Improving Health, Health Care and Quality of Life

DaVita HealthCare Partners Inc. 4th Quarter 2012 Results

DENVER--(BUSINESS WIRE)--Feb. 14, 2013-- DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2012. Adjusted net income attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012 was $173.3 million, or $1.68 per share, excluding transaction expenses associated with the acquisition ofHealthCare Partners Holdings, LLC (HCP), debt refinancing charges and expenses associated with a legal settlement, which net of related tax impacts totaled $17.5 million, or $0.17 per share. Net income attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012 including these items was $155.8 million, or $1.51 per share.

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

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

Financial and operating highlights include:

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

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

    Operating income for the quarter and year ended December 31, 2011 was $330 million and $1,155 million, respectively.
  • Adjusted Diluted Net Income Per Share: Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the quarter ended December 31, 2012, excluding transaction expenses associated with the acquisition of HCP, debt refinancing charges, expenses associated with a legal settlement and amortization of intangible assets associated with acquisitions, which net of related tax impacts totaled$35.0 million, was $1.85 per share.

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

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

    Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the year endedDecember 31, 2011, excluding a goodwill impairment charge and the amortization of intangible assets associated with acquisitions, which net of related tax impacts totaled $28.2 million, was $5.25 per share.
  • Volume: Total U.S. dialysis treatments for the fourth quarter of 2012 were 5,736,776, or 72,161 treatments per day, representing a per day increase of 9.1% over the fourth quarter of 2011. Non-acquired treatment growth in the quarter was 4.7% over the prior year’s fourth quarter. Our normalized non-acquired treatment growth in the quarter was 4.4% over the prior year’s fourth quarter.
  • Effective Tax Rate: Our effective tax rate was 34.7% and 35.9% for the quarter and year ended December 31, 2012, respectively. This effective tax rate is impacted by the amount of third party owners’ income attributable to non-tax paying entities. The effective tax rate attributable to DaVita HealthCare Partners Inc. was 38.5% and 40.1% for the quarter and year ended December 31, 2012, respectively. We expect our 2013 effective tax rate attributable to DaVita HealthCare Partners Inc. to be in the range of 39.5% to 40.5%.
  • Acquisition: On November 1, 2012 we completed our acquisition of HCP pursuant to an Agreement and Plan of Merger dated May 20, 2012, as amended, whereby HCP became a wholly-owned subsidiary of DaVita Inc.For further details regarding this transaction, see our report on Form 8-K filed with the SEC on November 1, 2012. The operating results of HCP are included in our consolidated financial results from November 1, 2012.
  • Debt Transactions: In conjunction with the acquisition of HCP, on November 1, 2012, we borrowed an additional $3,000 million under an amended Credit Agreement. The amended Credit Agreement consist of a new five year Term Loan A-3 facility in an aggregate principal amount of $1,350 million and a new seven year Term Loan B-2 facility in an aggregate principal amount of $1,650 million. The new Term Loan A-3 initially bears interest at LIBOR plus an interest rate margin of 2.50% subject to adjustment depending upon our leverage ratio and can range from 2.00% to 2.50%. The Term Loan A-3 matures in 2017. The Term Loan B-2 bears interest at LIBOR (floor at 1.00%) plus an interest rate margin of 3.00% and matures in 2019. In addition, we amended certain financial covenants and various other provisions of our Credit Agreement to provide operating and financial flexibility.

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

    We received total proceeds of $4,250 million from these additional borrowings, $3,000 million from the borrowings on the new Term Loan A-3 and new Term Loan B-2, and an additional $1,250 million from the New Senior Notes. We used a portion of the proceeds to finance the merger of HCP, pay-off the existing Term Loan A-2 outstanding principal balance and to pay-off a portion of HCP’s existing debt as well as to pay fees and expenses of approximately $71.8 million.
  • Dialysis Center Activity: As of December 31, 2012, we operated or provided administrative services at 1,954 outpatient dialysis centers located in the United States serving approximately 153,000 patients and 36 outpatient dialysis centers serving approximately 2,200 patients that are located in eight countries outside ofthe United States. During the fourth quarter of 2012, we acquired 22 dialysis centers and opened a total of 22 dialysis centers located in the United States. We also acquired 10 dialysis centers and opened two dialysis centers outside of the United States.

Outlook

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

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

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

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

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

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

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

DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
         
      Three months ended December 31,     Year ended December 31,
      2012   2011     2012  

2011

Patient service revenues     $ 1,929,802     $ 1,715,818       $ 7,351,900     $ 6,470,540  
Less: Provision for uncollectible accounts       (67,950 )     (51,714 )       (235,218 )     (190,234 )
Net patient service revenues       1,861,852       1,664,104         7,116,682       6,280,306  
HCP capitated revenues       419,431             419,431      
Other revenues       196,570       130,221         650,167       451,500  
Total net operating revenues       2,477,853       1,794,325         8,186,280       6,731,806  
Operating expenses and charges:                            
Patient care costs       1,702,763       1,201,387         5,578,853       4,633,620  
General and administrative       278,469       192,019         894,575       684,715  
Depreciation and amortization       109,278       72,387         341,969       264,225  
Provision for uncollectible accounts       805       1,019         4,339       3,309  
Equity investment income       (8,063 )     (2,221 )       (16,377 )     (8,776 )
Legal settlement and related expenses       6,545             85,837      
Total operating expenses and charges       2,089,797       1,464,591         6,889,196       5,577,093  
Operating income       388,056       329,734         1,297,084       1,154,713  
Debt expense       (98,032 )     (61,750 )       (288,554 )     (241,090 )
Debt refinancing charges       (8,901 )           (10,963 )    
Other income       1,039       787         3,737       2,982  
Income from continuing operations before income taxes       282,162       268,771         1,001,304       916,605  
Income tax expense       97,902       91,552         359,845       325,292  
Income from continuing operations       184,260       177,219         641,459       591,313  
Discontinued operations:                            
Loss from operations of discontinued operations, net of tax       (460 )     (19 )       (222 )     (13,162 )
Loss on disposal of discontinued operations, net of tax           (1,068 )           (4,756 )
Net income       183,800       176,132         641,237       573,395  

Less: Net income attributable to noncontrolling interests

      (27,961 )     (28,009 )       (105,220 )     (95,394 )
Net income attributable to DaVita HealthCare Partners Inc.     $ 155,839     $ 148,123       $ 536,017     $ 478,001  
Earnings per share:                            
Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc.     $ 1.55     $ 1.60       $ 5.58     $ 5.25  
Basic net income per share attributable to DaVita HealthCare Partners Inc.     $ 1.54     $ 1.59       $ 5.58     $ 5.05  
Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc.     $ 1.51     $ 1.57       $ 5.47     $ 5.14  
Diluted net income per share attributable to DaVita HealthCare Partners Inc.     $ 1.51     $ 1.56       $ 5.47     $ 4.96  
Weighted average shares for earnings per share:                            
Basic       101,107,780       93,485,001         96,017,939       94,658,027  
Diluted       103,470,985       94,968,029         97,971,080       96,532,110  
Amounts attributable to DaVita HealthCare Partners Inc.:                            
Income from continuing operations     $ 156,283     $ 149,235       $ 536,236     $ 496,182  
Discontinued operations       (444 )     (1,112 )       (219 )     (18,181 )
Net income     $ 155,839     $ 148,123       $ 536,017     $ 478,001  
                                     
                                     
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
         
      Three months ended December 31,     Year ended December 31,
      2012   2011     2012   2011
Net income     $ 183,800     $ 176,132       $ 641,237     $ 573,395  
Other comprehensive (loss) income, net of tax:                            
Unrealized losses on interest rate swap and cap agreements:                            
                             
Unrealized losses on interest rate swap and cap agreements       (100 )     (1,210 )       (6,204 )     (29,049 )
Less: Reclassifications of net swap and cap agreements realized losses into net income       2,543       2,597         10,130       9,721  
                             
Unrealized gains (losses) on investments:                            
Unrealized gains (losses) on investments       155       (15 )       1,541       (602 )
Less: Reclassification of net investment realized gains into net income                 (75 )     (57 )
                             
Foreign currency translation adjustments       388             (1,205 )    
Other comprehensive income (loss)       2,986       1,372         4,187       (19,987 )
                             
Total comprehensive income       186,786       177,504         645,424       553,408  
Less: Comprehensive income attributable to the noncontrolling interests       (27,961 )     (28,009 )       (105,220 )     (95,394 )
Comprehensive income attributable to DaVita HealthCare Partners Inc.     $ 158,825     $ 149,495       $ 540,204     $ 458,014  
                                     
                                     
DAVITA HEALTHCARE PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
     
     

Year ended
December 31,

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

December 31,
2012

   

December 31,
2011

ASSETS                
Cash and cash equivalents     $ 533,748       $ 393,752  
Short-term investments       7,138         17,399  
Accounts receivable, less allowance of $245,122 and $250,343       1,437,303         1,195,163  
Inventories       78,126         75,731  
Other receivables       265,671         281,468  
Other current assets       201,572         49,349  
Income tax receivable       55,454        
Deferred income taxes       324,282         280,382  
Total current assets       2,903,294         2,293,244  
Property and equipment, net       1,872,370         1,432,651  
Amortizable intangibles, net       2,127,778         159,491  
Equity investments       35,150         27,325  
Long-term investments       59,341         9,890  
Other long-term assets       80,194         34,231  
Goodwill       8,964,969         4,946,976  
      $ 16,043,096       $ 8,903,808  
LIABILITIES AND EQUITY                
Accounts payable     $ 414,143       $ 289,653  
Other liabilities       563,365         328,607  
Accrued compensation and benefits       566,911         421,735  
Medical payables       261,964        
Current portion of long-term debt       227,791         87,345  
Income tax payable             37,412  
Total current liabilities       2,034,174         1,164,752  
Long-term debt       8,326,534         4,417,624  
Other long-term liabilities       443,743         132,006  
Alliance and product supply agreement, net       14,657         19,987  
Deferred income taxes       715,248         423,098  
Total liabilities       11,534,356         6,157,467  
Commitments and contingencies                
Noncontrolling interests subject to put provisions       580,692         478,216  
Equity:                
Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)                
Common stock ($0.001 par value, 450,000,000 shares authorized; 134,862,283 shares issued; 105,498,575 and 93,641,363 shares outstanding)       135         135  
Additional paid-in capital       1,208,800         596,300  
Retained earnings       3,731,835         3,195,818  
Treasury stock, at cost (29,363,708 and 41,220,920 shares)       (1,162,336 )       (1,631,694 )
Accumulated other comprehensive loss       (15,297 )       (19,484 )
Total DaVita HealthCare Partners Inc. shareholders’ equity       3,763,137         2,141,075  
Noncontrolling interests not subject to put provisions       164,911         127,050  
Total equity       3,928,048         2,268,125  
      $ 16,043,096       $ 8,903,808  
                     
                     
DAVITA HEALTHCARE PARTNERS INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
 
      Three months ended    

Year ended
December 31, 2012

     

December 31,
2012

   

September 30,
2012

   

December 31,
2011

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

Year ended
December 31, 2012

 
     

December 31,
2012

   

September 30,

2012

   

December 31,
2011

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

 
     

December 31,
2012

   

September 30,
2012

   

December 31,
2011

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

     

December 31,
2012

   

September 30,
2012

   

December 31,
2011

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

_________________

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

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

Note 1: Calculation of the Leverage Ratio

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

           
         

Year ended
December 31, 2012

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

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

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

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

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

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

December 31,
2012

   

September 30,
2012

   

December 31,
2011

   

December 31,
2012

     

December 31,
2011

Net income attributable to DaVita HealthCare Partners Inc.     $ 155,839       $ 144,721       $ 148,123     $ 536,017       $ 478,001  
Add:                                      
Transaction expenses associated with the acquisition of HCP       12,982         1,335             30,753