2018 Q4 Form 10-Q Financial Statement

#000092706618000196 Filed on November 07, 2018

View on sec.gov

Income Statement

Concept 2018 Q4 2018 Q3 2017 Q4
Revenue $2.821B $2.847B $2.781B
YoY Change 1.45% 2.97% 3.02%
Cost Of Revenue $2.027B $2.064B $1.942B
YoY Change 4.4% 5.75% -473.84%
Gross Profit $794.1M $783.6M $839.2M
YoY Change -5.37% -3.68% 324.91%
Gross Profit Margin 28.15% 27.52% 30.18%
Selling, General & Admin $268.5M $337.1M $259.8M
YoY Change 3.35% 24.76% -346.02%
% of Gross Profit 33.81% 43.02% 30.96%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $155.1M $146.0M $184.0M
YoY Change -15.71% -28.18% -2.54%
% of Gross Profit 19.53% 18.63% 21.93%
Operating Expenses $423.7M $483.1M $404.1M
YoY Change 4.85% 17.0% -416.94%
Operating Profit $387.9M $289.0M $150.3M
YoY Change 158.03% -26.88% -58.64%
Interest Expense -$138.9M -$129.7M -$112.2M
YoY Change 23.8% 13.18% 21.96%
% of Operating Profit -35.81% -44.87% -74.63%
Other Income/Expense, Net -$500.0K $4.007M $5.500M
YoY Change -109.09% 17.99% -1016.67%
Pretax Income $259.1M $167.1M $46.83M
YoY Change 453.34% -42.25% -81.97%
Income Tax $51.70M $52.05M $101.7M
% Of Pretax Income 19.95% 31.14% 217.19%
Net Earnings -$149.8M -$136.8M $303.4M
YoY Change -149.37% -36.22% 92.36%
Net Earnings / Revenue -5.31% -4.8% 10.91%
Basic Earnings Per Share -$0.90 -$0.82 $1.66
Diluted Earnings Per Share -$0.90 -$0.82 $1.64
COMMON SHARES
Basic Shares Outstanding 166.0M shares 166.8M shares 183.3M shares
Diluted Shares Outstanding 167.3M shares

Balance Sheet

Concept 2018 Q4 2018 Q3 2017 Q4
SHORT-TERM ASSETS
Cash & Short-Term Investments $361.4M $488.0M $578.8M
YoY Change -37.56% -55.78% -42.8%
Cash & Equivalents $323.0M $448.2M $508.2M
Short-Term Investments $38.36M $39.78M $70.53M
Other Short-Term Assets $5.594B $6.129B $112.1M
YoY Change 4892.06% 2886.68% 12.61%
Inventory $107.4M $91.10M $181.8M
Prepaid Expenses $108.3M $104.7M
Receivables $1.859B $1.847B $1.715B
Other Receivables $469.8M $383.8M $399.3M
Total Short-Term Assets $8.424B $8.930B $8.771B
YoY Change -3.95% 121.38% 119.56%
LONG-TERM ASSETS
Property, Plant & Equipment $3.394B $3.276B $3.149B
YoY Change 7.76% -3.26% 9.95%
Goodwill $6.842B $6.703B $6.610B
YoY Change 3.5% -28.82% 9.89%
Intangibles $118.8M $97.61M $113.8M
YoY Change 4.41% -93.27% 54.86%
Long-Term Investments $0.00 $0.00 $0.00
YoY Change
Other Assets $71.58M $76.52M $47.29M
YoY Change 51.38% 24.13% 39.67%
Total Long-Term Assets $10.69B $10.43B $10.20B
YoY Change 4.73% -30.38% -30.87%
TOTAL ASSETS
Total Short-Term Assets $8.424B $8.930B $8.771B
Total Long-Term Assets $10.69B $10.43B $10.20B
Total Assets $19.11B $19.36B $18.97B
YoY Change 0.72% 1.81% 1.17%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $463.3M $458.9M $509.1M
YoY Change -9.01% -19.05% 11.5%
Accrued Expenses $659.0M $632.0M $616.0M
YoY Change 6.98% -18.45% -36.95%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $1.929B $1.784B $178.0M
YoY Change 983.71% 838.95% 11.25%
Total Short-Term Liabilities $4.891B $4.855B $3.068B
YoY Change 59.45% 68.89% 13.15%
LONG-TERM LIABILITIES
Long-Term Debt $8.173B $8.441B $9.158B
YoY Change -10.76% -5.25% 2.38%
Other Long-Term Liabilities $450.7M $452.4M $365.3M
YoY Change 23.36% -17.47% 15.11%
Total Long-Term Liabilities $450.7M $452.4M $365.3M
YoY Change 23.36% -17.47% 15.11%
TOTAL LIABILITIES
Total Short-Term Liabilities $4.891B $4.855B $3.068B
Total Long-Term Liabilities $450.7M $452.4M $365.3M
Total Liabilities $14.08B $14.26B $13.08B
YoY Change 7.65% 9.58% 1.12%
SHAREHOLDERS EQUITY
Retained Earnings $2.743B $3.951B $3.634B
YoY Change -24.51% -2.93% -2.06%
Common Stock $995.2M $1.056B $1.043B
YoY Change -4.59% -0.32% 1.53%
Preferred Stock
YoY Change
Treasury Stock (at cost) $0.00 $1.154B $0.00
YoY Change 230.71%
Treasury Stock Shares
Shareholders Equity $3.703B $3.825B $4.690B
YoY Change
Total Liabilities & Shareholders Equity $19.11B $19.36B $18.97B
YoY Change 0.72% 1.81% 1.17%

Cashflow Statement

Concept 2018 Q4 2018 Q3 2017 Q4
OPERATING ACTIVITIES
Net Income -$149.8M -$136.8M $303.4M
YoY Change -149.37% -36.22% 92.36%
Depreciation, Depletion And Amortization $155.1M $146.0M $184.0M
YoY Change -15.71% -28.18% -2.54%
Cash From Operating Activities $419.1M $417.0M $480.7M
YoY Change -12.81% -17.13% -5.11%
INVESTING ACTIVITIES
Capital Expenditures -$281.4M $231.7M -$265.5M
YoY Change 5.99% -3.82% 4.57%
Acquisitions
YoY Change
Other Investing Activities -$62.80M -$5.600M $6.200M
YoY Change -1112.9% -56.92% -98.0%
Cash From Investing Activities -$344.3M -$237.2M -$259.2M
YoY Change 32.83% -6.58% -567.03%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -202.1M -117.4M -236.5M
YoY Change -14.55% -28.68% -56.53%
NET CHANGE
Cash From Operating Activities 419.1M 417.0M 480.7M
Cash From Investing Activities -344.3M -237.2M -259.2M
Cash From Financing Activities -202.1M -117.4M -236.5M
Net Change In Cash -127.3M 62.40M -15.00M
YoY Change 748.67% -26.33% -182.87%
FREE CASH FLOW
Cash From Operating Activities $419.1M $417.0M $480.7M
Capital Expenditures -$281.4M $231.7M -$265.5M
Free Cash Flow $700.5M $185.3M $746.2M
YoY Change -6.12% -29.35% -1.88%

Facts In Submission

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us-gaap Description Of New Accounting Pronouncements Not Yet Adopted
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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">New accounting standards</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On May&#160;28, 2014, the FASB issued ASU No. 2014-09,&#160;</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Revenue from Contracts with Customers (Topic 606),</font><font style="font-family:inherit;font-size:10pt;"> 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 amends 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 </font><font style="font-family:inherit;font-size:10pt;">2</font><font style="font-family:inherit;font-size:10pt;"> for further details.</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In January 2016, the FASB issued ASU No. 2016-01,&#160;</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities</font><font style="font-family:inherit;font-size:10pt;">.&#160;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 </font><font style="font-family:inherit;font-size:10pt;">5</font><font style="font-family:inherit;font-size:10pt;"> for further details.</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In February 2016, the FASB issued ASU No. 2016-02, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Leases (Topic 842)</font><font style="font-family:inherit;font-size:10pt;">. The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for substantially all leases with lease terms in excess of twelve months. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. In July 2018, the FASB issued ASU No. 2018-10, Codification Amendments to Topic 842, and ASU No. 2018-11, which include targeted improvements to the guidance issued in ASU 2016-02. The amendments in these ASUs are effective for the Company beginning on January 1, 2019 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, either at the beginning of the earliest comparative period presented in the financial statements or at the adoption date with a cumulative effect adjustment. Early adoption is permitted. The Company has assembled an internal cross-functional lease task force that meets regularly to discuss and evaluate the current lease portfolio and related systems, processes, controls and policy changes necessary. The Company has made progress in gathering the necessary data elements for the lease population and a system provider has been selected, with system configuration and implementation underway. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and believes it will have a material impact on its consolidated balance sheet but will not have a material impact on its results of operations or liquidity. The Company expects to adopt these ASUs by applying the new guidance on January 1, 2019 and recognizing a cumulative effect adjustment. The Company is currently planning on electing the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company continues to evaluate other practical expedients available under the guidance as well as the effect that the implementation of this guidance will have on its consolidated financial statements, related disclosures and controls, and ongoing business policies and processes.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> In August 2016, the FASB issued ASU No. 2016-15, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments</font><font style="font-family:inherit;font-size:10pt;">.&#160;The amendments in this ASU clarify how certain cash receipts and cash payments should be classified on the statement of cash flows.&#160;In November 2016, the FASB issued ASU No. 2016-18, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Statement of Cash Flows (Topic 230): Restricted cash.</font><font style="font-family:inherit;font-size:10pt;"> 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&#8217;s consolidated financial statements when adopted on January 1, 2018. </font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In October 2016, the FASB issued ASU No. 2016-16, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory</font><font style="font-family:inherit;font-size:10pt;">. The amendments in this ASU allow entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The current guidance does not allow recognition until the asset has been sold to an outside party. The amendments in this ASU are effective for the Company beginning on January 1, 2018 and are to be applied on a modified retrospective basis.&#160;The adoption of this ASU did not have a material impact on the Company&#8217;s consolidated financial statements when adopted on January 1, 2018. </font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In August 2017, the FASB issued ASU No. 2017-12, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. </font><font style="font-family:inherit;font-size:10pt;">The amendments in this ASU better align an entity&#8217;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 the new ASU are effective for the Company on January 1, 2019 and are to be applied prospectively. The adoption of this ASU is not expected to have a material impact on the Company&#8217;s consolidated financial statements when adopted on January 1, 2019. </font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In February 2018, the FASB issued ASU No. 2018-02,&#160;</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income</font><font style="font-family:inherit;font-size:10pt;">, which allows for the reclassification of certain income tax effects related to the 2017 Tax Act between &#8220;Accumulated other comprehensive income&#8221; and &#8220;Retained earnings.&#8221; 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 &#8220;Income from continuing operations&#8221;, even in situations where the related items were originally recognized in &#8220;Other comprehensive income&#8221; (rather than in &#8220;Income from continuing operations&#8221;). The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. 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 </font><font style="font-family:inherit;font-size:10pt;">14</font><font style="font-family:inherit;font-size:10pt;"> for more details.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In August 2018, the FASB issued ASU No. 2018-13, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement</font><font style="font-family:inherit;font-size:10pt;">.&#160;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.&#160;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.&#160;The adoption of this ASU is not expected to have a material impact on the Company&#8217;s consolidated financial statements.</font></div></div>
us-gaap Loss Contingency Disclosures
LossContingencyDisclosures
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Contingencies</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The majority of the Company&#8217;s revenues are from government programs and may be subject to adjustment as a result of: (i)&#160;examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (ii)&#160;differing interpretations of government regulations by different Medicare contractors or regulatory authorities; (iii)&#160;differing opinions regarding a patient&#8217;s medical diagnosis or the medical necessity of services provided; and (iv)&#160;retroactive applications or interpretations of governmental requirements. In addition, the Company&#8217;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.</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company operates in a highly regulated industry and is a party to various lawsuits, claims, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> 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 </font><font style="font-family:inherit;font-size:10pt;">September&#160;30, 2018</font><font style="font-family:inherit;font-size:10pt;">, and December 31, 2017, the Company&#8217;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&#8217;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.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following is a description of certain lawsuits, claims, governmental investigations and audits and other legal proceedings to which the Company is subject.</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Inquiries by the Federal Government and Certain Related Civil Proceedings</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2015 U.S. Office of Inspector General (OIG) Medicare Advantage Civil Investigation</font><font style="font-family:inherit;font-size:10pt;">: In March 2015, JSA HealthCare Corporation (JSA), a subsidiary of DMG, received a subpoena from the OIG for the U.S. Department of Health and Human Services (HHS) requesting documents and information for the period from January 1, 2008 through December 31, 2013, for certain MA plans for which JSA provided services. It also requested information regarding JSA&#8217;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. </font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In addition to the subpoena described above, in June 2015, the Company received a civil subpoena from the OIG covering the period from January 1, 2008 through the present and seeking production of a wide range of documents relating to the Company&#8217;s and its subsidiaries&#8217; (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&#8217;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</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">&#160;Swoben Private Civil Suit</font><font style="font-family:inherit;font-size:10pt;">.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company entered into a settlement agreement with the Department of Justice (DOJ) and OIG to resolve these matters on </font><font style="font-family:inherit;font-size:10pt;">September&#160;28, 2018</font><font style="font-family:inherit;font-size:10pt;">. 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 </font><font style="font-family:inherit;font-size:10pt;">$270,000</font><font style="font-family:inherit;font-size:10pt;"> was paid with these escrowed funds.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2016 U.S. Attorney Texas Investigation</font><font style="font-family:inherit;font-size:10pt;">: 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&#8217;s Office for the Northern District of Texas. The government is conducting a federal False Claims Act (FCA) investigation concerning allegations that DaVita Rx presented or caused to be presented false claims for payment to the government for prescription medications, as well as into the Company&#8217;s relationships with pharmaceutical manufacturers. The CID covers the period from January&#160;1, 2006 through the present. In the spring of 2015, the Company initiated an internal compliance review of DaVita Rx during which it identified potential billing and operational issues, including potential write-offs and discounts of patient co-payment obligations, and credits to payors for returns of prescription drugs related to DaVita Rx. The Company notified the government in September 2015 that it was conducting this review of DaVita Rx and began providing regular updates of its review. Upon completion of its review, the Company filed a self-disclosure with the OIG in February 2016 and has been working to address and update the practices it identified in the self-disclosure, some of which overlap with information requested by the U.S. Attorney&#8217;s Office. The OIG informed the Company in February 2016 that its submission was not accepted.&#160;They indicated that the OIG is not expressing an opinion regarding the conduct disclosed or the Company&#8217;s legal positions. In connection with the Company&#8217;s ongoing efforts working with the government the Company learned that a </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> complaint had been filed covering some of the issues in the CID and the Company&#8217;s self-disclosure. In December 2017, the Company finalized and executed a settlement agreement with the government and relators in the </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> matter and that included total monetary consideration of </font><font style="font-family:inherit;font-size:10pt;">$63,700</font><font style="font-family:inherit;font-size:10pt;">, as previously announced, of which </font><font style="font-family:inherit;font-size:10pt;">$41,500</font><font style="font-family:inherit;font-size:10pt;"> was an incremental cash payment and </font><font style="font-family:inherit;font-size:10pt;">$22,200</font><font style="font-family:inherit;font-size:10pt;"> was for amounts previously refunded, and all of which was previously accrued. The government&#8217;s investigation into certain of the Company's relationships with pharmaceutical manufacturers is ongoing, and in July 2018 the government served an HHS-OIG subpoena seeking additional documents and information relating to those relationships. The Company is continuing to cooperate with the government in this investigation.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2017 U.S. Attorney Massachusetts Investigation</font><font style="font-family:inherit;font-size:10pt;">: In January 2017, the Company was served with an administrative subpoena for records by the U.S. Attorney&#8217;s Office, District of Massachusetts, relating to an investigation into possible federal health care offenses.&#160;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.&#160;The Company is continuing to cooperate with the government in this investigation.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2017 U.S. Attorney Colorado Investigation</font><font style="font-family:inherit;font-size:10pt;">: In November 2017, the U.S. Attorney&#8217;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&#8217;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 DOJ. 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 </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">2015 U.S. OIG Medicare Advantage Civil Investigation</font><font style="font-family:inherit;font-size:10pt;"> referred to above, the Company resolved possible claims relating to DMG in this investigation. The Company is continuing to cooperate with the government in this investigation. </font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2017 U.S. Attorney Florida Investigation</font><font style="font-family:inherit;font-size:10pt;">: In November 2017, the U.S. Attorney&#8217;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.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2018 U.S. Attorney Florida Investigation</font><font style="font-family:inherit;font-size:10pt;">: In March 2018, DaVita Labs received two CIDs from the U.S. Attorney&#8217;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&#8217;s Office is conducting an investigation as to whether the Company&#8217;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.</font></div><div style="line-height:174%;padding-top:13px;text-align:center;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">* * *</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved (other than as described above), it is not unusual for inquiries such as these to continue for a considerable period of time through the various phases of document and witness requests and on-going discussions with regulators 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 </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> 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&#8217;s reputation, required changes to the Company&#8217;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.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Shareholder and Derivative Claims</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">Peace Officers&#8217; Annuity and Benefit Fund of Georgia Securities Class Action Civil Suit</font><font style="font-family:inherit;font-size:10pt;">: On February 1, 2017, the Peace Officers&#8217; 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.&#160;The complaint covers the time period of August 2015 to October 2016 and alleges, generally, that the Company and its executives violated</font><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;"> </font><font style="font-family:inherit;font-size:10pt;">federal securities laws concerning the Company&#8217;s financial results and revenue derived from patients who received charitable premium assistance from an industry-funded non-profit organization.&#160;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&#8217;s business and operational status and future growth prospects."&#160;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.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">In re DaVita Inc. Stockholder Derivative Litigation</font><font style="font-family:inherit;font-size:10pt;">: 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 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&#8217;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&#8217;s motion to stay proceedings and stayed the case until January 7, 2019, the date of the next status conference. The Company disputes these allegations and intends to defend this action accordingly.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Other Proceedings</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">White, Kathleen, et al. v. DaVita Healthcare Partners, Inc.,&#160;Civil Action No. 15-cv-2106, U.S. District Court for the District of Colorado</font><font style="font-family:inherit;font-size:10pt;">: 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&#174;, a product used as a component of the dialysis process.&#160;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 </font><font style="font-family:inherit;font-size:10pt;">June&#160;27, 2018</font><font style="font-family:inherit;font-size:10pt;">, the jury returned a verdict in favor of the plaintiffs, collectively awarding </font><font style="font-family:inherit;font-size:10pt;">$8,500</font><font style="font-family:inherit;font-size:10pt;"> in compensatory damages and </font><font style="font-family:inherit;font-size:10pt;">$375,000</font><font style="font-family:inherit;font-size:10pt;"> in punitive damages. Judgment on this verdict was not entered. On November 1, 2018, the parties filed a joint motion notifying the court that they have arrived at a settlement of the three actions.&#160;The resolution of all three of the consolidated actions, collectively, is for </font><font style="font-family:inherit;font-size:10pt;">$25,500</font><font style="font-family:inherit;font-size:10pt;">, and requires the filing of a stipulation of dismissal with prejudice in each case. The court has now ordered the parties to file these stipulations of dismissal by November 30, 2018. The Company believes it is probable that it will be able to recover the settlement amount from insurers, indemnitors, and the like; however, the Company can make no assurances that it will recover the full amount. </font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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.</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Resolved Matters</font></div><div style="line-height:120%;padding-top:13px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">2011 Suit against the U.S. Department of Veterans Affairs</font><font style="font-family:inherit;font-size:10pt;">: 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 </font><font style="font-family:inherit;font-size:10pt;">$538,000</font><font style="font-family:inherit;font-size:10pt;"> related to the settlement with the VA. The Company's consolidated entities recognized a net gain of </font><font style="font-family:inherit;font-size:10pt;">$527,000</font><font style="font-family:inherit;font-size:10pt;"> on this settlement. The Company's nonconsolidated and managed entities recognized a gain of </font><font style="font-family:inherit;font-size:10pt;">$9,000</font><font style="font-family:inherit;font-size:10pt;">, of which the Company's equity investment share was </font><font style="font-family:inherit;font-size:10pt;">$3,000</font><font style="font-family:inherit;font-size:10pt;">.&#160;The net effect was a net increase of </font><font style="font-family:inherit;font-size:10pt;">$530,000</font><font style="font-family:inherit;font-size:10pt;"> to the Company's operating income.</font></div><div style="line-height:120%;padding-top:13px;text-align:center;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">* * *</font></div><div style="line-height:120%;padding-top:13px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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 </font><font style="font-family:inherit;font-size:10pt;">10</font><font style="font-family:inherit;font-size:10pt;"> to these condensed 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&#8217;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&#8217;s attention and result in significant legal expense, and may result in the diversion of significant operational resources, or otherwise harm the Company&#8217;s business, financial results or reputation.</font></div></div>

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