Full Press Release Details
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Financial Statements
December 31, 2017 and 2016
(With Independent Auditors Report Thereon)
FRESENIUS MEDICAL CARE HOLDINGS, INC.
| Page(s) | |
| Independent Auditors Report | 1 |
| Consolidated Balance Sheets as of December 31, 2017 and 2016 | 2 |
| Consolidated Statements of Income for the years ended December 31, 2017 and 2016 | 3 |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2017 and 2016 | 4 |
| Consolidated Statements of Changes in Equity for the years ended December 31, 2017 and 2016 | 5 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016 | 6 7 |
| Notes to Consolidated Financial Statements | 8 54 |
Two Financial Center
Independent Auditors Report
Fresenius Medical Care Holdings, Inc.:
We have audited the accompanying consolidated financial statements of Fresenius Medical Care Holdings, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Fresenius Medical Care Holdings, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles.
Boston, Massachusetts
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Balance Sheets
December 31, 2017 and December 31, 2016
(Dollars in thousands, except share data)
| 2017 | 2016 | |||||
| Assets | ||||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 569,818 | 357,899 | |||
| Trade accounts receivable, less allowances of $440,776 in 2017 and $405,670 in 2016 | 2,056,569 | 1,964,101 | ||||
| Receivables from affiliates | 503,087 | 1,295,523 | ||||
| Inventories | 758,645 | 736,367 | ||||
| Income tax receivables | 24,326 | |||||
| Other current assets | 542,744 | 854,449 | ||||
| Restricted cash | 64,382 | |||||
| Total current assets | 4,519,571 | 5,208,339 | ||||
| Property, plant and equipment, net | 2,398,269 | 2,226,481 | ||||
| Other assets: | ||||||
| Goodwill | 12,162,141 | 11,882,801 | ||||
| Other intangible assets, net | 504,331 | 599,254 | ||||
| Investment in equity method investees | 68,075 | 79,232 | ||||
| Other assets and deferred charges | 169,740 | 139,554 | ||||
| Total other assets | 12,904,287 | 12,700,841 | ||||
| Total assets | $ | 19,822,127 | 20,135,661 | |||
| Liabilities, Noncontrolling Interests, and Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 429,242 | 384,128 | |||
| Accounts payable to related parties | 134,737 | 158,042 | ||||
| Current borrowings from affiliates | 469,838 | |||||
| Accrued liabilities | 1,733,472 | 1,846,301 | ||||
| Short-term borrowings | 10,924 | 10,058 | ||||
| Current portion of long-term debt and capital lease obligations | 122,570 | 208,315 | ||||
| Accrued income taxes | 192,348 | |||||
| Total current liabilities | 2,900,783 | 2,799,192 | ||||
| Long-term debt and capital lease obligations | 1,775,960 | 2,085,331 | ||||
| Noncurrent borrowings from affiliates | 3,466,782 | 3,303,022 | ||||
| Other liabilities | 679,262 | 809,401 | ||||
| Deferred income taxes | 456,846 | 605,418 | ||||
| Total liabilities | 9,279,633 | 9,602,364 | ||||
| Noncontrolling interests subject to put provisions and other temporary equity | 1,048,670 | 1,260,447 | ||||
| Series C redeemable preferred stock | ||||||
| Equity: | ||||||
| Preferred stock, $1 par value | 851,125 | 1,423,531 | ||||
| Authorized shares 9,753,560 | ||||||
| Outstanding shares 3,404,500 in 2017 and 5,694,123 in 2016 | ||||||
| Common stock, $1 par value | 83,985 | 87,360 | ||||
| Authorized shares 90,000,000 | ||||||
| Outstanding shares 83,985,000 in 2017 and 87,360,000 in 2016 | ||||||
| Additional paid-in capital | 1,725,889 | 1,375,784 | ||||
| Retained earnings | 6,295,512 | 5,885,109 | ||||
| Accumulated other comprehensive loss | (106,445 | ) | (107,260 | ) | ||
| Total Fresenius Medical Care Holdings, Inc. equity | 8,850,066 | 8,664,524 | ||||
| Noncontrolling interests not subject to put provisions | 643,758 | 608,326 | ||||
| Total equity | 9,493,824 | 9,272,850 | ||||
| Total liabilities, noncontrolling interests, and equity | $ | 19,822,127 | 20,135,661 |
See accompanying notes to consolidated financial statements.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Statements of Income
For the years ended December 31, 2017 and 2016
(Dollars in thousands)
| 2017 | 2016 | |||||
| Net revenues: | ||||||
| Health care services | $ | 13,556,163 | 12,366,983 | |||
| Less: Patient service bad debt provision | 549,193 | 430,230 | ||||
| Net health care services | 13,006,970 | 11,936,753 | ||||
| Medical supplies | 912,234 | 869,896 | ||||
| 13,919,204 | 12,806,649 | |||||
| Expenses: | ||||||
| Cost of health care services | 8,633,589 | 7,871,747 | ||||
| Cost of medical supplies | 686,366 | 642,702 | ||||
| General and administrative expenses | 1,824,070 | 1,884,453 | ||||
| Depreciation and amortization | 508,617 | 489,117 | ||||
| Research and development | 72,331 | 69,398 | ||||
| Equity investment income | (10,981 | ) | (5,986 | ) | ||
| Interest expense, net, and related financing costs (including $230,237 and $177,892 of interest with affiliates, respectively). | 289,784 | 234,043 | ||||
| 12,003,776 | 11,185,474 | |||||
| Income before income taxes | 1,915,428 | 1,621,175 | ||||
| Provision for income taxes | 407,606 | 490,932 | ||||
| Net income | 1,507,822 | 1,130,243 | ||||
| Less net income attributable to noncontrolling interests | 293,359 | 294,720 | ||||
| Net income attributable to Fresenius Medical Care Holdings, Inc. | $ | 1,214,463 | 835,523 |
See accompanying notes to consolidated financial statements.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2017 and 2016
(Dollars in thousands)
| 2017 | 2016 | |||||
| Net income | $ | 1,507,822 | 1,130,243 | |||
| Gain related to foreign currency translation | 1,967 | 724 | ||||
| Gain on investments, (net of deferred tax of $1,041 and $4,874, respectively) | 1,598 | 7,031 | ||||
| Actuarial (losses) gains on defined benefit plans, (net of deferred tax of ($2,791) and $17,942, respectively) | (4,284 | ) | 27,538 | |||
| Gains (losses) related to derivative instruments, (net of deferred tax of $999 and ($1,025), respectively) | 1,534 | (1,574 | ) | |||
| Other comprehensive income, net of tax | 815 | 33,719 | ||||
| Total comprehensive income | 1,508,637 | 1,163,962 | ||||
| Comprehensive income attributable to noncontrolling interests | 293,359 | 294,720 | ||||
| Comprehensive income attributable to Fresenius Medical Care Holdings, Inc. | $ | 1,215,278 | 869,242 |
See accompanying notes to consolidated financial statements.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2017 and 2016
(Dollars in thousands, except share data)
| Accumulated | Total | Noncontrolling | |||||||||||||||||||||
| other | FMCH, Inc. | interests not | |||||||||||||||||||||
| Preferred stock | Common stock | Additional | Retained | comprehensive | shareholders | subject to | |||||||||||||||||
| Shares | Amount | Shares | Amount | paid-in capital | earnings | income (loss) | equity | put provisions | Total equity | ||||||||||||||
| Balance, December 31, 2015 | 4,753,560 | $ | 1,188,390 | 90,000,000 | $ | 90,000 | 1,553,887 | 5,654,146 | (140,979 | ) | 8,345,444 | 570,278 | 8,915,722 | ||||||||||
| Net income | 835,523 | 835,523 | 112,618 | 948,141 | |||||||||||||||||||
| Other comprehensive income | 33,719 | 33,719 | 33,719 | ||||||||||||||||||||
| Exercise of stock options and related tax effects | 6,365 | 6,365 | 6,365 | ||||||||||||||||||||
| Compensation expense related to stock options | 25,442 | 25,442 | 25,442 | ||||||||||||||||||||
| Vested subsidiary stock incentive plans | (2,967 | ) | (2,967 | ) | (2,967 | ) | |||||||||||||||||
| Cash contributions noncontrolling interests | 15,337 | 15,337 | |||||||||||||||||||||
| Dividends paid to noncontrolling interests | (112,944 | ) | (112,944 | ) | |||||||||||||||||||
| Purchase/Sale of noncontrolling interests | 1,287 | 1,287 | 23,037 | 24,324 | |||||||||||||||||||
| Changes in fair value of noncontrolling interests subject to put provisions | (208,292 | ) | (208,292 | ) | (208,292 | ) | |||||||||||||||||
| Redeemable preferred stcok reclassification to preferred stock | 940,563 | 235,141 | 235,141 | 235,141 | |||||||||||||||||||
| Repurchase and retirement of common stock | (2,640,000 | ) | (2,640 | ) | (604,560 | ) | (607,200 | ) | (607,200 | ) | |||||||||||||
| Other reclassifications | 62 | 62 | 62 | ||||||||||||||||||||
| Balance, December 31, 2016 | 5,694,123 | $ | 1,423,531 | 87,360,000 | $ | 87,360 | 1,375,784 | 5,885,109 | (107,260 | ) | 8,664,524 | 608,326 | 9,272,850 | ||||||||||
| Net income | 1,214,463 | 1,214,463 | 115,687 | 1,330,150 | |||||||||||||||||||
| Other comprehensive income | 815 | 815 | 815 | ||||||||||||||||||||
| Compensation expense related to stock options | 18,158 | 18,158 | 18,158 | ||||||||||||||||||||
| Vested subsidiary stock incentive plans | (13,117 | ) | (13,117 | ) | (13,117 | ) | |||||||||||||||||
| Cash contributions noncontrolling interests | 13,092 | 13,092 | |||||||||||||||||||||
| Dividends paid to noncontrolling interests | (113,604 | ) | (113,604 | ) | |||||||||||||||||||
| Purchase/Sale of noncontrolling interests | (51,249 | ) | (51,249 | ) | 20,257 | (30,992 | ) | ||||||||||||||||
| Changes in fair value of noncontrolling interests subject to put provisions | 195,878 | 195,878 | 195,878 | ||||||||||||||||||||
| Repurchase and retirement of preferred stock | (2,289,623 | ) | (572,406 | ) | (46,877 | ) | (619,283 | ) | (619,283 | ) | |||||||||||||
| Repurchase and retirement of common stock | (3,375,000 | ) | (3,375 | ) | (804,060 | ) | (807,435 | ) | (807,435 | ) | |||||||||||||
| DLP capital contribution | 247,264 | 247,264 | 247,264 | ||||||||||||||||||||
| Other reclassifications | 48 | 48 | 48 | ||||||||||||||||||||
| Balance, December 31, 2017 | 3,404,500 | $ | 851,125 | 83,985,000 | $ | 83,985 | 1,725,889 | 6,295,512 | (106,445 | ) | 8,850,066 | 643,758 | 9,493,824 |
See accompanying notes to consolidated financial statements.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
(Dollars in thousands)
| 2017 | 2016 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 1,507,822 | 1,130,243 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 508,617 | 489,117 | ||||
| Gain on sale of investments and divestitures | (67,961 | ) | (12,560 | ) | ||
| Provision for doubtful accounts | 596,183 | 438,327 | ||||
| Change in deferred income taxes | (155,905 | ) | 26,606 | |||
| Amortization of discount on Senior Note | 2,041 | 2,485 | ||||
| Equity investment income | (10,981 | ) | (5,986 | ) | ||
| Loss on disposal of properties and equipment | 32,165 | 5,271 | ||||
| Gain on disposal of marketable securities, net | (28,257 | ) | (3,367 | ) | ||
| Amortization of discount on notes receivable | 200 | |||||
| Amortization of deferred financing cost | 7,565 | 7,565 | ||||
| Compensation expense related to stock options | 18,158 | 25,442 | ||||
| Unrealized currency transaction loss (gain) | 237,917 | (31,447 | ) | |||
| (Gain) loss on forward sale and currency exchange agreements | (405,227 | ) | 54,955 | |||
| Excess tax benefits from stock-based compensation | (6,349 | ) | (6,365 | ) | ||
| Changes in operating assets and liabilities, net of effects of purchase acquisitions: | ||||||
| Increase in trade accounts receivable | (687,713 | ) | (639,115 | ) | ||
| Increase in inventories | (20,167 | ) | (10,732 | ) | ||
| Decrease (increase) in other current assets | 63,819 | (361 | ) | |||
| (Increase) decrease in other assets and deferred charges | (32,286 | ) | 48,727 | |||
| Increase (decrease) in accounts payable | 43,714 | (13,987 | ) | |||
| Increase in accrued income taxes | 85,185 | 61,753 | ||||
| (Decrease) increase in accrued liabilities | (101,277 | ) | 94,890 | |||
| Increase (decrease) in other long-term liabilities | 282,091 | (162,594 | ) | |||
| Net changes due to/from affiliates | 446,533 | 103,710 | ||||
| Distributions received on equity investments | 9,570 | 6,014 | ||||
| Other, net | 2,017 | 3,911 | ||||
| Net cash provided by operating activities | 2,327,274 | 1,612,702 | ||||
| Cash flows from investing activities: | ||||||
| Capital expenditures | (680,221 | ) | (664,658 | ) | ||
| Acquisitions and investments, net of cash acquired | (340,416 | ) | (203,719 | ) | ||
| Sale of interests and divestitures | 162,311 | 131 | ||||
| Issuance of note receivable | (470 | ) | (4,824 | ) | ||
| Settlement of note receivable | 2,515 | 3,554 | ||||
| Purchases of available for sale securities | (11,046 | ) | (110,946 | ) | ||
| Proceeds from sales of available for sale securities | 289,357 | 129,421 | ||||
| Equity investment returns (contributions) | 13,741 | (9,626 | ) | |||
| Net increase in loans to affiliates | (46,181 | ) | (238,291 | ) | ||
| Net change in restricted cash | (64,382 | ) | ||||
| Net cash used in investing activities | (674,792 | ) | (1,098,958 | ) | ||
| Cash flows from financing activities: | ||||||
| Net increase in borrowings from affiliate | 764,460 | 590,851 | ||||
| Net increase from receivable financing facility | 178,000 | 124,000 | ||||
| Net decrease in debt and capital leases | (574,726 | ) | (282,123 | ) | ||
| Debt issuance costs | (3,852 | ) | (640 | ) | ||
| Repurchase of preferred stock | (619,283 | ) | ||||
| Repurchase of common stock | (807,435 | ) | (607,200 | ) | ||
| Distributions to noncontrolling interests | (296,235 | ) | (300,298 | ) | ||
| Contributions from noncontrolling interests | 29,805 | 47,727 | ||||
| Proceeds from sale of noncontrolling interests | 18,544 | 31,861 | ||||
| Purchases of noncontrolling interests | (131,166 | ) | (15,121 | ) | ||
| Excess tax benefits from stock-based compensation | 6,365 | |||||
| Net cash used in financing activities | (1,441,888 | ) | (404,578 | ) | ||
| Effects of changes in foreign exchange rates | 1,325 | (567 | ) | |||
| Change in cash and cash equivalents | 211,919 | 108,599 | ||||
| Cash and cash equivalents at beginning of year | 357,899 | 249,300 | ||||
| Cash and cash equivalents at December 31, 2017 and 2016 | $ | 569,818 | 357,899 |
See accompanying notes to consolidated financial statements.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
(Dollars in thousands)
| 2017 | 2016 | |||||
| Supplemental disclosures of cash flow information: | ||||||
| Cash paid for interest | $ | 278,484 | 272,780 | |||
| Cash paid for income taxes, net of tax refunds | 506,617 | 421,794 | ||||
| Details for acquisitions: | ||||||
| Assets acquired | (394,830 | ) | (308,938 | ) | ||
| Liabilities assumed | 16,906 | 39,743 | ||||
| Noncontrolling interests | 28,030 | 63,122 | ||||
| Cash paid | (349,894 | ) | (206,073 | ) | ||
| Less cash acquired | 9,478 | 2,354 | ||||
| Net cash paid for acquisitions | $ | (340,416 | ) | (203,719 | ) |
See accompanying notes to consolidated financial statements.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
(Dollars in thousands, except share data)
Fresenius Medical Care Holdings, Inc., a New York corporation (the Company or FMCH) is a subsidiary of Fresenius Medical Care AG & Co. KGaA, a German partnership limited by shares (FMCAG & KGaA or the Parent Company). The Company conducts its operations through eight principal subsidiaries, National Medical Care, Inc. (NMC), Fresenius USA Marketing, Inc., Fresenius USA Manufacturing, Inc., Sound Inpatient Physicians Holding, LLC, National Cardiovascular Partners, LP, Colorado River Group, LLC and SRC Holding Company, Inc., all Delaware corporations and Fresenius USA, Inc., a Massachusetts corporation.
The Company provides dialysis treatment and related dialysis care services to persons who suffer from end-stage renal disease (ESRD), as well as other health care services. The Company also develops and manufactures a wide variety of health care products, which includes dialysis and non-dialysis products. The Company s dialysis products include hemodialysis machines, peritoneal cyclers, dialyzers, peritoneal solutions, hemodialysis concentrates, solutions and granulates, bloodlines, renal pharmaceuticals and systems for water treatment. The Company s non-dialysis products include acute cardiopulmonary and apheresis products. The Company supplies dialysis clinics it owns, operates or manages with a broad range of products and also sells dialysis products to other dialysis service providers. The Company describes certain of its other health care services as Care Coordination. Care Coordination currently includes, but is not limited to, the coordinated delivery of pharmacy services, vascular, cardiovascular and endovascular specialty services as well as ambulatory surgery center services, non-dialysis laboratory testing services (until December 2017), physician nephrology and cardiology services, health plan services, urgent care services and ambulant treatment services. Care Coordination also includes the coordinated delivery of emergency, intensivist and hospitalist physician services as well as transitional care which the Company refers to as hospital related physician services. All of these Care Coordination services together with dialysis care and related services represent the Company s health care services.
(a) Basis of Presentation
The consolidated financial statements in this report as of December 31, 2017 and 2016 and for the years then ended have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). These consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the consolidated results for all periods presented.
The Company has evaluated subsequent events through April 30, 2018, which is the date these consolidated financial statements were available for issuance (see note 17).
(b) Principles of Consolidation
The consolidated financial statements include the earnings of all companies in which the Company has legal or effective control. This includes variable interest entities (VIEs) for which the Company is deemed the primary beneficiary. The Company also consolidates certain clinics that it manages and financially controls. Noncontrolling interests represent the proportionate equity interests in the Company s consolidated entities that are not wholly owned by the Company. Noncontrolling interests of
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
(Dollars in thousands, except share data)
acquired entities are valued at fair value. The equity method of accounting is used for investments in associated companies over which the Company has significant exercisable influence, even when the Company holds 50% or less of the common stock of the entity. All significant intercompany transactions and balances have been eliminated.
The Company has entered into various arrangements with certain legal entities whereby the entities equity holders lack the power to direct the activities that most significantly impact the entities performance, and the obligation to absorb expected losses and receive expected residual returns of the legal entities. In these arrangements, the entities are VIEs in which the Company has been determined to be the primary beneficiary and which therefore have been fully consolidated.
In FMCH, 32 and 26 VIEs are consolidated in 2017 and 2016, respectively. Consolidated VIEs generated $207,897 and $216,159 of revenue in 2017 and 2016, respectively. The Company provided funding to VIEs through loans and accounts receivable of $6,420 in 2017 and $108,849 in 2016, respectively. The table below shows the carrying amounts of the assets and liabilities of VIEs at December 31, 2017 and 2016:
| 2017 | 2016 | |||||
| Trade accounts receivable, net | $ | 32,978 | 27,113 | |||
| Other current assets | 46,568 | 49,406 | ||||
| Property, plant and equipment, intangible assets and other noncurrent assets | 40,468 | 53,748 | ||||
| Goodwill | 24,787 | 29,981 | ||||
| Accounts payable, accrued expenses and other liabilities | (165,178 | ) | (147,124 | ) | ||
| Equity | 20,375 | (13,124 | ) |
(2) Summary of Significant Accounting Policies
(a) Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents comprise cash funds and all short-term, liquid investments with original maturities of up to three months.
Restricted cash balance relates to collateral requirements towards an insurance company that are not available for use.
Inventories are stated at the lower of cost (determined by using the average or first-in, first-out method) or net realizable value (see note 4).
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
(Dollars in thousands, except share data)
(c) Property, Plant and Equipment
Property, plant, and equipment are stated at cost less accumulated depreciation (see note 10). Significant improvements are capitalized; repairs and maintenance costs that do not extend the useful lives of the assets are charged to expense as incurred. Property, plant and equipment under capital leases are stated at the present value of future minimum lease payments at the inception of the lease, less accumulated depreciation. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in income when the assets are disposed.
The cost of property, plant and equipment is depreciated over estimated useful lives on a straight-line basis as follows: buildings 20 to 40 years, equipment and furniture 3 to 10 years, equipment under capital leases and leasehold improvements the shorter of the lease term or the estimated useful life of the asset.
The Company capitalizes interest on borrowed funds during construction periods. Interest capitalized during 2017 and 2016 was $4,084 and $2,207, respectively.
(d) Intangible Assets and Goodwill
The growth of the Company s business through acquisitions has created a significant amount of intangible assets, including goodwill and other nonamortizable intangible assets such as tradenames and management contracts.
Intangible assets such as noncompete agreements, lease agreements, tradenames, certain qualified management contracts, technology, patents, distribution rights, software, acute care agreements and licenses, customer relationships acquired in a purchase method business combination are recognized and reported apart from goodwill.
Goodwill and identifiable intangibles with indefinite useful lives are not amortized but tested for impairment annually or when an event becomes known that could trigger an impairment. The Company identified tradenames and certain qualified management contracts as intangible assets with indefinite useful lives because, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which those assets are expected to generate net cash inflows for the Company. Intangible assets with finite useful lives are amortized over their respective useful lives. The Company amortizes noncompete agreements over their average useful life of 8 years. Technology is amortized over its useful life of 15 years. The iron products distribution and manufacturing agreement is amortized over its ten-year contractual license period based upon the annual estimated units of sale of the licensed product. All other intangible assets are amortized over their individual estimated useful lives between 3 and 25 years. Intangible assets with finite useful lives are evaluated for impairment when events have occurred that may give rise to an impairment.
To perform the annual impairment test of goodwill, the Company identifies its reporting units and determines their carrying value by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company is comprised of one reporting unit.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
(Dollars in thousands, except share data)
In the case that the fair value of the reporting unit is less than its carrying value, a second step would be performed which compares the implied fair value of the reporting unit s goodwill to the carrying value of its goodwill. If the fair value of the goodwill is less than the carrying value, the difference is recorded as an impairment.
To evaluate the recoverability of intangible assets with indefinite useful lives, the Company compares the fair values of intangible assets with their carrying values. An intangible asset s fair value is determined using a discounted cash flow approach or other methods, if appropriate.
In connection with its annual impairment tests, the Company determined that there was no impairment of goodwill or other indefinite lived intangible assets. Accordingly, the Company did not record any impairment charges during 2017 and 2016.
(e) Derivative Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities by recognizing all derivative instruments as either assets or liabilities in the consolidated balance sheets at their respective fair values (see note 15). For derivatives designated as hedges, changes in the fair value are either offset against the change in fair value of the assets and liabilities through earnings, or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.