DaVita (DVA) 8-K DAVITA INC. REPORTS 1st QUARTER 2004 RESULTS

EXHIBIT 99.1

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

DAVITA INC. REPORTS 1st QUARTER 2004 RESULTS

El Segundo, California, May 3, 2004 – DaVita Inc. (NYSE: DVA), today announced results for the quarter ended March 31, 2004. Net income for the three months ended March 31, 2004 was $52.9 million or $0.77 per share, compared with $36.4 million or $0.52 per share for the same period of 2003.

Financial and operating highlights include:

• Cash Flow: Operating cash flow for the quarter ended March 31, 2004 was $115 million and free cash flow was $109 million. For the rolling 12 months ended March 31, 2004 operating cash flow was $328 million and free cash flow was $287 million. These cash flow numbers exclude after-tax prior period Medicare lab recoveries of $12 million.

• Operating Income: Operating income for the quarter was $96.8 million.

• Volume: Total treatments for the first quarter were 1,657,055 or 21,381 treatments per day, an increase of 8.7% per day compared to the first quarter of last year. Non-acquired treatment growth was 4.1%.

• Center Activity: As of March 31, 2004, we operated or provided administrative services at 571 outpatient centers serving approximately 48,400 patients. During the first quarter we acquired 5 centers and opened 5 denovo centers. We also closed 2 centers and discontinued providing administrative services at 3 centers.

Outlook

We are increasing our 2004 operating income target to $370 to $390 million.

DaVita will be holding a conference call to discuss its first quarter 2004 results on May 3, 2004, at 12:00 PM Eastern Time. The dial in number is 800 399-4406. A replay of the conference call will be available on DaVita’s official web page, www.davita.com, for the following 30 days.

This press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding certain nonrecurring charges 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-K for the year ended December 31, 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 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 the ongoing review by the U.S. Attorney’s Office and HHS Office of the 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.

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)

	Three months ended March 31,
	2004		2003
Net operating revenues	$	535,431	$	459,807
Operating expenses and charges:
Patient care costs		363,429		316,710
General and administrative		42,604		36,787
Depreciation and amortization		20,270		17,445
Provision for uncollectible accounts		9,577		8,237
Minority interests and equity income, net		2,718		1,294
Total operating expenses and charges		438,598		380,473
Operating income		96,833		79,334
Debt expense		11,636		19,456
Other income		1,443		785
Income before income taxes		86,640		60,663
Income tax expense		33,775		24,250
Net income	$	52,865	$	36,413
Earnings per share:
Basic	$	0.81	$	0.60
Diluted	$	0.77	$	0.52
Weighted average shares for earnings per share:
Basic		65,399,651		60,905,056
Diluted		68,588,969		78,772,410

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DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

	Three months ended March 31,
	2004			2003
Cash flows from operating activities:
Net income	$	52,865		$	36,413
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		20,270			17,445
Stock option expense and tax benefits		14,389			1,378
Deferred income taxes		(1,016	)		4,841
(Gain) loss on divestitures		(628	)		119
Non-cash debt expense		484			840
Equity investment income		(442	)		(519	)
Minority interests in income of consolidated subsidiaries		3,160			1,813
Distributions to minority interests		(2,082	)		(2,465	)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable		(12,511	)		(676	)
Medicare lab recoveries		19,000
Inventories		6,818			9,543
Other current assets		697			4,721
Other long-term assets		1,592			(2,457	)
Accounts payable		8,843			(6,674	)
Accrued compensation and benefits		2,393			(13,075	)
Other current liabilities		1,779			11,952
Income taxes		5,315			16,641
Other long-term liabilities		5,190			809
Net cash provided by operating activities		126,116			80,649
Cash flows from investing activities:
Additions of property and equipment, net		(24,681	)		(21,708	)
Acquisitions and divestitures, net		(17,088	)		(718	)
Investments in and advances to affiliates, net		2,191			1,931
Intangible assets		(360	)		(300	)
Net cash used in investing activities		(39,938	)		(20,795	)
Cash flows from financing activities:
Borrowings		774,534			623,822
Payments on long-term debt		(786,791	)		(478,659	)
Net proceeds from issuance of common stock		17,578			3,502
Net cash provided by financing activities		5,321			148,665
Net increase in cash and cash equivalents		91,499			208,519
Cash and cash equivalents at beginning of period		61,657			96,475
Cash and cash equivalents at end of period	$	153,156		$	304,994

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DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

	March 31, 2004			December 31, 2003
ASSETS
Cash and cash equivalents	$	153,156		$	61,657
Accounts receivable, less allowance of $54,391 and $52,554		400,444			387,933
Medicare lab recoveries					19,000
Inventories		26,187			32,853
Other current assets		43,178			43,875
Deferred income taxes		66,530			59,740
Total current assets		689,495			605,058
Property and equipment, net		349,868			342,447
Amortizable intangibles, net		50,570			49,971
Investments in third-party dialysis businesses		3,348			3,095
Other long-term assets		9,179			10,771
Goodwill		947,894			934,188
	$	2,050,354		$	1,945,530
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	80,711		$	71,868
Other liabilities		118,643			112,654
Accrued compensation and benefits		101,652			100,909
Current portion of long-term debt		50,025			50,557
Income taxes payable		30,506			26,832
Total current liabilities		381,537			362,820
Long-term debt		1,105,277			1,117,002
Other long-term liabilities		24,500			19,310
Deferred income taxes		112,014			106,240
Minority interests		36,200			33,287
Commitments and contingencies
Shareholders’ equity:
Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)
Common stock ($0.001 par value, 195,000,000 shares authorized; 89,908,189 and 89,870,803 shares issued)		90			90
Additional paid-in capital		538,877			539,575
Retained earnings		441,993			389,128
Treasury stock, at cost (23,964,510 and 25,368,019 shares)		(586,641	)		(620,998	)
Accumulated comprehensive income valuations		(3,493	)		(924	)
Total shareholders’ equity		390,826			306,871
	$	2,050,354		$	1,945,530

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DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

	Q1 2004			Q4 2003			Q1 2003
Financial Results:
Net earnings excluding refinancing charges and Medicare lab recoveries for prior years’ services	$	52.9		$	53.9		$	36.4
Basic EPS	$	0.81		$	0.84		$	0.60
EPS assuming dilution	$	0.77		$	0.79	*	$	0.52
Operating income, excluding Medicare lab recoveries	$	96.8		$	97.2		$	79.3
Operating income margin		18.1	%		18.4	%		17.3	%
Other comprehensive income
Unrealized loss on securities, net of tax of $1,641 and $590	$	(2,569	)	$	(924	)
Business Metrics:
Volume
Treatments		1,657,055			1,666,225			1,503,031
Number of treatment days		77.5			79.5			76.4
Treatments per day		21,381			20,959			19,673
Per day year over year increase		8.7	%		8.5	%		4.8	%
Non-acquired growth		4.1	%		4.3	%		3.3	%
Revenue
Total revenue	$	535		$	553		$	460
Less Medicare lab recoveries for prior years’ services				$	(24	)
Revenue excluding Medicare lab recoveries	$	535		$	529		$	460
Dialysis revenue per treatment	$	311.02		$	306.36		$	296.31
Per treatment increase from previous quarter		1.5	%		0.0	%		1.8	%
Per treatment increase from prior year		5.0	%		5.3	%		2.0	%
Expenses
A.       Patient care costs
Percent of revenue		67.9	%		68.0	%		68.9	%
Per treatment	$	219.32		$	216.04		$	210.71
Per treatment increase from previous quarter		1.5	%		0.9	%		2.2	%
B.       General & administrative expenses
Percent of revenue		8.0	%		7.6	%		8.0	%
Per treatment	$	25.71		$	24.21		$	24.48
Per treatment increase (decrease) from previous quarter		6.2	%		(1.5	%)		(8.9	%)
C.       Bad debt expense as a percent of current-period revenue		1.8	%		1.8	%		1.8	%
D.       Consolidated effective tax rate		39.0	%		37.5	%		40.0	%

* The fourth quarter benefited from a year-to-date reduction in the annualized effective tax rate that added $0.02 to fourth quarter earnings per share.

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DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA, CONTINUED

(unaudited)

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

	Q1 2004			Q4 2003			Q1 2003
Cash Flow
Operating cash flow, excluding Medicare lab recoveries	$	114.5		$	34.6		$	80.6
Free cash flow, excluding Medicare lab recoveries	$	108.7		$	19.2		$	70.1
Capital expenditures:
Development	$	19.2		$	22.7		$	11.9
Routine maintenance/IT/other	$	5.8		$	15.4		$	10.5
Acquisition expenditures, net	$	17.1		$	30.4		$	0.7
Accounts Receivable
Net receivables	$	400		$	388		$	346
DSO		70			69			69
Debt/Capital Structure
Total debt	$	1,155		$	1,168		$	1,464
Net debt, net of cash	$	1,002		$	1,106		$	1,159
Leverage ratio – last quarter annualized (see Note 1)		2.1x			2.3x			3.0x
Shares repurchased (in millions)		—			0.7			—
Average repurchase price		—		$	34.20			—
Clinical (quarterly averages)
Dialysis adequacy - % of patients with Kt/V > 1.2		94	%		93	%		92	%
Anemia measure - % of patients with HCT > 33		85	%		85	%		83	%

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

(unaudited)

(dollars in thousands)

1. Net earnings excluding refinancing charges and Medicare lab recoveries:

	Q1 2004		Q4 2003			Q1 2003
Net earnings	$	52,865	$	62,798		$	36,413
Add back: Refinancing charges				9,261
Less: Medicare lab recoveries for prior years’ services				(24,000	)
Related income tax expense				5,837
	$	52,865	$	53,896		$	36,413

2. Operating income excluding Medicare lab recoveries, and excluding depreciation, amortization, and minority interests:

	Q1 2004		Q4 2003			Q1 2003
Operating income	$	96,833	$	121,190		$	79,334
Less: Medicare lab recoveries for prior years’ services				(24,000	)
	$	96,833	$	97,190		$	79,334
Add back: Depreciation and amortization		20,270		19,985			17,445
Minority interests and equity income, net		2,718		2,499			1,294
	$	119,821	$	119,674		$	98,073

3. Operating cash flow, excluding Medicare lab recoveries collected in the period:

	Q1 2004			Q4 2003		Q1 2003		Rolling 12- Month Period ended Q1 2004
Cash provided by operating activities	$	126,116		$	34,576	$	80,649	$	339,115
Less: Medicare lab recoveries collected in the period		(19,000	)						(19,000	)
Related income tax expense		7,410							7,410
	$	114,526		$	34,576	$	80,649	$	327,525

4. Free cash flow, excluding Medicare lab recoveries collected in the period:

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.

	Q1 2004			Q4 2003			Q1 2003			Rolling 12- Month Period ended Q1 2004
Cash provided by operating activities	$	126,116		$	34,576		$	80,649		$	339,115
Less: Expenditures for routine maintenance and information technology		(5,816	)		(15,362	)		(10,490	)		(40,193	)
Medicare lab recoveries collected in the period		(19,000	)								(19,000	)
Related income tax expense		7,410									7,410
	$	108,710		$	19,214		$	70,159		$	287,332

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