Segment reporting

12 Months Ended

Dec. 31, 2013

Segment reporting

25. Segment reporting

The Company primarily operates two major lines of business, the largest being its U.S. dialysis and related lab services business and the other being HCP. The Company also operates various other ancillary services and strategic initiatives.

As of December 31, 2013, the ancillary services and strategic initiatives consisted primarily of pharmacy services, disease management services, vascular access services, ESRD clinical research programs, physician services, direct primary care and the Company’s international dialysis operations.

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 makers in making decisions about allocating resources to and assessing the financial results of the Company’s different business units. The chief operating decision maker for the Company, its U.S. dialysis business, and its ancillary services and strategic initiatives is its Chief Executive Officer. The chief operating decision makers for the HCP business are the Chief Executive Officer and HCP’s Chief Executive Officer.

The Company’s separate operating segments include its U.S. dialysis and related lab services business, its HCP operations in each region, each of its ancillary services and strategic initiatives, and its international operations in the European and Middle Eastern, Asia Pacific, and Latin American regions. The U.S. dialysis and related lab services business and the HCP business each qualify as separately reportable segments, while all of the 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 results of the operating segments. For internal management reporting, segment operations include direct segment operating expenses but exclude (i) the HCP contingent earn-out obligation adjustment, (ii) corporate support, which consists primarily of indirect labor, benefits and long-term incentive based compensation of certain departments which provide support to all of the Company’s different operating lines of business, (iii) the reduction of a tax asset associated with the HCP acquisition escrow provisions, and (iv) transaction expenses in 2012 associated with the HCP acquisition.

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

	Year ended December 31,
	2013			2012			2011
Segment revenues:
U.S. dialysis and related lab services
Patient service revenues:
External sources	$	7,998,692		$	7,299,032		$	6,462,811
Intersegment revenues		34,080			17,786			11,141
Total dialysis and related lab services revenues		8,032,772			7,316,818			6,473,952
Less: Provision for uncollectible accounts		(281,146	)		(233,580	)		(190,234	)
Net dialysis and related lab services patient service revenues		7,751,626			7,083,238			6,283,718
Other revenues(1)		12,600			11,447			11,019
Total net dialysis and related lab services revenues		7,764,226			7,094,685			6,294,737
HCP
HCP revenues:
External sources	$	2,919,964		$	419,431		$	—
Intersegment revenues		250			—			—
Total HCP capitated revenues		2,920,214			419,431			—
Net patient service revenues		220,251			34,407			—
Other revenues		55,723			23,552			—
Total revenues	$	3,196,188		$	477,390		$	—
Other – Ancillary services and strategic initiatives
Net patient service revenues	$	75,852		$	16,824		$	7,730
Capitated revenues		67,351			61,906			45,133
Other external sources		694,763			553,261			395,347
Intersegment revenues		13,916			10,481			5,796
Total ancillary services and strategic initiatives revenues		851,882			642,472			454,006
Total net segment revenues		11,812,296			8,214,547			6,748,743
Elimination of intersegment revenues		(48,246	)		(28,267	)		(16,937	)
Consolidated net revenues	$	11,764,050		$	8,186,280		$	6,731,806
Segment operating margin (loss):(2)
U.S. dialysis and related lab services	$	1,211,540		$	1,378,241		$	1,235,869
HCP		385,253			66,930			—
Other—Ancillary services and strategic initiatives		(38,595	)		(64,877	)		(34,105	)
Total segment margin		1,558,198			1,380,294			1,201,764
Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:
Contingent earn-out obligation adjustment		56,977			—			—
Corporate support costs(3)		(65,041	)		(52,457	)		(47,051	)
Transaction expenses		—			(30,753	)		—
Consolidated operating income		1,550,134			1,297,084			1,154,713
Debt expense		(429,943	)		(288,554	)		(241,090	)
Debt refinancing and redemption charges		—			(10,963	)		—
Other income		4,787			3,737			2,982
Consolidated income from continuing operations before income taxes	$	1,124,978		$	1,001,304		$	916,605

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

(2) Certain costs previously reported in the ancillary services and strategic initiatives have been reclassified to U.S. dialysis and related lab services to conform to the current year presentation.

(3) Corporate support costs also include $7,721 of an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions.

Depreciation and amortization expense for the U.S. dialysis and related lab services business for 2013, 2012 and 2011 were $355,879, $310,375 and $259,685, respectively, and were $14,502, $7,050 and $4,540, respectively, for the ancillary services and strategic initiatives. Depreciation and amortization expense for HCP for 2013 was $158,356 and for the year ended December 31, 2012 was $24,544.

Summary of assets by segment is as follows:

	December 31,
	2013		2012
Segment assets
U.S. dialysis and related lab services	$	10,248,993	$	9,351,466
HCP		6,265,767		6,228,403
Other—Ancillary services and strategic initiatives(1)		584,117		434,764
Consolidated assets	$	17,098,877	$	16,014,633

(1) Includes approximately $26 million and $13 million, respectively, of net property and equipment related to the Company’s international operations.

In 2013 and 2012, total expenditures for property and equipment for the U.S. dialysis and related lab services were $554,345 and $524,180, respectively, for HCP were $31,582 and $7,464, respectively, and for the ancillary services and strategic initiatives were $31,670 and $18,502, respectively.