DaVita (DVA) 8-K DAVITA INC. REPORTS 3rd QUARTER 2003 RESULTS

EXHIBIT 99.1

Contact:     LeAnne Zumwalt Investor Relations DaVita Inc. 310 536-2420

DAVITA INC. REPORTS 3rd QUARTER 2003 RESULTS

El Segundo, California, November 3, 2003 – DaVita Inc. (NYSE: DVA), today announced results for the quarter ended September 30, 2003. Net earnings for the three and nine months ended September 30, 2003, excluding after-tax refinancing charges of $10.4 million, were $48.5 million and $123.4 million, or $0.67 and $1.74 per share respectively.

Net earnings for the three and nine months ended September 30, 2003, including the refinancing charges were $38.1 million and $113 million, or $0.54 and $1.61 per share, respectively.

Financial and operating highlights include:

• Cash Flow: For the rolling 12 months ended September 30, 2003, before considering recoveries of $42 million in 2002 related to prior period lab billings, operating cash flow was $300 million and free cash flow was $254 million.

• Operating Income: Operating income for the three and nine months was $95 million and $257 million, respectively, reflecting both favorable cost and revenue performance.

• Volume: Total treatments for the third quarter were 1,625,058, an increase of 7.1% compared to the third quarter of last year. Non-acquired treatment growth was 3.8%, with acquisitions contributing the additional 3.3% to treatment growth.

• Revenue per Treatment: Third quarter dialysis revenue per treatment increased to approximately $306.

• Facility Activity: As of September 30, 2003, we provided dialysis services at 547 outpatient centers serving approximately 47,600 patients. Included in this patient and center count are approximately 3,300 patients in 29 centers under management arrangements. During the third quarter we acquired 3 centers and opened 7 de novo centers. We also closed two centers.

Recent transactions:

• On July 15, 2003, we completed a refinancing of our senior credit facilities resulting in lower interest rates and modification of certain covenants. Additionally, new borrowings of $200 million were used to redeem a portion of our outstanding 7% convertible notes on August 15, 2003.

• On July 15, 2003, we also completed the call of our 5⁵/₈% convertible notes, which were converted into approximately 4.9 million shares.

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• On October 14, 2003 we completed the redemption of the remaining $145 million of 7% convertible notes for cash except for $526,000 of the Notes that were converted into approximately 16,000 shares of stock.

• During the quarter we repurchased 2.7 million shares at an average price of $30.34 per share.

Outlook:

• We expect that fourth quarter operating income will be comparable to the third quarter. For 2004, we are currently targeting operating income to be between $360 and $385 million.

DaVita will be holding a conference call to discuss its third quarter 2003 results on November 3, 2003, at 1:00 PM Eastern Standard 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 press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding certain nonrecurring expenses and prior period recoveries and by allowing consistency and comparability in our financial reporting to prior periods for which these non-GAAP measures were previously reported. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. Included in this press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures.

This release also contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulation, general economic and other market conditions, and the risk factors set forth in the Company’s SEC filings, including its Form 10-Q for the quarter ended June 30, 2003. The forward-looking statements should be considered in light of these risks and uncertainties. These risks include those relating to:

• the concentration of profits generated from PPO and private indemnity patients and from ancillary services including the administration of pharmaceuticals,

• 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, and

• legal compliance risks, such as those associated with the ongoing review of the Company’s Florida laboratory subsidiary by its Medicare carrier and the Department of Justice, and the ongoing review by the US Attorney’s Office and HHS Office of Inspector General in Philadelphia.

The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

	September 30, 2003			December 31, 2002
ASSETS
Cash and cash equivalents	$	272,109		$	96,475
Accounts receivable, less allowance of $50,636 and $48,927		356,542			344,292
Inventories		25,743			34,929
Other current assets		33,117			28,667
Deferred income taxes		53,065			40,163
Total current assets		740,576			544,526
Property and equipment, net		321,368			298,475
Amortizable intangibles, net		52,978			63,159
Investments in third-party dialysis businesses		3,064			3,227
Other long-term assets		11,561			1,520
Goodwill		908,318			864,786
	$	2,037,865		$	1,775,693
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	71,166		$	77,890
Other liabilities		127,384			101,389
Accrued compensation and benefits		108,076			95,435
Current portion of long-term debt		50,224			7,978
Income taxes payable		23,221			9,909
Total current liabilities		380,071			292,601
Long-term debt		1,272,648			1,311,252
Other long-term liabilities		14,483			9,417
Deferred income taxes		91,103			65,930
Minority interests		28,872			26,229
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; 89,871,303 and 88,874,896 shares issued)		90			89
Additional paid-in capital		544,719			519,369
Retained earnings		326,330			213,337
Treasury stock, at cost (25,628,140 and 28,216,177 shares)		(620,451	)		(662,531	)
Total shareholders’ equity		250,688			70,264
	$	2,037,865		$	1,775,693

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DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands, except per share data)

	Three months ended September 30,				Nine months ended September 30,
	2003		2002		2003		2002
Net operating revenues	$	513,282	$	481,194	$	1,462,972	$	1,351,536
Operating expenses and charges:
Dialysis centers and labs		347,895		308,438		1,000,591		900,624
General and administrative		39,920		37,048		119,290		112,735
Depreciation and amortization		19,336		16,267		54,702		47,770
Provision for uncollectible accounts		9,214		8,117		26,231		19,254
Minority interests and equity income, net		1,706		1,405		4,813		5,704
Total operating expenses and charges		418,071		371,275		1,205,627		1,086,087
Operating income		95,211		109,919		257,345		265,449
Debt expense		16,111		19,967		55,062		52,178
Refinancing charges		17,240				17,240		48,930
Other income		1,050		618		2,725		3,505
Income before income taxes		62,910		90,570		187,768		167,846
Income tax expense		24,850		36,400		74,775		69,328
Net earnings	$	38,060	$	54,170	$	112,993	$	98,518
Comprehensive income	$	38,060	$	54,170	$	112,993	$	98,518
Earnings per share:
Basic	$	0.58	$	0.84	$	1.81	$	1.30
Diluted	$	0.54	$	0.72	$	1.61	$	1.20
Weighted average shares for earnings per share:
Basic		65,102,965		64,128,489		62,442,042		75,556,960
Diluted		76,499,362		82,422,930		78,154,106		94,301,824

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DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

	Nine months ended September 30,
	2003			2002
Cash flows from operating activities:
Net earnings	$	112,993		$	98,518
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		54,702			47,770
Loss (gain) on divestitures		929			(2,610	)
Deferred income taxes		12,271			22,574
Non-cash debt expense		2,636			2,375
Stock options, principally tax benefits		10,240			18,035
Equity investment income		(1,331	)		(1,465	)
Minority interests in income of consolidated subsidiaries		6,144			7,171
Refinancing charges		17,240			48,930
Distributions to minority interests		(5,560	)		(6,572	)
Changes in operating assets and liabilities, excluding acquisitions and divestitures:
Accounts receivable		(9,978	)		(13,362	)
Inventories		9,974			12,506
Other current assets		(4,189	)		(7,726	)
Other long-term assets		3,902			216
Accounts payable		(7,950	)		9,787
Accrued compensation and benefits		12,959			10,531
Other current liabilities		25,832			7,181
Income taxes		13,312			18,743
Other long-term liabilities		4,946			3,075
Net cash provided by operating activities		259,072			275,677
Cash flows from investing activities:
Additions of property and equipment, net		(64,031	)		(66,999	)
Acquisitions and divestitures, net		(66,922	)		(11,979	)
Investments in affiliates, net		3,516			3,488
Intangible assets		(540	)		(142	)
Net cash used in investing activities		(127,977	)		(75,632	)
Cash flows from financing activities:
Borrowings		3,423,511			1,928,326
Payments on long-term debt		(3,299,064	)		(1,426,537	)
Debt redemption premium		(8,405	)		(40,910	)
Deferred financing costs		(3,445	)		(10,794	)
Purchase of treasury stock		(83,037	)		(597,171	)
Proceeds from issuance of common stock		14,979			25,691
Net cash provided by financing activities		44,539			(121,395	)
Net increase in cash		175,634			78,650
Cash and cash equivalents at beginning of period		96,475			36,711
Cash and cash equivalents at end of period	$	272,109		$	115,361

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DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(dollars in millions, except for per share and per treatment data)

	Q3 2003			Q2 2003			Q3 2002			YTD 2003
Financial Results:
Net earnings excluding refinancing charges, prior period Medicare lab revenue	$	48.5		$	38.5		$	37.7		$	123.4
Basic EPS	$	0.74		$	0.63		$	0.59		$	1.97
EPS assuming dilution	$	0.67		$	0.55		$	0.52		$	1.74
Operating income, excluding prior period Medicare lab revenue	$	95.2		$	82.8		$	82.7		$	257.3
Operating income margin		18.5	%		16.9	%		18.2	%		17.6	%
Business Metrics:
Volume
Treatments		1,625,058			1,579,580			1,516,840			4,707,669
Number of treatment days		79			78			79			233.4
Treatments per day		20,570			20,251			19,201			20,170
Per day year over year increase		7.1	%		6.2	%		4.6	%		6.1	%
Non-acquired growth		3.8	%		3.4	%		3.8	%		3.4	%
Revenue, excluding prior period Medicare lab revenue
Revenue	$	513		$	490		$	454		$	1,463
Dialysis revenue per treatment	$	306.20		$	301.52		$	290.92		$	301.47
Per treatment increase from previous quarter		1.6	%		1.8	%		0.1	%		—
Per treatment increase from prior year		5.3	%		3.8	%		3.8	%		3.7	%
Expenses
A.      Dialysis centers and lab operating expenses
Percent of revenue		67.8	%		68.6	%		67.9	%		68.4	%
Per treatment	$	214.08		$	212.71		$	203.34		$	212.54
Per treatment increase from previous quarter		0.6	%		0.9	%		1.4	%		—
B.      General & administrative expenses
Percent of revenue		7.8	%		8.7	%		8.2	%		8.2	%
Per treatment	$	24.57		$	26.96		$	24.42		$	25.34
Per treatment increase (decrease) from previous quarter		(8.9	%)		10.1	%		(11.5	%)		—
C.      Bad debt expense as a percent of current-period revenue		1.8	%		1.8	%		1.9	%		1.8	%
D.      Consolidated effective tax rate		39.5	%		40.0	%		40.0	%		39.8	%

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DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA, CONTINUED

(dollars in millions, except for per share and per treatment data)

	Q3 2003			Q2 2003			Q3 2002			YTD 2003
Cash Flow
Operating cash flow excluding prior period Medicare lab revenue	$	99.6		$	78.8		$	117.3		$	259.1
Free cash flow	$	90.1		$	69.3		$	106.8		$	229.5
Capital expenditures:
Development	$	12.9		$	10.4		$	11.7		$	35.2
Routine maintenance/IT/other	$	9.5		$	9.5		$	10.5		$	29.5
Acquisition expenditures, net	$	21.1		$	46.0		$	10.6		$	68.2
Accounts Receivable
Net receivables	$	357		$	346		$	340
DSO		65			66			70
Debt/Capital Structure
Total debt	$	1,323		$	1,457		$	1,322
Net debt, net of cash	$	1,051		$	1,141		$	1,207
Leverage ratio – last quarter annualized (see Note 1)		2.3	x		2.8	x		3.0	x
Shares repurchased (in millions)		2.7			—			5.6			2.7
Average repurchase price	$	30.34			—		$	21.83		$	30.34
Clinical (quarterly averages)
Dialysis adequacy-% of patients with Kt/V > 1.2		93	%		92	%		91	%
Anemia measure-% of patients with HCT > 33		83	%		83	%		82	%

Note 1. Leverage ratio is defined as net debt (total debt net of cash) to operating income excluding depreciation, amortization, minority interests and prior period Medicare lab revenue. The operating income reconciliation is provided below.

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DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(dollars in thousands)

	Q3 2003			Q2 2003		Q3 2002			YTD 2003
1.      Net earnings excluding refinancing charges and prior period Medicare lab revenue:
Net earnings	$	38,060		$	38,520	$	54,170		$	112,993
Add back: Refinancing charges		17,240								17,240
Less: Prior period Medicare lab revenue							(27,223	)
Related income tax expense		(6,818	)				10,767			(6,818	)
	$	48,482		$	38,520		37,714		$	123,415
	Q3 2003			Q2 2003		Q3 2002			YTD 2003
2.      Operating income excluding depreciation, amortization, minority interests and prior period Medicare lab revenue:
Operating income	$	95,211		$	82,800	$	109,919		$	257,345
Less: Prior period Medicare lab revenue							(27,223	)
	$	95,211		$	82,800	$	82,696		$	257,345
Add back:   Depreciation and amortization		19,336			17,921		16,267			54,702
Minority interests and equity income, net		1,706			1,813		1,405			4,813
	$	116,253		$	102,534	$	100,368		$	316,860
	Q3 2003			Q2 2003		Q3 2002			Rolling 12- month period ended Q3 2003
3.      Operating cash flow before prior period Medicare lab revenue:
Cash provided by operating activities	$	99,645		$	78,778	$	133,760		$	325,390
Less: Prior period Medicare lab revenue							(27,223	)		(41,555	)
Related income tax expense							10,767			16,435
	$	99,645		$	78,778	$	117,304		$	300,270

4. Free cash flow:

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 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.

	Q3 2003			Q2 2003			Q3 2002			YTD 2003			Rolling 12- month period ended Q3 2003
Cash provided by operating activities	$	99,645		$	78,778		$	133,760		$	259,072		$	325,390
Less expenditures for routine maintenance and information technology		(9,533	)		(9,513	)		(10,489	)		(29,536	)		(46,241	)
Free cash flow (including prior years’ lab recoveries)		90,112			69,265			123,271			229,536			279,149
Less: Prior period Medicare lab revenue								(27,223	)					(41,555	)
Related income tax expense								10,767						16,435
Free cash flow before prior years’ lab revenue	$	90,112		$	69,265		$	106,815		$	229,536		$	254,029

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