Improving Health, Health Care and Quality of Life

DaVita Inc. Reports 1st Quarter 2005 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. , today announced results for the quarter ended March 31, 2005. Net income for the quarter ended March 31, 2005, was $56.3 million or $0.55 per share compared with $52.9 million or $0.51 per share for the same period of 2004.

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

Net income for the three months ended March 31, 2005 included refinancing charges of $6.9 million and $1 million of additional debt expense incurred as a result of the issuance of the new senior notes, offset by swap valuation gains of $8.4 million.

  Financial and operating highlights include:

  -- Cash Flow:  Operating cash flow for the quarter ended March 31, 2005
     was $111 million and free cash flow was $104 million. For the rolling
     12-month ended March 31, 2005 operating cash flow was $356 million and
     free cash flow was $307 million, excluding the tax benefit from stock
     option exercises and the after-tax benefit of prior years' Medicare lab
     recoveries.  Including those items, the rolling 12-month operating cash
     flow was $405 million and free cash flow was $357 million.
  -- Operating Income:  Operating income for the first quarter was $106
     million.
  -- Volume:  Total treatments for the first quarter were 1,868,787 or
     24,270 treatments per day, an increase of 13.5% per day compared to the
     first quarter of last year.  Non-acquired treatment growth was 5.6% for
     the first quarter.
  -- Center Activity:  As of March 31, 2005, we operated or provided
     administrative services at 665 outpatient centers serving approximately
     54,900 patients.  During the first quarter we acquired one center,
     opened 10 de novo centers, and closed one center.  In addition, the
     operations of three centers were merged into three other existing
     centers.

  Gambro Healthcare Acquisition:

The Company continues to be involved in active discussions with the Federal Trade Commission (FTC) staff regarding its planned acquisition of Gambro Healthcare, Inc. Although no agreement with the FTC has yet been reached, based on our discussions to date we expect we will be required to divest approximately 5% of the combined number of Gambro Healthcare and DaVita centers, which represents the same percentage of the combined revenues. However, the final resolution with the FTC could be materially different.

Recent Transactions

On March 22, 2005, we issued $500 million of 6 5/8% senior notes due 2013 and $850 million of 7 1/4% senior subordinated notes due 2015. We used the net proceeds along with available cash to repay all outstanding amounts under the Term Loan portions of our existing credit facilities, including accrued interest.

Outlook

Our 2005 operating income guidance is for operating income to be up 2% to 6% over 2004, exclusive of the effects of the proposed Gambro acquisition and related debt financing. At this time, we expect the Gambro Healthcare acquisition together with the 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 first quarter results for 2005 on April 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-K for the year ended December 31, 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 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
  -- the Company's ability to complete acquisitions of businesses, including
     the consummation of the Gambro Healthcare acquisition, and the
     percentage of centers we expect we will be required to divest, 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.

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
                                                         March 31,
                                                    2005           2004

  Net operating revenues                         $609,958      $535,431
  Operating expenses and charges:
    Patient care costs                            409,949       363,429
    General and administrative                     54,263        42,604
    Depreciation and amortization                  24,848        20,270
    Provision for uncollectible accounts           10,886         9,577
    Minority interests and equity income, net       4,016         2,718
       Total operating expenses and charges       503,962       438,598

  Operating income                                105,996        96,833

  Debt expense                                     17,534        11,636
  Refinancing charges                               6,872
  Swap valuation gains                              8,392
  Other income                                      1,627         1,443
  Income before income taxes                       91,609        86,640
  Income tax expense                               35,275        33,775

    Net income                                    $56,334       $52,865

  Earnings per share:
    Basic                                           $0.57         $0.54
    Diluted                                         $0.55         $0.51
    Weighted average shares for earnings
     per share:
       Basic                                   99,399,612    98,099,476
       Diluted                                103,150,299   102,883,453


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

                                                     Three months ended
                                                          March 31,
                                                     2005          2004

  Cash flows from operating activities:
  Net income                                       $56,334        $52,865
  Adjustments to reconcile net income to cash
   provided by operating  activities:
    Depreciation and amortization                   24,848         20,270
    Stock options, principally tax benefits         15,934         14,389
    Swap valuation gains                           (8,392)
    Refinancing charges                              6,872
    Deferred income taxes                          (5,814)        (1,016)
    Minority interests in income of
     consolidated subsidiaries                       4,410          3,160
    Distributions to minority interests            (3,518)        (2,082)
    Non-cash debt expense                              625            484
    Equity investment income                         (394)          (442)
    Loss on divestitures                             (193)          (628)
  Changes in operating assets and liabilities,
   other than from acquisitions and divestitures:
    Accounts receivable                           (10,888)       (12,511)
    Medicare lab recoveries                                        19,000
    Inventories                                    (2,820)          6,818
    Other current assets                             (289)            697
    Other long-term assets                             385          1,592
    Accounts payable                               (4,865)          8,843
    Accrued compensation and benefits                5,421          2,393
    Other current liabilities                        9,088          1,779
    Income taxes                                    28,500          5,315
    Other long-term liabilities                    (3,838)          5,190
       Net cash provided by operating
        activities                                 111,406        126,116
  Cash flows from investing activities:
    Additions of property and equipment, net      (25,625)       (24,681)
    Acquisitions and divestitures, net             (2,501)       (17,088)
    Investments in and advances to
     affiliates, net                                 2,677          2,191
    Intangible assets                                (395)          (360)
       Net cash used in investing activities      (25,844)       (39,938)
  Cash flows from financing activities:
    Borrowings                                   1,741,183        774,534
    Payments on long-term debt                 (1,748,663)      (786,791)
    Deferred financing costs                      (29,213)
    Stock option exercises                          17,031         17,578
       Net cash (used in) provided by
        financing activities                      (19,662)          5,321
  Net increase in cash and cash equivalents         65,900         91,499
  Cash and cash equivalents at beginning
   of period                                       251,979         61,657
  Cash and cash equivalents at end of period      $317,879       $153,156


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

                                                  March 31,     December 31,
                                                    2005           2004

               ASSETS
  Cash and cash equivalents                       $317,879       $251,979
  Accounts receivable, less allowance
   of $60,279 and $58,166                          472,983        462,095
  Inventories                                       34,697         31,843
  Other current assets                              44,441         44,210
  Deferred income taxes                             91,917         78,593
       Total current assets                        961,917        868,720
  Property and equipment, net                      415,713        412,064
  Amortizable intangibles, net                      79,585         60,719
  Investments in third-party dialysis
   businesses                                        3,356          3,332
  Other long-term assets                            28,626         10,898
  Goodwill                                       1,160,615      1,156,226
                                                $2,649,812     $2,511,959

               LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                $ 91,366       $ 96,231
  Other liabilities                                166,302        157,214
  Accrued compensation and benefits                139,340        133,919
  Current portion of long-term debt                  6,346         53,364
  Income taxes payable                              29,507          1,007
       Total current liabilities                   432,861        441,735
  Long-term debt                                 1,362,006      1,322,468
  Other long-term liabilities                       22,473         22,570
  Deferred income taxes                            156,369        148,859
  Minority interests                                57,690         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                     550,987        542,714
    Retained earnings                              667,621        611,287
    Treasury stock, at cost (34,878,913 and
     36,295,339 shares)                          (608,040)      (632,732)
    Accumulated comprehensive
     income valuations                               7,710          1,730
       Total shareholders' equity                  618,413        523,134
                                                $2,649,812     $2,511,959


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

                                            Q1 2005    Q4 2004    Q1 2004
  Financial Results:
    Net income                              $56.3      $56.6     $52.9
       Basic EPS                             $.57       $.58      $.54
       EPS assuming dilution                 $.55      $.56*      $.51

    Operating income                         $106     $105.2     $96.8
       Operating income margin              17.4%      17.1%     18.1%

    Other comprehensive income
       Unrealized gain (loss) on
        securities, net of tax (expense)
        benefit of $(3.7), $(1.3)
        and $1.6                             $6.0       $2.1    $(2.6)

  Business Metrics:
    Volume
      Treatments                        1,868,787  1,895,952 1,657,055
      Number of treatment days               77.0       79.0      77.5
      Treatments per day                   24,270     23,999    21,381
      Per day year over year increase       13.5%      14.5%      8.7%
      Non-acquired growth                    5.6%       6.0%      4.1%

  Revenue
      Total operating revenue                $610       $616      $535

      Dialysis revenue per treatment      $310.92    $311.22   $311.02
      Per treatment change from
       previous quarter                    (0.1%)     (0.8%)      1.5%
      Per treatment change from
       prior year                            0.0%       1.6%      5.0%

  Expenses
  A.  Patient care costs
      Percent of revenue                    67.2%      68.1%     67.9%
      Per treatment                       $219.37    $221.31   $219.32
      Per treatment change from
       previous quarter                    (0.9%)       0.6%      1.5%
      Per treatment change from
       previous year                         0.0%       2.4%      4.1%

  B.  General & administrative expenses
      Percent of revenue                     8.9%       8.6%      8.0%
      Per treatment                        $29.04     $28.03    $25.71
      Per treatment change from
       previous quarter                      3.6%       0.0%      6.2%
      Per treatment change from
       previous year                        13.0%      15.8%      5.0%

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

  D.  Consolidated effective tax rate       38.5%      37.4%     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)

                                              Q1 2005    Q4 2004  Q1 2004
  Cash Flow
    Operating cash flow, excluding
     Medicare lab recoveries                  $111.4     $82.3    $114.5
    Operating cash flow, excluding
     Medicare lab recoveries and
     tax benefit from stock option
     exercises                                 $95.5     $70.0    $100.1
    Free cash flow, excluding
     Medicare lab recoveries                  $103.8     $67.4    $108.7
    Free cash flow, excluding Medicare
     lab recoveries and tax benefit
     from stock option exercises               $87.8     $55.1     $94.3
    Capital expenditures:
       Development                             $18.1     $25.0     $19.2
       Routine maintenance/IT/other             $7.6     $14.9      $5.8
    Acquisition expenditures, net               $2.5     $19.8     $17.1

  Accounts Receivable
    Net receivables                             $473      $462      $400
    DSO                                           71        70        70

  Debt/Capital Structure
    Total debt                                $1,368    $1,376    $1,155
    Net debt, (net of cash balance)           $1,050    $1,124    $1,002
    Leverage ratio (see Note 1)                 2.0x      2.2x      2.1x
    Share repurchases (in millions)                         .3
    Average repurchase price                            $30.14

  Clinical (quarterly averages)
    Dialysis adequacy - % of patients
     with Kt/V > 1.2                             94%       94%       94%
    Anemia measure - % of patients
     with HCT > 33                               86%       86%       85%
    Patients with arteriovenous fistula          43%


                               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 payable by the
   Company under the credit agreement by establishing the margin over the
   base interest rate 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 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.

                                          Q1 2005     Q4 2004      Q1 2004

  Net income                             $56,334     $56,602     $52,865
  Debt expense                            17,534      15,777      11,636
  Refinancing charges                      6,872
  Income taxes                            35,275      33,845      33,775
  Depreciation and amortization           24,848      23,212      20,270
  Minority interests and equity
   income, net                             4,016       3,880       2,718
  Swap valuation gains                   (8,392)
    "Consolidated EBITDA" as defined
     in the indentures                  $136,487    $133,316    $121,264

  Annualized "Consolidated EBITDA"
   as defined in the indentures         $545,948    $533,264    $485,056


                                         Q1 2005     Q4 2004      Q1 2004

  Total debt                          $1,368,352  $1,375,832  $1,155,302
  Letters of credit issued                22,959      22,959      23,738
                                       1,391,311   1,398,791   1,179,040
  Less cash and cash equivalents       (317,879)   (251,979)   (153,156)
                                      $1,073,432  $1,146,812  $1,025,884
  Annualized "Consolidated EBITDA"
   as defined in the indentures         $545,948    $533,264    $485,056
  Leverage Ratio                            2.0x        2.2x        2.1x


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

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

                                                                Rolling 12-
                                                                month period
                                Q1 2005    Q4 2004    Q1 2004  ended Q1 2005

  Cash provided by operating
   activities                  $111,406   $87,341   $126,116    $405,235
  Less: Medicare lab
   recoveries for prior
   years' services                        (8,293)   (19,000)     (8,293)
  Related income tax expense                3,234      7,410       3,234
  Operating cash flow,
   excluding Medicare
   lab recoveries               111,406    82,282    114,526     400,176
  Less: Tax benefit from
   stock option exercises      (15,934)  (12,305)   (14,389)    (44,315)
                                $95,472   $69,977   $100,137    $355,861

   2. 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.

                                                               Rolling 12-
                                                               month period
                               Q1 2005    Q4 2004    Q1 2004  ended Q1 2005

  Cash provided by
   operating activities       $111,406    $87,341   $126,116    $405,235
  Less: Expenditures for
   routine maintenance and
   information technology      (7,634)   (14,883)    (5,816)    (48,372)
  Free cash flow               103,772     72,458    120,300     356,863
    Medicare lab recoveries
     related to prior
     years' services                      (8,293)   (19,000)     (8,293)
    Related income tax expense              3,234      7,410       3,234
  Free cash flow, excluding
   Medicare lab recoveries     103,772     67,399    108,710     351,804
  Less: Tax benefit from
   stock option exercises     (15,934)   (12,305)   (14,389)    (44,315)
                               $87,838    $55,094    $94,321    $307,489
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SOURCE: DaVita Inc.

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


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