DaVita HealthCare Partners Inc. 4th Quarter 2012 Results

  DaVita HealthCare Partners Inc. 4th Quarter 2012 Results

Business Wire

DENVER -- February 14, 2013

DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the
quarter and year ended December 31, 2012. Adjusted net income attributable to
DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012 was
$173.3 million, or $1.68 per share, excluding transaction expenses associated
with the acquisition of HealthCare Partners Holdings, LLC (HCP), debt
refinancing charges and expenses associated with a legal settlement, which net
of related tax impacts totaled $17.5 million, or $0.17 per share. Net income
attributable to DaVita HealthCare Partners Inc. for the quarter ended December
31, 2012 including these items was $155.8 million, or $1.51 per share.

Adjusted net income attributable to DaVita HealthCare Partners Inc. for the
year ended December 31, 2012 was $612.4 million, or $6.25 per share, excluding
transaction expenses associated with the acquisition of HCP, debt refinancing
charges and a legal settlement and related expenses, which net of related tax
impacts totaled $76.4 million, or $0.78 per share. Net income attributable to
DaVita HealthCare Partners Inc. for the year ended December 31, 2012 including
these items was $536.0 million, or $5.47 per share.

Net income attributable to DaVita HealthCare Partners Inc. for the quarter and
year ended December 31, 2011 was $148.1 million and $492.4 million, or $1.56
per share and $5.11 per share, respectively, for which the year ended December
31, 2011 amounts exclude an after-tax non-cash goodwill impairment charge
totaling approximately $14.4 million, or $0.15 per share. Net income
attributable to DaVita HealthCare Partners Inc. for the year ended December
31, 2011 including this item was $478.0 million, or $4.96 per share.

Financial and operating highlights include:

  *Cash Flow: For the year ended December 31, 2012, operating cash flow was
    $1,101 million and free cash flow was $715 million. For the three months
    ended December 31, 2012, operating cash flow was $200 million and free
    cash flow was $83 million. For a definition of free cash flow see Note 4
    to the reconciliations of non-GAAP measures.
  *Operating Income: Adjusted operating income for the quarter ended December
    31, 2012 was $408 million, excluding the transaction expenses associated
    with the acquisition of HCP of $13 million and expenses associated with a
    legal settlement of $7 million. Operating income for the quarter ended
    December 31, 2012 including these items was $388 million.

    Adjusted operating income for the year ended December 31, 2012 was $1,414
    million, excluding transactions expenses associated with the acquisition
    of HCP of $31 million and a legal settlement and related expenses of $86
    million. Operating income for the year ended December 31, 2012 including
    these items was $1,297 million.

    Operating income for the quarter and year ended December 31, 2011 was $330
    million and $1,155 million, respectively.

  *Adjusted Diluted Net Income Per Share: Adjusted diluted net income per
    share attributable to DaVita HealthCare Partners Inc. for the quarter
    ended December 31, 2012, excluding transaction expenses associated with
    the acquisition of HCP, debt refinancing charges, expenses associated with
    a legal settlement and amortization of intangible assets associated with
    acquisitions, which net of related tax impacts totaled $35.0 million, was
    $1.85 per share.

    Adjusted diluted net income per share attributable to DaVita HealthCare
    Partners Inc. for the year ended December 31, 2012, excluding transaction
    expenses associated with the acquisition of HCP, debt refinancing charges,
    a legal settlement and related expenses, and the amortization of
    intangible assets associated with acquisitions, which net of related tax
    impacts totaled $105.4 million, was $6.55 per share.

    Adjusted diluted net income per share attributable to DaVita HealthCare
    Partners Inc. for the quarter ended December 31, 2011, excluding after-tax
    amortization of intangible assets associated with acquisitions totaling
    $3.7 million, was $1.60 per share.

    Adjusted diluted net income per share attributable to DaVita HealthCare
    Partners Inc. for the year ended December 31, 2011, excluding a goodwill
    impairment charge and the amortization of intangible assets associated
    with acquisitions, which net of related tax impacts totaled $28.2 million,
    was $5.25 per share.

  *Volume: Total U.S. dialysis treatments for the fourth quarter of 2012 were
    5,736,776, or 72,161 treatments per day, representing a per day increase
    of 9.1% over the fourth quarter of 2011. Non-acquired treatment growth in
    the quarter was 4.7% over the prior year’s fourth quarter. Our normalized
    non-acquired treatment growth in the quarter was 4.4% over the prior
    year’s fourth quarter.
  *Effective Tax Rate: Our effective tax rate was 34.7% and 35.9% for the
    quarter and year ended December 31, 2012, respectively. This effective tax
    rate is impacted by the amount of third party owners’ income attributable
    to non-tax paying entities. The effective tax rate attributable to DaVita
    HealthCare Partners Inc. was 38.5% and 40.1% for the quarter and year
    ended December 31, 2012, respectively. We expect our 2013 effective tax
    rate attributable to DaVita HealthCare Partners Inc. to be in the range of
    39.5% to 40.5%.
  *Acquisition: On November 1, 2012 we completed our acquisition of HCP
    pursuant to an Agreement and Plan of Merger dated May 20, 2012, as
    amended, whereby HCP became a wholly-owned subsidiary of DaVita Inc. For
    further details regarding this transaction, see our report on Form 8-K
    filed with the SEC on November 1, 2012. The operating results of HCP are
    included in our consolidated financial results from November 1, 2012.
  *Debt Transactions: In conjunction with the acquisition of HCP, on November
    1, 2012, we borrowed an additional $3,000 million under an amended Credit
    Agreement. The amended Credit Agreement consist of a new five year Term
    Loan A-3 facility in an aggregate principal amount of $1,350 million and a
    new seven year Term Loan B-2 facility in an aggregate principal amount of
    $1,650 million. The new Term Loan A-3 initially bears interest at LIBOR
    plus an interest rate margin of 2.50% subject to adjustment depending upon
    our leverage ratio and can range from 2.00% to 2.50%. The Term Loan A-3
    matures in 2017. The Term Loan B-2 bears interest at LIBOR (floor at
    1.00%) plus an interest rate margin of 3.00% and matures in 2019. In
    addition, we amended certain financial covenants and various other
    provisions of our Credit Agreement to provide operating and financial
    flexibility.

    On August 28, 2012, we also issued $1,250 million of New Senior Notes. The
    New Senior Notes will pay interest on February 15 and August 15 of each
    year, beginning February 15, 2013. The New Senior Notes are unsecured
    senior obligations and rank equally to other unsecured senior indebtedness
    and are guaranteed by certain domestic subsidiaries of DaVita HealthCare
    Partners Inc.

    We received total proceeds of $4,250 million from these additional
    borrowings, $3,000 million from the borrowings on the new Term Loan A-3
    and new Term Loan B-2, and an additional $1,250 million from the New
    Senior Notes. We used a portion of the proceeds to finance the merger of
    HCP, pay-off the existing Term Loan A-2 outstanding principal balance and
    to pay-off a portion of HCP’s existing debt as well as to pay fees and
    expenses of approximately $71.8 million.

  *Dialysis Center Activity: As of December 31, 2012, we operated or provided
    administrative services at 1,954 outpatient dialysis centers located in
    the United States serving approximately 153,000 patients and 36 outpatient
    dialysis centers serving approximately 2,200 patients that are located in
    eight countries outside of the United States. During the fourth quarter of
    2012, we acquired 22 dialysis centers and opened a total of 22 dialysis
    centers located in the United States. We also acquired 10 dialysis centers
    and opened two dialysis centers outside of the United States.

Outlook

Our consolidated operating income guidance for 2013 is still expected to be in
the range of $1,750 million to $1,900 million including the operating results
of HCP. Our operating income guidance for 2013 for our dialysis services and
related ancillary businesses is expected to be in the range of $1,350 million
to $1,450 million and our operating income guidance for 2013 for HCP is
expected to be in the range of $400 million to $450 million. We also expect
our consolidated operating cash flows for 2013 to be in the range of $1,350
million to $1,500 million. These projections and the underlying assumptions
involve significant risks and uncertainties, including those described below,
and actual results may vary significantly from these current projections.

We will be holding a conference call to discuss our results for the fourth
quarter ended December 31, 2012 on February 14, 2013 at 12:30 p.m. Eastern
Time. The dial in number is (800) 399-4406. A replay of the conference call
will be available on DaVita’s official web page, www.davita.com, for the
following 30 days.

This release contains forward-looking statements, within the meaning of the
federal securities laws, including statements related to our guidance and
expectations for our 2013 operating income, our 2013 operating cash flows and
our 2013 effective tax rate attributable to DaVita HealthCare Partners Inc.
Factors that could impact future results include the uncertainties associated
with the risk factors set forth in our SEC filings, including our annual
report on Form 10-K for the year ended December 31, 2011, and our subsequent
quarterly and annual reports and our current reports on Form 8-K. The
forward-looking statements should be considered in light of these risks and
uncertainties.

These risks and uncertainties include but are not limited to, and are
qualified in their entirety by reference to the full text of those risk
factors in our SEC filings relating to:

  *the concentration of profits generated by, the continued downward pressure
    on average realized payment rates from, and a reduction in the number of
    patients under higher-paying commercial payor plans, which may result in
    the loss of revenues or patients,
  *a reduction in government payment rates under the Medicare End Stage Renal
    Disease program or other government-based programs,
  *the impact of health care reform legislation that was enacted in the
    United States in March 2010,
  *changes in pharmaceutical or anemia management practice patterns, payment
    policies, or pharmaceutical pricing,
  *our continued compliance with complex government regulations, and current
    or potential investigations by various government entities and related
    government or private-party proceedings,
  *our ability to maintain contracts with physician medical directors,
    changing affiliation models for physicians, and the emergence of new
    models of care introduced by the government or private sector, that may
    erode our patient base and reimbursement rates,
  *our ability to complete any acquisitions, mergers or dispositions that we
    might be considering or announce, or to integrate and successfully operate
    any business we may acquire, or to expand our operations and services to
    markets outside the United States,
  *risks arising from the use of accounting estimates in our financial
    statements.
  *the risk that the cost of providing services under HCP’s agreements may
    exceed our compensation,
  *the risk that reductions in reimbursement rates and future regulations may
    negatively impact HCP’s revenue and profitability,
  *the risk that HCP may not be able to successfully establish a presence in
    new geographic regions, or successfully address competitive threats that
    could reduce its profitability, the risk that a disruption in HCP’s
    healthcare provider networks could have an adverse effect on HCP’s
    business operations and profitability,
  *the risk that reductions in the quality ratings of health maintenance
    organization plan customers of HCP could have an adverse effect on HCP’s
    business, or
  *the risk that health plans that acquire health maintenance organizations
    may not be willing to contract with HCP or may be willing to contract only
    on less favorable terms.

We base our forward-looking statements on information currently available to
us at the time of this release, and we undertake no obligation to update or
revise any forward-looking statements, whether as a result of changes in
underlying factors, new information, future events or otherwise.

This release contains non-GAAP financial measures. For reconciliations of
these non-GAAP financial measures to their most comparable measure calculated
and presented in accordance with GAAP, see the attached reconciliation
schedules. For the reasons stated in the reconciliation schedules, we believe
our presentation of non-GAAP financial measures provides useful supplemental
information for investors.

DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
                                                                                      
                 Three months ended December 31,    Year ended December 31,
                   2012             2011               2012            2011
Patient
service            $ 1,929,802       $ 1,715,818        $ 7,351,900      $ 6,470,540
revenues
Less:
Provision for       (67,950     )    (51,714    )      (235,218   )    (190,234   )
uncollectible
accounts
Net patient
service              1,861,852         1,664,104          7,116,682        6,280,306
revenues
HCP capitated        419,431         ─                    419,431        ─
revenues
Other revenues      196,570         130,221          650,167        451,500    
Total net
operating           2,477,853       1,794,325        8,186,280      6,731,806  
revenues
Operating
expenses and
charges:
Patient care         1,702,763         1,201,387          5,578,853        4,633,620
costs
General and          278,469           192,019            894,575          684,715
administrative
Depreciation
and                  109,278           72,387             341,969          264,225
amortization
Provision for
uncollectible        805               1,019              4,339            3,309
accounts
Equity
investment           (8,063      )     (2,221     )       (16,377    )     (8,776     )
income
Legal
settlement and      6,545          ─                  85,837        ─            
related
expenses
Total
operating           2,089,797       1,464,591        6,889,196      5,577,093  
expenses and
charges
Operating            388,056           329,734            1,297,084        1,154,713
income
Debt expense         (98,032     )     (61,750    )       (288,554   )     (241,090   )
Debt
refinancing          (8,901      )   ─                    (10,963    )   ─
charges
Other income        1,039           787              3,737          2,982      
Income from
continuing
operations           282,162           268,771            1,001,304        916,605
before income
taxes
Income tax          97,902          91,552           359,845        325,292    
expense
Income from
continuing           184,260           177,219            641,459          591,313
operations
Discontinued
operations:
Loss from
operations of
discontinued         (460        )     (19        )       (222       )     (13,162    )
operations,
net of tax
Loss on
disposal of
discontinued       ─                 (1,068     )     ─                (4,756     )
operations,
net of tax
Net income           183,800           176,132            641,237          573,395
Less: Net
income
attributable        (27,961     )    (28,009    )      (105,220   )    (95,394    )
to
noncontrolling
interests
Net income
attributable
to DaVita          $ 155,839        $ 148,123         $ 536,017       $ 478,001    
HealthCare
Partners Inc.
Earnings per
share:
Basic income
from
continuing
operations per
share              $ 1.55           $ 1.60            $ 5.58          $ 5.25       
attributable
to DaVita
HealthCare
Partners Inc.
Basic net
income per
share
attributable       $ 1.54           $ 1.59            $ 5.58          $ 5.05       
to DaVita
HealthCare
Partners Inc.
Diluted income
from
continuing
operations per
share              $ 1.51           $ 1.57            $ 5.47          $ 5.14       
attributable
to DaVita
HealthCare
Partners Inc.
Diluted net
income per
share
attributable       $ 1.51           $ 1.56            $ 5.47          $ 4.96       
to DaVita
HealthCare
Partners Inc.
Weighted
average shares
for earnings
per share:
Basic               101,107,780     93,485,001       96,017,939     94,658,027 
Diluted             103,470,985     94,968,029       97,971,080     96,532,110 
Amounts
attributable
to DaVita
HealthCare
Partners Inc.:
Income from
continuing         $ 156,283         $ 149,235          $ 536,236        $ 496,182
operations
Discontinued        (444        )    (1,112     )      (219       )    (18,181    )
operations
Net income         $ 155,839        $ 148,123         $ 536,017       $ 478,001    
                                                                                      
                                                                                      

DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
                                                                             
                    Three months ended          Year ended December 31,
                      December 31,
                      2012         2011            2012          2011
Net income            $ 183,800    $ 176,132      $ 641,237     $ 573,395 
Other
comprehensive
(loss) income,
net of tax:
Unrealized losses
on interest rate
swap and cap
agreements:
                                                                             
Unrealized losses
on interest rate        (100    )     (1,210  )       (6,204   )     (29,049 )
swap and cap
agreements
Less:
Reclassifications
of net swap and         2,543         2,597           10,130         9,721
cap agreements
realized losses
into net income
                                                                             
Unrealized gains
(losses) on
investments:
Unrealized gains
(losses) on             155           (15     )       1,541          (602    )
investments
Less:
Reclassification
of net investment     ─             ─                 (75      )     (57     )
realized gains
into net income
                                                                             
Foreign currency
translation            388        ─               (1,205   )   ─         
adjustments
Other
comprehensive          2,986       1,372         4,187        (19,987 )
income (loss)
                                                                             
Total
comprehensive           186,786       177,504         645,424        553,408
income
Less:
Comprehensive
income
attributable to        (27,961 )    (28,009 )      (105,220 )    (95,394 )
the
noncontrolling
interests
Comprehensive
income
attributable to       $ 158,825    $ 149,495      $ 540,204     $ 458,014 
DaVita HealthCare
Partners Inc.
                                                                             
                                                                             

DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
                                                                             
                                         Year ended
                                           December 31,
                                           2012              2011
Cash flows from operating activities:
Net income                                 $ 641,237           $ 573,395
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization                343,908             267,315
Stock-based compensation expense             45,384              48,718
Tax benefits from stock award                88,964              38,199
exercises
Excess tax benefits from stock award         (62,036     )       (20,834     )
exercises
Deferred income taxes                        43,765              53,438
Equity investment income, net                3,384               354
Other non-cash charges                       30,390              20,329
Goodwill impairment charge                 ─                     24,000
Changes in operating assets and
liabilities, other than from
acquisitions and divestitures:
Accounts receivable                          (63,673     )       (88,848     )
Inventories                                  4,052               10,270
Other receivables and other current          51,730              53,697
assets
Other long-term assets                       (1,775      )       2,039
Accounts payable                             40,878              84,400
Accrued compensation and benefits            18,476              77,074
Other current liabilities                    27,083              (51,979     )
Income taxes                                 (129,948    )       77,418
Other long-term liabilities                 19,029            11,061      
Net cash provided by operating              1,100,848         1,180,046   
activities
Cash flows from investing activities:
Additions of property and equipment,         (550,146    )       (400,156    )
net
Acquisitions                                 (4,294,077  )       (1,077,442  )
Proceeds from asset sales                    3,559               75,183
Purchase of investments                      (3,935      )       (5,971      )
available-for-sale
Purchase of investments                      (7,418      )       (37,628     )
held-to-maturity
Proceeds from sale of investments            7,211               1,149
available-for-sale
Proceeds from maturities of                  14,530              47,695
investments held-to-maturity
Purchase of equity investments and           (2,182      )       (2,398      )
other assets
Distributions received on equity            8                 340         
investments
Net cash used in investing activities       (4,832,450  )      (1,399,228  )
Cash flows from financing activities:
Borrowings                                   43,248,175          36,395,105
Payments on long-term debt                   (39,286,027 )       (36,249,584 )
Interest rate cap premiums and other         (57,241     )       (17,861     )
deferred financing costs
Purchase of treasury stock                 ─                     (323,348    )
Distributions to noncontrolling              (113,504    )       (100,653    )
interests
Stock award exercises and other share        6,647               11,316
issuances, net
Excess tax benefits from stock award         62,036              20,834
exercises
Contributions from noncontrolling            37,395              21,010
interests
Proceeds from sales of additional            1,664               9,687
noncontrolling interests
Purchases from noncontrolling               (26,761     )      (13,689     )
interests
Net cash used in financing activities        3,872,384           (247,183    )
Effect of exchange rate changes on          (786        )     ─             
cash and cash equivalents
Net increase (decrease) in cash and          139,996             (466,365    )
cash equivalents
Cash and cash equivalents at beginning      393,752           860,117     
of year
Cash and cash equivalents at end of        $ 533,748          $ 393,752     
year
                                                                             
                                                                             

DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)

                                           December 31,     December 31,
                                             2012               2011
ASSETS
Cash and cash equivalents                    $ 533,748          $ 393,752
Short-term investments                         7,138              17,399
Accounts receivable, less allowance of         1,437,303          1,195,163
$245,122 and $250,343
Inventories                                    78,126             75,731
Other receivables                              265,671            281,468
Other current assets                           201,572            49,349
Income tax receivable                          55,454           ─
Deferred income taxes                         324,282          280,382    
Total current assets                           2,903,294          2,293,244
Property and equipment, net                    1,872,370          1,432,651
Amortizable intangibles, net                   2,127,778          159,491
Equity investments                             35,150             27,325
Long-term investments                          59,341             9,890
Other long-term assets                         80,194             34,231
Goodwill                                      8,964,969        4,946,976  
                                             $ 16,043,096      $ 8,903,808  
LIABILITIES AND EQUITY
Accounts payable                             $ 414,143          $ 289,653
Other liabilities                              563,365            328,607
Accrued compensation and benefits              566,911            421,735
Medical payables                               261,964          ─
Current portion of long-term debt              227,791            87,345
Income tax payable                           ─                  37,412     
Total current liabilities                      2,034,174          1,164,752
Long-term debt                                 8,326,534          4,417,624
Other long-term liabilities                    443,743            132,006
Alliance and product supply agreement,         14,657             19,987
net
Deferred income taxes                         715,248          423,098    
Total liabilities                              11,534,356         6,157,467
Commitments and contingencies
Noncontrolling interests subject to put        580,692            478,216
provisions
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;                 135                135
134,862,283 shares issued; 105,498,575
and 93,641,363 shares outstanding)
Additional paid-in capital                     1,208,800          596,300
Retained earnings                              3,731,835          3,195,818
Treasury stock, at cost (29,363,708 and        (1,162,336 )       (1,631,694 )
41,220,920 shares)
Accumulated other comprehensive loss          (15,297    )      (19,484    )
Total DaVita HealthCare Partners Inc.          3,763,137          2,141,075
shareholders’ equity
Noncontrolling interests not subject to       164,911          127,050    
put provisions
Total equity                                  3,928,048        2,268,125  
                                             $ 16,043,096      $ 8,903,808  
                                                                             
                                                                             

DAVITA HEALTHCARE PARTNERS INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)

                  Three months ended                           Year ended
                    December 31,     September       December      December
                    2012           30,           31,           31, 2012
                                     2012            2011
1. Consolidated
Financial
Results:
Consolidated        $  2,478         $  1,946        $ 1,794       $ 8,186
net revenues
Operating           $  388.1         $  340.9        $ 329.7       $ 1,297.1
income
Operating
income
excluding
transaction
expenses
associated with     $  407.6         $  343.5        $ 329.7       $ 1,413.7
the acquisition
of HCP and the
legal
settlement and
related
expenses^(1)
Operating              15.7   %         17.5   %       18.4  %       15.8    %
income margin
Operating
income margin
excluding
transaction
expenses
associated with        16.4   %         17.7   %       18.4  %       17.3    %
the acquisition
of HCP and the
legal
settlement and
related
expenses^(1)
Net income
attributable to
DaVita              $  155.8         $  144.7        $ 148.1       $ 536.0
HealthCare
Partners Inc.
Net income
attributable to
DaVita
HealthCare
Partners Inc.
excluding
transaction
expenses
associated with
the acquisition     $  173.3         $  147.5        $ 148.1       $ 612.4
of HCP, debt
refinancing
charges and
legal
settlement and
related
expenses, which
are all net of
related tax^(1)
Diluted net
income per
share
attributable to     $  1.51          $  1.50         $ 1.56        $ 5.47
DaVita
HealthCare
Partners Inc.
Diluted net
income per
share
attributable to
DaVita
HealthCare
Partners Inc.
excluding
transaction
expenses
associated with     $  1.68          $  1.53         $ 1.56        $ 6.25
the acquisition
of HCP, debt
refinancing
charges and
legal
settlement and
related
expenses, which
are all net of
related tax^(1)
                                                                   
2. Consolidated
Business
Metrics:
Expenses
General and
administrative
expenses as a
percent of             11.2   %         10.2   %       10.7  %       10.9    %
consolidated
net
revenues^(2)
Consolidated
effective tax          34.7   %         36.4   %       34.1  %       35.9    %
rate
Consolidated
effective tax
rate
attributable to        38.5   %         40.5   %       38.0  %       40.1    %
DaVita
HealthCare
Partners
Inc.^(1)
                                                                             
                                                                             

DAVITA HEALTHCARE PARTNERS INC.
SUPPLEMENTAL FINANCIAL DATA—continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
                                                                      
                  Three months ended                                       Year ended
                  December 31,       September 30,      December 31,       December 31,
                  2012                              2011               2012         
                                     2012
3. Segment
Financial
Results:
(dollar
amounts
rounded to
nearest
million)
Net revenues
Dialysis and
related lab
services          $ 1,894            $ 1,842            $ 1,717            $ 7,317
patient
service
revenues
Less:
Provision for      (66       )       (60       )       (52       )       (234       )
uncollectible
accounts
Dialysis and
related lab
services net        1,828              1,782              1,665              7,083
patient
service
revenues
Other              3                3                3                12         
revenues
Total net
dialysis and
related lab        1,831            1,785            1,668            7,095      
services
revenues
HCP capitated       419              ─                  ─                    419
revenues
Patient
service
revenues,
less                34               ─                  ─                    34
provision for
uncollectible
accounts of
$2
Other revenue      24              ─                 ─                  24         
Total net HCP      477             ─                 ─                  477        
revenues
Other –
Ancillary
services and        173                163                129                625
strategic
initiatives
Other –
Ancillary
services and
strategic
initiatives
net patient
service
revenues           5                5                3                17         
(related to
international
dialysis
operations
and a
vascular
access
clinic)
Total net
ancillary
services and       178              168              132              642        
strategic
initiatives
revenues
Total net
segment             2,486              1,953              1,800              8,214
revenues
Elimination
of                 (8        )       (7        )       (6        )       (28        )
intersegment
revenues
Total net
consolidated      $ 2,478           $ 1,946           $ 1,794           $ 8,186      
revenues
Operating
Income
Dialysis and
related lab
services          $ 362              $ 367              $ 356              $ 1,379
operating
income
HCP operating       67               ─                  ─                    67
income
Other –
Ancillary
services and
strategic
initiatives,
including          (15       )       (13       )       (14       )       (66        )
international
dialysis
operations
operating
losses
Total segment
operating           414                354                342                1,380
income
Reconciling
items:
Corporate
support and
related             (13       )        (12       )        (12       )        (52        )
stock-based
compensation
Transaction        (13       )       (1        )      ─                  (31        )
expenses
Consolidated
operating         $ 388             $ 341             $ 330             $ 1,297      
income
                                                                                        
4. Dialysis
and Related
Lab Services
Business
Metrics:
Volume
Treatments          5,736,776          5,550,645          5,227,167          22,053,597
Number of
treatment           79.5               78.0               79.0               313.5
days
Treatments          72,161             71,162             66,167             70,346
per day
Per day year
over year           9.1       %        12.3      %        12.4      %        12.3       %
increase
Non-acquired
growth year         4.7       %        4.4       %        4.4       %        4.8        %
over year
                                                                                        
Operating
revenues
before
provision for
uncollectible
accounts
Dialysis and
related lab
services          $ 330.16           $ 331.93           $ 328.54           $ 331.77
revenue per
treatment
Per treatment
decrease from       (0.5      %)       (0.2      %)       (1.6      %)     ─
previous
quarter
Per treatment
increase
(decrease)          0.5       %        (0.6      %)       (0.8      %)       0.4        %
from previous
year
Percent of
net                 73.7      %        91.5      %        92.8      %        86.4       %
consolidated
revenues
                                                                                        
                                                                                        

DAVITA HEALTHCARE PARTNERS INC.
SUPPLEMENTAL FINANCIAL DATA—continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
                                                                 
                   Three months ended                                 Year ended
                   December 31,       September       December        December
                   2012             30,           31,             31, 2012    
                                      2012            2011
4. Dialysis
and Related
Lab Services
Business
Metrics:
Expenses
Patient care
costs
Percent of
total segment        66.6      %        66.5   %        65.4   %        66.3      %
operating
revenues
Per treatment      $ 212.52           $ 214.04        $ 208.89        $ 213.18
Per treatment
(decrease)
increase from        (0.7      %)       0.1    %        (3.2   %)     ─
previous
quarter
Per treatment
increase
(decrease)           1.7       %        (0.9   %)       (7.2   %)       (2.0      %)
from previous
year
                                                                                  
General and
administrative
expenses
Percent of
total segment        8.9       %        8.6    %        9.1    %        8.9       %
operating
revenues
Per treatment      $ 28.41            $ 27.71         $ 29.12         $ 28.51
Per treatment
increase
(decrease)           2.5       %        (2.0   %)       9.4    %      ─
from previous
quarter
Per treatment
(decrease)           (2.4      %)       4.1    %        7.9    %        2.7       %
increase from
previous year
                                                                                  
Accounts
receivable
Net                $ 1,169            $ 1,200         $ 1,150
receivables
DSO                  59                 62              64
Provision for
uncollectible
accounts as a        3.50      %        3.25   %        3.00   %        3.20      %
percentage of
net revenues
                                                                                  
5. HCP
Business
Metrics:
Capitated
membership
Total                723,999          ─               ─                 723,999
Member months        1,422,560        ─               ─                 1,422,560
Operating
revenues by
sources^(5)
Commercial         $ 112              $ ─             $ ─             $ 112
revenues
Senior               298              ─               ─                 298
revenues
Medicaid            9               ─              ─               9         
revenues
Total
capitated            419              ─               ─                 419
revenues
Patient
service
revenues, less       34               ─               ─                 34
provision for
uncollectible
accounts
Other revenue       24              ─              ─               24        
Total net
operating          $ 477             $ ─            $ ─            $ 477       
revenues
Other
Total care
dollars under      $ 614              ─               ─               $ 614
management^(1)
Ratio of
operating
income to            10.9      %      ─               ─                 10.9      %
total care
dollars under
management
Full time            1,079            ─               ─                 1,079
clinicians
IPA primary
care                 1,806            ─               ─                 1,806
physicians
Expenses
Patient care
costs^(5)
Total patient      $ 339.4            ─               ─               $ 339.4
care costs
Percent of
total segment        71.1      %      ─               ─                 71.1      %
net revenues
General and
administrative     $ 51.5             ─               ─               $ 51.5
expenses
Percent of
total segment        10.8      %      ─               ─                 10.8      %
net revenues
                                                                                  
                                                                                  

DAVITA HEALTHCARE PARTNERS INC.
SUPPLEMENTAL FINANCIAL DATA—continued
(unaudited)
(dollars in millions, except for per share and per treatment data)

                       Three months ended                            Year
                         December        September       December        ended
                         31,           30,           31,             December
                         2012            2012            2011            31, 2012
6. Cash Flow:
Operating cash flow      $ 200.2         $ 366.6         $ 150.7         $ 1,100.8
Operating cash flow,     $ 1,100.8       $ 1,051.3       $ 1,180.0
last twelve months
Free cash flow^(1)       $ 82.6          $ 271.4         $ 32.1          $ 715.3
Free cash flow, last     $ 715.3         $ 664.8         $ 855.0
twelve months^(1)
Capital
expenditures:
Routine                  $ 86.1          $ 63.7          $ 85.3          $ 272.0
maintenance/IT/other
Development and          $ 85.1          $ 64.7          $ 63.1          $ 278.2
relocations
Acquisition              $ 3,875.0       $ 72.3          $ 150.3         $ 4,294.1
expenditures
                                                                         
7. Debt and Capital
Structure:
Total debt^(3)           $ 8,576         $ 5,745         $ 4,513
Net debt, net of
cash and cash
equivalents at           $ 8,042         $ 4,094         $ 4,119
December 31,
2012^(3)
Leverage ratio (see
calculation on page      3.5x            2.6x            2.7x
12)
Overall weighted
average effective          4.93    %       5.31    %       5.27    %
interest rate during
the quarter
Overall weighted
average effective          4.73    %       5.38    %       5.27    %
interest rate at end
of the quarter
Weighted average
effective interest
rate on the Senior         4.02    %       4.61    %       4.61    %
Secured Credit
Facilities at end of
the quarter
Fixed and
economically fixed
interest rates as a        45      %       66      %       57      %
percentage of our
total debt^(4)
                                                                         
8. Clinical:
(quarterly averages)
Dialysis adequacy -%
of patients with           98      %       98      %       97      %
Kt/V > 1.2 at the
end of the quarter
Dialysis patients
with arteriovenous         71      %       71      %       69      %
fistulas placed
                                                                         

_________________

      These are non-GAAP financial measures. For a reconciliation of these
(1)  non-GAAP financial measures to their most comparable measure calculated
      and presented in accordance with GAAP, see attached reconciliation
      schedules.
      Consolidated percentages of revenues are comprised of the dialysis and
      related lab services business, HCP’s business and other ancillary
(2)   services and strategic initiatives, and in case of general and
      administrative expenses, includes other certain corporate support and
      related stock-based compensation and transaction expenses associated
      with the acquisition of HCP.
      The reported balance sheet amounts at December 31, 2012, September 30,
(3)   2012 and December 31, 2011, are net of $21.5 million, $6.6 million and
      $7.8 million, respectively, of debt discounts associated with our Term
      Loan B-2, Term Loan B and our Term Loan A-2.
      The Term Loan B and Term Loan B-2 are subject to LIBOR floors of 1.50%
      and 1.00%, respectively. Because LIBOR, for all periods presented above,
      was lower than either of these embedded LIBOR floors, the interest rates
      on the Term Loan B and the Term Loan B-2 are set at their respective
      floors. At such time as the LIBOR-based component of our interest rate
      exceeds 1.50% on the Term Loan B and 1.00% on the Term Loan B-2, we will
(4)   then be subject to LIBOR-based interest rate volatility on the LIBOR
      variable component of our interest rate on all of the Term Loan B-2, as
      well as for the Term Loan B, but limited to a maximum rate of 4.00% on
      $1.25 billion of outstanding principal debt on the Term Loan B. The
      remaining $465 million outstanding principal balance of the Term Loan B
      is subject to LIBOR-based interest rate volatility above a floor of
      1.50%.
(5)   Operating results of HCP are included for the period November 1, 2012
      through December 31, 2012.
      
      

                       DAVITA HEALTHCARE PARTNERS INC.
                    SUPPLEMENTAL FINANCIAL DATA—continued
                                 (unaudited)
                            (dollars in thousands)

Note 1: Calculation of the Leverage Ratio

Under the Senior Secured Credit Facilities (Credit Agreement), the leverage
ratio is defined as all funded debt plus the face amount of all letters of
credit issued, minus cash and cash equivalents, divided by “Consolidated
EBITDA”. The leverage ratio determines the interest rate margin payable by the
Company for its Term Loan A and revolving line of credit under the Credit
Agreement by establishing the margin over the base interest rate (LIBOR) that
is applicable. The following leverage ratio was calculated using “Consolidated
EBITDA” as defined in the Credit Agreement. The calculation below is based on
the last twelve months of “Consolidated EBITDA”, pro forma for routine
acquisitions that occurred during the period. The Company’s management
believes the presentation of “Consolidated EBITDA” is useful to investors to
enhance their understanding of the Company’s leverage ratio under its Credit
Agreement.

                                                        
                                                             Year ended
                                                             December 31, 2012
Net income attributable to DaVita HealthCare                 $   536,017
Partners Inc.
Income taxes                                                     360,040
Interest expense and debt refinancing charges                    280,000
Depreciation and amortization                                    343,646
Noncontrolling interests and equity investment                   108,604
income, net
Stock-based compensation                                         45,384
Other (primarily pro-forma EBITDA on acquisitions)              658,651    
“Consolidated EBITDA”                                        $   2,332,342  
                                                             
                                                             December 31, 2012
Total debt, excluding debt discount of $21.5 million         $   8,575,870
Letters of credit issued                                        116,139    
                                                                 8,692,009
Less: Cash and cash equivalents                                 (533,748   )
Consolidated net debt                                        $   8,158,261  
Last twelve months “Consolidated EBITDA”                     $   2,332,342  
Leverage ratio                                               3.5x
                                                             

In accordance with the Credit Agreement, the Company’s leverage ratio cannot
exceed 5.00 to 1.00 as of December 31, 2012. At that date the Company’s
leverage ratio did not exceed 5.00 to 1.00.

                       DAVITA HEALTHCARE PARTNERS INC.
                    RECONCILIATIONS FOR NON-GAAP MEASURES
                                 (unaudited)
                            (dollars in thousands)

1. Net income and diluted net income per share attributable to DaVita
HealthCare Partners Inc. excluding transaction expenses associated with the
acquisition of HCP, debt refinancing charges, legal settlement and related
expenses and a non-cash goodwill impairment charge, which are all net of
related tax.

We believe that net income attributable to DaVita HealthCare Partners Inc.
excluding transaction expenses associated with the acquisition of HCP, debt
refinancing charges, legal settlement and related expenses and a non-cash
goodwill impairment charge, which are all net of related tax, enhances a
user’s understanding of our normal net income attributable to DaVita
HealthCare Partners Inc. and diluted net income per share attributable to
DaVita HealthCare Partners Inc. for these periods by providing a measure that
is meaningful because it excludes an unusual amount of transaction expenses
associated with the acquisition of HCP, debt refinancing charges related to
the amendment of our credit agreement and the repayment of our Term Loan A-2,
an unusual charge for a legal settlement that we reached to settle federal
program claims relating to our historical Epogen practices and also excludes a
non-cash goodwill impairment charge that resulted from a decrease in the
implied fair value of goodwill below its carrying amount associated with our
infusion therapy business in 2011 and accordingly, is more comparable to prior
periods and indicative of consistent net income attributable to DaVita
HealthCare Partners Inc. and diluted net income per share to DaVita HealthCare
Partners Inc. These measures are not measures of financial performance under
United States generally accepted accounting principles (GAAP) and should not
be considered as an alternative to net income attributable to DaVita
HealthCare Partners Inc. and diluted earnings per share attributable to DaVita
HealthCare Partners Inc.

                                                          
Net income
attributable
to DaVita
HealthCare
Partners
Inc.
excluding
transaction
expenses
associated
with the
acquisition
of HCP, debt     Three months ended                            Year ended
refinancing
charges,
legal
settlement
and related
expenses and
a non-cash
goodwill
impairment
charge,
which are
all net of
related tax:
                 December        September       December      December        December
                 31,           30,           31,           31,          31,
                 2012            2012            2011          2012            2011
Net income
attributable
to DaVita        $ 155,839       $ 144,721       $ 148,123     $ 536,017       $ 478,001
HealthCare
Partners
Inc.
Add:
Transaction
expenses
associated         12,982          1,335         ─               30,753        ─
with the
acquisition
of HCP
Debt
refinancing        8,901           2,062         ─               10,963        ─
charges
Legal
settlement         6,545           1,292         ─               85,837        ─
and related
expenses
Non-cash
goodwill         ─               ─               ─             ─                 24,000
impairment
charge
Less:
Related           (10,945 )      (1,899  )     ─              (51,149 )      (9,600  )
income tax
                 $ 173,322      $ 147,511      $ 148,123     $ 612,421      $ 492,401 
                                                                                         
                                                                                         

DAVITA HEALTHCARE PARTNERS INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
                                                    
Diluted net
income per
share
attributable
to DaVita
HealthCare
Partners
Inc.
excluding
transaction
expenses
associated
with the
acquisition      Three months ended                      Year ended
of HCP, debt
refinancing
charges,
legal
settlement
and related
expenses and
a non-cash
goodwill
impairment
charge,
which are
all net of
related tax:
                 December     September     December     December     December
                 31,        30,         31,          31,        31,
                 2012         2012          2011         2012         2011
Diluted net
income per
share
attributable     $  1.51      $   1.50      $  1.56         5.47      $  4.96
to DaVita
HealthCare
Partners
Inc.
Add:
Transaction
expenses
associated          0.08          0.01      ─               0.19      ─
with the
acquisition
of HCP
Debt
refinancing         0.05          0.01      ─               0.07      ─
charges
Legal
settlement          0.04          0.01      ─               0.52      ─
and related
expenses
Non-cash
goodwill         ─            ─             ─            ─              0.15
impairment
charge
                 $  1.68      $   1.53      $  1.56      $  6.25      $  5.11
                                                                         

In addition, we have also excluded amortization of intangible assets
associated with acquisitions from our adjusted net income attributable to
DaVita HealthCare Partners Inc. and from our adjusted diluted earnings per
share attributable to DaVita HealthCare Partners Inc. as we believe this
presentation enhances a user’s understanding of our operating results for
these periods by providing an accurate reflection of the Company’s operating
performance since it excludes the amortization of intangible assets that
relate to the remeasurement of acquired intangible assets associated with our
acquisitions to fair value, and accordingly is indicative of consistent net
income attributable to DaVita HealthCare Partners Inc. and diluted earnings
per share attributable to DaVita HealthCare Partners Inc. These measures are
not measures of financial performance under GAAP and should not be considered
as an alternative to net income attributable to DaVita HealthCare Partners
Inc. and diluted earnings per share attributable to DaVita HealthCare Partners
Inc.

                                                             
Adjusted net
income and
adjusted
diluted net
income per
share
attributable
to DaVita
HealthCare        Three months ended                              Year ended
Partners Inc.
excluding the
amortization
of intangible
assets
associated
with
acquisitions:
                  December        September       December        December        December
                  31,           30,           31,             31,           31,
                  2012            2012            2011            2012            2011
Adjusted net
income
attributable      $ 173,322       $ 147,511       $ 148,123       $ 612,421       $ 492,401
to DaVita
HealthCare
Partners Inc.
Add:
Amortization
of intangible
assets              28,448          6,729           6,023           48,362          23,028
associated
with
acquisitions
Related            (10,953 )      (2,725  )      (2,289  )      (19,393 )      (9,211  )
income tax
Total             $ 190,817      $ 151,515      $ 151,857      $ 641,390      $ 506,218 
                                                                                  
Adjusted
diluted net
income per
share             $ 1.68          $ 1.53          $ 1.56          $ 6.25          $ 5.11
attributable
to DaVita
HealthCare
Partners Inc.
Add:
Amortization
of intangible
assets             0.17          0.04          0.04          0.30          0.14    
associated
with
acquisitions,
net of tax
Total
adjusted
diluted net       $ 1.85         $ 1.57         $ 1.60         $ 6.55         $ 5.25    
income per
share
                                                                                  
                                                                                  

                       DAVITA HEALTHCARE PARTNERS INC.
                    RECONCILIATIONS FOR NON-GAAP MEASURES
                                 (unaudited)
                            (dollars in thousands)

2. Operating income excluding pre-tax transaction expenses related to the
acquisition of HCP and a pre-tax legal settlement and related expenses.

We believe that operating income excluding pre-tax transaction expenses
associated with the acquisition of HCP and a pre-tax legal settlement and
related expenses enhances a user’s understanding of our normal operating
income for these periods by providing a measure that is meaningful because it
excludes an unusual amount of transaction expenses associated with the
acquisition of HCP, an unusual charge for a legal settlement that was reached
to settle federal program claims relating to our historical Epogen practices
and accordingly, is more comparable to prior periods and indicative of
consistent operating income. This measure is not a measure of financial
performance under GAAP and should not be considered as an alternative to
operating income.

                                                      
Operating
income
excluding
pre-tax
transaction
expenses
associated
with the         Three months ended                        Year ended
acquisition
of HCP and a
pre-tax
legal
settlement
and related
expenses:
                 December      September     December      December        December
                 31,         30,         31,           31,           31,
                 2012          2012          2011          2012            2011
Dialysis and
related lab
services and
ancillary        $ 321,126     $ 340,885     $ 329,734     $ 1,230,154     $ 1,154,713
services
operating
income
Add:
Transactions
expenses
associated         12,982      ─             ─               12,982        ─
with the
acquisition
of HCP
Legal
settlement        6,545       ─             ─              84,545        ─
and related
expenses
Adjusted
dialysis and
related lab
services and
ancillary          340,653       340,885       329,734       1,327,681       1,154,713
services
operating
income per
guidance
Transaction
expenses
associated
with the
acquisition      ─               1,335       ─               17,771        ─
of HCP for
the nine
months ended
September
30, 2012
Legal
settlement       ─              1,292       ─              1,292         ─
and related
expenses
Adjusted
dialysis and
related lab
services and       340,653       343,512       329,734       1,346,744       1,154,713
ancillary
services
operating
income
HCP’s
operating         66,930      ─             ─              66,930        ─
income
Adjusted
operating        $ 407,583     $ 343,512     $ 329,734     $ 1,413,674     $ 1,154,713
income
                                                                             
                                                                             

                       DAVITA HEALTHCARE PARTNERS INC.
                    RECONCILIATIONS FOR NON-GAAP MEASURES
                                 (unaudited)
                            (dollars in thousands)

3. Effective Income Tax Rates

We believe that reporting the effective income tax rate attributable to DaVita
HealthCare Partners Inc. enhances an investor’s understanding of DaVita’s
effective income tax rate for the periods presented because it excludes
noncontrolling owners’ income that primarily relates to non-tax paying
entities and accordingly is more comparable to prior periods presentations
regarding DaVita’s effective income tax rate and is meaningful to an investor
to fully understand the related income tax effects on DaVita HealthCare
Partners Inc.’s operating results. This is not a measure under GAAP and should
not be considered as an alternative to the effective income tax rate
calculated in accordance with GAAP.

Effective income tax rate as compared to the effective income tax rate
attributable to DaVita HealthCare Partners Inc. is as follows:

                                                              
                   Three months ended                              Year ended
                   December        September       December        December 31,
                   31,           30,           31,             2012
                   2012            2012            2011
Income from
continuing
operations         $ 282,162      $ 271,210      $ 268,771      $ 1,001,304 
before income
taxes
Income tax         $ 97,902       $ 98,647       $ 91,552       $ 359,845   
expense
Effective
income tax          34.7    %      36.4    %      34.1    %      35.9      %
rate
                                                                   
                                                                   
                   Three months ended                              Year ended
                   December        September       December        December 31,
                   31,             30,             31,             2012
                   2012            2012            2011
Income from
continuing
operations         $ 282,162       $ 271,210       $ 268,771       $ 1,001,304
before income
taxes
Less:
Noncontrolling
owners’ income
primarily           (28,036 )      (27,954 )      (28,128 )      (105,923  )
attributable
to non-tax
paying
entities
Income before
income taxes
attributable       $ 254,126      $ 243,256      $ 240,643      $ 895,381   
to DaVita
HealthCare
Partners Inc.
                                                                   
Income tax           97,902          98,647        $ 91,552        $ 359,845
expense
Less: Income
tax
attributable        (75     )      (125    )      (119    )      (703      )
to
noncontrolling
interests
Income tax
attributable
to DaVita          $ 97,827       $ 98,522       $ 91,433       $ 359,142   
HealthCare
Partners Inc.
                                                                   
Effective
income tax
rate
attributable        38.5    %      40.5    %      38.0    %      40.1      %
to DaVita
HealthCare
Partners Inc.
                                                                   
                                                                   

                       DAVITA HEALTHCARE PARTNERS INC.
                    RECONCILIATIONS FOR NON-GAAP MEASURES
                                 (unaudited)
                            (dollars in thousands)

4. Free cash flow

Free cash flow represents net cash provided by operating activities less
distributions to noncontrolling interests and capital expenditures for routine
maintenance and information technology. We believe free cash flow is a useful
adjunct to cash flow from operating activities and other measurements under
GAAP, since free cash flow is a meaningful measure of our ability to fund
acquisition and development activities and meet our debt service requirements.
In addition, free cash flow excluding distributions to noncontrolling
interests provides an investor with an understanding of free cash flows that
are attributable to DaVita HealthCare Partners Inc. Free cash flow is not a
measure of financial performance under GAAP and should not be considered as an
alternative to cash flows from operating, investing or financing activities,
as an indicator of cash flows or as a measure of liquidity.

                                                                    
                   Three months ended                                    Year ended
                   December 31,    September 30,   December 31,      December 31,
                   2012              2012              2011              2012
Cash provided
by operating       $ 200,235         $ 366,634         $ 150,659         $ 1,100,848
activities
Less:
Distributions
to                  (31,526   )      (31,500   )      (33,245   )      (113,504  )
noncontrolling
interests
Cash provided
by operating
activities
attributable         168,709           335,134           117,414           987,344
to DaVita
HealthCare
Partners Inc.
Less:
Expenditures
for routine
maintenance         (86,065   )      (63,718   )      (85,304   )      (271,995  )
and
information
technology
Free cash flow     $ 82,644         $ 271,416        $ 32,110         $ 715,349   
                                                                         
                                                                         
                   Rolling 12-Month Period
                   December 31,      September 30,     December 31,
                   2012              2012              2011
Cash provided
by operating       $ 1,100,848       $ 1,051,272       $ 1,180,046
activities
Less:
Distributions
to                  (113,504  )      (115,223  )      (100,653  )
noncontrolling
interests
Cash provided
by operating
activities
attributable         987,344           936,049           1,079,393
to DaVita
HealthCare
Partners Inc.
Less:
Expenditures
for routine
maintenance         (271,995  )      (271,234  )      (224,366  )
and
information
technology
Free cash flow     $ 715,349        $ 664,815        $ 855,027   
                                                                         
                                                                         

                       DAVITA HEALTHCARE PARTNERS INC.
                    RECONCILIATIONS FOR NON-GAAP MEASURES
                                 (unaudited)
                            (dollars in thousands)

5. Total care dollars under management

In California, as a result of its managed care administrative services
agreement with hospitals, HCP does not assume the direct financial risk for
institutional (hospital) services, but is responsible for managing the care
dollars associated with both the professional (physician) and institutional
services being provided for the Per Member Per Month (PMPM) fee attributable
to both professional and institutional services. In those cases, HCP
recognizes the surplus of institutional revenue less institutional expense as
HCP revenue. In addition to revenues recognized for financial reporting
purposes, HCP measures its total care dollars under management, which includes
the Per Member Per Month (PMPM) fee payable to third parties for institutional
(hospital) services where HCP manages the care provided to its members by the
hospitals and other institutions, which are not included in GAAP revenues. HCP
uses total care dollars under management as a supplement to GAAP revenues as
it allows HCP to measure profit margins on a comparable basis across both the
global capitation model (where HCP assumes the full financial risk for all
services, including institutional services) and the risk sharing models (where
HCP operates under managed care administrative services agreements where HCP
does not assume the full risk), HCP believes that presenting amounts in this
manner is useful because it presents its operations on a unified basis without
the complication caused by models that HCP has adopted in its California
market as a result of various regulations related to the assumption of
institutional risk. Total care dollars under management is not a measure of
financial performance computed in accordance with GAAP and should not be
considered in isolation or as a substitute for revenues calculated in
accordance with GAAP. Total care dollars under management includes PMPM
payments to third parties that are not recorded in our accounting records and
have not been reviewed and are not otherwise subject to procedures by our
independent auditors. The following table reconciles Total Care Dollars Under
Management to medical revenues to the periods indicated. “Total Care Dollars
Under Management” is a non-GAAP measure.

                                          For the period November 1, 2012
                                              through December 31, 2012
Medical revenues                              $        453,838
Less: Risk share revenue, net                          (15,762        )
Add: Institutional capitation amounts                 175,651        
Total care dollars under management           $        613,727        

Contact:

DaVita HealthCare Partners Inc.
Jim Gustafson
Investor Relations
310-536-2585
 
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