Improving Health, Health Care and Quality of Life

DaVita 2nd Quarter 2006 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. , today announced results for the quarter ended June 30, 2006. Income from continuing operations for the three and six months ended June 30, 2006, was $64.3 million and $122.1 million, or $0.61 and $1.16 per share, respectively, as compared with $48.1 million and $100.1 million or $0.46 and $0.97 per share, respectively, for the same periods of 2005.

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

Income from continuing operations for the three and six months ended June 30, 2006 included incremental after-tax stock-based compensation expense of $2.8 million and $5.6 million or $0.02 and $0.05 per share, respectively, related to SFAS No. 123®. Net income including discontinued operations for the three and six months ended June 30, 2006 was $63.2 million and $120.7 million or $0.60 and $1.14 per share, respectively.

  Financial and operating highlights include:

  -- Cash Flow:  Operating cash flow for the three months ended
     June 30, 2006 was $256 million and free cash flow was $227 million.
     For the rolling 12-months ended June 30, 2006 operating cash flow was
     $572 million and free cash flow was $482 million, in each case
     excluding the tax benefit from stock option exercises and an
     $85 million income tax payment associated with the divestiture of
     centers in conjunction with the Gambro Healthcare acquisition.
     Including these items, operating cash flow for the rolling 12-months
     was $500 million and free cash flow was $411 million.
  -- Operating Income:  Operating income for the three months and six months
     ended June 30, 2006, was $172 million and $334 million, respectively.
  -- Volume:  Total treatments for the second quarter were 3,602,567 or
     46,187 treatments per day, as compared to 3,501,032 or 45,468
     treatments per day for the first quarter of 2006. Non-acquired
     treatment growth in the quarter was 4.1% over the prior year's quarter.
  -- Center Activity:  As of June 30, 2006, we operated or provided
     administrative services at 1,255 outpatient centers serving
     approximately 100,000 patients.  During the second quarter of 2006 we
     acquired 8 centers, including one center where we previously provided
     management services, opened 10 new centers and closed 3 centers.

  Outlook

We are revising our 2006 operating income guidance; operating income is now expected to be in the $670-700 million range. Our previous guidance was for operating income to be in the $600-680 million range. 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.

DaVita will be holding a conference call to discuss its results for the second quarter ended June 30, 2006 on August 2, 2006 at 12 p.m. noon 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, including statements related to our 2006 operating results. 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, 2006. 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 and private indemnity patients,
  -- possible reductions in private and government payment rates,
  -- changes in pharmaceutical practice patterns, payment policies, or
     pharmaceutical pricing,
  -- 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, the subpoenas from the U.S. Attorney's Office for the Eastern
     District of Missouri and DVA Renal Healthcare's (formerly known as
     Gambro Healthcare, Inc.) compliance with its corporate integrity
     agreement,
  -- our ability to complete and integrate acquisitions of businesses, and
  -- the successful integration of DVA Renal Healthcare, including its
     billing and collection operations.

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.

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

                           Three months ended       Six months ended
                                 June 30,                June 30,
                             2006        2005        2006        2005
  Net operating
   revenues              $1,207,816    $617,085  $2,371,004  $1,195,711
  Operating expenses
   and charges:
    Patient care costs      842,973     413,225   1,660,746     800,740
    General and
     administrative         111,444      59,856     215,612     114,119
    Depreciation and
     amortization            41,717      24,933      83,608      48,778
    Provision for
     uncollectible
     accounts                31,230      10,964      61,310      21,289
    Minority interests
     and equity income,
     net                      8,700       5,676      15,901       9,494
      Total operating
       expenses and
       charges            1,036,064     514,654   2,037,177     994,420

  Operating income          171,752     102,431     333,827     201,291

  Debt expense              (68,436)    (24,885)   (138,895)    (42,416)
  Swap valuation
   (loss) gain                           (2,131)                  6,261
  Refinancing charges                                            (6,872)
  Other income                2,973       2,065       6,847       3,682
  Income from continuing
   operations before
   income taxes             106,289      77,480     201,779     161,946
  Income tax expense         41,960      29,353      79,670      61,849
      Income from
       continuing
       operations            64,329      48,127     122,109     100,097
  Discontinued operations
    Income from
     operations of
     discontinued
     operations, net
     of tax                              4,816                    9,180
    Loss on disposal
     of discontinued
     operations, net
     of tax                  (1,092)                 (1,403)
  Net income                $63,237     $52,943    $120,706    $109,277

  Earnings per share:
    Basic earnings
     per share from
     continuing
     operations               $0.62       $0.48       $1.18       $1.00
    Basic earnings
     per share                $0.61       $0.53       $1.17       $1.09
    Diluted earnings
     per share from
     continuing
     operations               $0.61       $0.46       $1.16       $0.97
    Diluted earnings
     per share                $0.60       $0.51       $1.14       $1.06
    Weighted average
     shares for earnings
     per share:
      Basic             103,479,062 100,476,587 103,046,461  99,939,222
      Diluted           105,645,208 103,845,030 105,486,027 103,512,444


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

                                                     Six months ended
                                                          June 30,
                                                    2006           2005
  Cash flows from operating activities:
  Net income                                      $120,706       $109,277
  Adjustments to reconcile net income to
   cash provided by operating activities:
    Depreciation and amortization                   83,608         50,708
    Stock-based compensation expense                11,455          1,862
    Tax benefits from stock option exercises         1,574         25,846
    Deferred income taxes                          (20,980)       (11,433)
    Minority interests in income of
     consolidated subsidiaries                      17,360         10,652
    Distributions to minority interests            (13,357)        (7,970)
    Equity investment income                        (1,459)          (511)
    Gain on other dispositions                        (360)          (400)
    Loss on disposal of discontinued operations        787             --
    Non-cash debt and other expenses                 8,880          1,505
    Refinancing charges                                 --          6,872
    Swap valuation gain                                 --         (6,261)
    Excess tax benefits from stock-based
     compensation                                  (22,054)            --
  Changes in operating assets and liabilities,
   net of effect of acquisitions and divestitures:
    Accounts receivable                             (2,555)       (15,546)
    Inventories                                    (23,282)        (2,528)
    Other receivables and other current assets     (15,522)       (12,185)
    Other long term assets                          (1,040)           (94)
    Accounts payable                               (20,997)         5,054
    Accrued compensation and benefits               60,829         18,314
    Other current liabilities                       70,714         41,028
    Income taxes                                   (24,701)         1,221
    Other long-term liabilities                      2,920          2,190
      Net cash provided by operating activities    232,526        217,601
  Cash flows from investing activities:
    Additions of property and equipment, net      (115,362)       (65,905)
    Acquisitions and purchases of other
     ownership interests                           (69,578)       (88,683)
    Proceeds from divestitures and asset sales      21,098             --
    Investments in and advances to affiliates,
     net                                             9,981          8,721
    Intangible assets                               (5,630)          (780)
      Net cash used in investing activities       (159,491)      (146,647)
  Cash flows from financing activities:
    Borrowings                                   2,925,838      1,742,232
    Payments on long-term debt                  (3,139,358)    (1,752,197)
    Deferred financing costs                            (2)       (29,979)
    Excess tax benefits from stock-based
     compensation                                   22,054             --
    Stock option exercises and other share
     issuances, net                                 25,941         29,772
      Net cash used in financing activities       (165,527)       (10,172)
  Net (decrease) increase in cash and cash
   equivalents                                     (92,492)        60,782
  Cash and cash equivalents at beginning
   of period                                       431,811        251,979
  Cash and cash equivalents at end of period      $339,319       $312,761


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

                                                  June 30,      December 31,
                                                    2006           2005
                      ASSETS
  Cash and cash equivalents                       $339,319       $431,811
  Accounts receivable, less allowance
   of $159,745 and $138,598                        859,165        853,560
  Inventories                                       93,362         69,130
  Other receivables                                135,731        116,620
  Other current assets                              24,620         38,463
  Deferred income taxes                            177,426        144,824
      Total current assets                       1,629,623      1,654,408
  Property and equipment, net                      787,378        750,078
  Amortizable intangibles, net                     224,769        235,944
  Investments in third-party dialysis businesses     1,936          3,181
  Other long-term assets                            57,562         41,768
  Goodwill                                       3,640,143      3,594,383
                                                $6,341,411     $6,279,762

        LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                $190,096       $212,049
  Other liabilities                                449,599        381,964
  Accrued compensation and benefits                291,140        231,994
  Current portion of long-term debt                  5,008         71,767
  Income taxes payable                              45,204         91,959
      Total current liabilities                    981,047        989,733
  Long-term debt                                 3,939,047      4,085,435
  Other long-term liabilities                       27,287         26,416
  Alliance and product supply agreement
   and other intangibles, net                      149,943        163,431
  Deferred income taxes                             93,251         75,499
  Minority interests                               107,992         88,639
  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                     602,952        569,751
    Retained earnings                              960,636        839,930
    Treasury stock, at cost (31,280,720
     and 32,927,026 shares)                       (545,313)      (574,013)
    Accumulated comprehensive income valuations     24,434         14,806
      Total shareholders' equity                 1,042,844        850,609
                                                $6,341,411     $6,279,762


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

                                                                Six months
                                                                   ended
                                                                  June 30,
                                Q2 2006     Q1 2006     Q2 2005    2006
  Financial Results:
    Income from continuing
     operations                   $64.3       $57.8      $48.1    $122.1
    Net income                    $63.2       $57.5      $52.9    $120.7
    Diluted earnings per share
     from continuing operations   $0.61       $0.55      $0.46     $1.16
    Diluted earnings per share    $0.60       $0.55      $0.51     $1.14
    Operating income             $171.8      $162.1     $102.4    $333.8
      Operating income margin     14.2%       13.9%      16.6%     14.1%
    Other comprehensive income
      Unrealized gain (loss) on
       securities, net of tax
       (expense) benefit of
       ($2.2), ($3.9), $5.7
       and ($6.1)                  $3.4        $6.2      $(9.0)     $9.6

  Business Metrics:
    Volume
      Treatments              3,602,567   3,501,032  1,856,522 7,103,599
      Number of treatment days     78.0        77.0       78.0     155.0
      Treatments per day         46,187      45,468     23,802    45,830
      Per day year over year
       increase                   94.0%       98.7%      15.5%     96.3%
      Non-acquired growth
       year over year              4.1%        4.6%       5.5%      4.3%

    Revenue
      Total operating revenue    $1,208      $1,163       $617    $2,371
      Dialysis revenue per
       treatment                $318.80     $316.70    $313.49   $317.77
      Per treatment increase
       from previous quarter      0.66%        2.0%      0.43%        --
      Per treatment increase
       from previous year          1.7%        1.5%      0.35%      1.6%

    Expenses
    A. Patient care costs
       Percent of revenue         69.8%       70.3%      67.3%     70.0%
       Per treatment            $233.99     $233.58    $222.58   $233.79
       Per treatment increase
        from previous quarter     0.18%        2.2%       1.2%        --
       Per treatment increase
        from previous year         5.1%        6.2%      0.77%      5.6%

    B. General & administrative
        expenses
       Percent of revenue          9.2%        9.0%       9.7%      9.1%
       Per treatment             $30.93      $29.75     $32.24    $30.35
       Per treatment increase
        from previous quarter      4.0%        6.7%       4.7%        --
       Per treatment (decrease)
        increase from previous
        year                      (4.1%)      (3.4%)     13.3%     (3.8%)

    C. Bad debt expense as a
        percent of current-period
        revenue                    2.6%        2.6%       1.8%      2.6%

    D. Consolidated effective
        tax rate from continuing
        operations                39.5%       39.5%      38.0%     39.5%


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

                                                                Six months
                                                                   ended
                                                                  June 30,
                                 Q2 2006    Q1 2006     Q2 2005     2006
  Cash Flow
    Operating cash flow          $256.1     $(23.6)    $106.2     $232.5
    Operating cash flow,
     excluding tax benefit
     from stock option
     exercises and the income
     tax payment on divested
     centers                     $255.5      $60.8      $95.4     $316.3
    Free cash flow               $227.5     $(43.3)     $91.6     $184.2
    Free cash flow, excluding
     tax benefit from stock
     option exercises and the
     income tax payment on
     divested centers            $226.9      $41.1      $80.8     $267.9
    Capital expenditures:
      Development and
       relocations                $37.3      $26.3      $22.2      $63.6
      Routine maintenance/IT/
       other                      $30.1      $21.7      $18.6      $51.8
    Acquisition expenditures      $46.7      $22.8      $83.9      $69.6

  Accounts Receivable
    Net receivables                $859       $859       $478
    DSO                              67         69         70

  Debt/Capital Structure
    Total debt                   $3,944     $4,045     $1,366
    Net debt, net of cash        $3,605     $3,765     $1,053
    Leverage ratio (see Note 1)   4.07x      4.29x         --

  Clinical (quarterly averages)
    Dialysis adequacy - % of
     patients with Kt/V > 1.2       93%        93%        94%
    Patients with arteriovenous
     fistula                        50%        49%        45%


                               DAVITA INC.
                  SUPPLEMENTAL FINANCIAL DATA-continued
                               (unaudited)
                          (dollars in thousands)

   Note 1: Calculation of the Leverage Ratio
   Under the Company's current credit agreement (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 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 the DVA Renal
   Healthcare acquisition and related divestitures as well as other routine
   acquisitions. The Company's management believes that the presentation of
   "Consolidated EBITDA" is useful to investors to enhance their
   understanding of the Company's leverage ratio under its Credit Agreement.


                                                     Rolling 12-months
                                                   ended June 30, 2006
  Income from continuing operations                       $240,668
  Income taxes                                             155,083
  Debt expense                                             279,739
  Depreciation and amortization                            169,106
  Minority interests and equity income, net                 29,433
  Swap valuation losses                                      1,713
  Refinancing charges                                        1,298
  Other                                                      7,788
  Stock-based compensation expense                          13,259

    "Consolidated EBITDA"                                 $898,087

                                                          June 30,
                                                            2006
  Total debt                                            $3,944,055
  Letters of credit issued                                  50,345
                                                         3,994,400
  Less: cash and cash equivalents                         (339,319)

  Consolidated net debt                                 $3,655,081

  Last twelve months "Consolidated EBITDA"                $898,087

  Leverage ratio                                             4.07x


   In accordance with the Company's Credit Agreement, the Company's leverage
   ratio can not exceed 6.0 to 1.0 as of June 30, 2006. At that date, the
   Company's leverage ratio did not exceed 6.0 to 1.0.


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

   1. Operating cash flow, excluding tax benefit from stock option exercises
   and income tax payment on divested centers:

   We believe that operating cash flow excluding tax benefit from stock
   option exercises and income tax payment on divested centers enhances a
   user's understanding of our normal operating cash flows for these periods
   by providing a measure that is more meaningful because it is comparable
   to prior periods and indicative of consistent operating cash flow items,
   and because it excludes certain non-recurring transactions that can cause
   unusual fluctuations in our operating cash flows. This measure is not a
   measure of financial performance under United States generally accepted
   accounting principles 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
                                        Six months             12-Month
                                          ended                 Period
                                         June 30,                ended
                 Q2 2006     Q1 2006       2006      Q2 2005    Q2 2006
  Cash
   (used in)
   provided by
   operating
   activities    $256,090   $(23,564)    $232,526    $106,195   $500,479

  Less: Tax
   benefit
   from stock
   option
   exercises        (591)       (983)     (1,574)    (10,753)   (14,212)

  Income tax
   payment on
   divested
   centers             --      85,328      85,328          --     85,328
                 $255,499     $60,781    $316,280     $95,442   $571,595


   2.  Free cash flow and free cash flow, excluding tax benefit from stock
   option exercises and income tax payment on divested centers:

   Free cash flow represents net cash provided by operating activities less
   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 United States generally accepted
   accounting principles, 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 United States generally accepted accounting principles 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
                                       Six months              12-Month
                                         ended                  Period
                                        June 30,                 ended
                 Q2 2006     Q1 2006      2006      Q2 2005     Q2 2006

  Cash
   (used in)
   provided by
   operating
   activities   $256,090   $(23,564)    $232,526   $106,195    $500,479

  Less:
   Expenditures
   for routine
   maintenance
   and
   information
   technology   (28,640)    (19,726)    (48,366)   (14,614)    (89,757)

  Free cash
   flow         $227,450   $(43,290)    $184,160    $91,581    $410,722

  Less: Tax
   benefit
   from
   stock
   option
   exercises       (591)       (983)     (1,574)   (10,753)    (14,212)

  Income tax
   payments on
   divested
   centers            --      85,328      85,328         --      85,328
                $226,859     $41,055    $267,914    $80,828    $481,838
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 of DaVita Inc.,
+1-650-696-8910


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