| Segment reporting |
The Company operates two major divisions, Kidney Care and HCP. The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services business, various other ancillary services and strategic initiatives, including its international dialysis operations, and the Company’s corporate support costs. The Company’s U.S. dialysis and related lab services business is the Company’s 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 HCP division is a patient- and physician-focused integrated health care delivery and management company with nearly three decades of providing coordinated outcomes-based medical care in a cost-effective manner.
As of December 31, 2014, the ancillary services and strategic initiatives consisted primarily of pharmacy services, disease management services, vascular access services, 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 maker in making decisions about allocating resources to and assessing the financial results of the Company’s different 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, 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 costs, 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:
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Year ended December 31, |
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2014 |
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2013 |
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2012 |
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Segment revenues: |
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U.S. dialysis and related lab services |
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Patient service revenues: |
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External sources |
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$ |
8,513,089 |
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$ |
7,998,692 |
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$ |
7,299,032 |
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Intersegment revenues |
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37,112 |
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34,080 |
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17,786 |
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Total dialysis and related lab services revenues |
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8,550,201 |
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8,032,772 |
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7,316,818 |
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Less: Provision for uncollectible accounts |
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(353,028 |
) |
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(281,146 |
) |
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(233,580 |
) |
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Net dialysis and related lab services patient
service revenues |
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8,197,173 |
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7,751,626 |
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7,083,238 |
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Other revenues(1) |
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13,498 |
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12,600 |
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11,447 |
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Total net dialysis and related lab services
revenues |
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8,210,671 |
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7,764,226 |
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7,094,685 |
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HCP |
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HCP revenues: |
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Capitated revenues |
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$ |
3,190,903 |
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$ |
2,919,964 |
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$ |
419,431 |
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Net patient service revenues |
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219,306 |
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220,251 |
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34,407 |
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Other revenues(2) |
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91,374 |
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55,723 |
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23,552 |
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Intersegment capitated and other revenues |
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|
716 |
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250 |
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— |
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Total revenues |
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$ |
3,502,299 |
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$ |
3,196,188 |
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$ |
477,390 |
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Other - Ancillary services and strategic initiatives |
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Net patient service revenues |
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$ |
122,087 |
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$ |
75,852 |
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$ |
16,824 |
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Capitated revenues |
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70,385 |
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67,351 |
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61,906 |
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Other external sources |
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927,492 |
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694,763 |
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553,261 |
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Intersegment revenues |
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19,535 |
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13,916 |
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10,481 |
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Total ancillary services and strategic initiatives
revenues |
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1,139,499 |
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851,882 |
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642,472 |
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Total net segment revenues |
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12,852,469 |
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11,812,296 |
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8,214,547 |
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Elimination of intersegment revenues |
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(57,363 |
) |
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(48,246 |
) |
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(28,267 |
) |
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Consolidated net revenues |
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$ |
12,795,106 |
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$ |
11,764,050 |
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$ |
8,186,280 |
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Segment operating margin (loss):(3) |
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U.S. dialysis and related lab services |
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$ |
1,637,626 |
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$ |
1,200,198 |
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$ |
1,372,265 |
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HCP |
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214,983 |
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385,253 |
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66,930 |
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Other——Ancillary services and strategic initiatives |
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(24,456 |
) |
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(38,595 |
) |
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(64,877 |
) |
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Total segment margin |
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1,828,153 |
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1,546,856 |
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1,374,318 |
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Reconciliation of segment operating margin to
consolidated income from continuing operations before
income taxes: |
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Contingent earn-out obligation adjustment |
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— |
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56,977 |
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— |
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Corporate support costs(4) |
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(13,012 |
) |
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(53,699 |
) |
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(46,481 |
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Transaction expenses |
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— |
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— |
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(30,753 |
) |
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Consolidated operating income |
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1,815,141 |
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1,550,134 |
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1,297,084 |
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Debt expense |
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(410,294 |
) |
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(429,943 |
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(288,554 |
) |
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Debt refinancing and redemption charges |
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(97,548 |
) |
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— |
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(10,963 |
) |
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Other income |
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2,374 |
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4,787 |
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3,737 |
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Consolidated income from continuing
operations before income taxes |
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$ |
1,309,673 |
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$ |
1,124,978 |
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$ |
1,001,304 |
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(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. |
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(2) |
Other revenues primarily relate to providing medical consulting services. |
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(3) |
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. |
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(4) |
Corporate support costs in 2013 also include $7,721 of an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions. |
Depreciation and amortization expense by segment is as follows:
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December 31, |
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2014 |
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2013 |
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2012 |
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U.S. dialysis and related lab services |
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$ |
402,767 |
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$ |
355,879 |
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$ |
310,375 |
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HCP |
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169,485 |
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158,356 |
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24,544 |
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Other - Ancillary services and strategic initiatives |
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18,683 |
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14,502 |
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7,050 |
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$ |
590,935 |
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$ |
528,737 |
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$ |
341,969 |
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Summary of assets by segment is as follows:
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December 31, |
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2014 |
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2013 |
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Segment assets |
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U.S. dialysis and related lab services (including equity investments of $28,138 and $27,009, respectively) |
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$ |
10,959,096 |
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$ |
10,248,993 |
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HCP (including equity investments of $15,393 and $13,677, respectively) |
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6,285,984 |
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6,265,767 |
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Other - —Ancillary services and strategic initiatives(1) (including equity investments of $22,106 in 2014) |
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697,635 |
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584,117 |
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Consolidated assets |
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$ |
17,942,715 |
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$ |
17,098,877 |
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(1) |
Includes approximately $44,000 and $26,000 in 2014 and 2013, respectively, of net property and equipment related to the Company’s international operations. |
Expenditures for property and equipment by segment is as follows:
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December 31, |
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2014 |
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2013 |
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2012 |
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U.S. dialysis and related lab services |
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$ |
560,610 |
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$ |
554,345 |
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$ |
524,180 |
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HCP |
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27,885 |
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31,582 |
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7,464 |
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Other - Ancillary services and strategic initiatives |
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52,835 |
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31,670 |
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18,502 |
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$ |
641,330 |
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$ |
617,597 |
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$ |
550,146 |
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