Financial Instruments

3 Months Ended

Mar. 31, 2013

Notes to Consolidated Financial Statements [Abstract]

Financial Instruments

13. Financial Instruments

As a global supplier of dialysis services and products in more than 120 countries throughout the world, the Company is faced with a concentration of credit risks due to the nature of the reimbursement systems which are often provided by the governments of the countries in which the Company operates. Changes in reimbursement rates or the scope of coverage could have a material adverse effect on the Company's business, financial condition and results of operations and thus on its capacity to generate cash flow.

Non-derivative Financial Instruments

The following table presents the carrying amounts and fair values of the Company's non-derivative financial instruments at March 31, 2013, and December 31, 2012.

				March 31,			December 31,
				2013			2012
		Fair Value		Carrying	Fair		Carrying	Fair
		Hierarchy		Amount	Value		Amount	Value
Assets
	Cash and cash equivalents	1	$	534,841	534,841	$	688,040	688,040
	Accounts Receivable	2		3,174,247	3,174,247		3,157,233	3,157,233
Liabilities
	Accounts payable	2		625,278	625,278		745,644	745,644
	Short-term borrowings	2		127,196	127,196		121,823	121,823
	Long term debt, excluding 2012 Credit Agreement, Euro Notes and Senior Notes	2		548,273	548,273		721,928	721,928
	2012 Credit Agreement	2		2,631,038	2,626,228		2,659,340	2,652,840
	Senior Notes	2		4,694,106	5,281,712		4,743,442	5,296,325
	Euro Notes	2		50,420	52,267		51,951	54,574
Noncontrolling interests subject to put provisions		3		551,402	551,402		523,260	523,260

The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions or in the case of long-term debt, in the captions shown in Note 6.

The significant methods and assumptions used in estimating the fair values of non-derivative financial instruments are as follows:

Cash and cash equivalents are stated at nominal value which equals the fair value.

Short-term financial instruments such as accounts receivable, accounts payable and short-term borrowings are valued at their carrying amounts, which are reasonable estimates of the fair value due to the relatively short period to maturity of these instruments.

The fair values of major long-term financial liabilities are calculated on the basis of market information. Instruments for which market quotes are available are measured using these quotes. The fair values of the other long-term financial liabilities are calculated at the present value of the respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Company as of the balance sheet date are used.

The valuation of noncontrolling interests subject to put provisions is determined using significant unobservable inputs.See Note 10 for a discussion of the Company's methodology for estimating the fair value of these noncontrolling interests subject to put obligations.

Currently, there is no indication that a decrease in the value of the Company's financing receivables is probable. Therefore, the allowances on credit losses of financing receivables are immaterial.

Derivative Financial Instruments

The Company is exposed to market risk from changes in foreign exchange rates and interest rates. In order to manage the risk of currency exchange rate and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions as authorized by the Company's General Partner. On a quarterly basis the Company performs an assessment of its counterparty credit risk. The Company currently considers this risk to be low. The Company's policy, which has been consistently followed, is that financial derivatives be used only for the purpose of hedging foreign currency and interest rate exposure.

In certain instances, the Company enters into derivative contracts that do not qualify for hedge accounting but are utilized for economic purposes (“economic hedges”). The Company does not use financial instruments for trading purposes.

The Company established guidelines for risk assessment procedures and controls for the use of financial instruments. They include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.

To reduce the credit risk arising from derivatives the Company concluded Master Netting Agreements with banks. Through such agreements, positive and negative fair values of the derivative contracts could be offset against one another if a partner becomes insolvent. This offsetting is valid for transactions where the aggregate amount of obligations owed to and receivable from are not equal. If insolvency occurs, the party which owes the larger amountis obliged to pay the other party the difference between the amounts owed in the form of one net payment.

The Company elects not to offset the fair values of derivative financial instruments subject to master netting agreements in the statement of financial position.

At March 31, 2013 and December 31,2012, the Company had $38,161and $32,044of derivative financial assets subject to netting arrangements and $21,779 and $19,193of derivative financial liabilities subject to netting arrangements. Offsetting these derivative financial instruments would have resulted in net assets of $28,868 and $20,773as well as net liabilities of $12,486 and $7,922at March 31, 2013 and December 31,2012, respectively.

Foreign Exchange Risk Management

The Company conducts business on a global basis in various currencies, though a majority of its operations are in Germany and the United States. For financial reporting purposes, the Company has chosen the U.S. dollar as its reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar and the local currencies in which the financial statements of the Company's international operations are maintained affect its results of operations and financial position as reported in its consolidated financial statements.

The Company's exposure to market risk for changes in foreign exchange rates relates to transactions such as sales and purchases. The Company has significant amounts of sales of products invoiced in euro from its European manufacturing facilities to its other international operations and, to a lesser extent, sales of products invoiced in other non-functional currencies. This exposes the subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures the Company enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. AtMarch 31, 2013 the Company had no foreign exchange options.

Changes in the fair value of the effective portion of foreign exchange forward contracts designated and qualifying as cash flow hedges of forecasted product purchases and sales are reported in accumulated other comprehensive income (loss) (“AOCI”). Additionally, in connection with intercompany loans in foreign currency, the Company uses foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans, which, if they qualify for cash flow hedge accounting, are also reported in AOCI. These amounts recorded in AOCI are subsequently reclassified into earnings as a component of cost of revenuesfor those contracts that hedge product purchases or as an adjustment of interest income/expense for those contracts that hedge loans, in the same period in which the hedged transaction affects earnings. The notional amounts of foreign exchange contracts in place that are designated and qualify as cash flow hedges totaled $394,190 and $611,488 at March 31,2013and December 31, 2012, respectively.

The Company also enters into derivative contracts for forecasted product purchases and sales and for intercompany loans in foreign currencies that do not qualify for hedge accounting but are utilized for economic hedges as defined above. In these cases, the change in value of the economic hedge is recorded in the income statement andusuallyoffsets the change in value recorded in the income statement for the underlying asset or liability. The notional amounts of economic hedges that do not qualify for hedge accounting totaled $1,210,841 and $1,574,667 at March 31,2013 and December 31,2012, respectively.

Interest Rate Risk Management

The Company enters into derivatives, particularly interest rate swaps and to a certain extent, interest rate options, to protect against the risk of rising interest rates. These interest rate derivatives are designated as cash flow hedges and have been entered into in order to effectively convert payments based on variable interest rates into payments at a fixed interest rate.The euro-denominated interest rate swaps expire in 2016 and have an interest rate of 1.73%. Interest payable and receivable under the swap agreements is accrued and recorded as an adjustment to interest expense.

AtMarch 31, 2013 and December 31,2012, the notional amount of the euro-denominated interest rate swaps in place was €100,000 and €100,000 ($128,050 and $131,940 atMarch 31, 2013 and December 31,2012, respectively).

Derivative Financial Instruments Valuation

The following table shows the carrying amounts of the Company'sderivatives at March 31, 2013 and December 31, 2012.

			March 31, 2013				December 31, 2012
				Assets(2)		Liabilities(2)		Assets(2)		Liabilities(2)
Derivatives in cash flow hedging relationships (1)
	Current
		Foreign exchange contracts		6,180		(6,251)		7,839		(7,510)
	Non-current
		Foreign exchange contracts		71		-		942		(187)
		Interest rate contracts		-		(5,244)		-		(6,221)
Total			$	6,251	$	(11,495)	$	8,781	$	(13,918)
Derivatives not designated as hedging instruments (1)
	Current
		Foreign exchange contracts		37,150		(11,956)		23,396		(19,068)
	Non-current
		Foreign exchange contracts		567		(1,529)		132		(292)
Total			$	37,717	$	(13,485)	$	23,528	$	(19,360)
	(1) At March 31, 2013 and December 31, 2012, the valuation of the Company's derivatives was determined using Significant Other Observable Inputs (Level 2) in accordance with the fair value hierarchy levels established in U.S. GAAP.
	(2) Derivative instruments are marked to market each reporting period resulting in carrying amounts being equal to fair values at the reporting date.

The carrying amounts for the current portion of derivatives indicated as assets in the table above are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets while the current portion of those indicated as liabilities are included in Accrued expenses and other current liabilities. The non-current portions indicated as assets or liabilities are included in the Consolidated Balance Sheets in Other assets or Other liabilities, respectively.

The significant methods and assumptions used in estimating the fair values of derivative financial instruments are as follows:

The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract at the balance sheet date. To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract at the balance sheet date. The result is then discounted on the basis of the market interest rates prevailing at the balance sheet date for the applicable currency.

The Company includes its own credit risk for financial instruments deemed liabilities and counterparty-credit risks for financial instruments deemed assets when measuring the fair value of derivative financial instruments.

The Effect of Derivatives on the Consolidated Financial Statements
		Amount of Gain or (Loss) Recognized in OCI on Derivatives			Location of (Gain) or Loss Reclassified from AOCI in Income			Amount of (Gain) or Loss Reclassified from AOCI in Income
Derivatives in Cash Flow Hedging Relationships
		(Effective Portion) for the three months ended March 31,							(Effective Portion) for the three months ended March 31,
		2013		2012	(Effective Portion)			2013			2012
Interest rate contracts	$	6,470	$	(15,797)	Interest income/expense		$	6,365		$	4,898
Foreign exchange contracts		3,991		8,865	Costs of Revenue			(1,345)			(2,990)
Foreign exchange contracts					Interest income/expense			416			741
	$	10,461	$	(6,932)			$	5,436		$	2,649
Derivatives not Designated as Hedging Instruments				Amount of (Gain) or Loss Recognized in Income on Derivatives for the three months ended March 31,
		Location of (Gain) or Loss Recognized in Income on Derivative
				2013		2012
Foreign exchange contracts		Selling, general and administrative expense	$	(21,808)	$	13,759
Foreign exchange contracts		Interest income/expense		1,966		5,229
			$	(19,842)	$	18,988

For foreign exchange derivatives, the Company expects to recognize $4,109 of losses deferred in AOCI at March 31, 2013, in earnings during the next twelve months.

The Company expects to incur additional interest expense of $20,276over the next twelve months which is currently deferred in AOCI. At March 31, 2013, this amount reflects the projected amortization of the settlement amount of the terminated swaps and the current fair value of theadditional interest payments resulting fromthe remaining interest rate swap maturing in 2016.

AtMarch 31, 2013, the Company had foreign exchange derivatives with maturities of up to 32 months and interest rate swaps with maturities of up to 43 months.