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, 2018.

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, 2018 and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, 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, 2018, 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 22, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Notes 1 and 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition in 2018 due to the adoption of the Financial Accounting Standards Board’s Accounting Standards Codification Topic 606 Revenue from Contracts with Customers.

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 22, 2019

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, 2018, 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, 2018, 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, 2018 and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 22, 2019 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 22, 2019

F-3

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

	Year ended December 31,
	2018				2017				2016
Dialysis and related lab patient service revenues	$	10,709,981			$	10,093,670			$	9,727,360
Provision for uncollectible accounts	(49,587		)		(485,364		)		(431,304		)
Net dialysis and related lab patient service revenues	10,660,394				9,608,306				9,296,056
Other revenues	744,457				1,268,328				1,411,411
Total revenues	11,404,851				10,876,634				10,707,467
Operating expenses and charges:
Patient care costs and other costs	8,195,513				7,640,005				7,431,582
General and administrative	1,135,454				1,064,026				1,072,841
Depreciation and amortization	591,035				559,911				509,497
Provision for uncollectible accounts	(7,300		)		(7,033		)		11,677
Equity investment income	4,484				8,640				(16,874		)
Investment and other asset impairments	17,338				295,234				14,993
Goodwill impairment charges	3,106				36,196				28,415
Gain on changes in ownership interest, net	(60,603		)		(6,273		)		(374,374		)
Gain on settlement, net	—				(526,827		)		—
Total operating expenses and charges	9,879,027				9,063,879				8,677,757
Operating income	1,525,824				1,812,755				2,029,710
Debt expense	(487,435		)		(430,634		)		(414,116		)
Other income, net	10,089				17,665				7,511
Income from continuing operations before income taxes	1,048,478				1,399,786				1,623,105
Income tax expense	258,400				323,859				431,761
Net income from continuing operations	790,078				1,075,927				1,191,344
Net loss from discontinued operations, net of tax	(457,038		)		(245,372		)		(158,262		)
Net income	333,040				830,555				1,033,082
Less: Net income attributable to noncontrolling interests	(173,646		)		(166,937		)		(153,208		)
Net income attributable to DaVita Inc.	$	159,394			$	663,618			$	879,874
Earnings per share attributable to DaVita Inc.:
Basic net income from continuing operations per share	$	3.66			$	4.78			$	5.12
Basic net income per share	$	0.93			$	3.52			$	4.36
Diluted net income from continuing operations per share	$	3.62			$	4.71			$	5.04
Diluted net income per share	$	0.92			$	3.47			$	4.29
Weighted average shares for earnings per share:
Basic	170,785,999				188,625,559				201,641,173
Diluted	172,364,581				191,348,533				204,904,656
Amounts attributable to DaVita Inc.:
Net income from continuing operations	$	624,321			$	901,277			$	1,032,373
Net loss from discontinued operations	(464,927		)		(237,659		)		(152,499		)
Net income attributable to DaVita Inc.	$	159,394			$	663,618			$	879,874

See notes to consolidated financial statements.

F-4

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

	Year ended December 31,
	2018				2017				2016
Net income	$	333,040			$	830,555			$	1,033,082
Other comprehensive (loss) income:
Unrealized losses on interest rate cap and swap agreements, net:
Unrealized losses	(133		)		(5,437		)		(3,670		)
Reclassification into net income	6,286				5,058				2,566
Unrealized gains (losses) on investments, net:
Unrealized losses	—				3,705				1,427
Reclassification into net income	—				(220		)		(423		)
Foreign currency translation adjustments:
Foreign currency translation adjustments	(45,944		)		99,770				(39,614		)
Reclassification into net income	—				—				10,087
Other comprehensive (loss) income	(39,791		)		102,876				(29,627		)
Total comprehensive income	293,249				933,431				1,003,455
Less: Comprehensive income attributable to noncontrolling interests	(173,646		)		(166,935		)		(153,398		)
Comprehensive income attributable to DaVita Inc.	$	119,603			$	766,496			$	850,057

See notes to consolidated financial statements.

F-5

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

	December 31, 2018				December 31, 2017
ASSETS
Cash and cash equivalents	$	323,038			$	508,234
Restricted cash and equivalents	92,382				10,686
Short-term investments	2,935				32,830
Accounts receivable, net	1,858,608				1,714,750
Inventories	107,381				181,799
Other receivables	469,796				399,262
Prepaid and other current assets	111,840				112,058
Income tax receivable	68,614				49,440
Current assets held for sale, net	5,389,565				5,761,642
Total current assets	8,424,159				8,770,701
Property and equipment, net	3,393,669				3,149,213
Intangible assets, net	118,846				113,827
Equity method and other investments	224,611				245,534
Long-term investments	35,424				37,695
Other long-term assets	71,583				47,287
Goodwill	6,841,960				6,610,279
	$	19,110,252			$	18,974,536
LIABILITIES AND EQUITY
Accounts payable	$	463,270			$	509,116
Other liabilities	595,850				579,005
Accrued compensation and benefits	658,913				616,116
Current portion of long-term debt	1,929,369				178,213
Current liabilities held for sale	1,243,759				1,185,070
Total current liabilities	4,891,161				3,067,520
Long-term debt	8,172,847				9,158,018
Other long-term liabilities	450,669				365,325
Deferred income taxes	562,536				486,247
Total liabilities	14,077,213				13,077,110
Commitments and contingencies:
Noncontrolling interests subject to put provisions	1,124,641				1,011,360
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; 166,387,307 and 182,462,278 shares issued and outstanding, respectively)	166				182
Additional paid-in capital	995,006				1,042,899
Retained earnings	2,743,194				3,633,713
Accumulated other comprehensive (loss) income	(34,924		)		13,235
Total DaVita Inc. shareholders' equity	3,703,442				4,690,029
Noncontrolling interests not subject to put provisions	204,956				196,037
Total equity	3,908,398				4,886,066
	$	19,110,252			$	18,974,536

See notes to consolidated financial statements.

F-6

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(dollars in thousands)

	Year ended December 31,
	2018				2017				2016
Cash flows from operating activities:
Net income	$	333,040			$	830,555			$	1,033,082
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	591,035				777,485				720,252
Impairment charges	61,981				981,589				296,408
Valuation adjustment on disposal group	316,840				—				—
Stock-based compensation expense	73,061				35,092				38,338
Deferred income taxes	273,660				(395,217		)		52,010
Equity investment income, net	26,449				28,925				17,766
Gain on sales of business interests, net	(85,699		)		(23,402		)		(404,165		)
Other non-cash charges, net	82,374				66,920				(7,343		)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	(81,176		)		(156,305		)		(152,240		)
Inventories	73,505				(18,625		)		22,920
Other receivables and other current assets	236,995				(111,432		)		(45,351		)
Other long-term assets	3,497				(11,945		)		35,893
Accounts payable	(35,959		)		26,876				11,897
Accrued compensation and benefits	84,165				(78,239		)		68,272
Other current liabilities	(157,462		)		1,908				176,494
Income taxes	(23,635		)		(52,176		)		77,376
Other long-term liabilities	(1,031		)		11,157				30,517
Net cash provided by operating activities	1,771,640				1,913,166				1,972,126
Cash flows from investing activities:
Additions of property and equipment	(987,138		)		(905,250		)		(829,095		)
Acquisitions	(183,156		)		(803,879		)		(563,856		)
Proceeds from asset and business sales	150,205				92,336				64,725
Purchase of investments available for sale	(8,448		)		(13,117		)		(13,539		)
Purchase of investments held-to-maturity	(5,963		)		(228,990		)		(1,133,192		)
Proceeds from sale of investments available for sale	9,526				6,408				18,963
Proceeds from investments held-to-maturity	34,862				492,470				1,240,502
Purchase of equity investments	(19,177		)		(4,816		)		(27,096		)
Proceeds from sale of equity investments	—				—				40,920
Distributions received on equity investments	3,646				106				—
Net cash used in investing activities	(1,005,643		)		(1,364,732		)		(1,201,668		)
Cash flows from financing activities:
Borrowings	59,934,750				50,991,960				51,991,490
Payments on long-term debt and other financing costs	(59,239,973		)		(50,837,112		)		(52,116,120		)
Purchase of treasury stock	(1,161,511		)		(802,949		)		(1,097,822		)
Distributions to noncontrolling interests	(196,441		)		(211,467		)		(192,401		)
Stock award exercises and other share issuances, net	13,577				21,252				23,543
Excess tax benefits from stock award exercises	—				—				13,251
Contributions from noncontrolling interests	52,311				74,552				47,590
Proceeds from sales of additional noncontrolling interests	15				2,864				—
Purchases of noncontrolling interests	(28,082		)		(5,357		)		(21,512		)
Net cash used in financing activities	(625,354		)		(766,257		)		(1,351,981		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,350		)		254				4,276
Net increase (decrease) in cash, cash equivalents and restricted cash	137,293				(217,569		)		(577,247		)
Less: Net increase (decrease) in cash, cash equivalents and restricted cash from discontinued operations	240,793				(53,026		)		(15,793		)
Net decrease in cash, cash equivalents and restricted cash from continuing operations	(103,500		)		(164,543		)		(561,454		)
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year	518,920				683,463				1,244,917
Cash, cash equivalents and restricted cash of continuing operations at end of the year	$	415,420			$	518,920			$	683,463

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
			Common stock							Additional paid-in capital				Retained earnings				Treasury stock							Accumulated other comprehensive income (loss)
			Shares			Amount						Shares			Amount					Total
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 remeasurements	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
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
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

F-8

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	105,531																159,394															159,394				68,115
Cumulative effect of change in accounting principle																	8,368											(8,368		)		—
Comprehensive income																												(39,791		)		(39,791		)
Stock purchase shares issued						398							17,398																			17,398
Stock unit shares issued						158							(448		)																	(448		)
Stock-settled SAR shares issued						213			1				(4,887		)																	(4,886		)
Stock-settled stock-based compensation expense													73,081																			73,081
Changes in noncontrolling interest from:
Distributions	(119,173		)																																	(77,268		)
Contributions	32,918																																			19,393
Acquisitions and divestitures	79,078												3,546																			3,546				318
Partial purchases	(8,546		)										(17,897		)																	(17,897		)		(1,639		)
Fair value remeasurements	23,473												(23,473		)																	(23,473		)
Purchase of treasury stock																					(16,844	)		(1,153,511		)						(1,153,511		)
Retirement of treasury stock						(16,844	)		(17		)		(95,213		)		(1,058,281		)		16,844			1,153,511								—
Balance at December 31, 2018	$	1,124,641				166,387			$	166			$	995,006			$	2,743,194			—			$	—			$	(34,924	)		$	3,703,442			$	204,956

See notes to consolidated financial statements.

F-9

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) consists 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, 2018, the Company operated or provided administrative services through a network of 2,664 U.S. outpatient dialysis centers in 46 states and the District of Columbia, serving a total of approximately 202,700 patients. In addition, as of December 31, 2018, the Company operated or provided administrative services to a total of 241 outpatient dialysis centers serving approximately 25,000 patients located in nine 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. In December 2017, the Company entered into an agreement to sell its DMG division to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc., subject to receipt of required regulatory approvals and other customary closing conditions. As a result, the DMG business has been classified 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 22.

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. Equity investments in investees over which the Company has significant influence are recorded on the equity method, while investments in other equity securities are recorded at fair value or pursuant to an adjusted cost method measurement alternative, as applicable. 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 (the U.S. dollar, or 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, 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-10

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Revenues

On January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (Topic 606) using the cumulative effect method for those contracts that were not substantially completed as of January 1, 2018. Results for reporting periods beginning on and after January 1, 2018 are presented under Topic 606, while prior period amounts continue to be presented in accordance with the Company's historical accounting under Revenue Recognition (Topic 605).

The adoption of this new standard primarily changed the Company’s presentation of revenues, provision for uncollectible accounts and allowance for doubtful accounts. Topic 606 requires revenue to be recognized based on the Company’s estimate of the transaction price the Company expects to collect as a result of satisfying its performance obligations. Accordingly, for performance obligations satisfied after the adoption of Topic 606, the Company no longer separately presents a provision for uncollectible accounts on the consolidated income statement and no longer presents the related allowance for doubtful accounts on the consolidated balance sheet. However, as a result of the Company’s election to apply Topic 606 only to contracts not substantially completed as of January 1, 2018, the Company continues to maintain an allowance for doubtful accounts related to performance obligations satisfied prior to the adoption of Topic 606. Net collections or write-offs of accounts receivable generated prior to January 1, 2018, beyond amounts previously reserved thereon, are presented in the provision for uncollectible accounts on the consolidated income statement in accordance with Topic 605.

Dialysis and related lab patient service revenues

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

Revenues associated with Medicare and Medicaid programs are estimated 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.

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. The Company’s revenue recognition is estimated based on its judgment regarding its ability to collect, which depends upon its ability to effectively capture, document and bill for Medicare’s base payment rate as well as these other variable factors.

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.

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. In certain circumstances, it may not be 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.

F-11

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Other revenues

Other revenues consist of the revenues associated with the non-dialysis 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 estimated as prescriptions are filled and shipped to patients. Revenues associated with dialysis management services, disease management services, clinical research programs, physician services, ESRD seamless care organizations, and comprehensive care are estimated in the period services are provided. Revenues associated with direct primary care were estimated over the membership period.

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.

Restricted cash and equivalents

Restricted cash and equivalents are restricted cash or cash equivalents held in trust to satisfy insurer and state regulatory requirements related to the Company's self-insurance for professional and general liability and workers' compensation risks administered by wholly-owned captive insurance entities.

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 or redemption values are classified as short-term or long-term investments and recorded at estimated fair value with changes in fair value recognized in current earnings. See Note 5 for further details, including recent changes to the Company's accounting for these investments.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value 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 years to 40 years; leasehold improvements, the shorter of ten years or the expected lease term; and equipment and information systems, principally three years to 15 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 years to ten years; and lease agreements and hospital acute service contracts, over the term of the lease or contract period, respectively.

F-12

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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. Indefinite-lived intangibles are not amortized, but are assessed for impairment at least annually and whenever significant events or changes in circumstances indicate that an impairment may have occurred.

Equity method and other investments

Equity investments that do not have readily determinable fair values are carried on the equity method if the Company maintains significant influence over the investee, or on an adjusted cost method measurement alternative representing either the Company's cost or a subsequent observation of fair value, in each case net of any applicable other-than-temporary impairment. The Company classifies its equity and adjusted cost method investments as “Equity method and other investments” on its balance sheet. See Note 10 to these consolidated financial statements for further details, including recent changes to the Company's accounting for these investments.

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 and to the extent a reporting unit's carrying amount is determined to exceed its fair value. The Company operates multiple reporting units. See Note 11 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.

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

F-13

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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.

Stock-based compensation

The Company’s stock-based compensation expense for stock-settled awards is measured at the estimated fair value of awards on the date of grant and recognized on a cumulative straight-line basis over the vesting terms of the awards unless the stock awards are based on non-market based performance metrics, in which case expense is adjusted for expected ultimate payouts as of the end of each reporting period. Stock-based compensation expense for cash-settled awards is based on the estimated fair values as of the end of each reporting period. The expense for all stock-based awards is recognized net of expected forfeitures.

Interest rate cap and swap agreements

The Company often carries a combination of current or 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 14 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, 2018, third parties held noncontrolling equity interests in 653 consolidated legal entities, including 650 legal entities classified within 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, other intangible assets, or other long-lived assets; recurrent revaluation of investments in debt and equity securities, interest rate cap agreements or other derivative instruments, contingent earn-out obligations, and noncontrolling interests subject to put provisions; and the accounting for equity method and other investments and stock-based compensation, as applicable. The Company has also classified its assets, liabilities and temporary equity into the appropriate fair value hierarchy levels as defined by the 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 (Topic 606), 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, 2016 and 2017, the FASB issued ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2017-10, each of which amended the guidance in ASU 2014-09. These ASUs replaced most existing revenue recognition guidance in GAAP. The Company adopted these ASUs beginning January 1, 2018. See Note 2 for further details.

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. In February 2018, the FASB issued ASU 2018-03, which provides various related technical corrections and improvements. The Company adopted these ASUs beginning January 1, 2018. See Note 5 for further details.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU include revisions to lessee accounting, requiring lessees to recognize a lease liability and a right-of-use asset for substantially all leases with lease terms in excess of twelve months. The Company plans to adopt the amendments in this ASU as of January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the adoption date with a cumulative effect adjustment. The Company is planning on electing the package of practical expedients to not reassess prior

F-14

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

conclusions related to contracts containing leases, lease classification and initial direct costs. The Company estimates the impact of this guidance will result in recognition of additional net lease liabilities of approximately $3,000,000 as of January 1, 2019. The Company is still finalizing its calculations, including the amount of right of use assets to recognize as well as, the cumulative effect adjustment to beginning retained earnings. The Company does not believe this new guidance will have a material effect on its results of operations or liquidity.

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. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted cash. The amendments in this ASU require that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The adoption of these ASUs did not 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 prior guidance did not allow recognition until the asset had been sold to an outside party. The amendments in this ASU were effective for the Company beginning on January 1, 2018 and have been applied on a modified retrospective basis. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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 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 this 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.

In February 2018, the FASB issued ASU No. 2018-02, 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 (2017 Tax 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 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 were effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt this ASU on January 1, 2018 and applied the change in the period of adoption. The adoption of this ASU resulted in the reclassification of an immaterial amount of deferred tax effects from accumulated other comprehensive income to retained earnings via a cumulative change in accounting principle effective January 1, 2018. See Note 20 for more details.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement. The applicable amendments in this ASU remove requirements for disclosures concerning transfers between fair value measurement Levels 1, 2 and 3 and disclosures concerning valuation processes for Level 3 fair value measurements. The applicable amendments in this ASU also add a requirement to separately disclose the changes in unrealized gains and losses included in other comprehensive income for the reporting period for Level 3 items measured at fair value on a recurring basis, and require disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for the Company beginning on January 1, 2020 and its new requirements are to be applied on a prospective basis. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

F-15

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

2**. Revenue recognition and accounts receivable**

The following table summarizes the Company's segment revenues by primary payor source:

	Year ended December 31, 2018
	U.S. dialysis and related lab services				Other - Ancillary services and strategic initiatives				Consolidated
Patient service revenues:
Medicare and Medicare Advantage	$	6,063,891			$	—			$	6,063,891
Medicaid and Managed Medicaid	628,766				—				628,766
Other government	446,999				335,594				782,593
Commercial	3,176,413				101,681				3,278,094
Other revenues:
Medicare and Medicare Advantage	—				492,812				492,812
Medicaid and Managed Medicaid	—				44,246				44,246
Commercial	—				90,890				90,890
Other**(1)**	19,880				130,865				150,745
Eliminations of intersegment revenues	(92,950		)		(34,236		)		(127,186		)
Total	$	10,242,999			$	1,161,852			$	11,404,851

(1)	Other consists of management service fees earned in the respective Company line of business as well as revenue from the Company's ancillary services and strategic initiatives.

	Year ended December 31, 2017**(1)**
	U.S. dialysis and related lab services				Other - Ancillary services and strategic initiatives				Consolidated
Patient service revenues:
Medicare and Medicare Advantage	$	5,253,012			$	—			$	5,253,012
Medicaid and Managed Medicaid	606,827				—				606,827
Other government	362,567				259,651				622,218
Commercial	3,117,920				63,505				3,181,425
Other revenues:
Medicare and Medicare Advantage	—				902,289				902,289
Medicaid and Managed Medicaid	—				71,426				71,426
Commercial	—				116,503				116,503
Other**(2)**	19,739				182,974				202,713
Eliminations of intersegment revenues	(55,176		)		(24,603		)		(79,779		)
Total	$	9,304,889			$	1,571,745			$	10,876,634

(1)	As noted above, prior period amounts have not been adjusted under the cumulative effect method. In this table, the Company's dialysis and related lab services revenues for the year ended December 31, 2017 has been presented net of the provision for uncollectible accounts of $485,364 to conform to the current period presentation.

(2)	Other consists of management service fees earned in the respective Company line of business as well as revenue from the Company's ancillary services and strategic initiatives.

F-16

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

	Year ended December 31, 2016**(1)**
	U.S. dialysis and related lab services				Other - Ancillary services and strategic initiatives				Consolidated
Patient service revenues:
Medicare and Medicare Advantage	$	5,303,718			$	—			$	5,303,718
Medicaid and Managed Medicaid	319,553				—				319,553
Other government	143,207				165,193				308,400
Commercial	3,355,066				36,674				3,391,740
Other revenues:
Medicare and Medicare Advantage	—				974,146				974,146
Medicaid and Managed Medicaid	—				82,428				82,428
Commercial	—				128,824				128,824
Other**(2)**	16,645				234,107				250,752
Eliminations of intersegment revenues	(27,355		)		(24,739		)		(52,094		)
Total	$	9,110,834			$	1,596,633			$	10,707,467

(1)	As noted above, prior period amounts have not been adjusted under the cumulative effect method. In this table, the Company's dialysis and related lab services revenues for the year ended December 31, 2016 has been presented net of the provision for uncollectible accounts of $431,304 to conform to the current period presentation.

(2)	Other consists of management service fees earned in the respective Company line of business as well as revenue from the Company's ancillary services and strategic initiatives.

The Company’s allowance for doubtful accounts related to performance obligations satisfied prior to the adoption of Topic 606 was $52,924 and $218,399 as of December 31, 2018 and 2017, respectively.

There are significant risks associated with estimating revenue, which generally take several years to resolve. These estimates are subject to ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage and other payor issues, as well as patient issues including determining applicable primary and secondary coverage, changes in patient coverage and coordination of benefits. As these estimates are refined over time, both positive and negative adjustments to revenue are recognized in the current period. As a result of changes in these estimates, additional revenue was recognized during the year ended December 31, 2018 associated with performance obligations satisfied in years prior to the adoption of Topic 606 of $88,495, which includes a benefit of $36,000 for the year ended December 31, 2018 from electing to apply Topic 606 only to contracts not substantially completed as of January 1, 2018.

There is no single commercial payor that accounted for more than 10% of total consolidated accounts receivable or consolidated net revenues at or for the year ended December 31, 2018 and 2017.

Net dialysis and related lab services accounts receivable and other receivables from Medicare, including Medicare-assigned plans, and Medicaid, including managed Medicaid plans, were approximately $1,080,561 and $874,971 as of December 31, 2018 and 2017, respectively. Approximately 18% and 21% of the Company’s net patient services accounts receivable balances as of December 31, 2018 and 2017, respectively, were more than six months old. The decrease was primarily due to improved collections at DaVita Health Solutions and in certain international operations. There were no significant balances over one year old at December 31, 2018. Accounts receivable are principally from Medicare and Medicaid programs and commercial insurance plans.

3**. 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, net of the weighted average shares held in escrow that under certain circumstances may have been returned to the Company.

Diluted earnings per share includes the dilutive effect of outstanding stock-settled stock appreciation rights and unvested stock units (under the treasury stock method) as well as the weighted average shares held in escrow that were outstanding during the period.

F-17

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The reconciliations of the numerators and denominators used to calculate basic and diluted earnings per share were as follows:

	Year ended December 31,
	2018				2017				2016
	(shares in thousands)
Numerators:
Net income from continuing operations attributable to DaVita Inc.	$	624,321			$	901,277			$	1,032,373
Net loss from discontinued operations attributable to DaVita Inc.	(464,927		)		(237,659		)		(152,499		)
Net income attributable to DaVita Inc. for earnings per share calculation	$	159,394			$	663,618			$	879,874
Basic:
Weighted average shares outstanding during the period	171,886				190,820				203,835
Weighted average contingently returnable shares previously held in escrow for the DaVita HealthCare Partners merger	(1,100		)		(2,194		)		(2,194		)
Weighted average shares for basic earnings per share calculation	170,786				188,626				201,641
Basic net income from continuing operations per share attributable to DaVita Inc.	$	3.66			$	4.78			$	5.12
Basic net loss from discontinued operations per share attributable to DaVita Inc.	(2.73		)		(1.26		)		(0.76		)
Basic net income per share attributable to DaVita Inc.	$	0.93			$	3.52			$	4.36
Diluted:
Weighted average shares outstanding during the period	171,886				190,820				203,835
Assumed incremental shares from stock plans	479				529				1,070
Weighted average shares for diluted earnings per share calculation	172,365				191,349				$	204,905
Diluted net income from continuing operations per share attributable to DaVita Inc.	$	3.62			$	4.71			$	5.04
Diluted net loss from discontinued operations per share attributable to DaVita Inc.	(2.70		)		(1.24		)		(0.75		)
Diluted net income per share attributable to DaVita Inc.	$	0.92			$	3.47			$	4.29
Anti-dilutive stock-settled awards excluded from calculation(1)	5,295				4,350				2,523

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

4**. Restricted cash and equivalents**

The Company had restricted cash and cash equivalents of $92,382 and $10,686 at December 31, 2018 and 2017, respectively. Approximately $79,329 of the balance at December 31, 2018 represents restricted cash equivalents held in trust to satisfy insurer and state regulatory requirements related to the Company's self-insurance for professional and general liability and workers' compensation risks administered by wholly-owned captive insurance entities. Prior to the first quarter of 2018, these requirements were satisfied by a letter of credit rather than restricted cash held in trust. The remaining restricted cash and equivalents held at December 31, 2018 and 2017 primarily represent cash pledged to third parties in connection with two of the Company's ancillary and strategic initiatives businesses.

5**. Short-term and long-term investments**

Effective January 1, 2018, the Company adopted 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 Company also adopted ASU 2018-03 which provides related technical corrections and improvements. The principal effect of these ASUs on the Company's consolidated financial statements is that, prior to adoption of ASU 2016-01, changes in the fair values of available-for-sale equity investments with readily determinable fair values or redemption values were recognized in other comprehensive income until realized, while under ASU 2016-01 all changes in the fair values of such equity securities are recognized in current earnings within "Other income, net". The adoption of these ASUs did not have a material effect on these consolidated financial statements.

F-18

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Effective January 1, 2018, the Company recognized a cumulative effect of change in accounting principle upon adoption of ASUs 2016-01 and 2018-03, in conjunction with ASU 2018-02, the effect of which was to decrease accumulated other comprehensive income, and to increase retained earnings, by $5,662 in after-tax unrealized gains accumulated in other comprehensive income through December 31, 2017 from equity securities classified as available-for-sale investments prior to adoption of ASU 2016-01.

From January 1, 2018, equity securities that have readily determinable fair values or redemption values are recorded at estimated fair value with changes in their value recognized in current earnings. The Company classifies its debt securities as held-to-maturity and records them at amortized cost based on its intentions and strategy concerning those investments.

The Company classifies these debt and equity investments as "Short-term investments" or "Long-term investments" on its consolidated balance sheet, as applicable, based on the characteristics of the financial instrument or the Company's intentions or expectations for the investment.

The Company’s investments in these short-term and long-term debt and equity investments consist of the following:

	December 31, 2018												December 31, 2017
	Debt securities				Equity securities				Total				Debt securities				Equity securities				Total
Certificates of deposit and other time deposits	$	2,235			$	—			$	2,235			$	31,630			$	—			$	31,630
Investments in mutual funds and common stock	—				36,124				36,124				—				38,895				38,895
	$	2,235			$	36,124			$	38,359			$	31,630			$	38,895			$	70,525
Short-term investments	$	2,235			$	700			$	2,935			$	31,630			$	1,200			$	32,830
Long-term investments	—				35,424				35,424				—				37,695				37,695
	$	2,235			$	36,124			$	38,359			$	31,630			$	38,895			$	70,525

Debt securities: The Company's short-term debt investments are principally bank certificates of deposit with contractual maturities longer than three months but shorter than one year. These debt securities are accounted for as held-to-maturity and recorded at amortized cost, which approximates their fair values at December 31, 2018 and 2017.

Equity securities: The Company's equity investments in mutual funds and common stock are held within a trust to fund existing obligations associated with several of the Company’s non-qualified deferred compensation plans. During 2018, the Company recognized pre-tax net losses of $1,208 in the income statement associated with changes in the fair value of these equity securities, comprised of pre-tax realized gains of $4,490 and a net decrease in unrealized gains of $5,698. During 2017, the Company recognized pre-tax realized gains on the sale or redemption of equity securities of $360, or $220 after tax, which were previously recorded in other comprehensive income.

6**. Other receivables**

Other receivables were comprised of the following:

	December 31,
	2018				2017
Supplier rebates and non-trade receivables	$	334,156			$	295,292
Medicare bad debt claims	135,640				103,970
	$	469,796			$	399,262

7**. Prepaid and other current assets**

Other current assets were comprised of the following:

	December 31,
	2018				2017
Prepaid expenses	$	108,315			$	104,727
Other	3,525				7,331
	$	111,840			$	112,058

F-19

8**. Property and equipment**

Property and equipment were comprised of the following:

	December 31,
	2018				2017
Land	$	37,384			$	33,814
Buildings	467,181				473,489
Leasehold improvements	3,164,943				2,816,675
Equipment and information systems, including internally developed software	2,586,564				2,352,246
New center and capital asset projects in progress	661,695				576,651
	6,917,767				6,252,875
Less accumulated depreciation	(3,524,098		)		(3,103,662		)
	$	3,393,669			$	3,149,213

Depreciation expense on property and equipment was $574,799, $544,129, and $494,945 for 2018, 2017 and 2016, respectively.

During 2018 and 2017, the Company recognized asset impairment charges of $17,338 and $15,168, respectively, 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 $25,978, $19,176 and $12,990 for 2018, 2017 and 2016, respectively.

9**. Intangibles**

Intangible assets other than goodwill were comprised of the following:

	December 31,
	2018				2017
Noncompetition and other agreements	$	131,360			$	429,140
Lease agreements	7,584				7,623
Indefinite-lived assets	59,885				33,255
Other	583				583
	199,412				470,601
Less accumulated amortization	(80,566		)		(356,774		)
	$	118,846			$	113,827

Amortization expense from amortizable intangible assets, other than lease agreements, was $16,236, $15,782, and $14,552 for 2018, 2017 and 2016, respectively. Lease agreement intangible assets and liabilities were amortized to rent expense in the amounts of $(296), $(203) and $(232) for 2018, 2017 and 2016, respectively.

During the years ended December 31, 2018, 2017 and 2016, the Company recognized no impairment charges on any intangible assets other than goodwill.

Amortizable intangible liabilities as of December 31, 2018 and 2017 were comprised of lease agreements of $5,930 and $5,447, respectively, which were net of accumulated amortization of $4,362 and $3,508, respectively.

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

F-20

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Scheduled amortization charges from amortizable intangible assets and liabilities as of December 31, 2018 were as follows:

	Noncompetition and other agreements				Lease liabilities				Other
2019	$	14,442			$	(901	)		$	91
2020	13,020				(895		)		45
2021	10,816				(871		)		—
2022	7,001				(864		)		—
2023	4,235				(704		)		—
Thereafter	9,311				(1,695		)		—
Total	$	58,825			$	(5,930	)		$	136

10**. Equity method and other investments**

Equity investments in nonconsolidated businesses over which the Company maintains significant influence, but which do not have readily determinable fair values, are carried on the equity method.

As described in Note 5 to these consolidated financial statements, effective January 1, 2018, the Company adopted ASU 2016-01 and related ASU 2018-03 concerning recognition and measurement of financial assets and financial liabilities. In adopting this new guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.

Specifically, under this measurement alternative, unless elected otherwise for a particular investment, the Company initially records equity investments that qualify for the measurement alternative at cost but remeasures them to fair value through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.

The Company maintains equity method and minor adjusted cost method investments in the private securities of certain other healthcare and healthcare-related businesses. The Company classifies these investments as "Equity method and other investments" on its consolidated balance sheet.

The Company's equity method and other investments were comprised of the following:

	December 31,
	2018				2017
APAC joint venture	$	129,173			$	160,481
Other equity method partnerships	83,052				79,667
Adjusted cost method investments	12,386				5,386
	$	224,611			$	245,534

During 2018, 2017 and 2016, the Company recognized equity investment (loss) income of $(4,484), $(8,640) and $16,874, respectively, from equity method investments in nonconsolidated businesses.

The Company's largest equity method investment is its ownership interest in DaVita Care Pte. Ltd. (the APAC joint venture, or APAC JV). As of December 31, 2018 and 2017, the Company held a 60% voting interest and a 73.3% current economic interest in the APAC JV. Based on the governance structure and voting rights established for the APAC JV at its formation on August 1, 2016, certain key decisions affecting the joint venture’s operations are not subject to the unilateral discretion of the Company, but rather are shared with the other noncontrolling investors. These other noncontrolling investors currently collectively hold a 40% voting interest and a 26.7% economic interest in the APAC JV. During the third quarter of 2018, the investors in the APAC JV jointly agreed to a six-month deferral of the subscribed incremental capital contributions originally scheduled for August 1, 2018 based upon revised assessments of the capital needs of the joint venture. Subsequent to December 31, 2018, the investors have jointly agreed to a further deferral of those capital contributions originally scheduled for August 1, 2018, which will now be due with the final capital contributions originally scheduled for August 1, 2019. The Company continues to expect the economic interests of the noncontrolling investors in the APAC JV to adjust to match their voting interests by August 1, 2019.

F-21

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Upon formation of the APAC JV on August 1, 2016, the Company deconsolidated this Asia Pacific dialysis business based on the governance structure and voting rights put in place at that time and recognized an initial non-cash non-taxable estimated gain of $374,374 on its retained investment, net of contingent obligations. This retained interest in the APAC JV was adjusted to the Company’s proportionate share of the estimated fair value of the business, as implied by the investment commitments from the JV partners and adjusted for certain time value of money and uncertainty discounts. The Company then recognized an additional $6,273 gain in the first quarter of 2017 upon resolution of certain post-closing adjustments related to this transaction. 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.

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.

The Company's other equity method investments include 22 legal entities over which the Company has significant influence but in which it does not maintain a controlling financial interest. Almost all of these are U.S. partnerships in the form of limited liability companies. The Company's ownership interests in these partnerships vary, but typically range from 30% to 50%.

The total carrying amount of equity investments carried under the adjusted cost method measurement alternative at December 31, 2018 was $12,386. During 2018, there have been no meaningful impairments or other downward or upward valuation adjustments recognized on these investments.

11**. 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 December 31, 2016	$	5,691,587			$	323,788			$	6,015,375
Acquisitions	485,434				131,598				617,032
Divestitures	(32,260		)		(126		)		(32,386		)
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
Acquisitions	130,574				147,774				278,348
Divestitures	(331		)		(15,166		)		(15,497		)
Impairment charges	—				(3,106		)		(3,106		)
Foreign currency and other adjustments	—				(28,064		)		(28,064		)
Balance at December 31, 2018	$	6,275,004			$	566,956			$	6,841,960
Goodwill	$	6,275,004			$	594,229			$	6,869,233
Accumulated impairment charges	—				(27,273		)		(27,273		)
	$	6,275,004			$	566,956			$	6,841,960

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 since adoption of this ASU were 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 and each sovereign jurisdiction within the Company’s international operating segments is considered a separate reporting unit.

F-22

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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 reporting units, and to the dialysis centers and other health operations 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, 2018, the Company performed annual and other impairment assessments for various reporting units. As a result of these assessments, the Company recognized a goodwill impairment charge of $3,106 at its German other health operations during the year ended December 31, 2018.

During the years ended December 31, 2017 and December 31, 2016 the Company recognized goodwill impairment charges of $34,696 and $28,415, respectively, at its vascular access reporting unit. These charges resulted primarily from changes in future governmental reimbursement rates for this business and the Company’s then-evolving plans and expected ability to mitigate them. As of December 31, 2017, there was no goodwill remaining at the Company's vascular access reporting unit. 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.

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, 2018:

Reporting unit		Goodwill balance as of December 31, 2018				Carrying amount coverage**(1)**			Sensitivities
Operating income**(2)**			Discount rate**(3)**
Germany Kidney Care		$	403,200			0.5	%		(1.5	)%		(10.3	)%
Brazil Kidney Care		$	39,452			9.8	%		(2.5	)%		(7.3	)%
Germany other health operations		$	12,646			8.1	%		(2.2	)%		(11.1	)%

(1)	Excess of estimated fair value of the reporting unit over its 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, 2018.

Except as described above, none of the Company’s other reporting units were considered at risk of significant goodwill impairment as of December 31, 2018. 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, 2018.

F-23

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

12**. Other liabilities**

Other liabilities were comprised of the following:

	December 31,
	2018				2017
Payor refunds and retractions	$	302,244			$	292,370
Insurance and self-insurance accruals	58,569				64,924
Accrued interest	82,827				83,362
Accrued non-income tax liabilities	28,663				28,317
Other	123,547				110,032
	$	595,850			$	579,005

13**. 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.

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

	Year ended December 31,
	2018				2017				2016
Domestic	$	1,083,578			$	1,725,822			$	1,278,754
International	(35,100		)		(326,036		)		344,351
	$	1,048,478			$	1,399,786			$	1,623,105

Income tax expense for continuing operations consisted of the following:

	Year ended December 31,
	2018				2017				2016
Current:
Federal	$	140,064			$	330,191			$	322,940
State	32,990				47,228				44,525
International	7,557				3,422				1,928
Total current income tax	180,611				380,841				369,393
Deferred:
Federal	52,034				(98,760		)		88,412
State	21,096				37,347				(28,530		)
International	4,659				4,431				2,486
Total deferred income tax	77,789				(56,982		)		62,368
	$	258,400			$	323,859			$	431,761

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

	Year ended December 31,
	2018				2017				2016
Continuing operations	$	258,400			$	323,859			$	431,761
Discontinued operations	99,768				(364,856		)		24,052
	$	358,168			$	(40,997	)		$	455,813

F-24

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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,
	2018			2017			2016
Federal income tax rate	21.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit	4.1			3.7			2.6
Gain on APAC JV ownership changes	—			(0.2	)		(9.9	)
Political advocacy costs	2.3			—			—
APAC investment impairment	—			6.4			—
Impact of 2017 Tax Act	(0.1	)		(20.5	)		—
Other	1.9			2.0			1.8
Impact of noncontrolling interests primarily attributable to non-tax paying entities	(4.6	)		(3.3	)		(2.9	)
Effective tax rate	24.6	%		23.1	%		26.6	%

On December 22, 2017, the President signed into law tax legislation known as the Tax Cuts and Jobs Act ("2017 Tax Act"). Consistent with Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 118, the Company completed its analysis of certain aspects of the 2017 Tax Act in the prior year and recorded provisional amounts for those items for which the accounting was not complete as of December 31, 2017. As of December 31, 2018, the Company has completed its analysis of these provisional items and recorded immaterial adjustments to the original estimates.

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

	December 31,
	2018				2017
Receivables	$	19,327			$	19,705
Accrued liabilities	106,506				96,537
Net operating loss carryforwards	117,511				108,429
Other	36,712				37,794
Deferred tax assets	280,056				262,465
Valuation allowance	(70,474		)		(61,282		)
Net deferred tax assets	209,582				201,183
Intangible assets	(555,822		)		(501,763		)
Property and equipment	(118,008		)		(100,376		)
Investments in partnerships	(67,354		)		(61,529		)
Other	(30,934		)		(23,762		)
Deferred tax liabilities	(772,118		)		(687,430		)
Net deferred tax liabilities	$	(562,536	)		$	(486,247	)

At December 31, 2018, the Company had federal net operating loss carryforwards of approximately $124,935 that expire through 2037, although a substantial amount expire by 2028. The Company also had state net operating loss carryforwards of $459,558 that expire through 2038 and international net operating loss carryforwards of $186,757, 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 $9,192 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 Company's foreign earnings continue to be indefinitely reinvested as of December 31, 2018. As a result of the passage of the 2017 Tax Act, the Company does not expect such earnings to be taxable if remitted.

F-25

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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,
	2018				2017
Beginning balance	$	32,776			$	24,066
Additions for tax positions related to current year	6,111				7,606
Additions for tax positions related to prior years	4,134				804
Reductions related to lapse of applicable statute	(338		)		(1,380		)
Impact of 2017 Tax Act	—				3,731
Reductions related to settlements with taxing authorities	(2,301		)		(2,051		)
Ending balance	$	40,382			$	32,776

As of December 31, 2018, the Company’s total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold is $40,382, of which $37,538 would impact the Company’s effective tax rate if recognized. This balance represents an increase of $7,606 from the December 31, 2017 balance of $32,776, 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 income tax expense. At December 31, 2018 and 2017, the Company had approximately $9,019 and $4,195, 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 2014 and 2009, respectively. In addition to being under audit in various state and local tax jurisdictions, the Company’s federal tax returns are under audit by the Internal Revenue Service for the years 2014-2016.

14**. Long-term debt**

Long-term debt was comprised of the following:

	December 31,
	2018				2017				Interest rate		Maturity date
Senior Secured Credit Facilities:
Term Loan A	$	675,000			$	775,000			2.00% + LIBOR		6/24/2019
Term Loan A-2	995,000				—				1.00% + LIBOR		6/24/2019
Term Loan B	3,342,500				3,377,500				2.75% + LIBOR(2)		6/24/2021
Revolver	175,000				300,000				2.00% + LIBOR		6/24/2019
Senior Notes:
5 3/4% Senior Notes	1,250,000				1,250,000				5.75%		8/15/2022
5 1/8% Senior Notes	1,750,000				1,750,000				5.125%		7/15/2024
5% Senior Notes	1,500,000				1,500,000				5%		5/1/2025
Acquisition obligations and other notes payable(1)	183,979				150,512				6.24%		2019-2025
Capital lease obligations(1)	282,737				297,170				5.49%		2019-2036
Total debt principal outstanding	10,154,216				9,400,182
Discount and deferred financing costs	(52,000		)		(63,951		)
	10,102,216				9,336,231
Less current portion	(1,929,369		)		(178,213		)
	$	8,172,847			$	9,158,018

F-26

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

(1)	For acquisition obligations and other notes payable and capital lease obligations, the interest rate is the weighted average interest rate as of December 31, 2018 and the maturity date is the range of maturity dates as of December 31, 2018.

(2)	Term Loan B has a floor of 0.75%.

Scheduled maturities of long-term debt at December 31, 2018 were as follows:

2019	$	1,929,369
2020	80,016
2021	3,314,149
2022	1,291,472
2023	37,881
Thereafter	$	3,501,329

During the year ended December 31, 2018, the Company made mandatory principal payments under its senior secured credit facilities totaling $100,000 on Term Loan A and $35,000 on Term Loan B.

Term Loans

On March 29, 2018, the Company entered into an Increase Joinder No. 1 (Increase Joinder Agreement) under its existing senior secured credit facilities. Pursuant to this Increase Joinder Agreement, the Company entered into an additional $995,000 Term Loan A-2.

Total outstanding borrowings under Term Loan A, Term Loan A-2 and Term Loan B 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, Term Loan A-2 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, 2018, the overall weighted average interest rate for Term Loan A, Term Loan A-2 and Term Loan B was determined based upon the LIBOR interest rates in effect for all of the individual tranches plus their respective interest rate margins noted in the table above.

The Company maintains 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, including all of Term Loan B and part of Term Loan A. However, the remaining $517,500 outstanding principal balance of Term Loan A and the entire outstanding balance on Term Loan A-2 would still be subject to LIBOR-based interest rate volatility. See below for further details. The Company is restricted from paying dividends under the terms of its senior secured credit facilities.

Revolving lines of credit

As of December 31, 2018, the Company has $175,000 drawn on its $1,000,000 revolving line of credit under its senior secured credit facilities, in addition to approximately $14,155 committed for outstanding letters of credit. The Company also has approximately $22,621 of additional outstanding letters of credit under a separate bilateral secured letter of credit facility, and $211 of committed outstanding letters of credit which are backed by a certificate of deposit.

Senior Notes

The Senior Notes are unsecured obligations, rank equally in right of payment with the Company’s existing and future unsecured senior indebtedness, 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. Interest rates on the Senior Notes are fixed by their terms, and the Company is restricted from paying dividends under the indentures governing its Senior Notes.

F-27

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Interest rate cap and swap agreements

As of December 31, 2018, the Company maintains several 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 are 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 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. These cap agreements do not contain credit-risk contingent features.

The Company's current interest rate cap agreements were entered into in October 2015 with notional amounts totaling $3,500,000. These cap agreements became effective June 29, 2018, 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, and will expire on June 30, 2020. As of December 31, 2018, the total fair value of these cap agreements was an asset of approximately $851. During the year ended December 31, 2018, the Company recognized debt expense of $4,327 from these cap agreements and recorded a loss of $181 in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements.

Previously, the Company maintained other interest rate cap agreements that were entered into in November 2014 with notional amounts also totaling $3,500,000. These cap agreements had 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 and expired on June 30, 2018. During the year ended 2018, the Company recognized debt expense of $4,140 from these cap agreements and recorded an immaterial loss in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements through expiration.

The following table summarizes the Company’s derivative instruments as of December 31, 2018 and 2017:

				Fair value
Derivatives designated as hedging instruments		Balance sheet location		December 31, 2018				December 31, 2017
Interest rate cap agreements		Other long-term assets		$	851			$	1,032

The following table summarizes the effects of the Company’s interest rate cap and swap agreements for the years ended December 31, 2018, 2017 and 2016:

		Amount of unrealized losses in OCI on interest rate cap and swap agreements												Location of losses		Amount of losses reclassified from accumulated OCI into income
		Year ended December 31,													Year ended December 31,
Derivatives designated as cash flow hedges		2018				2017				2016					2018				2017				2016
Interest rate cap agreements		$	(181	)		$	(8,897	)		$	(5,198	)		Debt expense		$	8,466			$	8,278			$	3,899
Interest rate swap agreements		—				—				(815		)		Debt expense		—				—				299
Tax benefit		48				3,460				2,343				Tax expense		(2,180		)		(3,220		)		(1,632		)
Total		$	(133	)		$	(5,437	)		$	(3,670	)				$	6,286			$	5,058			$	2,566

The Company’s overall weighted average effective interest rate on the senior secured credit facilities at the end of 2018 was 5.11%, based upon the current margins in effect as of December 31, 2018.

The Company’s overall weighted average effective interest rate during the year ended December 31, 2018 was 4.96% and as of December 31, 2018 was 5.19%.

Debt expense

Debt expense consisted of interest expense of $461,897, $406,341 and $394,013 and the amortization and accretion of debt discounts and premiums, amortization of deferred financing costs and the amortization of interest rate cap agreements of

F-28

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

$25,538, $24,293 and $20,103 for 2018, 2017 and 2016, respectively. These interest expense amounts are net of capitalized interest.

15**. Leases**

The majority of the Company’s facilities are leased under non-cancellable operating leases ranging in terms from five years to 15 years and which contain renewal options of five years 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
2019	$	483,488			$	36,754
2020	462,154				41,044
2021	432,950				34,026
2022	395,462				33,690
2023	349,649				33,845
Thereafter	1,589,949				194,611
	$	3,713,652			373,970
Less portion representing interest					(91,233		)
Total capital lease obligations, including current portion					$	282,737

Rent expense under all operating leases for 2018, 2017, and 2016 was $596,117, $530,748 and $478,531, 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 $235,194 and $257,772 at December 31, 2018 and 2017, respectively. Capital lease obligations are included in long-term debt. See Note 14 to these consolidated financial statements.

16**. Employee benefit plans**

The Company has a 401(k) retirement savings plan for substantially all of its Kidney Care employees which has been established pursuant to the applicable provisions 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. Beginning in 2018, the Company implemented a 401(k) matching program under which the Company matches 50% of the employee's contribution up to 6% of the employee's salary, subject to certain limitations. The matching contributions are subject to certain eligibility and vesting conditions. For the year ended December 31, 2018, the Company accrued matching contributions totaling approximately $67,807. Prior to 2018, the Company did not provide matching contributions in connection with the 401(k) savings plan for its Kidney Care employees.

The Company also maintains a voluntary compensation deferral plan, the Deferred Compensation Plan, as well as other legacy deferral plans. The Deferred Compensation Plan 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 2018, 2017 and 2016 were $3,090, $4,497 and $5,344, 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 2018, 2017 and 2016 the Company distributed $4,652, $2,789 and $1,065, respectively, to participants from its deferred compensation plans. Participants are credited with their proportional amount of annual earnings from the plans. The assets of these plans are held in rabbi trusts and as such are subject to the claims of the Company’s general creditors in the event of its bankruptcy. As of December 31, 2018 and 2017, the total fair value of assets held in these plans' trusts was $36,124 and $38,895, respectively. The assets of these plans are recorded at fair value with changes in fair value recorded in other comprehensive income prior to 2018 and recognized in "Other income, net" since January 1, 2018. Any fair value changes to the corresponding liability balance are recorded as compensation expense. See Note 5 to these consolidated financial statements.

F-29

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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 at December 31, 2018, these cash bonuses would total approximately $336,530 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, 2018, 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.

17**. 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, 2018, and December 31, 2017, the Company’s total recorded accruals, including DMG, with respect to legal proceedings and regulatory matters, net of anticipated third party recoveries, were immaterial. 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

2016 U.S. Attorney Texas Investigation: In early February 2016, the Company announced that its pharmacy services’ wholly-owned subsidiary, DaVita Rx, LLC (DaVita Rx), received a Civil Investigative Demand (CID) from the U.S. Attorney’s Office, 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 an investigation into the Company’s relationships with pharmaceutical manufacturers. The CID covers the period from January 1, 2006 through the present. 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 practices that had been identified by the Company in a self-disclosure filed with the Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) in February 2016. In December 2017, the Company finalized and executed a settlement agreement with the government and relators in the qui tam matter that included total monetary consideration of $63,700, as previously disclosed, 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 certain of the Company's relationships with pharmaceutical manufacturers is ongoing, and in July 2018 the OIG served the Company with a subpoena seeking additional documents and information relating to those relationships. The Company is continuing to cooperate with the government in this investigation.

2017 U.S. Attorney Massachusetts Investigation: In January 2017, the Company was served with an administrative subpoena for records by the U.S. Attorney’s Office, District of Massachusetts, relating to an investigation into possible federal

F-30

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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 continuing to cooperate with the government in this investigation.

2017 U.S. Attorney Colorado Investigation: In November 2017, the U.S. Attorney’s Office, District of Colorado informed the Company of an investigation it was conducting into possible federal health care offenses involving DaVita Kidney Care, as well as several of the Company’s wholly-owned subsidiaries, including DMG, DaVita Rx, DaVita Laboratory Services, Inc. (DaVita Labs), and RMS Lifeline Inc. (Lifeline). In August 2018, the Company received a CID from the U.S. Attorney's Office. The CID was issued pursuant to the FCA and covers the period from January 2005 through the present. In connection with the resolution of the 2015 U.S. OIG Medicare Advantage Civil Investigation referred to below, the Company resolved possible claims relating to DMG in this investigation. The Company is continuing to cooperate with the government in this investigation.

2017 U.S. Attorney Florida Investigation: In November 2017, the U.S. Attorney’s Office, Southern District of Florida informed the Company of an investigation it was conducting into possible federal healthcare offenses involving the Company's wholly-owned subsidiary, Lifeline. The Company is continuing to cooperate with the government in this investigation.

2018 U.S. Attorney Florida Investigation: In March 2018, DaVita Labs received two CIDs from the U.S. Attorney’s Office, Middle District of Florida that were identical in nature but directed to the two different labs. According to the face of the CIDs, the U.S. Attorney’s Office is conducting an investigation as to whether the Company’s subsidiary submitted claims for blood, urine, and fecal testing, where there were insufficient test validation or stability studies to ensure accurate results, in violation of the FCA. In October 2018, DaVita Labs received a subpoena from the OIG in connection with this matter requesting certain patient records linked to clinical laboratory tests. The Company is continuing to cooperate with the government in this investigation.

---

Although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved (other than as may be 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 and to develop over the course of time. In addition to the inquiries and proceedings specifically identified above, the Company frequently is 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 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 and Derivative 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. On March 27, 2018, the Company and various individual defendants filed a motion to dismiss. Briefing on the motion is complete. The plaintiffs filed an opposition to the motion to dismiss on June 6, 2018. The Company filed a reply in support of the motion on July 19, 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 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

F-31

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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 plaintiffs filed an opposition to the motion to dismiss on March 9, 2018. On June 25, 2018, the U.S. District Court for the District of Delaware granted the Company’s motion to stay proceedings and stayed the case until January 7, 2019, the date of the next status conference. During the status conference on January 7, 2019 the court further extended the stay until February 8, 2019. The parties submitted a proposed scheduling order on that date. The Company asked the Court to rule on the fully-briefed motion to dismiss before opening discovery. 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

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 OIG Medicare Advantage Civil Investigation: In March 2015, JSA HealthCare Corporation (JSA), a subsidiary of DMG, received a subpoena from the OIG 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 requested information regarding JSA’s communications about patient diagnoses as they related to certain MA plans generally, and more specifically as related to two Florida physicians with whom JSA previously contracted.

In addition to the subpoena described above, in June 2015, the Company received a civil subpoena from the OIG seeking production of a wide range of documents relating to the Company’s and its subsidiaries’ (including DMG and its subsidiary JSA) provision of services to MA plans and related patient diagnosis coding and risk adjustment submissions and payments. The Company believes that the request was part of a broader industry investigation into MA patient diagnosis coding and risk adjustment practices and potential overpayments by the government. The information requested included information related 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 Centers for Medicare and Medicaid Services (CMS) in April 2015 of the coding practice and potential overpayments. In that regard, the Company identified certain additional coding practices which may have been problematic, some of which were the subject of the previously disclosed and dismissed Swoben Private Civil Suit.

The Company entered into a settlement agreement with the DOJ and OIG to resolve these matters on September 28, 2018. As previously disclosed, an escrow established in connection with the Company's acquisition of HealthCare Partners in 2012 held back a portion of the purchase price to the prior owners of HealthCare Partners as security for the indemnification rights of the Company. The settlement amount of $270,000 was paid with these escrowed funds.

White, Kathleen, et al. v. DaVita Healthcare Partners, Inc., Civil Action No. 15-cv-2106, U.S. District Court for the District of Colorado: Three actions (Menchaca v. DaVita Healthcare Partners, Inc., Saldana v. DaVita Healthcare Partners, Inc. and Hardin v. DaVita Healthcare Partners, Inc.) were consolidated in December 2016 into one action in U.S. District Court for the District of Colorado. In all three actions, the plaintiffs brought claims for wrongful death based on allegations related to Granuflo®, a product used as a component of the dialysis process. The Menchaca and Saldana actions arose out of the treatment of patients in California, while the Hardin action arose out of the treatment of a patient in Illinois. On June 27, 2018,

F-32

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

the jury returned a verdict in favor of the plaintiffs, collectively awarding $8,500 in compensatory damages and $375,000 in punitive damages. Judgment on this verdict was not entered. In November 2018, the parties settled all three of the consolidated actions collectively for $25,500, and all three cases were dismissed with prejudice. One of the Company’s insurance carriers paid $9,200 of the settlement. The Company believes it is probable that it will be able to recover the remainder of the settlement amount from other insurers, indemnitors, and the like; however, the Company can make no assurances that it will recover the full amount.

---

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 17 to these consolidated financial statements, 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, results of operations, financial condition, cash flows or reputation.

18**. 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, 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 is 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 $4,675.

Certain consolidated joint ventures are originally contractually scheduled to dissolve after terms ranging from ten years 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 2017, the Company entered into a Sourcing and Supply Agreement with Amgen USA Inc. (Amgen) that expires on December 31, 2022. 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.

F-33

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The Company has an agreement with Fresenius Medical Care (FMC) to purchase a certain amount of dialysis equipment, parts and supplies from FMC, which was extended through December 31, 2020. During 2018, 2017 and 2016, the Company purchased $182,446, $176,212 and $164,766, respectively, of certain equipment, parts and supplies from FMC.

The Company also has an agreement with Baxter Healthcare Corporation (Baxter) that commits the Company to purchase a certain amount of peritoneal dialysis supplies at fixed prices through 2022. During 2018, 2017 and 2016, the Company purchased $162,858, $166,764 and $162,109 of peritoneal dialysis supplies from Baxter under this agreement.

Other than operating leases disclosed in Note 15 to these consolidated financial statements, the letters of credit disclosed in Note 14 to these consolidated financial statements, and the arrangements as described above, the Company has no off balance sheet financing arrangements as of December 31, 2018.

19**. 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.

The Company’s stock-based compensation expense for stock-settled awards is measured at the estimated fair value of awards on the date of grant and recognized on a cumulative straight-line basis over the vesting terms of the awards unless the stock awards are based on non-market based performance metrics, in which case expense is adjusted for expected ultimate payouts as of the end of each reporting period. Stock-based compensation expense for cash-settled awards is based on the estimated fair values as of the end of each reporting period. The expense for all stock-based awards is recognized net of expected forfeitures.

Stock-based compensation to be settled in shares is recorded to the Company’s shareholders’ contributed capital, while stock-based compensation to be settled in cash is recorded to a liability. Shares issued upon exercise of stock awards are 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 months to 48 months from the date of grant. At December 31, 2018, there were 6,162,797 stock-settled stock appreciation rights, 1,860,475 stock-settled stock units, 23,000 cash-settled stock appreciation rights and 1,600 cash-settled stock units outstanding, and 23,091,764 shares available for future grants, under the 2011 Plan.

F-34

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, 2018
	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	6,648,199				$	67.92					1,075,572
Granted	1,902,652				$	66.54					1,101,388
Exercised	(2,059,872		)		$	60.34					(165,543		)
Canceled	(328,182		)		$	70.44					(150,942		)
Outstanding at end of period	6,162,797				$	69.90			2.9		1,860,475				2.2
Exercisable at end of period	1,422,529				$	73.39			0.9		—				—
Weighted-average fair value of grants
2018	$	16.24									$	66.23
2017	$	14.51									$	65.73
2016	$	13.74									$	70.99

		Awards Outstanding			Weighted average exercise price				Awards exercisable			Weighted average exercise price
Range of SSARs base prices
$50.01–$60.00		131,470			$	57.90			—			$	—
$60.01–$70.00		4,083,162			$	66.66			757,237			$	68.96
$70.01–$80.00		1,351,997			$	74.78			346,316			$	73.81
$80.01–$90.00		596,168			$	83.60			318,976			$	83.47
Total		6,162,797			$	69.90			1,422,529			$	73.39

The Company did not grant any cash-settled stock-based awards during 2018. Liability-classified stock-based awards contributed $(20), $114 and $376 to stock-based compensation expense for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, 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 $79.

For the years ended December 31, 2018, 2017, and 2016, the aggregate intrinsic value of stock-based awards exercised was $31,045, $34,895 and $73,944, respectively. At December 31, 2018, the aggregate intrinsic value of stock-based awards outstanding was $95,822 and the aggregate intrinsic value of stock awards exercisable was zero.

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.

F-35

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,
	2018			2017			2016
Expected term	4.2			4.2			4.2
Expected volatility	23.8	%		23.9	%		21.0	%
Expected dividend yield	—	%		—	%		—	%
Risk-free interest rate	2.9	%		1.7	%		1.0	%

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 2018, 2017 and 2016 participation periods were $17,398, $22,131 and $23,902, respectively. Shares purchased pursuant to the plan’s 2018, 2017 and 2016 participation periods were 397,749, 360,368 and 438,002, respectively. At December 31, 2018, there were 6,726,278 shares remaining available for future grants under this plan.

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 2018, 2017 and 2016, respectively: expected volatility of 24%, 23% and 22%; risk-free interest rate of 1.9%, 1.3% and 0.8%, and no dividends. Using these assumptions, the weighted average estimated fair value of these purchase rights was $17.45, $15.19 and $16.73 for 2018, 2017 and 2016, respectively.

Long-term incentive compensation expense and proceeds

For the years ended December 31, 2018, 2017 and 2016, the Company recognized $85,759, $61,978 and $64,956, respectively, in total long-term incentive program (LTIP) expense, of which $73,582, $34,431 and $34,530, 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 2018, 2017 and 2016 were $13,591, $7,717 and $12,731, respectively. As of December 31, 2018, there was $99,935 total estimated unrecognized compensation expense for outstanding LTIP awards, including $88,596 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 0.8 years and the stock-based component of this LTIP expense over a weighted average remaining period of 1.5 years.

During the year ended December 31, 2018, the Company adopted a retirement policy (Rule of 65 policy). The Rule of 65 policy generally provides that Section 16 executive officers that are a minimum age of 55 with five years of continuous service with the Company receive certain benefits with respect to their outstanding equity awards upon a qualifying retirement if the

F-36

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

sum of their age plus years of service is greater than or equal to 65. These benefits generally include accelerated vesting of restricted stock unit awards, continued vesting of stock-settled stock appreciation rights and performance stock unit awards and an exercise window from the original vest date through the original expiration date regardless of continued employment, with pro rata vesting for a Rule of 65 retirement within one year of the award grant date. The adoption of the Rule of 65 policy resulted in a $14,704 modification charge and a net acceleration of expense of $9,727 during the year ended December 31, 2018 that is included in the expense amounts reported above.

For the years ended December 31, 2018, 2017 and 2016, the Company received $7,988, $13,473 and $28,397, respectively, in actual tax benefits upon the exercise of stock awards. Since the Company issues stock-settled stock appreciation rights rather than stock options, there have been no cash proceeds from stock option exercises during the years ended December 31, 2018, 2017 and 2016.

Stock repurchases

During the years ended December 31, 2018 and 2017, the Company repurchased a total of 16,844,067 shares and 12,966,672 shares of its common stock for $1,153,511 and $810,949, or an average price of $68.48 and $62.54 per share, respectively, pursuant to previously announced authorizations by the Board of Directors. Subsequent to December 31, 2018, the Company has not repurchased any shares of its common stock through February 22, 2019.

On July 11, 2018, the Company's Board of Directors approved an additional share repurchase authorization in the amount of $1,389,999. This share repurchase authorization was in addition to the $110,001 remaining at that time under the Company’s Board of Directors’ prior share repurchase authorization approved in October 2017. Accordingly, as of February 22, 2019, the Company has a total of $1,355,605 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, 2018 and December 31, 2017.

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 5,000,000 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 consolidated equity are as follows:

	Year ended December 31,
	2018				2017				2016
Net income attributable to DaVita Inc.	$	159,394			$	663,618			$	879,874
Changes in paid-in-capital for:
Sales of noncontrolling interest	79				(114		)		—
Purchase of noncontrolling interests	(17,897		)		(2,752		)		(13,105		)
Net transfer in noncontrolling interests	(17,818		)		(2,866		)		(13,105		)
Net income attributable to DaVita Inc. net of transfers in noncontrolling interests	$	141,576			$	660,752			$	866,769

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DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

The Company acquired additional ownership interests in several existing majority-owned joint ventures for $28,082, $5,357, and $21,512 in 2018, 2017, and 2016, respectively.

20**. Accumulated 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, 2016	$	(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 of income (loss) 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 of income (loss) 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
Cumulative effect of change in accounting principle(1)	(2,706		)		(5,662		)		—				(8,368		)
Unrealized losses	(181		)		—				(45,944		)		(46,125		)
Related income tax	48				—				—				48
	(133		)		—				(45,944		)		(46,077		)
Reclassification of income into net income	8,466				—				—				8,466
Related income tax	(2,180		)		—				—				(2,180		)
	6,286				—				—				6,286
Balance at December 31, 2018	$	(8,961	)		$	—			$	(25,963	)		$	(34,924	)

(1)	Reflects the cumulative effect of a change in accounting principle for ASUs 2016-01 and 2018-03 on classification and measurement of financial instruments and ASU 2018-02 on remeasurement and reclassification of deferred tax effects in accumulated other comprehensive income associated with the 2017 Tax Act. See Note 5 for further details.

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 14 to these consolidated financial statements for further details.

Prior to January 1, 2018, unrealized gains and losses on available-for-sale equity securities were recorded to accumulated other comprehensive income and reclassified to other income when realized. From January 1, 2018, unrealized gains and losses on investment securities are recorded directly to other income rather than to accumulated other comprehensive income.

21**. Acquisitions and divestitures**

Routine acquisitions

During 2018, the Company acquired 18 dialysis centers in the U.S. and 28 dialysis centers outside the U.S. for a total of $176,161 in net cash paid, earn-outs of $1,246, and deferred purchase price and liabilities assumed of $34,394. In one of these transactions we acquired a controlling interest in a previously nonconsolidated U.S. dialysis partnership for which we

F-38

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

recognized a non-cash gain of $28,152 on our prior interest upon consolidation. During 2017, the Company 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 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. 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 2018 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 these 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,
	2018				2017				2016
Current assets	$	23,686			$	14,366			$	3,996
Property and equipment	11,421				18,192				8,840
Amortizable intangible and other long-term assets	3,079				11,663				5,876
Non-amortizable intangibles	23,656				32,296				—
Goodwill	278,348				318,832				198,927
Deferred income taxes	—				(210		)		597
Noncontrolling interests assumed	(80,291		)		(44,303		)		(30,337		)
Liabilities assumed	(19,946		)		(15,846		)		(3,317		)
Aggregate purchase cost	$	239,953			$	334,990			$	184,582

Amortizable intangible assets acquired, primarily related to non-compete agreements, during 2018, 2017 and 2016 had weighted-average estimated useful lives of six years, seven years and seven years, respectively. The total amount of goodwill deductible for tax purposes associated with these acquisitions for 2018, 2017, and 2016 was approximately $165,013, $237,363 and $169,379, respectively.

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 purchase price allocation for the Renal Ventures acquisition was finalized in 2018 with no material change to the initial allocation.

The following table summarizes the assets acquired and liabilities assumed in this transaction 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

F-39

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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.

Change in ownership interests in Asia Pacific joint venture

Upon formation of the APAC JV on August 1, 2016, the Company deconsolidated this Asia Pacific dialysis business based on the governance structure and voting rights put in place at that time and recognized an initial non-cash non-taxable estimated gain of $374,374 on its retained investment, net of contingent obligations. See further discussion of this joint venture in Note 10.

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 2018 and 2017 had been consummated as of the beginning of 2017, including the impact of certain adjustments such as amortization of intangibles, interest expense on acquisition financing and income tax effects.

	Year ended December 31,
	2018				2017
	(unaudited)
Pro forma net revenues	$	11,508,555			$	11,176,736
Pro forma net income from continuing operations attributable to DaVita Inc.	$	634,326			$	922,718
Pro forma basic net income per share from continuing operations attributable to DaVita Inc.	$	3.71			$	4.89
Pro forma diluted net income per share from continuing operations attributable to DaVita Inc.	$	3.68			$	4.82

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 $11,210 if certain EBITDA, operating income performance targets or quality margins are met over the next one year to five 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, 2018, the Company estimated the fair value of these contingent earn-out obligations to be $2,608, of which a total of $431 is included in other liabilities, and the remaining $2,177 is included in other long-term liabilities in the Company’s consolidated balance sheet.

The following is a reconciliation of changes in contingent earn-out obligations for the year ended December 31, 2018:

Beginning balance December 31, 2017	$	6,388
Contingent earn-out obligations associated with acquisitions	1,246
Remeasurement of fair value	(4,729		)
Payments of contingent earn-out obligations	(297		)
Ending balance December 31, 2018	$	2,608

22**. Held for sale and discontinued operations**

DaVita Medical Group (DMG)

In December 2017, the Company entered into an equity purchase agreement to sell its DMG division to Optum, a subsidiary of UnitedHealth Group Inc., subject to receipt of required regulatory approvals and other customary closing conditions. On December 11, 2018, the Company entered into an amendment to the equity purchase agreement, which, among other things, reduced the purchase price for DMG from $4,900,000 to $4,340,000. The current deadline to close the transaction under the equity purchase agreement is June 30, 2019, and the transaction is expected to close prior to that date. As a result of

F-40

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

this pending transaction, the DMG business has been classified as held for sale and its results of operations are reported as discontinued operations for all periods presented in these consolidated financial statements.

During 2018, the Company recorded $468,005 in charges on its DMG business which included a $316,840 valuation adjustment, a $41,537 goodwill impairment charge and $109,628 in related tax expense on this held-for-sale business based on updated assessments of fair value.

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

	Year ended December 31,
	2018				2017				2016
Net revenues	$	4,963,792			$	4,676,213			$	4,113,414
Expenses	4,962,686				4,634,782				3,994,624
Goodwill and other asset impairment charges	41,537				651,659				253,000
Valuation adjustment on disposal group	316,840				—				—
Loss from discontinued operations before taxes	(357,271		)		(610,228		)		(134,210		)
Income tax expense (benefit)	99,768				(364,856		)		24,052
Net loss from discontinued operations, net of tax	$	(457,038	)		$	(245,372	)		$	(158,262	)

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

	December 31, 2018				December 31, 2017
Assets
Cash and cash equivalents	$	414,683			$	179,668
Other current assets	557,403				826,608
Property and equipment, net	458,040				379,945
Intangible assets, net	1,316,974				1,316,550
Other long-term assets	112,127				178,894
Goodwill	2,847,178				2,879,977
Valuation allowance on disposal group	(316,840		)		—
Total current assets held for sale	$	5,389,565			$	5,761,642
Liabilities
Other liabilities	$	479,134			$	505,734
Medical payables	436,839				457,040
Current portion of long-term debt	3,122				2,845
Long-term debt	33,425				35,003
Other long-term liabilities	291,239				184,448
Total current liabilities held for sale	$	1,243,759			$	1,185,070

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

	Year ended December 31,
	2018				2017				2016
Net cash provided by operating activities from discontinued operations	$	290,684			$	357,274			$	287,044
Net cash used in investing activities from discontinued operations	$	(57,382	)		$	(232,329	)		$	(430,917	)

F-41

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

DMG acquisitions

During 2018, the Company's DMG business acquired other medical businesses for a total of $6,995 in net cash and deferred purchase price of $1,142. 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's DMG business acquired other medical businesses for a total of $398,748 in net cash and deferred purchase price and liabilities assumed of $7,694. For several of the 2018 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.

Sale of Tandigm Health investment

In 2018, DMG sold its 19% ownership interest in the Tandigm Health joint venture and a related supporting business for a gain of $25,096 and associated taxes of $6,460, resulting in a net of tax gain of $18,636.

Goodwill impairment charges

The Company recorded goodwill and other asset impairment charges for the DMG business as presented above. As a result of the December 2018 amendment to the equity purchase agreement, discussed above, the Company recorded a goodwill impairment charge in 2018. Goodwill impairment charges for 2017 and 2016 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.

23**. 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.

The Company has determined that substantially all of the legal 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.

At December 31, 2018, these consolidated financial statements include total assets of VIEs of $917,922 and total liabilities and noncontrolling interests of VIEs to third parties of $507,445, including assets of $658,684 and liabilities and noncontrolling interests of $355,196 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 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 16

F-42

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

to these consolidated financial statements for disclosures on the assets of these consolidated non-qualified deferred compensation plans.

24**. Fair values of financial instruments**

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined based on the principal or most advantageous market for the item being measured, assume that buyers and sellers are independent, willing and able to transact, and knowledgeable, with access to all information customarily available in such a transaction, and are based on assumptions that market participants would use in pricing the item, not assumptions specific to the reporting entity.

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.

The following table summarizes the Company’s assets, liabilities and temporary equity measured at fair value on a recurring basis as of December 31, 2018 and 2017:

December 31, 2018	Total				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Assets
Investments in equity securities	$	36,124			$	36,124			$	—			$	—
Interest rate cap agreements	$	851			$	—			$	851			$	—
Liabilities
Contingent earn-out obligations	$	2,608			$	—			$	—			$	2,608
Temporary equity
Noncontrolling interests subject to put provisions	$	1,124,641			$	—			$	—			$	1,124,641
December 31, 2017
Assets
Investments in equity 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

Investments in equity securities represent investments in various open-ended registered investment companies (mutual funds) and common stock and are recorded at fair value estimated based on reported market prices or redemption prices, as applicable. See Note 5 to these consolidated financial statements for further discussion.

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 14 to these consolidated financial statements for further discussion.

F-43

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

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 21 to these consolidated financial statements for further discussion.

See Note 18 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, 2018 and 2017 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 $5,168,815, including a discount of $6,104 and deferred financing costs of $12,580, as of December 31, 2018, and the fair value was approximately $5,194,163 based upon quoted market prices. The carrying amount of the Company’s Senior Notes was approximately $4,466,685, including deferred financing costs of $33,316, at December 31, 2018 and the fair value was approximately $4,241,250 at December 31, 2018 based upon quoted market prices. The fair value of all other debt approximates its carrying value.

25**. Segment reporting**

The Company consists 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 support. See Note 1 "Organization" for a summary description of the Company's businesses.

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 kidney care operations in each foreign sovereign jurisdiction, its other health operations in each foreign sovereign jurisdiction, and its equity method investment in the Asia Pacific joint venture. 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,
	2018				2017				2016
Segment revenues:****(1)
U.S. dialysis and related lab services
Patient service revenues:
External sources	$	10,274,046			$	9,767,123			$	9,524,067
Intersegment revenues	92,950				55,176				27,355
Total U.S. dialysis and related lab services revenues	10,366,996				9,822,299				9,551,422
Provision for uncollectible accounts	(50,927		)		(481,973		)		(429,878		)
Net U.S. dialysis and related lab services patient service revenues	10,316,069				9,340,326				9,121,544
Other revenues(2)	19,880				19,739				16,645
Total net U.S. dialysis and related lab services revenues	10,335,949				9,360,065				9,138,189
Other - Ancillary services and strategic initiatives
Net patient service revenues	437,275				323,156				201,867
Other external sources	724,577				1,248,589				1,394,766
Intersegment revenues	34,236				24,603				24,739
Total ancillary services and strategic initiatives revenues	1,196,088				1,596,348				1,621,372
Total net segment revenues	11,532,037				10,956,413				10,759,561
Elimination of intersegment revenues	(127,186		)		(79,779		)		(52,094		)
Consolidated net revenues	$	11,404,851			$	10,876,634			$	10,707,467
Segment operating margin (loss):
U.S. dialysis and related lab services	$	1,709,721			$	2,297,198			$	1,777,014
Other—Ancillary services and strategic initiatives	(93,789		)		(439,477		)		266,324
Total segment margin	1,615,932				1,857,721				2,043,338
Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:
Corporate administrative support	(90,108		)		(44,966		)		(13,628		)
Consolidated operating income	1,525,824				1,812,755				2,029,710
Debt expense	(487,435		)		(430,634		)		(414,116		)
Other income	10,089				17,665				7,511
Income from continuing operations before income taxes	$	1,048,478			$	1,399,786			$	1,623,105

(1)

On January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) using the cumulative effect method for those contracts that were not substantially completed as of January 1, 2018. Results related to performance obligations satisfied beginning on and after January 1, 2018 are presented under Topic 606, while results related to the satisfaction of performance obligations in prior periods continue to be reported in accordance with the Company's historical accounting under Revenue Recognition (Topic 605). See Notes 1 and 2 of these consolidated financial statements for further discussion of the Company's adoption of Topic 606.

(2)	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 reportable segment is as follows:

	Year ended December 31,
	2018				2017				2016
U.S. dialysis and related lab services	$	558,810			$	520,965			$	482,768
Other - Ancillary services and strategic initiatives	32,225				38,946				26,729
	$	591,035			$	559,911			$	509,497

F-45

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Summary of assets by reportable segment is as follows:

	Year ended December 31,
	2018				2017
Segment assets
U.S. dialysis and related lab services (including equity investments of $95,290 and $84,866, respectively)	$	12,333,641			$	11,802,131
Other - Ancillary services and strategic initiatives(1) (including equity investments of $129,321 and $160,668, respectively)	1,387,046				1,410,763
DMG - Held for sale (including equity investments of $4,833 and $10,321, respectively)	5,389,565				5,761,642
Consolidated assets	$	19,110,252			$	18,974,536

(1)	Includes approximately $136,052 and $125,932 in 2018 and 2017, respectively, of net property and equipment related to the Company’s international operations.

Expenditures for property and equipment by reportable segment is as follows:

	Year ended December 31,
	2018				2017				2016
U.S. dialysis and related lab services	$	856,108			$	769,732			$	675,994
Other - Ancillary services and strategic initiatives	45,806				40,377				68,702
DMG - Held for sale	85,224				95,141				84,399
	$	987,138			$	905,250			$	829,095

26**. Supplemental cash flow information**

The table below provides supplemental cash flow information:

	Year ended December 31,
	2018				2017				2016
Cash paid:
Income taxes	$	92,526			$	387,159			$	339,411
Interest	$	488,974			$	424,547			$	406,987
Non-cash investing and financing activities:
Fixed assets under capital lease obligations	$	8,828			$	48,378			$	28,127

F-46

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

27**. Selected quarterly financial data (unaudited)**

2018	December 31				September 30				June 30				March 31
Total revenues	$	2,821,124			$	2,847,330			$	2,886,953			$	2,849,444
Operating income	$	387,908			$	289,038			$	438,192			$	410,686
Attributable to DaVita Inc.:
Net income from continuing operations(1)	$	160,332			$	73,371			$	199,603			$	191,015
Net (loss) income from discontinued operations(2)	$	(310,104	)		$	(210,167	)		$	67,673			$	(12,329	)
Net (loss) income	$	(149,772	)		$	(136,796	)		$	267,276			$	178,686
Per share attributable to DaVita Inc.:
Basic net income from continuing operations	$	0.97			$	0.44			$	1.16			$	1.07
Basic net (loss) income from discontinued operations	$	(1.87	)		$	(1.26	)		$	0.40			$	(0.07	)
Basic net (loss) income	$	(0.90	)		$	(0.82	)		$	1.56			$	1.00
Diluted net income from continuing operations	$	0.96			$	0.44			$	1.15			$	1.05
Diluted net (loss) income from discontinued operations	$	(1.86	)		$	(1.26	)		$	0.38			$	(0.07	)
Diluted net (loss) income	$	(0.90	)		$	(0.82	)		$	1.53			$	0.98
2017
Total revenues	$	2,780,913			$	2,765,071			$	2,699,399			$	2,631,251
Operating income	$	150,337			$	395,294			$	391,196			$	875,928
Attributable to DaVita Inc.:
Net income from continuing operations(1)	$	156,210			$	152,870			$	151,292			$	440,905
Net income (loss) from discontinued operations(2)	$	147,186			$	(367,346	)		$	(24,291	)		$	6,792
Net income (loss)	$	303,396			$	(214,476	)		$	127,001			$	447,697
Per share attributable to DaVita Inc.:
Basic net income from continuing operations	$	0.86			$	0.81			$	0.79			$	2.29
Basic net income (loss) from discontinued operations	$	0.80			$	(1.95	)		$	(0.13	)		$	0.04
Basic net income (loss)	$	1.66			$	(1.14	)		$	0.66			$	2.33
Diluted net income from continuing operations	$	0.85			$	0.80			$	0.78			$	2.26
Diluted net income (loss) from discontinued operations	$	0.79			$	(1.92	)		$	(0.13	)		$	0.03
Diluted net income (loss)	$	1.64			$	(1.12	)		$	0.65			$	2.29

(1)

Included in the fourth quarter of 2018 is a net gain on changes in ownership interests of $28,152; an equity investment loss of $8,715 due to the sale of the APAC JV's India business; and an equity investment loss of $1,530 due to impairments at the APAC JV. The third quarter of 2018 includes restructuring charges of $11,366 and other asset impairment charges of $6,093 related to the Company's pharmacy business; an equity investment loss of $5,995 due to impairments at the APAC JV; an adjustment to the gain on changes in ownership interests on the sale of the Company's direct primary care business of $1,506; and $23,470 in additional stock-based compensation expense related to modification charges and net acceleration of expense. The second quarter of 2018 includes asset impairment charges of $11,245 related to the pharmacy business; a net gain on changes in ownership interests of $35,205 on the Company's direct primary care business; a loss of $1,248 related to the unwinding of a business internationally; and a goodwill impairment charge of $3,106 at the Company's German other health operations. Included in the fourth quarter of 2017 was an impairment of $280,066 on the Company's investment in the APAC JV. The third quarter of 2017 included an equity investment loss of $6,293 for goodwill impairments at the APAC JV and restructuring charges in the Company's international business of $2,700. The second quarter of 2017 included goodwill impairment charges of $10,498 related to the vascular access reporting unit. The first quarter of 2017 included a net gain on settlement of $529,504; goodwill impairment charges of $24,198 related to the vascular access reporting unit; an asset impairment of $15,168 related to the restructuring of the pharmacy business; and a gain adjustment on the 2016 ownership change of the APAC JV of $6,273.

F-47

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

(2)

Included in discontinued operations in the fourth quarter of 2018 is a $218,639 disposal group valuation adjustment, a $41,537 goodwill impairment charge and $8,318 in related tax benefit. The third quarter of 2018 includes a $216,147 charge on the Company's DMG business which included a $98,201 disposal group valuation adjustment and $117,946 in related tax expense on this held-for-sale business. The second quarter of 2018 includes a gain on the sale of the Company's Tandigm investment of $25,096. The fourth quarter of 2017 includes a net tax benefit of $163,555 due to a remeasurement of deferred taxes resulting from DMG's reclassification to held for sale. The third quarter of 2017 includes goodwill impairment charges of $601,040 related to certain DMG reporting units; a non-cash gain associated with the Company's Magan acquisition of $17,129; restructuring charges of $9,569; and a reduction in estimated accruals for legal matters of $11,100. The second quarter of 2017 includes goodwill impairment charges of $50,619 related to certain DMG reporting units and a reduction in estimated accruals for legal matters of $3,600.

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.

Consolidating Statements of Income

For twelve months ended December 31, 2018		DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Dialysis and related lab patient service revenues		$	—			$	7,263,195			$	3,657,456			$	(210,670	)		$	10,709,981
Less: Provision for uncollectible accounts		—				(36,377		)		(13,210		)		—				(49,587		)
Net dialysis and related lab patient service revenues		—				7,226,818				3,644,246				(210,670		)		10,660,394
Other revenues		799,230				714,489				189,927				(959,189		)		744,457
Total net revenues		799,230				7,941,307				3,834,173				(1,169,859		)		11,404,851
Operating expenses and charges		646,640				7,100,415				3,301,831				(1,169,859		)		9,879,027
Operating income		152,590				840,892				532,342				—				1,525,824
Debt expense		(491,749		)		(208,484		)		(36,427		)		249,225				(487,435		)
Other income, net		418,839				10,367				22,195				(441,312		)		10,089
Income tax expense		23,482				187,691				47,227				—				258,400
Equity earnings in subsidiaries		103,196				344,025				—				(447,221		)		—
Net income from continuing operations		159,394				799,109				470,883				(639,308		)		790,078
Net (loss) income from discontinued operations, net of tax		—				(695,913		)		46,788				192,087				(457,038		)
Net income		159,394				103,196				517,671				(447,221		)		333,040
Less: Net income attributable to noncontrolling interests		—				—				—				(173,646		)		(173,646		)
Net income attributable to DaVita Inc.		$	159,394			$	103,196			$	517,671			$	(620,867	)		$	159,394

F-48

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Income - (continued)

For twelve months ended December 31, 2017		DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Dialysis and related lab patient service revenues		$	—			$	6,884,750			$	3,393,026			$	(184,106	)		$	10,093,670
Less: Provision for uncollectible accounts		—				(340,552		)		(151,982		)		7,170				(485,364		)
Net dialysis and related lab patient service revenues		—				6,544,198				3,241,044				(176,936		)		9,608,306
Other revenues		793,751				1,204,467				68,322				(798,212		)		1,268,328
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		DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Dialysis and related lab patient service revenues		$	—			$	6,665,601			$	3,215,085			$	(153,326	)		$	9,727,360
Less: Provision for uncollectible accounts		—				(272,426		)		(158,878		)		—				(431,304		)
Net dialysis and related lab patient service revenues		—				6,393,175				3,056,207				(153,326		)		9,296,056
Other revenues		767,791				1,378,952				30,184				(765,516		)		1,411,411
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-49

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Comprehensive Income

For the year ended December 31, 2018		DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net income		$	159,394			$	103,196			$	517,671			$	(447,221	)		$	333,040
Other comprehensive income (loss)		6,153				—				(45,944		)		—				(39,791		)
Total comprehensive income		165,547				103,196				471,727				(447,221		)		293,249
Less: Comprehensive income attributable to noncontrolling interest		—				—				—				(173,646		)		(173,646		)
Comprehensive income attributable to DaVita Inc.		$	165,547			$	103,196			$	471,727			$	(620,867	)		$	119,603
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

F-50

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Balance Sheets

As of December 31, 2018		DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Cash and cash equivalents		$	60,653			$	—			$	262,385			$	—			$	323,038
Restricted cash and equivalents		1,005				12,048				79,329				—				92,382
Accounts receivable, net		—				1,264,290				594,318				—				1,858,608
Other current assets		37,185				601,318				122,063				—				760,566
Current assets held for sale		—				4,440,953				948,612				—				5,389,565
Total current assets		98,843				6,318,609				2,006,707				—				8,424,159
Property and equipment, net		491,462				1,624,835				1,277,372				—				3,393,669
Intangible assets, net		153				42,933				75,760				—				118,846
Investments in subsidiaries		10,102,750				3,239,862				—				(13,342,612		)		—
Intercompany receivables		3,419,448				—				1,471,203				(4,890,651		)		—
Other long-term assets and investments		53,385				80,537				197,696				—				331,618
Goodwill		—				4,812,365				2,029,595				—				6,841,960
Total assets		$	14,166,041			$	16,119,141			$	7,058,333			$	(18,233,263	)		$	19,110,252
Current liabilities		$	1,945,943			$	1,251,534			$	449,925			$	—			$	3,647,402
Current liabilities held for sale		—				722,766				520,993				—				1,243,759
Total current liabilities		1,945,943				1,974,300				970,918				—				4,891,161
Intercompany payables		—				3,327,026				1,563,625				(4,890,651		)		—
Long-term debt and other long-term liabilities		7,918,581				715,065				552,406				—				9,186,052
Noncontrolling interests subject to put provisions		598,075				—				—				526,566				1,124,641
Total DaVita Inc. shareholders' equity		3,703,442				10,102,750				3,239,862				(13,342,612		)		3,703,442
Noncontrolling interests not subject to put provisions		—				—				731,522				(526,566		)		204,956
Total equity		3,703,442				10,102,750				3,971,384				(13,869,178		)		3,908,398
Total liabilities and equity		$	14,166,041			$	16,119,141			$	7,058,333			$	(18,233,263	)		$	19,110,252

F-51

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Balance Sheets - (continued)

As of December 31, 2017		DaVita Inc.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Cash and cash equivalents		$	149,305			$	—			$	358,929			$	—			$	508,234
Restricted cash and equivalents		1,002				9,384				300				—				10,686
Accounts receivable, net		—				1,208,715				506,035				—				1,714,750
Other current assets		67,025				621,409				86,955				—				775,389
Current assets held for sale		—				4,992,067				769,575				—				5,761,642
Total current assets		217,332				6,831,575				1,721,794				—				8,770,701
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			$	16,329,322			$	6,371,260			$	(18,086,756	)		$	18,974,536
Current liabilities		$	238,706			$	1,207,482			$	436,262			$	—			$	1,882,450
Current liabilities held for sale		—				739,294				445,776				—				1,185,070
Total current liabilities		238,706				1,946,776				882,038				—				3,067,520
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			$	16,329,322			$	6,371,260			$	(18,086,756	)		$	18,974,536

F-52

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Cash Flow

For the year ended December 31, 2018		DaVita Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Cash flows from operating activities:
Net income		$	159,394			$	103,196			$	517,671			$	(447,221	)		$	333,040
Changes in operating assets and liabilities and non-cash items included in net income		(86,070		)		818,027				259,422				447,221				1,438,600
Net cash provided by operating activities		73,324				921,223				777,093				—				1,771,640
Cash flows from investing activities:
Additions of property and equipment, net		(175,787		)		(534,278		)		(277,073		)		—				(987,138		)
Acquisitions		—				(73,046		)		(110,110		)		—				(183,156		)
Proceeds from asset sales, net of cash divested		—				61,962				88,243				—				150,205
Investments and other items		30,962				(16,362		)		(154		)		—				14,446
Net cash used in investing activities		(144,825		)		(561,724		)		(299,094		)		—				(1,005,643		)
Cash flows from financing activities:
Long-term debt and related financing costs, net		725,889				(11,437		)		(19,675		)		—				694,777
Intercompany borrowing		404,897				(311,778		)		(93,119		)		—				—
Other items		(1,147,934		)		(28,067		)		(144,130		)		—				(1,320,131		)
Net cash used in financing activities		(17,148		)		(351,282		)		(256,924		)		—				(625,354		)
Effect of exchange rate changes on cash		—				—				(3,350		)		—				(3,350		)
Net (decrease) increase in cash, cash equivalents and restricted cash		(88,649		)		8,217				217,725				—				137,293
Less: Net increase in cash, cash equivalents and restricted cash from discontinued operations		—				5,553				235,240				—				240,793
Net (decrease) increase in cash, cash equivalents and restricted cash from continuing operations		(88,649		)		2,664				(17,515		)		—				(103,500		)
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year		150,307				9,384				359,229				—				518,920
Cash, cash equivalents and restricted cash of continuing operations at end of the year		$	61,658			$	12,048			$	341,714			$	—			$	415,420

F-53

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Cash Flow - (continued)

For the year ended December 31, 2017		DaVita Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
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		(533,300		)		368,135				695,209				552,567				1,082,611
Net cash provided by operating activities		130,318				846,327				936,521				—				1,913,166
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 and business sales, net of cash divested		—				90,340				1,996				—				92,336
Investments and other items		211,619				(7,004		)		47,446				—				252,061
Net cash provided by (used in) investing activities		55,647				(1,100,986		)		(319,393		)		—				(1,364,732		)
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, cash equivalents and restricted cash		(399,614		)		(50,834		)		232,879				—				(217,569		)
Less: Net decrease in cash, cash equivalents and restricted cash from discontinued operations		—				(51,531		)		(1,495		)		—				(53,026		)
Net (decrease) increase in cash, cash equivalents and restricted cash from continuing operations		(399,614		)		697				234,374				—				(164,543		)
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year		549,921				8,687				124,855				—				683,463
Cash, cash equivalents and restricted cash of continuing operations at end of the year		$	150,307			$	9,384			$	359,229			$	—			$	518,920

F-54

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Consolidating Statements of Cash Flow - (continued)

For the year ended December 31, 2016		DaVita Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
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		)		359,366				(168,614		)		1,360,998				939,044
Net cash provided by operating activities		267,168				1,053,086				651,872				—				1,972,126
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 sales		—				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, cash equivalents and restricted cash		(636,715		)		(41,483		)		100,951				—				(577,247		)
Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued operations		—				(50,170		)		34,377				—				(15,793		)
Net (decrease) increase in cash, cash equivalents and restricted cash from continuing operations		(636,715		)		8,687				66,574				—				(561,454		)
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year		1,186,636				—				58,281				—				1,244,917
Cash, cash equivalents and restricted cash of continuing operations at end of the year		$	549,921			$	8,687			$	124,855			$	—			$	683,463

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

For the year ended December 31, 2018		Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries**(1)**
Dialysis and related lab patient service revenues		$	10,709,981			$	—			$	—			$	10,709,981
Less: Provision for uncollectible accounts		(49,587		)		—				—				(49,587		)
Net dialysis and related lab patient service revenues		10,660,394				—				—				10,660,394
Other revenues		744,457				—				—				744,457
Total net revenues		11,404,851				—				—				11,404,851
Operating expenses and charges		9,879,027				—				—				9,879,027
Operating income		1,525,824				—				—				1,525,824
Debt expense		(487,435		)		—				—				(487,435		)
Other income, net		10,089				—				—				10,089
Income tax expense		258,400				—				—				258,400
Net income from continuing operations		790,078				—				—				790,078
Net (loss) income from discontinued operations, net of tax		(457,038		)		37,373				92				(494,503		)
Net income		333,040				37,373				92				295,575
Less: Net income attributable to noncontrolling interests		(173,646		)		(7,841		)		—				(165,805		)
Net income attributable to DaVita Inc.		$	159,394			$	29,532			$	92			$	129,770

Condensed Consolidating Statements of Comprehensive Income

For the year ended December 31, 2018		Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries**(1)**
Net income		$	333,040			$	37,373			$	92			$	295,575
Other comprehensive loss		(39,791		)		—				—				(39,791		)
Total comprehensive income		293,249				37,373				92				255,784
Less: Comprehensive income attributable to noncontrolling interest		(173,646		)		(7,841		)		—				(165,805		)
Comprehensive income attributable to DaVita Inc.		$	119,603			$	29,532			$	92			$	89,979

(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

As of December 31, 2018		Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries**(1)**
Cash and cash equivalents		$	323,038			$	—			$	—			$	323,038
Restricted cash and equivalents		92,382				—				—				92,382
Accounts receivable, net		1,858,608				—				—				1,858,608
Other current assets		760,566				—				—				760,566
Other current assets held for sale		5,389,565				532,050				2,825				4,854,690
Total current assets		8,424,159				532,050				2,825				7,889,284
Property and equipment, net		3,393,669				—				—				3,393,669
Amortizable intangibles, net		118,846				—				—				118,846
Other long-term assets		331,618				—				—				331,618
Goodwill		6,841,960				—				—				6,841,960
Total assets		$	19,110,252			$	532,050			$	2,825			$	18,575,377
Current liabilities		$	3,647,402			$	—			$	—			$	3,647,402
Current liabilities held for sale		1,243,759				351,925				—				891,834
Total current liabilities		4,891,161				351,925				—				4,539,236
Payables to parent		—				25,456				2,825				(28,281		)
Long-term debt and other long-term liabilities		9,186,052				—				—				9,186,052
Noncontrolling interests subject to put provisions		1,124,641				—				—				1,124,641
Total DaVita Inc. shareholders' equity		3,703,442				154,669				—				3,548,773
Noncontrolling interests not subject to put provisions		204,956				—				—				204,956
Shareholders' equity		3,908,398				154,669				—				3,753,729
Total liabilities and shareholders' equity		$	19,110,252			$	532,050			$	2,825			$	18,575,377

F-57

DAVITA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(dollars in thousands, except per share data)

Condensed Consolidating Statements of Cash Flow

For the year ended December 31, 2018		Consolidated Total				Physician Groups				Unrestricted Subsidiaries				Company and Restricted Subsidiaries**(1)**
Cash flows from operating activities:
Net income		$	333,040			$	37,373			$	92			$	295,575
Changes in operating and intercompany assets and liabilities and non-cash items included in net income		1,438,600				81,722				(92		)		1,356,970
Net cash provided by operating activities		1,771,640				119,095				—				1,652,545
Cash flows from investing activities:
Additions of property and equipment		(987,138		)		(2,746		)		—				(984,392		)
Acquisitions and divestitures, net		(183,156		)		—				—				(183,156		)
Proceeds from asset sales		150,205				—				—				150,205
Investments and other items, net		14,446				(154		)		—				14,600
Net cash used in investing activities		(1,005,643		)		(2,900		)		—				(1,002,743		)
Cash flows from financing activities:
Long-term debt and related financing costs, net		694,777				—				—				694,777
Intercompany		—				25,296				—				(25,296		)
Other items		(1,320,131		)		—				—				(1,320,131		)
Net cash (used in) provided by financing activities		(625,354		)		25,296				—				(650,650		)
Effect of exchange rate changes on cash		(3,350		)		—				—				(3,350		)
Net increase (decrease) in cash, cash equivalents and restricted cash		137,293				141,491				—				(4,198		)
Less: Net increase in cash, cash equivalents and restricted cash from discontinued operations		240,793				141,491				—				99,302
Net decrease in cash, cash equivalents and restricted cash from continuing operations		(103,500		)		—				—				(103,500		)
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year		518,920				—				—				518,920
Cash, cash equivalents and restricted cash of continuing operations at end of the year		$	415,420			$	—			$	—			$	415,420

(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)
2.3		Amendment No. 2, dated as of August 30, 2013, 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.ü
2.4		Amendment No. 3, dated as of June 22, 2018, 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.(30)
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		Sourcing and Supply Agreement between DaVita Inc. and Amgen USA Inc. effective as of January 6, 2017.(6)**
10.2		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)
10.3		Amendment No. 1 dated as of September 20, 2018, to that certain Equity Purchase Agreement, dated as of December 5, 2017, by and among DaVita, Inc., a Delaware corporation, Collaborative Care Holdings, LLC, a Delaware limited liability company and a wholly owned subsidiary of Optum, Inc., and solely with respect to Section 9.3 and Section 9.18 thereto, UnitedHealth Group Incorporated, a Delaware corporation.(31)

Page 1 of 5

10.4		Second Amendment to Equity Purchase Agreement by and between DaVita, Inc., a Delaware corporation, and Collaborative Care Holdings, LLC, a Delaware limited liability company, dated as of December 11, 2018, amending that certain 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 (as previously amended).(14)
10.5		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)
10.6		Amendment No. 1, dated as of November 21, 2018, to that certain Credit Agreement, dated as of June 24, 2014, by and among DaVita Inc., the guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the other agents from time to time party thereto.(16)
10.7		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)
10.8		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)
10.9		Employment Agreement, effective July 25, 2008, between DaVita Inc. and Kent J. Thiry.(15)*
10.10		Amendment to Employment Agreement, effective December 31, 2014, by and between DaVita Inc. and Kent. J. Thiry.*ü
10.11		Amendment Number Two to Employment Agreement, effective as of August 20, 2018, by and between DaVita Inc. and Kent J. Thiry (32).*
10.12		Employment Agreement, effective March 17, 2010, by and between DaVita Inc. and Javier Rodriguez.(20)*
10.13		Amendment to Employment Agreement, effective December 31, 2014, by and between DaVita Inc. and Javier Rodriguez.*ü
10.14		Employment Agreement, effective February 21, 2017, by and between DaVita Inc. and Joel Ackerman.(9)*
10.15		Employment Agreement, effective April 27, 2016, by and between DaVita HealthCare Partners Inc. and Kathleen A. Waters.(6)*
10.16		Employment Agreement, effective September 22, 2005, by and between DaVita Inc. and James Hilger.(8)*
10.17		Amendment to Mr. Hilger’s Employment Agreement, effective December 12, 2008.(18)*
10.18		Second Amendment to Mr. Hilger’s Employment Agreement, effective December 27, 2012.(23)*
10.19		Third Amendment to Employment Agreement, effective December 31, 2014, by and between DaVita Inc. and James Hilger.*ü
10.20		Transition Agreement, dated as of July 31, 2018, by and between DaVita Inc. and James Hilger.(30)*

Page 2 of 5

10.21		Amendment to Stock Appreciation Rights Agreements, entered into effective as of March 1, 2018, by and between DaVita Inc. and Carol Anthony Davidson.(29)*
10.22		Consulting Agreement, effective June 15, 2017, by and between DaVita Inc. and Roger J. Valine.(3)*
10.23		Amendment to Stock Appreciation Rights Agreements, effective June 15, 2017, by and between DaVita Inc. and Roger J. Valine.(3)*
10.24		Form of Indemnity Agreement.(12)*
10.25		Form of Indemnity Agreement.(7)*
10.26		DaVita Deferred Compensation Plan.(9)*
10.27		Executive Incentive Plan (as Amended and Restated effective January 1, 2009).(19)*
10.28		DaVita Voluntary Deferral Plan.(5)*
10.29		Deferred Bonus Plan (Prosperity Plan).(17)*
10.30		Amendment No. 1 to Deferred Bonus Plan (Prosperity Plan).(18)*
10.31		Amended and Restated Employee Stock Purchase Plan.(13)*
10.32		DaVita Inc. Severance Plan for Directors and Above.*ü
10.33		Change in Control Bonus Program.(18)*
10.34		DaVita Inc. Non-Employee Director Compensation Policy. (29)*
10.35		Amended and Restated DaVita Inc. 2011 Incentive Award Plan.(11)*
10.36		DaVita Inc. Rule of 65 Policy, adopted on August 19, 2018.(32)*
10.37		Form of Stock Appreciation Rights Agreement-Executives (DaVita Inc. 2011 Incentive Award Plan).(30)*
10.38		Form of Restricted Stock Units Agreement-Executives (DaVita Inc. 2011 Incentive Award Plan).(30)*
10.39		Form of Performance Stock Units Agreement -Executives (DaVita Inc. 2011 Incentive Award Plan).(30)*
10.40		Form of Stock Appreciation Rights Agreement-Board members (DaVita Inc. 2011 Incentive Award Plan).(30)*
10.41		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)*
10.42		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)*
10.43		Form of Stock Appreciation Rights Agreement-Board members (DaVita Inc. 2011 Incentive Award Plan).(24)*

Page 3 of 5

10.44		Form of Stock Appreciation Rights Agreement-Executives (DaVita Inc. 2011 Incentive Award Plan).(23)*
10.45		Form of Restricted Stock Units Agreement-Executives (DaVita Inc. 2011 Incentive Award Plan).(24)*
10.46		Form of Long-Term Incentive Program Award Agreement (For 162(m) designated teammates) (DaVita Inc. 2011 Incentive Award Plan).(23)*
10.47		Form of Long-Term Incentive Program Award Agreement (DaVita Inc. 2011 Incentive Award Plan).(23)*
21.1		List of our subsidiaries.ü
23.1		Consent of KPMG LLP, independent registered public accounting firm.ü
24.1		Powers of Attorney with respect to DaVita. (Included on Page S-1).
31.1		Certification of the Chief Executive Officer, dated February 22, 2019, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.ü
31.2		Certification of the Chief Financial Officer, dated February 22, 2019, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.ü
32.1		Certification of the Chief Executive Officer, dated February 22, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.ü
32.2		Certification of the Chief Financial Officer, dated February 22, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.ü
101.INS		XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.ü
101.SCH		XBRL Taxonomy Extension Schema Document.ü
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.ü
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.ü
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.ü
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.ü

ü	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.

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(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 December 17, 2018 as an exhibit to the Company’s Current Report on Form 8-K.

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

(16)	Filed on November 26, 2018 as an exhibit to the Company’s Current Report on Form 8-K.

(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.

(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.

(29)	Filed on May 3, 2018 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

(30)	Filed on August 1, 2018 as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

(31)	Filed on September 24, 2018 as an exhibit to the Company’s Current Report on Form 8-K.

(32)	Filed on August 23, 2018 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 22, 2019.

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 22, 2019
Kent J. Thiry		(Principal Executive Officer)
/S/ JOEL ACKERMAN		Chief Financial Officer		February 22, 2019
Joel Ackerman		(Principal Financial Officer)
/S/ JAMES K. HILGER		Chief Accounting Officer		February 22, 2019
James K. Hilger		(Principal Accounting Officer)
/S/ PAMELA M. ARWAY		Director		February 22, 2019
Pamela M. Arway
/S/ CHARLES G. BERG		Director		February 22, 2019
Charles G. Berg
/S/ BARBARA J. DESOER		Director		February 22, 2019
Barbara J. Desoer
/S/ PASCAL DESROCHES		Director		February 22, 2019
Pascal Desroches
/S/ PAUL J. DIAZ		Director		February 22, 2019
Paul J. Diaz
/S/ PETER T. GRAUER		Director		February 22, 2019
Peter T. Grauer
/S/ JOHN M. NEHRA		Director		February 22, 2019
John M. Nehra
/S/ WILLIAM L. ROPER		Director		February 22, 2019
William L. Roper
/S/ PHYLLIS R. YALE		Director		February 22, 2019
Phyllis R. Yale

S-2

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, 2018		$	218,399			$	—			$	42,287			$	207,762			$	52,924
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

S-3