UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
     
FORM 10-Q
     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20192020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-14106
     
logoa32.jpg
DAVITA INC.
Delaware 51-0354549
(State of incorporation) (I.R.S. Employer Identification No.)
2000 16th Street
Denver,CO80202
Telephone number (720631-2100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Trading symbol(s): Name of each exchange on which registered:
Common Stock, $0.001 par value DVA NYSE
     
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
    
Non-accelerated filer☐ Smaller reporting company
    
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No  ☒
As of November 1, 2019,October 28, 2020, the number of shares of the Registrant’s common stock outstanding was approximately 129.7112.0 million shares.
     




DAVITA INC.
INDEX

    Page No.
  PART I. FINANCIAL INFORMATION  
     
Item 1.   
   
   
   
   
   
   
Item 2.  
Item 3.  
Item 4.  
     
  PART II. OTHER INFORMATION  
Item 1.  
Item 1A.  
Item 2.  
Item 6.  
   
 
Note: Items 3, 4 and 5 of Part II are omitted because they are not applicable.
 

i




DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended
September 30,

Nine months ended
September 30,
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 20182020 2019 2020 2019
Dialysis and related lab patient service revenues$2,781,169
 $2,670,701
 $8,150,386
 $7,980,178
Provision for uncollectible accounts(3,977) (11,977) (19,689) (35,838)
Net dialysis and related lab patient service revenues2,777,192
 2,658,724
 8,130,697
 7,944,340
Dialysis patient service revenues$2,781,650
 $2,777,192
 $8,253,128
 $8,130,697
Other revenues126,886
 188,606
 359,198
 639,387
142,416
 126,886
 392,154
 359,198
Total revenues2,904,078
 2,847,330
 8,489,895
 8,583,727
2,924,066
 2,904,078
 8,645,282
 8,489,895
Operating expenses and charges: 
  
  
  
 
  
  
  
Patient care costs1,991,172
 2,063,770
 5,913,860
 6,168,444
1,971,719
 1,991,172
 5,931,732
 5,913,860
General and administrative298,736
 336,299
 824,887
 866,922
363,280
 298,736
 943,065
 824,887
Depreciation and amortization155,915
 146,000
 456,685
 435,878
156,894
 155,915
 468,949
 456,685
Provision for uncollectible accounts
 800
 
 (7,300)
Equity investment (income) loss(3,936) 3,824
 (11,158) (6,126)
Investment and other asset impairments
 6,093
 
 17,338
Equity investment income(5,496) (3,936) (27,681) (11,158)
Loss on changes in ownership interest, net0
 0
 16,252
 0
Goodwill impairment charges83,855
 
 124,892
 3,106
0
 83,855
 0
 124,892
Loss (gain) on changes in ownership interest, net
 1,506
 
 (32,451)
Total operating expenses and charges2,525,742
 2,558,292
 7,309,166
 7,445,811
2,486,397
 2,525,742
 7,332,317
 7,309,166
Operating income378,336
 289,038
 1,180,729
 1,137,916
437,669
 378,336
 1,312,965
 1,180,729
Debt expense(88,589) (125,927) (351,774) (359,135)(73,658) (88,589) (243,642) (351,774)
Debt prepayment, refinancing and redemption charges(21,242) 
 (33,402) 
(86,074) (21,242) (89,022) (33,402)
Other income, net5,280
 4,007
 17,863
 10,583
5,395
 5,280
 10,590
 17,863
Income from continuing operations before income taxes273,785
 167,118
 813,416
 789,364
283,332
 273,785
 990,891
 813,416
Income tax expense65,254
 52,047
 197,938
 206,652
65,792
 65,254
 240,564
 197,938
Net income from continuing operations208,531
 115,071
 615,478
 582,712
217,540
 208,531
 750,327
 615,478
Net (loss) income from discontinued operations, net of tax(6,843) (211,739) 102,854
 (147,829)0
 (6,843) 9,980
 102,854
Net income (loss)201,688
 (96,668) 718,332
 434,883
Net income217,540
 201,688
 760,307
 718,332
Less: Net income attributable to noncontrolling interests(58,418) (40,128) (152,222) (125,717)(58,866) (58,418) (160,438) (152,222)
Net income (loss) attributable to DaVita Inc.$143,270
 $(136,796) $566,110
 $309,166
Net income attributable to DaVita Inc.$158,674
 $143,270
 $599,869
 $566,110
       
Earnings per share attributable to DaVita Inc.: 
  
  
  
 
  
  
  
Basic net income from continuing operations per share$1.00
 $0.44
 $2.88
 $2.69
$1.31
 $1.00
 $4.81
 $2.88
Basic net income (loss) per share$0.95
 $(0.82) $3.51
 $1.79
Basic net income per share$1.31
 $0.95
 $4.89
 $3.51
Diluted net income from continuing operations per share$0.99
 $0.44
 $2.87
 $2.66
$1.28
 $0.99
 $4.72
 $2.87
Diluted net income (loss) per share$0.95
 $(0.82) $3.50
 $1.77
Diluted net income per share$1.28
 $0.95
 $4.80
 $3.50
       
Weighted average shares for earnings per share:     
  
     
  
Basic150,675,465
 166,770,664
 161,147,122
 172,403,944
120,905,038
 150,675,465
 122,582,099
 161,147,122
Diluted151,295,950
 167,262,358
 161,636,011
 174,348,421
123,953,879
 151,295,950
 124,927,380
 161,636,011
       
Amounts attributable to DaVita Inc.:              
Net income from continuing operations$150,113
 $73,371
 $464,590
 $463,989
$158,674
 $150,113
 $589,889
 $464,590
Net (loss) income from discontinued operations(6,843) (210,167) 101,520
 (154,823)0
 (6,843) 9,980
 101,520
Net income (loss) attributable to DaVita Inc.$143,270
 $(136,796) $566,110
 $309,166
Net income attributable to DaVita Inc.$158,674
 $143,270
 $599,869
 $566,110
 
See notes to condensed consolidated financial statements.


DAVITA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
 Three months ended
September 30,
 Nine months ended
September 30,
 2019 2018 2019 2018
Net income (loss)$201,688
 $(96,668) $718,332
 $434,883
Other comprehensive income (loss), net of tax: 
  
  
  
Unrealized (losses) gains on interest rate cap agreements: 
  
  
  
Unrealized (losses) gains(1,060) 37
 (1,672) 819
Reclassifications of net realized losses into net income (loss)1,569
 1,606
 4,782
 4,680
Unrealized losses on foreign currency translation:   
    
Foreign currency translation adjustments(44,502) (8,827) (45,790) (39,475)
Other comprehensive loss(43,993) (7,184) (42,680) (33,976)
Total comprehensive income (loss)157,695
 (103,852) 675,652
 400,907
Less: Comprehensive income attributable to noncontrolling interests(58,418) (40,128) (152,222) (125,717)
Comprehensive income (loss) attributable to DaVita Inc.$99,277
 $(143,980) $523,430
 $275,190
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Net income$217,540
 $201,688
 $760,307
 $718,332
Other comprehensive income (loss), net of tax: 
  
  
  
Unrealized losses on interest rate cap agreements: 
  
  
  
Unrealized losses(1,628) (1,060) (16,470) (1,672)
Reclassifications of net realized losses into net income1,034
 1,569
 4,280
 4,782
Unrealized gains (losses) on foreign currency translation:   
    
Foreign currency translation adjustments13,171
 (44,502) (62,842) (45,790)
Other comprehensive income (loss)12,577
 (43,993) (75,032) (42,680)
Total comprehensive income230,117
 157,695
 685,275
 675,652
Less: Comprehensive income attributable to noncontrolling interests(58,866) (58,418) (160,438) (152,222)
Comprehensive income attributable to DaVita Inc.$171,251
 $99,277
 $524,837
 $523,430
 See notes to condensed consolidated financial statements.



DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September 30, 2019
December 31, 2018September 30, 2020 December 31, 2019
ASSETS 
  
 
  
Cash and cash equivalents$1,253,256
 $323,038
$710,514
 $1,102,372
Restricted cash and equivalents103,885
 92,382
106,823
 106,346
Short-term investments100,713
 2,935
19,360
 11,572
Accounts receivable, net1,901,225
 1,858,608
Accounts receivable1,804,390
 1,795,598
Inventories98,641
 107,381
106,254
 97,949
Other receivables474,145
 469,796
548,381
 489,695
Prepaid and other current assets58,512
 66,866
Income tax receivable16,236
 68,614
75,441
 19,772
Prepaid and other current assets50,617
 111,840
Current assets held for sale, net
 5,389,565
Total current assets3,998,718
 8,424,159
3,429,675
 3,690,170
Property and equipment, net of accumulated depreciation of $3,792,683 and $3,524,098, respectively3,419,238
 3,393,669
Property and equipment, net of accumulated depreciation of $4,368,659 and $3,969,566,
respectively
3,417,919
 3,473,384
Operating lease right-of-use assets2,781,288
 
2,834,163
 2,830,047
Intangible assets, net of accumulated amortization of $78,437 and $80,566, respectively117,666
 118,846
Intangible assets, net of accumulated amortization of $75,727 and $81,922, respectively118,078
 135,684
Equity method and other investments219,386
 224,611
252,483
 241,983
Long-term investments35,041
 35,424
29,867
 36,519
Other long-term assets114,834
 71,583
96,110
 115,972
Goodwill6,765,659
 6,841,960
6,868,377
 6,787,635
$17,451,830
 $19,110,252
$17,046,672
 $17,311,394
LIABILITIES AND EQUITY 
  
 
  
Accounts payable$332,136
 $463,270
$388,504
 $403,840
Other liabilities716,023
 595,850
879,792
 756,174
Accrued compensation and benefits662,826
 658,913
701,968
 695,052
Current portion of operating lease liabilities374,214
 
365,190
 343,912
Current portion of long-term debt121,441
 1,929,369
163,787
 130,708
Current liabilities held for sale
 1,243,759
Income tax payable0
 42,412
Total current liabilities2,206,640
 4,891,161
2,499,241
 2,372,098
Long-term operating lease liabilities2,682,125
 
2,710,550
 2,723,800
Long-term debt8,014,475
 8,172,847
7,866,545
 7,977,526
Other long-term liabilities135,087
 450,669
147,371
 160,809
Deferred income taxes604,921
 562,536
765,691
 577,543
Total liabilities13,643,248
 14,077,213
13,989,398
 13,811,776
Commitments and contingencies      
Noncontrolling interests subject to put provisions1,296,059
 1,124,641
1,303,934
 1,180,376
Equity: 
  
 
  
Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)
 
0
 0
Common stock ($0.001 par value, 450,000,000 shares authorized; 166,540,590 and
166,387,307 shares issued and 133,888,864 and 166,387,307 shares outstanding, respectively)
167
 166
Common stock ($0.001 par value, 450,000,000 shares authorized; 126,065,294 and
113,781,317 shares issued and outstanding at September 30, 2020, respectively, and
125,842,853 shares issued and outstanding at December 31, 2019)
126
 126
Additional paid-in capital906,990
 995,006
694,132
 749,043
Retained earnings3,349,180
 2,743,194
2,031,607
 1,431,738
Treasury stock (32,651,726 and zero shares, respectively)(1,860,157) 
Treasury stock (12,283,977 and zero shares, respectively)(1,028,578) 0
Accumulated other comprehensive loss(77,604) (34,924)(122,530) (47,498)
Total DaVita Inc. shareholders' equity2,318,576
 3,703,442
1,574,757
 2,133,409
Noncontrolling interests not subject to put provisions193,947
 204,956
178,583
 185,833
Total equity2,512,523
 3,908,398
1,753,340
 2,319,242
$17,451,830
 $19,110,252
$17,046,672
 $17,311,394
See notes to condensed consolidated financial statements.


DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended September 30,Nine months ended September 30,
2019 20182020 2019
Cash flows from operating activities: 
  
 
  
Net income$718,332
 $434,883
$760,307
 $718,332
Adjustments to reconcile net income to net cash provided by operating activities:   
   
Depreciation and amortization456,685
 435,878
468,949
 456,685
Debt prepayment, refinancing and redemption charges86,957
 33,402
Impairment charges124,892
 20,444
0
 124,892
Debt prepayment, refinancing and redemption charges33,402
 
Stock-based compensation expense47,811
 59,605
67,217
 47,811
Deferred income taxes72,590
 200,056
191,783
 72,590
Equity investment loss, net5,131
 8,611
Gain (loss) on sales of business interests, net23,022
 (57,547)
Equity investment income, net3,026
 5,131
Loss on sales of business interests, net16,252
 23,022
Other non-cash charges, net24,291
 164,856
(7,980) 24,291
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:      
Accounts receivable(182,684) (74,622)(12,405) (182,684)
Inventories9,519
 88,355
(8,445) 9,519
Other receivables and other current assets51,319
 (757)(62,025) 51,319
Other long-term assets2,324
 2,142
(1,853) 2,324
Accounts payable(106,662) (12,800)445
 (106,662)
Accrued compensation and benefits(57,930) 40,225
(12,124) (57,930)
Other current liabilities140,046
 45,624
123,833
 140,046
Income taxes57,279
 21,749
(100,160) 57,279
Other long-term liabilities(27,542) 5,546
(19,547) (27,542)
Net cash provided by operating activities1,391,825
 1,382,248
1,494,230
 1,391,825
Cash flows from investing activities:   
   
Additions of property and equipment(547,183) (705,659)(449,896) (547,183)
Acquisitions(77,348) (113,526)(112,597) (77,348)
Proceeds from asset and business sales3,863,619
 135,268
83,339
 3,863,619
Purchase of debt investments held-to-maturity(147,829) (98,322)
Purchase of other debt and equity investments(5,160) (5,791)(3,388) (5,160)
Purchase of investments held-to-maturity(98,322) (3,728)
Proceeds from debt investments held-to-maturity148,341
 0
Proceeds from sale of other debt and equity investments5,893
 8,783
3,434
 5,893
Proceeds from investments held-to-maturity
 32,628
Purchase of equity investments(8,770) (12,874)
Distributions received on equity investments1,296
 3,580
Net cash provided by (used in) investing activities3,134,025
 (661,319)
Purchase of equity method investments(9,613) (8,770)
Distributions from equity method investments902
 1,296
Net cash (used in) provided by investing activities(487,307) 3,134,025
Cash flows from financing activities:      
Borrowings38,519,991
 41,674,279
3,826,484
 38,519,991
Payments on long-term debt and other financing costs(40,570,003) (40,828,443)
Payments on long-term debt(3,927,411) (40,485,415)
Deferred financing and debt redemption costs(105,705) (84,588)
Purchase of treasury stock(1,837,022) (1,161,511)(1,025,878) (1,837,022)
Distributions to noncontrolling interests(157,170) (139,673)(179,098) (157,170)
Stock award exercises and other share issuances, net7,333
 8,803
3,838
 7,333
Contributions from noncontrolling interests44,095
 43,179
32,854
 44,095
Proceeds from sales of additional noncontrolling interest
 15
Purchases of noncontrolling interests(10,988) (19,988)(6,782) (10,988)
Net cash used in financing activities(4,003,764) (423,339)(1,381,698) (4,003,764)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(4,178) (5,790)(16,606) (4,178)
Net increase in cash, cash equivalents and restricted cash517,908
 291,800
Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued operations(423,813) 270,565
Net increase in cash, cash equivalents and restricted cash from continuing operations941,721
 21,235
Net (decrease) increase in cash, cash equivalents and restricted cash(391,381) 517,908
Less: Net decrease in cash, cash equivalents and restricted cash from discontinued operations0
 (423,813)
Net (decrease) increase in cash, cash equivalents and restricted cash from continuing operations(391,381) 941,721
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year415,420
 518,920
1,208,718
 415,420
Cash, cash equivalents and restricted cash of continuing operations at end of the period$1,357,141
 $540,155
$817,337
 $1,357,141
See notes to condensed consolidated financial statements.


DAVITA INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(dollars and shares in thousands)
Three months ended September 30, 2019Three months ended September 30, 2020
Non-
controlling
interests
subject to
put provisions
 DaVita Inc. Shareholders’ Equity Non-
controlling
interests not
subject to
put provisions
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
loss
    Common stock Additional
paid-in
capital
 Retained
earnings
 Treasury stock Accumulated
other
comprehensive
loss
   
 Shares Amount Shares Amount Total  Shares Amount Shares Amount Total 
Balance at June 30, 2019$1,185,733
 166,533
 $167
 $989,021
 $3,205,910
 (2,060) $(112,189) $(33,611) $4,049,298
 $193,771
Balance at June 30, 2020$1,241,937
 126,037
 $126
 $719,102
 $1,872,933
 (4,052) $(303,139) $(135,107) $2,153,915
 $179,902
Comprehensive income:

 

 

 

 

 

 

 

 

 

                   
Net income38,778
 

 

 

 143,270
 

 

 

 143,270
 19,640
40,854
       158,674
       158,674
 18,012
Other comprehensive loss

 

 

 

 

 

 

 (43,993) (43,993) 

              12,577
 12,577
  
Stock unit shares issued

 8
 

 

 

 

 

 

 
 

  5
   10
         10
  
Stock appreciation rights shares
issued
  23
   (944)         (944)  
Stock-settled stock-based
compensation expense


 

 

 18,724
 

 

 

 

 18,724
 

      24,913
         24,913
  
Changes in noncontrolling interest
from:


 

 

 

 

 

 

 

 

 

                

  
Distributions(37,868) 

 

 

 

 

 

 

 

 (23,588)(38,154)                 (22,391)
Contributions8,946
 

 

 

 

 

 

 

 

 3,868
10,348
                 1,924
Acquisitions and divestitures(91) 

 

 

 

 

 

 

 

 10
                  1,136
Partial purchases8
 

 

 (202) 

 

 

 

 (202) 246
Fair value remeasurements100,553
 

 

 (100,553) 

 

 

 

 (100,553) 

48,949
     (48,949)         (48,949)  
Purchase of treasury stock

 

 

 

 

 (30,592) (1,747,968) 

 (1,747,968) 

          (8,232) (725,439)   (725,439)  
Balance at September 30, 2019$1,296,059
 166,541
 $167
 $906,990
 $3,349,180
 (32,652) $(1,860,157) $(77,604) $2,318,576
 $193,947
Balance at September 30, 2020$1,303,934
 126,065
 $126
 $694,132
 $2,031,607
 (12,284) $(1,028,578) $(122,530) $1,574,757
 $178,583

 Nine months ended September 30, 2019
 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
loss
   
  Shares Amount   Shares Amount  Total 
Balance at January 1, 2019$1,124,641
 166,387
 $166
 $995,006
 $2,743,194
 
 $
 $(34,924) $3,703,442
 $204,956
Cumulative effect of change
in accounting principle
(38) 

 

 

 39,876
 

 

 

 39,876
 (6)
Comprehensive income:                   
Net income102,078
 

 

 

 566,110
 

 

 

 566,110
 50,144
Other comprehensive loss

 

 

 

 

 

 

 (42,680) (42,680) 

Stock unit shares issued

 154
 1
 (3,246) 

 

 

 

 (3,245) 

Stock-settled stock-based
compensation expense


 

 

 47,723
 

 

 

 

 47,723
 

Changes in noncontrolling interest
from:
                   
Distributions(98,103) 

 

 

 

 

 

 

 

 (59,067)
Contributions24,714
 

 

 

 

 

 

 

 

 19,381
Acquisitions and divestitures1,782
 

 

 

 

 

 

 

 

 (1,981)
Partial purchases(2,240) 

 

 10,732
 

 

 

 

 10,732
 (19,480)
Fair value remeasurements143,225
 

 

 (143,225) 

 

 

 

 (143,225) 

Purchase of treasury stock

 

 

 

 

 (32,652) (1,860,157) 

 (1,860,157) 

Balance at September 30, 2019$1,296,059
 166,541
 $167
 $906,990
 $3,349,180
 (32,652) $(1,860,157) $(77,604) $2,318,576
 $193,947
See notes to condensed consolidated financial statements.

 Nine months ended September 30, 2020
 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
loss
   
  Shares Amount   Shares Amount  Total 
Balance at December 31, 2019$1,180,376
 125,843
 $126
 $749,043
 $1,431,738
 0
 $0
 $(47,498) $2,133,409
 $185,833
Comprehensive income:                   
Net income107,737
       599,869
       599,869
 52,701
Other comprehensive loss              (75,032) (75,032)  
Stock unit shares issued  166
   (7,141)         (7,141)  
Stock appreciation rights shares
issued
  56
   (2,004)         (2,004)  
Stock-settled stock-based
compensation expense
      66,591
         66,591
  
Changes in noncontrolling
interest from:
                

  
Distributions(115,289)                 (63,809)
Contributions24,443
                 8,411
Acquisitions and divestitures(3,214)                 (247)
Partial purchases(6,673)     4,197
         4,197
 (4,306)
Fair value remeasurements116,554
     (116,554)         (116,554)  
Purchase of treasury stock          (12,284) (1,028,578)   (1,028,578)  
Balance at September 30, 2020$1,303,934
 126,065
 $126
 $694,132
 $2,031,607
 (12,284) $(1,028,578) $(122,530) $1,574,757
 $178,583

DAVITA INC.
CONSOLIDATED STATEMENTS OF EQUITY - continued
(unaudited)
(dollars and shares in thousands)

 Three months ended September 30, 2018
 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
loss
   
  Shares Amount   Shares Amount  Total 
Balance at June 30, 2018$1,047,158
 182,815
 $183
 $1,022,783
 $4,088,043
 (11,995) $(809,900) $(21,925) $4,279,184
 $205,323
Comprehensive income:                   
Net income25,525
 

 

 

 (136,796) 

 

 

 (136,796) 14,603
Other comprehensive loss

 

 

 

 

 

 

 (7,184) (7,184) 

Stock unit shares issued

 8
 

 

 

 

 

 

 

 

Stock-settled SAR shares issued

 5
 

 (1) 

 

 

 

 (1) 

Stock-settled stock-based
compensation expense


 

 

 39,707
 

 

 

 

 39,707
 

Changes in noncontrolling interest
from:
                   
Distributions(27,375) 

 

 

 

 

 

 

 

 (18,292)
Contributions7,191
 

 

 

 

 

 

 

 

 4,419
Acquisitions and divestitures10,597
 

 

 

 

 

 

 

 

 (9)
Partial purchases(49) 

 

 (5,285) 

 

 

 

 (5,285) (1,431)
Fair value remeasurements1,365
 

 

 (1,365) 

 

 

 

 (1,365) 

Purchase of treasury stock

 

 

 

 

 (4,849) (343,611) 

 (343,611) 

Balance at September 30, 2018$1,064,412
 182,828
 $183
 $1,055,839
 $3,951,247
 (16,844) $(1,153,511) $(29,109) $3,824,649
 $204,613

 Three months ended September 30, 2019
 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
loss
   
  Shares Amount   Shares Amount  Total 
Balance at June 30, 2019$1,185,733
 166,533
 $167
 $989,021
 $3,205,910
 (2,060) $(112,189) $(33,611) $4,049,298
 $193,771
Comprehensive income:                   
Net income38,778
       143,270
       143,270
 19,640
Other comprehensive loss              (43,993) (43,993)  
Stock unit shares issued  8
             0
  
Stock-settled stock-based
compensation expense
      18,724
         18,724
  
Changes in noncontrolling interest
from:
                   
Distributions(37,868)                 (23,588)
Contributions8,946
                 3,868
Acquisitions and divestitures(91)                 10
Partial purchases8
     (202)         (202) 246
Fair value remeasurements100,553
     (100,553)         (100,553)  
Purchase of treasury stock          (30,592) (1,747,968)   (1,747,968)  
Balance at September 30, 2019$1,296,059
 166,541
 $167
 $906,990
 $3,349,180
 (32,652) $(1,860,157) $(77,604) $2,318,576
 $193,947
Nine months ended September 30, 2018Nine months ended September 30, 2019
Non-
controlling
interests
subject to
put provisions
 DaVita Inc. Shareholders’ Equity Non-
controlling
interests not
subject to
put provisions
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)
    Common stock Additional
paid-in
capital
 Retained
earnings
 Treasury stock Accumulated
other
comprehensive
loss
   
 Shares Amount Shares Amount Total  Shares Amount Shares Amount Total 
Balance at January 1, 2018$1,011,360
 182,462
 $182
 $1,042,899
 $3,633,713
 
 $
 $13,235
 $4,690,029
 $196,037
Balance at December 31, 2018$1,124,641
 166,387
 $166
 $995,006
 $2,743,194
 0
 $0
 $(34,924) $3,703,442
 $204,956
Cumulative effect of change in
accounting principle


 

 

 

 8,368
 

 

 (8,368) 
 

(38)       39,876
       39,876
 (6)
Comprehensive income:                                      
Net income77,803
 

 

 

 309,166
 

 

 

 309,166
 47,914
102,078
       566,110
       566,110
 50,144
Other comprehensive loss

 

 

 

 

 

 

 (33,976) (33,976) 

              (42,680) (42,680)  
Stock unit shares issued

 154
 

 (448) 

 

 

 

 (448) 

  154
 1
 (3,246)         (3,245)  
Stock-settled SAR shares issued

 212
 1
 (4,887) 

 

 

 

 (4,886) 

Stock-settled stock-based
compensation expense


 

 

 59,539
 

 

 

 

 59,539
 

      47,723
         47,723
  
Changes in noncontrolling interest
from:
                                      
Distributions(85,372) 

 

 

 

 

 

 

 

 (54,301)(98,103)                 (59,067)
Contributions26,367
 

 

 

 

 

 

 

 

 16,812
24,714
                 19,381
Acquisitions and divestitures11,262
 

 

 79
 

 

 

 

 79
 (212)1,782
                 (1,981)
Partial purchases(869) 

 

 (17,482) 

 

 

 

 (17,482) (1,637)(2,240)     10,732
         10,732
 (19,480)
Fair value remeasurements23,861
 

 

 (23,861) 

 

 

 

 (23,861) 

143,225
     (143,225)         (143,225)  
Purchase of treasury stock

 

 

 

 

 (16,844) (1,153,511) 

 (1,153,511) 

          (32,652) (1,860,157)   (1,860,157)  
Balance at September 30, 2018$1,064,412
 182,828
 $183
 $1,055,839
 $3,951,247
 (16,844) $(1,153,511) $(29,109) $3,824,649
 $204,613
Balance at September 30, 2019$1,296,059
 166,541
 $167
 $906,990
 $3,349,180
 (32,652) $(1,860,157) $(77,604) $2,318,576
 $193,947
See notes to condensed consolidated financial statements

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars and shares in thousands, except per share data)


Unless otherwise indicated in this Quarterly Report on Form 10-Q "the Company", "we", "us", "our" and similar terms refer to DaVita Inc. and its consolidated subsidiaries.
1.Condensed consolidated interim financial statements
The unaudited condensed consolidated interim financial statements included in this report are prepared by the Company without audit.Company. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations are reflected in these condensed consolidated interim financial statements. All significant intercompany accounts and transactions have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve revenue recognition and accounts receivable, leases, impairments of goodwill, and investments, accounting for income taxes, consolidation of variable interest entities and certain fair value estimates.estimates and loss contingencies. The results of operations for the nine months ended September 30, 2019 arereflected in these interim financial statements may not necessarily be indicative of theannual operating results for the full year.results. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (10-K). Prior year balances and amountsperiod classifications have been reclassified to conformconformed to the current yearperiod presentation. The Company has evaluated subsequent events through the date these condensed consolidated interim financial statements were issued and has included all necessary adjustments and disclosures. 
2.Revenue recognition
The following table summarizes the Company's segment revenues by primary payor source:
 Three months ended September 30, 2020 Three months ended September 30, 2019
 U.S. dialysis Other - Ancillary services Consolidated U.S. dialysis Other - Ancillary services Consolidated
Dialysis patient service revenues:           
Medicare and Medicare Advantage$1,510,982
 $ $1,510,982
 $1,558,890
 $ $1,558,890
Medicaid and Managed Medicaid193,254
 

 193,254
 176,292
 
 176,292
Other government114,327
 98,044
 212,371
 116,984
 90,947
 207,931
Commercial858,247
 43,845
 902,092
 828,953
 37,276
 866,229
Other revenues:           
Medicare and Medicare Advantage

 111,248
 111,248
 
 65,759
 65,759
Medicaid and Managed Medicaid

 412
 412
 
 227
 227
Commercial

 7,799
 7,799
 
 33,503
 33,503
Other(1)
17,409
 9,895
 27,304
 10,308
 20,784
 31,092
Eliminations of intersegment revenues(37,317) (4,079) (41,396) (32,362) (3,483) (35,845)
Total$2,656,902
 $267,164
 $2,924,066
 $2,659,065
 $245,013
 $2,904,078

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

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


 Nine months ended September 30, 2020 Nine months ended September 30, 2019
 U.S. dialysis Other - Ancillary services Consolidated U.S. dialysis Other - Ancillary services Consolidated
Dialysis patient service revenues:           
Medicare and Medicare Advantage$4,530,510
 $ $4,530,510
 $4,572,599
 $ $4,572,599
Medicaid and Managed Medicaid547,045
   547,045
 490,723
   490,723
Other government342,996
 283,431
 626,427
 333,675
 264,191
 597,866
Commercial2,534,388
 118,869
 2,653,257
 2,458,360
 103,760
 2,562,120
Other revenues:           
Medicare and Medicare Advantage  309,555
 309,555
   191,472
 191,472
Medicaid and Managed Medicaid  1,061
 1,061
   327
 327
Commercial  27,370
 27,370
   98,428
 98,428
Other(1)
30,846
 36,600
 67,446
 20,715
 59,204
 79,919
Eliminations of intersegment revenues(104,987) (12,402) (117,389) (93,337) (10,222) (103,559)
Total$7,880,798
 $764,484
 $8,645,282
 $7,782,735
 $707,160
 $8,489,895

(1)Other consists of management service fees earned in the respective Company line of business as well as other revenue from the Company's ancillary services.
The Company had 0 allowance for doubtful accounts related to performance obligations satisfied in years prior to January 1, 2018 as of September 30, 2020 and had a balance of $8,328 as of December 31, 2019.
There are significant uncertainties 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, without limitation, determination of applicable primary and secondary coverage, changes in patient insurance 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, a reduction in revenue of $4,138 was recognized during the three months ended September 30, 2019 and additional revenue of $35,658 was recognized during the nine months ended September 30, 2019, associated with performance obligations satisfied prior to January 1, 2019. Additional revenue of $1,246 and $77,473 was recognized during the three and nine months ended September 30, 2018, respectively, associated with performance obligations satisfied prior to January 1, 2018, which included a benefit of $36,000 for the nine months ended September 30, 2018 from electing to apply Topic 606, Revenue from Contracts with Customers only to contracts not substantially completed as of January 1, 2018.
The following table summarizes the Company's segment revenues by primary payor source:
 For the three months ended
 September 30, 2019 September 30, 2018
 U.S. dialysis and related lab services Other - Ancillary services and strategic initiatives Consolidated U.S. dialysis and related lab services Other - Ancillary services and strategic initiatives Consolidated
Patient service revenues:           
Medicare and Medicare Advantage$1,558,890
 $ $1,558,890
 $1,513,191
 $ $1,513,191
Medicaid and Managed Medicaid176,292
 

 176,292
 159,165
 
 159,165
Other government116,984
 90,947
 207,931
 113,043
 80,915
 193,958
Commercial828,953
 37,276
 866,229
 786,470
 31,364
 817,834
Other revenues:           
Medicare and Medicare Advantage

 65,759
 65,759
 
 130,746
 130,746
Medicaid and Managed Medicaid

 227
 227
 
 12,042
 12,042
Commercial

 33,503
 33,503
 
 20,205
 20,205
Other(1)
10,308
 20,784
 31,092
 4,932
 29,042
 33,974
Eliminations of intersegment revenues(32,362) (3,483) (35,845) (25,424) (8,361) (33,785)
Total$2,659,065
 $245,013
 $2,904,078
 $2,551,377
 $295,953
 $2,847,330
(1)Other consists of management fees and revenue from the Company's ancillary services and strategic initiatives.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


 For the nine months ended
 September 30, 2019 September 30, 2018
 U.S. dialysis and related lab services Other - Ancillary services and strategic initiatives Consolidated U.S. dialysis and related lab services Other - Ancillary services and strategic initiatives Consolidated
Patient service revenues:           
Medicare and Medicare Advantage$4,572,599
 $ $4,572,599
 $4,524,449
 $ $4,524,449
Medicaid and Managed Medicaid490,723
 

 490,723
 466,948
 
 466,948
Other government333,675
 264,191
 597,866
 330,500
 250,048
 580,548
Commercial2,458,360
 103,760
 2,562,120
 2,366,182
 70,156
 2,436,338
Other revenues:           
Medicare and Medicare Advantage

 191,472
 191,472
 
 427,532
 427,532
Medicaid and Managed Medicaid

 327
 327
 
 43,991
 43,991
Commercial

 98,428
 98,428
 
 77,633
 77,633
Other(1)
20,715
 59,204
 79,919
 14,965
 103,014
 117,979
Eliminations of intersegment revenues(93,337) (10,222) (103,559) (63,943) (27,748) (91,691)
Total$7,782,735
 $707,160
 $8,489,895
 $7,639,101
 $944,626
 $8,583,727
(1)Other consists of management fees and revenue from the Company's ancillary services and strategic initiatives.
Dialysis and related lab patient service revenues. Revenues are recognized based on the Company’s estimate of the transaction price the Company expects to collect as a result of satisfying its performance obligations. Dialysis and related lab services patient service revenues are recognized in the period services are provided.provided based on these estimates. Revenues consist primarily of payments from Medicare, Medicaidgovernment 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.
Other revenues. Other revenues consist of the revenues associated with the ancillary services and strategic initiatives,fees for management and administrative support services that are provided to outpatient dialysis centersbusinesses that the Company does not own or in which the Company owns a noncontrolling interest and administrative and management support services to certain otheras well as revenues associated with the Company's non-dialysis joint ventures in which the Company owns a noncontrolling interest.ancillary services.
The Company’s allowance for doubtful accounts related to performance obligations satisfied in years prior to January 1, 2018 was $15,090 and $52,924 as of September 30, 2019 and December 31, 2018, respectively.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


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 outstanding, net of the weighted average shares held in escrow that under certain circumstances may have been returned to the Company.outstanding. Weighted average common shares outstanding include vested restricted stock unit awards for whichthat are no longer subject to forfeiture because the recipients have satisfied either the explicit vesting terms or retirement eligibility requirements.
Diluted earnings per share includes the dilutive effect of outstanding stock-settled stock appreciation rights and unvested stock units (underas computed under the treasury stock method) as well as the weighted average shares held in escrow that were outstanding during the period.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


method.
The reconciliations of the numerators and denominators used to calculate basic and diluted earnings per share were as follows:
 Three months ended
September 30,
 Nine months ended
September 30,
 2019 2018 2019 2018
Numerators: 
  
  
  
Net income from continuing operations attributable to DaVita Inc.$150,113
 $73,371
 $464,590
 $463,989
Change in noncontrolling interest redemption rights in excess of fair value
 98
 
 
Net income from continuing operations for earnings per share calculation150,113
 73,469
 464,590
 463,989
Net (loss) income from discontinued operations attributable to DaVita Inc.(6,843) (210,167) 101,520
 (154,823)
Net income (loss) attributable to DaVita Inc. for earnings per share calculation$143,270
 $(136,698) $566,110
 $309,166
        
Basic:       
Weighted average shares outstanding during the period150,675
 166,819
 161,147
 173,875
Weighted average contingently returnable shares held in escrow for the
DaVita HealthCare Partners merger

 (48) 
 (1,471)
Weighted average shares for basic earnings per share calculation150,675
 166,771
 161,147
 172,404
        
Basic net income (loss) attributable to DaVita Inc. from:       
Continuing operations per share$1.00
 $0.44
 $2.88
 $2.69
Discontinued operations per share(0.05) (1.26) 0.63
 (0.90)
Basic net income (loss) per share attributable to DaVita Inc.$0.95
 $(0.82) $3.51
 $1.79
        
Diluted:       
Weighted average shares outstanding during the period150,675
 166,819
 161,147
 173,875
Assumed incremental shares from stock plans621
 443
 489
 473
Weighted average shares for diluted earnings per share calculation151,296
 167,262
 161,636
 174,348
        
Diluted net income (loss) attributable to DaVita Inc. from:       
Continuing operations per share$0.99
 $0.44
 $2.87
 $2.66
Discontinued operations per share(0.04) (1.26) 0.63
 (0.89)
Diluted net income (loss) per share attributable to DaVita Inc.$0.95
 $(0.82) $3.50
 $1.77
        
Anti-dilutive stock-settled awards excluded from calculation(1)
7,293
 5,281
 6,414
 4,987
 Three months ended
September 30,
 Nine months ended
September 30,
 2020 2019 2020 2019
Net income attributable to DaVita Inc. from:       
Continuing operations$158,674
 $150,113
 $589,889
 $464,590
Discontinued operations0
 (6,843) 9,980
 101,520
Net income attributable to DaVita Inc.$158,674
 $143,270
 $599,869
 $566,110
        
Weighted average shares - basic120,905
 150,675
 122,582
 161,147
Assumed incremental shares from stock plans3,049
 621
 2,345
 489
Weighted average shares - diluted123,954
 151,296
 124,927
 161,636
        
Basic net income attributable to DaVita Inc. from:       
Continuing operations per share$1.31
 $1.00
 $4.81
 $2.88
Discontinued operations per share0
 (0.05) 0.08
 0.63
Basic net income per share attributable to DaVita Inc.$1.31
 $0.95
 $4.89
 $3.51
        
Diluted net income attributable to DaVita Inc. from:       
Continuing operations per share$1.28
 $0.99
 $4.72
 $2.87
Discontinued operations per share0
 (0.04) 0.08
 0.63
Diluted net income per share attributable to DaVita Inc.$1.28
 $0.95
 $4.80
 $3.50
        
Anti-dilutive stock-settled awards excluded from calculations(1)
2,765
 7,293
 3,063
 6,414
 
(1)Shares associated with stock-settled stock appreciation rights and performance stock units were excluded from the diluted denominator calculationcalculations because they are anti-dilutive under the treasury stock method.
4.Restricted cash and equivalents
The Company had restricted cash and cash equivalents of $103,885 and $92,382 at September 30, 2019 and December 31, 2018, respectively. There has been no material change in the nature of the Company's restricted cash and cash equivalents from that described in Note 4 to the Company's consolidated financial statements included in the 10-K.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


5.4.Short-term and long-term investments
The Company’s short-term and long-term debt and equity investments consist of the following:
September 30, 2019 December 31, 2018September 30, 2020 December 31, 2019
Debt
securities
 Equity
securities
 Total Debt
securities
 Equity
securities
 TotalDebt
securities
 Equity
securities
 Total Debt
securities
 Equity
securities
 Total
Certificates of deposit and other time deposits$98,113
 $
 $98,113
 $2,235
 $
 $2,235
$8,212
 $0
 $8,212
 $8,140
 $0
 $8,140
Investments in mutual funds and common stock
 37,641
 37,641
 
 36,124
 36,124
0
 41,015
 41,015
 0
 39,951
 39,951
$98,113
 $37,641
 $135,754
 $2,235
 $36,124
 $38,359
$8,212
 $41,015
 $49,227
 $8,140
 $39,951
 $48,091
Short-term investments$98,113
 $2,600
 $100,713
 $2,235
 $700
 $2,935
$8,212
 $11,148
 $19,360
 $8,140
 $3,432
 $11,572
Long-term investments
 35,041
 35,041
 
 35,424
 35,424
0
 29,867
 29,867
 0
 36,519
 36,519
$98,113
 $37,641
 $135,754
 $2,235
 $36,124
 $38,359
$8,212
 $41,015
 $49,227
 $8,140
 $39,951
 $48,091

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 approximatesapproximated their fair values at September 30, 20192020 and December 31, 2018.2019.
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 the nine months ended September 30, 2020, the Company recognized pre-tax net gains of $1,110 in other income associated with changes in the fair value of these equity securities, comprised of pre-tax realized gains of $1,639 and a net decrease in unrealized gains of $529. During the nine months ended September 30, 2019, the Company recognized pre-tax net gains in the income statement of $2,776 in other income associated with changes in the fair value of these equity securities, comprised of pre-tax realized gains of $586 and a net increase in unrealized gains of $2,190. During the nine months ended September 30, 2018, the Company recognized pre-tax realized gains in the income statement of $1,597 associated with changes in the fair value of these equity securities, comprised of pre-tax realized gains of $4,101 and a net decrease in unrealized gains of $2,504.
6.5.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.
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:
September 30, 2019 December 31, 2018September 30, 2020 December 31, 2019
APAC joint venture$118,528
 $129,173
$124,209
 $116,924
Other equity method partnerships90,410
 83,052
110,169
 114,611
Adjusted cost method investments10,448
 12,386
18,105
 10,448
$219,386
 $224,611
$252,483
 $241,983

During the nine months ended September 30, 20192020 and 2018,2019, the Company recognized equity investment income of $11,158$27,681 and $6,126,$11,158, respectively, from its equity method investments in nonconsolidated businesses. 
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. The Company's largest equity method investment is its ownership interest in DaVita Care Pte. Ltd. (the APAC joint venture, or APAC JV). In, which is 75%-owned by the third quarter of 2019,Company and 25%-owned by an unrelated noncontrolling investor. As described in Note 9 to the investorsCompany's consolidated financial statements included in the APAC JV jointly agreed to a deferral of10-K, the capital contributions that were scheduled for August 1, 2019 to December 1, 2019. The Company continues to expect the economic interests of the noncontrolling investors indoes not consolidate the APAC JV to adjust to match their voting interests by December 1, 2019 or shortly thereafter.JV.
The Company's other equity method investments include legal entities forover which the Company maintainshas significant influence but in which it does not havemaintain 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%. During the nine months ended September 30, 2020 and 2019, 0 significant impairments or other valuation adjustments were recognized on these investments.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


6.Goodwill
50%. Changes in goodwill by reportable segments were as follows:
 U.S. dialysis Other - Ancillary services Consolidated
Balance at December 31, 2018$6,275,004
 $566,956
 $6,841,960
Acquisitions18,089
 72,137
 90,226
Impairment charges0
 (124,892) (124,892)
Foreign currency and other adjustments(5,993) (13,666) (19,659)
Balance at December 31, 2019$6,287,100
 $500,535
 $6,787,635
Acquisitions24,377
 85,871
 110,248
Divestitures(1,549) (6,744) (8,293)
Foreign currency and other adjustments0
 (21,213) (21,213)
Balance at September 30, 2020$6,309,928
 $558,449
 $6,868,377
      
Balance at September 30, 2020     
Goodwill$6,309,928
 $688,881
 $6,998,809
Accumulated impairment charges0
 (130,432) (130,432)
 $6,309,928
 $558,449
 $6,868,377

The Company did not recognize any goodwill impairment charges during the nine months ended September 30, 2020.
As dialysis treatments are an essential, life-sustaining service for patients who depend on them, the Company's operations have continued and are currently expected to continue throughout the novel coronavirus (COVID-19) pandemic. However, the ultimate impact of the dynamic and evolving COVID-19 pandemic on the Company will depend on future developments that are highly uncertain and difficult to predict, including among other things the severity and duration of the pandemic, further spread or resurgence of the virus, its impact on the chronic kidney disease (CKD) patient population and the Company's patient population, the availability, impact or efficacy of COVID-19 treatments, therapies or vaccines, the pandemic’s continuing impact on the U.S. and global economies and unemployment, the responses of the Company's competitors to the pandemic and related changes in the marketplace, and the timing, scope and effectiveness of governmental responses. While the Company does not currently expect a material adverse impact to its business as a result of this public health crisis, there can be no assurance that the COVID-19 pandemic will not have a material adverse impact on one or more of the Company's businesses.
During the nine months ended September 30, 2019, the Company recognized a $1,938 downward valuation adjustment on one of its adjusted cost method investments. During the nine months ended September 30, 2018, there were 0 meaningful impairments or other valuation adjustments recognized on these investments.
7.Goodwill
Changes in goodwill by reportable segment were as follows:
 
U.S. dialysis and
related lab services
 Other-ancillary services and strategic initiatives Consolidated total
Balance at December 31, 2017$6,144,761
 $465,518
 $6,610,279
Acquisitions130,574
 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
Acquisitions18,089
 59,149
 77,238
Impairment charges
 (124,892) (124,892)
Foreign currency and other adjustments
 (28,647) (28,647)
Balance at September 30, 2019$6,293,093
 $472,566
 $6,765,659
      
Balance at September 30, 2019     
Goodwill$6,293,093
 $622,307
 $6,915,400
Accumulated impairment charges
 (149,741) (149,741)
 $6,293,093
 $472,566
 $6,765,659

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 were performed under this new guidance.
During the three months ended March 31, 2019, the Company recognized a $41,037 goodwill impairment chargecharges of $119,476 in its Germany kidney care business. This chargeOf this amount, $41,037 was recognized in the first quarter of 2019 and resulted primarily from a change in relevant discount rates, as well as a decline in then current and expected future patient census and an increase in first quarterthen current and expected future costs, principally due to wage increases expected to result from recentlylegislation announced legislation.
During the three months ended September 30, 2019, the Company completed additional goodwill impairment assessments of reporting units previously disclosed as at-risk of significant goodwill impairment, including its Germany kidney care business. As a result of these assessments, the Company recognized a further goodwill impairmentat that time. An incremental charge of $78,439 in its Germany kidney care businesswas recognized during the third quarter of 2019 and a $5,416 goodwill impairment charge in its German other health operations. The incremental charge recognized in the Germany kidney care business resulted from changes and developments in the Company's outlook for this business since its last assessment.assessment at that time. These primarily concernconcerned developments in the business in response to evolving market conditions and changes in the Company's expected timing and ability to mitigate them, which was based on results of in-depth operating and strategic reviews completed by the Company’s new Germany management team during the third quarter.
The impairment charges recognized in the third quarter of 2019 at the Company’s Germany kidney care business and its German other health operations include increases of $16,756 and $1,013, respectively, to the goodwill impairment charges, and reductions to deferred tax expense, related to deferred tax assets that the impairments themselves generated. The result is an $83,855 goodwill impairment charge to operating income and a $17,769 credit to tax expense, for a net $66,086 impact on net income. As of September 30, 2019, the Company's Germany kidney care business and its German other health operations remain at risk of further goodwill impairment.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


2019. During the nine months ended September 30, 2019, the Company recognized total goodwill impairment charges of $124,892 consisting of the charges described above.
Further changes in expected patient census, increases in operating costs, 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:
Reporting unit Goodwill balance as of September 30, 2019 
Carrying amount
coverage
(1)
 Sensitivities
Operating income(2)
 
Discount rate(3)
Germany Kidney Care $287,256
 —% (1.3)% (11.0)%
Brazil Kidney Care $72,461
 4.4% (2.8)% (7.0)%
(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.
The Company did not recognize any goodwill impairment charges during the three months ended September 30, 2018 andalso recognized a goodwill impairment charge of $3,106 at$5,416 in its German other health operations during the nine months ended September 30, 2018.operations.
Except as described above, in Note 11 to the Company's consolidated financial statements included in the 10-K and in Note 7 to the Company’s condensed consolidated financial statements included in subsequent 10-Q filings, NaN of the Company's various other reporting units were considered at risk of significant goodwill impairment as of September 30, 2019. Since the dates of the Company's last annual goodwill impairment assessments there have been certain developments,Developments, events, changes in operating performance and other changes in key circumstances thatsince the dates of the Company’s last annual goodwill impairment assessments have affected the Company's businesses. However, these changes did not causecaused 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 September 30, 2019.
8.Income taxes
As2020. Except for the Company's Germany kidney care reporting unit as described further in Note 10 to the 10-K, NaN of the Company's various other reporting units were considered at risk of significant goodwill impairment as of September 30, 2019, the Company’s total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold was $52,769, of which $49,926 would impact the Company's effective tax rate if recognized. The total balance increased $12,387 from the December 31, 2018 balance of $40,382.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. At September 30, 2019 and December 31, 2018, the Company had approximately $11,292 and $9,019, respectively, accrued for interest and penalties related to unrecognized tax benefits, net of federal tax benefits.2020. 

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


9.7.Income taxes
As of September 30, 2020, the Company’s total liability for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than-not threshold was $70,129, of which $65,883 would impact the Company's effective tax rate if recognized. The total balance increased $1,915 from the December 31, 2019 balance of $68,214.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. At September 30, 2020 and December 31, 2019, the Company had approximately $16,961 and $14,428, respectively, accrued for interest and penalties related to unrecognized tax benefits, net of federal tax benefits.
8.Long-term debt
Long-term debt was comprised of the following: 
       As of September 30, 2019
 September 30, 2019 December 31, 2018 Maturity date Interest rate 
Estimated fair value(4)
Senior Secured Credit Facilities(1):
         
New Term Loan A$1,750,000
 $ 8/12/2024 LIBOR + 1.50% $1,750,000
New Term Loan B2,750,000
 

 8/12/2026 LIBOR + 2.25% $2,770,625
Prior Term Loan A(2)


 675,000
 12/24/2019 
(3) 

 $
Prior Term Loan A-2(2)


 995,000
 12/24/2019 
(3) 

 $
Prior Term Loan B

 3,342,500
 6/24/2021 
(3) 

 $
Prior revolving line of credit(2)


 175,000
 12/24/2019 
(3) 

 $
Senior Notes:         
5 1/8% Senior Notes1,750,000
 1,750,000
 7/15/2024 5.125% $1,776,250
5% Senior Notes1,500,000
 1,500,000
 5/1/2025 5.00% $1,492,200
5 3/4% Senior Notes
 1,250,000
 8/15/2022 


 $
Acquisition obligations and other notes payable(5)
181,757
 183,979
 2019-2027 5.50% $181,757
Financing lease obligations(6)
280,138
 282,737
 2020-2037 5.36% $280,138
Total debt principal outstanding8,211,895
 10,154,216
      
Discount and deferred financing costs(7)
(75,979) (52,000)      
 8,135,916
 10,102,216
      
Less current portion(121,441) (1,929,369)      
 $8,014,475
 $8,172,847
      
       As of September 30, 2020
 September 30, 2020 December 31, 2019 Maturity date Interest rate 
Estimated fair value(1)
Senior Secured Credit Facilities:         
Term Loan A(2)
$1,706,250
 $1,739,063
 8/12/2024 LIBOR + 1.75% $1,689,188
Term Loan B-1(3)
2,722,552
 0
 8/12/2026 LIBOR + 1.75% $2,681,713
Term Loan B(3)
0
 2,743,125
 8/12/2026    
Revolving line of credit(2)
0
 0
 8/12/2024 LIBOR + 1.75%  
Senior Notes:         
4 ⅝% Senior Notes1,750,000
 0
 6/1/2030 4.625% $1,799,018
3 ¾% Senior Notes1,500,000
 0
 2/15/2031 3.750% $1,445,625
5 ⅛% Senior Notes0
 1,750,000
 7/15/2024    
5% Senior Notes0
 1,500,000
 5/1/2025    
Acquisition obligations and other notes payable(4)
157,864
 180,352
 2020-2036 5.01% $157,864
Financing lease obligations(5)
274,611
 268,534
 2021-2038 5.16%  
Total debt principal outstanding8,111,277
 8,181,074
      
Discount and deferred financing costs(80,945) (72,840)      
 8,030,332
 8,108,234
      
Less current portion(163,787) (130,708)      
 $7,866,545
 $7,977,526
      

 
(1)
As of September 30, 2019,For the Company has an undrawn new revolving line of credit under its newCompany's senior secured credit facilities of $1,000,000. The new revolving line of credit interest rate in effect at September 30, 2019 was 1.50% plus London Interbank Offered Rate (LIBOR) and it matures on August 12, 2024.
(2)
On May 6, 2019, the Company entered into an agreement to extend the maturity dates of its then existing Term Loan A, Term Loan A-2 and revolving line of credit under its prior senior secured credit facilities by six months, to December 24, 2019.
(3)At June 30, 2019, the interest rate on the Company's then existing term loan debt was LIBOR plus interest rate margins in effect of 2.00% for the prior Term Loan A and prior revolving line of credit, 1.00% for the prior Term Loan A-2 and 2.75% for the prior Term Loan B.
(4)Fairnotes, fair value estimates are based upon bid and ask quotes, for these instruments, typically a level 2 input. The balances ofFor the acquisition obligations and other notes payable, and financing lease obligations arethe carrying values presented in the condensed consolidated financial statements as of September 30, 2019 athere approximate their approximateestimated fair values, due to the short-term naturebased on estimates of their settlements.present values using level 2 interest rate inputs.
(5)(2)The Company's interest rate on its Term Loan A and revolving line of credit is subject to adjustment depending upon the Company's leverage ratio under the credit agreement governing its senior secured credit facilities. Based on the Company's leverage ratio as of September 30, 2020, the Company’s interest rate will be adjusted in the fourth quarter of 2020 to be LIBOR plus 1.50% for its Term Loan A and revolving line of credit.
(3)
On February 13, 2020, the Company entered into an amendment to the credit agreement governing its senior secured credit facilities to refinance the senior secured Term Loan B with a $2,743,125 senior secured Term Loan B-1.
(4)The interest rate presented for acquisition obligations and other notes payable is their weighted average interest rate based on the current interest raterates in effect and assuming no changes to the LIBOR based interest rates.
(6)(5)Financing lease obligations are measured at their approximate present values at inception. The interest rate presented for financing lease obligations is theirthe weighted average discount rate.rate embedded in financing leases outstanding. The term of one ground lease runs to 2070, in addition to the other lease maturity dates presented in the table above.
(7)As of September 30, 2019, the carrying amount of the Company’s current senior secured credit facilities includes a discount of $6,708 and deferred financing costs of $47,255, and the carrying amount of the Company’s senior notes includes deferred financing costs of $22,016. As of December 31, 2018, the carrying amount of the Company’s then existing senior secured credit facilities included a discount of $6,104 and deferred financing costs of $12,580, and the carrying amount of the Company’s senior notes included deferred financing costs of $33,316.



DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Scheduled maturities of long-term debt at September 30, 20192020 were as follows:
2019 (remainder of the year)29,841
2020129,082
2020 (remainder of the year)$52,092
2021153,120
$148,821
2022168,824
$170,566
2023224,455
$228,303
20243,171,804
$1,421,461
2025$63,571
Thereafter4,334,769
$6,026,463

TheOn February 13, 2020, the Company closed the DaVita Medical Group (DMG) saleentered into an amendment (the Repricing Amendment) to refinance and reprice its senior secured Term Loan B with a senior secured Term Loan B-1 that bears interest at a rate equal to LIBOR plus an applicable margin of 1.75% and matures on June 19, 2019August 12, 2026 and, as required. The Repricing Amendment did not change the interest rate on the Term Loan A or the revolving line of credit. NaN additional debt was incurred, nor any additional proceeds received, by the termsCompany in connection with the Repricing Amendment. The majority of the Company's Term Loan B debt was considered modified. As a result, the Company recognized debt refinancing charges of $2,948 in the nine months ended September 30, 2020, comprised partially of fees incurred on this transaction and partially of deferred financing costs written off for the portion of debt considered extinguished and reborrowed. For the portion of the Term Loan B debt that was considered extinguished and reborrowed in this refinancing, the Company recognized $68,842 in constructive financing cash outflows and financing cash inflows on the statement of cash flows, even though no funds were actually paid or received. Another $55,895 of the debt considered extinguished in this refinancing represented a non-cash financing activity.
During the first nine months of 2020, the Company made regularly scheduled mandatory principal payments under its prior senior secured credit agreement, usedfacilities totaling $32,813 on Term Loan A and $20,573 on Term Loan B-1.
On June 9, 2020, the Company issued $1,750,000 aggregate principal amount of 4.625% senior notes due 2030 (the
4 ⅝% Senior Notes) in a private offering pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 4 ⅝% Senior Notes pay interest on June 1 and December 1 of each year beginning December 1, 2020. The 4 ⅝% Senior Notes are unsecured senior obligations and rank equally in right of payment with the Company's existing and future unsecured senior indebtedness. The 4 ⅝% Senior Notes are guaranteed by each of the Company’s domestic subsidiaries that guarantee its senior secured credit facilities. The Company may redeem up to 40% of the aggregate principal amount of the
4 ⅝% Senior Notes at any time prior to June 1, 2023 at 104.625% of the aggregate principal amount from the proceeds of one or more equity offerings, plus accrued and unpaid interest. In addition, the Company may redeem the 4 ⅝% Senior Notes at any time prior to June 1, 2025 at a make whole redemption price plus accrued and unpaid interest, or on and after such date at certain redemption prices specified in the indenture governing the 4 ⅝% Senior Notes plus accrued and unpaid interest. The
4 ⅝% Senior Notes contain restrictive covenants that limit the ability of the Company and its guarantors to, among other things, create certain liens, enter into certain sale/leaseback transactions, or merge, consolidate or sell all or substantially all of the net proceeds from the sale of DMGtheir assets. The 4 ⅝% Senior Notes and related subsidiary guarantees do not have any registration or similar rights and are not expected to prepay term debt outstanding under that credit agreement.be registered for exchange on public markets. During the nine months ended September 30, 2019,2020, the Company made mandatoryincurred $20,386 in fees, discounts and other professional expenses associated with this transaction that were capitalized and will amortize over the term of the 4 ⅝% Senior Notes.
On July 15, 2020, the Company used the net proceeds from the 4 ⅝% Senior Notes offering, together with cash on hand, to redeem in full all $1,750,000 aggregate principal prepaymentsamount outstanding of $647,424 onits 5 ⅛% Senior Notes plus accrued interest and redemption premium. In connection with this redemption, the prior Term Loan A, $995,000 on the prior Term Loan A-2Company incurred debt redemption premium charges of $29,890 and $2,823,447 on the prior Term Loan B.deferred financing cost write-offs of $9,764.
On August 12, 2019,11, 2020, the Company entered intoissued $1,500,000 aggregate principal amount of 3.75% senior notes due 2031 (the
3 ¾% Senior Notes) in a new $5,500,000private offering pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 3 ¾% Senior Notes pay interest on February 15 and August 15 of each year beginning February 15, 2021. The
3 ¾% Senior Notes are unsecured senior obligations and rank equally in right of payment with the Company's existing and future unsecured senior indebtedness. The 3 ¾% Senior Notes are guaranteed by each of the Company’s domestic subsidiaries that guarantee its senior secured credit agreement (the New Credit Agreement) consistingfacilities. The Company may redeem up to 40% of a secured term loan A facility in the aggregate principal amount of $1,750,000 with a delayed draw feature, a secured term loan B facility inthe
3 ¾% Senior Notes at any time prior to August 15, 2023 at 103.75% of the aggregate principal amount from the proceeds of $2,750,000one or more equity offerings, plus accrued and a secured revolving line of credit in the aggregate principal amount of $1,000,000 (the foregoing referred as the new Term Loan A, new Term Loan B and new revolving line of credit, respectively).unpaid interest. In addition, the Company can increasemay redeem the existing revolving commitments and enter into one or more incremental term loan facilities in an amount not to exceed the sum of $1,500,000 (less the amount of other permitted indebtedness incurred or issued in reliance on such amount), plus an amount of indebtedness such that the senior secured leverage ratio is not in excess of 3.50:1.00 after giving effect to such borrowings.
The new Term Loan A and new revolving line of credit initially bear interest at LIBOR plus an interest rate margin of 1.50%, which is subject to adjustment depending upon the Company's leverage ratio under the New Credit Agreement and can range from 1.00% to 2.00%. The new Term Loan A requires amortizing quarterly principal payments beginning on December 31, 2019 in annual amounts of $10,938 in 2019, $54,688 in 2020, $87,500 in 2021, $98,437 in 2022, and $142,187 in 2023, with the balance of $1,356,250 due in 2024. The new Term Loan B bears interest at LIBOR plus an interest rate margin of 2.25%. The new Term Loan B requires amortizing quarterly principal payments beginning on December 31, 2019 in annual amounts of $6,875 in 2019, and $27,500 for each year from 2020 through 2025, with the balance of $2,578,125 due in 2026.
The Company's term loans and revolving line of credit under its New Credit Agreement are guaranteed by certain of the Company’s direct and indirect wholly-owned domestic subsidiaries, which hold most of the Company’s domestic assets, and are secured by substantially all of the assets of DaVita Inc. and these guarantors. Contemporaneously with the Company entering into the New Credit Agreement and pursuant to the indentures governing the Company’s senior notes, certain subsidiaries of the Company were released from their guarantees of the Company's senior notes such that, after that release, the remaining subsidiary guarantors of the senior notes were the same subsidiaries guaranteeing the New Credit Agreement. The New Credit Agreement contains certain customary affirmative and negative covenants such as various restrictions or limitations on permitted amounts of investments, acquisitions, share repurchases, the payment of dividends, and redemptions and incurrence of other indebtedness. Many of these restrictions and limitations will not apply as long as the Company’s leverage ratio calculated in accordance with the New Credit Agreement is below 4.00:1.00. In addition, the New Credit Agreement places limitations on the amount of gross revenue from individual immaterial subsidiaries and also requires compliance with a maximum leverage ratio covenant of 5.00:1.00 through 2022 and 4.50:1.00 thereafter.
In the third quarter of 2019, the Company used a portion of the proceeds from the new Term Loan A and new Term Loan B to pay off the remaining principal balances outstanding and accrued interest and fees on its prior Term Loan B and prior revolving line of credit in the amount of $1,153,274; to redeem all of its outstanding 5.75%3 ¾% Senior Notes due in 2022 for an aggregate cash payment consisting of principal; redemption premium and accrued but unpaid interest to the redemption date of $1,267,565; and to repurchase 21,802 shares of common stock under the modified “Dutch auction” tender offer (the Tender Offer) for a total cost of $1,233,886, including fees and expenses, as described in Note 14 to these condensed consolidated financial statements. The remaining debt borrowings added cash to the balance sheet for potential acquisitions, share repurchases and other general corporate purposes.
In addition to the prepayments described above, during the first nine months of 2019 the Company made regularlyat

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


scheduled principal payments underany time prior to February 15, 2026 at a make whole redemption price plus accrued and unpaid interest, or on and after such date at certain redemption prices specified in the indenture governing the 3 ¾% Senior Notes plus accrued and unpaid interest. The 3 ¾% Senior Notes contain restrictive covenants that limit the ability of the Company and its then existing senior secured credit facilitiesguarantors to, among other things, create certain liens, enter into certain sale/leaseback transactions, or merge, consolidate or sell all or substantially all of $27,576 on its prior Term Loan Atheir assets. The 3 ¾% Senior Notes and $17,500 on its prior Term Loan B. The Company didrelated subsidiary guarantees do not have any regularly scheduled principal payments under its new senior secured credit facilities duringregistration or similar rights and are not expected to be registered for exchange on public markets. During the first nine months of 2019.
As a result of the transactions described above, the Company recognized debt prepayment, refinancing and redemption charges of $21,242 and $33,402 in the three and nine month periods ended September 30, 2019, respectively, as a result2020, the Company incurred $17,793 in fees, discounts and other professional expenses associated with this transaction that were capitalized and will amortize over the term of the repayment of3 ¾% Senior Notes.
On August 21, 2020, the Company used the net proceeds from the 3 ¾% Senior Notes offering, together with cash on hand, to redeem in full all $1,500,000 aggregate principal balancesamount outstanding on the Company's prior senior secured credit facilities and the redemption of its 5.75%5% Senior Notes. The $21,242Notes plus accrued interest and redemption premium. In connection with this redemption, the Company incurred debt redemption premium charges of such charges recognized in the third quarter of 2019 represented debt discount$37,500 and deferred financing cost write-offs associated with the portion of $8,866.
The Company's 2015 interest rate cap agreements expired on June 30, 2020 and the Company's prior senior secured debt that was paid in full in the third quarter of 2019 as well as redemption chargescap agreements became effective on its 5.75% Senior Notes redeemed in the third quarter of 2019. The $12,160 of such charges recognized in the second quarter of 2019 represented accelerated amortization of debt discount and deferred financing costs associated with the portion of the Company's prior senior secured debt that was mandatorily prepaid in or shortly after the second quarter of 2019 and prior extensions thereof.
June 30, 2020. As of September 30, 2019,2020, the Company maintains severalCompany's 2019 interest rate cap agreements that have the economic effect of capping the Company's maximum exposure to LIBOR variable interest rate changes on specific portionsequivalent amounts of the Company's floating rate debt, including all of the new Term Loan BB-1 and a portion of the new Term Loan A. The remaining $1,000,000$928,802 outstanding principal balance of the new Term Loan A is subject to LIBOR-based interest rate volatility. TheThese cap agreements are designated as cash flow hedges and, as a result, changes in the fair values of thesethe cap agreements are reported in other comprehensive income. The amortization oforiginal premiums paid for the original cap premium is recognized as a component ofcaps are amortized to debt expense on a straight-line basis over the termsterm of theeach cap agreements.agreement starting from its effective date. These cap agreements do not contain credit-risk contingentcredit risk-contingent features.
In August 2019, the Company entered into several forward interest rate cap agreements with a notional amount of $3,500,000 that have 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 (2019 cap agreements). These 2019 cap agreements are designated as cash flow hedges and, as a result, changes in their fair values are reported in other comprehensive income. These 2019 cap agreements do not contain credit-risk contingent features, and become effective on June 30, 2020.
The following table summarizes the Company’s interest rate cap agreements outstanding as of September 30, 20192020 and December 31, 2018,2019, which are classified in "Other long-term assets" on its consolidated balance sheet: 
  Nine months ended September 30, 2019 Fair value  Nine months ended
September 30, 2020
 Fair value
Notional amount LIBOR maximum rate Effective date Expiration date Debt expense Recorded OCI loss September 30, 2019 December 31, 2018Notional amount LIBOR maximum rate Effective date Expiration date Debt expense Recorded OCI loss September 30, 2020 December 31, 2019
2019 cap agreements$3,500,000
 2.00% 6/30/2020 6/30/2024 $1,378
 $21,946
 $2,506
 $24,452
2015 cap agreements$3,500,000
 3.50% 6/29/2018 6/30/2020 $6,428
 $851
 $
 $851
$3,500,000
 3.50% 6/29/2018 6/30/2020 $4,326
 $0
 $0
 $0
2019 cap agreements$3,500,000
 2.00% 6/30/2020 6/30/2024 
 $1,393
 $20,642
 

 The following table summarizes the effects of the Company’s interest rate cap agreements for the three and nine months ended September 30, 20192020 and 2018:2019:
 Amount of unrecognized (losses) gains in OCI on interest rate cap agreements Income statement location Reclassification from accumulated other comprehensive income into net income Amount of unrealized losses in OCI on interest rate cap agreements Income statement
location
 Reclassification from accumulated other comprehensive loss into net income
 Three months ended
September 30,
 Nine months ended
September 30,
 Three months ended
September 30,
 Nine months ended
September 30,
 Three months ended
September 30,
 Nine months ended
September 30,
 Three months ended
September 30,
 Nine months ended
September 30,
Derivatives designated as cash flow hedges 2019 2018 2019 2018 2019 2018 2019 2018 2020 2019 2020 2019 2020 2019 2020 2019
Interest rate cap agreements $(1,420) $50
 $(2,244) $1,103
 Debt expense $2,101
 $2,163
 $6,428
 $6,303
 $(2,169) $(1,420) $(21,946) $(2,244) Debt expense $1,378
 $2,101
 $5,704
 $6,428
Related income tax 360
 (13) 572
 (284) Related income tax (532) (557) (1,646) (1,623) 541
 360
 5,476
 572
 Related income tax (344) (532) (1,424) (1,646)
Total $(1,060) $37
 $(1,672) $819
   $1,569
 $1,606
 $4,782
 $4,680
 $(1,628) $(1,060) $(16,470) $(1,672)   $1,034
 $1,569
 $4,280
 $4,782

See Note 1513 to these condensed consolidated financial statements for further details on amounts recorded and reclassified from accumulated other comprehensive (loss) income.loss.
The Company’s weighted average effective interest rate on the senior secured credit facilities at the end of the third quarter of 20192020 was 4.30%2.11%, based on the current margins in effect for the new Term Loan A and the new Term Loan BB-1 as of September 30, 2019,2020, as described above.
The Company’s overall weighted average effective interest rate for the three and nine months ended September 30, 2020 was 3.31% and 3.76%, respectively, and as of September 30, 2020 was 3.11%.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


The Company’s overall weighted average effective interest rate for the three and nine months ended September 30, 2019 was 5.09% and 5.14%, respectively, and as of September 30, 2019 was 4.66%.
As of September 30, 2019,2020, the Company’s interest rates are fixed on approximately 44.03%45% of its total debt.
As of September 30, 2019,2020, the Company hashad an undrawn $1,000,000 revolving line of credit under its new senior secured credit facilitiesfacilities. Availability under this revolving line of $1,000,000, for which approximately $13,055 was committed for outstandingcredit is reduced by the amount of any letters of credit.credit outstanding. There are currently 0 letters of credit outstanding under the senior secured credit facilities. The Company also has approximately $59,723$64,634 of outstanding letters of credit under a separate bilateral secured letter of credit facility.
10.Leases
The majority of the Company’s facilities are leased under non-cancellable operating leases ranging in terms from five years to fifteen years and which contain renewal options of five years to ten years at the fair rental value at the time of renewal. These renewal options are included in the Company’s determination of the right-of-use assets and related lease liabilities when renewal is considered reasonably certain at the commencement date. Certain of the Company’s leases are subject to periodic consumer price index increases or contain fixed escalation clauses. The Company also leases certain facilities and equipment under finance leases. The Company has elected the practical expedient to not separate lease components from non-lease components related to its real estate financing and operating leases.
Financing and operating right-of-use assets are recognized based on the net present value of lease payments over the lease term at the commencement date. Since most of the Company's leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments.
As of September 30, 2019 and December 31, 2018, assets recorded under finance leases were $254,967 and $367,164, respectively, and accumulated amortization associated with finance leases was $21,606 and $131,971, respectively, included in property and equipment, net, on the Company's consolidated balance sheet.
In certain markets, the Company acquires and develops dialysis centers. Upon completion, the Company sells the center to a third party and leases the space back with the intent of operating the center on a long term basis. Both the sale and leaseback terms are generally market terms. The lease terms are consistent with the Company's other operating leases with the majority of the leases under non-cancellable operating leases ranging in terms from five years to fifteen years and which contain renewal options of five years to ten years at the fair rental value at the time of renewal.
The Company adopted Topic 842, Leases beginning on January 1, 2019 through a modified retrospective approach for leases existing at the adoption date with a cumulative effect adjustment. Consequently, financial information was not updated for dates and periods before January 1, 2019.
The components of lease expense were as follows:
Lease cost Three months ended September 30, 2019
Nine months ended September 30, 2019
Operating lease cost(1):
   
Fixed lease expense $133,342
 $392,398
Variable lease expense 30,786
 89,264
Financing lease cost:    
Amortization of leased assets 6,164
 17,693
Interest on lease liabilities 3,803
 11,293
Net lease cost $174,095
 $510,648
(1)Includes short-term lease expense and sublease income, which are immaterial.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Other information related to leases was as follows:
Lease term and discount rateSeptember 30, 2019
Weighted average remaining lease term (years):
Operating leases9.1
Finance leases10.5
Weighted average discount rate:
Operating leases4.2%
Finance leases5.4%
Other information 
Nine months ended
September 30, 2019
Gains on sale leasebacks, net $13,903
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases $467,338
Operating cash flows from finance leases $16,226
Financing cash flows from finance leases $21,905
Net operating lease assets obtained in exchange for new or modified
operating lease liabilities
 $299,697

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows:
 Operating leases Finance leases
2019 (remainder of the year)$121,795
 $8,384
2020497,654
 38,411
2021474,292
 33,950
2022437,481
 34,369
2023390,993
 34,511
2024340,662
 34,540
Thereafter1,433,145
 183,786
Total future minimum lease payments$3,696,022
 $367,951
Less portion representing interest(639,683) (87,813)
Present value of lease liabilities$3,056,339
 $280,138

Future minimum lease payments under non-cancellable leases as of December 31, 2018 were as follows:
 Operating leases Capital leases
2019$483,488
 $36,754
2020462,154
 41,044
2021432,950
 34,026
2022395,462
 33,690
2023349,649
 33,845
Thereafter1,589,949
 194,611
 $3,713,652
 373,970
Less portion representing interest  (91,233)
Total capital lease obligations, including current portion  $282,737


DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


11.9.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, demands, claims, qui tam suits, governmental investigations and audits (including, without limitation, investigations or other actions 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 September 30, 20192020 and December 31, 2018,2019, the Company’s total recorded accruals 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, without limitation, 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 may 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.
Governmental Inquiries and Certain Related 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), a wholly-owned subsidiary of the Company, 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 health care offenses. The subpoena covered the period from January 1, 2007 to the present, and sought 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 Department of Justice notified the Court on July 23, 2019 of its decision to elect not to intervene in the matter of U.S. ex rel. David Gonzalez v. DaVita Healthcare Partners, et al. The complaint then was unsealed in the U.S. District Court, District of Massachusetts by order entered on August 1, 2019. The Department of Justice has confirmed that the complaint, which alleges violations of the FCA and various

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


state false claims acts, was the basis of its investigation initiated in January 2017. The Company has not been served with the complaint.
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 healthcare offenses involving DaVita Kidney Care, as well as several of the Company’s wholly-owned subsidiaries. TheIn addition to DaVita Kidney Care, the matter currently includes an investigation into DaVita Rx, DaVita Laboratory Services, Inc. (DaVita Labs), and RMS Lifeline Inc. (Lifeline). In each of August 2018 and May 2019, the Company received a CID pursuant to the FCA from the U.S. Attorney's Office relating to this investigation. In May 2020, the Company sold its interest in Lifeline, but the Company retained certain liabilities of the Lifeline business, including those related to this investigation. 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. On September 30, 2019, the U.S. Attorney’s Office notified the U.S. District Court, Middle District of Florida, of its decision not to elect to intervene at this time in the matter of U.S. ex rel. Lorne Holland, et al. v. DaVita Healthcare Partners, Inc., et al. The court then unsealed the complaint, which alleges violations of the FCA, by order dated the same day. In January 2020, the private party relators served the Company and DaVita Labs with an amended complaint. On February 24, 2020, the Company and DaVita Labs filed a motion to dismiss the amended complaint. On June 25, 2020, the court denied the motion to dismiss. The Company has not beenand DaVita Labs answered the complaint on July 23, 2020. The Company and DaVita Labs dispute these allegations and intend to defend this action accordingly.
2020 U.S. Attorney New Jersey Investigation: In March 2020, the U.S. Attorney’s Office, District of New Jersey served the Company with a subpoena and a CID relating to an investigation being conducted by that office and the U.S. Attorney’s Office, Eastern District of Pennsylvania. The subpoena and CID request information on several topics, including certain of the Company’s joint venture arrangements with physicians and physician groups, medical director agreements, and compliance with its five-year Corporate Integrity Agreement, the term of which expired October 22, 2019. The Company is cooperating with the complaint.government in this investigation.
2020 California Department of Insurance Investigation: In April 2020, the California Department of Insurance (CDI) sent the Company an Investigative Subpoena relating to an investigation being conducted by that office. CDI issued a superseding subpoena in September 2020. The subpoena, as revised, requests information on a number of topics, including but not limited to the Company’s communications with patients about insurance plans and financial assistance from the American Kidney Fund (AKF), analyses of the potential impact of patients’ decisions to change insurance providers, and documents relating to donations or contributions to the AKF. The Company is cooperating with CDI in this investigation.
2020 Department of Justice Investigation: In October 2020, the Company received a CID from the Department of Justice pursuant to a False Claims Act investigation concerning allegations that DaVita Medical Group (DMG) may have submitted undocumented or unsupported diagnosis codes in connection with Medicare Advantage beneficiaries. The CID covers the period from January 1, 2015 through June 19, 2019, the date the Company completed the divestiture of DMG to Collaborative Care Holdings, LLC. The Company is cooperating 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, members of its board of directors or management, possible criminal penalties, any of which could have a material adverse effect on the Company.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


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 courtCourt 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. On March 28, 2019, the U.S. District Court for the District of Colorado denied the motion to dismiss. The Company answered the complaint on May 28, 2019. On January 31, 2020, the plaintiffs filed a motion for class certification and the Company filed its opposition on June 29, 2020.
While the Company continues to dispute the allegations, in July 2020, it reached an agreement in principle to resolve this matter without admitting to any liability. Settlement of this matter on the agreed terms is expected to be covered primarily with insurance proceeds, with the Company contributing an amount that would not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. A motion for preliminary approval of the settlement was granted by the Court on October 27, 2020. The Company disputes these allegations and intendssettlement is subject to, defend this action accordingly.among other things, final approval by the Court.
In re DaVita Inc. Stockholder Derivative Litigation: On August 15, 2017, the U.S. District Court for the District of Delaware consolidated 3 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

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


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. On April 25, 2019, the court denied the Company's motion to dismiss. The Company answered the complaint on May 28, 2019.
While the defendants continue to dispute the allegations, in July 2020, an agreement in principle was reached to resolve this matter without admitting to any liability. The Company’s Board of Directors (Board) approved the settlement on October 20, 2020. The settlement is now subject to, among other things, approval by the Court. A motion for preliminary approval of the settlement was filed on October 23, 2020. As part of the settlement, the Company disputes these allegations and intendsagreed to defend this action accordingly.certain corporate governance policies, but will not make any financial contribution towards the settlement.
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, without limitation, 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.
* * *
Other than as may be 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 119 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’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.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


12.10.Other commitments
The Company has certain other potential commitments to provide operating capital to a number of outpatient dialysis centersbusinesses that are wholly-owned by third parties or businesses in which the Company maintains a noncontrolling equity interest as well as to physician-owned vascular access clinics or medical practices that the Company operates under management and administrative services agreements of approximately $6,935.$8,945.
13.11.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 is primarily general and administrative in nature, is attributed to the Company’s U.S. dialysis and related lab services business, corporate administrative support, and ancillary services and strategic initiatives.services.
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 the expected ultimate shares to be issued as of the end of each reporting period. Stock-based compensation expense for cash-settled awards is based on their estimated fair values as of the end of each reporting period. The expense for all stock-basedLTIP awards is recognized net of expected forfeitures.
On June 11, 2020, the Company’s stockholders approved the DaVita Inc. 2020 Incentive Award Plan (the 2020 Plan). Prior to June 11, 2020 stock-based awards were granted under the DaVita Healthcare Partners Inc. 2011 Incentive Award Plan (the 2011 Plan). At the time of approval of the 2020 Plan there were 8,730 shares of common stock available for issuance under the 2020 Plan, which consisted of 5,000 newly authorized shares as well as 3,730 shares that were rolled over from the 2011 Plan. The 2020 Plan provides for the grant of stock appreciation rights, nonqualified stock options, incentive stock options, restricted stock units, restricted stock, performance stock awards, dividend equivalents, stock payments, deferred stock unit awards, deferred stock awards and performance cash awards. The 2020 Plan mandates a maximum award term of 10 years for stock appreciation rights and stock options and stipulates that awards of these types be granted with a base or exercise price per share of not less than the fair market value of the Company's common stock on the date of grant. Shares available under the 2020 Plan are also stated on a full value share basis rather than on an option-equivalent basis. The 2020 Plan therefore provides that shares available for issuance under the plan are reduced by only 1 share available for every 4 shares underlying stock appreciation rights and stock options, and are reduced by 1 share available for every 1 share underlying stock-based awards other than stock appreciation rights and stock options.
During the nine months ended September 30, 2019,2020, the Company granted 1,921991 restricted and performance stock units with an aggregate grant-date fair value of $96,472$75,945 and a weighted-average expected life of approximately 3.4 years and 2,3902,765 stock-settled stock appreciation rights with an aggregate grant-date fair value of $33,545$73,833 and a weighted-average expected life of approximately 4.04.8 years.
For the nine months ended September 30, 20192020 and 2018,2019, the Company recognized $82,469$74,492 and $74,077,$82,469, respectively, in total LTIP expense, of which $43,666$67,217 and $60,461,$43,666, respectively, represented stock-based compensation expense for stock appreciation rights, restricted stock units, performance stock units and discounted employee stock plan purchases, which are primarily included in general and administrative expense. The estimated tax benefits recorded for stock-based compensation for the nine months ended September 30, 2020 and 2019 was $8,794 and 2018$6,798, respectively.
As of September 30, 2020, the Company had $207,513 in total estimated but unrecognized stock-based compensation expense under the Company’s equity compensation and employee stock purchase plans. The Company expects to recognize this expense over a weighted average remaining period of 1.5 years. The Company 0 longer has any long-term performance-based cash awards outstanding in its principal U.S. dialysis business as the performance and accrual period for these awards ended December 31, 2019 with a final payout of $66,302 in 2020.
For the nine months ended September 30, 2020 and 2019, the Company recognized $5,049 and $2,791, respectively, in actual tax benefits upon the settlement of stock awards.
On November 4, 2019, the independent members of the Board approved an award of 2,500 premium-priced stock-settled stock appreciation rights (Premium-Priced Award) to the Company’s Chief Executive Officer (CEO), which award was $6,798 and $10,887, respectively.subject to stockholder approval of a related amendment to the 2011 Plan. The Company's stockholders approved that amendment to the

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


As of September 30, 2019,2011 Plan on January 23, 2020, authorizing the Company had $166,502 in total estimated but unrecognized compensation expense for outstanding LTIP awards, including $151,805 related to stock-based compensation arrangements under the Company’s equity compensation and employee stock purchase plans. The Company expects to recognize the performance-based cash component of these LTIP expenses over a weighted average remaining period of 0.6 years and the stock-based component of these LTIP expenses over a weighted average remaining period of 1.6 years.
For the nine months ended September 30, 2019 and 2018, the Company recognized $2,791 and $7,919, respectively, in actual tax benefits upon the settlement of stock awards.
On November 4, 2019, the independent members of the Company’s Board of Directors (Board) unanimously approved an award of 2,500 premium-priced stock-settled stock appreciation rights (Premium-Priced Award) to the Company’s Chief Executive Officer (CEO), which is subject to stockholder approval of a related amendmentgrant to the Company's 2011 Incentive Award Plan.CEO. Since stockholder approval occurred in 2020, subsequent to the Board approval, this award had both a service inception and grant date of January 23, 2020 for accounting purposes.
The base price of the Premium-Priced Award is $67.80 per share, which is a 20% premium to the Tender Offer clearing price.price of the Company's 2019 modified "Dutch auction" tender offer. The award vests 50% on each of the thirdNovember 4, 2022 and fourth anniversaries of the date of Board approvalNovember 4, 2023, and expires after five years.on November 4, 2024. The award includes a holding period requiringrequirement that the CEO hold any shares acquired upon exercise of this award, net of shares used to cover related taxes, until the five-year anniversary of the Board approval, thatNovember 4, 2024 (that is, for the full term of the award,award), subject to lapse of the holding period upon a change in control of the Company or due to Mr. Rodriguez’sthe CEO's death or termination due to disability.
14.12.Share repurchases
The following table summarizes the Company's repurchases of its common stock repurchases during the three and nine months ended September 30, 2019.2020 and 2019:
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Open market repurchases: 
Shares250
 8,790
 4,302
 10,850
Amount paid$21,259
 $514,082
 $324,398
 $626,271
Average paid per share$85.04
 $58.49
 $75.40
 $57.72
        
Tender Offer(1):
       
Shares7,982
 21,802
 7,982
 21,802
Amount paid$704,180
 $1,233,886
 $704,180
 $1,233,886
Average paid per share$88.22
 $56.60
 $88.22
 $56.60
        
Total :       
Shares8,232
 30,592
 12,284
 32,652
Amount paid$725,439
 $1,747,968
 $1,028,578
 $1,860,157
Average paid per share$88.13
 $57.14
 $83.73
 $56.97

 Three months ended September 30, 2019 Nine months ended September 30, 2019
 Shares repurchased Amount paid Average amount Shares repurchased Amount paid Average amount
Tender Offer(1)
21,802
 $1,233,886
 $56.60
 21,802
 $1,233,886
 $56.60
Open market repurchases8,790
 514,082
 58.49
 10,850
 626,271
 57.72
 30,592
 $1,747,968
 $57.14
 32,652
 $1,860,157
 $56.97


(1)The aggregate amount paid for shares repurchased associated withpursuant to the Company's Tender OfferOffers during the three and nine months ended September 30, 2020 and 2019 includes thetheir clearing priceprices of $88.00 and $56.50 per share, respectively, plus related fees and expenses of $2,074.$1,792 and $2,074, respectively.
In the third quarter of 2020, the Company used cash on hand to repurchase 7,982 shares of common stock under the modified “Dutch auction” tender offer (the Tender Offer) for a total cost of $704,180, including fees and expenses.
In addition, the Company also repurchased 4,2831,828 shares of its common stock for $245,544$160,783 at an average cost of $57.32$87.96 per share, subsequent to September 30, 20192020 through November 4, 2019.
Effective July 17, 2019, the Board terminated all remaining prior share repurchase authorizations available to the Company at that time and approved a new share repurchase authorization of $2,000,000. As of the close of business on November 4, 2019, the Company had repurchased a total of 30,661 of shares of its common stock for $1,753,627 under this repurchase authorization.October 28, 2020.
Effective as of the close of business on November 4, 2019, the Board terminated all remaining prior share repurchase authorizations available to the Company under the aforementioned July 17, 2019 authorization and approved a new share repurchase authorization of $2,000,000. Accordingly, asAs of November 6, 2019,October 28, 2020, the Company had a total of $2,000,000$515,926 available under the current repurchase authorization for additional share repurchases. Although this share repurchase authorization does not have an expiration date, the Company remains subject to share repurchase limitations including under the terms of its current senior secured credit facilities and the indentures governing its senior notes.facilities.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


15.13.Accumulated other comprehensive (loss) incomeloss
 Three months ended September 30, 2020 Nine months ended September 30, 2020
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
Beginning balance$(13,029) $(122,078) $(135,107) $(1,433) $(46,065) $(47,498)
Unrealized (losses) gains(2,169) 13,171
 11,002
 (21,946) (62,842) (84,788)
Related income tax541
 0
 541
 5,476
 0
 5,476
 (1,628) 13,171
 11,543
 (16,470) (62,842) (79,312)
Reclassification into net income1,378
 0
 1,378
 5,704
 0
 5,704
Related income tax(344) 0
 (344) (1,424) 0
 (1,424)
 1,034
 0
 1,034
 4,280
 0
 4,280
Ending balance$(13,623) $(108,907) $(122,530) $(13,623) $(108,907) $(122,530)
 For the three months ended September 30, 2019 For the nine months ended September 30, 2019
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
Beginning balance$(6,360) $(27,251) $(33,611) $(8,961) $(25,963) $(34,924)
Unrealized losses(1,420) (44,502) (45,922) (2,244) (45,790) (48,034)
Related income tax360
 
 360
 572
 
 572
 (1,060) (44,502) (45,562) (1,672) (45,790) (47,462)
Reclassification into net income2,101
 
 2,101
 6,428
 
 6,428
Related income tax(532) 
 (532) (1,646) 
 (1,646)
 1,569
 
 1,569
 4,782
 
 4,782
Ending balance$(5,851) $(71,753) $(77,604) $(5,851) $(71,753) $(77,604)

  Three months ended September 30, 2019  Nine months ended September 30, 2019
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
Beginning balance$(6,360) $(27,251) $(33,611) $(8,961) $(25,963) $(34,924)
Unrealized losses(1,420) (44,502) (45,922) (2,244) (45,790) (48,034)
Related income tax360
 0
 360
 572
 0
 572
 (1,060) (44,502) (45,562) (1,672) (45,790) (47,462)
Reclassification into net income2,101
 0
 2,101
 6,428
 0
 6,428
Related income tax(532) 0
 (532) (1,646) 0
 (1,646)
 1,569
 0
 1,569
 4,782
 0
 4,782
Ending balance$(5,851) $(71,753) $(77,604) $(5,851) $(71,753) $(77,604)

 For the three months ended September 30, 2018 For the nine months ended September 30, 2018
 Interest
rate cap
agreements
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
loss
 Interest
rate cap
agreements
 Investment
securities
 Foreign
currency
translation
adjustments
 Accumulated
other
comprehensive
(loss) income
Beginning balance$(11,258) $(10,667) $(21,925) $(12,408) $5,662
 $19,981
 $13,235
Cumulative effect of change
in accounting principle
(1)

 
 
 (2,706) (5,662) 
 (8,368)
Unrealized gains (losses)50
 (8,827) (8,777) 1,103
 
 (39,475) (38,372)
Related income tax(13) 
 (13) (284) 
 
 (284)
 37
 (8,827) (8,790) 819
 
 (39,475) (38,656)
Reclassification into net income2,163
 
 2,163
 6,303
 
 
 6,303
Related income tax(557) 
 (557) (1,623) 
 
 (1,623)
 1,606
 
 1,606
 4,680
 
 
 4,680
Ending balance$(9,615) $(19,494) $(29,109) $(9,615) $
 $(19,494) $(29,109)
(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 Tax Cuts and Jobs Act of 2017.
NetThe reclassification of net cap realized losses reclassified into income are recorded as debt expense in the corresponding consolidated statements of income. See Note 98 to these condensed 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. Subsequent to January 1, 2018, unrealized gains and losses on investment securities are recorded directly to other income rather than to accumulated other comprehensive income.
16.14.Acquisitions and divestitures
Routine acquisitions
During the nine months ended September 30, 2019,2020, the Company acquired dialysis businesses consisting of 78 dialysis centers located in the U.S. and 936 dialysis centers located outside the U.S. for a total of $75,323$112,597 in net cash, $529$6,917 in deferred purchase price obligations, and $19,818$21,021 in earn-out obligations and assumed liabilities. The assets and liabilities for these acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Company’s condensed consolidated financial statements, as are their operating results, from the designated effective dates of the acquisitions.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


The initial purchase price allocations for these transactions have been recorded at estimated fair values based on the best information available to management and will be finalized when certain information arranged to be obtained has been received. In particular, certain income tax amounts are pending final evaluation and quantification of pre-acquisition tax contingencies and filing of final tax returns. In addition, valuation of certain working capital items, fixed assets and intangibles are pending final audits and related valuation reports.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


The following table summarizes the assets acquired and liabilities assumed in these transactions at their estimated acquisition date fair values: 
Current assets$5,238
$17,606
Property and equipment3,607
15,714
Intangible and other long-term assets15,848
14,969
Goodwill77,238
110,248
Deferred income taxes1,513
Current liabilities(3,360)(17,786)
Long-term liabilities(1,139)
Noncontrolling interests(1,762)(1,729)

$95,670
$140,535

Amortizable intangible assets acquired during the first nine months of 2019ended September 30, 2020 primarily represent non-compete agreements which had weighted-average estimated useful lives of approximately sixfive years. The total estimated amount of goodwill deductible for tax purposes associated with these acquisitions was approximately $75,529.$91,157.
Sale of RMS Lifeline
The Company also divested its vascular access business, RMS Lifeline, Inc., effective May 1, 2020 and recognized a loss on sale of approximately $16,252.
Contingent earn-out obligations
The Company has several contingent earn-out obligations associated with acquisitions that could result in the Company paying the former owners of acquired companies a total of up to $35,338$37,467 if certain EBITDA, operating income performance targets or quality margins are met primarily over the next one year to five years. As of September 30, 2019,2020, the estimated fair valuesvalue of these contingent earn-out obligations is $19,833,$26,314, of which $4,401$7,400 is included in other current liabilities and the remaining $15,432$18,914 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 three and nine monthsmonth periods ended September 30, 2019:2020:
Beginning balance December 31, 2018$2,608
Contingent earn-out obligations associated with acquisitions19,731
Remeasurement of fair value for contingent earn-out obligations(2,179)
Payments on contingent earn-out obligations(327)
Ending balance September 30, 2019$19,833
 Three months ended September 30, 2020 Nine months ended September 30, 2020
Beginning balance$24,057
 $24,586
Acquisitions5,815
 11,676
Foreign currency translation(975) (6,358)
Fair value remeasurements(1,990) (2,630)
Payments or other settlements(593) (960)
Ending balance$26,314
 $26,314

17.15.     HeldDiscontinued operations previously held for sale and discontinued operations
DaVita Medical Group
On June 19, 2019, the Company completed the sale of its DMG divisionDaVita Medical Group (DMG) business to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc., for an aggregate purchase price of $4,340,000, prior to certain closing and post-closing adjustments specified in the related equity purchase agreement dated as of December 5, 2017, as amended as of September 20, 2018 and as of December 11, 2018 (as amended, the equity purchase agreement).
The Company has recorded a preliminary estimated pre-tax net loss of approximately $23,022 on the sale of its DMG division for the nine months ended September 30,business in 2019. This preliminary net loss iswas based on initial estimates of the Company's expected aggregate proceeds from the sale, net of transaction costs and obligations, as well as the estimated values of DMG net assets sold as of the closing date. These estimated net proceeds includeincluded $4,465,476 in cash received from Optum at closing, or $3,824,509 net of cash and restricted cash included in DMG net assets sold.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


restricted cash included in the DMG net assets sold. During the nine months ended September 30, 2020, the Company recognized $9,980 in additional tax benefits under the Coronavirus Aid, Relief, and Economic Security Act related to its period of DMG ownership, which have been recognized as an adjustment to the Company's loss on sale of the DMG business.
The ultimate net proceeds from the DMG sale, as well as the value of its previously held for sale net assets sold, remain subject to estimate revisions and post-closing adjustments pursuant to the equity purchase agreement, which could be material. The Company continues to work with Optum concerning what, if any, net working capital adjustment or other potential adjustments to the purchase price are appropriate, via the process set forth in the equity purchase agreement. Under the equity purchase agreement, the Company also has certain indemnification obligations that could require payments to the buyer relating to the Company's previous ownership and operation of the DMG business. Potential payments under these provisions, if any, remain subject to significant uncertainties and could have a material adverse effect on the net proceeds ultimately retained by the Company or the total amount of its loss on the sale of this business.
The following table presents the financial results of discontinued operations related to DMG:
Three months ended September 30, Nine months ended September 30,Three months ended September 30, Nine months ended September 30,
2019 2018 2019 20182020 2019 2020 2019
Revenues$
 $1,252,909
 $2,713,059
 $3,733,270
$0
 $0
 $0
 $2,713,059
Expenses1,996
 1,260,814
 2,541,783
 3,679,747
0
 1,996
 0
 2,541,783
Valuation adjustment
 98,201
 
 98,201
(Loss) income from discontinued operations before taxes(1,996) (106,106) 171,276
 (44,678)
Loss on sale of discontinued operations before taxes
 
 (23,022) 
Income (loss) from discontinued operations before taxes0
 (1,996) 0
 171,276
Gain (loss) on sale of discontinued operations before taxes0
 0
 9,980
 (23,022)
Income tax expense4,847
 105,633
 45,400
 103,151
0
 4,847
 0
 45,400
Net (loss) income from discontinued operations, net of tax$(6,843) $(211,739) $102,854
 $(147,829)$0
 $(6,843) $9,980
 $102,854

The following table presents cash flows of discontinued operations related to DMG:
Nine months ended September 30,Nine months ended September 30,
2019 20182020 2019
Net cash provided by operating activities from discontinued operations$97,005
 $208,570
$0
 $97,005
Net cash used in investing activities from discontinued operations$(43,442) $(32,860)$0
 $(43,442)

DMG acquisitions
During the period from January 1, 2019 to June 18, 2019 immediately prior to sale, the Company's DMG business acquired 2 medical businesses for a total of $2,025 in cash and deferred purchase price of $212.
18.16.Variable interest entities (VIEs)
The Company relies on the operating activitiesAt September 30, 2020, these condensed consolidated financial statements include total assets of certain legal entities that it does not directly own or control, but over which it has indirect influenceVIEs of $299,290 and total liabilities and noncontrolling interests of which it is considered the primary beneficiary. These entities are subjectVIEs to the consolidation guidance applicable to variable interest entities (VIEs).
third parties of $220,060. There have been no material changes in the nature of the Company's arrangements with VIEs or its judgments concerning them from those described in Note 23 to the Company's consolidated financial statements included in the 10-K.
At September 30, 2019, these condensed consolidated financial statements include total assets of VIEs of $389,284 and total liabilities and noncontrolling interests of VIEs to third parties of $273,660.
19.17.Fair values of financial instruments
The Company measures the fair value of certain assets, liabilities and noncontrolling interests subject to put provisions (temporary(redeemable equity interests classified as 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 certainclassifies assets, liabilities and temporary equityequities that are measured at fair value intoon a recurring basis based on the appropriate fair value hierarchy levels as defined by the FASB.Financial Accounting Standards Board (FASB).

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


The following table summarizes the Company’s fair value classifications for assets, liabilities and temporary equityequities that are measured at fair value on a recurring basis as of September 30, 2019:2020: 
Total Quoted prices in
active markets for
identical assets
(Level 1)
 Significant other
observable inputs
(Level 2)
 Significant
unobservable
inputs
(Level 3)
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$37,641
 $37,641
 $
 $
$41,015
 $41,015
 $0
 $0
Interest rate cap agreements$20,642
 $
 $20,642
 $
$2,506
 $0
 $2,506
 $0
Liabilities   
  
  
   
  
  
Contingent earn-out obligations$19,833
 $
 $
 $19,833
$26,314
 $0
 $0
 $26,314
Temporary equity 
  
  
  
 
  
  
  
Noncontrolling interests subject to put provisions$1,296,059
 $
 $
 $1,296,059
$1,303,934
 $0
 $0
 $1,303,934

For reconciliations of changes in contingent earn-out obligations and noncontrolling interests subject to put provisions during the three and nine months ended September 30, 2020, see Note 14 and the consolidated statement of equity, respectively.
Investments in equity securities represent investments in various open-ended registered investment companies (mutual funds) and common stock and are recorded at estimated fair value estimated based on reported market prices or redemption prices, as applicable. See Note 54 to these condensed 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 98 to these condensed consolidated financial statements for further discussion.
The estimated fair value measurements of contingent earn-out obligations are primarily based on unobservable inputs, including projected EBITDA.earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue. 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's credit risk adjusted rate that is used to discount obligations to present value. See Note 1614 to these condensed consolidated financial statements for further discussion.
The estimated fair value of noncontrolling interests subject to put provisions is based principally on the higher of either estimated liquidation value of net assets or a multiple of earnings for each subject dialysis partnership, based on historical earnings, revenue mix, and other performance indicators that can affect future results. The multiples used for these valuations are derived from observed ownership transactions for dialysis businesses between unrelated parties in the U.S. in recent years, and the specific valuation multiple applied to each dialysis partnership is principally determined by its recent and expected revenue mix and contribution margin. As of September 30, 2020, an increase or decrease in the weighted average multiple used in these valuations of one times EBITDA would change the estimated fair value of these noncontrolling interests by approximately $150,000. See Note 1817 to the Company's consolidated financial statements included in the 10-K for afurther discussion of the Company’s methodology for estimating the fair value of noncontrolling interests subject to put obligations.
The Company's fair value estimates for its senior secured credit facilities and senior notes are based upon bid and ask quotes for these instruments, typically a level 2 input. See Note 98 to these condensed consolidated financial statements for further discussion of the Company's debt.
Other financial instruments consist primarily of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities, lease liabilities and debt. The balances of non-debt financial instruments other than debt and lease liabilities are presented in these condensed consolidated financial statements at September 30, 20192020 at their approximate fair values due to the short-term nature of their settlements.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


20.18.Segment reporting
The Company’s operations are comprised of its U.S. dialysis and related lab services business (its U.S. dialysis business), its various ancillary services and strategic initiatives including its international operations (collectively, its ancillary services), and its corporate administrative support.
On June 19, 2019, the Company completed the sale of its DMG division to Optum, a subsidiary of UnitedHealth Group Inc. As a result of this transaction, DMG's results of operations have been reported as discontinued operations for all periods presented.
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 APAC JV. 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.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


The Company’s operating segment See Note 25 to the Company's consolidated financial informationstatements included in this report is prepared on the internal management reporting basis that10-K for further description of how the chief operating decision maker uses to allocate resourcesCompany determines and assess the financial performance of the Company'smeasures results for its 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.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


The following is a summary of segment net revenues, segment operating marginincome (loss), and a reconciliation of segment operating marginincome (loss) to consolidated income before income taxes:
Three months ended
September 30,
 Nine months ended
September 30,
Three months ended
September 30,
 Nine months ended
September 30,
2019 2018 2019 20182020 2019 2020 2019
Segment revenues:              
U.S. dialysis and related lab services       
Patient service revenues:       
U.S. dialysis       
Dialysis patient service revenues:       
External sources$2,652,946
 $2,559,345
 $7,782,435
 $7,661,244
$2,639,761
 $2,648,969
 $7,850,828
 $7,762,746
Intersegment revenues32,150
 25,424
 92,611
 63,943
37,049
 32,150
 104,111
 92,611
U.S. dialysis and related lab services patient service
revenues
2,685,096
 2,584,769
 7,875,046
 7,725,187
Provision for uncollectible accounts(3,977) (12,900) (19,689) (37,108)
Net U.S. dialysis and related lab services patient
service revenues
2,681,119
 2,571,869
 7,855,357
 7,688,079
U.S. dialysis patient service revenues2,676,810
 2,681,119
 7,954,939
 7,855,357
Other revenues(1):
              
External sources10,096
 4,932
 19,989
 14,965
17,141
 10,096
 29,970
 19,989
Intersegment revenues212
 
 726
 
268
 212
 876
 726
Total U.S. dialysis and related lab services revenues2,691,427
 2,576,801
 7,876,072
 7,703,044
Other—Ancillary services and strategic initiatives       
Patient service revenues, net128,223
 112,279
 367,951
 320,204
Total U.S. dialysis revenues2,694,219
 2,691,427
 7,985,785
 7,876,072
Other—Ancillary services       
Dialysis patient service revenues141,889
 128,223
 402,300
 367,951
Other external sources116,790
 183,674
 339,209
 624,422
125,275
 116,790
 362,184
 339,209
Intersegment revenues3,483
 8,361
 10,222
 27,748
4,079
 3,483
 12,402
 10,222
Total ancillary services and strategic initiatives revenues248,496
 304,314
 717,382
 972,374
Total ancillary services revenues271,243
 248,496
 776,886
 717,382
Total net segment revenues2,939,923
 2,881,115
 8,593,454
 8,675,418
2,965,462
 2,939,923
 8,762,671
 8,593,454
Elimination of intersegment revenues(35,845) (33,785) (103,559) (91,691)(41,396) (35,845) (117,389) (103,559)
Consolidated revenues$2,904,078
 $2,847,330
 $8,489,895
 $8,583,727
$2,924,066
 $2,904,078
 $8,645,282
 $8,489,895
Segment operating margin: 
  
  
  
U.S. dialysis and related lab services$500,742
 $390,006
 $1,416,680
 $1,272,828
Other—Ancillary services and strategic initiatives(97,725) (60,132) (170,405) (64,307)
Total segment operating margin403,017
 329,874
 1,246,275
 1,208,521
Reconciliation of segment operating margin to consolidated
income from continuing operations before income taxes:
       
Segment operating income (loss): 
  
  
  
U.S. dialysis$470,596
 $500,742
 $1,484,833
 $1,416,680
Other—Ancillary services(7,086) (97,725) (49,354) (170,405)
Total segment operating income463,510
 403,017
 1,435,479
 1,246,275
Reconciliation of segment operating income to consolidated
income from continuing operations before income taxes:
       
Corporate administrative support(24,681) (40,836) (65,546) (70,605)(25,841) (24,681) (122,514) (65,546)
Consolidated operating income378,336
 289,038
 1,180,729
 1,137,916
437,669
 378,336
 1,312,965
 1,180,729
Debt expense(88,589) (125,927) (351,774) (359,135)(73,658) (88,589) (243,642) (351,774)
Debt prepayment, refinancing and redemption charges(21,242) 
 (33,402) 
(86,074) (21,242) (89,022) (33,402)
Other income, net5,280
 4,007
 17,863
 10,583
5,395
 5,280
 10,590
 17,863
Consolidated income from continuing operations before
income taxes
$273,785
 $167,118
 $813,416
 $789,364
$283,332
 $273,785
 $990,891
 $813,416
 
(1)Includes management fee revenue from providing management and administrative services to dialysis ventures in which the Company owns a noncontrolling equity investment or which are wholly-owned by third parties.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


A summary of assets by reportable segment was as follows:
 September 30, 2019 December 31, 2018
Segment assets 
  
U.S. dialysis and related lab services (including equity
investments of $100,815 and $95,290, respectively)
$15,997,552
 $12,333,641
Other—Ancillary services and strategic initiatives (including
equity investments of $118,571 and $129,321, respectively)
1,454,278
 1,387,046
DMG—Held for sale (including equity investments of $0 and
$4,833, respectively)

 5,389,565
Consolidated assets$17,451,830
 $19,110,252
 September 30, 2020 December 31, 2019
U.S. dialysis (including equity investments of $125,525
 and $124,188, respectively)
$15,549,310
 $15,778,880
Other—Ancillary services (including equity investments
of
$126,958 and $117,795, respectively)
1,497,362
 1,532,514
Consolidated assets$17,046,672
 $17,311,394

Depreciation and amortization expense by reportable segment was as follows:
 Three months ended
September 30,
 Nine months ended
September 30,
 2019 2018 2019 2018
U.S. dialysis and related lab services$147,607
 $138,669
 $433,008
 $411,697
OtherAncillary services and strategic initiatives
8,308
 7,331
 23,677
 24,181
 $155,915
 $146,000
 $456,685
 $435,878
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
U.S. dialysis$148,221
 $147,607
 $442,833
 $433,008
Other—Ancillary services8,673
 8,308
 26,116
 23,677
 $156,894
 $155,915
 $468,949
 $456,685

Expenditures for property and equipment by reportable segment were as follows:
 Three months ended
September 30,
 Nine months ended
September 30,
 2019 2018 2019 2018
U.S. dialysis and related lab services$157,721
 $214,728
 $477,533
 $603,186
Other—Ancillary services and strategic initiatives15,544
 5,019
 31,184
 37,191
DMG—Held for sale
 11,935
 38,466
 65,282
 $173,265
 $231,682
 $547,183
 $705,659
 Nine months ended September 30,
 2020 2019
U.S. dialysis$430,646
 $477,533
Other—Ancillary services19,250
 31,184
DMG—Discontinued operations0
 38,466
 $449,896
 $547,183
 
21.19.Changes in DaVita Inc.’s ownership interests in consolidated subsidiaries
The effects of changes in DaVita Inc.’s ownership interests in consolidated subsidiaries on the Company’s consolidated equity were as follows: 
Three months ended September 30, Nine months ended
September 30,
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 20182020 2019 2020 2019
Net income (loss) attributable to DaVita Inc.$143,270
 $(136,796) $566,110
 $309,166
Net income attributable to DaVita Inc.$158,674
 $143,270
 $599,869
 $566,110
Changes in paid-in capital for:              
Sales of noncontrolling interests
 
 
 79
Purchases of noncontrolling interests(202) (5,285) 10,732
 (17,482)0
 (202) 4,197
 10,732
Net transfers to noncontrolling interests(202) (5,285) 10,732
 (17,403)0
 (202) 4,197
 10,732
Net income (loss) attributable to DaVita Inc., net of transfers to noncontrolling interests$143,068
 $(142,081) $576,842
 $291,763
Net income attributable to DaVita Inc., net of transfers to noncontrolling interests$158,674
 $143,068
 $604,066
 $576,842

22.20.New accounting standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in Topic 842 revise the accounting related to lessee accounting. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for substantially all leases with lease terms in excess of twelve months. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The CompanyNew standards recently adopted Topic 842 beginning on January 1, 2019 through a modified retrospective approach for leases existing at the

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


adoption date with a cumulative effect adjustment. The Company elected to apply the package of practical expedients to not recast prior conclusions related to contracts containing leases, lease classification and initial direct costs. Adoption of the new standard resulted in the recording of operating right-of-use assets of $2,783,784, operating lease liabilities of $3,001,354 and an adjustment to retained earnings of $39,876, primarily related to deferred gains on prior sale leaseback transactions as of January 1, 2019. The standard did not materially impact the Company's consolidated net earnings and had 0 impact on cash flows. See Note 10 to these condensed consolidated financial statements for further details.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU changeamend the approach for recognizing credit losses on financial assets fromimpairment model to utilize an expected loss methodology in place of the incurred loss methodology in current GAAPfor financial instruments and off-balance sheet credit exposures. The amendment requires entities to consider a methodology that reflects currentbroader range of information to estimate expected credit losses, which requires consideration of a broader range of reasonable and supportable information to inform those credit loss estimates. The current incurred loss model delaysmay result in earlier recognition of credit losses until it is probable that a loss has been incurred, while this ASU’s new current expected credit loss model requires estimation of credit losses expected over the life of the financial asset or group of similar financial assets.losses. The amendments in this ASU arebecame effective for the Company beginning on January 1, 2020 and are to bewere applied onusing a modified-retrospective approach. The Company is still evaluating certain aspects of this ASU as well as the impacts it may have on its consolidated financial statements when adopted on January 1, 2020.
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 were effective for the Company on January 1, 2019 and are to be applied prospectively.modified retrospective basis. The adoption of this ASU No. 2016-13 did not have a material impact on the Company’sCompany's consolidated financial statements when adopted on January 1, 2019.statements.
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

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


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 arebecame effective for the Company beginning on January 1, 2020 and its new requirements are to bewere applied on a prospective basis. The adoption of this ASU isdid not expected to have a material impact on the Company’s consolidated financial statements when adopted January 1, 2020.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this ASU as of January 1, 2020, using the prospective transition approach, which allows the Company to change the accounting method without restating prior periods or booking cumulative adjustments. The adoption of ASU No. 2018-15 did not have a material impact on the Company's consolidated financial statements.
New standards not yet adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 2019-12 attempts to simplify aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU No. 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted for all entities. The Company is currently assessing the effect this guidance may have on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional expedients and exceptions for applying U.S. generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in this ASU were effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently assessing the effect this guidance may have on its consolidated financial statements.
23.21.Condensed consolidating financial statements
The followingCompany previously disclosed certain condensed consolidating financial statement information is presentedfor DaVita Inc. and the guarantor and non-guarantor subsidiaries for the Company's previously outstanding publicly traded notes due in 2024 and 2025 in its interim and annual consolidated financial statements in accordance with Rule 3-10 of SEC Regulation S-X. The operatingS-X (Rule 3-10).
In the third quarter of 2020 the Company redeemed its publicly traded notes due in 2024 and investing activities of the separate legal entities included in the Company’s condensed consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other administrative services. The Company’s senior notes are guaranteed by a substantial majority of its domestic subsidiaries as measured by revenue, income and assets. The subsidiary guarantors have guaranteed the senior notes on a joint and several basis. However, a subsidiary guarantor will be released from its obligations under its guarantee of the senior notes2025, and the indentures governing the seniorCompany's current notes if,outstanding due in general, there is a sale2030 and 2031 do not have any registration or other disposition of all or substantially all of the assets of such subsidiary guarantor, including by merger or consolidation, or a sale or other disposition of all of the equity interests in such subsidiary guarantor held by the Companysimilar rights and its restricted subsidiaries, as defined in the indentures; such subsidiary guarantor is designated by the Company as an unrestricted subsidiary, as defined in the indentures, or otherwise ceasesare not expected to be a restricted subsidiary of the Company, in each case in accordance with the indentures; or such subsidiary guarantor no longer guarantees any other indebtedness, as defined in the indentures, of the Company or any of its restricted subsidiaries, exceptregistered for guarantees that are contemporaneously released. The seniorexchange on public markets. These private notes are not guaranteed by certain of the Company’s domestic subsidiaries, any of the Company’s foreign subsidiaries, or any entities that do not constitute subsidiaries within the meaning of the indentures, such as corporations in which the Company holds capital stock with less than a majority of the voting power, joint ventures and partnerships in which the Company holds less than a majority of the equity or voting interests, non-owned entities and third parties. Contemporaneously with the Company entering into the New Credit Agreement and pursuantsubject to the indentures governing the Company’s senior notes,disclosure requirements of Rule 3-10. The Company has therefore discontinued its disclosure of certain subsidiaries of the Company were released from their guarantees of the Company's senior notes such that, after that release, the remaining subsidiary guarantors of the senior notes were the same subsidiaries guaranteeing the New Credit Agreement. The following condensed consolidating financial statements have been prepared for all periods presented based onstatement information related to the current subsidiaryissuer, guarantors and non-guarantors stipulated in the Company's New Credit Agreement.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Condensed Consolidating Statements of Operations
For the three months ended September 30, 2019 DaVita Inc. 
Guarantor
subsidiaries
 
Non-
Guarantor
subsidiaries
 
Consolidating
adjustments
 
Consolidated
total
Patient services revenues $
 $1,761,235
 $1,087,531
 $(67,597) $2,781,169
Provision for uncollectible accounts 
 (2,728) (1,249) 
 (3,977)
Net patient service revenues 
 1,758,507
 1,086,282
 (67,597) 2,777,192
Other revenues 204,183
 140,956
 83,860
 (302,113) 126,886
Total net revenues 204,183
 1,899,463
 1,170,142
 (369,710) 2,904,078
Operating expenses 11,046
 1,823,752
 1,060,654
 (369,710) 2,525,742
Operating income 193,137
 75,711
 109,488
 
 378,336
Debt expense (110,712) (43,535) (14,206) 58,622
 (109,831)
Other income, net 51,150
 2,994
 9,758
 (58,622) 5,280
Income tax expense 33,364
 28,320
 3,570
 
 65,254
Equity earnings in subsidiaries 43,059
 123,186
 
 (166,245) 
Net income from continuing operations 143,270
 130,036
 101,470
 (166,245) 208,531
Net loss from discontinued operations, net of tax 
 
 (6,843) 
 (6,843)
Net income 143,270
 130,036
 94,627
 (166,245) 201,688
Less: Net income attributable to noncontrolling interests 
 
 
 (58,418) (58,418)
Net income attributable to DaVita Inc. $143,270
 $130,036
 $94,627
 $(224,663) $143,270
For the three months ended September 30, 2018 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Patient service revenues $
 $1,699,109
 $1,028,548
 $(56,956) $2,670,701
Provision for uncollectible accounts 
 (9,246) (2,731) 
 (11,977)
Net patient service revenues 
 1,689,863
 1,025,817
 (56,956) 2,658,724
Other revenues 207,968
 127,269
 136,448
 (283,079) 188,606
Total net revenues 207,968
 1,817,132
 1,162,265
 (340,035) 2,847,330
Operating expenses and charges 205,324
 1,649,128
 1,043,875
 (340,035) 2,558,292
Operating income 2,644
 168,004
 118,390
 
 289,038
Debt expense (127,353) (50,254) (10,570) 62,250
 (125,927)
Other income, net 106,148
 603
 7,719
 (110,463) 4,007
Income tax (benefit) expense (3,536) 43,583
 12,000
 
 52,047
Equity earnings in subsidiaries (121,771) 60,448
 
 61,323
 
Net (loss) income from continuing operations (136,796) 135,218
 103,539
 13,110
 115,071
Net loss from discontinued operations, net of tax 
 
 (259,952) 48,213
 (211,739)
Net (loss) income (136,796) 135,218
 (156,413) 61,323
 (96,668)
Less: Net income attributable to noncontrolling interests 
 
 
 (40,128) (40,128)
Net (loss) income attributable to DaVita Inc. $(136,796) $135,218
 $(156,413) $21,195
 $(136,796)



DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


For the nine months ended September 30, 2019 DaVita Inc. 
Guarantor
subsidiaries
 
Non-
Guarantor
subsidiaries
 
Consolidating
adjustments
 
Consolidated
total
Patient services revenues $
 $5,181,017
 $3,164,726
 $(195,357) $8,150,386
Provision for uncollectible accounts 
 (13,530) (6,159) 
 (19,689)
Net patient service revenues 
 5,167,487
 3,158,567
 (195,357) 8,130,697
Other revenues 600,318
 438,058
 130,345
 (809,523) 359,198
Total net revenues 600,318
 5,605,545
 3,288,912
 (1,004,880) 8,489,895
Operating expenses and charges 315,169
 5,106,307
 2,892,570
 (1,004,880) 7,309,166
Operating income 285,149
 499,238
 396,342
 
 1,180,729
Debt expense (389,203) (145,110) (39,807) 188,944
 (385,176)
Other income, net 263,407
 4,332
 31,800
 (281,676) 17,863
Income tax expense 41,017
 122,633
 34,288
 
 197,938
Equity earnings in subsidiaries 447,774
 318,431
 
 (766,205) 
Net income from continuing operations 566,110
 554,258
 354,047
 (858,937) 615,478
Net income from discontinued operations, net of tax 
 
 10,122
 92,732
 102,854
Net income 566,110
 554,258
 364,169
 (766,205) 718,332
Less: Net income attributable to noncontrolling interests 
 
 
 (152,222) (152,222)
Net income attributable to DaVita Inc. $566,110
 $554,258
 $364,169
 $(918,427) $566,110
For the nine months ended September 30, 2018 DaVita Inc. 
Guarantor
subsidiaries
 
Non-
Guarantor
subsidiaries
 
Consolidating
adjustments
 
Consolidated
total
Patient services revenues $
 $5,100,487
 $3,039,056
 $(159,365) $7,980,178
Provision for uncollectible accounts 
 (26,430) (9,408) 
 (35,838)
Net patient service revenues 
 5,074,057
 3,029,648
 (159,365) 7,944,340
Other revenues 608,850
 355,055
 512,025
 (836,543) 639,387
Total net revenues 608,850
 5,429,112
 3,541,673
 (995,908) 8,583,727
Operating expenses and charges 484,329
 4,949,070
 3,008,320
 (995,908) 7,445,811
Operating income 124,521
 480,042
 533,353
 
 1,137,916
Debt expense (362,501) (151,373) (30,660) 185,399
 (359,135)
Other income, net 315,573
 2,864
 20,981
 (328,835) 10,583
Income tax expense 24,108
 112,193
 70,351
 
 206,652
Equity earnings in subsidiaries 255,681
 328,042
 
 (583,723) 
Net income from continuing operations 309,166
 547,382
 453,323
 (727,159) 582,712
Net loss from discontinued operations, net of tax 
 
 (291,265) 143,436
 (147,829)
Net income 309,166
 547,382
 162,058
 (583,723) 434,883
Less: Net income attributable to noncontrolling interests 
 
 
 (125,717) (125,717)
Net income attributable to DaVita Inc. $309,166
 $547,382
 $162,058
 $(709,440) $309,166



DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Condensed Consolidating Statements of Comprehensive Income
For the three months ended September 30, 2019 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Net income $143,270
 $130,036
 $94,627
 $(166,245) $201,688
Other comprehensive income (loss) 509
 
 (44,502) 
 (43,993)
Total comprehensive income 143,779
 130,036
 50,125
 (166,245) 157,695
Less: Comprehensive income attributable to noncontrolling interest 
 
 
 (58,418) (58,418)
Comprehensive income attributable to DaVita Inc. $143,779
 $130,036
 $50,125
 $(224,663) $99,277
For the three months ended September 30, 2018 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Net (loss) income $(136,796) $135,218
 $(156,413) $61,323
 $(96,668)
Other comprehensive income (loss) 1,643
 
 (8,827) 
 (7,184)
Total comprehensive (loss) income (135,153) 135,218
 (165,240) 61,323
 (103,852)
Less: Comprehensive income attributable to noncontrolling interest 
 
 
 (40,128) (40,128)
Comprehensive (loss) income attributable to DaVita Inc. $(135,153) $135,218
 $(165,240) $21,195
 $(143,980)

For the nine months ended September 30, 2019 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Net income $566,110
 $554,258
 $364,169
 $(766,205) $718,332
Other comprehensive income (loss) 3,110
 
 (45,790) 
 (42,680)
Total comprehensive income 569,220
 554,258
 318,379
 (766,205) 675,652
Less: Comprehensive income attributable to noncontrolling interest 
 
 
 (152,222) (152,222)
Comprehensive income attributable to DaVita Inc. $569,220
 $554,258
 $318,379
 $(918,427) $523,430
For the nine months ended September 30, 2018 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Net income $309,166
 $547,382
 $162,058
 $(583,723) $434,883
Other comprehensive income (loss) 5,499
 
 (39,475) 
 (33,976)
Total comprehensive income 314,665
 547,382
 122,583
 (583,723) 400,907
Less: Comprehensive income attributable to noncontrolling interest 
 
 
 (125,717) (125,717)
Comprehensive income attributable to DaVita Inc. $314,665
 $547,382
 $122,583
 $(709,440) $275,190


DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Condensed Consolidating Balance Sheets
As of September 30, 2019 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Cash and cash equivalents $831,514
 $213,635
 $208,107
 $
 $1,253,256
Restricted cash and equivalents 
 14,444
 89,441
 
 103,885
Accounts receivable, net 
 1,221,169
 680,056
 
 1,901,225
Other current assets 161,548
 455,616
 123,188
 
 740,352
Total current assets 993,062
 1,904,864
 1,100,792
 
 3,998,718
Property and equipment, net 515,952
 1,576,140
 1,327,146
 
 3,419,238
Operating lease right-of-use assets 103,621
 1,592,472
 1,085,195
 
 2,781,288
Intangible assets, net 85
 34,493
 83,088
 
 117,666
Investments in and advances to affiliates, net 10,465,104
 7,110,581
 3,074,784
 (20,650,469) 
Other long-term assets and investments 96,953
 91,115
 181,193
 
 369,261
Goodwill 
 4,818,001
 1,947,658
 
 6,765,659
Total assets $12,174,777
 $17,127,666
 $8,799,856
 $(20,650,469) $17,451,830
Current liabilities $313,934
 $1,233,054
 $659,652
 $
 $2,206,640
Intercompany liabilities, net 922,571
 3,074,785
 2,572,810
 (6,570,166) 
Long-term operating leases liabilities 131,743
 1,508,343
 1,042,039
 
 2,682,125
Long-term debt and other long-term liabilities 7,746,653
 664,470
 343,360
 
 8,754,483
Noncontrolling interests subject to put provisions 741,300
 
 
 554,759
 1,296,059
Total DaVita Inc. shareholders' equity 2,318,576
 10,647,014
 3,433,289
 (14,080,303) 2,318,576
Noncontrolling interests not subject to put
provisions
 
 
 748,706
 (554,759) 193,947
Total equity 2,318,576
 10,647,014
 4,181,995
 (14,635,062) 2,512,523
Total liabilities and equity $12,174,777
 $17,127,666
 $8,799,856
 $(20,650,469) $17,451,830


DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


As of December 31, 2018 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Cash and cash equivalents $60,653
 $1,232
 $261,153
 $
 $323,038
Restricted cash and equivalents 1,005
 12,048
 79,329
 
 92,382
Accounts receivable, net 
 1,204,122
 654,486
 
 1,858,608
Other current assets 37,185
 565,974
 157,407
 
 760,566
Current assets held for sale 
 
 5,389,565
 
 5,389,565
Total current assets 98,843
 1,783,376
 6,541,940
 
 8,424,159
Property and equipment, net 491,462
 1,584,321
 1,317,886
 
 3,393,669
Intangible assets, net 153
 42,896
 75,797
 
 118,846
Investments in and advances to affiliates, net 13,522,198
 6,196,801
 2,498,545
 (22,217,544) 
Other long-term assets and investments 53,385
 90,037
 188,196
 
 331,618
Goodwill 
 4,806,939
 2,035,021
 
 6,841,960
Total assets $14,166,041
 $14,504,370
 $12,657,385
 $(22,217,544) $19,110,252
Current liabilities $1,945,943
 $1,217,526
 $483,933
 $
 $3,647,402
Current liabilities held for sale 
 
 1,243,759
 
 1,243,759
Intercompany liabilities, net 
 2,498,545
 6,161,292
 (8,659,837) 
Long-term debt and other long-term liabilities 7,918,581
 687,443
 580,028
 
 9,186,052
Noncontrolling interests subject to put provisions 598,075
 
 
 526,566
 1,124,641
Total DaVita Inc. shareholders' equity 3,703,442
 10,100,856
 3,456,851
 (13,557,707) 3,703,442
Noncontrolling interests not subject to put
provisions
 
 
 731,522
 (526,566) 204,956
Total equity 3,703,442
 10,100,856
 4,188,373
 (14,084,273) 3,908,398
Total liabilities and equity $14,166,041
 $14,504,370
 $12,657,385
 $(22,217,544) $19,110,252

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2019 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Cash flows provided by operating activities:          
Net income $566,110
 $554,258
 $364,169
 $(766,205) $718,332
Changes in operating assets and liabilities and non-cash
items included in net income
 (336,223) (74,600) 318,111
 766,205
 673,493
Net cash provided by operating activities 229,887
 479,658
 682,280
 
 1,391,825
Cash flows provided by (used in) investing activities:  
  
  
  
  
Additions of property and equipment (106,476) (218,839) (221,868) 
 (547,183)
Acquisitions 
 (11,832) (65,516) 
 (77,348)
Proceeds (purchases) from asset and business sales 3,824,516
 (244) 39,347
 
 3,863,619
purchases from investment sales and other items, net (94,322) (7,474) (3,267) 
 (105,063)
Net cash provided by (used in) investing activities 3,623,718
 (238,389) (251,304) 
 3,134,025
Cash flows used in financing activities:  
  
  
  
  
Long-term debt and related financing costs, net (2,028,954) (8,025) (13,033) 
 (2,050,012)
Intercompany borrowings (payments) 785,450
 (14,854) (770,596) 
 
Other items (1,840,245) (3,591) (109,916) 
 (1,953,752)
Net cash used in financing activities (3,083,749) (26,470) (893,545) 
 (4,003,764)
Effect of exchange rate changes on cash, cash
equivalents and restricted cash
 
 
 (4,178) 
 (4,178)
Net increase (decrease) in cash, cash equivalents and
restricted cash
 769,856
 214,799
 (466,747) 
 517,908
Less: Net decrease in cash, cash equivalents and restricted cash from discontinued operations 
 
 (423,813) 
 (423,813)
Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations 769,856
 214,799
 (42,934) 
 941,721
Cash, cash equivalents and restricted cash of continuing
operations at beginning of the year
 61,658
 13,280
 340,482
 
 415,420
Cash, cash equivalents and restricted cash of continuing
operations at end of the period
 $831,514
 $228,079
 $297,548
 $
 $1,357,141


DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


For the nine months ended September 30, 2018 DaVita Inc. Guarantor
subsidiaries
 Non-
Guarantor
subsidiaries
 Consolidating
adjustments
 Consolidated
total
Cash flows provided by operating activities:          
Net income $309,166
 $547,382
 $162,058
 $(583,723) $434,883
Changes in operating assets and liabilities and non-cash
items included in net income
 (235,558) (104,179) 703,379
 583,723
 947,365
Net cash provided by operating activities 73,608
 443,203
 865,437
 
 1,382,248
Cash flows used in investing activities:  
  
  
  
  
Additions of property and equipment (124,585) (296,028) (285,046) 
 (705,659)
Acquisitions 
 (5,646) (107,880) 
 (113,526)
Proceeds from asset and business sales 
 55,035
 80,233
 
 135,268
Proceeds (purchases) from investment sales and other items, net 32,345
 (2,295) (7,452) 
 22,598
Net cash used in investing activities (92,240) (248,934) (320,145) 
 (661,319)
Cash flows provided by (used in) financing activities:  
  
  
  
  
Long-term debt and related financing costs, net 866,537
 (8,601) (12,100) 
 845,836
Intercompany borrowings (payments) 454,410
 (174,148) (280,262) 
 
Other items (1,154,921) (18,713) (95,541) 
 (1,269,175)
Net cash provided by (used in) financing activities 166,026
 (201,462) (387,903) 
 (423,339)
Effect of exchange rate changes on cash, cash
equivalents and restricted cash
 
 
 (5,790) 
 (5,790)
Net increase (decrease) in cash, cash equivalents and restricted cash 147,394
 (7,193) 151,599
 
 291,800
Less: Net increase in cash, cash equivalents and restricted cash from discontinued operations 
 
 270,565
 
 270,565
Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations 147,394
 (7,193) (118,966) 
 21,235
Cash, cash equivalents and restricted cash of continuing
operations at beginning of the year
 150,307
 19,963
 348,650
 
 518,920
Cash, cash equivalents and restricted cash of continuing
operations at end of the period
 $297,701
 $12,770
 $229,684
 $
 $540,155


DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


24.Supplemental data
The following information is presented as supplemental data as required by the indentures governing the Company’s seniorunder these notes.
Prior to the DMG sale, the Company provided services to certain physician groups within its DMG business which, while consolidated in its financial statements for financial reporting purposes, were not subsidiaries of nor owned by the Company, did not constitute “Subsidiaries” as defined in the indentures governing our outstanding senior notes, and did not guarantee those senior notes. In addition, the Company operated under management agreements with these physician groups pursuant to which it received management fees from these physician groups.
From and after June 19, 2019, these physician groups were no longer included in the Company's financial statements as they were deconsolidated upon the sale of DMG to Optum.

Condensed Consolidating Statements of Income
For the nine months ended September 30, 2019 
Consolidated
Total
 
Physician
Groups
 
Unrestricted
Subsidiaries
 
Company and
Restricted Subsidiaries(1)
Patient service operating revenues $8,150,386
 $
 $
 $8,150,386
Provision for uncollectible accounts (19,689) 
 
 (19,689)
Net patient service operating revenues 8,130,697
 
 
 8,130,697
Other revenues 359,198
 
 
 359,198
Total net operating revenues 8,489,895
 
 
 8,489,895
Operating expenses 7,309,166
 
 
 7,309,166
Operating income 1,180,729
 
 
 1,180,729
Debt expense (385,176) 
 
 (385,176)
Other income 17,863
 
 
 17,863
Income tax expense 197,938
 
 
 197,938
Net income from continuing operations 615,478
 
 
 615,478
Net income from discontinued operations, net of tax 102,854
 12,706
 249
 89,899
Net income 718,332
 12,706
 249
 705,377
Less: Net income attributable to noncontrolling interests (152,222) (1,255) 
 (150,967)
Net income attributable to DaVita Inc. $566,110
 $11,451
 $249
 $554,410

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

Condensed Consolidating Statements of Comprehensive Income
For the nine months ended September 30, 2019 
Consolidated
Total
 
Physician
Groups
 
Unrestricted
Subsidiaries
 
Company and
Restricted Subsidiaries(1)
Net income $718,332
 $12,706
 $249
 $705,377
Other comprehensive income (42,680) 
 
 (42,680)
Total comprehensive income 675,652
 12,706
 249
 662,697
Less: Comprehensive income attributable to the noncontrolling
interests
 (152,222) (1,255) 
 (150,967)
Comprehensive income attributable to DaVita Inc. $523,430
 $11,451
 $249
 $511,730
(1)After elimination of the unrestricted subsidiaries and the physician groups.

DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Condensed Consolidating Balance Sheets
As of September 30, 2019 
Consolidated
Total
 
Physician
Groups
 
Unrestricted
Subsidiaries
 
Company and
Restricted Subsidiaries(1)
Cash and cash equivalents $1,253,256
 $
 $
 $1,253,256
Restricted cash and equivalents 103,885
 
 
 103,885
Accounts receivable, net 1,901,225
 
 
 1,901,225
Other current assets 740,352
 
 
 740,352
Total current assets 3,998,718
 
 
 3,998,718
Property and equipment, net 3,419,238
 
 
 3,419,238
Operating lease right-of-use assets 2,781,288
 
 
 2,781,288
Amortizable intangibles, net 117,666
 
 
 117,666
Other long-term assets 369,261
 
 
 369,261
Goodwill 6,765,659
 
 
 6,765,659
Total assets $17,451,830
 $
 $
 $17,451,830
Current liabilities $2,206,640
 $
 $
 $2,206,640
Long-term operating leases liabilities 2,682,125
 
 
 2,682,125
Long-term debt and other long-term liabilities 8,754,483
 
 
 8,754,483
Noncontrolling interests subject to put provisions 1,296,059
 
 
 1,296,059
Total DaVita Inc. shareholders’ equity 2,318,576
 
 
 2,318,576
Noncontrolling interests not subject to put provisions 193,947
 
 
 193,947
Shareholders’ equity 2,512,523
 
 
 2,512,523
Total liabilities and shareholder’s equity $17,451,830
 $
 $
 $17,451,830
(1)After elimination of the unrestricted subsidiaries and the physician groups.


DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)


Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2019 
Consolidated
Total
 
Physician
Groups
 
Unrestricted
Subsidiaries
 
Company and
Restricted Subsidiaries(1)
Cash flows from operating activities:        
Net income $718,332
 $12,706
 $249
 $705,377
Changes in operating and intercompany assets and liabilities and
non-cash items included in net income
 673,493
 (4,607) (249) 678,349
Net cash provided by operating activities 1,391,825
 8,099
 
 1,383,726
Cash flows from investing activities:  
  
  
  
Additions of property and equipment (547,183) (846) 
 (546,337)
Acquisitions (77,348) 
 
 (77,348)
Proceeds from asset and business sales 3,863,619
 
 
 3,863,619
Investments and other items (105,063) (1,882) 
 (103,181)
Net cash provided by (used in) investing activities 3,134,025
 (2,728) 
 3,136,753
Cash flows from financing activities:  
  
  
  
Long-term debt (2,050,012) 
 
 (2,050,012)
Intercompany 
 (247,175) 
 247,175
Other items (1,953,752) 
 
 (1,953,752)
Net cash used in financing activities (4,003,764) (247,175) 
 (3,756,589)
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
 (4,178) 
 
 (4,178)
Net increase (decrease) in cash, cash equivalents and restricted cash 517,908
 (241,804) 
 759,712
Less: Net decrease in cash, cash equivalents and restricted cash from discontinued operations (423,813) (241,804) 
 (182,009)
Net increase in cash, cash equivalents and restricted cash from continuing operations 941,721
 
 
 941,721
Cash, cash equivalents and restricted cash of continuing operations
at beginning of the year
 415,420
 
 
 415,420
Cash, cash equivalents and restricted cash of continuing operations
at end of the period
 $1,357,141
 $
 $
 $1,357,141
(1)After elimination of the unrestricted subsidiaries and the physician groups.


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements
This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that are forward-looking statements within the meaning of the federal securities laws. All statements in this report, other than statements of historical fact, are forward-looking statements.statements and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements could include, among other things, DaVita's response to and the expected future impacts of the novel coronavirus (COVID-19), including statements about our balance sheet and liquidity, our expenses, revenues, billings and collections and future results, potential need, ability or willingness to use any funds under the CARES Act or other government programs, availability or cost of supplies, treatment volumes, mix expectation, such as the percentage or number of patients under commercial insurance, and overall impact on our patients, as well as other statements regarding our future operations, financial condition and prospects, government and commercial payment rates, and our ongoing stock repurchase program. Without limiting the foregoing, statements including the words "expect," "intend," "will," “could,” "plan," "anticipate," "believe," "forecast," "guidance," "outlook," "goals," and similar expressions are intended to identify forward-looking statements. These forward-looking statements include but are not limitedbased on DaVita's current expectations and are based solely on information available as of the date of this report. DaVita undertakes no obligation to publicly update or revise any forward-looking statements, regarding ourwhether as a result of changed circumstances, new information, future operations, financial conditionevents or otherwise, except as may be required by law. Actual future events and prospects, such as expectations for operating cash flow, estimated charges and accruals, the development of new dialysis centers and dialysis center acquisitions or other new service offerings, government and commercial payment rates, and our stock repurchase program. Our actual results and other events could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:
the continuing impact of the dynamic and evolving COVID-19 pandemic, including, without limitation, on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition and results of operations, the government’s response to the COVID-19 pandemic, and the consequences of an extended economic downturn resulting from the impacts of COVID-19, such as a potential negative impact on our commercial mix, any of which may also have the effect of heightening many of the other risks and uncertainties discussed below;
our need, ability and willingness to utilize any funds received under the CARES Act or other government programs, and the consequences of our decisions with respect thereto;
the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number or percentage of our patients under such plans, including without limitation as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations;
noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
the extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation, and the extent to which such developments result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in higher-paying commercial plans or that are enrolled in or select Medicare Advantage plans, or other material impacts to our business; or our making incorrect assumptions about how our patients will respond to any such developments;
a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs and the impact of the Medicare Advantage benchmark structure;
risks arising from potential and proposed federal and/or state legislation, regulation, ballot, executive action or other initiatives, including such initiatives related to healthcare and/or labor matters;matters, such as AB290 and Proposition 23 in California;
the impact of the upcoming election cycle, the political environment and related developments on the current healthcare marketplace and on our business, including with respect to the future of the Affordable Care Act, the exchanges and many other core aspects of the current health care marketplace;healthcare marketplace, as well as the composition of the U.S. Supreme Court;
our ability to successfully implement our strategy with respect to home-based dialysis, including maintaining our existing business and further developing our capabilities in a complex and highly regulated environment;


changes in pharmaceutical practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to calcimimetics;
legal and compliance risks, such as our continued compliance with complex government regulations;
continued increased competition from dialysis providers and others, and other potential marketplace changes;
our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates, such as accountable care organizations, independent practice associations and integrated delivery systems;
our ability to complete acquisitions, mergers or dispositions that we might announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services in markets outside the United States, or to businesses outside of dialysis;
uncertainties related to potential payments and/or adjustments under certain provisions of the equity purchase agreement for the sale of our DaVita Medical Group (DMG) business, such as post-closing adjustments and indemnification obligations;
noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
the variability of our cash flows;flows, including without limitation any extended billing or collections cycles; the risk that we may not be able to generate or access sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;


factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, as well as our use of a considerable amount of available funds to repurchase stock;
risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
impairment of our goodwill, investments or other assets;
uncertainties related to our use of the proceeds from the DMG sale transaction and other available funds, including external financing and cash flow from operations, which may be or have been used in ways that we cannot assure will improve our results of operations or enhance the value of our common stock; and
uncertainties associated with the other risk factors set forth in our QuarterlyDaVita Inc.'s Annual Report on Form 10Q10-K for the quarteryear ended December 31, 2019, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2019, as updated by Part II, Item 1A. of2020 and this Quarterly Report on Form 10-Q, and the other risks and uncertainties discussed in any subsequent reports that we fileDaVita has filed or furnishfurnished with the SECSecurities and Exchange Commission from time to time.
The forward-looking statements should be considered in light of these risks and uncertainties. All forward-looking statements in this report are based solely on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise.
The following should be read in conjunction with our condensed consolidated financial statements.


Consolidated results of operationsCompany Overview
We operate principally as a U.S.Our principal business is to provide dialysis and related lab services business andto patients in the United States, which we refer to as our U.S. dialysis business. We also operate other various ancillary services and strategic initiatives including our international operations, andwhich we collectively refer to as our ancillary services, as well as our corporate administrative support. Our U.S. dialysis business is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD).
On June 19, 2019, we completed the sale of our DMG divisionDaVita Medical Group (DMG) business to Collaborative Care Holdings, LLC (Optum),Optum, a subsidiary of UnitedHealth Group Inc. As a result of this transaction, DMG's results of operations have been reported as discontinued operations for all periods presented and DMG is not included below in this Management's Discussion and Analysis.
COVID-19 and its impact on our business
As a caregiving organization, we are exposed to and will continue to be impacted by the effects of the novel coronavirus (COVID-19) pandemic. DaVita’s teammates include, among others, dialysis nurses, patient care technicians, social workers, dieticians and other caregivers who are on the front lines of the ongoing COVID-19 pandemic providing essential, life-sustaining care for our patients. During this time of great challenge, our top priorities continue to be the health, safety and well-being of our patients, teammates and physician partners and helping to ensure that our patients have the ability to maintain continuity of care throughout this crisis, whether in the acute, outpatient or home setting. We have implemented additional protocols in coordination with the Centers for Disease Control and Prevention (CDC) on infection control and clinical best practices in response to COVID-19, and continue to monitor the efficacy of these protocols as the pandemic continues. In addition, we have been collaborating with the U.S. Department of Health and Human Services, the Centers for Medicare and Medicaid Services (CMS), the CDC, the American Society of Nephrology, and dialysis providers nationwide to help ensure that the dialysis community is able to support patients nationwide.
We have also maintained business process continuity during the pandemic by enabling most back office teammates to work remotely, and as of the date of this report, we have not experienced any material deterioration of our liquidity position as a result of the COVID-19 crisis.
We are closely monitoring the long-term impact of the pandemic and the resulting economic downturn on all aspects of our business, including the impact on our patients, teammates, physician partners, suppliers, vendors and business partners. We have dedicated and continue to dedicate substantial resources in response to COVID-19 and have had, and expect to continue to have, extended, significant additional costs as a result of COVID-19. For example, we have had, and expect to continue to have, increased costs and risk associated with a high demand for our skilled clinical personnel. Additionally, the steps we have taken designed to help safely maintain continuity of care for our patients and help protect our caregivers, such as our policies to implement dedicated care shifts for patients with confirmed or suspected COVID-19 and other enhanced clinical practices, have increased, and are expected to continue to increase, our expenses and use of personal protective equipment. Our overallresponse to COVID-19 has resulted in higher salary and wage expense, and we have provided, and may provide in the future, substantial financial performancesupport to our teammates to cover some of the costs related to COVID-19. Furthermore, the effort needed to procure certain of our equipment and clinical supplies, including personal protective equipment, and associated costs have increased, and we currently expect that these increased costs will continue while the pandemic persists. These efforts are part of a wider Prepare, Prevent, Respond and Recover protocol that we have implemented in connection with the pandemic, which also includes operational initiatives such as the redistribution of teammates, machines and supplies across the country as needed and increased investment in and utilization of telehealth capabilities. Our response protocol generally has allowed us to maintain continuity of care for our patients, but if the pandemic requires us to maintain certain restrictive operational initiatives for an extended period of time, it may adversely impact our strategic initiatives, including our home dialysis business strategy and efforts to build on our abilities to offer home dialysis options. Certain temporary changes made in response to the COVID-19 pandemic could become permanent, which could have an adverse impact on our business. In addition, any staffing, equipment or clinical supply shortages, disruptions or delays or associated price increases could impact our ability to provide dialysis services or the cost of providing those services. Our COVID-19 response has temporarily reduced certain other expenses, such as those related to teammate travel and health benefits.
We have experienced and expect to continue to experience a negative impact on revenue and non-acquired growth from COVID-19 due to lower treatment volumes, including from the impact of changes in rates of mortality, as well as a decrease in new patient admissions due to the impact of COVID-19 on the chronic kidney disease (CKD) population. Because our ESRD patients generally have comorbidities, several of which are risk factors for COVID-19, we believe the mortality rate of infected patients is, and will continue to be, higher in the dialysis population than in the general population. Over the longer term, we believe that changes in mortality in both the CKD and ESRD populations due to COVID-19 will depend primarily on the infection rate, case fatality rate and age and health status of affected patients, and these changes may continue to impact our


non-acquired growth even as the pandemic subsides. However, determining the extent to which these impacts should be directly attributable to COVID-19 is difficult, in part due to competing considerations that may drive treatment volumes and new admissions over time, such as the number of transplants or deferred admissions, as well as due to testing and reporting limitations. At this time we cannot reasonably estimate the magnitude or duration of these cumulative impacts, due in part to testing and reporting limitations as well as uncertainty with respect to the severity and duration of this pandemic, among other things, but these adverse impacts could be material.
In addition, the COVID-19 pandemic and efforts to contain the virus have led to global economic deterioration and rapid and sharp increases in unemployment levels, which ultimately could result in a materially reduced share of our patients being covered by commercial insurance plans, with more patients being covered by lower-paying government insurance programs or being uninsured. These effects may persist after the pandemic subsides, and in the event such a material reduction occurs, we believe that it would have a material adverse impact on our business, results of operations, financial condition and cash flows. The global nature of the pandemic may have varying impacts on our ongoing operations outside the United States as well as our ability to expand our operations into other parts of the world.
We believe the ultimate impact of this public health crisis on the Company will depend on future developments that are highly uncertain and difficult to predict, including among other things the severity and duration of the pandemic, further spread or resurgence of the virus, its impact on the CKD patient population and our patient population, the availability, impact or efficacy of COVID-19 treatments, therapies or vaccines, the pandemic’s continuing impact on the U.S. and global economies and unemployment, the responses of our competitors to the pandemic and related changes in the marketplace, and the timing, scope and effectiveness of federal, state and local governmental responses. At this time, we cannot reasonably estimate the ultimate impact the COVID-19 pandemic will have on us, but the adverse impact could be material. In addition, the COVID-19 pandemic heightens many of the other risks and uncertainties discussed in "Part II Item 1A Risk Factors" in this Quarterly Report on Form 10-Q and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and in “Part I, Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019.
A significant initial part of the federal government response to the COVID-19 pandemic was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package that was signed into law on March 27, 2020. The CARES Act authorized $100 billion in funding to be distributed to healthcare providers through the federal Public Health and Social Services Emergency Fund (Provider Relief Fund). Under the CARES Act, in April 2020 the government distributed approximately $250 million to the Company and its affiliated joint ventures from the Provider Relief Fund, and these funds were only to be used for healthcare related expenses or lost revenues attributable to COVID-19. While we elected not to accept the funds available to us through this government financial support and returned these funds in May 2020, competitors that accept and use such funds may have a competitive advantage, and there can be no assurance that we will be able to continue to forgo the receipt of financial or other assistance under the CARES Act or similar subsequent legislation or that similar assistance will be available from the government if we have a need for such assistance in the future.
The CARES Act also included a provision that suspended the 2% Medicare sequestration from May 1, 2020 through December 31, 2020, and in the three and nine months ended September 30, 2020 our revenues increased due to this suspension as further described below. We continue to estimate that this temporary suspension will increase our revenues while it remains in effect.
For additional information on the potential impact of the COVID-19 pandemic on us, see the risk factors in "Part II Item 1A Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Financial Results
The discussion below includes analysis of our financial condition and results of operations for the quarter ended September 30, 2020 compared to the quarters ended June 30, 2020 and September 30, 2019 and for the nine months ended September 30, 2019 as2020 compared to the nine months ended September 30, 2018 benefited from the following items:2019.
an increase in operating income due to an increase in our margin on calcimimetics, and
a decrease in advocacy costs to counter certain union policy initiatives.
The following table is a summary of our consolidated operating results for the third quarter of 2019 compared with the prior sequential quarter and the same quarter of 2018, as well as the nine months ended September 30, 2019 compared to the same period in 2018: 
 Three months ended Nine months ended
 September 30,
2019

June 30,
2019

September 30,
2018
 September 30,
2019
 September 30,
2018
 (dollars in millions)
Revenues:                   
Dialysis and related lab patient
service revenues
$2,781
  
 $2,734
  
 $2,671
  
 $8,150
  
 $7,980
  
Provision for uncollectible
accounts
(4)  
 (10)  
 (12)  
 (20)  
 (36)  
Net dialysis and related lab
patient service revenues
2,777
  
 2,724
  
 2,659
  
 8,131
  
 7,944
  
Other revenues127
  
 119
  
 189
  
 359
  
 639
  
Total consolidated revenues2,904
 100 % 2,843
 100 % 2,847
 100% 8,490
 100 % 8,584
 100 %
Operating expenses and charges:   
    
    
    
    
Patient care costs1,991
 69 % 1,958
 69 % 2,064
 72% 5,914
 70 % 6,168
 72 %
General and administrative299
 10 % 275
 10 % 336
 12% 825
 10 % 867
 10 %
Depreciation and amortization156
 5 % 152
 5 % 146
 5% 457
 5 % 436
 5 %
Equity investment (income)
loss
(4)  % (5) 
 4
 % (11)  % (6)  %
Provision for uncollectible
accounts

  % 
 
 1
 % 
  % (7)  %
Impairment of other assets
  % 
  % 6
 % 
  % 17
  %
Goodwill impairment charges84
 3 % 
  % 
 % 125
 1 % 3
  %
Loss (gain) on changes in
ownership interests, net

  % 
  % 2
 % 
  % (32)  %
Total operating expenses and
charges
2,526
 87 % 2,381
 84 % 2,558
 90% 7,309
 86 % 7,446
 87 %
Operating income$378
 13 % $462
 16 % $289
 10% $1,181
 14 % $1,138
 13 %
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.


Consolidated results of operations
The following table summarizes our consolidated revenues, among our reportable segments:
 Three months ended Nine months ended
 September 30, 2019 June 30,
2019
 September 30, 2018 September 30, 2019 September 30, 2018
 (dollars in millions)
Revenues:         
U.S. dialysis and related lab services patient service
revenues
$2,685
 $2,642
 $2,585
 $7,875
 $7,725
Provision for uncollectible accounts(4) (10) (13) (20) (37)
U.S. dialysis and related lab services net
patient service revenues
2,681
 2,632
 2,572
 7,855
 7,688
Other revenues10
 6
 5
 21
 15
Total net U.S. dialysis and related lab services
revenues
2,691
 2,637
 2,577
 7,876
 7,703
Other—Ancillary services and strategic initiatives
other revenues
120
 117
 192
 349
 652
Other—Ancillary services and strategic initiatives
patient service revenues, net
128
 122
 112
 368
 320
Total net other—ancillary services and
strategic initiatives revenues
248
 239
 304
 717
 972
Elimination of intersegment revenues(36) (34) (34) (104) (92)
Consolidated revenues$2,904
 $2,843
 $2,847
 $8,490
 $8,584
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.
The following table summarizes consolidated operating income and adjusted consolidated operating income:income by line of business. See the discussion of our results for each line of business following this table:
 Three months ended Nine months ended
 September 30, 2019 June 30,
2019
 September 30, 2018 September 30, 2019 September 30, 2018
 (dollars in millions)
Operating income (loss):         
U.S. dialysis and related lab services$501
 $499
 $390
 $1,417
 $1,273
Other—Ancillary services and strategic initiatives(98) (15) (60) (170) (64)
Corporate administrative support(25) (22) (41) (66) (71)
Total consolidated operating income$378
 $462
 $289
 $1,181
 $1,138
Reconciliation of non-GAAP measures:         
Operating expenses:         
Goodwill impairment charges$84
 $
 $
 $125
 $3
Impairment of assets
 
 6
 
 17
Restructuring charges
 
 11
 
 11
Loss (gain) on changes in ownership interests,
net

 
 2
 
 (32)
Equity investment loss:         
Loss due to impairments in APAC JV
 
 6
 
 6
Adjusted consolidated operating income(1)
$462
 $462
 $314
 $1,306
 $1,143
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

(1)For the periods presented in the table above adjusted operating income is defined as operating income before certain items which we do not believe are indicative of ordinary results, including impairment charges, restructuring charges and net loss (gain) on changes in ownership interests. Adjusted operating income as so defined is a non-GAAP measure and is not intended as a substitute for GAAP operating income. We have presented these adjusted amounts because management believes that these presentations enhance a user’s understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normalized prior period results.


Consolidated revenues
Consolidated revenues for the third quarter of 2019 increased by approximately $61 million, or 2.1%, as compared to the second quarter of 2019. This increase was driven by an increase in our U.S. dialysis and related lab services revenues of approximately $54 million, primarily due to an increase in treatments, partially offset by a decrease in our average dialysis and related lab services net revenue per treatment of less than $1, as described below. Consolidated revenues also benefited from an increase of $9 million in our ancillary services and strategic initiatives revenues, primarily due to an increase in revenues related to our international operations, as described below.
Consolidated revenues for the third quarter of 2019 increased by approximately $57 million, or 2.0%, as compared to the third quarter of 2018. This increase was driven by an increase in our U.S. dialysis and related lab services revenues of approximately $114 million, principally due to an increase in treatments and an increase in our average dialysis and related lab services net revenue per treatment of less than $1, as described below. Consolidated revenues were negatively impacted by a decrease of approximately $56 million in our ancillary services and strategic initiatives revenues, primarily due to our pharmacy distribution ceasing operations, partially offset by increases in revenues from DaVita Integrated Kidney Care (DaVita IKC) and our international operations, as described below.
Consolidated revenues for the nine months ended September 30, 2019 decreased by approximately $94 million, or 1.1%, as compared to the nine months ended September 30, 2018. This decrease was driven by a decrease of approximately $255 million in our ancillary services and strategic initiatives revenues, primarily due to our pharmacy distribution ceasing operations, a decrease in revenues at Vively Health (formally known as DaVita Health Solutions) and the sale of our direct primary care business, partially offset by an increase in revenues from DaVita IKC and our international operations, as described below. Consolidated revenues benefited from an increase in our U.S. dialysis and related lab services revenues of approximately $173 million, primarily due to volume growth from additional treatments, partially offset by a decrease in our average dialysis and related lab services net revenue per treatment of approximately $2, as described below.
Consolidated operating income
Consolidated operating income for the third quarter of 2019, which includes goodwill impairment charges of $84 million at our Germany reporting units, decreased by approximately $84 million as compared to the second quarter of 2019. Excluding this item from the third quarter of 2019, adjusted consolidated operating income for the third quarter of 2019 was relatively flat as compared to the second quarter of 2019 and included an increase in U.S. dialysis and related lab services' operating income of $2 million and a decrease in adjusted operating losses in our ancillary and strategic initiatives of $1 million, offset by an increase in expenses in our corporate administrative support of $3 million, each as further described below.
Consolidated operating income for the third quarter of 2019, which includes goodwill impairment charges of $84 million at our Germany reporting units, increased by approximately $89 million as compared to the third quarter of 2018, which included restructuring charges of $11 million, other asset impairment charges of $6 million, an equity investment loss of $6 million for goodwill impairments at our APAC JV and a net loss on changes in ownership interests of $2 million. Excluding these items from their respective periods, adjusted consolidated operating income for the third quarter of 2019 increased by approximately $148 million primarily due to an increase in our margin on calcimimetics and a decrease in advocacy costs, which were the primary drivers of our increase in operating income in U.S. dialysis and related lab services of approximately $111 million. Adjusted operating income also benefited from a decrease in adjusted operating losses in our ancillary and strategic initiatives of $21 million and a decrease in expenses in our corporate administrative support of $16 million, each as further described below.
Consolidated operating income for the nine months ended September 30, 2019, which includes goodwill impairment charges of $125 million at our Germany reporting units, increased by approximately $43 million as compared to the nine months ended September 30, 2018, which included a net gain on changes in ownership interests of $32 million, other asset impairment charges of $17 million, restructuring charges of $11 million, an equity investment loss of $6 million for goodwill impairments at our APAC JV and a goodwill impairment charge of $3 million. Excluding these items from their respective periods, adjusted consolidated operating income for the nine months ended September 30, 2019 increased by approximately $163 million primarily due to an increase in our margin on calcimimetics and a decrease in advocacy costs, which were the primary drivers of our increase in operating income in U.S. dialysis and related lab services of approximately $144 million. Adjusted operating income also benefited from a decrease in adjusted operating losses in our ancillary and strategic initiatives of $13 million and a decrease in expenses in our corporate administrative support of $5 million, each as further described below.



Currently, the oral and intravenous forms of calcimimetics are separately reimbursed and therefore are not part of the ESRD PPS bundled payment. CMS has had delays in adjusting reimbursement as oral generic products have entered the market lowering the cost of products we acquire. We expect our average revenue per treatment related to these pharmaceuticals to decline in future periods as CMS adjusts the reimbursement amount to more closely match the cost of these pharmaceuticals in accordance with their rules. We therefore do not expect to continue to realize the same level of operating income from calcimimetics beyond 2019.
U.S. dialysis and related lab services business
Results of operations
 Three months ended Nine months ended
 September 30, 2019 June 30,
2019
 September 30, 2018 September 30, 2019 September 30, 2018
 (dollars in millions, except per treatment data)
Revenues:         
U.S. dialysis and related lab services patient
service revenues
$2,685
 $2,642
 $2,585
 $7,875
 $7,725
Provision for uncollectible accounts(4) (10) (13) (20) (37)
U.S. dialysis and related lab services net patient
service revenues
2,681
 2,632
 2,572
 7,855
 7,688
Other revenues10
 6
 5
 21
 15
Total U.S. dialysis and related lab services revenues2,691
 2,637
 2,577
 7,876
 7,703
Operating expenses:         
Patient care costs1,813
 1,785
 1,819
 5,396
 5,408
General and administrative235
 216
 233
 648
 626
Depreciation and amortization148
 145
 139
 433
 412
Equity investment income(5) (7) (4) (17) (15)
Total operating expenses2,191
 2,139
 2,187
 6,459
 6,430
Operating income$501
 $499
 $390
 $1,417
 $1,273
Dialysis treatments7,673,191
 7,520,587
 7,377,277
 22,491,237
 21,882,892
Average dialysis treatments per treatment day97,129
 96,418
 94,580
 96,281
 93,717
Average dialysis and related lab services net revenue
per treatment
$349.41
 $349.97
 $348.62
 $349.26
 $351.33
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
Revenues
Dialysis and related lab services’ revenues for the third quarter of 2019 increased by approximately $54 million, or 2.0%, as compared to the second quarter of 2019. This increase in dialysis and related lab services’ revenues was driven by an increase in treatments, principally due to one additional treatment day in the third quarter of 2019 as compared to the second quarter of 2019, and volume growth from acquired and non-acquired treatment growth. This increase in treatments was partially offset by a decrease in our average dialysis and related lab services' net revenue per treatment of less than $1. The decrease in our average net revenue per treatment was primarily attributable to a decrease in our acute services' revenue due to a decline in volume, partially offset by an increase in average net revenue per treatment due to seasonal administration of influenza vaccinations and an increase in volume related to calcimimetics.
Dialysis and related lab services’ revenues for the third quarter of 2019 increased by approximately $114 million, or 4.4%, as compared to the third quarter of 2018. This increase in net revenues was principally driven by an increase in treatments due to one additional treatment day in the third quarter of 2019 as compared to the third quarter of 2018 and volume growth from acquired and non-acquired treatment growth, as well as an increase in our average dialysis and related lab services' net revenue per treatment of less than $1. The increase in net revenue per treatment was primarily driven by an increase in Medicare rates and an increase in acute services' revenue, partially offset by a decrease in calcimimetics revenue due to a decline in rate.


Dialysis and related lab services’ revenues for the nine months ended September 30, 2019 increased by approximately $173 million, or 2.2%, as compared to the nine months ended September 30, 2018. This increase in net revenues was principally due to an increase in treatments driven by volume growth from acquired and non-acquired treatment growth. These increases were partially offset by a decrease in our average dialysis and related lab services' net revenue per treatment of approximately $2. The decrease in net revenue per treatment was driven by a decrease in calcimimetics revenue due to a decline in rate and a $36 million benefit recognized in the nine months ended September 30, 2018 in Medicare bad debt revenue due to a policy election made under the new revenue standard to only apply the new guidance to contracts that were not substantially completed as of January 1, 2018. These decreases in net revenue per treatment were partially offset by an increase in acute services' revenue due to an increase in volume.
Operating expenses and charges
Patient care costs. Dialysis and related lab services’ patient care costs of approximately $236per treatment for the third quarter of 2019 decreased by approximately $1 per treatment as compared to the second quarter of 2019. This decrease was primarily related to a decrease in calcimimetics unit costs due to the continued market transition to the oral generic form of the pharmaceutical and a decrease in travel expenses. These decreases were partially offset by increases in benefit costs and in other direct operating expenses associated with our dialysis centers.
Dialysis and related lab services’ patient care costs per treatment for the third quarter of 2019 decreased by approximately $10 per treatment as compared to the third quarter of 2018. This decrease was primarily related to decreases in calcimimetics unit costs due to the transition to the oral generic form of the pharmaceutical, as well as decreases in other pharmaceutical unit costs and labor costs. These decreases were partially offset by an increase in other direct operating expenses associated with our dialysis centers and an increase in benefit costs.
Dialysis and related lab services’ patient care costs per treatment for the nine months ended September 30, 2019 decreased by approximately $7 per treatment as compared to the nine months ended September 30, 2018. This decrease was primarily related to a decrease in calcimimetics unit costs, as described above, and a decrease in other pharmaceutical unit costs and utilization. These decreases were partially offset by increases in benefits costs and other direct operating expenses associated with our dialysis centers.
General and administrative expenses. Dialysis and related lab services’ general and administrative expenses for the third quarter of 2019 increased by approximately $19 million as compared to the second quarter of 2019. This increase was primarily related to an increase in long-term incentive compensation expense driven by compensation plans based on operating income performance and an increase in professional fees.
Dialysis and related lab services’ general and administrative expenses for the third quarter of 2019 increased by approximately $2 million as compared to the third quarter of 2018. This increase was primarily due to an increase in long-term incentive compensation expense, as described above, an increase in labor and benefit costs and an increase in professional fees, primarily offset by a decrease in advocacy costs.
Dialysis and related lab services’ general and administrative expenses for the nine months ended September 30, 2019 increased by approximately $22 million as compared to the nine months ended September 30, 2018. This increase was primarily due to increases in labor and benefit costs, long-term incentive compensation expense, as described above, and professional fees. These increases were partially offset by a decrease in advocacy costs and a reduction in asset impairments related to expected center closures.
Depreciation and amortization. Depreciation and amortization for dialysis and related lab services for the third quarter of 2019 increased approximately $3 million as compared to the second quarter of 2019. This increase was primarily due to an increase in depreciation expense related to increases in information technology and growth in newly developed centers.
Depreciation and amortization for dialysis and related lab services for the third quarter of 2019 increased approximately $9 million as compared to the third quarter of 2018. This increase was primarily due to an increase in depreciation expense related to increases in information technology and growth in newly developed centers and acquired centers, partially offset by a decrease due to a change in estimated useful lives for our dialysis machines.
Depreciation and amortization for dialysis and related lab services for the nine months ended September 30, 2019 increased approximately $21 million as compared to the same period in 2018. The increase was primarily due to the same factors as described above.


Equity investment income. Equity investment income for dialysis and related lab services for the third quarter of 2019 decreased approximately $2 million as compared to the second quarter of 2019 primarily due to a decrease in results at our nonconsolidated joint ventures.
Equity investment income for dialysis and related lab services for the third quarter of 2019 increased approximately $1 million as compared to the third quarter of 2018. This increase was primarily due to improved results at our nonconsolidated joint ventures.
Equity investment income for dialysis and related lab services for the nine months ended September 30, 2019 increased approximately $2 million as compared to the same period in 2018 primarily due to improved results at our nonconsolidated joint ventures.
Segment operating income
Dialysis and related lab services’ operating income for the third quarter of 2019 increased by approximately $2 million as compared to the second quarter of 2019. Operating income increased primarily due to an increase in treatments, as described above, an increase in our margin on calcimimetics due to the continued market transition to the generic form of the pharmaceutical and a decrease in travel expenses. Operating income was negatively impacted by a decrease in our average dialysis and related lab services' net revenue per treatment of less than $1, as described above, as well as increases in other direct operating expenses associated with our dialysis centers, long-term incentive compensation expense, professional fees and benefit costs.
Dialysis and related lab services’ operating income for the third quarter of 2019 increased by approximately $111 million as compared to the third quarter of 2018. This increase in operating income was principally due to an increase in treatments, an increase in our average dialysis and related lab services' net revenue per treatment of less than $1 and an increase in our margin on calcimimetics, as described above. In addition, operating income benefited from decreases in other pharmaceutical unit costs and advocacy costs. Operating income was negatively impacted by increases in other direct operating expenses associated with our dialysis centers, long-term incentive compensation expense, benefit costs and professional fees.
Dialysis and related lab services’ operating income for the nine months ended September 30, 2019 increased by approximately $144 million as compared to the nine months ended September 30, 2018. This increase in operating income was principally due to an increase in treatments and an increase in our margin on calcimimetics, as described above, as well as decreases in advocacy costs and other pharmaceutical unit costs and utilization. Operating income was negatively impacted by a decrease in our average dialysis and related lab services' net revenue per treatment of approximately $2, as described above, in addition to increases in other direct operating expenses associated with our dialysis centers, labor and benefits costs, long-term compensation expense and professional fees.
Other—Ancillary services and strategic initiatives business
Our other operations include ancillary services and strategic initiatives which are primarily aligned with our core business of providing dialysis services to our network of patients. As of September 30, 2019, these consisted primarily of disease management services, vascular access services, clinical research programs, physician services, ESRD seamless care organizations and comprehensive care as well as our international operations. These businesses generated approximately $248 million in revenues for the third quarter of 2019, representing approximately 8.4% of our consolidated revenues. We expect to add additional service offerings to our business and pursue additional strategic initiatives in the future as circumstances warrant, which could include healthcare services not related to dialysis.
Any significant change in market conditions or business performance, or in the political, legislative or regulatory environment, may impact the economic viability of any of our ancillary services or strategic initiatives, including our international operations. If any of these businesses are unsuccessful, it would have a negative impact on our business, results of operations and financial condition, and we may decide to exit such line of business. We could incur significant termination costs if we were to exit certain of these lines of business. In addition, we may incur a material write-off or an impairment of our investment, including goodwill, in one or more of our ancillary services or strategic initiatives.
As of September 30, 2019, our international dialysis operations provided dialysis and administrative services through a total of 249 outpatient dialysis centers located in nine countries outside of the United States.


The following table reflects the results of operations for our ancillary services and strategic initiatives:
 Three months ended Nine months ended
 September 30, 2019 June 30,
2019
 September 30, 2018 September 30, 2019 September 30, 2018
 (dollars in millions)
U.S. revenues:         
Other revenues$118
 $114
 $191
 $341
 $649
Total118
 114
 191
 341
 649
International revenues: 
  
  
    
Dialysis patient service revenues128
 122
 112
 368
 320
Other revenues2
 3
 1
 8
 3
Total131
 125
 113
 376
 324
Total net revenues$248
 $239
 $304
 $717
 $972
Operating expenses and charges:         
Operating and other general expenses$262
 $254
 $357
 $763
 $1,049
Goodwill impairment charges84
 
 
 125
 3
Impairment of other assets
 
 6
 
 17
Loss (gain) on changes in ownership interests, net
 
 2
 
 (32)
Total operating expenses and charges346
 254
 364
 888
 1,037
Total ancillary services and strategic initiatives
operating los
s
$(98) $(15) $(60) $(170) $(64)
          
U.S. operating loss$(15) $(16) $(50) $(45) $(51)
Impairment of other assets
 
 6
 
 17
Restructuring charges
 
 11
 
 11
Loss (gain) on changes in ownership interests, net
 
 2
 
 (34)
Adjusted operating loss(1)
$(15) $(16) $(31) $(45) $(56)
          
International operating (loss) income$(83) $1
 $(10) $(125) $(13)
Reconciliation of non-GAAP:         
Operating expenses:         
Goodwill impairment charges84
 
 
 125
 3
Loss on changes in ownership interests, net
 
 
 
 1
Equity investment loss:         
Equity investment loss related to APAC JV goodwill
impairment

 
 6
 
 6
Adjusted operating income (loss)(1)
$1
 $1
 $(4) $
 $(3)
Total adjusted ancillary services and strategic
initiatives operating loss
(1)
$(14) $(15) $(35) $(46) $(59)
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions)
Revenues:             
U.S. dialysis$2,694
 $2,675
 $2,691
 $19
 0.7 % $3
 0.1 %
Other - ancillary services271
 245
 248
 26
 10.6 % 23
 9.3 %
Elimination of intersegment revenues(41) (40) (36) (1) (2.5)% (5) (13.9)%
Total consolidated revenues$2,924
 $2,880
 $2,904
 $44
 1.5 % $20
 0.7 %
              
Operating income (loss):             
U.S. dialysis$471
 $523
 $501
 $(52) (9.9)% $(30) (6.0)%
Other - ancillary services(7) (40) (98) 33
 82.5 % 91
 92.9 %
Corporate administrative support(26) (73) (25) 47
 64.4 % (1) (4.0)%
Operating income$438
 $410
 $378
 $28
 6.8 % $60
 15.9 %
              
Adjusted operating income (loss)(1):
             
U.S. dialysis$471
 $523
 $501
 $(52) (9.9)% $(30) (6.0)%
Other - ancillary services(7) (23) (14) 16
 69.6 % 7
 50.0 %
Corporate administrative support(26) (38) (25) 12
 31.6 % (1) (4.0)%
Adjusted operating income$438
 $461
 $462
 $(23) (5.0)% $(24) (5.2)%
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.
 
(1)For the periods presented in the table above,a reconciliation of adjusted operating loss is defined as operating loss before certain items which we do not believe are indicativeincome (loss) by reportable segment, see "Reconciliations of ordinary results, including the effectNon-GAAP measures" section below.
 Nine months ended YTD Q3 2020 vs. YTD Q3 2019
 September 30, 2020 September 30, 2019 Amount Percent
 (dollars in millions)
Revenues:       
U.S. dialysis$7,986
 $7,876
 $110
 1.4 %
Other - ancillary services777
 717
 60
 8.4 %
Elimination of intersegment revenues(117) (104) (13) (12.5)%
Total consolidated revenues$8,645
 $8,490
 $155
 1.8 %
        
Operating income (loss):       
U.S. dialysis$1,485
 $1,417
 $68
 4.8 %
Other - ancillary services(49) (170) 121
 71.2 %
Corporate administrative support(123) (66) (57) (86.4)%
Operating income$1,313
 $1,181
 $132
 11.2 %
        
Adjusted operating income (loss)(1):
       
U.S. dialysis$1,485
 $1,417
 $68
 4.8 %
Other - ancillary services(33) (46) 13
 28.3 %
Corporate administrative support(88) (66) (22) (33.3)%
Adjusted operating income$1,364
 $1,306
 $58
 4.4 %
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.
(1)For a reconciliation of impairment charges, restructuring charges and net loss (gain) on changes in ownership interests. Adjusted operating loss as so defined is a non-GAAP measure and is not intended as a substitute for GAAP operating loss. We have presented these adjusted amounts because management believes that these presentations enhance a user’s understanding of our normal operating income (loss) by excluding certain items which we do not believe are indicativereportable segment, see "Reconciliations of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normal prior period results.Non-GAAP measures" section below.


RevenuesU.S. dialysis results of operations
Revenues from our ancillary services and strategic initiativesRevenues:
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions, except per treatment data)
Total revenues$2,694
 $2,675
 $2,691
 $19
 0.7 % $3
 0.1 %
Dialysis treatments7,656,173
 7,570,908
 7,673,191
 85,265
 1.1 % (17,018) (0.2)%
Average treatments per day96,914
 97,063
 97,129
 (149) (0.2)% (215) (0.2)%
Treatment days79.0
 78.0
 79.0
 1.0
 1.3 % 
  %
Average patient service
revenue per treatment
$349.63
 $352.26
 $349.41
 $(2.63) (0.7)% $0.22
 0.1 %
Normalized non-acquired
 treatment growth(1)
0.6% 1.6% 2.2%        
(1)Normalized non-acquired treatment growth reflects year over year growth in treatment volume, adjusted to exclude acquisitions and other similar transactions, and further adjusted to normalize for the number and mix of treatment days in a given quarter versus the prior year quarter.
 Nine months ended September 30, YTD Q3 2020 vs. YTD Q3 2019
 2020 2019 Amount Percent
 (dollars in millions, except per treatment data)
Total revenues$7,986
 $7,876
 $110
 1.4%
Dialysis treatments22,740,403
 22,491,237
 249,166
 1.1%
Average treatments per day96,933
 96,281
 652
 0.7%
Treatment days234.6
 233.6
 1.0
 0.4%
Average patient service revenue per treatment$349.82
 $349.26
 $0.56
 0.2%
U.S. dialysis revenues for the third quarter of 20192020 increased by approximately $9 million, or 3.8%, as compared tofrom the second quarter of 2019. This increase was2020 primarily due to an increase in revenues related to our international operations driven by approximately one additional treatment day in the third quarter of 2019 as compared to the second quarter of 2019. Revenue also increased due to increases in revenues at DaVita IKC and DaVita Clinical Research,dialysis treatments, partially offset by a decrease in revenues at our ESCO joint ventures.average patient service revenue per treatment. The increase in our U.S. dialysis treatments was primarily driven by volume growth from one additional treatment day. Our U.S. dialysis average patient service revenue per treatment was negatively impacted by lower commercial revenue per treatment, unfavorable changes in government payor mix and a decline in calcimimetics revenue per treatment, partially offset by an increase in inpatient dialysis service revenue and an increase in Medicare rates due to the temporary suspension of Medicare sequestration.
Revenues from our ancillary services and strategic initiativesU.S. dialysis revenues for the third quarter of 2019 decreased by approximately $56 million, or 18.4%, as compared to the third quarter of 2018. This decrease was primarily due to our pharmacy distribution ceasing operations, partially offset by increases in revenues at DaVita IKC, as well as our international operations due to one additional treatment day in2020 increased from the third quarter of 2019 primarily due to an increase in our average patient service revenue per treatment, partially offset by a decrease in dialysis treatments. Our U.S. dialysis average patient service revenue per treatment increased primarily due to an increase in inpatient dialysis revenue, as comparedwell as increases in Medicare rates due to the third quartertemporary suspension of 2018Medicare sequestration and a base rate increase in 2020, partially offset by a decline in calcimimetics revenue per treatment and lower commercial revenue per treatment. Our U.S. dialysis treatments decreased primarily due to acquiredthe deconsolidation of two dialysis partnerships, as described below under the heading "Equity investment income" and a decline in non-acquired treatment growth.dialysis treatments due to mortality.
Revenues from our ancillary services and strategic initiativesU.S. dialysis revenues for the nine months ended September 30, 2019 decreased by approximately $255 million, or 26.2%, as compared to2020 increased from the nine months ended September 30, 2018. This decrease was2019 primarily due to an increase in dialysis treatments and an increase in our pharmacy distribution ceasing operationsaverage patient service revenue per treatment. The increase in our U.S. dialysis treatments was driven by one additional treatment day in the nine months ended September 30, 2020 and acquired and non-acquired growth, partially offset by the deconsolidation of the two dialysis partnerships, as described below under the heading "Equity investment income". Our U.S. dialysis average patient service revenue per treatment increased driven by favorable changes in government and commercial revenue per treatment, including an increase in Medicare rates due to a base rate increase in 2020 and the temporary suspension of Medicare sequestration, as well as decreasesan increase in revenues at Vively Health,inpatient dialysis services revenue, partially offset by a decline in calcimimetics revenue per treatment.
In July 2020, CMS issued a proposed rule to update the Medicare ESRD Prospective Payment System payment rate and our direct primary care businesspolicies. Among other things, the proposed rule outlines the inclusion of calcimimetics in the ESRD bundled payment, the transitional drug add-on payment for certain new renal dialysis drugs and biological products, and amends the reporting


measures in the ESRD Quality Incentive Program. CMS estimates that the overall impact of the proposed rule will increase ESRD facilities’ average reimbursement by 1.6% in 2021. CMS, through the Center for Medicare and Medicaid Innovation, published the final ESRD Treatment Choices mandatory payment model (ETC) on September 18, 2020. The ETC will be administered through CMMI and is proposed to launch in 30% of dialysis clinics across the country, with a currently listed implementation date of January 1, 2021.
Operating expenses and charges:
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions, except per treatment data)
Patient care costs$1,781
 $1,802
 $1,813
 $(21) (1.2)% $(32) (1.8)%
General and administrative(1)
303
 210
 235
 93
 44.3 % 68
 28.9 %
Depreciation and amortization148
 148
 148
 
  % 
  %
Equity investment income(9) (8) (5) (1) 12.5 % (4) 80.0 %
Total operating expenses and charges$2,224
 $2,152
 $2,191
 $72
 3.3 % $33
 1.5 %
Patient care costs per treatment$232.57
 $238.02
 $236.32
 $(5.45) (2.3)% $(3.75) (1.6)%
Certain columns, rows or percentages may not sum or recalculate due to the saleuse of this business inrounded numbers.

(1)General and administrative expenses for the three months ended September 30, 2020 includes advocacy costs of approximately $66 million to counter union policy efforts, including a California ballot initiative.
 Nine months ended September 30, YTD Q3 2020 vs. YTD Q3 2019
 2020 2019 Amount Percent
 (dollars in millions, except per treatment data)
Patient care costs$5,366
 $5,396
 $(30) (0.6)%
General and administrative(1)
718
 648
 70
 10.8 %
Depreciation and amortization443
 433
 10
 2.3 %
Equity investment income(25) (17) (8) (47.1)%
Total operating expenses and charges$6,501
 $6,459
 $42
 0.7 %
Patient care costs per treatment$235.97
 $239.90
 $(3.93) (1.6)%
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

(1)General and administrative expenses for the nine months ended September 30, 2020 includes advocacy costs of approximately $67 million to counter union policy efforts, including a California ballot initiative.
Patient care costs. U.S. dialysis patient care costs are those costs directly associated with operating and supporting our dialysis centers and consist principally of compensation expenses including labor and benefits, pharmaceuticals, medical supplies and other operating costs of the dialysis centers.
U.S. dialysis patient care costs per treatment for the third quarter of 2020 decreased from the second quarter of 2018.2020 primarily due to a decrease in COVID-19-related costs including compensation expense, and a decrease in pharmaceutical intensity. These decreases were partially offset by increases in revenues at DaVita IKC, and our international operationshealth benefit expenses due to acquiredincreased claims volume and non-acquiredother direct dialysis center operating expenses.
U.S. dialysis patient care costs per treatment growth.
Operating and general expenses
Ancillary services and strategic initiatives' operating and general expenses for the third quarter of 2019 increased by $8 million2020 decreased from the second quarter of 2019. This increase was primarily due to an increase in expenses associated with our international operations and an increase in medical costs at DaVita IKC.
Ancillary services and strategic initiatives' operating and general expenses for the third quarter of 2019 decreased by $95 million as compared to the third quarter of 2018. This decrease was primarily due to our pharmacy distribution ceasing operations,a decrease in pharmaceutical unit costs and intensity, a decrease in other direct dialysis center operating expenses, as well as decreases in restructuring chargestravel expense related to our pharmacy business of $11 million,COVID-19, health benefit expenses due to reduced claims volume and an equity investment loss of $6 million for goodwill impairments at our APAC JV recognized in the third quarter of 2018.payroll taxes. These decreases were partially offset by an increase in labor costs and costs related to COVID-19, including medical supplies.
U.S. dialysis patient care costs at DaVita IKC and an increase in expenses associated with our international operations.
Ancillary services and strategic initiatives' operating and general expensesper treatment for the nine months ended September 30, 20192020 decreased by $286 million as compared tofrom the nine months ended September 30, 2018. This decrease was2019 primarily due to our pharmacy distribution ceasing operations, a decrease in expenses related to the sale of our direct primary care business in the second quarter of 2018, a decrease in expenses at DaVita Clinical Research, as well as decreases in restructuring charges relatedpharmaceutical unit costs, other direct dialysis center operating


expenses, health benefit expenses due to our pharmacy business of $11 million,reduced claims volume and an equity investment loss of $6 million for goodwill impairments at our APAC JV recognized in the nine months ended September 30, 2018.travel expenses. These decreases were partially offset by an increase in labor costs and costs related to COVID-19, including compensation and medical costs at DaVita IKCsupplies.
General and administrative expenses. U.S. dialysis general and administrative expenses from the third quarter of 2020 increased from the second quarter of 2020 primarily due to an increase in expenses associated with our international operations.
Goodwill impairment charges
During the first quarter of 2019, we recognizedadvocacy costs related to counter union policy efforts, including a $41 million goodwill impairment charge in our Germany kidney care business. This charge resulted primarily from a change in relevant discount rates,California ballot initiative, as well as a declineincreases in currentcontributions to our charitable foundation and expected future patient censuscompensation expense.
U.S. dialysis general and an increase in firstadministrative expenses for the third quarter and expected future costs, principally due to wage increases expected to resultof 2020 increased from recently announced legislation.
During the third quarter of 2019 primarily due to an increase in advocacy costs, as described above, as well as increases in contributions to our charitable foundation and compensation expense. These increases were partially offset by decreases in long-term incentive compensation expense, travel expenses and professional fees.
U.S. dialysis general and administrative expenses for the nine months ended September 30, 2020 increased from the nine months ended September 30, 2019 due to an increase in advocacy costs, as described above, as well as increases in contributions to our charitable foundation and compensation expense including costs related to COVID-19. These increases were partially offset by decreases in travel expenses, long-term incentive compensation expense and health benefit expenses.
Depreciation and amortization. Depreciation and amortization expense is directly impacted by the number of dialysis centers we develop and acquire. U.S. dialysis depreciation and amortization expenses for the quarter ended September 30, 2020 compared to the quarters ended June 30, 2020 and September 30, 2019 was relatively flat, and increased for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to growth in the number of dialysis centers we operate.
Equity investment income. U.S. dialysis equity investment income for the third quarter of 2020 increased from the second quarter of 2020 primarily due to an increase in the profitability of certain non-consolidated dialysis partnerships.
U.S. dialysis equity investment income for the third quarter of 2020 increased from the third quarter of 2019 primarily due to the deconsolidation of two of our near 50%-owned dialysis partnerships at year-end 2019, based on a reassessment of relative rights and powers over these partnerships. Our portion of these partnerships' earnings are now recognized in equity investment income. This increase also resulted from an incremental goodwill impairment chargeincrease in the profitability of $79 millioncertain other non-consolidated dialysis partnerships.
U.S. dialysis equity investment income for the nine months ended September 30, 2020 increased from the nine months ended September 30, 2019 primarily due to the deconsolidation of two dialysis partnerships at year-end 2019, as described above.
Operating income:
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions)
Operating income$471
 $523
 $501
 $(52) (9.9)% $(30) (6.0)%
 Nine months ended September 30, YTD Q3 2020 vs. YTD Q3 2019
 2020 2019 Amount Percent
 (dollars in millions)
Operating income$1,485
 $1,417
 $68
 4.8%
U.S. dialysis operating income for the third quarter of 2020 decreased from the second quarter of 2020 primarily due to a decrease in our Germany kidneyaverage patient service revenue per treatment, as described above, as well as increases in advocacy costs, contributions to our charitable foundation, health benefit expenses and other direct dialysis center operating expenses. Operating income was positively impacted by one additional treatment day and decreases in COVID-19-related costs and pharmaceutical intensity.
U.S. dialysis operating income for the third quarter of 2020 decreased from the third quarter of 2019 primarily due to a decrease in dialysis treatments, as described above, an increase in advocacy costs, a decline in calcimimetics margin and increases in COVID-19-related costs, labor costs and contributions to our charitable foundation. These decreases to operating income were partially offset by an increase in our average patient service revenue per treatment, as described above, a decrease


in pharmaceutical unit costs and intensity, as well as decreases in other direct dialysis center operating expenses and health benefit expenses, long-term incentive compensation expense, travel expenses and professional fees.
U.S. dialysis operating income for the nine months ended September 30, 2020 increased from the nine months ended September 30, 2019 primarily due to one additional treatment day in the nine months ended September 30, 2020. The increase in operating income also resulted from an increase in our average patient service revenue per treatment, as described above, as well as decreases in pharmaceutical unit costs, health benefit expenses, other direct dialysis center operating expenses, travel expense and long-term incentive compensation. These increases to operating income were partially offset by an increase in advocacy costs, a decline in calcimimetics margin, an increase in COVID-19-related costs, including compensation expense, and an increase in contributions to our charitable foundation.
Other—Ancillary services
Our other operations include ancillary services which are primarily aligned with our core business of providing dialysis services to our network of patients. As of September 30, 2020, these consisted primarily of integrated care and disease management, ESRD seamless care organizations (ESCOs), clinical research programs and physician services, as well as our international operations. These ancillary services, including our international operations generated approximately $271 million and $777 million of revenues for the three and nine months ended September 30, 2020, respectively, representing approximately 9% of our consolidated revenues for each period. If any of our ancillary services or strategic initiatives, such as our international operations, are unsuccessful, it could have a negative impact on our business, results of operations, financial condition and cash flows, and we may determine to exit that line of business, which could result in significant termination costs. In addition, we have in the past and may in the future incur material restructuring, write-off or impairment charges on our investment in one or more of these ancillary services, including goodwill.
We expect to add additional service offerings to our business and to pursue additional strategic initiatives in the future as circumstances warrant, which could include, among other things, healthcare services not related to dialysis.
As of September 30, 2020, our international dialysis operations provided dialysis and administrative services through a $5 million goodwill impairment chargetotal of 291 outpatient dialysis centers located in nine countries outside of the United States.
Ancillary services results of operations
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions)
Revenues:             
U.S. ancillary$125
 $116
 $118
 $9
 7.8% $7
 5.9%
International147
 129
 131
 18
 14.0% 16
 12.2%
Total ancillary services revenues$271
 $245
 $248
 $26
 10.6% $23
 9.3%
              
Operating (loss) income:             
U.S. ancillary$(14) $(41) $(15) $27
 65.9% $1
 6.7%
International(1)
7
 1
 (83) 6
 600.0% 90
 108.4%
Total ancillary services operating loss$(7) $(40) $(98) $33
 82.5% $91
 92.9%
              
Adjusted operating (loss) income(2):
             
U.S. ancillary$(14) $(25) $(15) $11
 44.0% $1
 6.7%
International(1)
7
 1
 1
 6
 600.0% 6
 600.0%
Total ancillary services adjusted operating loss$(7) $(23) $(14) $16
 69.6% $7
 50.0%
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

(1)The reported operating income (loss) and adjusted operating income (loss) for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, include approximately $(3) million, $(4) million and $3 million, respectively, of foreign currency (losses) gains.


(2)For a reconciliation of adjusted operating income (loss) by reportable segment, see the "Reconciliations of non-GAAP measures" section below.
 Nine months ended September 30, YTD Q3 2020 vs. YTD Q3 2019
 2020 2019 Amount Percent
 (dollars in millions)
Revenues:       
U.S. ancillary$365
 $341
 $24
 7.0 %
International412
 376
 36
 9.6 %
Total ancillary services revenues$777
 $717
 $60
 8.4 %
        
Operating (loss) income:       
U.S. ancillary$(74) $(45) $(29) (64.4)%
International(1)
25
 (125) 150
 120.0 %
Total ancillary services operating (loss) income$(49) $(170) $121
 71.2 %
        
Adjusted operating (loss) income(2):
       
U.S. ancillary$(58) $(45) $(13) (28.9)%
International(1)
25
 
 25
  
Total ancillary services adjusted operating loss$(33) $(46) $13
 28.3 %
Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

(1)The reported operating income (loss) and adjusted operating income (loss) for the nine months ended September 30, 2020 and September 30, 2019, include approximately $3 million and $2 million, respectively, of foreign currency gains.
(2)For a reconciliation of adjusted operating income (loss) by reportable segment, see the "Reconciliations of non-GAAP measures" section below.
Revenues:
U.S. ancillary services revenues for the third quarter of 2020 increased from the second quarter of 2020 due to an increase in revenue in our German other health operations. The incremental charge recognized in the Germany kidneyintegrated care and disease management business, resulted from changes and developmentsprimarily due to revenue increases in our outlookspecial needs plans and ESCO business, partially offset by a decrease in revenues due to the sale of RMS Lifeline, Inc. (Lifeline), as described below. In addition, international revenues for thisthe third quarter of 2020 increased from the second quarter of 2020 primarily due to acquired treatment growth.
U.S. ancillary services revenues for the third quarter of 2020 increased from the third quarter of 2019 due to an increase in revenues at our integrated care and disease management business, sinceprimarily due to revenue increases in our last assessment.special needs plans, as well as an increase in revenues in our ESCO and physician services businesses. These increases were partially offset by a decrease in revenues due to the sale of Lifeline, as described below, and a decrease in revenue in our clinical research programs. Our international revenues for the third quarter of 2020 increased from the third quarter of 2019 primarily concern developmentsdue to acquired treatment growth.
U.S. ancillary services and international revenues for the nine months ended September 30, 2020 increased from the nine months ended September 30, 2019 for the same reasons discussed in our comparison of the business in responsethird quarter of 2020 to evolving market conditions andthird quarter of 2019 above.
Charges impacting operating loss:
Loss on changes in ownership interests, net. We sold 100% of the stock of Lifeline, our expected timingvascular access business, effective May 1, 2020 and ability to mitigate them.recognized a loss of approximately $16 million on this transaction.
Goodwill impairment charges. During the three and nine months ended September 30, 2019, we recognized goodwill impairment charges of $84 million and $125 million, consisting of the charges described above.
We did not recognize any goodwill impairment charges during the third quarter of 2018 and recognized a goodwill impairment charge of $3 million atrespectively, in our German other health operations during the nine months ended September 30, 2018.
international reporting units. See further discussion of these impairment charges and our reporting units that remain at risk of goodwill impairment in Note 76 to the condensed consolidated financial statements.



SegmentOperating loss and adjusted operating lossesloss:
AncillaryU.S. ancillary services operating loss and strategic initiatives'adjusted operating loss for the third quarter of 2019, which includes goodwill impairment charges of $84 million at our Germany reporting units, increased by approximately $83 million2020 decreased from the second quarter of 2019. Excluding this item2020. The decrease in operating loss was impacted by the loss on sale of Lifeline, as described above. In addition, both operating loss and adjusted operating loss benefited from increases in revenue in our integrated care and disease management and ESCO businesses, and a decrease in professional fees in our ESCO business, partially offset by an increase in medical costs in our integrated care and disease management business. International operating income for the third quarter of 2020 increased from the second quarter of 2020 primarily driven by volume growth from one additional treatment day and acquisition-related growth in our international business.
U.S. ancillary services operating loss for the third quarter of 2020 was relatively flat as compared to the third quarter of 2019, adjusted operating losses decreased by $1 million, primarily due tofrom an increase in DaVita Clinical Research operating results partiallyin our ESCO businesses offset by a decrease in operating results atin our ESCO joint ventures.
Ancillary servicesclinical research programs. International operating results and strategic initiativesadjusted operating lossresults for the third quarter of 2020 increased compared to the third quarter of 2019. International operating results for the third quarter of 2019 which includeswere impacted by goodwill impairment charges, of $84 million at our Germany reporting units, increased by approximately $38 million from the third quarter of 2018, which included restructuring charges of $11 million, other asset impairment charges of $6 million related to our pharmacy business, an equity investment loss of $6 million for goodwill impairments at our APAC JVdescribed above, and a loss on changes in ownership interests of $2 million. Excluding these items from their respective periods, adjustedboth operating losses decreased by $21 million, primarily due to a decrease in adjusted operating losses related to our pharmacy business, an increase in internationalresults and adjusted operating results benefited primarily from acquisition-related growth.
U.S. ancillary services operating loss and an increase in DaVita IKC operating results.
Ancillary services and strategic initiativesadjusted operating loss for the nine months ended September 30, 2019, which includes goodwill impairment charges of $125 million at our Germany reporting units,2020 increased by approximately $106 million from the nine months ended September 30, 2018, which included a net gain2019. This increase in operating loss was impacted by the loss on changes in ownership interestssale of $32 million, other asset impairment charges of $17 million, restructuring charges of $11 million, an equity investmentLifeline, as described above. In addition, both operating loss of $6 million for goodwill impairments at our APAC JV and a goodwill impairment charge of $3 million. Excluding these items from their respective periods, adjusted operating losses decreasedloss were negatively impacted by $13 million, primarily due to a decreasean increase in adjusted operating losses related tomedical costs in our pharmacyintegrated care and disease management business and increases in DaVita IKC and DaVita Clinical Research's operating results. These increases to adjusted operating income were partially offset by decreasesan increase in revenue in our integrated care and disease management business. International operating results at Vively Health and at our ESCO joint ventures.
Corporate-level charges
Debt expense. Debt expense was $89 million inadjusted operating results for the third quarter of 2019, $132 million innine months ended September 30, 2020 increased from the second quarter of 2019 and $126 million in the third quarter of 2018. Debt expense in the third quarter of 2019 decreased as compared to the second quarter of 2019 and as compared to the third quarter of 2018 primarily due to a decrease in our average outstanding debt balance and a decrease in our average interest rate.
Debt expense was $352 millionnine months ended September 30, 2019. International operating results for the nine months ended September 30, 2019, were impacted by goodwill impairment charges, as compared to $359 million for the same period in 2018, decreasing by $7 milliondescribed above, and both operating results and adjusted operating results benefited primarily due to a decrease in our average outstanding debt balance as well as a decrease in our average interest rate.
Debt prepayment, refinancing and redemption charges. Debt prepayment, refinancing and redemption charges were $21 million and $33 million in the three and nine months ended September 30, 2019, respectively, as a result of the repayment of all principal balances outstanding on our prior senior secured credit facilitiesfrom acquisition-related growth and the redemptiontiming of our 5.75% Senior Notes. The $21 million of such charges recognized in the third quarter of 2019 represented debt discount and deferred financing cost write-offs associated with the portion of our prior senior secured debt that was paid in full in the third quarter of 2019, as well as redemption charges on our 5.75% Senior Notes redeemed in the third quarter of 2019. The $12 million of such charges recognized in the second quarter of 2019 represented accelerated amortization of debt discount and deferred financing costs associated with the portion of our prior senior secured debt that was mandatorily prepaid in or shortly after the second quarter of 2019 and prior extensions thereof.certain other periodic expenses.
Corporate administrative support. support
Corporate administrative support consists primarily of labor, benefits and long-term incentive compensation expense, as well as professional fees for departments which provide support to all of our various operating lines of business, partially offset by internal management fees charged tobusiness. Corporate administrative support expenses are included in general and administrative expenses on our other linesconsolidated income statement.
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions)
Corporate administrative support$(26) $(73) $(25) $47
 64.4% $(1) (4.0)%
Adjusted corporate administrative support(1)
$(26) $(38) $(25) $12
 31.6% $(1) (4.0)%
 Nine months ended YTD Q3 2020 vs. YTD Q3 2019
 September 30, 2020 September 30, 2019 Amount Percent
 (dollars in millions)
Corporate administrative support$(123) $(66) $(57) (86.4)%
Adjusted corporate administrative support(1)
$(88) $(66) $(22) (33.3)%

(1)For a reconciliation of adjusted operating income (loss) by reportable segment, see the "Reconciliations of non-GAAP measures" section below.
Charges impacting corporate administrative support:
Accruals for legal matters. During the second quarter of business2020, we recorded a net charge for that support.legal matters of $35 million which is included in general and administrative expenses.
Corporate administrative support costsexpenses for the quarter ended September 30, 2020 compared to the quarter ended June 30, 2020 were approximately $25 millionimpacted by accruals for legal matters, as described above, and a decrease in the third quarter of 2019, $22 millionseverance accruals recorded in the second quarter of 2019 and $41 million in2020 associated with our senior executive leadership transition. Corporate administrative support


expenses for the third quarter of 2018. Corporate administrative support costs2020 increased infrom the third quarter of 2019 as compared to the second quarter of 2019 primarily due to an increase in long-term incentive compensation expense driven by operating income performance. Corporate administrative support costs in the third quarter of 2019 decreased as compared to the same period of 2018 primarily due to a decrease in long-term incentive compensation expense resulting from the adoption of a retirement policy for certain officers in the third quarter of 2018 that increased expense in that period and a reduction in internal management fees charged to our pharmacy business which ceased operations.


expense.
Corporate administrative support costs were approximately $66 million inexpenses for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 were impacted by accruals for legal matters, as described above, and an increase in severance accruals recorded in the second quarter of 2020 associated with our senior executive leadership transition as well as an increase in long-term compensation expense.
Corporate-level charges
 Three months ended Q3 2020 vs. Q2 2020 Q3 2020 vs. Q3 2019
 September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent
 (dollars in millions)
Debt expense$(74) $(81) $(89) $(7) (8.6)% $(15) (16.9)%
Debt prepayment, refinancing and
 redemption charges
$(86) $
 $(21) $86
 
 $65
 309.5 %
Other income, net$5
 $10
 $5
 $(5) (50.0)% $
  %
Effective income tax rate23.2% 24.6% 23.8%   (1.4)%   (0.6)%
Effective income tax rate from continuing
operations attributable to DaVita Inc.
(1)
29.2% 29.2% 30.3%    %   (1.1)%
Net income attributable to noncontrolling
interests
$(59) $(53) $(58) $6
 11.3 % $1
 1.7 %
 Nine months ended September 30, YTD Q3 2020 vs. YTD Q3 2019
 2020 2019 Amount Percent
 (dollars in millions)
Debt expense$(244) $(352) $(108) (30.7)%
Debt prepayment, refinancing and redemption charges$(89) $(33) $56
 169.7 %
Other income, net$11
 $18
 $(7) (38.9)%
Effective income tax rate24.3% 24.3%    %
Effective income tax rate from continuing
operations attributable to DaVita Inc.
(1)
28.9% 29.8%   (0.9)%
Net income attributable to noncontrolling
interests
$(160) $(152) $8
 5.3 %
(1)For a reconciliation of our effective income tax rate from continuing operations attributable to DaVita Inc., see "Reconciliations of non-GAAP measures" section below.
Debt expense
Debt expense for the third quarter of 2020 decreased compared to $71 millionthe second quarter of 2020, as a result of refinancing our 5 ⅛% senior notes and 5% senior notes with lower cost debt, and a reduction in the LIBOR component of the interest rate on debt under our senior secured credit facilities.  
Debt expense for the same period in 2018. The decrease in corporate administrative support costs wasthird quarter of 2020 decreased compared to the third quarter of 2019 primarily due to a decrease in long-term incentive compensation expense resulting from the adoptionour overall weighted average effective interest rate on our debt, including as a result of a retirement policy for certain officers in the third quarter of 2018 that increased expense in that periodrefinancing our 5 ⅛% senior notes and 5% senior notes with lower cost debt, a reduction in internal management fees chargedthe LIBOR component of the interest rate on debt under our senior secured credit facilities and a repricing of the interest rate margin applicable to the Term Loan B component of our pharmacy business which ceased operations.senior secured credit facilities. 
Other income. Other income was $5 millionDebt expense for the third quarter of 2019, $6 million for the second quarter of 2019 and $4 million for the third quarter of 2018. The decrease in other income in the third quarter of 2019 asnine months ended September 30, 2020 decreased compared to the second quarter of 2019 was primarily due to an increase in foreign currency losses, partially offset by an increase in interest income and a decrease in losses on the sale of investments in the third quarter of 2019. The increase in other income for the third quarter of 2019 as compared to the third quarter of 2018 was primarily due to an increase in interest income, partially offset by an increase in foreign currency losses.
Other income was approximately $18 million in the nine months ended September 30, 2019 as compared to $11 million for the same periodreasons described above and from a net reduction in 2018. Thisour average debt outstanding.


Our overall weighted average effective interest rate for the third quarter of 2020 was 3.31% compared to 3.64% for the second quarter of 2020 and 5.09% in the third quarter of 2019. See Note 8 to the condensed consolidated financial statements for further information on the components of our debt.
Debt prepayment, refinancing and redemption charges
Debt prepayment, refinancing and redemption charges were $86 million and $89 million in the three and nine months ended September 30, 2020, respectively, as a result of the redemption in full of our $1.75 billion aggregate principal amount outstanding of 5 ⅛% senior notes and $1.50 billion aggregate principal amount outstanding of 5% senior notes. The charges recognized in the three and nine months ended September 30, 2020 represented debt redemption premium charges and deferred financing cost write-offs associated with our prior senior note debt that was paid in full. In addition, the nine months ended September 30, 2020 also includes $3 million of refinancing charges comprised partially of fees incurred on the repricing of our Term Loan B and partially of deferred financing costs written off for the portion of this debt considered extinguished and reborrowed. See further discussion in Note 8 to the condensed consolidated financial statements.
Other income
Other income consists primarily of interest income on cash and cash equivalents and short- and long-term investments, realized and unrealized gains and losses recognized on investments, and foreign currency transaction gains and losses.
Other income decreased for the third quarter of 2020 compared to the second quarter of 2020 primarily due to a decrease in gains recognized on foreign currency transactions and investments, and a decrease in interest income. Other income for the third quarter of 2020 compared to the third quarter of 2019 was relatively flat due to a decrease in interest income offset by an increase wasin gains recognized on foreign currency transactions and investments. Other income decreased for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to a decrease in interest income and an increase in losses recognized on foreign currency transactions.
Effective income tax rate
The effective income tax rate for the third quarter of 2020 decreased compared to the second quarter of 2020 primarily due to an increase in interest income.
Income taxes. the percentage of our earnings attributable to non-controlling interests for non-income tax paying entities. The Company's effective income tax rate forfrom continuing operations was 23.8%attributable to DaVita Inc. for the third quarter of 2019 as2020 was flat compared to 23.5% for the second quarter of 20192020.
The effective income tax rate and 31.1%effective income tax rate from continuing operations attributable to DaVita Inc. for the third quarter of 2018. The Company's effective income tax rate increased in the third quarter of 2019 as2020 decreased compared to the secondthird quarter of 2019 primarily due to goodwill impairment charges recognized during the third quarter of 2019, and decreased in the third quarter of 2019 as compared to the third quarter of 2018 primarily due to the amount ofpartially offset by increased nondeductible advocacy costs recognizedspend in the third quarter of 2018 that did not recur in the third quarter of 2019.2020
The Company's effective income tax rate for continuing operations was 24.3% for the nine months ended September 30, 2019 as compared to 26.2% for the nine months ended September 30, 2018. This decrease2020 was primarily due to the amount of nondeductible advocacy costs recognized in the nine months ended September 30, 2018 asflat compared to the nine months ended September 30, 2019. The effective income tax rate from continuing operations attributable to DaVita Inc. for the nine months ended September 30, 2020 decreased compared to the nine months ended September 30, 2019 primarily due to goodwill impairment charges recognized in 2019 and a decrease in our estimated state tax rate, partially offset by increased nondeductible advocacy spend in 2020.
Noncontrolling interests. Net income attributable to noncontrolling interests was $58 million for the third quarter of 2019 as compared to $54 million for the second quarter of 2019 and $40 million for the third quarter of 2018.
The increase in net income attributable to noncontrolling interests infor the third quarter of 2019 as2020 compared to the second quarter of 20192020 was primarily due to one additional treatment dayimproved earnings at certain U.S. dialysis partnerships, partially offset by a decrease in the third quarterreimbursements we made to certain of 2019 as compared toour U.S. dialysis partnerships for certain COVID-19-related expenses in the second quarter of 2019 as well as improved operating margin due to calcimimetics which improved earnings in our joint ventures.2020. The increase in net income attributable to noncontrolling interests infor the third quarter of 2019 as2020 compared to the third quarter of 20182019 was primarily due to improved earnings at certain joint ventures.
NetU.S. dialysis partnerships. The increase in net income attributable to noncontrolling interests was $152 million infor the nine months ended September 30, 2019 as2020 compared to $126 million for the same period in 2018. This increasenine months ended September 30, 2019 was primarily due to improved earnings at certain joint ventures.U.S. dialysis partnerships, including, among other things, reimbursements we made to certain of our U.S. dialysis partnerships for certain COVID-19-related expenses.
Accounts receivable. receivable
Our consolidated accounts receivable balances at September 30, 20192020 and December 31, 20182019 were $1.901$1.804 billion and $1.859$1.796 billion, respectively, which representedrepresenting approximately 61 days57.5 and 6257.8 days sales outstanding (DSO), respectively, net of allowanceallowances for uncollectible accounts. The decrease inConsolidated DSO was primarilyrelatively flat due to improved collections relatedfrom certain payors offset by a delay in billing to certain other payors. Our DSO calculation is based on the current quarter’s average revenues per


day. There were no significant changes duringin the third quarter of 20192020 from the second quarter of 20192020 in the amount of unreserved accounts receivable over one year old or the amounts pending approval from third-party payors.


Liquidity and capital resources
The following table shows the summary of our major sources and uses of cash, cash equivalents and restricted cash:
Three months ended Nine months endedNine months ended September 30, YTD Q3 2020 vs. YTD Q3 2019
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 20182020 
2019(1)
 Amount Percent
(dollars in millions)(dollars in millions)
Net cash provided by operating activities:              
Net income$202
 $(97) $718
 $435
$760
 $718
 $42
 5.8 %
Non-cash items305
 466
 788
 832
Working capital141
 88
 (89) 108
Non-cash items in net income826
 788
 38
 4.8 %
Other working capital changes(71) (89) 18
 (20.2)%
Other(7) 
 (25) 8
(21) (25) 4
 (16.0)%
$641
 $458
 $1,392
 $1,382
$1,494
 $1,392
 $102
 7.3 %
              
Net cash (used in) provided by investing activities:              
Capital expenditures:              
Routine maintenance/IT/other$(84) $(101) $(245) $(316)$(239) $(245) $6
 (2.4)%
Development and relocations(90) (131) (302) (390)(211) (302) 91
 (30.1)%
Acquisition expenditures(11) (24) (77) (114)(113) (77) (36) 46.8 %
Proceeds from sale of self-developed properties12
 7
 38
 33
79
 38
 41
 107.9 %
DMG sale net proceeds received at closing, net
of DMG cash divested

 
 3,825
 

 3,825
 (3,825) (100.0)%
Other(96) 12
 (105) 126
(4) (105) 101
 (96.2)%
$(269) $(237) $3,134
 $(661)$(487) $3,134
 $(3,621) (115.5)%
              
Net cash used in financing activities:       
Debt (payments) issuances, net$(886) $274
 $(2,050) $846
Net cash (used in) provided by financing activities:       
Debt issuances net of (payments) and financing costs$(207) $(2,050) $1,843
 (89.9)%
Distributions to noncontrolling interest(61) (46) (157) (140)(179) (157) (22) 14.0 %
Contributions from noncontrolling interest13
 12
 44
 43
33
 44
 (11) (25.0)%
Share repurchases(1,026) (1,837) 811
 (44.1)%
Other5
 (1) (4) (10)(3) (4) 1
 (25.0)%
Share repurchases(1,764) (356) (1,837) (1,162)
$(2,693) $(117) $(4,004) $(423)$(1,382) $(4,004) $2,622
 (65.5)%
              
Total number of shares repurchased30,591,750
 4,849,051
 32,651,726
 16,844,067
12,283,977
 32,651,726
 (20,367,749) (62.4)%
       
Free cash flow from continuing operations(2)
$977
 $711
 $266
 37.4 %
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
(1)Represents consolidated cash flow activity, including cash flows related to discontinued operations.
(2)For a reconciliation of our free cash flow from continuing operations, see "Reconciliations of Non-GAAP measures" section below.
Consolidated cash flows from operating activities during the third quarter of 2019 were $641 million, of which $648 million was from continuing operations, compared with consolidated operating cash flows for the third quarter of 2018 of $458 million, of which $362 million was from continuing operations. The increase in cash flow from continuing operations was primarily driven by an increase in operating income due to one additional treatment day in the third quarter of 2019 as compared to the third quarter of 2018 and decreases in pharmaceutical and advocacy costs, partially offset by an increase in tax payments.
On August 12, 2019, we entered into a new senior secured credit agreement as described in Note 9 to the condensed consolidated financial statements. We used the funds from the new senior secured credit facilities to pay off the remaining balances outstanding under our prior senior credit facilities, to redeem our 5.75% Senior Notes due in 2022 and to fund our tender offer (Tender Offer) and additional share repurchases as described in Note 14 to the condensed consolidated financial statements. The remaining debt borrowings added cash to the balance sheet for potential future acquisitions, share repurchases and other general corporate purposes.
Other significant changes in sources and uses of cash included net payments of $886 million towards debt in the third quarter of 2019. Net debt payments primarily consisted of the principal prepayments totaling $4,042 million on our term debt under our prior senior secured credit facility and the redemption of all of our outstanding 5.75% Senior Notes due in 2022 for an aggregate cash payment consisting of principal and redemption premium of $1,262 million, partially offset by the funding of


our term debt of $4,500 million under our new senior secured credit facility. In addition, we incurred deferred financing costs related to our new term debt and a cap premium fee for our forward interest rate cap agreements. By comparison, the third quarter of 2018 included net advances of $274 million, which included a $43 million draw on our prior Term Loan A-2 and net advances of $275 million on our prior revolving line of credit, net of scheduled principal payments on our term debt under our prior senior secured credit facility. See further discussion in Note 9 to the condensed consolidated financial statements related to debt activities. Cash flows used for share repurchases increased in the third quarter of 2019 as compared to the third quarter of 2018 primarily due to the Tender Offer.
Consolidated cash flows from operating activities during the nine months ended September 30, 20192020 were $1,392 million,$1.494 billion, all of which $1,295 million waswere from continuing operations, compared withto consolidated operating cash flows for the same period in 2018nine months ended September 30, 2019 of $1,382 million,$1.392 billion, of which $1,174 million was$1.295 billion were from continuing operations. Theincrease in operating cash flowflows from continuing operations was primarily driven by an increase in operating income dueresults for the nine months ended September 30, 2020 compared to decreasesthe nine months ended September 30, 2019, including a reduction in pharmaceutical costs and advocacy costs, partially offset by fundingdebt expense as discussed above, as well as the timing of our 2018 401(k) match contribution in early 2019 and an increase in tax payments.working capital items.
Other significant changes in sources and uses ofFree cash flow from continuing operations during the nine months ended September 30, 2020 increased from the nine months ended September 30, 2019 primarily due to an increase in net cash provided by operating activities, as described above, a decrease in capital expenditures and an increase in proceeds from the sale of self-developed properties partially offset by an increase in net distributions to noncontrolling interests.


Other significant sources of cash included issuances of $1.50 billion in aggregate principal amount of 3 ¾% senior notes due 2031 in August 2020 and $1.75 billion in aggregate principal amount of 4 ⅝% senior notes due 2030 in June 2020, as well as a draw of $500 million on our revolving line of credit in the first quarter of 2020. Other significant uses of cash included the subsequent redemptions in full of $1.50 billion in aggregate principal amount of 5% senior notes due 2025 in August 2020 and $1.75 billion in aggregate principal amount of 5 ⅛% senior notes due 2024 in July 2020, as well as the repayment in full of borrowings under our revolving line of credit in the second quarter of 2020. Other net debt payments during the nine months ended September 30, 2020 primarily consisted of regularly scheduled mandatory principal payments under our senior secured credit facilities totaling approximately $33 million on Term Loan A and $21 million on Term Loan B-1 and additional required principal payments under other debt arrangements. In addition, we incurred bond issuance costs of approximately $38 million, debt redemption premium charges related to the redemption of our senior notes due in 2024 and 2025 of approximately $67 million and the repricing of our Term Loan B of approximately $3 million in cash. See further discussion in Note 8 to the condensed consolidated financial statements related to debt financing activities. Cash flows used for share repurchases decreased in the nine months ended September 30, 2020 compared to the same period of 2019 primarily due to the smaller size of the Tender Offer in 2020 compared to the Tender Offer in 2019.
By comparison, the same period in 2019 included the receipt of $4,465 million$4.465 billion in preliminary net cash proceeds from Optum at close of the DMG sale, in the second quarter of 2019, or $3,825 million$3.825 billion net of cash and restricted cash included in DMG net assets sold, and net payments of $2,050 million towards$2.050 billion on debt in the nine months ended September 30, 2019. Net debt payments primarily consisted of the mandatory prepayments of term debt under our prior senior secured credit facility totaling $5,142 million funded primarily by all of the net proceeds from the DMG sale. In addition, we redeemedsale, redemption of our outstanding 5.75% Senior Notessenior notes due in 2022, for an aggregate cash payment consistingnet of principal and redemption premium of $1,262 million, and made scheduled principal payments on our prior term loans. These were partially offset by the funding of our term debt of $4,500 million under our new senior secured credit facility. In addition, we incurred deferred financing costs related to our new term debt and a cap premium fee for our forward interest rate cap agreements. By comparison, the same period in 2018 included net advances of $846 million which included draws on our prior Term Loan A-2 of $995 million and deferred financing costs related to our prior Term Loan A-2, partially offset by scheduled principal payments on our prior term loans and a net reduction on our prior revolving line of credit. See further discussion in Note 9 to the condensed consolidated financial statements related to debt activities. Cash flows used for share repurchases increased in the nine months ended September 30, 2019 as compared to the same period of 2018 primarily due to the Tender Offer.
As of September 30, 2019, we have an undrawn new revolving line of credit underfrom our senior secured credit facilitiesfacility and advances on our revolving line of $1.0 billion, for which approximately $13 million was committed for outstanding letters of credit. We also have approximately $60 million of outstanding letters of credit under a separate bilateral secured letter of credit facility.
See Note 9 to the condensed consolidated financial statements for components of our long-term debtDialysis center capacity and their interest rates.
We believe that our cash flow from operations and other sources of liquidity, including from amounts available under our new credit facilities and our access to the capital markets, will be sufficient to fund our scheduled debt service under the terms of our debt agreements and other obligations for the foreseeable future, including the next 12 months. Our primary recurrent sources of liquidity are cash from operations and cash from borrowings.growth
The table below shows the growth in our dialysis operations by number of dialysis centers owned and operated dialysis centers:or operated:
  U.S. Dialysis Centers International Dialysis Centers
  Three months ended
September 30,
 Nine months ended
September 30,
 Three months ended
September 30,
 Nine months ended
September 30,

 2019 2018 2019 2018 2019 2018 2019 2018
Centers at beginning of period 2,723
 2,580
 2,664
 2,510
 248
 253
 241
 237
Acquired 2
 3
 7
 5
 2
 
 9
 18
Developed 24
 47
 84
 118
 1
 
 1
 1
Managed and administrative, net(1)
 
 
 (1) 
 
 
 
 
Sold and closed(2)
 (3) (1) (6) (2) (1) 
 (1) (2)
Closed(3)
 (10) (4) (12) (6) 
 
 
 
APAC JV operated, net         (1) (2) (1) (3)
Number of centers at end of period 2,736
 2,625
 2,736
 2,625
 249
 251
 249
 251


 U.S. International
 Three months ended
September 30,
 Nine months ended
September 30,
 Three months ended
September 30,
 Nine months ended
September 30,

2020 2019 2020 2019 2020 2019 2020 2019
Number of centers operated at beginning of period2,795
 2,723
 2,753
 2,664
 287
 248
 259
 241
Acquired centers5
 2
 8
 7
 11
 2
 36
 9
Developed centers17
 24
 67
 84
 1
 1
 5
 1
Net change in non-owned managed or
administered centers
(1)

 
 
 (1) (7) (1) (6) (1)
Sold and closed centers(2)
(1) (3) (5) (6) 
 (1) 
 (1)
Closed centers(3)
(7) (10) (14) (12) (1) 
 (3) 
Number of centers operated at end of period2,809
 2,736
 2,809
 2,736
 291
 249
 291
 249
 
 
(1)Represents dialysis centers thatwhich we manage or provide administrative services forto but in which we own a noncontrolling equity interest or which are wholly-owned by third parties.parties, including our Asia Pacific joint venture centers.
(2)Represents dialysis centers that were sold and/or closed for which patients were not retained.
(3)Represents dialysis centers that were closed for which the majority of patients were retained and transferred to one of our other existing outpatient dialysis centers.
Goodwill
During the first quarter of 2019, we recognized a $41 million goodwill impairment charge in our German kidney care business. This charge resulted primarily from a change in relevant discount rates, as well as a decline in current and expected future patient census and an increase in first quarter and expected future costs, principally due to wage increases expected to result from recently announced legislation.
During the third quarter of 2019, we recognized an incremental goodwill impairment charge of $79 million in our Germany kidney care business and a $5 million goodwill impairment charge in our German other health operations. The incremental charge recognized in the Germany kidney care business resulted from changes and developments in our outlook for this business since our last assessment. These primarily concern developments in the business in response to evolving market conditions and changes in our expected timing and ability to mitigate them.
During the nine months ended September 30, 2019, we recognized goodwill impairment charges of $125 million consisting of the charges described above.
We did not recognize any goodwill impairment charges during the third quarter of 2018 and recognized a goodwill impairment charge of $3 million at our German other health operations during the nine months ended September 30, 2018.
See further discussion of these impairment charges and our reporting units that remain at risk of goodwill impairment in Note 7 to the condensed consolidated financial statements.
Long-term incentive program (LTIP) compensation
During the nine months ended September 30, 2019, we granted 1,920,536restricted and performance stock units with an aggregate grant-date fair value of $96 million and a weighted-average expected life of approximately 3.4 years and 2,389,500 stock-settled stock appreciation rights with an aggregate grant-date fair value of $34 million and a weighted-average expected life of approximately 4.0 years.
Long-term incentive compensation expense of $41 million in the third quarter of 2019 increased by approximately $13 million as compared to the second quarter of 2019 primarily due to an increase in the ultimate expected payout of cash-based awards during the third quarter of 2019, which resulted from an increase in expected adjusted operating income for the full year 2019, as well as a full quarter of expense on new stock-based awards in the third quarter of 2019 with only a partial quarter of expense during the second quarter of 2019.
Long-term incentive compensation expense of $41 million in the third quarter of 2019 decreased by approximately $1 million as compared to the third quarter of 2018 primarily due to the adoption of a retirement policy (Rule of 65 policy) during the third quarter of 2018 which resulted in a $14.7 million modification charge and a net acceleration of expense of $8.8 million during the third quarter of 2018, partially offset by an increase in the ultimate expected payout on cash-based awards during the third quarter of 2019, due to an increase in expected adjusted operating income for the full year 2019.
Long-term incentive compensation expense of $82 million for the nine months ended September 30, 2019 increased by approximately $8 million as compared to the nine months ended September 30, 2018. This increase in long-term incentive compensation expense was primarily due to an increase in the ultimate expected payout on cash-based awards during the nine months ended September 30, 2019, which resulted from an increase in expected adjusted operating income for the full year 2019, partially offset by the adoption of the Rule of 65 policy during the nine months ended September 30, 2018 which resulted in a $14.7 million modification charge and a net acceleration of expense of $8.8 million during the nine months ended September 30, 2018.
As of September 30, 2019, there was $167 million in total estimated but unrecognized compensation expense for LTIP awards outstanding, including $152 million related to stock-based compensation arrangements under our equity compensation and employee stock purchase plans. We expect to recognize the performance-based cash component of these LTIP expenses over a weighted average remaining period of 0.6 years and the stock-based component of these LTIP expenses over a weighted average remaining period of 1.6 years.



Stock repurchases
The following table summarizes our repurchases of our common stock repurchases during the three and nine months ended September 30, 2019.2020 and 2019:
 Three months ended September 30, 2019 Nine months ended September 30, 2019
 Shares repurchased 
Amount paid
(in millions)
 Average amount Shares repurchased 
Amount paid
(in millions)
 Average amount
Tender Offer(1)
21,801,975
 $1,234
 $56.60
 21,801,975
 $1,234
 $56.60
Open market repurchases8,789,775
 514
 58.49
 10,849,751
 626
 57.72
 30,591,750
 $1,748
 $57.14
 32,651.726
 $1,860
 $56.97
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
 (dollars in millions, except for per share data)
Open market repurchases: 
Shares250,000
 8,789,775
 4,302,298
 10,849,751
Amount paid$21
 $514
 $324
 $626
Average paid per share$85.04
 $58.49
 $75.40
 $57.72
        
Tender Offer(1):
       
Shares7,981,679
 21,801,975
 7,981,679
 21,801,975
Amount paid$704
 $1,234
 $704
 $1,234
Average paid per share$88.22
 $56.60
 $88.22
 $56.60
        
Total:       
Shares8,231,679
 30,591,750
 12,283,977
 32,651,726
Amount paid$725
 $1,748
 $1,029
 $1,860
Average paid per share$88.13
 $57.14
 $83.73
 $56.97

(1)The aggregate amount paid for shares repurchased associated with the Company'spursuant to our Tender OfferOffers during the three and nine months ended September 30, 2020 and 2019 includes thetheir clearing priceprices of $88.00 and $56.50 per share, respectively, plus related fees and expenses of $2 million.$1.8 million and $2.1 million, respectively.
See further discussion on our stock repurchases in Note 1412 to the condensed consolidated financial statements.
Available liquidity
As of September 30, 2020, we had an undrawn $1.0 billion revolving line of credit under our senior secured credit facilities. Credit available under this revolving line of credit is reduced by the amount of any letters of credit outstanding thereunder, and there are currently no letters of credit outstanding under this facility. We separately have approximately $65 million of outstanding letters of credit under a separate bilateral secured letter of credit facility. We may from time to time seek to obtain funds or refinance existing debt through additional debt financings or other capital alternatives.
See Note 8 to the condensed consolidated financial statements which includes discussionfor components of our $2.0 billion share repurchase authorization that became effectivelong-term debt and their interest rates.
The COVID-19 pandemic and efforts to prevent its spread have dramatically reduced global economic activity and driven increased volatility in the financial markets. We have maintained business process continuity during the COVID-19 pandemic by enabling most back office teammates to work remotely, and as of the closedate of this report, we have not experienced material deterioration in our liquidity position as a result of the COVID-19 crisis. In addition, we elected not to accept approximately $250 million in funds available to us through the CARES Act Provider Relief Fund and returned the funds we received in May 2020. There can be no assurance that we will be able to continue to forgo the receipt of financial or other assistance under the CARES Act or similar subsequent legislation or that similar assistance will be available from the government if we have a need for such assistance in the future. The ultimate impact of the pandemic will depend on future developments that are highly uncertain and difficult to predict.
We believe that our cash flow from operations and other sources of liquidity, including from amounts available under our senior secured credit facilities and our access to the capital markets, will be sufficient to fund our scheduled debt service under the terms of our debt agreements and other obligations for the foreseeable future, including the next 12 months. Our primary recurrent sources of liquidity are cash from operations and cash from borrowings.


Reconciliations of non-GAAP measures
The following tables provide reconciliations of adjusted operating income (loss) to operating income (loss) as presented on a U.S. generally accepted accounting principles (GAAP) basis for our U.S. dialysis reportable segment as well as for our U.S. ancillary services, our international business, and for our total ancillary services which combines them and is disclosed as our other segments category. These non-GAAP or “adjusted” measures are presented because management believes these measures are useful adjuncts to, but not alternatives for, our GAAP results.
Specifically, management uses adjusted operating income (loss) to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe this non-GAAP measure is also useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. We also believe this presentation enhances a user's understanding of our normal operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations.
In addition, our effective income tax rate on November 4, 2019.income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities. We believe this adjusted effective income tax rate is useful to management, investors and analysts in evaluating our performance and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.
Finally, our free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and all capital expenditures (including development capital expenditures, routine maintenance and information technology); plus contributions from noncontrolling interests and sale leaseback proceeds. Management uses this measure to assess our ability to fund acquisitions and meet our debt service obligations and we believe this measure is equally useful to investors and analysts as an adjunct to cash flows from operating activities from continuing operations and other measures under GAAP.
It is important to bear in mind that these non-GAAP “adjusted” measures are not measures of financial performance under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures.
 Three months ended September 30, 2020
 U.S. dialysis Ancillary services Corporate administration  
  U.S. International Total  Consolidated
 (dollars in millions)
Operating income (loss)$471
 $(14) $7
 $(7) $(26) $438
Loss on changes in ownership interests, net
 
 
 
 
 
Accrual for legal matters
 
 
 
 
 
Adjusted operating income (loss)$471
 $(14) $7
 $(7) $(26) $438
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
 Three months ended June 30, 2020
 U.S. dialysis Ancillary services Corporate administration  
  U.S. International Total  Consolidated
 (dollars in millions)
Operating income (loss)$523
 $(41) $1
 $(40) $(73) $410
Loss on changes in ownership interests, net
 16
 
 16
 
 16
Accrual for legal matters
 
 
 
 35
 35
Adjusted operating income (loss)$523
 $(25) $1
 $(23) $(38) $461
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.


 Three months ended September 30, 2019
 U.S. dialysis Ancillary services Corporate administration Consolidated
 U.S. International Total
 (dollars in millions)
Operating income (loss)$501
 $(15) $(83) $(98) $(25) $378
Goodwill impairment
 
 84
 84
 
 84
Adjusted operating income (loss)$501
 $(15) $1
 $(14) $(25) $462
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
 Nine months ended September 30, 2020
 U.S. dialysis Ancillary services Corporate administration  
  U.S. International Total  Consolidated
 (dollars in millions)
Operating income (loss)$1,485
 $(74) $25
 $(49) $(123) $1,313
Loss on changes in ownership interests, net
 16
 
 16
 
 16
Accrual for legal matters
 
 
 
 35
 35
Adjusted operating income (loss)$1,485
 $(58) $25
 $(33) $(88) $1,364
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
 Nine months ended September 30, 2019
 U.S. dialysis Ancillary services Corporate administration  
  U.S. International Total  Consolidated
 (dollars in millions)
Operating income (loss)$1,417
 $(45) $(125) $(170) $(66) $1,181
Goodwill impairment
 
 125
 125
 
 125
Adjusted operating income (loss)$1,417
 $(45) $
 $(46) $(66) $1,306
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
 Three months ended Nine months ended
 September 30, 2020 June 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
 (dollars in millions)
Income from continuing operations before income taxes$283
 $338
 $274
 $991
 $813
Less: Noncontrolling owners' income primarily
attributable to non-tax paying entities
(59) (53) (59) (161) (151)
Income from continuing operations before income
taxes attributable to DaVita Inc.
$224
 $285
 $215
 $830
 $662
Income tax expense for continuing operations$66
 $83
 $65
 $241
 $198
Less: Income tax attributable to noncontrolling interests
 
 
 
 (1)
Income tax expense from continuing operations
attributable to DaVita Inc.
$65
 $83
 $65
 $240
 $197
Effective income tax rate on income from continuing
operations attributable to DaVita Inc.
29.2% 29.2% 30.3% 28.9% 29.8%
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.


 Nine months ended
 September 30, 2020 September 30, 2019
 (dollars in millions)
Net cash provided by continuing operating activities$1,494
 $1,295
Less: Distributions to noncontrolling interests(179) (157)
Plus: Contributions from noncontrolling interests33
 44
Cash provided by continuing operating activities attributable to DaVita Inc.1,348
 1,182
Less: Expenditures for routine maintenance and information technology(239) (225)
Less: Expenditures for development(211) (284)
Plus: Proceeds from sale of self-developed properties79
 38
Free cash flow from continuing operations$977
 $711
Certain columns or rows may not sum or recalculate due to the use of rounded numbers.
Off-balance sheet arrangements and aggregate contractual obligations
In addition to the debt obligations and operating lease obligationsliabilities reflected on our balance sheet, we have commitments associated with letters of credit, andas well as potential obligations associated with our equity investments in nonconsolidated businesses and to dialysis ventures that are wholly-owned by third parties. We have potential obligations to purchase the equitynoncontrolling interests held by third parties in severalmany of our majority-owned joint venturespartnerships 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, we would be required to purchase the third-party owners’ equity interests, generally at either the appraised fair market value of the equity interests or in certain cases at a predetermined multiple of earnings or cash flows attributable to the equity interests put to us, which is intended to approximate fair value. The methodology we use 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 our 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 without limitation, potential purchasers’ access to the capital markets, which can impact the level of competition for dialysis and non-dialysis related businesses, the economic performance of these businesses and the restricted marketability of the third-party owners’ equity interests. The amount of noncontrolling interests subject to put provisions that employ a contractually predetermined multiple of earnings rather than fair value are immaterial.
We also have certain other potential commitments to provide operating capital to several dialysis venturesbusinesses that are wholly-owned by third parties or businesses in which we maintainown a noncontrolling equity interest as well as to physician-owned vascular access clinics orcertain medical practices that we operate under management and administrative services agreements.


The following is a summary of these off-balance sheet contractual obligations and commitments as of September 30, 20192020 (in millions):
Remainder of 2019 1-3
years
 4-5
years
 After
5 years
 TotalRemainder of 2020 2021-2023 2024-2025 After
5 years
 Total
Potential cash requirements under other commitments:                  
Letters of credit$73
 $
 $
 $
 $73
$65
 $
 $
 $
 $65
Noncontrolling interests subject to put provisions875
 196
 106
 119
 1,296
866
 239
 115
 84
 1,304
Non-owned and minority owned put provisions3
 43
 
 
 46
99
 5
 
 
 104
Operating capital advances
 3
 1
 3
 7

 3
 2
 4
 9
Purchase commitments80
 1,026
 
 
 1,106
86
 717
 
 
 803
$1,031
 $1,268
 $107
 $122
 $2,528
$1,116
 $964
 $117
 $88
 $2,285
SeeFor information on the maturities and other terms of our long term debt, see Note 9 and Note 108 to the condensed consolidated financial statements for components of our long-term debt and leases and related interest rates.statements.


We have an agreement with Fresenius Medical Care (FMC) to purchase a certain amount of dialysis equipment, parts and supplies from FMC through December 31, 2020.
We also have an agreement with Baxter Healthcare Corporation (Baxter) that commits us to purchase a certain amount of hemodialysis and peritoneal dialysis supplies at fixed prices through 2022.
Our total expenditures for If we fail to meet the nine months ended September 30, 2019 on such products for FMC was approximately 2.5% and for Baxter was 1.6% of our total U.S. dialysis and related lab services operating costs. The actual amount of such purchases in future years will depend upon a number of factors, including, without limitation,minimum purchase commitments under these contracts during any year, we are required to pay the operating requirements of our centers,difference to the number of centers we acquire and growth of our existing centers.supplier.
In addition to the commitments listed above, in 2017 we entered into a Sourcingsourcing and Supply Agreementsupply agreement with Amgen USA Inc. (Amgen) that expires on December 31, 2022. Under the terms of this agreement, we will purchase EPO in amounts necessary to meet no less than 90% of our requirements for erythropoiesis stimulating agents (ESAs) through the expiration of the contract with Amgen. The actual amount of EPO that we will purchase will depend upon the amount of EPO administered during dialysis as prescribed by physicians and the overall number of patients that we serve.
Settlements of existing income tax liabilities for unrecognized tax benefits of approximately $64$87 million, including interest, penalties and other long-term tax liabilities, are excluded from the table above as reasonably reliable estimates of their timing cannot be made.
Supplemental Information Concerning Certain Physician Groups and Unrestricted Subsidiaries
The following information is presented as supplemental data as required by the indentures governing the Company’s senior notes.
Prior to the DMG sale, we provided services to certain physician groups within our DMG business which, while consolidated in our financial statements for financial reporting purposes, were not subsidiaries of nor owned by us, did not constitute “Subsidiaries” as defined in the indentures governing our outstanding senior notes, and did not guarantee those senior notes. In addition, we operated under management agreements with these physician groups pursuant to which we received management fees from these physician groups.
From and after September 30, 2019, these physician groups were no longer included in our financial statements as they were deconsolidated with the sale of DMG to Optum. As a result, our consolidated assets, other liabilities, and indebtedness were no longer affected by consolidation of these physician groups. If these physician groups had not been consolidated in our financial statements during 2019, our consolidated net income would have been reduced by approximately $11 million for the nine months ended September 30, 2019. However, our consolidated total net revenues and consolidated operating income would have remained approximately $8.490 billion and $1.181 billion, respectively, since these DMG-related physician groups were all included in discontinued operations during the nine months ended September 30, 2019.
In addition, the DMG business owned a 67% equity interest in California Medical Group Insurance (CMGI), which prior to the sale of DMG was an Unrestricted Subsidiary under the indentures governing our outstanding senior notes, and did not guarantee those senior notes. DMG's equity interest in CMGI was accounted for under the equity method of accounting, meaning that, although CMGI was not consolidated in our financial statements for financial reporting purposes, our


consolidated income statement reflected our pro-rata share of CMGI’s net income within net loss from discontinued operations for periods prior to the DMG sale.
For the nine months ended September 30, 2019, if DMG's equity investment income attributable to CMGI were excluded, our consolidated net income would be lower by approximately $249 thousand. See Note 24 to the condensed consolidated financial statements for further details.
New Accounting Standards
See discussion of new accounting standards in Note 2220 to the condensed consolidated financial statements.


Item 3.     Quantitative and Qualitative Disclosures about Market Risk
Interest rate and foreign currency sensitivity
DuringThere has been no material change in the third quarternature of 2019, we entered into a new senior secured credit agreement asthe Company's interest rate risks or foreign currency exchange risks from those described in Note 9 toPart II Item 7A of our Annual Report on Form 10-K for the condensed consolidated financial statements. year ended December 31, 2019.
The tables below provide information about our financial instruments that are sensitive to changes in interest rates. The table below presents principal repayments and current weighted average interest rates on our debt obligations as of September 30, 2019. The variable rates presented reflect2020. For further information on the weighted average LIBOR rates in effect for all debt tranches plus interest rate margins in effect as of September 30, 2019. The new Term Loan A margin in effect at September 30, 2019 is 1.50%, and along with the new revolving line of credit, is subject to adjustment depending upon changes in our leverage ratio. The new Term Loan B bears interest at LIBOR plus an interest rate margin of 2.25%. 
                 Average interest rate  
 Expected maturity date      Fair
Value
 2019 2020 2021 2022 2023 2024 Thereafter Total  
 (dollars in millions)        
Long term debt:                   
Fixed rate$11
 $32
 $26
 $29
 $42
 $1,777
 $1,721
 $3,638
 5.11% $3,657
Variable rate$19
 $97
 $127
 $140
 $182
 $1,395
 $2,614
 $4,574
 4.31% $4,594
 Notional Amount Contract maturity date     Fair
Value
  2019 2020 2021 2022 2023 Thereafter Receive variable 
 (dollars in millions)      
2015 cap agreements$3,500
 $
 $3,500
 $
 $
 $
 
 LIBOR above 3.5% $
2019 cap agreements$3,500
 $
 $
 $
 $
 $
 $3,500
 LIBOR above 2.0% $20.6
There has been no material change in the naturecomponents of the Company's foreign currency exchange risks described in Item 7A of ourlong-term debt and their interest rates, see Note 8 to the condensed consolidated interim financial statements included in the 10-K for the year ended December 31, 2018.this Quarterly Report on Form 10-Q at Part I Item 1.
                 Average interest rate  
 Expected maturity date      
Fair
Value
(1)
 2020 2021 2022 2023 2024 2025 Thereafter Total  
 (dollars in millions)
Long term debt:                   
Fixed rate$8
 $27
 $35
 $48
 $28
 $29
 $3,444
 $3,619
 4.33% $3,339
Variable rate$44
 $122
 $136
 $180
 $1,393
 $35
 $2,582
 $4,492
 2.13% $4,434
(1)Represents the fair value of the Company’s long-term debt excluding financing leases. See Note 8 to the condensed consolidated financial statements for further details.
 Notional Amount Contract maturity date     Fair
Value
  2020 2021 2022 2023 2024 2025 Thereafter Receive variable 
 (dollars in millions)
2019 cap agreements$3,500
 $
 $
 $
 $
 $3,500
 $
 $
 LIBOR above 2.0% $2.5
Item 4.     Controls and Procedures
Management has established and maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits pursuant to the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.
At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with the Exchange Act requirements. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for timely identification and review of material information required to be included in the Company’s Exchange Act reports, including this report. Management recognizes that these controls and procedures can provide only reasonable assurance of desired outcomes, and that estimates and judgments are still inherent in the process of maintaining effective controls and procedures.
Beginning January 1, 2019, we adopted FASB Accounting Standards Codification Topic 842, Leases. As a result of adopting this new standard, we implemented new business processes and related control activities in order to maintain appropriate controls over financial reporting. There was no other change in our internal control over financial reporting that was identified during the evaluation that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II.
OTHER INFORMATION
Item 1.    Legal Proceedings
The information required by this Part II, Item 1 is incorporated herein by reference to the information set forth under the caption “Contingencies” in Note 119 to the condensed consolidated financial statements included in this report.
Item 1A. Risk Factors

In addition to the following risk factorsfactor and the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K (our Form 10-K) for the year ended December 31, 2019, in Part II, Item 1A. Risk Factors1A of our Quarterly Report on Form 10-Q (our Q1 10-Q) for the quarter ended June 30, 2019 (our Q2 Form 10-Q)March 31, 2020 and any subsequent filings with the Securities and Exchange Commission (SEC), which could materially affect our business, financial condition, results of operations or future results. The risks and uncertainties discussed below, in our Form 10-K, our Q1 10-Q and in our Q2 Form 10-Qany subsequent filings with the SEC are not the only ones facing our business. Other thanAdditional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, cash flows, financial condition and/or results of operations. The risk factor below updates, and should be read together with, the risk factors set forth below, there have been no material chargesdisclosed in the risk factors described inPart I, Item 1A of our Q2 Form 10-K and Part II, Item 1A of our Q1 10-Q. Please also read the cautionary notice regarding forward-looking statements in Part I, Item 2 of this Quarterly Report on Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."
If we fail to adhere to all of the complex government laws, regulations and requirements that apply to our business, we could suffer severe consequences that could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation and stock price.
We operate in a complex regulatory environment with an extensive and evolving set of federal, state and local government laws, regulations and requirements. These laws, regulations and requirements are promulgated and overseen by a number of different legislative, administrative, regulatory, and quasi-regulatory bodies, each of which may have varying interpretations, judgments or related guidance. As such, we utilize considerable resources on an ongoing basis to monitor, assess and respond to applicable legislative, regulatory and administrative requirements, but there is no guarantee that we will be successful in our efforts to adhere to all of these requirements. Laws, regulations and requirements that apply to or impact our business include, but are not limited to:
Medicare and Medicaid reimbursement statutes, rules and regulations (including, but not limited to, manual provisions, local coverage determinations, national coverage determinations, payment schedules and agency guidance);
federal and state anti-kickback laws, including, without limitation, any applicable exceptions or regulatory safe harbors thereunder;
the Physician Self-Referral Law (the Stark Law) and analogous state self-referral prohibition laws;
the 21st Century Cures Act;
Federal Acquisition Regulations;
the False Claims Act (FCA) and associated regulations;
the Civil Monetary Penalty statute (CMP) and associated regulations;
the Foreign Corrupt Practices Act (FCPA);
Medicare provider requirements, including requirements associated with providing and updating certain information about the Medicare entity and its direct and indirect affiliates;
antitrust and competition laws and regulations; and
federal and state laws regarding the collection, use and disclosure of patient health information (e.g., Health Insurance Portability and Accountability Act of 1996 (HIPAA)) and the storage, handling, shipment, disposal and/or dispensing of pharmaceuticals and blood products and other biological materials.
In addition, on October 9, 2019, the U.S. Department of Health and Human Services, Office of Inspector General (OIG) and the Centers for Medicare & Medicaid Services (CMS) released a pair of proposed rules that, if adopted, would change the Federal Anti-Kickback Statute (AKS), CMP and Stark Law regulations to promote certain value-based and coordinated care arrangements. The proposed rules are subject to a 75-day comment period following publication in the Federal Register and remain subject to change until the publication of any final rules, the date and content of which are currently unknown.


We are also subject to a five-year Corporate Integrity Agreement (CIA). The term of the CIA expired on October 22, 2019, and the Company is in the process of working with the independent monitor and OIG to close out the review of the final annual reports by the independent monitor and the Company. The CIA imposed a number of additional requirements upon us and, for our domestic dialysis business, required us to report probable violations of criminal, civil or administrative laws applicable to any federal healthcare program for which penalties, sanctions or exclusions may be authorized under applicable healthcare laws and regulations. We expect to continue to incur costs related to CIA compliance, and until OIG closes out the CIA following review of the aforementioned final annual reports, OIG retains the right to impose penalties, sanctions and other consequences on us under the CIA, including, without limitation, potential exclusion from federal healthcare programs. Any future penalties, sanctions or other consequences under the CIA or otherwise could be more severe in circumstances in which OIG or a similar regulatory authority determines that we have repeatedly failed to comply with applicable laws, regulations or requirements. For additional information regarding our CIA, see the risk factor under the heading "If we fail to comply with our Corporate Integrity Agreement, we could be subject to substantial penalties and exclusion from participation in federal healthcare programs that could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation" in Part II, Item 1A in our Q2 Form 10-Q.
If any of our operations are found to violate these or other laws, regulations or requirements, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation and stock price, including, among others:
Loss of required certifications or suspension or exclusion from or termination of our participation in government payment programs;
Refunds of amounts received in violation of law or applicable payment program requirements dating back to the applicable statute of limitation periods;
Loss of licenses required to operate healthcare facilities or administer pharmaceuticals in the states in which we operate;
Reductions in payment rates or coverage for dialysis and ancillary services and pharmaceuticals;
Criminal or civil liability, fines, damages or monetary penalties, which could be material;
Enforcement actions, investigations, or audits by governmental agencies and/or state law claims for monetary damages by patients who believe their protected health information (PHI) has been used, disclosed or not properly safeguarded in violation of federal or state patient privacy laws, including, among others, HIPAA and the Privacy Act of 1974;
Mandated changes to our practices or procedures that significantly increase operating expenses that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices which could lead to potential fines, among other things;
Termination of various relationships and/or contracts related to our business, such as joint venture arrangements, medical director agreements, real estate leases and consulting agreements with physicians; and
Harm to our reputation which could negatively impact our business relationships, affect our ability to attract and retain patients, physicians and teammates, affect our ability to obtain financing and decrease access to new business opportunities, among other things.
See Note 11 to the condensed consolidated financial statements included in this report for further details regarding the pending legal proceedings and regulatory matters to which we are or may be subject from time to time, any of which may include allegations of violations of applicable laws, regulations and requirements.
Changes in federal and state healthcare legislation or regulations could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The extensive federal and state laws, regulations and requirements that govern our business may continue to change over time, and there is no assurance that we will be able to accurately predict the nature, timing or extent of such changes or the impact of such changes on the markets in which we conduct business or on the other participants that operate in those markets.
For example, the government response to the COVID-19 pandemic has been wide-ranging and will continue to develop over time. We believe that associated changes to federal and state laws, regulations and requirements may continue to impact our business in a variety of ways, including with respect to the availability of government financial assistance, social distancing guidelines and other requirements for and/or restrictions on business operations, and temporary regulatory waivers or other changes to regulatory operating guidance at our clinics. Certain temporary changes made in response to the COVID-19 pandemic could become permanent, which could have an adverse impact on our business. For additional detail on the risks we face associated with the ongoing COVID-19 pandemic, see the discussion under the heading “Company Overview--COVID-19 and its impact on our business” above and the risk factor in our Q1 10-Q, under the heading “We face various risks related to the dynamic and rapidly evolving novel coronavirus pandemic, any of which may have a material adverse impact on us.
In addition, the regulatory framework of the Patient Protection and Affordable Care Act and the Health Care Reconciliation Act of 2010, as amended (ACA)(collectively, the ACA), and other healthcare reforms continues to evolve as a result of executive, legislative, regulatory and administrative developments and judicial proceedings. As such, there remains considerable uncertainty surrounding the continued implementationdevelopment of the ACA and whatrelated regulations, programs and models, as well as similar healthcare reform measures or other changes mightthat may be enacted at the federal and/or state level. While legislative attempts to completely repeal the ACA have been


unsuccessful to date, thereThere have been multiple attempts to repeal or amend the ACA through legislative action and legal challenges. For example, in December 2017,challenges, and the Tax Cuts and Jobs Act of 2017 was signed into law which, among other things, repealed the penalty under ACA's individual mandate, which had required individuals to pay a fee if they failed to obtain a qualifying health insurance plan. In December 2018, a federal district court in Texas ruled the individual mandate was unconstitutional and inseverable from the ACA. As a result, the court ruled the remaining provisions of the ACA were also invalid, though the court declined to issue a preliminary injunction with respect to the ACA. The district court's ruling has been appealed tomost recent challenge is currently before the U.S. Court of Appeals for the Fifth Circuit, and the ruling has been stayed pending the outcome of the appeal. On July 9, 2019, the U.S. Court of Appeals for the Fifth Circuit heard oral arguments on the appeal. It remains unclear whether the court's ruling ultimately will be upheld by appellate courts.
While there may be significantSupreme Court. Recent changes to the healthcare environmentcomposition of the Supreme Court may increase the likelihood that the ACA is repealed or impacted in some manner. In the future, including, without limitation, asevent the ACA is repealed or significantly altered, it would impact our business in a resultnumber of potential changes to the political environment in connection with the upcoming election year or otherwise, the specific changes and their timing are not yet apparent. Nevertheless, previously enacted reforms and future changes, including among others, any changes in legislation, regulation or market conditions in connection with the upcoming election years,ways, some of which may be material. For example, if an ACA repeal ends Medicaid expansion it could have a materialan adverse effectimpact on coverage available to our business, resultspatients and if the repeal impacts the Center for Medicare and Medicaid Innovation’s (CMMI’s) authority to implement innovative payment models, we may lose the investment of operations, financial condition and cash flows. For example,the resources we have dedicated to those programs. In addition, our revenue and operating income levels are highly sensitive to the percentage of our patients with higher-paying commercial health insurance and as such,any legislative, regulatory or other changes that decrease the accessibility and availability, including the duration, of commercial insurance may have a material adverse impact on our business. The ACA's health insurance exchanges, which provide a marketplace for eligible individuals and small employers to purchase health insurance, initially increased the accessibility and availability of commercial insurance. However, certainIn the event the exchange markets are significantly impaired as a result of legislative developments suchor other changes, or if the ACA is repealed in its entirety, it may adversely impact the percentage of our patients with higher-paying commercial health insurance, particularly if patients impacted by the pandemic-related high unemployment levels are unable to turn to the exchanges as an alternative to employer-based coverage.


While there may be material changes to the repealhealthcare environment in the future, including, without limitation, as a result of potential changes to the political environment in connection with the current election year or otherwise, any specific changes and their timing are uncertain. Nevertheless, previously enacted reforms and potential future changes, including among others, any changes in legislation, regulation or market conditions in connection with or resulting from the upcoming elections, could have a material adverse effect on our business, results of operations, financial condition and cash flows. The future of the individual mandate described above, have adversely impacted the risk pool in certain exchange markets,ACA and the nature and extent of commercial payor participation in the exchanges has fluctuated as a result. Otherother proposed legislative developments or administrative decisions, such as moving to a universal health insurance or "single payor" system whereby health insurance is provided to all Americans by the government under government programs, the availability of a “public health insurance option” similar to Medicare, changes to the eligibility age for Medicare beneficiaries, or the lowering or eliminating theelimination of cost-sharing reduction subsidies under the ACA, could impact the percentage of our patients with higher-paying commercial health insurance, impact the scope of coverage under commercial health plans and increase our expenses, among other things. Although we cannot predict the short- or long-term effects of legislative or regulatory changes or the potential outcome or impact of the upcoming elections, we believe that future market changes could result in, among other things, more restrictive commercial plans with lower reimbursement rates or higher deductibles and co-payments that patients may not be able to pay. To the extent that changes in statutes, regulations or related guidance or changes in other market conditions result in a reduction in the percentage of our patients with commercial insurance, limit the scope or nature of coverage through the exchanges or other health insurance programs or otherwise reduce reimbursement rates for our services from commercial and/or government payors, it could have a material adverse effect on our business, results of operations, financial condition and cash flows. For additional information on the impact of legislative or regulatory changes on the percentage of our patients with commercial insurance, see the risk factor in our 10-K under the heading "If the number of patients with higher-paying commercial insurance declines, it could have a material adverse effect on our business, results of operations, financial condition and cash flows" in Part II, Item 1A in our Q2 Form 10-Q.flows."
The ACA also added several new tax provisions that, amongChanging legislation and other things, impose various feesregulatory and excise taxes, and limit compensation deductions for health insurance providers and their affiliates. These rules could negatively impact our cash flow and tax liabilities. In addition, the ACA broadened the potential for penalties under the FCA for the knowing and improper retention of overpayments collected from government payors and reduced the timeline to file Medicare claims. Failure to timely identify, quantify and return overpayments may result in significant penalties, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and reputation. Failure to file a claim within the one year window could result in payments denials, adversely affecting our business, results of operations, financial condition and cash flows.
In additionexecutive developments, including those related to the ACA, changing legislation hashave led and may continue to lead to the emergence of new models of care and other initiatives in both the government and private sector. Any failure on our part to adequately implement strategic initiatives to adjust to these marketplace developments could have a material adverse impact on our business. For example, athe administration’s July 10, 2019 executive order (2019 Executive Order) related to kidney care directed CMS to create payment models to evaluate the effects of creating payment incentives for the greater use of home dialysis and kidney transplants for those already on dialysis. To this end, CMS, subsequently announcedthrough CMMI, published the final ESRD Treatment Choices (ETC) mandatory payment model which(ETC) on September 18, 2020. The ETC will be administered through the CMS Innovation Center (CMMI)CMMI and is proposed to launch in 50%30% of dialysis clinics across the country, beginning in 2020. Underwith a currently listed implementation date of January 1, 2021. We support the proposed rule, which was subject to a comment period that ended in September 2019, CMS would select ESRD facilitiesadministration’s emphasis on, and clinicians to participate in the model according to their location in randomly selected geographic areasencouragement of, home dialysis and would require participation to minimize the potential for selection effect. We are in the early stages of assessing the potential impact of the ETC mandatory payment model, butkidney transplant; however, we believe that if launched as proposed, the ETC model would negatively impact Medicare coverage and/or payment for ESRD claims.could have an adverse effect on our business, results of operations, financial condition and cash flows. With home dialysis as a focus of the ETC model and the industry generally, any failure to adequatelysuccessfully implement our growth strategy or offer or build on our abilities to offer home dialysis


options to the extent such failure results in a significant reduction in the number of our patients, could have a material adverse impact on our business, results of operation, financial condition and cash flows. For additional detail on the risks related to our home dialysis services, see the discussion in our 10-K under the heading "If we are not able to successfully implement our strategy with respect to home-based dialysis, including maintaining and further developing our capabilities in a complex and highly regulated environment, it could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation."
In connection with the executive order,2019 Executive Order, CMS also announced the implementation of four voluntary payment models designed to helpwith the stated goal of helping healthcare providers reduce the cost and improve the quality of care for patients with late-stage chronic kidney disease and ESRD. CMS has stated these payment models are aimed to prevent or delay the need for dialysis and encourage kidney transplantation. These payment models also are currentlyhave a scheduled commencement date of April 2021, but applicants now have the option to be launcheddelay implementation until January 2022. Though we have applied for, and been provisionally accepted to participate in 2020. In October 2019, CMS released initial guidance around thecertain of these voluntary paymentmodels, we continue to assess these models and we expect additional guidance intheir viability for us and the coming months. We are in the early stages of evaluating theindustry. These voluntary payment models.
In addition, CMMI is currently workingmodels continue CMMI’s prior work with various healthcare providers to develop, refine and implement Accountable Care Organizations (ACOs) and other innovative models of care for Medicare and Medicaid beneficiaries, including, without limitation, the Comprehensive ESRD Care Model (CEC Model) (which includes the development of end stage renal disease (ESRD) Seamless Care Organizations), the Duals Demonstration, and other models. We are currently participating in the CEC Model with CMMI, including with organizations in Arizona, Florida, and adjacent markets in New Jersey and Pennsylvania. Our U.S. dialysis businessWe may choose to participate in additional models either as a partner with other providers or independently. Even in areas where we are not directly participating in these or other CMMI models, some of our patients may be assigned to an ACO, another ESRD Care Model, or another program, in which case the quality and cost of care that we furnish will be included in an ACO's, another ESRD Care Model's, or other program's calculations.
In addition to the aforementioned new models of care, federal bipartisan legislation related to full capitation demonstration for ESRD was proposed in late 2017. Legislation, which has yet to secure introduction to2017 and formally introduced into Congress in September 2020. As proposed, this legislation, the 116th Congress,BETTER Kidney Care Act, would build on prior coordinated care models, such as the CEC Model, and


would establish a demonstration program for the provision of integrated care to Medicare ESRDfee-for-service dialysis and transplant patients. We have made and continue to make investments in building our integrated care capabilities, but there can be no assurances that initiatives such as this or similar legislation will be introduced or passed into law.law, and the ongoing COVID-19 pandemic may delay the progress of such initiatives. If such legislation is passed, there can be no assurances that we will be able to successfully execute on the required strategic initiatives that would allow us to provide a competitive and successful integrated care program on the broader scale contemplated by this legislation, and in the desired timeframe.time frame. Additionally, the ultimate terms and conditions of any such potential legislation remain unclear-forunclear. For example, our costs of care could exceed our associated reimbursement rates under such legislation. The new and evolving landscape for integrated kidney care also has led to opportunities with relative ease of entry for certain smaller and/or non-traditional providers, which may be enhanced by the ongoing global health crisis, and we may be competing with them for patients in an asymmetrical environment with respect to data and/or regulatory requirements given our status as an ESRD service provider. For additional detail on our evolving competitive environment, see the risk factor in our 10-K under the heading "If we are unable to compete successfully, including, without limitation, implementing our growth strategy and/or retaining patients and physicians willing to serve as medical directors, it could materially adversely affect our business, results of operations, financial condition and cash flows" in Part II, Item 1A in our Q2 Form 10-Q.flows." In general, if we are unable to efficiently adjust to these and other new models of care, it may, among other things, erode our patient base or reimbursement rates, which could have a material adverse impact on our business, results of operation, financial condition and cash flows.
CMS has also issued final rules related to the 21st Century Cures Act (the Cures Act). The Cures Act included a provision that, effective January 1, 2021, will allow Medicare-eligible beneficiaries with ESRD to choose coverage under a Medicare Part C Medicare Advantage (MA) managed care plan. This provision could broaden access to certain enhanced benefits offered by MA plans. MA plans usually provide reimbursement to us at a negotiated rate that is generally higher than Medicare fee-for-service rates. We continue to evaluate the potential impact of this change in benefit eligibility, as there is significant uncertainty as to how many or which newly eligible ESRD patients will seek to enroll in MA plans for their ESRD benefits and how quickly any such changes would occur. This uncertainty may be heightened by components of the aforementioned final rules, which include a provision that, among other things, removes the objective time and distance standards relating to network adequacy for outpatient dialysis centers for MA plans. The removal of these standards could result in MA plans seeking to limit provider networks available to dialysis patients. We joined a legal challenge contesting the removal of these objective time and distance standards, but if these rules remain implemented as proposed, MA plans could attempt to limit the number of in-network dialysis alternatives available to patients, which may in turn adversely impact the number of ESRD patients that select MA plans and also may result in the Company not being an in-network provider for significant MA plans. If kidney patients choose not to enroll in MA plans or choose to leave MA plans, whether due to network adequacy standards or otherwise, or if we fail to provide education to kidney patients in the manner specified by CMS, we could be subject to certain clinical, operational, financial and legal risks, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, we continuously negotiate existing and potential new agreements with commercial payors who aggressively negotiate terms with us, and if we fail to maintain contracts with payors with competitive terms, either with respect to MA plans or otherwise, including, without limitation, reimbursement rates, scope and duration of coverage and in-network benefits, it could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The Cures Act also includes provisions related to data interoperability, information blocking, and patient access. CMS and the Office of the National Coordinator for Health Information Technology (ONC) recently issued final rules related to these provisions, which include, among other things, requirements surrounding information blocking, changes to ONC's Health IT Certification Program and requirements that CMS-regulated payors make relevant claims/care data and provider directory information available through standardized patient access and provider directory application programming interfaces (APIs) that connect to provider electronic health records. We have made and continue to make investments in building data interoperability capabilities, including as part of building on our integrated care capabilities as noted above, and continue to evaluate the potential impact of the CMS and ONC final rules. Any failure to adequately comply with these rules may adversely impact our Medicare business, our ability to scale our integrated care business and our ability to compete with certain smaller and/or non-traditional providers taking advantage of an asymmetrical environment with respect to data and/or regulatory requirements given our status as an ESRD service provider.
There have also been several state initiatives to limit payments to dialysis providers or impose other burdensome operational requirements.requirements, which, if passed, could have a material adverse impact on our business, results of operation, financial condition and cash flow. For example, on October 24, 2019, the Service Employees International Union - United Healthcare Workers West (SEIU) proposed a California statewide ballot initiative for the November 2020 election that seeks to impose certain regulatory requirements on dialysis clinics, including requirements related to physician staffing levels, clinical reporting, clinical treatment options and limitations on the ability to make decisions on closing or reducing services for dialysis clinics. We expect to incurhave incurred substantial costs in connection with our opposition of this new proposal, should it become eligibleinitiative (Proposition 23), which will be included on the ballot for the


November 2020 election,election. In the event that Proposition 23 is passed and implemented as proposed, it would materially increase our operating and other potential ballot initiatives-and these costs mayand reduce our revenues, and we expect it would require us to close or consolidate existing dialysis centers, postpone or not build new dialysis centers, reduce shifts or otherwise negatively impact employee relations, treatment growth and productivity, and could otherwise have a material adverse effect on our business, results of operations, financial condition and cash flows. Additionally, there can be substantial. Similarno assurances that we would be successful in staffing our clinics to any new, elevated staffing levels required by Proposition 23, in particular given the ongoing nationwide shortage of healthcare workers, especially skilled clinical personnel, and the continuing pandemic. In 2018, initiatives seeking to limit reimbursements to dialysis providers were also proposed in Ohio and Arizona in the 2018 election cycle;Arizona; however, neither of these initiatives met the applicable requirements for inclusion on the state ballot for the November 2018 elections. We may face similar ballot initiatives or other proposed regulations or legislation in the future in these or other states.states in future years, which may require us to incur further substantial costs and which, if passed, could have a material adverse impact on our business, results of operations, financial condition and cash flows.
There have also been rule making and legislative efforts at both the federal and state level concerning charitable premium assistance. In December 2016, CMS published an interim final rule that questioned the use of charitable premium assistance for ESRD patients and would have established new conditions for coverage standards for dialysis facilities. In January 2017, a federal district court in Texas issued a preliminary injunction on CMS' interim final rule and in June 2017, at the request of CMS, the court stayed the proceedings while CMS pursues new rulemaking options. In June 2019, CMS sent to the White House Office of Management and Budget a proposed rule entitled "Conditions for Coverage for End-Stage Renal Disease Facilities-Third Party Payments,Payments." which is expected toWe do not know if or when this proposed rule will be released in 2019.released. In addition, on October 13, 2019, a California bill (AB 290) was signed into law that limits the amount of reimbursement paid to certain providers for services provided to patients with commercial insurance who receive charitable premium assistance. AB 290 iswas expected to become effective in JulyJanuary 2020. The American Kidney Fund (AKF), an organization that provides charitable premium assistance,


announced that it willwould be withdrawing from California at the end of 2019 as a result of AB 290. On November 1, 2019, AKF filed a lawsuit in federal court challenging the newly signed law. AKFlaw on several grounds. A group of providers, including DaVita, also filed a lawsuit challenging the law in federal court on November 5, 2019. The parties to each suit also filed motions for preliminary injunctions shortly after filing the lawsuits, seeking to prevent AB 290’s implementation during litigation. On December 30, 2019, the district court granted a preliminary injunction. The preliminary injunction will remain in place until a final judgment is made in the case. The case has already ceased taking applications for new patient assistance in California. been subject to several extensions of time due to the pandemic such that we do not expect a final decision until 2021.
In the event AB 290 becomes effective and the AKF withdraws from California, we expect an adverse impact on the ability of patients to afford Medicare premiums and Medicare supplemental (Medigap) and commercial coverage, which we expect will in turn result in an adverse impact on our business, results of operations, financial condition and cash flows. In addition, bills similar to AB 290 were recently introduced in Illinois (SB 650) and Oregon (SB 900), in 2019, but have not been successfully passed to date. If these or similar bills are introduced and implemented in other jurisdictions, and organizations that provide charitable premium assistance in those jurisdictions are similarly impacted, it could in the aggregate have a material adverse impact on our business, results of operations, financial condition and cash flows. For additional information on the impact of decreases to the percentage of our patients with commercial insurance, see the risk factor in our 10-K under the heading "If the number of patients with higher-paying commercial insurance declines, it could have a material adverse effect on our business, results of operations, financial condition and cash flows" in Part II, Item 1A in our Q2 Form 10-Q..
Any law, rule orAmong other things, regulatory guidance, proposed or issued by CMS or other federal or state regulatory or legislative authorities or others, including, without limitation, any initiatives similar to the proposed legislation and ballot initiatives described above,and any similar initiatives could restrict or other future ballot or other initiatives restricting or prohibitingprohibit the ability of patients with access to alternative coverage from selecting a marketplace plan on or off exchange, limitinglimit the amount of revenue that a dialysis provider can retain for caring for patients with commercial insurance, imposingimpose burdensome operational requirements, affectingaffect payments made to providers for services provided to patients who receive charitable premium assistance and/or otherwise restrictingrestrict or prohibitingprohibit the use of charitable premium assistance, or reduce the standards for network adequacy. In turn, these potential impacts could cause us to incur substantial costs to oppose any such proposed requirements or measures, impact our dialysis center development plans, and if passed and/or implemented, could adversely impact dialysis centers across the U.S. making certain centers economically unviable, lead to the closure of certain centers, restrict the ability of dialysis patients to obtain and maintain optimal insurance coverage and in some cases, have a material adverse effect onreduce the number of patients that select commercial insurance plans or MA plans for their dialysis care, among other things. Evolving proposed or issued laws, requirements, rules and guidance that impact our business, results of operations, financial condition and cash flows.
Weincluding as may engage in acquisitions, mergers, joint ventures or dispositions, which may materially affect our results of operations, debt-to-capital ratio, capital expenditures or other aspects of our business, and, under certain circumstances, could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Our business strategy includes growth through acquisitions of dialysis centers and other businesses, as well as through entry into joint ventures. We may engage in acquisitions, mergers, joint ventures or dispositions or expand into new business lines or models, which may affect our results of operations, debt-to-capital ratio, capital expenditures or other aspects of our business. There can be no assurance that we will be able to identify suitable acquisition targets or merger partners or buyers for dispositions or that, if identified, we will be able to agree to terms with merger partners, acquire these targets or make these dispositions on acceptable terms or on the desired timetable. There can also be no assurance that we will be successful in completing any acquisitions, mergers or dispositions that we announce, executing new business lines or models or integrating any acquired business into our overall operations. There is no guarantee that we will be able to operate acquired businesses successfully as stand-alone businesses, or that any such acquired business will operate profitably or will not otherwise have a material adverse effect on our business, results of operations, financial condition and cash flows or materially harm our reputation. Further, we cannot be certain that key talented individuals at the business being acquired will continue to work for us after the acquisition or that they will be able to continue to successfully manage or have adequate resources to successfully operate any acquired business. In addition, certain of our acquired dialysis centers and facilities have been in service for many years, which may result in a higher level of maintenance costs. Further, our facilities, equipment and information technology may need to be improved or renovated to maintain or increase operational efficiency, compete for patients and medical directors, or meet changing regulatory requirements. Increases in maintenance costs and any continued increases in capital expendituresdescribed above, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Businesses we acquire may have unknown or contingent liabilities or liabilities that are in excess of the amounts that we originally estimated, and may have other issues, including, without limitation, those related to internal controls over financial reporting or issues that could affect our ability to comply with healthcare laws and regulations and other laws applicable to our expanded business, which could harm our reputation. As a result, we cannot make any assurances that the acquisitions we consummate will be successful. Although we generally seek indemnification from the sellers of businesses we acquire for matters that are not properly disclosed to us, we are not always successful. In addition, even in cases where we are able to obtain indemnification, we may discover liabilities greater than the contractual limits, the amounts held in escrow for our benefit (if any), or the financial resources of the indemnifying party. In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.


We have in the past decided, and may in the future decide, to dispose of certain assets or businesses, such as the disposition of our DMG business, which we completed in June 2019. The sale of DMG results in a less diversified portfolio of businesses, and we will have a greater dependency on the performance of our kidney care business for our financial results, which could make us more susceptible to market fluctuations and other adverse events than if we had retained the DMG business.
In addition, under the terms of the equity purchase agreement in connection with the DMG sale agreement, as amended (the "DMG sale agreement") (and subject to the limitations therein), we agreed to certain indemnification obligations. As a result, we may become obligated to make payments to the buyer relating to our previous ownership and operation of the DMG business. Claims giving rise to these potential payments include, without limitation, claims related to breaches of our representations and warranties and covenants, including claims for breaches of our representations and warranties regarding compliance with law, litigation, absence of undisclosed liabilities, employee benefit matters, labor matters, or taxes, among others, and other claims for which we provided the buyer with a special indemnity. Any such post-closing liabilities and required payments under the DMG sale agreement, or otherwise, or in connection with any other past or future disposition of material assets or businesses could individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation. Further, the purchase price in the DMG sale agreement is subject to customary post-closing adjustments, including, without limitation, as a result of certain net working capital adjustments. We are currently engaged with Optum concerning what, if any, net working capital adjustment or other potential adjustments to the purchase price are appropriate, via the process set forth in the DMG sale agreement. Any negative adjustments to the purchase price, including, without limitation, as a result of this ongoing engagement with Optum, could result in a material adverse change in the amount of consideration that we are able to retain.
In connection with the closing of the DMG sale, we entered into a transition services agreement with Optum, whereby we and Optum will provide various transition services to one another for specified periods of time beginning on the closing date and extending for up to two years thereafter. In the course of performing our obligations under the transition services agreement, we will allocate certain of our resources, including without limitation, assets, facilities, equipment and the time and attention of our management and other teammates, for the benefit of the DMG business and not ours, which may negatively impact our business, results of operations and financial condition.
Additionally, joint ventures, including, without limitation, our Asia Pacific joint venture, and minority investments inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks associated with the joint venture or minority investment. In addition, we may be dependent on joint venture partners, controlling shareholders or management who may have business interests, strategies or goals that are inconsistent with ours. Business decisions or other actions or omissions of the joint venture partner, controlling shareholders or management may require us to make capital contributions or necessitate other payments, result in litigation or regulatory action against us, result in reputational harm to us or adversely affect the value of our investment or partnership, among other things. There can be no assurances that these joint ventures and/or minority investments, including, without limitation, our Asia Pacific joint venture, ultimately will be successful.



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

The following table summarizes our repurchases of our common stock during the third quarter of 2019:2020:
Period Total number
of shares
purchased
 Average price
paid per share
 Total number
of shares
purchased as
part of publicly
announced
plans or programs
 Approximate
dollar value
of shares
that may yet be purchased under the plans or programs
(in millions)
July 1-31, 2019 4,214,205
 $56.47
 4,214,205
 $2,000
August 1-31, 2019 21,801,975
 56.57
 21,801,975
 $768
September 1-30, 2019 4,575,570
 60.47
 4,575,570
 $492
  30,591,750
 $57.14
 30,591,750
  
Period Total number
of shares
purchased
 Average price
paid per share
 Total number
of shares
purchased as
part of publicly
announced
plans or programs
 Approximate
dollar value of shares that may yet be purchased under the plans or programs
(in millions)
July 1-31, 2020 
 $
 
 $1,400
August 1-31, 2020 
 
 
 $1,400
September 1-30, 2020 8,231,679
 88.13
 8,231,679
 $677
  8,231,679
 $88.13
 8,231,679
  
On July 11, 2018, our BoardIn the third quarter of Directors approved an additional share2020, we used cash on hand to repurchase authorization in7,981,679 shares of common stock under the amount of approximately $1.39 billion. This share repurchase authorization was in addition to the approximately $110 million remaining at that time under our Board of Directors’ prior share repurchase authorization approved in October 2017.
Effective July 17, 2019, our Board of Directors terminated all remaining prior share repurchase authorizations available to us at that time and approved a new share repurchase authorization of $2.0 billion. As of the close of business on November 4, 2019, we had repurchasedmodified “Dutch auction” tender offer for a total cost of 30,660,921 of shares of our common stock for $1.75 billion under this repurchase authorization.$704 million, including fees and expenses.
Effective as of the close of business on November 4, 2019, the Board terminated all remaining prior share repurchase authorizations available to us under the aforementioned July 17, 2019 authorization and approved a new share repurchase authorization of $2.0 billion. We are authorized to make purchases from time to time in the open market or in privately negotiated transactions, including without limitation, through accelerated share repurchase transactions, derivative transactions, tender offers, Rule 10b5-1 plans or any combination of the foregoing, depending upon market conditions and other considerations.
As of November 6, 2019,October 28, 2020, we had a total of $2.0 billion$516 million available under the current repurchase authorization for additional share repurchases. Although this share repurchase authorization does not have an expiration date, we remain subject to share repurchase limitations including under the terms of theour current senior secured credit facilities and the indentures governing our senior notes.facilities.
Items 3, 4 and 5 are not applicable


Item 6.    Exhibits
The information required by this Item is set forth in the Index to Exhibits that precedes the signature page of this Quarterly Report on Form 10-Q.


INDEX TO EXHIBITS
Exhibit  
Number  
   
10.1 Credit Agreement,Indenture, dated as of August 12, 2019,11, 2020, by and among DaVita Inc., certainthe subsidiary guarantors party thereto and the lenders party thereto, Credit Agricole Corporate and Investment Bank JPMorgan Chase Bank,of New York Mellon Trust Company, N.A. and MUFG Bank Ltd., as co-syndication agents, Banktrustee.(1)
Form of America, N.A., Barclays Bank PLC, Credit Suisse Loan Funding LLC, Goldman Sachs Bank USA, Morgan Stanley3.750% Senior Funding,Notes due 2031 (included as Exhibit A to the Indenture included as Exhibit 4.1 hereto).(1)
Form of Stock Appreciation Rights Agreement (DaVita Inc. 2020 Incentive Award Plan).(2)*
Form of Performance-Based Restricted Stock Unit Agreement (DaVita Inc. 2020 Incentive Award Plan).(2)*
Form of Restricted Stock Unit Agreement (DaVita Inc. 2020 Incentive Award Plan).(2)*
Transition Agreement, dated October 1, 2020, by and between DaVita Inc. and Suntrust Bank, as co-documentation agents, and Wells Fargo Bank, National Association, as administrative agent, collateral agent and swingline lender. (1)LeAnne Zumwalt.*ü
   
 
Certification of the Chief Executive Officer, dated November 6, 2019,October 29, 2020, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü
   
 
Certification of the Chief Financial Officer, dated November 6, 2019,October 29, 2020, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü
   
 
Certification of the Chief Executive Officer, dated November 6, 2019,October 29, 2020, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü
   
 
Certification of the Chief Financial Officer, dated November 6, 2019,October 29, 2020, 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 
Inline XBRL Taxonomy Extension Schema Document. ü
   
101.CAL 
Inline XBRL Taxonomy Extension Calculation Linkbase Document. ü
   
101.DEF 
Inline XBRL Taxonomy Extension Definition Linkbase Document. ü
   
101.LAB 
Inline XBRL Taxonomy Extension Label Linkbase Document. ü
   
101.PRE 
Inline XBRL Taxonomy Extension Presentation, Linkbase Document. ü
   
104 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). ü
üFiled or furnished herewith.
(1)*Filed on August 14, 2019 as Exhibit 10.1 to the Company's Current Report on Form 8-K.Management contract or executive compensation plan or arrangement.

(1) Filed on August 11, 2020 as an exhibit to the Company's Current Report on Form 8-K.
(2) Filed on August 17, 2020 as an exhibit to the Company's Tender Offer Statement on Schedule TO-I.


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 DAVITA INC.
    
 BY: /s/    JAMES K. HILGERJOHN D. WINSTEL
   James K. HilgerJohn D. Winstel
   Chief Accounting Officer*
Date: November 6, 2019October 29, 2020
 
*Mr. HilgerWinstel has signed both on behalf of the Registrant as a duly authorized officer and as the Registrant’s principal accounting officer.







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