Improving Health, Health Care and Quality of Life

DaVita Inc. Reports 2nd Quarter 2004 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. , today announced results for the quarter ended June 30, 2004. Net income for the three months and six months ended June 30, 2004 was $52.4 million and $105.3 million, or $0.50 and $1.02 per share, respectively.

  (Logo:  http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )

  Financial and operating highlights include:

  -- Cash Flow:  For the rolling 12 months ended June 30, 2004 operating
     cash flow was $351 million and free cash flow was $305 million.
     Excluding the tax benefit from stock option exercises and the after-tax
     benefit of prior period Medicare lab recoveries, rolling 12-month
     operating cash flow was $300 million and free cash flow was
     $254 million.
  -- Operating Income:  Operating income for the three and six months was
     $96.5 million and $193.3 million, respectively.
  -- Volume:  Total treatments for the second quarter were 1,704,882 or
     21,857 treatments per day, an increase of 7.9% per day compared to the
     second quarter of last year.  Non-acquired treatment growth was 4.5%.
  -- Center Activity:  As of June 30, 2004, we operated or provided
     administrative services at 592 outpatient centers serving approximately
     50,000 patients.  During the second quarter we acquired 7 centers,
     opened 13 de novo centers and provided administrative services to one
     additional center.

  Recent Transactions

On July 22, 2004, we announced that we had entered into a definitive agreement to acquire Physicians Dialysis, Inc. ("PDI"), for approximately $150 million in cash. The transaction is expected to close by the end of the third quarter. As previously disclosed, we anticipate this acquisition to be EPS neutral in 2005. Operating synergies and growth opportunities over the subsequent 24 months as several centers mature are expected to deliver incremental earnings over the longer-term.

On July 30, 2004, we amended our existing credit facilities in order to modify certain covenants and borrowed an additional $250 million under a new Term Loan C to fund the PDI transaction as well as other potential acquisitions or share repurchases. We are also in the process of extending the maturity of the Term Loan B until June 30, 2010. We intend to enter into interest rate swap transactions that will effectively fix the interest rate on approximately 40% of our long-term debt.

In May 2004, our Board of Directors approved a three-for-two stock split payable on June 15, 2004, to stockholders of record on June 1, 2004. All share and per share data have been restated to reflect the effects of the stock split.

Outlook

We are increasing our 2004 operating income target to $385 to $400 million. Regarding 2005, Centers for Medicare and Medicaid Services (CMS) recently released proposed policy changes with respect to EPO utilization and the 2003 Medicare Modernization Act (MMA) implementation that have the potential to have a material negative impact on our operating income going forward. Our current assessment, which captures a majority of the likely outcomes, is that operating income could be reduced by $15 to $30 million annually. Taking this uncertainty into account, we currently expect 2005 operating income to be flat to 6% higher than the 2004 level.

DaVita will be holding a conference call to discuss its second quarter 2004 results on August 3, 2004, at 12:00 PM 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 press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding prior period recoveries and by allowing consistency and comparability in our financial reporting to prior periods for which these non-GAAP measures were previously reported. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. Included in this press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures.

This release also contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulation, general economic and other market conditions, and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended March 31, 2004. The forward-looking statements should be considered in light of these risks and uncertainties. These risks include those relating to:

  -- the concentration of profits generated from PPO and private indemnity
     patients and from the administration of pharmaceuticals,
  -- possible reductions in private and government reimbursement rates,
  -- changes in pharmaceutical practice patterns or reimbursement policies,
  -- the Company's ability to maintain contracts with physician medical
     directors, and
  -- legal compliance risks, such as the ongoing review by the U.S.
     Attorney's Office and HHS Office of the Inspector General in
     Philadelphia.

The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

                               DAVITA INC.

                    CONSOLIDATED STATEMENTS OF INCOME
                               (unaudited)
              (dollars in thousands, except per share data)

                               Three months ended        Six months ended
                                    June 30,                 June 30,
                                2004         2003        2004        2003
  Net operating revenues     $551,630     $489,883  $1,087,061    $949,690
  Operating expenses and
   charges:
      Patient care costs      375,139      335,986     738,568     652,696
      General and
       administrative          45,727       42,583      88,331      79,370
      Depreciation and
       amortization            20,927       17,921      41,197      35,366
      Provision for
       uncollectible accounts   9,867        8,780      19,444      17,017
      Minority interests and
       equity income, net       3,503        1,813       6,221       3,107
          Total operating
           expenses and
           charges            455,163      407,083     893,761     787,556

  Operating income             96,467       82,800     193,300     162,134

  Debt expense                 11,258       19,495      22,894      38,951
  Other income                    667          890       2,110       1,675
  Income before income taxes   85,876       64,195     172,516     124,858
  Income tax expense           33,475       25,675      67,250      49,925

      Net income              $52,401      $38,520    $105,266     $74,933

  Earnings per share:
      Basic                     $0.53        $0.42       $1.06       $0.82
      Diluted                   $0.50        $0.37       $1.02       $0.72
      Weighted average shares
       for earnings per share:
          Basic            99,686,182   91,958,932  98,873,220  91,646,761
          Diluted         104,010,356  118,783,081 103,416,270 118,446,739


                               DAVITA INC.

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (unaudited)
                          (dollars in thousands)

                                                        Six months ended
                                                            June 30,
                                                       2004         2003
  Cash flows from operating activities:
  Net income                                         $105,266      $74,933
  Adjustments to reconcile net income to cash
   provided by operating activities:
      Depreciation and amortization                    41,197       35,366
      Stock option expense and tax benefits            25,048        5,699
      Deferred income taxes                             4,828        4,754
       (Gain) loss on divestitures                       (481)         343
      Non-cash debt expense                               951        1,958
      Equity investment income                         (1,145)        (967)
      Minority interests in income of consolidated
       subsidiaries                                     7,366        4,074
      Distributions to minority interests              (3,634)      (3,685)
  Changes in operating assets and liabilities, net
   of effect of acquisitions and divestitures:
      Accounts receivable                             (14,113)        (740)
      Medicare lab recoveries                          19,000
      Inventories                                       4,942        5,327
      Other current assets                              3,043        2,495
      Other long-term assets                            2,004       (2,774)
      Accounts payable                                    (63)       5,852
      Accrued compensation and benefits                13,653         (716)
      Other current liabilities                        18,095       13,554
      Income taxes                                     (6,215)      10,577
      Other long-term liabilities                      (2,990)       3,377
          Net cash provided by operating activities   216,752      159,427
  Cash flows from investing activities:
      Additions of property and equipment, net        (55,139)     (42,077)
      Acquisitions and divestitures, net              (31,752)     (47,035)
      Investments in and advances to
       affiliates, net                                  3,988        2,663
      Intangible assets                                  (580)         754
          Net cash used in investing activities       (83,483)     (85,695)
  Cash flows from financing activities:
      Borrowings                                    1,549,894    1,350,195
      Payments on long-term debt                   (1,573,338)  (1,212,574)
      Stock option exercises                           29,219        7,778
          Net cash provided by financing activities     5,775      145,399
  Net increase in cash and cash equivalents           139,044      219,131
  Cash and cash equivalents at beginning of period     61,657       96,475
  Cash and cash equivalents at end of period         $200,701     $315,606


                               DAVITA INC.

                       CONSOLIDATED BALANCE SHEETS
                               (unaudited)
              (dollars in thousands, except per share data)

                                                     June 30,   December 31,
                                                       2004         2003
  ASSETS
  Cash and cash equivalents                          $200,701     $ 61,657
  Accounts receivable, less allowance
   of $57,264 and $52,554                             402,046      387,933
  Medicare lab recoveries                              19,000
  Inventories                                          28,337       32,853
  Other current assets                                 40,836       43,875
  Deferred income taxes                                76,513       59,740
          Total current assets                        748,433      605,058
  Property and equipment, net                         363,164      342,447
  Amortizable intangibles, net                         49,095       49,971
  Investments in third-party dialysis businesses        3,791        3,095
  Other long-term assets                               12,352       10,771
  Goodwill                                            959,539      934,188
                                                   $2,136,374   $1,945,530
       LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                   $ 71,805     $ 71,868
  Other liabilities                                   129,235      112,654
  Accrued compensation and benefits                   112,854      100,909
  Current portion of long-term debt                    49,868       50,557
  Income taxes payable                                 20,617       26,832
          Total current liabilities                   384,379      362,820
  Long-term debt                                    1,094,247    1,117,002
  Other long-term liabilities                          18,308       19,310
  Deferred income taxes                               127,841      106,240
  Minority interests                                   40,391       33,287
  Shareholders' equity:
      Preferred stock ($0.001 par value, 5,000,000
       shares authorized; none issued)
      Common stock ($0.001 par value, 195,000,000
       shares authorized; 134,862,283 and
       134,806,204 shares issued)                         135          135
      Additional paid-in capital                      541,121      539,575
      Retained earnings                               494,299      389,083
      Treasury stock, at cost (34,714,719 and
       38,052,028 shares)                            (566,534)    (620,998)
      Accumulated comprehensive income valuations       2,187         (924)
          Total shareholders' equity                  471,208      306,871
                                                   $2,136,374   $1,945,530


                               DAVITA INC.

                       SUPPLEMENTAL FINANCIAL DATA
                               (unaudited)
    (dollars in millions, except for per share and per treatment data)

                                     Q2 2004   Q1 2004   Q2 2003   YTD 2004
  Financial Results:
    Net earnings                      $52.4     $52.9     $38.5     $105.3
      Basic EPS                       $0.53     $0.54     $0.42      $1.06
      EPS assuming dilution           $0.50     $0.51     $0.37      $1.02

    Operating income                  $96.5     $96.8     $82.8     $193.3
      Operating income margin         17.5%     18.1%     16.9%      17.8%

    Other comprehensive income
      Unrealized gain (loss) on
       securities, net of tax
       benefit (expense) of $(3.6),
       $1.6 and $(2.0)                 $5.7    $(2.6)                 $3.1
  Business Metrics:
    Volume
      Treatments                  1,704,882 1,657,055 1,579,580  3,361,937
      Number of treatment days         78.0      77.5      78.0      155.5
      Treatments per day             21,857    21,381    20,251     21,620
      Per day year over year
       increase                        7.9%      8.7%      6.2%       8.3%
      Non-acquired growth              4.5%      4.1%      3.4%       4.3%

    Revenue
      Total operating revenue          $552      $535      $490     $1,087
      Dialysis revenue per
       treatment                    $311.54   $311.02   $301.52    $311.28
      Per treatment increase from
       previous quarter                0.2%      1.5%      1.8%         --
      Per treatment increase from
       prior year                      3.3%      5.0%      3.8%       4.1%

    Expenses
    A. Patient care costs
       Percent of revenue             68.0%     67.9%     68.6%      67.9%
       Per treatment                $220.04   $219.32   $212.71    $219.69
       Per treatment increase from
        previous quarter               0.3%      1.5%      0.9%         --
       Per treatment increase from
        previous year                  3.4%      4.1%      6.1%       3.8%

    B. General & administrative
        expenses
       Percent of revenue              8.3%      8.0%      8.7%       8.1%
       Per treatment                 $26.82    $25.71    $26.96     $26.27
       Per treatment increase from
        previous quarter               4.3%      6.2%     10.1%         --
       Per treatment increase
        (decrease) from previous
        year                         (0.5%)      5.0%    (2.3%)       2.0%

    C. Bad debt expense as a percent
        of current-period revenue      1.8%      1.8%      1.8%       1.8%

    D. Consolidated effective
        tax rate                      39.0%     39.0%     40.0%      39.0%


                               DAVITA INC.

                  SUPPLEMENTAL FINANCIAL DATA - continued
                               (unaudited)
    (dollars in millions, except for per share and per treatment data)

                                        Q2 2004  Q1 2004  Q2 2003  YTD 2004
  Cash Flow
      Operating cash flow, excluding
       Medicare lab recoveries            $90.6   $114.5   $78.8    $205.2
      Operating cash flow, excluding
       Medicare lab recoveries and tax
       benefit from stock option
       exercises                          $80.0   $100.1   $74.5   $180.1
      Free cash flow, excluding Medicare
       lab recoveries                     $75.7   $108.7   $69.3   $184.4
      Free cash flow, excluding Medicare
       lab recoveries and tax benefit
       from stock option exercises        $65.1    $94.3   $64.9   $159.4
      Capital expenditures:
          Development                     $15.8    $19.2   $10.4    $35.0
          Routine maintenance/IT/other    $14.9     $5.8    $9.5    $20.7
      Acquisition expenditures, net       $14.7    $17.1   $46.0    $31.8

  Accounts Receivable
      Net receivables                      $402     $400    $346
      DSO                                    68       70      66

  Debt/Capital Structure
      Total debt                         $1,144   $1,155  $1,457
      Net debt, net of cash                $943   $1,002  $1,141
      Leverage ratio - last quarter
       annualized (see Note 1)             2.0x     2.1x    2.8x

  Clinical (quarterly averages)
      Dialysis adequacy - % of patients
       with Kt/V > 1.2                       94%     94%     93%
      Anemia measure - % of patients
       with HCT > 33                         86%     85%     84%

   Note 1. Leverage ratio is defined as net debt (total debt net of cash) to
   operating income excluding depreciation, amortization, and minority
   interests.  The operating income reconciliation is provided below.


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

   1. Operating cash flow, excluding Medicare lab recoveries related to
      prior period services and tax benefit from stock option exercises:

                                                                    Rolling
                                                                   12-Month
                                                                    Period
                                                                   ended Q2
                            Q2 2004   Q1 2004  YTD 2004  Q2 2003     2004
  Cash provided by
   operating activities     $90,636  $126,116  $216,752  $78,778  $350,973
  Less: Medicare lab
   recoveries related
   to prior period services           (19,000)  (19,000)           (19,000)
      Related income tax
       expense                          7,410     7,410              7,410
  Operating cash flow,
   excluding Medicare
   lab recoveries           $90,636  $114,526  $205,162  $78,778  $339,383
  Less: Tax benefit
   from stock option
   exercises                (10,659)  (14,389)  (25,048)  (4,321)  (39,529)
                            $79,977  $100,137  $180,114  $74,457  $299,854

   2. Free cash flow, excluding Medicare lab recoveries related to prior
      period services and tax benefit from stock option exercises:

      Free cash flow represents net cash provided by operating activities
      less non-development capital expenditures.  We believe free cash flow
      is a useful adjunct to cash flow from operating activities and other
      measurements under generally accepted accounting principles in the
      United States since it is a meaningful measure of our ability to fund
      acquisition and development activities and meet our debt service
      requirements.  Free cash flow is not a measure of financial
      performance under generally accepted accounting principles in the
      United States 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.

                                                                   Rolling
                                                                  12-Month
                                                                   Period
                                                                  ended Q2
                            Q2 2004   Q1 2004  YTD 2004  Q2 2003    2004
  Cash provided by
   operating activities     $90,636  $126,116  $216,752  $78,778  $350,973
  Less: Expenditures for
   routine maintenance and
   information technology   (14,899)   (5,816)  (20,715)  (9,513)  (45,610)
  Free cash flow            $75,737  $120,300  $196,037  $69,265  $305,363
       Medicare lab
        recoveries related
        to prior period
        services                      (19,000) (19,000)            (19,000)
       Related income
        tax expense                     7,410    7,410               7,410
  Free cash flow, excluding
   Medicare lab recoveries  $75,737  $108,710 $184,447   $69,265  $293,773
  Less: Tax benefit from
   stock option exercises   (10,659)  (14,389)  25,048)   (4,321)  (39,529)
                            $65,078   $94,321 $159,399   $64,944  $254,244

   3. Operating income excluding depreciation, amortization, and minority
      interests ( used for debt leverage ratio calculation):

                                     Q2 2004  Q1 2004   Q2 2003   YTD 2004
  Operating income                   $96,467  $96,833   $82,800  $193,300
  Add back: Depreciation and
             amortization             20,927   20,270     17,921   41,197
            Minority interests
             and equity income, net    3,503    2,718      1,813    6,221
                                    $120,897 $119,821   $102,534 $240,718
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SOURCE: DaVita Inc.

CONTACT: LeAnne Zumwalt, Investor Relations, of DaVita Inc.,
+1-310-536-2420


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