Segment reporting

The Company has consisted of two major divisions, DaVita Kidney Care (Kidney Care) and DMG. The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services business, various ancillary services and strategic initiatives, including its international operations, and the Company’s corporate administrative support. The Company’s U.S. dialysis and related lab services business is its largest line of business and is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as ESRD. The Company’s ancillary services and strategic initiatives consist primarily of pharmacy services, disease management services, vascular access services, clinical research programs, physician services, ESRD seamless care organizations and comprehensive care, as well as the Company’s international operations.

The Company’s DMG division is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of providing coordinated outcomes-based medical care in a cost-effective manner. In December 2017, the Company entered into an equity purchase agreement to sell its DMG division to Optum, a subsidiary of UnitedHealth Group Inc., subject to receipt of required regulatory approvals and other customary closing conditions. As a result of this pending transaction, the DMG business has been classified as held for sale and its results of operations are reported as discontinued operations for all periods presented in these condensed consolidated financial statements. See Note 16 to these condensed consolidated financial statements for further discussion.

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

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

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

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



	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Segment net revenues:
U.S. dialysis and related lab services
Patient service revenues:
External sources	$	2,559,345		$	2,470,169		$	7,661,244		$	7,247,403
Intersegment revenues	25,424			13,475			63,943			38,559
U.S. dialysis and related lab services patient service revenues	2,584,769			2,483,644			7,725,187			7,285,962
Provision for uncollectible accounts	(12,900		)	(117,962		)	(37,108		)	(334,031		)
Net U.S. dialysis and related lab services patient service revenues	2,571,869			2,365,682			7,688,079			6,951,931
Other revenues⁽¹⁾	4,932			4,792			14,965			14,951
Total U.S. dialysis and related lab services revenues	2,576,801			2,370,474			7,703,044			6,966,882
Other—Ancillary services and strategic initiatives
Patient service revenues, net	112,279			90,015			320,204			229,587
Other external sources	183,674			318,057			624,422			937,811
Intersegment revenues	8,361			5,996			27,748			18,488
Total ancillary services and strategic initiatives revenues	304,314			414,068			972,374			1,185,886
Total net segment revenues	2,881,115			2,784,542			8,675,418			8,152,768
Elimination of intersegment revenues	(33,785		)	(19,471		)	(91,691		)	(57,047		)
Consolidated revenues	$	2,847,330		$	2,765,071		$	8,583,727		$	8,095,721
Segment operating margin:
U.S. dialysis and related lab services	$	390,006		$	442,777		$	1,272,828		$	1,837,989
Other—Ancillary services and strategic initiatives	(60,132		)	(36,518		)	(64,307		)	(142,984		)
Total segment operating margin	329,874			406,259			1,208,521			1,695,005
Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:
Corporate administrative support	(40,836		)	(10,965		)	(70,605		)	(32,587		)
Consolidated operating income	289,038			395,294			1,137,916			1,662,418
Debt expense	(125,927		)	(109,306		)	(359,135		)	(321,637		)
Other income, net	4,007			3,396			10,583			12,180
Consolidated income from continuing operations before income taxes	$	167,118		$	289,384		$	789,364		$	1,352,961


(1)	Includes management fees for providing management and administrative services to dialysis centers that are wholly-owned by third parties and legal entities in which the Company owns a noncontrolling equity investment.

Depreciation and amortization expense by reportable segment was as follows:



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
U.S. dialysis and related lab services	$	138,669	$	132,112	$	411,697	$	387,142
Other—Ancillary services and strategic initiatives	7,331		10,522		24,181		28,402
	$	146,000	$	142,634	$	435,878	$	415,544

Assets by reportable segment were as follows:



	September 30, 2018		December 31, 2017
Segment assets
U.S. dialysis and related lab services (including equity investments of $94,144 and $84,866, respectively)	$	12,101,111	$	11,776,042
Other—Ancillary services and strategic initiatives (including equity investments of $146,676 and $160,668, respectively)	1,308,892		1,410,509
DMG—Held for sale (including equity investments of $5,060 and $10,321, respectively)	5,947,786		5,761,642
Consolidated assets	$	19,357,789	$	18,948,193

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



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
U.S. dialysis and related lab services	$	214,728	$	207,472	$	603,186	$	538,620
Other—Ancillary services and strategic initiatives	5,019		9,135		37,191		28,256
DMG—Held for sale	11,935		24,282		65,282		72,953
	$	231,682	$	240,889	$	705,659	$	639,829