Improving Health, Health Care and Quality of Life

DaVita Inc. Reports 3rd Quarter 2004 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. , today announced results for the quarter ended September 30, 2004. Net income for the three and nine months ended September 30, 2004, excluding after tax Medicare lab recoveries of $5.1 million was $55.3 million and $160.6 million, or $0.54 and $1.56 per share, respectively.

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

Net income, on a GAAP basis, including the lab recoveries, for the three and nine months ended September 30, 2004, was $60.4 million and $165.7 million, or $0.59 and $1.61 per share, respectively.

Financial and operating highlights include:

-- Cash Flow: For the rolling 12 months ended September 30, 2004, operating cash flow was $367 million. Excluding the tax benefit from stock option exercises and the after-tax benefit of prior years' Medicare lab recoveries, rolling 12-month operating cash flow was $315 million and free cash flow was $268 million.

-- Operating Income: Operating income for the three and nine months ended September 30, 2004, excluding Medicare lab recoveries of $8.3 million for prior years' services, was $103.4 million and $296.7 million, respectively.

-- Volume: Total treatments for the third quarter were 1,804,534 or 22,842 treatments per day, an increase of 11.0% per day compared to the third quarter of last year. Non-acquired treatment growth was 4.8%.

-- Center Activity: As of September 30, 2004, we operated or provided administrative services at 636 outpatient centers serving approximately 53,000 patients. During the third quarter we acquired 37 centers including minority interests in 4 centers, opened 7 de novo centers and provided administrative services to 2 additional centers. We also closed 2 centers.

Recent Transactions

On September 1, 2004, we completed our acquisition of Physicians Dialysis, Inc. (PDI), by acquiring 24 centers for approximately $150 million in cash.

In August 2004, we began repurchasing shares of our common stock in the open market pursuant to a previous authorization by our Board of Directors. During the third quarter of 2004, we repurchased a total of 3,049,800 shares of common stock at an average price of $28.69 per share.

On November 2, 2004, the Board of Directors authorized the Company to repurchase up to an additional $200 million of the Company's common stock. The purchases are expected to be made on the open market or in privately negotiated transactions, from time to time, depending upon market conditions as well as other considerations. The total outstanding Board authorizations for share repurchases are now approximately $250 million.

Outlook

We expect our fourth quarter operating income to be comparable to the third quarter of 2004. For 2005 we currently expect operating income to be flat to 6% higher than the 2004 level.

DaVita will be holding a conference call to discuss its third quarter 2004 results on November 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 release contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, acquisitions and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended June 30, 2004. The forward-looking statements should be considered in light of these risks and uncertainties.

These risks and uncertainties 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, including our continued compliance with complex government regulations and the ongoing review by the U.S. Attorney's Office and HHS Office of the Inspector General in Philadelphia and the recently announced subpoena from the U.S. Attorney's Office, Eastern District of New York.

This 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         Nine months ended
                             September 30,             September 30,
                        2004           2003          2004        2003
  Net operating
   revenues           $595,531      $513,282     $1,682,592   $1,462,972
  Operating
   expenses
   and charges:
    Patient care
     costs             396,909       347,895      1,135,477    1,000,591
    General and
     administrative     50,600        39,920        138,931      119,290
    Depreciation
     and amortization   22,257        19,336         63,454       54,702
    Provision for
     uncollectible
     accounts           10,520         9,214         29,964       26,231
    Minority
     interests
     and equity
     income, net         3,593         1,706          9,814        4,813
      Total
       operating
       expenses
       and charges     483,879       418,071      1,377,640    1,205,627

  Operating income     111,652        95,211        304,952      257,345

  Debt expense          13,741        16,111         36,635       55,062
  Refinancing Charges                 17,240                      17,240
  Other income           1,010         1,050          3,120        2,725
  Income before
   income taxes         98,921        62,910        271,437      187,768
  Income tax
   expense              38,535        24,850        105,785       74,775

      Net income       $60,386       $38,060       $165,652     $112,993

  Earnings per share:
    Basic                $0.61         $0.39          $1.67        $1.21
    Diluted              $0.59         $0.36          $1.61        $1.07
    Weighted
     average
     shares
     for earnings
     per share:
      Basic         99,168,930    97,654,447     98,972,666   93,663,063
      Diluted      102,889,781   114,749,043    103,193,267  117,231,159


                               DAVITA INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (unaudited)
                          (dollars in thousands)

                                                      Nine months ended
                                                        September 30,
                                                     2004            2003
  Cash flows from operating activities:
  Net income                                      $165,652       $112,993
  Adjustments to reconcile net income
   to cash provided by
   operating activities:
    Depreciation and amortization                   63,454         54,702
    Stock options, principally tax benefits         30,465         10,240
    Deferred income taxes                           11,831         12,271
    Loss on divestitures                                59            929
    Non-cash debt expense                            1,497          2,636
    Equity investment income                        (1,531)        (1,331)
    Minority interests in income
     of consolidated subsidiaries                   11,345          6,144
    Distributions to minority interests             (6,966)        (5,560)
    Refinancing charges                                            17,240
  Changes in operating assets
   and liabilities, other than
   from acquisitions and divestitures:
    Accounts receivable                            (33,998)        (9,978)
    Medicare lab recoveries                         10,707
    Inventories                                      5,065          9,974
    Other current assets                              (755)        (4,189)
    Other long-term assets                           2,109          3,902
    Accounts payable                                 7,773         (7,950)
    Accrued compensation and benefits               22,409         12,959
    Other current liabilities                       43,360         25,832
    Income taxes                                       136         13,312
    Other long-term liabilities                         (8)         4,946
        Net cash provided by
         operating activities                      332,604        259,072
  Cash flows from investing activities:
    Additions of property and equipment, net       (89,872)       (64,031)
    Acquisitions and divestitures, net            (245,284)       (66,922)
    Investments in and advances to
     affiliates, net                                 4,862          3,516
    Intangible assets                                 (635)          (540)
        Net cash used in investing
         activities                               (330,929)      (127,977)
  Cash flows from financing activities:
    Borrowings                                   3,123,171      3,423,511
    Payments on long-term debt                  (2,903,648)    (3,299,064)
    Debt redemption premium                                        (8,405)
    Deferred financing costs                        (3,934)        (3,445)
    Purchase of treasury stock                     (86,559)       (83,037)
    Stock option exercises                          34,580         14,979
      Net cash provided by financing
       activities                                  163,610         44,539
  Net increase in cash and cash equivalents        165,285        175,634
  Cash and cash equivalents at
   beginning of period                              61,657         96,475
  Cash and cash equivalents
   at end of period                               $226,942       $272,109


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

                                               September 30,   December 31,
                                                     2004           2003
         ASSETS
  Cash and cash equivalents                       $226,942       $61,657
  Accounts receivable,
   less allowance of
   $59,051 and $52,554                             434,669       387,933
  Medicare lab recoveries                            8,293        19,000
  Inventories                                       30,666        32,853
  Other current assets                              47,723        43,875
  Deferred income taxes                             78,581        59,740
      Total current assets                         826,874       605,058
  Property and equipment, net                      392,072       342,447
  Amortizable intangibles, net                      62,238        49,971
  Investments in third-party
   dialysis businesses                               4,381         3,095
  Other long-term assets                             8,368        10,771
  Goodwill                                       1,136,958       934,188
                                                $2,430,891    $1,945,530
         LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                 $84,365      $ 71,868
  Other liabilities                                157,707       112,654
  Accrued compensation and benefits                123,166       100,909
  Current portion of long-term debt                 53,277        50,557
  Income taxes payable                              27,138        26,832
       Total current liabilities                   445,653       362,820
  Long-term debt                                 1,334,687     1,117,002
  Other long-term liabilities                       19,662        19,310
  Deferred income taxes                            133,613       106,240
  Minority interests                                44,940        33,287
  Commitments and contingencies
  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 shares issued)                        135           135
     Additional paid-in capital                    541,736       539,575
     Retained earnings                             554,685       389,083
    Treasury stock, at cost
     (37,153,625 and 38,052,028 shares)           (643,860)     (620,998)
    Accumulated comprehensive income
     valuations                                       (360)         (924)
         Total shareholders' equity                452,336       306,871
                                                $2,430,891    $1,945,530


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

                                 Q3 2004    Q2 2004    Q3 2003   YTD 2004
  Financial Results:
    Net income excluding
     Medicare lab recoveries
     for prior years' services
     and refinancing
     charges in Q3-2003.           $55.3      $52.4     $48.5     $160.6
      Basic EPS                     $.56      $0.53      $.50      $1.62
      EPS assuming
       dilution                     $.54      $0.50      $.45      $1.56

    Operating income,
     excluding Medicare
     lab recoveries               $103.4      $96.5     $95.2     $296.7
       Operating income
        margin                     17.6%      17.5%     18.5%      17.7%

    Other comprehensive
     income
      Unrealized (loss)
       gain on securities,
       net of tax (benefit)
       expense of
       $(1.6), $3.6
       and $0.4                   $(2.5)       $5.7        --       $0.6

  Business Metrics:
    Volume
      Treatments               1,804,534  1,704,882 1,625,058  5,166,472
      Number of
       treatment days               79.0       78.0      79.0      234.5
      Treatments
       per day                    22,842     21,857    20,570     22,032
      Per day year
       over year increase          11.0%       7.9%      7.1%       9.2%
      Non-acquired growth           4.8%       4.5%      3.8%       4.5%

  Revenue
      Total operating revenue       $596       $552      $513     $1,683
      Less Medicare lab
       recoveries for
       prior years' services          $8                              $8
      Revenue excluding
       Medicare lab
       recoveries                   $587       $552      $513     $1,674

      Dialysis revenue
       per treatment             $313.60    $311.54   $306.20    $312.09

      Per treatment
       change from
       previous quarter             0.7%       0.2%      1.6%         --
      Per treatment
       change from prior year       2.4%       3.3%      5.3%       3.5%

  Expenses
      A. Patient care costs
         Percent of revenue,
          excluding Medicare
          lab recoveries           67.6%      68.0%     67.8%      67.8%
         Per treatment           $219.95    $220.04   $214.08    $219.78
         Per treatment change
          from previous quarter       --       0.3%      0.6%         --
         Per treatment change
          from previous year        2.7%       3.4%      5.3%       3.4%

      B.  General
           & administrative
           expenses
          Percent of revenue,
           excluding Medicare
           lab recoveries           8.6%       8.3%      7.8%       8.3%
          Per treatment           $28.04     $26.82    $24.57     $26.89
          Per treatment change
           from previous quarter    4.5%       4.3%    (8.9%)         --
          Per treatment change
           from previous year      14.1%     (0.5%)      0.6%       6.1%

      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%     39.5%      39.0%



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

                                 Q3 2004    Q2 2004   Q3 2003   YTD 2004
  Cash Flow
    Operating cash flow,
     excluding Medicare
     lab recoveries               $115.9     $90.6     $99.6     $321.0
    Operating cash flow,
     excluding Medicare
     lab recoveries
     and tax benefit
     from stock option
     exercises                    $110.4     $80.0     $95.1     $290.5
    Free cash flow,
     excluding Medicare
     lab recoveries
     development
     spending)                    $104.9     $75.7     $90.1     $289.3
    Free cash flow,
     excluding Medicare
     lab recoveries and
     tax benefit from
     stock option
     exercises
     development spending)         $99.5     $65.1     $85.6     $258.9
    Capital expenditures:
      Development                  $22.8     $15.8     $12.9      $57.8
      Routine maintenance
       /IT/other                   $11.0     $14.9      $9.5      $31.7
    Acquisition
     expenditures, net            $213.5     $14.7     $19.9     $245.3

  Accounts Receivable
    Net receivables                 $435      $402      $357
    DSO                               68        68        65

  Debt/Capital Structure
    Total debt                    $1,388    $1,144    $1,323
    Net debt, net of cash
     balance                      $1,161      $943    $1,051
    Leverage ratio -- last
     quarter annualized
     (see Note 1)                   2.2x      2.0x      2.3x
    Share repurchases
     in millions)                    3.1                            3.1

  Clinical (quarterly averages)
    Dialysis adequacy -- %
     of patients with
     Kt/V > 1.2                      94%       94%       93%
    Anemia measure -- %
     of patients
     with HCT > 33                   87%       86%       83%

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




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


   1.  Net income excluding Medicare lab recoveries and refinancing charges:

                           Q3 2004  Q2 2004   Q3 2003  YTD 2004
    Net income             $60,386  $52,401   $38,060  $165,652
    Less: Medicare
     lab recoveries
     for prior
     years' services        (8,293)                     (8,293)
    Add back:
     Refinancing
     charges                                   17,240
    Related
     income
     tax expense             3,234             (6,818)   3,234
                           $55,327  $52,401   $48,482  $160,593




  2.  Operating income excluding Medicare lab recoveries, and excluding
      depreciation, amortization, and minority interests (used to calculate
      leverage ratio):

                           Q3 2004  Q2 2004   Q3 2003  YTD 2004
    Operating income      $111,652  $96,467   $95,211  $304,952
    Less Medicare lab
     recoveries for
     prior years'
     services               (8,293)                      (8,293)
                           103,359   96,467    95,211   296,659
    Add back:
     Depreciation
     and amortization       22,257   20,927    19,336    63,454
        Minority interests
         and equity
         income, net         3,593    3,503     1,706     9,814
                          $129,209 $120,897  $116,253  $369,927


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

                          Q3 2004   Q2 2004  YTD 2004 Q3 2003  Rolling 12-
                                                               month period
                                                               ended Q3 2004
    Cash provided
     by operating
     activities           $115,852  $90,636  $332,604  $99,645   $367,180
    Less:  Medicare
     lab recoveries
     related to
     prior years' services                    (19,000)            (19,000)
    Related income tax expense                  7,410               7,410
    Operating cash
     flow, excluding
     Medicare lab
     recoveries           $115,852  $90,636  $321,014  $99,645   $355,590
    Less:  Tax
    benefit
    from stock
    option exercises        (5,417) (10,659)  (30,465)  (4,541)   (40,405)
                          $110,435  $79,977  $290,549  $95,104   $315,185



                               DAVITA INC.

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


  4.   Free cash flow, excluding Medicare lab recoveries related to prior
       years' 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.


                       Q3 2004     Q2 2004  YTD 2004  Q3 2003  Rolling 12-
                                                               month period
                                                               ended Q3 2004
  Cash provided
   by operating
   activities          $115,852    $90,636  $332,604   $99,645   $367,180
  Less:
   Expenditures
   for routine
   maintenance
   and information
   technology           (10,956)   (14,899)  (31,671)   (9,533)   (47,033)
  Free cash flow       $104,896    $75,737  $300,933   $90,112   $320,147
  Medicare lab
   recoveries
   related to
   prior years'
   services                                  (19,000)             (19,000)
  Related
   income
   tax expense                                 7,410                7,410
  Free cash
   flow, excluding
   Medicare
   lab recoveries      $104,896    $75,737  $289,343   $90,112   $308,557
  Less:  Tax
   benefit from
   stock option
   exercises             (5,417)   (10,659)  (30,465)   (4,541)   (40,405)
                        $99,479    $65,078  $258,878   $85,571  $ 268,152
Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk, photodesk@prnewswire.com

SOURCE: DaVita Inc.

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


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