Item 16. Form 10-K Summary.

None.

DAVITA INC.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and which includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

During the last fiscal year, the Company conducted an evaluation, under the oversight of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s internal control over financial reporting. This evaluation was completed based on the criteria established in the report titled “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based upon our evaluation under the COSO framework, we have concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.

The Company’s independent registered public accounting firm, KPMG LLP, has issued an attestation report on the Company’s internal control over financial reporting, which report is included in this Annual Report.

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

DaVita Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of DaVita Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flow for each of the years in the three‑year period ended December 31, 2017, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2000.

Seattle, Washington

February 23, 2018

F-2

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

DaVita Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited DaVita Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flow for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Seattle, Washington

February 23, 2018

F-3

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

	Year ended December 31,
	2017				2016				2015
Dialysis and related lab patient service revenues	$	10,093,670			$	9,727,360			$	9,155,447
Less: Provision for uncollectible accounts	(485,398		)		(431,308		)		(412,905		)
Net dialysis and related lab patient service revenues	9,608,272				9,296,052				8,742,542
Other revenues	1,268,362				1,411,415				1,239,703
Total net revenues	10,876,634				10,707,467				9,982,245
Operating expenses and charges:
Patient care costs and other costs	7,640,005				7,431,582				6,856,062
General and administrative	1,064,026				1,072,841				1,031,125
Depreciation and amortization	559,911				509,497				463,905
Provision for uncollectible accounts	(7,033		)		11,677				9,240
Equity investment loss (income)	8,640				(16,874		)		(13,919		)
Investment and other asset impairments	295,234				14,993				—
Goodwill impairment charges	36,196				28,415				4,066
Gain on changes in ownership interests	(6,273		)		(374,374		)		—
(Gain) loss on settlements, net	(526,827		)		—				495,000
Total operating expenses and charges	9,063,879				8,677,757				8,845,479
Operating income	1,812,755				2,029,710				1,136,766
Debt expense	(430,634		)		(414,116		)		(408,380		)
Debt redemption charges	—				—				(48,072		)
Other income, net	17,665				7,511				8,073
Income from continuing operations before income taxes	1,399,786				1,623,105				688,387
Income tax expense	323,859				431,761				207,510
Net income from continuing operations	1,075,927				1,191,344				480,877
Net loss from discontinued operations, net of tax	(245,372		)		(158,262		)		(53,467		)
Net income	830,555				1,033,082				427,410
Less: Net income attributable to noncontrolling interests	(166,937		)		(153,208		)		(157,678		)
Net income attributable to DaVita Inc.	$	663,618			$	879,874			$	269,732
Earnings per share:
Basic net income from continuing operations per share attributable to DaVita Inc.	$	4.78			$	5.12			$	1.53
Basic net income per share attributable to DaVita Inc.	$	3.52			$	4.36			$	1.27
Diluted net income from continuing operations per share attributable to DaVita Inc.	$	4.71			$	5.04			$	1.49
Diluted net income per share attributable to DaVita Inc.	$	3.47			$	4.29			$	1.25
Weighted average shares for earnings per share:
Basic	188,625,559				201,641,173				211,867,714
Diluted	191,348,533				204,904,656				216,251,807
Amounts attributable to DaVita Inc.:
Net income from continuing operations	$	901,277			$	1,032,373			$	323,199
Net loss from discontinued operations	(237,659		)		(152,499		)		(53,467		)
Net income attributable to DaVita Inc.	$	663,618			$	879,874			$	269,732

See notes to consolidated financial statements.

F-4

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

	Year ended December 31,
	2017				2016				2015
Net income	$	830,555			$	1,033,082			$	427,410
Other comprehensive income (loss):
Unrealized losses on interest rate cap and swap agreements:
Unrealized losses on interest rate cap and swap agreements	(5,437		)		(3,670		)		(12,241		)
Reclassifications of net cap and swap agreements realized losses into net income	5,058				2,566				3,111
Unrealized gains (losses) on investments:
Unrealized gains (losses) on investments	3,705				1,427				(1,413		)
Reclassification of net investment realized losses (gains) into net income	(220		)		(423		)		(377		)
Foreign currency translation adjustments:
Foreign currency translation adjustments	99,770				(39,614		)		(23,889		)
Reclassification of foreign currency translation into net income	—				10,087				—
Other comprehensive income (loss)	102,876				(29,627		)		(34,809		)
Total comprehensive income	933,431				1,003,455				392,601
Less: Comprehensive income attributable to noncontrolling interests	(166,935		)		(153,398		)		(157,678		)
Comprehensive income attributable to DaVita Inc.	$	766,496			$	850,057			$	234,923

See notes to consolidated financial statements.

F-5

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

	December 31, 2017				December 31, 2016
ASSETS
Cash and cash equivalents	$	508,234			$	674,776
Short-term investments	43,516				306,981
Accounts receivable, less allowance of $218,399 and $238,897	1,714,750				1,503,950
Inventories	181,799				160,419
Other receivables	372,919				288,156
Income tax receivable	49,440				—
Prepaid and other current assets	112,058				99,510
Current assets held for sale	5,761,642				960,956
Total current assets	8,744,358				3,994,748
Property and equipment, net	3,149,213				2,864,121
Intangible assets, net	113,827				73,504
Equity method and other investments	245,534				492,039
Long-term investments	37,695				29,997
Other long-term assets	47,287				33,857
Goodwill	6,610,279				6,015,375
Long-term assets held for sale	—				5,252,135
	$	18,948,193			$	18,755,776
LIABILITIES AND EQUITY
Accounts payable	$	509,116			$	456,619
Other liabilities	552,662				578,892
Accrued compensation and benefits	616,116				706,564
Current portion of long-term debt	178,213				160,262
Income tax payable	—				1,394
Current liabilities held for sale	1,185,070				807,233
Total current liabilities	3,041,177				2,710,964
Long-term debt	9,158,018				8,944,676
Other long-term liabilities	365,325				317,383
Deferred income taxes	486,247				530,869
Long-term liabilities held for sale	—				428,885
Total liabilities	13,050,767				12,932,777
Commitments and contingencies
Noncontrolling interests subject to put provisions	1,011,360				973,258
Equity:
Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)
Common stock ($0.001 par value, 450,000,000 shares authorized; 182,462,278 and 194,554,491 shares issued and outstanding, respectively)	182				195
Additional paid-in capital	1,042,899				1,027,182
Retained earnings	3,633,713				3,710,313
Accumulated other comprehensive income (loss)	13,235				(89,643		)
Total DaVita Inc. shareholders' equity	4,690,029				4,648,047
Noncontrolling interests not subject to put provisions	196,037				201,694
Total equity	4,886,066				4,849,741
	$	18,948,193			$	18,755,776

See notes to consolidated financial statements.

F-6

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(dollars in thousands)

	Year ended December 31,
	2017				2016				2015
Cash flows from operating activities:
Net income	$	830,555			$	1,033,082			$	427,410
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on settlements, net	(526,827		)		—				495,000
Depreciation and amortization	777,485				720,252				638,024
Impairment charges	981,589				296,408				210,234
Debt redemption charges	—				—				48,072
Stock-based compensation expense	35,092				38,338				56,664
Deferred income taxes	(395,217		)		52,010				61,744
Equity investment income, net	28,925				17,766				9,293
Gain on sales of business interests, net	(23,402		)		(404,165		)		—
Other non-cash charges, net	66,925				(7,338		)		44,691
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	(156,305		)		(152,240		)		(202,867		)
Inventories	(18,625		)		22,920				(48,313		)
Other receivables and other current assets	(117,154		)		(54,038		)		32,761
Other long-term assets	(11,945		)		35,893				3,723
Accounts payable	26,876				11,897				30,998
Accrued compensation and benefits	(78,239		)		68,272				54,950
Other current liabilities	1,908				176,494				113,470
Settlement receipts (payments)	526,827				—				(493,775		)
Income taxes	(52,176		)		77,376				41,767
Other long-term liabilities	11,157				30,517				33,354
Net cash provided by operating activities	1,907,449				1,963,444				1,557,200
Cash flows from investing activities:
Additions of property and equipment	(905,250		)		(829,095		)		(707,998		)
Acquisitions	(803,879		)		(563,856		)		(96,469		)
Proceeds from asset and business sales	92,336				64,725				19,715
Purchase of investments available for sale	(13,117		)		(13,539		)		(8,783		)
Purchase of investments held-to-maturity	(230,989		)		(1,133,192		)		(1,709,883		)
Proceeds from sale of investments available for sale	6,408				18,963				2,058
Proceeds from investments held-to-maturity	492,470				1,240,502				1,637,358
Purchase of equity investments	(4,816		)		(27,096		)		(17,911		)
Proceeds from sale of equity investments	—				40,920				—
Distributions received on equity investments	106				—				129
Net cash used in investing activities	(1,366,731		)		(1,201,668		)		(881,784		)

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOW - continued

(dollars in thousands)

	Year ended December 31,
	2017				2016				2015
Cash flows from financing activities:
Borrowings	50,991,960				51,991,490				54,541,988
Payments on long-term debt and other financing costs	(50,837,112		)		(52,116,120		)		(53,998,962		)
Purchase of treasury stock	(802,949		)		(1,097,822		)		(549,935		)
Distributions to noncontrolling interests	(211,467		)		(192,401		)		(174,635		)
Stock award exercises and other share issuances, net	21,252				23,543				26,155
Excess tax benefits from stock award exercises	—				13,251				28,157
Contributions from noncontrolling interests	74,552				47,590				54,644
Proceeds from sales of additional noncontrolling interests	2,864				—				—
Purchases of noncontrolling interests	(5,357		)		(21,512		)		(66,382		)
Net cash used in financing activities	(766,257		)		(1,351,981		)		(138,970		)
Effect of exchange rate changes on cash and cash equivalents	254				4,276				(2,571		)
Net (decrease) increase in cash and cash equivalents	(225,285		)		(585,929		)		533,875
Less: Net (decrease) increase in cash and cash equivalents from discontinued operations	(58,743		)		(15,788		)		25,855
Net (decrease) increase in cash and cash equivalents from continuing operations	(166,542		)		(570,141		)		508,020
Cash and cash equivalents of continuing operations at beginning of the year	674,776				1,244,917				736,897
Cash and cash equivalents of continuing operations at end of the year	$	508,234			$	674,776			$	1,244,917

See notes to consolidated financial statements.

F-7

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY

(dollars and shares in thousands)

	Non-controlling interests subject to put provisions					DaVita Inc. Shareholders' Equity																														Non-controlling interests not subject to put provisions
									Additional paid-in capital				Retained earnings											Accumulated other comprehensive income (loss)
		Common stock									Treasury stock
		Shares			Amount						Shares			Amount					Total
Balance at December 31, 2014	$	829,965				215,641			$	216			$	1,108,211			$	4,087,103			—			$	—			$	(25,017	)		$	5,170,513			$	189,798
Comprehensive income:
Net income	96,510																269,732															269,732				61,168
Other comprehensive loss																												(34,809		)		(34,809		)
Stock purchase shares issued						—			—				(6,079		)						414			30,608								24,529
Stock unit shares issued						348			—				—																			—
Stock-settled SAR shares issued						1,131			1				(1		)																	—
Stock-settled stock-based compensation expense													56,899																			56,899
Excess tax benefits from stock awards exercised													28,157																			28,157
Changes in non-controlling interests from:
Distributions	(103,355		)																																	(71,280		)
Contributions	25,795																																			28,849
Acquisitions and divestitures	10,654																																			6,875
Partial purchases	(8,538		)										(55,826		)																	(55,826		)		(2,018		)
Fair value remeasurement	13,035												(13,035		)																	(13,035		)
Purchase of treasury stock																					(7,780	)		(575,380		)						(575,380		)
Balance at December 31, 2015	$	864,066				217,120			$	217			$	1,118,326			$	4,356,835			(7,366	)		$	(544,772	)		$	(59,826	)		$	4,870,780			$	213,392
Comprehensive income:
Net income	99,834																879,874															879,874				53,374
Other comprehensive loss																												(29,817		)		(29,817		)		190
Stock purchase shares issued						438			1				23,902																			23,903
Stock unit shares issued						4			—				(19,815		)						276			19,815
Stock-settled SAR shares issued						218			—				(36,685		)						513			36,685
Stock-settled stock-based compensation expense													37,970																			37,970
Excess tax benefits from stock awards exercised													13,251																			13,251
Changes in non-controlling interests from:
Distributions	(111,092		)																																	(81,309		)
Contributions	33,517																																			14,073
Acquisitions and divestitures	28,874												3,423																			3,423				2,585
Partial purchases	(6,660		)										(13,105		)																	(13,105		)		(1,747		)
Fair value remeasurement	65,855												(65,855		)																	(65,855		)
Reclassifications and expirations of puts	(1,136		)																																	1,136
Purchase of treasury stock																					(16,649	)		(1,072,377		)						(1,072,377		)
Retirement of treasury stock						(23,226	)		(23		)		(34,230		)		(1,526,396		)		23,226			1,560,649
Balance at December 31, 2016	$	973,258				194,554			$	195			$	1,027,182			$	3,710,313			—			$	—			$	(89,643	)		$	4,648,047			$	201,694

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY - continued

(dollars and shares in thousands)

	Non-controlling interests subject to put provisions					DaVita Inc. Shareholders' Equity																														Non-controlling interests not subject to put provisions
									Additional paid-in capital				Retained earnings											Accumulated other comprehensive income (loss)
		Common stock									Treasury stock
		Shares			Amount						Shares			Amount					Total
Comprehensive income:
Net income	103,641																663,618															663,618				63,296
Other comprehensive income																												102,878				102,878				(2		)
Stock purchase shares issued						360							22,131																			22,131
Stock unit shares issued						117							(101		)																	(101		)
Stock-settled SAR shares issued						398							—																			—
Stock-settled stock-based compensation expense													34,981																			34,981
Excess tax benefits from stock awards exercised
Changes in noncontrolling interest from:
Distributions	(128,853		)																																	(82,614		)
Contributions	52,911																																			21,641
Acquisitions and divestitures	43,799												(823		)																	(823		)		(5,770		)
Partial purchases	(397		)										(2,752		)																	(2,752		)		(2,208		)
Fair value remeasurements	(32,999		)										32,999																			32,999
Purchase of treasury stock																					(12,967	)		(810,949		)						(810,949		)
Retirement of treasury stock						(12,967	)		(13		)		(70,718		)		(740,218		)		12,967			810,949
Balance at December 31, 2017	$	1,011,360				182,462			$	182			$	1,042,899			$	3,633,713			—			$	—			$	13,235			$	4,690,029			$	196,037

See notes to consolidated financial statements.

F-8

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

1. Organization and summary of significant accounting policies

Organization

DaVita Inc. (the Company) has consisted of two major divisions, DaVita Kidney Care (Kidney Care) and DaVita Medical Group (DMG). The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services, its ancillary services and strategic initiatives, including its international operations, and its corporate administrative support. The Company’s largest line of business is its U.S. dialysis and related lab services business, which operates kidney dialysis centers in the U.S. for patients suffering from chronic kidney failure also known as end stage renal disease (ESRD). As of December 31, 2017, the Company operated or provided administrative services through a network of 2,510 U.S. outpatient dialysis centers in 46 states and the District of Columbia, serving a total of approximately 197,800 patients. In addition, as of December 31, 2017, the Company operated or provided administrative services to a total of 237 outpatient dialysis centers serving approximately 22,900 patients located in 11 countries outside of the U.S.

The Company’s DMG division is a patient- and physician-focused integrated healthcare delivery and management company that provides medical services to members primarily through capitation contracts with some of the nation’s leading health plans. On December 5, 2017, the Company entered into an equity purchase agreement to sell its DMG division to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions. As a result of this pending transaction, the DMG business has been reclassified as held for sale and its results of operations are reported as discontinued operations for all periods presented in these consolidated financial statements. For financial information about the DMG business, see Note 21.

The Company’s U.S. dialysis and related lab services business qualifies as a separately reportable segment and the Company’s other ancillary services and strategic initiatives, including its international operations, have been combined and disclosed in the other segments category.

Basis of presentation

These consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The financial statements include DaVita Inc. and its subsidiaries, partnerships and other entities in which it maintains a majority voting interest or other controlling financial interest (collectively, the Company). All significant intercompany transactions and balances have been eliminated. Non-marketable equity investments are recorded under the equity or cost method of accounting based upon whether the Company has significant influence over the investee. For the Company’s international subsidiaries, local currencies are considered their functional currencies. Translation adjustments result from translating the Company’s international subsidiaries’ financial statements from their functional currencies into the Company’s reporting currency (USD). Prior year balances and amounts have been reclassified to conform to the current year presentation.

The Company has evaluated subsequent events through the date these consolidated financial statements were issued and has included all necessary adjustments and disclosures.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, contingencies and noncontrolling interests subject to put provisions. Although actual results in subsequent periods will differ from these estimates, such estimates are developed based on the best information available to management and management’s best judgments at the time. All significant assumptions and estimates underlying the amounts reported in the financial statements and accompanying notes are regularly reviewed and updated when necessary. Changes in estimates are reflected in the financial statements based upon on-going actual experience trends, or subsequent settlements and realizations depending on the nature and predictability of the estimates and contingencies. Interim changes in estimates related to annual operating costs are applied prospectively within annual periods.

The most significant assumptions and estimates underlying these financial statements and accompanying notes involve revenue recognition and accounts receivable, contingencies, impairments of goodwill and investments, accounting for income taxes, long-term variable compensation accruals, consolidation of variable interest entities, and certain fair value estimates. Specific estimating risks and contingencies are further addressed within these notes to the consolidated financial statements.

F-9

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Patient service net revenues and accounts receivable

U.S. dialysis and related lab services

U.S. dialysis patient service net revenues are recognized in the period services are provided. Revenues consist primarily of payments from Medicare, Medicaid and commercial health plans for dialysis and ancillary services provided to patients. A usual and customary fee schedule is maintained for the Company’s dialysis treatments and other patient services; however, actual collectible revenue is normally recognized at a discount from the fee schedule.

Revenues associated with Medicare and Medicaid programs are recognized based on: (a) the payment rates that are established by statute or regulation for the portion of payment rates paid by the government payor (e.g., 80% for Medicare patients) and (b) for the portion not paid by the primary government payor, estimates of the amounts ultimately collectible from other government programs paying secondary coverage (e.g., Medicaid secondary coverage), the patient’s commercial health plan secondary coverage, or the patient. The Company’s reimbursements from Medicare are subject to certain variations under Medicare’s single bundled payment rate system, whereby reimbursements can be adjusted for certain patient characteristics and other factors. The Company’s revenue recognition will depend upon its ability to effectively capture, document and bill for Medicare’s base payment rate as well as these other variable factors.

Revenues associated with commercial health plans are estimated based on contractual terms for the patients under healthcare plans with which the Company has formal agreements, non-contracted health plan coverage terms if known, estimated secondary collections, historical collection experience, historical trends of refunds and payor payment adjustments (retractions), inefficiencies in the Company’s billing and collection processes that can result in denied claims for payments, and regulatory compliance matters.

Commercial revenue recognition also involves significant estimating risks. With many larger, commercial insurers the Company has several different contracts and payment arrangements, and these contracts often include only a subset of the Company’s centers. It is often not possible to determine which contract, if any, should be applied prior to billing. In addition, for services provided by non-contracted centers, final collection may require specific negotiation of a payment amount, typically at a significant discount from the Company’s usual and customary rates.

Under Medicare’s bundled payment rate system, services covered by Medicare are subject to estimating risk, whereby reimbursements from Medicare can vary significantly depending upon certain patient characteristics and other variable factors. Even with the bundled payment rate system, Medicare payments for bad debt claims as established by cost reports require evidence of collection efforts. As a result, billing and collection of Medicare bad debt claims can be delayed significantly and final payment is subject to audit.

Medicaid payments, when Medicaid coverage is secondary, can also be difficult to estimate. For many states, Medicaid payment terms and methods differ from Medicare, and may prevent accurate estimation of individual payment amounts prior to billing.

The Company’s range of revenue estimating risk for the U.S. dialysis and related lab services segment is generally expected to be within 1% of its revenue. Changes in revenue estimates for prior periods are not material.

Other revenues

Other revenues consist of the revenues associated with the ancillary services and strategic initiatives, management and administrative support services that are provided to outpatient dialysis centers that the Company does not own or in which the Company owns a noncontrolling interest, and administrative and management support services to certain other non-dialysis joint ventures in which the Company owns a noncontrolling interest. Revenues associated with pharmacy services are recognized as prescriptions are filled and shipped to patients. Revenues associated with disease management services, medical consulting services, clinical research programs, physician services, ESRD seamless care organizations, and comprehensive care are recognized in the period services are provided. Revenues associated with direct primary care are recognized over the membership period. Management fees are principally determined as a percentage of the managed operations’ revenues or cash collections and in some cases an additional component based upon a percentage of operating income. Management fees are included in net revenues when earned.

F-10

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Allowance for uncollectible accounts

Net revenue recognition and allowances for uncollectible billings require the use of estimates of the amounts that will ultimately be realized considering, among other items, retroactive adjustments that may be associated with regulatory reviews, audits, billing reviews and other matters. The Company’s policy is to write off any uncollectible accounts receivable balance only after all collection efforts have been exhausted or when write off is mandated by federal or state policies or required by certain payor contracts. It is also the Company’s policy to write off any accounts receivable balance associated with any payors or patients when the Company receives notification of a bankruptcy filing.

Other income

Other income includes interest income on cash and cash-equivalents and short- and long-term investments, other non-operating gains from investment transactions, and foreign currency transaction gains and losses.

Cash and cash equivalents

Cash equivalents are short-term highly liquid investments with maturities of three months or less at date of purchase.

Investments in debt and equity securities

The Company classifies certain debt securities as held-to-maturity and records them at amortized cost based on the Company’s intentions and strategies concerning those investments. Equity securities that have readily determinable fair values, and certain other financial instruments that have readily determinable fair values or redemption values, are classified as available for sale and recorded at estimated fair value.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist principally of pharmaceuticals and dialysis-related supplies. Rebates related to inventory purchases are recorded when earned and are based on certain qualification requirements which are dependent on a variety of factors including future pricing levels by the manufacturer and data submission.

Property and equipment

Property and equipment is stated at cost less accumulated depreciation and amortization and is further reduced by any impairments. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization expenses are computed using the straight-line method over the useful lives of the assets estimated as follows: buildings, 20 to 40 years; leasehold improvements, the shorter of their economic useful life or the expected lease term; and equipment and information systems, principally three to eight years. Disposition gains and losses are included in current operating expenses.

Amortizable intangibles

Amortizable intangible assets and liabilities include non-competition and similar agreements, lease agreements and hospital acute services contracts, each of which have finite useful lives. Amortization expense is computed using the straight-line method over the useful lives of the assets estimated as follows: non-competition and similar agreements, two to ten years; and lease agreements and hospital acute service contracts, over the term of the lease or contract period, respectively.

Indefinite-lived intangibles

Indefinite-lived intangible assets include international licenses and accreditations that allow the Company to be reimbursed for providing dialysis services to patients, each of which has an indefinite useful life.

Equity method and other investments

Equity investments that do not have readily determinable fair values are carried on the cost or equity method, as applicable, net of any other-than-temporary impairment. The Company classifies its cost and equity method investments as “Equity method and other investments” on its balance sheet. See Note 9 to these consolidated financial statements for further details.

F-11

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Goodwill

Goodwill represents the difference between the fair value of businesses acquired and the fair value of the identifiable tangible and intangible net assets acquired. Goodwill is not amortized, but is assessed by individual reporting unit for impairment as circumstances warrant and at least annually. An impairment charge is recorded when a reporting unit's carrying amount is determined to exceed its fair value. The Company operates multiple reporting units. See Note 10 to these consolidated financial statements for further details.

Impairment of equity method and other investments

Equity method and other investments are assessed for other-than-temporary impairment when significant events or changes in circumstances indicate that an other-than-temporary impairment may have occurred. An other-than-temporary impairment charge is recorded when the fair value of an investment has fallen below its carrying amount and the shortfall is expected to be indefinitely or permanently unrecoverable.

Impairment of other long-lived assets

Other long-lived assets, including property and equipment and intangible assets, are reviewed for possible impairment whenever significant events or changes in circumstances indicate that an impairment may have occurred. Such changes can include changes in the Company’s business strategy and plans, changes in the quality or structure of its relationships with its partners or deteriorating performance of individual outpatient dialysis centers or other business units. An impairment of an amortizable or depreciable asset is indicated when the sum of the expected future undiscounted net cash flows identifiable to the related asset group is less than its carrying amount. Impairment losses are measured based on the difference between the estimated fair value and the carrying amount of the subject asset group and are included in operating expenses.

Indefinite-lived intangible assets are reviewed for possible impairment at least annually and whenever significant events or changes in circumstances indicate that an impairment may have occurred.

Self-insurance

The Company is predominantly self-insured with respect to professional and general liability and workers' compensation risks through wholly-owned captive insurance companies, with excess or reinsurance coverage for additional risk. The Company is also predominantly self-insured with respect to employee medical and other health benefits. The Company records insurance liabilities for the professional and general liability, workers’ compensation, and employee health benefit risks that it retains and estimates its liability for those risks using third party actuarial calculations that are based upon historical claims experience and expectations for future claims.

Income taxes

Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not currently have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial statements.

F-12

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Stock-based compensation

The Company’s stock-based compensation awards are measured at their estimated fair values on the date of grant if settled in shares or at their estimated fair values at the end of each reporting period if settled in cash. The value of stock-based awards so measured is recognized as compensation expense on a cumulative straight-line basis over the vesting terms of the awards, adjusted for expected forfeitures. Stock-based compensation to be settled in shares is recorded to the Company’s shareholders’ equity, while stock-based compensation to be settled in cash is recorded to a liability.

Interest rate cap and swap agreements

The Company often carries a combination of currently effective interest rate caps, forward interest rate caps, or interest rate swaps on portions of its variable rate debt as a means of hedging its exposure to changes in LIBOR interest rates as part of its overall interest rate risk management strategy. These interest rate caps and swaps are not held for trading or speculative purposes and are typically designated as qualifying cash flow hedges. See Note 13 to these consolidated financial statements for further details.

Noncontrolling interests

Noncontrolling interests represent third-party equity ownership interests in entities which are consolidated by the Company for financial statement reporting purposes. As of December 31, 2017, third parties held noncontrolling equity interests in 589 consolidated legal entities, including 586 legal entities classified as continuing operations.

Fair value estimates

The Company relies on fair value measurements and estimates for purposes that require the recording, reassessment, or adjustment of the carrying amounts of certain assets, liabilities and noncontrolling interests subject to put provisions (temporary equity). These purposes can include the accounting for business combination transactions, impairment assessments for goodwill, investments, or other long-lived assets, and stock-based compensation, as well as recurring valuations of available for sale securities, noncontrolling interests in temporary equity, derivative instruments, and/or contingent consideration, as applicable. The Company has also classified its assets, liabilities and temporary equity into the appropriate fair value hierarchy levels as defined by the Financial Accounting Standards Board (FASB). See Note 24 to these consolidated financial statements for further details.

New accounting standards

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In 2015 and 2016, the FASB issued ASU 2015-14, ASU2016-08, ASU 2016-10, ASU 2016-11, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606), each of which amends the guidance in ASU 2014-09. These ASUs will replace most existing revenue recognition guidance in U.S. GAAP.

The Company will adopt these ASUs beginning January 1, 2018 using the cumulative effect method and will apply these ASUs only to those contracts that are not completed contracts as of that date with no cumulative effect adjustment. In preparation for the adoption of these ASUs, the Company has concluded that this guidance will result in a change to the presentation of its revenues, provision for uncollectible accounts and allowance for doubtful accounts, which will result in the Company’s provision for uncollectible accounts being recorded as a reduction to revenue. The guidance will also require additional disaggregated revenue disclosures. The guidance will not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows. The Company expects to benefit from certain policy elections related to its adoption of these standards of approximately $30,000 in the first half of 2018.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU revise accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities at fair value. The amendments in this ASU are effective for the Company beginning on January 1, 2018 and are to be applied through a cumulative effect adjustment to the statement of financial position. Early adoption is permitted under certain circumstances. The Company is still evaluating certain aspects of this ASU as well as the related impacts it may have on its consolidated financial statements when adopted on January 1, 2018.

F-13

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for substantially all leases with lease terms in excess of twelve months. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for the Company beginning on January 1, 2019 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has assembled an internal lease task force that meets regularly to discuss and evaluate the overall impact of this guidance on its consolidated financial statements and related disclosures, as well as the expected timing of adoption. The Company is currently gathering information from its existing leases and believes that the new standard will have a material impact on its consolidated balance sheet but will not have a material impact on its results of operations or liquidity. The Company expects to adopt this ASU on January 1, 2019, and continues to evaluate the effect that the implementation of this ASU will have on its consolidated financial statements, related disclosures and controls.

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments in this ASU were effective for the Company beginning on January 1, 2017 and were applied prospectively. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The changes required by this ASU involve several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flow, and an election on estimating forfeitures. The amendments in this ASU were effective for the Company beginning January 1, 2017. The method of adoption differs for each of the topics covered by the ASU. The primary effect of this ASU for the Company is the presentation of excess tax benefits or deficiencies as a component of income tax expense within the Company's consolidated statements of income rather than within additional paid-in capital on its consolidated balance sheet. In addition, these excess tax benefits or deficiencies are presented as an operating activity rather than as a financing activity on the consolidated statements of cash flow.

The Company elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively. Additionally, the Company has elected to continue to estimate forfeitures expected to occur in determining the amount of compensation expense to be recognized each period. While this new standard may cause volatility in the Company’s effective tax rates and diluted earnings per share due to tax effects of stock awards being recorded within the Company’s consolidated statements of operations, adoption of this standard did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 2017.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU clarify how certain cash receipts and cash payments should be classified on the statement of cash flows. The new standard is effective for the Company beginning January 1, 2018 and is to be applied retrospectively to all periods presented. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements when adopted on January 1, 2018.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The amendments in this ASU allow entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The current guidance does not allow recognition until the asset has been sold to an outside party. The amendments in this ASU are effective for the Company beginning on January 1, 2018 and are to be applied on a modified retrospective basis. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements when adopted on January 1, 2018.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the test for goodwill impairment by eliminating the second step in goodwill impairment assessments. The Company early adopted this ASU as of January 1, 2017.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align an entity’s risk management activities and

F-14

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in the new ASU are effective for the Company on January 1, 2019 and are to be applied prospectively. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements when adopted on January 1, 2018.

In February 2018, the FASB issued ASU No. 2018-2, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act between “Accumulated other comprehensive income” and “Retained earnings.” This ASU relates to the requirement that adjustments to deferred tax liabilities and assets related to a change in tax laws or rates to be included in “Income from continuing operations”, even in situations where the related items were originally recognized in “Other comprehensive income” (rather than in “Income from continuing operations”). The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax laws or rates were recognized. The Company is still evaluating certain aspects of this ASU as well as the related impacts it may have on the Company's consolidated financial statements.

2. Earnings per share

Basic earnings per share is calculated by dividing net income attributable to the Company, adjusted for any change in noncontrolling interest redemption rights in excess of fair value, by the weighted average number of common shares and vested stock units outstanding, net of shares held in escrow that under certain circumstances may be returned to the Company.

Diluted earnings per share includes the dilutive effect of outstanding stock-settled stock appreciation rights (SSARs) and unvested stock units (under the treasury stock method) as well as shares held in escrow that the Company expects will remain outstanding.

The reconciliations of the numerators and denominators used to calculate basic and diluted net income per share are as follows:

F-15

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

	Year ended December 31,
	2017				2016				2015
	(shares in thousands)
Numerators:
Net income from continuing operations attributable to DaVita Inc.	$	901,277			$	1,032,373			$	323,199
Net loss from discontinued operations attributable to DaVita Inc.	(237,659		)		(152,499		)		(53,467		)
Net income attributable to DaVita Inc. for basic earnings per share calculation	$	663,618			$	879,874			$	269,732
Basic:
Weighted average shares outstanding during the period	190,820				203,835				214,062
Contingently returnable shares held in escrow for the DaVita HealthCare Partners merger	(2,194		)		(2,194		)		(2,194		)
Weighted average shares for basic earnings per share calculation	188,626				201,641				211,868
Basic net income from continuing operations per share attributable to DaVita Inc.	$	4.78			$	5.12			$	1.53
Basic net loss from discontinued operations per share attributable to DaVita Inc.	(1.26		)		(0.76		)		(0.26		)
Basic net income per share attributable to DaVita Inc.	$	3.52			$	4.36			$	1.27
Diluted:
Weighted average shares outstanding during the period	190,820				203,835				214,062
Assumed incremental shares from stock plans	529				1,070				2,190
Weighted average shares for diluted earnings per share calculation	191,349				204,905				216,252
Diluted net income from continuing operations per share attributable to DaVita Inc.	$	4.71			$	5.04			$	1.49
Diluted net loss from discontinued operations per share attributable to DaVita Inc.	(1.24		)		(0.75		)		(0.24		)
Diluted net income per share attributable to DaVita Inc.	$	3.47			$	4.29			$	1.25
Anti-dilutive stock-settled awards excluded from calculation(1)	4,350				2,523				1,365

(1)	Shares associated with stock-settled stock appreciation rights excluded from the diluted denominator calculation because they are anti-dilutive under the treasury stock method.

3. Investments in debt and equity securities

The Company classifies certain debt securities as held-to-maturity and records them at amortized cost based on the Company’s intentions and strategies concerning those investments. Equity securities that have readily determinable fair values, and certain other financial instruments that have readily determinable fair values or redemption values, are classified as available for sale and recorded at estimated fair value.

The Company’s investments in these securities and certain other financial instruments consist of the following:

	December 31, 2017												December 31, 2016
	Held to maturity				Available for sale				Total				Held to maturity				Available for sale				Total
Certificates of deposit, commercial paper and money market funds due within one year	$	42,316			$	—			$	42,316			$	255,781			$	—			$	255,781
Investments in mutual funds and common stock	—				38,895				38,895				50,000				31,197				81,197
	$	42,316			$	38,895			$	81,211			$	305,781			$	31,197			$	336,978
Short-term investments	$	42,316			$	1,200			$	43,516			$	305,781			$	1,200			$	306,981
Long-term investments	—				37,695				37,695				—				29,997				29,997
	$	42,316			$	38,895			$	81,211			$	305,781			$	31,197			$	336,978

F-16

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The cost of certificates of deposit, commercial paper and money market funds at December 31, 2017 and 2016 approximate their fair value. As of December 31, 2017 and 2016, available for sale investments included $8,416 and $3,701, respectively, of gross pre-tax unrealized gains. During 2017 and 2016 the Company recorded gross pre-tax unrealized gains of $5,075 and $1,802, respectively, in other comprehensive income associated with changes in the fair value of these investments. During 2017, the Company sold investments in mutual funds and common stock for net proceeds of $6,408, and recognized a pre-tax gain of $360, or $220 after tax, that was previously recorded in other comprehensive income. During 2016, the Company sold investments in mutual funds and common stock for net proceeds of $14,971, and recognized a pre-tax gain of $690, or $423 after tax, that was previously recorded in other comprehensive income.

Investments in mutual funds classified as available for sale are held within trusts to fund existing obligations associated with several of the Company’s non-qualified deferred compensation plans.

4. Accounts receivable

Approximately 21% and 16% of the Company’s net patient services accounts receivable balances as of December 31, 2017 and 2016, respectively, were more than six months old. The increase was primarily due to changes the Company made in its collection policies and procedures to improve overall collections. There were no significant balances over one year old. Accounts receivable are principally from Medicare and Medicaid programs and commercial insurance plans.

Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the ultimate collectability of its accounts receivable, the Company analyzes its historical cash collection experience and trends for each payor to estimate the adequacy of the allowance for doubtful accounts and the amount of the provision for uncollectible accounts. Management regularly updates its analysis based upon the most recent information available to it to determine its current provision for uncollectible accounts and the adequacy of its allowance for doubtful accounts.

For receivables associated with U.S. dialysis and related lab services covered by government payors, like Medicare, the Company receives 80% of the payment directly from Medicare as established under the government’s bundled payment system and determines an appropriate allowance for doubtful accounts and provision for uncollectible accounts on the remaining balance due depending upon the Company’s estimate of the amounts ultimately collectible from other secondary coverage sources or from the patients. For receivables associated with services to patients covered by commercial payors that are either based upon contractual terms or for non-contracted health plan coverage, the Company provides an allowance for doubtful accounts by recording a provision for uncollectible accounts based upon its historical collection experience, potential inefficiencies in its billing processes and for which collectability is determined to be unlikely.

Approximately 1% of the Company’s U.S. dialysis and related lab services net accounts receivable are associated with patient pay and it is the Company’s policy to reserve 100% of the outstanding accounts receivable balances for dialysis services when those amounts due are outstanding for more than three months.

During the year ended December 31, 2017, the Company’s allowance for doubtful accounts decreased by $20,498. The decrease in 2017 was primarily due to an increase in write-offs of aged balances from an increase in uninsured and underinsured uncollectible patient balances related to the U.S. dialysis and related lab business. During the year ended December 31, 2016, the Company’s allowance for doubtful accounts decreased by $12,837. The decrease in 2016 was primarily due to an increase in the write-offs of patient pay billings in the Company's U.S. dialysis business. The decrease was also due to a reduction in accounts receivable older than six months.

5. Other receivables

Other receivables were comprised of the following:

	December 31,
	2017				2016
Supplier rebates and non-trade receivables	$	268,949			$	183,498
Medicare bad debt claims	103,970				104,658
	$	372,919			$	288,156

F-17

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

6. Prepaid and other current assets

Other current assets were comprised of the following:

	December 31,
	2017				2016
Prepaid expenses	$	104,727			$	96,818
Other	7,331				2,692
	$	112,058			$	99,510

7. Property and equipment

Property and equipment were comprised of the following:

	December 31,
	2017				2016
Land	$	33,814			$	26,339
Buildings	473,489				429,039
Leasehold improvements	2,816,675				2,495,070
Equipment and information systems, including internally developed software	2,352,246				2,182,912
New center and capital asset projects in progress	576,651				429,037
	6,252,875				5,562,397
Less accumulated depreciation	(3,103,662		)		(2,698,276		)
	$	3,149,213			$	2,864,121

Depreciation expense on property and equipment was $544,129, $494,945, and $444,720 for 2017, 2016 and 2015, respectively.

In addition, during the first quarter of 2017, the Company recognized an asset impairment charge of $15,168 related to the restructuring of its pharmacy business.

Interest on debt incurred during the development of new centers and other capital asset projects is capitalized as a component of the asset cost based on the respective in-process capital asset balances. Interest capitalized was $19,176, $12,990 and $9,723 for 2017, 2016 and 2015, respectively.

8. Intangibles

Intangible assets other than goodwill were comprised of the following:

	December 31,
	2017				2016
Noncompetition and other agreements	$	429,140			$	407,220
Lease agreements	7,623				7,244
Indefinite-lived assets	33,255				1,125
Other	583				583
	470,601				416,172
Less accumulated amortization	(356,774		)		(342,668		)
	$	113,827			$	73,504

Amortization expense from amortizable intangible assets, other than lease agreements, was $15,782, $14,552, and $19,185 for 2017, 2016 and 2015, respectively. Lease agreement intangible assets and liabilities were amortized to rent expense in the amounts of $(203), $(232) and $(331) for 2017, 2016 and 2015, respectively.

During the years ended December 31, 2017, 2016 and 2015, the Company recognized no impairment charges on any intangible assets other than goodwill.

F-18

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Amortizable intangible liabilities as of December 31, 2017 and 2016 were comprised of lease agreements of $5,447 and $6,011, respectively, which were net of accumulated amortization of $3,508 and $3,618, respectively.

There was no amortization benefit recognized from the alliance and product supply agreement in 2017 and 2016 as it expired in September 2015. Amortization benefit related to this agreement was $3,997 for 2015.

Lease agreement intangible liabilities are classified in other long-term liabilities and amortized to rent expense.

Scheduled amortization charges from amortizable intangible assets and liabilities as of December 31, 2017 were as follows:

	Noncompetition and other agreements				Lease liabilities				Other
2018	$	15,581			$	(849	)		$	102
2019	14,051				(658		)		87
2020	12,629				(628		)		44
2021	9,929				(602		)		—
2022	6,808				(553		)		—
Thereafter	21,341				(2,157		)		—
Total	$	80,339			$	(5,447	)		$	233

9. Equity method and other investments

Equity investments that do not have readily determinable fair values are carried on the cost or equity method, as applicable. The Company maintains equity method investments in nonconsolidated investees as well as minor cost method investments in private securities of certain other healthcare businesses. The Company classifies its non-marketable cost- and equity method investments as "Equity method and other investments" on its balance sheet.

As described in Note 20, effective as of August 1, 2016, the Company deconsolidated its Asia Pacific dialysis business held by DaVita Care Pte. Ltd. (the APAC JV), adjusted its retained investment in the APAC JV to estimated fair value at that time, and has accounted for this retained investment on the equity method since that time.

During the year ended December 31, 2017, the Company recognized a non-cash other-than-temporary impairment charge of $280,066 on its investment in the APAC JV. This charge resulted from changes in its expectations for the joint venture based on continuing market research and assessments by both the Company and the APAC JV concerning the size of the addressable market available to the joint venture at attractive risk-adjusted returns. The Company estimated the fair value of its retained interest in the APAC JV with the assistance of an independent third party valuation firm based on information available to management as of December 31, 2017. After this charge, the Company’s investment in the APAC JV was carried at $160,481 as of December 31, 2017.

During the year ended December 31, 2016, the Company recorded an impairment of $14,993 related to an investment at one of its other international reporting units.

Total equity method and other investments in nonconsolidated businesses were $245,534 and $492,039 at December 31, 2017 and 2016, respectively. The decrease in these equity investments was primarily due to the impairment of the Company's investment in the APAC JV. During 2017, 2016 and 2015, the Company recognized equity investment (loss) income of $(8,640), $16,874 and $13,919, respectively, from its equity method investments in nonconsolidated businesses.

F-19

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

10. Goodwill

Changes in the carrying value of goodwill by reportable segments were as follows:

	U.S. dialysis and related lab services				Other ancillary services and strategic initiatives				Consolidated total
Balance at January 1, 2016	$	5,629,183			$	267,032			$	5,896,215
Acquisitions	75,295				123,632				198,927
Divestitures	(12,891		)		(29,645		)		(42,536		)
Goodwill impairment charges	—				(28,415		)		(28,415		)
Foreign currency and other adjustments	—				(8,816		)		(8,816		)
Balance at December 31, 2016	$	5,691,587			$	323,788			$	6,015,375
Acquisitions	485,434				131,598				617,032
Divestitures	(32,260		)		(126		)		(32,386		)
Goodwill impairment charges	—				(36,196		)		(36,196		)
Foreign currency and other adjustments	—				46,454				46,454
Balance at December 31, 2017	$	6,144,761			$	465,518			$	6,610,279
Goodwill	$	6,144,761			$	536,038			$	6,680,799
Accumulated impairment charges	—				(70,520		)		(70,520		)
	$	6,144,761			$	465,518			$	6,610,279

The Company elected to early adopt ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment effective January 1, 2017. The amendments in this ASU simplify the test for goodwill impairment by eliminating the second step in the assessment. All goodwill impairment tests performed during 2017 have been performed under this new guidance.

Each of the Company’s operating segments described in Note 25 to these consolidated financial statements represents an individual reporting unit for goodwill impairment testing purposes, except that each sovereign jurisdiction within the Company’s international operating segments is considered a separate reporting unit.

Within the U.S. dialysis and related lab services operating segment, the Company considers each of its dialysis centers to constitute an individual business for which discrete financial information is available. However, since these dialysis centers have similar operating and economic characteristics, and the allocation of resources and significant investment decisions concerning these businesses are highly centralized and the benefits broadly distributed, the Company has aggregated these centers and deemed them to constitute a single reporting unit.

The Company has applied a similar aggregation to the vascular access service centers in its vascular access services reporting unit, to the physician practices in its physician services and direct primary care reporting units, and to the dialysis centers within each international reporting unit. For the Company’s other operating segments, discrete business components below the operating segment level constitute individual reporting units.

During the year ended December 31, 2016, the Company recognized a goodwill impairment charge of $28,415 related to the Company’s vascular access reporting unit as a result of changes in future governmental reimbursement rates for this business and the Company’s expected ability to mitigate them. Specifically, on November 2, 2016, CMS released the 2017 Physician Fee Schedule Final Rule and the Ambulatory Surgical Center Payment Final Rule which reflected significant changes in reimbursement structure for this business unit.

During the year ended December 31, 2017, the Company recognized an additional goodwill impairment charge of $34,696 at its vascular access reporting unit. This charge resulted primarily from continuing changes in the Company’s outlook for this business unit as the Company’s partners and operators continued to evaluate and make decisions concerning changes in operations, including termination of their management services agreements and center closures, as a result of the changes in reimbursement structure discussed above. As of December 31, 2017, there was no goodwill remaining at the Company's vascular access reporting unit.

F-20

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

During the year ended December 31, 2017, the Company also performed annual impairment assessments for various other reporting units. As a result of these assessments, the Company also recognized a goodwill impairment charge of $1,500 at one of its international reporting units during the year ended December 31, 2017. During the year ended December 31, 2015, the Company also recognized a goodwill impairment charge of $4,066 at another international reporting unit.

Based on the most recent assessments, the Company determined that reductions in reimbursement rates, changes in actual or expected growth rates, or other significant adverse changes in expected future cash flows or valuation assumptions could result in goodwill impairment charges in the future for the following reporting units, which remain at risk of goodwill impairment as of December 31, 2017:

Reporting unit		Goodwill balance as of December 31, 2017				Carrying amount coverage(1)		Sensitivities
Operating income(2)		Discount rate(3)
Kidney Care Germany		$	316,369			13.7%		(1.6)%		(11.1)%
Kidney Care Portugal		$	46,713			16.9%		(1.9)%		(6.0)%
Kidney Care Poland		$	46,610			11.8%		(1.9)%		(6.0)%

(1)	Excess of estimated fair value of the reporting unit over carrying amount as of the latest assessment date.

(2)	Potential impact on estimated fair value of a sustained, long-term reduction of 3% in operating income as of the latest assessment date.

(3)	Potential impact on estimated fair value of an increase in discount rates of 100 basis points as of the latest assessment date.

There were no major changes in the business, prospects, or expected future results of these reporting units from their latest assessment date through December 31, 2017.

Except as described above, none of the Company’s other reporting units were considered at risk of significant goodwill impairment as of December 31, 2017. Since the dates of the Company’s last annual goodwill impairment tests, there have been certain developments, events, changes in operating performance and other changes in key circumstances that have affected the Company’s businesses. However, except as further described above, these did not cause management to believe it is more likely than not that the fair values of any of the Company’s reporting units would be less than their respective carrying amounts as of December 31, 2017.

11. Other liabilities

Other liabilities were comprised of the following:

	December 31,
	2017				2016
Payor refunds and retractions	$	292,370			$	270,298
Insurance and self-insurance accruals	64,924				76,857
Accrued interest	83,362				82,234
Accrued non-income tax liabilities	28,317				23,643
Other	83,689				125,860
	$	552,662			$	578,892

12. Income taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

F-21

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Income before income taxes from continuing operations consisted of the following:

	Year ended December 31,
	2017				2016				2015
Domestic	$	1,725,822			$	1,278,754			$	730,249
International	(326,036		)		344,351				(41,862		)
	$	1,399,786			$	1,623,105			$	688,387

Income tax expense (benefit) for continuing operations consisted of the following:

	Year ended December 31,
	2017				2016				2015
Current:
Federal	$	330,191			$	322,940			$	124,503
State	47,228				44,525				20,442
International	3,422				1,928				856
Total current income tax	380,841				369,393				145,801
Deferred:
Federal	(98,760		)		88,412				71,016
State	37,347				(28,530		)		(9,737		)
International	4,431				2,486				430
Total deferred income tax	(56,982		)		62,368				61,709
	$	323,859			$	431,761			$	207,510

Income taxes are allocated between continuing and discontinued operations as follows:

	Year ended December 31,
	2017				2016				2015
Continuing operations	$	323,859			$	431,761			$	207,510
Discontinued operations	(364,856		)		24,052				88,216
	$	(40,997	)		$	455,813			$	295,726

The reconciliation between the Company’s effective tax rate from continuing operations and the U.S. federal income tax rate is as follows:

	Year ended December 31,
	2017			2016			2015
Federal income tax rate	35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit	3.7			2.6			1.7
Gain on APAC JV ownership changes	(0.2	)		(9.9	)		—
APAC investment impairment	6.4			—			—
Impact of 2017 Tax Act	(20.5	)		—			—
Other	2.0			1.8			2.3
Impact of noncontrolling interests primarily attributable to non-tax paying entities	(3.3	)		(2.9	)		(8.9	)
Effective tax rate	23.1	%		26.6	%		30.1	%

On December 22, 2017, the President signed into law the tax legislation known as the Tax Cuts and Jobs Act (the 2017 Tax Act). The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction in the U.S. corporate income tax rate from 35.0% to 21.0% effective January 1, 2018. The 2017 Tax Act also provides for full expensing of qualified assets placed into service after September 27, 2017, as well as prospective changes beginning in 2018, imposes a one-time transition tax on certain foreign subsidiaries, and changes how foreign earnings are subject to U.S. tax prospectively.

F-22

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the 2017 Tax Act for which accounting under ASC Topic 740 is complete and provisional amounts, primarily as it relates to the full expensing provisions of the 2017 Tax Act, for those specific income tax effects for which the accounting is incomplete but a reasonable estimate could be determined.

The Company has completed the accounting for income taxes with respect to the mandatory one-time tax on accumulated earnings of its foreign subsidiaries and has determined that there is no mandatory repatriation and therefore no income tax liability associated with this one-time tax.

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were remeasured to reflect a reasonable estimate of the reduction in the U.S. corporate income tax rate from 35.0% to 21.0%, resulting in a provisional $251,510 net tax benefit.

While the Company has substantially completed its provisional analysis of the income tax effects of the 2017 Tax Act and recorded a reasonable estimate of such effects, the net one-time benefit related to the 2017 Tax Act may differ, possibly materially, due to, among other things, further refinement of the underlying calculations, changes in interpretations and assumptions that the Company has made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions the Company may take as a result of the 2017 Tax Act. The Company will complete its analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period in which such adjustments are determined.

Deferred tax assets and liabilities arising from temporary differences for continuing operations were as follows:

	December 31,
	2017				2016
Receivables	$	19,705			$	25,197
Accrued liabilities	96,537				224,712
Net operating loss carryforwards	108,429				128,813
Other	37,794				73,525
Deferred tax assets	262,465				452,247
Valuation allowance	(61,282		)		(56,016		)
Net deferred tax assets	201,183				396,231
Intangible assets	(501,763		)		(676,781		)
Property and equipment	(100,376		)		(141,919		)
Investments in partnerships	(61,529		)		(95,936		)
Other	(23,762		)		(12,464		)
Deferred tax liabilities	(687,430		)		(927,100		)
Net deferred tax liabilities	$	(486,247	)		$	(530,869	)

At December 31, 2017, the Company had federal net operating loss carryforwards of approximately $137,852 that expire through 2036, although a substantial amount expire by 2028. The Company also had state net operating loss carryforwards of $445,554 that expire through 2036 and international net operating loss carryforwards of $138,717, some of which have an indefinite life. The utilization of a portion of these losses may be limited in future years based on the profitability of certain entities. The net increase of $5,266 in the valuation allowance is primarily due to newly created net operating loss carryforwards in state and foreign jurisdictions that the Company does not anticipate being able to utilize.

The 2017 Tax Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued would now be subject to U.S. tax. Irrespective of the fact that the Company will not experience any one-time tax under this provision of the 2017 Tax Act, it

F-23

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

intends to continue to indefinitely reinvest these earnings, as well as capital invested and future earnings from its foreign subsidiaries to fund its international operations. In addition, the Company expects future U.S. cash generation will be sufficient to meet future U.S. cash needs. Determination of the amount of any applicable deferred taxes on the earnings is not practical since the computation would depend on a number of factors that cannot be known unless a decision is made to repatriate the earnings.

Unrecognized tax benefits

A reconciliation of the beginning and ending liability for unrecognized tax benefits that do not meet the more-likely-than-not threshold is as follows:

	Year ended December 31,
	2017				2016
Beginning balance	$	24,066			$	39,011
Additions for tax positions related to current year	7,606				9,714
Additions for tax positions related to prior years	804				—
Reductions related to lapse of applicable statute	(1,380		)		(1,277		)
Impact of 2017 Tax Act	3,731				—
Reductions related to settlements with taxing authorities	(2,051		)		(23,382		)
Ending balance	$	32,776			$	24,066

As of December 31, 2017, the Company’s total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold is $32,776, all of which would impact the Company’s effective tax rate if recognized. This balance represents an increase of $8,710 from the December 31, 2016 balance of $24,066, primarily due to additions for tax positions related to the current year.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. At December 31, 2017 and 2016, the Company had approximately $4,195 and $2,595, respectively, accrued for interest and penalties related to unrecognized tax benefits, net of federal tax benefit.

The Company and its subsidiaries file U.S. federal and state income tax returns and various foreign income tax returns. The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2013 and 2008, respectively.

13. Long-term debt

Long-term debt was comprised of the following:

	December 31,
	2017				2016
Senior Secured Credit Facilities:
Term Loan A	$	775,000			$	862,500
Term Loan B	3,377,500				3,412,500
Revolver	300,000				—
Senior notes	4,500,000				4,500,000
Acquisition obligations and other notes payable	150,512				117,547
Capital lease obligations	297,170				292,252
Total debt principal outstanding	9,400,182				9,184,799
Discount and deferred financing costs	(63,951		)		(79,861		)
	9,336,231				9,104,938
Less current portion	(178,213		)		(160,262		)
	$	9,158,018			$	8,944,676

F-24

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Scheduled maturities of long-term debt at December 31, 2017 were as follows:

2018	178,213
2019	1,049,091
2020	73,362
2021	3,307,507
2022	1,283,671
Thereafter	3,508,338

Term Loans

Total outstanding borrowings under Term Loan A and Term Loan B can consist of various individual tranches that can range in maturity from one month to twelve months (currently all tranches are one month in duration). For Term Loan A and Term Loan B, each tranche bears interest at a London Interbank Offered Rate (LIBOR) that is determined by the duration of such tranche plus an interest rate margin. The LIBOR variable component of the interest rate for each tranche is reset as such tranche matures and a new tranche is established. At December 31, 2017, the overall weighted average interest rate for Term Loan A was determined based upon the LIBOR interest rates in effect for all of the individual tranches plus the interest rate margin of 2.00%. At December 31, 2017, Term Loan B bears interest at LIBOR (floor of 0.75%) plus a margin of 2.75%. The Company is subject to LIBOR-based interest rate volatility on Term Loan B as the LIBOR-based component of the interest rate exceeded the floor of 0.75% as of December 31, 2017. The overall weighted average interest rate for Term Loan B was determined based upon the LIBOR interest rates in effect for all individual tranches plus the interest rate margin.

The Company has several interest rate cap agreements that have the economic effect of capping the LIBOR variable component of the Company’s interest rate at a maximum of 3.50% on $3,500,000 of outstanding principal debt. The remaining $652,500 outstanding principal balance of Term Loan A would still be subject to LIBOR-based interest rate volatility. In addition, the Company maintains several forward interest rate cap agreements with notional amounts totaling $3,500,000, which will be effective June 29, 2018. The cap agreements will have the economic effect of capping the LIBOR variable component of the Company’s interest rate at a maximum of 3.50% on an equivalent amount of the Company’s debt. See below for further details. The Company is restricted from paying dividends under the terms of its senior secured credit facilities.

During the year ended December 31, 2017, the Company made mandatory principal payments under its senior secured credit facilities totaling $87,500 on Term Loan A and $35,000 on Term Loan B.

Revolving lines of credit

The Company has $300,000 drawn on its $1,000,000 revolving line of credit under its senior secured credit facilities, in addition to approximately $14,383 committed for outstanding letters of credit. The Company also has approximately $90,085 of additional outstanding letters of credit related to Kidney Care and $211 of committed outstanding letters of credit related to DMG, which is backed by a certificate of deposit.

Senior Notes

The Company’s senior notes as of December 31, 2017 consisted of $1,500,000 of 5.0% Senior Notes due 2025, $1,750,000 5 1/8% senior notes due 2024 and $1,250,000 of 5 3/4% senior notes due 2022 (collectively Senior Notes).

The Senior Notes are unsecured obligations, rank equally in right of payment with the Company’s existing and future unsecured senior indebtedness, and are guaranteed by substantially all of the Company’s direct and indirect wholly-owned domestic subsidiaries and require semi-annual interest payments. The Company may redeem some or all of the Senior Notes at any time on or after certain specific dates and at certain specific redemption prices as outlined in each senior note agreement. The Company is restricted from paying dividends under the indentures governing its Senior Notes.

Interest rate cap and swap agreements

During the year ended December 31, 2017 the Company had several currently effective and forward interest rate cap agreements as a means of hedging its exposure to and volatility from variable-based interest rate changes as part of its overall interest rate risk management strategy. These agreements were not held for trading or speculative purposes and had the economic effect of capping the Company’s maximum exposure to LIBOR variable interest rate changes on specific portions of the Company’s floating rate debt, as described below. These cap agreements are also designated as cash flow hedges and, as a

F-25

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

result, changes in the fair values of these cap agreements are reported in other comprehensive income. The amortization of the original cap premium is recognized as a component of debt expense on a straight-line basis over the term of the cap agreements. The cap agreements do not contain credit-risk contingent features.

As of December 31, 2017, the Company maintains several currently effective interest rate cap agreements that were entered into in November 2014 with notional amounts totaling $3,500,000. These cap agreements became effective September 30, 2016 and have the economic effect of capping the LIBOR variable component of the Company’s interest rate at a maximum of 3.50% on an equivalent amount of the Company’s debt. These cap agreements expire on June 30, 2018. As of December 31, 2017, these cap agreements had an immaterial fair value. During the year ended December 31, 2017, the Company recognized debt expense of $8,278 from these caps. During the year ended December 31, 2017, the Company recorded a loss of $115 in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements.

As of December 31, 2017, the Company also maintains several forward interest rate cap agreements that were entered into in October 2015 with notional amounts totaling $3,500,000. These forward cap agreements will become effective June 29, 2018 and will have the economic effect of capping the LIBOR variable component of the Company’s interest rate at a maximum of 3.50% on an equivalent amount of its debt. These cap agreements expire on June 30, 2020. As of December 31, 2017, the total fair value of these cap agreements was an asset of approximately $1,032. During the year ended December 31, 2017, the Company recorded a loss of $8,782 in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements.

The following table summarizes the Company’s derivative instruments as of December 31, 2017 and 2016:

			Fair value
Derivatives designated as hedging instruments	Balance sheet location		December 31, 2017				December 31, 2016
Interest rate cap agreements	Other long-term assets		$	1,032			$	9,929

The following table summarizes the effects of the Company’s interest rate cap and swap agreements for the years ended December 31, 2017, 2016 and 2015:

		Amount of unrealized losses in OCI on interest rate cap and swap agreements												Location of losses reclassified from accumulated OCI into income		Amount of losses reclassified from accumulated OCI into income
		Year ended December 31,													Year ended December 31,
Derivatives designated as cash flow hedges		2017				2016				2015					2017				2016				2015
Interest rate cap agreements		$	(8,897	)		$	(5,198	)		$	(16,114	)		Debt expense		$	8,278			$	3,899			$	2,439
Interest rate swap agreements		—				(815		)		(3,971		)		Debt expense		—				299				2,664
Tax benefit		3,460				2,343				7,844				Tax expense		(3,220		)		(1,632		)		(1,992		)
Total		$	(5,437	)		$	(3,670	)		$	(12,241	)				$	5,058			$	2,566			$	3,111

As of December 31, 2017, the Company’s Term Loan B debt bears interest at LIBOR plus an interest rate margin of 2.75%. Term Loan B is subject to an interest rate cap if LIBOR should rise above 3.50%. Term Loan A bears interest at LIBOR plus an interest rate margin of 2.00%. The capped portion of Term Loan A is $122,500. In addition, the uncapped portion of Term Loan A, which is subject to the variability of LIBOR, is $652,500. See above for further details. Interest rates on the Company’s Senior Notes are fixed by their terms.

The Company’s overall weighted average effective interest rate on the senior secured credit facilities was 4.45%, based upon the current margins in effect of 2.00% for Term Loan A and the Revolver and 2.75% for Term Loan B, as of December 31, 2017.

The Company’s overall weighted average effective interest rate during the year ended December 31, 2017 was 4.70% and as of December 31, 2017 was 4.88%.

F-26

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Debt expense

Debt expense consisted of interest expense of $406,341, $394,013 and $389,755 and the amortization and accretion of debt discounts and premiums, amortization of deferred financing costs and the amortization of interest rate cap agreements of $24,293, $20,103 and $18,625 for 2017, 2016 and 2015, respectively. The interest expense amounts are net of capitalized interest.

14. Leases

The majority of the Company’s facilities are leased under non-cancellable operating leases ranging in terms from five to fifteen years and which contain renewal options of five to ten years at the fair rental value at the time of renewal. The Company’s leases are generally subject to periodic consumer price index increases or contain fixed escalation clauses. The Company also leases certain facilities and equipment under capital leases.

Future minimum lease payments under non-cancellable operating and capital leases are as follows:

	Operating leases				Capital leases
2018	$	446,935			$	35,258
2019	422,245				36,038
2020	384,764				36,689
2021	351,962				32,578
2022	313,005				33,004
Thereafter	1,303,594				234,094
	$	3,222,505			407,661
Less portion representing interest					(110,491		)
Total capital lease obligations, including current portion					$	297,170

Rent expense under all operating leases for 2017, 2016, and 2015 was $530,748, $478,531 and $440,601, respectively. Rent expense is recorded on a straight-line basis over the term of the lease for leases that contain fixed escalation clauses or include abatement provisions. Leasehold improvement incentives are deferred and amortized to rent expense over the term of the lease. The net book value of property and equipment under capital leases was $257,772 and $263,438 at December 31, 2017 and 2016, respectively. Capital lease obligations are included in long-term debt. See Note 13 to these consolidated financial statements.

15. Employee benefit plans

The Company has a savings plan for substantially all of its Kidney Care employees which has been established pursuant to the provisions of Section 401(k) of the Internal Revenue Code (IRC). The plan allows for employees to contribute a percentage of their base annual salaries on a tax-deferred basis not to exceed IRC limitations. The Company has not provided any matching contributions for its Kidney Care employees through December 31, 2017.

Beginning in 2018, the Company has implemented a 401(k) matching program under which the Company will match 50% of the employee's contribution up to 6% of the employee's salary, subject to certain limitations. The matching contributions will be subject to certain eligibility and vesting conditions.

The Company also maintains a voluntary compensation deferral plan, the DaVita Voluntary Deferral Plan. This plan is non-qualified and permits certain employees whose annualized base salary equals or exceeds a minimum annual threshold amount as set by the Company to elect to defer all or a portion of their annual bonus payment and up to 50% of their base salary into a deferral account maintained by the Company. Total contributions to this plan in 2017, 2016 and 2015 were $4,497, $5,344 and $4,234, respectively. Deferred amounts are generally paid out in cash at the participant’s election either in the first or second year following retirement or in a specified future period at least three to four years after the deferral election was effective. During 2017, 2016 and 2015 the Company distributed $1,731, $916 and $1,270, respectively, to participants in this plan. Participants are credited with their proportional amount of annual earnings from the plan. The assets of this plan are held in a rabbi trust and as such are subject to the claims of the Company’s general creditors in the event of its bankruptcy. As of December 31, 2017 and 2016, the total fair value of assets held in this plan’s trust were $38,816 and $30,192, respectively.

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The Company also maintains a legacy Executive Retirement Plan for certain members of management. This plan is non-qualified and contributions to the plan were made at the discretion of DVA Renal Healthcare based upon a pre-determined percentage of a participant’s base salary. Effective November 2005, all contributions to this plan were discontinued and the balance of the plan assets will be paid out upon termination or retirement of each individual participant. During 2017, 2016 and 2015 the Company distributed $1,058 and $149, $25 respectively, to participants in this plan. As of December 31, 2017 and 2016, the total fair value of assets held under this plan’s trust was $79 and $1,005, respectively.

The fair value of all of the assets held in plan trusts as of December 31, 2017, and 2016 totaled $38,895 and $31,197, respectively. The assets of these plans are available for sale and as such are recorded at fair value with changes in the fair market values being recorded in other comprehensive income. Any fair value changes to the corresponding liability balance are recorded as compensation expense. See Note 3 to these consolidated financial statements.

Most of the Company’s outstanding employee stock plan awards include a provision accelerating the vesting of the award in the event of a change of control. The Company also maintains a change of control protection program for its employees who do not have a significant number of stock awards, which has been in place since 2001, and which provides for cash bonuses to employees in the event of a change of control. Based on the market price of the Company’s common stock and shares outstanding on December 31, 2017, these cash bonuses would total approximately $520,778 if a change of control transaction occurred at that price and the Company’s Board of Directors did not modify the program. This amount has not been accrued at December 31, 2017, and would only be accrued upon a change of control. These change of control provisions may affect the price an acquirer would be willing to pay for the Company.

16. Contingencies

The majority of the Company’s revenues are from government programs and may be subject to adjustment as a result of: (i) examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (ii) differing interpretations of government regulations by different Medicare contractors or regulatory authorities; (iii) differing opinions regarding a patient’s medical diagnosis or the medical necessity of services provided; and (iv) retroactive applications or interpretations of governmental requirements. In addition, the Company’s revenues from commercial payors may be subject to adjustment as a result of potential claims for refunds, as a result of government actions or as a result of other claims by commercial payors.

The Company operates in a highly regulated industry and is a party to various lawsuits, claims, qui tam suits, governmental investigations and audits (including investigations resulting from its obligation to self-report suspected violations of law) and other legal proceedings. The Company records accruals for certain legal proceedings and regulatory matters to the extent that the Company determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. As of December 31, 2017 and December 31, 2016, the Company’s total recorded accruals, including DMG, with respect to legal proceedings and regulatory matters, net of anticipated third party recoveries, were approximately $6,000 and $69,000, respectively. While these accruals reflect the Company’s best estimate of the probable loss for those matters as of the dates of those accruals, the recorded amounts may differ materially from the actual amount of the losses for those matters, and any anticipated third party recoveries for any such losses may not ultimately be recoverable. Additionally, in some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal proceedings and regulatory matters, which also may be impacted by various factors, including that they may involve indeterminate claims for monetary damages or may involve fines, penalties or non-monetary remedies; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; are in the early stages of the proceedings; or result in a change of business practices. Further, there may be various levels of judicial review available to the Company in connection with any such proceeding.

The following is a description of certain lawsuits, claims, governmental investigations and audits and other legal proceedings to which the Company is subject.

Inquiries by the Federal Government and Certain Related Civil Proceedings

2015 U.S. Office of Inspector General (OIG) Medicare Advantage Civil Investigation: In March 2015, JSA HealthCare Corporation (JSA), a subsidiary of DMG, received a subpoena from the Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) requesting documents and information for the period from January 1, 2008 through December 31, 2013, for certain MA plans for which JSA provided services. It also requests information regarding JSA’s communications about patient diagnoses as they relate to certain MA plans generally, and more specifically as related to two

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Florida physicians with whom JSA previously contracted. The Company is producing the requested information and is cooperating with the government’s investigation.

In addition to the subpoena described above, in June 2015, the Company received a civil subpoena from the OIG covering the period from January 1, 2008 through the present and seeking production of a wide range of documents relating to the Company’s and its subsidiaries’ (including DMG’s and its subsidiary JSA’s) provision of services to MA plans and related patient diagnosis coding and risk adjustment submissions and payments. The Company believes that the request is part of a broader industry investigation into MA patient diagnosis coding and risk adjustment practices and potential overpayments by the government. The information requested includes information relating to patient diagnosis coding practices for a number of conditions, including potentially improper historical DMG coding for a particular condition. With respect to that condition, the guidance related to that coding issue was discontinued following the Company’s November 1, 2012 acquisition of HealthCare Partners (now known as the Company's DMG business), and the Company notified CMS in April 2015 of the coding practice and potential overpayments. In that regard, the Company has identified certain additional coding practices which may have been problematic, some of which were the subject of the Swoben Private Civil Suit, and is in discussions with the DOJ relating to those practices. The Company is cooperating with the government. In addition, the Company is continuing to review other DMG coding practices to determine whether there were any improper coding issues. In connection with the Company's acquisition of DMG in 2012, the Company has certain indemnification rights against the sellers and an escrow was established as security for the indemnification. The Company has submitted an indemnification claim against the sellers secured by the escrow for any and all liabilities incurred relating to these matters and intends to pursue recovery from the escrow. However, the Company can make no assurances that the indemnification and escrow will cover the full amount of the Company’s potential losses related to these matters.

2016 U.S. Attorney Prescription Drug Investigation: In early February 2016, the Company announced that its pharmacy services’ wholly-owned subsidiary, DaVita Rx, received a Civil Investigative Demand (CID) from the U.S. Attorney’s Office for the Northern District of Texas. The government is conducting a federal False Claims Act (FCA) investigation concerning allegations that DaVita Rx presented or caused to be presented false claims for payment to the government for prescription medications, as well as into the Company’s relationship with pharmaceutical manufacturers. The CID covers the period from January 1, 2006 through the present. In the spring of 2015, the Company initiated an internal compliance review of DaVita Rx during which it identified potential billing and operational issues, including potential write-offs and discounts of patient co-payment obligations, and credits to payors for returns of prescription drugs related to DaVita Rx. The Company notified the government in September 2015 that it was conducting this review of DaVita Rx and began providing regular updates of its review. Upon completion of its review, the Company filed a self-disclosure with the OIG in February 2016 and has been working to address and update the practices it identified in the self-disclosure, some of which overlap with information requested by the U.S. Attorney’s Office. The OIG informed the Company in February 2016 that its submission was not accepted. They indicated that the OIG is not expressing an opinion regarding the conduct disclosed or the Company’s legal positions. In connection with the Company’s ongoing efforts working with the government the Company learned that a qui tam complaint had been filed covering some of the issues in the CID and the Company’s self-disclosure. In December 2017, the Company finalized and executed a settlement agreement with the government and relators in the qui tam matter and that included total monetary consideration of $63,700, as previously announced, of which $41,500 was an incremental cash payment and $22,200 was for amounts previously refunded, and all of which was previously accrued. The government’s investigation into the Company's relationship with pharmaceutical manufacturers is ongoing and the Company is continuing to cooperate with the government in this investigation.

2017 U.S. Attorney American Kidney Fund Investigation: On January 4, 2017, the Company was served with an administrative subpoena for records by the United States Attorney’s Office, District of Massachusetts, relating to an investigation into possible federal health care offenses. The subpoena covers the period from January 1, 2007 through the present, and seeks documents relevant to charitable patient assistance organizations, particularly the American Kidney Fund, including documents related to efforts to provide patients with information concerning the availability of charitable assistance. The Company is cooperating with the government and is producing the requested information.

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Although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved (other than as described above), it is not unusual for inquiries such as these to continue for a considerable period of time through the various phases of document and witness requests and on-going discussions with regulators. In addition to the inquiries and proceedings specifically identified above, the Company is frequently subject to other inquiries by state or federal government agencies and/or private civil qui tam complaints filed by relators. Negative findings or terms and conditions that the Company might agree to accept as part of a negotiated resolution of pending or future government inquiries or relator

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

proceedings could result in, among other things, substantial financial penalties or awards against the Company, substantial payments made by the Company, harm to the Company’s reputation, required changes to the Company’s business practices, exclusion from future participation in the Medicare, Medicaid and other federal health care programs and, if criminal proceedings were initiated against the Company, possible criminal penalties, any of which could have a material adverse effect on the Company.

Shareholder Claims

Peace Officers’ Annuity and Benefit Fund of Georgia Securities Class Action Civil Suit: On February 1, 2017, the Peace Officers’ Annuity and Benefit Fund of Georgia filed a putative federal securities class action complaint in the U.S. District Court for the District of Colorado against the Company and certain executives. The complaint covers the time period of August 2015 to October 2016 and alleges, generally, that the Company and its executives violated federal securities laws concerning the Company’s financial results and revenue derived from patients who received charitable premium assistance from an industry-funded non-profit organization. The complaint further alleges that the process by which patients obtained commercial insurance and received charitable premium assistance was improper and "created a false impression of DaVita’s business and operational status and future growth prospects." In November 2017, the court appointed the lead plaintiff and an amended complaint was filed on January 12, 2018. The Company's response is due March 13, 2018. The Company disputes these allegations and intends to defend this action accordingly.

In re DaVita Inc. Stockholder Derivative Litigation: On August 15, 2017, the U.S. District Court for the District of Delaware consolidated the three previously disclosed shareholder derivative lawsuits: the Blackburn Shareholder action filed on February 10, 2017, the Gabilondo Shareholder action filed on May 30, 2017, and the City of Warren Police and Fire Retirement System Shareholder action filed on June 9, 2017. The complaint covers the time period from 2015 to present and alleges, generally, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, corporate waste, and misrepresentations and/or failures to disclose certain information in violation of the federal securities laws in connection with an alleged practice to direct patients with government-subsidized health insurance into private health insurance plans to maximize the Company’s profits. An amended complaint was filed in September 2017, and on December 18, 2017 the Company filed a motion to dismiss and a motion to stay proceedings in the alternative. The Company disputes these allegations and intends to defend this action accordingly.

Other Proceedings

In addition to the foregoing, from time to time the Company is subject to other lawsuits, demands, claims, governmental investigations and audits and legal proceedings that arise due to the nature of its business, including contractual disputes, such as with payors, suppliers and others, employee-related matters and professional and general liability claims. From time to time, the Company also initiates litigation or other legal proceedings as a plaintiff arising out of contracts or other matters.

Resolved Matters

Swoben Private Civil Suit: On July 13, 2009, pursuant to the qui tam provisions of the FCA and the California False Claims Act, James M. Swoben, as relator, filed his initial qui tam action in the United States District Court for the Central District of California purportedly on behalf of the United States of America and the State of California against SCAN, and certain other defendants whose identities were under seal. In April 2013, HealthCare Partners (HCP), now known as the Company’s DMG subsidiary, was one of several defendants served with a civil complaint filed by a former employee of SCAN Health Plan (SCAN), an HMO. The allegations in the complaint relate to alleged overpayments received from government healthcare programs, including allegations of violations of the federal FCA and the California False Claims Act and allegations against HCP relating to patient diagnosis coding. The complaint sought monetary damages and civil penalties as well as costs and expenses. On October 18, 2017, the relator filed a Notice of Dismissal of the action as to HCP, and the government consented to the dismissal, as a result of which the suit is now dismissed, without prejudice.

Solari Post-Acquisition Matter: In 2016, HCP Nevada disclosed to the OIG for the HHS that proper procedures for clinical and eligibility determinations may not have been followed by Las Vegas Solari Hospice (Solari), which was acquired in March 2013 and sold in September 2016 by HCP Nevada. In June 2016, the Company was notified by the OIG that the disclosure submission had been accepted into the OIG’s Self Disclosure Protocol. HCP Nevada had previously made a disclosure and repayment of overpayments to National Government Services (NGS), the Medicare Administrative Contractor for HCP Nevada, for claims submitted by Solari to the federal government prior to DMG’s acquisition of Solari and claims made to the government post-acquisition for which the sellers had certain responsibilities pursuant to a management services

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

agreement. In October 2017, the Company finalized and executed a settlement agreement with the OIG including payment of an immaterial amount.

2011 Suit against the U.S. Department of Veterans Affairs: As previously disclosed, the Company had a pending lawsuit in the U.S. Court of Federal Claims against the federal government which was originally filed in May 2011. The lawsuit related to the U.S. Department of Veterans Affairs (VA) underpayment of dialysis services the Company provided from 2005 through 2011 to veterans pursuant to VA regulations. In the first quarter of 2017, the Company received a payment of $538,000 related to the settlement with the VA. The Company's consolidated entities recognized a net gain of $527,000 on this settlement. The Company's nonconsolidated and managed entities recognized a gain of $9,000, of which the Company's equity investment share was $3,000. The net effect was a net increase of $530,000 to the Company's operating income.

2015 U.S. Department of Justice Vascular Access Investigation and Related Qui Tam Litigation: In November 2015, the Company announced that RMS Lifeline, Inc., a wholly-owned subsidiary of the Company that operates under the name Lifeline Vascular Access (Lifeline), received a CID from the DOJ. The CID relates to two vascular access centers in Florida that are part of Lifeline’s vascular access business. The CID covers the period from January 1, 2008 through the present. The Company acquired these two centers in December 2012. Based on the language of the CID, the DOJ appeared to be looking at whether angiograms performed at the two centers were medically unnecessary and therefore whether related claims filed with federal healthcare programs possibly violated the FCA. Lifeline does not perform dialysis services but instead provides vascular access management services for dialysis patients. The Company cooperated with the government and produced the requested information. The DOJ investigation was initiated pursuant to a complaint brought under the qui tam provisions of the FCA (the Complaint). The Complaint was originally filed under seal in August 2014 in the U.S. District Court, Middle District of Florida, United States ex. rel James Spafford v. DaVita HealthCare Partners, Inc., et al., Case Number 6:14-cv-1251-Orl-41DAB, naming several doctors along with the Company as defendants. In December 2015, a First Amended Complaint was filed under seal. In May 2016, the First Amended Complaint was unsealed. The First Amended Complaint alleged violations of the FCA due to the submission of claims to the government for allegedly medically unnecessary angiograms and angiography procedures at the two vascular access centers as well as employment-related claims. The Complaint covers alleged conduct dating from July 2008, prior to the Company’s acquisition of the centers, to the present. The DOJ declined to intervene. In January 2017, the Company finalized and executed a settlement agreement with the relator and the government for an immaterial amount, and in April 2017, the court dismissed the case with prejudice.

Vainer Private Civil Suit: As previously disclosed, the Company received a subpoena for documents from the OIG relating to the pharmaceutical products Zemplar, Hectorol, Venofer, Ferrlecit and erythropoietin (EPO), as well as other related matters, covering the period from January 2003 to December 2008. The Company subsequently learned that the allegations underlying this inquiry were made as part of a civil complaint filed by relators, Daniel Barbir and Dr. Alon Vainer, pursuant to the qui tam provisions of the federal FCA. The relators also alleged that the Company’s drug administration practices for the Company’s dialysis operations for Vitamin D and iron agents from 2003 through 2010 fraudulently created unnecessary waste, which was billed to and paid for by the government. In June 2015, the Company finalized the terms of the settlement with plaintiffs, including a settlement amount of $450,000 and attorney fees and other costs of $45,000 which was paid in 2015.

---

Other than as described above, the Company cannot predict the ultimate outcomes of the various legal proceedings and regulatory matters to which the Company is or may be subject from time to time, including those described in this Note 16, or the timing of their resolution or the ultimate losses or impact of developments in those matters, which could have a material adverse effect on the Company’s revenues, earnings and cash flows. Further, any legal proceedings or regulatory matters involving the Company, whether meritorious or not, are time consuming, and often require management’s attention and result in significant legal expense, and may result in the diversion of significant operational resources, or otherwise harm the Company’s business, financial results or reputation.

17. Noncontrolling interests subject to put provisions and other commitments

Noncontrolling interests subject to put provisions

The Company has potential obligations to purchase the equity interests held by third parties in several of its majority-owned joint ventures and other nonconsolidated entities. These obligations are in the form of put provisions that are exercisable at the third-party owners’ discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Company would be required to purchase the third-party owners’ equity interests at either the appraised fair market value or a predetermined multiple of earnings or cash flows attributable to the equity interests put to the Company,

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

which is intended to approximate fair value. The methodology the Company uses to estimate the fair values of noncontrolling interests subject to put provisions assumes the higher of either a liquidation value of net assets or an average multiple of earnings, based on historical earnings, patient mix and other performance indicators that can affect future results, as well as other factors. The estimated fair values of noncontrolling interests subject to put provisions are a critical accounting estimate that involves significant judgments and assumptions and may not be indicative of the actual values at which the noncontrolling interests may ultimately be settled, which could vary significantly from the Company’s current estimates. The estimated fair values of noncontrolling interests subject to put provisions can fluctuate and the implicit multiple of earnings at which these noncontrolling interests obligations may be settled will vary significantly depending upon market conditions including potential purchasers’ access to the capital markets, which can impact the level of competition for dialysis and non-dialysis related businesses, the economic performance of these businesses and the restricted marketability of the third-party owners’ equity interests. The amount of noncontrolling interests subject to put provisions that employ a contractually predetermined multiple of earnings rather than fair value are immaterial.

The Company has certain other potential commitments to provide operating capital to a number of dialysis centers that are wholly-owned by third parties or businesses in which the Company owns a noncontrolling equity interest as well as to physician-owned vascular access clinics or medical practices that the Company operates under management and administrative service agreements of approximately $5,385.

Certain consolidated joint ventures are originally contractually scheduled to dissolve after terms ranging from 10 to 50 years. While noncontrolling interests in these limited life entities qualify as mandatorily redeemable financial instruments, they are subject to a classification and measurement scope exception from the accounting guidance generally applicable to other mandatorily redeemable financial instruments. Future distributions upon dissolution of these entities would be valued below the related noncontrolling interest carrying balances in the consolidated balance sheet.

Other commitments

In January 2017, the Company entered into a Sourcing and Supply Agreement with Amgen USA Inc. (Amgen) that expires on December 31, 2022, replacing the Company’s prior agreement that was to expire in 2018. Under the terms of the agreement, the Company will purchase EPO in amounts necessary to meet no less than 90% of its requirements for erythropoiesis-stimulating agents (ESAs) through the expiration of the contract from Amgen. The actual amount of EPO that the Company will purchase will depend upon the amount of EPO administered during dialysis as prescribed by physicians and the overall number of patients that the Company serves.

In 2010, the Company entered into an agreement with Fresenius Medical Care (FMC) which committed the Company to purchase a certain amount of dialysis equipment, parts and supplies from FMC through 2013. This agreement has been subsequently extended through December 31, 2020. During 2017, 2016 and 2015, the Company purchased $176,212, $164,766 and $154,566, respectively, of certain equipment, parts and supplies from FMC.

In 2014, the Company entered into an agreement with Baxter Healthcare (Baxter) which committed the Company to purchase a certain amount of its hemodialysis non-equipment product supplies, such as dialyzers, at fixed prices through 2018. During 2017, 2016 and 2015, the Company purchased $166,764, $162,109 and $112,931 of hemodialysis product supplies from Baxter under this agreement.

Other than operating leases disclosed in Note 14 to the consolidated financial statements, the letters of credit disclosed in Note 13 to the consolidated financial statements, and the arrangements as described above, the Company has no off balance sheet financing arrangements as of December 31, 2017.

18. Long-term incentive compensation and shareholders’ equity

Long-term incentive compensation

Long-term incentive program (LTIP) compensation includes both stock-based awards (principally stock-settled stock appreciation rights, restricted stock units and performance stock units) as well as long-term performance-based cash awards. Long-term incentive compensation expense, which was primarily general and administrative in nature, was attributed to the Company’s U.S. dialysis and related lab services business, corporate administrative support, and the ancillary services and strategic initiatives.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The changes required by this ASU involve several aspects of the accounting for

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and an election on estimating forfeitures. The amendments in this ASU were effective for the Company beginning January 1, 2017. See the New accounting standards section in Note 1 for further details.

The Company’s stock-based compensation awards are measured at their estimated fair values on the date of grant if settled in shares or at their estimated fair values at the end of each reporting period if settled in cash. The value of stock-based awards so measured is recognized as compensation expense on a cumulative straight-line basis over the vesting terms of the awards, adjusted for expected forfeitures.

Stock-based compensation to be settled in shares is recorded to the Company’s shareholders’ equity, while stock-based compensation to be settled in cash is recorded to a liability. Shares issued upon exercise of stock awards have generally been issued from authorized but unissued shares.

Long-term incentive compensation plans

The Company’s 2011 Incentive Award Plan (the 2011 Plan) is the Company’s omnibus equity compensation plan and provides for grants of stock-based awards to employees, directors and other individuals providing services to the Company, except that incentive stock options may only be awarded to employees. The 2011 Plan authorizes the Company to award stock options, stock appreciation rights, restricted stock units, restricted stock, and other stock-based or performance-based awards, and is designed to enable the Company to grant equity and cash awards that qualified as performance-based compensation under Section 162(m) of the Internal Revenue Code for tax years 2017 and prior. The 2011 Plan mandates a maximum award term of five years and stipulates that stock appreciation rights and stock options be granted with prices not less than fair market value on the date of grant. The 2011 Plan also requires that full value share awards such as restricted stock units reduce shares available under the 2011 Plan at a ratio of 3.5:1. The Company’s nonqualified stock appreciation rights and stock units awarded under the 2011 Plan generally vest over 36 to 48 months from the date of grant. At December 31, 2017, there were 6,648,199 stock-settled stock appreciation rights, 1,075,572 stock-settled stock units, 23,000 cash-settled stock appreciation rights and 1,600 cash-settled stock units outstanding, and 27,369,515 shares available for future grants, under the 2011 Plan.

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

A combined summary of the status of the Company’s stock-settled awards under the 2011 Plan, including base shares for stock-settled stock appreciation rights (SSARs) and stock-settled stock unit awards is as follows:

	Year ended December 31, 2017
	Stock appreciation rights										Stock units
	Awards				Weighted average exercise price				Weighted average remaining contractual life		Awards				Weighted average remaining contractual life
Outstanding at beginning of year	7,337,266				$	64.90					785,553
Granted	1,692,154				65.29						528,968
Exercised	(2,022,418		)		54.27						(119,000		)
Canceled	(358,803		)		70.61						(119,949		)
Outstanding at end of period	6,648,199				$	67.92			2.3		1,075,572				2.0
Exercisable at end of period	2,628,008				$	62.78			0.6		—				0.0
Weighted-average fair value of grants
2017	$	14.51									$	65.73
2016	$	13.74									$	70.99
2015	$	17.97									$	80.25

	Awards Outstanding			Weighted average exercise price				Awards exercisable			Weighted average exercise price
Range of SSARs base prices
$50.01–$60.00	1,856,145			59.05				1,712,675			59.15
$60.01–$70.00	2,715,542			66.70				632,849			67.47
$70.01–$80.00	1,443,749			74.77				243,041			73.16
$80.01–$90.00	632,763			83.59				39,443			81.51
Total	6,648,199			$	67.92			2,628,008			$	62.78

The Company granted 15,000 cash-settled stock-based awards during 2017. Liability-classified stock-based awards contributed $114, $376 and $(236) to stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 the Company had 24,600 liability-classified stock-based awards outstanding, none of which were vested, and a total stock-based compensation liability balance of $99.

For the years ended December 31, 2017, 2016, and 2015, the aggregate intrinsic value of stock-based awards exercised was $34,895, $73,944 and $117,260, respectively. At December 31, 2017, the aggregate intrinsic value of stock-based awards outstanding was $117,722 and the aggregate intrinsic value of stock awards exercisable was $25,609.

Estimated fair value of stock-based compensation awards

The Company has estimated the grant-date fair value of stock-settled stock appreciation rights awards using the Black-Scholes-Merton valuation model and stock-settled stock unit awards at intrinsic value on the date of grant, except for portions of the Company’s performance stock unit awards for which a Monte Carlo simulation was used to estimate the grant-date fair value. The following assumptions were used in estimating these values and determining the related stock-based compensation expense attributable to the current period:

Expected term of the awards: The expected term of awards granted represents the period of time that they are expected to remain outstanding from the date of grant. The Company determines the expected term of its stock awards based on its historical experience with similar awards, considering the Company’s historical exercise and post-vesting termination patterns, and the terms expected by peer companies in near industries.

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Expected volatility: Expected volatility represents the volatility anticipated over the expected term of the award. The Company determines the expected volatility for its awards based on the volatility of the price of its common stock over the most recent retrospective period commensurate with the expected term of the award, considering the volatility expectations implied by the market price of its exchange-traded options and the volatilities expected by peer companies in near industries.

Expected dividend yield: The Company has not paid dividends on its common stock and does not currently expect to pay dividends during the term of stock awards granted.

Risk-free interest rate: The Company bases the expected risk-free interest rate on the implied yield currently available on stripped interest coupons of U.S. Treasury issues with a remaining term equivalent to the expected term of the award.

A summary of the weighted average valuation inputs described above used for estimating the grant-date fair value of stock-settled stock appreciation rights awards granted in the periods indicated is as follows:

	Year ended December 31,
	2017			2016			2015
Expected term	4.2			4.2			4.1
Expected volatility	23.9	%		21.0	%		24.6	%
Expected dividend yield	—	%		—	%		—	%
Risk-free interest rate	1.7	%		1.0	%		1.5	%

The Company estimates expected forfeitures based upon historical experience with separate groups of employees that have exhibited similar forfeiture behavior in the past. Stock-based compensation expense is recorded only for awards that are expected to vest.

Employee stock purchase plan

The Employee Stock Purchase Plan entitles qualifying employees to purchase up to $25 of the Company’s common stock during each calendar year. The amounts used to purchase stock are accumulated through payroll withholdings or through optional lump sum payments made in advance of the first day of the purchase right period. This compensatory plan allows employees to purchase stock for the lesser of 100% of its fair market value on the first day of the purchase right period or 85% of its fair market value on the last day of the purchase right period. Purchase right periods begin on January 1 and July 1, and end on December 31. Contributions used to purchase the Company’s common stock under this plan for the 2017, 2016 and 2015 participation periods were $22,131, $23,902 and $24,523, respectively. Shares purchased pursuant to the plan’s 2017, 2016 and 2015 participation periods were 360,368, 438,002 and 413,859, respectively. At December 31, 2017, there were 7,124,027 shares remaining available for future grants under this plan, after an additional 7,500,000 shares were approved to the plan by stockholders on June 20, 2016.

The fair value of participants’ purchase rights was estimated as of the beginning dates of the purchase right periods using the Black-Scholes-Merton valuation model with the following weighted average assumptions for purchase right periods in 2017, 2016 and 2015, respectively: expected volatility of 23%, 22% and 26%; risk-free interest rate of 1.3%, 0.8% and 0.2%, and no dividends. Using these assumptions, the weighted average estimated fair value of these purchase rights was $15.19, $16.73 and $18.76 for 2017, 2016 and 2015, respectively.

Long-term incentive compensation expense and proceeds

For the years ended December 31, 2017, 2016 and 2015, the Company recognized $61,978, $64,956 and $123,957, respectively, in total long-term incentive program (LTIP) expense, of which $34,431, $34,530 and $52,665, respectively, was stock-based compensation expense for stock appreciation rights, stock units and discounted employee stock plan purchases, which are primarily included in general and administrative expenses. The estimated tax benefits recorded for stock-based compensation in 2017, 2016 and 2015 were $7,717, $12,731 and $19,689, respectively. As of December 31, 2017, there was $98,015 total estimated unrecognized compensation expense for outstanding LTIP awards, including $61,166 related to stock-based compensation arrangements under the Company’s equity compensation and stock purchase plans. The Company expects to recognize the performance-based cash component of this LTIP expense over a weighted average remaining period of 1.1 years and the stock-based component of this LTIP expense over a weighted average remaining period of 1.4 years.

For the years ended December 31, 2017, 2016 and 2015, the Company received $13,473, $28,397 and $45,749, respectively, in actual tax benefits upon the exercise of stock awards. Since the Company issues stock-settled stock appreciation

F-35

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

rights rather than stock options, there have been no cash proceeds from stock option exercises during the years ended December 31, 2017, 2016 and 2015.

Stock repurchases

During the years ended December 31, 2017 and 2016, the Company repurchased a total of 12,966,672 shares and 16,649,090 shares of its common stock for $810,949 and $1,072,377, or an average price of $62.54 and $64.41 per share, respectively, pursuant to previously announced authorizations by the Board of Directors. The Company also repurchased 1,237,800 shares of its common stock for $92,790, or an average price of $74.96 per share, subsequent to December 31, 2017 through February 22, 2018.

On October 10, 2017, the Company's Board of Directors approved an additional share repurchase authorization in the amount of $1,252,961. This share repurchase authorization was in addition to the $247,039 remaining at that time under the Company’s Board of Directors’ prior share repurchase authorization announced in July 2016. Accordingly, as of February 22, 2018, the Company has a total of $1,026,326 available under the current Board repurchase authorizations for additional share repurchases. Although these share repurchase authorizations do not have expiration dates, the Company remains subject to share repurchase limitations under the terms of its senior secured credit facilities and the indentures governing its senior notes.

The Company retired all shares held in its treasury effective as of December 31, 2017 and 2016.

Charter documents & Delaware law

The Company’s charter documents include provisions that may deter hostile takeovers, delay or prevent changes of control or changes in management, or limit the ability of stockholders to approve transactions that they may otherwise determine to be in their best interests. These include provisions prohibiting stockholders from acting by written consent, requiring 90 days advance notice of stockholder proposals or nominations to the Board of Directors and granting the Board of Directors the authority to issue up to five million shares of preferred stock and to determine the rights and preferences of the preferred stock without the need for further stockholder approval.

The Company is also subject to Section 203 of the Delaware General Corporation Law which, subject to exceptions, would prohibit the Company from engaging in any business combinations with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. These restrictions may discourage, delay or prevent a change in the control of the Company.

Changes in DaVita Inc.’s ownership interest in consolidated subsidiaries

The effects of changes in DaVita Inc.’s ownership interest in consolidated subsidiaries on the Company’s equity are as follows:

	Year ended December 31,
	2017				2016				2015
Net income attributable to DaVita Inc.	$	663,618			$	879,874			$	269,732
Changes in paid-in-capital for:
Sales of noncontrolling interest	(114		)		—				—
Purchase of noncontrolling interests	(2,752		)		(13,105		)		(55,826		)
Net transfer in noncontrolling interests	(2,866		)		(13,105		)		(55,826		)
Net income attributable to DaVita Inc. net of transfers in noncontrolling interests	$	660,752			$	866,769			$	213,906

The Company acquired additional ownership interests in several existing majority-owned joint ventures for $5,357, $21,512, and $66,382 in 2017, 2016, and 2015, respectively.

F-36

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

19. Other comprehensive (loss) income

Charges and credits to other comprehensive (loss) income have been as follows:

	Interest rate cap and swap agreements				Investment securities				Foreign currency translation adjustments				Accumulated other comprehensive (loss) income
Balance at January 1, 2015	$	(1,795	)		$	3,151			$	(26,373	)		$	(25,017	)
Unrealized losses	(20,085		)		(1,974		)		(23,889		)		(45,948		)
Related income tax	7,844				561				—				8,405
	(12,241		)		(1,413		)		(23,889		)		(37,543		)
Reclassification from accumulated other comprehensive losses (income) into net income	5,103				(618		)		—				4,485
Related income tax	(1,992		)		241				—				(1,751		)
	3,111				(377		)		—				2,734
Balance at December 31, 2015	$	(10,925	)		$	1,361			$	(50,262	)		$	(59,826	)
Unrealized (losses) gains	(6,013		)		1,802				(39,614		)		(43,825		)
Related income tax	2,343				(565		)		—				1,778
	(3,670		)		1,237				(39,614		)		(42,047		)
Reclassification from accumulated other comprehensive losses (income) into net income	4,198				(690		)		10,087				13,595
Related income tax	(1,632		)		267				—				(1,365		)
	2,566				(423		)		10,087				12,230
Balance at December 31, 2016	$	(12,029	)		$	2,175			$	(79,789	)		$	(89,643	)
Unrealized (losses) gains	(8,897		)		5,075				99,770				95,948
Related income tax	3,460				(1,368		)		—				2,092
	(5,437		)		3,707				99,770				98,040
Reclassification from accumulated other comprehensive losses (income) into net income	8,278				(360		)		—				7,918
Related income tax	(3,220		)		140				—				(3,080		)
	5,058				(220		)		—				4,838
Balance at December 31, 2017	$	(12,408	)		$	5,662			$	19,981			$	13,235

The reclassification of net cap and swap realized losses into income are recorded as debt expense in the corresponding consolidated statements of income. See Note 13 to these consolidated financial statements for further details.

The reclassification of net investment realized gains into income are recorded in other income in the corresponding consolidated statements of income. See Note 3 to these consolidated financial statements for further details.

20. Acquisitions and divestitures

Acquisition of Renal Ventures

On May 1, 2017, the Company completed its acquisition of 100% of the equity of Colorado-based Renal Ventures Management, LLC (Renal Ventures) for approximately $359,913 in net cash. Renal Ventures operated 36 dialysis centers, one uncertified dialysis center and one home program, that provided services to approximately 2,600 patients in six states. As a part of this transaction, the Company was required to divest three Renal Ventures outpatient dialysis centers, and three outpatient dialysis centers and one uncertified dialysis center of the Company for approximately $21,219 in net cash. The Company also incurred approximately $11,950 in transaction and integration costs during the year ended December 31, 2017 associated with this acquisition that are included in general and administrative expenses.

The initial purchase price allocation for the Renal Ventures acquisition is recorded at estimated fair values based upon the best information available to management and will be finalized when certain information arranged to be obtained has been

F-37

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

received. In particular, certain working capital items, income tax amounts and the fair value of intangibles and fixed assets are pending final audit, issuance of final tax returns and valuation reports.

The following table summarizes the assets acquired and liabilities assumed in the transactions and recognized at the acquisition date at estimated fair values:

Current assets, net of cash acquired	$	22,739
Property and equipment	36,295
Amortizable intangible and other long-term assets	11,547
Goodwill	298,200
Current liabilities	(8,389		)
Long-term liabilities	(479		)
	$	359,913

Amortizable intangible assets acquired, primarily related to non-compete agreements, had weighted-average estimated useful lives of five years. The total estimated amount of goodwill deductible for tax purposes associated with this acquisition was approximately $298,200.

Other routine acquisitions

During 2017, the Company also acquired 30 dialysis centers in the U.S. and 68 dialysis centers outside the U.S. for a total of $308,550 in net cash, earn-outs of $2,692, and deferred purchase price and liabilities assumed of $23,748. During 2016, the Company acquired eight dialysis centers in the U.S. and 21 dialysis centers outside the U.S. for a total of $165,108 in net cash, earn-outs of $1,511, and deferred purchase price of $17,963. During 2015, the Company acquired six dialysis centers in the U.S. and 21 dialysis centers outside the U.S. for a total of $54,551 in net cash and deferred purchase price of $7,452. The assets and liabilities for all acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Company’s financial statements and operating results from the effective dates of the acquisitions. For several of the 2017 acquisitions, certain income tax amounts are pending final evaluation and quantification of any pre-acquisition tax contingencies. In addition, valuation of intangibles and certain other working capital items relating to several of these acquisitions are pending final quantification.

The following table summarizes the assets acquired and liabilities assumed in the above described transactions and recognized at their acquisition dates at estimated fair values, as well as the estimated fair value of noncontrolling interests assumed in these transactions:

	Year ended December 31,
	2017				2016				2015
Current assets	$	14,366			$	3,996			$	2,647
Property and equipment	18,192				8,840				4,466
Amortizable intangible and other long-term assets	11,663				5,876				8,924
Non-amortizable intangibles	32,296				—				—
Goodwill	318,832				198,927				67,183
Deferred income taxes	(210		)		597				(717		)
Noncontrolling interests assumed	(44,303		)		(30,337		)		(18,905		)
Liabilities assumed	(15,846		)		(3,317		)		(1,595		)
Aggregate purchase cost	$	334,990			$	184,582			$	62,003

Amortizable intangible assets acquired, primarily related to non-compete agreements, during 2017, 2016 and 2015 had weighted-average estimated useful lives of seven, seven and eleven years, respectively. The total amount of goodwill deductible for tax purposes associated with these acquisitions for 2017, 2016, and 2015 was approximately $237,363, $169,379 and $43,823, respectively.

F-38

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Change in ownership interests in Asia Pacific joint venture

On August 1, 2016, the Company consummated an agreement with Khazanah Nasional Berhad (Khazanah) and Mitsui and Co., Ltd (Mitsui) whereby Khazanah and Mitsui subscribed to invest a total of $300,000 over three years in exchange for a 40% total equity interest in the Company’s APAC JV. Khazanah and Mitsui made initial investments of $50,000 each on August 1, 2016 as well as additional subscribed contributions of $50,000 each on August 1, 2017. Subsequent to those contributions, the Company now holds a 60% voting interest and a 73.3% current economic interest in the APAC JV.

Based on the governance structure and voting rights put in place upon the formation of the APAC JV, certain key decisions affecting the JV’s operations are no longer at the unilateral discretion of the Company, but rather are shared with the noncontrolling investors. As a result, the Company deconsolidated its Asia Pacific dialysis business in the third quarter of 2016 and recognized an initial non-cash non-taxable estimated gain of $374,374 on its retained investment, net of contingent obligations. This retained interest was adjusted to the Company’s proportionate share of the estimated fair value of the business, as implied by the Khazanah and Mitsui investment and adjusted for certain time value of money and uncertainty discounts. The Company then recognized an additional $6,293 gain in the first quarter of 2017 upon resolution of certain post-closing adjustments related to this transaction.

The Company’s non-cash gain on its retained investment in the APAC JV in the third quarter of 2016 was computed with the assistance of an independent third party valuation firm and was based upon the best information available to management at that time. Subsequent to its deconsolidation on August 1 2016, the Company’s retained interest in the APAC JV has been accounted for under the equity method. See Note 9 for further details on the accounting for this retained investment and a subsequent other-than-temporary impairment thereof recognized in 2017.

Pro forma financial information (unaudited)

The following summary, prepared on a pro forma basis, combines the results of operations as if all acquisitions within continuing operations in 2017 and 2016 had been consummated as of the beginning of 2016, including the impact of certain adjustments such as amortization of intangibles, interest expense on acquisition financing and income tax effects.

	Year ended December 31,
	2017				2016
	(unaudited)
Pro forma net revenues	$	11,005,330			$	11,076,750
Pro forma net income from continuing operations	907,443				1,052,700
Pro forma basic net income per share from continuing operations attributable to DaVita Inc.	4.81				5.22
Pro forma diluted net income per share from continuing operations attributable to DaVita Inc.	4.74				5.14

Contingent earn-out obligations

The Company has several contingent earn-out obligations associated with acquisitions that could result in the Company paying the former shareholders of acquired companies a total of up to approximately $11,466 if certain EBITDA, operating income performance targets or quality margins are met over the next two to six years.

Contingent earn-out obligations are remeasured to fair value at each reporting date until the contingencies are resolved with changes in the liability due to the remeasurement recognized in earnings. See Note 24 to these consolidated financial statements for further details. As of December 31, 2017, the Company estimated the fair value of these contingent earn-out obligations to be $6,388, of which a total of $216 is included in other liabilities, and the remaining $6,172 is included in other long-term liabilities in the Company’s consolidated balance sheet.

F-39

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The following is a reconciliation of changes in the contingent earn-out obligations for the year ended December 31, 2017:

Beginning balance January 1, 2017	$	2,950
Contingent earn-out obligations associated with acquisitions	2,692
Remeasurement of fair value	746
	$	6,388

21. Held for sale and discontinued operations

DaVita Medical Group (DMG)

On December 5, 2017, we entered into an equity purchase agreement to sell our DMG division to Optum, a subsidiary of UnitedHealth Group Inc., for $4,900,000 in cash, subject to net working capital and other customary adjustments. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions. As a result of this pending transaction, the DMG business has been reclassified as held for sale and its results of operations are reported as discontinued operations for all periods presented.

The following table presents the financial results of discontinued operations related to DMG:

	Year ended December 31,
	2017				2016				2015
Net revenues	$	4,676,213			$	4,113,414			$	3,837,260
Expenses	4,634,782				3,994,624				3,596,342
Goodwill and other asset impairment charges	651,659				253,000				206,169
(Loss) income from discontinued operations before taxes	(610,228		)		(134,210		)		34,749
Income tax benefit (expense)	364,856				(24,052		)		(88,216		)
Net loss from discontinued operations, net of tax	$	(245,372	)		$	(158,262	)		$	(53,467	)

As previously disclosed, the Company’s DMG business has continued to experience declining operating results in recent years, and prior to being reclassified as held for sale the Company recorded goodwill and other asset impairment charges for the DMG business of $651,659, $253,000 and $206,169 in 2017, 2016 and 2015, respectively. These charges resulted from continuing developments in the Company’s DMG business, including recent annual updates to Medicare Advantage benchmark reimbursement rates, changes in expectations concerning future government reimbursement rates and the Company’s expected ability to mitigate them, medical cost and utilization trends, commercial pricing pressures, underperformance of certain DMG business units and other market factors.

F-40

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The following table presents the financial position of discontinued operations related to DMG:

	December 31, 2017				December 31, 2016
Assets
Cash and cash equivalents	$	179,668			$	238,411
Other current assets	888,697				722,545
Property and equipment, net	379,945				311,246
Intangible assets, net	1,316,550				1,454,263
Other long-term assets	116,805				94,684
Goodwill	2,879,977				3,391,942
Total assets held for sale	$	5,761,642			$	6,213,091
Total current assets held for sale	$	5,761,642			$	960,956
Total long-term assets held for sale	$	—			$	5,252,135
Liabilities
Other liabilities	$	505,734			$	460,458
Medical payables	457,040				349,506
Current portion of long-term debt	2,845				4,779
Long-term debt	35,003				2,652
Other long-term liabilities	184,448				418,723
Total liabilities held for sale	$	1,185,070			$	1,236,118
Total current liabilities held for sale	$	1,185,070			$	807,233
Total long-term liabilities held for sale	$	—			$	428,885

The following table presents cash flows of discontinued operations related to DMG:

	Year ended December 31,
	2017				2016				2015
Net cash provided by operating activities from discontinued operations	$	351,557			$	287,049			$	365,138
Net cash used in investing activities from discontinued operations	$	(232,329	)		$	(430,917	)		$	(121,893	)

DMG acquisitions

During 2017, the Company's DMG business acquired other medical businesses for a total of $135,416 in net cash, deferred purchase price of $1,038, and liabilities assumed of $10,145. During 2016, the Company acquired other medical businesses for a total of $398,748 in net cash and deferred purchase price and liabilities assumed of $7,694. During 2015, the Company acquired other medical businesses for a total of $41,918 in net cash and deferred purchase price of $944. For several of the 2017 acquisitions, certain income tax amounts are pending final evaluation and quantification of any pre-acquisition tax contingencies. In addition, valuation of medical claims liabilities and certain other working capital items relating to several of these acquisitions are pending final quantification. The assets and liabilities for all acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Company’s current held for sale assets and liabilities.

22. Variable interest entities

The Company relies on the operating activities of certain entities that it does not directly own or control, but over which it has indirect influence and of which it is considered the primary beneficiary. These entities are subject to the consolidation guidance applicable to variable interest entities (VIEs).

Under U.S. GAAP, VIEs typically include entities for which (i) the entity’s equity is not sufficient to finance its activities without additional subordinated financial support; (ii) the equity holders as a group lack the power to direct the activities that most significantly influence the entity’s economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected returns; or (iii) the voting rights of some investors are not proportional to their obligations to absorb the entity’s losses.

F-41

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The Company has determined that substantially all of the entities it is associated with that qualify as VIEs must be included in its consolidated financial statements. A number of these VIEs are within the Company's DMG business, which has been reclassified as held for sale and as a discontinued operation in these financial statements. The Company manages these entities and provides operating and capital funding as necessary for the entities to accomplish their operational and strategic objectives. A number of these entities are subject to nominee share ownership or share transfer restriction agreements that effectively transfer the majority of the economic risks and rewards of their ownership to the Company. In other cases the Company’s management agreements with these entities include both financial terms and protective and participating rights to the entities’ operating, strategic and non-clinical governance decisions which transfer substantial powers over and economic responsibility for the entities to the Company. In some cases such entities are subject to broad exclusivity or noncompetition restrictions that benefit the Company. Further, in some cases the Company has contractual arrangements with its related party nominee owners that effectively indemnify these parties from the economic losses from, or entitle the Company to the economic benefits of, these entities.

The analyses upon which these consolidation determinations rest are complex, involve uncertainties, and require significant judgment on various matters, some of which could be subject to different interpretations. At December 31, 2017, these consolidated financial statements include total assets of VIEs of $870,314 and total liabilities and noncontrolling interests of VIEs to third parties of $475,143, including assets of $595,670 and liabilities and noncontrolling interests of $319,777 related to the Company's DMG business which is classified as held for sale.

The Company also sponsors certain deferred compensation plans whose trusts qualify as VIEs and the Company consolidates each of these plans as their primary beneficiary. The assets of these plans are recorded in short-term or long-term investments with related liabilities recorded in accrued compensation and benefits and other long-term liabilities. See Note 15 to these consolidated financial statements for disclosures on the assets of these consolidated non-qualified deferred compensation plans.

23. Concentrations

Approximately 67%, 64% and 66% of total U.S. dialysis services revenues in 2017, 2016 and 2015, respectively, are from government-based programs, principally Medicare and Medicaid. Related net accounts receivable and other receivables from Medicare, including Medicare-assigned plans, and Medicaid, including Managed Medicaid plans, were approximately $869,083 and $831,445, as of December 31, 2017 and 2016, respectively.

There is no single commercial payor that accounted for more than 10% of total consolidated accounts receivable or consolidated net revenues at December 31, 2017 and 2016.

24. Fair values of financial instruments

The Company measures the fair value of certain assets, liabilities and noncontrolling interests subject to put provisions (temporary equity) based upon certain valuation techniques that include observable or unobservable inputs and assumptions that market participants would use in pricing these assets, liabilities, temporary equity and commitments. The Company has also classified certain assets, liabilities and temporary equity that are measured at fair value into the appropriate fair value hierarchy levels as defined by the FASB.

F-42

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The following tables summarize the Company’s assets, liabilities and temporary equity measured at fair value on a recurring basis as of December 31, 2017 and 2016:

December 31, 2017	Total				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Assets
Available for sale securities	$	38,895			$	38,895			$	—			$	—
Interest rate cap agreements	$	1,032			$	—			$	1,032			$	—
Liabilities
Contingent earn-out obligations	$	6,388			$	—			$	—			$	6,388
Temporary equity
Noncontrolling interests subject to put provisions	$	1,011,360			$	—			$	—			$	1,011,360
December 31, 2016
Assets
Available for sale securities	$	31,197			$	31,197			$	—			$	—
Interest rate cap agreements	$	9,929			$	—			$	9,929			$	—
Liabilities
Contingent earn-out obligations	$	2,950			$	—			$	—			$	2,950
Temporary equity
Noncontrolling interests subject to put provisions	$	973,258			$	—			$	—			$	973,258

Available for sale securities represent investments in various open-ended registered investment companies, or mutual funds, and are recorded at fair value estimated based upon redemption prices reported by each mutual fund. See Note 3 to these consolidated financial statements for further discussion.

The interest rate cap agreements are recorded at fair value estimated from valuation models utilizing the income approach and commonly accepted valuation techniques that use inputs from closing prices for similar assets and liabilities in active markets as well as other relevant observable market inputs at quoted intervals such as current interest rates, forward yield curves, implied volatility and credit default swap pricing. The Company does not believe the ultimate amount that could be realized upon settlement of these interest rate cap agreements would be materially different from the fair value estimates currently reported. See Note 13 to these consolidated financial statements for further discussion.

The estimated fair value measurements of contingent earn-out obligations are primarily based on unobservable inputs, including projected EBITDA. The estimated fair value of these contingent earn-out obligations is remeasured as of each reporting date and could fluctuate based upon any significant changes in key assumptions, such as changes in the Company credit risk adjusted rate that is used to discount obligations to present value.

See Note 17 to these consolidated financial statements for a discussion of the Company’s methodology for estimating the fair values of noncontrolling interests subject to put obligations.

Other financial instruments consist primarily of cash, accounts receivable, accounts payable, other accrued liabilities and debt. The balances of non-debt financial instruments are presented in the consolidated financial statements at December 31, 2017 and 2016 at their approximate fair values due to the short-term nature of their settlements. The carrying amount of the Company’s senior secured credit facilities totaled $4,428,376 as of December 31, 2017, and their fair value was approximately $4,495,649 based upon quoted market prices. The carrying amount of the Company’s Senior Notes was approximately $4,460,176 at December 31, 2017 and their fair value was approximately $4,566,175 at December 31, 2017 based upon quoted market prices.

25. Segment reporting

The Company has consisted of two major divisions, DaVita Kidney Care (Kidney Care) and DaVita Medical Group (DMG). The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services business, various ancillary services and strategic initiatives, including its international operations, and the Company’s corporate administrative

F-43

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

support. The Company’s U.S. dialysis and related lab services business is its largest line of business and is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as ESRD. The Company’s ancillary services and strategic initiatives consist primarily of pharmacy services, disease management services, vascular access services, clinical research programs, physician services, direct primary care, ESRD seamless care organizations and comprehensive care as well as the Company’s international operations.

The Company’s DMG division is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of providing coordinated outcomes-based medical care in a cost-effective manner. On December 5, 2017, the Company entered into an equity purchase agreement to sell its DMG division to Optum, a subsidiary of UnitedHealth Group Inc. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions. As a result of this pending transaction, the DMG business has been reclassified as held for sale and its results of operations are reported as discontinued operations for all periods presented in these consolidated financial statements.

The Company’s operating segments have been defined based on the separate financial information that is regularly produced and reviewed by the Company’s chief operating decision maker in making decisions about allocating resources to and assessing the financial performance of the Company’s various operating lines of business. The chief operating decision maker for the Company is its Chief Executive Officer.

The Company’s separate operating segments include its U.S. dialysis and related lab services business, each of its ancillary services and strategic initiatives, its consolidated international kidney care operations in each country and under the Saudi Ministry of Health charter, its equity method investment in the Asia Pacific joint venture, and its other health operations in Europe. The U.S. dialysis and related lab services business qualifies as a separately reportable segment, and all other ancillary services and strategic initiatives operating segments, including the international operating segments, have been combined and disclosed in the other segments category.

The Company’s operating segment financial information included in this report is prepared on the internal management reporting basis that the chief operating decision maker uses to allocate resources and assess the financial performance of the Company's operating segments. For internal management reporting, segment operations include direct segment operating expenses but generally exclude corporate administrative support costs, which consist primarily of indirect labor, benefits and long-term incentive-based compensation expenses of certain departments which provide support to all of the Company’s various operating lines of business, except to the extent that such costs are charged to and borne by certain ancillary services and strategic initiatives via internal management fees. These corporate administrative support costs are reduced by internal management fees received from the Company’s ancillary lines of business.

F-44

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The following is a summary of segment revenues, segment operating margin (loss), and a reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:

	Year ended December 31,
	2017				2016				2015
Segment revenues:
U.S. dialysis and related lab services
Patient service revenues:
External sources	$	9,767,123			$	9,524,067			$	9,014,577
Intersegment revenues	55,175				27,355				19,414
Total U.S. dialysis and related lab services revenues	9,822,298				9,551,422				9,033,991
Less: Provision for uncollectible accounts	(482,007		)		(429,882		)		(406,530		)
Net U.S. dialysis and related lab services patient service revenues	9,340,291				9,121,540				8,627,461
Other revenues(1)	19,774				16,649				13,971
Total net U.S. dialysis and related lab services revenues	9,360,065				9,138,189				8,641,432
Other - Ancillary services and strategic initiatives
Net patient service revenues	323,156				201,867				134,496
Other external sources	1,248,588				1,394,766				1,225,731
Intersegment revenues	24,603				24,739				22,204
Total ancillary services and strategic initiatives revenues	1,596,347				1,621,372				1,382,431
Total net segment revenues	10,956,412				10,759,561				10,023,863
Elimination of intersegment revenues	(79,778		)		(52,094		)		(41,618		)
Consolidated net revenues	$	10,876,634			$	10,707,467			$	9,982,245
Segment operating margin (loss):
U.S. dialysis and related lab services	$	2,297,198			$	1,777,014			$	1,259,632
Other—Ancillary services and strategic initiatives	(439,477		)		266,324				(103,901		)
Total segment margin	1,857,721				2,043,338				1,155,731
Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:
Corporate administrative support	(44,966		)		(13,628		)		(18,965		)
Consolidated operating income	1,812,755				2,029,710				1,136,766
Debt expense	(430,634		)		(414,116		)		(408,380		)
Debt redemption charges	—				—				(48,072		)
Other income	17,665				7,511				8,073
Consolidated income from continuing operations before income taxes	$	1,399,786			$	1,623,105			$	688,387

(1)	Includes management fee revenues from providing management and administrative services to dialysis ventures in which the Company owns a noncontrolling interest or which are wholly-owned by third parties.

Depreciation and amortization expense by segment is as follows:

	Year ended December 31,
	2017				2016				2015
U.S. dialysis and related lab services	$	520,965			$	482,768			$	438,238
Other - Ancillary services and strategic initiatives	38,946				26,729				25,667
	$	559,911			$	509,497			$	463,905

F-45

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Subsequent to the issuance of the Company’s fiscal year 2016 consolidated financial statements and their inclusion in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2017 (the 2016 10-K), the Company determined that it had misstated its disclosure of segment assets at December 31, 2016 in Note 25 to those consolidated financial statements. This misstatement resulted in an overstatement of "U.S. dialysis and related lab services" segment assets of $338,963 and a corresponding understatement of "Other - ancillary services and strategic initiatives" segment assets of the same amount. The Company performed an assessment of the materiality of this misstatement and concluded that this misstatement as originally disclosed was not materially misleading in its 2016 consolidated financial statements taken as a whole. The Company therefore has not amended its financial statements filed on its 2016 10-K to correct this misstatement, but has provided the corrected disclosure here.

Summary of assets by segment is as follows:

	Year ended December 31,
	2017				2016
Segment assets
U.S. dialysis and related lab services (including equity investments of $84,866 and $66,924, respectively)	$	11,776,042			$	11,108,386
Other - Ancillary services and strategic initiatives(1) (including equity investments of $160,668 and $425,115, respectively)	1,410,509				1,434,299
DMG - Held for sale (including equity investments of $10,321 and $10,350, respectively)	5,761,642				6,213,091
Consolidated assets	$	18,948,193			$	18,755,776

(1)	Includes approximately $125,932 and $96,396 in 2017 and 2016, respectively, of net property and equipment related to the Company’s international operations.

Expenditures for property and equipment by segment is as follows:

	Year ended December 31,
	2017				2016				2015
U.S. dialysis and related lab services	$	759,218			$	675,994			$	584,513
Other - Ancillary services and strategic initiatives	50,891				68,702				56,685
DMG - Held for sale	95,141				84,399				66,800
	$	905,250			$	829,095			$	707,998

26. Supplemental cash flow information

The table below provides supplemental cash flow information:

	Year ended December 31,
	2017				2016				2015
Cash paid:
Income taxes	$	387,159			$	339,411			$	156,075
Interest	424,547				406,987				405,120
Non-cash investing and financing activities:
Fixed assets under capital lease obligations	48,378				28,127				74,035

F-46

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

27. Selected quarterly financial data (unaudited)

	2017																2016
	December 31				September 30				June 30				March 31				December 31				September 30				June 30				March 31
Net revenues	$	2,780,913			$	2,765,071			$	2,699,399			$	2,631,251			$	2,699,419			$	2,725,407			$	2,675,474			$	2,607,167
Operating income	$	150,337			$	395,294			$	391,196			$	875,928			$	363,445			$	813,103			$	431,129			$	422,033
Net income from continuing operations, before taxes	$	46,825			$	289,384			$	288,060			$	775,517			$	259,669			$	710,246			$	331,231			$	321,959
Net income (loss) from discontinued operations, net of income taxes	$	143,587			$	(370,872	)		$	(24,520	)		$	6,433			$	11,772			$	20,213			$	(118,443	)		$	(71,804	)
Net income (loss) attributable to DaVita Inc.	$	303,396			$	(214,476	)		$	127,001			$	447,697			$	157,726			$	571,332			$	53,382			$	97,434
Basic net income from continuing operations per share attributable to DaVita Inc.	$	0.86			$	0.81			$	0.79			$	2.29			$	0.74			$	2.69			$	0.84			$	0.83
Basic net income (loss) from discontinued operations per share attributable to DaVita Inc.	$	0.80			$	(1.95	)		$	(0.13	)		$	0.04			$	0.07			$	0.11			$	(0.58	)		$	(0.35	)
Basic net income (loss) per share attributable to DaVita Inc.	$	1.66			$	(1.14	)		$	0.66			$	2.33			$	0.81			$	2.80			$	0.26			$	0.48
Diluted net income from continuing operations per share attributable to DaVita Inc.	$	0.85			$	0.80			$	0.78			$	2.26			$	0.73			$	2.65			$	0.82			$	0.81
Diluted net income (loss) from discontinued operations per share attributable to DaVita Inc.	$	0.79			$	(1.92	)		$	(0.13	)		$	0.03			$	0.07			$	0.11			$	(0.56	)		$	(0.34	)
Diluted net income (loss) per share attributable to DaVita Inc.	$	1.64			$	(1.12	)		$	0.65			$	2.29			$	0.80			$	2.76			$	0.26			$	0.47

28. 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 Company’s 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 Company’s Senior Notes are guaranteed by substantially all of its domestic subsidiaries. Each of the guarantor subsidiaries has guaranteed the Senior Notes on a joint and several basis. However, the guarantor subsidiaries can be released from their obligations in the event of a sale or other disposition of all or substantially all of the assets of such subsidiary, including by merger or consolidation or the sale of all equity interests in such subsidiary owned by the Company, if such subsidiary guarantor is designated as an unrestricted subsidiary or otherwise ceases to be a restricted subsidiary, and if such subsidiary guarantor no longer guaranties any other indebtedness of the Company. Certain domestic subsidiaries, foreign subsidiaries, joint ventures, partnerships and third parties are not guarantors of the Senior Notes.

F-47

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Income

	DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
For twelve months ended December 31, 2017
Dialysis and related lab patient service revenues	$	—			$	6,884,750			$	3,393,026			$	(184,106	)		$	10,093,670
Less: Provision for uncollectible accounts	—				(340,586		)		(151,982		)		7,170				(485,398		)
Net dialysis and related lab patient service revenues	—				6,544,164				3,241,044				(176,936		)		9,608,272
Other revenues	793,751				1,204,501				68,322				(798,212		)		1,268,362
Total net revenues	793,751				7,748,665				3,309,366				(975,148		)		10,876,634
Operating expenses and charges	527,942				6,475,550				3,035,535				(975,148		)		9,063,879
Operating income	265,809				1,273,115				273,831				—				1,812,755
Debt expense	(426,149		)		(209,612		)		(34,831		)		239,958				(430,634		)
Other income, net	411,731				11,169				18,467				(423,702		)		17,665
Income tax expense	65,965				237,670				20,224				—				323,859
Equity earnings in subsidiaries	478,192				74,375				—				(552,567		)		—
Net income from continuing operations	663,618				911,377				237,243				(736,311		)		1,075,927
Net (loss) income from discontinued operations, net of tax	—				(433,185		)		4,069				183,744				(245,372		)
Net income	663,618				478,192				241,312				(552,567		)		830,555
Less: Net income attributable to noncontrolling interests	—				—				—				(166,937		)		(166,937		)
Net income attributable to DaVita Inc.	$	663,618			$	478,192			$	241,312			$	(719,504	)		$	663,618
For twelve months ended December 31, 2016
Dialysis and related lab patient service revenues	$	—			$	6,665,601			$	3,215,085			$	(153,326	)		$	9,727,360
Less: Provision for uncollectible accounts	—				(272,430		)		(158,878		)		—				(431,308		)
Net dialysis and related lab patient service revenues	—				6,393,171				3,056,207				(153,326		)		9,296,052
Other revenues	767,791				1,378,956				30,184				(765,516		)		1,411,415
Total net revenues	767,791				7,772,127				3,086,391				(918,842		)		10,707,467
Operating expenses and charges	493,175				6,907,469				2,195,955				(918,842		)		8,677,757
Operating income	274,616				864,658				890,436				—				2,029,710
Debt expense	(407,925		)		(191,083		)		(40,434		)		225,326				(414,116		)
Other income, net	396,797				3,726				7,694				(400,706		)		7,511
Income tax expense	77,334				238,446				115,981				—				431,761
Equity earnings in subsidiaries	693,720				667,278				—				(1,360,998		)		—
Net income from continuing operations	879,874				1,106,133				741,715				(1,536,378		)		1,191,344
Net (loss) income from discontinued operations, net of tax	—				(412,413		)		78,771				175,380				(158,262		)
Net income	879,874				693,720				820,486				(1,360,998		)		1,033,082
Less: Net income attributable to noncontrolling interests	—				—				—				(153,208		)		(153,208		)
Net income attributable to DaVita Inc.	$	879,874			$	693,720			$	820,486			$	(1,514,206	)		$	879,874

F-48

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Income - (continued)

	DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
For twelve months ended December 31, 2015
Dialysis and related lab patient service revenues	$	—			$	6,471,702			$	2,814,909			$	(131,164	)		$	9,155,447
Less: Provision for uncollectible accounts	—				(281,976		)		(130,929		)		—				(412,905		)
Net dialysis and related lab patient service revenues	—				6,189,726				2,683,980				(131,164		)		8,742,542
Other revenues	727,887				1,208,607				24,013				(720,804		)		1,239,703
Total net revenues	727,887				7,398,333				2,707,993				(851,968		)		9,982,245
Operating expenses and charges	488,595				6,925,234				2,283,618				(851,968		)		8,845,479
Operating income	239,292				473,099				424,375				—				1,136,766
Debt (expense) and refinancing charges	(449,598		)		(178,389		)		(32,450		)		203,985				(456,452		)
Other income, net	365,752				1,261				6,921				(365,861		)		8,073
Income tax expense (benefit)	60,671				163,401				(16,562		)		—				207,510
Equity earnings in subsidiaries	174,957				322,022				—				(496,979		)		—
Net income from continuing operations	269,732				454,592				415,408				(658,855		)		480,877
Net (loss) income from discontinued operations, net of tax	—				(279,635		)		64,292				161,876				(53,467		)
Net income	269,732				174,957				479,700				(496,979		)		427,410
Less: Net income attributable to noncontrolling interests	—				—				—				(157,678		)		(157,678		)
Net income attributable to DaVita Inc.	$	269,732			$	174,957			$	479,700			$	(654,657	)		$	269,732

F-49

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Comprehensive Income

	DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
For the year ended December 31, 2017
Net income	$	663,618			$	478,192			$	241,312			$	(552,567	)		$	830,555
Other comprehensive income	3,106				—				99,770				—				102,876
Total comprehensive income	666,724				478,192				341,082				(552,567		)		933,431
Less: Comprehensive income attributable to noncontrolling interest	—				—				—				(166,935		)		(166,935		)
Comprehensive income attributable to DaVita Inc.	$	666,724			$	478,192			$	341,082			$	(719,502	)		$	766,496
For the year ended December 31, 2016
Net income	$	879,874			$	693,720			$	820,486			$	(1,360,998	)		$	1,033,082
Other comprehensive loss	(290		)		—				(29,337		)		—				(29,627		)
Total comprehensive income	879,584				693,720				791,149				(1,360,998		)		1,003,455
Less: Comprehensive income attributable to noncontrolling interest	—				—				—				(153,398		)		(153,398		)
Comprehensive income attributable to DaVita Inc.	$	879,584			$	693,720			$	791,149			$	(1,514,396	)		$	850,057
For the year ended December 31, 2015
Net income	$	269,732			$	174,957			$	479,700			$	(496,979	)		$	427,410
Other comprehensive loss	(10,920		)		—				(23,889		)		—				(34,809		)
Total comprehensive income	258,812				174,957				455,811				(496,979		)		392,601
Less: Comprehensive income attributable to noncontrolling interest	—				—				—				(157,678		)		(157,678		)
Comprehensive income attributable to DaVita Inc.	$	258,812			$	174,957			$	455,811			$	(654,657	)		$	234,923

F-50

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Balance Sheets

	DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
As of December 31, 2017
Cash and cash equivalents	$	149,305			$	—			$	358,929			$	—			$	508,234
Accounts receivable, net	—				1,208,715				506,035				—				1,714,750
Other current assets	68,027				604,450				87,255				—				759,732
Current assets held for sale	—				4,992,067				769,575				—				5,761,642
Total current assets	217,332				6,805,232				1,721,794				—				8,744,358
Property and equipment, net	408,010				1,560,390				1,180,813				—				3,149,213
Intangible assets, net	250				50,971				62,606				—				113,827
Investments in subsidiaries	10,009,874				3,085,722				—				(13,095,596		)		—
Intercompany receivables	3,677,947				—				1,313,213				(4,991,160		)		—
Other long-term assets and investments	47,297				68,344				214,875				—				330,516
Goodwill	—				4,732,320				1,877,959				—				6,610,279
Total assets	$	14,360,710			$	16,302,979			$	6,371,260			$	(18,086,756	)		$	18,948,193
Current liabilities	$	238,706			$	1,181,139			$	436,262			$	—			$	1,856,107
Current liabilities held for sale	—				739,294				445,776				—				1,185,070
Total current liabilities	238,706				1,920,433				882,038				—				3,041,177
Intercompany payables	—				3,690,042				1,301,118				(4,991,160		)		—
Long-term debt and other long-term liabilities	8,857,373				682,630				469,587				—				10,009,590
Noncontrolling interests subject to put provisions	574,602				—				—				436,758				1,011,360
Total DaVita Inc. shareholders' equity	4,690,029				10,009,874				3,085,722				(13,095,596		)		4,690,029
Noncontrolling interests not subject to put provisions	—				—				632,795				(436,758		)		196,037
Total equity	4,690,029				10,009,874				3,718,517				(13,532,354		)		4,886,066
Total liabilities and equity	$	14,360,710			$	16,302,979			$	6,371,260			$	(18,086,756	)		$	18,948,193

F-51

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Balance Sheets - (continued)

	DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
As of December 31, 2016
Cash and cash equivalents	$	549,921			$	—			$	124,855			$	—			$	674,776
Accounts receivable, net	—				1,048,580				455,370				—				1,503,950
Other current assets	277,911				462,684				114,471				—				855,066
Current assets held for sale	—				514,407				446,549				—				960,956
Total current assets	827,832				2,025,671				1,141,245				—				3,994,748
Property and equipment, net	337,200				1,444,248				1,082,673				—				2,864,121
Intangible assets, net	487				42,037				30,980				—				73,504
Investments in subsidiaries	9,717,728				2,021,062				—				(11,738,790		)		—
Intercompany receivables	3,250,692				—				866,955				(4,117,647		)		—
Other long-term assets and investments	39,994				73,466				442,433				—				555,893
Goodwill	—				4,480,344				1,535,031				—				6,015,375
Long-term assets held for sale	—				5,066,453				185,682				—				5,252,135
Total assets	$	14,173,933			$	15,153,281			$	5,284,999			$	(15,856,437	)		$	18,755,776
Current liabilities	$	303,840			$	1,343,748			$	256,143			$	—			$	1,903,731
Current liabilities held for sale	—				533,250				273,983				—				807,233
Total current liabilities	303,840				1,876,998				530,126				—				2,710,964
Intercompany payables	—				2,382,428				1,735,219				(4,117,647		)		—
Long-term debt and other long-term liabilities	8,614,445				835,845				342,638				—				9,792,928
Long-term liabilities held for sale	—				340,282				88,603				—				428,885
Noncontrolling interests subject to put provisions	607,601				—				—				365,657				973,258
Total DaVita Inc. shareholders' equity	4,648,047				9,717,728				2,021,062				(11,738,790		)		4,648,047
Noncontrolling interests not subject to put provisions	—				—				567,351				(365,657		)		201,694
Total equity	4,648,047				9,717,728				2,588,413				(12,104,447		)		4,849,741
Total liabilities and equity	$	14,173,933			$	15,153,281			$	5,284,999			$	(15,856,437	)		$	18,755,776

F-52

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Cash Flow

	DaVita Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
For the year ended December 31, 2017
Cash flows from operating activities:
Net income	$	663,618			$	478,192			$	241,312			$	(552,567	)		$	830,555
Changes in operating assets and liabilities and non-cash items included in net income	(534,302		)		366,947				691,682				552,567				1,076,894
Net cash provided by operating activities	129,316				845,139				932,994				—				1,907,449
Cash flows from investing activities:
Additions of property and equipment, net	(155,972		)		(490,800		)		(258,478		)		—				(905,250		)
Acquisitions	—				(693,522		)		(110,357		)		—				(803,879		)
Proceeds from asset sales, net of cash divested	—				90,340				1,996				—				92,336
Investments and other items	211,619				(9,003		)		47,446				—				250,062
Net cash provided by (used in) investing activities	55,647				(1,102,985		)		(319,393		)		—				(1,366,731		)
Cash flows from financing activities:
Long-term debt and related financing costs, net	173,529				(12,662		)		(6,019		)		—				154,848
Intercompany borrowing	22,589				218,980				(241,569		)		—				—
Other items	(781,697		)		(2,493		)		(136,915		)		—				(921,105		)
Net cash (used in) provided by financing activities	(585,579		)		203,825				(384,503		)		—				(766,257		)
Effect of exchange rate changes on cash	—				—				254				—				254
Net (decrease) increase in cash and cash equivalents	(400,616		)		(54,021		)		229,352				—				(225,285		)
Less: Net decrease in cash and cash equivalents from discontinued operations	—				(54,021		)		(4,722		)		—				(58,743		)
Net (decrease) increase in cash and cash equivalents from continuing operations	(400,616		)		—				234,074				—				(166,542		)
Cash and cash equivalents of continuing operations at beginning of the year	549,921				—				124,855				—				674,776
Cash and cash equivalents of continuing operations at end of the year	$	149,305			$	—			$	358,929			$	—			$	508,234

F-53

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Cash Flow - (continued)

	DaVita Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
For the year ended December 31, 2016
Cash flows from operating activities:
Net income	$	879,874			$	693,720			$	820,486			$	(1,360,998	)		$	1,033,082
Changes in operating assets and liabilities and non-cash items included in net income	(612,706		)		350,684				(168,614		)		1,360,998				930,362
Net cash provided by operating activities	267,168				1,044,404				651,872				—				1,963,444
Cash flows from investing activities:
Additions of property and equipment, net	(139,303		)		(382,305		)		(307,487		)		—				(829,095		)
Acquisitions	—				(472,413		)		(91,443		)		—				(563,856		)
Proceeds from asset and business sales, net of cash divested	—				70,342				(5,617		)		—				64,725
Investments and other items	153,031				(29,038		)		2,565				—				126,558
Net cash provided by (used in) investing activities	13,728				(813,414		)		(401,982		)		—				(1,201,668		)
Cash flows from financing activities:
Long-term debt and related financing costs, net	(92,460		)		(27,830		)		(4,152		)		—				(124,442		)
Intercompany borrowing	236,052				(231,800		)		(4,252		)		—				—
Other items	(1,061,203		)		(21,525		)		(144,811		)		—				(1,227,539		)
Net cash used in financing activities	(917,611		)		(281,155		)		(153,215		)		—				(1,351,981		)
Effect of exchange rate changes on cash	—				—				4,276				—				4,276
Net (decrease) increase in cash and cash equivalents	(636,715		)		(50,165		)		100,951				—				(585,929		)
Less: Net (decrease) increase in cash and cash equivalents from discontinued operations	—				(50,165		)		34,377				—				(15,788		)
Net (decrease) increase in cash and cash equivalents from continuing operations	(636,715		)		—				66,574				—				(570,141		)
Cash and cash equivalents of continuing operations at beginning of the year	1,186,636				—				58,281				—				1,244,917
Cash and cash equivalents of continuing operations at end of the year	$	549,921			$	—			$	124,855			$	—			$	674,776

F-54

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Cash Flow - (continued)

	DaVita Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
For the year ended December 31, 2015
Cash flows from operating activities:
Net income	$	269,732			$	174,957			$	479,700			$	(496,979	)		$	427,410
Changes in operating assets and liabilities and non-cash items included in net income	(125,981		)		684,760				74,032				496,979				1,129,790
Net cash provided by operating activities	143,751				859,717				553,732				—				1,557,200
Cash flows from investing activities:
Additions of property and equipment, net	(115,269		)		(319,695		)		(273,034		)		—				(707,998		)
Acquisitions	—				(76,983		)		(19,486		)		—				(96,469		)
Proceeds from asset sales	—				19,715				—				—				19,715
Investments and other items	(74,474		)		(2,144		)		(20,414		)		—				(97,032		)
Net cash used in investing activities	(189,743		)		(379,107		)		(312,934		)		—				(881,784		)
Cash flows from financing activities:
Long-term debt and related financing costs, net	640,009				(11,953		)		(8,358		)		—				619,698
Intercompany borrowing	466,038				(370,839		)		(95,199		)		—				—
Other items	(572,295		)		(66,382		)		(119,991		)		—				(758,668		)
Net cash provided by (used in) financing activities	533,752				(449,174		)		(223,548		)		—				(138,970		)
Effect of exchange rate changes on cash	—				—				(2,571		)		—				(2,571		)
Net increase in cash and cash equivalents	487,760				31,436				14,679				—				533,875
Less: Net increase (decrease) in cash and cash equivalents from discontinued operations	—				31,436				(5,581		)		—				25,855
Net increase in cash and cash equivalents from continuing operations	487,760				—				20,260				—				508,020
Cash and cash equivalents of continuing operations at beginning of the year	698,876				—				38,021				—				736,897
Cash and cash equivalents of continuing operations at end of the year	$	1,186,636			$	—			$	58,281			$	—			$	1,244,917

F-55

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

29. Supplemental data (unaudited)

The following information is presented as supplemental data as required by the indentures governing the Company’s Senior Notes.

Condensed Consolidating Statements of Income

	Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries(1)
For the year ended December 31, 2017
Dialysis and related lab patient service revenues	$	10,093,670			$	—			$	—			$	10,093,670
Less: Provision for uncollectible accounts	(485,398		)		—				—				(485,398		)
Net dialysis and related lab patient service revenues	9,608,272				—				—				9,608,272
Other revenues	1,268,362				—				—				1,268,362
Total net revenues	10,876,634				—				—				10,876,634
Operating expenses and charges	9,063,879				—				—				9,063,879
Operating income	1,812,755				—				—				1,812,755
Debt expense	(430,634		)		—				—				(430,634		)
Other income, net	17,665				—				—				17,665
Income tax expense	323,859				—				—				323,859
Net income from continuing operations	1,075,927				—				—				1,075,927
Net (loss) income from discontinued operations, net of tax	(245,372		)		13,611				19				(259,002		)
Net income	830,555				13,611				19				816,925
Less: Net income attributable to noncontrolling interests	(166,937		)		7,183				—				(174,120		)
Net income attributable to DaVita Inc.	$	663,618			$	20,794			$	19			$	642,805

Condensed Consolidating Statements of Comprehensive Income

	Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries(1)
For the year ended December 31, 2017
Net income	$	830,555			$	13,611			$	19			$	816,925
Other comprehensive income	102,876				—				—				102,876
Total comprehensive income	933,431				13,611				19				919,801
Less: Comprehensive income attributable to noncontrolling interest	(166,935		)		7,183				—				(174,118		)
Comprehensive income attributable to DaVita Inc.	$	766,496			$	20,794			$	19			$	745,683

(1)	After the elimination of the unrestricted subsidiaries and the physician groups

F-56

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Condensed Consolidating Balance Sheets

	Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries(1)
As of December 31, 2017
Cash and cash equivalents	$	508,234			$	—			$	—			$	508,234
Accounts receivable, net	1,714,750				—				—				1,714,750
Other current assets	759,732				3,033				—				756,699
Other current assets held for sale	5,761,642				423,205				2,733				5,335,704
Total current assets	8,744,358				426,238				2,733				8,315,387
Property and equipment, net	3,149,213				—				—				3,149,213
Amortizable intangibles, net	113,827				—				—				113,827
Other long-term assets	330,516				—				—				330,516
Goodwill	6,610,279				—				—				6,610,279
Total assets	$	18,948,193			$	426,238			$	2,733			$	18,519,222
Current liabilities	$	1,856,107			$	—			$	—			$	1,856,107
Current liabilities held for sale	1,185,070				308,884				—				876,186
Total current liabilities	3,041,177				308,884				—				2,732,293
Payables to parent	—				—				2,733				(2,733		)
Long-term debt and other long-term liabilities	10,009,590				—				—				10,009,590
Noncontrolling interests subject to put provisions	1,011,360				—				—				1,011,360
Total DaVita Inc. shareholders' equity	4,690,029				117,354				—				4,572,675
Noncontrolling interests not subject to put provisions	196,037				—				—				196,037
Shareholders' equity	4,886,066				117,354				—				4,768,712
Total liabilities and shareholders' equity	$	18,948,193			$	426,238			$	2,733			$	18,519,222

F-57

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Condensed Consolidating Statements of Cash Flow

	Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries(1)
For the year ended December 31, 2017
Cash flows from operating activities:
Net income	$	830,555			$	13,611			$	19			$	816,925
Changes in operating and intercompany assets and liabilities and non-cash items included in net income	1,076,894				27,312				(19		)		1,049,601
Net cash provided by operating activities	1,907,449				40,923				—				1,866,526
Cash flows from investing activities:
Additions of property and equipment	(905,250		)		(5,406		)		—				(899,844		)
Acquisitions and divestitures, net	(803,879		)		—				—				(803,879		)
Proceeds from asset sales	92,336				—				—				92,336
Investments and other items, net	250,062				(3,800		)		—				253,862
Net cash used in investing activities	(1,366,731		)		(9,206		)		—				(1,357,525		)
Cash flows from financing activities:
Long-term debt and related financing costs, net	154,848				—				—				154,848
Intercompany	—				(36,220		)		—				36,220
Other items	(921,105		)		—				—				(921,105		)
Net cash used in financing activities	(766,257		)		(36,220		)		—				(730,037		)
Effect of exchange rate changes on cash	254				—				—				254
Net decrease in cash and cash equivalents	(225,285		)		(4,503		)		—				(220,782		)
Less: Net decrease in cash and cash equivalents from discontinued operations	(58,743		)		(4,503		)		—				(54,240		)
Net decrease in cash and cash equivalents from continuing operations	(166,542		)		—				—				(166,542		)
Cash and cash equivalents of continuing operations at beginning of the year	674,776				—				—				674,776
Cash and cash equivalents of continuing operations at end of the year	$	508,234			$	—			$	—			$	508,234

(1)	After the elimination of the unrestricted subsidiaries and the physician groups

F-58

EXHIBIT INDEX

2.1		Agreement and Plan of Merger, dated as of May 20, 2012, by and among DaVita Inc., Seismic Acquisition LLC, HealthCare Partners Holdings, LLC, and the Member Representative.(28)
2.2		Amendment, dated as of July 6, 2012, to the Agreement and Plan of Merger, dated as of May 20, 2012, by and among DaVita Inc., Seismic Acquisition LLC, HealthCare Partners Holdings, LLC, and the Member Representative.(25)
3.1		Restated Certificate of Incorporation of DaVita Inc., as filed with the Secretary of State of Delaware on November 1, 2016.(1)
3.2		Amended and Restated Bylaws for DaVita Inc. dated as of September 7, 2016.(1)
4.1		Indenture, dated August 28, 2012, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee.(4)
4.2		Form of 5.750% Senior Notes due 2022 and related Guarantee (included in Exhibit 4.1).(4)
4.3		Indenture, dated June 13, 2014, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee.(26)
4.4		Form of 5.125% Senior Notes due 2024 and related Guarantee (included in Exhibit 4.3).(26)
4.5		Second Supplemental Indenture for the 5.750% Senior Notes due 2022, dated June 13, 2014, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee.(21)
4.6		Indenture for the 5.000% Senior Notes due 2025, dated April 17, 2015, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee.(22)
4.7		Form of 5.000% Senior Notes due 2025 and related Guarantee (included in Exhibit 4.6).(22)
10.1		Employment Agreement, effective September 22, 2005, by and between DaVita Inc. and James Hilger.(8)*
10.2		Amendment to Mr. Hilger’s Employment Agreement, effective December 12, 2008.(18)*
10.3		Second Amendment to Mr. Hilger’s Employment Agreement, effective December 27, 2012.(23)*
10.4		Employment Agreement, effective July 25, 2008, between DaVita Inc. and Kent J. Thiry.(15)*
10.5		Employment Agreement, effective August 1, 2008, between DaVita Inc. and Allen Nissenson.(16)*
10.6		Employment Agreement, effective March 17, 2010, by and between DaVita Inc. and Javier Rodriguez.(20)*
10.7		Employment Agreement, effective April 27, 2016, by and between DaVita HealthCare Partners Inc. and Kathleen A. Waters.(6)*
10.8		Consulting Agreement, effective June 15, 2017, by and between DaVita Inc. and Roger J. Valine.(3)*
10.9		Amendment to Stock Appreciation Rights Agreements, effective June 15, 2017, by and between DaVita Inc. and Roger J. Valine.(3)*
10.10		Employment Agreement, effective November 1, 2016, by and between DaVita Inc. and Charles G. Berg.(9)*

Page 1 of 5

10.11		Amendment to Employment Agreement, effective October 13, 2017, by and among DaVita Inc., Charles G. Berg and DaVita Medical Management, LLC.(3)*
10.12		Employment Agreement, effective February 21, 2017, by and between DaVita Inc. and Joel Ackerman.(9)*
10.13		Sourcing and Supply Agreement between DaVita Inc. and Amgen USA Inc. effective as of January 6, 2017.(6)**
10.14		Equity Purchase Agreement, dated as of December 5, 2017, by and among DaVita Inc., Collaborative Care Holdings, LLC, and solely with respect to Section 9.3 and Section 9.18 thereto, UnitedHealth Group Incorporated.(2)
10.15		Form of Indemnity Agreement.(12)*
10.16		Form of Indemnity Agreement.(7)*
10.17		DaVita Deferred Compensation Plan.(9)*
10.18		Executive Incentive Plan (as Amended and Restated effective January 1, 2009).(19)*
10.19		Executive Retirement Plan.(18)*
10.20		DaVita Voluntary Deferral Plan.(5)*
10.21		Deferred Bonus Plan (Prosperity Plan).(17)*
10.22		Amendment No. 1 to Deferred Bonus Plan (Prosperity Plan).(18)*
10.23		Amended and Restated Employee Stock Purchase Plan.(13)*
10.24		Amended and Restated DaVita Inc. Severance Plan.(23)*
10.25		Change in Control Bonus Program.(18)*
10.26		DaVita Inc. Non-Employee Director Compensation Policy.(14)*
10.27		DaVita Inc. Non-Employee Director Compensation Policy. *✓
10.28		Form of Restricted Stock Units Agreement—Board members (DaVita Inc. 2011 Incentive Award Plan). (24)*
10.29		Form of Stock Appreciation Rights Agreement—Executives (DaVita Inc. 2011 Incentive Award Plan).(24)*
10.30		Form of Restricted Stock Units Agreement—Executives (DaVita Inc. 2011 Incentive Award Plan).(24)*
10.31		Form of Restricted Stock Units Agreement (DaVita Inc. 2011 Incentive Award Plan).(23)*
10.32		Form of Stock Appreciation Rights Agreement (DaVita Inc. 2011 Incentive Award Plan).(23)*
10.33		Form of Long-Term Incentive Program Award Agreement (For 162(m) designated teammates) (DaVita Inc. 2011 Incentive Award Plan).(23)*
10.34		Form of Long-Term Incentive Program Award Agreement (DaVita Inc. 2011 Incentive Award Plan).(23)*

Page 2 of 5

10.35		Credit Agreement, dated as of June 24, 2014, by and among DaVita Inc., the guarantors the guarantors party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, Barclays Bank PLC, and Wells Fargo Bank, National Association as Co-Syndication Agents, Bank of America, N.A., Credit Suisse AG, Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., and SunTrust Bank, as Co-Documentation Agents, Barclays Bank PLC, Wells Fargo Securities, LLC, Credit Suisse Securities (USA) LLC, Goldman Sachs Bank USA, J.P. Morgan Securities, LLC, Bank of America, N.A., Morgan Stanley Senior Funding, Inc., and SunTrust Robinson Humphrey, Inc. as Joint Lead Arrangers and Joint Bookrunners, The Bank of Nova Scotia, Credit Agricole Securities (USA) Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., and Sumitomo Mitsui Banking Corporation, as Senior Managing Agents, HSBC Securities (USA) Inc., Fifth Third Bank, and Compass Bank as Managing Agents. (21)
10.36		Amended and Restated DaVita Inc. 2011 Incentive Award Plan.(11)*
10.37		Form of Non-Competition and Non-Solicitation Agreement, dated as of May 20, 2012, between DaVita Inc. and Dr. Robert Margolis, Dr. William Chin, Dr. Thomas Paulsen, Mr. Zan Calhoun, and Ms. Lori Glisson. (28)
10.38		Form of Non-Competition and Non-Solicitation Agreement, dated as of May 20, 2012, between DaVita Inc. and Mr. Matthew Mazdyasni, Dr. Sherif Abdou, and Dr. Amir Bacchus.(28)
10.39		Escrow Agreement, dated as of August 28, 2012, by and among DaVita Inc., The Bank of New York Mellon Trust Company, N.A., as trustee, The Bank of New York Mellon Trust Company, N.A., as escrow agent and The Bank of New York Mellon Trust Company, N.A., as bank and securities intermediary.(4)
10.40		Form of 2014 Long Term Incentive Program Cash Performance Award Agreement under the DaVita Inc. 2011 Incentive Award Plan and Long-Term Incentive Program (for 162(m) designated teammates).(10) * **
10.41		Form of 2014 Long Term Incentive Program Cash Performance Award Agreement under the DaVita Inc. 2011 Incentive Award Plan and Long-Term Incentive Program.(10)* **
10.42		Form of 2014 Long Term Incentive Program Performance Stock Units Agreement under the DaVita Inc. 2011 Incentive Award Plan and Long-Term Incentive Program (for 162(m) designated teammates).(10) * **
10.43		Form of 2014 Long Term Incentive Program Restricted Stock Units Agreement under the DaVita Inc. 2011 Incentive Award Plan and Long-Term Incentive Program.(10)*
10.44		Form of 2014 Long Term Incentive Program Stock Appreciation Rights Agreement under the DaVita Inc. 2011 Incentive Award Plan and Long-Term Incentive Program.(10)*
10.45		Corporate Integrity Agreement, dated as of October 22, 2014, by and among the Office of Inspector General of The Department of Health and Human Services and DaVita Inc.(27)
12.1		Computation of Ratio of Earnings to Fixed Charges.✓
21.1		List of our subsidiaries.✓
23.1		Consent of KPMG LLP, independent registered public accounting firm.✓
24.1		Powers of Attorney with respect to DaVita. (Included on Page S-1).
31.1		Certification of the Chief Executive Officer, dated February 23, 2018, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.✓
31.2		Certification of the Chief Financial Officer, dated February 23, 2018, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.✓

Page 3 of 5

32.1		Certification of the Chief Executive Officer, dated February 23, 2018, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.✓
32.2		Certification of the Chief Financial Officer, dated February 23, 2018, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.✓
101.INS		XBRL Instance Document.✓
101.SCH		XBRL Taxonomy Extension Schema Document.✓
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.✓
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.✓
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.✓
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.✓

✓	Included in this filing.
*	Management contract or executive compensation plan or arrangement.
**	Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the SEC.

(1)	Filed on November 2, 2016 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.

(2)	Filed on December 6, 2017 as an exhibit to the Company’s Current Report on Form 8-K.

(3)	Filed on November 7, 2017 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

(4)	Filed on August 28, 2012 as an exhibit to the Company’s Current Report on Form 8-K.

(5)	Filed on November 8, 2005 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.

(6)	Filed on May 2, 2017 as an exhibit to the Company’s Quarterly Report on 10-Q for the quarter ended March 31, 2017.

(7)	Filed on March 3, 2005 as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

(8)	Filed on August 7, 2006 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2006.

(9)	Filed on February 24, 2017 as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

(10)	Filed on November 6, 2014 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.

(11)	Filed on April 28, 2014 as Appendix A to the Company's Definitive Proxy Statement on Schedule 14A.

(12)	Filed on December 20, 2006 as an exhibit to the Company’s Current Report on Form 8-K.

(13)	Filed on June 4, 2007 as an exhibit to the Company’s Current Report on Form 8-K.

(14)	Filed on May 8, 2008 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.

(15)	Filed on July 31, 2008 as an exhibit to the Company’s Current Report on Form 8-K.

(16)	Filed on November 6, 2008 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

(17)	Filed on February 29, 2008 as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

(18)	Filed on February 27, 2009 as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008

(19)	Filed on June 18, 2009 as an exhibit to the Company’s Current Report on Form 8-K.

(20)	Filed on April 14, 2010 as an exhibit to the Company’s Current Report on Form 8-K.

Page 4 of 5

(21)	Filed on August 1, 2014 as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

(22)	Filed on April 17, 2015 as an exhibit to the Company’s Current Report on Form 8-K.

(23)	Filed on March 1, 2013 as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

(24)	Filed on August 4, 2011 as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

(25)	Filed on July 9, 2012 as an exhibit to the Company’s Current Report on Form 8-K.

(26)	Filed on June 16, 2014 as an exhibit to the Company's current Report on Form 8-K.

(27)	Filed on October 23, 2014 as an exhibit to the Company's current report on Form 8-K.

(28)	Filed on May 21, 2012 as an exhibit to the Company's Current Report on Form 8-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Annual Report on Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on February 23, 2018.

DAVITA INC.
By:		/S/ KENT J. THIRY
		Kent J. Thiry Chairman and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Kent J. Thiry, Joel Ackerman, and Kathleen Waters, and each of them his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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Signature		Title		Date
/S/ KENT J. THIRY		Chairman and Chief Executive Officer		February 23, 2018
Kent J. Thiry		(Principal Executive Officer)
/S/ JOEL ACKERMAN		Chief Financial Officer		February 23, 2018
Joel Ackerman		(Principal Financial Officer)
/S/ JAMES K. HILGER		Chief Accounting Officer		February 23, 2018
James K. Hilger		(Principal Accounting Officer)
/S/ PAMELA M. ARWAY		Director		February 23, 2018
Pamela M. Arway
/S/ CHARLES G. BERG		Director		February 23, 2018
Charles G. Berg
/S/ CAROL A. DAVIDSON		Director		February 23, 2018
Carol A. Davidson
/S/ BARBARA J. DESOER		Director		February 23, 2018
Barbara J. Desoer
/S/ PASCAL DESROCHES		Director		February 23, 2018
Pascal Desroches
/S/ PAUL J. DIAZ		Director		February 23, 2018
Paul J. Diaz
/S/ PETER T. GRAUER		Director		February 23, 2018
Peter T. Grauer
/S/ JOHN M. NEHRA		Director		February 23, 2018
John M. Nehra
/S/ WILLIAM L. ROPER		Director		February 23, 2018
William L. Roper
/S/ PHYLLIS R. YALE		Director		February 23, 2018
Phyllis R. Yale

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DAVITA INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

		Balance at beginning of year				Acquisitions				Amounts charged to income				Amounts written off				Balance at end of year
Description
		(in thousands)
Allowance for uncollectible accounts:
Year ended December 31, 2017		$	238,897			$	—			$	478,365			$	498,863			$	218,399
Year ended December 31, 2016		$	251,734			$	—			$	442,985			$	455,822			$	238,897
Year ended December 31, 2015		$	229,802			$	—			$	422,145			$	400,213			$	251,734

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