Improving Health, Health Care and Quality of Life

DaVita 2nd Quarter 2008 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. today announced results for the quarter ended June 30, 2008. Net income for the three and six months ended June 30, 2008 was $95.0 million and $181.9 million, or $0.90 per share and $1.70 per share, respectively. This compares to net income for the three and six months ended June 30, 2007 of $88.7 million and $165.2 million, or $0.83 per share and $1.55 per share, respectively, which exclude a valuation gain on the Company's alliance and product supply agreement with Gambro and exclude after-tax gains on the sale of investment securities.

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

Net income for the three and six months ended June 30, 2007 including the valuation gain on the Company's alliance and product supply agreement with Gambro and including after-tax gains on the sale of investment securities was $125.0 million and $201.6 million, or $1.17 per share and $1.89 per share, respectively.

Financial and operating highlights include:

-- Cash Flow: For the rolling 12 months ended June 30, 2008 operating cash flow was $545 million and free cash flow was $446 million. For the three months ended June 30, 2008 operating cash flow was $135 million and free cash flow was $114 million.

-- Operating Income: Operating income for the three and six months ended June 30, 2008 was $206 million and $402 million, respectively, as compared to $206 million and $399 million, respectively, for the same periods of 2007, which exclude a pre-tax valuation gain of $55 million on the product supply agreement.

-- Volume: Total treatments for the second quarter of 2008 were 4,018,763 or 51,523 treatments per day, representing a per day increase of 6.0% over the second quarter of 2007. Non-acquired treatment growth in the quarter was 4.5% over the prior year's second quarter.

-- Effective Tax Rate: The effective tax rate was 38.0% and 38.5% for the three and six months ended June 30, 2008, respectively. As a result of realizing certain tax benefits during the second quarter of 2008 we are lowering the range of our projected 2008 annual effective tax rate to 38.5%-39.5%. We currently project our 2009 effective tax rate to return to around 40.0%.

-- Share Repurchases: During the second quarter of 2008 and for the six months ended June 30, 2008, we repurchased a total of 2,778,853 and 3,461,353 shares, respectively, of our common stock for $137.2 million and $169.7 million, or an average price of $49.35 and $49.02 per share, respectively, pursuant to previously announced Board authorizations. We have not repurchased any additional shares of our common stock subsequent to June 30, 2008.

-- Center Activity: As of June 30, 2008, we operated or provided administrative services at 1,401 outpatient dialysis centers serving approximately 109,000 patients, of which 1,378 centers are consolidated in our financial statements. During the second quarter of 2008, we acquired 6 centers, opened 12 new centers, merged 2 centers, closed 4 centers, and discontinued providing administrative services to 1 center.

Outlook

We are narrowing our operating income guidance for 2008 to a range of $800-$840 million. Our operating income for 2009 is currently projected to be in the range of $820-$880 million. 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, 2008 on August 4, 2008 at 5:00 p.m. 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, http://www.davita.com/, for the following 30 days.

This release contains forward-looking statements, including statements related to our 2008 and 2009 operating results and our 2009 expected effective tax rate. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, competition, accounting estimates and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended March 31, 2008. 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 commercial payor plans,

-- continued downward pressure on average realized payment rates from commercial payors, which may result in the loss of revenue or patients, and possible reductions in government payment rates,

-- changes in the structure of and payment rates under the Medicare ESRD Program which may further reduce Medicare payment rates,

-- changes in pharmaceutical or anemia management 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 compliance with the corporate integrity agreement applicable to the dialysis centers acquired from Gambro Healthcare and assumed in connection with such acquisition, and

-- the resolution of ongoing investigations by various federal and state governmental agencies.

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,
                                2008         2007       2008        2007
  Net operating revenues    $1,407,304   $1,312,735  $2,752,028  $2,590,901
  Operating expenses and
   charges:
      Patient care costs       973,286      891,013   1,903,495   1,772,598
      General and
       administrative          125,199      122,432     245,964     235,653
      Depreciation and
       amortization             52,892       47,058     105,703      92,848
      Provision for
       uncollectible
       accounts                 37,497       33,944      72,128      67,579
      Minority
       interests and
       equity income, net       12,876       12,346      22,457      22,964
      Valuation gain on
       alliance and
       product supply
       agreement                     -      (55,275)          -     (55,275)
          Total operating
           expenses and
           charges           1,201,750    1,051,518   2,349,747   2,136,367
  Operating income             205,554      261,217     402,281     454,534
  Debt expense                 (55,320)     (62,911)   (114,386)   (131,781)
  Other income                   2,987        7,658       7,850      10,853
  Income before
   income taxes                153,221      205,964     295,745     333,606
  Income tax expense            58,270       80,940     113,860     132,000
  Net income                   $94,951     $125,024    $181,885    $201,606
  Earnings per share:
      Basic earnings
       per share                 $0.91        $1.19       $1.71       $1.92
      Diluted earnings
       per share                 $0.90        $1.17       $1.70       $1.89
      Weighted average shares
       for earnings per
       share:
          Basic            104,814,817  105,451,306 106,082,024 105,246,995
          Diluted          105,617,173  107,011,248 106,927,556 106,879,727



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

                                                      Six months ended
                                                           June 30,
                                                      2008           2007
  Cash flows from operating activities:
  Net income                                       $181,885       $201,606
  Adjustments to reconcile net income to cash
   provided by operating activities:
      Depreciation and amortization                 105,703         92,848
      Valuation gain on alliance and product
       supply agreement                                   -        (55,275)
      Stock-based compensation expense               19,216         16,326
      Tax benefits from stock award exercises         5,264         12,481
      Excess tax benefits from stock award
       exercises                                     (3,055)       (10,516)
      Deferred income taxes                          17,171         27,458
      Minority interests in income of
       consolidated subsidiaries                     21,934         23,502
      Distributions to minority interests           (29,423)       (25,230)
      Equity investment losses (income)                 523           (538)
      Loss (gain) on disposal of assets               4,462         (1,866)
      Non-cash debt and non-cash rent charges         6,953          8,430
  Changes in operating assets and liabilities,
   other than from acquisitions and divestitures:
      Accounts receivable                          (119,996)       (27,427)
      Inventories                                      (301)        19,503
      Other receivables and other current assets    (12,493)       (33,793)
      Other long-term assets                        (10,344)        (5,095)
      Accounts payable                              (18,255)       (31,146)
      Accrued compensation and benefits               4,091           (701)
      Other current liabilities                      58,078         13,891
      Income taxes                                  (10,057)       (10,292)
      Other long-term liabilities                     4,178           (234)
          Net cash provided by operating
           activities                               225,534        213,932
  Cash flows from investing activities:
      Additions of property and equipment, net     (145,007)      (104,999)
      Acquisitions and purchases of other
       ownership interests                          (69,652)        (6,262)
      Proceeds from asset sales                         125            622
      Purchase of investments available for sale     (1,352)       (21,214)
      Purchase of investments held-to-maturity      (15,777)       (15,862)
      Proceeds from sale of investments available
       for sale                                       5,321         25,403
      Proceeds from maturities of investments
       held-to-maturity                              15,462             15
      Contributions from minority owners             18,983         13,476
      Purchase of intangible assets                     (65)          (556)
          Net cash used in investing activities    (191,962)      (109,377)
  Cash flows from financing activities:
      Borrowings                                  8,397,822      8,227,417
      Payments on long-term debt                 (8,397,476)    (8,271,098)
      Deferred financing costs                         (130)        (4,228)
      Purchase of treasury stock                   (169,673)             -
      Excess tax benefits from stock award
       exercises                                      3,055         10,516
      Stock award exercises and other share
       issuances, net                                12,770         19,538
          Net cash used in financing activities    (153,632)       (17,855)
  Net (decrease) increase in cash and cash
   equivalents                                     (120,060)        86,700
  Cash and cash equivalents at beginning of
   period                                           447,046        310,202
  Cash and cash equivalents at end of period       $326,986       $396,902



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

                                                    June 30,    December 31,
                      ASSETS                          2008          2007
  Cash and cash equivalents                         $326,986      $447,046
  Short-term investments                              51,138        40,278
  Accounts receivable, less allowance of
   $202,489 and $195,953                           1,046,665       927,949
  Inventories                                         81,222        80,173
  Other receivables                                  220,343       198,744
  Other current assets                                34,756        34,482
  Deferred income taxes                              228,129       247,578
          Total current assets                     1,989,239     1,976,250
  Property and equipment, net                        985,503       939,326
  Amortizable intangibles, net                       170,831       183,042
  Investments in third-party dialysis businesses      18,350        19,446
  Long-term investments                                7,896        22,562
  Other long-term assets                              45,745        35,401
  Goodwill                                         3,831,996     3,767,933
                                                  $7,049,560    $6,943,960
       LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                                  $207,206      $225,461
  Other liabilities                                  544,229       486,151
  Accrued compensation and benefits                  345,830       334,961
  Current portion of long-term debt                   52,195        23,431
  Income taxes payable                                     -        16,492
          Total current liabilities                1,149,460     1,086,496
  Long-term debt                                   3,657,118     3,683,887
  Other long-term liabilities                         83,344        83,448
  Alliance and product supply agreement, net          38,642        41,307
  Deferred income taxes                              181,419       166,055
  Minority interests (fair value under potential
  put obligations - $292,000 and $330,000)           159,698       150,517
  Commitments and contingencies
  Shareholders' equity:
      Preferred stock ($0.001 par value, 5,000,000
       shares authorized; none issued)
      Common stock ($0.001 par value, 450,000,000
       shares authorized; 134,862,283 shares
       issued; 104,221,739 and 107,130,127 shares
       outstanding)                                      135           135
      Additional paid-in capital                     734,845       707,080
      Retained earnings                            1,697,175     1,515,290
      Treasury stock, at cost (30,640,544 and
       27,732,156 shares)                           (647,225)     (487,744)
      Accumulated other comprehensive loss            (5,051)       (2,511)
          Total shareholders' equity               1,779,879     1,732,250
                                                  $7,049,560    $6,943,960



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

                                         Three months ended      Six months
                                   June 30,  March 31, June 30,    ended
                                     2008       2008     2007  June 30, 2008
  Financial Results excluding the
   valuation gain on the alliance
   and product supply agreement and
   gains on sale of investment
   securities for the three months
   ended June 30, 2007:
      Net income(1)                   $95.0     $86.9     $88.7      $181.9
      Diluted earnings per
       share(1)                       $0.90     $0.80     $0.83       $1.70
      Operating income(1)            $205.6    $196.7    $205.9      $402.3
          Operating income
           margin(1)                  14.6%     14.6%     15.7%       14.6%

  Business Metrics:
      Volume
          Treatments              4,018,763 3,934,777  3,792,419  7,953,540
          Number of treatment
           days                        78.0      77.4      78.0       155.4
          Treatments per day         51,523    50,837    48,621      51,181
          Per day year over year
           increase                    6.0%      6.3%      5.3%        6.1%
          Non-acquired growth year
           over year                   4.5%      5.0%      4.6%        4.8%

      Revenue
          Total operating revenue    $1,407    $1,345    $1,313      $2,752
          Dialysis revenue per
           treatment, including
           the lab                  $335.98   $328.95   $337.94     $332.51
          Per treatment increase
           from previous quarter       2.1%      0.3%      0.0%           -
          Per treatment (decrease)
           increase from previous
           year                       (0.6%)    (2.6%)     2.7%       (1.6%)

      Expenses
  A.      Patient care costs
          Percent of revenue          69.2%     69.2%     67.9%       69.2%
          Per treatment             $242.19   $236.41   $234.95     $239.33
          Per treatment increase
          (decrease) from
          previous quarter             2.4%      1.5%     (1.4%)          -
          Per treatment increase
          (decrease) from
          previous year                3.1%     (0.8%)     0.4%        1.2%

  B.      General & administrative
           expenses
          Percent of revenue           8.9%      9.0%      9.3%        8.9%
          Per treatment              $31.15    $30.69    $32.28      $30.93
          Per treatment increase
           (decrease) from
           previous quarter            1.5%     (9.4%)     5.5%           -
          Per treatment
           increase (decrease)
           from previous year         (3.5%)     0.3%      4.4%       (1.7%)

  C.      Bad debt expense as a
           percent of current -
           period revenue              2.7%      2.6%      2.6%        2.6%

  D.      Consolidated effective
           tax rate                   38.0%     39.0%     39.3%       38.5%

These are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see attached reconciliation schedules.

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

                                      Three months ended         Six months
                                 June 30,  March 31,  June 30,     ended
                                   2008       2008      2007   June 30, 2008
  Cash Flow
      Operating cash flow        $134.5       $91.0     $125.9       $225.5
      Operating cash flow,
       last twelve months        $544.6      $536.0     $501.0
      Free cash flow(1)          $114.4       $73.2     $101.7       $187.6
      Free cash flow, last
       twelve months(1)          $445.7      $433.1     $389.5
      Capital expenditures:
          Development and
           relocations            $60.2       $46.1      $30.8       $106.3
          Routine maintenance
            /IT other             $20.2       $18.5      $24.7        $38.7
      Acquisition
       expenditures               $60.9        $8.8       $6.1        $69.7

  Accounts Receivable
      Net receivables            $1,047        $960       $960
      DSO                            70          68         69

  Debt/Capital Structure
      Total debt(2)                  $3,705      $3,701     $3,703
      Net debt, net of cash(2)       $3,378      $3,222     $3,306
      Leverage ratio (see Note 1)     3.07x       2.94x      3.23x
      Overall effective weighted
       average interest rate
       during the quarter             5.75%       6.10%      6.52%
      Effective weighted average
       interest rate end of the
       quarter                        5.68%       5.79%      6.43%
      Effective weighted average
       interest rate on the Senior
       Secured Credit Facilities
       end of the quarter             4.59%       4.80%      6.01%
      Economically fixed interest
       rates as a percentage of our
       total debt                       69%         72%        79%
      Share repurchases              $137.2       $32.5        $-    $169.7

  Clinical (quarterly averages)
      Dialysis adequacy - % of
       patients with Kt/V > 1.2         95%         95%        93%
      Patients with albumin > 3.5       82%         82%        84%
      Patients with Hb>=11              81%         80%        84%

(1) These are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see attached reconciliation schedules.

(2) Excludes an unamortized balance of a debt premium associated with our senior notes that is not actually outstanding debt principal.

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

  Note 1: Calculation of the Leverage Ratio

Under the Company's current Senior Secured Credit Facilities (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 for its term loan A and revolving line of credit 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 routine acquisitions that occurred during the period. 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, 2008

  Net income                                                      $362,057
  Income taxes                                                     227,604
  Debt expense including the write-off
   of deferred financing costs                                     239,752
  Depreciation and amortization                                    206,325
  Minority interests and equity income, net                         44,978
  Other                                                                727
  Stock-based compensation expense                                  37,040
      "Consolidated EBITDA"                                     $1,118,483

                                                               June 30, 2008
  Total debt, excluding debt premium of $4.1 million            $3,705,195
  Letters of credit issued                                          50,002
                                                                 3,755,197

  Less: cash and cash equivalents                                 (326,986)
  Consolidated net debt                                         $3,428,211
  Last twelve months "Consolidated EBITDA"                      $1,118,483
  Leverage ratio                                                     3.07x

In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 4.75 to 1.0 as of June 30, 2008. At that date, the Company's leverage ratio did not exceed 4.75 to 1.0.

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

1. Net income excluding the valuation gain on the alliance and product supply agreement (the Product Supply Agreement) and gains on the sale of investment securities:

We believe that net income excluding the valuation gain on the Product Supply Agreement and gains on the sale of investment securities enhances a user's understanding of our normal net income for these periods by providing a measure that is more meaningful because it excludes a non-recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Amended Product Supply Agreement and non-recurring gains on the sale of investment securities and accordingly is more comparable to current and prior periods and indicative of consistent net income. 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 net income.

                                                          Six months ended
                               Three months ended             June 30,
                         June 30,  March 31,   June 30,
                           2008       2008       2007       2008      2007
  Net income
                           $94,951   $86,934    $125,024 $181,885 $201,606
  Less:  Valuation gain          -         -     (55,275)       -  (55,275)
         Gain on the sale
          of investment
          securities             -         -      (4,234)       -   (4,234)
  Add:   Related income tax      -         -      23,149        -   23,149


                           $94,951   $86,934     $88,664 $181,885 $165,246

2. Operating income excluding the pre-tax valuation gain on the Product Supply Agreement:

We believe that operating income excluding the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal operating income for these periods by providing a measure that is more meaningful because it excludes a non-recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Amended Product Supply Agreement and accordingly is more comparable to prior periods and indicative of consistent operating income items. 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 operating income.

                                                         Six months ended
                            Three months ended               June 30,
                     June 30,     March 31,  June 30,
                       2008         2008       2007         2008      2007

  Operating income     $205,554   $196,727  $261,217    $402,281   $454,534
  Less:  Valuation
   gain                       -          -   (55,275)          -    (55,275)

                       $205,554   $196,727  $205,942    $402,281   $399,259



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

  3.  Free cash flow

Free cash flow represents net cash provided by operating activities less capital 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 free cash flow 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.

                                     Three months ended          Six months
                                                                   ended
                               June 30,     March 31,  June 30,   June 30,
                                 2008         2008       2007       2008
  Cash provided by operating
   activities                  $134,510     $91,024    $125,901   $225,534
  Less: Expenditures for
   routine maintenance and
   information technology       (20,153)    (17,827)    (24,157)   (37,980)
  Free cash flow               $114,357     $73,197    $101,744   $187,554



                                             Rolling 12-Month Period
                                         June 30,    March 31,    June 30,
                                           2008        2008         2007
  Cash provided by operating
   activities                           $544,638    $536,029      $500,977
  Less: Expenditures for routine
   maintenance and information
   technology                            (98,897)   (102,901)     (111,511)
  Free cash flow                        $445,741    $433,128      $389,466

First Call Analyst:
FCMN Contact: LeAnne.Zumwalt@davita.com

Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO
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SOURCE: DaVita Inc.

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


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