Improving Health, Health Care and Quality of Life

DaVita Inc. Reports 2nd Quarter 2005 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. , today announced results for the quarter ended June 30, 2005. Net income for the three months and six months ended June 30, 2005 was $52.9 million and $109.3 million, or $0.51 and $1.06 per share, respectively, as compared with $52.4 million and $105.3 million, or $0.50 and $1.02 per share, respectively, for the same periods of 2004.

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

Net income for the quarter ended June 30, 2005 included pre-tax Medicare lab recoveries related to prior years' services of $2.6 million and a swap valuation loss of $2.1 million.

  Financial and operating highlights include:

   --   Cash Flow:  Operating cash flow for the quarter ended June 30, 2005
        was $106 million and free cash flow was $92 million. For the rolling
        12-month period ended June 30, 2005 operating cash flow was $369
        million and free cash flow was $321 million, excluding the tax
        benefit from stock option exercises and the after-tax benefit of
        Medicare lab recoveries related to prior years' services.  Including
        those items, the rolling 12-month period operating cash flow was
        $421 million and free cash flow was $373 million.
   --   Operating Income:  Operating income for the three months and six
        months ended June 30, 2005, was $107.7 million and $213.7 million,
        respectively, excluding $2.6 million of Medicare lab recoveries
        related to prior years' services.
   --   Operating Income Margins:  Operating income margins declined to
        16.7%. The primary drivers were higher G&A in the quarter and
        increased minority interests associated with growth of existing
        partnerships as well as the number of new partnerships.
   --   Volume:  Total treatments for the second quarter were 1,964,098 or
        25,181 treatments per day, an increase of 15.2% per day as compared
        to the second quarter of last year.  Non-acquired treatment growth
        was 5.5% for the second quarter.
   --   Center Activity:  As of June 30, 2005, we operated or provided
        administrative services at 706 outpatient centers serving
        approximately 57,200 patients.  During the second quarter we
        acquired 30 centers, including two centers that were previously
        minority owned and two centers where we previously provided
        administrative services.  We opened 15 de novo centers.
        Additionally, we merged the operations of one center into one other
        existing center and entered into one new management services
        relationship.

  Gambro Healthcare Acquisition:

We have reached a preliminary agreement with the Federal Trade Commission (FTC) staff to divest approximately 70 DaVita and Gambro Healthcare centers, which represents approximately 6% of the combined number of centers and revenues. We are nearing completion with the FTC on the contents of a consent order. We expect to execute a definitive agreement to sell the divested centers in the near future that would allow us to complete a sale of the centers contemporaneously with our closing of the Gambro acquisition. We currently expect to complete the Gambro acquisition during the next thirty to sixty days. Any consent order, including the terms of the divestitures and approval of any buyer of the divested assets, remains subject to formal approval by the Commissioners of the FTC.

Outlook

We are revising our 2005 operating income guidance; operating income is now expected to be up 4% to 6% over 2004. Our previous guidance was for operating income to be up 2% to 6% over 2004. This guidance is exclusive of the effects of the proposed Gambro Healthcare acquisition and related debt financings. We continue to expect the Gambro Healthcare acquisition together with the related debt financings to be dilutive to EPS in the first year, neutral in the second year and accretive thereafter. On a stand alone basis without regard to the acquisition, we would expect our 2006 operating income to be up 0% to 3% over the 2005 level.

DaVita will be holding a conference call to discuss its second quarter results for 2005 on July 28, 2005, at 11:30 AM 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 March 31, 2005. 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 preferred provider
        organizations (PPO) and private indemnity patients,
   --   possible reductions in private and government reimbursement rates,
   --   changes in pharmaceutical practice patterns or reimbursement
        policies,
   --   our ability to maintain contracts with physician medical directors,
   --   legal compliance risks, including our continued compliance with
        complex government regulations and the ongoing review by the U.S.
        Attorney's Office for the Eastern District of Pennsylvania and the
        OIG, the subpoena from the U.S. Attorney's Office for the Eastern
        District of New York and the subpoena from the U.S. Attorney's
        Office, Eastern District of Missouri, and
   --   our ability to complete acquisitions of businesses, including the
        consummation of the Gambro Healthcare acquisition, the number of
        centers we expect we will be required to divest and the terms of
        such divestitures, terms of the related financing, and subsequent
        integration of the business.

We undertake no obligation to update any forward-looking statements, whether as a result of 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.

                               DAVITA INC.

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

                                Three months ended       Six months ended
                                    June 30,                June 30,
                                2005        2004       2005       2004
  Net operating revenues     $649,047    $551,630  $1,259,005 $1,087,061
  Operating expenses
   and charges:
     Patient care costs       435,354     375,139     845,303    738,568
     General and
      administrative           59,856      45,727     114,119     88,331
     Depreciation and
      amortization             25,860      20,927      50,708     41,197
     Provision for
      uncollectible accounts   11,537       9,867      22,423     19,444
     Minority interests and
      equity income, net        6,125       3,503      10,141      6,221
        Total operating
         expenses and charges 538,732     455,163   1,042,694    893,761

  Operating income            110,315      96,467     216,311    193,300

  Debt expense                (24,897)    (11,258)    (42,431)   (22,894)
  Swap valuation
   (loss) gain                 (2,131)                  6,261
  Refinancing charges                                  (6,872)
  Other income                  2,076         667       3,703      2,110
  Income before
   income taxes                85,363      85,876     176,972    172,516
  Income tax expense           32,420      33,475      67,695     67,250

     Net income               $52,943     $52,401    $109,277   $105,266

  Earnings per share:
     Basic                      $0.53       $0.53       $1.09      $1.06
     Diluted                    $0.51       $0.50       $1.06      $1.02
     Weighted average
      shares:
        Basic             100,476,587  99,686,182  99,939,222  98,873,220
        Diluted           103,845,030 104,010,356 103,512,444 103,416,270


                               DAVITA INC.

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

                                                        Six months ended
                                                            June 30,
                                                      2005           2004
  Cash flows from operating activities:
  Net income                                       $109,277      $105,266
  Adjustments to reconcile net income
   to cash provided by operating activities:
      Depreciation and amortization                  50,708        41,197
      Stock options, principally tax benefits        27,708        25,048
      Swap valuation gains                           (6,261)
      Refinancing charges                             6,872
      Deferred income taxes                         (11,433)        4,828
      Minority interests in income
       of consolidated subsidiaries                  10,652         7,366
      Distributions to minority interests            (7,970)       (3,634)
      Non-cash debt expense                           1,505           951
      Equity investment income                         (511)       (1,145)
      Gain on divestitures                             (400)         (481)
  Changes in operating assets and liabilities,
   other than from acquisitions and divestitures:
      Accounts receivable                           (27,046)      (14,113)
      Medicare lab recoveries                                      19,000
      Inventories                                    (2,528)        4,942
      Other current assets                             (685)        3,043
      Other long-term assets                            (94)        2,004
      Accounts payable                                5,054           (63)
      Accrued compensation and benefits              18,314        13,653
      Other current liabilities                      41,028        18,095
      Income taxes                                    1,221        (6,215)
      Other long-term liabilities                     2,190        (2,990)
          Net cash provided by
           operating activities                     217,601       216,752
  Cash flows from investing activities:
      Additions of property and equipment, net      (65,905)      (55,139)
      Acquisitions and divestitures, net            (83,990)      (31,752)
      Investments in and advances
       to affiliates, net                             4,028         3,988
      Intangible assets                                (780)         (580)
          Net cash used in investing activities    (146,647)      (83,483)
  Cash flows from financing activities:
      Borrowings                                  1,742,232     1,549,894
      Payments on long-term debt                 (1,752,197)   (1,573,338)
      Deferred financing costs                      (29,979)
      Stock option exercises                         29,772        29,219
          Net cash (used in) provided
           by financing activities                  (10,172)        5,775
  Net increase in cash and cash equivalents          60,782       139,044
  Cash and cash equivalents
   at beginning of period                           251,979        61,657
  Cash and cash equivalents at end of period       $312,761      $200,701


                               DAVITA INC.

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


                                                   June 30,   December 31,
                                                     2005           2004
           ASSETS
  Cash and cash equivalents                        $312,761       $251,979
  Accounts receivable, less allowance
   of $65,886 and $58,166                           489,970        462,095
  Inventories                                        35,480         31,843
  Other current assets                               45,017         44,210
  Deferred income taxes                              95,980         78,593
            Total current assets                    979,208        868,720
  Property and equipment, net                       440,601        412,064
  Amortizable intangibles, net                       83,431         60,719
  Investments in third-party dialysis businesses      2,054          3,332
  Other long-term assets                             12,239         10,898
  Goodwill                                        1,233,960      1,156,226
                                                 $2,751,493     $2,511,959

           LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                 $101,381       $ 96,231
  Other liabilities                                 198,415        157,214
  Accrued compensation and benefits                 152,347        133,919
  Current portion of long-term debt                   4,480         53,364
  Income taxes payable                                2,228          1,007
            Total current liabilities               458,851        441,735
  Long-term debt                                  1,361,387      1,322,468
  Other long-term liabilities                        22,807         22,570
  Deferred income taxes                             154,813        148,859
  Minority interests                                 66,805         53,193
  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                   558,676        542,714
       Retained earnings                            720,564        611,287
       Treasury stock, at cost (33,913,710
        and 36,295,339 shares)                     (591,214)      (632,732)
       Accumulated comprehensive income valuations   (1,331)         1,730
            Total shareholders' equity              686,830        523,134
                                                 $2,751,493     $2,511,959


                               DAVITA INC.

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

                                                                 Six months
                                                                    ended
                                                                  June 30,
                                      Q2 2005   Q1 2005   Q2 2004    2005

  Financial Results:
     Net income, including Medicare
      lab prior years' recoveries     $52.9     $56.3     $52.4    $109.3
        Basic EPS                     $0.53     $0.57     $0.53     $1.09
        Diluted EPS                   $0.51     $0.55     $0.50     $1.06

     Operating income, excluding
      Medicare lab prior years'
      recoveries                     $107.7    $106.0     $96.5    $213.7
        Operating income margin        16.7%     17.4%     17.5%     17.0%

     Other comprehensive income
        Unrealized (loss) gain on
         securities, net of tax
         benefit (expense) of $5.7,
         $(6.9), $(3.6), and $(1.2)  $(9.0)     $10.9      $5.7      $1.9

  Business Metrics:
     Volume
        Treatments                1,964,098 1,868,787 1,704,882 3,832,885
        Number of treatment days       78.0      77.0      78.0     155.0
        Treatments per day           25,181    24,270    21,857    24,728
        Per day year over
         year increase                 15.2%     13.5%      7.9%     14.4%
        Non-acquired growth             5.5%      5.6%      4.5%      5.6%

     Revenue
        Total operating revenue        $649      $610      $552    $1,259
        Medicare lab prior
         years' recoveries               $3                            $3
        Total operating revenue,
         excluding Medicare lab
         prior years' recoveries       $646      $610      $552    $1,256
        Dialysis revenue
         per treatment              $312.52   $310.92   $311.54   $311.74
        Per treatment increase
         (decrease) from previous
         quarter                       0.51%     (0.1%)     0.2%       --

        Per treatment increase
         from prior year               0.31%      0.0%      3.3%     0.15%

     Expenses
     A. Patient care costs
        Percent of revenue             67.3%     67.2%     68.0%     67.3%
        Per treatment               $221.66   $219.37   $220.04   $220.54
        Per treatment increase
         (decrease) from
         previous quarter              1.04%     (0.9%)     0.3%       --
        Per treatment increase
         from previous year            0.74%      0.0%      3.4%     0.39%

     B. General & administrative expenses
        Percent of revenue              9.3%      8.9%      8.3%      9.1%
        Per treatment                $30.48    $29.04    $26.82    $29.77
        Per treatment increase
         from previous quarter          5.0%      3.6%      4.3%       --
        Per treatment increase
         (decrease) from
         previous year                 13.6%     13.0%     (0.5%)    13.3%

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

     D. Consolidated effective
         tax rate                      38.0%     38.5%     39.0%     38.3%


                               DAVITA INC.

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

                                                               Six months
                                                                  ended
                                                                 June 30,
                                      Q2 2005    Q1 2005  Q2 2004  2005
  Cash Flow
     Operating cash flow               $106.2    $111.4   $90.6   $217.6
     Operating cash flow, excluding
      Medicare lab prior
      years' recoveries                $104.6    $111.4   $90.6   $216.0
     Operating cash flow, excluding
      Medicare lab prior
      years' recoveries and tax
      benefit from stock
      option exercises                  $92.8     $95.5   $80.0   $188.3
     Free cash flow, excluding
      Medicare lab prior
      years' recoveries                 $90.0    $103.8   $75.7   $193.7
     Free cash flow, excluding
      Medicare lab prior years'
      recoveries and tax benefit
      from stock option exercises       $78.2     $87.8   $65.1   $166.0
     Capital expenditures:
       Development                      $22.2     $18.1   $15.8    $40.2
       Routine maintenance/IT/other     $18.6      $7.6   $14.9    $26.3
     Acquisition expenditures, net      $81.5      $2.5   $14.7    $84.0

  Accounts Receivable
     Net receivables                     $490      $473    $402
     DSO                                   70        71      68

  Debt/Capital Structure
     Total debt                        $1,366    $1,368  $1,144
     Net debt, net of cash             $1,053    $1,050    $943
     Leverage ratio -- (see Note 1)       1.9x      2.0x    2.0x

  Clinical (quarterly averages)
     Dialysis adequacy -- % of patients
      with Kt/V > 1.2                      94%       94%     94%
     Patients with arteriovenous
      fistula                              45%       43%     40%


                               DAVITA INC.

                  SUPPLEMENTAL FINANCIAL DATA-continued
                               (unaudited)
                          (dollars in thousands)

  Note 1:

The leverage ratio under the Company's existing senior secured credit agreement is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by "EBITDA". The leverage ratio determines the interest rate margin payable by the Company under the existing senior secured 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 indentures governing our recently issued Senior Notes. Such calculation is consistent with the definition of "EBITDA" contained in the existing senior secured credit agreement, except that EBITDA under our existing senior secured credit agreement is based on the last twelve-months and is not based on annualized EBITDA, and pro forma incremental "EBITDA" relating to acquisitions is included in the calculation of "EBITDA" under the existing senior secured credit agreement and is not included in the following calculations.

                                       Q2 2005      Q1 2005    Q2 2004
  Net income                           $52,943      $56,334     $52,401
  Debt expense                          24,897       17,534      11,258
  Refinancing charges                                 6,872
  Income taxes                          32,420       35,275      33,475
  Depreciation and amortization         25,860       24,848      20,927
  Minority interests and
   equity income, net                    6,125        4,016       3,503
  Swap valuation loss (gain)             2,131       (8,392)
  Medicare lab prior
   years' recoveries                    (2,641)
     "Consolidated EBITDA" as
      defined in the indentures       $141,735     $136,487    $121,564

  Annualized "Consolidated EBITDA"
   as defined in the indentures       $566,940     $545,948    $486,256

                                       Q2 2005      Q1 2005     Q2 2004
  Total debt                        $1,365,867   $1,368,352  $1,144,115
  Letters of credit issued              22,959       22,959      22,984
                                     1,388,826    1,391,311   1,167,099
  Less:  cash and cash equivalents    (312,761)    (317,879)   (200,701)
                                    $1,076,065   $1,073,432    $966,398
  Annualized "Consolidated EBITDA"
   as defined in the indentures       $566,940     $545,948    $486,256
  Leverage Ratio                          1.9x         2.0x        2.0x


                               DAVITA INC.

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

1. Operating income, excluding Medicare lab recoveries related to prior years' services:

                                                        Six months
                                                           ended
                                                         June 30,
                                 Q2 2005    Q1 2005       2005    Q2 2004

  Operating income              $110,315   $105,996   $ 216,311   $96,467
  Less: Medicare lab prior
   years' recoveries              (2,641)                (2,641)
                                $107,674   $105,996   $ 213,670   $96,467

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

                                           Six months          Rolling 12-
                                             ended            Month Period
                                            June 30,             ended
                      Q2 2005    Q1 2005      2005     Q2 2004   Q2 2005
  Cash provided
   by operating
   activities        $106,195   $111,406   $217,601   $90,636   $420,794
  Less:  Medicare
   lab prior
   years' recoveries   (2,641)               (2,641)             (10,934)
  Related income
   tax expense          1,027                 1,027                4,261
  Operating cash
   flow, excluding
   Medicare lab
   prior years'
   recoveries        $104,581   $111,406   $215,987   $90,636   $414,121
  Less:  Tax benefit
   from stock
   option exercises   (11,774)   (15,934)   (27,708)  (10,659)   (45,430)
                      $92,807   $ 95,472   $188,279   $79,977   $368,691

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

Free cash flow represents net cash provided by operating activities less on-development capital expenditures. We believe free cash flow is a useful djunct to cash flow from operating activities and other measurements under enerally accepted accounting principles in the United States since it is a eaningful measure of our ability to fund acquisition and development ctivities and meet our debt service requirements. Free cash flow is not a easure of financial performance under generally accepted accounting rinciples in the United States and should not be considered as an alternative o cash flows from operating, investing or financing activities as an ndicator of cash flows or as a measure of liquidity.

                                             Six months         Rolling 12-
                                               ended            Month Period
                                              June 30,             ended
                         Q2 2005    Q1 2005      2005    Q2 2004   Q2 2005

  Cash provided
   by operating
   activities           $106,195   $111,406   $217,601   $90,636  $420,794
  Less: Expenditures
   for routine
   maintenance and
   information
   technology            (14,614)    (7,634)   (22,248)  (14,899)  (48,087)
  Free cash flow        $ 91,581   $103,772   $195,353   $75,737  $372,707
  Less: Medicare
   lab prior years'
   recoveries             (2,641)               (2,641)            (10,934)
  Related income
   tax expense             1,027                 1,027               4,261
  Free cash flow,
   excluding Medicare
   lab prior years'
   recoveries           $ 89,967   $103,772   $193,739   $75,737  $366,034
  Less: Tax benefit
   from stock
   option exercises      (11,774)   (15,934)   (27,708)  (10,659)  (45,430)
                         $78,193    $87,838   $166,031   $65,078  $320,604
Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO
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PRN Photo Desk, photodesk@prnewswire.com

SOURCE: DaVita Inc.

CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-650-696-8910


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