DaVita HealthCare Partners Inc. 4th Quarter 2013 Results - WBOC-TV 16, Delmarvas News Leader, FOX 21 -

DaVita HealthCare Partners Inc. 4th Quarter 2013 Results

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SOURCE DaVita HealthCare Partners Inc.

DENVER, Feb. 11, 2014 /PRNewswire/ -- DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2013. Income for the quarter ended December 31, 2013 and adjusted income for the year ended December 31, 2013 from continuing operations attributable to DaVita HealthCare Partners Inc. was $212.3 million and $817.6 million, or $0.99 per share and $3.81 per share, respectively. Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2013 excluded a loss contingency reserve and a contingent earn-out obligation adjustment. Income from continuing operations attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2013 including these items was $620.2 million, or $2.89 per share.

Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the quarter and year ended December 31, 2012 was $173.8 million and $612.6 million, or $0.84 per share and $3.13 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 quarter and year ended December 31, 2012 including these items was $156.3 million and $536.2 million, or $0.76 per share and $2.74 per share, respectively.

Financial and operating highlights include:

  • Cash Flow: For year ended December 31, 2013, operating cash flow was $1.773 billion and free cash flow was $1.366 billion. Our operating cash flow for the year ended December 31, 2013 benefited from growth in earnings, primarily from a full year of operations of HCP and the timing of income tax payments. For the three months ended December 31, 2013, operating cash flow was $354 million and free cash flow was $205 million. For a definition of free cash flow see Note 4 to the reconciliations of non-GAAP measures.

  • Operating / Adjusted Operating Income: Operating income for the quarter ended December 31, 2013 and adjusted operating income for the year ended December 31, 2013 was $484 million and $1.898 billion, respectively. Adjusted operating income for the year ended December 31, 2013 excluded 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. Operating income for the year ended December 31, 2013 including these items was $1.550 billion.

    Operating income for the quarter ended December 31, 2013 included approximately $8.5 million of dialysis center level impairments and the write-off of certain other assets, primarily due to the 2014 and 2015 reductions in Medicare's ESRD payment rates for drug utilization that was mandated by the American Taxpayer Relief Act, which led to a decrease in the assessment of the estimated fair value of certain dialysis centers.

    Adjusted operating income for the quarter and year ended December 31, 2012 was $408 million and $1.414 billion, respectively, excluding transaction expenses associated with the acquisition of HCP and a legal settlement and related expenses. Operating income for the quarter and year ended December 31, 2012 including these items was $388 million and $1.297 billion, respectively.

  • Volume: Total U.S. dialysis treatments for the fourth quarter of 2013 were 6,106,166, or 76,711 treatments per day, representing a per day increase of 6.3% over the fourth quarter of 2012. Non-acquired treatment growth in the quarter was 4.7% over the fourth quarter of 2012. Normalized non-acquired treatment growth in the quarter was 5.2% over the fourth quarter of 2012.

    The number of member months for which HCP provided capitated care during the fourth quarter of 2013 was approximately 2.3 million representing an increase of 8.1% as compared to the fourth 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 35.7% and 33.9% for the quarter and year ended December 31, 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 39.0% and 38.0% for the quarter and year ended December 31, 2013, respectively. The adjusted effective tax rate attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 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 39.4%.

    We expect our 2014 effective tax rate attributable to DaVita HealthCare Partners Inc. to be in the range of 40.0% to 41.0%.

  • Loss Contingency Reserve:  We have agreed to a framework for a global resolution with government officials for both the 2010 and the 2011 U.S. Attorney Physician Relationship Investigations.  The final settlement remains subject to negotiation of specific terms and we anticipate it will be finalized in the coming months.  The settlement will include the payment of approximately $389 million, an amount previously announced and reserved, entry into a corporate integrity agreement (which is standard in these types of settlements), the appointment of an independent compliance monitor, and the imposition of certain other business restrictions related to a subset of our joint venture arrangements. We have agreed to unwind a limited subset of joint ventures that were created through partial divestiture to nephrologists, and agreed not to enter into this type of partial divestiture joint venture with nephrologists in the future. Our updated guidance incorporates the estimated impact of the settlement.

  • Center Activity: As of December 31, 2013, we provided dialysis services to a total of approximately 168,000 patients at 2,147 outpatient dialysis centers, of which 2,074 centers are located in the United States and 73 centers are located in ten countries outside of the United States. During the fourth quarter of 2013, we acquired 5 dialysis centers and opened a total of 28 dialysis centers in the United States. We also acquired 8 dialysis centers outside of the United States.

Outlook

  • We are updating our consolidated operating income guidance for 2014 to now be in the range of $1.725 billion to $1.860 billion. Our previous consolidated operating income guidance for 2014 was in the range of $1.675 billion to $1.850 billion.
  • We are also updating our operating income guidance for our dialysis services and related ancillary businesses including our corporate level expenses, commonly referred to as Kidney Care, for 2014 to now be in the range of $1.475 billion to $1.550 billion. Our previous operating income guidance for Kidney Care for 2014 was in the range of $1.425 billion to $1.540 billion.
  • We also expect our operating income for HCP for 2014 to be in the range of $250 million to $310 million.
  • We expect our consolidated operating cash flow for 2014 to be in the range of $1.450 billion to $1.550 billion.

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. Our consolidated operating cash flow amounts for 2014 exclude any potential payment of the loss contingency reserve.

We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2013 on February 11, 2014 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 2014 consolidated operating income, our 2014 dialysis services and related ancillary businesses operating income, HCP's 2014 operating income, our 2014 operating cash flows and our 2014 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 September 30, 2013, our annual report on Form 10-K for the year ended December 31, 2013, our 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 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 such as restrictions on our business and operations required by a corporate integrity agreement and other settlement terms, and the financial impact thereof,
  • 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 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,
  • the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, yet we might not be able to operate them profitably anytime soon, if at all,
  • 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.

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

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data) 






Three months ended

December 31,


Year ended

December 31,


2013


2012


2013


2012

Patient service revenues

$   2,151,972


$    1,929,802


$  8,307,195


$  7,351,902

Less: Provision for uncollectible accounts

(76,821)


(67,950)


(293,546)


(235,218)

Net patient service revenues

2,075,151


1,861,852


8,013,649


7,116,684

Capitated revenues

767,362


436,442


2,987,315


481,336

Other revenues

220,696


179,559


763,086


588,260

Total net revenues

3,063,209


2,477,853


11,764,050


8,186,280

Operating expenses and charges:








Patient care costs and other costs

2,127,832


1,707,459


8,198,377


5,583,549

General and administrative

318,827


273,773


1,176,485


889,879

Depreciation and amortization

139,474


109,278


528,737


341,969

Provision for uncollectible accounts

1,216


805


4,852


4,339

Equity investment income

(8,319)


(8,063)


(34,558)


(16,377)

Loss contingency reserve and other legal settlements

-


6,545


397,000


85,837

Contingent earn-out obligation adjustment

-


-


(56,977)


-

Total operating expenses and charges

2,579,030


2,089,797


10,213,916


6,889,196

Operating income

484,179


388,056


1,550,134


1,297,084

Debt expense

(107,609)


(98,032)


(429,943)


(288,554)

Debt refinancing charges

-


(8,901)


-


(10,963)

Other income, net

3,450


1,039


4,787


3,737

Income from continuing operations before income taxes

380,020


282,162


1,124,978


1,001,304

Income tax expense

135,747


97,902


381,013


359,845

Income from continuing operations

244,273


184,260


743,965


641,459

Discontinued operations:








Loss from operations of discontinued operations, net of tax

-


(460)


(139)


(222)

Gain on disposal of discontinued operations, net of tax

-


-


13,375


-

Net income

244,273


183,800


757,201


641,237

Less: Net income attributable to noncontrolling interests

(31,995)


(27,961)


(123,755)


(105,220)

Net income attributable to DaVita HealthCare Partners Inc

$      212,278


$       155,839


$     633,446


$     536,017

Earnings per share:








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

$            1.01


$             0.77


$           2.95


$          2.79

Basic net income per share attributable to DaVita HealthCare Partners Inc

$            1.01


$             0.77


$           3.02


$           2.79

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

$            0.99


$             0.76


$           2.89


$           2.74

Diluted net income per share attributable to DaVita HealthCare Partners Inc

$            0.99


$             0.75


$           2.95


$           2.74

Weighted average shares for earnings per share:








Basic

210,574,383


202,215,560


209,939,364


192,035,878

Diluted

215,154,029


206,941,970


214,763,887


195,942,160

Amounts attributable to DaVita HealthCare Partners Inc.:








Income from continuing operations

$      212,278


$       156,283


$      620,197


$     536,236

Discontinued operations

-


(444)


13,249


(219)

Net income

$      212,278


$       155,839


$      633,446


$     536,017

 



DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)



Three months ended
December 31,


Year ended
December 31,


2013


2012


2013


2012

Net income

$ 244,273


$ 183,800


$ 757,201


$ 641,237

Other comprehensive income (loss), net of tax:








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








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

(1,414)


(100)


169


(6,204)

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

3,457


2,543


12,889


10,130

Unrealized gains on investments:








Unrealized gain on investments

933


155


2,300


1,541

Reclassification of net investment realized gains into net income

(396)


--


(490 )


(75)

Foreign currency translation adjustments

(1,010)


388


(2,216)


(1,205)

Other comprehensive income

1,570


2,986


12,652


4,187

Total comprehensive income

245,843


186,786


769,853


645,424

Less: Comprehensive income attributable to noncontrolling interests

(31,995)


(27,961)


(123,755)


(105,220)

Comprehensive income attributable to DaVita HealthCare Partners Inc

$ 213,848


$ 158,825


$ 646,098


$ 540,204



DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Year ended

December 31,


2013


2012

Cash flows from operating activities:




Net income

$ 757,201


$ 641,237

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




Loss contingency reserve

397,000


--

Depreciation and amortization

528,119


343,908

Stock-based compensation expense

59,998


45,384

Tax benefits from stock award exercises

46,898


88,964

Excess tax benefits from stock award exercises

(36,197)


(62,036)

Deferred income taxes

(25,380)


43,765

Equity investment income, net

2,872


3,384

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

(31,351)


30,390

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




Accounts receivable

(59,640)


(47,673)

Inventories

(8,971)


4,052

Other receivables and other current assets

(108,434)


51,730

Other long-term assets

17,731


(1,775)

Accounts payable

16,666


40,878

Accrued compensation and benefits

38,368


18,476

Other current liabilities

78,817


11,083

Income taxes

33,499


(129,948)

Other long-term liabilities

66,145


19,029

Net cash provided by operating activities

1,773,341


1,100,848

Cash flows from investing activities:




Additions of property and equipment, net

(617,597)


(550,146)

Acquisitions

(310,394)


(4,294,077)

Proceeds from asset and business sales

62,258


3,559

Purchase of investments available for sale

(12,445)


(3,935)

Purchase of investments held-to-maturity

(1,039)


(7,418)

Proceeds from sale of investments available for sale

4,158


7,211

Proceeds from maturities of investments held-to-maturity

1,376


14,530

Purchase of intangible assets

(3,696)


(2,182)

Distributions received on equity investments

497


8

Net cash used in investing activities

(876,882)


(4,832,450)

Cash flows from financing activities:




Borrowings

66,286,097


43,248,175

Payments on long-term debt, contingent earn-out obligations and other financing costs

(66,724,104)


(39,343,268)

Distributions to noncontrolling interests

(139,326)


(113,504)

Stock award exercises and other share issuances, net

16,423


6,647

Excess tax benefits from stock award exercises

36,197


62,036

Contributions from noncontrolling interests

36,996


37,395

Proceeds from sales of additional noncontrolling interests

8,295


1,664

Purchases from noncontrolling interests

(3,569)


(26,761)

Net cash (used in) provided by financing activities

(482,991)


3,872,384

Effect of exchange rate changes on cash and cash equivalents

(967)


(786)

Net increase in cash and cash equivalents

412,501


139,996

Cash and cash equivalents at beginning of the year

533,748


393,752

Cash and cash equivalents at end of the year

$ 946,249


$ 533,748



DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)



December 31,

2013


December 31,

2012

ASSETS




Cash and cash equivalents

$ 946,249


$ 533,748

Short-term investments

6,801


7,138

Accounts receivable, less allowance of $237,143 and $245,122

1,485,163


1,424,303

Inventories

88,805


78,126

Other receivables

349,090


265,671

Other current assets

176,414


201,572

Income tax receivable

10,315


52,345

Deferred income taxes

409,441


324,147

Total current assets

3,472,278


2,887,050

Property and equipment, net of accumulated depreciation of $1,778,259 and $1,522,183

2,189,411


1,872,370

Intangibles, net of accumulated amortization of $483,773 and $304,323

2,024,373


2,128,118

Equity investments

40,686


35,150

Long-term investments

79,557


59,341

Other long-term assets

79,598


79,854

Goodwill

9,212,974


8,952,750


$ 17,098,877


$ 16,014,633

LIABILITIES AND EQUITY




Accounts payable

$ 435,465


$ 414,143

Other liabilities

464,422


563,365

Accrued compensation and benefits

603,013


566,911

Medical payables

287,452


238,964

Loss contingency reserve

397,000


--

Current portion of long-term debt

274,697


233,042

Total current liabilities

2,462,049


2,016,425

Long-term debt

8,141,231


8,326,534

Other long-term liabilities

371,010


443,743

Alliance and product supply agreement, net

9,327


14,657

Deferred income taxes

812,419


715,657

Total liabilities

11,796,036


11,517,016

Commitments and contingencies




Noncontrolling interests subject to put provisions

697,300


580,692

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; 213,163,248 shares issued and outstanding at December 31, 2013; 269,724,566 shares issued and 210,997,150 shares outstanding at December 31, 2012)

213


270

Additional paid-in capital

1,070,922


1,208,665

Retained earnings

3,363,989


3,731,835

Treasury stock, at cost (58,727,416 shares at December 31, 2012)

--


(1,162,336)

Accumulated other comprehensive loss

(2,645)


(15,297)

Total DaVita HealthCare Partners Inc. shareholders' equity

4,432,479


3,763,137

Noncontrolling interests not subject to put provisions

173,062


153,788

Total equity

4,605,541


3,916,925


$ 17,098,877


$ 16,014,633



DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended

December 31,
2013


December 31,

2013


September 30,

2013


December 31,

2012


1. Consolidated Financial Results:








Consolidated net revenues

$ 3,063


$ 3,000


$ 2,478


$ 11,764

Operating income

$ 484.2


$ 377.1


$ 388.1


$ 1,550.1

Operating income margin

15.8%


12.6%


15.7%


13.2%

Operating income excluding a contingent earn-out obligation adjustment, a loss contingency reserve, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions, transaction expenses associated with the acquisition of HCP and a legal settlement and related expenses(1)

$ 484.2


$ 481.8


$ 407.6


$ 1,897.9

Operating income margin excluding a contingent earn-out obligation adjustment, a loss contingency reserve, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions, transaction expenses associated with the acquisition of HCP and a legal settlement and related expenses(1)

15.8%


16.1%


16.4%


16.1%

Income from continuing operations attributable to DaVita HealthCare Partners Inc

$ 212.3


$ 136.6


$ 156.3


$ 620.2

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(1)

$ 212.3


$ 211.0


$ 173.8


$ 817.6

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

$ 0.99


$ 0.64


$ 0.76


$ 2.89

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(1)

$ 0.99


$ 0.98


$ 0.84


$ 3.81

Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc(1)

$ 237.1


$ 235.7


$ 191.3


$ 915.1

Adjusted diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc(1)

$ 1.10


$ 1.10


$ 0.92


$ 4.26









2. Consolidated Business Metrics:








Expenses








General and administrative expenses as a percent of consolidated net revenues(2)

10.4%


10.2%


11.0%


10.0%

Consolidated effective tax rate

35.7%


37.3%


34.7%


33.9%

Consolidated effective tax rate attributable to DaVita HealthCare Partners Inc(1)

39.0%


42.5%


38.5%


38.0%









3. Summary of Segment Financial Results:








Net revenues








Net dialysis and related lab services revenues

$ 2,007


$ 1,983


$ 1,831


$ 7,764

Net HCP revenues

829


803


477


3,196

Net ancillary services and strategic initiatives revenues

242


226


178


852

Total net segment revenues

3,078


3,012


2,486


11,812

Elimination of intersegment revenues

(15)


(12)


(8)


(48)

Total net consolidated revenues

$ 3,063


$ 3,000


$ 2,478


$ 11,764



DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended

December 31,
2013


December 31,

2013


September 30,

2013


December 31,

2012


3. Summary of Segment Financial Results: (continued)








Operating income








Dialysis and related lab services operating income

$ 412


$ 308


$ 362


$ 1,212

HCP operating income

98


98


67


385

Other -- Ancillary services and strategic initiatives, including international dialysis operations operating losses

(9)


(8)


(14)


(39)

Total segment operating income

501


398


415


1,558

Reconciling items:








Contingent earn-out obligation adjustment

--


--


--


57

Corporate support and related long-term incentive compensation

(17)


(13)


(14)


(57)

Transaction expenses and the adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions

--


(8)


(13)


(8)

Consolidated operating income

$ 484


$ 377


$ 388


$ 1,550

Dialysis and Related Lab Services








Revenue:








Patient services revenues

$ 2,076


$ 2,052


$ 1,894


$ 8,033

Provision for uncollectible accounts

(72)


(72)


(66)


(281)

Net patient service operating revenues

2,004


1,980


1,828


7,752

Other revenues

3


3


3


12

Total net operating revenues

$ 2,007


$ 1,983


$ 1,831


$ 7,764

Operating expenses:








Patient care cost

$ 1,325


$ 1,311


$ 1,220


$ 5,117

General and administrative

180


180


163


694

Depreciation and amortization

93


89


83


356

Equity investment income

(3)


(3)


(3)


(12)

Loss contingency reserve and a legal settlement and related expenses

--


97


7


397

Total operating expenses

1,595


1,674


1,469


6,552

Segment operating income

$ 412


$ 308


$ 362


$ 1,212

HCP








Revenue:








HCP capitated revenues

$ 752


$ 731


$ 419


$ 2,920

Patient services revenues

63


61


36


232

Provision for uncollectible accounts

(4)


(3)


(2)


(12)

Net patient service operating revenues

59


58


34


220

Other revenues

18


14


24


56

Total net operating revenues

$ 829


$ 803


$ 477


$ 3,196

Operating expenses:








Patient care cost

$ 616


$ 605


$ 344


$ 2,405

General and administrative

78


67


47


270

Depreciation and amortization

43


39


24


159

Equity investment income

(6)


(6)


(5)


(23)

Total operating expenses

731


705


410


2,811

Segment operating income

$ 98


$ 98


$ 67


$ 385











DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended

December 31,
2013


December 31,

2013


September 30,

2013


December 31,

2012


4. Dialysis and Related Lab Services Business Metrics:








Volume








Treatments

6,106,166


6,034,647


5,736,776


23,637,584

Number of treatment days

79.6


79.0


79.5


313.1

Treatments per day

76,711


76,388


72,161


75,495

Per day year over year increase

6.3%


7.3%


9.1%


7.3%

Non-acquired growth year over year

4.7%


5.5%


4.7%


5.0%

Normalized non-acquired growth year over year

5.2%


5.4%


4.4%


5.1%

Operating revenues before provision for uncollectible accounts








Dialysis and related lab services revenue per treatment

$ 340.04


$ 339.99


$ 330.16


$ 339.83

Per treatment increase (decrease) from previous quarter

0.0%


0.3%


(0.5%)


--

Per treatment increase from previous year

3.0%


2.4%


0.5%


2.4%

Percent of net consolidated revenues

65.2%


65.8%


73.7%


65.7%









Expenses








Patient care costs








Percent of total segment operating revenues

66.0%


66.1%


66.6%


65.9%

Per treatment

$ 216.89


$ 217.21


$ 212.58


$ 216.48

Per treatment (decrease) increase from previous quarter

(0.1%)


0.7%


(0.7%)


--

Per treatment increase from previous year

2.0%


1.5%


1.8%


1.5%

General and administrative expenses








Percent of total segment operating revenues

9.0%


9.1%


8.9%


8.9%

Per treatment

$ 29.50


$ 29.85


$ 28.41


$ 29.38

Per treatment (decrease) increase from previous quarter

(1.2%)


5.0%


2.5%


--

Per treatment increase (decrease) from previous year

3.8%


7.7%


(2.5%)


3.0%

Accounts receivable








Net receivables

$ 1,173


$ 1,105


$ 1,169


$ --

DSO

55


52


59


--

Provision for uncollectible accounts as a percentage of net revenues

3.5%


3.5%


3.5%


3.5%









5. HCP Business Metrics:








Capitated membership








Total

764,000


760,000


724,000


--

Member months

2,288,300


2,236,700


1,422,600


8,973,400

Capitated revenues by sources








Commercial revenues

$ 183


$ 176


$ 112


$ 715

Senior revenues

550


539


298


2,137

Medicaid revenues

19


16


9


68

Total capitated revenues

$ 752


$ 731


$ 419


$ 2,920

Other








Total care dollars under management(1)

$ 1,045


$ 1,037


$ 614


$ 4,122

Ratio of operating income to total care dollars under management

9.4%


9.4%


10.9%


9.3%

Full time clinicians

1,120


1,098


1,079


--

IPA primary care physicians

3,119


2,999


1,806


--



DAVITA HEALTHCARE PARTNERS INC

SUPPLEMENTAL FINANCIAL DATA--continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended

December 31, 2013


December 31,

2013


September 30,

2013


December 31,

2012


6. Cash Flow:








Operating cash flow

$ 354.2


$ 733.1


$ 200.2


$ 1,773.3

Operating cash flow, last twelve months

$ 1,773.3


$ 1,619.4


$ 1,100.8


--

Free cash flow(1)

$ 205.2


$ 643.2


$ 82.6


$ 1,365.5

Free cash flow, last twelve months(1)

$ 1,365.5


$ 1,243.0


$ 715.3


--

Capital expenditures:








Routine maintenance/IT/other

$ 109.4


$ 55.4


$ 86.1


$ 268.5

Development and relocations

$ 108.7


$ 85.7


$ 85.1


$ 349.1

Acquisition expenditures

$ 75.6


$ 82.7


$ 3,875.0


$ 310.4









7. Debt and Capital Structure:








Total debt(3)

$ 8,434


$ 8,460


$ 8,576



Net debt, net of cash and cash equivalents(3)

$ 7,488


$ 7,489


$ 8,042



Leverage ratio (see calculation on page 12)

3.06x


3.16x


3.5x



Overall weighted average effective interest rate during the quarter

4.87%


4.87%


4.93%



Overall weighted average effective interest rate at end of the quarter

4.86%


4.86%


4.73%



Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter

4.18%


4.18%


4.02%



Fixed and economically fixed interest rates as a percentage of our total debt(4)

60%


60%


45%



Fixed and economically fixed interest rates, including our interest rate cap agreements, as a percentage of our total debt(4)

93%


93%


59%











8. Clinical: (quarterly averages)








Dialysis adequacy -% of patients with Kt/V > 1.2 at the end of the quarter

98%


98%


98%



Dialysis patients with arteriovenous fistulas placed

72%


72%


71%





(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, transaction expenses associated with the acquisition of HCP and an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions.



(3)

The reported balance sheet amounts at December 31, 2013, September 30, 2013, and December 31, 2012, exclude $17.7 million, $18.6 million and $21.5 million, respectively, of debt discounts associated with our Term Loan B and Term Loan B-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 $448 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 $149 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.



Year ended

December 31, 2013

Income from continuing operations attributable to DaVita HealthCare Partners Inc

$ 633,446

Income taxes

381,013

Interest expense

397,847

Depreciation and amortization

528,737

Loss contingency reserve

397,000

Noncontrolling interests and equity investment income, net

126,627

Stock-based compensation

59,998

Other

(13,200)

"Consolidated EBITDA"

$ 2,511,468




December 31, 2013

Total debt, excluding debt discount of $17.7 million

$ 8,433,603

Letters of credit issued

70,553


8,504,156

Less: Cash and cash equivalents

(826,295)

Consolidated net debt

$ 7,677,861

Last twelve months "Consolidated EBITDA"

$ 2,511,468

Leverage ratio

3.06x


In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 5.00 to 1.00 as of December 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 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 loss contingency reserve, a contingent earn-out obligation adjustment, 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 loss contingency reserve, a contingent earn-out obligation adjustment, 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 a loss contingency reserve related to the 2010 and 2011 U.S. Attorney Physician Relationship Investigations, an adjustment to HCP's contingent earn-out obligation, 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, a legal settlement and related 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 loss contingency reserve, a contingent earn-out obligation adjustment, 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:

Three months ended


Year ended


December 31,

2013


September 30,

2013


December 31,

2012


December 31,

2013


December 31,

2012

Income from continuing operations attributable to DaVita HealthCare Partners Inc

$ 212,278


$ 136,628


$ 156,283


$ 620,197


$ 536,236

Add (Subtract):










Loss contingency reserve

--


97,000


--


397,000


--

Contingent earn-out obligation adjustment

--


--


--


(56,977)


--

Transaction expenses associated with the acquisition of HCP

--


--


12,982


--


30,753

Debt refinancing charges

--


--


8,901


--


10,963

Legal settlement and related expenses

--


--


6,545


--


85,837

Less: Related income tax

--


(22,650)


(10,945)


(142,650)


(51,149)


$ 212,278


$ 210,978


$ 173,766


$ 817,570


$ 612,640



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 loss contingency reserve, a contingent earn-out obligation adjustment, 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:




Three months ended


Year ended


December 31,

2013


September 30,

2013


December 31,

2012


December 31,

2013


December 31,

2012

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

$ 0.99


$ 0.64


$ 0.76


$ 2.89


$ 2.74

Add (Subtract):










Loss contingency reserve

--


0.34


--


1.18


--

Contingent earn-out obligation adjustment

--


--


--


(0.26)


--

Transaction expenses associated with the acquisition of HCP

--


--


0.04


--


0.10

Debt refinancing charges

--


--


0.02


--


0.03

Legal settlement and related expenses

--


--


0.02


--


0.26


$ 0.99


$ 0.98


$ 0.84


$ 3.81


$ 3.13



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 a different 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 net income per share attributable to DaVita HealthCare Partners Inc., further adjusted to exclude the amortization of intangible assets associated with acquisitions:

Three months ended


Year ended


December 31,

2013


September 30,

2013


December 31,

2012


December 31,

2013


December 31,

2012

Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc

$ 212,278


$ 210,978


$ 173,766


$ 817,570


$ 612,640

Add:










Amortization of intangible assets associated with acquisitions for the dialysis and ancillary operations

6,802


6,769


6,525


27,280


26,439

Amortization of intangible assets associated with acquisitions for the HCP operations

33,919


33,230


21,923


133,599


21,923

Related income tax

(15,881)


(15,319)


(10,953)


(63,387)


(19,393)


$ 237,118


$ 235,658


$ 191,261


$ 915,062


$ 641,609











Adjusted diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc

$ 0.99


$ 0.98


$ 0.84


$ 3.81


$ 3.13

Add:










Amortization of intangible assets per share associated with acquisitions for the dialysis and ancillary operations, net of tax

0.02


0.02


0.02


0.08


0.08

Amortization of intangible assets per share associated with acquisitions for the HCP operations, net of tax

0.09


0.10


0.06


0.37


0.07


$ 1.10


$ 1.10


$ 0.92


$ 4.26


$ 3.28



DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)


2. Operating income excluding a pre-tax loss contingency reserve, a pre-tax contingent earn-out obligation adjustment, 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 loss contingency reserve, a pre-tax contingent earn-out obligation adjustment, 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 a loss contingency reserve related to the 2010 and 2011 U.S. Attorney Physician Relationship Investigations, an adjustment for HCP's contingent earn-out obligation, 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 loss contingency reserve, a pre-tax contingent earn-out obligation adjustment, 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:

Three months ended


Year ended


December 31,

2013


September 30,

2013


December 31,

2012


December 31,

2013


December 31,

2012

Operating income

$ 484,179


$ 377,074


$ 388,056


$ 1,550,134


$ 1,297,084

Add (Subtract):










Loss contingency reserve

--


97,000


--


397,000


--

Contingent earn-out obligation adjustment

--


--


--


(56,977)


--

Transaction expenses associated with the acquisition of HCP

--


--


12,982


--


30,753

Legal settlement and related expenses

--


--


6,545


--


85,837

Adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions

--


7,721


--


7,721


--

Adjusted operating income

$ 484,179


$ 481,795


$ 407,583


$ 1,897,878


$ 1,413,674



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, a contingent earn-out obligation adjustment 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 loss contingency reserve related to the 2010 and 2011 U.S. Attorney Physician Relationship Investigations, a contingent earn-out obligation adjustment 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


Year ended

December 31,
2013


December 31,

2013


September 30,

2013


December 31,

2012


Income from continuing operations before income taxes

$ 380,020


$ 270,766


$ 282,162


$ 1,124,978

Income tax expense

$ 135,747


$ 100,930


$ 97,902


$ 381,013

Effective income tax rate

35.7%


37.3%


34.7%


33.9%










Three months ended


Year ended
December 31,
2013


December 31,
2013


September 30,
2013


December 31,
2012

Income from continuing operations before income taxes

$ 380,020


$ 270,766


$ 282,162


$ 1,124,978

Less: Noncontrolling owners' income primarily attributable to non-tax paying entities

(32,020)


(33,310)


(28,036)


(124,262)

Income before income taxes attributable to DaVita HealthCare Partners Inc

$ 348,000


$ 237,456


$ 254,126


$ 1,000,716









Income tax expense

135,747


100,930


$ 97,902


$ 381,013

Less: Income tax attributable to noncontrolling interests

(25)


(102)


(75)


(507)

Income tax attributable to DaVita HealthCare Partners Inc

$ 135,722


$ 100,828


$ 97,827


$ 380,506









Effective income tax rate attributable to DaVita HealthCare Partners Inc

39.0%


42.5%


38.5%


38.0%



DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)



Three months ended


Year ended

December 31, 2013

Adjusted effective income tax rates attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve, the contingent earn-out obligation adjustment, and the adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions:

December 31,

2013


September 30,

2013


December 31,

2012










Income from continuing operations before income taxes

$ 380,020


$ 270,766


$ 282,162


$1,124,978

Add: Loss contingency reserve

--


97,000


--


397,000

Less: Contingent earn-out obligation adjustment

--


--


--


(56,977)

Add: Adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions

--


7,721


--


7,721


380,020


375,487


282,162


1,472,722

Less: Noncontrolling owners' income primarily attributable to non- tax paying entities

(32,020)


(33,310)


(28,036)


(124,262)

Adjusted income before income taxes attributable to DaVita HealthCare Partners Inc

$ 348,000


$ 342,177


$ 254,126


$ 1,348,460

Income tax expense

$ 135,747


$ 100,930


$ 97,902


$ 381,013

Add: Income taxes attributable to loss contingency reserve

--


22,650


--


142,650

         Income tax adjustment attributable to a reduction in a tax asset associated with the HCP acquisition escrow provisions

--


7,721


--


7,721

Less: Income tax attributable to noncontrolling interests

(25)


(102)


(75)


(507)

Adjusted income tax attributable to DaVita HealthCare Partners Inc

$ 135,722


$ 131,199


$ 97,827


$ 530,877

Adjusted effective income tax rate attributable to DaVita HealthCare Partners Inc

39.0%


38.3%


38.5%


39.4%



DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)


4. Free cash flow


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



Three months ended


Year ended

December 31,
2013


December 31,

2013


September 30,

2013


December 31,

2012


Cash provided by operating activities

$ 354,187


$ 733,128


$ 200,235


$ 1,773,341

Less: Distributions to noncontrolling interests

(39,590)


(34,530)


(31,526)


(139,326)

Cash provided by operating activities attributable to DaVita HealthCare Partners Inc

314,597


698,598


168,709


1,634,015

Less: Expenditures for routine maintenance and information technology

(109,402)


(55,407)


(86,065)


(268,499)

Free cash flow

$ 205,195


$ 643,191


$ 82,644


$ 1,365,516














Rolling 12-Month Period


December 31,

2013


September 30,

2013


December 31,

2012

Cash provided by operating activities

$ 1,773,341


$ 1,619,389


$ 1,100,848

Less: Distributions to noncontrolling interests

(139,326)


(131,262)


(113,504)

Cash provided by operating activities attributable to DaVita HealthCare Partners Inc

1,634,015


1,488,127


987,344

Less: Expenditures for routine maintenance and information technology

(268,499)


(245,162)


(271,995)

Free cash flow

$ 1,365,516


$ 1,242,965


$ 715,349



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


Year ended
December 31,
2013


December 31,
2013


September 30,
2013


November 1, 2012
Through
December 31, 2012


Medical revenues

$ 810,553


$ 788,449


$ 453,838


$ 3,140,465

Less: Risk share revenue, net

(41,288)


(32,917)


(15,762)


(134,533)

Add: Institutional capitation amounts

275,380


281,857


175,651


1,115,790

Total care dollars under management

$ 1,044,645


$ 1,037,389


$ 613,727


$ 4,121,722

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