Improving Health, Health Care and Quality of Life

Davita Inc. Reports 4th Quarter and Year Ended 2004 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. , today announced results for the quarter and year ended December 31, 2004. Net income for the three months ended December 31, 2004, was $56.6 million and $0.56 per share. Net income for the year ended December 31, 2004, was $217.2 million, and $2.11 per share, excluding after-tax Medicare lab recoveries of $5.1 million.

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

Net income for the year ended December 31, 2004 including the lab recoveries (GAAP basis), was $222.3 million and $2.16 per share.

Financial and operating highlights include:

-- Cash Flow: Cash flow for the 12 months ended December 31, 2004, was our strongest ever with operating cash flow and free cash flow of $361 million and $314 million, excluding the tax benefit from stock option exercises and the after-tax benefit of prior years' Medicare lab recoveries. Including those items, 12-month operating cash flow was $420 million.

-- Operating Income: Operating income for the three months was $105.2 million. Operating income for the year ended December 31, 2004 was $401.8 million, excluding Medicare lab recoveries of $8.3 million for prior years' services.

-- Volume: Total treatments for the fourth quarter were 1,895,952 or 23,999 treatments per day, an increase of 14.5% per day compared to the fourth quarter of last year. Total treatments for 2004 were 7,062,424 or 22,528 treatments per day, representing an increase of 10.6% per day as compared to 2003. Non-acquired treatment growth was 6.0% and 5.0% for the fourth quarter and full year 2004, respectively.

-- Effective Tax Rate: The final effective annual income tax rate for 2004 was 38.6%. The fourth quarter benefited from a year-to-date reduction in the annualized effective tax rate that added $0.01 to fourth quarter earnings per share. At this time, the effective tax rate for 2005 is projected to be at a comparable level.

-- Center Activity: As of December 31, 2004, we operated or provided administrative services at 658 outpatient centers serving approximately 54,000 patients. During the fourth quarter we acquired 6 centers, opened 19 de novo centers and provided administrative services to 2 additional centers. We also closed 4 centers and terminated one administrative services agreement.

Outlook

Our previous 2005 operating income guidance was for operating income to improve from 0 to 6% over the 2004 operating income performance. Our new 2005 operating income guidance is for operating income to be up 2 to 6% over 2004, exclusive of the effects of the proposed Gambro Healthcare acquisition and related debt financing, as well as the anticipated expensing of stock options in accordance with FASB No. 123R. In connection with the Gambro acquisition the Company will be assessing financing alternatives, which could include closing some or all of the financing in advance of the closing of the acquisition. At this time, we expect the Gambro acquisition together with related debt financing to be dilutive to EPS in the first year, neutral in the second year and accretive thereafter.

DaVita will be holding a conference call to discuss its fourth quarter and year ended results for 2004 on February 9, 2005, 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 September 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,

  -- 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,

-- 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 HHS Office of the Inspector General and the recently announced subpoena from the U.S. Attorney's Office for the Eastern District of New York, and

-- the consummation of the Gambro acquisition, terms of the related financing, and subsequent integration of the business.

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          Years ended
                                December 31,            December 31,
                              2004        2003        2004         2003
  Net operating revenues   $616,003    $553,446  $2,298,595   $2,016,418
  Operating expenses and
   charges:
        Patient care
         costs              419,593     359,965   1,555,070    1,360,556
        General and
         administrative      53,151      40,338     192,082      159,628
        Depreciation and
         amortization        23,212      19,985      86,666       74,687
        Provision for
         uncollectible
         accounts            10,996       9,469      40,960       35,700
        Minority interests
         and equity income,
         net                  3,880       2,499      13,694        7,312
            Total operating
             expenses and
             charges        510,832     432,256   1,888,472    1,637,883

  Operating income          105,171     121,190     410,123      378,535

  Debt expense               15,777      11,766      52,412       66,828
  Refinancing Charges                     9,261      26,501
  Other income                1,053         335       4,173        3,060
  Income before income taxes 90,447     100,498     361,884      288,266
  Income tax expense         33,845      37,700     139,630      112,475

        Net income          $56,602     $62,798    $222,254     $175,791

  Earnings per share:
        Basic                 $0.58       $0.65       $2.25        $1.86
        Diluted               $0.56       $0.61       $2.16        $1.66
        Weighted average
         shares for
         earnings per
         share:
            Basic        97,984,401  96,380,778  98,726,674   94,345,618
            Diluted     101,777,418 102,661,284 102,861,044  113,760,352


                               DAVITA INC.

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

                                                  Years ended December 31,
                                                      2004           2003
  Cash flows from operating activities:
  Net income                                      $222,254       $175,791
  Adjustments to reconcile net income to
   cash provided by operating activities:
        Depreciation and amortization               86,666         74,687
        Stock options, principally tax benefits     42,770         20,180
        Deferred income taxes                       29,115         20,914
        Minority interests in income of
         consolidated subsidiaries                  15,135          8,908
        Distributions to minority interests        (10,461)        (7,663)
        Equity investment income                    (1,441)        (1,596)
        Loss on divestitures                           764          2,130
        Non-cash debt expense                        2,088          3,124
        Refinancing charges                                        26,501
  Changes in operating assets and liabilities,
   other than from acquisitions and divestitures:
        Accounts receivable                        (61,424)       (41,369)
        Medicare lab recoveries                     19,000        (19,000)
        Inventories                                  4,257          3,159
        Other current assets                         1,780        (13,297)
        Other long-term assets                       3,345          4,692
        Accounts payable                            17,764         (6,875)
        Accrued compensation and benefits           32,899          5,821
        Other current liabilities                   42,784          9,958
        Income taxes                               (25,995)        17,810
        Other long-term liabilities                 (1,355)         9,773
              Net cash provided by operating
               activities                          419,945        293,648
  Cash flows from investing activities:
        Additions of property and equipment,
         net                                      (128,328)      (100,272)
        Acquisitions and divestitures, net        (265,042)       (97,370)
        Investments in and advances to
         affiliates, net                            14,344          4,456
        Intangible assets                             (635)          (790)
              Net cash used in investing
               activities                         (379,661)      (193,976)
  Cash flows from financing activities:
        Borrowings                               4,444,160      4,766,276
        Payments on long-term debt              (4,236,861)    (4,797,994)
        Debt redemption premium                                   (14,473)
        Deferred financing costs                    (4,153)        (4,193)
        Purchase of treasury stock                 (96,540)      (107,162)
        Stock option exercises                      43,432         23,056
              Net cash provided by (used in)
               financing activities                150,038       (134,490)
  Net increase (decrease) in cash and
   cash equivalents                                190,322        (34,818)
  Cash and cash equivalents at beginning
   of period                                        61,657         96,475
  Cash and cash equivalents at end of period      $251,979        $61,657


                               DAVITA INC.

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

                                                         December 31,
                                                      2004           2003
                         ASSETS
  Cash and cash equivalents                       $251,979       $ 61,657
  Accounts receivable, less allowance
   of $58,166 and $52,554                          462,095        387,933
  Medicare lab recoveries                                          19,000
  Inventories                                       31,843         32,853
  Other current assets                              44,210         43,875
  Deferred income taxes                             78,593         59,740
              Total current assets                 868,720        605,058
  Property and equipment, net                      412,064        342,447
  Amortizable intangibles, net                      60,719         49,971
  Investments in third-party dialysis businesses     3,332          3,095
  Other long-term assets                            10,898         10,771
  Goodwill                                       1,156,226        934,188
                                                $2,511,959     $1,945,530
         LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                $ 96,231       $ 71,868
  Other liabilities                                157,214        112,654
  Accrued compensation and benefits                133,919        100,909
  Current portion of long-term debt                 53,364         50,557
  Income taxes payable                               1,007         26,832
              Total current liabilities            441,735        362,820
  Long-term debt                                 1,322,468      1,117,002
  Other long-term liabilities                       22,570         19,310
  Deferred income taxes                            148,859        106,240
  Minority interests                                53,193         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 and 134,806,205 shares
         issued)                                       135            135
        Additional paid-in capital                 542,714        539,575
        Retained earnings                          611,287        389,083
        Treasury stock, at cost (36,295,339
         and 38,052,028 shares)                   (632,732)      (620,998)
        Accumulated comprehensive income
         valuations                                  1,730           (924)
            Total shareholders' equity             523,134        306,871
                                                $2,511,959     $1,945,530


                               DAVITA INC.

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

                            Q4 2004     Q3 2004     YE 2004     YE 2003
  Financial Results:
      Net income excluding
      Medicare lab
      recoveries for prior
      years' services and
      refinancing charges.    $56.6       $55.3      $217.2      $177.3
          Basic EPS            $.58        $.56       $2.20       $1.88
          EPS assuming
           dilution            $.56*       $.54       $2.11       $1.67

      Operating income,
       excluding Medicare
       lab recoveries        $105.2      $103.4      $401.8      $354.5
          Operating income
           margin             17.1%       17.6%       17.5%       17.8%


      Other comprehensive
       income
          Unrealized gain
           (loss) on
           securities, net
           of tax (expense)
           benefit of $(1.3),
           $1.6, $(1.7)
           and $0.6            $2.1       $(2.5)       $2.7       $(0.9)

  Business Metrics:
      Volume
          Treatments      1,895,952   1,804,534   7,062,424   6,373,894
          Number of
           treatment days      79.0        79.0       313.5       312.9
          Treatments per
           day               23,999      22,842      22,528      20,370
          Per day year
           over year
           increase           14.5%       11.0%       10.6%        6.7%
          Non-acquired
           growth              6.0%        4.8%        5.0%        3.9%

      Revenue
          Total operating
           revenue             $616        $596      $2,299      $2,016
          Less Medicare
           lab recoveries
           for prior years'
           services                          $8          $8         $24

          Revenue excluding
           Medicare lab
           recoveries          $616        $587      $2,290      $1,992

          Dialysis revenue
           per treatment    $311.22     $313.60     $311.86     $302.75
          Per treatment
           change from
           previous quarter   (0.8%)       0.7%          --          --
          Per treatment
           change from prior
           year                1.6%        2.4%        3.0%        4.1%

      Expenses
      A. Patient care costs
         Percent of revenue,
          excluding Medicare
          lab recoveries      68.1%       67.6%       67.9%       68.3%
         Per treatment      $221.31     $219.95     $220.19     $213.46
         Per treatment
          change from
          previous quarter     0.6%        0.0%          --          --
         Per treatment
          change from
          previous year        2.4%        2.7%        3.2%        5.3%

      B. General &
          administrative
          expenses
         Percent of
          revenue,
          excluding
          Medicare lab
          recoveries           8.6%        8.6%        8.4%        8.0%
         Per treatment       $28.03      $28.04      $27.20      $25.04
         Per treatment
          change from
          previous quarter     0.0%        4.5%          --          --
         Per treatment
          change from
          previous year       15.8%       14.1%        8.6%       (3.8%)

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

      D. Consolidated
         effective tax rate   37.4%       39.0%       38.6%       39.0%


  * Earnings per share benefited from a year-to-date reduction in the
    annualized tax rate that added $0.01 to the fourth quarter of 2004.


                               DAVITA INC.

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

                                 Q4 2004    Q3 2004    YE 2004   YE 2003
  Cash Flow
      Operating cash flow,
       excluding Medicare lab
       recoveries                  $82.3     $115.9     $403.3    $293.6
      Operating cash flow,
       excluding Medicare lab
       recoveries and tax benefit
       from stock option
       exercises                   $70.0     $110.4     $360.5    $273.5
      Free cash flow, excluding
       Medicare lab recoveries     $67.4     $104.9     $356.7    $248.8
      Free cash flow, excluding
       Medicare lab recoveries
       and tax benefit from stock
       option exercises            $55.1      $99.5     $314.0    $228.6
      Capital expenditures:
          Development              $25.0      $22.8      $82.9     $57.9
          Routine maintenance/
           IT/other                $14.9      $11.0      $46.6     $44.9
      Acquisition expenditures,
       net                         $19.8     $213.5     $265.0     $97.4

  Accounts Receivable
      Net receivables               $462       $435
      DSO                             70         68

  Debt/Capital Structure
      Total debt                  $1,376     $1,388
      Net debt, net of cash
       balance                    $1,124     $1,161
      Leverage ratio - last
       quarter annualized
       (see Note 1)                 2.1x       2.2x
      Share repurchases
       (in millions)                  .3        3.1        3.4       5.2
      Average repurchase price    $30.14     $28.69     $28.82    $20.76


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

   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:

                              Q4 2004     Q3 2004     YE 2004    YE 2003
      Net income              $56,602     $60,386    $222,254   $175,791
      Less:  Medicare lab
       recoveries for prior
       years' services                     (8,293)     (8,293)   (24,000)
      Add back:  Refinancing
       charges                                                    26,501
      Related income tax
       expense                              3,234       3,234       (981)
                              $56,602     $55,327    $217,195   $177,311


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

                              Q4 2004     Q3 2004     YE 2004    YE 2003
      Operating income       $105,171    $111,652    $410,123   $378,535
      Less: Medicare lab
       recoveries for prior
       years' services                     (8,293)     (8,293)   (24,000)
                              105,171     103,359     401,830    354,535
      Add back: Depreciation
                 and
                 amortization  23,212      22,257      86,666     74,687
                Minority
                 interests
                 and equity
                 income, net    3,880       3,593      13,694      7,312
                             $132,263    $129,209    $502,190   $436,534

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

                              Q4 2004     Q3 2004     YE 2004    YE 2003
  Cash provided by operating
   activities                 $87,341    $115,852    $419,945   $293,648
  Less: Medicare lab
   recoveries for prior
   years' services             (8,293)                (27,293)
  Related income tax expense    3,234                  10,644
  Operating cash flow,
   excluding Medicare lab
   recoveries                 $82,282    $115,852    $403,296   $293,648
  Less: Tax benefit from
   stock option exercises     (12,305)     (5,417)    (42,770)   (20,180)
                              $69,977    $110,435    $360,526   $273,468


                               DAVITA INC.

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

 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.

                             Q4 2004     Q3 2004     YE 2004    YE 2003
  Cash provided by operating
   activities                $87,341    $115,852    $419,945   $293,648
  Less: Expenditures for
   routine maintenance and
   information technology    (14,883)    (10,956)    (46,554)   (44,898)
  Free cash flow             $72,458    $104,896    $373,391   $248,750
     Medicare lab recoveries
      related to prior years'
      services                (8,293)                (27,293)
     Related income tax
      expense                  3,234                  10,644
  Free cash flow, excluding
   Medicare lab recoveries   $67,399    $104,896    $356,742   $248,750
  Less: Tax benefit from
   stock option exercises    (12,305)     (5,417)    (42,770)   (20,180)
                             $55,094     $99,479    $313,972   $228,570
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.,
+1-310-536-2420


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