UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): May 4, 2015

 

 

DAVITA HEALTHCARE PARTNERS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1-14106   No. 51-0354549

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

2000 16th Street

Denver, CO 80202

(Address of principal executive offices including Zip Code)

(303) 405-2100

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 240.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On May 4, 2015, DaVita HealthCare Partners Inc. issued a press release announcing its financial results for the three months ended March 31, 2015. A copy of the press release is furnished as Exhibit 99.1 to this report.

The information contained in this Form 8-K (including Exhibit 99.1 attached hereto) is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section and shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit

Number

  

Description

99.1    Press Release dated May 4, 2015 announcing the registrant’s financial results for the three months ended March 31, 2015.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

DAVITA HEALTHCARE PARTNERS INC.
Date: May 4, 2015 By:

/s/    James K. Hilger        

James K. Hilger

Interim Chief Financial Officer and

Chief Accounting Officer


EXHIBIT INDEX

 

Exhibit
Number

  

Description

99.1    Press Release dated May 4, 2015, announcing the registrant’s financial results for the three months ended March 31, 2015.


Exhibit 99.1

 

LOGO

 

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

DaVita HealthCare Partners Inc. 1st Quarter 2015 Results

Denver, Colorado, May 4, 2015 – DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the quarter ended March 31, 2015. Adjusted net income attributable to DaVita HealthCare Partners Inc. for the quarter ended March 31, 2015 was $187 million, or $0.86 per share, excluding an accrual of an after-tax estimated loss contingency of $298 million, or $1.38 per share. Net loss attributable to DaVita HealthCare Partners Inc. for the quarter ended March 31, 2015 including this item was $(111) million, or $(0.52) per share.

Net income attributable to DaVita HealthCare Partners Inc. for the three months ended March 31, 2014 was $183 million, or $0.85 per share.

Financial and operating highlights include:

 

    Cash Flow: For the rolling twelve months ended March 31, 2015, operating cash flow was $1.450 billion and free cash flow was $1.028 billion. For the three months ended March 31, 2015, operating cash flow was $410 million and free cash flow was $320 million. Operating cash flow and free cash flow for the rolling twelve months ended March 31, 2015 was negatively impacted by approximately $269 million of after-tax payments made in connection with the settlement of the 2010 and 2011 U.S. Attorney Physician Relationship Investigations during the fourth quarter of 2014.

 

    Operating Income and Adjusted Operating Income: Adjusted operating income for the three months ended March 31, 2015 was $431 million excluding an accrual of an estimated loss contingency of $495 million. Operating loss for the three months ended March 31, 2015, including this item was $(64) million.

Operating income for the three months ended March 31, 2014 was $441 million.

 

    Adjusted Diluted Net Income Per Share: Adjusted net income attributable to DaVita HealthCare Partners Inc. for the three months ended March 31, 2015, excluding the amortization of intangible assets associated with acquisitions and an accrual of an estimated loss contingency, net of tax impacts, was $213 million, and adjusted diluted net income per share was $0.98.

Adjusted net income attributable to DaVita HealthCare Partners Inc. for the three months ended March 31, 2014, excluding the amortization of intangible assets associated with acquisitions, net of tax impacts, was $208 million, and adjusted diluted net income per share was $0.97.

 

    Vainer Private Civil Suit: During the first quarter of 2015, we reached an agreement in principle with the plaintiffs in the Vainer private civil suit pursuant to which the Court stayed the litigation and the plaintiffs withdrew their motion for further sanctions. While the specific terms of settlement have not yet been finalized, we have accrued an estimated loss contingency of $495 million related to this matter, or $298 million after-tax. The $495 million consists of a settlement amount of $450 million and attorney fees and other costs of $45 million. Negotiations are ongoing and until all parties have entered into a definitive final agreement, we can make no assurances about the specific settlement terms, including monetary and nonmonetary terms, or whether the Vainer suit ultimately will settle for an amount that is not greater than the amount of the estimated loss contingency.

 

    Volume: Total U.S. dialysis treatments for the first quarter of 2015 were 6,262,635, or 81,758 treatments per day, representing a per day increase of 4.5% over the first quarter of 2014. Non-acquired treatment growth in the first quarter of 2015 was 3.9% over the first quarter of 2014 and normalized non-acquired treatment growth in the first quarter of 2015 was 4.5% over the first quarter of 2014.

 

1


The number of member months for which HCP provided capitated care during the first quarter of 2015 was approximately 2.5 million representing an increase of 5.6% as compared to the first quarter of 2014, inclusive of growth contributed from acquisitions.

 

    Effective Tax Rate: Our effective tax rate was 53.0% for the three months ended March 31, 2015. 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 43.7% for the three months ended March 31, 2015. The adjusted effective tax rate attributable to DaVita HealthCare Partners Inc. excluding an estimated loss contingency was 37.5% for the three months ended March 31, 2015.

We are updating our 2015 effective tax rate attributable to DaVita HealthCare Partners Inc. to now be approximately 39.0% to 40.0%. Our previous expected 2015 effective tax rate attributable to DaVita HealthCare Partners Inc. was 39.5% to 40.5%.

 

    Center Activity: As of March 31, 2015, we provided dialysis services to a total of approximately 181,000 patients at 2,290 outpatient dialysis centers, of which 2,197 centers are located in the United States and 93 centers are located in ten countries outside of the United States. During the first quarter of 2015, we opened a total of 18 new dialysis centers, acquired one dialysis center, and closed two dialysis centers in the United States. We also opened two new dialysis centers outside of the United States.

 

    Share Repurchases: During the first quarter of 2015, we repurchased a total of 891,429 shares of our common stock for $70 million, or an average price of $78.60 per share. In addition, in April 2015, we repurchased a total of 175,710 shares of our common stock for $14 million, or an average price of $79.96 per share.

On April 14, 2015, our Board of Directors approved additional share repurchases in the amount of $726 million. These recently approved share repurchases are in addition to the approximately $274 million remaining under our Board of Directors’ prior share repurchase approval announced on November 4, 2010. As a result, we now have a total of $1.0 billion in outstanding authorizations available for share repurchases. These share repurchase authorizations have no expiration dates.

 

    Issuance of New Senior Notes: In April 2015, we issued $1.500 billion 5.0% Senior Notes due 2025 (the 5.0% Senior Notes). The 5.0% Senior Notes are unsecured senior obligations and rank equally in right of payment with our existing and future unsecured senior indebtedness. The 5.0% Senior Notes are guaranteed by certain of our domestic subsidiaries. The proceeds from the 5.0% Senior Notes are being used to repurchase all of the outstanding principal balances of the $775 million 6  58% Senior Notes due 2020 through a combination of a tender offer and a redemption process, to pay fees and expenses and for general corporate purposes, which may include future acquisitions and share repurchases.

 

2


Outlook

 

    We are updating our consolidated operating income for 2015 to now be in the range of $1.800 billion to $1.925 billion.

Our previous consolidated operating income guidance for 2015 was in the range of $1.750 billion to $1.900 billion.

 

    We are updating our operating income for Kidney Care for 2015 to now be in the range of $1.575 billion to $1.650 billion.

Our previous operating income guidance for Kidney Care for 2015 was in the range of $1.525 billion to $1.625 billion.

 

    We still expect our operating income for HCP for 2015 to be in the range of $225 million to $275 million.

 

    We still expect our consolidated operating cash flow for 2015 to be in the range of $1.500 billion to $1.700 billion.

The above projected ranges exclude the accrual of the estimated loss contingency, or any potential settlement payment, related to the Vainer Private Civil Suit.

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 and webcast to discuss our results for the first quarter ended March 31, 2015 on May 5, 2015 at 9:00 a.m. Eastern Time. The earnings discussion will be immediately followed by our Capital Markets Day. To join the presentation by conference call, please dial (888) 950-9401 from the U.S. or (517) 308-9354 from outside the U.S., and refer to the “Capital Markets” call and provide the operator with your name and company affiliation. To join the presentation via webcast, please visit our web-site at investors.davitahealthcarepartners.com. A replay of the presentation will be available on DaVita’s official web page for the following 30 days. There will be no telephone replay.

 

3


This release contains forward-looking statements within the meaning of the federal securities laws, including statements related to our guidance and expectations for our 2015 consolidated operating income, our 2015 Kidney Care operating income, HCP’s 2015 operating income, our 2015 consolidated operating cash flows and our 2015 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, 2014, 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 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 the Center for Medicare and Medicaid Services (CMS) 2015 Medicare Advantage benchmark structure,

 

    risks arising from potential federal and/or state legislation that could have an adverse effect on our operations and profitability,

 

    changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing,

 

    legal compliance risks, including our continued compliance with complex government regulations including compliance with the provisions of our current corporate integrity agreement and current or potential investigations by various government entities and related government or private-party proceedings, and restrictions on our business and operations required by our corporate integrity agreement and other settlement terms, and the financial impact thereof,

 

    continued increased competition from large- and medium-sized dialysis providers that compete directly with us,

 

    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, such as accountable care organizations, independent practice associations and integrated delivery systems, or to businesses outside of dialysis and HealthCare Partners’ (HCP) business,

 

    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 variability of our cash flows,

 

    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,

 

    loss of key HCP employees, potential disruption from the HCP transaction making it more difficult to maintain business and operational relationships with customers, partners, associated physicians and physician groups, hospitals and others,

 

    the risk that laws regulating the corporate practice of medicine could restrict the manner in which HCP conducts its business,

 

    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.

 

4


We base our forward-looking statements on information currently available to us at the time of this release, and except as required by law 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.

 

5


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(dollars in thousands, except per share data)

 

     Three months ended
March 31,
 
     2015     2014  

Patient service revenues

   $ 2,271,815      $ 2,114,098   

Less: Provision for uncollectible accounts

     (99,164     (83,197
  

 

 

   

 

 

 

Net patient service revenues

  2,172,651      2,030,901   

Capitated revenues

  850,515      787,565   

Other revenues

  264,799      224,310   
  

 

 

   

 

 

 

Total net revenues

  3,287,965      3,042,776   
  

 

 

   

 

 

 

Operating expenses and charges:

Patient care costs and other costs

  2,362,612      2,179,772   

General and administrative

  341,801      284,061   

Depreciation and amortization

  153,789      142,579   

Provision for uncollectible accounts

  1,827      2,511   

Equity investment income

  (2,908   (7,372

Loss contingency accrual

  495,000      —      
  

 

 

   

 

 

 

Total operating expenses and charges

  3,352,121      2,601,551   
  

 

 

   

 

 

 

Operating (loss) income

  (64,156   441,225   

Debt expense

  (97,392   (106,335

Other (loss) income, net

  (533   1,698   
  

 

 

   

 

 

 

(Loss) income before income taxes

  (162,081   336,588   

Income tax (benefit) expense

  (85,933   124,851   
  

 

 

   

 

 

 

Net (loss) income

  (76,148   211,737   

Less: Net income attributable to noncontrolling interests

  (34,469   (28,448
  

 

 

   

 

 

 

Net (loss) income attributable to DaVita HealthCare Partners Inc.

$ (110,617 $ 183,289   
  

 

 

   

 

 

 

Earnings per share:

Basic net (loss) income per share attributable to DaVita HealthCare Partners Inc.

$ (0.52 $ 0.87   
  

 

 

   

 

 

 

Diluted net (loss) income per share attributable to DaVita HealthCare Partners Inc.

$ (0.52 $ 0.85   
  

 

 

   

 

 

 

Weighted average shares for earnings per share:

Basic

  213,387,253      211,375,232   
  

 

 

   

 

 

 

Diluted

  213,387,253      216,118,922   
  

 

 

   

 

 

 

 

 

6


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)

 

     Three months ended
March 31,
 
     2015     2014  

Net (loss) income

   $ (76,148   $ 211,737   
  

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

Unrealized losses on interest rate swap and cap agreements:

Unrealized loss on interest rate swap and cap agreements

  (5,760   (2,505

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

  812      3,359   

Unrealized gains on investments:

Unrealized gains on investments

  382      331   

Reclassification of net investment realized gains into net income

  (157   (207

Foreign currency translation adjustments

  (17,885   28   
  

 

 

   

 

 

 

Other comprehensive (loss) income

  (22,608   1,006   
  

 

 

   

 

 

 

Total comprehensive (loss) income

  (98,756   212,743   

Less: Comprehensive income attributable to noncontrolling interests

  (34,469   (28,448
  

 

 

   

 

 

 

Comprehensive (loss) income attributable to DaVita HealthCare Partners Inc.

$ (133,225 $ 184,295   
  

 

 

   

 

 

 

 

7


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

     Three months ended
March 31,
 
     2015     2014  

Cash flows from operating activities:

    

Net (loss) income

   $ (76,148   $ 211,737   

Adjustments to reconcile net (loss) income to cash provided by operating activities:

    

Loss contingency accrual

     495,000        —     

Depreciation and amortization

     153,789        142,565   

Stock-based compensation expense

     12,762        15,074   

Tax benefits from stock award exercises

     9,366        22,978   

Excess tax benefits from stock award exercises

     (7,584     (18,336

Deferred income taxes (benefit)

     (203,940     8,902   

Equity investment income (loss), net

     2,539        (187

Other non-cash charges and loss on disposal of assets

     7,865        8,346   

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

    

Accounts receivable

     (151,743     (54,565

Inventories

     (9,193     (12,280

Other receivables and other current assets

     (18,619     (17,740

Other long-term assets

     153        1,418   

Accounts payable

     (10,933     (42,558

Accrued compensation and benefits

     30,638        23,570   

Other current liabilities

     60,772        20,615   

Income taxes

     106,970        92,905   

Other long-term liabilities

     8,395        16,663   
  

 

 

   

 

 

 

Net cash provided by operating activities

  410,089      419,107   
  

 

 

   

 

 

 

Cash flows from investing activities:

Additions of property and equipment

  (121,421   (126,562

Acquisitions

  (40,650   (67,857

Proceeds from asset and business sales

  2,565      56   

Purchase of investments available for sale

  (1,448   (1,824

Purchase of investments held-to-maturity

  (290,774   (2,511

Proceeds from sale of investments available for sale

  1,217      1,262   

Proceeds from investments held-to-maturity

  205,650      1,508   

Purchase of intangible assets

  —        (11

Purchase of equity investments

  (7,426   —     

Distributions received on equity investments

  —        146   
  

 

 

   

 

 

 

Net cash used in investing activities

  (252,287   (195,793
  

 

 

   

 

 

 

Cash flows from financing activities:

Borrowings

  13,353,767      16,179,463   

Payments on long-term debt and other financing costs

  (13,382,203   (16,244,613

Purchase of treasury stock

  (70,063   —     

Distributions to noncontrolling interests

  (41,499   (33,147

Stock award exercises and other share issuances, net

  5,648      3,450   

Excess tax benefits from stock award exercises

  7,584      18,336   

Contributions from noncontrolling interests

  15,898      13,625   

Proceeds from sales of additional noncontrolling interests

  —        761   
  

 

 

   

 

 

 

Net cash used in financing activities

  (110,868   (62,125

Effect of exchange rate changes on cash and cash equivalents

  (904   631   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

  46,030      161,820   

Cash and cash equivalents at beginning of the year

  965,241      946,249   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

$ 1,011,271    $ 1,108,069   
  

 

 

   

 

 

 

 

8


DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

 

     March 31,
2015
    December 31,
2014
 
ASSETS     

Cash and cash equivalents

   $ 1,011,271      $ 965,241   

Short-term investments

     422,365        337,399   

Accounts receivable, less allowance of $255,146 and $242,674

     1,675,182        1,525,849   

Inventories

     145,740        136,085   

Other receivables

     423,713        400,916   

Other current assets

     186,165        186,842   

Income tax receivable

     —          83,839   

Deferred income taxes

     436,359        240,626   
  

 

 

   

 

 

 

Total current assets

  4,300,795      3,876,797   

Property and equipment, net of accumulated depreciation of $2,123,818 and $2,029,506

  2,500,596      2,469,099   

Intangibles, net of accumulated amortization of $666,995 and $621,891

  1,904,176      1,949,498   

Equity investments

  70,017      65,637   

Long-term investments

  91,441      89,389   

Other long-term assets

  68,248      77,000   

Goodwill

  9,431,390      9,415,295   
  

 

 

   

 

 

 
$ 18,366,663    $ 17,942,715   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY

Accounts payable

$ 423,986    $ 445,453   

Other liabilities

  581,411      506,579   

Accrued compensation and benefits

  733,708      698,475   

Medical payables

  304,205      314,347   

Loss contingency

  495,000      3,644   

Current portion of long-term debt

  118,076      120,154   

Income tax payable

  23,130      —     
  

 

 

   

 

 

 

Total current liabilities

  2,679,516      2,088,652   

Long-term debt

  8,380,153      8,383,280   

Other long-term liabilities

  407,068      389,806   

Deferred income taxes

  880,820      890,701   
  

 

 

   

 

 

 

Total liabilities

  12,347,557      11,752,439   

Commitments and contingencies

Noncontrolling interests subject to put provisions

  848,392      829,965   

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; 215,949,997 and 215,640,968 shares issued and 215,058,568 and 215,640,968 shares outstanding, respectively)

  216      216   

Additional paid-in capital

  1,112,396      1,108,211   

Retained earnings

  3,976,486      4,087,103   

Treasury stock (891,429 shares)

  (70,063   —     

Accumulated other comprehensive loss

  (47,625   (25,017
  

 

 

   

 

 

 

Total DaVita HealthCare Partners Inc. shareholders’ equity

  4,971,410      5,170,513   

Noncontrolling interests not subject to put provisions

  199,304      189,798   
  

 

 

   

 

 

 

Total equity

  5,170,714      5,360,311   
  

 

 

   

 

 

 
$ 18,366,663    $ 17,942,715   
  

 

 

   

 

 

 

 

 

9


DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

 

     Three months ended  
     March 31,
2015
    December 31,
2014
    March 31,
2014
 

1. Consolidated Financial Results:

      

Consolidated net revenues

   $ 3,288      $ 3,328      $ 3,043   

Operating (loss) income

   $ (64   $ 452      $ 441   

Adjusted operating income excluding an accrual of an estimated loss contingency(1)

   $ 431      $ 452      $ 441   

Operating (loss) income margin

     (2.0 %)      13.6     14.5

Adjusted operating income margin excluding an accrual of an estimated loss contingency(1)

     13.1     13.6     14.5

Net (loss) income attributable to DaVita HealthCare Partners Inc.

   $ (111   $ 208      $ 183   

Adjusted net income attributable to DaVita HealthCare Partners Inc. excluding an accrual of an estimated loss contingency(1)

   $ 187      $ 208      $ 183   

Diluted net (loss) income per share attributable to DaVita HealthCare Partners Inc.

   $ (0.52   $ 0.96      $ 0.85   

Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. excluding an accrual of an estimated loss contingency(1)

   $ 0.86      $ 0.96      $ 0.85   

2. Consolidated Business Metrics:

      

Expenses

      

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

     10.4     10.7     9.3

Consolidated effective tax rate

     53.0     29.3     37.1

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

     43.7     33.3     40.5

Adjusted consolidated effective tax rate attributable to DaVita HealthCare Partners Inc. (1)

     37.5     33.3     40.5

3. Summary of Division Financial Results:

      

Net revenues

      

Kidney Care:

      

Net dialysis and related lab services revenues

   $ 2,072      $ 2,151      $ 1,958   

Net ancillary services and strategic initiatives revenues, including international dialysis operations

     305        309        257   

Elimination of intersegment revenues

     (17     (14     (13
  

 

 

   

 

 

   

 

 

 

Total Kidney Care net revenues

  2,360      2,446      2,202   

Net HCP revenues

  928      882      841   
  

 

 

   

 

 

   

 

 

 

Total net consolidated revenues

$ 3,288    $ 3,328    $ 3,043   
  

 

 

   

 

 

   

 

 

 

Operating (loss) income

Kidney Care:

Dialysis and related lab services operating (loss) income

$ (104 $ 443    $ 387   

Other – Ancillary services and strategic initiatives, including international dialysis operations operating (losses) income

  (14   (19   2   

Corporate support and related long-term incentive compensation

  (6   (5   (2
  

 

 

   

 

 

   

 

 

 

Total Kidney Care operating (loss) income

  (124   419      387   

HCP operating income

  60      33      54   
  

 

 

   

 

 

   

 

 

 

Total consolidated operating (loss) income

$ (64 $ 452    $ 441   
  

 

 

   

 

 

   

 

 

 

 

10


DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 

     Three months ended  
     March 31,
2015
    December 31,
2014
    March 31,
2014
 

4. Summary of Reportable Segment Financial Results:

      

Dialysis and Related Lab Services

      

Revenue:

      

Patient services revenues

   $ 2,166      $ 2,243      $ 2,037   

Provision for uncollectible accounts

     (97     (95     (82
  

 

 

   

 

 

   

 

 

 

Net patient service operating revenues

  2,069      2,148      1,955   

Other revenues

  3      3      3   
  

 

 

   

 

 

   

 

 

 

Total net operating revenues

$ 2,072    $ 2,151    $ 1,958   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

Patient care costs

$ 1,396    $ 1,415    $ 1,323   

General and administrative

  183      192      155   

Depreciation and amortization

  105      105      96   

Equity investment income

  (3   (4   (3

Loss contingency accrual

  495      —        —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

  2,176      1,708      1,571   
  

 

 

   

 

 

   

 

 

 

Segment operating (loss) income

$ (104 $ 443    $ 387   
  

 

 

   

 

 

   

 

 

 

HCP

Revenue:

HCP capitated revenues

$ 833    $ 808    $ 772   
  

 

 

   

 

 

   

 

 

 

Patient services revenues

  81      56      58   

Provision for uncollectible accounts

  (1   (1   (2
  

 

 

   

 

 

   

 

 

 

Net patient service operating revenues

  80      55      56   
  

 

 

   

 

 

   

 

 

 

Other revenues

  15      19      13   
  

 

 

   

 

 

   

 

 

 

Total net operating revenues

$ 928    $ 882    $ 841   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

Patient care costs

$ 733    $ 717    $ 672   

General and administrative

  92      90      78   

Depreciation and amortization

  43      43      42   

Equity investment income

  —        (1   (5
  

 

 

   

 

 

   

 

 

 

Total operating expenses

  868      849      787   
  

 

 

   

 

 

   

 

 

 

Segment operating income

$ 60    $ 33    $ 54   
  

 

 

   

 

 

   

 

 

 

5. Dialysis and Related Lab Services Business Metrics:

Volume

Treatments

  6,262,635      6,465,826      5,975,627   

Number of treatment days

  76.6      79.4      76.4   

Treatments per day

  81,758      81,434      78,215   

Per day year over year increase

  4.5   6.2   6.3

Non-acquired growth year over year

  3.9   5.2   5.5

Normalized non-acquired growth year over year

  4.5   4.6   5.0

Operating revenues before provision for uncollectible accounts

Dialysis and related lab services revenue per treatment

$ 345.88    $ 346.95    $ 340.81   

Per treatment (decrease) increase from previous quarter

  (0.3 %)    1.7   0.2

Per treatment increase from previous year

  1.5   2.0   0.1

Percent of net consolidated revenues

  62.7   64.4   64.1

 

11


DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 

    Three months ended  
    March 31,
2015
    December 31,
2014
    March 31,
2014
 

5. Dialysis and Related Lab Services Business Metrics: (continued)

     

Expenses

     

Patient care costs

     

Percent of total segment operating revenues

    67.4     65.8     67.5

Per treatment

  $ 222.99      $ 218.81      $ 221.31   

Per treatment increase (decrease) from previous quarter

    1.9     (0.1 %)      2.0

Per treatment increase from previous year

    0.8     0.9     2.4

General and administrative expenses

     

Percent of total segment operating revenues

    8.8     8.9     7.9

Per treatment

  $ 29.25      $ 29.75      $ 26.00   

Per treatment (decrease) increase from previous quarter

    (1.7 %)      10.8     (13.9 %) 

Per treatment increase (decrease) from previous year

    12.5     (1.5 %)      (13.6 %) 

Accounts receivable

     

Net receivables

  $ 1,261      $ 1,157      $ 1,168   

DSO

    56        50        55   

Provision for uncollectible accounts as a percentage of revenues

    4.5     4.25     4.0

6. HCP Business Metrics:

     

Capitated membership

     

Total

    830,400        837,300        790,200   

Member months

    2,482,500        2,502,800        2,351,900   

Capitated revenues by sources

     

Commercial revenues

  $ 185      $ 174      $ 187   

Senior revenues

    602        573        565   

Medicaid revenues

    46        61        20   
 

 

 

   

 

 

   

 

 

 

Total capitated revenues

$ 833    $ 808    $ 772   
 

 

 

   

 

 

   

 

 

 

Other

Total care dollars under management(1)

$ 1,233    $ 1,165    $ 1,083   

Ratio of operating income to total care dollars under management(1)

  4.9   2.8   5.0

Full time clinicians

  1,299      1,156      1,129   

IPA primary care physicians

  2,829      3,331      3,302   

7. Cash Flow:

Operating cash flow

$ 410.1    $ (70.0 $ 419.1   

Operating cash flow, last twelve months

$ 1,450.4    $ 1,459.4    $ 1,813.2   

Free cash flow(1)

$ 319.6    $ (197.0 $ 336.2   

Free cash flow, last twelve months(1)

$ 1,028.1    $ 1,045.1    $ 1,403.3   

Capital expenditures:

Routine maintenance/IT/other

$ 49.0    $ 82.8    $ 49.3   

Development and relocations

$ 72.4    $ 115.0    $ 77.2   

Acquisition expenditures

$ 40.7    $ 54.0    $ 67.9   

 

12


DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 

     Three months ended  
     March 31,
2015
    December 31,
2014
    March 31,
2014
 

8. Debt and Capital Structure:

      

Total debt(3)

   $ 8,513      $ 8,520      $ 8,381   

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

   $ 7,502      $ 7,555      $ 7,273   

Leverage ratio (see calculation on page 14)

     2.94x        2.99x        2.98x   

Overall weighted average effective interest rate during the quarter

     4.48     4.46     4.89

Overall weighted average effective interest rate at end of the quarter

     4.47     4.46     4.87

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

     3.44     3.43     4.19

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

     58 %(4)      58 %(4)      60

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

     90 %(4)      90 %(4)      93

9. 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

     73     73     72

 

(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. General and administrative expenses includes certain corporate support and related long-term incentive compensation.
(3) The reported balance sheet amounts at March 31, 2015 and December 31, 2014, excludes $15.6 million and $16.2 million, respectively, of a debt discount associated with our Term Loan B. In addition, the reported balance sheet amounts at March 31, 2014 exclude $16.7 million of debt discounts associated with our then existing Term Loan B and Term Loan B-2.
(4) The Term Loan B is subject to a LIBOR floor of 0.75%. Because actual LIBOR, for all periods presented above, was lower than this embedded LIBOR floor, the interest rate on the Term Loan B is set at its respective floor. At such time as the actual LIBOR-based variable component of our interest rate exceeds 0.75% on the Term Loan B, 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. However, we are limited to a maximum rate of 2.50% on $2.75 billion of outstanding principal debt on the Term Loan B as a result of interest rate cap agreements. The remaining $739 million outstanding principal balance of the Term Loan B is subject to LIBOR-based interest rate volatility above a floor of 0.75%.

 

13


DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in thousands)

 

Note 1: Calculation of the Leverage Ratio

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

 

     Rolling twelve
months ended

March 31, 2015
 

Net income attributable to DaVita HealthCare Partners Inc.

   $ 429,208   

Income taxes

     235,559   

Interest expense

     376,506   

Depreciation and amortization

     602,145   

Loss contingency accruals

     512,000   

Noncontrolling interests and equity investment income, net

     155,062   

Stock-settled stock-based compensation

     54,838   

Debt refinancing charges

     97,548   

Other

     13,425   
  

 

 

 

“Consolidated EBITDA”

$ 2,476,291   
  

 

 

 
     March 31, 2015  

Total debt, excluding debt discount of $15.6 million

   $ 8,513,791   

Letters of credit issued

     96,424   
  

 

 

 
  8,610,215   

Less: Cash and cash equivalents (less HCP’s physician owned entities cash)

  (1,329,736
  

 

 

 

Consolidated net debt

$ 7,280,479   
  

 

 

 

Last twelve months “Consolidated EBITDA”

$ 2,476,291   
  

 

 

 

Leverage ratio

  2.94x   
  

 

 

 

In accordance with the Credit Agreement, the Company’s leverage ratio cannot exceed 5.00 to 1.00 as of March 31, 2015. At that date the Company’s leverage ratio did not exceed 5.00 to 1.00.

 

14


DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands except for per share data)

 

1. Net income and diluted net income per share attributable to DaVita HealthCare Partners Inc. excluding an accrual of an estimated loss contingency.

We believe that adjusted net income attributable to DaVita HealthCare Partners Inc. excluding an accrual of an estimated loss contingency, net of related tax, enhances a user’s understanding of our normal net income attributable to DaVita HealthCare Partners Inc. and adjusted 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 that was accrued for an estimated loss contingency related to the Vainer Private Civil Suit, and accordingly, is comparable to prior periods and indicative of normal net income attributable to DaVita HealthCare Partners Inc. and diluted net income 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 net income attributable to DaVita HealthCare Partners Inc. and diluted net income per share attributable to DaVita HealthCare Partners Inc.

 

     Three months ended  
     March 31,
2015(1)
     December 31,
2014
     March 31,
2014
 

Adjusted net income attributable to DaVita HealthCare Partners Inc. excluding an accrual of an estimated loss contingency:

        

Net (loss) income attributable to DaVita HealthCare Partners Inc.

   $ (110,617    $ 208,020       $ 183,289   

Add:

        

Accrual of an estimated loss contingency

     495,000         —           —     

Less: Related income tax

     (197,747      —           —     
  

 

 

    

 

 

    

 

 

 
$ 186,636    $ 208,020    $ 183,289   
  

 

 

    

 

 

    

 

 

 
     Three months ended  
     March 31,
2015(1)
     December 31,
2014
     March 31,
2014
 

Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. excluding an accrual of an estimated loss contingency:

        

Diluted net (loss) income per share attributable to DaVita HealthCare Partners Inc.

   $ (0.52    $ 0.96       $ 0.85   

Add:

        

Accrual of an estimated loss contingency including the effects of diluted net loss per share attributable to DaVita HealthCare Partners Inc.

     1.38         —           —     
  

 

 

    

 

 

    

 

 

 
$ 0.86    $ 0.96    $ 0.85   
  

 

 

    

 

 

    

 

 

 

 

(1) Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc. for the three months ended March 31, 2015 is calculated using 217,977,358 shares, which includes shares that would be dilutive based on adjusted net income attributable to DaVita HealthCare Partners Inc. of $186,636 excluding the accrual of an estimated loss contingency.

 

15


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 net income attributable to DaVita HealthCare Partners Inc. and from our adjusted diluted net income 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 fair value measurement of acquired intangible assets associated with our acquisitions to fair value, and accordingly is indicative of consistent net income excluding amortization of acquired intangibles, attributable to DaVita HealthCare Partners Inc. and diluted net income per share attributable to DaVita HealthCare Partners Inc. These measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income attributable to DaVita HealthCare Partners Inc. and diluted net income per share attributable to DaVita HealthCare Partners Inc.

 

     Three months ended  
     March 31,
2015
     December 31,
2014
     March 31,
2014
 

Adjusted net income 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:

        

Adjusted net income attributable to DaVita HealthCare Partners Inc.

   $ 186,636       $ 208,020       $ 183,289   

Add:

        

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

     6,524         6,468         6,867   

Amortization of intangible assets associated with acquisitions for the HCP operations

     35,878         35,792         34,852   

Less: Related income tax

     (15,901      (14,073      (16,896
  

 

 

    

 

 

    

 

 

 
$ 213,137    $ 236,207    $ 208,112   
  

 

 

    

 

 

    

 

 

 

Adjusted diluted net income per share attributable to DaVita HealthCare Partners Inc.

$ 0.86    $ 0.96    $ 0.85   

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   

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

  0.10      0.11      0.10   
  

 

 

    

 

 

    

 

 

 
$ 0.98    $ 1.09    $ 0.97   
  

 

 

    

 

 

    

 

 

 

 

16


DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

2. Operating income excluding a pre-tax accrual of an estimated loss contingency

We believe that operating income excluding a pre-tax accrual of an estimated loss contingency enhances a user’s understanding of our normal operating income for these periods by providing a measure that is meaningful because it excludes an unusual amount that was accrued for an estimated loss contingency related to the Vainer Private Civil Suit 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.

 

     Three months ended  
     March 31,
2015
     December 31,
2014
     March 31,
2014
 

Operating income excluding a pre-tax accrual of an estimated loss contingency:

        

Operating (loss) income

   $ (64,156    $ 452,085       $ 441,225   

Add:

        

Accrual of an estimated loss contingency

     495,000         —           —     
  

 

 

    

 

 

    

 

 

 

Adjusted operating income

$ 430,844    $ 452,085    $ 441,225   
  

 

 

    

 

 

    

 

 

 

 

17


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 an estimated loss contingency, 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 and unusual amounts that include an estimated loss contingency related to the Vainer Private Civil Suit, and, therefore, is meaningful to an investor to fully understand the related income tax effects on DaVita HealthCare Partners Inc.’s operating results. These are not measures under GAAP and should not be considered as an alternative to the effective income tax rate calculated in accordance with GAAP.

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

 

     Three months ended  
     March 31,
2015
    December 31,
2014
    March 31,
2014
 

(Loss) income from continuing operations before income taxes

   $ (162,081   $ 354,365      $ 336,588   
  

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense

$ (85,933 $ 103,977    $ 124,851   
  

 

 

   

 

 

   

 

 

 

Effective income tax rate

  53.0   29.3   37.1
  

 

 

   

 

 

   

 

 

 

 

     Three months ended  
     March 31,
2015
    December 31,
2014
    March 31,
2014
 

(Loss) income from continuing operations before income taxes

   $ (162,081   $ 354,365      $ 336,588   

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

     (34,536     (42,495     (28,539
  

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes attributable to DaVita HealthCare Partners Inc.

$ (196,617 $ 311,870    $ 308,049   
  

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense

  (85,933   103,977    $ 124,851   

Less: Income tax attributable to noncontrolling interests

  (67   (127   (91
  

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense attributable to DaVita HealthCare Partners Inc.

$ (86,000 $ 103,850    $ 124,760   
  

 

 

   

 

 

   

 

 

 

Effective income tax rate attributable to DaVita HealthCare Partners Inc.

  43.7   33.3   40.5
  

 

 

   

 

 

   

 

 

 

 

18


DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

     Three months ended  
     March 31,
2015
    December 31,
2014
    March 31,
2014
 

Adjusted effective income tax rates attributable to DaVita HealthCare Partners Inc. excluding an estimated loss contingency:

      

(Loss) income from continuing operations before income taxes

   $ (162,081   $ 354,365      $ 336,588   

Add: Estimated loss contingency

     495,000        —          —     
  

 

 

   

 

 

   

 

 

 
  332,919      354,365      336,588   

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

  (34,536   (42,495   (28,539
  

 

 

   

 

 

   

 

 

 

Adjusted income before income taxes attributable to DaVita HealthCare Partners Inc.

$ 298,383    $ 311,870    $ 308,049   
  

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense

$ (85,933 $ 103,977    $ 124,851   

Add: Income taxes attributable to an estimated loss contingency

  197,747      —        —     

Less: Income tax attributable to noncontrolling interests

  (67   (127   (91
  

 

 

   

 

 

   

 

 

 

Adjusted income tax attributable to DaVita HealthCare Partners Inc.

$ 111,747    $ 103,850    $ 124,760   
  

 

 

   

 

 

   

 

 

 

Adjusted effective income tax rate attributable to DaVita HealthCare Partners Inc.

  37.5   33.3   40.5
  

 

 

   

 

 

   

 

 

 

 

19


DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

4. Free cash flow

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

 

     Three months ended  
     March 31,
2015
     December 31,
2014
     March 31,
2014
 

Cash provided by (used in) operating activities

   $ 410,089       $ (69,991    $ 419,107   

Less: Distributions to noncontrolling interests

     (41,499      (44,196      (33,147
  

 

 

    

 

 

    

 

 

 

Cash provided by (used in) operating activities attributable to DaVita HealthCare Partners Inc.

  368,590      (114,187   385,960   

Less: Expenditures for routine maintenance and information technology

  (49,010   (82,811   (49,349
  

 

 

    

 

 

    

 

 

 

Free cash flow

$ 319,580    $ (196,998 $ 336,611   
  

 

 

    

 

 

    

 

 

 

 

     Rolling 12-Month Period  
     March 31,
2015
     December 31,
2014
     March 31,
2014
 

Cash provided by operating activities

   $ 1,450,389       $ 1,459,407       $ 1,813,241   

Less: Distributions to noncontrolling interests

     (157,691      (149,339      (137,547
  

 

 

    

 

 

    

 

 

 

Cash provided by operating activities attributable to DaVita HealthCare Partners Inc.

  1,292,698      1,310,068      1,675,694   

Less: Expenditures for routine maintenance and information technology

  (264,633   (264,972   (272,422
  

 

 

    

 

 

    

 

 

 

Free cash flow

$ 1,028,065    $ 1,045,096    $ 1,403,272   
  

 

 

    

 

 

    

 

 

 

 

20


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 agreements with hospitals, HCP does not assume the direct financial risk for institutional (hospital) services in most cases, 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 cases where HCP does not assume the direct financial risk, 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 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 received from 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.

 

     Three months ended  
     March 31,
2015
     December 31,
2014
     March 31,
2014
 

Medical revenues

   $ 912,588       $ 863,555       $ 827,831   

Less: Risk share revenue, net

     (12,956      (12,805      (29,558

Add: Institutional capitation amounts

     333,108         314,100         284,389   
  

 

 

    

 

 

    

 

 

 

Total care dollars under management

$ 1,232,740    $ 1,164,850    $ 1,082,662   
  

 

 

    

 

 

    

 

 

 

 

21

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