Use these links to rapidly review the document
TABLE OF CONTENTS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of October 2019
FRESENIUS MEDICAL CARE AG & Co. KGaA
(Translation of registrant's name into English)
Else-Kröner Strasse 1
61346 Bad Homburg
Germany
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ý Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) :
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o No ý
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .
Interim Report of Financial Condition and Results of Operations for the three and nine months ended September 30, 2019 and 2018
i
Management's discussion and analysis
In this report, "FMC-AG & Co. KGaA," or the "Company," "we," "us" or "our" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. You should read the following discussion and analysis of the results of operations of the Company and its subsidiaries in conjunction with our unaudited consolidated financial statements and related notes contained elsewhere in this report and our disclosures and discussions in our consolidated financial statements for the year ended December 31, 2018 prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), using the euro as our reporting currency. At September 30, 2019, there were no IFRS or International Financial Reporting Interpretation Committee ("IFRIC") interpretations as endorsed by the European Union relevant for interim reporting that differed from IFRS as issued by the IASB.
The term "North America Segment" refers to our North America operating segment, the term "EMEA Segment" refers to the Europe, Middle East and Africa operating segment, the term "Asia-Pacific Segment" refers to our Asia-Pacific operating segment, and the term "Latin America Segment" refers to our Latin America operating segment. The term "Corporate" includes certain headquarters' overhead charges, including accounting and finance, centrally managed production, asset management, quality management, procurement and research and development. The abbreviation "M" is used to denote the presentation of amounts in millions. The term "Constant Currency" or at "Constant Exchange Rates" means that we have translated local currency revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items for the current reporting period into euro using the prior year exchange rates to provide a comparable analysis without effect from exchange rate fluctuations on translation, as described below under "Financial condition and results of operationsII. Discussion of measuresNon-IFRS measuresConstant currency information."
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in this report, the words "outlook," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated, and future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements contained elsewhere in this report. We have based these forward-looking statements on current estimates and assumptions made to the best of our knowledge. By their nature, such forward-looking statements involve risks, uncertainties, assumptions and other factors which could cause actual results, including our financial condition and profitability, to differ materially, positively or negatively, relative to the results expressly or implicitly described in or suggested by these statements. Moreover, forward-looking estimates or predictions derived from third parties' studies or information may prove to be inaccurate. Consequently, we cannot give any assurance regarding the future accuracy of the opinions set forth in this report or the actual occurrence of the projected developments described herein. In addition, even if our future results meet the expectations expressed here, those results may not be indicative of our performance in future periods.
These risks, uncertainties, assumptions, and other factors, including associated costs, could cause actual results to differ from our projected results and include, among others, the following:
1
the Health Information Technology for Economic and Clinical Health Act, the Foreign Corrupt Practices Act ("FCPA") including the monitor agreement with the U.S. Department of Justice, the Food, Drug and Cosmetic Act, and outside the U.S., the European Union ("EU") Medical Device Directive, the EU General Data Protection Regulation, the two invoice policy and the Tendering and Bidding Law in China and other related local legislation as well as other comparable regulatory regimes in many of the countries where we supply health care services and/or products;
Important factors that could contribute to such differences are noted in "Financial condition and results of operationsI. Overview" below, in note 13 of the notes to consolidated financial statements (unaudited) included in this report, in note 22 of the notes to consolidated financial statements included in our Annual Report on Form 20-F for the year ended December 31, 2018, as well as under "Risk Factors," "Business overview," "Operating and financial review and prospects," and elsewhere in that report.
Our business is also subject to other risks and uncertainties that we describe from time to time in our public filings. Developments in any of these areas could cause our results to differ materially from the results that we or others have projected or may project.
Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that are the basis of our financial statements. The actual accounting policies,
2
the judgments made in the selection and application of these policies as well as the sensitivities of reported results to changes in accounting policies, assumptions and estimates are factors to be considered along with our financial statements and the discussion under "Results of operations, financial position and net assets" below.
IFRS 16, Leases ("IFRS 16") replaces the straight-line operating lease expense for former leases under IAS 17, Leases ("IAS 17") with a depreciation charge for the lease asset and an interest expense on the lease liability as well as the classification of certain IAS 17 leases (such effects being, collectively "IFRS 16 Implementation"). As a result of the IFRS 16 Implementation, we have updated our accounting policies accordingly. Please refer to note 1 of the notes to consolidated financial statements (unaudited) included in this report for further details on the updated policies. Excluding the policy update for IFRS 16, there have been no significant changes during the nine months ended September 30, 2019 to the items disclosed within the critical accounting policies and estimates in notes 1 and 2 to the consolidated financial statements in our annual report on Form 20-F for the year ended December 31, 2018 in accordance with IFRS as issued by the IASB.
Rounding adjustments applied to individual numbers and percentages shown in this and other reports may result in these figures differing immaterially from their absolute values.
Financial condition and results of operations
I. Overview
We are the world's largest kidney dialysis company, based on publicly reported revenue and number of patients treated. We provide dialysis care and related services to persons who suffer from end stage renal disease ("ESRD") as well as other health care services. We develop and manufacture a wide variety of health care products, which includes both dialysis and non-dialysis products. Our dialysis products include dialysis machines, water treatment systems and disposable products while our non-dialysis products include acute cardiopulmonary and apheresis products. We sell our health care products to customers in around 150 countries and we also use them in our own health care service operations. Our dialysis business is therefore vertically integrated. We describe certain other health care services that we provide in our North America Segment and our Asia-Pacific Segment as "Care Coordination." Care Coordination currently includes, but is not limited to, coordinated delivery of pharmacy services, vascular, cardiovascular and endovascular specialty services as well as ambulatory surgery center services, physician nephrology services, health plan services, urgent care services and ambulant treatment services. Until June 28, 2018, Care Coordination also included the coordinated delivery of emergency, intensivist and hospitalist physician services as well as transitional care which we refer to as "hospital related physician services" (see note 2 of the notes to the consolidated financial statements (unaudited) included in this report). All of these Care Coordination services together with dialysis care and related services represent our health care services. We estimated the volume of the global dialysis market was approximately €71 billion in 2018. Due to the complexity and evolving nature of Care Coordination services, we are currently unable to estimate the global volume of this market. Dialysis patient growth results from factors such as the aging population and increased life expectancies; shortage of donor organs for kidney transplants; increasing incidence of kidney disease and better treatment of and survival of patients with diabetes, hypertension and other illnesses, which frequently lead to the onset of chronic kidney disease; improvements in treatment quality, new pharmaceuticals and product technologies, which prolong patient life; and improving standards of living in developing countries, which make life-saving dialysis treatment available. We are also engaged in different areas of health care research.
As a global company delivering health care services and products, we face the challenge of addressing the needs of a wide variety of stakeholders, such as patients, customers, payors, regulators and legislators in many different economic environments and health care systems. In general, government-funded programs (in some countries in coordination with private insurers) pay for certain health care items and services provided to their citizens. Not all health care systems provide for dialysis treatment. Therefore, the reimbursement systems and ancillary services utilization environment in various countries significantly influence our business.
On August 18, 2016, the Centers for Medicare and Medicaid Services ("CMS") issued a request for information ("RFI") seeking public comment about providers' alleged steering of patients inappropriately to individual plans offered on the Patient Protection and Affordable Care Act individual health insurance
3
market. Fresenius Medical Care Holdings, Inc. ("FMCH") and other dialysis providers, commercial insurers and other industry participants responded to the RFI, and in that response, we reported that we do not engage in such steering. On December 14, 2016, CMS published an Interim Final Rule ("IFR") titled "Medicare Program; Conditions for Coverage for End-Stage Renal Disease Facilities-Third Party Payment" that would amend the Conditions for Coverage for dialysis providers, like FMCH. The IFR would have effectively enabled insurers to reject premium payments made by patients who received grants for individual market coverage from the American Kidney Fund ("AKF") and, therefore, could have resulted in those patients losing their individual market health insurance coverage. The loss of individual market coverage for these patients would have had a material and adverse impact on our operating results. On January 25, 2017, a federal district court in Texas, responsible for litigation initiated by a patient advocacy group and dialysis providers including FMCH, preliminarily enjoined CMS from implementing the IFR (Dialysis Patient Citizens v. Burwell (E.D. Texas, Sherman Div.)). The preliminary injunction was based on CMS' failure to follow appropriate notice-and-comment procedures in adopting the IFR. The injunction remains in place and the court retains jurisdiction over the dispute. On June 22, 2017, CMS requested a stay of proceedings in the litigation pending further rulemaking concerning the IFR. CMS stated, in support of its request that it expects to publish a Notice of Proposed Rulemaking in the Federal Register and otherwise pursue a notice-and-comment process in the fall of 2017 which they ultimately did not publish. Plaintiffs in the litigation, including FMCH, consented to the stay, which was granted by the court.
Separately, the United States Department of Health and Human Services ("HHS") announced in its fall 2018 semi-annual review of agency actions, or "unified agenda," that it was considering the publication of a new proposed rule, ostensibly consistent with the Court's order on the IFR, that would establish requirements for ESRD facilities treating patients that accept financial assistance from third parties for premiums to enroll in coverage provided by an individual market plan (RIN 0938-AT11). On June 6, 2019, CMS sent a proposed rule modifying the ESRD conditions for Coverage and addressing Third Party Premium Payments to the Office of Management and Budget for review.
The operation of charitable assistance programs like that of the AKF is also receiving increased attention by state insurance regulators and legislators. The result may be a regulatory framework that differs from state to state. Even in the absence of the IFR or similar state actions, insurers are likely to continue efforts to thwart charitable premium assistance to our patients for individual market plans and other insurance coverages. If successful in a material area or scope of our U.S. operations, these efforts would have a material adverse impact on our business and operating results.
On January 3, 2017, FMCH received a subpoena from the United States Attorney for the District of Massachusetts inquiring into its interactions and relationships with AKF, including its charitable contributions to the Fund and the Fund's financial assistance to patients for insurance premiums. FMCH cooperated with the investigation.
For further information on these and other legal proceedings, please see note 13 of the notes to consolidated financial statements (unaudited) found elsewhere in this report.
U.S. ballot initiatives and other legislation
Further federal or state legislation or regulations may be enacted in the future through legislative and public referendum processes that could substantially modify or reduce the amounts paid for services and products offered by us and our subsidiaries and/or mandate new or alternative operating models and payment models that could present more risk to our healthcare service operations. Ballot initiatives that are successfully introduced at the state level in the United States require the vote of state citizens to directly adopt or reject proposed new legislation. These ballot initiatives require a material expenditure of resources by us to participate in public discourse regarding the proposed new legislation underlying the initiatives, which if passed, could further regulate multiple aspects of our operations including, for instance, clinic staffing requirements, state inspection requirements and profit margins on commercial business. Efforts to enact new state laws regarding our operations are continuing. State regulation at this level would introduce an unprecedented level of oversight and additional expense at the clinic level which could have a material adverse effect on our business in the impacted states. It is also possible that statutes may be adopted or regulations may be promulgated in the future that impose additional eligibility requirements for participation in the federal and state healthcare programs. Such new legislation or regulations could, depending upon the detail of the provisions, have positive or adverse effects, possibly material, on our businesses and results of operations.
4
Significant U.S. reimbursement developments
The majority of health care services we provide are paid for by governmental institutions. For the nine months ended September 30, 2019, approximately 33% of our consolidated revenue is attributable to U.S. federally-funded health care benefit programs, such as Medicare and Medicaid reimbursement, under which reimbursement rates are set by CMS. Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide. To date, the stability of reimbursement in the U.S. has been affected by (i) the implementation of the ESRD prospective payment system ("ESRD PPS") in January 2011, (ii) the U.S. federal government across the board spending cuts in payments to Medicare providers commonly referred to as "U.S. Sequestration," (iii) the reduction to the ESRD PPS rate to account for the decline in utilization of certain drugs and biologicals associated with dialysis pursuant to the American Taxpayer Relief Act of 2012 ("ATRA") as subsequently modified under the Protecting Access to Medicare Act of 2014 ("PAMA") and (iv) CMS' 2017 final rule on the Physician Fee Schedule, which partially corrected reimbursement for certain procedures that were materially undervalued in 2016. Please see the detailed discussions on these and further legislative developments below:
5
clinical measure and the Medication Reconciliation for Patients Receiving Care at Dialysis Facilities (MedRec) reporting measure), which were finalized in the CY 2019 ESRD PPS rule. For PY 2022, CMS proposes to convert the Standardized Transfusion Ratio (STrR) measure from a clinical measure to a reporting measure, which reflects stakeholder concerns regarding the measure's validity. This means facilities will now receive a score on the STrR reporting measure based on the successful reporting of data, not on the values actually reported. CMS also proposes to update the scoring methodology for the National Healthcare Safety Network's (NHSN) Dialysis Event reporting measure by removing the measure's exclusion of facilities with fewer than 12 eligible reporting months. Beginning with the payment year 2022, CMS proposes to assess successful reporting based on the number of months facilities are eligible to report the measure. CMS also proposes to add new regulation text that would codify automatic adoption of the baseline period and performance period for each payment year; data submission requirements for calculating measure scores; and requirements for the Extraordinary Circumstances Exception (ECE) process. Finally, CMS is not proposing to adopt any new measures beginning with the PY 2023 ESRD QIP.
Presently, there is considerable uncertainty regarding possible future changes in health care regulation, including the regulation of reimbursement for dialysis services. See "Risk factorsWe operate in a highly regulated industry such that the potential for legislative reform provides uncertainty and potential threats to our operating models and results" which is included in our Annual Report on Form 20-F for the year ended December 31, 2018.
In a final rule published on November 6, 2015, CMS provided for implementation of the PAMA oral-only provision. CMS clarified that once any non-oral ESRD-related drug in a category previously considered oral only is approved by the U.S. Food and Drug Administration ("FDA"), such category of drugs will cease to be considered oral only. However, for at least two years, CMS will pay for both oral and non-oral versions of the drug using a TDAPA. During this transition period, CMS will not pay outlier payments for these drugs, but the agency will collect data reflecting utilization of both the oral and injectable or intravenous forms of the drugs, as well as payment patterns, in order to help determine how to appropriately adjust the ESRD PPS payment rate as these drugs are included in the payment bundle. At the end of this transition period, CMS will incorporate payment for the oral and non-oral versions of the drug in the ESRD PPS payment rates, utilizing a public rulemaking process.
The introduction of Parsabiv an intravenous calcimimetic, has resulted in changes in how some payors, other than Medicare, arrange for the provision of calcimimetics for their patients. While some patients continue to receive calcimimetics from their pharmacies as a pharmacy benefit, other patients receive calcimimetics from their dialysis providers, as a medical benefit. While we receive additional reimbursement from some payors when these drugs are provided by our clinics, this type of transition from an oral-only drug has not occurred previously and the reimbursement landscape-for non-Medicare payors continues to evolve.
Several generic calcimimetic products have been approved by the FDA. Fresenius Medical Care Holdings, Inc., "FMCH") has been able to purchase certain of these generic calcimimetic products at rates that are lower than the rate paid for the brand name calcimimetic, Sensipar. As a result, FMCH has been able to realize a savings in cost. Amgen, Inc. ("Amgen"), the manufacturer of Sensipar, has taken steps to prevent the continued sale of the generic products through settlement and legal action. If Amgen is successful in preventing the continued sale of generic calcimimetics, FMCH might not be able to purchase a lower priced alternative and continue to realize cost savings, which could have an adverse effect on our business, results of operations and financial condition.
If we are unable to secure and maintain appropriate reimbursement arrangements for calcimimetics when provided by our dialysis clinics, we could experience a material adverse effect on our business, results of operations and financial condition. See "Risk FactorsIf we are unable to secure appropriate reimbursement arrangements for the pharmaceuticals we provide in our dialysis clinics, our business could be adversely affected" in our Annual Report on Form 20-F for the year ended December 31, 2018.
6
Participation in new Medicare payment arrangements
Under CMS' Comprehensive ESRD Care Model (the "Model"), dialysis providers and physicians can form entities known as ESRD Seamless Care Organizations ("ESCOs") as part of a new payment and care delivery model that seeks to deliver better health outcomes for Medicare ESRD patients while lowering CMS' costs. Following our initial participation in six ESCOs, we are presently participating in the Model through 23 ESCOs formed at our dialysis facilities. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS' cost of care above certain thresholds for the ESRD patients covered by the ESCO will receive a share of the cost savings, which is adjusted based on the ESCO's performance on certain quality metrics. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and to reimburse CMS a share of any such increases if actual costs rise above set thresholds. As of September 2019, the number of patients participating in our ESCOs was approximately 45,000.
In November 2017, we announced the results from the first performance year ("PY") from our ESCOs. The results, which cover the period from October 2015 through December 2016, show improved health outcomes for patients receiving coordinated care through the ESCOs. This success was validated by an independent report, which showed a nearly 9% decrease in hospitalization rates for these patients during the same time. As a result, the Company's ESCOs together generated more than $43 M in gross savings, an average 5.47% reduction in expenditures per patient, with all six of its first-year ESCOs exceeding the shared savings benchmark.
For PY 2017, which included the six original ESCOs and the eighteen ESCOs added on January 1, 2017, these twenty-four ESCOs had a total of approximately 25,000 aligned patients and produced $66.8 M in gross savings (3.5% improvement from the CMS benchmark), which will be shared between CMS and the ESCO partners. Based upon these reports as well as preliminary indications on future performance years, we recorded a reduction of revenue and operating income of approximately €86 M for the nine months ended September 30, 2019. We will continue to evaluate the changing ESCO rate environment.
As of January 1, 2019, we no longer provide any Medicare Advantage ESRD Chronic Conditions Special Needs Plan ("MA-CSNP") products.
We have also entered into sub-capitation and other risk-based and value-based arrangements with certain payors to provide care to commercial, including Medicare Advantage, ESRD patients. Under these arrangements, a baseline per patient per month amount is established. If the cost of complete care is less than the baseline, we retain the difference. If the cost of complete care exceeds the baseline, we may owe the payor the difference.
On July 10, 2019, President Trump signed an Executive Order on advancing kidney health. Among other things, the order instructs the Secretary of HHS to develop new Medicare payment models that will encourage identification and treatment earlier in kidney disease progression as well as increase home dialysis and transplant. One of those models, the ESRD Treatment Choices ("ETC") model, is a mandatory model that will create financial incentives for home treatment and transplant. This model proposes to apply a positive payment adjustment to claims submitted by physicians and dialysis facilities for home dialysis patients for 3 years. This model also proposes a payment adjustment based on performance. The performance-based adjustment will be based on home dialysis and transplant rates and will range from (8%) to 5% in the first payment year to (13%) and 10% percent in the final payment year. The ETC model proposes a start date of January 2020 and would end in 2026, however CMS may postpone the start date of the ETC model. Participants in this model will be selected randomly. Pursuant to the Executive Order, the Secretary also announced voluntary payment models, Kidney Care First ("KCF") and Comprehensive Kidney Care Contracting ("CKCC") (graduated, professional and global), which aims to build on the existing Comprehensive End Stage Renal Disease Care model. The voluntary models create financial incentives for health care providers to manage care for Medicare beneficiaries with chronic kidney disease stages 4 and 5 and with ESRD to delay the start of dialysis and to incentivize kidney transplant. The voluntary models allow health care providers to take on various amounts of risk. One model, the CKCC global model, allows participating organizations to assume risk for 100 percent of the total cost of care for all Medicare Part A and B services for aligned beneficiaries. The KCF model limits participation to nephrologists while the CKCC model requires participation by both nephrologists or nephrology practices and transplant providers. Dialysis providers and other suppliers may participate. The voluntary models are expected to begin in January 2020 and end in 2023, however CMS may postpone the start date of the
7
voluntary models. It is too soon to predict the effects on our business of the ETC payment model and the voluntary payment models.
Our operating segments are the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment. The operating segments are determined based upon how we manage our businesses with geographical responsibilities. All segments are primarily engaged in providing health care services and the distribution of products and equipment for the treatment of ESRD and other extracorporeal therapies. Management evaluates each segment using measures that reflect all of the segment's controllable revenues and expenses. With respect to the performance of business operations, management believes that the most appropriate IFRS measures are revenue, operating income and operating income margin. We do not include income taxes as we believe this is outside the segments' control. Financing is a corporate function which our segments do not control. Therefore, we do not include interest expense relating to financing as a segment measurement. Similarly, we do not allocate certain costs which relate primarily to certain headquarters' overhead charges, including accounting and finance, because we believe that these costs are also not within the control of the individual segments. Production of products, production asset management, quality and supply chain management as well as procurement related to production are centrally managed at Corporate. Global research and development is also centrally managed at Corporate. These corporate activities do not fulfill the definition of a segment according to IFRS 8. Products are transferred to the segments at cost; therefore, no internal profit is generated. The associated internal revenue for the product transfers and their elimination are recorded as corporate activities (see note 15 of the notes to consolidated financial statements (unaudited) found elsewhere in this report). Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but accounted for as Corporate. Accordingly, all of these items are excluded from our analysis of segment results and are discussed below in the discussion of our consolidated results of operations.
II. Discussion of measures
Certain of the following key performance indicators and other financial information as well as discussions and analyses set out in this report include measures that are not defined by IFRS ("Non-IFRS Measure"). We believe this information, along with comparable IFRS measurements, is useful to our investors as it provides a basis for assessing our performance, payment obligations related to performance-based compensation as well as our compliance with financial covenants. Non-IFRS financial measures should not be viewed or interpreted as a substitute for financial information presented in accordance with IFRS.
Delivered EBIT (Non-IFRS Measure)
As a result of the significance of noncontrolling interest holders in our operations, we believe a measure that is meaningful to investors is operating income less noncontrolling interests ("Delivered EBIT"). Delivered EBIT approximates the operating income attributable to the shareholders of FMC-AG & Co. KGaA. As such, we believe that operating income, or EBIT, is the closest comparable IFRS measure. Delivered EBIT is also benchmarked based on movement at constant exchange rates. See "Constant currency information" below.
8
Below is a table showing the reconciliation of operating income to Delivered EBIT on a consolidated basis and for our reporting segments:
Net cash provided by (used in) operating activities in % of revenue
Our consolidated statement of cash flows indicates how we generated and used cash and cash equivalents. In conjunction with our other primary financial statements, it provides information that helps us evaluate changes to our net assets and our financial structure (including liquidity and solvency). Net cash provided by (used in) operating activities is applied to assess whether a business can generate the cash required to
9
make the necessary replacement and expansion of investments. This indicator is impacted by the profitability of our business and the development of working capital, mainly receivables. Net cash provided by (used in) operating activities in percent of revenue shows the percentage of our revenue that is available in terms of financial resources. It is an indicator of our operating financial strength.
Free cash flow in % of revenue (Non-IFRS Measure)
Free cash flow (net cash provided by (used in) operating activities after capital expenditures, before acquisitions and investments) refers to the cash flow we have at our disposal. This indicator shows the percentage of revenue available for acquisitions and investments, dividends to shareholders, reducing debt financing or for repurchasing shares.
The following table shows the cash flow key performance indicators for the nine months ended September 30, 2019 and 2018 and reconciles free cash flow and free cash flow in percent of revenue to Net cash provided by (used in) operating activities and Net cash provided by (used in) operating activities in percent of revenue, respectively:
Net leverage ratio (Non-IFRS Measure)
The Net Leverage Ratio is a key performance indicator used for internal management. To determine the Net Leverage Ratio, debt less cash and cash equivalents (net debt) is compared to EBITDA (earnings before interest, taxes, depreciation and amortization) (adjusted for acquisitions and divestitures made for the last twelve months with a purchase price above a €50 M threshold as defined in our Amended 2012 Credit Agreement and non-cash charges). The ratio is an indicator of the length of time the Company needs to service the net debt out of its own resources. We believe that the Net Leverage Ratio provides alternative information that management believes to be useful in assessing our ability to meet our payment obligations in addition to considering the absolute amount of our debt. We have a strong market position in a growing, global and mainly non-cyclical market. Furthermore, most of our customers have a high credit rating as the dialysis industry is characterized by stable and sustained cash flows. We believe this enables us to work with a relatively large share of debt capital compared with companies in other
10
industries. The following table shows the reconciliation of Net Leverage Ratio as of September 30, 2019 and December 31, 2018.
Reconciliation of net leverage ratio
|
|
|
Adjusted for
IFRS 16 |
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
September 30,
2019 |
September 30,
2019 |
December 31,
2018 |
|||||||
Debt |
13,669 | 8,919 | 7,546 | |||||||
Cash and cash equivalents |
965 | 965 | 2,146 | |||||||
| | | | | | | | | | |
Net Debt |
12,704 | 7,954 | 5,400 | |||||||
Operating Income(1)(2)(3) |
2,523 | 2,233 | 2,215 | |||||||
Depreciation and amortization(1)(2) |
1,365 | 849 | 716 | |||||||
Non-cash charges(2) |
46 | 46 | 45 | |||||||
| | | | | | | | | | |
EBITDA(1)(2)(3) |
3,934 | 3,128 | 2,976 | |||||||
| | | | | | | | | | |
Net leverage ratio(1)(3) |
3.2 | 2.5 | 1.8 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Return on invested capital ("ROIC") (Non-IFRS Measure)
ROIC is the ratio of operating income, for the last twelve months, after tax ("net operating profit after tax" or "NOPAT") to the average invested capital of the last five quarter closing dates and expresses how efficiently we allocate the capital under our control or how well we employ our capital with regard to a specific investment project. The following table shows the reconciliation of average invested capital to total
11
assets, which we believe to be the most directly comparable IFRS financial measure, and how ROIC is calculated:
Reconciliation of Average Invested Capital and ROIC
|
2019
|
September 30,
2019(1) |
June 30,
2019(1) |
March 31,
2018(1) |
December 31,
2018(2) |
September 30,
2018(2) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
28,850 | 27,784 | 28,125 | 28,200 | 27,524 | |||||||||||
Plus: Cumulative goodwill amortization |
432 | 416 | 419 | 413 | 407 | |||||||||||
Minus: Cash and cash equivalents |
(965 | ) | (922 | ) | (959 | ) | (2,187 | ) | (1,795 | ) | ||||||
Minus: Loans to related parties |
(65 | ) | (62 | ) | (81 | ) | (81 | ) | (112 | ) | ||||||
Minus: Deferred tax assets |
(343 | ) | (324 | ) | (303 | ) | (346 | ) | (328 | ) | ||||||
Minus: Accounts payable |
(654 | ) | (680 | ) | (708 | ) | (658 | ) | (628 | ) | ||||||
Minus: Accounts payable to related parties |
(255 | ) | (156 | ) | (210 | ) | (154 | ) | (194 | ) | ||||||
Minus: Provisions and other current liabilities(3) |
(2,691 | ) | (2,662 | ) | (2,748 | ) | (2,774 | ) | (2,794 | ) | ||||||
Minus: Income tax payable |
(185 | ) | (176 | ) | (162 | ) | (165 | ) | (209 | ) | ||||||
| | | | | | | | | | | | | | | | |
Invested capital |
24,124 | 23,218 | 23,373 | 22,248 | 21,871 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Average invested capital as of September 30, 2019 |
22,967 | |||||||||||||||
Operating income(1)(2)(4) |
2,115 | |||||||||||||||
Income tax expense(1)(2)(4)(5) |
(533 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | |
NOPAT(4) |
1,582 | |||||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
ROIC in % |
6.9 | % |
2018
|
December 31,
2018 |
September 30,
2018(2) |
June 30,
2018(2) |
March 31,
2018(2) |
December 31,
2017(2) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
26,242 | 25,587 | 25,045 | 23,091 | 22,930 | |||||||||||
Plus: Cumulative goodwill amortization |
413 | 407 | 405 | 385 | 395 | |||||||||||
Minus: Cash and cash equivalents |
(2,146 | ) | (1,754 | ) | (1,657 | ) | (800 | ) | (931 | ) | ||||||
Minus: Loans to related parties |
(81 | ) | (112 | ) | (118 | ) | (109 | ) | (92 | ) | ||||||
Minus: Deferred tax assets |
(345 | ) | (328 | ) | (334 | ) | (325 | ) | (315 | ) | ||||||
Minus: Accounts payable |
(641 | ) | (611 | ) | (559 | ) | (496 | ) | (577 | ) | ||||||
Minus: Accounts payable to related parties |
(154 | ) | (194 | ) | (183 | ) | (236 | ) | (147 | ) | ||||||
Minus: Provisions and other current liabilities(3) |
(2,728 | ) | (2,748 | ) | (2,689 | ) | (2,406 | ) | (2,565 | ) | ||||||
Minus: Income tax payable |
(165 | ) | (209 | ) | (330 | ) | (239 | ) | (194 | ) | ||||||
| | | | | | | | | | | | | | | | |
Invested capital |
20,395 | 20,038 | 19,580 | 18,865 | 18,504 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Average invested capital as of December 31, 2018 |
19,476 | |||||||||||||||
Operating income(2) |
3,024 | |||||||||||||||
Income tax expense(2)(5) |
(617 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | |
NOPAT |
2,407 | |||||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
ROIC in % |
12.4 | % |
12
EBITDA is the basis for determining compliance with certain covenants contained in our Amended 2012 Credit Agreement and may also be relevant in other major financing arrangements. You should not consider EBITDA to be an alternative to net earnings determined in accordance with IFRS or to cash flow from operations, investing activities or financing activities. In addition, not all funds depicted by EBITDA are available for management's discretionary use. For example, a substantial portion of such funds are subject to contractual restrictions and functional requirements to fund debt service, capital expenditures and other commitments from time to time as described in more detail elsewhere in this report. A reconciliation of EBITDA to cash flow provided by (used in) operating activities, which we believe to be the most directly comparable IFRS financial measure, is calculated as follows:
Reconciliation of EBITDA to net cash provided by (used in) operating activities
|
|
For the nine
months ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2018 | |||||
Total EBITDA |
2,812 | 2,959 | |||||
Interest expense (net of interest income) |
(327 | ) | (244 | ) | |||
Income tax expense |
(292 | ) | (448 | ) | |||
Change in deferred taxes, net |
30 | 69 | |||||
Changes in operating assets and liabilities |
(296 | ) | (137 | ) | |||
Compensation expense related to share-based plans |
2 | 10 | |||||
(Gain) loss from the sale of fixed assets, right-of-use assets, investments and divestitures |
(101 | ) | (836 | ) | |||
Other items, net |
(32 | ) | (9 | ) | |||
| | | | | | | |
Net cash provided by (used in) operating activities |
1,796 | 1,364 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Constant currency information (Non-IFRS)
Some key performance indicators and other financial measures used in this report such as changes in revenue, operating income and net income attributable to shareholders of FMC-AG & Co. KGaA include the impact of translating local currencies to our reporting currency for financial reporting purposes. We calculate these Non-IFRS financial measures at constant exchange rates in our filings to show changes in our revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items without giving effect to period-to-period currency fluctuations. Under IFRS, amounts received in local (non-euro) currency are translated into euro at the average exchange rate for the period presented. Once we translate the local currency for the constant currency, we then calculate the change, as a percentage, of the current period calculated using the prior period exchange rates versus the prior period. This resulting percentage is a Non-IFRS Measure referring to a change as a percentage at constant currency. These currency-adjusted financial measures are identifiable by the designated terms "Constant Exchange Rates" or "Constant Currency."
We believe that the measures at Constant Currency (Non-IFRS Measure) are useful to investors, lenders and other creditors because such information enables them to gauge the impact of currency fluctuations on our revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items from period to period. However, we limit our use of Constant Currency period-over-period changes to a measure for the impact of currency fluctuations on the translation of local currency into euro. We do not evaluate our results and performance without considering both Constant Currency period-over-period changes in Non-IFRS revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items and changes in revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items prepared in accordance with IFRS. We caution the readers of this report to follow a similar approach by considering data on Constant Currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items prepared in accordance with IFRS. We present the growth rate derived from IFRS measures next to the growth rate derived from Non-IFRS measures such as revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items. As the reconciliation is
13
inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.
Business metrics for Care Coordination
The measures for the North America Segment and the Asia-Pacific Segment discussed below include prior programs in which we participated and current and future programs that we will be participating in and will be reflected in the discussion of our business. Currently, in our North America Segment, sub-capitation, BPCI (until June 28, 2018see note 2 of the notes to the consolidated financial statements (unaudited) included in this report), ESCO programs, MA-CSNPs (until December 31, 2018) and other shared savings programs are included within the Member Months and Medical Cost Under Management calculations below. In the future, other programs may be included in the metrics below. Note that due to the timing required by CMS to review the BPCI and ESCO program data that we provide, estimates have been used to report these metrics in a timely manner. The Asia-Pacific Segment Care Coordination metric currently used for discussion purposes is patient encounters. These metrics may be developed further in future periods. These metrics are neither IFRS measures nor non-IFRS measures and are therefore not accompanied by or reconciled to IFRS measures.
Member months under medical cost management
In our North America Segment, member months under medical cost management is calculated by multiplying the number of members included in value-based reimbursement programs, such as Medicare Advantage plans or other value-based programs in the U.S., by the corresponding number of months these members participate in those programs ("Member Months"). In the aforementioned programs, we assume the risk of generating savings. The financial results are recorded in earnings as our performance is determined. The membership offerings within Care Coordination are sub-capitation arrangements, MA-CSNPs (until December 31, 2018), ESCO and BPCI (until June 28, 2018see note 2 of the notes to the consolidated financial statements (unaudited) included in this report) programs as well as other shared savings programs. An increase in patient membership may indicate future earnings or losses as our performance is determined through these managed care programs.
In our North America Segment, medical cost under management represents the management of medical costs associated with our patient membership in value-based programs. For ESCO, BPCI (until June 28, 2018see note 2 of the notes to the consolidated financial statements (unaudited) included in this report) and other shared savings programs, this is calculated by multiplying the Member Months in each program by the benchmark of expected medical costs per member per month. The sub-capitation and MA-CSNPs calculation multiplies the premium per member of the program per month by the number of Member Months associated with the plan, as noted above.
Care Coordination patient encounters
In the North America Segment and the Asia-Pacific Segment, Care Coordination patient encounters represents the total patient encounters and procedures conducted by certain of our Care Coordination activities and, we believe, is an indicator of the revenue generated. Care Coordination patient encounters in the North America Segment is the sum of all encounters and procedures completed during the period by Sound Inpatient Physicians, Inc. ("Sound") until June 28, 2018 (see note 2 of the notes to the consolidated financial statements (unaudited) included in this report), MedSpring Urgent Care Centers, Azura Vascular Care, and National Cardiovascular Partners, the trade name of Laurus Healthcare L.P., as well as patients in our Fresenius Medical Care Rx Bone Mineral Metabolism ("Rx BMM") program. Care Coordination patient encounters in the Asia-Pacific Segment is the sum of all encounters for the following services: ambulant treatment services in day care hospitals, comprehensive and specialized health check-ups, inpatient and outpatient services, vascular access and other chronic treatment services.
III. Results of operations, financial position and net assets
The following sections summarize our results of operations, financial position and net assets as well as key performance indicators by reporting segment, as well as Corporate, for the periods indicated. We prepared the information using a management approach, consistent with the manner in which management
14
internally disaggregates financial information to assist in making operating decisions and evaluating management performance.
Segment data (including Corporate)
|
|
For the three
months ended September 30, |
For the nine
months ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2019 | 2018 | 2019 | 2018 | |||||||||
Total revenue |
|||||||||||||
North America |
3,073 | 2,843 | 9,021 | 8,589 | |||||||||
EMEA |
683 | 620 | 1,984 | 1,908 | |||||||||
Asia-Pacific |
475 | 421 | 1,360 | 1,235 | |||||||||
Latin America |
182 | 171 | 516 | 505 | |||||||||
Corporate |
6 | 3 | 16 | 10 | |||||||||
| | | | | | | | | | | | | |
Total |
4,419 | 4,058 | 12,897 | 12,247 | |||||||||
| | | | | | | | | | | | | |
Operating income |
|||||||||||||
North America |
477 | 525 | 1,279 | 2,173 | |||||||||
EMEA |
100 | 88 | 334 | 302 | |||||||||
Asia-Pacific |
90 | 66 | 254 | 218 | |||||||||
Latin America |
11 | (1 | ) | 28 | 24 | ||||||||
Corporate |
(83 | ) | (151 | ) | (242 | ) | (292 | ) | |||||
| | | | | | | | | | | | | |
Total |
595 | 527 | 1,653 | 2,425 | |||||||||
| | | | | | | | | | | | | |
Interest income |
21 | 9 | 47 | 31 | |||||||||
Interest expense |
(126 | ) | (85 | ) | (374 | ) | (275 | ) | |||||
Income tax expense |
(98 | ) | (102 | ) | (292 | ) | (448 | ) | |||||
| | | | | | | | | | | | | |
Net Income |
392 | 349 | 1,034 | 1,733 | |||||||||
Net Income attributable to noncontrolling interests |
(59 |
) |
(64 |
) |
(177 |
) |
(176 |
) |
|||||
| | | | | | | | | | | | | |
Net Income attributable to shareholders of FMC-AG & Co. KGaA |
333 | 285 | 857 | 1,557 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Revenue and operating income generated in countries outside the eurozone are subject to currency fluctuations. The three and nine months ended September 30, 2019 were positively impacted by the development of the euro against the U.S. dollar whereas the three and nine months ended September 30, 2018 were negatively impacted by the development of the euro against the U.S. dollar. For the three- and nine-months ended September 30, 2019, approximately 70% and 70%, respectively, of revenue and approximately 80% and 77%, respectively, of operating income were generated in U.S. dollars.
15
Three months ended September 30, 2019 compared to three months ended September 30, 2018
Key indicators for the consolidated financial statements
|
|
For the three months ended
September 30 |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As
reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Revenue |
4,419 | 4,058 | 9 | % | 6 | % | |||||||
Health care services |
3,492 | 3,258 | 7 | % | 4 | % | |||||||
Health care products |
927 | 800 | 16 | % | 13 | % | |||||||
Number of dialysis treatments |
13,237,546 | 12,557,574 | 5 | % | |||||||||
Same market treatment growth in % |
3.7 | % | 2.9 | % | |||||||||
Gross profit as a % of revenue |
30.5 | % | 31.2 | % | |||||||||
Selling, general and administrative costs as a % of revenue |
16.4 | % | 18.3 | % | |||||||||
Operating income |
595 | 527 | 13 | % | 9 | % | |||||||
Operating income margin in % |
13.5 | % | 13.0 | % | |||||||||
Delivered EBIT(2) |
536 | 463 | 16 | % | 11 | % | |||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA |
333 | 285 | 17 | % | 12 | % | |||||||
Basic earnings per share |
1.10 | 0.93 | 19 | % | 14 | % |
Health care services revenue increased by 7% including a 3% positive impact from foreign currency translation effects. At Constant Exchange Rates, health care services revenue increased by 4% largely due to growth in same market treatments (4%), contributions from acquisitions (2%) and an increase in dialysis days (1%), partially offset by a revenue recognition adjustment of €84 M for accounts receivable in legal dispute (2%) (see note 13 of the notes the consolidated financial statements (unaudited) included in this report) and the effect of closed or sold clinics (1%).
Dialysis treatments increased by 5% as a result of growth in same market treatments (4%) contributions from acquisitions (1%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (1%).
At September 30, 2019, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 4,003 dialysis clinics compared to 3,872 dialysis clinics at September 30, 2018. During the three months ended September 30, 2019, we acquired 8 dialysis clinics, opened 30 dialysis clinics and combined or closed 31 clinics. The number of patients treated in dialysis clinics that we own, operate or manage (excluding patients of dialysis clinics managed but not consolidated in the U.S.) increased by 4% to 342,488 at September 30, 2019 from 329,085 at September 30, 2018.
Health care product revenue increased by 16% including a 3% positive impact from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 13%. Dialysis product revenue increased by 16%, including a 3% positive impact from foreign currency translation. At Constant Exchange Rates, dialysis product revenue increased by 13% driven by higher sales of home hemodialysis products (largely as a result of the acquisition of NxStage Medical Inc. ("NxStage")), dialyzers, hemodialysis solutions and concentrates, bloodlines and renal pharmaceuticals, partially offset by lower sales of machines. Non-dialysis product revenue increased by 14% to €20 M from €18 M with no foreign currency translation effects.
The decrease period over period in the gross profit margin was 0.7 percentage points. Foreign currency translation effects represented a 0.1 percentage point positive impact in the current period. The decrease primarily reflects a decrease in the North America Segment, partially offset by an increase in the Asia Pacific Segment. The decrease in the North America Segment was mainly attributable to a revenue recognition adjustment for accounts receivable in legal dispute (see note 13 of the notes the consolidated
16
financial statements (unaudited) included in this report), higher personnel expense and the effect of a reduction in patient attribution and a decreasing savings rate for ESCOs (loss rate for 2019) based on recent reports for current and prior plan years ("ESCO effect"), partially offset by a favorable impact from higher utilization of oral based ancillaries with favorable margins, a positive effect from the IFRS 16 Implementation (see note 1 of the notes to the consolidated financial statements (unaudited) included in this report), the impact from the acquisition of NxStage, the impact from an increase in the ESRD PPS base rate and lower costs for healthcare supplies. The increase in the Asia-Pacific Segment was mainly driven by favorable impacts from business growth and a positive effect from the IFRS 16 Implementation, partially offset by unfavorable foreign currency transaction effects.
The decrease period over period in selling, general and administrative ("SG&A") expenses as a percentage of revenue was 1.9 percentage points. Foreign currency translation effects represented a 0.1 percentage point positive effect in the current period. The decrease was primarily driven by decreases at Corporate, in the Latin America Segment and the Asia Pacific Segment, partially offset by an increase in the North America Segment. The favorable impact at Corporate was mainly driven by the effect from a prior year accrual for an FCPA related charge ("FCPA Related Charge") (see note 13 of the notes the consolidated financial statements (unaudited) included in this report). The decrease in the Latin America Segment was driven by favorable impact from inflation, lower bad debt expense, as well as favorable impacts from acquisitions and foreign currency transaction effects. The decrease in the Asia-Pacific Segment was due to favorable foreign currency transaction effects. The increase in the North America Segment was due to higher personnel expense, the negative impact from income attributable to a consent agreement on certain pharmaceuticals in 2018, costs associated with the sustainable improvement of our cost base ("Cost Optimization Costs"), the integration and operational costs associated with NxStage, and a revenue recognition adjustment for accounts receivable in legal dispute (see note 13 of the notes the consolidated financial statements (unaudited) included in this report), partially offset by the remeasurement effect on the fair value of our Humacyte, Inc. investment ("Humacyte"), lower stock compensation expense and the prior year effect from contributions to the opposition to the ballot initiatives in the U.S. ("U.S. Ballot Initiatives").
Research and development expenses increased by 91% to €49 M from €26 M. The increase period over period, as a percentage of revenue, was 0.5 percentage points largely driven by research and development activities at NxStage, products related to home therapies as well as pre-development activities.
Income from equity method investees increased by 14% to €21 M from €18 M. The increase was primarily driven by higher income from Vifor Fresenius Medical Care Renal Pharma Ltd., an entity in which we have ownership of 45%, mainly due to higher sales of renal pharmaceuticals.
The increase period over period in the operating income margin was 0.5 percentage points. Foreign currency translation effects represented a 0.1 percentage point positive effect in the current period. The increase in the current period was driven by the decrease in SG&A expenses as a percentage of revenue, partially offset by the decrease in the gross profit margin as well as increased research and development expenses as a percentage of revenue, as discussed above.
Delivered EBIT increased by 16% including a 5% positive impact from foreign currency translation effects. At Constant Exchange Rates, Delivered EBIT increased by 11% largely driven by increased operating income.
Net interest expense increased by 38% to €105 M from €76 M, including a 5% negative impact from foreign currency translation effects. At Constant Exchange Rates, net interest expense increased by 33%, primarily due to the IFRS 16 Implementation, a higher debt level and the interest income from the investment of the Sound proceeds in the comparable period, partially offset by the replacement of high interest bearing bonds repaid in 2018 by debt instruments at lower interest rates.
Income tax expense decreased by 3% to €98 M from €102 M. The effective tax rate decreased to 20.2% from 22.7% for the same period of 2018 largely driven by the prior year impacts in 2018 from non-tax deductible expenses, mainly related to the FCPA Related Charge and U.S. Ballot Initiatives, partially offset by the favorable prior year impacts due to effects of the U.S. tax reform.
Net income attributable to noncontrolling interests decreased by 8%, including a 4% negative impact resulting from foreign currency translation effects. At Constant Exchange Rates, net income attributable to noncontrolling interests decreased by 12% driven by lower earnings from our dialysis business in the United States.
17
Net income attributable to shareholders of FMC-AG & Co. KGaA increased by 17% to €333 M from €285 M including a 5% positive impact resulting from foreign currency translation. At Constant Exchange Rates, net income attributable to shareholders of FMC-AG & Co. KGaA increased by 12% due to the combined effects of the items discussed above.
Basic earnings per share increased by 19%, including a 5% positive impact resulting from foreign currency translation. At Constant Exchange Rates, basic earnings per share increased by 14%. The average weighted number of shares outstanding for the period was approximately 301.4 M in 2019 (306.5 M in 2018), see note 2 of the notes to the consolidated financial statements (unaudited) included in this report.
We employed 120,734 people (full-time equivalents) as of September 30, 2019 compared to 112,134 as of September 30, 2018, an increase of 8%, primarily due to the NxStage acquisition.
Consolidated operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the three months ended September 30, 2019 and 2018, we have identified the following transactions that, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the consolidated financial statements in accordance with IFRS to the key indicators adjusted for the items described above as the adjustments allow for a better comparison of these key indicators to our Outlook presented in this report. While we believe these
18
adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
Consolidated operating performance on an adjusted basis
in € M, except where otherwise specified |
|
|
|
|
|
|
(Gain) loss
related to divestitures of Care Coordination activities |
|
Change in %
as adjusted |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Results
2019 |
IFRS 16
Implementation |
NxStage
operations |
NxStage
costs |
Cost
optimization costs |
Results 2019
Adjusted |
Current
rate |
Constant
Currency(1) |
||||||||||||||||||||
Three months ended September 30 |
||||||||||||||||||||||||||||
Total revenue |
4,419 | 35 | (79 | ) | | | | 4,375 | 8 | % | 5 | % | ||||||||||||||||
Health Care Services |
3,492 | | (5 | ) | | | | 3,487 | 7 | % | 4 | % | ||||||||||||||||
Health Care Products |
927 | 35 | (74 | ) | | | | 888 | 11 | % | 9 | % | ||||||||||||||||
Total operating income (EBIT) |
595 | (21 | ) | 0 | 2 | 25 | (2 | ) | 599 | 1 | % | (3 | )% | |||||||||||||||
Operating income (EBIT) Margin |
13.5 | % | 13.7 | % | ||||||||||||||||||||||||
Interest expense, net |
105 | (43 | ) | (21 | ) | | | | 41 | (46 | )% | (47 | )% | |||||||||||||||
Income tax expense |
98 | 6 | 6 | 1 | 7 | 18 | 136 | 24 | % | 19 | % | |||||||||||||||||
Net income attributable to noncontrolling interests |
59 | | | | | | 59 | (8 | )% | (12 | )% | |||||||||||||||||
Net income(2) |
333 | 16 | 15 | 1 | 18 | (20 | ) | 363 | 6 | % | 2 | % | ||||||||||||||||
Basic earnings per share |
1.10 | 0.06 | 0.05 | 0.01 | 0.06 | (0.07 | ) | 1.21 | 8 | % | 4 | % |
Consolidated operating performance on an adjusted basis
|
|
Results
2018 |
Sound H1(3) |
(Gain) loss
related to divestitures of Care Coordination activities |
FCPA
related charge |
Results
2018 Adjusted |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30 |
||||||||||||||||
Total revenue |
4,058 | (7 | ) | | | 4,051 | ||||||||||
Health Care Services |
3,258 | (7 | ) | | | 3,251 | ||||||||||
Health Care Products |
800 | | | | 800 | |||||||||||
Total operating income (EBIT) |
527 | 0 | (10 | ) | 75 | 592 | ||||||||||
Operating income (EBIT) Margin |
13.0 | % | 14.6 | % | ||||||||||||
Interest expense, net |
76 | | | | 76 | |||||||||||
Income tax expense |
102 | 0 | 7 | | 109 | |||||||||||
Net income attributable to noncontrolling interests |
64 | 0 | | | 64 | |||||||||||
Net income(2) |
285 | 0 | (17 | ) | 75 | 343 | ||||||||||
Basic earnings per share |
0.93 | 0 | (0.05 | ) | 0.24 | 1.12 |
The following discussions pertain to the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment and the measures we use to manage these segments.
19
Key indicators and business metrics for the North America Segment
in € M, except where otherwise specified |
|
For the three months
ended September 30 |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | As Reported | ||||||||||
Total North America Segment |
|||||||||||||
Revenue |
3,073 | 2,843 | 8 | % | 3 | % | |||||||
Health care services |
2,795 | 2,628 | 6 | % | 2 | % | |||||||
Health care products |
278 | 215 | 30 | % | 24 | % | |||||||
Operating income |
477 | 525 | (9 | )% | (13 | )% | |||||||
Operating income margin in % |
15.5 | % | 18.5 | % | |||||||||
Delivered EBIT(2) |
422 | 464 | (9 | )% | (13 | )% | |||||||
Dialysis |
|
|
|
|
|||||||||
Revenue |
2,800 | 2,543 | 10 | % | 5 | % | |||||||
Number of dialysis treatments |
8,174,088 | 7,733,405 | 6 | % | |||||||||
Same market treatment growth in % |
3.4 | % | 2.5 | % | |||||||||
Operating income |
500 | 489 | 2 | % | (2 | )% | |||||||
Operating income margin in % |
17.9 | % | 19.2 | % | |||||||||
Delivered EBIT(2) |
450 | 434 | 4 | % | (1 | )% | |||||||
Care Coordination |
|
|
|
|
|||||||||
Revenue |
273 | 300 | (9 | )% | (13 | )% | |||||||
Operating income |
(23 | ) | 36 | n.a. | n.a. | ||||||||
Operating income margin in % |
(8.3 | )% | 12.1 | % | |||||||||
Delivered EBIT(2) |
(28 | ) | 30 | n.a. | n.a. | ||||||||
Member months under medical cost management(3)(4) |
146,714 | 149,161 | (2 | )% | |||||||||
Medical cost under management(3)(4) |
975 | 866 | 13 | % | 8 | % | |||||||
Care Coordination patient encounters(3) |
224,531 | 235,491 | (5 | )% |
Dialysis revenue increased by 10% including a 5% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis revenue increased by 5%. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care revenue increased by 8% to €2,522 M from €2,328 M, including a 4% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis care revenue increased by 4% mainly due to increases in growth in same market treatments (3%), increases in organic revenue per treatment (2%), contributions from acquisitions (1%) and an increase in dialysis days (1%), partially offset by a revenue recognition adjustment of €84 M for accounts receivable in legal dispute (3%) (see note 13 of the notes the consolidated financial statements (unaudited) included in this report).
Dialysis treatments increased by 6% largely due to growth in same market treatments (3%), contributions from acquisitions (2%) and an increase in dialysis days (1%). At September 30, 2019, 209,633 patients (4% increase from September 30, 2018) were being treated in the 2,585 dialysis clinics that we own or operate in the North America Segment, compared to 201,220 patients treated in 2,486 dialysis clinics at September 30, 2018.
20
In the U.S., the average revenue per treatment decreased to $347 (€299 at Constant Exchange Rates) from $356 (€306). The development was mainly attributable to a revenue recognition adjustment of €84 M for accounts receivable in legal dispute (see note 13 of the notes the consolidated financial statements (unaudited) included in this report), partially offset by lower implicit price concessions, higher utilization of oral based ancillaries and the impact from an increase in the ESRD PPS base rate.
Cost per treatment in the U.S., adjusted for the effects from the IFRS 16 Implementation, increased to $292 (€251 at Constant Exchange Rates) from $290 (€249). This increase was largely driven by higher personnel expense and the impact from the acquisition of NxStage, partially offset by lower costs for health care supplies.
Health care product revenue increased by 30% including a 6% positive impact resulting from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 24% driven by higher sales of home hemodialysis products largely as a result of the NxStage acquisition, renal pharmaceuticals and dialyzers, partially offset by lower sales of machines as a result of changes in the accounting treatment for sale-leaseback transactions in accordance with the IFRS 16 Implementation.
The decrease period over period in the dialysis operating income margin was 1.3 percentage points with virtually no foreign currency translation effects in the current period. At Constant Exchange Rates, the decrease was due to higher personnel expense, a revenue recognition adjustment for accounts receivable in legal dispute (see note 13 of the notes the consolidated financial statements (unaudited) included in this report), the negative impact from income attributable to a consent agreement on certain pharmaceuticals in the prior year, Cost Optimization Costs, and the integration and operational costs associated with NxStage, partially offset by the remeasurement effect on the fair value of our Humacyte investment, a favorable impact from higher utilization of oral based ancillaries with favorable margins, lower stock compensation expense, the prior year effect from U.S. Ballot Initiatives and a positive effect from the IFRS 16 Implementation.
Dialysis Delivered EBIT increased by 4%, including a 5% positive impact from foreign currency translation effects. At Constant Exchange Rates, dialysis Delivered EBIT decreased by 1% mainly as a result of decreased operating income (at Constant Exchange Rates).
Care Coordination revenue decreased by 9%, including a 4% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Care Coordination revenue decreased by 13% driven by a decrease in organic revenue, including the ESCO Effect (12%), and a decrease in MedSpring Urgent Care Centers encounters due to the sale of 24 locations in Texas (5%), partially offset by contributions from acquisitions (4%).
The decrease period over period in the Care Coordination operating income margin was 20.4 percentage points. Foreign currency translation effects represented a 0.2 percentage point decrease in the current period. The decrease at Constant Exchange Rates was mainly due to the ESCO effect, lower gains from the divestiture of Care Coordination activities and unfavorable margins for oral based ancillaries, partially offset by higher volumes for vascular services.
Care Coordination Delivered EBIT decreased to a loss of €28 M for the three months ended September 30, 2019 as compared to €30 M in the comparative period of 2018 mainly as a result of decreased operating income (at Constant Exchange Rates).
21
Care Coordination business metrics
Member months under medical cost management decreased by 2% primarily due a decrease in ESCOs from exiting one of our locations. See note 4 to the table "Key indicators and business metrics for the North America Segment," above.
Care Coordination's medical cost under management increased by 13%, including a 5% positive impact from foreign currency translation in the current period. At Constant Exchange Rates, Care Coordination's medical cost under management increased by 8% due to the expansion of our existing ESCOs through the addition of new physician practice partners and dialysis facilities since the beginning of 2018 as well as an increase in the per member per month baseline rate. See note 4 to the table "Key indicators and business metrics for the North America Segment" above.
The decrease in patient encounters was primarily driven by a decrease in MedSpring Urgent Care Centers encounters due to the sale of 24 locations in Texas, partially offset by increased encounters in our Rx BMM program. See note 2 of the notes to consolidated financial statements (unaudited) included in this report and note 4 to the table "Key indicators and business metrics for the North America Segment" above.
North America Segment operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the three months ended September 30, 2019 and 2018, we have identified the following transactions that, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the North America Segment in accordance with IFRS to the key indicators adjusted for the items described above as the adjustments allow for a better comparison of these key indicators to our Outlook presented in this report. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
North America Segment operating performance on an adjusted basis
|
|
|
|
|
|
|
(Gain) loss
related to divestitures of Care Coordination activities |
|
|
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
Change in % as adjusted | |||||||||||||||||||||
|
Results
2019 |
IFRS 16
Implementation |
NxStage
operations |
NxStage
costs |
Cost
optimization costs |
Results
2019 Adjusted |
Current
rate |
Constant
Currency(1) |
||||||||||||||||||||
Three months ended September 30 |
||||||||||||||||||||||||||||
Revenue |
3,073 | 35 | (79 | ) | | | | 3,029 | 7 | % | 2 | % | ||||||||||||||||
Health Care Services |
2,795 | | (5 | ) | | | | 2,790 | 6 | % | 2 | % | ||||||||||||||||
thereof Dialysis Care |
2,522 | | (5 | ) | | | | 2,517 | 8 | % | 3 | % | ||||||||||||||||
thereof Care Coordination |
273 | | | | | | 273 | (7 | )% | (11 | )% | |||||||||||||||||
Health Care Products |
278 | 35 | (74 | ) | | | | 239 | 11 | % | 6 | % | ||||||||||||||||
Operating income (EBIT) |
477 | (15 | ) | 1 | 2 | 22 | (2 | ) | 485 | (6 | )% | (10 | )% | |||||||||||||||
Operating income margin (EBIT) |
15.5 | % | 16.0 | % | ||||||||||||||||||||||||
Dialysis |
500 | (12 | ) | 1 | 2 | 22 | | 513 | 5 | % | 0 | % | ||||||||||||||||
Dialysis operating income margin (EBIT) |
17.9 | % | 18.6 | % | ||||||||||||||||||||||||
Care Coordination |
(23 | ) | (3 | ) | | | | (2 | ) | (28 | ) | n.a. | n.a. | |||||||||||||||
Care Coordination operating income margin (EBIT) |
(8.3 | )% | (10.2 | )% |
22
North America Segment operating performance on an adjusted basis
|
|
Results
2018 |
Sound H1(2) |
(Gain) loss
related to divestitures of Care Coordination activities |
Results
2018 Adjusted |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30 |
|||||||||||||
Revenue |
2,843 | (7 | ) | | 2,836 | ||||||||
Health Care Services |
2,628 | (7 | ) | | 2,621 | ||||||||
thereof Dialysis Care |
2,328 | | | 2,328 | |||||||||
thereof Care Coordination |
300 | (7 | ) | | 293 | ||||||||
Health Care Products |
215 | | | 215 | |||||||||
Operating income (EBIT) |
525 | 0 | (10 | ) | 515 | ||||||||
North America operating income margin (EBIT) |
18.5 | % | 18.2 | % | |||||||||
Dialysis |
489 | | | 489 | |||||||||
Dialysis operating income margin (EBIT) |
19.2 | % | 19.2 | % | |||||||||
Care Coordination |
36 | 0 | (10 | ) | 26 | ||||||||
Care Coordination operating income margin (EBIT) |
12.1 | % | 9.0 | % |
Key indicators for the EMEA Segment
|
|
For the three months
ended September 30, |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As
Reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Revenue |
683 | 620 | 10 | % | 9 | % | |||||||
Health care services |
343 | 314 | 9 | % | 8 | % | |||||||
Health care products |
340 | 306 | 11 | % | 10 | % | |||||||
Number of dialysis treatments |
2,527,666 | 2,455,783 | 3 | % | |||||||||
Same market treatment growth in % |
3.6 | % | 3.3 | % | |||||||||
Operating income |
100 | 88 | 14 | % | 14 | % | |||||||
Operating income margin in % |
14.6 | % | 14.1 | % | |||||||||
Delivered EBIT(2) |
98 | 86 | 14 | % | 14 | % |
Health care service revenue increased by 9%, including a 1% positive impact resulting from foreign currency translation. At Constant Exchange Rates, health care service revenue increased by 8% as a result of growth in same market treatments (4%), increases in organic revenue per treatment (3%), contributions from acquisitions (2%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (2%).
Dialysis treatments increased by 3% mainly due to growth in same market treatments (4%), contributions from acquisitions (1%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (3%). As of September 30, 2019, we had 66,259 patients (3% increase from September 30, 2018) being treated at the 784 dialysis clinics that we own, operate or manage in the EMEA Segment compared to 64,539 patients treated at 769 clinics at September 30, 2018.
23
Health care product revenue increased by 11%, including a 1% positive impact resulting from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 10%. Dialysis product revenue increased by 11%, including a 1% positive impact resulting from foreign currency translation. At Constant Exchange Rates, the increase of 10% in dialysis product revenue was due to higher sales of dialyzers, bloodlines, hemodialysis solutions and concentrates, machines and peritoneal dialysis products. Non-Dialysis product revenue increased by 14% to €20 M from €18 M with virtually no impact from foreign currency translation effects.
The increase period over period in the operating income margin was 0.5 percentage points. Foreign currency translation effects represented a 0.1 percentage point decrease in the operating income margin. At Constant Exchange Rates, operating income margin increased due to the impact from higher product sales, favorable foreign currency transaction effects, lower stock compensation expense, and the impact from one additional dialysis day, partially offset by higher bad debt expense and higher personnel expense in certain countries.
Delivered EBIT increased by 14%, with virtually no impact resulting from foreign currency translation. At Constant Exchange Rates, the Delivered EBIT increased by 14% primarily due to increased operating income.
Key indicators for the Asia-Pacific Segment
|
|
For the three months
ended September 30, |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As
Reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Total Asia-Pacific Segment |
|||||||||||||
Revenue |
475 | 421 | 13 | % | 9 | % | |||||||
Health care services |
223 | 194 | 15 | % | 9 | % | |||||||
Health care products |
252 | 227 | 11 | % | 9 | % | |||||||
Operating income |
90 | 66 | 36 | % | 32 | % | |||||||
Operating income margin in % |
19.0 | % | 15.7 | % | |||||||||
Delivered EBIT(2) |
88 | 65 | 37 | % | 33 | % | |||||||
Dialysis |
|
|
|
|
|||||||||
Revenue |
411 | 367 | 12 | % | 8 | % | |||||||
Number of dialysis treatments |
1,160,964 | 1,096,803 | 6 | % | |||||||||
Same market treatment growth in % |
6.6 | % | 6.2 | % | |||||||||
Operating income |
81 | 57 | 42 | % | 37 | % | |||||||
Operating income margin in % |
19.9 | % | 15.7 | % | |||||||||
Delivered EBIT(2) |
79 | 57 | 42 | % | 37 | % | |||||||
Care Coordination |
|
|
|
|
|||||||||
Revenue |
64 | 54 | 20 | % | 16 | % | |||||||
Operating income |
9 | 9 | 0 | % | (2 | )% | |||||||
Operating income margin in % |
13.6 | % | 16.2 | % | |||||||||
Delivered EBIT(2) |
9 | 8 | 3 | % | 1 | % | |||||||
Care Coordination patient encounters(3) |
295,146 | 270,931 | 9 | % |
24
Dialysis revenue increased by 12% including a 4% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis revenue increased by 8%. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care revenue increased by 13% to €159 M from €140 M including a 6% positive impact resulting from foreign currency translation effects. At Constant Exchange Rates, dialysis care revenue increased by 7% as a result of growth in same market treatments (7%), contributions from acquisitions (1%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (2%).
Dialysis treatments increased by 6% mainly due to growth in same market treatments (7%), contributions from acquisitions (1%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (3%). As of September 30, 2019, we had 32,239 patients (3% increase from September 30, 2018) being treated at the 401 dialysis clinics that we own, operate or manage in the Asia-Pacific Segment compared to 31,152 patients treated at 390 clinics at September 30, 2018.
Health care product revenue increased by 11% including a 2% positive impact resulting from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 9% as a result of increased sales of dialyzers, bloodlines, hemodialysis solutions and concentrates as well as peritoneal dialysis products, partially offset by lower sales of machines.
The increase period over period in the operating income margin was 4.2 percentage points with virtually no effect from foreign currency translation. At Constant Exchange Rates, the operating income margin increased due to the impact from business growth and favorable foreign currency transaction effects, partially offset by an unfavorable mix effect from acquisitions with lower margins.
Delivered EBIT increased by 42%, including a 5% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Delivered EBIT increased by 37% mainly due to increased operating income.
Care Coordination revenue increased by 20%, including a 4% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Care Coordination revenue increased by 16% driven by organic revenue growth (9%) and contributions from acquisitions (7%).
The decrease period over period in the Care Coordination operating income margin was 2.6 percentage points. Foreign currency translation effects represented a 0.1 percentage point decrease in the operating income margin. At Constant Exchange Rates, the operating income margin decrease was driven by higher start-up and operating costs, partially offset by a positive effect from the IFRS 16 Implementation.
Care Coordination Delivered EBIT increased by 3%, including a 2% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Care Coordination Delivered EBIT increased by 1% mainly as the result of a decrease in income attributable to noncontrolling interests.
Care Coordination business metrics
The number of patient encounters increased due to increased encounters for inpatient and outpatient services, other chronic treatment services, comprehensive and specialized health check-ups, ambulant treatment services and vascular access.
25
Key indicators for the Latin America Segment | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
in € M, except where otherwise specified
|
|||||||||||||
|
For the three months
ended September 30, |
Change in % | |||||||||||
|
As
Reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Revenue |
182 | 171 | 7 | % | 20 | % | |||||||
Health care services |
131 | 122 | 8 | % | 26 | % | |||||||
Health care products |
51 | 49 | 3 | % | 5 | % | |||||||
Number of dialysis treatments |
1,374,828 | 1,271,583 | 8 | % | |||||||||
Same market treatment growth in % |
2.7 | % | 1.4 | % | |||||||||
Operating income |
11 |
(1 |
) |
n.a. |
n.a. |
||||||||
Operating income margin in % |
5.8 | % | (0.9 | )% | |||||||||
Delivered EBIT(2) |
11 |
(1 |
) |
n.a. |
n.a. |
Health care service revenue increased by 8%, including an 18% negative impact resulting from foreign currency translation. At Constant Exchange Rates, health care service revenue increased by 26% as a result of increases in organic revenue per treatment (17%), contributions from acquisitions (6%), growth in same market treatments (3%) and an increase in dialysis days (1%), partially offset by the effects of closed or sold clinics (1%).
Dialysis treatments increased by 8% mainly due to contributions from acquisitions (5%), growth in same market treatments (3%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (1%). As of September 30, 2019, we had 34,357 patients (a 7% increase from September 30, 2018) being treated at the 233 dialysis clinics that we own, operate or manage in the Latin America Segment compared to 32,174 patients treated at 227 clinics at September 30, 2018.
Health care product revenue increased by 3%, including a 2% negative impact resulting from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 5% as a result of increased sales of hemodialysis solutions and concentrates as well as machines, partially offset by lower sales of dialyzers.
The increase period over period in the operating income margin was 6.7 percentage points. Foreign currency translation effects represented a 0.4 percentage point increase in the operating income margin. At Constant Exchange Rates, the operating income margin increased mainly due to reimbursement rate increases that mitigate inflationary cost increases, lower bad debt expense, favorable foreign currency transaction effects, a positive impact from acquisitions and a positive effect from the IFRS 16 Implementation.
Delivered EBIT increased to €11 M for the three months ended September 30, 2019 as compared to a loss of €1 M in the comparative period of 2018 mainly as a result of increased operating income.
26
Nine months ended September 30, 2019 compared to nine months ended September 30, 2018
Health care services revenue increased by 4%, including a 4% positive impact from foreign currency translation. At Constant Exchange Rates, health care services revenue remained stable as growth in same market treatments (4%), contributions from acquisitions (2%) and increases in organic revenue per treatment (1%), was largely offset by decreases attributable to prior year revenue associated with the divested Sound activities as well as the effect of closed or sold clinics (6%) and a revenue recognition adjustment of €84 M for accounts receivable in legal dispute (1%) (see note 13 of the notes the consolidated financial statements (unaudited) included in this report).
Dialysis treatments increased by 4% as a result of growth in same market treatments (4%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (1%).
Health care product revenue increased by 10% including a 2% positive impact from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 8%. Dialysis product revenue increased by 10%, including a 2% positive impact from foreign currency translation. At Constant Exchange Rates, dialysis product revenues increased by 8% driven by higher sales of home hemodialysis products (largely as a result of the acquisition of NxStage), dialyzers, hemodialysis solutions and concentrates, bloodlines, renal pharmaceuticals, peritoneal dialysis products and products for acute care treatments, partially offset by lower sales of machines as a result of changes in the accounting treatment for sale-leaseback transactions due to the IFRS 16 Implementation. Non-dialysis product revenue increased slightly by 1% to €56 M from €56 M with virtually no foreign currency translation effects.
The decrease period over period in the gross profit margin was 0.2 percentage points. Foreign currency translation effects represented a 0.1 percentage point increase in the current period. The decrease primarily reflects decreases in the EMEA Segment, the Latin America Segment and the North America Segment, partially offset by an increase in the Asia-Pacific Segment and a favorable impact from the varying margins across our four reporting segments. The decrease in the EMEA Segment was mainly driven by higher personnel expense in certain countries, unfavorable impacts from an inventory revaluation and foreign currency transaction effects as well as other smaller cost increases. The decrease in the Latin America Segment was due to the impact from hyperinflation, partially offset by a favorable effect from the IFRS 16 Implementation. The decrease in the North America Segment was mainly attributable to higher personnel expense, a revenue recognition adjustment for accounts receivable in legal dispute (see note 13
27
of the notes the consolidated financial statements (unaudited) included in this report) and the ESCO effect, partially offset by the positive current year effect from the divestiture of Sound which operated at lower margins, a favorable effect from the IFRS 16 Implementation, higher utilization of oral based ancillaries with favorable margins and the impact from the acquisition of NxStage. The increase in the Asia-Pacific Segment was largely due to favorable impacts from business growth, partially offset by unfavorable impact from Care Coordination activities.
The decrease period over period in the selling, general and administrative ("SG&A") expenses as a percentage of revenue was 0.1 percentage points with virtually no foreign currency translation effects in the current period. The decrease was primarily driven by decreases at Corporate, the EMEA Segment and the Latin America Segment, partially offset by an increase in the North America Segment as well as an unfavorable impact of varying margins across the four operating segments. The decrease at Corporate was mainly driven by the effect from the FCPA Related Charge in the prior year (see note 13 of the notes the consolidated financial statements (unaudited) included in this report). The decrease in the EMEA Segment was due to a reduction of a contingent consideration liability related to Xenios AG ("Xenios"), favorable foreign currency transaction effects, lower stock compensation expense, higher other income related to a favorable outcome in a legal proceeding and a positive impact from acquisitions, partially offset by higher bad debt expense. The decrease in the Latin America Segment was largely due to favorable foreign currency transaction effects and a positive impact from acquisitions. The increase in the North America Segment was due to higher personnel expense, the integration and operational costs associated with NxStage, Cost Optimization Costs, an unfavorable impact from legal settlements and lower income attributable to consent agreements on certain pharmaceuticals, partially offset by the remeasurement effect on the fair value of our Humacyte investment and the prior year effect from U.S. Ballot Initiatives.
The gain related to divestitures of Care Coordination activities decreased to €14 M from €830 M primarily due to the divestiture of Sound in 2018.
Research and development expenses increased by 43% to €137 M from €95 M. The increase period over period, as a percentage of revenue, was 0.3 percentage points, largely driven by research and development activities at NxStage, in-center and home program development as well as higher costs related to pre-development activities.
Income from equity method investees increased by 20% to €63 M from €52 M. The increase was primarily driven by higher income from Vifor Fresenius Medical Care Renal Pharma Ltd., an entity in which we have ownership of 45%, mainly due to higher sales of renal pharmaceuticals.
The decrease period over period in the operating income margin was 7.0 percentage points. Foreign currency translation effects represented a 0.1 percentage point increase in the current period. The decrease in the current period was largely driven by the lower gain related to divestitures of Care Coordination activities as discussed above.
Delivered EBIT decreased by 34% including a 3% positive impact from foreign currency translation. At Constant Exchange Rates, the decrease of 37% was largely driven by decreased operating income.
Net interest expense increased by 34% to €327 M from €244 M including a 5% negative impact resulting from foreign currency translation. At Constant Exchange Rates, net interest expense increased by 29% primarily due to the IFRS 16 Implementation and a higher debt level, partially offset by the replacement of high interest bearing bonds repaid in 2018 by debt instruments at lower interest rates.
Income tax expense decreased by 35% to €292 M from €448 M. The effective tax rate increased to 22.0% from 20.5% for the same period of 2018 largely driven by the prior year impacts from the gain related to the divestiture of Care Coordination activities as well as favorable implications of the US tax reform, partially offset by non-tax deductible expenses related to the FCPA Related Charge and U.S. Ballot Initiatives.
Net income attributable to noncontrolling interests increased slightly to €177 M from €176 M. Foreign currency translation effects represented a 5% negative impact. At Constant Exchange Rates, net income attributable to noncontrolling interests decreased by 5%.
Net income attributable to shareholders of FMC-AG & Co. KGaA decreased by 45% to €857 M from €1,557 M, including a 2% positive impact resulting from foreign currency translation. At Constant Exchange Rates, the decrease of 47% was driven by the combined effects of the items discussed above.
28
Basic earnings per share decreased by 44%. Foreign currency translation effects represented a 3% positive impact on the decrease. At Constant Exchange Rates, basic earnings per share decreased by 47% primarily due to the decrease in net income attributable to shareholders of FMC-AG & Co. KGaA described above. The average weighted number of shares outstanding for the period was approximately 303.8 M in 2019 (306.4 M in 2018).
Consolidated operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the nine months ended September 30, 2019 and 2018, we have identified the following transactions that, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the consolidated financial statements in accordance with IFRS to the key indicators adjusted for the items described above as the adjustments allow for a better comparison of these key indicators to our Outlook presented in this report. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
29
The following discussions pertain to the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment and the measures we use to manage these segments.
Key indicators and business metrics for North America Segment
|
|
For the nine months
ended September 30 |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As
Reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Total North America Segment |
|||||||||||||
Revenue |
9,021 | 8,589 | 5 | % | (1 | )% | |||||||
Health care services |
8,264 | 7,979 | 4 | % | (3 | )% | |||||||
Health care products |
757 | 610 | 24 | % | 17 | % | |||||||
Operating income |
1,279 | 2,173 | (41 | )% | (44 | )% | |||||||
Operating income margin in % |
14.2 | % | 25.3 | % | |||||||||
Delivered EBIT(2) |
1,112 | 2,006 | (45 | )% | (47 | )% | |||||||
Dialysis |
|
|
|
|
|||||||||
Revenue |
8,162 | 7,244 | 13 | % | 6 | % | |||||||
Number of dialysis treatments |
23,872,968 | 22,867,793 | 4 | % | |||||||||
Same market treatment growth in % |
3.4 | % | 2.4 | % | |||||||||
Operating income |
1,261 | 1,255 | 0 | % | (5 | )% | |||||||
Operating income margin in % |
15.4 | % | 17.3 | % | |||||||||
Delivered EBIT(2) |
1,107 | 1,103 | 0 | % | (5 | )% | |||||||
Care Coordination |
|
|
|
|
|||||||||
Revenue |
859 | 1,345 | (36 | )% | (40 | )% | |||||||
Operating income |
18 | 918 | (98 | )% | (98 | )% | |||||||
Operating income margin in % |
2.1 | % | 68.3 | % | |||||||||
Delivered EBIT(2) |
5 | 903 | (99 | )% | (99 | )% | |||||||
Member Months Under Medical Cost Management(3)(4) |
482,970 | 486,786 | (1 | )% | |||||||||
Medical Cost Under Management(3)(4) |
3,149 | 3,299 | (5 | )% | (10 | )% | |||||||
Care Coordination Patient Encounters(3)(4) |
774,764 | 4,149,516 | (81 | )% |
30
Dialysis revenue increased by 13% including a 7% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis revenue increased by 6%. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care revenue increased by 12% to €7,405 M from €6,634 M. Foreign currency translation represented a 7% positive impact in the current period. At Constant Exchange Rates, dialysis care revenue increased by 5% mainly due to growth in same market treatments (3%), increases in organic revenue per treatment (2%), and contributions from acquisitions (1%), partially offset by a revenue recognition adjustment of €84 M for accounts receivable in legal dispute (1%) (see note 13 of the notes the consolidated financial statements (unaudited) included in this report).
Dialysis treatments increased by 4% largely due to growth in same market treatments (3%) and contributions from acquisitions (1%).
In the U.S., the average revenue per treatment remained stable at $353 (€296 at Constant Exchange Rates as compared to €295 in 2018) largely due to a revenue recognition adjustment of €84 M for accounts receivable in legal dispute (see note 13 of the notes the consolidated financial statements (unaudited) included in this report) and lower revenue from commercial payors, partially offset by higher utilization of oral based ancillaries and the impact from an increase in the ESRD PPS base rate and lower implicit price concessions.
Cost per treatment in the U.S., adjusted for the effects from the IFRS 16 Implementation, increased to $297 (€248 at Constant Exchange Rates) from $289 (€242). This increase was largely driven by higher personnel expense and the integration and operational costs associated with NxStage.
Health care product revenue increased by 24%, including a 7% positive impact from foreign currency translation effects. At Constant Exchange Rates, health care product revenue increased by 17% driven by higher sales of home hemodialysis products, renal pharmaceuticals, dialyzers, peritoneal dialysis products, and hemodialysis solutions and concentrates, partially offset by lower sales of machines as a result of changes in the accounting treatment for sale-leaseback transactions in accordance with the IFRS 16 Implementation.
The decrease period over period in the dialysis operating income margin was 1.9 percentage points. Foreign currency translation effects represented a 0.2 percentage point decrease in the current period. The decrease was due to higher personnel expense, a revenue recognition adjustment for accounts receivable in legal dispute (see note 13 of the notes the consolidated financial statements (unaudited) included in this report), the integration and operational costs associated with NxStage, and Cost Optimization Costs, partially offset by the remeasurement effect on the fair value of our Humacyte investment, the higher utilization of oral based ancillaries with favorable margins, a positive effect from the IFRS 16 Implementation, the prior year effect from the U.S. Ballot Initiatives, and lower stock compensation expense.
Dialysis Delivered EBIT remained stable, including a 5% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis Delivered EBIT decreased by 5% mainly as a result of decreased operating income (at Constant Exchange Rates).
31
Care Coordination revenue decreased by 36% including a 4% positive impact from foreign currency translation. At Constant Exchange Rates, Care Coordination revenue decreased by 40% largely driven by decreases attributable to prior year revenue associated with the divested Sound activities (38%) and a decrease in organic revenue, including the ESCO effect (4%), partially offset by contributions from acquisitions (2%).
The decrease period over period in the Care Coordination operating income margin was 66.2 percentage points with virtually no foreign currency translation effects in the current period. The decrease was mainly due to lower gains related to divestiture of Care Coordination activities, the ESCO effect and unfavorable margins for oral based ancillaries, partially offset by a positive effect from the IFRS 16 Implementation.
Care Coordination Delivered EBIT decreased by 99% with virtually no impact from foreign currency translation. At Constant Exchange Rates, Care Coordination delivered EBIT decreased by 99% mainly as the result of decreased operating income.
Care Coordination business metrics
Member months under medical cost management remained relatively stable as the divestment of our controlling interest in Sound on June 28, 2018 and, as a result, the conclusion of our participation in BPCI was mostly offset by the expansion of our existing ESCOs through the addition of new physician practice partners and dialysis facilities since the beginning of 2018. See note 2 of the notes to consolidated financial statements (unaudited) included in this report and note 4 to the table "Key indicators and business metrics for the North America Segment," above.
Care Coordination's medical cost under management decreased by 5%, including a 5% positive impact from foreign currency translation in the current period. At Constant Exchange Rates, Care Coordination's medical cost under management decreased by 10% due to the divestment of our controlling interest in Sound on June 28, 2018 (see note 2 of the notes to consolidated financial statements (unaudited) included in this report) and, as a result, the conclusion of our participation in BPCI. This decrease was partially offset by our expansion of our existing ESCOs through the addition of new physician practice partners and dialysis facilities since the beginning of 2018. See note 4 to the table "Key indicators and business metrics for the North America Segment" above.
The decrease in patient encounters was primarily driven by decreased encounters for hospital related physician services as a result of our divesting our controlling interest in Sound on June 28, 2018. See note 2 of the notes to consolidated financial statements (unaudited) included in this report and note 4 to the table "Key indicators and business metrics for the North America Segment" above.
North America Segment operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the nine months ended September 30, 2019 and 2018, we have identified the following transactions that, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
32
The following table reconciles the key indicators for the North America Segment in accordance with IFRS to the key indicators adjusted for the items described above as the adjustments allow for a better comparison of these key indicators to our Outlook presented in this report. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
North America Segment operating performance on an adjusted basis
|
|
|
|
|
|
|
(Gain) loss
related to divestitures of Care Coordination activities |
|
Change in % as
adjusted |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Results
2019 |
IFRS 16
Implementation |
NxStage
operations |
NxStage
costs |
Cost
optimization costs |
Results
2019 Adjusted |
Current
rate |
Constant
Currency(1) |
||||||||||||||||||||
Nine months ended September 30 |
||||||||||||||||||||||||||||
Revenue |
9,021 | 75 | (188 | ) | | | | 8,908 | 10 | % | 4 | % | ||||||||||||||||
Health Care Services |
8,264 | | (11 | ) | | | | 8,253 | 11 | % | 4 | % | ||||||||||||||||
thereof Dialysis Care |
7,405 | | (11 | ) | | | | 7,394 | 11 | % | 5 | % | ||||||||||||||||
thereof Care Coordination |
859 | | | | | | 859 | 4 | % | (3 | )% | |||||||||||||||||
Health Care Products |
757 | 75 | (177 | ) | | | | 655 | 7 | % | 1 | % | ||||||||||||||||
Operating income (EBIT) |
1,279 | (55 | ) | 19 | 22 | 29 | (14 | ) | 1,280 | (4 | )% | (9 | )% | |||||||||||||||
Operating income margin (EBIT) |
14.2 | % | 14.4 | % | ||||||||||||||||||||||||
Dialysis |
1,261 | (50 | ) | 19 | 22 | 29 | | 1,281 | 2 | % | 3 | % | ||||||||||||||||
Dialysis operating income margin (EBIT) |
15.4 | % | 15.9 | % | ||||||||||||||||||||||||
Care Coordination |
18 | (5 | ) | | | | (14 | ) | (1 | ) | n.a. | n.a. | ||||||||||||||||
Care Coordination operating income margin (EBIT) |
2.1 | % | (0.2 | )% |
North America Segment operating performance on an adjusted basis
|
Results
2018 |
Sound H1(2) |
(Gain) loss related
to divestitures of Care Coordination activities |
Results
2018 Adjusted |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine months ended September 30 |
|||||||||||||
Revenue |
8,589 | (516 | ) | | 8,073 | ||||||||
Health Care Services |
7,979 | (516 | ) | | 7,463 | ||||||||
thereof Dialysis Care |
6,634 | | | 6,634 | |||||||||
thereof Care Coordination |
1,345 | (516 | ) | | 829 | ||||||||
Health Care Products |
610 | | | 610 | |||||||||
Operating income (EBIT) |
2,173 | (14 | ) | (830 | ) | 1,329 | |||||||
North America operating income margin (EBIT) |
25.3 | % | 16.5 | % | |||||||||
Dialysis |
1,255 | | | 1,255 | |||||||||
Dialysis operating income margin (EBIT) |
17.3 | % | 17.3 | % | |||||||||
Care Coordination |
918 | (14 | ) | (830 | ) | 74 | |||||||
Care Coordination operating income margin (EBIT) |
68.3 | % | 9.0 | % |
33
Key indicators for EMEA Segment
|
|
For the nine months
ended September 30 |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As
Reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Revenue |
1,984 | 1,908 | 4 | % | 4 | % | |||||||
Health care services |
1,002 | 943 | 6 | % | 7 | % | |||||||
Health care products |
982 | 965 | 2 | % | 2 | % | |||||||
Number of dialysis treatments |
7,503,691 | 7,250,376 | 3 | % | |||||||||
Same market treatment growth in % |
3.6 | % | 2.9 | % | |||||||||
Operating income |
334 | 302 | 11 | % | 11 | % | |||||||
Operating income margin in % |
16.8 | % | 15.8 | % | |||||||||
Delivered EBIT(2) |
330 | 299 | 11 | % | 11 | % |
Health care service revenue increased by 6%, including a 1% negative impact resulting from foreign currency translation. At Constant Exchange Rates, health care service revenue increased by 7% as a result of growth in same market treatments (4%), contributions from acquisitions (3%), and increases in organic revenue per treatment (2%), partially offset by the effect of closed or sold clinics (2%).
Dialysis treatments increased by 3% mainly due to growth in same market treatments (4%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (2%).
Health care product revenue increased by 2%, with virtually no impact from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 2%. Dialysis product revenue increased by 2%, with virtually no impact resulting from foreign currency translation. At Constant Exchange Rates, the increase of 2% in dialysis product revenue was due to higher sales of machines, dialyzers, bloodlines, hemodialysis solutions and concentrates, and peritoneal dialysis products. Non-Dialysis product revenue increased by 1% to €56 M from €56 M with virtually no impact from foreign currency translation. At Constant Exchange Rates, Non-Dialysis product revenue increased by 1%.
The increase period over period in the operating income margin was 1.0 percentage points with virtually no impact from foreign currency translation. The increase at Constant Exchange Rates was mainly due to a reduction of a contingent consideration liability related to Xenios, a positive impact from acquisitions, higher other income related to a favorable outcome in a legal proceeding, and lower stock compensation expense, partially offset by higher bad debt expense as well as increased personnel expense in certain countries.
Delivered EBIT increased by 11%, with virtually no impact from foreign currency translation. At Constant Exchange Rates, Delivered EBIT increased by 11% primarily due to increased operating income.
34
Key indicators for Asia-Pacific Segment
|
|
For the nine months
ended September 30 |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Constant Currency(1) | |||||||||||
|
2019 | 2018 | As Reported | ||||||||||
Total Asia-Pacific Segment |
|||||||||||||
Revenue |
1,360 | 1,235 | 10 | % | 7 | % | |||||||
Health care services |
632 | 569 | 11 | % | 7 | % | |||||||
Health care products |
728 | 666 | 9 | % | 8 | % | |||||||
Operating income |
254 | 218 | 17 | % | 14 | % | |||||||
Operating income margin in % |
18.7 | % | 17.7 | % | |||||||||
Delivered EBIT(2) |
248 | 212 | 17 | % | 14 | % | |||||||
Dialysis |
|
|
|
|
|||||||||
Revenue |
1,187 | 1,087 | 9 | % | 6 | % | |||||||
Number of dialysis treatments |
3,398,594 | 3,239,862 | 5 | % | |||||||||
Same market treatment growth in % |
7.0 | % | 5.8 | % | |||||||||
Operating income |
235 | 197 | 19 | % | 16 | % | |||||||
Operating income margin in % |
19.8 | % | 18.2 | % | |||||||||
Delivered EBIT(2) |
230 | 193 | 19 | % | 16 | % | |||||||
Care Coordination |
|
|
|
|
|||||||||
Revenue |
173 | 148 | 17 | % | 14 | % | |||||||
Operating income |
19 | 21 | (7 | )% | (7 | )% | |||||||
Operating income margin in % |
11.1 | % | 14.0 | % | |||||||||
Delivered EBIT(2) |
18 | 19 | (6 | )% | (5 | )% | |||||||
Care Coordination Patient Encounters(3) |
759,726 | 705,583 | 8 | % |
Dialysis revenue increased by 9% including a 3% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis revenue increased by 6%. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care service revenue increased by 9% to €459 M from €421 M, including a 5% positive impact resulting from foreign currency translation. At Constant Exchange Rates, dialysis care service revenue increased by 4% as a result of growth in same market treatments (7%), and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (3%) and a decrease in organic revenue per treatment (1%).
Dialysis treatments increased by 5% mainly due to growth in same market treatments (7%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (3%).
Health care product revenue increased by 9% including a 1% positive impact resulting from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 8% as a result of increased sales of dialyzers, bloodlines, products for acute care treatments as well as hemodialysis solutions and concentrates.
35
The increase period over period in the operating income margin was 1.6 percentage points with virtually no foreign currency translation effects. At Constant Exchange Rates, the operating income margin increased primarily due to favorable impacts from foreign currency transaction effects and business growth as well as a positive effect from the IFRS 16 Implementation, partially offset by an unfavorable mix effect from acquisitions with lower margins.
Delivered EBIT increased by 19%, including a 3% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Delivered EBIT increased by 16% mainly due to increased operating income.
Care Coordination revenue increased by 17%, including a 3% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Care Coordination revenue increased by 14% driven by contributions from acquisitions (7%) and organic revenue growth (7%).
The decrease period over period in the Care Coordination operating income margin was 2.9 percentage points. Foreign currency translation effects represented a 0.3 percentage point decrease in the operating income margin. The decrease was driven by higher start-up and operating costs as well as an unfavorable mix effect from acquisitions with lower margins, partially offset by a positive effect from the IFRS 16 Implementation.
Care Coordination Delivered EBIT decreased by 6%, including a 1% negative impact resulting from foreign currency translation. At Constant Exchange Rates, Care Coordination Delivered EBIT decreased by 5% mainly as the result of decreased operating income.
Care Coordination business metrics
The number of patient encounters increased due to increased encounters for comprehensive and specialized health check-ups as well as ambulant treatment services, inpatient and outpatient services, vascular access and other chronic treatment services.
Key indicators for Latin America Segment
|
|
For the nine months
ended September 30 |
Change in % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As
Reported |
Constant
Currency(1) |
|||||||||||
|
2019 | 2018 | |||||||||||
Revenue |
516 | 505 | 2 | % | 20 | % | |||||||
Health care services |
367 | 361 | 2 | % | 24 | % | |||||||
Health care products |
149 | 144 | 4 | % | 8 | % | |||||||
Number of dialysis treatments |
3,982,556 | 3,764,542 | 6 | % | |||||||||
Same market treatment growth in % |
1.9 | % | 1.3 | % | |||||||||
Operating income |
28 | 24 | 17 | % | (0 | )% | |||||||
Operating income margin in % |
5.4 | % | 4.7 | % | |||||||||
Delivered EBIT(2) |
28 | 24 | 17 | % | (1 | )% |
36
Health care service revenue increased by 2%, including a 22% negative impact resulting from foreign currency translation. At Constant Exchange Rates, health care service revenue increased by 24% as a result of increases in organic revenue per treatment (19%), contributions from acquisitions (4%) and growth in same market treatments (2%), partially offset by the effect of closed or sold clinics (1%).
Dialysis treatments increased by 6% mainly due to contributions from acquisitions (5%) and growth in same market treatments (2%), partially offset by the effect of closed or sold clinics (1%).
Health care product revenue increased by 4%, including a 4% negative impact resulting from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 8% was due to higher sales of hemodialysis solutions and concentrates, machines, peritoneal dialysis products and products for acute care treatments, partially offset by lower sales of dialyzers.
The increase period over period in the operating income margin was 0.7 percentage points, including a positive foreign currency translation effect of 1.5 percentage points in the current period. The decrease at Constant Exchange Rates was mainly due to the impact from hyperinflation and an increase in bad debt, partially offset by favorable foreign currency transaction effects and a positive impact from acquisitions.
Delivered EBIT increased by 17%, including an 18% positive impact resulting from foreign currency translation. At Constant Exchange Rates, Delivered EBIT decreased by 1% due to a slightly decreased operating income at Constant Currency.
Our primary sources of liquidity are typically cash provided by operating activities, cash provided by short-term debt from third parties and related parties, as well as proceeds from the issuance of long-term debt as well as divestitures. We require this capital primarily to finance working capital needs, fund acquisitions and clinic operations, develop free-standing renal dialysis clinics and other health care facilities, purchase equipment for existing or new renal dialysis clinics and production sites, repay debt, pay dividends and repurchase shares, (see "Net cash provided by (used in) investing activities" and "Net cash provided by (used in) financing activities" below).
In our long-term financial planning, we focus primarily on the net leverage ratio, a Non-IFRS measure, see "II. Discussion of measuresNonIFRS measuresNet leverage ratio (Non-IFRS Measure)" above. At September 30, 2019 and December 31, 2018, the net leverage ratio was 3.2 and 1.8, respectively. Adjusted for IFRS 16, the net leverage ratio was 2.5 at September 30, 2019.
At September 30, 2019, we had cash and cash equivalents of €965 M compared to €2,146 M at December 31, 2018.
Free cash flow (net cash provided by (used in) operating activities, after capital expenditures, before acquisitions and investments) amounted to €1,019 M and €662 M for the nine months ended September 30, 2019 and September 30, 2018, respectively. Free cash flow is a Non-IFRS measure reconciled to net cash provided by (used in) operating activities, the most directly comparable IFRS measure, see "II. Discussion of measuresNonIFRS measuresCash flow measures" above. Free cash flow in percent of revenue was 7.9% and 5.4% for the nine months ended September 30, 2019 and 2018, respectively.
37
Net cash provided by (used in) operating activities
In the first nine months of 2019, net cash provided by operating activities was €1,796 M as compared to net cash provided by operating activities of €1,364 M in the first nine months of 2018. Net cash provided by (used in) operating activities in percent of revenue increased to 14% for the first nine months of 2019 as compared to 11% for 2018. Cash provided by (used in) operating activities is impacted by the profitability of our business, the development of our working capital, principally inventories, receivables and cash outflows that occur due to a number of specific items as discussed below. The increase in net cash provided by operating activities was largely driven by the IFRS 16 Implementation leading to a reclassification of the repayment portion of rent to financing activities.
The profitability of our business depends significantly on reimbursement rates for our services. Approximately 80% of our revenue is generated by providing health care services, a major portion of which is reimbursed by either public health care organizations or private insurers. For the nine months ended September 30, 2019, approximately 33% of our consolidated revenue was attributable to reimbursements from U.S. federal health care benefit programs, such as Medicare and Medicaid. Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide as well as the scope of Medicare coverage. A decrease in reimbursement rates or the scope of coverage could have a material adverse effect on our business, financial condition and results of operations and thus on our capacity to generate cash flow. See "I. Overview," above.
We intend to continue to address our current cash and financing requirements using cash provided by operating activities, our existing and future credit agreements, issuances under our commercial paper program (see note 8 of the notes to the consolidated financial statements (unaudited) included in this report) as well as utilization of our Accounts Receivable Facility. In addition, when funds are required for acquisitions or to meet other needs, we expect to successfully complete long-term financing arrangements, such as the issuance of bonds. We aim to preserve financial resources with a minimum of €500 M of committed and unutilized credit facilities.
Net cash provided by (used in) operating activities depends on the collection of accounts receivable. Commercial customers and governments generally have different payment cycles. Lengthening their payment cycles could have a material adverse effect on our capacity to generate cash flow. In addition, we could face difficulties in enforcing and collecting accounts receivable under some countries' legal systems and due to the economic conditions in some countries. Accounts receivable balances, net of valuation allowances, represented Days Sales Outstanding ("DSO") of 73 days at September 30, 2019, a decrease as compared to 75 days at December 31, 2018.
DSO by segment is calculated by dividing the segment's accounts and other receivable and contract liabilities, converted to euro using the average exchange rate for the period presented, less any sales or value added tax included in the receivables, by the average daily sales for the last twelve months of that segment, converted to euro using the average exchange rate for the period. Receivables and sales are adjusted for amounts related to acquisitions and divestitures made within the reporting period with a purchase price above a €50 M threshold as defined in the Amended 2012 Credit Agreement. The development of DSO by reporting segment is shown in the table below:
DSO by reporting segment
|
|
September 30,
2019 |
December 31,
2018 |
|||||
---|---|---|---|---|---|---|---|
North America Segment |
57 | 60 | |||||
EMEA Segment |
98 | 98 | |||||
Asia-Pacific Segment |
119 | 116 | |||||
Latin America Segment |
119 | 119 | |||||
FMC-AG & Co. KGaA average days sales outstanding |
73 | 75 | |||||
| | | | | | | |
The DSO decrease in the North America Segment was largely due to a revenue recognition adjustment for accounts receivable in legal dispute (see note 13 of the notes to the consolidated financial statements (unaudited) included in this report). The Asia-Pacific Segment's DSO increase primarily reflects delays in payment collections in China.
Due to the fact that a large portion of our reimbursement is provided by public health care organizations and private insurers, we expect that most of our accounts receivable will be collectible.
38
Net cash provided by (used in) investing activities
In the first nine months of 2019, net cash used in investing activities was €2,745 M as compared to net cash provided by investing activities of €157 M in the comparable period of 2018. The following table shows our capital expenditures for property, plant and equipment, net of proceeds from sales of property, plant and equipment as well as acquisitions, investments and purchases of intangible assets for the first nine months of 2019 and 2018:
Capital expenditures (net), acquisitions, investments and purchases of intangible assets
in € M |
|
Capital
expenditures, net |
Acquisitions,
investments and purchases of intangible assets |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the nine months ended
September 30 |
||||||||||||
|
2019 | 2018 | 2019 | 2018 | |||||||||
North America Segment |
412 | 370 | 1,926 | 720 | |||||||||
Thereof investments in debt securities |
| | 10 | 471 | |||||||||
EMEA Segment |
85 | 96 | 30 | 33 | |||||||||
Asia-Pacific Segment |
40 | 31 | 9 | 17 | |||||||||
Latin America Segment |
19 | 15 | 44 | 26 | |||||||||
Corporate |
221 | 190 | 15 | 12 | |||||||||
| | | | | | | | | | | | | |
Total |
777 | 702 | 2,024 | 808 |
The majority of our capital expenditures in the first nine months of 2019 was used for maintaining existing clinics, equipping new clinics, maintaining and expanding production facilities (primarily in the North America Segment, Germany and France), capitalization of machines provided to our customers and for Care Coordination as well as capitalization of certain development costs. Capital expenditures remained stable at 6% of total revenue in the first nine months of 2019 as compared to the same period in 2018.
Acquisitions in the first nine months of 2019 were primarily driven by the acquisition of NxStage on February 21, 2019 as well as dialysis clinics.
Investments in the first nine months of 2019 were primarily comprised of debt securities. In the first nine months of 2019, we received €56 M from divestitures. These divestitures were mainly related to the divestment of MedSpring Urgent Care Centers in Texas, a California based cardiovascular business, sales of debt securities as well as B.Braun Medical Inc.'s purchase of NxStage's bloodlines business in connection with our acquisition of NxStage.
Investments in the first nine months of 2018 were primarily comprised of purchases of debt securities and an equity investment in Humacyte within the North America Segment. The remaining investments in the North America Segment, the EMEA Segment and the Latin America Segment were largely due to the acquisition of dialysis clinics as well as license agreements and distribution rights in the North America Segment. In the first nine months of 2018, we received €1,667 M from divestitures mainly related to the divestment of Sound on June 28, 2018 as well as the sale of debt securities in the amount of €149 M.
We anticipate capital expenditures of €1.0 to €1.2 billion and expect to make acquisitions and investments, excluding investments in securities, of approximately €400 to €600 M in 2019 as described in the "Outlook" below.
Net cash provided by (used in) financing activities
In the first nine months of 2019 and 2018, net cash used in financing activities was €302 M as compared to net cash used in financing activities of €734 M, respectively.
In the first nine months of 2019, cash was mainly used in the repayments of long-term debt (including the current portion of long-term debt primarily driven by the repayment of bonds due in July 2019), repayment of lease liabilities, shares repurchased as part of a share buy-back program, payment of dividends, repayments of short-term debt and distributions to noncontrolling interests, partially offset by proceeds from long-term debt (including additional drawings under the revolving credit facilities of the Amended
39
2012 Credit Agreement and the issuance of bonds with a volume of $500 M), the utilization of the accounts receivable facility, as well as proceeds from and short-term debt and short-term debt from related parties.
In the first nine months of 2018, cash was mainly used in the repayments of long-term debt including the repayment of bonds due in September 2018, the payment of dividends, a reduction in the accounts receivable facility, distributions to noncontrolling interests and repayments of short-term debt, partially offset by proceeds from short-term debt (including drawings under the Commercial Paper Program) as well as long-term debt through an issuance under our debt issuance program.
On May 21, 2019, we paid a dividend with respect to 2018 of €1.17 per share (for 2017 paid in 2018 €1.06 per share). The total dividend payment was €355 M as compared to €325 M in the prior year.
Total assets as of September 30, 2019 increased by 26% to €33.2 billion as compared to €26.2 billion at December 31, 2018, including a 4% positive impact resulting from foreign currency translation, largely due to the implementation of the IFRS 16 in 2019. At Constant Exchange Rates, total assets increased by 22% to €31.9 billion from €26.2 billion.
Current assets as a percent of total assets decreased to 22% at September 30, 2019 as compared to 30% at December 31, 2018. The equity ratio, the ratio of our equity divided by total liabilities and shareholders' equity, decreased to 41% at September 30, 2019 as compared to 49% at December 31, 2018. ROIC decreased to 6.9% at September 30, 2019, adjusted for the implementation of IFRS 16, as compared to 12.4% at December 31, 2018.
Report on post-balance sheet date events
Refer to note 17 in the notes to the consolidated financial statements (unaudited) included in this report.
Below is a table showing our growth outlook for 2019 and 2020 which are determined by reference to target results determined in accordance with IFRS and presented in euro. The targets indicated for 2019 and 2020 are calculated and presented at Constant Exchange Rates with reliance on Item 10(e)(1)(i)(B) of SEC Regulation S-K as it is impossible to predict currency exchange movements over the course of an entire year. These targets as well as the 2018 base are and will be adjusted in order to make the business performance in the respective periods comparable for items such as: the FCPA Related Charge, the IFRS 16 Implementation, the contributions from Sound in the first half year of 2018, the (gain) loss related
40
to divestitures of Care Coordination activities and expenses for the cost optimization program. All effects from the acquisition of NxStage Medical Inc. are excluded from the Outlook 2019 and 2020.
Outlook
In € billions ("BN"), except where otherwise noted |
|
Outlook 2019
(at Constant Currency)(1) |
Outlook 2020
(at Constant Currency)(1) |
||
---|---|---|---|---|
Revenue(2) |
Growth 3 - 7% | mid to high single digit growth rate | ||
Operating income(2) |
Growth (1) - 3% | mid to high single digit growth rate | ||
Delivered EBIT(2) |
Growth (1) - 3% | mid to high single digit growth rate | ||
Net income growth at Constant Currency(2)(3) |
Growth (2) - 2% | mid to high single digit growth rate | ||
Basic earnings per share growth at Constant Currency(2)(3) |
assessed based on expected
development of net income and shares outstanding |
assessed based on expected
development of net income and shares outstanding |
||
Capital expenditures |
€1.0 - €1.2 BN | n.a. | ||
Acquisitions and investments(4) |
€0.4 - €0.6 BN | n.a. | ||
Net cash provided by (used in) operating activities in % of revenue |
> 10% | n.a. | ||
Free cash flow in % of revenue |
> 4% | n.a. | ||
Net leverage ratio |
< 2.5 | n.a. | ||
ROIC |
³ 8.0% | n.a. | ||
Dividend per share |
assessed based on expected
development of net income and shares outstanding |
n.a. | ||
Employees(5) |
> 117,000 | n.a. | ||
Research and development expenses |
€160 - €170 M | n.a. |
Below is a table showing the estimated effects of the NxStage acquisition on our business in 2019 and 2020, excluding integration costs of approximately €50 M to €75 M over the three years following the closing of the transaction. These effects are determined in accordance with IFRS and presented in euro. The estimates indicated for 2019 and 2020 are calculated and presented at Constant Exchange Rates with
41
reliance on Item 10(e)(1)(i)(B) of SEC Regulation S-K as it is impossible to predict currency exchange movements over the course of an entire year.
NxStage Estimate(1)
In € M |
|
Estimate 2019
(at Constant Currency) |
Estimate 2020
(at Constant Currency) |
||
---|---|---|---|---|
Revenue |
240 - 260 | 310 - 330 | ||
Operating income |
(30) - (20) | 20 - 30 | ||
Interest |
(75) - (65) | (85) - (75) | ||
Net income |
(75) - (65) | (40) - (30) |
Recently issued accounting standards
Refer to note 1 of the notes to the consolidated financial statements (unaudited) in this report for information regarding recently issued accounting standards.
42
FRESENIUS MEDICAL CARE AG & Co. KGaA
Financial statements
Consolidated statements of income
(unaudited)
|
|
For the three months
ended September 30, |
For the nine months
ended September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
in € thousands ("THOUS"), except per share data
|
Note | 2019 | 2018 | 2019 | 2018 | ||||||||||
Revenue: |
|||||||||||||||
Health care services |
3,492,316 | 3,258,131 | 10,264,821 | 9,851,733 | |||||||||||
Health care products |
926,687 | 799,721 | 2,631,771 | 2,395,453 | |||||||||||
| | | | | | | | | | | | | | | |
|
2a, 15 | 4,419,003 | 4,057,852 | 12,896,592 | 12,247,186 | ||||||||||
Costs of revenue: |
|||||||||||||||
Health care services |
2,666,246 | 2,415,140 | 7,777,401 | 7,380,034 | |||||||||||
Health care products |
406,768 | 375,366 | 1,176,992 | 1,092,813 | |||||||||||
| | | | | | | | | | | | | | | |
|
3,073,014 | 2,790,506 | 8,954,393 | 8,472,847 | |||||||||||
Gross profit |
1,345,989 |
1,267,346 |
3,942,199 |
3,774,339 |
|||||||||||
Operating (income) expenses: |
|
|
|
|
|
||||||||||
Selling, general and administrative |
2b | 724,433 | 742,678 | 2,229,333 | 2,136,632 | ||||||||||
(Gain) loss related to divestitures of Care Coordination activities |
2c | (2,462 | ) | (9,806 | ) | (13,862 | ) | (829,860 | ) | ||||||
Research and development |
2d | 49,174 | 25,742 | 136,591 | 95,287 | ||||||||||
Income from equity method investees |
15 | (20,544 | ) | (17,990 | ) | (63,058 | ) | (52,417 | ) | ||||||
| | | | | | | | | | | | | | | |
Operating income |
595,388 | 526,722 | 1,653,195 | 2,424,697 | |||||||||||
Other (income) expense: |
|
|
|
|
|
||||||||||
Interest income |
(20,761 | ) | (8,855 | ) | (46,659 | ) | (30,961 | ) | |||||||
Interest expense |
125,485 | 84,765 | 373,586 | 274,512 | |||||||||||
| | | | | | | | | | | | | | | |
Income before income taxes |
490,664 | 450,812 | 1,326,268 | 2,181,146 | |||||||||||
Income tax expense |
99,103 | 102,250 | 292,312 | 447,716 | |||||||||||
Net income |
391,561 | 348,562 | 1,033,956 | 1,733,430 | |||||||||||
Net income attributable to noncontrolling interests |
58,977 | 63,948 | 176,843 | 176,280 | |||||||||||
| | | | | | | | | | | | | | | |
Net income attributable to shareholders of FMC-AG & Co. KGaA |
332,584 | 284,614 | 857,113 | 1,557,150 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Basic earnings per share |
2e | 1.10 | 0.93 | 2.82 | 5.08 | ||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Diluted earnings per share |
2e | 1.10 | 0.93 | 2.82 | 5.07 | ||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
43
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated statements of comprehensive income
(unaudited)
|
|
For the three months
ended September 30, |
For the nine months
ended September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
in € THOUS
|
Note | 2019 | 2018 | 2019 | 2018 | ||||||||||
Net income |
391,561 | 348,562 | 1,033,956 | 1,733,430 | |||||||||||
| | | | | | | | | | | | | | | |
Other comprehensive income (loss): |
|||||||||||||||
Components that may be reclassified subsequently to profit or loss: |
|||||||||||||||
Gain (loss) related to foreign currency translation |
524,396 | 36,946 | 654,319 | 166,191 | |||||||||||
Gain (loss) related to cash flow hedges(1) |
107 | 5,964 | (13,380 | ) | 18,984 | ||||||||||
Income tax (expense) benefit related to components of other comprehensive income that may be reclassified |
(55 | ) | (1,668 | ) | 3,114 | (5,382 | ) | ||||||||
| | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax |
524,448 | 41,242 | 644,053 | 179,793 | |||||||||||
| | | | | | | | | | | | | | | |
Total comprehensive income |
916,009 | 389,804 | 1,678,009 | 1,913,223 | |||||||||||
Comprehensive income attributable to noncontrolling interests |
107,848 | 69,695 | 231,404 | 208,429 | |||||||||||
| | | | | | | | | | | | | | | |
Comprehensive income attributable to shareholders of FMC-AG & Co. KGaA |
808,161 | 320,109 | 1,446,605 | 1,704,794 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
44
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated balance sheets
(unaudited)
in € THOUS, except share data
|
Note |
September 30,
2019 |
December 31,
2018 |
||||||
---|---|---|---|---|---|---|---|---|---|
Assets |
|||||||||
Cash and cash equivalents |
5 | 965,054 | 2,145,632 | ||||||
Trade accounts and other receivables |
6 | 3,511,120 | 3,337,706 | ||||||
Accounts receivable from related parties |
4 | 78,554 | 92,662 | ||||||
Inventories |
7 | 1,721,090 | 1,466,803 | ||||||
Other current assets |
955,236 | 804,083 | |||||||
| | | | | | | | | |
Total current assets |
7,231,054 | 7,846,886 | |||||||
Property, plant and equipment |
4,147,890 | 3,836,010 | |||||||
Right-of-use assets |
1 | 4,343,308 | | ||||||
Intangible assets |
1,525,179 | 681,331 | |||||||
Goodwill |
14,121,321 | 12,209,606 | |||||||
Deferred taxes |
348,087 | 345,686 | |||||||
Investment in equity method investees |
15 | 682,617 | 649,780 | ||||||
Other non-current assets |
769,947 | 672,969 | |||||||
| | | | | | | | | |
Total non-current assets |
25,938,349 | 18,395,382 | |||||||
| | | | | | | | | |
Total assets |
33,169,403 | 26,242,268 | |||||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Liabilities |
|||||||||
Accounts payable |
654,602 | 641,271 | |||||||
Accounts payable to related parties |
4 | 255,242 | 153,781 | ||||||
Current provisions and other current liabilities |
2,836,456 | 2,904,288 | |||||||
Short-term debt |
8 | 1,565,779 | 1,205,294 | ||||||
Short-term debt from related parties |
8 | 357,900 | 188,900 | ||||||
Current portion of long-term debt |
9 | 970,917 | 1,106,519 | ||||||
Current portion of long-term lease liabilities |
1 | 628,297 | | ||||||
Current portion of long-term lease liabilities from related parties |
1 | 16,427 | | ||||||
Income tax payable |
93,060 | 68,229 | |||||||
| | | | | | | | | |
Total current liabilities |
7,378,680 | 6,268,282 | |||||||
Long-term debt, less current portion |
9 | 6,085,840 | 5,045,515 | ||||||
Long-term lease liabilities, less current portion |
1 | 3,935,599 | | ||||||
Long-term lease liabilities from related parties, less current portion |
1 | 108,436 | | ||||||
Non-current provisions and other non-current liabilities |
686,911 | 750,738 | |||||||
Pension liabilities |
587,978 | 551,930 | |||||||
Income tax payable |
87,912 | 97,324 | |||||||
Deferred taxes |
754,627 | 626,521 | |||||||
| | | | | | | | | |
Total non-current liabilities |
12,247,303 | 7,072,028 | |||||||
| | | | | | | | | |
Total liabilities |
19,625,983 | 13,340,310 | |||||||
Shareholders' equity: |
|||||||||
Ordinary shares, no par value, €1.00 nominal value, 374,165,226 shares authorized, 304,356,545 issued and 300,359,593 outstanding as of September 30, 2019 and 384,822,972 shares authorized, 307,878,652 issued and 306,878,701 outstanding as of December 31, 2018 |
304,357 | 307,879 | |||||||
Treasury stock, at cost |
2e | (239,105 | ) | (50,993 | ) | ||||
Additional paid-in capital |
3,614,579 | 3,873,345 | |||||||
Retained earnings |
9,211,339 | 8,831,930 | |||||||
Accumulated other comprehensive income (loss) |
(614,258 | ) | (1,203,750 | ) | |||||
| | | | | | | | | |
Total FMC-AG & Co. KGaA shareholders' equity |
12,276,912 | 11,758,411 | |||||||
Noncontrolling interests |
1,266,508 | 1,143,547 | |||||||
| | | | | | | | | |
Total equity |
13,543,420 | 12,901,958 | |||||||
| | | | | | | | | |
Total liabilities and equity |
33,169,403 | 26,242,268 | |||||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
45
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated statements of cash flows
(unaudited)
|
|
For the nine months
ended September 30, |
|||||||
---|---|---|---|---|---|---|---|---|---|
in € THOUS
|
Note | 2019 | 2018 | ||||||
Operating activities |
|||||||||
Net income |
1,033,956 | 1,733,430 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
||||||
Depreciation and amortization |
15 | 1,158,662 | 534,017 | ||||||
Change in deferred taxes, net |
30,240 | 68,916 | |||||||
(Gain) loss from the sale of fixed assets, right-of-use assets, investments and divestitures |
2b, c | (101,109 | ) | (835,604 | ) | ||||
Compensation expense related to share-based plans |
2,203 | 9,613 | |||||||
Cash inflow (outflow) from hedging |
(12,697 | ) | | ||||||
Investments in equity method investees, net |
(19,586 | ) | (8,815 | ) | |||||
Interest expense, net |
326,927 | 243,551 | |||||||
Changes in assets and liabilities, net of amounts from businesses acquired: |
|||||||||
Trade accounts and other receivables |
(32,013 | ) | (238,607 | ) | |||||
Inventories |
(168,963 | ) | (156,665 | ) | |||||
Other current and non-current assets |
(73,579 | ) | (60,912 | ) | |||||
Accounts receivable from related parties |
14,087 | (14,217 | ) | ||||||
Accounts payable to related parties |
95,040 | 44,740 | |||||||
Accounts payable, provisions and other current and non-current liabilities |
(128,730 | ) | 123,322 | ||||||
Paid interest |
(370,921 | ) | (273,226 | ) | |||||
Received interest |
35,291 | 28,980 | |||||||
Income tax payable |
353,058 | 427,841 | |||||||
Paid income taxes |
(345,624 | ) | (262,131 | ) | |||||
| | | | | | | | | |
Net cash provided by (used in) operating activities |
1,796,242 | 1,364,233 | |||||||
| | | | | | | | | |
Investing activities |
|||||||||
Purchases of property, plant and equipment |
(787,778 | ) | (731,959 | ) | |||||
Proceeds from sale of property, plant and equipment |
10,896 | 29,475 | |||||||
Acquisitions and investments, net of cash acquired, and purchases of intangible assets |
16 | (2,024,138 | ) | (808,253 | ) | ||||
Proceeds from divestitures |
16 | 55,825 | 1,667,294 | ||||||
| | | | | | | | | |
Net cash provided by (used in) investing activities |
(2,745,195 | ) | 156,557 | ||||||
| | | | | | | | | |
Financing activities |
|||||||||
Proceeds from short-term debt |
611,089 | 625,549 | |||||||
Repayments of short-term debt |
(255,604 | ) | (174,517 | ) | |||||
Proceeds from short-term debt from related parties |
281,200 | 52,146 | |||||||
Repayments of short-term debt from related parties |
(112,200 | ) | (37,746 | ) | |||||
Proceeds from long-term debt |
1,589,844 | 610,316 | |||||||
Repayments of long-term debt |
(1,588,516 | ) | (1,032,980 | ) | |||||
Repayments of lease liabilities |
(494,284 | ) | | ||||||
Repayments of lease liabilities from related parties |
(12,309 | ) | | ||||||
Increase (decrease) of accounts receivable securitization program |
649,018 | (295,595 | ) | ||||||
Proceeds from exercise of stock options |
11,629 | 44,443 | |||||||
Purchase of treasury stock |
(464,457 | ) | (37,221 | ) | |||||
Dividends paid |
(354,636 | ) | (324,838 | ) | |||||
Distributions to noncontrolling interests |
(203,869 | ) | (194,283 | ) | |||||
Contributions from noncontrolling interests |
40,805 | 30,554 | |||||||
| | | | | | | | | |
Net cash provided by (used in) financing activities |
(302,290 | ) | (734,172 | ) | |||||
| | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents |
70,665 | (10,675 | ) | ||||||
Cash and cash equivalents: |
|||||||||
Net increase (decrease) in cash and cash equivalents |
(1,180,578 | ) | 775,943 | ||||||
Cash and cash equivalents at beginning of period |
2,145,632 | 978,109 | |||||||
| | | | | | | | | |
Cash and cash equivalents at end of period |
5 | 965,054 | 1,754,052 | ||||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
46
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated statements of shareholders' equity
For the nine months ended September 30, 2019 and 2018 (unaudited)
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss) |
|
|
|
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Ordinary shares | Treasury stock |
|
|
Total
FMC-AG & Co. KGaA shareholders' equity |
|
|
|||||||||||||||||||||||||||||||
in € THOUS, except share data
|
Note |
Number of
shares |
No par
value |
Number of
shares |
Amount |
Additional
paid in capital |
Retained
earnings |
Foreign
currency translation |
Cash flow
hedges |
Pensions |
Noncontrolling
interests |
Total
equity |
|||||||||||||||||||||||||||
Balance at December 31, 2017 |
308,111,000 | 308,111 | (1,659,951 | ) | (108,931 | ) | 3,969,245 | 7,137,255 | (1,203,904 | ) | (18,336 | ) | (263,338 | ) | 9,820,102 | 1,008,084 | 10,828,186 | ||||||||||||||||||||||
Adjustment due to initial application of IFRS 9 |
| | | | | (5,076 | ) | | | | (5,076 | ) | | (5,076 | ) | ||||||||||||||||||||||||
Adjusted balance at December 31, 2017 |
308,111,000 | 308,111 | (1,659,951 | ) | (108,931 | ) | 3,969,245 | 7,132,179 | (1,203,904 | ) | (18,336 | ) | (263,338 | ) | 9,815,026 | 1,008,084 | 10,823,110 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of options and related tax effects |
825,407 | 825 | | | 45,153 | | | | | 45,978 | | 45,978 | |||||||||||||||||||||||||||
Compensation expense related to stock options |
| | | | 5,626 | | | | | 5,626 | | 5,626 | |||||||||||||||||||||||||||
Purchase of treasury stock |
2e | | | (431,000 | ) | (37,221 | ) | | | | | | (37,221 | ) | | (37,221 | ) | ||||||||||||||||||||||
Dividends paid |
| | | | | (324,838 | ) | | | | (324,838 | ) | | (324,838 | ) | ||||||||||||||||||||||||
Purchase/ sale of noncontrolling interests |
| | | | (37,868 | ) | | | | | (37,868 | ) | 55,927 | 18,059 | |||||||||||||||||||||||||
Contributions from/ to noncontrolling interests |
| | | | | | | | | | (143,078 | ) | (143,078 | ) | |||||||||||||||||||||||||
Noncontrolling interests subject to put provisions |
14 | | | | | | 44,985 | | | | 44,985 | | 44,985 | ||||||||||||||||||||||||||
Net Income |
| | | | | 1,557,150 | | | | 1,557,150 | 176,280 | 1,733,430 | |||||||||||||||||||||||||||
Other comprehensive income (loss) related to: |
|||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
| | | | | | 139,409 | (13 | ) | (5,354 | ) | 134,042 | 32,149 | 166,191 | |||||||||||||||||||||||||
Cash flow hedges, net of related tax effects |
| | | | | | | 13,602 | | 13,602 | | 13,602 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income |
| | | | | | | | | 1,704,794 | 208,429 | 1,913,223 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2018 |
308,936,407 | 308,936 | (2,090,951 | ) | (146,152 | ) | 3,982,156 | 8,409,476 | (1,064,495 | ) | (4,747 | ) | (268,692 | ) | 11,216,482 | 1,129,362 | 12,345,844 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 |
307,878,652 | 307,879 | (999,951 | ) | (50,993 | ) | 3,873,345 | 8,831,930 | (911,473 | ) | (1,528 | ) | (290,749 | ) | 11,758,411 | 1,143,547 | 12,901,958 | ||||||||||||||||||||||
Adjustment due to initial application of IFRS 16 |
| | | | | (120,364 | ) | | | | (120,364 | ) | (15,526 | ) | (135,890 | ) | |||||||||||||||||||||||
Adjusted balance at December 31, 2018 |
307,878,652 | 307,879 | (999,951 | ) | (50,993 | ) | 3,873,345 | 8,711,566 | (911,473 | ) | (1,528 | ) | (290,749 | ) | 11,638,047 | 1,128,021 | 12,766,068 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of options and related tax effects |
248,665 | 249 | | | 11,928 | | | | | 12,177 | | 12,177 | |||||||||||||||||||||||||||
Compensation expense related to stock options |
| | | | 2,203 | | | | | 2,203 | | 2,203 | |||||||||||||||||||||||||||
Purchase of treasury stock |
2e | | | (6,767,773 | ) | (457,908 | ) | | | | | | (457,908 | ) | | (457,908 | ) | ||||||||||||||||||||||
Withdrawal of treasury stock |
2e | (3,770,772 | ) | (3,771 | ) | 3,770,772 | 269,796 | (266,025 | ) | | | | | | | | |||||||||||||||||||||||
Dividends paid |
| | | | | (354,636 | ) | | | | (354,636 | ) | | (354,636 | ) | ||||||||||||||||||||||||
Purchase/ sale of noncontrolling interests |
| | | | (6,872 | ) | | | | | (6,872 | ) | 72,232 | 65,360 | |||||||||||||||||||||||||
Contributions from/ to noncontrolling interests |
| | | | | | | | | | (165,149 | ) | (165,149 | ) | |||||||||||||||||||||||||
Noncontrolling interests subject to put provisions |
14 | | | | | | (2,704 | ) | | | | (2,704 | ) | | (2,704 | ) | |||||||||||||||||||||||
Net Income |
| | | | | 857,113 | | | | 857,113 | 176,843 | 1,033,956 | |||||||||||||||||||||||||||
Other comprehensive income (loss) related to: |
|||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
| | | | | | 608,137 | (350 | ) | (8,029 | ) | 599,758 | 54,561 | 654,319 | |||||||||||||||||||||||||
Cash flow hedges, net of related tax effects |
| | | | | | | (10,266 | ) | | (10,266 | ) | | (10,266 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income |
| | | | | | | | | 1,446,605 | 231,404 | 1,678,009 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2019 |
304,356,545 | 304,357 | (3,996,952 | ) | (239,105 | ) | 3,614,579 | 9,211,339 | (303,336 | ) | (12,144 | ) | (298,778 | ) | 12,276,912 | 1,266,508 | 13,543,420 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
47
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements
(unaudited)
(in THOUS, except share and
per share data)
1. The Company and basis of presentation
Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA" or the "Company"), a German partnership limited by shares (Kommanditgesellschaft auf Aktien) registered in the commercial registry of Hof an der Saale under HRB 4019, with its business address at Else-Kröner-Str. 1, 61352 Bad Homburg v. d. Höhe, is the world's largest kidney dialysis company, based on publicly reported revenue and number of patients treated. 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, physician nephrology services, health plan services, urgent care services and ambulant treatment services. Until June 28, 2018, Care Coordination also included 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.
In these unaudited consolidated financial statements, "FMC-AG & Co. KGaA," or the "Company" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. "Fresenius SE" and "Fresenius SE & Co. KGaA" refer to Fresenius SE & Co. KGaA. "Management AG" and the "General Partner" refer to Fresenius Medical Care Management AG which is FMC-AG & Co. KGaA's general partner and is wholly owned by Fresenius SE. "Management Board" refers to the members of the management board of Management AG and, except as otherwise specified, "Supervisory Board" refers to the supervisory board of FMC-AG & Co. KGaA. The term "North America Segment" refers to the North America operating segment, the term "EMEA Segment" refers to the Europe, Middle East and Africa operating segment, the term "Asia-Pacific Segment" refers to the Asia-Pacific operating segment, and the term "Latin America Segment" refers to the Latin America operating segment. For further discussion of the Company's operating segments, see note 15.
The consolidated financial statements and other financial information included in the Company's quarterly reports on Form 6-K and its Annual Report on Form 20-F for 2018 were prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB"), using the euro as the Company's reporting currency. At September 30, 2019, there were no IFRS or International Financial Reporting Interpretation Committee ("IFRIC") interpretations as endorsed by the European Union relevant for interim reporting that differed from IFRS as issued by the IASB. As such, the accompanying condensed interim report complies with the requirements of International Accounting Standard ("IAS") 34, Interim Financial Reporting as well as with the rules concerning interim reporting as issued by the IASB and the conditions established by the U.S. Securities and Exchange Commission ("SEC") for the use of IFRS for preparation of financial statements included in reports filed with the SEC.
The consolidated financial statements at September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 contained in this report are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company's 2018 Annual Report on Form 20-F. The preparation of consolidated financial statements in conformity with IFRS requires management to
48
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Such financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are of a normal recurring nature.
Starting on July 1, 2018, the Company's subsidiaries in Argentina applied IAS 29, Financial Reporting in Hyperinflationary Economies, due to the inflation in Argentina. Pursuant to IAS 29, the Company recorded a loss on its net monetary position of €17,394 for the first nine months ended September 30, 2019. The Company calculated the loss with the use of the Consumer Price Index (Índice de precios al consumidor) as published by the Argentine Statistics and Census Institute for the first nine months ended September 30, 2019, which lists the level at 253.7 index points, a 38% increase since January 1, 2019.
As a result of the implementation of IFRS 16, Leases, the Company updated its accounting policies. Refer to "Recently implemented accounting pronouncements" below for further details on the updated policies. Excluding the policies update for IFRS 16, the accounting policies applied in the accompanying consolidated financial statements are the same as those applied in the consolidated financial statements as of and for the year ended December 31, 2018.
As of December 31, 2018, "Property, plant and equipment" included leased fixed assets of €36,402 recognized in accordance with IAS 17, Leases. These are transferred to the line item "Right-of-use assets" as of the beginning of fiscal year 2019.
As of December 31, 2018, "Current portion of long-term debt" included current lease liabilities from capital leases in accordance with IAS 17 of €9,387. From 2019, these are included in the balance sheet item "Current portion of long-term lease liabilities."
As of December 31, 2018, "Long-term debt, less current portion" included non-current lease liabilities from capital leases in accordance with IAS 17 of €26,757. From 2019, these are included in the balance sheet item "Long-term lease liabilities, less current portion."
In the consolidated statement of cash flows, in the comparative information for the period from January 1, 2018 to September 30, 2018, the line item "Repayments of long-term debt" included repayments of lease liabilities from capital leases in accordance with IAS 17 of €7,770. In the previous periods this line item was labeled as "Repayments of long-term debt and capital lease obligations." From 2019, these repayments are included in the line item "Repayments of lease liabilities" in accordance with IFRS 16.
In the consolidated statement of cash flows, in the comparative information for the period from January 1, 2018 to September 30, 2018, the line item "Proceeds from divestitures" included a tax payment related to the divestiture of Sound of €143,946, that was originally included in line item "Paid income taxes."
Based on the IFRIC agenda decision relating to the applicability of IAS 12, Income Taxes, to the accounting for interest and penalties related to income taxes and an interpretation issued by the Accounting Standards Committee of Germany approved in September 2018, interest and penalties related to income taxes have been reclassified from income tax expense to interest expense, net in the amount of €1,459 and €4,827 for the three and nine months ended September 30, 2018.
The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations for the year ending December 31, 2019.
49
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
Recently implemented accounting pronouncements
The Company has prepared its consolidated financial statements at and for the three- and nine-months ended September 30, 2019 in conformity with IFRS in force for the interim periods on January 1, 2019. In the first quarter of 2019, the Company applied the following new standard relevant for its business for the first time:
In January 2016, the IASB issued IFRS 16, which supersedes the current standard on lease-accounting, IAS 17, as well as the interpretations IFRIC 4, Determining whether an arrangement contains a lease, Standard Interpretations Committee ("SIC")-15, Operating leasesincentives and SIC-27, Evaluating the substance of transactions in the legal form of a lease.
IFRS 16 significantly changes lessee accounting. For almost all leases, a lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.
Leases with a total maximum term of twelve months (short-term leases) and leases for underlying assets of low-value may be exempt from balance sheet recognition by applying an accounting policy choice. Depreciation of the right-of-use asset and interest on the lease liability must be recognized in the income statement for every on-balance lease contract. Therefore, straight-line rental expenses will no longer be shown for the vast majority of the leases. The lessor accounting requirements in IAS 17 are substantially carried forward.
The Company applies the modified retrospective method in accordance with IFRS 16 as the transition method. Accordingly, the cumulative effect from first-time application is recognized in the opening balance of retained earnings as of January 1, 2019 without adjustments to the comparative information of the previous period. In the application of the modified retrospective method, the carrying amount of the lease liability at the date of the initial application is determined by discounting the remaining lease payments of lease agreements that were classified as operating leases under IAS 17 using the term-, country-, and currency-specific incremental borrowing rate at date of initial application. Furthermore, right-of-use assets are to be recognized. In the application of the modified retrospective method, the carrying amount of the right-of-use asset equals the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments. For a part of the existing contracts, the Company recognizes the right-of-use asset with its carrying amount assuming the new standard had been applied since the commencement date of the lease discounted using its term-, country-, and currency-specific incremental borrowing rate at the date of initial application.
Regarding the options and exemptions available upon the initial application of IFRS 16, the Company adopted the following approach:
50
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
Right-of-use assets from lease contracts are classified in accordance with the Company's classification of property, plant and equipment:
In addition to the right-of-use asset categories above, prepayments on right-of-use assets are presented separately. Right-of-use assets from lease contracts and lease obligations are presented separately from property, plant and equipment and other financial debt in the consolidated balance sheet.
For lease contracts that include both lease and non-lease components that are not separable from lease components, no allocation is performed. Each lease component and any associated non-lease components are accounted for as a single lease.
Upon the initial application of IFRS 16 as of January 1, 2019, the Company recognized right-of-use assets of €4,269,755 and lease liabilities from third and related parties of €4,550,625. The cumulative effect from the first-time application is recognized in the opening balance of retained earnings (€120,364) as well as in non-controlling interests (€15,526) as of January 1, 2019.
The following table shows a reconciliation of the future minimum rental payments as of December 31, 2018 to the lease liabilities as of January 1, 2019:
Reconciliation of lease liabilities upon the initial application of IFRS 16
in € THOUS |
Future minimum rental payments as of December 31, 2018 (IAS 17) |
5,527,638 | |||
less short-term leases |
(21,936 | ) | ||
less leases of low-value assets |
(34,145 | ) | ||
other |
(26,975 | ) | ||
Gross lease liabilities as of January 1, 2019 |
5,444,582 | |||
| | | | |
Discounting |
(893,957 | ) | ||
Lease liabilities as a result of the initial application of IFRS 16 as of January 1, 2019 |
4,550,625 | |||
| | | | |
Lease liabilities from capital leases as of December 31, 2018 (IAS 17) |
36,144 | |||
| | | | |
Lease liabilities as of January 1, 2019 |
4,586,769 | |||
| | | | |
| | | | |
| | | | |
The lease liabilities were discounted using the term-, country-, and currency-specific incremental borrowing rate as of January 1, 2019. The weighted average discount rate was 3.69%.
Leasing in the consolidated statements of income
The Company decided not to apply the guidance within IFRS 16 to short-term leases as well as leases for underlying assets of low-value. These lease payments will be recognized as expenses over the respective lease terms.
51
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
The following table shows the effects from lease agreements on the consolidated statements of income for the three and nine months ended September 30, 2019:
Leasing in the consolidated statements of income
in € THOUS |
|
For the three
months ended September 30, 2019 |
For the nine
months ended September 30, 2019 |
|||||
---|---|---|---|---|---|---|---|
Depreciation on right-of-use assets |
176,204 | 519,093 | |||||
Impairments on right-of-use assets |
18,982 | 18,982 | |||||
Expenses relating to short-term leases |
17,045 | 39,538 | |||||
Expenses relating to leases of low-value assets |
9,055 | 20,862 | |||||
Expenses relating to variable lease payments |
6,983 | 26,138 | |||||
Interest expense on lease liabilities |
42,729 | 127,779 |
Leasing in the consolidated balance sheets
At September 30, 2019, the book values of right-of-use assets consisted of the following:
Right-of-use assets
in € THOUS |
|
September 30,
2019 |
|||
---|---|---|---|---|
Right-of-use assets: Land |
27,036 | |||
Right-of-use assets: Buildings and improvements |
3,957,825 | |||
Right-of-use assets: Machinery and equipment |
358,447 | |||
| | | | |
Right-of-use assets |
4,343,308 | |||
| | | | |
| | | | |
| | | | |
In the first nine months of fiscal year 2019, additions to right-of-use assets were €414,377.
Recent accounting pronouncements not yet adopted
The IASB issued the following new standard which is relevant for the Company:
In May 2017, the IASB issued IFRS 17, Insurance Contracts. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure related to the issuance of insurance contracts. IFRS 17 replaces IFRS 4, Insurance Contracts, which was brought in as an interim standard in 2004. IFRS 4 permitted the use of national accounting standards for the accounting of insurance contracts under IFRS. As a result of the varied application for insurance contracts there was a lack of comparability among peer groups. IFRS 17 eliminates this diversity in practice by requiring all insurance contracts to be accounted for using current values. The frequent updates to the insurance values are expected to provide more useful information to users of financial statements. IFRS 17 is effective for fiscal years beginning on or after January 1, 2021. Earlier adoption is permitted for entities that have also adopted IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers. The Company is evaluating the impact of IFRS 17 on the consolidated financial statements.
52
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
In the Company's view, all other pronouncements issued by the IASB do not have a material impact on the consolidated financial statements.
2. Notes to the consolidated statements of income
a) Revenue
The Company has recognized the following revenue in the consolidated statement of income for the three and nine months ended September 30, 2019 and 2018:
Revenue
in € THOUS |
|
For the three months ended
September 30, |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2019 | 2018 | |||||||||||||||||
|
Revenue from
contracts with customers |
Other
revenue |
Total |
Revenue from
contracts with customers |
Other
revenue |
Total | |||||||||||||
Health care services |
|||||||||||||||||||
Dialysis services |
3,155,050 | | 3,155,050 | 2,904,363 | | 2,904,363 | |||||||||||||
Care Coordination |
271,307 | 65,959 | 337,266 | 295,001 | 58,767 | 353,768 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
3,426,357 | 65,959 | 3,492,316 | 3,199,364 | 58,767 | 3,258,131 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Health care products |
|||||||||||||||||||
Dialysis products |
877,008 | 29,869 | 906,877 | 756,759 | 25,615 | 782,374 | |||||||||||||
Non-dialysis products |
19,810 | | 19,810 | 17,347 | | 17,347 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
896,818 | 29,869 | 926,687 | 774,106 | 25,615 | 799,721 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
4,323,175 | 95,828 | 4,419,003 | 3,973,470 | 84,382 | 4,057,852 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
For the nine months ended
September 30, |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2019 | 2018 | |||||||||||||||||
|
Revenue from
contracts with customers |
Other
revenue |
Total |
Revenue from
contracts with customers |
Other
revenue |
Total | |||||||||||||
Health care services |
|||||||||||||||||||
Dialysis services |
9,232,698 | | 9,232,698 | 8,359,200 | | 8,359,200 | |||||||||||||
Care Coordination |
849,788 | 182,335 | 1,032,123 | 1,330,471 | 162,062 | 1,492,533 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
10,082,486 | 182,335 | 10,264,821 | 9,689,671 | 162,062 | 9,851,733 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Health care products |
|||||||||||||||||||
Dialysis products |
2,479,262 | 96,756 | 2,576,018 | 2,269,019 | 71,047 | 2,340,066 | |||||||||||||
Non-dialysis products |
55,753 | | 55,753 | 55,387 | | 55,387 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
2,535,015 | 96,756 | 2,631,771 | 2,324,406 | 71,047 | 2,395,453 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
12,617,501 | 279,091 | 12,896,592 | 12,014,077 | 233,109 | 12,247,186 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
53
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
b) Selling, general & administrative expenses
Included in SG&A are gains and losses from changes in the fair value of equity investments. During the three and nine months ended September 30, 2019, the Company recognized gains of approximately €76,132. The Company did not recognize gains and losses from changes in the fair value of equity investments in 2018.
c) (Gain) loss related to divestitures of Care Coordination activities
On June 28, 2018, the Company divested its controlling interest in Sound Inpatient Physicians, Inc. ("Sound") to an investment consortium led by Summit Partners, L.P., ("Summit Consortium"). The total transaction proceeds were $1,770,516 (€1,531,109), net of related tax payments. For the nine months ended September 30, 2018, the pre-tax gain related to divestitures for Care Coordination activities was €829,860, which primarily related to this divestiture, the effect of the six-month impact from the increase in valuation of Sound's share based payment program, incentive compensation expense and other costs caused by the divestiture of Sound. Sound was included in Care Coordination within the North America Segment. The Company's history with Sound, prior to divestment, includes the following milestones:
d) Research and development expenses
Research and development expenses of €136,591 for the nine months ended September 30, 2019 (for the nine months ended September 30, 2018: €95,287) include expenditures for research and non-capitalizable development costs as well as depreciation and amortization expenses related to capitalized development costs of €1,795 (for the nine months ended September 30, 2018: €249).
54
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
e) Earnings per share
The following table contains reconciliations of the numerators and denominators of the basic and fully diluted earnings per share computations for 2019 and 2018:
Reconciliation of basic and diluted earnings per share
in € THOUS, except share and per share data |
|
For the three months
ended September 30, |
For the nine months
ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2019 | 2018 | 2019 | 2018 | |||||||||
Numerator: |
|||||||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA |
332,584 | 284,614 | 857,113 | 1,557,150 | |||||||||
| | | | | | | | | | | | | |
Denominators: |
|||||||||||||
Weighted average number of shares outstanding |
301,440,412 | 306,495,661 | 303,832,868 | 306,434,923 | |||||||||
Potentially dilutive shares |
| 824,459 | 83,518 | 807,212 | |||||||||
| | | | | | | | | | | | | |
Basic earnings per share |
1.10 | 0.93 | 2.82 | 5.08 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted earnings per share |
1.10 | 0.93 | 2.82 | 5.07 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
In 2019, the Company will continue to utilize the authorization granted by the Company's Annual General Meeting on May 12, 2016 to conduct a share buy-back program. The current share buy-back program, announced on June 14, 2019 allows for repurchase of a maximum of 12,000,000 shares at a total purchase price, excluding ancillary transaction costs, of up to €660,000 between June 17, 2019 and June 17, 2020. The prior buy-back program expired on May 10, 2019 and the repurchased shares were retired. The following tabular disclosure provides the number of shares acquired in the context of the share buy-back programs as well as the retired treasury stock:
55
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
Treasury Stock
|
Period
|
Average price
per share |
Total number of shares
purchased and retired as part of publicly announced plans or programs |
Total value of
shares(1) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
in €
|
|
in € THOUS
|
|||||||
December 31, 2017 |
65.63 | 1,659,951 | 108,931 | |||||||
| | | | | | | | | | |
Purchase of Treasury Stock |
||||||||||
May 2018 |
86.69 | 173,274 | 15,020 | |||||||
June 2018 |
86.14 | 257,726 | 22,201 | |||||||
| | | | | | | | | | |
Repurchased Treasury Stock |
86.37 | 431,000 | 37,221 | |||||||
| | | | | | | | | | |
Retirement of repurchased Treasury Stock |
||||||||||
December 2018 |
87.23 | 1,091,000 | 95,159 | |||||||
| | | | | | | | | | |
December 31, 2018 |
51.00 | 999,951 | 50,993 | |||||||
| | | | | | | | | | |
Purchase of Treasury Stock |
||||||||||
March 2019 |
69.86 | 1,629,240 | 113,816 | |||||||
April 2019 |
72.83 | 1,993,974 | 145,214 | |||||||
May 2019 |
72.97 | 147,558 | 10,766 | |||||||
| | | | | | | | | | |
Repurchased Treasury Stock |
71.55 | 3,770,772 | 269,796 | |||||||
| | | | | | | | | | |
Retirement of repurchased Treasury Stock |
||||||||||
June 2019 |
71.55 | 3,770,772 | 269,796 | |||||||
| | | | | | | | | | |
Purchase of Treasury Stock |
||||||||||
June 2019 |
67.11 | 504,672 | 33,870 | |||||||
July 2019 |
66.77 | 1,029,655 | 68,748 | |||||||
August 2019 |
57.53 | 835,208 | 48,050 | |||||||
September 2019 |
59.67 | 627,466 | 37,444 | |||||||
| | | | | | | | | | |
Repurchased Treasury Stock(2) |
62.77 | 2,997,001 | 188,112 | |||||||
| | | | | | | | | | |
Total |
59.82 | 3,996,952 | 239,105 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
As of September 30, 2019, the Company holds 3,996,952 treasury shares. These shares will be used solely to reduce the registered share capital of the Company by cancellation of the acquired shares.
3. Acquisition of NxStage Medical, Inc.
On February 21, 2019, the Company acquired all of the outstanding shares of NxStage Medical, Inc. ("NxStage") for $30.00 per common share. The total acquisition value of this business combination, net of cash acquired, is $1,976,235 (€1,740,563 at date of closing). NxStage is a leading medical technology company that develops, produces and markets an innovative product portfolio of medical devices for use in home dialysis and in the critical care setting. This acquisition is part of the Company's stated strategy to expand and complement its existing business through acquisitions. Generally, these acquisitions do not change the Company's business model and can be integrated without disruption to its existing business,
56
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
3. Acquisition of NxStage Medical, Inc. (Continued)
requiring little or no realignment of its structures. The NxStage acquisition is consistent in this regard as it supplements the Company's existing business.
The following table summarizes the estimated fair values, as of the date of acquisition based upon information available, as of September 30, 2019, of assets acquired and liabilities assumed at the date of the acquisition. Any adjustments to acquisition accounting, net of related income tax effects, will be recorded with a corresponding adjustment to goodwill:
Estimated Fair Values of Assets Acquired and Liabilities AssumedPreliminary
in $ THOUS |
|
in USD | |||
---|---|---|---|---|
Cash and cash equivalents |
47,203 | |||
Trade accounts and other receivables |
34,062 | |||
Inventories |
64,945 | |||
Other current assets |
18,657 | |||
Property, plant and equipment |
93,657 | |||
Right-of-use assets |
21,654 | |||
Intangible assets and other assets |
825,516 | |||
Goodwill |
1,163,258 | |||
Accounts payable, current provisions and other current liabilities |
(72,003 | ) | ||
Deferred taxes |
(121,139 | ) | ||
Lease liabilities |
(22,065 | ) | ||
Other liabilities |
(26,244 | ) | ||
Noncontrolling interests |
(4,063 | ) | ||
| | | | |
Total acquisition cost |
2,023,438 | |||
| | | | |
| | | | |
| | | | |
Less: |
||||
Cash acquired |
(47,203 | ) | ||
| | | | |
Net Cash paid |
1,976,235 | |||
| | | | |
| | | | |
| | | | |
As of the acquisition date, it is estimated that amortizable intangible assets acquired in this acquisition will have weighted average useful lives of 13 years.
Goodwill in the amount of $1,163,258 was acquired as part of the NxStage acquisition and is allocated to the North America Segment.
NxStage's results have been included in the Company's consolidated statement of income since February 21, 2019. Specifically, NxStage has contributed revenue and an operating loss in the amount of $211,410 (€188,151) and $26,447 (€23,537) respectively, to the Company's consolidated operating income. This operating loss amount does not include synergies which may have resulted at consolidated entities outside NxStage since the acquisition closed.
Pro forma financial information
The following financial information, on a pro forma basis, reflects the consolidated results of operations for the nine months ended September 30, 2019 as if the NxStage acquisition had been consummated on January 1, 2019 and excludes related transaction costs. The pro-forma financial information is not
57
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
3. Acquisition of NxStage Medical, Inc. (Continued)
necessarily indicative of the results of operations as it would have been had the transactions been consummated on January 1, 2019.
Pro forma financial Information
in € THOUS, except per share data |
|
For the nine months
ended September 30, 2019 |
|||
---|---|---|---|---|
|
in EUR
|
|||
Pro forma revenue |
12,941,303 | |||
Pro forma net income attributable to shareholders of FMC-AG & Co. KGaA |
842,609 | |||
Basic earnings per share |
2.77 | |||
Diluted earnings per share |
2.77 |
4. Related party transactions
Fresenius SE is the Company's largest shareholder and owns 31.42% of the Company's outstanding shares, excluding treasury shares held by the Company, at September 30, 2019. The Company has entered into certain arrangements for services and products with Fresenius SE or its subsidiaries and with certain of the Company's equity method investees as described in item a) below. The arrangements for leases with Fresenius SE or its subsidiaries are described in item b) below. The Company's terms related to the receivables or payables for these services, leases and products are generally consistent with the normal terms of the Company's ordinary course of business transactions with unrelated parties and the Company believes that these arrangements reflect fair market terms. The Company utilizes various methods to verify the commercial reasonableness of its related party arrangements. Financing arrangements as described in item c) below have agreed upon terms which are determined at the time such financing transactions occur and reflect market rates at the time of the transaction. The relationship between the Company and its key management personnel who are considered to be related parties is described in item d) below. Our related party transactions are settled through Fresenius SE's cash management system where appropriate.
a) Service agreements and products
The Company is party to service agreements with Fresenius SE and certain of its affiliates (collectively the "Fresenius SE Companies") to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, information technology services, tax services and treasury management services. The Company also provides central purchasing services to the Fresenius SE Companies. These related party agreements generally have a duration of 1 to 5 years and are renegotiated on an as needed basis when the agreement comes due. The Company provides administrative services to one of its equity method investees.
The Company sold products to the Fresenius SE Companies and made purchases from the Fresenius SE Companies and equity method investees. In addition, Fresenius Medical Care Holdings, Inc. ("FMCH") purchases heparin supplied by Fresenius Kabi USA, Inc. ("Kabi USA"), through an independent group purchasing organization ("GPO"). Kabi USA is an indirect, wholly-owned subsidiary of Fresenius SE. The Company has no direct supply agreement with Kabi USA and does not submit purchase orders directly to Kabi USA. FMCH acquires heparin from Kabi USA, through the GPO contract, which was negotiated by the GPO at arm's length on behalf of all members of the GPO.
The Company entered into a ten-year agreement with a Fresenius SE Company for the manufacturing of infusion bags. In order to establish the new production line, the Company purchased machinery from the Fresenius SE company in the amount of €3,853 during the nine months ended September 30, 2019 and €3,429 during the nine months ended September 30, 2018.
58
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
4. Related party transactions (Continued)
In December 2010, the Company and Galenica Ltd. (now known as Vifor Pharma Ltd.) formed the renal pharmaceutical company Vifor Fresenius Medical Care Renal Pharma Ltd. ("VFMCRP"), an equity method investee of which the Company owns 45%. The Company has entered into exclusive supply agreements to purchase certain pharmaceuticals from VFMCRP.
Below is a summary, including the Company's receivables from and payables to the indicated parties resulting from the above described transactions with related parties.
Service agreements and products with related parties
in € THOUS |
|
For the nine months
ended September 30, 2019 |
For the nine months
ended September 30, 2018 |
September 30,
2019 |
December 31,
2018 |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Sales of
goods and services |
Purchases of
goods and services |
Sales of
goods and services |
Purchases of
goods and services |
Accounts
receivable |
Accounts
payable |
Accounts
receivable |
Accounts
payable |
|||||||||||||||||
Service agreements(1) |
|||||||||||||||||||||||||
Fresenius SE |
106 | 19,929 | 389 | 17,338 | 1,097 | 3,412 | 378 | 4,019 | |||||||||||||||||
Fresenius SE affiliates |
2,947 | 76,802 | 2,557 | 71,052 | 1,089 | 5,510 | 681 | 8,470 | |||||||||||||||||
Equity method investees |
2,162 | | 16,107 | | 652 | | 2,449 | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
5,215 | 96,731 | 19,053 | 88,390 | 2,838 | 8,922 | 3,508 | 12,489 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Products |
|||||||||||||||||||||||||
Fresenius SE |
3 | | | | | | | | |||||||||||||||||
Fresenius SE affiliates |
33,374 | 26,739 | 26,235 | 29,548 | 12,005 | 7,764 | 8,750 | 3,658 | |||||||||||||||||
Equity method investees |
| 353,843 | | 297,149 | | 179,188 | | 57,975 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
33,377 | 380,582 | 26,235 | 326,697 | 12,005 | 186,952 | 8,750 | 61,633 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
b) Lease agreements
In addition to the above-mentioned product and service agreements, the Company is a party to real estate lease agreements with the Fresenius SE Companies, which mainly include leases for the Company's corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany. The majority of the leases expire at the end of 2026.
59
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
4. Related party transactions (Continued)
Below is a summary resulting from the above described lease agreements with related parties. For information on the implementation of IFRS 16, see note 1.
Lease agreements with related parties
in € THOUS |
|
For the nine
months ended September 30, 2019 |
For the nine months
ended September 30, 2018 |
September 30,
2019 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Depreciation |
Interest
expense |
Lease
expense(1) |
Lease
income |
Lease
expense |
Right-of-use
asset |
Lease
liability |
|||||||||||||||
Fresenius SE |
3,620 | 342 | 2,815 | | 6,494 | 31,028 | 31,233 | |||||||||||||||
Fresenius SE affiliates |
9,384 | 1,055 | 392 | | 11,654 | 93,275 | 93,630 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
13,004 | 1,397 | 3,207 | | 18,148 | 124,303 | 124,863 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
c) Financing
The Company receives short-term financing from and provides short-term financing to Fresenius SE. The Company also utilizes Fresenius SE's cash management system for the settlement of certain intercompany receivables and payables with its subsidiaries and other related parties. As of September 30, 2019 and December 31, 2018, the Company had accounts receivable from Fresenius SE related to short-term financing in the amount of €63,514 and €80,228, respectively. As of September 30, 2019 and December 31, 2018, the Company had accounts payable to Fresenius SE related to short-term financing in the amount of €45,612 and €32,454, respectively. The interest rates for these cash management arrangements are set on a daily basis and are based on the then-prevailing overnight reference rate, with a floor of zero, for the respective currencies.
On August 19, 2009, the Company borrowed €1,500 from the General Partner on an unsecured basis at 1.335%. The loan repayment has been extended periodically and is currently due August 21, 2020 with an interest rate of 0.930%. On November 28, 2013, the Company borrowed an additional €1,500 with an interest rate of 1.875% from the General Partner. The loan repayment has been extended periodically and is currently due on November 23, 2019 with an interest rate of 0.825%.
At December 31, 2018, a subsidiary of Fresenius SE held unsecured bonds issued by the Company in the amount of €6,000. One bond was issued in 2012 with a coupon of 5.25% and interest paid semiannually until maturity in 2019. At September 30, 2019, the subsidiary of Fresenius SE held another unsecured bond issued by the Company in the amount of €1,000. This bond was issued in 2011 with a coupon of 5.25% and interest payable semiannually until maturity in 2021.
At September 30, 2019 and December 31, 2018, the Company borrowed from Fresenius SE in the amount of €354,900 on an unsecured basis at an interest rate of 0.930% and €185,900 on an unsecured basis at an interest rate of 0.825%, respectively. For further information on this loan agreement, see note 8.
d) Key management personnel
Due to the Company's legal form of a German partnership limited by shares, the General Partner holds a key management position within the Company. In addition, as key management personnel, members of the Management Board and the Supervisory Board, as well as their close relatives, are considered related parties.
60
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
4. Related party transactions (Continued)
The Company's Articles of Association provide that the General Partner shall be reimbursed for any and all expenses in connection with management of the Company's business, including remuneration of the members of the General Partner's supervisory board and the members of the Management Board. The aggregate amount reimbursed to the General Partner was €19,532 and €15,295, respectively, for its management services during the nine months ended September 30, 2019 and 2018. As of September 30, 2019 and December 31, 2018, the Company had accounts receivable from the General Partner in the amount of €197 and €176, respectively. As of September 30, 2019 and December 31, 2018, the Company had accounts payable to the General Partner in the amount of €13,756 and €47,205, respectively.
5. Cash and cash equivalents
As of September 30, 2019 and December 31, 2018, cash and cash equivalents are as follows:
Cash and cash equivalents
|
|
September 30,
2019 |
December 31,
2018 |
|||||
---|---|---|---|---|---|---|---|
Cash |
757,340 | 831,885 | |||||
Securities and time deposits |
207,714 | 1,313,747 | |||||
| | | | | | | |
Cash and cash equivalents |
965,054 | 2,145,632 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The cash and cash equivalents disclosed in the table above, and in the consolidated statements of cash flows, include at September 30, 2019 an amount of €9,862 (December 31, 2018: €5,002) from collateral requirements towards an insurance company in North America that are not available for use.
6. Trade accounts and other receivables
As of September 30, 2019 and December 31, 2018, trade accounts and other receivables are as follows:
Trade accounts and other receivables
|
|
September 30, 2019 | December 31, 2018 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
thereof
credit-impaired |
|
thereof
credit-impaired |
|||||||||
Trade accounts and other receivables, gross |
3,644,079 | 367,864 | 3,455,721 | 325,240 | |||||||||
thereof finance lease receivables |
52,617 | | 28,726 | | |||||||||
less allowances |
(132,959 | ) | (90,630 | ) | (118,015 | ) | (85,775 | ) | |||||
| | | | | | | | | | | | | |
Trade accounts and other receivables |
3,511,120 | 277,233 | 3,337,706 | 239,465 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The other receivables in the amount of €98,488 include receivables from finance leases, operating leases and insurance contracts (December 31, 2018: €66,496).
All trade accounts and other receivables are due within one year. A small portion of the trade account receivables are subject to factoring agreements.
Trade accounts receivables and finance lease receivables with a term of more than one year in the amount of €126,727 (December 31, 2018: €120,668) are included in the balance sheet item "Other non-current assets."
61
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
7. Inventories
At September 30, 2019 and December 31, 2018, inventories consisted of the following:
Inventories
|
|
September 30,
2019 |
December 31,
2018 |
|||||
---|---|---|---|---|---|---|---|
Finished goods |
951,211 | 774,133 | |||||
Health care supplies |
418,057 | 391,593 | |||||
Raw materials and purchased components |
247,424 | 224,054 | |||||
Work in process |
104,398 | 77,023 | |||||
| | | | | | | |
Inventories |
1,721,090 | 1,466,803 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
8. Short-term debt and short-term debt from related parties
At September 30, 2019 and December 31, 2018, short-term debt and short-term debt from related parties consisted of the following:
Short-term debt and short-term debt from related parties
|
|
September 30,
2019 |
December 31,
2018 |
|||||
---|---|---|---|---|---|---|---|
Commercial paper program |
999,878 | 999,873 | |||||
Borrowings under lines of credit |
565,828 | 204,491 | |||||
Other |
73 | 930 | |||||
| | | | | | | |
Short-term debt |
1,565,779 | 1,205,294 | |||||
Short-term debt from related parties (see note 4 c) |
357,900 | 188,900 | |||||
| | | | | | | |
Short-term debt and short-term debt from related parties |
1,923,679 | 1,394,194 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company and certain consolidated entities operate a multi-currency notional pooling cash management system. The Company met the conditions to offset balances within this cash pool for reporting purposes. At September 30, 2019, cash and borrowings under lines of credit in the amount of €457,487 (December 31, 2018: €122,256) were offset under this cash management system.
The Company maintains a commercial paper program under which short-term notes of up to €1,000,000 can be issued. At September 30, 2019, the outstanding commercial paper amounted to €1,000,000 (December 31, 2018: €1,000,000).
At September 30, 2019, the Company had €73 (December 31, 2018: €930) of other debt outstanding related to fixed payments outstanding for acquisitions.
Short-term debt from related parties
On July 31, 2019, the Company and certain of its subsidiaries, as borrowers, and Fresenius SE, as lenders, amended and restated an unsecured loan agreement to increase the aggregate amount from $400,000 to €
62
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Short-term debt and short-term debt from related parties (Continued)
600,000. The Company and certain of its subsidiaries may request and receive one or more short-term advances until maturity on July 31, 2022. For further information on short-term debt from related parties, see note 4 c).
9. Long-term debt
As of September 30, 2019 and December 31, 2018, long-term debt consisted of the following:
Long-term debt
|
|
September 30,
2019 |
December 31,
2018 |
|||||
---|---|---|---|---|---|---|---|
Amended 2012 Credit Agreement |
2,446,848 | 1,887,357 | |||||
Bonds |
3,306,538 | 3,700,446 | |||||
Convertible Bonds |
397,918 | 393,232 | |||||
Accounts Receivable Facility |
669,021 | | |||||
Capital lease obligations(1) |
| 36,144 | |||||
Other |
236,432 | 134,855 | |||||
| | | | | | | |
Long-term debt(2) |
7,056,757 | 6,152,034 | |||||
Less current portion |
(970,917 | ) | (1,106,519 | ) | |||
| | | | | | | |
Long-term debt, less current portion(2) |
6,085,840 | 5,045,515 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
On June 20, 2019, Fresenius Medical Care US Finance III, Inc. issued bonds with a volume of $500,000. The bonds have a maturity of 10 years and a coupon of 3.75%. The bonds were issued at a price of 98.461%. The proceeds were used for general corporate purposes and the refinancing of maturing liabilities.
The bonds issued by FMC Finance VIII S.A. in the amount of €250,000 and the bonds issued by Fresenius Medical Care US Finance II, Inc. in the amount of $800,000, which were due on July 31, 2019, were redeemed at maturity.
63
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
9. Long-term debt (Continued)
The following table shows the available and outstanding amounts under the Amended 2012 Credit Agreement at September 30, 2019 and December 31, 2018:
Amended 2012 Credit AgreementMaximum amount available and balance outstanding
|
|
Maximum amount available
September 30, 2019 |
Balance outstanding
September 30, 2019(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revolving credit USD 2017 / 2022 |
$ | 900,000 | € | 826,522 | $ | 300,000 | € | 275,507 | |||||
Revolving credit EUR 2017 / 2022 |
€ | 600,000 | € | 600,000 | € | 325,000 | € | 325,000 | |||||
USD term loan 2017 / 2022 |
$ | 1,260,000 | € | 1,157,131 | $ | 1,260,000 | € | 1,157,131 | |||||
EUR term loan 2017 / 2022 |
€ | 294,000 | € | 294,000 | € | 294,000 | € | 294,000 | |||||
EUR term loan 2017 / 2020 |
€ | 400,000 | € | 400,000 | € | 400,000 | € | 400,000 | |||||
| | | | | | | | | | | | | |
|
€ | 3,277,653 | € | 2,451,638 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
Maximum amount available
December 31, 2018 |
Balance outstanding
December 31, 2018(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revolving credit USD 2017 / 2022 |
$ | 900,000 | € | 786,026 | $ | | € | | |||||
Revolving credit EUR 2017 / 2022 |
€ | 600,000 | € | 600,000 | € | | € | | |||||
USD term loan 2017 / 2022 |
$ | 1,350,000 | € | 1,179,039 | $ | 1,350,000 | € | 1,179,039 | |||||
EUR term loan 2017 / 2022 |
€ | 315,000 | € | 315,000 | € | 315,000 | € | 315,000 | |||||
EUR term loan 2017 / 2020 |
€ | 400,000 | € | 400,000 | € | 400,000 | € | 400,000 | |||||
| | | | | | | | | | | | | |
|
€ | 3,280,065 | € | 1,894,039 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table shows the available and outstanding amounts under the Accounts Receivable Facility at September 30, 2019 and at December 31, 2018:
Accounts Receivable FacilityMaximum amount available and balance outstanding
|
|
Maximum amount
available December 31, 2018(1) |
Balance
outstanding December 31, 2018(2) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts Receivable Facility |
$ | 900,000 | € | 786,026 | $ | | € | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
64
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
9. Long-term debt (Continued)
The Company also had letters of credit outstanding under the Accounts Receivable Facility in the amount of $23,460 and $26,631 (€21,545 and €23,259) at September 30, 2019 and December 31, 2018, respectively. These letters of credit are not included above as part of the balance outstanding at September 30, 2019 and December 31, 2018; however, they reduce available borrowings under the Accounts Receivable Facility.
10. Supplementary information on capital management
As of September 30, 2019 and December 31, 2018 the total equity in percent of total assets was 40.8% and 49.2%, respectively, and the debt in percent of total assets was 41.2% and 28.8%, respectively.
Further information on the Company's capital management is available in the Annual Report on Form 20-F as of December 31, 2018.
The Company's financing structure and business model are reflected in the investment grade ratings. The Company is covered and rated investment grade by the three leading rating agencies, Moody's, Standard & Poor's and Fitch.
Rating(1)
|
|
Standard & Poor's | Moody's | Fitch | |||
---|---|---|---|---|---|---|
Corporate Credit Rating |
BBB | Baa3 | BBB | |||
Outlook |
stable | stable | stable |
11. Share-based plans
Fresenius Medical Care Long-Term Incentive Plans 2019
As of December 31, 2018, the FMC-AG & Co. KGaA Long-Term Incentive Plan 2016 ("LTIP 2016") expired. In order to continue to enable the members of the Management Board, the members of the management boards of affiliated companies and managerial staff members to adequately participate in the long-term, sustained success of the Company, successor programs effective January 1, 2019 were introduced. For members of the Management Board, the Supervisory Board of the Management AG has approved and adopted the Fresenius Medical Care Management AG Management Board Long-Term Incentive Plan 2019 ("MB LTIP 2019"). For plan participants other than the members of the Management Board, the Management Board of the Management AG has approved and adopted the Fresenius Medical Care AG & Co. KGaA Long-Term Incentive Plan 2019 ("LTIP 2019").
The MB LTIP 2019 and the LTIP 2019 are variable compensation programs with long-term incentive effects. As under the LTIP 2016, pursuant to the MB LTIP 2019 and the LTIP 2019, plan participants may be granted so-called "Performance Shares" once or twice during 2019 for the MB LTIP 2019 and throughout 2019 to 2021 for the LTIP 2019. Performance Shares are non-equity, cash-settled virtual compensation instruments which may entitle plan participants to receive a cash payment depending on the achievement of pre-defined performance targets further defined below as well as the Company's share price development.
For members of the Management Board, the Supervisory Board of Management AG will, in due exercise of its discretion and taking into account the individual responsibility and performance of each Management Board member, determine an initial value for each grant for any awards to Management Board members. For plan participants other than the members of the Management Board, such determination will be made by the Management Board. In order to determine the number of Performance Shares each plan participant receives, their respective grant value will be divided by the value per
65
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
11. Share-based plans (Continued)
Performance Share at the time of the grant, which is mainly determined based on the average price of the Company's shares over a period of thirty calendar days prior to the respective grant date. The number of granted Performance Shares may change over the performance period of three years, depending on the level of achievement of the following: (i) revenue growth at constant currency ("Revenue Growth"), (ii) net income growth at constant currency (net income attributable to the shareholders of FMC-AG & Co. KGaA) ("Net Income Growth") and (iii) return on invested capital ("ROIC"). For the LTIP 2019, the level of achievement for Performance Shares granted in fiscal year 2019 may be subject to an increase if certain targets in relation to the second phase of the Company's Global Efficiency Program are achieved ("GEP-II targets").
Revenue, net income and ROIC are determined according to the Company's consolidated reported and audited figures in Euro for the financial statements prepared in accordance with the respective plan terms. Revenue Growth, Net Income Growth and the fulfillment of the GEP-II targets, for the purpose of the relevant plan, are determined at constant currency.
An annual target achievement level of 100% will be reached for the Revenue Growth performance target if Revenue Growth is 7% in each individual year of the three-year performance period; Revenue Growth of 0% will lead to a target achievement level of 0% and the maximum target achievement level of 200% will be reached in the case of Revenue Growth of at least 16%. If revenue growth ranges between these values, the degree of target achievement will be linearly interpolated between these values.
An annual target achievement level of 100% for the Net Income Growth performance target will be reached if net income growth is 7% in each individual year of the three-year performance period. In the case of Net Income Growth of 0%, the target achievement level will also be 0%; the maximum target achievement of 200% will be reached in the case of Net Income Growth of at least 14%. Between these values, the degree of target achievement will be determined by means of linear interpolation.
With regard to ROIC, an annual target achievement level of 100% will be reached if the target ROIC as defined for the respective year is reached. The target ROIC is 7.9% for 2019 and 8.1% for each consecutive year. A target achievement level of 0% will be reached if the ROIC falls below the target ROIC for the respective year by 0.2 percentage points or more, whereas the maximum target achievement level of 200% will be reached if the target ROIC for the respective year is exceeded by 0.2 percentage points or more. The degree of target achievement will be determined by means of linear interpolation if the ROIC ranges between these values. In case the annual ROIC target achievement level in the third year of a performance period is equal or higher than the ROIC target achievement level in each of the two previous years of such performance period, the ROIC target achievement level of the third year is deemed to be achieved for all years of the respective performance period.
The achievement level for each of the three performance targets will be weighted annually at one-third to determine the yearly target achievement for each year of the three-year performance period. The level of overall target achievement over the three-year performance period will then be determined on the basis of the mean of these three average yearly target achievements. The overall target achievement can be in a range of 0% to 200%. For the LTIP 2019, the overall target achievement for Performance Shares granted in fiscal year 2019 shall be increased by 20 percentage points if the GEP-II targets achievement is 100%. In case of a GEP-II targets achievement between 0% and 100%, the respective increase of the overall target achievement will be calculated by means of linear interpolation. The overall target achievement increased by the GEP-II targets achievement shall not exceed 200%.
The number of Performance Shares granted to the plan participants at the beginning of the performance period will each be multiplied by the level of overall target achievement in order to determine the final number of Performance Shares.
66
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
11. Share-based plans (Continued)
For the MB LTIP 2019, the final number of Performance Shares is generally deemed earned four years after the day of a respective grant (the four-year vesting period). The number of such vested Performance Shares is then multiplied by the average Company share price over a period of thirty days prior to the lapse of this four-year vesting period. The respective resulting amount will then be paid to the plan participants as cash compensation. For further detail regarding the terms and conditions of the MB LTIP 2019 please see exhibit 4.17 of this report.
For plan participants of the LTIP 2019, the final number of Performance Shares is generally deemed earned three years after the day of a respective grant (the three-year vesting period). The number of such vested Performance Shares is then multiplied by the average Company share price over a period of thirty days prior to the lapse of this three-year vesting period. The respective resulting amount, which is capped in total at an amount equaling 400% of the grant value received by the participant, will then be paid to the plan participants as cash compensation. For further detail regarding the terms and conditions of the LTIP 2019 please see exhibit 4.16 of this report.
The first awards under the MB LTIP 2019 were granted on July 29, 2019. In total, 101,600 Performance Shares, the equivalent in Euros at the grant date being €6,484, were awarded under the MB LTIP 2019. The fair value per Performance Share at the grant date was €63.82 for the MB LTIP 2019.
The first awards under the LTIP 2019 were granted on July 29, 2019. In total, 793,778 Performance Shares, the equivalent in Euros at the grant date being €51,827, were awarded under the LTIP 2019. The fair value per Performance Share at the grant date was €65.29 for the LTIP 2019.
12. Employee benefit plans
The Company currently has five principal pension plans, one for German employees, three for French employees and the other covering employees in the United States, the last of which was curtailed in 2002. Plan benefits are generally based on years of service and final salary. As there is no legal requirement in Germany to fund defined benefit plans, the Company's pension obligations in Germany are unfunded. Each year FMCH contributes to the plan covering United States employees at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended. In 2019, FMCH did not have a minimum funding requirement. For the first nine months of 2019, the Company voluntarily provided €847 to the defined benefit plan. For the remaining period of 2019, the Company expects further voluntarily contributions of €294.
The following table provides the calculations of net periodic benefit cost for the three and nine months ended September 30, 2019 and 2018, respectively.
Net periodic benefit cost
in € THOUS |
|
For the three months
ended September 30, |
For the nine months
ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2019 | 2018 | 2019 | 2018 | |||||||||
Current service cost |
7,634 | 5,427 | 22,539 | 19,059 | |||||||||
Net interest cost |
3,507 | 3,307 | 10,424 | 9,755 | |||||||||
| | | | | | | | | | | | | |
Net periodic benefit costs |
11,141 | 8,734 | 32,963 | 28,814 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
67
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies
The Company is routinely involved in claims, lawsuits, regulatory and tax audits, investigations and other legal matters arising, for the most part, in the ordinary course of its business of providing health care services and products. Legal matters that the Company currently deems to be material or noteworthy are described below. The Company records its litigation reserves for certain legal proceedings and regulatory matters to the extent that the Company determines an unfavorable outcome is probable and the amount of loss can be reasonably estimated. For the other matters described below, the Company believes that the loss probability is remote and/or the loss or range of possible losses cannot be reasonably estimated at this time. The outcome of litigation and other legal matters is always difficult to predict accurately and outcomes that are not consistent with the Company's view of the merits can occur. The Company believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that the resolution of one or more of the legal matters currently pending or threatened could have a material adverse effect on its business, results of operations and financial condition.
On February 15, 2011, a whistleblower (relator) action under the False Claims Act against FMCH was unsealed by order of the United States District Court for the District of Massachusetts and served by the relator. United States ex rel. Chris Drennen v. Fresenius Medical Care Holdings, Inc., 2009 Civ. 10179 (D. Mass.). The relator's complaint, which was first filed under seal in February 2009, alleged that FMCH sought and received reimbursement from government payors for serum ferritin and multiple forms of hepatitis B laboratory tests that were medically unnecessary or not properly ordered by a physician. Discovery on the relator's complaint closed in May 2015. Although the United States initially declined to intervene in the case, the government subsequently changed position. On April 3, 2017, the court allowed the government to intervene with respect only to certain hepatitis B surface antigen tests performed prior to 2011, when Medicare reimbursement rules for such tests changed. On October 11, 2019, the United States and FMCH reached agreement on a settlement under which FMCH has paid $5,200 in exchange for dismissal and release of all claims asserted by the United States or the relator. The settlement leaves unresolved the relator's attorneys' claims for fees and expenses and leaves FMCH free to pursue its administrative proceeding to recover certain sums recouped by or provisionally paid to the Medicare program pursuant to a 2013 audit of laboratory tests. The settlement payment, together with the expected results of the relator's attorneys' fee petition and the administrative proceeding, are less than the amount previously reserved by FMCH for the entire matter.
Beginning in 2012, the Company received certain communications alleging conduct in countries outside the United States that might violate the Foreign Corrupt Practices Act or other anti-bribery laws. The Company conducted investigations with the assistance of outside counsel and, in a continuing dialogue, advised the Securities and Exchange Commission and the United States Department of Justice (collectively and interchangeably the "government") about these investigations. The government also conducted its own investigations, in which the Company cooperated.
In the course of this dialogue, the Company identified and reported to the government, and took remedial actions including employee disciplinary actions with respect to, conduct that resulted in the government seeking monetary penalties including disgorgement of profits and other remedies. This conduct revolved principally around the Company's products business in countries outside the United States.
The Company recorded charges of €200,000 in 2017 and €77,200 in 2018 encompassing estimates for the government's claims for profit disgorgement, penalties, certain legal expenses, and other related costs or asset impairments believed likely to be necessary for full and final resolution, by litigation or settlement, of the claims and issues arising from the investigation. The increase recorded in 2018 took into consideration preliminary understandings with the government on the financial terms of a potential settlement. Following this increase, which takes into account incurred and anticipated legal expenses, impairments and other costs, the provision totals €223,980 as of December 31, 2018.
68
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies (Continued)
On March 29, 2019, the Company entered into a non-prosecution agreement with the DOJ and a separate agreement with the SEC intended to resolve fully and finally the government's claims against the Company arising from the investigations. The Company paid a combined total in penalties and disgorgement of approximately $231,700 to the government in connection with these agreements. As part of the settlement, the Company agreed to retain an independent compliance monitor for a period of two years and to an additional year of self-reporting. As of July 26, 2019, the monitor was appointed and the two-year monitorship period commenced. Company continues to cooperate with government authorities in Germany in their review of the issues resolved in the U.S. settlement.
The Company continues to implement enhancements to its anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws. The Company continues to be fully committed to compliance with the Foreign Corrupt Practices Act and other applicable anti-bribery laws.
Personal injury litigation involving the FMCH's acid concentrate product, labeled as Granuflo® or Naturalyte®, first arose in 2012 and was substantially resolved by settlement agreed in principle in February 2016 and consummated in November 2017. Remaining individual personal injury cases do not present material risk.
FMCH's affected insurers agreed to the settlement of the acid concentrate personal injury litigation and funded $220,000 of the settlement fund under a reciprocal reservation of rights encompassing certain coverage issues raised by insurers and the FMCH's claims for indemnification of defense costs. The Company accrued a net expense of $60,000 in connection with the settlement, including legal fees and other anticipated costs. Following entry into the settlement, FMCH's insurers in the AIG group and FMCH each initiated litigation against the other relating to the AIG group's coverage obligations under applicable policies. In the coverage litigation, the AIG group seeks to be indemnified by FMCH for a portion of its $220,000 outlay; FMCH seeks to confirm the AIG group's $220,000 funding obligation, to recover defense costs already incurred by FMCH, and to compel the AIG group to honor defense and indemnification obligations required for resolution of cases not participating in the settlement. As a result of decisions on issues of venue, the coverage litigation is proceeding in the New York state trial court for Manhattan. (National Union Fire Insurance v. Fresenius Medical Care, 2016 Index No. 653108 (Supreme Court of New York for New York County)).
Four institutional plaintiffs filed complaints against FMCH or its affiliates under state deceptive practices statutes resting on certain background allegations common to the GranuFlo®/NaturaLyte® personal injury litigation but seeking as a remedy the repayment of sums paid to FMCH that are attributable to the GranuFlo®/NaturaLyte® products. These cases implicate different legal standards, theories of liability and forms of potential recovery from those in the personal injury litigation and their claims were not extinguished by the personal injury litigation settlement described above. All of the institutional cases have been resolved by settlement except for the claims by the State of Louisiana through its Attorney General and Blue Cross Blue Shield Louisiana, which remain active in the combined proceeding. State of Louisiana ex re. Caldwell and Louisiana Health Service & Indemnity Company v. Fresenius Medical Care Airline, et al 2016 Civ. 11035 (U.S.D.C. D. Mass.). The Caldwell and Blue Cross Louisiana cases remain unresolved and are proceeding together in federal court in Boston but are subject to undecided motions for severance and remand. There is no trial date in either case. FMCH has increased its litigation reserves to account for anticipated resolution of these claims. However, at the present time there are no agreements in principle for resolving either case and litigation through final adjudication may be required in them.
On September 6, 2018, a special-purpose entity organized under Delaware law for the purpose of pursuing litigation filed a Pure Bill of Discovery in a Florida county court seeking discovery from FMCH related to the personal injury settlement, but no other relief. MSP Recovery Claims Series LLC v. Fresenius Medical Care Holdings, No. 2018-030366-CA-01 (11th Judicial Circuit, Dade County, Florida). The Pure Bill was thereafter removed to federal court and transferred into the multidistrict Fresenius Granuflo/Naturalyte
69
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies (Continued)
Dialysate Products Liability Litigation in Boston. No.1:13-MD-02428-DPW (D. Mass. 2013). On March 12, 2019, plaintiff amended its Pure Bill by filing a complaint claiming rights to recover monetary damages on behalf of various persons and entities who are alleged to have assigned to plaintiff their rights to recover monetary damages arising from their having provided or paid for medical services for dialysis patients receiving treatments using FMCH's acid concentrate product. FMCH is responding to the amended complaint.
In August 2014, FMCH received a subpoena from the United States Attorney for the District of Maryland inquiring into FMCH's contractual arrangements with hospitals and physicians involving contracts relating to the management of in-patient acute dialysis services. FMCH is cooperating in the investigation.
In July 2015, the Attorney General for Hawaii issued a civil complaint under the Hawaii False Claims Act alleging a conspiracy pursuant to which certain Liberty Dialysis subsidiaries of FMCH overbilled Hawaii Medicaid for Liberty's Epogen® administrations to Hawaii Medicaid patients during the period from 2006 through 2010, prior to the time of FMCH's acquisition of Liberty. Hawaii v. Liberty DialysisHawaii, LLC et al., Case No. 15-1-1357-07 (Hawaii 1st Circuit). The State alleges that Liberty acted unlawfully by relying on incorrect and unauthorized billing guidance provided to Liberty by Xerox State Healthcare LLC, which acted as Hawaii's contracted administrator for its Medicaid program reimbursement operations during the relevant period. The amount of the overpayment claimed by the State is approximately $8,000, but the State seeks civil remedies, interest, fines, and penalties against Liberty and FMCH under the Hawaii False Claims Act substantially in excess of the overpayment. After prevailing on motions by Xerox to preclude it from doing so, FMCH is pursuing third-party claims for contribution and indemnification against Xerox. The State's False Claims Act complaint was filed after Liberty initiated an administrative action challenging the State's recoupment of alleged overpayments from sums currently owed to Liberty. The civil litigation and administrative action are proceeding in parallel. Trial in the civil litigation is scheduled for April 2020.
On August 31, 2015, FMCH received a subpoena under the False Claims Act from the United States Attorney for the District of Colorado (Denver) inquiring into FMCH's participation in and management of dialysis facility joint ventures in which physicians are partners. FMCH continues to cooperate in the Denver United States Attorney's Office ("USAO") investigation, which has come to focus on purchases and sales of minority interests in ongoing outpatient facilities between FMCH and physician groups.
On November 25, 2015, FMCH received a subpoena under the False Claims Act from the United States Attorney for the Eastern District of New York (Brooklyn) also inquiring into FMCH's involvement in certain dialysis facility joint ventures in New York. On September 26, 2018, the Brooklyn USAO declined to intervene on the qui tam complaint filed under seal in 2014 that gave rise to this investigation. CKD Project LLC v. Fresenius Medical Care, 2014 Civ. 6646 (E.D.N.Y. November 12, 2014). The court unsealed the complaint, allowing the relator to serve and proceed on its own. The relatora special-purpose entity formed by law firms to pursue qui tam proceedingshas served its complaint and litigation is proceeding.
Beginning October 6, 2015, the United States Attorney for the Eastern District of New York (Brooklyn) has led an investigation, through subpoenas issued under the False Claims Act, utilization and invoicing by FMCH's subsidiary Azura Vascular Care for a period beginning after FMCH's acquisition of American Access Care LLC ("AAC") in October 2011. FMCH is cooperating in the Brooklyn USAO investigation. The Brooklyn USAO has indicated that its investigation is nationwide in scope and is focused on whether certain access procedures performed at Azura facilities have been medically necessary and whether certain physician assistants employed by Azura exceeded their permissible scope of practice. Allegations against AAC arising in districts in Connecticut, Florida and Rhode Island relating to utilization and invoicing were settled in 2015.
On June 30, 2016, FMCH received a subpoena from the United States Attorney for the Northern District of Texas (Dallas) seeking information under the False Claims Act about the use and management of
70
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies (Continued)
pharmaceuticals including Velphoro®. The investigation encompasses DaVita, Amgen, Sanofi, and other pharmaceutical manufacturers and includes inquiries into whether certain compensation transfers between manufacturers and pharmacy vendors constituted unlawful kickbacks. FMCH understands that this investigation is substantively independent of the $63,700 settlement by DaVita Rx announced on December 14, 2017 in the matter styled United States ex rel. Gallian v. DaVita Rx, 2016 Civ. 0943 (N.D. Tex.). FMCH has cooperated in the investigation.
On November 18, 2016, FMCH received a subpoena under the False Claims Act from the United States Attorney for the Eastern District of New York (Brooklyn) seeking documents and information relating to the operations of Shiel Medical Laboratory, Inc., which FMCH acquired in October 2013. In the course of cooperating in the investigation and preparing to respond to the subpoena, FMCH identified falsifications and misrepresentations in documents submitted by a Shiel salesperson that relate to the integrity of certain invoices submitted by Shiel for laboratory testing for patients in long term care facilities. On February 21, 2017, FMCH terminated the employee and notified the United States Attorney of the termination and its circumstances. The terminated employee's conduct is expected to result in demands for FMCH to refund overpayments and to pay related penalties under applicable laws, but the monetary value of such payment demands cannot yet be reasonably estimated. FMCH contends that, under the asset sale provisions of its 2013 Shiel acquisition, it is not responsible for misconduct by the terminated employee or other Shiel employees prior to the date of the acquisition. The Brooklyn USAO continues to investigate a range of issues involving Shiel, including allegations of improper compensation (kickbacks) to physicians, and has disclosed that multiple sealed qui tam complaints underlie the investigation.
On December 12, 2017, FMCH sold to Quest Diagnostics certain Shiel operations that are the subject of this Brooklyn subpoena, including the misconduct reported to the United States Attorney. Under the Quest Diagnostics sale agreement, FMCH retains responsibility for responding to the Brooklyn investigation and for liabilities arising from conduct occurring after its 2013 acquisition of Shiel and prior to its sale of Shiel to Quest Diagnostics. FMCH is cooperating in the investigation.
On December 14, 2016, the Center for Medicare & Medicaid Services ("CMS"), which administers the federal Medicare program, published an Interim Final Rule ("IFR") titled "Medicare Program; Conditions for Coverage for End-Stage Renal Disease Facilities-Third Party Payment." The IFR would have amended the Conditions for Coverage for dialysis providers, like FMCH and would have effectively enabled insurers to reject premium payments made by or on behalf of patients who received grants for individual market coverage from the American Kidney Fund ("AKF" or "the Fund"). The IFR could thus have resulted in those patients losing individual insurance market coverage. The loss of coverage for these patients would have had a material and adverse impact on the operating results of FMCH.
On January 25, 2017, a federal district court in Texas responsible for litigation initiated by a patient advocacy group and dialysis providers including FMCH preliminarily enjoined CMS from implementing the IFR. Dialysis Patient Citizens v. Burwell, 2017 Civ. 0016 (E.D. Texas, Sherman Div.). The preliminary injunction was based on CMS' failure to follow appropriate notice-and-comment procedures in adopting the IFR. The injunction remains in place and the court retains jurisdiction over the dispute.
On June 22, 2017, CMS requested a stay of proceedings in the litigation pending further rulemaking concerning the IFR. CMS stated, in support of its request, that it expects to publish a Notice of Proposed Rulemaking in the Federal Register and otherwise pursue a notice-and-comment process. Plaintiffs in the litigation, including FMCH, consented to the stay, which was granted by the court on June 27, 2017.
On January 3, 2017, FMCH received a subpoena from the United States Attorney for the District of Massachusetts under the False Claims Act inquiring into FMCH's interactions and relationships with the AKF, including FMCH's charitable contributions to the Fund and the Fund's financial assistance to patients for insurance premiums. FMCH cooperated in the investigation, which was part of a broader investigation into charitable contributions in the medical industry. On August 1, 2019, the United States
71
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies (Continued)
District Court for the District of Massachusetts entered an order announcing that the United States had declined to intervene on a qui tam complaint underlying the USAO Boston investigation and unsealing the relator's complaint so as to permit the relator to serve the complaint and proceed on his own. The relator has not served the complaint.
On April 8, 2019, United Healthcare served a demand for arbitration against FMCH. The demand asserts that FMCH unlawfully "steered" patients by waiving co-payments and other means away from coverage under government-funded insurance plans including Medicare into United Healthcare's commercial plans, including Affordable Care Act exchange plans. FMCH is contesting United Healthcare's claims and demands. A final hearing date has been scheduled in the arbitration for September 2020.
In early May 2017, the United States Attorney for the Middle District of Tennessee (Nashville) issued identical subpoenas to FMCH and two subsidiaries under the False Claims Act concerning FMCH's retail pharmaceutical business. The investigation is exploring allegations related to improper inducements to dialysis patients to fill oral prescriptions through FMCH's pharmacy service, improper billing for returned pharmacy products and other allegations similar to those underlying the $63,700 settlement by DaVita Rx in Texas announced on December 14, 2017. United States ex rel. Gallian, 2016 Civ. 0943 (N.D. Tex.). FMCH is cooperating in the investigation.
On March 12, 2018, Vifor Fresenius Medical Care Renal Pharma Ltd. and Vifor Fresenius Medical Care Renal Pharma France S.A.S. (collectively, "VFMCRP") (the joint venture between Vifor Pharma and FMC-AG & Co. KGaA), filed a complaint for patent infringement against Lupin Atlantis Holdings SA and Lupin Pharmaceuticals Inc. (collectively, "Lupin"), and Teva Pharmaceuticals USA, Inc. ("Teva") in the U.S. District Court for the District of Delaware (Case 1:18-cv-00390-LPS). The patent infringement action is in response to Lupin and Teva's filings of Abbreviated New Drug Applications (ANDA) with the FDA for generic versions of Velphoro®. Velphoro® is protected by patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. The complaint was filed within the 45-day period provided for under the Hatch-Waxman legislation, and triggered a stay of FDA approval of the ANDAs for 30 months (2.5 years) (specifically, up to July 29, 2020 for Lupin's ANDA; and August 6, 2020 for Teva's ANDA), or a shorter time if a decision in the infringement suit is reached that the patents-at-issue are invalid or not infringed. In response to another ANDA being filed for a generic Velphoro®, VFMCRP filed a complaint for patent infringement against Annora Pharma Private Ltd., and Hetero Labs Ltd. (collectively, "Annora"), in the U.S. District Court for the District of Delaware on December 17, 2018. A 30-month stay of FDA approval of Annora's ANDA will run through to May 30, 2021.
On December 17, 2018, FMCH was served with a subpoena under the False Claims Act from the United States Attorney for the District of Colorado (Denver) as part of an investigation of allegations against DaVita, Inc. involving transactions between FMCH and DaVita. The subject transactions include sales and purchases of dialysis facilities, dialysis-related products and pharmaceuticals, including dialysis machines and dialyzers, and contracts for certain administrative services. FMCH is cooperating in the investigation.
On June 28, 2019, certain FMCH subsidiaries filed a complaint against the United States seeking to recover monies owed to them by the United States Department of Defense under the Tricare program, and to preclude Tricare from recouping monies previously paid. Bio-Medical Applications of Georgia, Inc., et al. v. United States, CA 19-947, United States Court of Federal Claims. Tricare provides reimbursement for dialysis treatments and other medical care provided to members of the military services, their dependents and retirees. The litigation challenges unpublished administrative actions by Tricare administrators reducing the rate of compensation paid for dialysis treatments provided to Tricare beneficiaries based on a recasting or "crosswalking" of codes used and followed in invoicing without objection for many years. Tricare administrators have acknowledged the unpublished administrative action and declined to change or abandon it but have not articulated a defense of the action. The United States has not yet been required to respond to the complaint and will not be required to do so before
72
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies (Continued)
November 25, 2019. FMCH has imposed a constraint on revenue otherwise recognized from the Tricare program that it believes, in consideration of facts currently known, sufficient to account for the possibility of not prevailing in the litigation.
From time to time, the Company is a party to or may be threatened with other litigation or arbitration, claims or assessments arising in the ordinary course of its business. Management regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable liabilities for the eventual disposition of these matters.
The Company, like other healthcare providers, insurance plans and suppliers, conducts its operations under intense government regulation and scrutiny. It must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the marketing and distribution of such products, the operation of manufacturing facilities, laboratories, dialysis clinics and other health care facilities, and environmental and occupational health and safety. With respect to its development, manufacture, marketing and distribution of medical products, if such compliance is not maintained, the Company could be subject to significant adverse regulatory actions by the U.S. Food and Drug Administration ("FDA") and comparable regulatory authorities outside the U.S. These regulatory actions could include warning letters or other enforcement notices from the FDA, and/or comparable foreign regulatory authority which may require the Company to expend significant time and resources in order to implement appropriate corrective actions. If the Company does not address matters raised in warning letters or other enforcement notices to the satisfaction of the FDA and/or comparable regulatory authorities outside the U.S., these regulatory authorities could take additional actions, including product recalls, injunctions against the distribution of products or operation of manufacturing plants, civil penalties, seizures of the Company's products and/or criminal prosecution. FMCH is currently engaged in remediation efforts with respect to one pending FDA warning letter. The Company must also comply with the laws of the United States, including the federal Anti-Kickback Statute, the federal False Claims Act, the federal Stark Law, the federal Civil Monetary Penalties Law and the federal Foreign Corrupt Practices Act as well as other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company's interpretations or the manner in which it conducts its business. Enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence whistleblower actions. By virtue of this regulatory environment, the Company's business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, subpoenas, other inquiries, claims and litigation relating to the Company's compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of whistleblower actions, which are initially filed under court seal.
The Company operates many facilities and handles the personal data ("PD") of its patients and beneficiaries throughout the United States and other parts of the world and engages with other business associates to help it carry out its health care activities. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliated companies and its business associates. On occasion, the Company or its business associates may experience a breach under the Health Insurance Portability and Accountability Act Privacy Rule and Security Rules, the EU's General Data Protection Regulation and or other similar laws ("Data Protection Laws") when there has been impermissible use, access, or disclosure of unsecured PD or when the Company or its business associates neglect to implement the required administrative, technical and physical safeguards of its electronic systems and devices, or a data breach that results in impermissible use, access or disclosure of personal identifying information of its employees, patients and beneficiaries. On those occasions, the Company must comply with applicable breach notification requirements.
73
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
13. Commitments and contingencies (Continued)
The Company relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of its employees. On occasion, the Company may identify instances where employees or other agents deliberately, recklessly or inadvertently contravene the Company's policies or violate applicable law. The actions of such persons may subject the Company and its subsidiaries to liability under the Anti-Kickback Statute, the Stark Law, the False Claims Act, Data Protection Laws, the Health Information Technology for Economic and Clinical Health Act and the Foreign Corrupt Practices Act, among other laws and comparable state laws or laws of other countries.
Physicians, hospitals and other participants in the healthcare industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Company has been and is currently subject to these suits due to the nature of its business and expects that those types of lawsuits may continue. Although the Company maintains insurance at a level which it believes to be prudent, it cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Company or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon it and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.
The Company has also had claims asserted against it and has had lawsuits filed against it relating to alleged patent infringements or businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Company has, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition, and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.
In Germany, the tax audits for the years 2006 through 2009 have been substantially completed. The German tax authorities have indicated a re-qualification of dividends received in connection with intercompany mandatorily redeemable preferred shares into fully taxable interest payments for these and subsequent years until 2013. The Company has defended its position and will avail itself of appropriate remedies. The Company is also subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions in the ordinary course of business. Tax authorities routinely pursue adjustments to the Company's tax returns and disallowances of claimed tax deductions. When appropriate, the Company defends these adjustments and disallowances and asserts its own claims. A successful tax related claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition and results of operations.
Other than those individual contingent liabilities mentioned above, the current estimated amount of the Company's other known individual contingent liabilities is immaterial.
74
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
14. Financial instruments
The following tables show the carrying amounts and fair values of the Company's financial instruments at September 30, 2019 and December 31, 2018:
Carrying amount and fair value of financial instruments
in € THOUS |
September 30, 2019
|
Carrying amount | Fair value | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized
cost |
FVPL | FVOCI |
Not
classified |
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Cash and cash equivalents(1) |
757,340 | 207,714 | | | 965,054 | | 207,714 | | |||||||||||||||||
Trade accounts and other receivables |
3,438,724 | | | 72,396 | 3,511,120 | | | | |||||||||||||||||
Accounts receivable from related parties |
78,554 | | | | 78,554 | | | | |||||||||||||||||
Derivatives - cash flow hedging instruments |
| | | 847 | 847 | | 847 | | |||||||||||||||||
Derivatives - not designated as hedging instruments |
| 10,773 | | | 10,773 | | 10,773 | | |||||||||||||||||
Equity investments |
| 196,319 | 37,274 | | 233,593 | 12,945 | 31,794 | 188,854 | |||||||||||||||||
Debt securities |
| 104,718 | 277,415 | | 382,133 | 377,615 | 4,518 | | |||||||||||||||||
Other financial assets |
128,344 | | | 109,835 | 238,179 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current assets |
128,344 | 311,810 | 314,689 | 110,682 | 865,525 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets |
4,402,962 | 519,524 | 314,689 | 183,078 | 5,420,253 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable |
654,602 | | | | 654,602 | | | | |||||||||||||||||
Accounts payable to related parties |
255,242 | | | | 255,242 | | | | |||||||||||||||||
Short-term debt and short-term debt from related parties |
1,923,679 | | | | 1,923,679 | | | | |||||||||||||||||
Long-term debt |
7,056,757 | | | | 7,056,757 | 3,898,684 | 3,357,713 | | |||||||||||||||||
Long-term lease liabilities and long-term lease liabilities from related parties |
| | | 4,688,759 | 4,688,759 | | | | |||||||||||||||||
Derivatives - cash flow hedging instruments |
| | | 4,596 | 4,596 | | 4,596 | | |||||||||||||||||
Derivatives - not designated as hedging instruments |
| 11,165 | | | 11,165 | | 11,165 | | |||||||||||||||||
Variable payments outstanding for acquisitions |
| 108,966 | | | 108,966 | | | 108,966 | |||||||||||||||||
Noncontrolling interest subject to put provisions |
| | | 858,867 | 858,867 | | | 858,867 | |||||||||||||||||
Other financial liabilities |
1,507,133 | | | | 1,507,133 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current liabilities |
1,507,133 | 120,131 | | 863,463 | 2,490,727 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities |
11,397,413 | 120,131 | | 5,552,222 | 17,069,766 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
75
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
14. Financial instruments (Continued)
Carrying amount and fair value of financial instruments
in € THOUS |
|
Carrying amount |
|
|
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fair value | ||||||||||||||||||||||||
December 31, 2018
|
|
|
|
Not
classified |
|
||||||||||||||||||||
|
Amortized cost | FVPL | FVOCI | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Cash and cash equivalents(1) |
831,885 | 1,313,747 | | | 2,145,632 | | 1,313,747 | | |||||||||||||||||
Trade accounts and other receivables |
3,288,258 | | | 49,448 | 3,337,706 | | | | |||||||||||||||||
Accounts receivable from related parties |
92,662 | | | | 92,662 | | | | |||||||||||||||||
Derivatives - cash flow hedging instruments |
| | | 1,492 | 1,492 | | 1,492 | | |||||||||||||||||
Derivatives - not designated as hedging instruments |
| 18,222 | | | 18,222 | | 18,222 | | |||||||||||||||||
Equity investments |
| 106,350 | 34,377 | | 140,727 | 13,869 | 126,858 | | |||||||||||||||||
Debt securities |
| 83,213 | 250,822 | | 334,035 | 329,821 | 4,214 | | |||||||||||||||||
Other financial assets |
144,838 | | | 107,125 | 251,963 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current assets |
144,838 | 207,785 | 285,199 | 108,617 | 746,439 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets |
4,357,643 | 1,521,532 | 285,199 | 158,065 | 6,322,439 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable |
641,271 | | | | 641,271 | | | | |||||||||||||||||
Accounts payable to related parties |
153,781 | | | | 153,781 | | | | |||||||||||||||||
Short-term debt and short-term debt from related parties |
1,394,194 | | | | 1,394,194 | | | | |||||||||||||||||
Long-term debt and capital lease obligations |
6,115,890 | | | 36,144 | 6,152,034 | 4,227,684 | 2,022,057 | | |||||||||||||||||
Derivatives - cash flow hedging instruments |
| | | 1,125 | 1,125 | | 1,125 | | |||||||||||||||||
Derivatives - not designated as hedging instruments |
| 18,911 | | | 18,911 | | 18,911 | | |||||||||||||||||
Variable payments outstanding for acquisitions |
| 172,278 | | | 172,278 | | | 172,278 | |||||||||||||||||
Noncontrolling interest subject to put provisions |
| | | 818,871 | 818,871 | | | 818,871 | |||||||||||||||||
Other financial liabilities |
1,467,767 | | | | 1,467,767 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current liabilities |
1,467,767 | 191,189 | | 819,996 | 2,478,952 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities |
9,772,903 | 191,189 | | 856,140 | 10,820,232 | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative and non-derivative financial instruments are categorised in the following three-tier fair value hierarchy that reflects the significance of the inputs in making the measurements. Level 1 is defined as observable inputs, such as quoted prices in active markets. Level 2 is defined as inputs other than quoted prices in active markets that are directly or indirectly observable. Level 3 is defined as unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions. Fair value information is not provided for lease liabilities and for financial instruments, if the carrying amount is a reasonable estimate of fair value due to the relatively short period of maturity of these instruments. Transfers between levels of the fair value hierarchy have not occurred as of December 31, 2018. The Company accounts for possible transfers at the end of the reporting period. At September 30, 2019 the Company transferred its Humacyte, Inc. investment with a carrying amount of €186,427 from Level 2 to Level 3, because the Company remeasured the fair value using a discounted cash flow model after events or changes in circumstances were identified that had a significant effect on the fair value of the investment.
Derivative financial instruments
In order to manage the risk of currency exchange rate fluctuations and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions. The Company primarily enters into foreign exchange forward contracts and interest
76
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
14. Financial instruments (Continued)
rate swaps. Derivative contracts that do not qualify for hedge accounting are utilized for economic purposes. The Company does not use financial instruments for trading purposes. Additionally, the Company purchased share options in connection with the issuance of the Convertible Bonds. Any change in the Company's share price above the conversion price would be offset by a corresponding value change in the share options.
Non-derivative financial instruments
The significant methods and assumptions used for the classification and measurement of non-derivative financial instruments are as follows:
The Company assessed its business models and the cash flow characteristics of its financial assets. The vast majority of the non-derivative financial assets are held in order to collect the contractual cash flows. The contractual terms of the financial assets allow the conclusion that the cash flows represent payment of principle and interest only. Trade accounts and other receivables, Accounts receivable from related parties and Other financial assets are consequently measured at amortized cost.
Cash and cash equivalents are comprised of cash funds and other short-term investments. Cash funds are measured at amortized cost. Short-term investments are highly liquid and readily convertible to known amounts of cash. Short-term investments are measured at FVPL. The risk of changes in fair value is insignificant.
Equity investments are not held for trading. At initial recognition the Company elected, on an instrument-by-instrument basis, to represent subsequent changes in the fair value of individual strategic investments in OCI. If equity instruments are quoted in an active market, the fair value is based on price quotations at the period-end-date. From time to time the Company engages external valuation firms to determine the fair value of Level 3 equity investments. The external valuation uses a discounted cash flow model, which includes significant unobservable inputs such as investment specific forecasted financial statements, weighted average cost of capital, that reflects current market assessments as well as a terminal growth rate.
The majority of the debt securities are held within a business model whose objective is achieving both contractual cash flows and sell the securities. The standard coupon bonds give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding principal amount. Subsequently these financial assets have been classified as FVOCI. The smaller part of debt securities do not give rise to cash flows that are solely payments of principle and interest. Consequently, these securities are measured at FVPL. In general most of the debt securities are quoted in an active market.
Long-term debt is recognized at its carrying amount. The fair values of major long-term debt are calculated on the basis of market information. Liabilities for which market quotes are available are measured using these quotes. The fair values of the other long-term debt 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.
Variable payments outstanding for acquisitions are recognized at their fair value. The estimation of the individual fair values is based on the key inputs of the arrangement that determine the future contingent payment as well as the Company's expectation of these factors. The Company assesses the likelihood and timing of achieving the relevant objectives. The underlying assumptions are reviewed regularly.
77
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
14. Financial instruments (Continued)
Noncontrolling interests subject to put provisions are recognized at their fair value. The methodology the Company uses to estimate the fair values assumes the greater of net book value or a multiple of earnings, based on historical earnings, development stage of the underlying business and other factors. From time to time the Company engages external valuation firms for the valuation of the put provisions. The external valuation estimates the fair values using a combination of discounted cash flows and a multiple of earnings and/or revenue. When applicable, the obligations are discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate, and the discounted cash flows as well as the implicit multiple of earnings and/or revenue at which these noncontrolling interest obligations may ultimately be settled could vary significantly from the Company's current estimates depending upon market conditions.
Following is a roll forward of variable payments outstanding for acquisitions and noncontrolling interests subject to put provisions at September 30, 2019 and December 31, 2018:
Reconciliation from beginning to ending balance of level 3 financial instruments
in € THOUS |
|
2019 | 2018 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Variable
payments outstanding for acquisitions |
Noncontrolling
interests subject to put provisions |
Variable
payments outstanding for acquisitions |
Noncontrolling
interests subject to put provisions |
|||||||||
Beginning balance at January 1, |
172,278 | 818,871 | 205,792 | 830,773 | |||||||||
Increase |
7,748 | 45,257 | 19,051 | 53,731 | |||||||||
Decrease |
(34,573 | ) | (18,421 | ) | (15,734 | ) | (50,706 | ) | |||||
(Gain) loss recognized in profit or loss |
(34,980 | ) | 109,249 | (36,327 | ) | 142,279 | |||||||
(Gain) loss recognized in equity |
| (23,365 | ) | | (50,612 | ) | |||||||
Dividends |
| (106,043 | ) | | (139,742 | ) | |||||||
Foreign currency translation and other changes |
(1,507 | ) | 33,319 | (504 | ) | 33,148 | |||||||
| | | | | | | | | | | | | |
Ending balance at September 30, and December 31, |
108,966 | 858,867 | 172,278 | 818,871 | |||||||||
| | | | | | | | | | | | | |
15. Segment and corporate information
The Company's operating segments are the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment. The operating segments are determined based upon how the Company manages its businesses with geographical responsibilities. All segments are primarily engaged in providing health care services and the distribution of products and equipment for the treatment of ESRD and other extracorporeal therapies.
Management evaluates each segment using measures that reflect all of the segment's controllable revenues and expenses. With respect to the performance of business operations, management believes that the most appropriate measures are revenue, operating income and operating income margin. The Company does not include income taxes as it believes this is outside the segments' control. Financing is a corporate function, which the Company's segments do not control. Therefore, the Company does not include interest expense relating to financing as a segment measurement. Similarly, the Company does not allocate certain costs, which relate primarily to certain headquarters' overhead charges, including accounting and finance, because the Company believes that these costs are also not within the control of the individual segments. Production of products, production asset management, quality and supply chain management as well as procurement related to production are centrally managed at Corporate. The Company's global research and development is also centrally managed at Corporate. These corporate activities do not fulfill the
78
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
15. Segment and corporate information (Continued)
definition of a segment according to IFRS 8, Operating Segments. Products are transferred to the segments at cost; therefore, no internal profit is generated. The associated internal revenue for the product transfers and their elimination are recorded as corporate activities. Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but are accounted for as Corporate.
Information pertaining to the Company's segment and Corporate activities for the three- and nine-months periods ended September 30, 2019 and 2018 is set forth below:
Segment and corporate information
in € THOUS |
|
North
America Segment |
EMEA
Segment |
Asia-
Pacific Segment |
Latin
America Segment |
Segment
Total |
Corporate | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30, 2019 |
||||||||||||||||||||||
Revenue from contracts with customers |
3,002,068 | 676,340 | 457,715 | 181,280 | 4,317,403 | 5,772 | 4,323,175 | |||||||||||||||
Other revenue external customers |
71,271 | 6,943 | 16,836 | 778 | 95,828 | | 95,828 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
3,073,339 | 683,283 | 474,551 | 182,058 | 4,413,231 | 5,772 | 4,419,003 | |||||||||||||||
Inter-segment revenue |
719 | 21 | 35 | 94 | 869 | (869 | ) | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue |
3,074,058 | 683,304 | 474,586 | 182,152 | 4,414,100 | 4,903 | 4,419,003 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income |
477,432 | 99,878 | 90,382 | 10,576 | 678,268 | (82,880 | ) | 595,388 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Interest |
(104,724 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
490,664 | |||||||||||||||||||||
Depreciation and amortization |
(269,219 | ) | (45,518 | ) | (24,709 | ) | (9,030 | ) | (348,476 | ) | (60,809 | ) | (409,285 | ) | ||||||||
Income (loss) from equity method investees |
20,124 | (831 | ) | 1,039 | 212 | 20,544 | | 20,544 | ||||||||||||||
Additions of property, plant and equipment, intangible assets and right of use assets |
286,472 | 46,154 | 37,789 | 12,112 | 382,527 | 89,864 | 472,391 | |||||||||||||||
Three months ended September 30, 2018 |
|
|
|
|
|
|
|
|||||||||||||||
Revenue from contracts with customers |
2,780,991 | 611,862 | 407,369 | 169,918 | 3,970,140 | 3,330 | 3,973,470 | |||||||||||||||
Other revenue external customers |
61,764 | 7,661 | 14,089 | 868 | 84,382 | | 84,382 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
2,842,755 | 619,523 | 421,458 | 170,786 | 4,054,522 | 3,330 | 4,057,852 | |||||||||||||||
Inter-segment revenue |
139 | | 150 | 103 | 392 | (392 | ) | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue |
2,842,894 | 619,523 | 421,608 | 170,889 | 4,054,914 | 2,938 | 4,057,852 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income |
525,191 | 87,283 | 66,284 | (1,504 | ) | 677,254 | (150,532 | ) | 526,722 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Interest |
(75,910 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
450,812 | |||||||||||||||||||||
Depreciation and amortization |
(94,084 | ) | (28,962 | ) | (11,525 | ) | (3,177 | ) | (137,748 | ) | (41,033 | ) | (178,781 | ) | ||||||||
Income (loss) from equity method investees |
20,236 | (2,249 | ) | 680 | 323 | 18,990 | (1,000 | ) | 17,990 | |||||||||||||
Additions of property, plant and equipment and intangible assets |
145,109 | 36,451 | 13,791 | 45,314 | 240,665 | 100,200 | 340,865 |
79
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
15. Segment and corporate information (Continued)
|
North
America Segment |
EMEA
Segment |
Asia-
Pacific Segment |
Latin
America Segment |
Segment
Total |
Corporate | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine months ended September 30, 2019 |
||||||||||||||||||||||
Revenue from contracts with customers |
8,828,904 | 1,951,464 | 1,308,409 | 513,392 | 12,602,169 | 15,332 | 12,617,501 | |||||||||||||||
Other revenue external customers |
192,305 | 32,612 | 51,714 | 2,460 | 279,091 | | 279,091 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
9,021,209 | 1,984,076 | 1,360,123 | 515,852 | 12,881,260 | 15,332 | 12,896,592 | |||||||||||||||
Inter-segment revenue |
1,694 | 21 | 491 | 176 | 2,382 | (2,382 | ) | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue |
9,022,903 | 1,984,097 | 1,360,614 | 516,028 | 12,883,642 | 12,950 | 12,896,592 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income |
1,278,706 | 334,043 | 254,441 | 27,858 | 1,895,048 | (241,853 | ) | 1,653,195 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Interest |
(326,927 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
1,326,268 | |||||||||||||||||||||
Depreciation and amortization |
(747,405 | ) | (139,863 | ) | (70,139 | ) | (25,061 | ) | (982,468 | ) | (176,194 | ) | (1,158,662 | ) | ||||||||
Income (loss) from equity method investees |
65,953 | (5,352 | ) | 1,601 | 856 | 63,058 | | 63,058 | ||||||||||||||
Total assets |
22,353,520 | 4,056,993 | 2,746,848 | 899,511 | 30,056,872 | 3,112,531 | 33,169,403 | |||||||||||||||
thereof investments in equity method investees |
385,604 | 173,610 | 98,863 | 24,540 | 682,617 | | 682,617 | |||||||||||||||
Additions of property, plant and equipment, intangible assets and right of use assets |
777,523 | 131,298 | 83,707 | 40,918 | 1,033,446 | 243,429 | 1,276,875 | |||||||||||||||
Nine months ended September 30, 2018 |
|
|
|
|
|
|
|
|||||||||||||||
Revenue from contracts with customers |
8,420,185 | 1,887,078 | 1,193,561 | 502,172 | 12,002,996 | 11,081 | 12,014,077 | |||||||||||||||
Other revenue external customers |
168,332 | 20,565 | 41,578 | 2,634 | 233,109 | | 233,109 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
8,588,517 | 1,907,643 | 1,235,139 | 504,806 | 12,236,105 | 11,081 | 12,247,186 | |||||||||||||||
Inter-segment revenue |
1,369 | 303 | 468 | 154 | 2,294 | (2,294 | ) | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Revenue |
8,589,886 | 1,907,946 | 1,235,607 | 504,960 | 12,238,399 | 8,787 | 12,247,186 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income |
2,173,372 | 301,140 | 218,355 | 23,779 | 2,716,646 | (291,949 | ) | 2,424,697 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Interest |
(243,551 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
2,181,146 | |||||||||||||||||||||
Depreciation and amortization |
(279,731 | ) | (86,240 | ) | (33,671 | ) | (13,606 | ) | (413,248 | ) | (120,769 | ) | (534,017 | ) | ||||||||
Income (loss) from equity method investees |
57,897 | (6,964 | ) | 1,774 | 710 | 53,417 | (1,000 | ) | 52,417 | |||||||||||||
Total assets |
16,519,127 | 3,687,215 | 2,240,919 | 693,210 | 23,140,471 | 2,446,615 | 25,587,086 | |||||||||||||||
thereof investments in equity method investees |
331,961 | 175,220 | 98,380 | 24,518 | 630,079 | | 630,079 | |||||||||||||||
Additions of property, plant and equipment and intangible assets |
459,768 | 102,427 | 37,207 | 56,742 | 656,144 | 198,701 | 854,845 |
80
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
16. Supplementary cash flow information
The following additional information is provided with respect to net cash provided by (used in) investing activities:
Details for net cash provided by (used in) investing activities
in € THOUS |
|
For the nine months ended
September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2018 | |||||
Details for acquisitions |
|||||||
Assets acquired |
(2,338,777 | ) | (241,677 | ) | |||
Liabilities assumed |
237,921 | 12,222 | |||||
Noncontrolling interests subject to put provisions |
20,715 | 11,805 | |||||
Noncontrolling interests |
61,995 | 42,722 | |||||
Non-cash consideration |
19,106 | 9,629 | |||||
| | | | | | | |
Cash paid |
(1,999,040 | ) | (165,299 | ) | |||
Less cash acquired |
48,945 | 3,015 | |||||
| | | | | | | |
Net cash paid for acquisitions |
(1,950,095 | ) | (162,284 | ) | |||
| | | | | | | |
Cash paid for investments |
(24,190 | ) | (574,475 | ) | |||
Cash paid for intangible assets |
(49,853 | ) | (71,494 | ) | |||
| | | | | | | |
Total cash paid for acquisitions and investments, net of cash acquired, and purchases of intangible assets |
(2,024,138 | ) | (808,253 | ) | |||
| | | | | | | |
Details for divestitures |
|||||||
Cash received from sale of subsidiaries or other businesses, less cash disposed |
43,488 |
1,518,351 |
|||||
Cash received from divestitures of securities |
12,337 | 148,864 | |||||
Cash received from repayment of loans |
| 79 | |||||
| | | | | | | |
Proceeds from divestitures |
55,825 | 1,667,294 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Acquisitions of the last twelve months decreased net income (net income attributable to shareholders of FMC-AG & Co. KGaA) for the nine months ended September 30, 2019 by €57,452 (excluding the costs of the acquisitions).
17. Events occurring after the balance sheet date
On October 29, 2019, the Company appointed Dr. Frank Maddux, the Company's Global Chief Medical Officer, to the Management Board. He will start in his new position on January 1, 2020.
No futher significant activities have taken place subsequent to the balance sheet date September 30, 2019 that have a material impact on the key figures and earnings presented. Currently, there are no other significant changes in the Company's structure, management, legal form or personnel.
81
Quantitative and qualitative disclosures about market risk
The information in note 14 of the notes to consolidated financial statements (unaudited), presented elsewhere in this report is incorporated by this reference.
82
The Company is a "foreign private issuer" within the meaning of Rule 3b-4(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, the Company is not required to file quarterly reports with the Securities and Exchange Commission and is required to provide an evaluation of the effectiveness of its disclosure controls and procedures, to disclose significant changes in its internal control over financial reporting and to provide certifications of its Chief Executive Officer and Chief Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 only in its Annual Report on Form 20-F. The Company furnishes quarterly financial information to the Securities and Exchange Commission (the "Commission") and such certifications under cover of Form 6-K on a voluntary basis and pursuant to the provisions of the Company's pooling agreement entered into for the benefit of the public holders of our shares. In connection with such voluntary reporting, the Company's management, including the Chief Executive Officer and the Chief Financial Officer of the Company's General Partner, has conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report, of the type contemplated by Securities Exchange Act Rule 13a-15. During the third quarter of fiscal 2019, we identified a material weakness in internal control relating to revenue recognition, specifically for estimating the transaction price and constraining the variable consideration of the transaction price for certain fee-for-service revenue arrangements under legal consideration and timely adjusting the constraint of variable consideration when new information arises and determined that this material weakness existed as of December 31, 2018 and continues to exist as of September 30, 2019 (for further detail regarding this material weakness, see Amendment No.1 to our Annual Report on Form 20-F/A for the year ended December 31, 2018). As a result, the Chief Executive Officer and the Chief Financial Officer concluded in connection with the furnishing of this report, that the Company's disclosure controls and procedures were not effective as of September 30, 2019.
We have advised our audit committee of this deficiency in our internal control over financial reporting, and the fact that this deficiency constitutes a material weakness. A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
Because a material weakness was determined to exist, we performed additional procedures to ensure our consolidated financial statements included in this quarterly report on Form 6-K are presented fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). This control deficiency resulted in immaterial errors to accounts receivable and revenue from specific fee-for-service arrangements in the Company's consolidated financial statements for the nine months ended September 30, 2019. These errors did not, individually or in the aggregate, result in a material misstatement of the Company's consolidated financial statements and disclosures for any periods through and including the nine months ended September 30, 2019.
Remediation efforts have begun and the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
We are undertaking steps to strengthen our controls relating to revenue recognition, specifically for estimating the transaction price and constraining the variable consideration of the transaction price for certain fee-for-service revenue arrangements under legal consideration and its related accounts receivable, including:
On March 29, 2019, the Company entered into a non-prosecution agreement with the DOJ and a separate agreement with the SEC intended to resolve fully and finally the government's claims against the Company arising from the investigations, see note 13 of the notes to the consolidated financial statements (unaudited) presented elsewhere in this Report. The Company continues to implement enhancements to its anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws. The Company continues to be fully committed to compliance with the Foreign Corrupt Practices Act and other applicable anti-bribery laws.
Except as noted in the preceding paragraphs, there has not been any change in our system of internal control over financial reporting during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
83
The information in note 13 of the notes to consolidated financial statements (unaudited), presented elsewhere in this report is incorporated by this reference.
84
Exhibit No. |
|
||
---|---|---|---|
4.15 | Third Amended and Restated Loan Note dated July 31, 2019, among the Registrant and certain of its U.S. subsidiaries as borrowers and Fresenius SE & Co. KGaA or its specified subsidiary as lender (filed herewith). | ||
|
4.16 |
|
English convenience translation of the Fresenius Medical Care Long-Term Incentive Plan 2019 (filed herewith). |
|
4.17 |
|
English convenience translation of the Fresenius Medical Care Management Board Long-Term Incentive Plan 2019 (filed herewith). |
|
31.1 |
|
Certification of Chief Executive Officer and Chairman of the Management Board of the Company's General Partner Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certification of Chief Financial Officer and member of the Management Board of the Company's General Partner Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
Certification of Chief Executive Officer and Chairman of the Management Board of the Company's General Partner and Chief Financial Officer and member of the Management Board of the Company's General Partner Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (this exhibit accompanies this report as required by the Sarbanes-Oxley Act of 2002 and is not to be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended). |
|
101 |
|
The following financial statements as of and for the three- and nine-months periods ended September 30, 2019 from FMC-AG & Co. KGaA's Report on Form 6-K for the month of October 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Shareholders' Equity and (vi) Notes to Consolidated Financial Statements. |
85
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: October 31, 2019
FRESENIUS MEDICAL CARE AG & Co. KGaA a partnership limited by shares, represented by: | ||||||
|
|
FRESENIUS MEDICAL CARE MANAGEMENT AG, its General Partner |
||||
|
|
By: |
|
/s/ RICE POWELL |
||
Name: | Rice Powell | |||||
Title: | Chief Executive Officer and Chairman of the Management Board of the General Partner | |||||
|
|
By: |
|
/s/ MICHAEL BROSNAN |
||
Name: | Michael Brosnan | |||||
Title: | Chief Financial Officer and member of the Management Board of the General Partner |
86
THIRD AMENDED AND RESTATED LOAN NOTE
600,000,000 |
July 31, 2019 |
FOR VALUE RECEIVED, Fresenius Medical Care AG & Co. KGaA, a German partnership limited by shares, and Fresenius Medical Care Holdings, Inc., a New York corporation (collectively, the Borrowers), jointly and severally promise to pay to the order of Fresenius SE & Co. KGaA, a German partnership limited by shares, or its specified subsidiary (the Lender) the lesser of (i) the principal amount of 600,000,000 (Six Hundred Million Euros) (or the Euro equivalent of any amount denominated in any other currency as determined by Lender based on the spot rate as reasonably selected by Lender), or (ii) the unpaid principal amount of all Advances (as defined in Clause 2) made by the Lender to the Borrowers hereunder, together with interest accrued thereon at the rate set forth below, on the date specified for repayment of such Advance pursuant to Clause 3 hereof or such earlier date as such amounts may become payable pursuant to the terms hereof.
1. The following terms used in this Note shall have the following meanings:
FMC Credit Agreement means the Credit Agreement dated as of October 30, 2012 among FMC and FMCH, as borrowers and guarantors, the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as Administrative Agent, as amended pursuant to Amendment No. 2 thereto, dated as of July 11, 2017, and as it may be further amended, restated, supplemented, or otherwise modified, or renewed, refunded, replaced, or refinanced from time to time.
FMC means Fresenius Medical Care AG & Co. KGaA, a German partnership limited by shares, and its successors and permitted assigns.
FMCH means Fresenius Medical Care Holdings, Inc., a New York corporation, and its successors and permitted assigns.
All other capitalized terms used but not otherwise defined herein shall bear the meanings assigned thereto in the FMC Credit Agreement. This Note amends and restates and supersedes the Amended and Restated Loan Note dated as of November 30, 2017 (the Second Amended and Restated Note) in the original principal amount of $400,000,000 issued by the Borrowers to Lender.
2. The Lender may lend (but shall not have any commitment to lend) one or more advances (each an Advance) to the Borrowers jointly and severally from time to time upon request during the period from the date hereof to but excluding July 31, 2022 in an
aggregate amount which shall not exceed 600,000,000 (or the Euro equivalent of any amount denominated in any other currency as determined by Lender at the time of making any Advance hereunder based on the spot rate as reasonably selected by Lender at that time). Amounts borrowed hereunder may be repaid and reborrowed pursuant to this Clause. The Lender shall have no obligation to make any Advance requested hereunder. The Borrowers and Lender hereby agree that all advances made under the Second Amended and Restated Note and outstanding on the date hereof shall be deemed Advances made under this Note and subject to the terms hereof.
3. Each Advance shall be repaid in full on the date that is one, two or three months after the date on which it is made, as agreed by the Borrowers and the Lender on the date such Advance is made, or any other period agreed between the Borrowers and the Lender; provided, that if no maturity date is so agreed, such Advance shall have a term of one month. The Borrower shall have the right at any time and from time to time to prepay any Advance in whole or part without penalty; provided that any such prepayment shall be accompanied by interest in the amount of the Advance being prepaid to the date of prepayment. In addition, upon demand, the Borrowers shall promptly compensate the Lender and hold the Lender harmless from any loss, cost or expense incurred by it as a result of any prepayment of any Advance other than on the last day of the Interest Period for such Advance, including any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Advance.
4. Borrowers and Lender hereby agree that with effect from the date hereof, the unpaid principal amount of each Advance made hereunder shall bear interest at a fluctuating rate per annum equal to the Fixed LIBOR Rate (as defined in and calculated pursuant to the FMC Credit Agreement) for an Interest Period equivalent to the term of such Advance plus a margin, determined pursuant to the pricing matrix set forth below, that is based on the Consolidated Leverage Ratio (as defined in and calculated pursuant to the FMC Credit Agreement), and shall change as and when the Applicable Percentage (as defined in and calculated pursuant to the FMC Credit Agreement) changes:
Pricing Level |
|
Consolidated
|
|
Margin |
|
I |
|
> 3.75:1.0 |
|
1.185 |
% |
II |
|
> 3.25:1.0 but < 3.75:1.0 |
|
1.110 |
% |
III |
|
> 2.75:1.0 but < 3.25:1.0 |
|
1.010 |
% |
IV |
|
> 2.25:1.0 but < 2.75:1.0 |
|
0.930 |
% |
V |
|
< 2.25:1.0 |
|
0.825 |
% |
Interest shall be payable in arrears upon maturity, on any prepayment and on any acceleration of the principal amount hereof and shall be computed on the basis of a 360-day year for the actual number of days elapsed (including the first day and excluding the last
day).
5. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day or is a day on which commercial banks are authorized or required by law to close in the Federal Republic of Germany, such payment shall be made on the next succeeding Business Day on which commercial banks are not authorized or required by law to close in the Federal Republic of Germany, and such extension of time shall be included in the computation of the payment of interest on this Note.
6. All payments of principal and interest in respect of this Note shall be made in same day funds in the currency in which the related Advance was made to the Lenders account as notified in writing by the Lender.
7. If any proceeding under any Debtor Relief Law shall be commenced by or against the Borrowers, all amounts of principal and accrued interest outstanding under this Note shall become immediately due and payable.
8. The Lender agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all Advances, the maturity date of each such Advance and principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any Advance or any payment made on this Note (including Advances made under the Second Amended and Restated Note and deemed Advances hereunder) shall not limit or otherwise affect the obligation of the Borrowers hereunder with respect to payments of principal or interest on this Note.
9. FMCH may cease to be a Borrower hereunder by delivering a written notice to the Lender, effective on the later to occur of (i) the date the Lender receives such written notice and (ii) the date FMCH has paid all of its obligations and all accrued and unpaid interest, fees and other obligations hereunder or in connection herewith.
10. [Reserved]
11. THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS ARISING HEREUNDER AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
12. The obligations of the Borrowers arising under this Note may be prepaid in whole or in part, together with all accrued interest thereon, without penalty or premium.
13. The terms of this Note are subject to amendment only by a writing signed by the Borrowers and the Lender.
14. In no event shall any interest be payable under this Note to the extent that the payment thereof would be prohibited by applicable law.
15. The Borrowers hereby waives diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.
16. No delay on the part of the Lender in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Lender, of any right or remedy shall preclude any other or further exercise of any other right or remedy.
17. In case any provision in or obligation under this Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
[INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Note has been executed as of the day and year first written above.
BORROWERS: |
|
|
|
FRESENIUS MEDICAL CARE AG & Co. KGaA, a German partnership limited by shares, represented by FRESENIUS MEDICAL CARE MANAGEMENT AG, a German corporation, its general partner |
|
|
|
|
|
|
|
|
By: |
/s/ Michael Brosnan |
|
Name: |
Michael Brosnan |
|
Title: |
Member of the Management Board |
|
|
|
|
|
|
|
By: |
/s/ Katarzyna Mazur-Hofsäß |
|
Name: |
Dr. Katarzyna Mazur-Hofsäß |
|
Title: |
Member of the Management Board |
FRESENIUS MEDICAL CARE HOLDINGS, INC., a New York corporation
|
By: |
/s/ Mark Fawcett |
|
Name: |
Mark Fawcett |
|
Title: |
Senior Vice President and Treasurer |
[Signature Page Loan Note]
ACKNOWLEDGED AND AGREED:
|
FRESENIUS SE & Co. KGaA, represented by FRESENIUS MANAGEMENT SE, its general partner, as Lender |
|
|
|
|
|
|
|
|
By: |
/s/ Rachel Empey |
|
Name: |
Rachel EMPEY |
|
Title: |
Member of Management Board |
|
|
|
|
|
|
|
By: |
/s/ Karl-Dieter Schwab |
|
Name: |
ppa. Karl-Dieter SCHWAB |
|
Title: |
Authorized Signatory |
[Signature Page Loan Note]
TRANSACTIONS ON PROMISSORY NOTE
Date |
|
Amount of
|
|
Maturity Date
|
|
Amount of
|
|
Amount of
|
|
Outstanding
|
|
Notation Made
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM INCENTIVE PLAN 2019
TABLE OF CONTENTS
1. PREAMBLE AND PURPOSE
1.1
The management board (the Management Board) of Fresenius Medical Care Management AG (the General Partner), the general partner of Fresenius Medical Care AG & Co. KGaA (the Company), decided to establish the Fresenius Medical Care Long Term Incentive Plan 2019 (the Plan) to enable the granting of virtual performance-based shares of the Company (the Performance Shares) to the members of the management boards of Affiliated Companies and to managerial staff members (Führungskräfte) of the Company and of Affiliated Companies (each a Participant) as a long-term compensation component. The Performance Shares may entitle the Participants to receive a cash payment from the Company subject to the following provisions.
1.2
The Plan contains the requirements, terms and conditions as well as the procedures for the grant and settlement of Performance Shares (the Plan Conditions) and has been adopted by the Management Board.
1.3
The purpose of this Plan is to align the interests of the Participants with the interests of the Company and its shareholders in encouraging the long-term and sustainable growth of the Company. This Plan offers the Participants a competitive and transparent compensation component which combines the long-term benefits for the Participants with the sustained success of the Company.
1.4
Capitalized terms used in this Plan but not defined in the body of the Plan are defined in Clause 16.
2. ELIGIBILITY TO RECEIVE PERFORMANCE SHARES
2.1
The eligibility of Participants to receive Performance Shares will be finally determined by the Management Board, in each case - i.e. for each grant - in accordance with the terms of this Plan.
2.2
This Plan does not establish and should not be read or construed so as to establish a legal right to receive Performance Shares. Neither the status or possible status of an employee or a member of the management within FME Group as Participant nor the fact that a Participant was granted Performance Shares in previous periods shall be interpreted as an obligation that Performance Shares shall be granted or, if granted, shall continue to be granted in the future. In particular, granting Performance Shares does not constitute an operational practice (betriebliche Übung), even if Performance Shares have been granted for several successive years.
3. PERFORMANCE SHARES
3.1
Performance Shares issued under the Plan may entitle a Participant to receive a cash payment from the Company or from any Affiliated Company in accordance with the Plan Conditions.
3.2
A Performance Share is a non-equity, cash-settled virtual compensation instrument. The Performance Shares will not be evidenced by certificates. Without limiting the generality of the foregoing, nothing in this Plan, any grant of Performance Shares, the achievement of any Performance Target for any Performance Shares or the vesting of any Performance Shares shall entitle any Participant to receive shares of the Company or confer upon or be interpreted as conferring upon any Participant any right or interest whatsoever as a shareholder of the Company or of any other member of the FME Group including, but not limited to, the right to vote at, to receive notice of, or to attend any meeting of shareholders of any member of the FME Group or any other proceedings of any such FME Group member, or the right to dividends or other distributions.
4. GRANT OF PERFORMANCE SHARES
4.1
Subject to final determination by the Management Board the Participants will be granted Performance Shares within a time period of three years starting with 1 January 2019. Performance Share grants may be made twice a year with effect as of the last Monday in July and the first Monday in December (each a Grant Date). The Grant Date can, however, be subject to deviation in case of objective grounds (sachliche Gründe), as may be decided by the Management Board.
4.2
Each Participant will be awarded an individual Grant Value (the Grant Value) in the currency in which the Participant receives his/her base salary (the Grant Currency) from the Company or an Affiliated Company at the time when the Grant Value is determined by the Company or the General Partner. To determine the number of Performance Shares to be granted to the respective Participant (the Number of Granted Performance Shares) the Grant Value denominated in the Grant Currency will then be converted into Euro based on the average Foreign Currency Exchange Rates effectively established over a period of 30 (thirty) calendar days prior to each Grant Date (the FX Rates at Grant Date) and divided by the value per Performance Share at Grant Date. The value per Performance Share will be determined in accordance with IFRS 2 on each respective Grant Date, denominated in Euro, and considering the average Stock Exchange Price effectively established over a period of 30 (thirty) calendar days prior to such Grant Date. For the avoidance of doubt, the Number of Granted Performance Shares will be rounded up or down to the next closest integer number (e.g. 124.54 will result in 125). The amount of the individual Grant Value shall be determined on the basis of the Participants individual performance and the Participants responsibilities within FME Group. This determination will be made for each grant at the Management Boards discretion.
4.3
The grant of Performance Shares will be made without any payment by the Participant.
4.4
The grant shall be communicated to the Participants in text form, i.e. by mail, email or via an online platform. No grant shall be effective unless and until it is communicated to the Participant.
5. PERFORMANCE TARGETS
5.1
Based on the degree of attainment of three pre-determined financial targets (the Performance Targets) the Number of Performance Shares to Vest can vary from 0% to 200% of the Number of Granted Performance Shares. The three Performance Targets are:
(a) Revenue Growth
(b) Net Income Growth and
(c) Return on Invested Capital.
5.2
The achievement of the respective Performance Targets in relation to each grant of Performance Shares is measured over a performance period of three years starting from the beginning of the calendar year in which the respective grant was made (the Performance Period) and is determined as follows:
(a) Revenue Growth shall mean the annual growth of revenues of the Company determined following the International Financial Reporting Standards (IFRS) using the Companys consolidated reported and audited figures in Euro for the financial statements prepared in accordance with IFRS. The growth rates for the former are determined at Constant Currency.
For Revenue Growth, a target achievement of 100% is reached at an average annual Revenue Growth throughout the Performance Period of 7%. For Revenue Growth between 0% to 7% and 7% to 16% the target achievement is linearly interpolated - see Figure 1. The target achievement for this Performance Target is capped at 200% for each year of the Performance Period.
In case of changes to IFRS accounting principles in the first year in which such policies become effective the relevant figures of the respective prior year as restated according to such policies should form the basis for the determination of the growth in revenues. If such restatements will not be made, pro forma figures for the relevant year in which such changes become effective for the first time shall be calculated under the old regime with reasonable effort to determine the Revenue Growth.
(b) Net Income Growth shall mean the annual growth of net income attributable to the shareholders of the Company determined in accordance with IFRS using the consolidated reported and audited figures in Euro for the financial statements prepared in accordance with IFRS. The growth rates for the former are determined at Constant Currency.
For Net Income Growth, a target achievement of 100% is reached at an average annual Net
Income Growth throughout the Performance Period of 7%. For a Net Income Growth between 0% to 7% and 7% to 14% the target achievement is linearly interpolated - see Figure 2. The target achievement for this Performance Target is capped at 200% for each year of the Performance Period.
In case of changes to IFRS accounting principles in the year in which such policies become effective the relevant restated figures of the prior year should form the basis for the determination of the Net Income Growth. If such restatements will not be made, pro forma figures for the relevant year in which such changes become effective for the first time shall be calculated under the old regime with reasonable effort to determine the Net Income Growth.
(c) Return on Invested Capital (ROIC) shall mean the ROIC level based on the Companys audited consolidated financial statements determined in accordance with IFRS.
The ROIC is measured against a target ROIC (the Target ROIC) defined for each year throughout the Performance Period. The Target ROIC is defined as the ROIC level at which a target achievement of 100% will be reached. For 2019 the Target ROIC is 7.9%. For each consecutive year, the Target ROIC is 8.1%.
The target achievement will be 0% in case the ROIC of the respective year will be 0.2%-points below the Target ROIC for such year. Accordingly, a ROIC target achievement of 200% will apply in case the ROIC for a respective year will be 0.2%-points above the Target ROIC for such year. For ROIC levels between 0.2%-points below the Target ROIC, the Target ROIC and 0.2%-points above the Target ROIC, the respective ROIC target achievement will be calculated by means of linear interpolation - see Figure 3. The target achievement for this Performance Target is capped at 200% for each year of the Performance Period.
In case that the annual ROIC target achievement in the third year of a respective Performance Period is equal or higher than each annual ROIC target achievement of such respective Performance Period, the annual ROIC target achievement of the third year shall be applied for the determination of the Yearly Target Achievements, as defined in Clause 5.3, for the first and the second year of such respective Performance Period.
In case of changes to IFRS accounting principles first effective on or after 1 January 2019, the ROIC determining the respective ROIC target achievement for the relevant year in which such changes become effective for the first time as well as for the relevant consecutive years shall be calculated under the old regime with reasonable effort to determine the ROIC level.
5.3
The achievement of the Performance Targets is determined annually, as described in Clause 5.2, and for each year of the Performance Period and as soon as the Companys audited figures for such respective year are available (the Yearly Target Achievement); for this purpose, the three Performance Targets are weighted equally (i.e. 1/3, 1/3, 1/3).
5.4
Subject to potential modifications in accordance with Clause 6, the overall target achievement for each respective grant of Performance Shares is calculated by taking the average of the Yearly Target Achievements of the respective Performance Period (the Overall Target Achievement); for this purpose, each Yearly Target Achievement is weighted equally (i.e. 1/3, 1/3, 1/3).
5.5
The total number of Performance Shares attributable to each Participant pursuant to Clauses 4.2 and 5.1 to vest (the Number of Performance Shares to Vest) is calculated by multiplying the Number of Granted Performance Shares with the Overall Target Achievement.
5.6
The individual figures for each Performance Target shall be rounded using commercial rounding to the second decimal place of the percentage figure (e.g. 8.1523% will result in 8.15%). The Yearly Target Achievement and the Overall Target Achievement shall be rounded using commercial rounding to the next integer in percentage points (e.g. 129.93% will result in 130%). Similarly, the Number of Performance Shares to Vest shall be commercially rounded to the next integer number (e.g. 162.5 will result in 163).
6. GEP-II TARGETS
6.1
For Performance Shares granted in fiscal year 2019 only, the Overall Target Achievement as determined in accordance with Clause 5.4 sentence 1 may be subject to an increase if certain targets in relation to the Companys Global Efficiency Program II are achieved (the GEP-II Targets). The GEP-II Targets are (a) the GEP-II EBIT Improvement and (b) the GEP-II Cash Release.
(a) GEP-II EBIT Improvement means the sustainable cost savings in Euro at Constant Currency under the Companys Global Efficiency Program II in the period from 1 January 2018 until 31 December 2021 before tax effect and net of implementation cost for generation of such savings.
The target achievement for GEP-II EBIT Improvement will be 0% in case the GEP-II EBIT Improvement will be EUR 150 million or below. A target achievement of 100% will apply in case the GEP-II EBIT Improvement will be EUR 250 million and above. In case the GEP-II EBIT Improvement will be between EUR 150 million and EUR 250 million, the respective target achievement will be calculated by means of linear interpolation - see Figure 4.
In any case, the degree of the target achievement for GEP-II EBIT Improvement is 0% if the sustainable cost savings in Euro at Constant Currency under the Companys Global Efficiency Program II in the period from 1 January 2018 until 31 December 2020 before tax effect and net of implementation cost for generation of such savings amount to less than EUR 150 million.
(b) GEP-II Cash Release means the sum of released cash in Euro at Constant Currency under the Companys Global Efficiency Program II in the period from 1 January 2018 until 31 December 2021.
The target achievement for GEP-II Cash Release will be 0% in case the GEP-II Cash Release will be EUR 500 million or below. A target achievement of 100% will apply in case the GEP-II Cash Release will be EUR 1 billion and above. In case the GEP-II Cash Release will be between EUR 500 million and EUR 1 billion, the respective target achievement will be calculated by means of linear interpolation - see Figure 5.
6.2
For the determination of the overall GEP-II Target achievement, the individual target achievements for GEP-II EBIT Improvement and GEP-II Cash Release are weighted equally (the GEP-II Target Achievement). The achievement of each of the GEP-II Targets and the GEP-II Target Achievement will be determined by the Management Board.
6.3
If the GEP-II Target Achievement is 100%, the Overall Target Achievement determined in accordance with Clause 5.4 sentence 1 for Performance Shares granted in fiscal year 2019 shall be increased by 20%-points. In case of a GEP-II Target Achievement between 0% and 100%, the respective increase of the Overall Target Achievement will be calculated by means of linear interpolation - see Figure 6. For the avoidance of doubt, the Overall Target Achievement as increased in accordance with this Clause 6 shall not exceed 200%.
7. VESTING OF PERFORMANCE SHARES
7.1 Vesting Date
Subject to the terms of this Plan, the Performance Shares will vest on the date of the third anniversary of the respective Grant Date (the Vesting Date). Exceptions or modifications may apply in special cases described in Clause 9.
7.2 Additional Vesting Conditions
Subject to the terms of this Plan, the Performance Shares furthermore will vest only on the conditions and insofar as
(a) the Participant continuously has been in an employment or service relationship with FME Group from the Grant Date to the Vesting Date (the Service Condition). In case the Service Condition has not been fulfilled, the respective Performance Shares are forfeited on the date on which the employment or service relationship of the Participant with FME Group ends. Exceptions or modifications may apply in special cases described in Clause 9 hereinafter; and
(b) in relation to or in connection with his/her employment or service relationship with FME Group, the Participant has not committed any violations of legal provisions or other rules, e.g. internal guidelines of FME Group (the Compliance Violations). If, following a corresponding investigation, Compliance Violations have been determined conclusively with respect to a Participant, the Management Board is entitled to declare within its reasonable discretion and in due consideration particularly of the nature and the severity of the Compliance Violation the forfeiture, in whole or in part, of the Performance Shares granted to such Participant. The Participant shall be informed of the extent of the forfeited Performance Shares and of the reasons for the corresponding decision in text form, i.e. by mail, email or via an online platform.
8. SETTLEMENT OF PERFORMANCE SHARES/CAP ON PAYMENTS
8.1
One Performance Share carries the entitlement to receive a cash equivalent of the average Stock Exchange Price effectively established over a period of 30 (thirty) calendar days prior to the Vesting Date (the Performance Shares Proceeds). Such cash payment will be made on the Vesting Date, or as soon thereafter as is reasonably practicable. The Participant shall be informed of the Number of Performance Shares to Vest and the corresponding cash payments in text form, i.e. by mail, email or via an online platform.
8.2
Performance Shares Proceeds are paid to the Participant in the currency in which the Participant receives his/her base salary from the Company or an Affiliated Company in the month of the Vesting Date (the Settlement Currency). For this purpose, the respective FX Rates at Grant Date shall be applied. The purpose of applying the FX Rates at Grant Date is to mitigate exposure to exchange rate fluctuations between the Grant Date and the Vesting Date. In cases of Extraordinary Developments, the Management Board is entitled to adjust the FX Rates at Grant Date to the benefit of the Participants.
8.3
Following and based on the determination of the Number of Performance Shares to Vest, each Participant shall receive the Performance Shares Proceeds. The amount of Performance Shares Proceeds paid to the Participant is capped in total at an amount equaling 400% of the Grant Value received by the Participant; any exceeding amounts of Performance Shares Proceeds will be forfeited without substitution. Clause 11 and Clause 12.2 remain unaffected.
8.4
Payment of Performance Shares Proceeds to the Participant is made in each case with the proviso (condition subsequent) that with respect to the Participant a Compliance Violation within the meaning of, and pursuant to, Clause 7.2(b) has not been determined conclusively within a period of three years from the day of the payment of the Performance Shares Proceeds. Clause 12.6 shall remain unaffected.
9. PERFORMANCE SHARES IN SPECIAL CASES
9.1 Retirement
(a) For the purpose of this Plan, retirement is defined as a case in which the Participant has reached the age of 63 years and his/her employment or service relationship with FME Group ends (the Retirement). In case of Retirement, the Participants Performance Shares shall vest on the respective Vesting Date (subject to the fulfillment of the additional vesting condition pursuant to Clause 7.2(b)).
(b) The legal consequence stipulated in sentence 2 of the preceding Clause 9.1(a) shall apply accordingly if (i) the Mandatory Retirement Age applicable to the Participant is lower than 63 years, (ii) the Participant reaches this Mandatory Retirement Age and (iii) the Participants employment or service relationship with FME Group ends.
(c) As far as legally permissible, all of those Participants Performance Shares which have not yet been settled and paid out according to Clause 8 above are forfeited with immediate effect if the Participant, within twelve months after his/her employment or service relationship with FME Group has ended, engages in activities that, in the reasonable judgment of the Company, are directly or indirectly competitive to FME Group, including entering into any employment or consultation relationship with any entity or person engaged in activities directly or indirectly competitive to FME Group; if the prerequisites for a forfeiture were present, but the Participants Performance Shares have already been settled and paid out, the consequences in Clause 12.6 shall apply to the relevant Performance Shares Proceeds.
9.2 Occupational Disability
In the event of the Participants Occupational Disability, Clause 9.1(a) sentence 2 shall apply mutatis mutandis if (i) the participant provides the Company, or an institution designated by the Company, with suitable evidence of his/her Occupational Disability within three months of the occurrence of the Occupational Disability and (ii) the Participants employment or service relationship with FME Group is terminated due to the Occupational Disability. If such evidence is not provided within the time limit, the Management Board may declare those Performance Shares to be forfeited, which have not yet been settled and paid out according to Clause 8 above.
9.3 Ordinary Termination / Cancellation of Employment by Agreement
If a Participants employment or service relationship with FME Group has ended by termination or agreement and the legal consequences of Clause 9.1(a) sentence 2 do not apply in accordance with the provisions of Clause 9.1(a), 9.1(b) or 9.2, all Performance Shares not vested on the effective date of the termination or the agreement are forfeited.
9.4 Death
In case of death of a Participant, all Performance Shares granted to the Participant until his/her death shall be deemed to have vested as per the expiration of the date of death. For purposes of calculating the Number of Performance Shares to Vest in the meaning of Clause 5.5, an Overall Target Achievement of 100% applies. The Heirs of the Participant are entitled to receive the Performance Shares Proceeds if they give evidence of their entitlement to the Company or an office named by the Company within three months after the death of the Participant; otherwise, the Management Board may declare the Performance Shares to be forfeited. The Heirs entitlement shall become due immediately upon demonstration of the aforementioned evidence. Clause 9.5 (Termination for Cause) remains unaffected.
9.5 Termination for Cause
Notwithstanding Clauses 9.1 (Retirement), 9.2 (Occupational Disability), 9.3 (Ordinary Termination / Cancellation of Employment by Agreement) and 9.4 (Death), all Performance Shares shall be forfeited if the Participants employment or service relationship is terminated by the employer for cause, or if at the time of leaving, there were grounds which would have entitled the employer to terminate the employment agreement or service relationship for cause.
9.6 Engagement with Fresenius Group
The Performance Shares shall not be affected by the transfer of a Participants engagement from the Company or from an Affiliated Company to Fresenius SE & Co. KGaA or to an affiliated company of Fresenius SE & Co. KGaA within the meaning of sections 15 et seqq. of the German Stock Corporation Act (Aktiengesetz), including Fresenius Management SE.
9.7 Effect of Change in Status as Affiliated Company
If a Participant is employed by a company which ceases to be or does not qualify as an Affiliated Company or, in the case of a transfer of a Participants engagement referred to in Clause 9.6, an affiliated company of Fresenius SE & Co. KGaA, all Performance Shares granted to the Participant shall be forfeited.
9.8 Individual Cases
In individual cases, the Management Board can waive or amend the provisions of this Clause 9, taking duly into account the Companys interests.
10. NO TRANSFERABILITY / FORFEITURE
Performance Shares granted under this Plan and Performance Shares inherited according to Clause 9.4 are not transferable. With the exception of inheritance, any transfer, assignment or disposal of Performance Shares, such as the granting of sub-participations therein, pledging, granting usufruct rights (Nieβbrauch) or the formation of a trust, shall be void and invalid. The same applies to legal transactions which are economically equal to a transfer, assignment or disposal.
11. TAXES, CONTRIBUTIONS AND OTHER EXPENSES
Performance Shares Proceeds are considered gross. Any entitlements or benefits under this Plan may be subject to income tax, social security taxes and other taxes and contributions. This also depends on the legislation of the country where the Participant stays, resides or is subject to tax for other reasons. All taxes and contributions incurred in connection with the Plan shall be borne by the Participant, excluding taxes and contributions which are by law to be borne by the employer. The Company and any Affiliated Companies, as the case may be, are entitled to withhold and remit such taxes and contributions in accordance with the respective applicable laws.
12. PROCEDURE, ENDING AND ADJUSTMENT OF THE PLAN
12.1
Unless otherwise provided in this Plan, the Plan shall be interpreted, waived, adjusted or otherwise administered, and may be amended or modified, by the Management Board and all Performance Shares granted to Participants will be approved by the Management Board. Adjustments to the Plan may also be made with regard to Performance Shares which have already been granted, provided that this does not affect the value of the Performance Shares or that the Participant is fully
compensated for any financial loss suffered. For the avoidance of doubt, any such adjustments with regard to Performance Shares which have already been granted should not result in a retroactive reduction or lowering of relevant performance target levels pursuant to this Plan.
12.2
In case of Extraordinary Developments, the Management Board is entitled to cap the amount of the Grant Value and/or the Number of Granted Performance Shares and/or the Performance Shares Proceeds to be paid to the Participants under the Plan.
12.3
Furthermore, the Management Board is entitled to determine in certain cases, based on its respective reasonable discretion, that any extraordinary commercial, tax or similar impacts that may occur during any relevant Performance Period affecting the degree of Yearly Target Achievement and/or Overall Target Achievement in relation to individual grants shall in full or in part be disregarded for purposes of determining Yearly Target Achievement and/or Overall Target Achievement pursuant to this Plan in relation to such grants.
12.4
The Management Board is entitled to end the Plan with effect for all Participants at any time. In this case, the Performance Shares already granted to the Participants remain unaffected.
12.5
If the Company is required to prepare an accounting restatement due to the Companys material noncompliance with any financial reporting requirement under the U.S. federal securities laws, the Company shall be entitled, without prejudice to Clause 12.6 hereafter, to recover to the full extent required under then current and applicable law and/or applicable stock exchange listing rules from current and former executive officers of the Company who received any bonus or other incentive-based compensation based on the erroneous data during a period of three years preceding the date the Company is required to prepare the accounting restatement, (i) the amount of such bonus or other incentive-based compensation in excess of what would have been paid to the executive officer under the accounting restatement and (ii) such other amounts, if any, as may be recoverable by applicable law.
12.6
If the Participants have committed Compliance Violations which have occurred and/or have been determined conclusively only after the settlement of Performance Shares within the meaning of Clause 8 above, the Management Board is entitled within its reasonable discretion to claim back the Performance Shares Proceeds, in whole or in part, from the Participant in the Companys name, provided that and insofar as the Performance Shares Proceeds have been paid to the Participant at a point in time that is within a period of three years prior to the day on which the Company makes the repayment claim in writing, stating the reasons for such claim. For the avoidance of doubt, the Companys rights pursuant to this Clause 12.6 shall not prejudice any other rights the Company may have against the Participant in relation to any Compliance Violations under or in connection with his/her employment or service relationship with FME Group.
12.7
In general, benefit payments remain subject to a substantial risk of forfeiture until they are paid under Clause 8.1, due to the Service Condition imposed under Clause 7.2(a). In such cases, there is no deferred compensation and the constraints imposed by U.S. Internal Revenue Code Section 409A
do not apply. However, when a Participants Performance Shares vest due to one of the special cases established under Clause 9, Plan benefits may constitute deferred compensation. In those cases, the Plan shall pay benefits on the fixed date specified in Clause 8.1, thereby complying with Treasury Regulation Section 1.409A-3(a)(4).
The administration of any amounts payable hereunder that constitute deferred compensation within the meaning of Section 409A will comply with Section 409A, and this Plan shall be administered, interpreted and construed in a manner intended to avoid the imposition of additional taxes, penalties or interest under Section 409A. The Management Board may exercise its right to adjust the Plan pursuant to Clause 12.1 above in order to preserve the intended tax consequences of the Performance Shares, and avoid the imposition of any tax under Section 409A. Notwithstanding the foregoing, the Participant shall be solely responsible and liable for the satisfaction of all taxes, penalties and interest that may be imposed on or for the account of the Participant or his/her Heirs in connection with this Plan (including any taxes, penalties and interest under Section 409A), and neither the Company nor any Affiliated Company shall have any obligation to indemnify or otherwise hold the Participant (or any Heir) harmless from any or all of such taxes, penalties or interest.
In the event that any payment to the Participant is deemed to be an installment payment of nonqualified deferred compensation under Section 409A, each individual installment payment shall be deemed to be a separate payment within the meaning of Treasury Regulation Section 1.409A-2(b)(2)(iii).
Other than by taking actions specifically permitted under this Plan, the Participant shall not have the right, directly or indirectly, to designate the taxable year during which a payment shall be made under this Plan.
13. LIABILITY RISKS, EXCHANGE RISKS AND TAX RISKS
13.1
The liability of the Company, its legal representatives, employees and agents for simple negligence and consequential loss and loss of profit is excluded.
13.2
The Company grants no warranty for the general market development and price of the shares of the Company after granting Performance Shares or for any other point or period in time. Therefore, the acceptance of Performance Shares is at the sole risk of each Participant.
13.3
The Company grants no warranty that the tax and contributions deducted in accordance with Clause 11 (Taxes, Contributions and other Expenses) or other tax and contributions payable by the Participants will be charged only on the Performance Shares Proceeds. Depending on a Participants personal circumstances, double taxation might occur if the Plan is subject to taxation in several countries. The Participants are advised to obtain advice on their personal tax situation.
14. TERM OF THE PLAN
This Plan will be effective as of 1 January 2019 and shall apply to grants of Performance Shares in financial years 2019, 2020 and 2021. The Plan will terminate following the payout of any Performance Shares Proceeds for the last grant made in financial year 2021, or earlier, in the case the Management Board resolves so. Clauses 12.1 and 12.4 remain unaffected.
15. MISCELLANEOUS PROVISIONS
15.1
This Plan is subject to German law. The German text version of the Plan shall prevail in all cases.
15.2
No provisions contained in this Plan (or in any documents referring to this Plan) transfer to a Participant or possible Participant any right to request the continuation of his/her employment or service relationship with the Company or any Affiliated Company. No employment or service relationship can be deducted from this Plan (or from any documents referring to this Plan), nor shall it have any effect on the right of the Company or any Affiliated Company to change compensation or other benefits of such Participant or to terminate his/her employment relationship with or without notice. This applies with the proviso that no provision in this Plan or in any document connected therewith will adversely influence any independent contractual right of these persons.
15.3
If any provision of this Plan is invalid or unenforceable, the validity or enforceability of the remaining provisions of the Plan shall not be affected. The same applies if it is ascertained that the Plan is subject to an omission. In these cases, the invalid or unenforceable provision shall be substituted or an omission repaired by such provision which most closely corresponds to the intended purpose of this Plan.
15.4
References and headings attributed to individual Clauses and Sub-clauses of this Plan are solely for the purpose of easier reference. These headings are in no case significant or relevant for the interpretation of the Plan.
15.5
No provision in this Plan leads to or infers a presumption that the authority of the Management Board to issue Performance Shares or approve other compensation connected or not connected to shares granted by any other share based long-term incentive program or any other authority may in any way be restricted.
16. DEFINITIONS
16.1 Affiliated Company means any company within FME Group with the exception of the Company.
16.2 Company is defined in Clause 1.1.
16.3 Compliance Violations is defined in Clause 7.2 (b).
16.4 Constant Currency shall mean that for the purpose of this Plan the calculation of the figures stated under IFRS denominated in Euro shall be adjusted for currency effects. For the ascertainment of the currency adjustment all line items of the profit and loss statements of the companies that are included in the consolidated financial statements and which have a functional currency other than the reporting currency (Euro) are translated with the average exchange rates effectively established in the year of the consolidated financial statements that is the basis for the comparison.
16.5 Extraordinary Developments shall mean any kind of extraordinary scenarios in which the price of the Companys shares would have lost any reasonably arguable correlation to the Companys intrinsic enterprise value (such as hyperinflation); however, no such Extraordinary Development shall be applicable in cases in which the price of Companys shares rises (even substantially) as a result of the performance of the Participants.
16.6 FME Group stands for the group of entities including the General Partner, the Company and its affiliated companies within the meaning of sections 15 et seqq. of the German Stock Corporation Act, with the exception of Fresenius SE & Co. KGaA and the companies affiliated with Fresenius SE & Co. KGaA within the meaning of sections 15 et seqq. of the German Stock Corporation Act in any manner other than through the Company.
16.7 Foreign Currency Exchange Rates means the nominal prices of the foreign exchange rates as published by the European Central Bank. If no prices are published by the European Central Bank, the Management Board is entitled to agree on a suitable other form for obtaining the prices.
16.8 FX Rates at Grant Date is defined in Clause 4.2.
16.9 General Partner is defined in Clause 1.1.
16.10 GEP-II Cash Release is defined in Clause 6.2 (b).
16.11 GEP-II EBIT Improvement is defined in Clause 6.2 (a).
16.12 GEP-II Targets is defined in Clause 6.1.
16.13 GEP-II Target Achievement is defined in Clause 6.2.
16.14 Global Efficiency Program II means the Companys second Global Efficiency Program comprising of projects relating to Supply Chain Transformation, Global Procurement Organization, Product Portfolio Rationalization, Sustainability, Region Specific Projects (North America, Asia Pacific, EMEA, Latin America), Net Working Capital, Capital Expenditures, and Acquisition Value Capture. The Management Board may at its sole discretion add projects and initiatives to, or exclude them from, the scope of the program.
16.15 Grant Currency is defined in Clause 4.2.
16.16 Grant Date is defined in Clause 4.1.
16.17 Grant Value is defined in Clause 4.2.
16.18 Heir means the person, the persons, the trust or trusts, which are nominated by a Participant or, if no such nomination is made, is or are entitled by will or the respective applicable law in the event of the death of a Participant, to receive the benefit of the Performance Shares under this Plan. The concept heir therefore also includes the executor appointed by will or the administrator appointed by the court, if no heir is named and is in a position to act under the given circumstances.
16.19 IFRS means the International Financial Reporting Standards which are issued by the International Accounting Standards Board, as amended.
16.20 Management Board is defined in Clause 1.1.
16.21 Mandatory Retirement Age is the age which, when reached or exceeded, causes the mandatory termination of the Participants employment or service relationship with the Company or the Affiliated Company as per the employment or service contract or as per the local laws and regulations applicable to the Participants employment or service relationship. A termination within the meaning of the preceding sentence shall not be caused (i) in circumstances where the termination of the employment or service relationship is the result of a unilateral declaration or a subsequent individual agreement between the Company or an Affiliated Company on the one hand and the Participant on the other hand at a time when the Participant has not yet reached the age defined in sentence 1 or (ii) as long as the Company or an Affiliated Company on the one hand and the Participant on the other hand agree subsequently to continue the employment or service relationship in excess of the age defined in sentence 1. In this respect, the local laws and regulations applicable to the Participants employment or service relationship are the laws and regulations of the local employment or service relationship, i.e. the laws and regulations of the country or state in which the Participant regularly performs his/her work in accordance with the rules governing his/her employment or service relationship or, in the absence of contractual provisions or other arrangements regarding the place of work, the laws and regulations of the country or state from which the Participant regularly carries out the predominant part of his/her work in fulfillment of the employment or service relationship; the country or state where the predominant part of the work is regularly carried out shall not be deemed to have changed if the Participant is temporarily employed in another country or state or is performing services in another country or state, e.g. during a global assignment within FME Group. In such cases, the employment or service relationship with the home employer is deemed to be the local employment or service relationship for the purposes of this Plan, even if it is temporarily suspended.
16.22 Net Income Growth is defined in Clause 5.2 (b).
16.23 Number of Granted Performance Shares is defined in Clause 4.2.
16.24 Number of Performance Shares to Vest is defined in Clause 5.5.
16.25 Occupational Disability is a condition in which the Participant is unable, for an indefinite period of time, to exercise his/ her current position or a comparable replacement position in an employment or service relationship with the FME Group under normal conditions, due to illness or disability. For the purposes of this Plan, a Participants classification as fully disabled by the US Social Security Administration constitutes Occupational Disability.
16.26 Overall Target Achievement is defined in Clause 5.4.
16.27 Participant is defined in Clause 1.1.
16.28 Performance Period is defined in Clause 5.2.
16.29 Performance Shares is defined in Clause 1.1.
16.30 Performance Shares Proceeds is defined in Clause 8.1.
16.31 Performance Targets is defined in Clause 5.1.
16.32 Plan is defined in Clause 1.1.
16.33 Plan Conditions is defined in Clause 1.2.
16.34 Retirement is defined in Clause 9.1(a).
16.35 Return on Invested Capital (ROIC) is defined in Clause 5.2(c).
16.36 Revenue Growth is defined in Clause 5.2(a).
16.37 Service Condition is defined in Clause 7.2(a).
16.38 Settlement Currency is defined in Clause 8.2.
16.39 Stock Exchange Price means the closing price (Schlusskurs) of the Companys shares in the electronic XETRA trading system of Deutsche Börse AG in Frankfurt/Main or a comparable successor system denominated in Euro. If no closing price is set in the XETRA trading system, the Management Board is entitled to agree on a suitable means of replacing the closing price.
16.40 Target ROIC is defined in Clause 5.2(c).
16.41 Vesting Date is defined in Clause 7.1.
16.42 Yearly Target Achievement is defined in Clause 5.3.
MANAGEMENT BOARD LONG TERM INCENTIVE PLAN 2019
TABLE OF CONTENTS
1. PREAMBLE AND PURPOSE
1.1
The supervisory board (the Supervisory Board) of Fresenius Medical Care Management AG (the General Partner), the general partner of Fresenius Medical Care AG & Co. KGaA (the Company), decided to establish the Fresenius Medical Care Management Board Long Term Incentive Plan 2019 (the Plan) to grant virtual performance-based shares of the Company (the Performance Shares) to the members of the management board (the Management Board) of the General Partner (each a Participant) as a long-term oriented compensation component for fiscal year 2019. In case the essential part of the managerial activities of a member of the Management Board is the management of an Affiliated Company, the Supervisory Board, in its reasonable discretion and in the individual case, is entitled to grant Performance Shares according to this Plan in whole or in part as compensation for such managerial activity. The Performance Shares may entitle the Participants to receive a cash payment from the Company subject to the following provisions.
1.2
The Plan contains the requirements, terms and conditions as well as the procedures for the grant and settlement of Performance Shares (the Plan Conditions) and has been adopted by the Supervisory Board.
1.3
The purpose of this Plan is to align the interests of the Participants with the interests of the Company and its shareholders in encouraging the long term and sustainable growth of the Company. This Plan offers the Participants a competitive and transparent compensation component which combines the long-term benefits for the Participants with the sustained success of the Company.
1.4
Capitalized terms used in this Plan but not defined in the body of the Plan are defined in Clause 15.
2. ELIGIBILITY TO RECEIVE PERFORMANCE SHARES
2.1
The eligibility of Participants to receive Performance Shares will be finally determined by the Supervisory Board, in each case - i.e. for each grant - in accordance with the terms of this Plan.
2.2
This Plan does not establish and should not be read or construed so as to establish a legal right to receive Performance Shares. Neither the status or possible status as a Participant nor the fact that a Participant was granted Performance Shares in previous periods shall be interpreted as an obligation that Performance Shares shall be granted or, if granted, shall continue to be granted in the future. In particular, granting Performance Shares does not constitute an operational practice (betriebliche Übung), even if Performance Shares have been granted for several successive years.
3. PERFORMANCE SHARES
3.1
Performance Shares issued under the Plan may entitle a Participant to receive a cash payment from the Company or from any Affiliated Company in accordance with the Plan Conditions.
3.2
A Performance Share is a non-equity, cash-settled virtual compensation instrument. The Performance Shares will not be evidenced by certificates. Without limiting the generality of the foregoing, nothing in this Plan, any grant of Performance Shares, the achievement of any Performance Target for any Performance Shares or the vesting of any Performance Shares shall entitle any Participant to receive shares of the Company or confer upon or be interpreted as conferring upon any Participant any right or interest whatsoever as a shareholder of the Company or of any other member of the FME Group including, but not limited to, the right to vote at, to receive notice of, or to attend any meeting of shareholders of any member of the FME Group or any other proceedings of any such FME Group member, or the right to dividends or other distributions.
4. GRANT OF PERFORMANCE SHARES
4.1
Subject to final determination by the Supervisory Board, the Participants will be granted Performance Shares within a time period of one year starting with 1 January 2019. Performance Share grants shall be made with effect as per 29 July 2019 and as per 2 December 2019 (each a Grant Date). The Supervisory Board may, however, resolve to deviate from each such Grant Dates in case of objective grounds (sachliche Gründe).
4.2
Each Participant will be awarded an individual grant value in the currency in which the Participant receives his or her base salary (the Grant Currency) from the General Partner at the time when the Grant Value is determined by the General Partner (the Grant Value). To determine the number of Performance Shares to be granted to the respective Participant (the Number of Granted Performance Shares) the Grant Value denominated in the Grant Currency will then be converted into Euro based on the average Foreign Currency Exchange Rates over a period of 30 (thirty) calendar days prior to each Grant Date (the FX Rates at Grant Date) and divided by the value per Performance Share at Grant Date. The value per Performance Share will be determined in accordance with IFRS 2 on each respective Grant Date, denominated in Euro, and considering the average Stock Exchange Price over a period of 30 (thirty) calendar days prior to such Grant Date. For the avoidance of doubt, the Number of Granted Performance Shares will be rounded up or down to the next closest integer number (e.g. 124.54 will result in 125). The amount of the individual Grant Value shall be determined on the basis of the Participants individual performance and the Participants responsibilities within FME Group. This determination will be made for each grant at the Supervisory Boards discretion.
4.3
The grant of Performance Shares will be made without any payment by the Participant.
4.4
The grant shall be communicated to the Participants in text form, i.e. by mail, email or via an online platform. No grant shall be effective unless and until it is communicated to the Participant.
5. PERFORMANCE TARGETS
5.1
Based on the degree of attainment of three pre-determined financial targets (the Performance Targets) the number of Performance Shares to Vest can vary from 0% to 200% of the Number of Granted Performance Shares. The three Performance Targets are:
(a) Revenue Growth
(b) Net Income Growth and
(c) Return on Invested Capital.
5.2
The achievement of the respective Performance Targets in relation to each grant of Performance Shares is measured over a performance period of three years starting from the beginning of the calendar year 2019 (the Performance Period) and is determined as follows:
(a) Revenue Growth shall mean the annual growth of revenues of the Company determined following the International Financial Reporting Standards (IFRS) using the Companys consolidated reported and audited figures in Euro for the financial statements prepared in accordance with IFRS. The growth rates for the former are determined at Constant Currency.
For Revenue Growth, a target achievement of 100% is reached at an average annual Revenue Growth throughout the Performance Period of 7%. For Revenue Growth between 0% to 7% and 7% to 16% the target achievement is linearly interpolated - see Figure 1. The target achievement for this Performance Target is capped at 200% for each year of the Performance Period.
In case of changes to IFRS accounting principles in the first year in which such policies become effective the relevant figures of the respective prior year as restated according to such policies should form the basis for the determination of the growth in revenues. If such restatements will not be made, pro forma figures for the relevant year in which such changes become effective for the first time shall be calculated under the old regime with reasonable effort to determine the Revenue Growth.
(b) Net Income Growth shall mean the annual growth of net income attributable to the shareholders of the Company determined in accordance with IFRS using the reported and audited figures in Euro for the financial statements prepared in accordance with IFRS. The growth rates for the former are determined at Constant Currency.
For Net Income Growth, a target achievement of 100% is reached at an average annual Net Income Growth throughout the Performance Period of 7%. For a Net Income Growth between
0% to 7% and 7% to 14% the target achievement is linearly interpolated - see Figure 2. The target achievement for this Performance Target is capped at 200% for each year of the Performance Period.
In case of changes to IFRS accounting principles in the year in which such policies become effective the relevant restated figures of the prior year should form the basis for the determination of the Net Income Growth. If such restatements will not be made, pro forma figures for the relevant year in which such changes become effective for the first time shall be calculated under the old regime with reasonable effort to determine the Net Income Growth.
(c) Return on Invested Capital (ROIC) shall mean the ROIC level based on the Companys audited consolidated financial statements determined in accordance with IFRS.
The ROIC is measured against a target ROIC (the Target ROIC) defined for each year throughout the Performance Period. The Target ROIC is defined as the ROIC level at which a target achievement of 100% will be reached. For 2019 the Target ROIC is 7.9%. For each of the two consecutive years 2020 and 2021, the Target ROIC is 8.1%.
The target achievement will be 0% in case the ROIC of the respective year will be 0.2%-points below the Target ROIC for such year. Accordingly, a ROIC target achievement of 200% will apply in case the ROIC for a respective year will be 0.2%-points above the Target ROIC for such year. For ROIC levels between 0.2%-points below the Target ROIC, the Target ROIC and 0.2%-points above the Target ROIC, the respective ROIC target achievement will be calculated by means of linear interpolation - see Figure 3. The target achievement for this Performance Target is capped at 200% for each year of the Performance Period.
In case that the annual ROIC target achievement in the third year of a respective Performance Period is equal or higher than each annual ROIC target achievement of such respective Performance Period, the annual ROIC target achievement of the third year shall be applied for the determination of the Yearly Target Achievements, as defined in Clause 5.3, for the first and the second year of such respective Performance Period.
In case of changes to IFRS accounting principles first effective on or after 1 January 2019, the ROIC determining the respective ROIC target achievement for the relevant year in which such changes become effective for the first time as well as for the relevant consecutive years shall be calculated under the old regime with reasonable effort to determine the ROIC level.
5.3
The achievement of the Performance Targets is determined annually, as described in Clause 5.2, and for each year of the Performance Period and as soon as the Companys audited figures for such respective year are available (the Yearly Target Achievement); for this purpose, the three Performance Targets are weighted equally (i.e. 1/3, 1/3, 1/3).
5.4
The overall target achievement (the Overall Target Achievement) for each respective grant of Performance Shares is calculated by taking the average of the Yearly Target Achievements of the respective Performance Period; for this purpose each Yearly Target Achievement is weighted equally (i.e. 1/3, 1/3, 1/3).
5.5
The total number of Performance Shares attributable to each Participant pursuant to Clauses 4.2 and 5.1 to vest (the Number of Performance Shares to Vest) is calculated by multiplying the Number of Granted Performance Shares with the Overall Target Achievement.
5.6
The individual figures for each Performance Target shall be rounded using commercial rounding to the second decimal place of the percentage figure (e.g. 8.1523% will result in 8.15%). The Yearly Target Achievement and the Overall Target Achievement shall be rounded using commercial rounding to the next integer in percentage points (e.g. 129.93% will result in 130%). Similarly, the number of Performance Shares to Vest shall be commercially rounded to the next integer number (e.g. 162.5 will result in 163).
6. VESTING OF PERFORMANCE SHARES
6.1 Vesting Date
Subject to the terms of this Plan, the Performance Shares will vest on the date of the fourth anniversary of the respective Grant Date (the Vesting Date). Exceptions or modifications may apply in special cases described in Clause 8.
6.2 Additional Vesting Conditions
Subject to the terms of this Plan, the Performance Shares furthermore will vest only on the conditions and insofar as
(a) the Participant continuously has been in a service relationship with FME Group from the Grant Date to the Vesting Date (the Service Condition). In case the Service Condition has not been fulfilled, the respective Performance Shares are forfeited on the date on which the service relationship of the Participant with FME Group ends. Exceptions or modifications may apply in special cases described in Clause 8 hereinafter; and
(b) in relation to or in connection with his service relationship with FME Group, the Participant has not committed any violations of legal provisions or other rules, e.g. internal guidelines of FME Group (the Compliance Violations). If, following a corresponding investigation, Compliance Violations have been determined conclusively with respect to a Participant, the Supervisory Board is entitled to declare within its reasonable discretion and in due consideration particularly of the nature and the severity of the Compliance Violation the forfeiture, in whole or in part, of the Performance Shares granted to such Participant. The Participant shall be informed of the extent of the forfeited Performance Shares and of the reasons for the corresponding decision in text form, i.e. by mail, email or via an online platform.
7. SETTLEMENT OF PERFORMANCE SHARES
7.1
One Performance Share carries the entitlement to receive a cash equivalent of the average Stock Exchange Price over a period of 30 (thirty) calendar days prior to the Vesting Date, as defined hereinafter (the Performance Shares Proceeds). Such cash payment will be made on the Vesting Date, or as soon thereafter as is reasonably practicable. The Participant shall be informed of the Number of Performance Shares to Vest and the corresponding cash payments in text form, i.e. by mail, email or via an online platform.
7.2
Performance Shares Proceeds are paid to the Participant in the currency in which the Participant receives his or her base salary from the General Partner in the month of the Vesting Date (the Settlement Currency). For this purpose the respective FX Rates at Grant Date shall be applied. The purpose of applying the FX Rates at Grant Date is to mitigate exposure to exchange rate fluctuations between the Grant Date and the Vesting Date. In cases of Extraordinary Developments, such as hyperinflation, the Supervisory Board is entitled to adjust the FX Rates at Grant Date to the benefit of the Participants.
7.3
Following and based on the determination of the Number of Performance Shares to Vest, each Participant shall receive the Performance Shares Proceeds pursuant to Clause 7.1 and Clause 7.2. Clause 10 and Clause 11.2 remain unaffected.
7.4
Payment of the Performance Shares Proceeds to the Participant is made in each case with the proviso (condition subsequent) that with respect to the Participant a Compliance Violation within the meaning of, and pursuant to, Clause 6.2(b) has not been determined conclusively within a period of three years from the day of the payment of the Performance Shares Proceeds. Clause 11.6 shall remain unaffected.
8. PERFORMANCE SHARES IN SPECIAL CASES
8.1 Leaving on Age Grounds
(a) If the Participant retires from service with the General Partner by reaching the minimum required age for retirement and without having been dismissed, the Participants entitlement to the Performance Shares shall vest on the respective Vesting Date (subject to the fulfillment of the additional vesting condition pursuant to Clause 6.2(b)). Occupational disability and early
retirement shall be equivalent to such retirement. The Participant is obligated to give evidence to the Company or an office named by the Company of the occurrence of a case of occupational disability within three months following the occurrence of such event. Otherwise, the Supervisory Board may declare the Performance Shares to be forfeited.
(b) This Clause 8.1(b) shall apply instead of Clause 8.1(a) with respect to Participants who are US taxpayers, and shall apply notwithstanding any other contrary Plan provisions. If a Participant retains his or her service relationship with the General Partner and experiences a Special Vesting Event (as later defined in this Clause), the Participants entitlement to the Performance Shares according to this Plan remains unaffected by any subsequent severance from the service relationship (subject to the fulfillment of the additional vesting condition pursuant to Clause 6.2(b)). Thus, when a Participant experiences a Special Vesting Event, the Service Condition established under Clause 6.2(a) is deemed to have been met by such Participant. A Special Vesting Event shall occur with the combination of attaining age 55, earning 10 years of continuous service within the FME Group and upon the final expiration of the service contract that was in place as of the Grant Date, but only if such expiration occurs prior to the Participants normal Vesting Date under Clause 6.1. For all Participants covered by this Clause 8.1(b), a Special Vesting Event shall also include the Participant becoming Disabled while in a service relationship, provided that the Participant provides satisfactory evidence of such Disability to the Company or an office named by the Company within three months following the occurrence of such Disability. In the absence of such notice and satisfactory evidence, the Supervisory Board may declare the Performance Shares to be forfeited.
8.2 Ordinary Termination / Cancellation of Service Relationship by Agreement
Except as otherwise provided herein, if a Participants service relationship with the General Partner has ended by termination or agreement, all Performance Shares not vested on the effective date of the termination or the agreement are forfeited.
8.3 Death
In case of death of a Participant, Clause 8.1 (Leaving on Age Grounds) applies accordingly. The Heirs of the Participant are entitled to receive the Performance Shares Proceeds if they give evidence of their entitlement to the Company or an office named by the Company within three months after the death of the Participant; otherwise, the Supervisory Board may declare the Performance Shares to be forfeited. Clause 8.4 (Termination for Cause) remains unaffected. With respect to Heirs of Participants who had been US taxpayers the legal consequences and effects stated under Clause 8.1(b) shall apply.
8.4 Termination for Cause
Notwithstanding Clauses 8.1 (Leaving on Age Grounds), 8.2 (Ordinary Termination / Cancellation of Service Relationship by Agreement) and 8.3 (Death), all Performance Shares shall be forfeited if the Participants service agreement was terminated by the General Partner for good cause, or if at the time of leaving, there were grounds which would have entitled the General Partner to terminate the service agreement for good cause.
8.5 Engagement with Fresenius Group
The Performance Shares shall not be affected by the transfer of a Participants service agreement from the Company or from an Affiliated Company to Fresenius SE & Co. KGaA or to an affiliated company of Fresenius SE & Co. KGaA within the meaning of sections 15 et seqq. of the German Stock
Corporation Act (Aktiengesetz), including Fresenius Management SE.
8.6 Effect of Change in Status as Affiliated Company
If a Participant is employed by a company which ceases to be an Affiliated Company or, in the case of a transfer of a Participants engagement referred to in Clause 8.5, an affiliated company of Fresenius SE & Co. KGaA, all Performance Shares granted to the Participant shall be forfeited.
8.7 Effect of Change in Status as General Partner
If the General Partner ceases to exercise the function of the Companys general partner, all Performance Shares granted to a Participant shall be forfeited.
8.8 Individual Cases
In individual cases, the Supervisory Board can waive or amend the provisions of this Clause 8, taking duly into account the Companys interests.
9. NO TRANSFERABILITY / FORFEITURE
Performance Shares granted under this Plan and Performance Shares inherited according to Clause 8.3 are not transferable. Any other purported transfer, assignment or disposal of Performance Shares, such as the granting of sub-participations therein, pledging, granting usufruct rights (Nieβbrauch) or the formation of a trust, shall be void and invalid. The same applies to legal transactions which are economically equal to a transfer or assignment.
10. TAXES, CONTRIBUTIONS AND OTHER EXPENSES
10.1 General
Performance Shares Proceeds are considered gross. Any entitlements or benefits under this Plan may be subject to income tax, social security taxes and other taxes and contributions. This also depends on the legislation of the country where the Participant stays, resides or is subject to tax for other reasons. All taxes incurred in connection with the Plan shall be borne by the Participant, excluding taxes and contributions which are by law borne by the employer. The Company and the General Partner, as the case may be, are entitled to withhold and remit such taxes and contributions in accordance with the respective applicable laws.
10.2 Section 162 (m) U.S. Internal Revenue Code
If the Supervisory Board, in its sole discretion, determines at the request of the Management Board that the limitations on deductions under section 162(m) U.S. Internal Revenue Code (the IRC) may apply to Performance Shares granted to Participants hereunder, the Supervisory Board shall be entitled to decide upon the grant of Performance Shares made to such Participants.
11. PROCEDURE, ENDING AND ADJUSTMENT OF THE PLAN
11.1
Unless otherwise provided in this Plan, the Plan shall be interpreted, waived, adjusted or otherwise administered, and may be amended or modified by the Supervisory Board and all Performance Shares granted to the Participants will be approved by the Supervisory Board. Adjustments to the Plan may also be made with regard to Performance Shares which have already been granted, provided that this does not affect the value of the Performance Shares or that the Participant is fully compensated for any financial loss suffered. For the avoidance of doubt, any such adjustments with regard to Performance Shares which have already been granted should not result in a retroactive reduction or lowering of relevant performance target levels pursuant to this Plan.
11.2
In case of Extraordinary Developments the Supervisory Board is entitled to cap grants of Performance Shares and/or Performance Shares Proceeds to be paid to the Participants under the Plan.
11.3
Furthermore, the Supervisory Board is entitled to determine in certain cases, based on its respective reasonable discretion, that any extraordinary commercial, tax or similar impacts that may occur during any relevant Performance Period affecting the level of Yearly Target Achievement and/or Overall Target Achievement in relation to individual grants shall in full or in part be disregarded for purposes of determining Yearly Target Achievement and/or Overall Target Achievement pursuant to this Plan in relation to such grants.
11.4
The Supervisory Board is entitled to end the Plan with effect for all Participants at any time. In this case, the Performance Shares already granted to the Participants remain unaffected.
11.5
If the Company is required to prepare an accounting restatement due to the Companys material noncompliance with any financial reporting requirement under the U.S. federal securities laws, the Company shall be entitled, without prejudice to Clause 11.6 hereafter, to recover to the full extent required under then current and applicable law and or applicable stock exchange listing rules from the Participants who received any bonus or other incentive-based compensation based on the erroneous data during the period or periods defined in such law that precede the date the Company is required to prepare the accounting restatement, (i) the amount of such bonus or other incentive-based compensation in excess of what would have been paid to the participant under the accounting restatement and (ii) such other amounts, if any, as may be recoverable by applicable law.
11.6
If the Participants have committed Compliance Violations which have occurred and/or have been determined conclusively only after the Settlement of Performance Shares within the meaning of Clause 7 above, the Supervisory Board is entitled within its reasonable discretion to claim back the Performance Shares Proceeds, in whole or in part, from the Participant in the Companys name, provided that and insofar as the Performance Shares Proceeds have been paid to the Participant at a point in time that is within a period of three years prior to the day on which the Company makes the repayment claim in writing, stating the reasons for such claim. For the avoidance of doubt, the
Companys rights pursuant to this Clause 11.6 shall not prejudice any other rights the Company may have against the Participant in relation to any Compliance Violations under or in connection with his or her service relationship with FME Group.
11.7
In general, benefit payments remain subject to a substantial risk of forfeiture until they are paid under Clause 7.1, due to the Service Condition imposed under Clause 6.2(a). In such cases, there is no deferred compensation and the constraints imposed by U.S. Internal Revenue Code Section 409A do not apply. However, when a Participant experiences a Special Vesting Event under Clause 8.1(b), Plan benefits may constitute deferred compensation. In those cases, the Plan shall pay benefits on the fixed date specified in Clause 7.1, thereby complying with Treasury Regulation Section 1.409A-3(a) (4).
The administration of any amounts payable hereunder that constitute deferred compensation within the meaning of Section 409A will comply with Section 409A, and this Plan shall be administered, interpreted and construed in a manner intended to avoid the imposition of additional taxes, penalties or interest under Section 409A. The Supervisory Board may exercise its right to adjust the Plan pursuant to Clause 11.1 above in order to preserve the intended tax consequences of the Performance Shares, and avoid the imposition of any tax under Section 409A. Notwithstanding the foregoing, the Participant shall be solely responsible and liable for the satisfaction of all taxes, penalties and interest that may be imposed on or for the account of the Participant or his or her beneficiaries in connection with this Plan (including any taxes, penalties and interest under Section 409A), and neither the Company nor the General Partner shall have any obligation to indemnify or otherwise hold the Participant (or any beneficiary) harmless from any or all of such taxes, penalties or interest.
In the event that any payment to the Participant is deemed to be an installment payment of nonqualified deferred compensation under Section 409A, each individual installment payment shall be deemed to be a separate payment within the meaning of Treasury Regulation Section 1.409A-2(b)(2)(iii).
Other than by taking actions specifically permitted under this Plan, the Participant shall not have the right, directly or indirectly, to designate the taxable year during which a payment shall be made under this Plan.
12. LIABILITY RISKS, EXCHANGE RISKS AND TAX RISKS
12.1
The liability of the Company and the General Partner or their respective legal representatives, employees and agents for simple negligence and consequential loss and loss of profit is excluded.
12.2
The Company and the General Partner grant no warranty for the general market development and price of the shares of the Company after granting Performance Shares or for any other point or period in time. Therefore, the acceptance of Performance Shares is at the sole risk of each Participant.
12.3
The Company and the General Partner grant no warranty that the tax and contributions deducted in accordance with Clause 10 (Taxes, Contributions and other Expenses) or other tax and contributions payable by the Participants will be charged only on the Performance Shares Proceeds. Depending on a Participants personal circumstances, double taxation might occur if the Plan is subject to taxation in several countries. The Participants are advised to obtain advice on their personal tax situation.
13. TERM OF THE PLAN
This Plan will be effective as of 1 January 2019 and shall apply to grants of Performance Shares in financial year 2019. The Plan will terminate following the payout of any Performance Shares Proceeds for the last grant made in financial year 2019. Clauses 11.1 and 11.4 remain unaffected.
14. MISCELLANEOUS PROVISIONS
14.1
This Plan is subject to German law. The German text version of the Plan shall prevail in all cases.
14.2
No provisions contained in this Plan (or in any documents referring to this Plan) transfer to a Participant or possible Participant any right to request the continuation of its service relationship with the General Partner. No service agreement can be deducted from this Plan (or from any documents referring to this Plan), nor shall it have any effect on the right of the Company or the General Partner to change compensation or other benefits of such Participant or to terminate its service relationship with or without notice. This applies subject to the provision that this Plan or any document connected therewith will adversely influence any independent contractual right of these persons.
14.3
If any provision of this Plan is invalid or unenforceable, the validity of the remaining provisions of the Plan shall not be affected. The same applies if it is ascertained that the Plan is subject to an omission. In these cases, the invalid or unenforceable provision shall be substituted or an omission repaired by such provision which most closely corresponds to the intended purpose of this Plan.
14.4
References and headings attributed to individual Clauses and Sub-clauses of this Plan are solely for the purpose of easier reference. These headings are in no case significant or relevant for the interpretation of the Plan.
14.5
No provision in this Plan leads to or infers a presumption that the authority of the Supervisory Board to issue Performance Shares or approve other compensation connected or not connected to shares granted by any other share-based long-term incentive program or any other authority may in any way be restricted.
15. DEFINITIONS
15.1 Affiliated Company means any company within FME Group with the exception of the Company.
15.2 Company is defined in Clause 1.1.
15.3 Compliance Violations is defined in Clause 6.2(b).
15.4 Constant Currency shall mean that for the purpose of this Plan the calculation of the figures stated under IFRS denominated in Euro shall be adjusted for currency effects. For the ascertainment of the currency adjustment all line items of the profit and loss statements of the companies that are included in the consolidated financial statements and which have a functional currency other than the reporting currency (Euro) of the group are translated with the average exchange rates of the year of the consolidated financial statements that are the basis for the comparison.
15.5 Disability or Disabled means that a Participant is either (a) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (b) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participants employer. For purposes of this Plan, a Participant shall be deemed Disabled if determined to be totally disabled by the U.S. Social Security Administration. A Participant shall also be deemed Disabled if determined to be disabled in accordance with the applicable disability insurance program of such Participants Employer; provided that the definition of disability applied under such disability insurance program complies with the requirements of this Section. This definition applies solely for determinations under Clause 8.1(b); such Clause applies solely to US Taxpayers.
15.6 Extraordinary Developments shall mean any kind of extraordinary scenarios in which the price of the Companys shares would have lost any reasonably arguable correlation to the Companys intrinsic enterprise value; however, no such Extraordinary Development shall be applicable in cases in which the price of Companys shares rises (even substantially) as a result of the performance of the Participants.
15.7 FME Group stands for the group of entities including the General Partner, the Company and its affiliated companies within the meaning of sections 15 et seqq. of the German Stock Corporation Act, with the exception of Fresenius SE & Co. KGaA and the companies affiliated with Fresenius SE & Co. KGaA within the meaning of sections 15 et seqq. of the German Stock Corporation Act in any manner other than through the Company.
15.8 Foreign Currency Exchange Rates means the nominal prices of the foreign exchange rates as published by the European Central Bank. If no prices are published by the European Central Bank, the Supervisory Board is entitled to agree on a suitable other form for obtaining the prices.
15.9 FX Rates at Grant Date is defined in Clause 4.2.
15.10 General Partner is defined in Clause 1.1.
15.11 Grant Currency is defined in Clause 4.2.
15.12 Grant Date is defined in Clause 4.1.
15.13 Grant Value is defined in Clause 4.2.
15.14 Heir means the person, the persons, the trust or trusts, which are nominated by a Participant or, if no such nomination is made, is or are entitled by will or the respective applicable law in the event of the death of a Participant, to receive the benefit of the Performance Shares under this Plan. The concept heir therefore also includes the executor appointed by will or the administrator appointed by the court, if no heir is named and is in a position to act under the given circumstances.
15.15 IFRS means the International Financial Reporting Standards which are issued by the International Accounting Standards Board, as amended.
15.16 IRC means the U.S. Internal Revenue Code of 1986, as amended from time to time.
15.17 Management Board is defined in Clause 1.1.
15.18 Net Income Growth is defined in Clause 5.2(b).
15.19 Number of Granted Performance Shares is defined in Clause 4.2.
15.20 Number of Performance Shares to Vest is defined in Clause 5.5.
15.21 Overall Target Achievement is defined in Clause 5.4.
15.22 Participant is defined in Clause 1.1.
15.23 Performance Period is defined in Clause 5.2.
15.24 Performance Shares is defined in Clause 1.1.
15.25 Performance Shares Proceeds is defined in Clause 7.1.
15.26 Performance Targets is defined in Clause 5.1.
15.27 Plan is defined in Clause 1.1.
15.28 Plan Conditions is defined in Clause 1.2.
15.29 Return on Invested Capital (ROIC) is defined in Clause 5.2(c).
15.30 Revenue Growth is defined in Clause 5.2(a).
15.31 SEC means the United States Securities and Exchange Commission.
15.32 Service Condition is defined in Clause 6.2(a).
15.33 Settlement Currency is defined in Clause 7.2.
15.34 Special Vesting Event is defined in Clause 8.1(b).
15.35 Stock Exchange Price means the closing price (Schlusskurs) of the Companys shares in the electronic XETRA trading system of Deutsche Börse AG in Frankfurt/Main or a comparable successor system denominated in Euro. If no closing price is set in the XETRA trading system, the Supervisory Board is entitled to agree on a suitable means of replacing the closing price.
15.36 Supervisory Board is defined in Clause 1.1.
15.37 Target ROIC is defined in Clause 5.2(c).
15.38 Vesting Date is defined in Clause 6.1.
15.39 Yearly Target Achievement is defined in Clause 5.3.
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Rice Powell, certify that:
Date: October 31, 2019
By: |
/s/ RICE POWELL
Rice Powell Chief Executive Officer and Chairman of the Management Board of the General Partner |
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Brosnan, certify that:
Date: October 31, 2019
By: |
/s/ MICHAEL BROSNAN
Michael Brosnan Chief Financial Officer and member of the Management Board of the General Partner |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the report of Fresenius Medical Care AG & Co. KGaA (the "Company") on Form 6-K furnished for the month of October 2019 containing its unaudited financial statements as of September 30, 2019 and for the nine-months periods ending September 30, 2019 and 2018, as submitted to the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Rice Powell, Chief Executive Officer and Michael Brosnan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
By: |
/s/ RICE POWELL
Rice Powell Chief Executive Officer and Chairman of the Management Board of the General Partner |
|||
|
|
|
|
October 31, 2019 |
|
|
By: |
|
/s/ MICHAEL BROSNAN Michael Brosnan Chief Financial Officer and member of the Management Board of the General Partner |
|
|
|
|
October 31, 2019 |