acquisitions was approximately $124,105.

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 approximately $140,300 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 September 30, 2014, the Company has estimated the fair value of these contingent earn-out obligations to be $41,163.

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 $41,163 recognized at September 30, 2014, a total of $15,747 is included in other liabilities and the remaining $25,416 is included in other long-term liabilities in the Company’s condensed consolidated balance sheet.

The following is a reconciliation of changes in the contingent earn-out obligations for the nine months ended September 30, 2014:

 

Beginning balance, January 1, 2014

   $ 28,058   

Contingent earn-out obligations associated with acquisitions

     18,234   

Remeasurement of fair value for other contingent earn-outs

     (2,414

Payments of contingent earn-outs

     (2,715
  

 

 

 
   $ 41,163   
  

 

 

 

 

23


Table of Contents

DAVITA HEALTHCARE PARTNERS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

 

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 entity’s 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 entity’s economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected returns; or (iii) those for which the voting rights of some investors are not proportional to their obligations to absorb the entity’s 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 restriction agreements that effectively transfer the majority of the economic risks and rewards of their ownership to the Company. In other cases the Company’s 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 September 30, 2014, these condensed consolidated financial statements include total assets of VIEs of $572,026 and total liabilities and noncontrolling interests of VIEs to third parties of $312,363.

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.

 

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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 summarizes the Company’s assets, liabilities and temporary equity measured at fair value on a recurring basis as of September 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

   $ 26,237       $ 26,237       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate cap agreements

   $ 2,514       $ —         $ 2,514       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate swap agreements

   $ 4,737       $ —         $ 4,737       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Funds on deposit with third parties

   $ 79,247       $ 79,247       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Contingent earn-out obligations

   $ 41,163       $ —         $ —         $ 41,163   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate swap agreements

   $ 2,035       $ —         $ 2,035       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Temporary equity

           

Noncontrolling interests subject to put provisions

   $ 758,743       $ —         $ —         $ 758,743   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 probability of achieving gross margin 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 Company’s methodology for estimating the fair value of noncontrolling interests subject to put obligations.

 

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)

 

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 September 30, 2014 at their approximate fair values due to the short-term nature of their settlements. The carrying balance of the Company’s Senior Secured Credit Facilities totaled $4,461,897 as of September 30, 2014, and the fair value was approximately $4,435,100 based upon quoted market prices. The fair value of the Company’s senior notes was approximately $3,834,700 at September 30, 2014 based upon quoted market prices, as compared to the carrying amount of $3,775,000.

16. Segment reporting

The Company operates two major divisions, Kidney Care and HCP. The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services business, various other ancillary services and strategic initiatives, including its international dialysis operations, and the Company’s support expenses. The HCP division is comprised of the Company’s HealthCare Partners integrated healthcare business.

As of September 30, 2014, the Company’s 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 Company’s international dialysis operations.

The Company’s operating segments have been defined based on the separate financial information that is regularly produced and reviewed by the Company’s chief operating decision maker in making decisions about allocating resources to and assessing the financial results of the Company’s different business units. The chief operating decision maker for the Company is its Chief Executive Officer.

The Company’s 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 Company’s 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 Company’s different operating lines of business. Corporate support expenses in 2014 have been reduced by internal management fees paid by the Company’s ancillary lines of businesses.

 

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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 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
September 30,
    Nine months ended
September 30,
 
    2014     2013     2014     2013  

Segment net revenues:

       

U.S. dialysis and related lab services

       

Patient service revenues:

       

External sources

  $ 2,153,914      $ 2,043,838      $ 6,279,263      $ 5,932,888   

Intersegment revenues

    10,701        7,867        27,617        23,537   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total dialysis and related lab services revenues

    2,164,615        2,051,705        6,306,880        5,956,425   

Less: Provision for uncollectible accounts

    (91,996     (71,819     (257,687     (208,475
 

 

 

   

 

 

   

 

 

   

 

 

 

Net dialysis and related lab services patient service revenues

    2,072,619        1,979,886        6,049,193        5,747,950   

Other revenues(1)

    3,427        3,016        10,159        9,335   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net dialysis and related lab services revenues

    2,076,046        1,982,902        6,059,352        5,757,285   
 

 

 

   

 

 

   

 

 

   

 

 

 

HCP

       

HCP revenues:

       

Capitated revenues

    827,933        730,400        2,382,656        2,168,828   

Net patient service revenues

    49,783        58,049        164,081        161,084   

Other revenues(2)

    14,013        14,156        72,566        37,459   

Intersegment capitated and other revenues

    251        144        608        144   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    891,980        802,749        2,619,911        2,367,515   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other—Ancillary services and strategic initiatives

       

Net patient service revenues—U.S.

    5,250        4,159        14,112        10,648   

Net patient service revenues—International

    26,610        17,996        73,891        42,353   

Capitated revenues

    20,613        16,864        52,824        51,125   

Other external sources—U.S.

    240,770        181,499        670,441        491,244   

Other external sources—International

    1,507        1,428        4,783        4,352   

Intersegment revenues

    4,995        3,719        14,287        9,895   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total ancillary services and strategic initiatives revenues

    299,745        225,665        830,338        609,617   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net segment revenues

    3,267,771        3,011,316        9,509,601        8,734,417   

Elimination of intersegment revenues

    (15,947     (11,730     (42,512     (33,576
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net revenues

  $ 3,251,824      $ 2,999,586      $ 9,467,089      $ 8,700,841   
 

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating margin (loss):

       

U.S. dialysis and related lab services

  $ 400,226      $ 305,987      $ 1,194,874      $ 792,215   

HCP

    46,339        97,862        182,341        287,328   

Other—Ancillary services and strategic initiatives

    (5,502     (8,118     (5,744     (29,510
 

 

 

   

 

 

   

 

 

   

 

 

 

Total segment margin

    441,063        395,731        1,371,471        1,050,033   

Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:

       

Contingent earn-out obligation adjustment

    —         —         —         56,977   

Corporate support expenses

    (3,527     (18,657     (8,415     (41,055
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated operating income

    437,536        377,074        1,363,056        1,065,955   

Debt expense

    (99,878     (108,421     (312,345     (322,334

Debt refinancing charges

    —          —         (97,548     —    

Other (loss) income

    (1,246     2,113        2,145        1,337   
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated income from continuing operations before income taxes

  $ 336,412      $ 270,766      $ 955,308      $ 744,958   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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.

Depreciation and amortization expense by segment is as follows:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2014      2013      2014      2013  

U.S. dialysis and related lab services.

   $ 101,870       $ 89,465       $ 297,477       $ 263,005   

HCP

     42,558         39,255         126,555         115,862   

Ancillary services and strategic initiatives

     4,768         4,045         13,650         10,396   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 149,196       $ 132,765       $ 437,682       $ 389,263   
  

 

 

    

 

 

    

 

 

    

 

 

 

Summary of assets by segment is as follows:

 

    September 30,
2014
    December 31,
2013
 

Segment assets

   

U.S. dialysis and related lab services

  $ 11,097,897      $ 10,248,993   

HCP

    6,314,202        6,265,767   

Other—Ancillary services and strategic initiatives

    689,317        584,117   
 

 

 

   

 

 

 

Consolidated assets

  $ 18,101,416      $ 17,098,877   
 

 

 

   

 

 

 

Expenditures for property and equipment by segment is as follows:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2014      2013      2014      2013  

U.S. dialysis and related lab services.

   $ 149,247       $ 128,799       $ 399,114       $ 359,574   

HCP

     6,121         6,281         16,401         20,660   

Ancillary services and strategic initiatives

     9,546         6,051         27,992         19,293   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 164,914       $ 141,131       $ 443,507       $ 399,527   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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 Company’s equity are as follows:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2014     2013      2014     2013  

Net income attributable to DaVita HealthCare Partners Inc.

   $ 184,122      $ 136,628       $ 515,094      $ 421,168   
  

 

 

   

 

 

    

 

 

   

 

 

 

(Decrease) increase in paid-in capital for sales of noncontrolling interests

     (316     21         355        (866

Decrease in paid-in capital for the purchase of noncontrolling interests and adjustments to ownership interest

     (1,962     —          (506     (474
  

 

 

   

 

 

    

 

 

   

 

 

 

Net transfers to noncontrolling interests

     (2,278     21         (151     (1,340
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc., net of transfers to noncontrolling interests

   $ 181,844      $ 136,649       $ 514,943      $ 419,828   
  

 

 

   

 

 

    

 

 

   

 

 

 

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 organization’s 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 organization’s 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 Company’s 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 Company’s 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 Company’s 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 September 30, 2014

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
    Non-Guarantor
subsidiaries
    Consolidating
adjustments
    Consolidated
total
 

Patient service revenues

   $ —        $ 1,592,398      $ 651,031      $ (896   $ 2,242,533   

Less: Provision for uncollectible accounts

     —         (61,973     (36,998     —          (98,971
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service revenues

     —          1,530,425        614,033        (896     2,143,562   

Capitated revenues

     —          442,472        406,926        (852     848,546   

Other revenues

     174,226        422,733        37,961        (375,204     259,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     174,226        2,395,630        1,058,920        (376,952     3,251,824   

Operating expenses

     123,856        2,126,918        940,466        (376,952     2,814,288   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     50,370        268,712        118,454        —          437,536   

Debt expense, including debt refinancing charges

     (98,496     (89,048     (8,730     96,396        (99,878

Other income (loss)

     94,258        388        504        (96,396     (1,246

Income tax expense (benefit)

     18,395        99,927        (1,694     —          116,628   

Equity earnings in subsidiaries

     156,385        76,260        —          (232,645     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     184,122        156,385        111,922        (232,645     219,784   

Less: Net income attributable to noncontrolling interests

     —          —          —          (35,662     (35,662
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

   $ 184,122      $ 156,385      $ 111,922      $ (268,307   $ 184,122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 September 30, 2013

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
    Non-Guarantor
subsidiaries
    Consolidating
adjustments
    Consolidated
total
 

Patient service revenues

   $ —        $ 1,527,860      $ 602,708      $ (3,869   $ 2,126,699   

Less: Provision for uncollectible accounts

     —          (47,381     (27,096     —          (74,477
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service revenues

     —          1,480,479        575,612        (3,869     2,052,222   

Capitated revenues

     —          357,058        392,040        (1,834     747,264   

Other revenues

     159,546        384,676        26,411        (370,533     200,100   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     159,546        2,222,213        994,063        (376,236     2,999,586   

Operating expenses

     117,216        2,014,126        867,406        (376,236     2,622,512   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     42,330        208,087        126,657        —          377,074   

Debt expense

     (107,550     (83,432     (8,505     91,066        (108,421

Other income (expense)

     100,943        (9,615     1,851        (91,066     2,113   

Income tax expense

     16,144        81,180        3,606        —          100,930   

Equity earnings in subsidiaries

     117,049        88,791        —          (205,840     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     136,628        122,651        116,397        (205,840     169,836   

Less: Net income attributable to noncontrolling interests

     —          —          —          (33,208     (33,208
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

   $ 136,628      $ 122,651      $ 116,397      $ (239,048   $ 136,628   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

For the nine months ended September 30, 2014

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
    Non-Guarantor
subsidiaries
    Consolidating
adjustments
    Consolidated
total
 

Patient service revenues

   $ —        $ 4,622,943      $ 1,918,700      $ 2,237      $ 6,543,880   

Less: Provision for uncollectible accounts

     —          (169,133     (101,087     —          (270,220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service revenues

     —          4,453,810        1,817,613        2,237        6,273,660   

Capitated revenues

     —          1,261,385        1,175,354        (1,259     2,435,480   

Other revenues

     518,468        1,241,043        105,964        (1,107,526     757,949   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     518,468        6,956,238        3,098,931        (1,106,548     9,467,089   

Operating expenses

     358,968        6,141,200        2,710,413        (1,106,548     8,104,033   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     159,500        815,038        388,518        —          1,363,056   

Debt expense, including debt refinancing charges

     (406,037     (277,854     (28,662     302,660        (409,893

Other income

     293,733        9,323        1,749        (302,660     2,145   

Income tax expense

     18,826        315,473        8,067        —          342,366   

Equity earnings in subsidiaries

     486,724        255,690        —          (742,414     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     515,094        486,724        353,538        (742,414     612,942   

Less: Net income attributable to noncontrolling interests

     —          —          —          (97,848     (97,848
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

   $ 515,094      $ 486,724      $ 353,538      $ (840,262   $ 515,094   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 nine months ended September 30, 2013

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
    Non-Guarantor
subsidiaries
    Consolidating
adjustments
    Consolidated
total
 

Patient service revenues

   $ —        $ 4,456,215      $ 1,720,574      $ (21,566   $ 6,155,223   

Less: Provision for uncollectible accounts

     —          (148,456     (68,269     —          (216,725
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service revenues

     —          4,307,759        1,652,305        (21,566     5,938,498   

Capitated revenues

     —          1,054,394        1,170,166        (4,607     2,219,953   

Other revenues

     461,571        1,117,710        65,251        (1,102,142     542,390   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     461,571        6,479,863        2,887,722        (1,128,315     8,700,841   

Operating expenses

     309,601        5,922,490        2,531,110        (1,128,315     7,634,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     151,970        557,373        356,612        —          1,065,955   

Debt expense

     (320,218     (273,747     (30,475     302,106        (322,334

Other income

     302,111        66        1,266        (302,106     1,337   

Income tax expense

     50,199        175,697        19,370        —          245,266   

Equity earnings in subsidiaries

     337,504        216,273        —          (553,777     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     421,168        324,268        308,033        (553,777     499,692   

Discontinued operations

     —          —          13,236        —          13,236   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     421,168        324,268        321,269        (553,777     512,928   

Less: Net income attributable to noncontrolling interests

     —          —          —          (91,760     (91,760
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

   $ 421,168      $ 324,268      $ 321,269      $ (645,537   $ 421,168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Condensed Consolidating Statements of Comprehensive Income

 

For the three months ended September 30, 2014

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
     Non-Guarantor
subsidiaries
     Consolidating
adjustments
    Consolidated
total
 

Net income

   $ 184,122      $ 156,385       $ 111,922       $ (232,645   $ 219,784   

Other comprehensive loss

     (12,290     —           —           —          (12,290
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income

     171,832        156,385         111,922         (232,645     207,494   

Less: comprehensive income attributable to the noncontrolling interests

     —          —           —           (35,662     (35,662
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

   $ 171,832      $ 156,385       $ 111,922       $ (268,307   $ 171,832   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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 three months ended September 30, 2013

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
     Non-Guarantor
subsidiaries
     Consolidating
adjustments
    Consolidated
total
 

Net income

   $ 136,628      $ 122,651       $ 116,397       $ (205,840   $ 169,836   

Other comprehensive loss

     (880     —           —           —          (880
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income

     135,748        122,651         116,397         (205,840     168,956   

Less: comprehensive income attributable to the noncontrolling interests

     —          —           —           (33,208     (33,208
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

   $ 135,748      $ 122,651       $ 116,397       $ (239,048   $ 135,748   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

For the nine months ended September 30, 2014

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
     Non-Guarantor
subsidiaries
     Consolidating
adjustments
    Consolidated
total
 

Net income

   $ 515,094      $ 486,724       $ 353,538       $ (742,414   $ 612,942   

Other comprehensive loss

     (8,979     —           —           —          (8,979
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income

     506,115        486,724         353,538         (742,414     603,963   

Less: comprehensive income attributable to the noncontrolling interests

     —          —           —           (97,848     (97,848
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

   $ 506,115      $ 486,724       $ 353,538       $ (840,262   $ 506,115   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

For the nine months ended September 30, 2013

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
     Non-Guarantor
subsidiaries
     Consolidating
adjustments
    Consolidated
total
 

Net income

   $ 421,168      $ 324,268       $ 321,269       $ (553,777   $ 512,928   

Other comprehensive income

     11,083        —           —           —          11,083   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income

     432,251        324,268         321,269         (553,777     524,011   

Less: comprehensive income attributable to the noncontrolling interests

     —          —           —           (91,760     (91,760
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

   $ 432,251      $ 324,268       $ 321,269       $ (645,537   $ 432,251   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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)

 

Condensed Consolidating Balance Sheets

 

As of September 30, 2014

   DaVita
HealthCare
Partners Inc.
     Guarantor
subsidiaries
     Non-Guarantor
subsidiaries
     Consolidating
adjustments
    Consolidated
total
 

Cash and cash equivalents

   $ 1,187,719       $ 127,331       $ 211,985       $ —        $ 1,527,035   

Accounts receivable, net

     —           886,574         581,989         —          1,468,563   

Other current assets

     157,897         929,139         95,801         —          1,182,837   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     1,345,616         1,943,044         889,775         —          4,178,435   

Property and equipment, net

     191,897         1,425,392         741,914         —          2,359,203   

Amortizable intangibles, net

     88,537         1,850,725         58,510         —          1,997,772   

Investments in subsidiaries

     8,714,911         1,544,864         —           (10,259,775     —     

Intercompany receivables

     3,452,572         —           530,994         (3,983,566     —     

Other long-term assets and investments

     59,555         84,940         76,870         —          221,365   

Goodwill

     —           7,955,215         1,389,426         —          9,344,641   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 13,853,088       $ 14,804,180       $ 3,687,489       $ (14,243,341   $ 18,101,416   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

     269,843         1,936,798         390,990         —          2,597,631   

Intercompany payables

     —           2,912,917         1,070,649         (3,983,566     —     

Long-term debt and other long-term liabilities

     8,116,659         1,239,554         237,354         —          9,593,567   

Noncontrolling interests subject to put provisions

     491,544         —           —           267,199        758,743   

Total DaVita HealthCare Partners Inc. shareholders’ equity

     4,975,042         8,714,911         1,544,864         (10,259,775     4,975,042   

Noncontrolling interests not subject to put provisions

     —           —           443,632         (267,199     176,433   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     4,975,042         8,714,911         1,988,496         (10,526,974     5,151,475   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 13,853,088       $ 14,804,180       $ 3,687,489       $ (14,243,341   $ 18,101,416   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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)

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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)

 

Condensed Consolidating Statements of Cash Flows

 

For the nine months ended September 30, 2014

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
    Non-Guarantor
subsidiaries
    Consolidating
adjustments
    Consolidated
total
 

Cash flows from operating activities:

          

Net income

   $ 515,094      $ 486,724      $ 353,538      $ (742,414   $ 612,942   

Changes in operating assets and liabilities and non-cash items included in net income

     (479,441     578,851        74,632        742,414        916,456   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     35,653        1,065,575        428,170        —          1,529,398   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Additions of property and equipment, net

     (37,752     (215,072     (190,683     —          (443,507

Acquisitions

     —          (204,670     (13,447     —          (218,117

Proceeds from asset and business sales

     —          3,620        —          —          3,620   

Purchases/proceeds from investment sales and other items

     (137,313     (33,111     (2,757     —          (173,181
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (175,065     (449,233     (206,887     —          (831,185
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Long-term debt and related financing costs, net

     40,250        (9,247     295        —          31,298   

Intercompany borrowing

     759,648        (646,476     (113,172     —          —     

Other items

     (74,955     (8,292     (67,060     —          (150,307
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     724,943        (664,015     (179,937     —          (119,009
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

     —          —          1,582        —          1,582   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     585,531        (47,673     42,928        —          580,786   

Cash and cash equivalents at beginning of period

     602,188        175,004        169,057        —          946,249   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,187,719      $ 127,331      $ 211,985      $ —        $ 1,527,035   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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)

 

For the nine months ended September 30, 2013

   DaVita
HealthCare
Partners Inc.
    Guarantor
subsidiaries
    Non-Guarantor
subsidiaries
    Consolidating
adjustments
    Consolidated
total
 

Cash flows from operating activities:

          

Net income

   $ 421,168      $ 324,268      $ 321,269      $ (553,777   $ 512,928   

Changes in operating assets and liabilities and non-cash items included in net income

     (370,991     720,662        2,778        553,777        906,226   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     50,177        1,044,930        324,047        —          1,419,154   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Additions of property and equipment, net

     (32,305     (196,918     (170,304     —          (399,527

Acquisitions

     —          (185,945     (48,857     —          (234,802

Proceeds from asset sales

     60,650        1,632        —          —          62,282   

Purchases of investments and other items

     (2,574     (2,565     100        —          (5,039
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     25,771        (383,796     (219,061     —          (577,086
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Long-term debt and related financing costs, net

     (370,774     (9,211     (4,316     —          (384,301

Intercompany borrowing

     684,985        (653,287     (31,698     —          —     

Other items

     44,164        5,609        (69,695     —          (19,922
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     358,375        (656,889     (105,709     —          (404,223
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

     —          —          (899     —          (899
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     434,323        4,245        (1,622     —          436,946   

Cash and cash equivalents at beginning of period

     195,037        166,107        172,604        —          533,748   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 629,360      $ 170,352      $ 170,982      $ —        $ 970,694   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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)

 

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 September 30, 2014

  Consolidated
Total
    Physician
Groups
    Unrestricted
Subsidiaries
    Company and
Restricted
Subsidiaries(1)
 

Patient service operating revenues

  $ 2,242,533      $ 31,231      $ —        $ 2,211,302   

Less: Provision for uncollectible accounts

    (98,971     (5,053     —          (93,918
 

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service operating revenues

    2,143,562        26,178        —          2,117,384   

Capitated revenues

    848,546        387,405        —          461,141   

Other revenues

    259,716        856        —          258,860   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net operating revenues

    3,251,824        414,439        —          2,837,385   

Operating expenses

    2,814,288        409,550        27        2,404,711   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    437,536        4,889        (27     432,674   

Debt expense, including refinancing charges

    (99,878     (2,364     —          (97,514

Other (loss) income

    (1,246     42        —          (1,288

Income tax expense

    116,628        721        (11     115,918   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    219,784        1,846        (16     217,954   

Minority interests

    (35,662     —          —          (35,662
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

  $ 184,122      $ 1,846      $ (16   $ 182,292   
 

 

 

   

 

 

   

 

 

   

 

 

 

For the nine months ended September 30, 2014

  Consolidated
Total
    Physician
Groups
    Unrestricted
Subsidiaries
    Company and
Restricted
Subsidiaries(1)
 

Patient service operating revenues

  $ 6,543,880      $ 91,731      $ —        $ 6,452,149   

Less: Provision for uncollectible accounts

    (270,220     (7,642     —          (262,578
 

 

 

   

 

 

   

 

 

   

 

 

 

Net patient service operating revenues

    6,273,660        84,089        —          6,189,571   

Capitated revenues

    2,435,480        1,122,085        —          1,313,395   

Other revenues

    757,949        3,735        —          754,214   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net operating revenues

    9,467,089        1,209,909        —          8,257,180   

Operating expenses

    8,104,033        1,185,349        263        6,918,421   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    1,363,056        24,560        (263     1,338,759   

Debt expense, including refinancing charges

    (409,893     (8,982     —          (400,911

Other income

    2,145        75        —          2,070   

Income tax expense

    342,366        4,878        (105     337,593   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    612,942        10,775        (158     602,325   

Minority interests

    (97,848     —          —          (97,848
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to DaVita HealthCare Partners Inc.

  $ 515,094      $ 10,775      $ (158   $ 504,477   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  After the elimination of the unrestricted subsidiaries and the physician groups

 

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)

 

Condensed Consolidating Statements of Comprehensive Income

 

For the three months ended September 30, 2014

  Consolidated
Total
    Physician
Groups
    Unrestricted
Subsidiaries
    Company and
Restricted
Subsidiaries(1)
 

Net income

  $ 219,784      $ 1,846      $ (16   $ 217,954   

Other comprehensive loss

    (12,290     —          —          (12,290
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    207,494        1,846        (16     205,664   

Less: comprehensive income attributable to the noncontrolling interests

    (35,662     —          —          (35,662
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

  $ 171,832      $ 1,846      $ (16   $ 170,002   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

For the nine months ended September 30, 2014

  Consolidated
Total
    Physician
Groups
    Unrestricted
Subsidiaries
    Company and
Restricted
Subsidiaries(1)
 

Net income

  $ 612,942      $ 10,775      $ (158   $ 602,325   

Other comprehensive loss

    (8,979     —          —          (8,979
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    603,963        10,775        (158     593,346   

Less: comprehensive income attributable to the noncontrolling interests

    (97,848     —          —          (97,848
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to DaVita HealthCare Partners Inc.

  $ 506,115      $ 10,775      $ (158   $ 495,498   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 Balance Sheets

 

As of September 30, 2014

  Consolidated
Total
    Physician
Groups
    Unrestricted
Subsidiaries
    Company and
Restricted
Subsidiaries(1)
 

Cash and cash equivalents

  $ 1,527,035      $ 112,135      $ —        $ 1,414,900   

Accounts receivable, net

    1,468,563        235,882        —          1,232,681   

Other current assets

    1,182,837        20,349        —          1,162,488   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    4,178,435        368,366        —          3,810,069   

Property and equipment, net

    2,359,203        4,872        —          2,354,331   

Amortizable intangibles, net

    1,997,772        6,490        —          1,991,282   

Other long-term assets

    221,365        65,138        3,061        153,166   

Goodwill

    9,344,641        9,181        —          9,335,460   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 18,101,416      $ 454,047      $ 3,061      $ 17,644,308   
 

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

  $ 2,597,631      $ 193,082      $ —        $ 2,404,549   

Payables to parent

    —          166,269        3,061        (169,330

Long-term debt and other long-term liabilities

    9,593,567        82,458        —          9,511,109   

Noncontrolling interests subject to put provisions

    758,743        —          —          758,743   

Total DaVita HealthCare Partners Inc. shareholders’ equity

    4,975,042        12,238        —          4,962,804   

Noncontrolling interests not subject to put provisions

    176,433        —          —          176,433   
 

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ equity

    5,151,475        12,238        —          5,139,237   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholder’s equity

  $ 18,101,416      $ 454,047      $ 3,061      $ 17,644,308   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

40


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 shareholder’s equity

  $ 17,098,877      $ 484,230      $ 3,325      $ 16,611,322   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  After the elimination of the unrestricted subsidiaries and the physician groups

 

41


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 nine months ended September 30, 2014

   Consolidated
Total
    Physician
Groups
    Unrestricted
Subsidiaries
    Company and
Restricted
Subsidiaries(1)
 

Cash flows from operating activities:

        

Net income

   $ 612,942      $ 10,775      $ (158   $ 602,325   

Changes in operating and intercompany assets and liabilities and non-cash items included in net income

     916,456        5,752        158        910,546