8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 5, 2003

DaVita Inc.

(Exact name of registrant as specified in its charter)

Delaware	1-4034	51-0354549
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

21250 Hawthorne Boulevard, Suite 800, Torrance, California	90503
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (310) 792-2600

Item 7.    Financial Statements and Exhibits.

(c)  Exhibits

Exhibit Number	Description
99.1	Press Release, dated May 5, 2003, announcing the registrant’s financial results for the quarter ended March 31, 2003

Item 9.    Regulation FD Disclosure – Information Provided Under Item 12.

The information contained in this Current Report is intended to be furnished under Item 12, “Results of Operations and Financial Condition,” but is instead being furnished under Item 9, “Regulation FD Disclosure” pursuant to interim guidance issued by the Securities and Exchange Commission in Release Nos. 33-8216 and 34-47583. As such, the information hereunder shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, or the Exchange Act of 1934, except as shall be expressly set forth by specific reference in such a filing.

The attached press release contains non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. To supplement our consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, we use non-GAAP measures of earnings before interest, taxes, depreciation, and amortization, or EBITDA, free cash flow, rolling twelve (12) months operating cash flows, and leverage ratio (debt/EBITDA), which are adjusted from operations based on GAAP to exclude certain items of income and expense. These non-GAAP measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items of income and expense that may not be indicative of longer-term customary operating results. In addition, because we have historically reported certain non-GAAP results to investors, we believe the inclusion of non-GAAP numbers provides consistency and comparability in our financial reporting. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. A reconciliation of the non-GAAP measures is included in the attached press release, which reconciles the non-GAAP measures to the most comparable financial measure calculated and presented in accordance with GAAP.

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The attached press release also contains forward-looking statements relating to our performance during 2003. A more thorough discussion of certain factors which may affect our operating results is included under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and will also be included in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003 to be filed in the second quarter of 2003.

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SIGNATURES

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 hereunto duly authorized.

	DAVITA INC.
Date: May 5, 2003	/s/    STEVEN J. UDICIOUS
	Steven J. Udicious Vice President, Secretary and General Counsel

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release, dated May 5, 2003, announcing the registrant’s financial results for the quarter ended March 31, 2003

EX-99.1

EXHIBIT 99.1

Contact:    LeAnne Zumwalt

Investor Relations

DaVita Inc.

310-750-2072

DAVITA INC. REPORTS 1st QUARTER 2003 RESULTS

Torrance, California, May 5, 2003 – DaVita Inc. (NYSE: DVA), today announced results for the quarter ended March 31, 2003. Net income for the three months ended March 31, 2003 was $36 million or $0.52 per share, compared with $36 million or $0.40 per share for the same period of 2002.

Financial and operating highlights include:

· For the rolling 12 months ended March 31, 2003 operating cash flow was $302 million and free cash flow was $244 million. These cash flow numbers exclude prior period lab receipts, accounts receivable recoveries and valuation adjustments. Operating cash flow for the quarter ended March 31, 2003 was $81 million and free cash flow was $70 million.

· Operating income for the quarter was $79 million.

· EBITDA and EBITDA margin for the quarter were $98 million and 21.3%, respectively.

· Total treatments for the first quarter were 1,503,031 up 4.8% over the prior year’s quarter. Non-acquired treatment growth was 3.3%, with acquisitions contributing the additional 1.5% to treatment growth.

· First quarter dialysis revenue per treatment was $296, compared to $291 in the fourth quarter, an increase of 1.8%.

· DSO for the first quarter decreased by one day during the quarter to 69 days.

· As of March 31, 2003, we operated 523 outpatient centers serving approximately 45,000 patients. During the first quarter we acquired a controlling interest in two centers in which we previously had minority ownership and opened seven de novo centers. We also closed one center. Included in this patient and center count are approximately 3,300 patients in 30 centers under management.

Our 2003 EBITDA guidance remains at $380 million to $400 million. This guidance implies Generally Accepted Accounting Principles (GAAP) operating income of $300 million to $320 million for 2003.

DaVita will be holding a conference call to discuss its first quarter 2003 results on May 5, 2003, at 1:30 PM Eastern Daylight Time. The dial in number is 800 399-4406. A replay of the conference call will be available on DaVita’s official web page, www.davita.com, for the following 30 days.

This press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding certain nonrecurring expenses and prior period recoveries and by allowing consistency and comparability in our financial reporting to prior periods for which these non-GAAP measures were previously reported. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. Included in this press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures.

This release also contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulation, general economic and other market conditions, and the risk factors set forth in the Company’s SEC filings, including its Form 10-K for the year ended December 31, 2002. The forward-looking statements should be considered in light of these risks and uncertainties. These risks include those relating to:

• possible reductions in private mix and private and government reimbursement rates,

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

• changes in pharmaceutical practice patterns or reimbursement policies,

• the ongoing review of the Company’s Florida laboratory subsidiary by its Medicare carrier and the Department of Justice.

• the ongoing review by the US Attorney’s Office and HHS Office of Inspector General in Philadelphia and

• the Company’s ability to maintain contracts with physician medical directors.

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

	March 31, 2003			December 31, 2002
ASSETS
Cash and cash equivalents	$	304,994		$	96,475
Accounts receivable, less allowance of $48,743 and $48,927		346,145			344,292
Inventories		25,465			34,929
Other current assets		24,049			28,667
Deferred income taxes		41,773			40,163
Total current assets		742,426			544,526
Property and equipment, net		305,742			298,475
Amortizable intangibles, net		60,080			63,159
Investments in third-party dialysis businesses		3,368			3,227
Other long-term assets		2,609			1,520
Goodwill		865,449			864,786
	$	1,979,674		$	1,775,693
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	71,295		$	77,890
Other liabilities		113,505			101,389
Accrued compensation and benefits		82,391			95,435
Current portion of long-term debt		43,908			7,978
Income taxes payable		26,550			9,909
Total current liabilities		337,649			292,601
Long-term debt		1,420,585			1,311,252
Other long-term liabilities		10,346			9,417
Deferred income taxes		72,381			65,930
Minority interests		27,156			26,229
Shareholders’ equity:
Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)
Common stock ($0.001 par value, 195,000,000 shares authorized; 89,162,390 and 88,874,896 shares issued)		89			89
Additional paid-in capital		523,572			519,369
Retained earnings		249,750			213,337
Treasury stock, at cost (28,187,326 and 28,216,177 shares)		(661,854	)		(662,531	)
Total shareholders’ equity		111,557			70,264
	$	1,979,674		$	1,775,693

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DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

	Three months ended March 31,
	2003		2002
Net operating revenues	$	459,807	$	427,665
Operating expenses and charges:
Dialysis centers and labs		316,710		291,634
General and administrative		36,787		36,053
Depreciation and amortization		17,445		15,805
Provision for uncollectible accounts		8,237		5,255
Minority interests and equity income, net		1,294		2,135
Total operating expenses and charges		380,473		350,882
Operating income		79,334		76,783
Debt expense		19,456		15,072
Other income, net		785		267
Income before income taxes		60,663		61,978
Income tax expense		24,250		26,000
Net income	$	36,413	$	35,978
Comprehensive income	$	36,413	$	35,978
Earnings per share:
Basic	$	0.60	$	0.43
Diluted	$	0.52	$	0.40
Weighted average shares for earnings per share:
Basic		60,905,056		82,967,141
Diluted		78,772,410		102,246,452

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DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Three months ended March 31,
	2003			2002
Cash flows from operating activities:
Net income	$	36,413		$	35,978
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		17,445			15,805
Loss (gain) on divestitures		119			(458	)
Deferred income taxes		4,841			7,861
Non-cash debt expense		840			634
Stock options, principally tax benefits		1,378			8,931
Equity investment income		(519	)		(298	)
Minority interests in income of consolidated subsidiaries		1,813			2,433
Distributions to minority interests		(2,465	)		(1,501	)
Changes in operating assets and liabilities, excluding acquisitions and divestitures:
Accounts receivable		(676	)		(11,163	)
Inventories		9,543			6,726
Other current assets		4,721			(2,840	)
Other long-term assets		(2,457	)
Accounts payable		(6,674	)		8,969
Accrued compensation and benefits		(13,075	)		(2,617	)
Other current liabilities		11,952			15,050
Income taxes		16,641			261
Other long-term liabilities		809			(287	)
Net cash provided by operating activities		80,649			83,484
Cash flows from investing activities:
Additions of property and equipment, net		(21,708	)		(16,115	)
Acquisitions and divestitures, net		(718	)		(1,379	)
Investments in affiliates, net		1,931			499
Intangible assets		(300	)
Net cash used in investing activities		(20,795	)		(16,995	)
Cash flows from financing activities:
Borrowings		623,822			335,883
Payments on long-term debt		(478,659	)		(355,803	)
Deferred financing costs					(57	)
Purchase of treasury stock					(67,877	)
Proceeds from issuance of common stock		3,502			16,351
Net cash provided by (used in) financing activities		148,665			(71,503	)
Net increase (decrease) in cash		208,519			(5,014	)
Cash and cash equivalents at beginning of period		96,475			36,711
Cash and cash equivalents at end of period	$	304,994		$	31,697

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DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

	Q1 2003			Q4 2002		Q1 2002
Financial Results:
Net earnings, excluding prior period Medicare lab revenue, extraordinary items, recoveries, and valuation adjustments (in 000’s)	$	36,400		$	34,600	$	34,600
Basic EPS	$	0.60		$	0.57	$	0.42
EPS assuming dilution	$	0.52		$	0.50	$	0.39
EBITDA, excluding prior period Medicare lab revenue, recoveries and valuation adjustments
Consolidated (in 000’s)	$	98,000		$	97,000	$	92,500
Continental U.S (in 000’s)	$	98,000		$	97,000	$	91,900
Continental EBITDA margin		21.3%			21.0%		21.7%
Business Metrics (Continental U.S.):
Volume
Treatments		1,503,031			1,537,821		1,433,803
Number of treatment days		76.4			79.6		76.4
Treatments per day		19,673			19,319		18,767
Per day year over year increase		4.8%			3.8%		6.2%
Same center growth		3.1%			2.9%		4.2%
Non-acquired growth		3.3%			2.9%		4.2%
Revenue, excluding prior period Medicare lab revenue and recoveries of $41,555 in Q4 2002
Revenue (in 000’s)	$	460,000		$	462,000	$	424,000
Dialysis revenue per treatment	$	296.31		$	291.02	$	290.45
Per treatment increase from previous quarter		1.8%			0.0%		2.6%
Per treatment increase from prior year		2.0%			2.8%		5.9%
Expenses, excluding prior period Medicare lab revenue and recoveries
A.  Dialysis centers and lab operating expenses
Percent of revenue		68.9%			68.7%		68.0%
Per treatment	$	210.71		$	206.17	$	201.02
Per treatment increase from previous quarter		2.2%			1.4%		3.6%
B.  General & administrative expenses
Percent of revenue		8.0%			8.5%		8.5%
Per treatment	$	24.48		$	25.57	$	25.14
Per treatment increase (decrease) from previous quarter		(4.3%	)		4.7%		10.2%
C.  Bad debt expense as a percent of current-period revenue		1.8%			1.8%		1.8%
D.  Consolidated effective tax rate		40.0%			40.8%		42.0%

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DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA, CONTINUED

	Q1 2003			Q4 2002			Q1 2002
Cash Flow (Consolidated, including prior period recoveries, in 000’s)
Operating cash flow	$	81,000		$	66,000		$	83,000
Free cash flow (before share repurchase, acquisition and development spending)	$	70,000		$	49,000		$	74,000
Capital expenditures:
Development	$	11,900		$	19,600		$	7,600
Routine maintenance/IT/other	$	10,500		$	16,700		$	9,100
Acquisition expenditures, net	$	700		$	6,500		$	1,400
Accounts Receivable
Net receivables (in 000’s)	$	346,000		$	344,000		$	337,000
DSO		69			70			73
Debt/Capital Structure (Consolidated)
Total debt (in 000’s)	$	1,464,000		$	1,319,000		$	800,000
Net debt, net of cash (in 000’s)	$	1,159,000		$	1,223,000		$	769,000
LQA net leverage ratio		3.0x			3.1x			2.1x
Shares repurchased (in 000’s)		—			1,900			2,900
Average repurchase price		—		$	23.80		$	23.02
Clinical
Dialysis adequacy—% of patients with URR > 65		89	%		88	%		88	%
Dialysis adequacy—% of patients with Kt/V > 1.2		92	%		92	%		92	%
Anemia measure—% of patients with HCT > 33		83	%		83	%		79	%

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DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

	Rolling 12-month period ended Q1 2003			Q1 2003			Q4 2002			Q1 2002
	(dollars in thousands)
Operating cash flow excluding lab and accounts receivable recoveries related to prior years’ services and free cash flow:
Cash provided by operating activities	$	339,160		$	80,649		$	66,318		$	83,484
Exclusions:
Prior period lab receipts		(58,778	)					(41,555	)
Impairments and valuations adjustments		(380	)					2,010
Accounts receivable recoveries		(2,938	)					(510	)		(2,254	)
		(62,096	)					(40,055	)		(2,254	)
Related income tax expense		24,559						15,842			891
Exclusions, net of tax		(37,537	)					(24,213	)		(1,363	)
Operating cash flow excluding lab and accounts receivable recoveries related to prior years’ services		301,623			80,649			42,105			82,121
Less expenditures for routine maintenance and information technology		(57,337	)		(10,490	)		(16,706	)		(9,090	)
Free cash flow	$	244,286		$	70,159		$	25,399		$	73,031
Net income, excluding impairments, prior period lab receipts and accounts receivable recoveries:
Net income				$	36,413		$	58,811		$	35,978
Less exclusions, net of tax								(24,213	)		(1,363	)
				$	36,413		$	34,598		$	34,615
EBITDA, excluding impairments, prior period lab receipts and accounts receivable recoveries:
Operating income				$	79,334		$	118,377		$	76,783
Additions:
Depreciation					14,946			14,385			13,295
Amortization					2,499			2,510			2,510
Minority interests and equity income, net					1,294			1,802			2,135
EBITDA					98,073			137,074			94,723
Exclusions:
Prior period lab receipts								(41,555	)
Impairments and valuations adjustments								2,010
Accounts receivable recoveries								(510	)		(2,254	)
								(40,055	)		(2,254	)
				$	98,073		$	97,019		$	92,469
Last quarter annualized (LQA) net leverage ratio:
EBITDA, excluding impairments, prior period lab receipts and accounts receivable recoveries				$	98,073		$	97,019		$	92,469
					x4			x4			x4
Annualized EBITDA, less exclusions				$	392,292		$	388,076		$	369,876
Net debt, net of cash				$	1,159,000		$	1,223,000		$	769,000
Annualized EBITDA, less exclusions divided by net debt, net of cash					2.95x			3.15x			2.08x

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