Improving Health, Health Care and Quality of Life

DaVita 3rd Quarter 2008 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.

DaVita Inc. today announced results for the quarter ended September 30, 2008. Net income for the three and nine months ended September 30, 2008 was $93.9 million and $275.8 million, or $0.89 per share and $2.59 per share, respectively.

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

Net income for the three months ended September 30, 2007 was $89.3 million, or $0.83 per share excluding after-tax gains from insurance settlements and after-tax gains on the sale of investment securities, and was $94.5 million, or $0.88 per share including these items.

Net income for the nine months ended September 30, 2007 was $254.6 million, or $2.38 per share excluding after-tax gains from insurance settlements, after-tax gains on the sale of investment securities and the valuation gain on the Company's alliance and product supply agreement with Gambro Renal Products, and was $296.1 million, or $2.76 per share including these items.

Financial and operating highlights include:

-- Cash Flow: For the rolling 12 months ended September 30, 2008 operating cash flow was $595 million and free cash flow was $491 million. For the three months ended September 30, 2008 operating cash flow was $146 million and free cash flow was $119 million.

-- Operating Income: Operating income for the three and nine months ended September 30, 2008 was $208 million and $610 million, respectively. Operating income for the three months ended September 30, 2007 was $206 million, excluding pre-tax gains from insurance settlements of $6.8 million. Operating income for the nine months ended September 30, 2007 was $605 million, excluding pre-tax gains from insurance settlements and the pre-tax valuation gain on the Company's product supply agreement with Gambro Renal Products of $55 million.

-- Volume: Total treatments for the third quarter of 2008 were 4,091,099, or 51,786 treatments per day, representing a per day increase of 5.1% over the third quarter of 2007. Non-acquired treatment growth in the quarter was 3.8% over the prior year's third quarter.

-- Effective Tax Rate: The effective tax rate was 39.8% and 38.9% for the three and nine months ended September 30, 2008, respectively. We are still projecting our 2008 annual effective tax rate to be in the range of 38.5%- 39.5%, and are still projecting our 2009 effective tax rate to return to around 40.0%.

-- Share Repurchases: During the first nine months of 2008, we repurchased a total of 3,461,353 shares of our common stock for $169.7 million, or an average price of $49.02 per share, pursuant to previously announced Board authorizations. We did not repurchase any shares of our common stock during the third quarter of 2008. However, during October 2008, we repurchased 1,027,502 shares of our common stock for $50 million, or an average price of $48.66 per share.

-- Center Activity: As of September 30, 2008, we operated or provided administrative services at 1,425 outpatient dialysis centers serving approximately 111,000 patients, of which 1,402 centers are consolidated in our financial statements. During the third quarter of 2008, we acquired 6 centers, opened 22 new centers, merged 2 centers, closed 1 center, and divested 1 center.

Outlook

We expect our operating income results for 2008 to be near the middle of the range of our previously provided guidance of $800-$840 million. We still expect to generate approximately $480 million to $530 million of operating cash flow in 2008. Our operating income guidance for 2009 remains unchanged at a 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 third quarter ended September 30, 2008 on November 3, 2008 at 12:00 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 June 30, 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,

-- a reduction in the number of patients under higher-paying commercial plans,

-- changes in government payment rates or the structure of payments under the Medicare ESRD Program may result in lower reimbursement for services we provide to Medicare patients and could have a material impact on our overall profitability,

-- 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      Nine months ended
                                 September 30,          September 30,
                               2008       2007        2008         2007
  Net operating revenues   $1,447,135  $1,318,381  $4,199,163    $3,909,282
  Operating expenses and
   charges:
    Patient care costs      1,005,648     890,243   2,909,143     2,662,841
    General and
     administrative           128,617     120,596     374,581       356,249
    Depreciation and
     amortization              54,970      49,230     160,673       142,078
    Provision for
     uncollectible accounts    37,305      34,107     109,433       101,686
    Minority interests and
     equity income, net        12,711      11,793      35,168        34,757
    Valuation gain on
     alliance and product
     supply agreement               -           -           -       (55,275)
       Total operating
        expenses and
        charges             1,239,251   1,105,969     3,588,998   3,242,336

  Operating income            207,884     212,412       610,165     666,946
  Debt expense                (54,505)    (62,715)     (168,891)   (194,496)
  Other income                  2,481       6,278        10,331      17,131
  Income before income
   taxes                      155,860     155,975       451,605     489,581
  Income tax expense           61,950      61,520       175,810     193,520
  Net income                  $93,910     $94,455      $275,795    $296,061
  Earnings per share:
    Basic earnings per
     share                      $0.90       $0.89         $2.61       $2.80
    Diluted earnings per
     share                      $0.89       $0.88         $2.59       $2.76
    Weighted average shares
     for earnings per share:
      Basic               104,556,770  106,171,473  105,569,971 105,558,536
      Diluted             105,577,823  107,561,139  106,421,184 107,129,135



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

                                                       Nine months ended
                                                          September 30,
                                                        2008         2007
  Cash flows from operating activities:

  Net income                                          $275,795     $296,061
  Adjustments to reconcile net income to cash
  provided by operating activities:
    Depreciation and amortization                      160,673      142,078
    Valuation gain on alliance and product supply
     agreement                                               -      (55,275)
    Stock-based compensation expense                    29,975       25,260
    Tax benefits from stock award exercises             10,174       27,000
    Excess tax benefits from stock award exercises      (5,054)     (23,632)
    Deferred income taxes                               56,157       25,645
    Minority interests in income of consolidated
     subsidiaries                                       35,822       35,703
    Distributions to minority interests                (43,391)     (35,216)
    Equity investment income                              (654)        (946)
    Loss (gain) on disposal of assets                    9,688       (4,944)
    Non-cash debt and non-cash rent charges              9,971       11,810
  Changes in operating assets and liabilities, other
   than from acquisitions and divestitures:
    Accounts receivable                               (130,022)     (32,425)
    Inventories                                         (1,248)      15,144
    Other receivables and other current assets         (28,684)     (42,818)
    Other long-term assets                             (12,761)     (11,921)
    Accounts payable                                   (12,800)      (6,458)
    Accrued compensation and benefits                  (11,752)     (17,347)
    Other current liabilities                           29,838      (26,151)
    Income taxes                                        (3,129)     (13,072)
    Other long-term liabilities                          3,163        1,214
        Net cash provided by operating activities      371,761      309,710
  Cash flows from investing activities:
    Additions of property and equipment, net          (223,851)    (176,078)
    Acquisitions and purchases of other
     ownership interests                              (101,166)     (81,782)
    Proceeds from asset sales                              451        4,643
    Purchase of investments available for sale          (1,695)     (21,363)
    Purchase of investments held-to-maturity           (19,005)     (20,839)
    Proceeds from sale of investments available
     for sale                                            5,323       32,138
    Proceeds from maturities of investments
     held-to-maturity                                   18,728        4,780
    Contributions from minority owners                  22,749       16,204
    Purchase of intangible assets                          (65)        (556)
        Net cash used in investing activities         (298,531)    (242,853)
  Cash flows from financing activities:
    Borrowings                                      12,937,047   10,405,556
    Payments on long-term debt                     (12,938,297) (10,451,891)
    Deferred financing costs                              (130)      (4,462)
    Purchase of treasury stock                        (169,673)      (6,350)
    Excess tax benefits from stock award exercises       5,054       23,632
    Stock award exercises and other share issuances,
     net                                                33,670       47,756
        Net cash (used in) provided by financing
         activities                                   (132,329)      14,241
  Net (decrease) increase in cash and cash
   equivalents                                         (59,099)      81,098
  Cash and cash equivalents at beginning of period     447,046      310,202
  Cash and cash equivalents at end of period          $387,947     $391,300



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

                                              September 30,   December 31,
          ASSETS                                   2008           2007
  Cash and cash equivalents                      $387,947       $447,046
  Short-term investments                           51,614         40,278
  Accounts receivable, less allowance of
   $204,594 and $195,953                        1,056,691        927,949
  Inventories                                      82,494         80,173
  Other receivables                               230,073        198,744
  Other current assets                             36,010         34,482
  Deferred income taxes                           219,160        247,578
     Total current assets                       2,063,989      1,976,250
  Property and equipment, net                   1,011,702        939,326
  Amortizable intangibles, net                    165,270        183,042
  Investments in third-party dialysis
   businesses                                      19,239         19,446
  Long-term investments                             6,930         22,562
  Other long-term assets                           48,162         35,401
  Goodwill                                      3,856,601      3,767,933
                                               $7,171,893     $6,943,960

      LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                               $212,661       $225,461
  Other liabilities                               515,989        486,151
  Accrued compensation and benefits               330,838        334,961
  Current portion of long-term debt                64,262         23,431
  Income taxes payable                                  -         16,492
      Total current liabilities                 1,123,750      1,086,496
  Long-term debt                                3,643,275      3,683,887
  Other long-term liabilities                      83,494         83,448
  Alliance and product supply agreement, net       37,310         41,307
  Deferred income taxes                           214,477        166,055
  Minority interests (fair value subject to
   potential put obligations . $296,000 and
   $330,000)                                      162,908        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; 104,787,536
     and 107,130,127 shares outstanding)              135            135
    Additional paid-in capital                    755,579        707,080
    Retained earnings                           1,791,085      1,515,290
    Treasury stock, at cost
     (30,074,747 and 27,732,156 shares)          (635,274)      (487,744)
    Accumulated other comprehensive loss           (4,846)        (2,511)
          Total shareholders' equity            1,906,679      1,732,250
                                                7,171,893      6,943,960



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

                                                                 Nine months
                                 Three months ended                ended
                       September 30,  June 30,  September 30,  September 30,
                           2008         2008         2007           2008
  Financial Results
   excluding gains
   from insurance
   settlements and
   gains on sale of
   investment securities
   for the three months
   ended September 30,
   2007:
    Net income(1)         $93.9         $95.0        $89.3          $275.8
    Diluted earnings per
     share(1)             $0.89         $0.90        $0.83           $2.59
    Operating income(1)  $207.9        $205.6       $205.6          $610.2
      Operating income
       margin(1)          14.4%         14.6%        15.6%           14.5%

  Business Metrics:
    Volume
      Treatments      4,091,099     4,018,763    3,842,763      12,044,639
      Number of
       treatment days      79.0          78.0         78.0           234.4
      Treatments per
       day               51,786        51,523       49,266          51,385
      Per day year over
       year increase       5.1%          6.0%         6.1%            5.8%
      Non-acquired growth
       year over year      3.8%          4.5%         5.2%            4.4%

    Revenue
      Total operating
       revenue           $1,447        $1,407       $1,318          $4,199
      Dialysis and
       related lab
       services revenue
       per treatment    $336.42       $335.98      $333.57         $333.83
      Per treatment
       increase (decrease)
       from previous
       quarter             0.1%          2.1%        (1.3%)              -
      Per treatment
       increase (decrease)
       from previous
       year                0.9%         (0.6%)        0.6%           (0.8%)

  Expenses
  A. Patient care costs
     Percent of revenue   69.5%         69.2%        67.5%           69.3%
     Per treatment
      (including gains
      from insurance
      settlements of
      $1.76 for the
      third quarter of
      2007)(2)          $245.81       $242.19      $231.67         $241.53
     Per treatment
      increase (decrease)
      from previous
      quarter              1.5%          2.4%        (1.4%)              -
     Per treatment
      increase (decrease)
      from previous year   6.1%          3.1%        (0.8%)           2.8%

  B. General & administrative
      expenses
     Percent of revenue    8.9%          8.9%         9.1%            8.9%
     Per treatment       $31.44        $31.15       $31.38          $31.10
     Per treatment
      increase (decrease)
      from previous
      quarter              0.9%          1.5%        (2.8%)              -
     Per treatment
      increase (decrease)
      from previous year   0.2%         (3.5%)        1.5%           (1.0%)

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

  D. Consolidated
      effective tax rate  39.8%         38.0%        39.4%           38.9%


  (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) On a non-GAAP basis patient care costs per treatment excluding gains
      from insurance settlements of $1.76 for the third quarter of 2007
      would have been $233.43.



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

                                                                Nine months
                                   Three months ended             ended
                       September 30,  June 30,  September 30,  September 30,
                           2008         2008         2007           2008
  Cash Flow
    Operating cash
     flow                 $146.2       $134.5       $95.8           $371.8
    Operating cash
     flow, last twelve
     months               $595.1       $544.6      $499.8
    Free cash flow(1)     $119.0       $114.4       $73.5           $306.6
    Free cash flow, last
     twelve months(1)     $491.2       $445.7      $395.6
    Capital expenditures:
      Development and
       relocations         $51.6        $60.2       $48.5           $158.0
      Routine
       maintenance/IT
       other               $27.2        $20.2       $22.6            $65.9
    Acquisition
     expenditures          $31.5        $60.9       $75.5           $101.2

  Accounts Receivable
    Net receivables       $1,057       $1,047        $976
    DSO                       70           70          70

  Debt/Capital Structure
    Total debt(2)         $3,704       $3,705      $3,701
    Net debt, net of
     cash(2)              $3,316       $3,378      $3,309
    Leverage ratio
     (see Note 1)           2.98x        3.07x       3.10x
    Overall effective
     weighted average
     interest rate
     during the quarter    5.66%        5.75%       6.48%
    Overall effective
     weighted average
     interest rate end
     of the quarter        6.09%        5.68%       6.43%
    Effective weighted
     average interest
     rate on the Senior
     Secured Credit
     Facilities end of
     the quarter           5.39%        4.59%       6.00%
    Economically fixed
     interest rates as
     a percentage of
     our total debt          70%          69%         77%
    Share repurchases         $-       $137.2          $-           $169.7

  Clinical (quarterly averages)
    Dialysis adequacy
     -% of patients
     with Kt/V > 1.2         94%          95%         94%
    Patients with
     Hb>=10 <=13             87%          86%         80%
    Patients with
     arteriovenous
     fistulas placed         61%          60%         57%

  (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 September 30,
                                                          2008
  Net income                                            $361,512
  Income taxes                                          $228,034
  Debt expense                                          $231,542
  Depreciation and amortization                         $212,065
  Minority interests and equity income, net              $45,896
  Other                                                  $10,683
  Stock-based compensation expense                       $38,865
    "Consolidated EBITDA"                             $1,128,597

                                                     September 30, 2008
  Total debt, excluding debt premium of
   $3.9 million                                          $3,703,599
  Letters of credit issued                                   47,001
                                                          3,750,600
  Less: cash and cash equivalents                          (387,947)
  Consolidated net debt                                  $3,362,653
  Last twelve months "Consolidated EBITDA"               $1,128,597
  Leverage ratio                                               2.98x


In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 4.75 to 1.0 as of September 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 gains from insurance settlements, gains on the sale of investment securities and the valuation gain on the alliance and product supply agreement (the Product Supply Agreement):

We believe that net income excluding gains from insurance settlements, gains on the sale of investment securities and the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal net income for these periods by providing a measure that is more meaningful because it excludes insurance settlement gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers, as well as non-recurring gains on the sale of investment securities and 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 Product Supply Agreement, 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.

                      Three months ended               Nine months ended
            September 30, June 30, September 30, September 30, September 30,
                2008        2008        2007          2008           2007
  Net income   $93,910     $94,951    $94,455       $275,795       $296,061
  Less:
   Gains on
    insurance
    settlements      -           -     (6,779)             -        (6,779)
   Gains on
    the sale
    of investment
    securities       -           -     (1,634)             -        (5,868)
   Valuation
    gain             -           -          -              -       (55,275)
  Add:
   Related
    income tax       -           -      3,273              -        26,422
               $93,910     $94,951    $89,315       $275,795      $254,561



2. Operating income excluding pre-tax gains from insurance settlements and the pre-tax valuation gain on the Product Supply Agreement:

We believe that operating income excluding gains from insurance settlements and 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 insurance settlements gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers and 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 Product Supply Agreement and accordingly is more comparable to current and 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.

                      Three months ended               Nine months ended
            September 30, June 30, September 30, September 30, September 30,
                2008        2008       2007          2008          2007
  Operating
   income     $207,884    $205,554    $212,412      $610,165       $666,946
  Less:
   Gains on
    insurance
    settlements      -           -      (6,779)            -         (6,779)
   Valuation
    gain             -           -           -             -        (55,275)
              $207,884     $205,554   $205,633      $610,165       $604,892



                  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            Nine months ended
                    September 30,  June 30,  September 30,    September 30,
                       2008         2008        2007               2008
  Cash provided
   by operating
   activities         $146,227    $134,510     $95,778           $371,761
  Less: Expenditures
   for routine
   maintenance and
   information
   technology          (27,217)    (20,153)    (22,229)           (65,197)
  Free cash flow      $119,010    $114,357     $73,549           $306,564



                                              Rolling 12-Month Period
                                      September 30,  June 30,  September 30,
                                           2008        2008        2007
  Cash provided by operating
   activities                           $595,087     $544,638    $499,818
  Less: Expenditures for routine
   maintenance and information
   technology                           (103,885)     (98,897)   (104,189)
  Free cash flow                        $491,202     $445,741    $395,629

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

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SOURCE: DaVita Inc.

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


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