10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarter Ended

March 31, 2005

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-4034

DAVITA INC.

601 Hawaii Street

El Segundo, California 90245

Telephone number (310) 536-2400

Delaware	51-0354549
(State of incorporation)	(I.R.S. Employer Identification No.)

The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.

The Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

As of April 29, 2005 there were approximately 100.1 million shares of the Registrant’s common stock (par value $0.001) outstanding.

DAVITA INC.

INDEX

		Page No.
	PART I.    FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
	Consolidated Statements of Income for the three months ended March 31, 2005 and March 31, 2004	1
	Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004	2
	Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and March 31, 2004	3
	Consolidated Statement of Shareholders’ Equity and Comprehensive Income for the three months ended March 31, 2005 and for the year ended December 31, 2004	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
Risk Factors		21
	PART II.    OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
Signature		32

Note: Items 3, 4 and 5 of Part II are omitted because they are not applicable.

i

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)

	Three months ended March 31,
	2005			2004
Net operating revenues	$	609,958		$	535,431
Operating expenses and charges:
Patient care costs		409,949			363,429
General and administrative		54,263			42,604
Depreciation and amortization		24,848			20,270
Provision for uncollectible accounts		10,886			9,577
Minority interests and equity income, net		4,016			2,718
Total operating expenses and charges		503,962			438,598
Operating income		105,996			96,833
Debt expense		(17,534	)		(11,636	)
Swap valuation gains		8,392
Refinancing charges		(6,872	)
Other income		1,627			1,443
Income before income taxes		91,609			86,640
Income tax expense		35,275			33,775
Net income	$	56,334		$	52,865
Earnings per share:
Basic	$	0.57		$	0.54
Diluted	$	0.55		$	0.51
Weighted average shares for earnings per share:
Basic		99,399,612			98,099,476
Diluted		103,150,299			102,883,453

See notes to condensed consolidated financial statements.

1

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

	March 31, 2005			December 31, 2004
ASSETS
Cash and cash equivalents	$	317,879		$	251,979
Accounts receivable, less allowance of $60,279 and $58,166		472,983			462,095
Inventories		34,697			31,843
Other current assets		44,441			44,210
Deferred income taxes		91,917			78,593
Total current assets		961,917			868,720
Property and equipment, net		415,713			412,064
Amortizable intangibles, net		79,585			60,719
Investments in third-party dialysis businesses		3,356			3,332
Other long-term assets		28,626			10,898
Goodwill		1,160,615			1,156,226
	$	2,649,812		$	2,511,959
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	91,366		$	96,231
Other liabilities		166,302			157,214
Accrued compensation and benefits		139,340			133,919
Current portion of long-term debt		6,346			53,364
Income taxes payable		29,507			1,007
Total current liabilities		432,861			441,735
Long-term debt		1,362,006			1,322,468
Other long-term liabilities		22,473			22,570
Deferred income taxes		156,369			148,859
Minority interests		57,690			53,193
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; 134,862,283 shares issued)		135			135
Additional paid-in capital		550,987			542,714
Retained earnings		667,621			611,287
Treasury stock, at cost (34,878,913 and 36,295,339 shares)		(608,040	)		(632,732	)
Accumulated comprehensive income valuations		7,710			1,730
Total shareholders’ equity		618,413			523,134
	$	2,649,812		$	2,511,959

See notes to condensed consolidated financial statements.

2

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

	Three months ended March 31,
	2005			2004
Cash flows from operating activities:
Net income	$	56,334		$	52,865
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		24,848			20,270
Stock options, principally tax benefits		15,934			14,389
Swap valuation gains		(8,392	)
Refinancing charges		6,872
Deferred income taxes		(5,814	)		(1,016	)
Minority interests in income of consolidated subsidiaries		4,410			3,160
Distributions to minority interests		(3,518	)		(2,082	)
Non-cash debt expense		625			484
Equity investment income		(394	)		(442	)
Loss (gain) on divestitures		(193	)		(628	)
Changes in operating assets and liabilities, other than from acquisitions and divestitures:
Accounts receivable		(10,888	)		(12,511	)
Medicare lab recoveries					19,000
Inventories		(2,820	)		6,818
Other current assets		(289	)		697
Other long-term assets		385			1,592
Accounts payable		(4,865	)		8,843
Accrued compensation and benefits		5,421			2,393
Other current liabilities		9,088			1,779
Income taxes		28,500			5,315
Other long-term liabilities		(3,838	)		5,190
Net cash provided by operating activities		111,406			126,116
Cash flows from investing activities:
Additions of property and equipment, net		(25,625	)		(24,681	)
Acquisitions and divestitures, net		(2,501	)		(17,088	)
Investments in and advances to affiliates, net		2,677			2,191
Intangible assets		(395	)		(360	)
Net cash used in investing activities		(25,844	)		(39,938	)
Cash flows from financing activities:
Borrowings		1,741,183			774,534
Payments on long-term debt		(1,748,663	)		(786,791	)
Deferred financing costs		(29,213	)
Stock option exercises		17,031			17,578
Net cash (used in) provided by financing activities		(19,662	)		5,321
Net increase in cash and cash equivalents		65,900			91,499
Cash and cash equivalents at beginning of period		251,979			61,657
Cash and cash equivalents at end of period	$	317,879		$	153,156

See notes to condensed consolidated financial statements.

3

DAVITA INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

AND

COMPREHENSIVE INCOME

(unaudited)

(dollars and shares in thousands)

	Common stock			Additional paid-in capital			Retained earnings			Treasury stock					Accumulated comprehensive income valuations			Total
	Shares	Amount								Shares		Amount
Balance at December 31, 2003	134,806	$	135	$	539,575		$	389,083		(38,052	)	$	(620,998	)	$	(924	)	$	306,871
Comprehensive income:
Net income								222,254											222,254
Unrealized gain on interest rate swaps, net of tax																2,654			2,654
Total comprehensive income																			224,908
Shares issued to employees and others	56				959														959
Restricted stock unit shares issued					(936	)				161			2,629						1,693
Stock options exercised					(39,497	)				4,946			82,177						42,680
Income tax benefit on stock options exercised					42,770														42,770
Payment of stock split fractional shares and related costs					(157	)		(50	)										(207	)
Treasury stock purchases										(3,350	)		(96,540	)					(96,540	)
Balance at December 31, 2004	134,862	$	135	$	542,714		$	611,287		(36,295	)	$	(632,732	)	$	1,730		$	523,134
Comprehensive income:
Net income								56,334											56,334
Unrealized gain on interest rate swaps, net of tax																10,934			10,934
Less reclassification of net swap valuation gains into net income, net of tax																(4,954	)		(4,954	)
Total comprehensive income																			62,314
Shares issued to employees and others					658					64			1,118						1,776
Restricted stock unit shares issued					(26	)				1			26
Stock options exercised					(8,293	)				1,351			23,548						15,255
Income tax benefit on stock options exercised					15,934														15,934
Balance at March 31, 2005	134,862	$	135	$	550,987		$	667,621		(34,879	)	$	(608,040	)	$	7,710		$	618,413

See notes to condensed consolidated financial statements.

4

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

Unless otherwise indicated in this Quarterly Report on Form 10-Q “the Company”, “we”, “us”, “our” and similar terms refer to DaVita Inc. and its consolidated subsidiaries.

1. Condensed consolidated interim financial statements

The condensed consolidated interim financial statements included in this report are prepared by the Company without audit. In the opinion of management, all adjustments consisting only of normal recurring items necessary for a fair presentation of the results of operations are reflected in these consolidated interim financial statements. All significant intercompany accounts and transactions have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve revenue recognition and provisions for uncollectible accounts, impairments and valuation adjustments, accounting for income taxes and variable compensation accruals. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the operating results for the full year. The consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Stock-based compensation

If the Company had adopted the fair value-based compensation expense provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 upon the issuance of that standard, net earnings and net earnings per share would have been adjusted to the pro forma amounts indicated below (shares in 000’s):

Pro forma - As if all stock options were expensed	Three months ended March 31,
	2005			2004
Net income:
As reported	$	56,334		$	52,865
Add: Stock-based employee compensation expense included in reported net income, net of tax		521			97
Deduct: Total stock-based employee compensation expense under the fair value-based method, net of tax		(2,933	)		(1,850	)
Pro forma net income	$	53,922		$	51,112
Pro forma basic earnings per share:
Pro forma net income	$	53,922		$	51,112
Weighted average shares outstanding		99,333			98,074
Vested restricted stock units		67			25
Weighted average shares for basic earnings per share calculation		99,400			98,099
Basic net income per share—Pro forma	$	0.54		$	0.52
Basic net income per share—As reported	$	0.57		$	0.54

5

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

Pro forma - As if all stock options were expensed	Three months ended March 31,
	2005		2004
Pro forma diluted earnings per share:
Pro forma net income	$	53,922	$	51,112
Weighted average shares outstanding		99,333		98,074
Vested restricted stock units		67		25
Assumed incremental shares from stock plans		3,598		4,386
Weighted average shares for diluted earnings per share calculation		102,998		102,485
Diluted net income per share—Pro forma	$	0.52	$	0.50
Diluted net income per share—As reported	$	0.55	$	0.51

2. Earnings per share

Basic and diluted earnings per share are calculated as follows (shares in 000’s):

	Three months ended March 31,
	2005		2004
Basic:
Net income	$	56,334	$	52,865
Weighted average shares outstanding during the period		99,333		98,074
Vested restricted stock units		67		25
Weighted average shares for basic earnings per share calculation		99,400		98,099
Basic net income per share	$	0.57	$	0.54
Diluted:
Net income	$	56,334	$	52,865
Weighted average shares outstanding during the period		99,333		98,074
Vested restricted stock units		67		25
Assumed incremental shares from stock plans		3,750		4,784
Weighted average shares for diluted earnings per share calculation		103,150		102,883
Diluted net income per share	$	0.55	$	0.51

Shares associated with stock options that have exercise prices greater than the average market price of shares outstanding during the period were not included in the computation of diluted earnings per share because they were anti-dilutive. These excluded shares were as follows:

	Three months ended March 31,
	2005		2004
Stock option shares not included in computation (shares in 000’s)		49		82
Exercise price range of shares not included in computation:
Low	$	41.75	$	28.55
High	$	43.20	$	30.07

6

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

3. Long-term debt

Long-term debt was comprised of the following:

	March 31, 2005			December 31, 2004
Senior notes due 2013	$	500,000
Senior subordinated notes due 2015		850,000
Term Loan A				$	84,507
Term Loan B					1,024,668
Term Loan C					249,375
Capital lease obligations		8,149			8,863
Acquisition obligations and other notes payable		10,203			8,419
		1,368,352			1,375,832
Less current portion		(6,346	)		(53,364	)
	$	1,362,006		$	1,322,468

Scheduled maturities of long-term debt at March 31, 2005 were as follows:

2005	$	1,923
2006		6,354
2007		4,296
2008		1,802
2009		1,379
2010		567
Thereafter		1,352,031

On March 22, 2005, the Company issued $500,000 of 6 ⁵/8% senior notes due 2013 and $850,000 of 7 ¹/4% senior subordinated notes due 2015 and incurred related deferred financing costs of $28,600. The notes are guaranteed by substantially all of the Company’s wholly owned subsidiaries and require semi-annual interest payments beginning on September 15, 2005. The Company may redeem some or all of the senior notes at any time on or after March 15, 2009 and some or all of the senior subordinated notes at any time on or after March 15, 2010. The Company used the net proceeds of $1,323,000 along with available cash of $46,000 to repay all outstanding amounts under the Term Loans of the Company’s existing credit facilities, including accrued interest.

In conjunction with the repayment of the Term Loans, the Company wrote-off deferred financing costs of $6,872, and reclassified into net income $8,068 of swap valuation gains that were previously recorded in other comprehensive income. These gains represented the accumulated fair value of three swap instruments that were no longer effective as cash flow hedges as a result of the repayment of the Term Loans. In April 2005, the swaps were redesignated as forward cash flow hedges with gains or losses from changes in the fair value to be reported in other comprehensive income for all payment periods beginning after July 1, 2005. Gains or losses from changes in the fair value of any ineffective portions of these swaps, including settlements of all payment periods beginning prior to July 1, 2005, will continue to be reported in net income.

As of March 31, 2005 the aggregate notional amount of these swaps was $345,000. These swaps pay fixed rates ranging from 3.08% to 3.64% and receive LIBOR. Two of the swap agreements expire in 2008 and one

7

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

expires in 2009. Interest payments are due quarterly and the Company incurred net cash obligations of $662 during the first quarter of 2005, which is included in debt expense. The fair value of these swaps at March 31, 2005 was an asset of $8,392.

As of March 31, 2005, the Company maintained two other forward interest rate swap agreements that will pay a fixed rate of 3.875% and receive LIBOR effective July 1, 2005. The total amortizing notional amount of these two swaps is $800,000, both of which expire in January 2010 and require quarterly interest payments beginning in October 2005. As of March 31, 2005, the aggregate notional amount of these swaps was $800,000 and their fair value was an asset of $12,557, resulting in additional comprehensive income during the first quarter of $7,459, net of tax. On April 25, 2005, we entered into four additional forward interest rate swap agreements that will pay a fixed rate of 4.2675% and receive LIBOR effective July 1, 2005. The total amortizing notional amounts of these swaps is $450,000, all of which expire in July 2010 and require quarterly interest payments beginning October 2005.

As of April 30, 2005, the Company carried a total notional amount of swaps of $1,595,000.

See Note 7 regarding the pending acquisition of Gambro Healthcare, Inc. and commitments from certain financial institutions to provide new senior secured credit facilities in an aggregate amount of $3,150,000.

As of March 31, 2005, the Company had undrawn revolving credit facilities totaling $115,950 of which $22,959 was committed for outstanding letters of credit.

4. Significant new accounting standard

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123R, Share-Based Payment, that amends FASB Statements No. 123 and 95 and supersedes APB Opinion No. 25 Accounting for Stock Issued to Employees. This standard requires a company to measure the cost of employee services received in exchange for an award of equity instruments, such as stock options, based on the grant-date fair value of the award and to recognize such cost over the requisite period during which an employee provides service. The grant-date fair value will be determined using option-pricing models adjusted for unique characteristics of the equity instruments. The standard also addresses the accounting for transactions in which a company incurs liabilities in exchange for goods or services that are based on the fair value of the Company’s equity instruments or that may be settled through the issuance of such equity instruments. The standard does not change the accounting for transactions in which a company issues equity instruments for services to non-employees or the accounting for employee stock ownership plans. This standard was originally to become effective for the Company at the beginning of the third quarter of 2005. However, on April 14, 2005, the Securities and Exchange Commission amended the compliance dates of the standard and the required implementation of this standard for the Company is now the beginning of 2006. The Company is currently reassessing the expected impact of this standard on the Company’s financial statements.

5. Contingencies

The majority of the Company’s revenues are from government programs and may be subject to adjustment as a result of: (1) examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (2) differing interpretations of government regulations by

8

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

different fiscal intermediaries or regulatory authorities; (3) differing opinions regarding a patient’s medical diagnosis or the medical necessity of services provided; (4) retroactive applications or interpretations of governmental requirements, and (5) potential claims for refunds from private payors as a result of government actions.

United States Attorney inquiries

On March 4, 2005, the Company received a subpoena from the United States Attorney’s Office for the Eastern District of Missouri in St. Louis. The subpoena requires production of a wide range of documents relating to the Company’s operations, including documents related to, among other things, pharmaceutical and other services provided to patients, relationships with pharmaceutical companies, financial relationships with physicians and joint ventures. The subpoena covers the period from December 1, 1996 through the present. The subject matter of this subpoena significantly overlaps with the subject matter of the investigation being conducted by the United States Attorney’s Office for the Eastern District of Pennsylvania. The Company has met with representatives of the government to discuss the scope of the subpoena and has begun the process of producing responsive documents. The Company intends to cooperate with the governments’ investigation. The subpoena has been issued in connection with a joint civil and criminal investigation. To the Company’s knowledge, no proceedings have been initiated against the Company at this time, although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved. Compliance with the subpoena will require management attention and legal expense. In addition, criminal proceedings may be initiated against us in connection with this inquiry. Any negative findings could result in substantial financial penalties against the Company, exclusion from future participation in the Medicare and Medicaid programs and criminal penalties. If a court determines that there has been wrongdoing, the penalties under applicable statutes could be substantial.

On October 25, 2004, the Company received a subpoena from the United States Attorney’s office for the Eastern District of New York in Brooklyn. The subpoena covers the period from 1996 to present and requires the production of a wide range of documents relating to the operations of the Company, including DaVita Laboratory Services. The subpoena also includes specific requests for documents relating to testing for parathyroid hormone levels (PTH) and to products relating to vitamin D therapies. The Company believes that the subpoena has been issued in connection with a joint civil and criminal investigation. Other participants in the dialysis industry received a similar subpoena, including Fresenius Medical Group, Renal Care Group and Gambro Healthcare. To the Company’s knowledge, no proceedings have been initiated against the Company at this time. Compliance with the subpoena will require management attention and legal expense. The Company cannot predict whether legal proceedings will be initiated against the Company relating to this investigation or, if proceedings are initiated, the outcome of any such proceedings. In addition, criminal proceedings may be initiated against the Company in connection with this inquiry. If a court determines that there has been wrongdoing, the penalties under applicable statutes could be substantial.

In February 2001, the Civil Division of the United States Attorney’s Office for the Eastern District of Pennsylvania in Philadelphia contacted the Company and requested its cooperation in a review of some of the Company’s historical practices, including billing and other operating procedures and its financial relationships with physicians. The Company cooperated in this review and provided the requested records to the United States Attorney’s Office. In May 2002, the Company received a subpoena from the U.S. Attorney’s Office and the Philadelphia office of the Office of Inspector General of the Department of Health and Human Services (OIG). The subpoena requires an update to the information the Company provided in its response to the February 2001 request, and also seeks a wide range of documents relating to pharmaceutical and other ancillary services provided to patients, including laboratory and other diagnostic testing services, as well as documents relating to

9

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

the Company’s financial relationships with physicians and pharmaceutical companies. The subpoena covers the period from May 1996 to May 2002. The Company has provided the documents requested and continues to cooperate with the United States Attorney’s Office and the OIG in its investigation. If this review proceeds, the government could expand its areas of concern. If a court determines that there has been wrongdoing, the penalties under applicable statutes could be substantial.

Other

In addition to the foregoing, the Company is subject to claims and suits in the ordinary course of business, including from time to time, contractual disputes and professional and general liability claims. The Company believes that the ultimate resolution of these additional pending proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

6. Other commitments

The Company has obligations to purchase the interests of its partners in several joint ventures. These obligations are in the form of put options, exercisable at the third-party owners’ discretion, and require the Company to purchase the partners’ interests at either the appraised fair market value or a predetermined multiple of cash flow or earnings. As of March 31, 2005, the Company’s potential obligations under these put options totaled approximately $110,000, of which approximately $54,000 was exercisable within one year. Additionally, the Company has certain other potential working capital commitments relating to managed and minority-owned centers of approximately $15,000.

The Company is obligated under mandatorily redeemable instruments in connection with certain consolidated partnerships. Future distributions may be required for the minority partner’s interests in limited-life entities which dissolve after terms of ten to fifty years. As of March 31, 2005, such distributions would be valued below the related minority interests balances in the consolidated financial statements.

7. Acquisitions

Acquisition of Gambro Healthcare, Inc.

On December 6, 2004, the Company entered into a stock purchase agreement to acquire the common stock of Gambro Healthcare, Inc. or Gambro Healthcare, one of the largest dialysis service providers in the United States for a purchase price of approximately $3,050,000 in cash. Gambro Healthcare currently operates approximately 560 outpatient dialysis centers and has annual revenues of approximately $2,000,000. The purchase price reflects (i) a cash purchase price of approximately $1,700,000, which we refer to as the cash purchase price, and (ii) the assumption of Gambro Healthcare indebtedness, which indebtedness was approximately $1,300,000 on December 31, 2004 (nearly all of which is intercompany indebtedness). The Company will be required to repay the Gambro Healthcare intercompany indebtedness, including accrued interest, simultaneously with the closing of the Gambro Healthcare acquisition. Under the stock purchase agreement, the cash purchase price increases from December 6, 2004 to the acquisition closing date by 4% per annum for the first 90 days after signing and 8% per annum thereafter. The amount of Gambro Healthcare intercompany debt will increase by the amount of any additional cash contributed by Gambro Inc. to Gambro Healthcare after December 6, 2004 and will be reduced by operating cash flow applied to the intercompany debt after December 6, 2004. The intercompany debt bears interest at a rate of 1% above the twelve-month LIBOR.

10

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

The Company will also enter into a ten-year product supply agreement with Gambro Renal Products Inc., a subsidiary of Gambro AB to provide a significant majority of our dialysis equipment and supplies. The stock purchase agreement contains a number of conditions which must be satisfied or waived prior to the closing of the acquisition. These conditions include, among others, receipt of regulatory approvals, including antitrust clearance.

On February 18, 2005, the Company received a second request from the Federal Trade Commission for additional information in connection with the pending acquisition of Gambro Healthcare. This request extends the waiting period imposed by the Hart-Scott-Rodino Act until thirty days after the Company and Gambro Healthcare have substantially complied with the request, unless that period is voluntarily extended by the parties. The Company continues to be involved in active discussions with the Federal Trade Commission (FTC) staff regarding its planned acquisition of Gambro Healthcare, Inc. Although no agreement with the FTC has yet been reached, based on the Company’s discussions to date the Company expects it will be required to divest approximately 5% of the combined number of Gambro Healthcare and DaVita centers, which represents the same percentage of the combined revenues. However, the final resolution with the FTC could be materially different.

The Company has secured commitments from certain financial institutions to provide new senior secured credit facilities in an aggregate amount of up to $3,150,000 in order to finance the Gambro Healthcare acquisition and to pay related fees and other costs. The new credit facilities as outlined in the commitment letter are expected to consist of: 1) term loans aggregating up to $2,900,000, which will mature in 2011 and in 2012, and 2) a revolving line of credit of up to $250,000, which will mature in 2011. The new senior secured credit facilities will be guaranteed by substantially all of the Company’s wholly-owned subsidiaries and will be secured by all of the assets of the Company and the guarantors. The new senior secured credit facilities are anticipated to contain certain limits and restrictions on business activity and will require quarterly compliance with certain financial covenants similar to those currently in effect on the Company’s existing credit facility.

8. Condensed consolidating financial statements

The following information is presented in accordance with Rule 3-10 of Regulation S-X. The operating and investing activities of the separate legal entities included in the consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other services. The notes were issued through a private placement-offering memorandum on March 22, 2005 by DaVita Inc. and are guaranteed by substantially all of its wholly-owned subsidiaries. Each of the guarantor subsidiaries has guaranteed the senior notes and the senior subordinated notes on a joint and several, full and unconditional basis. Non-wholly-owned subsidiaries, joint ventures and partnerships are not guarantors of these obligations.

11

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

Condensed Consolidating Statements of Income

For the three months ended March 31, 2005	DaVita Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Net operating revenues	$	41,063	$	516,907		$	91,048		$	(39,060	)	$	609,958
Operating expenses		22,882		440,931			75,193			(39,060	)		499,946
Minority interests										4,016			4,016
Operating income		18,181		75,976			15,855			(4,016	)		105,996
Debt expense, refinancing charges and swap gains, net		4,282		(19,716	)		(580	)					(16,014	)
Other income		1,627											1,627
Income taxes		9,395		25,710			170						35,275
Equity earnings in subsidiaries		41,639		11,089						(52,728	)
Net income	$	56,334	$	41,639		$	15,105		$	(56,744	)	$	56,334
For the three months ended March 31, 2004
Net operating revenues	$	36,000	$	465,122		$	68,612		$	(34,303	)	$	535,431
Operating expenses		18,370		397,755			54,058			(34,303	)		435,880
Minority interests										2,718			2,718
Operating income		17,630		67,367			14,554			(2,718	)		96,833
Debt expense		1,253		(12,315	)		(574	)					(11,636	)
Other income		1,443											1,443
Income taxes		7,561		25,891			323						33,775
Equity earnings in subsidiaries		40,100		10,939						(51,039	)
Net income	$	52,865	$	40,100		$	13,657		$	(53,757	)	$	52,865

12

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

Condensed Consolidating Balance Sheets

As of March 31, 2005	DaVita Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Total
Cash and cash equivalents	$	317,879								$	317,879
Accounts receivable, net			$	410,983	$	62,000					472,983
Other current assets		2,444		162,277		6,334					171,055
Total current assets		320,323		573,260		68,334					961,917
Property and equipment, net		28,968		307,983		78,762					415,713
Amortizable intangible, net		30,435		45,385		3,765					79,585
Investments in subsidiaries		1,061,359		243,946			$	(1,305,305	)
Receivables from subsidiaries		798,772						(798,772	)
Other long-term assets and investments		21,529		10,425		28					31,982
Goodwill				981,147		179,468					1,160,615
Total assets	$	2,261,386	$	2,162,146	$	330,357	$	(2,104,077	)	$	2,649,812
Current liabilities	$	120,561	$	305,952	$	6,348				$	432,861
Payables to parent				786,385		12,387	$	(798,772	)
Long-term debt and other long-term liabilities		1,522,412		8,450		9,986					1,540,848
Minority interests								57,690			57,690
Shareholders’ equity		618,413		1,061,359		301,636		(1,362,995	)		618,413
Total liabilities and shareholders’ equity	$	2,261,386	$	2,162,146	$	330,357	$	(2,104,077	)	$	2,649,812
As of December 31, 2004
Cash and cash equivalents	$	251,979								$	251,979
Accounts receivable, net			$	403,283	$	58,812					462,095
Other current assets		2,465		146,387		5,794					154,646
Total current assets		254,444		549,670		64,606					868,720
Property and equipment, net		29,928		312,521		69,615					412,064
Amortizable intangible assets, net		8,850		47,766		4,103					60,719
Investments in subsidiaries		995,535		226,950			$	(1,222,485	)
Receivables from subsidiaries		808,572						(808,572	)
Other long-term assets and investments		3,500		10,701		29					14,230
Goodwill				982,591		173,635					1,156,226
Total assets	$	2,100,829	$	2,130,199	$	311,988	$	(2,031,057	)	$	2,511,959
Current liabilities	$	101,723	$	333,412	$	6,600				$	441,735
Payables to parent				793,399		15,173	$	(808,572	)
Long-term debt and other long-term liabilities		1,475,972		7,853		10,072					1,493,897
Minority interests								53,193			53,193
Shareholders’ equity		523,134		995,535		280,143		(1,275,678	)		523,134
Total liabilities and shareholders’ equity	$	2,100,829	$	2,130,199	$	311,988	$	(2,031,057	)	$	2,511,959

13

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

Condensed Consolidating Statements of Cash Flows

For the three months ended March 31, 2005	DaVita Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Cash flows from operating activities
Net income	$	56,334		$	41,639		$	15,105		$	(56,744	)	$	56,334
Changes in operating and intercompany assets and liabilities and non cash items included in net income		31,200			(10,420	)		(22,452	)		56,744			55,072
Net cash provided by (used in) operating activities		87,534			31,219			(7,347	)		—			111,406
Cash flows from investing activities
Purchases of property and equipment, net		(870	)		(12,053	)		(12,702	)					(25,625	)
Acquisitions and divestitures, net					(2,501	)								(2,501	)
Other items					(17,075	)		19,357						2,282
Net cash (used in) provided by investing activities		(870	)		(31,629	)		6,655						(25,844	)
Cash flows from financing activities
Long-term debt		(8,582	)		410			692						(7,480	)
Other items		(12,182	)											(12,182	)
Net cash (used in) provided by financing activities		(20,764	)		410			692						(19,662	)
Net increase in cash and cash equivalents		65,900			—			—			—			65,900
Cash and cash equivalents at beginning of period		251,979												251,979
Cash and cash equivalents at end of period	$	317,879		$	—		$	—		$	—		$	317,879
For the three months ended March 31, 2004
Cash flows from operating activities
Net income	$	52,865		$	40,100		$	13,657		$	(53,757	)	$	52,865
Changes in operating and intercompany assets and liabilities and non cash items included in net income		34,653			(1,805	)		(13,354	)		53,757			73,251
Net cash provided by operating activities		87,518			38,295			303			—			126,116
Cash flows from investing activities
Purchases of property and equipment, net		189			(21,561	)		(3,309	)					(24,681	)
Acquisitions and divestitures, net					(17,088	)								(17,088	)
Other items					(1,329	)		3,160						1,831
Net cash provided by (used in) investing activities		189			(39,978	)		(149	)					(39,938	)
Cash flows from financing activities
Long-term debt		(13,786	)		1,683			(154	)					(12,257	)
Other items		17,578												17,578
Net cash provided by (used in) financing activities		3,792			1,683			(154	)					5,321
Net increase in cash and cash equivalents		91,499			—			—			—			91,499
Cash and cash equivalents at beginning of period		61,657												61,657
Cash and cash equivalents at end of period	$	153,156		$	—		$	—		$	—		$	153,156

14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward looking statements

This Quarterly Report on Form 10-Q contains statements that are forward-looking statements within the meaning of the federal securities laws. All statements that do not concern historical facts are forward-looking statements and include, among other things, statements about our expectations, beliefs, intentions and/or strategies for the future. These forward-looking statements include statements regarding our future operations, financial condition and prospects, expectations for treatment growth rates, revenue per treatment, expense growth, levels of the provision for uncollectible accounts receivable, operating income, cash flow, capital expenditures and the anticipated impact of the Gambro Heathcare acquisition and our level of indebtedness on our financial performance, including EPS. These statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements, including, but not limited to, risks resulting from the regulatory environment in which we operate, economic and market conditions, competitive activities, other business conditions, accounting estimates, the concentration of profits generated from PPO and private indemnity patients, possible reductions in private and government reimbursement rates, changes in pharmaceutical practice patterns or reimbursement policies, our ability to maintain contracts with physician medical directors, legal compliance risks, including our continued compliance with complex government regulations and the ongoing review by the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the OIG, the subpoena from the U.S. Attorney’s Office for the Eastern District of New York and the subpoena from the U.S. Attorney’s Office for the Eastern District of Missouri, our ability to complete acquisitions of businesses, including the consummation of the Gambro Healthcare acquisition, the percentage of centers we expect we will be required to divest, terms of the related financing, and subsequent integration of the business and the risk factors set forth in this Quarterly Report on Form 10-Q. We base our forward-looking statements on information currently available to us, and we undertake no obligation to update or revise these statements, whether as a result of changes in underlying factors, new information, future events or other developments.

Results of operations

For the quarter ended March 31, 2005, we experienced no significant changes in our business fundamentals or major risk factors. Our operating results for the first quarter of 2005 compared with the prior sequential quarter and the same quarter of last year were as follows:

	Quarter ended
	March 31, 2005				December 31, 2004				March 31, 2004
	(dollar amounts rounded to nearest million, except per treatment data)
Total net operating revenues	$	610	100	%	$	616	100	%	$	535	100	%
Operating expenses and charges:
Patient care costs		410	67	%		420	68	%		363	68	%
General and administrative		54	9	%		53	9	%		43	8	%
Depreciation and amortization		25	4	%		23	4	%		20	4	%
Provision for uncollectible accounts, net of recoveries		11	2	%		11	2	%		10	2	%
Minority interest and equity income, net		4	1	%		4	1	%		3	1	%
Total operating expenses and charges		504	83	%		511	83	%		439	82	%
Operating income	$	106			$	105			$	97
Dialysis treatments		1,868,787				1,895,952				1,657,055
Average dialysis treatments per treatment day		24,270				23,999				21,381
Average dialysis revenue per dialysis treatment	$	311			$	311			$	311

15

Net Operating Revenues

Net operating revenues. Net operating revenues for the first quarter of 2005 increased $75 million, or approximately 14%, compared with the first quarter of 2004. The increase in the number of dialysis treatments accounted for approximately 12% of the increase in revenue, compared to the first quarter of 2004 and approximately 2% was due to additional lab, management fees and ancillary revenue. The increase in the number of dialysis treatments was attributable to non-acquired annual treatment growth of approximately 5.6%, and growth through acquisitions of 6.4%. The average dialysis revenue per treatment (excluding lab, other ancillary services, and management fee income) was $311 for each of the quarters presented. During the first quarter of 2005, reductions in the intensity of physician prescribed pharmaceuticals were offset by changes in the mix and reimbursement rates of commercial and government payors.

Compared with the fourth quarter of 2004, net operating revenues for the first quarter of 2005 decreased by $6 million. The decrease was due to the lower number of treatments resulting from fewer treatment days in the first quarter of 2005 compared to the fourth quarter of 2004. The fewer treatments resulted in lower revenue of approximately $9 million, which was partially offset by increases in non-dialysis revenue of approximately $3 million.

Operating Expenses and Charges

Patient care costs. Patient care costs were approximately 67% of current period net operating revenues as compared to 68% for the first and fourth quarters of 2004. On a per-treatment basis, patient care costs remained approximately the same as compared with the first quarter of 2004 and decreased approximately $2 as compared with the fourth quarter of 2004. The decrease in the first quarter of 2005, as compared to the fourth quarter of 2004, was largely due to lower labor costs and supply costs, which can fluctuate from quarter to quarter.

General and administrative expenses. General and administrative expenses were 8.9% of current period net operating revenues for the first quarter of 2005, as compared to 8.6% and 8.0% for the fourth quarter and first quarter of 2004 respectively. In absolute dollars, general and administrative expenses for the first quarter of 2005 increased by approximately $12 million compared to the first quarter of 2004, and increased approximately $1 million from the fourth quarter of 2004. The increase in the first quarter of 2005 as compared to the first quarter of 2004 was primarily attributable to increases in organizational infrastructure for corporate initiatives and business expansion, professional fees for legal support and compliance initiatives, and the timing of certain charges and expenditures.

Depreciation and amortization. The increase in depreciation and amortization in the first quarter of 2005 as compared to both previous periods was primarily due to growth through acquisitions, new center developments and expansions.

Provision for uncollectible accounts receivable. The provisions for uncollectible accounts receivable were approximately 1.8% of current period net operating revenues for all periods presented.

Debt expense. Debt expense of $17.5 million in the first quarter of 2005 increased by approximately $1.8 million compared to the fourth quarter of 2004. Approximately $1 million of the increase in the first quarter of 2005 was associated with issuance of the new senior notes and the balance of the increase was due to higher average interest rates resulting from changes in the LIBOR interest rates offset by a reduction in the net cash outflows associated with our swap agreements. The overall average effective interest rate for the first quarter of 2005 was 5.0% compared to 4.5% for the fourth quarter of 2004, and 3.9% for the first quarter of 2004.

Minority interests and equity income, net. Minority interests net of equity income increased from approximately $2.7 million in the first quarter of 2004 to $4.0 million in the first quarter of 2005. This increase reflects an ongoing trend toward a higher percentage of our new and existing centers having minority partners, as well as growth in the earnings of our joint ventures.

16

Outlook

Outlook for 2005. We are currently targeting operating income to be between 2% and 6% higher than the 2004 level, exclusive of the effects of the Gambro Healthcare acquisition and related debt financing. At this time, we expect the Gambro Healthcare acquisition together with the related debt financing to be dilutive to earnings per share, or EPS, in the first year after the closing of the acquisition, neutral in the second year, and accretive thereafter. These projections and the underlying assumptions involve substantial known and unknown risks and uncertainties, and actual results may differ materially from these current projections. These risks, among others, include those relating to the concentration of profits generated from PPO and private indemnity patients, possible reductions in private and government reimbursement rates, changes in pharmaceutical practice patterns or reimbursement policies, our ability to maintain contracts with our physician medical directors, legal compliance risks, including our continued compliance with complex government regulations and the ongoing review by the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the OIG, the subpoena from the U.S. Attorney’s Office for the Eastern District of New York and the subpoena from the U.S. Attorney’s Office for the Eastern District of Missouri, our ability to complete acquisitions of businesses, including the consummation of the Gambro Healthcare acquisition, the percentage of centers we expect we will be required to divest, terms of the related financing, and subsequent integration of the businesses. You should read “Risk Factors” in this Quarterly Report on Form 10-Q for more information about these and other potential risks. We undertake no obligation to update or revise these projections, whether as a result of changes in underlying factors, new information, future events or other developments.

Liquidity and Capital Resources

Liquidity and capital resources. Cash flow from operations during the first quarter of 2005 amounted to $111 million, compared to $126 million during the first quarter of 2004. Non-operating cash outflows for the first quarter of 2005 included capital asset expenditures of $26 million, including $18 million for new center development, $2.5 million for acquisitions (net of divestitures) and approximately $29 million for deferred financing costs associated with the issuance of the senior notes. Non-operating cash outflows for the first quarter of 2004 included capital asset expenditures of $25 million, including $19 million for new center development, and approximately $17 million for acquisitions. During the first quarter of 2005 we acquired 1 dialysis center and opened 10 new dialysis centers. During the first quarter of 2004 we acquired 5 new dialysis centers and opened 5 new dialysis centers.

We continue to expect to spend approximately $100 million to $120 million for capital asset expenditures in 2005. This includes approximately $50 to $60 million for routine maintenance items and $50 to $60 million for new center developments.

Gambro Healthcare Acquisition. On December 6, 2004, we entered into an agreement to acquire Gambro Healthcare, Inc., or Gambro Healthcare, a subsidiary of Gambro AB, one of the largest dialysis service providers in the United States, for a purchase price of approximately $3.05 billion in cash. Gambro Healthcare currently operates approximately 560 outpatient dialysis centers and has annual revenues of approximately $2 billion. In conjunction with the acquisition, we are entering into a 10-year product supply agreement with Gambro Renal Products Inc., a subsidiary of Gambro AB, to provide a significant majority of our dialysis equipment and supplies. The timing of the completion of the acquisition transaction is dependent on the government’s Hart-Scott-Rodino antitrust review process. On February 18, 2005, the Company received a second request from the Federal Trade Commission, or FTC, for additional information in connection with the acquisition. The request extends the waiting period imposed by the Hart-Scott-Rodino Act until thirty days after the Company and Gambro Healthcare have substantially complied with the request, unless that period is voluntarily extended by the parties. We continue to be involved in active discussions with the FTC staff regarding our planned acquisition of Gambro Healthcare, Inc. Although no agreement with the FTC has yet been reached, based on our discussions to date we expect we will be required to divest approximately 5% of the combined number of Gambro Healthcare and DaVita centers, which represents the same percentage of the combined revenues. However, the final resolution with the FTC could be materially different.

We have secured commitments from certain financial institutions to provide new senior secured credit facilities in an aggregate amount of up to $3,150 million in order to finance the Gambro Healthcare acquisition

17

and to pay related fees and other costs. The new credit facilities as outlined in the commitment letter are expected to consist of: 1) term loans aggregating up to $2,900 million, which will mature in 2011 and in 2012; and 2) a revolving line of credit of up to $250 million, which will mature in 2011. The new senior secured credit facilities will be guaranteed by substantially all of the Company’s wholly-owned subsidiaries and will be secured by all of the assets of the Company and the guarantors. The new senior secured credit facilities are anticipated to contain certain limits and restrictions on business activity and will require quarterly compliance with certain financial covenants similar to those currently in effect on the Company’s existing credit facility.

2005 capital structure changes. On March 22, 2005, we issued $500 million of 6 ⁵/8% senior notes due 2013, and $850 million of 7 ¹/4% senior subordinated notes due 2015 and incurred related deferred financing costs of approximately $29 million. The notes are guaranteed by substantially all of our wholly-owned subsidiaries and require semi-annual interest payments beginning on September 15, 2005. We may redeem some or all of the senior notes at any time on or after March 15, 2009, and some or all of the senior subordinated notes at any time on or after March 15, 2010. We used the net proceeds of $1,323 million along with available cash of $46 million to repay all outstanding amounts under the Term Loans of the our existing credit facilities, including accrued interest.

In conjunction with the repayment of the Term Loans, we wrote-off deferred financing costs of $6.9 million and reclassified into net income $8.1 million of swap valuation gains that were previously recorded in other comprehensive income. These gains represented the accumulated fair value of three swap instruments that were no longer effective as cash flow hedges as a result of the repayment of the Term Loans. In April 2005, the swaps were redesignated as forward cash flow hedges and gains or losses from changes in the fair value of the effective hedge portions will be reported in other comprehensive income for payment periods beginning after July 1, 2005. Gains or losses from changes in the fair value of any ineffective portions of these swaps, including settlements of all payment periods beginning prior to July 1, 2005, will continue to be reported in net income.

As of March 31, 2005 the aggregate notional amount of these swaps was $345 million. These swaps pay fixed rates ranging from 3.08% to 3.64% and receive LIBOR. Two of the swap agreements expire in 2008 and one expires in 2009. Interest payments are due quarterly and we incurred net cash obligations of $0.7 million during the first quarter of 2005, which is included in debt expense. The fair value of these swaps at March 31, 2005 was an asset of $8.4 million.

As of March 31, 2005, we maintained two other forward interest rate swap agreements that will pay a fixed rate of 3.875% and receive LIBOR effective July 1, 2005. The total amortizing notional amount of these two swaps is $800 million, both of which expire in January 2010 and require quarterly interest payments beginning in October 2005. As of March 31, 2005, the aggregate notional amount of these swaps was $800 million and their fair value was an asset of $12.6 million, resulting in additional comprehensive income during the first quarter of $7.5 million, net of tax. On April 25, 2005, we entered into four additional forward interest rate swap agreements that will pay a fixed rate of 4.2675% and receive LIBOR effective July 1, 2005. The total amortizing notional amounts of these swaps is $450 million, all of which expire in July 2010 and require quarterly interest payments beginning October 2005.

As of April 30, 2005, the Company carried a total notional amount of swaps of $1,595 million.

As of March 31, 2005, we had undrawn revolving credit facilities totaling $116 million of which $23 million was committed for outstanding letters of credit.

Accounts receivable at March 31, 2005 amounted to $473 million, an increase of approximately $11 million from December 31, 2004. The accounts receivable balances represented 71 days of revenue, an increase of 1 day from December 31, 2004 due to certain billing delays and government reimbursement processing delays.

We believe that we will have sufficient liquidity and operating cash flows to fund our scheduled debt service and other obligations over the next twelve months.

18

Significant New Accounting Standards

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123R, Share-Based Payment, that amends FASB Statements No. 123 and 95 and supersedes APB Opinion No. 25 Accounting for Stock Issued to Employees. This standard requires a company to measure the cost of employee services received in exchange for an award of equity instruments, such as stock options, based on the grant-date fair value of the award and to recognize such cost over the requisite period during which an employee provides service. The grant-date fair value will be determined using option-pricing models adjusted for unique characteristics of the equity instruments. The standard also addresses the accounting for transactions in which a company incurs liabilities in exchange for goods or services that are based on the fair value of our equity instruments or that may be settled through the issuance of such equity instruments. The standard does not change the accounting for transactions in which a company issues equity instruments for services to non-employees or the accounting for employee stock ownership plans. This standard was originally to become effective for us at the beginning of the third quarter of 2005. However, on April 14, 2005, the Securities and Exchange Commission amended the compliance dates of the standard and the required implementation date for us is now the beginning of 2006. We are currently reassessing the expected impact of this standard on our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate sensitivity

The table below provides information, as of March 31, 2005, about our financial instruments that are sensitive to changes in interest rates.

	Expected maturity date												Thereafter		Total		Average interest rate		Fair value
	2005		2006		2007		2008		2009		2010
	(dollars in millions)
Long Term Debt:
Fixed rate	$	1	$	5	$	3	$	1					$	1,352	$	1,362	7.01	%	$	1,362
Variable rate	$	1	$	1	$	1	$	1	$	1	$	1			$	6	5.74	%	$	6

	Notional amount		Contract maturity date												Pay fixed		Receive variable		Fair value
			2005		2006		2007		2008		2009		2010
	(dollars in millions)
Swaps:
Pay-fixed swaps	$	345	$	15	$	50	$	70	$	160	$	50			3.32	%	2.78	%	$	8.4
Pay-fixed forward swaps	$	800			$	140	$	169	$	134	$	318	$	39	3.88	%	LIBOR		$	12.6

As of March 31, 2005 we carried three swap agreements not effective as cash flow hedges that have an aggregate notional amount of $345 million. These swaps pay fixed rates ranging from 3.08% to 3.64% and receive LIBOR. Two of the swap agreements expire in 2008 and one expires in 2009. Interest payments are due quarterly and the Company incurred net cash obligations of $0.7 million during the first quarter of 2005, which is included in debt expense. As of March 31, 2005, the fair value of these swaps was an asset of $8.4 million. In April 2005, these swaps were redesignated as forward cash flow hedges with gains or losses from changes in the fair value to be reported in other comprehensive income for all payment periods beginning after July 1, 2005. Gains or losses from changes in the fair value of any ineffective portions of these swaps, including settlements of all payment periods beginning prior to July 1, 2005, will continue to be reported in net income.

As of March 31, 2005, we maintained two other forward interest rate swap agreements that will pay a fixed rate of 3.875% and receive LIBOR effective July 1, 2005. The total amortizing notional amount of these two

19

swaps is $800 million, both of which expire in January 2010 and require quarterly interest payments beginning in October 2005. As of March 31, 2005, the aggregate notional amount of these swaps was $800 million and their fair value was an asset of $12.6 million, resulting in additional comprehensive income during the first quarter of $7.5 million, net of tax. On April 25, 2005, we entered into four additional forward interest rate swap agreements that will pay a fixed rate of 4.2675% and receive LIBOR effective July 1, 2005. The total amortizing notional amounts of these swaps is $450 million, all of which expire in July 2010 and require quarterly interest payments beginning October 2005.

As of April 30, 2005, the Company carried a total notional amount of swaps of $1,595 million.

As of March 31, 2005, the Company’s overall effective interest rate including the effects of the swap agreements was 7.16%.

Item 4. Controls and Procedures.

Management has established and maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports filed by the Company pursuant to the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. Management recognizes that these controls and procedures can provide only reasonable assurance of desired outcomes, and that estimates and judgments are still inherent in the process of maintaining effective controls and procedures.

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with the Exchange Act requirements. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for timely identification and review of material information required to be included in the Company’s Exchange Act reports, including this report on Form 10-Q.

There has not been any change in the Company’s internal control over financial reporting that were identified during the evaluation that occurred during the fiscal quarter covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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RISK FACTORS

This Quarterly Report on Form 10-Q contains statements that are forward-looking statements within the meaning of the federal securities laws. These statements involve known and unknown risks and uncertainties, including the risks discussed below. The risks discussed below are not the only ones facing our business. Please read the cautionary notice regarding forward-looking statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

If the average rates that private payors pay us decline, then our revenues, earnings and cash flows would be substantially reduced.

Approximately 40% of our dialysis revenues are generated from patients who have private payors as the primary payor. The majority of these patients have insurance policies that reimburse us on terms and at rates materially higher than Medicare rates. Based on our recent experience in negotiating with private payors, we believe that pressure from private payors to decrease the rates they pay us may increase. If the average rates that private payors pay us decline significantly, it would have a material adverse effect on our revenues, earnings and cash flows.

If the number of patients with higher paying commercial insurance declines, then our revenues, earnings and cash flows would be substantially reduced.

Our revenue levels are sensitive to the percentage of our reimbursements from higher-paying commercial plans. A patient’s insurance coverage may change for a number of reasons, including as a result of changes in the patient’s or a family member’s employment status. For a patient covered by an employer group health plan, Medicare generally becomes the primary payor after 33 months, or earlier if the patient’s employer group health plan coverage terminates. When Medicare becomes the primary payor, the payment rate we receive for that patient shifts from the employer group health plan rate to the Medicare reimbursement rate. If there is a significant reduction in the number of patients under higher-paying commercial plans relative to government-based programs that pay at lower rates it would have a material adverse effect on our revenues, earnings and cash flows.

Future declines, or the lack of further increases, in Medicare reimbursement rates would reduce our revenues, earnings and cash flows.

Approximately one half of our dialysis revenues are generated from patients who have Medicare as their primary payor. The Medicare ESRD program reimburses us for dialysis and ancillary services at fixed rates. Unlike most other Medicare programs, the Medicare ESRD program does not provide for periodic inflation increases in reimbursement rates. Increases of 1.2% in 2000 and 2.4% in 2001 were the first increases in the composite reimbursement rate since 1991, and were significantly less than the cumulative rate of inflation over the same period. For 2002 through 2004, there was no increase in the composite reimbursement rate. Effective January 1, 2005, there was an increase of only 1.6%. Increases in operating costs that are subject to inflation, such as labor and supply costs, have occurred and are expected to continue to occur regardless of whether there is a compensating increase in reimbursement rates. We cannot predict with certainty the nature or extent of future rate changes, if any. To the extent these rates decline or are not adjusted to keep pace with inflation, our revenues, earnings and cash flows would be adversely affected.

Changes in the structure of, and reimbursement rates under, the Medicare ESRD program could substantially reduce our revenues, earnings and cash flows.

The Medicare composite reimbursement rate covers the cost of treatment, including the supplies used in those treatments, specified laboratory tests and certain pharmaceuticals. Other services and pharmaceuticals, including EPO, vitamin D analogs and iron supplements, are separately billed. Changes to the structure of the

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composite rate and separately billable reimbursement rates became effective on January 1, 2005. These changes substantially offset the 1.6% composite rate increase that also became effective January 1, 2005. In addition, effective April 1, 2005, the Centers for Medicare and Medicaid Services, or CMS, implemented a case-mix adjustment payment methodology which is designed to pay differential composite service rates based on a variety of patient characteristics. If the case-mix adjustment is not properly implemented it could adversely affect the Medicare reimbursement rates. Future changes in the structure of, and reimbursement rates under, the Medicare ESRD program could substantially reduce our revenues, earnings and cash flows.

CMS continues to study the ESRD reimbursement system through a number of demonstration projects which will take place over the next few years. The changes that went into effect on January 1, 2005 include changes in the way we are reimbursed for certain pharmaceuticals that were previously billed outside the composite rate. Pharmaceuticals are approximately 40% of our total Medicare revenues. If Medicare begins to include in its composite reimbursement rate pharmaceuticals, laboratory services or other ancillary services that it currently reimburses separately, or if there are further changes to or decreases in the reimbursement rate for these items without a corresponding increase in the composite rate, it would have a material adverse effect on our revenues, earnings and cash flows.

Changes in state Medicaid programs or reimbursement rates could reduce our revenues, earnings and cash flows.

More than 5% of our dialysis revenues are generated from patients who have Medicaid as their primary coverage. State governments may propose reductions in reimbursement rates, limitations on eligibility or other changes to Medicaid programs from time to time. If state governments reduce the rates paid by those programs for dialysis and related services, limit eligibility for Medicaid coverage or adopt changes similar to those adopted by Medicare, then our revenues, earnings and cash flows could be adversely affected.

Changes in clinical practices and reimbursement rates or rules for EPO and other pharmaceuticals could substantially reduce our revenues, earnings and cash flows.

The administration of EPO and other pharmaceuticals accounts for approximately 40% of our total dialysis revenues. Changes in physician practice patterns and accepted clinical practices, changes in private and governmental reimbursement criteria, the introduction of new pharmaceuticals and the conversion to alternate types of administration could have a material adverse effect on our revenues, earnings and cash flows.

For example, some Medicare fiscal intermediaries (Medicare claims processing contractors) are seeking to implement local medical review policies for EPO and vitamin D analogs that would effectively limit utilization of and reimbursement for these pharmaceuticals. CMS has proposed a draft reimbursement policy that would direct all fiscal intermediaries with respect to reimbursement coverage for EPO. It is possible that the draft policy, if finalized, will affect physician prescription patterns and the timing of our cash flows due to changes in auditing methodology by fiscal intermediaries.

Adverse developments with respect to EPO and the introduction of Aranesp^® could materially reduce our earnings and cash flows and affect our ability to care for our patients.

Amgen is the sole supplier of EPO and may unilaterally decide to increase its price for EPO at any time. For example, Amgen unilaterally increased its base price for EPO by 3.9% in each of 2002, 2001 and 2000. Although we have entered into contracts for EPO pricing for a fixed time period that includes discount variables depending on certain clinical criteria and other criteria, we cannot predict whether we will continue to receive the discount structure for EPO that we currently receive, or whether we will continue to achieve the same levels of discounts within that structure as we have historically achieved. An increase in the cost of EPO could have a material adverse effect on our earnings and cash flows.

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Amgen has developed and obtained FDA approval for Aranesp^®, a new pharmaceutical used to treat anemia that may replace EPO or reduce its use with dialysis patients. Unlike EPO, which is generally administered in conjunction with each dialysis treatment, Aranesp^® can remain effective for between two and three weeks. In the event that Amgen begins to market Aranesp^® for the treatment of dialysis patients, we may realize lower margins on the administration of Aranesp^® than are currently realized with EPO. In addition, some physicians may begin to administer Aranesp^® in their offices, which would prevent us from recognizing revenue or profit from the administration of EPO or Aranesp^® to those physicians’ patients. A significant increase in the use of Aranesp^® would have a material adverse effect on our revenues, earnings and cash flows.

The investigation related to the subpoena we received on March 4, 2005 from the U.S. Attorney’s Office for the Eastern District of Missouri could result in substantial penalties against us.

We are voluntarily cooperating with the U.S. Attorney’s Office for the Eastern District of Missouri with respect to the subpoena we received on March 4, 2005, which requested a wide range of documents relating to our operations, including documents related to, among other things, pharmaceutical and other services provided to patients, relationships with pharmaceutical companies, financial relationships with physicians and joint ventures. The subpoena covers the period from December 1, 1996 through the present. The subject matter of this subpoena significantly overlaps with the subject matter of the investigation being conducted by the United States Attorney’s Office for the Eastern District of Pennsylvania. We have met with representatives of the government to discuss the scope of the subpoena and we have begun the process of producing responsive documents. We intend to cooperate with the governments’ investigation. The subpoena has been issued in connection with a joint civil and criminal investigation. To our knowledge, no proceedings have been initiated against us at this time, although we cannot predict whether or when proceedings might be initiated or when these matters may be resolved. Compliance with the subpoena will require management attention and legal expense. In addition, criminal proceedings may be initiated against us in connection with this inquiry. Any negative findings could result in substantial financial penalties against us, exclusion from future participation in the Medicare and Medicaid programs and criminal penalties.

The investigation related to the subpoena we received on October 25, 2004 from the U.S. Attorney’s Office for the Eastern District of New York could result in substantial penalties against us.

We are voluntarily cooperating with the U.S. Attorney’s Office for the Eastern District of New York and the OIG with respect to the subpoena we received on October 25, 2004, which requested a wide range of documents, including specific documents relating to testing of parathyroid hormone levels and products relating to vitamin D therapies. Other participants in the dialysis industry received a similar subpoena including Gambro Healthcare, Fresenius Medical Care and Renal Care Group. The U.S. Attorney’s Office has also requested information regarding our Florida laboratory. Compliance with the subpoena will require management attention and legal expense. We are unable to determine when these matters will be resolved, whether any additional areas of inquiry will be opened or any outcome of these matters, financial or otherwise. In addition, criminal proceedings may be initiated against us in connection with this inquiry. Any negative findings could result in substantial financial penalties against us, exclusion from future participation in the Medicare and Medicaid programs and criminal penalties.

The pending federal review related to the subpoena we received in May 2002 from the U.S. Attorney’s Office for the Eastern District of Pennsylvania could result in substantial penalties against us.

We are voluntarily cooperating with the Civil Division of the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the OIG in a review of some historical practices, including billing and other operating procedures, financial relationships with physicians and pharmaceutical companies, and the provision of pharmaceutical and other ancillary services, including laboratory and other diagnostic testing services. The U.S. Attorney’s Office has also requested and received information regarding certain of our laboratories. We are

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unable to determine when these matters will be resolved, whether any additional areas of inquiry will be opened or any outcome of these matters, financial or otherwise. Any negative findings could result in substantial financial penalties against us and exclusion from future participation in the Medicare and Medicaid programs.

If we fail to adhere to all of the complex government regulations that apply to our business, we could suffer severe consequences that would substantially reduce our revenues, earnings and cash flows.

Our dialysis operations are subject to extensive federal, state and local government regulations, including Medicare and Medicaid reimbursement rules and regulations, federal and state anti-kickback laws, Stark II physician self-referral prohibition and analogous state referral statutes, and federal and state laws regarding the collection, use and disclosure of patient health information. The regulatory scrutiny of healthcare providers, including dialysis providers, has increased significantly in recent years. Medicare has increased the frequency and intensity of its certification surveys and inspections of dialysis centers have increased markedly in recent years. For example, we are required to provide substantial documentation related to the administration of pharmaceuticals, including EPO, and, to the extent that any such documentation is found insufficient, we may be required to refund any amounts received from such administration by government or private payors, and be subject to any penalties under applicable laws or regulations. In addition, fiscal intermediaries are increasing their prepayment and post-payment reviews.

We endeavor to comply with all of the requirements for receiving Medicare and Medicaid reimbursement and to structure all of our relationships with referring physicians to comply with the anti-kickback laws and the Stark II physicians self-referral law. However, the laws and regulations in this area are complex and subject to varying interpretations. For example, none of our medical director agreements establishes compensation using the Stark II safe harbor method; rather, compensation under our medical director agreements is the result of individual negotiation and the Company believes exceeds amounts determined in that manner. If an enforcement agency were to challenge the level of compensation that we pay our medical directors, we could be required to change our practices, face criminal or civil penalties, pay substantial fines or otherwise experience a material adverse effect as a result of a challenge to these arrangements.

Due to regulatory considerations unique to each of these states, all of our dialysis operations in New York and some of our dialysis operations in New Jersey are conducted by privately-owned companies to which we provide a broad range of administrative services. These operations account for approximately 7% of our dialysis revenues. We believe that we have structured these operations to comply with the laws and regulations of these states, but we can give no assurances that they will not be challenged.

If any of our operations are found to violate these or other government regulations, we could suffer severe consequences that would have a material adverse effect on our revenues, earnings and cash flows including:

• Mandated practice changes that significantly increase operating expenses;

• Suspension or termination of our participation in government reimbursement programs;

• Refunds of amounts received in violation of law or applicable reimbursement program requirements;

• Loss of required government certifications or exclusion from government reimbursement programs;

• Loss of licenses required to operate healthcare facilities in some of the states in which we operate, including the loss of revenues from operations in New York and New Jersey conducted by privately-owned companies as described above;

• Fines, damages or monetary penalties for anti-kickback law violations, Stark II violations, submission of false claims, civil or criminal liability based on violations of law, or other failures to meet reimbursement program requirements and patient privacy law violations;

• Claims for monetary damages from patients who believe their protected health information has been used or disclosed in violation of federal or state patient privacy laws; and

• Termination of relationships with medical directors.

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We may be subject to liability claims for damages and other expenses not covered by insurance that could reduce our earnings and cash flows.

The administration of dialysis and related services to patients may subject us to litigation and liability for damages. Our business, profitability and growth prospects could suffer if we face negative publicity or we pay damages or defense costs in connection with a claim that is outside the scope of any applicable insurance coverage, including claims related to contractual disputes and professional and general liability claims. We currently maintain programs of general and professional liability insurance. However, a successful professional liability, malpractice or negligence claim in excess of our insurance coverage could harm our profitability and liquidity.

In addition, if our costs of insurance and claims increase, then our earnings could decline. Market rates for insurance premiums and deductibles have been steadily increasing. Our earnings and cash flows could be materially and adversely affected by any of the following:

• Further increases in premiums and deductibles;

• Increases in the number of liability claims against us or the cost of settling or trying cases related to those claims; and

• An inability to obtain one or more types of insurance on acceptable terms.

If businesses we acquire have unknown liabilities, we could suffer severe consequences that would substantially reduce our revenues, earnings and cash flows.

Our business strategy includes the acquisition of dialysis centers and businesses that own and operate dialysis centers. Businesses we acquire may have unknown or contingent liabilities or liabilities that are in excess of the amounts that we had estimated. These liabilities could include liabilities arising as a result of any failure to adhere to laws and regulations governing dialysis operations, such as violations of federal or state anti-kickback statutes or Stark II. Although we generally seek indemnification from the sellers of businesses we acquire for matters that are not properly disclosed to us, we are not always successful. In addition, even in cases where we are able to obtain indemnification, we may discover liabilities greater than the contractual limits or the financial resources of the indemnifying party. In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification, we could suffer severe consequences that would substantially reduce our revenues, earnings and cash flows.

If a significant number of physicians were to cease referring patients to our dialysis centers, whether due to regulatory or other reasons, then our revenues, earnings and cash flows would be substantially reduced.

Many physicians prefer to have their patients treated at dialysis centers where they or other members of their practice supervise the overall care provided as medical directors of the centers. As a result, the primary referral source for most of our centers is often the physician or physician group providing medical director services to the center. If a medical director agreement terminates, whether before or at the end of its term, and a new medical director is appointed, it may negatively impact the former medical director’s decision to treat his or her patients at our center. Additionally, both current and former medical directors have no obligation to refer their patients to our centers. Also, if the quality of service levels at our centers deteriorate, it may negatively impact patient referrals and treatment volumes.

Our medical director contracts are for fixed periods, generally five to ten years. Medical directors have no obligation to extend their agreements with us. We may take actions to restructure existing relationships or take positions in negotiating extensions of relationships to assure compliance with the safe harbor provisions of the anti-kickback statute, Stark II law and other similar laws. These actions could negatively impact the decision of physicians to extend their medical director agreements with us or to refer their patients to us. If the terms of any existing agreement are found to violate applicable laws, we may not be successful in restructuring the relationship which could lead to the early termination of the agreement, or force the physician to stop referring patients to the centers.

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If our joint ventures were found to violate the law, we could suffer severe consequences that would have a material adverse effect on our revenues, earnings and cash flows.

As of March 31, 2005 we owned a controlling interest in 53 joint ventures, representing approximately 23% of our dialysis revenue. Joint ventures with physicians or physician practice groups may also have the physician owners provide medical director services to those centers or other centers we own and operate. Because our relationships with physicians are governed by the “anti-kickback” statute contained in the Social Security Act, we have sought to structure our joint venture arrangements to satisfy as many safe harbor requirements as possible. However, our joint venture arrangements do not satisfy all elements of any safe harbor under the federal anti-kickback statute. Based on the exceptions applicable to ESRD services, we believe that our joint venture arrangements and operations materially comply with the Stark II law. The subpoena we received from the United States Attorney’s Office for the Eastern District of Missouri on March 4, 2005, includes a request for documents related to our joint ventures. If the joint ventures are found to be in violation of the anti-kickback statute or the Stark provisions, we could be required to restructure the joint ventures or refuse to accept referrals for designated health services from the physicians with whom the joint venture centers have a financial relationship. We also could be required to repay to Medicare amounts received by the joint ventures pursuant to prohibited referrals, and we could be subject to monetary penalties and exclusion from government healthcare programs. If our joint venture centers are subject to any of these penalties, we could suffer severe consequences that would have a material adverse effect on our revenues, earnings and cash flows.

The level of our current and future debt could have an adverse impact on our business.

We have substantial debt outstanding and if we consummate the proposed Gambro Healthcare acquisition we will incur substantial additional debt. In addition, we may incur additional indebtedness in the future. The level of our current and proposed indebtedness, among other things, could:

• make it difficult for us to make payments on our debt securities;

• increase our vulnerability to general adverse economic and industry conditions;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes;

• expose us to interest rate fluctuations because the interest on the debt under some of our indebtedness may be at variable rates;

• limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;

• place us at a competitive disadvantage compared to our competitors that have less debt; and

• limit our ability to borrow additional funds.

If additional debt financing is not available when required or is not available on acceptable terms, we may be unable to grow our business, take advantage of business opportunities, respond to competitive pressures or refinance maturing debt, any of which could have a material adverse effect on our operating results and financial condition.

We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on our indebtedness and to fund planned capital expenditures and expansion efforts, including any strategic acquisitions we may make in the future, will depend on our ability to generate cash. This, to a certain extent, is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.

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We cannot assure you that our business will generate sufficient cash flow from operations in the future, that our currently anticipated growth in revenue and cash flow will be realized on schedule or that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, including the notes, or to fund other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. Our senior secured credit facilities are secured by substantially all of our and our subsidiaries’ assets. As such, our ability to refinance our debt or seek additional financing could be limited by such security interest. We cannot assure you that we will be able to refinance our indebtedness on commercially reasonable terms or at all.

If the current shortage of skilled clinical personnel continues, we may experience disruptions in our business operations and increases in operating expenses.

We are experiencing increased labor costs and difficulties in hiring nurses due to a nationwide shortage of skilled clinical personnel. We compete for nurses with hospitals and other health care providers. This nursing shortage may limit our ability to expand our operations. If we are unable to hire skilled clinical personnel when needed, our operations and treatment growth will be negatively impacted, which would result in reduced revenues, earnings and cash flows.

The Gambro Healthcare acquisition is significantly larger than any other acquisition we have made to date. We will face challenges integrating the Gambro Healthcare centers and may not realize anticipated benefits.

The Gambro Healthcare acquisition is the largest acquisition we have attempted to date. There is a risk that, due to the size of the acquisition, we will be unable to integrate Gambro Healthcare into our operations as effectively as we have with prior acquisitions, which would result in fewer benefits to us from the acquisition than currently anticipated as well as increased costs. The integration of the Gambro Healthcare operations will require implementation of appropriate operations, management and financial reporting systems and controls. We may experience difficulties in effectively implementing these and other systems and integrating Gambro Healthcare’s systems and operations. In addition, the integration of Gambro Healthcare will require the focused attention of our management team, including a significant commitment of their time and resources. The need for management to focus on integration matters, could have a material and adverse impact on our revenues and operating results. If the integration is not successful or if our Gambro Healthcare operations are less profitable than we currently anticipate, our results of operations and financial condition may be materially and adversely affected.

We will assume substantially all of Gambro Healthcare’s liabilities, including contingent liabilities. If these liabilities are greater than expected, or if there are unknown Gambro Healthcare obligations, our business could be materially and adversely affected.

As a result of the Gambro Healthcare acquisition, we will assume substantially all of Gambro Healthcare’s liabilities, including contingent liabilities. We may learn additional information about Gambro Healthcare’s business that adversely affects us, such as unknown liabilities, issues relating to internal controls over financial reporting, issues that could affect our ability to comply with the Sarbanes-Oxley Act after we acquire Gambro Healthcare or issues that could affect our ability to comply with other applicable laws, including laws and regulations governing dialysis operations. As a result, we cannot assure you that the Gambro Healthcare acquisition will be successful or will not, in fact, harm our business. Among other things, if Gambro Healthcare’s liabilities are greater than expected, or if there are obligations of Gambro Healthcare of which we are not aware at the time of completion of the acquisition, our business could be materially and adversely affected.

We have limited indemnification rights in connection with these and other regulatory compliance and litigation matters affecting Gambro Healthcare, as well as known contingent liabilities of Gambro Healthcare that we will assume. For example, Gambro Healthcare was served a complaint regarding a former employee and a putative class of employees in California for claims relating to California labor laws. Although this matter is

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subject to indemnification under the acquisition agreement, claims relating to this matter may exceed the limit on our indemnification rights. Gambro Healthcare may also have other unknown liabilities which we will be responsible for after the acquisition. If we are responsible for liabilities not covered by indemnification rights or substantially in excess of amounts covered through any indemnification rights, we could suffer severe consequences that would substantially reduce our revenues, earnings and cash flows.

The integration of Gambro Healthcare and the realization of cost savings will require us to make significant expenditures.

In order to obtain the cost savings and operating income that we believe the integration of Gambro Healthcare should provide, we will be required to make significant expenditures. We are in the process of planning for the integration and are uncertain as to the extent and amount of these expenditures. Further, given the amount of indebtedness that we will incur as part of the Gambro Healthcare acquisition, we may not be able to obtain additional financing required for any significant expenditures on favorable terms or at all. In addition, we may not achieve the cost savings we expect through the integration of the Gambro Healthcare operations regardless of our expenditures, which failure would materially and adversely affect our financial results. The costs associated with compliance with the corporate integrity agreement could be substantial and may be greater than we currently anticipate.

If we experience a higher than normal turnover rate for Gambro Healthcare employees after the acquisition, we may not be able to effectively integrate their operations.

In order to successfully integrate the Gambro Healthcare operations into our own, we will require the services of Gambro Healthcare’s clinical, operating and administrative employees. If we experience a higher than normal turnover rate for Gambro Healthcare employees, we may not be able to effectively integrate Gambro Healthcare’s systems and operations.

If we lose the services of a significant number of Gambro Healthcare’s medical directors, our results of operations could be harmed.

Certain of Gambro Healthcare’s contracts with its medical directors provide that the contract is terminable upon a change of control of Gambro Healthcare. These termination provisions would be triggered by our acquisition of Gambro Healthcare. If we lose the services of a significant number of Gambro Healthcare’s medical directors, our results of operations may be harmed.

Our alliance and product supply agreement with Gambro Renal Products Inc. will limit our ability to achieve costs savings with respect to products and equipment we are required to purchase under this agreement.

In connection with the Gambro Healthcare acquisition, we will enter into a ten-year alliance and product supply agreement with Gambro Renal Products Inc., a subsidiary of Gambro AB, pursuant to which we will be required to purchase from Gambro Renal Products specified percentages representing a significant majority of our requirements for hemodialysis products, supplies and equipment at fixed prices. This will limit our ability to realize future cost savings in regard to these products and equipment. For the three months ended March 31, 2005, our total spending on hemodialysis products, supplies and equipment was approximately 8% of our total operating costs. If Gambro Renal Products is unable to fulfill its obligations under the agreement, we may have difficulty finding alternative sources of supplies on favorable financial terms, further reducing our ability to achieve cost savings. In addition, as we replace existing equipment from other third party manufacturers with Gambro Renal Products’ equipment, we may incur additional expenses as we transition to this new equipment.

The consummation of the Gambro Healthcare acquisition is subject to a number of conditions; if these conditions are not satisfied or waived, we will not be able to consummate the acquisition.

The stock purchase agreement relating to the Gambro Healthcare acquisition contains a number of conditions which must be satisfied or waived prior to the closing of the acquisition. These conditions include,

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among others, execution and delivery of the transition services agreement and the alliance product and supply agreement and receipt of regulatory approvals, including antitrust clearance. On February 18, 2005, we received a request from the Federal Trade Commission for additional information in connection with its review of our anti-trust filing. The effect of the second request is to extend the waiting period imposed by the Hart-Scott-Rodino Act until thirty days after we and Gambro Healthcare have substantially complied with the request, unless that period is extended voluntarily by us and Gambro Healthcare or is terminated sooner by the FTC. We continue to be involved in active discussions with the FTC staff regarding our planned acquisition of Gambro Healthcare, Inc. Although no agreement with the FTC has yet been reached, based on our discussions to date we expect we will be required to divest approximately 5% of the combined number of Gambro Healthcare and DaVita centers, which represents the same percentage of the combined revenues. However, the final resolution with the FTC could be materially different. In addition, one or more states’ Attorneys General could attempt to impose conditions or otherwise interfere with the proposed acquisition. We will require financing in order to consummate the Gambro Healthcare acquisition. We have obtained acquisition financing commitments from a group of financial institutions, however such commitments are subject to customary conditions. We therefore cannot assure you that we will be able to obtain such financing on favorable terms or at all or that we will be able to consummate the Gambro Healthcare acquisition on the terms described herein or at all.

If we do not cause Gambro Healthcare to comply and Gambro Healthcare does not comply with its corporate integrity agreement, or Gambro Healthcare otherwise has failed or fails to comply with applicable government regulations to its operations, we could be subject to additional penalties and otherwise may be materially harmed.

On December 1, 2004, Gambro Healthcare entered into a settlement agreement with the Department of Justice and certain agencies of the United States government relating to the Department of Justice’s investigation of Gambro Healthcare’s Medicare and Medicaid billing practices and its relationships with physicians and pharmaceutical manufacturers. In connection with the settlement agreement, Gambro Healthcare, without admitting liability, made a one-time payment of approximately $310 million and entered into a corporate integrity agreement with HHS. The corporate integrity agreement applies to all of Gambro Healthcare’s centers and requires, among other things, that Gambro Healthcare implement additional training, engage an independent review organization to conduct an annual review of certain of its reimbursement claims, and submit to the OIG an annual report with respect to its compliance activities. In addition, its subsidiary, Gambro Supply Corp., entered a plea of guilty to a one count felony charge related to the conduct of its predecessor, REN Supply Corp., and paid a criminal fine of $25 million. Gambro Supply Corp. was excluded from participation in federal health care programs. However, no other Gambro AB affiliates were so excluded. Gambro Healthcare also agreed to voluntarily cooperate with the government in connection with its further investigation. Moreover, Gambro Healthcare has reached a preliminary understanding with the National Association of Medicaid Fraud Control Units to settle the related claims of the affected state Medicaid programs for a one-time payment of $15 million plus interest accruing at the rate of 5% per annum from December 1, 2004. Completion of the Medicaid settlement is subject to confirmation of certain claims data and negotiation and execution of settlement agreements with the relevant states. As a result of the settlement agreement, commercial payors and other third parties may initiate legal proceedings against Gambro Healthcare related to the billing practices and other matters covered by the settlement agreement. If we do not cause Gambro Healthcare to comply, and Gambro Healthcare does not comply, with the terms of the corporate integrity agreement or otherwise has failed or fails to comply with the extensive federal, state and local government regulations applicable to its operations, we could be subject to additional penalties, including monetary penalties or suspension from participation in government reimbursement programs, and otherwise may be materially harmed. The costs associated with compliance with the corporate integrity agreement and cooperation with the government could be substantial and may be greater than we currently anticipate.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

The information in Note 5 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report is incorporated by this reference in response to this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Stock Repurchases

There were no repurchases of our common stock during the three-month period ended March 31, 2005. The Company has approximately $249 million available from Board authorizations to repurchase shares of its common stock as of March 31, 2005.

On September 11, 2003, the company announced that the Board of Directors authorized the Company to repurchase up to $200 million of the Company’s common stock, with no expiration date. On November 2, 2004, the company announced that the Board of Directors approved an increase in the Company’s authorization to repurchase shares of its common stock by an additional $200 million. The Company is authorized to make purchases from time to time in the open market or in privately negotiated transactions, depending upon market conditions and other considerations.

Items 3, 4 and 5 are not applicable.

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Item 6. Exhibits.

(a) Exhibits

Exhibit Number	Description
10.1	Amendment to Mr. Thiry’s Employment Agreement, dated March 30, 2005. ü*
10.2	Amended and Restated DaVita Inc. 2002 Equity Compensation Plan. ü*
10.3	Amended and Restated DaVita Inc. Executive Incentive Plan. ü*
10.4	Director Compensation Philosophy and Plan. ü*
12.1	Ratio of earnings to fixed charges. ü
31.1	Certification of the Chief Executive Officer, dated April 29, 2005, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü
31.2	Certification of the Chief Financial Officer, dated April 29, 2005, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü
32.1	Certification of the Chief Executive Officer, dated April 29, 2005, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü
32.2	Certification of the Chief Financial Officer, dated April 29, 2005, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü

ü Filed herewith.

* Management contract or executive compensation plan or arrangement.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DAVITA INC.
By:	/s/    GARY W. BEIL
	Gary W. Beil Vice President and Controller*

Date: April 29, 2005

* Mr. Beil has signed both on behalf of the registrant as a duly authorized officer and as the Registrant’s principal accounting officer.

32

INDEX TO EXHIBITS

Exhibit Number	Description
10.1	Amendment to Mr. Thiry’s Employment Agreement, dated March 31, 2005. ü*
10.2	Amended and Restated DaVita Inc. 2002 Equity Compensation Plan. ü*
10.3	Amended and Restated DaVita Inc. Executive Incentive Plan. ü*
10.4	Director Compensation Philosophy and Plan. ü*
12.1	Ratio of earnings to fixed charges. ü
31.1	Certification of the Chief Executive Officer, dated April 29, 2005, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü
31.2	Certification of the Chief Financial Officer, dated April 29, 2005, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü
32.1	Certification of the Chief Executive Officer, dated April 29, 2005, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü
32.2	Certification of the Chief Financial Officer, dated April 29, 2005, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü

ü Filed herewith.

* Management contract or executive compensation plan or arrangement.

33

EX-10.1

Exhibit 10.1

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT

This document is to amend the Employment Agreement (the “Agreement”), entered into as of October 18, 1999, as amended by that certain Amendment to Employment Agreement dated May 20, 2000, and that certain Second Amendment to Employment Agreement dated November 28, 2000, by and between Total Renal Care Holdings, Inc. (now known as DaVita Inc.) (the “Company”) and Kent J. Thiry (“Executive”). Specifically, the parties agree to amend the Agreement as follows:

1. Effective April 1, 2005, Section 2.3(a) is hereby deleted in its entirety and replaced by the following:

“For each calendar year, commencing with calendar year 2005, Executive shall be eligible to receive a bonus (the “Bonus”) which may be based upon the achievement of established goals and/or an assessment of the performance of the Company and Executive during the year. The amount of the Bonus, if any, for each such calendar year will be determined and approved by the Compensation Committee of the Board and/or the Independent Directors as contemplated by the Charter of the Compensation Committee of the Board.”

In all other respects, and with the exception of the previous amendments, the Agreement remains unchanged and in full force and effect.

DAVITA INC.

By:	/s/    RICHARD B. FONTAINE	March 30, 2005
	Richard B. Fontaine, Director	Date

EXECUTIVE

/s/    KENT J. THIRY	March 30, 2005
Kent J. Thiry	Date

EX-10.2

Exhibit 10.2

DaVita Inc.

2002 Equity Compensation Plan

(As Amended and Restated Effective March 30, 2005)

1. Purpose. The purpose of the DaVita Inc. 2002 Equity Compensation Plan (“Plan”) is to promote the interests of DaVita Inc. (“Company”) and its stockholders by enabling the Company to offer an opportunity to acquire an equity interest in the Company so as to better attract, retain, and reward Employees, directors, and independent contractors and, accordingly, to strengthen the mutuality of interests between those persons and the Company’s stockholders by providing those persons with a proprietary interest in pursuing the Company’s long-term growth and financial success. Awards under the Plan will be made in the form of the issuance of Options, Restricted Stock, Stock Issuances, Stock Appreciation Rights, and Other Awards.

2. Definitions. For purposes of this Plan, the following terms shall have the meanings set forth below.

(a) “Board” or “Board of Directors” means the Board of Directors of DaVita Inc.

(b) “Code” means the Internal Revenue Code of 1986. Reference to any specific section of the Code shall also be deemed to be a reference to any successor provision.

(c) “Committee” means the administrative committee of this Plan that is provided for in Section 3 of this Plan.

(d) “Common Stock” means the common stock of DaVita Inc. or any security issued in substitution, exchange, or in lieu thereof.

(e) “Company” means DaVita Inc., a Delaware corporation, or any successor corporation. Except where the context indicates otherwise, the term “Company” shall include its Parent and Subsidiaries, if any.

(f) “Disabled” means permanent and total disability, as defined in Code Section 22(e)(3).

(g) “Effective Date” of this Plan is April 11, 2002.

(h) “Employee” means a worker whose earnings the Company reports on a Form W-2.

(i) “Exchange Act” means the Securities Exchange Act of 1934.

(j) “Fair Market Value” of Common Stock for any day shall be the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the average of the last reported bid and ask prices on that day regular way, in either case on the principal national securities exchange on which the Common Stock is traded or listed.

(i) If the national securities exchange is closed on such date, the “Fair Market Value” shall be determined as of the last preceding day on which the Common Stock was traded or for which bid and ask prices are available.

(ii) In the case of an Incentive Stock Option, “Fair Market Value” shall be determined without reference to any restriction other than one that, by its terms, will never lapse.

(k) “Grants” mean awards of Options, Restricted Stock, Stock Issuances, Stock Appreciation Rights, and Other Awards.

(l) “Incentive Stock Option” means an option to purchase Common Stock that is intended to be an incentive stock option under Code Section 422.

(m) “Insider” means a person who is subject to Section 16 of the Exchange Act.

(n) “Non-Qualified Stock Option” means any option to purchase Common Stock that is not an Incentive Stock Option.

(o) “Option” means an Incentive Stock Option or a Non-Qualified Stock Option.

(p) “Other Awards” mean equity-based awards that are not Options, Restricted Stock, Stock Appreciation Rights, or Stock Issuances. However, in the event that the Other Award is the functional equivalent of Restricted Stock or Stock Issuance, (i) the special share-counting rule contained in Section 5(a)(iv) and (ii) the minimum vesting period contained in Section 2(u) shall apply.

(q) “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as determined in accordance with the rules of Code Section 424(e).

(r) “Participant” means a person who has received a Grant.

(s) “Plan” means this DaVita Inc. 2002 Equity Compensation Plan.

(t) “Predecessor Plans” mean the DaVita Inc. 1994 Equity Compensation Plan, 1995 Equity Compensation Plan, 1997 Equity Compensation Plan, and 1999 Equity Compensation Plan.

(u) “Restricted Stock” mean the shares of Common Stock that are issued to a Participant, where the Participant does not immediately possess a vested right to those shares. In

the case of a Grant to an Employee, the Participant may not become fully vested in the Restricted Stock in less than three (3) years from the date of the Grant. Nevertheless, the terms of a Grant may provide for faster vesting in limited situations of retirement, death, disability, change in control, and/or grants to newly-hired Employees. Other than the right to sell or otherwise transfer the shares and such other restrictions as may be contained in the Grant, the Participant shall be treated as the owner of the Restricted Stock (e.g., for voting purposes) from the date of the issuance of the shares.

(v) “Rule 16b-3” means Rule 16b-3 promulgated by the Securities and Exchange Commission.

(w) “Section 162(m)” means Code Section 162(m), which imposes a million dollar ($1,000,000) compensation deduction limitation on amounts paid to certain senior executives.

(x) “Service” means the performance of service, whether as an Employee or as an independent contractor (e.g., as a member of the Board ).

(i) Nevertheless, except to the extent otherwise expressly provided to the contrary in the terms of the Grant, service performed by the Participant shall only be taken into account to the extent it is performed in the same capacity as on the date of the Grant (that is, as an Employee or as an independent contractor). In making the determination as to whether or not a Grant should provide for the continuation of Service after a change in status, the Committee shall take into account the relevant possible tax and accounting consequences.

(ii) The Committee shall prescribe such rules as it may deem necessary or appropriate regarding crediting of periods of Service while a Participant is on a leave of absence.

(y) “Severance” means, with respect to a Participant, the termination of the Participant’s Service, whether by reason of death, disability, or any other reason.

(i) For purposes of determining the exercisability of an Incentive Stock Option, a Participant who is on a leave of absence that exceeds ninety (90) days will be considered to have incurred a Severance on the ninety-first (91st) day of the leave of absence, unless the Participant’s rights to reemployment are guaranteed by statute or contract.

(ii) A Participant will not be considered to have incurred a Severance because of a transfer between the Company, Subsidiary, or Parent.

(iii) If a Participant switches from Employee to independent contractor status or vice versa, that will be treated as a Severance, except as otherwise expressly provided to the contrary in the terms of the Grant.

(iv) If a Participant switches from Employee to independent contractor status, that will result in an Option losing its status as an Incentive Stock Option after ninety (90)

days has elapsed since the switch. Thereafter, the Option (if it is exercisable at all) will be treated as a Non-Qualified Stock Option.

(z) “Stock Appreciation Right” means the right to receive a payment equal to the difference between the Fair Market Value of the Common Stock on the date of its issuance and the date on which the right is exercised. Stock Appreciation Rights may be settled in cash or Common Stock.

(aa) “Stock Issuance” means the direct issuance of fully vested shares to an Employee or an independent contractor (including a director) for compensation previously earned. The shares may be issued immediately or on a deferred basis.

(bb) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as determined in accordance with the rules of Code Section 424(f).

(cc) “Substitute Grant” means an award issued to a person who had performed services for an entity that was acquired by the Company in substitution of a grant previously awarded to that individual or entity by the acquired entity.

(dd) “Ten Percent Stockholder” means any person who owns (after taking into account the constructive ownership rules of Code Section 424(d)) more than ten percent (10%) of the combined voting power of all classes of stock of DaVita Inc. or of any of its Parents or Subsidiaries.

3. Administration.

(a) Except as provided below, this Plan shall be administered by the Compensation Committee of the Board.

(b) If the income recognized with respect to an Option is intended to be exempt from Section 162(m), the Committee must be composed exclusively of “Outside Directors,” as that term is defined in Section 162(m). Similarly, if a Grant to an Insider is intended to be an exempt purchase under Section 16 of the Exchange Act, then either (i) the Committee must be composed exclusively of “Non-Employee Directors,” as that term is defined in Rule 16b-3 or (ii) the grant must be made by the Board of Directors.

(c) The Committee is authorized to interpret this Plan and to adopt rules and procedures relating to the administration of this Plan, including those relating to sub-plans established for the purpose of qualifying for preferred tax or other treatment under foreign laws. All actions of the Committee in connection with the interpretation and administration of this Plan shall be binding upon all parties. No member of the Committee shall incur any liability for any actions taken or inactions done in good faith.

(d) Subject to the limitations of Sections 9 and 14 of this Plan, the Committee is expressly authorized to make such modifications to this Plan and to Grants made under this Plan

as are necessary to effectuate the intent of this Plan as a result of any changes in the tax, accounting, or securities laws treatment of Participants or of the Plan.

(e) The Board of Directors may, by a resolution adopted by the Board, delegate the power to issue Grants under the Plan, provided such delegation is consistent with applicable law and the requirements of any stock exchange on which the Common Stock is traded.

4. Duration of Plan.

(a) This Plan shall be effective as of the Effective Date.

(b) The Plan shall terminate on February 8, 2012, which is the tenth anniversary of the date on which the Board of Directors adopted the Plan. The preceding sentence shall not apply if the Company’s stockholders reapprove the Plan prior to the termination date. The effect of obtaining such reapproval shall be to extend the term of the Plan for another ten (10) years from the date on which such reapproval shall be obtained.

5. Number of Shares.

(a) The following rules shall govern the size of Grants under this Plan.

(i) The base maximum number of shares of Common Stock which may be issued pursuant to this Plan is six million, eight hundred thirty-nine thousand (6,839,000) shares. In addition, two million four hundred eleven thousand and forty (2,411,040) shares, representing the balance remaining in the Predecessor Plans at the Effective Date were transferred to this Plan. The total number of shares available under the Plan will also be increased by the shares that subsequently become available under the Predecessor Plans as determined pursuant to this Plan.

(ii) The maximum number of shares that may be subject to Grants awarded to a single Participant in any consecutive twenty-four (24) month period is two million two hundred fifty thousand (2,250,000). For this purpose, (A) shares subject to a terminated or expired Option or Stock Appreciation Right, as well as Restricted Stock that has been forfeited shall be considered to remain outstanding and (B) the repricing of an Option or Stock Appreciation Right shall be treated as the issuance of a new Option or Stock Appreciation Right.

(iii) The maximum number of shares that may be issued pursuant to Incentive Stock Options during the lifetime of the Plan is seven million five hundred thousand (7,500,000) shares.

(iv) To the extent that a Grant is made in the form of Restricted Stock or Stock Issuance (or an Other Award that is the functional equivalent of Restricted Stock or Stock Issuance), the remaining share reserve in the Plan shall be reduced by an amount equal to 2.75 times the number of shares subject to that Grant.

The preceding numbers shall be adjusted as set forth in Section 12 of this Plan.

(b) Shares shall again become available for use under the Plan upon (i) the expiration or termination (for any reason) of an Option or Stock Appreciation Right which shall not have been exercised in full, and (ii) the forfeiture of shares of Common Stock subject to a Grant of Restricted Stock.

(c) The following rules apply for purposes of determining the number of shares that remain available for issuance under the Plan, regardless of whether the underlying Grant was made under this Plan or a Predecessor Plan.

(i) In the event a Participant pays part or all of the exercise price of an Option by surrendering shares of Common Stock that the Participant had previously acquired, only the number of shares issuable to the Participant in excess of the number that was surrendered shall be taken into account for purposes of determining the maximum number of shares that may be issued under the Plan.

(ii) Shares that are not issued to a Participant, but rather, are used to satisfy the income tax withholding obligations upon (A) the exercise of an Option or Stock Appreciation Right (that is settled in stock), (B) the vesting of Restricted Stock, or (C) the grant of Stock Issuances are not taken into account for purposes of determining the maximum number of shares that may be issued under the Plan.

(iii) The following rules apply in determining whether there will be any reduction in the maximum number of shares that remain available for issuance under the Plan in the case of the exercise of a Stock Appreciation Right:

(A) If the Stock Appreciation Right is settled in cash, none of the shares that were subject to it shall reduce the total number of shares that remain available for issuance; and

(B) If it is settled in stock, only the number of shares actually issued pursuant to the Stock Appreciation Right are taken into account for purposes of determining the maximum number of shares that remain available for issuance.

(d) To the extent permitted by applicable law and the rules of any stock exchange or quotation system on which the Company’s stock is traded or listed, the Corporation can replenish the number of shares available under the Plan through repurchases of its existing shares, provided that the purchases are effected solely by the use of:

(i) The cash proceeds received by the Company upon the exercise of Options issued under the Plan or a Predecessor Plan; and

(ii) The actual tax savings achieved by the Company relating to the exercise of Options under the Plan and the Predecessor Plans;

provided that those exercises occur after the Effective Date.

(e) Rules similar to the preceding provisions of this Section 5 shall apply with respect to Other Awards.

6. Eligibility.

(a) Persons eligible to receive Grants under this Plan shall consist of (i) Employees, (ii) members of the Board of Directors, and (iii) other persons providing Services, other than persons only providing Services in connection with a capital raising transaction. However, Incentive Stock Options may only be awarded to Employees.

(b) In the event that the Company acquires another entity, the Committee may authorize the issuance of Substitute Grants upon such terms and conditions as the Committee shall determine, which may be different from the terms contained in this Plan, taking into account the limitations of Code Section 424(a) in the case of a Substitute Grant that is intended to be an Incentive Stock Option.

(c) In the event that the Committee makes a Grant to a person who is not currently an Employee of or an independent contractor to the Company, such Grant shall not become effective until such individual commences performing Services to the Company and it must satisfy the pricing limitations set forth in Section 7 of this Plan at that time.

(d) After taking into consideration the tax, securities, and accounting consequences of doing so, the Committee may issue Non-Qualified Stock Options, Restricted Stock, Stock Issuances, Stock Appreciation Rights, and Other Awards to individuals who are performing Services (whether as Employees or as independent contractors) to entities that are related to or affiliated with the Company but that do not qualify as Parents or Subsidiaries. The Committee shall prescribe such rules as it deems appropriate regarding the crediting of Service in these circumstances.

7. Form of Grants. Grants shall be awarded under this Plan in such amounts, at such times, to such persons, on such terms and in such form as the Committee may approve, which shall not be inconsistent with the provisions of this Plan, but which need not be identical from Grant to Grant.

(a) The exercise price per share of Common Stock purchasable under an Option shall be set forth in the Option, and shall not be less than the Fair Market Value of the Common Stock on the date of Grant. However, the exercise price of an Incentive Stock Option issued to a Ten Percent Stockholder shall be no less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of the Grant. Similarly, the base price of a Stock Appreciation Right shall not be less than the Fair Market Value of the Common Stock on the date of the Grant. However, the preceding three sentences shall not apply in the case of Substitute Grants issued under this Plan. Similar pricing rules shall apply in the case of Other Awards.

(b) A Grant shall be exercisable at such time or times and be subject to such terms and conditions as may be set forth in its provisions. However, no Grant shall be exercisable prior to the Effective Date.

(c) Except in the case of Substitute Grants, the aggregate Fair Market Value (determined as of the date of Grant) of the number of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed one hundred thousand dollars ($100,000). To the extent that a Participant’s Options exceed that limit, they will be treated as Non-Qualified Stock Options, with the first Options that were awarded to the Participant to be treated as Incentive Stock Options.

(d) Except as provided in Section 10 or in the case of Substitute Grants, the term of a Grant shall not exceed five (5) years from the date of its issuance.

8. Exercise of Grants.

(a) Grants that are settled in stock shall only be exercisable for whole numbers of shares.

(b) Options are exercised by payment of the full amount of the purchase price to the Company as follows:

(i) The payment shall be in cash or such other form or forms of consideration as the Committee shall deem acceptable, such as the surrender (either actually or constructively by means of attestation) of outstanding shares of Common Stock owned by the Participant for the minimum period of time necessary to avoid adverse accounting treatment (if applicable).

(ii) After giving due consideration to the consequences under Rule 16b-3 and under the Code, the Committee may also authorize the exercise of Options by the delivery to the Company (or its designated agent) of an executed written notice of exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares of Common Stock and to deliver the sale or margin loan proceeds directly to the Company to pay all or a portion of the exercise price of the Option and/or any tax withholding obligations.

For purposes of determining the amount of income that is recognized by a Participant pursuant to a “same-day sale” transaction described in Subparagraph (ii) above, the Fair Market Value of the Common Stock shall be the price at which the Common Stock was sold.

(c) Stock Appreciation Rights may be exercised by providing notice to the Committee on such terms and conditions as are set forth in the Grant.

(d) Except as otherwise provided in the terms of the Grant, the Participant may exercise the Grant following his or her Severance only to the extent that the Grant could have been exercised on the date of the Severance, so that no events that occur following Severance will increase the vested portion of the Grant.

(e) The Committee may provide for the acceleration of the vesting of Grants upon a change of control or similar circumstances, under such conditions as may be set forth in the Grants.

9. Modification of Grants.

(a) After due consideration to the possible tax, securities, and accounting consequences, the Committee may modify an existing Grant, including by:

(i) Accelerating the right to exercise it; or

(ii) Extending or renewing it.

(b) In no event will the exercise price of any outstanding Grant be reduced or repriced, including any repricing effected by issuing replacement stock options for outstanding stock options that have an exercise price greater than the Fair Market Value of the Common Stock, without first obtaining stockholder approval. This same prohibition will apply to Stock Appreciation Rights and Other Awards.

(c) In the event that the Board amends the terms of an Option so that it no longer qualifies as an Incentive Stock Option, the limitations imposed upon the Option under the Code and the Plan solely by virtue of its (formerly) qualifying as an Incentive Stock Option shall no longer apply, to the extent specified in the amendment.

(d) Whether a modification of an existing Incentive Stock Option will be treated as the issuance of a new Incentive Stock Option will be determined in accordance with the rules of Code Section 424(h).

(e) Whether a modification of an existing Grant previously awarded to an Insider will be treated as a new Grant for purposes of Section 16 of the Exchange Act will be determined in accordance with Rule 16b-3.

10. Termination of Grants.

(a) Except to the extent provided otherwise in the terms of the Grant, each Grant shall terminate on the earliest of the following dates:

(i) The date that is one (1) year from the date of the Severance of the Participant, if the Severance occurred because of the Participant’s death or Disability.

(ii) In the case of any Severance other than one described in Subparagraph (i) above, the date that is three (3) months from the date of the Participant’s Severance.

(b) Except in the case of a Severance caused by death or Disability, in no event shall an Option or Stock Appreciation Right be exercisable more than five (5) years after the date on which it was issued.

(c) The nonvested portion of the Option or Stock Appreciation Right shall terminate immediately upon Severance, and the vested portion at the time the balance of the Option or Stock Appreciation Right terminates, as determined pursuant to the above rules.

(d) The nonvested portion of a Grant of Restricted Stock shall terminate immediately upon Severance.

11. Non-Transferability of Grants. Except as may be expressly provided in the terms of a specific Grant, (a) during the lifetime of the Participant, Grants are exercisable only by the Participant, and (b) Grants are not assignable or transferable except by will or the laws of descent and distribution.

12. Adjustments.

(a) In the event of any change in the capitalization of the Company affecting its Common Stock (e.g., a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification, or other similar transaction), the Committee shall make such adjustments as it may deem appropriate with respect to:

(i) The number, kind, and exercise price of shares covered by each outstanding Grant; and

(ii) The maximum number and/or kind of shares that may be awarded under this Plan, including the limitations contained in Section 5(a) of this Plan.

(b) The Committee may also make such adjustments in the event of a spin-off or other distribution of Company assets to stockholders (other than normal cash dividends).

13. Notice of Disqualifying Disposition. A Participant must notify the Company within fifteen (15) days if the Participant disposes of stock acquired pursuant to the exercise of an Incentive Stock Option issued under the Plan or a Predecessor Plan prior to the expiration of the holding periods required to qualify for long-term capital gains treatment on the disposition.

14. Amendments and Termination. Subject to the limitations of applicable law and any stock exchange on which the Common Stock is listed or traded, the Board may at any time amend or terminate this Plan. The Plan may not be amended other than by a written document executed by the Company. Furthermore, no Participant may rely upon any statement (oral or written) that is inconsistent with the terms of the Plan or the Grant. To insure that Options can qualify as Incentive Stock Options, within twelve (12) months after the adoption of the amendment by the Board of Directors, the stockholders must approve any amendment that changes:

(a) The class of Employees who are eligible to receive Incentive Stock Options; and/or

(b) The maximum number of shares of Common Stock that may be issued as Incentive Stock Options under the Plan, except as adjusted pursuant to Section 12 of this Plan.

15. Tax Withholding.

(a) The Company shall have the right to take such actions as may be necessary to satisfy its tax withholding obligations relating to the operation of this Plan.

(b) To the extent authorized by the Committee, Participants may (i) surrender previously acquired shares of Common Stock or (ii) have shares withheld in satisfaction of the tax withholding obligations. To the extent necessary to avoid adverse accounting treatment, the number of shares that may be withheld for this purpose shall not exceed the minimum number needed to satisfy the applicable income and employment tax withholding rules. Similarly, the shares surrendered must have been owned by the Participant for the minimum period of time necessary to avoid adverse accounting treatment (if applicable).

(c) If Common Stock is used to satisfy the Company’s tax withholding obligations, the stock shall be valued at its Fair Market Value when the tax withholding is required to be made.

16. No Additional Rights.

(a) Neither the adoption of this Plan nor the awarding of any Grant shall:

(i) Affect or restrict in any way the power of the Company to undertake any corporate action; or

(ii) Confer upon any Participant the right to continue performing Service for the Company, nor shall it interfere in any way with the right of the Company to terminate the Service of any Participant at any time, with or without cause, subject to the terms of any applicable employment or consulting agreement between the Participant and the Company.

(b) No Participant shall have any rights as a stockholder with respect to any shares awarded to the Participant under this Plan until the date a certificate for such shares has been issued to the Participant.

17. Securities Law Restrictions.

(a) No shares of Common Stock shall be issued under this Plan unless the Committee shall be satisfied that the issuance will be in compliance with applicable federal and state securities laws and the requirements of any stock exchange or other securities market on which the Company’s securities may then be traded. Similarly, a Participant will not be permitted to exercise a Grant if such exercise would violate the Company’s internal policies.

(b) The Committee may require certain investment (or other) representations and undertakings by the person exercising a Grant if necessary to comply with applicable law.

(c) Certificates for shares of Common Stock delivered under this Plan may be subject to such restrictions as the Committee may deem advisable. The Committee may cause a legend to be placed on the certificates to refer to those restrictions.

(d) The inability of the Company to obtain registration, qualification, or other necessary authorization, or the unavailability of an exemption from any registration or qualification obligation deemed by the Company’s counsel to be necessary for the lawful issuance and sale of any shares of its Common Stock under this Plan shall:

(i) Suspend the Company’s obligation to permit the exercise of any Grant or to issue any shares under this Plan; and

(ii) Relieve the Company of any liability in respect of the nonissuance or sale of the shares as to which the requisite authority or exemption shall not have been obtained.

18. Indemnification.

(a) To the maximum extent permitted by law, the Company shall indemnify each member of the Committee and of the Board, as well as any other Employee of the Company with duties under the Plan, against expenses and liabilities (including any amount paid in settlement) reasonably incurred by the individual in connection with any claims against the individual by reason of the performance of the individual’s duties under this Plan, unless the losses are due to the individual’s gross negligence or lack of good faith.

(b) The Company will have the right to select counsel and to control the prosecution or defense of the suit.

(c) In the event that more than one person who is entitled to indemnification is subject to the same claim, all such persons shall be represented by a single counsel, unless such counsel advises the Company in writing that he or she cannot represent all such persons under the applicable rules of professional responsibility.

(d) The Company will not be required to indemnify any person for any amount incurred through any settlement unless the Company consents in writing to the settlement.

19. Governing Law. This Plan and all actions taken pursuant to it shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws provisions.

EX-10.3

Exhibit 10.3

DAVITA INC. EXECUTIVE INCENTIVE PLAN

(As Amended and Restated Effective March 30, 2005)

PURPOSE.

The purpose of the DaVita Inc. Executive Incentive Plan (the “Plan”) is to provide annual incentive compensation payments (“Awards”) to senior executives that are directly tied to the attainment of business objectives of DaVita Inc. (the “Company”) and to the attainment of its mission to be the partner, provider, and employer of choice and that may qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”).

ELIGIBILITY.

The Chief Executive Officer of the Company and each other senior executive of the Company who is determined by the Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) to be likely to deemed to be a “covered employee” under Section 162(m) of the Code for a calendar year shall be eligible to participate in the Plan for such calendar year (the “Participants”).

ADMINISTRATION.

The Plan shall be administered by the Committee, which shall consist solely of two (2) or more directors, each of whom is an “outside director” within the meaning of Section 162(m) of the Code. The members of the Committee shall be appointed by the Board and may be changed from time to time at the discretion of the Board.

The Committee shall have the authority:

(1) to select the Participants in the Plan for each calendar year;

(2) to establish and administer the performance goals and the amount of the Award for each Participant for each calendar year;

(3) to certify whether the performance goals for each Participant for each calendar year have been satisfied;

(4) to construe, interpret, and implement the Plan;

(5) to prescribe, amend, and rescind rules and regulations relating to the Plan and the administration of the Plan;

(6) to make all determinations necessary or advisable in administering the Plan; and

(7) to reduce the amount payable under any Award granted under the Plan if, in the judgment of the Committee, such reduction is in the best interests of the Company and its stockholders.

Any determination by the Committee shall be final and binding.

AWARDS.

No later than 90 days after the commencement of each calendar year, the Committee shall designate the Participants for such calendar year, shall establish, in writing, the performance goals for each Participant and the method of calculating the amount of the Award that will be payable under the Plan to each Participant if the performance goals established by the Committee for the Participant are attained, in whole or in part. Such method shall be stated in terms of an objective formula or standard that precludes discretion to increase the amount of the Award that would be payable to the Participant upon attainment of the goals.

The performance goals for each Participant shall be based on one or more of the following business criteria: cash generation targets, profit and revenue targets on an absolute or per share basis (including but not limited to EBIT, EBITDA, operating income and EPS), market share targets, acquisition targets, profitability targets (as measured through return ratios or stockholder returns), treatment growth, clinical outcomes, physician relations, employee turnover and employee relations. Such business criteria may, in the discretion of the Committee, be applied to the Participant, the Company as a whole, or any designated subsidiary or business unit of the Company or a subsidiary thereof.

PAYMENT OF AWARDS.

As soon as practicable after the Committee’s certification of a Participant’s attainment of the performance goals established by the Committee for such Participant, the Company shall pay to the Participant the amount of the Award earned by the Participant. Payment may be made in cash, in shares of common stock of the Company (“Common Stock”), or in units representing the right to receive shares of Common Stock (“Stock Units”). Shares of Common Stock or Stock Units granted to a Participant in payment of an Award may be subject to such restrictions as determined by the Committee in its discretion. The date on which a cash payment is made to the Participant in the case of an Award paid in cash, or the date on which shares of Common Stock or Stock Units are granted to the Participant in the case of an Award paid in shares of Common Stock or Stock Units, is hereinafter referred to as the “Payment Date”. To the extent the payment of an Award in shares of Common Stock or Stock Units would require stockholder approval under the rules of the principal national securities exchange on which the Common Stock is traded or listed, such payment shall be made pursuant to an equity compensation plan of

the Company, other than the Plan, under which such payment can be made without further approval by the Company’s stockholders.

The maximum amount that may be paid as an Award under the Plan to any Participant for any calendar year is Ten Million Dollars ($10,000,000). For this purpose, the amount of an Award that is paid in shares of Common Stock or Stock Units shall be valued without reduction for any restrictions to which such shares of Common Stock or Stock Units may be subject and shall be based on the last reported sale price regular way on the Payment Date, or if no such reported sale takes place on the Payment Date, the average of the last reported bid and ask prices regular way on the Payment Date, in either case on the principal national securities exchange on which the Common Stock is traded or listed. If on the Payment Date the principal national securities exchange on which the Common Stock is traded or listed is closed, the value of the shares of Common Stock or Stock Units shall be determined as of the last preceding day on which the Common Stock was traded or for which bid and asked prices are available.

An Award shall be paid under this Plan to a Participant for any calendar year solely on account of the attainment of the performance goals established by the Committee with respect to such Participant for such calendar year. An Award to a Participant shall, except as otherwise provided herein, also be contingent upon the Participant’s continued employment by the Company or a subsidiary of the Company on the Payment Date.

OFFSETS OF BENEFITS.

The Company shall have the right to withhold from Award payments any amounts that a Participant owes to the Company. The Company also shall have the right to use any Award to offset any incentive compensation payments required to be provided to an employee pursuant to the terms of that employee’s employment agreement.

TERMINATION OF EMPLOYMENT.

If a Participant’s employment with the Company terminates prior to the Payment Date for an Award, then the Participant shall not be entitled to any payment with respect to the Award, unless otherwise provided by the terms of the Participant’s employment agreement, or otherwise determined by the Committee, in its sole discretion.

If any payee is a minor, or if the Committee reasonably believes that any payee is legally incapable of giving a valid receipt and discharge for any payment due him or her, the Committee may have the payment made to the person (or persons or institution) whom it reasonably believes is caring for or supporting such payee. Any such payment shall be a payment for the benefit of the payee and shall be a complete discharge of any liability under the Plan to the payee.

EFFECTIVE DATE.

Payment of any Award under this amended and restated Plan shall be contingent upon stockholder approval of this amended and restated Plan pursuant to Section 162(m) of the Code. All Awards under this amended and restated Plan shall be null and void if this amended and restated Plan is not approved by such stockholders.

After stockholder approval of this amended and restated Plan has been obtained at the 2005 annual meeting of stockholders, the material terms of the performance goals shall be disclosed to and reapproved by the stockholders no later than the first stockholder meeting in 2010.

COMMITTEE CERTIFICATION.

Prior to the payment of any Award to a Participant, the Committee will certify in writing that the applicable performance goals were in fact satisfied.

AMENDMENT OF THE PLAN.

The Board may from time to time alter, amend, suspend, or discontinue the Plan. However, no such amendment or modification shall adversely affect any Participant’s rights with regard to outstanding, previously certified Awards.

ASSIGNABILITY.

No Awards granted under the Plan shall be pledged, assigned, or transferred by any Participant except by a will or by the laws of descent and distribution. Any estate of any Participant receiving any Award under the Plan shall be subject to the terms and conditions of the Plan.

TAX WITHHOLDING.

Award payments made to Participants shall be made net of any amounts necessary to satisfy federal, state and local withholding tax requirements, where required by law.

NO CONTRACT OF EMPLOYMENT.

Neither the action of the Company in establishing this Plan, nor any provisions hereof, nor any action taken by the Company, the Committee or the Board pursuant to the Plan and its provisions, shall be construed as giving to any employee or Participant the right to be retained in the employ of the Company.

OTHER PROVISIONS.

Any expenses and liabilities incurred by the Board, the Committee or the Company in administering the Plan shall be paid by the Company.

Amounts paid to a Participant with respect to Awards under the Plan shall have no effect on the level of benefits provided to or received by such Participant, or the Participant’s estate or beneficiaries, as a part of any other employee benefit plan or similar arrangement provided by the Company, except as provided under the terms of such other employee benefit plan or similar arrangement.

The Plan and all actions taken under the Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to the conflict of law principles thereof.

EX-10.4

Exhibit 10.4

DaVita Inc.

Director Compensation Philosophy and Plan

Philosophy

1. To pay differentially higher compensation for higher levels of work, responsibility and performance.

2. Compensation amount and structure that will attract highly competent candidates for Board service.

3. Tie compensation to increases in long-term shareholder value (including by shifting some cash payments to stock).

4. Vesting continues as long as the director continues to serve on the Board, but does not require continued service as committee chair.

Options

Each non-management board member shall be granted options to purchase 12,000 shares of Company stock per year of service on the Board, granted on, and priced as of the close of market on, the date of the Company’s annual stockholder meeting, vesting 100% on the date of the Company’s next annual stockholder meeting, expiring five years after date of grant.

Each new member of the Board after the date hereof shall be granted options to purchase 15,000 shares of Company stock upon appointment to the Board, priced at the closing price on the grant date, vesting 25% per year beginning on the first anniversary of the grant date, expiring five years after the grant date.

Retainer

$24,000 per year paid quarterly in arrears, half in cash and half in deferred stock units that must be held for one year.

Board Meetings

$4,000 per in person meeting

$2,000 per telephonic meeting longer than 1½ hours

Committee Meetings (Chair and Members)

$2,000 per in person meeting ($2,500 for Chairs of Clinical Performance Committee and Public Policy Committee/$1,500 for members of Clinical Performance Committee and Public Policy Committee)

$2,000 per telephonic meeting longer than 1 hour ($2,500 for Chairs of Clinical Performance Committee and Public Policy Committee/$1,500 for members of Clinical Performance Committee and Public Policy Committee)

No Committee meeting fees are earned for Nominating and Governance Committee meetings held on regular Board meeting dates.

Additional Retainer - Lead Independent Director and primary Committee Chairs (Audit, Compensation and Compliance)

$20,000 per year paid quarterly in arrears, half in cash and half in deferred stock units that must be held for one year, for the Chair of the Audit Committee, the Chair of the Compensation Committee and the Chair of the Compliance Committee.

$20,000 per year paid quarterly in arrears, half in cash and half in deferred stock units that must be held for one year, for the Lead Independent Director. If the Lead Independent Director also serves as the Chair of a primary Committee, the Lead Independent Director will receive a total additional retainer of $20,000, unless the Committee determines otherwise.

Additional Options - Lead Independent Director and primary Committee Chairs (Audit, Compensation and Compliance)

Each shall be granted options to purchase 6,000 shares of Company stock per year of service in these roles, granted on, and priced as of the close of market on, the date of the Company’s annual stockholder meeting, vesting 100% on the date of the Company’s next annual stockholder meeting, expiring five years after the grant date. Vesting continues so long as the Director continues to serve on the Board (that is, does not require continued service as Lead Independent Director or Committee Chair). If the Lead Independent Director also serves as the Chair of a primary Committee, the Lead Independent Director will receive a total additional option grant of 6,000 shares (not 12,000 shares), unless the Committee determines otherwise.

Additional Deferred Stock Units - Lead Independent Director and primary Committee Chairs (Audit, Compensation and Compliance)

Each shall be granted 1,500 deferred stock units on the date of the Company’s annual stockholder meeting that must be held for one year. If the Lead Independent Director also serves as the Chair of a primary Committee, the Lead Independent Director will receive a total deferred stock units grant of 1,500 shares (not 3,000 shares), unless the Committee determines otherwise.

Amended March 30, 2005

EX-12.1

Exhibit 12.1

DAVITA INC.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. Earnings for this purpose is defined as pretax income from continuing operations adjusted by adding back fixed charges expensed during the period. Fixed charges include debt expense (interest expense and the amortization of deferred financing costs), the estimated interest component of rental expense on operating leases, and capitalized interest.

	Three months ended March 31, 2005		Year ended December 31,
			2004		2003		2002		2001		2000
	(dollars in thousands)
Earnings adjusted for fixed charges:
Income from continuing operations	$	91,609	$	361,884	$	288,266	$	267,257	$	242,567	$	39,223
Add:
Debt expense		17,534		52,412		66,828		71,636		72,438		116,637
Interest portion of rental expense		7,118		25,772		22,927		20,336		18,116		17,140
		24,652		78,184		89,755		91,972		90,554		133,777
	$	116,261	$	440,068	$	378,021	$	359,229	$	333,121	$	173,000
Fixed charges:
Debt expense		17,534		52,412		66,828		71,636		72,438		116,637
Interest portion of rental expense		7,118		25,772		22,927		20,336		18,116		17,140
Capitalized interest		306		1,078		1,523		1,888		751		1,125
	$	24,958	$	79,262	$	91,278	$	93,860	$	91,305	$	134,902
Ratio of earnings to fixed charges		4.66		5.55		4.14		3.83		3.65		1.28

In the above presentation earnings adjusted for fixed charges for years prior to 2004 exclude debt refinancing charges that had been previously reported as extraordinary items.

EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION

I, Kent J. Thiry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DaVita Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    KENT J. THIRY        

Kent J. Thiry

Chief Executive Officer

Date: April 29, 2005

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION

I, Thomas L. Kelly, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DaVita Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    THOMAS L. KELLY        

Thomas L. Kelly

Executive Vice President,

and acting Chief Financial Officer

Date: April 29, 2005

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DaVita Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Kent J. Thiry, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    KENT J. THIRY

Kent J. Thiry

Chief Executive Officer

April 29, 2005

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DaVita Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Thomas L. Kelly, Executive Vice President, and acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    THOMAS L. KELLY

Thomas L. Kelly

Executive Vice President, and

acting Chief Financial Officer

April 29, 2005

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.