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DaVita HealthCare Partners Inc. 1st Quarter 2013 Results

  DaVita HealthCare Partners Inc. 1st Quarter 2013 Results

Business Wire

DENVER -- May 7, 2013

DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the
quarter ended March 31, 2013. Adjusted income from continuing operations
attributable to DaVita HealthCare Partners Inc. for the three months ended
March 31, 2013 was $196.9 million, or $1.84 per share, excluding a loss
contingency reserve as further discussed below. Income from continuing
operations including this item was $16.9 million, or $0.16 per share.

Adjusted income from continuing operations attributable to DaVita HealthCare
Partners Inc. for the quarter ended March 31, 2012 was $143.8 million, or
$1.50 per share, excluding after-tax transaction expenses associated with the
acquisition of HCP of $3.6 million, or $0.04 per share. Income from continuing
operations attributable to DaVita HealthCare Partners Inc. for the quarter
ended March 31, 2012 including this item was $140.2 million, or $1.46 per
share.

Financial and operating highlights include:

  *Cash Flow: For the rolling twelve months ended March 31, 2013, operating
    cash flow was $1,148 million and free cash flow was $764 million. For the
    three months ended March 31, 2013, operating cash flow was $379 million
    and free cash flow was $299 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 three months ended
    March 31, 2013 was $467 million, excluding a pre-tax loss contingency
    reserve of $300 million, as further discussed below. Operating income for
    the three months ended March 31, 2013 including this item was $167
    million.

    Adjusted operating income for the three months ended March 31, 2012 was
    $327 million, excluding transactions expenses associated with the
    acquisition of HCP of $6 million. Operating income for the three months
    ended March 31, 2012 including this item was $321 million.

  *Adjusted Diluted Income from Continuing Operations: Adjusted diluted
    income from continuing operations per share attributable to DaVita
    HealthCare Partners Inc. for the three months ended March 31, 2013,
    excluding a loss contingency reserve and amortization of intangible assets
    associated with acquisitions, which net of tax impacts totaled $221.1
    million, was $2.07 per share.

    Adjusted diluted income from continuing operations per share attributable
    to DaVita HealthCare Partners Inc. for the three months ended March 31,
    2012, excluding transaction expenses associated with the acquisition of
    HCP and the amortization of intangible assets associated with
    acquisitions, which net of related tax impacts totaled $147.7 million, was
    $1.54 per share.

  *Volume: Total U.S. dialysis treatments for the first quarter of 2013 were
    5,628,799, or 73,579 treatments per day, representing a per day increase
    of 8.0% over the first quarter of 2012. Non-acquired treatment growth in
    the quarter was 4.3% over the prior year’s first quarter. Our normalized
    non-acquired treatment growth in the quarter was 4.4% over the prior
    year’s first quarter.

    The number of member months for which HCP provided capitated care during
    the first quarter of 2013 was approximately 2.2 million, representing an
    increase of 5.8% as compared to the fourth quarter of 2012 and an increase
    of 20.3% as compared to the first quarter of 2012, inclusive of growth
    contributed from acquisitions. These calculations include data prior to
    our merger with HCP on November 1, 2012.

  *Effective Tax Rate: Our effective tax rate was 24.6% for the three months
    ended March 31, 2013. 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
    47.1% for the three months ended March 31, 2013. Excluding the impact of
    the loss contingency reserve our effective tax rate attributable to DaVita
    HealthCare Partners Inc. would have been 40.7%. We expect our 2013
    effective tax rate attributable to DaVita HealthCare Partners Inc. to be
    in the range of 40.0% to 41.0%.
  *Loss Contingency Reserve: We are engaged in good faith discussions with
    the attorneys from the United States Attorney’s Office for the District of
    Colorado, the Civil Division of the United States Department of Justice
    and the Office of the Inspector General in an effort to find a mutually
    acceptable resolution to the 2010 and the 2011 U.S. Attorney Physician
    Relationship Investigations. Discussions have advanced to a point where we
    believe it is appropriate to accrue an estimated loss contingency reserve
    of $300 million in the first quarter of 2013 in connection with an offer
    to settle the related civil, administrative and criminal matters. However,
    the discussions are ongoing, and until concluded, there can be no
    certainty about the timing or likelihood of a definitive resolution or the
    scope of any potential restrictions that may be agreed upon in connection
    with a settlement. As these discussions proceed and additional information
    becomes available to us, the amount of the estimated loss contingency
    reserve may need to be increased or decreased to reflect this new
    information.
  *Debt Transactions: In March 2013, we entered into several new interest
    rate swap agreements. As of March 31, 2013, the amortizing notional
    amounts of these swap agreements totaled $1.33 billion. These agreements
    have the economic effect of modifying the LIBOR variable component of the
    Company’s interest rate on an equivalent amount of our Term Loan A-3 to
    fixed rates ranging from 0.49% to 0.52%, resulting in an overall weighted
    average effective interest rate of 3.01%, including the Term Loan A-3
    margin of 2.50%. The swap agreements expire by September30, 2016 and
    require monthly interest payments.

    In addition, in March 2013, we entered into several interest rate forward
    swap agreements with amortizing notional amounts totaling $600 million.
    These forward swap agreements will be effective September 30, 2014 and
    will have the economic effect of modifying the LIBOR variable component of
    our interest rate on an equivalent amount of our outstanding debt to fixed
    rates ranging from 0.72% to 0.75%. These swap agreements expire on
    September 30, 2016 and will require quarterly interest payments beginning
    in October 2014.

    Any unrealized gains or losses resulting from changes in the fair value of
    these swaps will be recorded in other comprehensive income.

    During March 2013, we entered into several interest rate cap agreements
    with notional amounts totaling $1.25 billion on our Term Loan B debt and
    $1.49 billion on our Term Loan B-2 debt. These agreements have the
    economic effect of capping the LIBOR variable component of our interest
    rate at a maximum of 2.50% on an equivalent amount of our Term Loan B and
    Term Loan B-2 debt. The cap agreements expire on September 30, 2016.

  *Center Activity: As of March 31, 2013, we provided dialysis services to a
    total of 158,600 patients at 2,032 outpatient dialysis centers, of which
    41 are located in nine countries outside of the United States. During the
    first quarter of 2013, we acquired eight dialysis centers and opened a
    total of 27 dialysis centers located in the United States. We also
    provided management and administrative services to four dialysis centers
    and opened one dialysis center outside of the United States.

Outlook

  *We are updating our consolidated operating income guidance for 2013 to now
    be in the range of $1,800 million to $1,900 million. Our previous
    consolidated operating income guidance was expected to be in the range of
    $1,750 million to $1,900 million.
  *In addition, we are also updating our operating income guidance for our
    dialysis services and related ancillary businesses for 2013 to now be in
    the range of $1,400 million to $1,450 million. Our previous dialysis
    services and related ancillary businesses guidance was expected to be in
    the range of $1,350 million to $1,450 million.
  *Operating income guidance for HCP for 2013 is still expected to be in the
    range of $400 million to $450 million.
  *Consolidated operating cash flows for 2013 are still expected to be in the
    range of $1,350 million to $1,500 million.

The consolidated and dialysis services and related ancillary businesses
operating income guidance amounts exclude the estimated loss contingency
reserve of $300 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 first 
quarter ended March 31, 2013  on May 7, 2013 at 5:00 p.m. Eastern Time. The
dial in number for the U.S. is (800) 399-4406 and for international is (937)
528-2121. 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, 2012, 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,
  *legal compliance risks, including our continued compliance with complex
    government regulations and current or potential investigations by various
    government entities and related government or private-party proceedings,
    including risks relating to the resolution of the 2010 and 2011 U.S.
    Attorney Physician Relationship Investigations,
  *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 have acquired, including HCP, or to expand
    our operations and services to markets outside the United States,
  *risks arising from the use of accounting estimates, judgments and
    interpretation 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, including Medicare
    Advantage rates, and future regulations may negatively impact HCP’s
    business, 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
                                                March 31,
                                                  2013            2012
Patient service revenues                        $ 1,979,873     $ 1,765,482
Less: Provision for uncollectible accounts       (70,057     )  (53,008    )
Net patient service revenues                      1,909,816       1,712,474
HCP capitated revenues                            746,071       ─
Other revenues                                   173,695       137,059    
Total net revenues                               2,829,582     1,849,533  
Operating expenses and charges:
Patient care costs                                1,953,929       1,249,395
General and administrative                        291,372         205,401
Depreciation and amortization                     125,909         75,381
Provision for uncollectible accounts              878             1,106
Equity investment income                          (9,367      )   (2,632     )
Loss contingency reserve                         300,000      ─
Total operating expenses and charges             2,662,721     1,528,651  
Operating income                                  166,861         320,882
Debt expense                                      (105,817    )   (61,381    )
Other income                                     598           1,039      
Income from continuing operations before income   61,642          260,540
taxes
Income tax expense                               15,144        95,556     
Income from continuing operations                 46,498          164,984
Discontinued operations:
Loss from operations of discontinued              (139        )   (101       )
operations, net of tax
Gain on disposal of discontinued operations,     13,375       ─
net of tax
Net income                                        59,734          164,883
Less: Net income attributable to noncontrolling  (29,570     )  (24,763    )
interests
Net income attributable to DaVita HealthCare    $ 30,164       $ 140,120    
Partners Inc.
Earnings per share:
Basic income from continuing operations per
share attributable to DaVita HealthCare         $ 0.16         $ 1.50       
Partners Inc.
Basic net income per share attributable to      $ 0.29         $ 1.49       
DaVita HealthCare Partners Inc.
Diluted income from continuing operations per
share attributable to DaVita HealthCare         $ 0.16         $ 1.46       
Partners Inc.
Diluted net income per share attributable to    $ 0.28         $ 1.46       
DaVita HealthCare Partners Inc.
Weighted average shares for earnings per share:
Basic                                            104,484,476   93,769,092 
Diluted                                          107,063,633   95,729,105 
Amounts attributable to DaVita HealthCare
Partners Inc.:
Income from continuing operations               $ 16,915        $ 140,220
Discontinued operations                          13,249        (100       )
Net income                                      $ 30,164       $ 140,120    
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)
                                                       
                                                       Three months ended
                                                       March 31,
                                                         2013        2012
Net income                                             $ 59,734   $ 164,883 
Other comprehensive (loss) income, net of tax:
Unrealized losses on interest rate swap and cap
agreements:
Unrealized losses on interest rate swap and cap          (2,369  )   (2,261  )
agreements
Less: Reclassifications of net swap and cap agreements   2,507       2,520
realized losses into net income
Unrealized gains on investments:
Unrealized gains on investments                          618         1,146
Less: Reclassification of net investment realized        (94     )   (75     )
gains into net income
Foreign currency translation adjustments                (2,106  )  (619    )
Other comprehensive (loss) income                       (1,444  )  711     
Total comprehensive income                               58,290      165,594
Less: Comprehensive income attributable to the          (29,570 )  (24,763 )
noncontrolling interests
Comprehensive income attributable to DaVita HealthCare $ 28,720   $ 140,831 
Partners Inc.
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)
                                                
                                                Three months ended
                                                March 31,
                                                  2013            2012
Cash flows from operating activities:
Net income                                      $ 59,734        $ 164,883
Adjustments to reconcile net income to cash
provided by operating activities:
Loss contingency reserve                          300,000       ─
Depreciation and amortization                     125,756         75,975
Stock-based compensation expense                  16,021          12,550
Tax benefits from stock award exercises           9,368           10,890
Excess tax benefits from stock award exercises    (6,957      )   (6,101     )
Deferred income taxes                             (111,331    )   (13,335    )
Equity investment income, net                     (2,486      )   483
Other non-cash charges and (gain) loss on         (11,396     )   7,125
disposal of assets
Changes in operating assets and liabilities,
other than from acquisitions and divestitures:
Accounts receivable                               (92,339     )   (71,706    )
Inventories                                       2,162           4,851
Other receivables and other current assets        (32,281     )   56,452
Other long-term assets                            (9,865      )   3,742
Accounts payable                                  (83,896     )   (20,624    )
Accrued compensation and benefits                 (3,790      )   41,623
Other current liabilities                         79,277          17,462
Income taxes                                      93,401          43,072
Other long-term liabilities                      47,829        4,532      
Net cash provided by operating activities        379,207       331,874    
Cash flows from investing activities:
Additions of property and equipment, net          (116,724    )   (112,459   )
Acquisitions                                      (91,498     )   (132,699   )
Proceeds from asset and business sales            62,357          825
Purchase of investments available for sale        (1,212      )   (489       )
Purchase of investments held-to-maturity          (4          )   (3,212     )
Proceeds from sale of investments available for   1,091           6,791
sale
Proceeds from maturities of investments         ─                 7,551
held-to-maturity
Purchase of intangible assets                     (137        ) ─
Distributions received on equity investments     116           2          
Net cash used in investing activities            (146,011    )  (233,690   )
Cash flows from financing activities:
Borrowings                                        16,797,510      8,634,603
Payments on long-term debt                        (16,860,949 )   (8,658,001 )
Interest rate cap premiums and other deferred     (248        )   3
financing costs
Distributions to noncontrolling interests         (34,926     )   (26,405    )
Stock award exercises and other share             5,833           1,663
issuances, net
Excess tax benefits from stock award exercises    6,957           6,101
Contributions from noncontrolling interests       14,257          3,651
Proceeds from sales of additional                 4,174           100
noncontrolling interests
Purchases from noncontrolling interests         ─                (4,372     )
Net cash used in financing activities             (67,392     )   (42,657    )
Effect of exchange rate changes on cash and      119           11         
cash equivalents
Net increase in cash and cash equivalents         165,923         55,538
Cash and cash equivalents at beginning of        533,748       393,752    
period
Cash and cash equivalents at end of period      $ 699,671      $ 449,290    
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)
                                                                
                                                 March 31,      December 31,
                                                 2013           2012
ASSETS
Cash and cash equivalents                        $ 699,671      $ 533,748
Short-term investments                             7,142          7,138
Accounts receivable, less allowance of $239,669    1,516,642      1,424,303
and $245,122
Inventories                                        76,582         78,126
Other receivables                                  298,871        265,671
Other current assets                               150,432        201,572
Income tax receivable                              —              55,454
Deferred income taxes                             441,828      315,782    
Total current assets                               3,191,168      2,881,794
Property and equipment, net of accumulated         1,915,453      1,872,370
depreciation of $1,546,266 and $1,522,183
Intangibles, net of accumulated amortization of    2,104,044      2,128,118
$349,332 and $304,323
Equity investments                                 37,520         35,150
Long-term investments                              63,451         59,341
Other long-term assets                             86,806         79,854
Goodwill                                          9,015,035    8,947,736  
                                                 $ 16,413,477  $ 16,004,363 
LIABILITIES AND EQUITY
Accounts payable                                 $ 330,247      $ 414,143
Other liabilities                                  565,262        563,365
Accrued compensation and benefits                  565,206        566,911
Medical payables                                   298,322        238,964
Loss contingency reserve                           300,000        —
Current portion of long-term debt                  228,219        227,791
Income tax payable                                37,983       —          
Total current liabilities                          2,325,239      2,011,174
Long-term debt                                     8,277,259      8,326,534
Other long-term liabilities                        497,708        443,743
Alliance and product supply agreement, net         13,325         14,657
Deferred income taxes                             737,521      710,638    
Total liabilities                                  11,851,052     11,506,746
Commitments and contingencies
Noncontrolling interests subject to put            605,894        580,692
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; 134,862,283 shares issued;      135            135
105,702,448 and 105,498,575 shares outstanding)
Additional paid-in capital                         1,208,315      1,208,800
Retained earnings                                  3,761,999      3,731,835
Treasury stock, at cost (29,159,835 and            (1,154,266 )   (1,162,336 )
29,363,708 shares)
Accumulated other comprehensive loss              (16,741    )  (15,297    )
Total DaVita HealthCare Partners Inc.              3,799,442      3,763,137
shareholders’ equity
Noncontrolling interests not subject to put       157,089      153,788    
provisions
Total equity                                      3,956,531    3,916,925  
                                                 $ 16,413,477  $ 16,004,363 
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                              
                                              Three months ended
                                              March 31, December 31, March 31,

                                              2013      2012         2012
1. Consolidated Financial Results:
Consolidated net revenues                     $ 2,830   $  2,478     $ 1,850
Operating income                              $ 166.9   $  388.1     $ 320.9
Operating income excluding a loss contingency
reserve, transaction expenses associated with $ 466.9   $  407.6     $ 326.9
the acquisition of HCP and other legal
settlement expenses^(1)
Operating income margin                         5.9   %    15.7   %    17.3  %
Operating income margin excluding a loss
contingency reserve, transaction expenses       16.5  %    16.4   %    17.7  %
associated with the acquisition of HCP and
other legal settlement expenses^(1)
Income from continuing operations
attributable to DaVita HealthCare Partners    $ 16.9    $  156.3     $ 140.2
Inc.
Income from continuing operations
attributable to DaVita HealthCare Partners
Inc. excluding a loss contingency reserve,
transaction expenses associated with the      $ 196.9   $  173.8     $ 143.8
acquisition of HCP, debt refinancing charges
and other legal settlement expenses, which
are all net of related tax^(1)
Diluted income from continuing operations per
share attributable to DaVita HealthCare       $ 0.16    $  1.51      $ 1.46
Partners Inc.
Diluted income from continuing operations per
share attributable to DaVita HealthCare
Partners Inc. excluding a loss contingency
reserve, transaction expenses associated with $ 1.84    $  1.68      $ 1.50
the acquisition of HCP, debt refinancing
charges and other legal settlement expenses,
which are all net of related tax^(1)
                                                                     
2. Consolidated Business Metrics:
Expenses
General and administrative expenses as a        10.3  %    11.2   %    11.1  %
percent of consolidated net revenues^(2)
Consolidated effective tax rate                 24.6  %    34.7   %    36.7  %
Consolidated effective tax rate attributable    47.1  %    38.5   %    40.5  %
to DaVita HealthCare Partners Inc.^(1)
                                                                     
3. Summary of Segment Financial Results:
Net revenues
Net dialysis and related lab services         $ 1,852   $  1,831     $ 1,717
revenues
Net HCP revenues                                804        477       ─
Net ancillary services and strategic           184      178       139   
initiatives revenues
Total net segment revenues                      2,840      2,486       1,856
Elimination of intersegment revenues           (10   )   (8     )   (6    )
Total net consolidated revenues               $ 2,830  $  2,478    $ 1,850 
Operating income
Dialysis and related lab services operating   $ 87      $  362       $ 359
income
HCP operating income                            110        67        ─
Other – Ancillary services and strategic
initiatives, including international dialysis  (15   )   (15    )   (18   )
operations operating losses
Total segment operating income                  182        414         341
Reconciling items:
Corporate support and related long-term         (15   )    (13    )    (14   )
incentive based compensation
Transaction expenses                          ─           (13    )   (6    )
Consolidated operating income                 $ 167    $  388      $ 321   
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                    
                                    Three months ended
                                    March 31,     December 31,   March 31,

                                    2013          2012           2012
3. Segment Financial Results:
(continued)
Dialysis and Related Lab Services
Revenue:
Patient services revenues           $ 1,916       $ 1,894        $ 1,767
Provision for uncollectible          (67       )  (66       )   (53       )
accounts
Net patient service operating         1,849         1,828          1,714
revenues
Other revenues                       3           3            3         
Total net operating revenues        $ 1,852      $ 1,831       $ 1,717     
Operating expenses:
Patient care cost                   $ 1,216       $ 1,219        $ 1,129
General and administrative            167           163            158
Depreciation and amortization         85            83             74
Equity income                         (3        )   (3        )    (3        )
Loss contingency reserve and other  $ 300         7           ─
legal settlement expenses
Total operating expenses             1,765       1,469        1,358     
Segment operating income            $ 87         $ 362         $ 359       
HCP^(3)
Revenue:
HCP capitated revenues              $ 746        $ 419         $ ─
Patient services revenues             57            36           ─
Provision for uncollectible          (3        )  (2        )  ─
accounts
Net patient service operating        54          34          ─
revenues
Other revenues                       4           24          ─
Total net operating revenues        $ 804        $ 477         $ ─
Operating expenses:
Patient care cost                   $ 588         $ 339          $ ─
General and administrative            74            52           ─
Depreciation and amortization         38            24           ─
Equity income                        (6        )  (5        )  ─
Total operating expenses             694         410         ─
Segment operating income            $ 110        $ 67          $ ─
                                                                 
4. Dialysis and Related Lab
Services Business Metrics:
Volume
Treatments                            5,628,799     5,736,776      5,314,275
Number of treatment days              76.5          79.5           78.0
Treatments per day                    73,579        72,161         68,132
Per day year over year increase       8.0       %   9.1       %    14.2      %
Non-acquired growth year over year    4.3       %   4.7       %    5.5       %
                                                                 
Operating revenues before provision
for uncollectible accounts
Dialysis and related lab services   $ 340.44      $ 330.16       $ 332.43
revenue per treatment
Per treatment increase (decrease)     3.1       %   (0.5      %)   1.2       %
from previous quarter
Per treatment increase from           2.4       %   0.5       %    1.8       %
previous year
Percent of net consolidated           65.2      %   73.7      %    92.6      %
revenues
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                    
                                    Three months ended
                                    March 31,      December 31,   March 31,

                                    2013           2012           2012
4. Dialysis and Related Lab
Services Business Metrics:
(continued)
Expenses
Patient care costs
Percent of total segment operating    65.7      %    66.6      %    65.7    %
revenues
Per treatment                       $ 216.03       $ 212.51       $ 212.31
Per treatment increase (decrease)     1.7       %    (0.7      %)   1.7     %
from previous quarter
Per treatment increase (decrease)     1.8       %    1.7       %    (5.0    %)
from previous year
                                                                  
General and administrative expenses
Percent of total segment operating    9.0       %    8.9       %    9.2     %
revenues
Per treatment                       $ 29.70        $ 28.41        $ 29.74
Per treatment increase from           4.5       %    2.5       %    2.1     %
previous quarter
Per treatment (decrease) increase     (0.1      %)   (2.5      %)   13.3    %
from previous year
                                                                  
Accounts receivable
Net receivables                     $ 1,164        $ 1,169        $ 1,224
DSO                                   57             59             65
Provision for uncollectible
accounts as a percentage of net       3.5       %    3.5       %    3.0     %
revenues
                                                                  
5. HCP Business Metrics^(3):
Capitated membership
Total                                 742,000        724,000      ─
Member months                         2,239,400      1,422,600    ─
Capitated revenues by sources
Commercial revenues                 $ 182          $ 112          $ ─
Senior revenues                       552            298          ─
Medicaid revenues                    12           9           ─
Total capitated revenues            $ 746         $ 419         $ ─
Other
Total care dollars under            $ 1,045        $ 614          ─
management^(1)
Ratio of operating income to total    10.6      %    10.9      %  ─
care dollars under management
Full time clinicians                  1,069          1,079        ─
IPA primary care physicians           2,845          1,806        ─
                                                                  
6. Cash Flow:
Operating cash flow                 $ 379.2        $ 200.2        $ 331.9
Operating cash flow, last twelve    $ 1,148.2      $ 1,100.8      $ 1,182.1
months
Free cash flow^(1)                  $ 298.9        $ 82.6         $ 249.9
Free cash flow, last twelve         $ 764.3        $ 715.3        $ 837.2
months^(1)
Capital expenditures:
Routine maintenance/IT/other        $ 45.4         $ 86.1         $ 55.6
Development and relocations         $ 71.3         $ 85.1         $ 56.8
Acquisition expenditures            $ 91.5         $ 3,875.0      $ 132.7
                                                                            

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                              
                                              Three months ended
                                              March 31, December 31, March 31,

                                              2013      2012         2012
7. Debt and Capital Structure:
Total debt^(4)                                $ 8,526   $  8,576     $ 4,499
Net debt, net of cash and cash                $ 7,826   $  8,042     $ 4,050
equivalents^(4)
Leverage ratio (see calculation on page 12)   3.41x     3.55x        2.55x
Overall weighted average effective interest     4.76  %    4.93   %    5.27  %
rate during the quarter
Overall weighted average effective interest     4.79  %    4.73   %    5.28  %
rate at end of the quarter
Weighted average effective interest rate on
the Senior Secured Credit Facilities at end     4.09  %    4.02   %    4.63  %
of the quarter
Fixed and economically fixed interest rates     61    %    45     %    57    %
as a percentage of our total debt^(5)
Fixed and economically fixed interest rates,
including our interest rate cap agreements,     93    %    59     %    85    %
as a percentage of our total debt^(5)
                                                                     
8. Clinical: (quarterly averages)
Dialysis adequacy -% of patients with Kt/V >    98    %    98     %    97    %
1.2 at the end of the quarter
Dialysis patients with arteriovenous fistulas   71    %    71     %    69    %
placed
                                                                             

_________________

(1) These are non-GAAP financial measures. For a reconciliation of these
non-GAAP financial measures to their most comparable measure calculated and
presented in accordance with GAAP, see attached reconciliation schedules.

(2) Consolidated percentages of revenues are comprised of the dialysis and
related lab services business, HCP’s business and other ancillary 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.

(3) Operating results of HCP for the three months ended December 31, 2012,
include only the period November 1, 2012 through December 31, 2012.

(4) The reported balance sheet amounts at March 31, 2013, December 31, 2012
and March 31, 2012, are net of $20.6 million, $21.5 million and $7.4 million,
respectively, of debt discounts associated with our Term Loan B, Term Loan B-2
and our Term Loan A-2.

(5) 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 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, as well as for the Term Loan B-2, but limited to a
maximum rate of 2.50% on $1.25 billion of outstanding principal debt on the
Term Loan B and $1.49 billion of outstanding principal debt on the Term Loan
B-2 as a result of interest rate cap agreements. The remaining $461 million
outstanding principal balance of the Term Loan B is subject to LIBOR-based
interest rate volatility above a floor of 1.50%. The remaining $161 million
outstanding principal balance of the Term Loan B-2 is subject to LIBOR-based
volatility above a floor of 1.00%.

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.
                                      
                                      Rolling twelve
                                      months ended
                                      March 31, 2013
Net income attributable to DaVita     $          426,061
HealthCare Partners Inc.
Income taxes                                     279,689
Interest expense and debt refinancing            321,562
charges
Depreciation and amortization                    393,580
Loss contingency reserve                         300,000
Noncontrolling interests and equity              110,442
investment income, net
Stock-based compensation                         48,855
Other (primarily pro-forma EBITDA on            489,364            
acquisitions)
“Consolidated EBITDA”                 $          2,369,553          
                                      
                                      March 31, 2013
Total debt, excluding debt discount   $          8,526,052
of $20.6 million
Letters of credit issued                        114,456            
                                                 8,640,508
Less: Cash and cash equivalents                 (569,092           )
Consolidated net debt                 $          8,071,416          
Last twelve months “Consolidated      $          2,369,553          
EBITDA”
Leverage ratio                        3.41x
                                      

In accordance with the Credit Agreement, the Company’s leverage ratio cannot
exceed 5.00 to 1.00 as of March 31, 2013. 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. Income from continuing operations and diluted income from continuing
operations per share attributable to DaVita HealthCare Partners Inc. excluding
a loss contingency reserve, transaction expenses associated with the
acquisition of HCP, debt refinancing charges and other legal settlement
expenses, which are all net of related tax.

We believe that income from continuing operations attributable to DaVita
HealthCare Partners Inc. excluding a loss contingency reserve, transaction
expenses associated with the acquisition of HCP, debt refinancing charges and
other legal settlement expenses, which are all net of related tax, enhances a
user’s understanding of our normal income from continuing operations
attributable to DaVita HealthCare Partners Inc. and diluted income from
continuing operations per share attributable to DaVita HealthCare Partners
Inc. for these periods by providing a measure that is meaningful because it
excludes an unusual amount for a loss contingency reserve related to the 2010
and 2011 U.S. Attorney Physician Relationship Investigation, 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 and other legal expenses associated with a
legal settlement that we reached to settle federal program claims relating to
our historical Epogen practices and accordingly, is more comparable to prior
periods and indicative of consistent income from continuing operations
attributable to DaVita HealthCare Partners Inc. and diluted income from
continuing operations per share attributable 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 income from continuing operations attributable
to DaVita HealthCare Partners Inc. and diluted income from continuing
operations per share attributable to DaVita HealthCare Partners Inc.
                     
Income from
continuing
operations
attributable to
DaVita HealthCare
Partners Inc.
excluding a loss
contingency reserve,
transaction expenses Three months ended
associated with the
acquisition of HCP,
debt refinancing
charges and other
legal settlement
expenses, which are
all net of related
tax:
                     March 31,             December 31,      March 31,

                     2013                  2012              2012
Income from
continuing
operations           $    16,915           $   156,283       $   140,220
attributable to
DaVita HealthCare
Partners Inc.
Add:
Loss contingency          300,000          ─                 ─
reserve
Transaction expenses
associated with the  ─                         12,982            6,053
acquisition of HCP
Debt refinancing     ─                         8,901         ─
charges
Other legal          ─                         6,545         ─
settlement expenses
Less: Related income     (120,000    )       (10,945   )      (2,452    )
tax
                     $    196,915         $   173,766      $   143,821   
                                                                           
Diluted income from
continuing
operations per share
attributable to
DaVita HealthCare
Partners Inc.
excluding a loss
contingency reserve,
transaction expenses Three months ended
associated with the
acquisition of HCP,
debt refinancing
charges and other
legal settlement
expenses, which are
all net of related
tax:
                     March 31,             December 31,      March 31,

                     2013                  2012              2012
Diluted income from
continuing
operations per share $    0.16             $   1.51          $   1.46
attributable to
DaVita HealthCare
Partners Inc.
Add:
Loss contingency          1.68             ─                 ─
reserve
Transaction expenses
associated with the  ─                         0.08              0.04
acquisition of HCP
Debt refinancing     ─                         0.05          ─
charges
Other legal          ─                        0.04         ─
settlement expenses
                     $    1.84            $   1.68         $   1.50      
                                                                           

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)
                        
In addition, we have also excluded amortization of intangible assets
associated with acquisitions from our adjusted income from continuing
operations attributable to DaVita HealthCare Partners Inc. and from our
adjusted diluted income from continuing operations 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 income from
continuing operations attributable to DaVita HealthCare Partners Inc. and
diluted income from continuing operations 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
income from continuing operations attributable to DaVita HealthCare Partners
Inc. and diluted income from continuing operations per share attributable to
DaVita HealthCare Partners Inc.
                        
Adjusted income from
continuing operations
and adjusted diluted
income from continuing
operations per share
attributable to DaVita  Three months ended
HealthCare Partners
Inc. excluding the
amortization of
intangible assets
associated with
acquisitions:
                        March 31,          December 31,      March 31,

                        2013               2012              2012
Adjusted income from
continuing operations
attributable to DaVita  $    196,915       $   173,766       $   143,821
HealthCare Partners
Inc.
Add: Amortization of
intangible assets            40,244            28,448            6,489
associated with
acquisitions
Related income tax          (16,098   )      (10,953   )      (2,628    )
                        $    221,061      $   191,261      $   147,682   
                                                             
Adjusted diluted income
from continuing
operations per share    $    1.84          $   1.68          $   1.50
attributable to DaVita
HealthCare Partners
Inc.
Add: Amortization of
intangible assets
associated with             0.23            0.17            0.04      
acquisitions, net of
tax
                        $    2.07         $   1.85         $   1.54      
                                                                           

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)
                         
2. Operating income excluding a pre-tax loss contingency reserve, pre-tax
transaction expenses related to the acquisition of HCP and pre-tax other legal
settlement expenses.



We believe that operating income excluding a pre-tax loss contingency reserve,
pre-tax transaction expenses associated with the acquisition of HCP and
pre-tax other legal settlement 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 for a loss contingency
reserve related to the 2010 and 2011 U.S. Attorney Physician Relationship
Investigations, an unusual amount of transaction expenses associated with the
acquisition of HCP and expenses associated with 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 a pre-tax loss
contingency reserve,
pre-tax transaction      Three months ended
expenses associated with
the acquisition of HCP
and pre-tax other legal
settlement expenses:
                         March 31,         December 31,        March 31,

                         2013              2012                2012
Operating income         $     166,861     $      388,056      $    320,882
Add:
Loss contingency reserve       300,000     ─                   ─
Transactions expenses
associated with the      ─                        12,982            6,053
acquisition of HCP
Other legal settlement   ─                       6,545        ─
expenses
Adjusted operating       $     466,861     $      407,583      $    326,935
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., as well as the adjusted effective income tax rate
attributable to DaVita HealthCare Partners Inc., excluding a loss contingency
reserve, enhances an investor’s understanding of DaVita’s effective income tax
rate and DaVita’s adjusted effective income tax rate for the periods presented
because it excludes noncontrolling owners’ income that primarily relates to
non-tax paying entities and an unusual amount for a loss contingency reserve
related to the 2010 and 2011 U.S. Attorney Physician Relationship
Investigations 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. These are not measures 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
                      March 31,            December 31,      March 31,

                      2013                 2012              2012
Income from
continuing operations $    61,642         $   282,162      $   260,540   
before income taxes
Income tax expense    $    15,144         $   97,902       $   95,556    
Effective income tax      24.6       %       34.7      %      36.7      %
rate
                                                                           
                      Three months ended
                      March 31,            December 31,      March 31,

                      2013                 2012              2012
Income from
continuing operations $    61,642          $   282,162       $   260,540
before income taxes
Less: Noncontrolling
owners’ income
primarily                 (29,638    )       (28,036   )      (24,883   )
attributable to
non-tax paying
entities
Income before income
taxes attributable to $    32,004         $   254,126      $   235,657   
DaVita HealthCare
Partners Inc.
                                                             
Income tax expense         15,144              97,902        $   95,556
Less: Income tax
attributable to           (68        )       (75       )      (120      )
noncontrolling
interests
Income tax
attributable to       $    15,076         $   97,827       $   95,436    
DaVita HealthCare
Partners Inc.
                                                             
Effective income tax
rate attributable to      47.1       %       38.5      %      40.5      %
DaVita HealthCare
Partners Inc.
                                                                           
                      Three months ended
Adjusted effective    March 31,            December 31,      March 31,
income tax rates
excluding the loss    2013                 2012              2012
contingency reserve
Income from
continuing operations $    61,642          $   282,162       $   260,540
before income taxes
Add: Loss contingency     300,000        ─                 ─
reserve
                           361,642             282,162           260,540
Less: Noncontrolling
owners’ income
primarily                 (29,638    )       (28,036   )      (24,883   )
attributable to
non-tax paying
entities
Adjusted income
before income taxes
attributable to       $    332,004        $   254,126      $   235,657   
DaVita HealthCare
Partners Inc.
Income tax expense    $    15,144          $   97,902        $   95,556
Add: Income taxes
attributable to loss       120,000         ─                 ─
contingency reserve
Less: Income tax
attributable to           (68        )       (75       )      (120      )
noncontrolling
interests
Adjusted income tax
attributable to       $    135,076        $   97,827       $   95,436    
DaVita HealthCare
Partners Inc.
Adjusted effective
income tax rate
attributable to           40.7       %       38.5      %      40.5      %
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
                    March 31,           December 31,        March 31,

                    2013                2012                2012
Cash provided by
operating           $   379,207         $   200,235         $   331,874
activities
Less: Distributions
to noncontrolling      (34,926     )      (31,526     )      (26,405     )
interests
Cash provided by
operating
activities              344,281             168,709             305,469
attributable to
DaVita HealthCare
Partners Inc.
Less: Expenditures
for routine
maintenance and        (45,426     )      (86,065     )      (55,609     )
information
technology
Free cash flow      $   298,855        $   82,644         $   249,860     
                                                                            
                    Rolling 12-Month Period
                    March 31,           December 31,        March 31,

                    2013                2012                2012
Cash provided by
operating           $   1,148,181       $   1,100,848       $   1,182,137
activities
Less: Distributions
to noncontrolling      (122,025    )      (113,504    )      (104,871    )
interests
Cash provided by
operating
activities              1,026,156           987,344             1,077,266
attributable to
DaVita HealthCare
Partners Inc.
Less: Expenditures
for routine
maintenance and        (261,812    )      (271,995    )      (240,047    )
information
technology
Free cash flow      $   764,344        $   715,349        $   837,219     
                                                                            

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.
                                   
                                   Three months ended

                                   March 31, 2013
Medical revenues                   $           799,673
Less: Risk share revenue, net                  (39,824             )
Add: Institutional capitation                 284,733             
amounts
Total care dollars under           $           1,044,582           
management
                                                                   

Contact:

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