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DaVita 1st Quarter 2009 Results

EL SEGUNDO, Calif., April 27 /PRNewswire-FirstCall/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended March 31, 2009. Net income attributable to DaVita Inc. for the three months ended March 31, 2009 was $96.2 million, or $0.92 per share, as compared to $86.9 million, or $0.80 per share, for the same period of 2008.

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

Financial and operating highlights include:

  • Significant New Accounting Policies: On January 1, 2009 we adopted SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements and implemented SEC Topic No. D-98 Classification and Measurement of Redeemable Securities. These standards changed the presentation and measurement of noncontrolling interests in our financial statements for all periods presented, which primarily affected the presentation of operating income, operating cash flows and the effective income tax rate. See reconciliations for non-GAAP measures beginning on page 10 of this release for further details of the impact on our financial statements of adopting these standards.
  • Cash Flow: For the rolling 12 months ended March 31, 2009 operating cash flow was $640 million and free cash flow was $468 million. For the three months ended March 31, 2009 operating cash flow was $134 million and free cash flow was $90 million.
  • Operating Income: Operating income for the three months ended March 31, 2009 was $221 million, as compared to $206 million for the same period of 2008.
  • Volume: Total treatments for the first quarter of 2009 were 4,082,439, or 53,365 treatments per day, representing a per day increase of 5.0% over the first quarter of 2008. Non-acquired treatment growth in the quarter was 4.0% over the prior year's first quarter.
  • Effective Tax Rate: Our effective tax rate was 37.4% for the three months ended March 31, 2009. This effective tax rate is impacted by the amount of third parties owners' income attributable to non-tax paying entities. The effective tax rate attributable to DaVita Inc. was 40.2% for the three months ended March 31, 2009 which was in the range of our previous stated guidance. Our effective tax rate for 2009 is projected to be in the range of 37.0% to 38.0% and our 2009 effective tax rate attributable to DaVita Inc. is still projected to be in a range of 39.5% to 40.5%.
  • Share Repurchases: During the first quarter of 2009 we repurchased a total of 744,400 of our common stock for $32.0 million, or an average price of $43.01 per share, pursuant to previously announced Board authorizations. We have not repurchased any additional shares of our common stock subsequent to March 31, 2009.
  • Center Activity: As of March 31, 2009, we operated or provided administrative services at 1,475 outpatient dialysis centers serving approximately 114,000 patients, of which 1,446 centers are consolidated in our financial statements. During the first quarter of 2009, we acquired seven centers, opened 18 new centers, merged one center and closed one center.

Outlook

Our operating income guidance attributable to DaVita Inc. for 2009 remains unchanged at a range of $820-$880 million. However, as a result of adopting SFAS No. 160, the classification of noncontrolling interests was changed to no longer be deducted from our operating income as previously reported. Therefore, our operating income guidance based on the current presentation under SFAS No. 160 is projected to be in the range of $870-$930 million, even though the underlying fundamental economics of our business have not changed. In addition, our operating cash flow guidance is now projected to be in the range of $550-$600 million. See supplemental financial data on page 8 for further details. 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 three months ended March 31, 2009 on April 28, 2009 at 8:30 a.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, www.davita.com, for the following 30 days.

This release contains forward-looking statements, including statements related to our 2009 operating results and 2009 expected effective tax rate and the expected effective tax rate attributable to DaVita Inc. 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 our SEC filings, including our Form 10-K for the year ended December 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,
  • a reduction in the number of patients under higher-paying commercial plans,
  • a reduction in government payment rates or the structure of payments under the Medicare ESRD Program which result in lower reimbursement for services we provide to Medicare patients,
  • 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
                                                            March 31,
                                                       2009           2008

    Net operating revenues                          $1,447,640     $1,344,724
    Operating expenses and charges:
      Patient care costs                             1,005,886        930,209
      General and administrative                       127,273        120,765
      Depreciation and amortization                     57,123         52,811
      Provision for uncollectible accounts              36,736         34,631
      Equity investment loss                                18            527
        Total operating expenses and charges         1,227,036      1,138,943

    Operating income                                   220,604        205,781
    Debt expense                                      (48,301)       (59,066)
    Other income                                           754          4,863
    Income before income taxes                         173,057        151,578
    Income tax expense                                  64,783         55,570
    Net income                                         108,274         96,008
      Less:  Net income attributable to
       noncontrolling interests                       (12,063)        (9,074)
    Net income attributable to DaVita Inc.             $96,211        $86,934

    Earnings per share:
      Basic earnings per share attributable
       to DaVita Inc.                                    $0.93          $0.81
      Diluted earnings per share attributable
       to DaVita Inc.                                    $0.92          $0.80
      Weighted average shares for earnings
       per share:
        Basic                                      103,878,417    107,367,356
        Diluted                                    104,409,026    108,239,360



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

                                                         Three months ended
                                                              March 31,
                                                           2009        2008
    Cash flows from operating activities:
    Net income attributable to DaVita Inc.              $ 96,211     $86,934
    Adjustments to reconcile net income to cash
     provided by operating activities:
       Depreciation and amortization                      57,123      52,811
       Stock-based compensation expense                   11,009       9,548
       Tax benefits from stock award exercises             2,161       2,618
       Excess tax benefits from stock award exercises       (779)     (1,411)
       Deferred income taxes                              16,430      (7,439)
       Net income attributable to noncontrolling
        interests                                         12,063       9,074
       Equity investment loss                                 18         527
       Loss on disposal of assets                          3,629       1,355
       Non-cash debt and non-cash rent charges             3,422       4,074
    Changes in operating assets and liabilities, other
     than from acquisitions and divestitures:
       Accounts receivable                               (13,757)    (33,168)
       Inventories                                        13,055       3,499
       Other receivables and other current assets         41,417      16,846
       Other long-term assets                              1,422        (537)
       Accounts payable                                  (65,411)    (39,217)
       Accrued compensation and benefits                 (21,403)    (47,571)
       Other current liabilities                         (54,116)     (6,500)
       Income taxes                                       40,339      56,653
       Other long-term liabilities                        (8,584)       (184)
         Net cash provided by operating activities       134,249     107,912
    Cash flows from investing activities:
       Additions of property and equipment, net          (73,203)    (64,673)
       Acquisitions                                      (39,828)     (5,671)
       Proceeds from asset sales                           4,199          23
       Purchase of investments available for sale           (514)       (839)
       Purchase of investments held-to-maturity               (6)       (109)
       Proceeds from sale of investments available
        for sale                                          10,669       4,955
       Proceeds from maturities of investments
        held-to-maturity                                      20          73
       Purchase of intangible assets and other                 -         (20)
       Net cash used in investing activities             (98,663)    (66,261)
    Cash flows from financing activities:
       Borrowings                                      2,619,540   4,050,363
       Payments on long-term debt                     (2,630,739) (4,052,066)
       Deferred financing costs                                -        (130)
       Purchase of treasury stock                        (32,016)     (7,144)
       Excess tax benefits from stock award exercises        779       1,411
       Stock award exercises and other share
        issuances, net                                     9,102       8,525
       Distributions to noncontrolling interests         (13,567)    (16,888)
       Contributions from noncontrolling interests         4,460       5,103
       Proceeds from sales of additional
        noncontrolling interests                           3,081       4,612
       Purchase of noncontrolling interests               (1,424)     (3,167)
         Net cash used in financing activities           (40,784)     (9,381)
    Net (decrease) increase in cash and cash
     equivalents                                          (5,198)     32,270
    Cash and cash equivalents at beginning of period     410,881     447,046
    Cash and cash equivalents at end of period          $405,683    $479,316

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

                      ASSETS                          March 31,   December 31,
                                                         2009          2008

    Cash and cash equivalents                          $405,683      $410,881
    Short-term investments                               25,413        35,532
    Accounts receivable, less allowance of
     $216,261 and $211,222                            1,088,584     1,075,457
    Inventories                                          71,353        84,174
    Other receivables                                   194,637       239,165
    Other current assets                                 32,454        33,761
    Income tax receivable                                     -        32,130
    Deferred income taxes                               213,339       217,196
        Total current assets                          2,031,463     2,128,296
    Property and equipment, net                       1,067,289     1,048,075
    Amortizable intangibles, net                        155,823       160,521
    Investments in third-party dialysis businesses       23,856        19,274
    Long-term investments                                 5,212         5,656
    Other long-term assets                               46,006        47,330
    Goodwill                                          3,905,762     3,876,931
                                                     $7,235,411    $7,286,083
                  LIABILITIES AND EQUITY
    Accounts payable                                   $217,125      $282,883
    Other liabilities                                   441,124       495,239
    Accrued compensation and benefits                   276,851       312,216
    Current portion of long-term debt                    83,295        72,725
    Income taxes payable                                  8,211             -
        Total current liabilities                     1,026,606     1,163,063
    Long-term debt                                    3,600,233     3,622,421
    Other long-term liabilities                         100,085       101,442
    Alliance and product supply agreement, net           34,645        35,977
    Deferred income taxes                               260,101       244,884
        Total liabilities                             5,021,670     5,167,787
    Commitments and contingencies
    Noncontrolling interests subject to
     put provisions                                     289,592       291,397
    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;
       103,409,287 and 103,753,673 shares outstanding)      135           135
      Additional paid-in capital                        607,234       584,358
      Retained earnings                               1,985,661     1,889,450
      Treasury stock, at cost (31,452,996 and
       31,108,610 shares)                              (714,977)     (691,857)
      Accumulated other comprehensive loss              (12,111)      (14,339)
        Total DaVita Inc. shareholders' equity        1,865,942     1,767,747
    Noncontrolling interests not subject to
     put provisions                                      58,207        59,152
    Total equity                                      1,924,149     1,826,899
                                                     $7,235,411    $7,286,083



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


                                                     Three months ended
                                              March 31, December 31, March 31,
                                                  2009      2008       2008
    1. Consolidated Financial Results:
       Revenues                                  $1,448    $1,461     $1,345
       Operating income                          $220.6    $223.1     $205.8
         Operating income margin                  15.2%     15.3%      15.3%
       Net income attributable to DaVita Inc.     $96.2     $98.4      $86.9
       Diluted earnings per share attributable
        to DaVita Inc.                            $0.92     $0.94      $0.80

    2. Consolidated Business Metrics:
       Expenses
         Patient care costs as a percent of
          consolidated revenue (3)                69.5%     69.2%       69.2%
         General and administrative expenses as
          a percent of consolidated revenue (3)    8.8%      9.1%        9.0%

         Bad debt expense as a percent of
          consolidated revenue                     2.5%      2.5%        2.6%

         Consolidated effective tax rate
          attributable to DaVita Inc.(1)          40.2%     37.7%       39.0%

    3. Segment Financial Results:
       (dollar amounts rounded to nearest million)
       Dialysis and related lab services
         Revenues                                $1,377    $1,389     $1,297
         Direct operating expenses                1,140     1,148      1,068
           Dialysis segment margin                 $237      $241       $229

       Other - Ancillary services and strategic
        initiatives
         Revenues                                   $71       $72        $48
         Direct operating expenses                   76        79         61
           Ancillary segment loss                   $(5)      $(7)      $(13)

       Total segment margin                        $232      $234       $216
         Reconciling items:
         Stock-based compensation                   (11)      (11)       (10)
         Equity investment loss                       -         -         (1)
           Consolidated operating income           $221      $223       $206



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

                                                   Three months ended
                                             March 31, December 31, March 31,
                                                2009      2008         2008

    4. Segment Business Metrics:
        Dialysis and related lab services:
          Volume
            Treatments                       4,082,439  4,172,468  3,934,777
            Number of treatment days              76.5       79.5       77.4
            Treatments per day                  53,365     52,484     50,837
            Per day year over year increase       5.0%       4.9%       6.3%
            Non-acquired growth year over year    4.0%       4.0%       5.0%

          Revenue
            Dialysis and related lab services
             revenue per treatment             $336.73    $332.61    $328.95
            Per treatment increase (decrease)
             from previous quarter                1.2%      (1.1%)      0.3%
            Per treatment increase (decrease)
             from previous year                   2.4%       1.4%      (2.6%)
            Percent of consolidated revenue      95.1%      95.1%      96.4%

          Expenses
           Patient care costs
            Percent of segment revenue           68.8%      68.6%      68.7%
            Per treatment                      $231.88    $228.29    $226.21
            Per treatment increase (decrease)
             from previous quarter                1.6%      (1.8%)      1.4%
            Per treatment increase (decrease)
             from previous year                   2.5%       2.3%      (2.5%)

           General and administrative expenses
            Percent of segment revenue            7.4%       7.6%       7.1%
            Per treatment                       $24.99     $25.36     $23.50
            Per treatment (decrease) increase
             from previous quarter               (1.5%)      2.8%     (12.5%)
            Per treatment increase (decrease)
             from previous year                   6.3%      (5.6%)     (6.6%)

    5. Cash  Flow
          Operating cash flow                   $134.2     $198.5     $107.9
          Operating cash flow last twelve
           months                               $640.0     $613.7     $590.8
          Free cash flow(1)                     $ 89.5     $144.8      $72.6
          Free cash flow, last twelve months(1) $467.7     $450.7     $432.5
          Capital expenditures:
            Development and relocations          $42.0      $54.7      $46.1
            Routine maintenance/IT other         $31.2      $39.4      $18.5
            Acquisition expenditures             $39.8      $24.8       $5.7

    6. Accounts Receivable
          Net receivables                       $1,089     $1,075       $960
          DSO                                       70         70         68



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


                                                   Three months ended
                                             March 31, December 31, March 31,
                                                2009       2008       2008
    7. Debt and Capital Structure
         Total debt(2)                          $3,680     $3,691     $3,701
         Net debt, net of cash(2)               $3,275     $3,281     $3,222
         Leverage ratio (see Note 1:
          Calculation of the Leverage Ratio)     2.83x      2.88x      2.94x
         Overall effective weighted average
          interest rate during the quarter       5.04%      5.77%      6.10%
         Overall effective weighted average
          interest rate at end of the quarter    5.04%      5.10%      5.79%
         Effective weighted average interest
          rate on the Senior Secured Credit
          Facilities at end of the quarter       3.36%      3.48%      4.80%
         Economically fixed interest rates as
          a percentage of our total debt           66%        69%        72%
         Share repurchases                       $32.0      $63.0      $32.5

    8. Clinical (quarterly averages)
        Dialysis adequacy -% of patients with
         Kt/V > 1.2                                95%        95%        95%
        90 day patients with Hb>=10 <=13           87%        86%          -
        Patients with arteriovenous
         fistulas placed                           62%        62%        60%


    (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) This is a non-GAAP financial measure. It excludes $3.3 million, the
        unamortized balance of a debt premium associated with our senior
        notes that is not actually outstanding debt principal.
    (3) Consolidated percentages of revenue and per treatment amounts are
        comprised of the dialysis and related lab services business, other
        ancillary services and strategic initiatives, as well as stock-based
        compensation expenses.

    9. Reconciliations of operating income guidance and operating cash flow
        guidance to our previous reported amounts:
                                                     Projected Range 2009
         Consolidated operating income guidance:
           Operating income guidance range as
            previously reported                   $820          -       $880
           Add:  Reclassification of
            noncontrolling interests                50          -         50
           Operating income guidance range        $870          -       $930
         Consolidated operating cash flow
          guidance:
           Operating cash flow guidance range as
            previously reported                   $500          -       $550
           Add:  Income distributions to
            noncontrolling interests                50          -         50
           Operating cash flows guidance range    $550          -       $600



                                    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 the presentation of
    "Consolidated EBITDA" is useful to investors to enhance their
    understanding of the Company's leverage ratio under its Credit Agreement.


                                                               Rolling twelve
                                                                months ended
                                                               March 31, 2009

    Net income attributable to DaVita Inc.                         $383,437
    Income taxes                                                    244,684
    Debt expense                                                    213,951
    Depreciation and amortization                                   221,229
    Noncontrolling interests and equity investment loss, net         48,844
    Other                                                            21,636
    Stock-based compensation expense                                 42,696
      "Consolidated EBITDA"                                      $1,176,477

                                                               March 31, 2009

    Total debt, excluding debt premium of $3.3 million           $3,680,200
    Letters of credit issued                                         50,901
                                                                  3,731,101
    Less: cash and cash equivalents                                (405,683)
    Consolidated net debt                                        $3,325,418
    Last twelve months "Consolidated EBITDA"                     $1,176,477
    Leverage ratio                                                    2.83x


    In accordance with the Company's Credit Agreement, the Company's leverage
    ratio cannot exceed 4.50 to 1.0 as of March 31, 2009. At that date the
    Company's leverage ratio did not exceed 4.50 to 1.0.



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

    On January 1, 2009 we adopted SFAS No. 160 Noncontrolling Interests in
    Consolidated Financial Statements and implemented the classification and
    measurement of minority interests (noncontrolling interests) according
    to SEC Topic No. D-98 Classification and Measurement of Redeemable
    Securities. Under the provisions of SFAS No. 160 we are required to
    separately report the amount of consolidated net income attributable to
    the parent and to the noncontrolling interests on the face of the
    consolidated statement of income instead of reporting noncontrolling
    interests as a reduction to operating income as we previously had
    reported. In addition, we are also required to treat noncontrolling
    interests as a separate component of equity; however, in accordance with
    SEC Topic No. D-98, we are required to classify securities with
    redemption features that are not solely within our control, such as our
    noncontrolling interests that are subject to put provisions outside of
    permanent equity and to measure these noncontrolling interests at fair
    value. The provisions of these standards have been applied
    retrospectively for all prior periods presented.

    The following tables reflect the adjustments made to our previously
    reported financial statement amounts as a result of implementing SFAS
    No. 160 and SEC Topic No. D-98.

    1. Consolidated Statements of Income:

    We believe that this reconciliation of reported operating income to
    operating income as previously reported enables a user of our financial
    statements to more fully understand the impact on our previously
    reported operating results of implementing SFAS No. 160. Operating
    income as previously reported is no longer 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
                                                     December 31,   March 31,
                                                          2008        2008

    Operating income as reported                        $223,109    $205,781
    Less:   Reclassification of noncontrolling interests(11,509)     (9,054)
    Operating income as previously reported             $211,600    $196,727


    2. Consolidated Balance Sheet:

    We believe that this reconciliation of certain reported balance sheets
    accounts to the same balance sheet accounts as previously reported
    enables a user of our financial statements to more fully understand the
    impact on our previously reported balance sheet of implementing SFAS No.
    160 and SEC Topic D-98. The balance sheet as previously reported is no
    longer a measure of financial position under United States generally
    accepted accounting principles and should not be considered as an
    alternative to financial position.

                                         Noncontrolling
                                            interests  Noncontrolling
                                               not       interests
                      Income                 subject      subject   Additional
                        tax      Minority    to put       to put      paid in
                    receivable   interest   provisions   provisions   capital




    Balances as
     previously
     reported as
     of December
     31, 2008        $32,138    $165,846          $-         $-      $769,069
    Net change
     due to
     implementation
     of SFAS No. 160
     and SEC
     Topic No.
     D-98                 (8)   (165,846)     59,152    291,397      (184,711)
    Balances as
     adjusted
     as of
     December 31,
     2008            $32,130          $-     $59,152   $291,397      $584,358



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

    3. Effective Income Tax Rates

    We believe that reporting the effective income tax rate attributable to
    DaVita Inc. enhances a user understanding of DaVita's effective income
    tax rate for the periods presented because it excludes noncontrolling
    owners' income that primarily relates to non-tax paying entities and
    accordingly is more comparable to prior periods presentations regarding
    DaVita's effective income tax rate and is more meaningful to a user to
    fully understand the related income tax effects on DaVita Inc. operating
    results. 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 the effective income tax rate.

    Effective income tax rate as compared to the effective income tax rate
    attributable to DaVita Inc. is as follows:

                                                  Three months ended
                                           March 31,  December 31,  March 31,
                                               2009       2008        2008

    Income before income taxes              $173,057    $169,364    $151,578
    Income tax expense                       $64,783     $59,618     $55,570
    Effective income tax rate                  37.4%       35.2%       36.7%


                                                    Three months ended
                                           March 31,  December 31,   March 31,
                                              2009        2008        2008

    Income before income taxes              $173,057    $169,364    $151,578
    Less:  Noncontrolling owners'
     income primarily attributable to
     non-tax paying entities                 (12,156)    (11,509)     (9,054)
    Income before income taxes
     attributable to DaVita Inc.            $160,901    $157,855    $142,524

    Income tax expense                       $64,783     $59,618     $55,570
    Less income (tax) benefit
     attributable to noncontrolling interests    (93)       (128)         20
    Income tax attributable to DaVita Inc.   $64,690     $59,490     $55,590

    Effective income tax rate
     attributable to DaVita Inc.               40.2%       37.7%       39.0%



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

    4. Operating Cash Flow Net of Income Distributions to Noncontrolling
       Interests:

    We believe that operating cash flow net of income distributions to
    noncontrolling interests enhances a user's understanding of the impact
    to our cash flow statements of implementing SFAS No. 160 which requires
    us to report operating cash flows at an enterprise level. Operating cash
    flow net of income distributions to noncontrolling interests also
    provides a measure that is more meaningful because it relates to
    operating cash flows that are attributable to DaVita Inc. 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 cash flows from operating, investing or financing
    activities, as an indicator of cash flows or as a measure of liquidity.

                                                  Three months ended
                                           March 31,  December 31,  March 31,
                                              2009        2008        2008

    Cash provided by operating activities   $134,249    $198,549    $107,912
    Less:  Income distributions to
      noncontrolling interests               (13,567)    (14,379)    (16,888)
    Cash provided by operating activities
      attributable to DaVita Inc.           $120,682    $184,170     $91,024

                                                 Rolling 12-Month Period
                                            March 31, December 31,  March 31,
                                              2009        2008        2008

    Cash provided by operating activities   $640,038    $613,701    $590,840
    Less:  Income distributions to
     noncontrolling interests                (54,449)    (57,770)    (54,811)
    Cash provided by operating activities
     attributable to DaVita Inc.            $585,589    $555,931    $536,029



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

    5.  Free cash flow

    Free cash flow represents net cash provided by operating activities less
    income distributions to noncontrolling interests and 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. In addition, free cash flow excluding income
    distributions to noncontrolling interests  also provides a user with an
    understanding of free cash flows that are attributable to DaVita Inc.
    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
                                            March 31, December 31, March 31,
                                               2009        2008        2008

    Cash provided by operating
    activities                              $134,249    $198,549    $107,912
    Less:  Income distributions to
    noncontrolling interests                 (13,567)    (14,379)    (16,888)
    Cash provided by operating activities
    attributable to DaVita Inc.             $120,682    $184,170     $91,024
    Less: Expenditures for routine
     maintenance and information
    technology                               (31,155)    (39,412)    (18,451)
    Free cash flow                           $89,527    $144,758     $72,573


                                                  Rolling 12-Month Period
                                             March 31, December 31, March 31,
                                              2009        2008         2008

    Cash provided by operating activities   $640,038    $613,701    $590,840
    Less:  Income distributions to
    noncontrolling interests                 (54,449)    (57,770)    (54,811)
    Cash provided by operating
    activities attributable to DaVita Inc.  $585,589    $555,931    $536,029
    Less: Expenditures for routine
    maintenance and information technology  (117,937)   (105,233)   (103,525)
    Free cash flow.                         $467,652    $450,698    $432,504



SOURCE DaVita Inc.

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