DaVita HealthCare Partners Inc. 3rd Quarter 2013 Results

  DaVita HealthCare Partners Inc. 3rd Quarter 2013 Results

Business Wire

DENVER -- November 5, 2013

DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the
quarter ended September 30, 2013. Adjusted income from continuing operations
attributable to DaVita HealthCare Partners Inc. for the three and nine months
ended September 30, 2013 was $211.0 million and $605.3 million, or $0.98 and
$2.82 per share, respectively, excluding a loss contingency reserve. In
addition, adjusted income from continuing operations attributable to DaVita
HealthCare Partners Inc. for the nine months ended September 30, 2013 excluded
a contingent earn-out obligation adjustment. Income from continuing operations
attributable to DaVita HealthCare Partners Inc. for the three and nine months
ended September 30, 2013 including these items was $136.6 million and $407.9
million, or $0.64 per share and $1.90 per share, respectively.

Adjusted income from continuing operations attributable to DaVita HealthCare
Partners Inc. for the three and nine months ended September 30, 2012 was
$147.5 million and $438.6 million, or $0.76 and $2.28 per share, respectively,
excluding transaction expenses associated with the acquisition of HCP, debt
refinancing charges and a legal settlement and related expenses. Income from
continuing operations attributable to DaVita HealthCare Partners Inc. for the
three and nine months ended September 30, 2012 including these items was
$144.7 million and $380.0 million, or $0.75 and $1.98 per share, respectively.

Financial and operating highlights include:

  *Cash Flow: For the rolling twelve months ended September 30, 2013,
    operating cash flow was $1.62 billion and free cash flow was $1.24
    billion. For the three months ended September 30, 2013, operating cash
    flow was $733 million and free cash flow was $643 million. Operating cash
    flow in the third quarter of 2013 benefited from the timing of
    compensation payments, other working capital items and cash taxes. For a
    definition of free cash flow see Note 4 to the reconciliations of non-GAAP
    measures.
  *Adjusted Operating Income: Adjusted operating income for the three and
    nine months ended September 30, 2013 was $482 million and $1.41 billion,
    respectively, which is operating income adjusted for a loss contingency
    reserve, a contingent earn-out obligation adjustment and an adjustment to
    reduce a tax asset associated with the HCP acquisition escrow provisions.

    In connection with the acquisition of HCP, we recorded a receivable to
    offset potential tax liabilities. We reduced this asset during the third
    quarter of 2013 which negatively impacted operating income by $7.7 million
    and is included in our general and administrative expenses. The reduction
    in operating income was directly offset by a corresponding reduction in
    income tax expense. This asset may be similarly reduced in the future if
    the underlying tax liabilities are no longer required.

    Adjusted operating income for the three and nine months ended September
    30, 2012 was $344 million and $1.00 billion, respectively, which is
    operating income adjusted for transaction expenses associated with the
    acquisition of HCP and a legal settlement and related expenses.

  *Operating Income: Operating income for the three and nine months ended
    September 30, 2013 was $377 million and $1.07 billion, respectively.

    Operating income for the three and nine months ended September 30, 2012
    was $341 million and $909 million, respectively.

  *Volume: Total U.S. dialysis treatments for the third quarter of 2013 were
    6,034,647, or 76,388 treatments per day, representing a per day increase
    of 7.3% over the third quarter of 2012. Non-acquired treatment growth in
    the quarter was 5.5% over the third quarter of 2012. Normalized
    non-acquired treatment growth in the quarter was 5.4% over the third
    quarter of 2012.

    The number of member months for which HCP provided capitated care during
    the third quarter of 2013 was approximately 2.2 million representing an
    increase of 15.3% as compared to the third 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 37.3% and 32.9% for the
    three and nine months ended September 30, 2013, 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 42.5% and 37.5% for
    the three and nine months ended September 30, 2013, respectively. The
    effective tax rate attributable to DaVita HealthCare Partners Inc. for the
    three and nine months ended September 30, 2013, excluding a contingent
    earn-out obligation adjustment, a loss contingency reserve and an income
    tax adjustment related to the reduction in a tax asset associated with the
    HCP acquisition escrow provisions, was 38.3% and 39.5%, respectively.

    We expect our 2013 effective tax rate attributable to DaVita HealthCare
    Partners Inc. to be in the range of 38.0% to 39.0%. In addition, we expect
    our 2013 effective tax rate attributable to DaVita HealthCare Partners
    Inc. excluding a contingent earn-out obligation adjustment, a loss
    contingency reserve and the income tax adjustment related to a reduction
    in a tax asset associated with the HCP acquisition escrow provisions to be
    in the range of 39.0% to 40.0%.

  *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
    believed it was appropriate to accrue an additional $97 million to our
    estimated loss contingency reserve in the current quarter, which brings
    the total estimated loss contingency reserve to $397 million as of
    September 30, 2013, in connection with offers 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 or impact on future operations 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 adjusted further to reflect this new
    information.
  *Stock Split: In the third quarter of 2013, the Board of Directors approved
    a two-for-one stock split of our common stock in the form of a stock
    dividend payable on September 6, 2013 to stockholders of record on August
    23, 2013. Our common stock began trading on a post-split basis on
    September 9, 2013. All share and per share data for all periods presented
    have been adjusted to reflect the effects of the stock split.
  *Contingent Earn-out Obligation: During the third quarter of 2013, we
    reached agreement with the representative of the former owners and option
    holders of HealthCare Partners Holdings, LLC (HCP) to settle certain
    post-closing adjustments, including the 2013 contingent earn-out
    obligation for $68.8 million, an amount equal to its carrying value at
    June 30, 2013. Accordingly, this settlement had no impact to our
    consolidated statements of income during the third quarter of 2013.
  *Center Activity: As of September 30, 2013, we provided dialysis services
    to a total of approximately 166,000 patients at 2,108 outpatient dialysis
    centers, of which 2,042 centers are located in the United States and 66
    centers are located in ten countries outside of the United States. During
    the third quarter of 2013, we acquired 10 dialysis centers and opened a
    total of 25 dialysis centers in the United States. We also acquired 18
    dialysis centers outside of the United States.

Outlook

  *We are narrowing our consolidated income guidance for 2013 to now be in
    the range of $1.88 billion to $1.92 billion. Our previous consolidated
    operating income guidance for 2013 was in the range of $1.83 billion to
    $1.93 billion.
  *We are updating our operating income guidance for our dialysis services
    and related ancillary businesses for 2013 to now be in the range of $1.50
    billion to $1.52 billion. Our previous operating income guidance for 2013
    was in the range of $1.45 billion to $1.50 billion.
  *We are also narrowing our operating income guidance for HCP for 2013 to
    now be in the range of $380 million to $400 million. Our previous
    operating income guidance for HCP for 2013 was in the range of $380
    million to $430 million.
  *We are also updating our consolidated operating cash flow guidance for
    2013 to now be in the range of $1.60 billion to $1.70 billion. Our
    previous consolidated operating cash flow guidance for 2013 was in the
    range of $1.40 billion to $1.50 billion.

The consolidated and dialysis services and related ancillary businesses
operating income guidance amounts exclude an estimated loss contingency
reserve of $397 million which we accrued during the first nine months of 2013
in connection with the 2010 and 2011 U.S. Attorney Physician Relationship
Investigations and the consolidated cash flow guidance amounts exclude any
potential payment of this reserve. In addition, the consolidated operating
income guidance amounts exclude a contingent earn-out obligation adjustment of
approximately $57 million that we recorded in the second quarter of 2013
related to the remeasurement of the fair value of HCP’s 2013 contingent
earn-out obligation and excludes the adjustment to reduce a tax asset
associated with the HCP acquisition escrow provisions that was established as
a receivable to offset any potential tax liabilities. 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 third
quarter ended September  30, 2013 on November 5, 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 consolidated and dialysis services and related
ancillary businesses operating income, HCP’s 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,
our quarterly report on Form 10-Q for the quarter ended June 30, 2013 and
subsequent quarterly reports to be filed on Form 10-Q, or 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 higher-paying commercial payor
    plans for which there is continued downward pressure on average realized
    payment rates, and a reduction in the number of patients under such 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,
  *the impact of the Center for Medicare and Medicaid Services (CMS) 2014
    Medicare Advantage benchmark structure,
  *the impact of the American Taxpayer Relief Act,
  *the impact of the sequestration that went into effect on April 1, 2013,
  *the impact of disruptions in federal government operations and funding,
  *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
    interpretations 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                  Nine months ended
                                                   September 30,
               September 30,
                2013           2012            2013           2012        
Patient
service        $ 2,126,699       $ 1,842,853       $ 6,155,223       $ 5,422,100
revenues
Less:
Provision for   (74,477     )    (59,822     )    (216,725    )    (167,268    )
uncollectible
accounts
Net patient
service          2,052,222         1,783,031         5,938,498         5,254,832
revenues
Capitated        747,264           16,362            2,219,953         44,894
revenues
Other revenues  200,100         146,495         542,390         408,701     
Total net       2,999,586       1,945,888       8,700,841       5,708,427   
revenues
Operating
expenses and
charges:
Patient care
costs and        2,095,334         1,327,373         6,070,545         3,876,090
other costs
General and      305,138           197,912           857,658           616,106
administrative
Depreciation
and              132,765           80,100            389,263           232,691
amortization
Provision for
uncollectible    1,498             1,390             3,636             3,534
accounts
Equity
investment       (9,223      )     (3,064      )     (26,239     )     (8,314      )
income
Loss
contingency
reserve and      97,000            1,292             397,000           79,292
other legal
settlements
Contingent
earn-out       ─                 ─                  (56,977     )   ─
obligation
adjustment
Total
operating       2,622,512       1,605,003       7,634,886       4,799,399   
expenses and
charges
Operating        377,074           340,885           1,065,955         909,028
income
Debt expense     (108,421    )     (70,494     )     (322,334    )     (192,584    )
Other income,   2,113           819             1,337           2,698       
net
Income from
continuing
operations       270,766           271,210           744,958           719,142
before income
taxes
Income tax      100,930         98,647          245,266         261,943     
expense
Income from
continuing       169,836           172,563           499,692           457,199
operations
Discontinued
operations:
(Loss) income
from
operations of  ─                   (13         )     (139        )     238
discontinued
operations,
net of tax
Gain on
disposal of
discontinued   ─                 ─                  13,375         ─
operations,
net of tax
Net income       169,836           172,550           512,928           457,437
Less: Net
income
attributable    (33,208     )    (27,829     )    (91,760     )    (77,259     )
to
noncontrolling
interests
Net income
attributable
to DaVita      $ 136,628        $ 144,721        $ 421,168        $ 380,178     
HealthCare
Partners Inc.
Earnings per
share:
Basic income
from
continuing
operations per
share          $ 0.65           $ 0.76           $ 1.95           $ 2.01        
attributable
to DaVita
HealthCare
Partners Inc.
Basic net
income per
share
attributable   $ 0.65           $ 0.76           $ 2.01           $ 2.02        
to DaVita
HealthCare
Partners Inc.
Diluted income
from
continuing
operations per
share          $ 0.64           $ 0.75           $ 1.90           $ 1.98        
attributable
to DaVita
HealthCare
Partners Inc.
Diluted net
income per
share
attributable   $ 0.64           $ 0.75           $ 1.96           $ 1.98        
to DaVita
HealthCare
Partners Inc.
Weighted
average shares
for earnings
per share:
Basic           210,394,560     189,959,716     209,725,439     188,618,198 
Diluted         214,902,860     193,269,240     214,631,587     192,248,452 
Amounts
attributable
to DaVita
HealthCare
Partners Inc.:
Income from
continuing     $ 136,628         $ 144,726         $ 407,919         $ 379,953
operations
Discontinued   ─                  (5          )    13,249          225         
operations
Net income     $ 136,628        $ 144,721        $ 421,168        $ 380,178     
                                                                                   

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)
                                                   
                         Three months ended          Nine months ended
                                                     September 30,
                         September 30,
                          2013       2012        2013       2012    
Net income               $ 169,836    $ 172,550    $ 512,928    $ 457,437 
Other comprehensive
income (loss), net of
tax:
Unrealized gain (loss)
on interest rate swap
and cap agreements:
Unrealized (loss) gain
on interest rate swap      (7,733  )     (1,741  )     1,583         (6,104  )
and cap agreements
Reclassifications of net
swap and cap agreements    3,464         2,530         9,433         7,586
realized loss into net
income
Unrealized gains on
investments:
Unrealized gain on         648           445           1,367         1,387
investments
Reclassification of net
investment realized      ─             ─               (94     )     (75     )
gains into net income
Foreign currency          2,741       (135    )    (1,206  )    (1,593  )
translation adjustments
Other comprehensive       (880    )    1,099       11,083      1,201   
(loss) income
Total comprehensive        168,956       173,649       524,011       458,638
income
Less: Comprehensive
income attributable to    (33,208 )    (27,829 )    (91,760 )    (77,259 )
noncontrolling interests
Comprehensive income
attributable to DaVita   $ 135,748    $ 145,820    $ 432,251    $ 381,379 
HealthCare Partners Inc.
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)
                                             
                                             Nine months ended
                                             September 30,
                                              2013             2012        
Cash flows from operating activities:
Net income                                   $ 512,928         $ 457,437
Adjustments to reconcile net income to cash
provided by operating activities:
Loss contingency reserve                       397,000         ─
Depreciation and amortization                  389,387           234,368
Stock-based compensation expense               47,095            34,857
Tax benefits from stock award exercises        40,870            60,252
Excess tax benefits from stock award           (31,722     )     (39,346     )
exercises
Deferred income taxes                          (52,085     )     (1,374      )
Equity investment income, net                  1,074             10
Other non-cash (income) charges and loss on    (54,203     )     17,244
disposal of assets
Changes in operating assets and liabilities,
other than from acquisitions and
divestitures:
Accounts receivable                            20,856            (51,349     )
Inventories                                    (5,494      )     1,958
Other receivables and other current assets     (35,757     )     65,047
Other long-term assets                         17,861            3,429
Accounts payable                               (71,581     )     (18,200     )
Accrued compensation and benefits              114,877           113,101
Other current liabilities                      91,503            87,223
Income taxes                                   (15,212     )     (69,108     )
Other long-term liabilities                   51,757          5,064       
Net cash provided by operating activities     1,419,154       900,613     
Cash flows from investing activities:
Additions of property and equipment, net       (399,527    )     (378,949    )
Acquisitions                                   (234,802    )     (419,114    )
Proceeds from asset and business sales         62,282            2,118
Purchase of investments available for sale     (6,630      )     (3,452      )
Purchase of investments held-to-maturity       (1,034      )     (5,257      )
Proceeds from sale of investments available    1,091             6,796
for sale
Proceeds from maturities of investments        1,376             12,375
held-to-maturity
Purchase of intangible assets                  (53         )     (1,276      )
Distributions received on equity investments  211             2           
Net cash used in investing activities         (577,086    )    (786,757    )
Cash flows from financing activities:
Borrowings                                     49,941,883        26,992,105
Payments on long-term debt, contingent         (50,326,174 )     (25,821,996 )
obligations and other financing costs
Restricted cash                                -                 (1,268,767  )
Distributions to noncontrolling interests      (99,736     )     (81,978     )
Stock award exercises and other share          12,432            8,395
issuances, net
Excess tax benefits from stock award           31,722            39,346
exercises
Contributions from noncontrolling interests    30,041            19,368
Proceeds from sales of additional              6,083             1,844
noncontrolling interests
Purchases from noncontrolling interests       (474        )    (13,774     )
Net cash used in financing activities          (404,223    )     (125,457    )
Effect of exchange rate changes on cash and   (899        )    43          
cash equivalents
Net increase (decrease) in cash and cash       436,946           (11,558     )
equivalents
Cash and cash equivalents at beginning of     533,748         393,752     
period
Cash and cash equivalents at end of period   $ 970,694        $ 382,194     
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)
                                                              
                                               September 30,    December 31,
                                               2013             2012
ASSETS
Cash and cash equivalents                      $ 970,694        $ 533,748
Short-term investments                           6,796            7,138
Accounts receivable, less allowance of           1,404,050        1,424,303
$221,602 and $245,122
Inventories                                      84,899           78,126
Other receivables                                295,540          265,671
Other current assets                             156,940          201,572
Income tax receivable                            64,351           55,454
Deferred income taxes                           398,138        315,782    
Total current assets                             3,381,408        2,881,794
Property and equipment, net of accumulated       2,048,235        1,872,370
depreciation of $1,699,441 and $1,522,183
Intangibles, net of accumulated amortization     2,059,568        2,128,118
of $438,611 and $304,323
Equity investments                               41,465           35,150
Long-term investments                            72,568           59,341
Other long-term assets                           79,833           79,854
Goodwill                                        9,144,242      8,952,987  
                                               $ 16,827,319    $ 16,009,614 
LIABILITIES AND EQUITY
Accounts payable                               $ 358,402        $ 414,143
Other liabilities                                481,840          568,616
Accrued compensation and benefits                685,352          566,911
Medical payables                                 270,762          238,964
Loss contingency reserve                         397,000          —
Current portion of long-term debt               259,770        227,791    
Total current liabilities                        2,453,126        2,016,425
Long-term debt                                   8,181,434        8,326,534
Other long-term liabilities                      353,723          443,743
Alliance and product supply agreement, net       10,660           14,657
Deferred income taxes                           769,713        710,638    
Total liabilities                                11,768,656       11,511,997
Commitments and contingencies
Noncontrolling interests subject to put          621,232          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; 212,671,800 shares issued
and outstanding at September 30, 2013;           213              270
269,724,566 shares issued and 210,997,150
shares outstanding at December 31, 2012)
Additional paid-in capital                       1,120,276        1,208,665
Retained earnings                                3,151,711        3,731,835
Treasury stock, at cost (58,727,416 shares at    —                (1,162,336 )
December 31, 2012)
Accumulated other comprehensive loss            (4,214     )    (15,297    )
Total DaVita HealthCare Partners Inc.            4,267,986        3,763,137
shareholders’ equity
Noncontrolling interests not subject to put     169,445        153,788    
provisions
Total equity                                    4,437,431      3,916,925  
                                               $ 16,827,319    $ 16,009,614 
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                                               
                       Three months ended                       Nine months
                       September 30,   June 30,    September     ended
                                                 30,       
                       2013            2013                      September 30,
                                                   2012          2013
1. Consolidated
Financial Results:
Consolidated net       $   3,000       $ 2,872     $  1,946      $  8,701
revenues
Operating income       $   377.1       $ 522.0     $  340.9      $  1,066.0
Operating income           12.6   %      18.2  %      17.5   %      12.3     %
margin
Operating income
excluding a contingent
earn-out obligation
adjustment, a loss
contingency reserve,
an adjustment to
reduce a tax asset
associated with the    $   481.8       $ 465.0     $  343.5      $  1,413.7
HCP acquisition escrow
provisions,
transaction expenses
associated with the
acquisition of HCP and
a legal settlement and
related expenses^(1)
Operating income
margin excluding a
contingent earn-out
obligation adjustment,
a loss contingency
reserve, an adjustment
to reduce a tax asset
associated with the        16.1   %      16.2  %      17.7   %      16.2     %
HCP acquisition escrow
provisions,
transaction expenses
associated with the
acquisition of HCP and
a legal settlement and
related expenses^(1)
Income from continuing
operations
attributable to DaVita $   136.6       $ 254.4     $  144.7      $  407.9
HealthCare Partners
Inc.
Income from continuing
operations
attributable to DaVita
HealthCare Partners
Inc. excluding a
contingent earn-out
obligation adjustment,
a loss contingency
reserve, transaction   $   211.0       $ 197.4     $  147.5      $  605.3
expenses associated
with the acquisition
of HCP, debt
refinancing charges
and a legal settlement
and related expenses,
which are all net of
related tax^(1)
Diluted income from
continuing operations
per share attributable $   0.64        $ 1.18      $  0.75       $  1.90
to DaVita HealthCare
Partners Inc.
Diluted income from
continuing operations
per share attributable
to DaVita HealthCare
Partners Inc.
excluding a contingent
earn-out obligation
adjustment, a loss
contingency reserve,   $   0.98        $ 0.92      $  0.76       $  2.82
transaction expenses
associated with the
acquisition of HCP,
debt refinancing
charges and a legal
settlement and related
expenses, which are
all net of related
tax^(1)
Adjusted diluted
income from continuing
operations             $   235.7       $ 221.5     $  151.5      $  678.1
attributable to DaVita
HealthCare Partners
Inc^(1)
Adjusted diluted
income from continuing
operations per share   $   1.10        $ 1.03      $  0.78       $  3.16
attributable to DaVita
HealthCare Partners
Inc.^(1)
                                                                 
2. Consolidated
Business Metrics:
Expenses
General and
administrative
expenses as a percent      10.2   %      9.3   %      10.2   %      9.9      %
of consolidated net
revenues^(2)
Consolidated effective     37.3   %      31.3  %      36.4   %      32.9     %
tax rate
Consolidated effective
tax rate attributable      42.5   %      33.6  %      40.5   %      37.5     %
to DaVita HealthCare
Partners Inc.^(1)
                                                                 
3. Summary of Segment
Financial Results:
Net revenues
Net dialysis and
related lab services   $   1,983       $ 1,922     $  1,785      $  5,757
revenues
Net HCP revenues           803           761       ─                2,367
Net ancillary services
and strategic             226         200        167         610      
initiatives revenues
Total net segment          3,012         2,883        1,952         8,734
revenues
Elimination of            (12    )     (11   )     (6     )     (33      )
intersegment revenues
Total net consolidated $   3,000      $ 2,872    $  1,946     $  8,701    
revenues
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                                               
                      Three months ended                        Nine months
                                                                 ended
                      September 30,   June 30,     September
                                                30,          September
                      2013            2013                       30,
                                                   2012          2013
3. Segment Financial
Results: (continued)
Operating income
Dialysis and related
lab services          $   309         $  404       $  367        $   800
operating income
HCP operating income      98             81        ─                 287
Other – Ancillary
services and
strategic
initiatives,             (9     )      (7    )     (13    )      (31     )
including
international
dialysis operations
operating losses
Total segment             398            478          354            1,056
operating income
Reconciling items:
Contingent earn-out   ─                  57        ─                 57
obligation adjustment
Corporate support and
related long-term         (13    )       (13   )      (12    )       (39     )
incentive
compensation
Transaction expenses
and the adjustment to
reduce a tax asset       (8     )    ─             (1     )      (8      )
associated with the
HCP acquisition
escrow provisions
Consolidated          $   377        $  522      $  341       $   1,066   
operating income
Dialysis and Related
Lab Services
Revenue:
Patient services      $   2,052       $  1,988     $  1,842      $   5,956
revenues
Provision for
uncollectible            (72    )      (69   )     (60    )      (208    )
accounts
Net patient service       1,980          1,919        1,782          5,748
operating revenues
Other revenues           3            3          3            9       
Total net operating   $   1,983      $  1,922    $  1,785     $   5,757   
revenues
Operating expenses:
Patient care cost     $   1,311       $  1,265     $  1,188      $   3,792
General and               180            167          154            514
administrative
Depreciation and          89             89           78             263
amortization
Equity investment         (3     )       (3    )      (3     )       (9      )
income
Loss contingency
reserve and a legal      97         ─             1            397     
settlement and
related expenses
Total operating          1,674        1,518      1,418        4,957   
expenses
Segment operating     $   309        $  404      $  367       $   800     
income
HCP
Revenue:
HCP capitated         $   731        $  693      $ ─          $   2,169   
revenues
Patient services          61             52        ─                 169
revenues
Provision for
uncollectible            (3     )      (3    )   ─               (8      )
accounts
Net patient service      58           49       ─               161     
operating revenues
Other revenues           14           19       ─               37      
Total net operating   $   803        $  761      $ ─          $   2,367   
revenues
Operating expenses:
Patient care cost     $   605         $  590       $ ─           $   1,789
General and               67             56        ─                 192
administrative
Depreciation and          39             39        ─                 116
amortization
Equity investment        (6     )      (5    )   ─               (17     )
income
Total operating          705          680      ─               2,080   
expenses
Segment operating     $   98         $  81       $ ─          $   287     
income
                                                                             

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                                               
               Three months ended                                Nine months
                                                                 ended
               September 30,   June 30,         September 30,
                                                               September 30,
               2013            2013             2012             2013
4. Dialysis
and Related
Lab Services
Business
Metrics:
Volume
Treatments       6,034,647       5,867,973        5,550,645        17,531,419
Number of        79.0            78.0             78.0             233.5
treatment days
Treatments per   76,388          75,230           71,162           75,081
day
Per day year
over year        7.3       %     7.6       %      12.3      %      7.7        %
increase
Non-acquired
growth year      5.5       %     5.0       %      4.4       %      5.0        %
over year
Operating
revenues
before
provision for
uncollectible
accounts
Dialysis and
related lab
services       $ 339.99        $ 338.86         $ 331.93         $ 339.76
revenue per
treatment
Per treatment
increase
(decrease)       0.3       %     (0.5      %)     (0.2      %)   ─
from previous
quarter
Per treatment
increase
(decrease)       2.4       %     1.9       %      (0.6      %)     2.2        %
from previous
year
Percent of net
consolidated     65.8      %     66.6      %      91.5      %      65.9       %
revenues
                                                                 
Expenses
Patient care
costs
Percent of
total segment    66.1      %     65.8      %      66.5      %      65.9       %
operating
revenues
Per treatment  $ 217.15        $ 215.66         $ 214.03         $ 216.29
Per treatment
increase
(decrease)       0.7       %     (0.2      %)     0.1       %    ─
from previous
quarter
Per treatment
increase
(decrease)       1.5       %     0.9       %      (0.8      %)     1.3        %
from previous
year
General and
administrative
expenses
Percent of
total segment    9.1       %     8.7       %      8.6       %      8.9        %
operating
revenues
Per treatment  $ 29.83         $ 28.42          $ 27.72          $ 29.32
Per treatment
increase
(decrease)       5.0       %     (4.3      %)     (2.0      %)   ─
from previous
quarter
Per treatment
increase
(decrease)       7.6       %     0.5       %      (4.6      %)     2.7        %
from previous
year
Accounts
receivable
Net            $ 1,105         $ 1,117          $ 1,200          $ ─
receivables
DSO              52              54               62             ─
Provision for
uncollectible
accounts as a    3.5       %     3.5       %      3.2       %      3.5        %
percentage of
net revenues
                                                                 
5. HCP
Business
Metrics:
Capitated
membership
Total            760,000         733,000        ─                ─
Member months    2,236,700       2,209,000      ─                  6,685,100
Capitated
revenues by
sources
Commercial     $ 176           $ 176            $ ─              $ 533
revenues
Senior           539             496            ─                  1,587
revenues
Medicaid        16            21            ─                 49         
revenues
Total
capitated      $ 731          $ 693           $ ─              $ 2,169      
revenues
Other
Total care
dollars under  $ 1,037         $ 997            ─                $ 3,077
management^(1)
Ratio of
operating
income to        9.4       %     8.2       %    ─                  9.3        %
total care
dollars under
management
Full time        1,200           1,073          ─                ─
clinicians
IPA primary
care             2,999           2,846          ─                ─
physicians
                                                                 

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in millions, except for per share and per treatment data)
                                                               
                      Three months ended                           Nine
                                                                   months
                      September                    September       ended
                      30,            June 30,      30,           
                                                                 September
                      2013           2013          2012            30,
                                                                   2013
6. Cash Flow:
Operating cash flow   $  733.1       $ 306.8       $ 366.6       $ 1,419.2
Operating cash flow,  $  1,619.4     $ 1,252.9     $ 1,051.3     $ ─
last twelve months
Free cash flow^(1)    $  643.2       $ 218.3       $ 271.4       $ 1,160.3
Free cash flow, last  $  1,243.0     $ 871.2       $ 664.8       $ ─
twelve months^(1)
Capital expenditures:
Routine               $  55.4        $ 58.3        $ 63.7        $ 159.1
maintenance/IT/other
Development and       $  85.7        $ 83.4        $ 64.7        $ 240.4
relocations
Acquisition           $  82.7        $ 60.6        $ 72.3        $ 234.8
expenditures
                                                                             
7. Debt and Capital
Structure:
Total debt^(3)        $  8,460       $ 8,496       $ 5,745
Net debt, net of cash
and cash              $  7,489       $ 7,878       $ 4,094
equivalents^(3)
Leverage ratio (see
calculation on page   3.16x          3.39x         2.61x
13)
Overall weighted
average effective        4.87    %     4.86    %     5.31    %
interest rate during
the quarter
Overall weighted
average effective        4.86    %     4.85    %     5.38    %
interest rate at end
of the quarter
Weighted average
effective interest
rate on the Senior       4.18    %     4.18    %     4.61    %
Secured Credit
Facilities at end of
the quarter
Fixed and
economically fixed
interest rates as a      60      %     61      %     66      %
percentage of our
total debt^(4)
Fixed and
economically fixed
interest rates,
including our            93      %     93      %     88      %
interest rate cap
agreements, as a
percentage of our
total debt^(4)
                                                                             
8. Clinical:
(quarterly averages)
Dialysis adequacy -%
of patients with Kt/V    98      %     98      %     98      %
> 1.2 at the end of
the quarter
Dialysis patients
with arteriovenous       72      %     72      %     71      %
fistulas 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 long-term incentive
compensation and transaction expenses associated with the acquisition of HCP.

(3) The reported balance sheet amounts at September 30, 2013, June 30, 2013
and September 30, 2012, exclude $18.6 million, $19.6 million and $6.6 million,
respectively, of debt discounts associated with our Term Loan B, Term Loan B-2
and our Term Loan A-2.

(4) The Term Loan B and Term Loan B-2 are subject to LIBOR floors of 1.50% and
1.00%, respectively. Because actual 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 actual LIBOR-based variable 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. However, we are 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 $452 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 $153 million outstanding principal balance of
the Term Loan B-2 is subject to LIBOR-based interest rate 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
                                                                             
                                                 September 30, 2013
Net income attributable to DaVita HealthCare     $         577,007
Partners Inc.
Income taxes                                               343,168
Interest expense and debt refinancing charges              399,404
Depreciation and amortization                              498,541
Loss contingency reserve                                   397,000
Noncontrolling interests and equity investment             124,169
income, net
Stock-based compensation                                   57,375
Other (primarily pro-forma EBITDA on                      46,927            
acquisitions)
“Consolidated EBITDA”                            $         2,443,591         
                                                                             
                                                 September 30, 2013          
Total debt, excluding debt discount of $18.6     $         8,459,843
million
Letters of credit issued                                  99,693            
                                                           8,559,536
Less: Cash and cash equivalents                           (847,833          )
Consolidated net debt                            $         7,711,703         
Last twelve months “Consolidated EBITDA”         $         2,443,591         
Leverage ratio                                   3.16x                       

In accordance with the Credit Agreement, the Company’s leverage ratio cannot
exceed 5.00 to 1.00 as of September 30, 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 except for per share data)

1. Income from continuing operations and diluted income from continuing
operations per share attributable to DaVita HealthCare Partners Inc. excluding
a contingent earn-out obligation adjustment, a loss contingency reserve,
transaction expenses associated with the acquisition of HCP, debt refinancing
charges and a legal settlement and related expenses, which are all net of
related tax.

We believe that income from continuing operations attributable to DaVita
HealthCare Partners Inc. excluding a contingent earn-out obligation
adjustment, a loss contingency reserve, transaction expenses associated with
the acquisition of HCP, debt refinancing charges and a legal settlement and
related 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 unusual amounts
that include an adjustment to HCP’s contingent earn-out obligation, a loss
contingency reserve related to the 2010 and 2011 U.S. Attorney Physician
Relationship Investigations, 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 legal expenses
associated with a legal settlement that we reached to settle federal program
claims relating to our historical Epogen practices and accordingly, is
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
contingent
earn-out
obligation
adjustment,
a loss
contingency
reserve,     Three months ended                      Nine months ended        
transaction
expenses
associated
with the
acquisition
of HCP, debt
refinancing
charges and
a legal
settlement
and related
expenses,
which are
all net of
related tax:
             September     June 30,      September     September      September
             30,                      30,          30,          30,       
                           2013
             2013                        2012          2013           2012
Income from
continuing
operations
attributable $ 136,628     $ 254,376     $ 144,726     $ 407,919      $ 379,953
to DaVita
HealthCare
Partners
Inc.
Add
(Subtract):
Contingent
earn-out     ─               (56,977 )   ─               (56,977  )   ─
obligation
adjustment
Loss
contingency    97,000      ─             ─               397,000      ─
reserve
Transaction
expenses
associated   ─             ─               1,335       ─                17,771
with the
acquisition
of HCP
Debt
refinancing  ─             ─               2,062       ─                2,062
charges
Legal
settlement   ─             ─               1,292       ─                79,292
and related
expenses
Less:
Related       (22,650 )   ─              (1,899  )    (142,650 )    (40,443 )
income tax
             $ 210,978    $ 197,399    $ 147,516    $ 605,292     $ 438,635 
                                                                                

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES – (continued)

(unaudited)

(dollars in thousands except for per share data)
                                                     
Diluted income
from continuing
operations per
share attributable
to DaVita
HealthCare
Partners Inc.
excluding a
contingent
earn-out
obligation
adjustment, a loss
contingency        Three months ended                  Nine months ended
reserve,
transaction
expenses
associated with
the acquisition of
HCP, debt
refinancing
charges and a
legal settlement
and related
expenses, which
are all net of
related tax:
                   September   June 30,    September   September     September
                   30,                   30,         30,          30,
                               2013
                   2013                    2012        2013          2012
Diluted income
from continuing
operations per
share attributable $   0.64    $ 1.18      $   0.75    $  1.90       $   1.98
to DaVita
HealthCare
Partners Inc.
Add (Subtract):
Contingent
earn-out           ─             (0.26 )   ─              (0.26  )   ─
obligation
adjustment
Loss contingency       0.34    ─           ─              1.18       ─
reserve
Transaction
expenses
associated with    ─           ─           ─           ─                 0.05
the acquisition of
HCP
Debt refinancing   ─           ─               0.01    ─                 0.01
charges
Legal settlement
and related        ─           ─           ─           ─                0.24
expenses
                   $   0.98    $ 0.92     $   0.76    $  2.82      $   2.28
                                                                     

                       DAVITA HEALTHCARE PARTNERS INC.
             RECONCILIATIONS FOR NON-GAAP MEASURES – (continued)
                                 (unaudited)
               (dollars in thousands except for per share data)

In addition, we have 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                      Nine months ended       
HealthCare
Partners
Inc., further
adjusted to
exclude the
amortization
of intangible
assets
associated
with
acquisitions:
              September     June 30,      September     September     September
              30,                       30,          30,          30,       
                            2013
              2013                        2012          2013          2012
Adjusted
income from
continuing
operations    $ 210,978     $ 197,399     $ 147,516     $ 605,292     $ 438,635
attributable
to DaVita
HealthCare
Partners Inc.
Add:
Amortization
of intangible
assets
associated
with            6,918         6,827         6,729         20,627        19,913
acquisitions
for the
dialysis and
ancillary
operations
Amortization
of intangible
assets
associated      33,230        33,088      ─               99,680      ─
with
acquisitions
for the HCP
operations
Related        (15,377 )    (15,767 )    (2,725  )    (47,522 )    (8,132  )
income tax
              $ 235,749    $ 221,547    $ 151,520    $ 678,077    $ 450,416 
                                                                                
Adjusted
diluted
income from
continuing
operations    $ 0.98        $ 0.92        $ 0.76        $ 2.82        $ 2.28
per share
attributable
to DaVita
HealthCare
Partners Inc.
Add:
Amortization
of intangible
assets per
share
associated
with            0.02          0.02          0.02          0.06          0.06
acquisitions
for the
dialysis and
ancillary
operations,
net of tax
Amortization
of intangible
assets per
share
associated     0.10        0.09       ─             0.28       ─         
with
acquisitions
for the HCP
operations,
net of tax
              $ 1.10       $ 1.03       $ 0.78       $ 3.16       $ 2.34    
                                                                                

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

2. Operating income excluding a pre-tax contingent earn-out obligation
adjustment, a pre-tax loss contingency reserve, pre-tax transaction expenses
associated with the acquisition of HCP, a pre-tax legal settlement and related
expenses and an adjustment to reduce a tax asset associated with the HCP
acquisition escrow provisions.

We believe that operating income excluding a pre-tax contingent earn-out
obligation adjustment, a pre-tax loss contingency reserve, pre-tax transaction
expenses associated with the acquisition of HCP, a pre-tax legal settlement
and related expenses and an adjustment to reduce a tax asset associated with
the HCP acquisition escrow provisions enhances a user’s understanding of our
normal operating income for these periods by providing a measure that is
meaningful because it excludes unusual amounts that include an adjustment for
HCP’s contingent earn-out obligation, a loss contingency reserve related to
the 2010 and 2011 U.S. Attorney Physician Relationship Investigations,
transaction expenses associated with the acquisition of HCP, legal settlement
and related expenses to settle federal program claims relating to our
historical Epogen practices and an adjustment to reduce a tax asset associated
with the HCP acquisition escrow provisions that was established as a
receivable to offset any potential tax liabilities, and accordingly, is
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
contingent
earn-out
obligation
adjustment,
a pre-tax
loss
contingency
reserve,
pre-tax
transaction
expenses
associated
with the     Three months ended                   Nine months ended
acquisition
of HCP, a
pre-tax
legal
settlement
and related
expenses and
an
adjustment
to reduce a
tax asset
associated
with the HCP
acquisition
escrow
provisions:
             September   June 30,      September   September 30,   September
             30,                     30,                        30,
                         2013                      2013
             2013                      2012                        2012
Operating    $ 377,074   $ 522,020     $ 340,885   $ 1,065,955     $ 909,028
income
Add
(Subtract):
Contingent
earn-out     ─             (56,977 )   ─             (56,977   )   ─
obligation
adjustment
Loss
contingency    97,000    ─             ─             397,000       ─
reserve
Transaction
expenses
associated   ─           ─               1,335     ─                 17,771
with the
acquisition
of HCP
Legal
settlement   ─           ─               1,292     ─                 79,292
and related
expenses
Adjustment
to reduce a
tax asset
associated    7,721     ─             ─            7,721        ─
with the HCP
acquisition
escrow
provisions
Adjusted
operating    $ 481,795   $ 465,043    $ 343,512   $ 1,413,699    $ 1,006,091
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 contingent
earn-out obligation adjustment, a loss contingency reserve and an adjustment
to reduce a tax asset associated with the HCP acquisition escrow provisions,
enhances an investor’s understanding of DaVita HealthCare Partners Inc.’s
effective income tax rate and DaVita HealthCare Partners Inc.’s adjusted
effective income tax rate for the periods presented because it excludes
noncontrolling owners’ income that primarily relates to non-tax paying
entities, unusual amounts that include a contingent earn-out obligation
adjustment, a loss contingency reserve related to the 2010 and 2011 U.S.
Attorney Physician Relationship Investigations and an income tax adjustment
which is offset by a corresponding reduction in a tax asset associated with
the HCP acquisition escrow provisions that was established as a receivable to
offset any potential tax liabilities, 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                           Nine months

                  September 30,   June 30,      September 30,   ended
                                             
                  2013            2013          2012            September 30,
                                                                2013
Income from
continuing        $  270,766     $ 412,550    $  271,210     $  744,958  
operations before
income taxes
Income tax        $  100,930     $ 129,192    $  98,647      $  245,266  
expense
Effective income    37.3     %    31.3    %     36.4     %     32.9     %
tax rate
                                                                            
                  Three months ended                            Nine months

                  September 30,   June 30,      September 30,   ended

                  2013            2013          2012            September 30,
                                                                2013
Income from
continuing        $  270,766      $ 412,550     $  271,210      $  744,958
operations before
income taxes
Less:
Noncontrolling
owners’ income
primarily           (33,310  )    (29,294 )     (27,954  )     (92,242  )
attributable to
non-tax paying
entities
Income before
income taxes
attributable to   $  237,456     $ 383,256    $  243,256     $  652,716  
DaVita HealthCare
Partners Inc.
                                                                
Income tax           100,930        129,192     $  98,647       $  245,266
expense
Less: Income tax
attributable to     (102     )    (312    )     (125     )     (482     )
noncontrolling
interests
Income tax
attributable to   $  100,828     $ 128,880    $  98,522      $  244,784  
DaVita HealthCare
Partners Inc.
                                                                
Effective income
tax rate
attributable to     42.5     %    33.6    %     40.5     %     37.5     %
DaVita HealthCare
Partners Inc.

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)
                                                             
                  Three months ended                        
Adjusted
effective
income tax
rates
attributable to
DaVita
HealthCare
Partners Inc.
excluding the                                                   Nine months
contingent
earn-out          September       June 30,      September       ended
obligation        30,                       30,         
adjustment, a                     2013                          September 30,
loss              2013                          2012            2013
contingency
reserve and the
adjustment to
reduce a tax
asset
associated with
the HCP
acquisition
escrow
provisions:
Income from
continuing
operations        $  270,766      $ 412,550     $  271,210      $  744,958
before income
taxes
Less:
Contingent
earn-out          ─                 (56,977 )   ─                  (56,977   )
obligation
adjustment
Add: Loss
contingency          97,000       ─             ─                  397,000
reserve
Adjustment to
reduce a tax
asset
associated with     7,721       ─            ─                7,721     
the HCP
acquisition
escrow
provisions
                     375,487        355,573        271,210         1,092,702
Less:
Noncontrolling
owners’ income
primarily           (33,310  )    (29,294 )     (27,954  )     (92,242   )
attributable to
non- tax paying
entities
Adjusted income
before income
taxes
attributable to   $  342,177     $ 326,279    $  243,256     $  1,000,460 
DaVita
HealthCare
Partners Inc.
Income tax        $  100,930      $ 129,192     $  98,647       $  245,266
expense
Add: Income
taxes
attributable to      22,650       ─             ─                  142,650
loss
contingency
reserve
Income tax
adjustment
attributable to
a reduction in
a tax asset          7,721        ─             ─                  7,721
associated with
the HCP
acquisition
escrow
provisions
Less: Income
tax
attributable to     (102     )    (312    )     (125     )     (482      )
noncontrolling
interests
Adjusted income
tax
attributable to   $  131,199     $ 128,880    $  98,522      $  395,155   
DaVita
HealthCare
Partners Inc.
Adjusted
effective
income tax rate
attributable to     38.3     %    39.5    %     40.5     %     39.5      %
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                           Nine months
                                                                 ended
                   September 30,   June 30,      September 30,
                                                               September 30,
                   2013            2013          2012            2013
Cash provided by
operating          $  733,128      $ 306,819     $  366,634      $ 1,419,154
activities
Less:
Distributions to     (34,530  )    (30,280 )     (31,500  )    (99,736   )
noncontrolling
interests
Cash provided by
operating
activities            698,598        276,539        335,134        1,319,418
attributable to
DaVita HealthCare
Partners Inc.
Less: Expenditures
for routine
maintenance and      (55,407  )    (58,264 )     (63,718  )    (159,097  )
information
technology
Free cash flow     $  643,191     $ 218,275    $  271,416     $ 1,160,321 

                                 Rolling 12-Month Period
                                 September 30,   June 30,        September 30,
                                                              
                                 2013            2013            2012
Cash provided by operating       $ 1,619,389     $ 1,252,895     $ 1,051,272
activities
Less: Distributions to            (131,262  )    (128,232  )    (115,223  )
noncontrolling interests
Cash provided by operating
activities attributable to         1,488,127       1,124,663       936,049
DaVita HealthCare Partners Inc.
Less: Expenditures for routine
maintenance and information       (245,162  )    (253,473  )    (271,234  )
technology
Free cash flow                   $ 1,242,965    $ 871,190      $ 664,815   
                                                                             

                       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 our 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 net 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 recorded net of expenses in our accounting
records. 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           Nine months

                                                   June 30,      ended
                                   September 30, 
                                   2013            2013          September 30,
                                                                 2013
Medical revenues                   $ 788,449       $ 741,790     $ 2,329,912
Less: Risk share revenue, net        (32,917   )     (20,504 )     (93,245   )
Add: Institutional capitation       281,857       276,003     840,409   
amounts
Total care dollars under           $ 1,037,389    $ 997,289    $ 3,077,076 
management

Contact:

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