Annual Report • Mar 21, 2016
Annual Report
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ANNUAL REPORT
| € in millions | 2015 | 2014 | 2013 | 2012 | 2011 |
|---|---|---|---|---|---|
| Sales and Earnings | |||||
| Sales | 27,626 | 23,231 | 20,331 | 19,290 | 16,3611 |
| EBITDA 2 | 5,073 | 4,095 | 3,888 | 3,851 | 3,237 |
| EBIT 2 | 3,958 | 3,158 | 3,045 | 3,075 | 2,563 |
| Net income (before special items) 3 | 1,423 | 1,086 | 1,051 | 938 | 770 |
| Depreciation and amortization | 1,115 | 937 | 843 | 776 | 674 |
| Earnings per share in € (before special items) 3 | 2.61 | 2.01 | 1.96 | 1.81 | 1.58 |
| Cash flow and Balance sheet | |||||
| Operating cash flow | 3,327 | 2,585 | 2,320 | 2,438 | 1,689 |
| Operating cash flow in % of sales | 12.0% | 11.1% | 11.4% | 12.6% | 10.3% |
| Total assets 5 | 43,170 | 39,788 | 32,663 | 30,558 | 26,223 |
| Non-current assets 5 | 32,253 | 29,776 | 24,703 | 22,456 | 19,081 |
| Equity 4 | 18,003 | 15,483 | 13,260 | 12,758 | 10,577 |
| Equity ratio 4, 5 | 42% | 39% | 41% | 42% | 40% |
| Net debt 5 | 13,725 | 14,170 | 11,845 | 10,037 | 9,066 |
| Net debt/EBITDA 5, 6, 7 | 2.68 | 3.24 | 2.54 | 2.57 | 2.69 |
| Investments 8 | 2,029 | 3,795 | 3,827 | 4,179 | 2,395 |
| Profitability | |||||
| EBIT margin2 | 14.3% | 13.6% | 15.0% | 15.9% | 15.7% |
| Return on equity after taxes (ROE) 3 | 13.0% | 11.6% | 12.8% | 12.3% | 12.9% |
| Return on operating assets (ROOA) 5, 6 | 10.1% | 9.1% | 10.6% | 11.0% | 11.0% |
| Return on invested capital (ROIC) 5, 6 | 8.3% | 7.5% | 8.8% | 9.0% | 8.8% |
| Dividend per share in € | 0.559 | 0.44 | 0.42 | 0.37 | 0.32 |
| Employees (December 31) | 222,305 | 216,275 | 178,337 | 169,324 | 149,351 |
1 2011 sales were adjusted by -€161 million according to a U.S. GAAP accounting change; this solely relates to Fresenius Medical Care North America.
2 2012 – 2015 before special items
3 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2011 – 2015 before special items
4 Including noncontrolling interest
5 2011 – 2014 adjusted due to debt issuance cost restatement (U.S. GAAP standard ASU 2015-03)
6 2012 – 2015 before special items; 2014 pro forma acquisitions; 2013 pro forma excluding advances made in the amount of €2.18 billion under a fiduciary agreement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG; 2012 pro forma acquisitions
7 At LTM average exchange rates for both net debt and EBITDA
8 Investments in property, plant and equipment, and intangible assets, acquisitions
9 Proposal
Our interactive tool with a 10-year overview and additional key figures are available on www.fresenius.com/group-figures.
DIALYSIS PRODUC TS, HEALTH CARE SERVICES (DIALYSIS SERVICES AND CARE COORDINATION)
IV drugs, clinical nutrition, Infusion therapy , Medical devices / Transfusion technology
| 2015 US\$ in millions |
2014 US\$ in millions |
Change | 2015 € in millions |
2014 € in millions |
Change | |
|---|---|---|---|---|---|---|
| Sales | 16,738 | 15,832 | 6% | 5,950 | 5,146 | 16% |
| EBI T |
2,3881 | 2,2711 | 5% | 1,1892 | 8732 | 36% |
| Net income 3 | 1,0821 | 1,0581 | 2% | 6692 | 4682 | 43% |
| Operating cash flow | 1,960 | 1,861 | 5% | 913 | 641 | 42% |
| Capital expenditure/ acquisitions |
1,380 | 2,919 | -53% | 389 | 479 | -19% |
| R & D expenses | 140 | 122 | 15% | 3362 | 2762 | 22% |
| Employees (December 31) | 110,242 | 105,917 | 4% | 33,195 | 32,899 | 1% |
Hospital operation
Projects and Services for hospitals and other health care facilities
| 2015 € in millions |
2014 € in millions |
Change | 2015 € in millions |
2014 € in millions |
Change | |
|---|---|---|---|---|---|---|
| Sales | 5,578 | 5,244 | 6% | 1,118 | 1,042 | 7% |
| EBI T |
6402 | 5532 | 16% | 64 | 59 | 8% |
| Net income 3 | 4832 | 4002 | 21% | 44 | 41 | 7% |
| Operating cash flow | 618 | 558 | 11% | 53 | -9 | - - |
| Capital expenditure/ acquisitions |
376 | 1,090 | -66% | 15 | 22 | - 32% |
| Order intake | n/a | n/a | 904 | 840 | 8% | |
| Employees (December 31) | 69,728 | 68,852 | 1% | 8,262 | 7,746 | 7% |
1 Before one-time items
2 Before special items
3 Net income attributable to the parent company of the respective business segment
For a detailed overview of Fresenius Medical Care's one-time items please see the business segment on page 12. For a detailed overview of special items please see the reconciliation table on page 42.
Fresenius is a global health care group providing products and services for dialysis, hospitals, and outpatient medical care. In addition, Fresenius focuses on hospital operations. We also manage projects and provide services for hospitals and other health care facilities. More than 220,000 employees have dedicated themselves to the service of health in over 100 countries worldwide.
Last summer, Chinese stocks fell sharply and markets worldwide began to follow them down. With Germany's benchmark DAX index caught in the downturn, Fresenius shares dropped more than 10 percent in less than a week. We started getting calls from investors asking whether this turbulence would slow our growth.
Just a few weeks earlier, we had again raised our 2015 guidance to sales growth of 8 to 10 percent and net income growth of 18 to 21 percent. Amid the turmoil, analysts and journalists wanted to know if we still believed Fresenius could meet those targets.
As it turned out, we succeeded in meeting every one of our targets in yet another record year for our company. The increase in our share price also far outpaced the development of the DAX. Pending approval at our Annual General Meeting, Fresenius will raise its dividend by 25 percent for 2015. And we have already attained our 2017 goal of between €1.4 and €1.5 billion in net income, two years ahead of plan.
Stable, strong growth even in uncertain times is a hallmark of Fresenius, as we saw once again in 2015. In this letter, I will outline the key factors that contribute to our company's exceptional stability.
One crucial factor is quality leadership in our products and services. In some sectors a reasonable price / quality ratio might be good enough for a company to thrive. But not in healthcare, where quality is paramount. Our patients' health depends on it.
At Fresenius, our focus on quality permeates all areas of our business. Our patients benefit when we aim to provide the highest quality healthcare, and this commitment to quality leadership is a pillar of our business success. As an example, take a look at our intravenous generic drugs (IV generics) business. In recent years, other suppliers have repeatedly struggled with quality problems that resulted in serious shortages of some drugs. Fresenius Kabi responded with a huge effort to increase its own IV generics production. In some cases, this made us the sole supplier of certain much-needed drugs to hospitals. Our effort helped patients and the medical community at a critical time. It also helped to increase our sales and market share.
As our past and current business results very clearly demonstrate, quality translates directly into success for our company. This will remain just as true in the future.
Stability and strength at Fresenius also come from our highly decentralized corporate structure. We have approximately 90 production facilities around the world and manufacture most of our products in the region where they are sold, making us relatively immune to the movement of currencies. The same applies to our medical services, like those offered in Fresenius Medical Care dialysis clinics worldwide.
Our local companies operate with considerable autonomy and have deep knowledge of national and regional markets, enabling us to respond quickly to local needs with tailored solutions. Quite simply, we are closer to patients. A local focus is particularly important in healthcare, and in many of our markets Fresenius benefits from being perceived as a domestic company.
The nature of our markets is another major contributor to our stable growth, as the demand for healthcare continues to rise around the world. In industrialized countries, demographic change and growing health awareness are driving demand. Developing and emerging market nations, meanwhile, continue to invest heavily to develop healthcare systems that can meet the enormous pent-up demand from the public. These trends, combined with continuing progress in medicine, are making high-quality medical care available to more and more
At Fresenius Kabi's plant in Melrose Park, near Chicago, we have invested in state-of-the-art production processes to assure the availability of urgently needed IV drugs for patients.
people. Fresenius was a first mover in emerging markets, allowing us to play an active role in helping improve healthcare in these countries.
Another factor that makes our growth so stable is the more even earnings distribution across the Group. Just 10 years ago, Fresenius Medical Care's share of Group net income was about 60 percent. Today it is 20 percent, even though Fresenius Medical Care's earnings more than doubled over this period. By broadening the foundation of our growth, we have been able to benefit more fully from the various growth trends in healthcare worldwide.
It was especially gratifying last year that, amid so much economic turbulence, our efforts paid off through the very positive development of all our business segments – Fresenius Medical Care, Fresenius Kabi, Fresenius Helios, and Fresenius Vamed.
To Our Shareholders
Fresenius Medical Care made solid progress integrating the companies it acquired in North America in 2014. By expanding the Care Coordination business, the company is pursuing new opportunities in care areas connected to dialysis. In its core business of treating chronic kidney disease patients, Fresenius Medical Care further expanded its clinical network in 2015, opening about 60 new dialysis clinics to bring the total to more than 3,400. After years of strong growth in Europe and North America, the company is now making a major effort in another important area, the development of products for affordable, basic therapy in emerging market countries. Just last fall, the company opened a new research and development center in Shanghai for this purpose. Fresenius Medical Care remains the world leader in dialysis and is working to make dialysis accessible to millions of new patients.
Fresenius Kabi expanded both its regional presence and product portfolio last year. In IV generics alone, the company was able to bring more than 80 new products to market. At the same time, Fresenius Kabi continued to work on further improving its production processes. At our Melrose Park plant, near Chicago, we put into operation one of the world's most modern filling lines for liquid pharmaceuticals. As a result, the risk of contamination in a vial has been reduced to an absolute minimum. A number of Fresenius Kabi teams around the world worked together for years on this new production technology. It will be introduced in other plants to assure the high quality of our IV generics. As a reliable supplier of high-quality drugs, we are contributing to the welfare of our patients. At the same time, this focus on quality strengthens our competitive position. It always pays when you invest in quality.
Discussing patient care with senior management at the new Neunkirchen Clinic in Austria. Fresenius Vamed planned and built the hospital, and handles its technical management.
Fresenius Helios continued last year to integrate the Rhön hospitals it acquired in 2014. The improved EBIT margin for all HELIOS hospitals, including those acquired from Rhön, demonstrates the success of the integration process. HELIOS is also exploring ways to contribute to and benefit from the digitalization of healthcare. The company's new "helios.hub" platform – the first of its kind in Germany – will support entrepreneurs and start-ups in the early phase of developing digital healthcare solutions. These innovations should directly benefit patients, as well as their family members and physicians, in every conceivable way they interact with the hospital. The 111-hospital HELIOS network across Germany offers tremendous potential to implement pilot projects, and assess and improve them by working closely with doctors and patients.
Fresenius Vamed also showed outstanding development in 2015. In the project business, order intake and order backlog both rose to new records. Among other projects, VAMED began the biggest public-private partnership in the German healthcare sector: modernizing the University Hospital Schleswig-Holstein and then providing the facility's technical management for 30 years. Combining the project and service businesses in this way is an important part of VAMED's growth strategy. A good example is the new Neunkirchen
Clinic in Austria, where VAMED was responsible for planning and building the hospital before taking on its technical management when construction was complete. In recent years, the company has put particular emphasis on building up the service business, which is less cyclical than the project business due to the prevalence of multi-year contracts. As recently as 2011, services accounted for one-third of VAMED's sales; today, they already account for half. This is another development that makes Fresenius even more stable. Last year, VAMED was responsible for the overall management of more than 50 healthcare facilities on four continents, and currently provides technical services for more than 550 hospitals worldwide.
2015 was another highly successful year for Fresenius. This was reflected not only in very strong sales and earnings increases but also in our share price. While the DAX rose 10 percent last year, the Fresenius share price climbed 53 percent. In September, Fresenius was included in the EURO STOXX 50. This leading European stock market index tracks the share price developments of 50 of the Eurozone's largest publicly traded companies.
In 2015, we showed that our company can post strong, stable growth without major acquisitions. Some people have described Fresenius as a "deal machine" that is always hungry for the next multi-billion transaction, yet over the last decade just one-third of our growth derived from large takeovers. A much larger share of our growth was organic.
The major acquisitions that we have made in recent years – such as HELIOS, Renal Care Group, APP Pharmaceuticals, Liberty Dialysis, Fenwal and Rhön – were all consistent with a clear strategy. They have substantially strengthened our activities in targeted areas, and we chose them because they are a great fit with our existing business.
We will continue to be a disciplined acquirer and will never buy a company for the sake of it, or because financing is cheap. Nor do we need to buy companies to continue to grow. But if there is an opportunity that makes strategic sense and creates shareholder value, we will seize it.
Fresenius is well positioned for continued, profitable growth. We are expecting another record year in 2016, targeting constant-currency increases of 6 to 8 percent in sales and 8 to 12 percent in net income. We are also setting new, ambitious mid-term targets: For 2019, we are aiming for €36 to €40 billion in sales and net income of €2 to €2.25 billion.
If we succeed, Fresenius will have increased sales by about two-thirds and doubled earnings in just five years. I am confident we will achieve these goals – just as we have consistently reached the ambitious annual and longer-term targets Fresenius has set over the years. And just as you have supported us in the past, I look forward to your continued support as we go forward.
Dr. Ulf M. Schneider Chairman of the Management Board
SALES. Group sales increased by 19% to €27,626 million (2014: €23,231 million). Organic sales growth was 6%. Acquisitions contributed 4%. Divestitures reduced sales growth by 1%. Currency translation had a positive effect of 10%.
EARNINGS. Group EBIT 1 increased significantly to €3,958 million. The EBIT margin1 was 14.3%. Group net income 1, 2 increased by 31% to €1,423 million. Growth in constant currency was 21%.
Summary
1 Before special items
2 Net income attributable to the shareholders of Fresenius SE & Co. KGaA
For a detailed overview of special items please see the reconciliation table on page 42.
Cash flow. Operating cash flow increased by 29% to €3,327 million. The cash flow margin increased to 12.0%. Cash flow before acquisitions and dividends increased by 48% to €1,865 million.
BALANCE SHEET. Total assets increased by 9% to €43,170 million, mainly due to currency translation effects. Total shareholders' equity, including noncontrolling interest, increased by 16% to €18,003 million. As of December 31, 2015, the net debt / EBITDA ratio was 2.683 (December 31, 2014: 3.243,4).
FRESENIUS SHARE. Fresenius shares continued their excellent performance in 2015, reaching a record high of €69.75 in November. With an increase of 53%, Fresenius significantly outperformed the DAX. In September 2015, Fresenius joined the EURO STOXX 50.
After a strong start to the year, volatility in the equity markets increased significantly. This was mainly due not just to the debt crisis in Greece, which came to a peak, but also to signs of an economic slowdown in China and investors' fears of weaker growth in the emerging markets as a whole. In addition, the markets were weighed down by uncertainty regarding an impending interest rate hike by the U.S. Federal Reserve Bank (Fed), which ultimately raised the federal funds rate in December to a range of 0.25% to 0.5%.
The DAX increased by 10%; the EURO STOXX 50 gained 4% for the year. The European Dow Jones Stoxx 600 index ended the year up by 7%. In this index, the subsector health care gained 14%. The leading U.S. indices performed out of the line: the S & P 500 fell by 1%, while the Dow Jones Industrial Average decreased by 2%.
The Fresenius share continued its impressive development: the closing price for the Fresenius share on December 31, 2015, was €65.97. This represents a gain of 53% over the closing price of 2014, which means that the Fresenius share was the third-strongest performer in the DAX.
In a comparison over five years, the Fresenius share outperformed its benchmark DAX by 160 percentage points. While the DAX rose by 55% over this period, the Fresenius share gained 215%.
The market capitalization of Fresenius was €36.0 billion as of December 31, 2015, an increase of 54% compared to the previous year. The average daily trading volume on Xetra increased by 21% to 1,390,878 Fresenius shares compared to the previous year (2014: 1,153,022). DAX trading volume increased by 10% in the same time period.
In the United States, Fresenius has a Sponsored Level I American Depositary Receipt (ADR) program. In this program, four Fresenius ADRs correspond to one Fresenius share. The ADRs are traded in the OTCQX International Premier market segment.
On September 21, 2015, Fresenius SE & Co. KGaA was included in the EURO STOXX 50 index. The EURO STOXX 50 index tracks the share price development of 50 large publicly traded companies, representing various economic sectors.
The total number of issued shares at the end of 2015 was 545,727,950 (December 31, 2014: 541,532,600 shares). The increase is due to the exercise of options under the stock option plans. Information on stock option plans can be found on pages 169 to 177 of the Notes to this Annual Report.
| 2015 | 2014 | 2013 | 2012 | 2011 | |
|---|---|---|---|---|---|
| Number of shares | 545,727,950 | 541,532,600 | 539,084,487 | 534,564,780 | 489,712,008 |
| Stock exchange quotation1 in € |
|||||
| High | 69.75 | 44.12 | 37.31 | 32.12 | 25.20 |
| Low | 42.41 | 35.00 | 27.30 | 24.02 | 19.96 |
| Year-end quotation | 65.97 | 43.16 | 37.20 | 29.03 | 23.82 |
| Market capitalization2 in million € |
36,002 | 23,373 | 20,054 | 15,520 | 11,668 |
| Total dividend distribution in million € | 300.23 | 238.3 | 224.6 | 196.0 | 155.1 |
| Dividend per share in € | 0.553 | 0.44 | 0.42 | 0.37 | 0.32 |
| Earnings per share in € | 2.614 | 2.014 | 1.964 | 1.814 | 1.585 |
1 Xetra closing price on the Frankfurt Stock Exchange
2 Total number of ordinary shares multiplied by the respective Xetra year-end quotation on the Frankfurt Stock Exchange (ordinary and preference shares until January 28, 2011) 3 Proposal
4 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2012 – 2015 before special items
5 Before effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and Contingent Value Rights (CVR) relating to the acquisition
of APP Pharmaceuticals; net income attributable to shareholders of Fresenius SE & Co. KGaA
In 2015, Fresenius again delivered excellent financial results. For the 23rd consecutive year, we are proposing to our shareholders to increase the dividend – by 25% per share, to €0.55 (2014: €0.44). The total proposed dividend distribution will be €300 million, equivalent to 21% of Group net income before special items. Based on the proposed dividend and the closing price at the end of 2015, the dividend yield is 0.8%.
Fresenius shares are an attractive investment. Anyone who invested €1,000 five years ago and reinvested the dividends would have increased their capital to €3,276 as of December 31, 2015. That is an average annual return of 27% (before expenses and taxes).
The charts below show the shareholder structure by the end of 2015. The Else Kröner-Fresenius Foundation was the largest shareholder of Fresenius SE & Co. KGaA, with 26.51% of the shares. According to the latest notifications pursuant to the German Securities Trading Act (WpHG), BlackRock, Inc. held 4.95%, Allianz Global Investors GmbH 4.68%, and Henderson Group Holdings Asset Management Limited 3.01% of the shares. For further information on these notifications, please visit www.fresenius.com/shareholder-structure.
As of December 31, 2015, a shareholder survey identified the ownership of about 93% of our subscribed capital. The shareholder base of Fresenius is solid: a total of more than 560 institutional investors held about 335.6 million shares or 61% of subscribed capital; 27.8 million shares were identified as
Fresenius Share
retail holdings. The top-ten investors held about 21% of the share capital. Our shares were mostly held by investors in Germany, the United States, and Great Britain.
The recommendations published by financial analysts are an important guide for institutional as well as private investors when making investment decisions. According to our survey, as of February 23, 2016, we were rated with 12 "buy," 10 "hold," and no "sell" recommendations.
The list of banks that provide regular analyst coverage of Fresenius and their latest recommendations can be found at www.fresenius.com/analysts.
Our Investor Relations activities are in accordance with the transparency rules of the German Corporate Governance Code. We communicate comprehensively, promptly, and openly with private and institutional investors, as well as financial analysts. The equal treatment of all market actors is very important to us.
We intensified our dialog with the capital markets in 2015. In addition to its quarterly conference calls and webcasts, Fresenius gave presentations in all the major European and U.S. financial markets. We expanded our contacts with
institutional investors and analysts at 29 international investor conferences, 17 roadshows, and in numerous one-on-one meetings. We also organized field trips with banks, giving investors and analysts the opportunity to discuss matters with the Management Board.
We also continued the dialog with our private investors, especially via the Internet. At www.fresenius.com/events-andpresentations our private shareholders can follow live webcasts of the conference calls and can use our continuously increased information offer on our website.
If you would like to contact us or find out about our 2016 financial calendar, please take a look at the last page of this report or visit us at www.fresenius.com/investors.
Fresenius medical care. In 2015, Fresenius Medical Care again achieved strong organic sales growth of 6%. The increase of 13% in North America was especially positive. Currency developments weighed on sales and earnings growth outside North America.
Fresenius Medical Care is the world's leading provider of dialysis products and services. When the kidney function of patients with this disease fails, dialysis takes over the vital task of cleansing the blood of toxins and surplus water. As a vertically integrated company, Fresenius Medical Care offers services and dialysis products along the entire dialysis value chain in over 120 countries. Fresenius Medical Care has a worldwide network of 37 production sites. We further expanded our leading market position in 2015: we treated 294,381 patients in 3,418 dialysis clinics worldwide. The number of treatments increased by 4% to 44.6 million.
Fresenius Medical Care increased sales by 6% to US\$16,738 million in 2015 (2014: US\$15,832 million). Organic sales growth was 6%. Acquisitions contributed 6%, divestitures reduced sales by 1%. Currency effects negatively affected sales by 5%.
Health care services sales (dialysis services and care coordination) increased by 9% (13% in constant currency) to US\$13,392 million (2014: US\$12,250 million). Dialysis product sales decreased by 7% (increased by 4% in constant currency) to US\$ 3,346 million (2014: US\$3,582 million).
EBIT increased by 3% to US\$2,327 million (2014: US\$2,255 million). The EBIT margin was 13.9% (2014: 14.2%). Based on the agreement in principle to resolve the GranuFlo®/ NaturaLyte® product liability litigation, Fresenius Medical Care expects a pre-tax financial impact of US\$60 million from the settlement. Before one-time items 1 , EBIT increased by 5% to US\$2,388 million.
Net income 2 decreased by 2% to US\$1,029 million (2014: US\$1,045 million). Before one-time items 3 , net income increased by 2% to US\$1,082 million.
| US\$ in millions | 2015 | 2014 | Change | Currency translation effects |
% of total Fresenius Medical Care sales |
|---|---|---|---|---|---|
| North America | 11,813 | 10,500 | 13% | 0% | 70% |
| Europe/ Middle East/ Africa | 2,629 | 3,072 | -14% | -17% | 16% |
| Asia-Pacific | 1,502 | 1,357 | 11% | -9% | 9% |
| Latin America | 766 | 836 | -8% | -21% | 5% |
| Corporate | 28 | 67 | -58% | -8% | 0% |
| Total | 16,738 | 15,832 | 6% | -5% | 100% |
2 Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA
1 2015 before settlement costs for an agreement in principle for GranuFlo® / NaturaLyte® case (-US\$60 million before tax), before divestiture of dialysis business in Venezuela (-US\$26 million before tax) and European pharmaceutical business (US\$25 million before tax); 2014 before closing of manufacturing plant (-US\$16 million before tax)
3 2015 before settlement costs for an agreement in principle for GranuFlo® / NaturaLyte® case (-US\$37 million after tax), before divestiture of dialysis business in Venezuela (-US\$27 million after tax) and European pharmaceutical business (US\$11 million after tax); 2014 before closing of manufacturing plant (-US\$13 million after tax)
North America remained Fresenius Medical Care's largest business region. In 2015, sales grew by 13% to US\$11,813 million, compared to US\$10,500 million in 2014.
EBIT was US\$1,798 million (2014: US\$1,643 million). The EBIT margin was 15.2% (2014: 15.6%).
In 2015, the average revenue per treatment in the United States was US\$346, compared to US\$342 in 2014. The average cost per treatment in the United States decreased from US\$280 in 2014 to US\$279 in 2015.
In 2015, the business development outside of North America, i.e., in the business segments EMEA (Europe/Middle East/ Africa), Asia-Pacific, and Latin America, was impacted by currency translation effects. Sales decreased by 7% to US\$4,897 million (2014: US\$5,265 million). EBIT was US\$923 million (2014: US\$970 million). The EBIT margin was 18.8% (2014: 18.4%).
In 2015, the focus at Fresenius Medical Care was on the further expansion of the hospital network and the integration of the acquisitions made in 2014 in the Care Coordination area in North America.
We sold our service business in Venezuela due to the difficult economic situation in that country. This resulted in a non-tax-deductible loss of US\$26 million (before taxes). We continue to sell our dialysis products there. In addition, we sold our European pharmaceutical business in 2015, which resulted in a gain of US\$25 million (before taxes).
| US\$ in millions | 2015 | 2014 | Change |
|---|---|---|---|
| North America | |||
| Health care services 1 | 10,932 | 9,655 | 13% |
| Dialysis products | 881 | 845 | 4% |
| Total | 11,813 | 10,500 | 13% |
| International 2 | |||
| Health care services 1 | 2,460 | 2,595 | -5% |
| Dialysis products | 2,437 | 2,670 | -9% |
| Total | 4,897 | 5,265 | -7% |
| Worldwide | |||
| Health care services 1 | 13,392 | 12,250 | 9% |
| Dialysis products 3 | 3,346 | 3,582 | -7% |
| Total | 16,738 | 15,832 | 6% |
1 Sales from dialysis services and Care Coordination
2 International represents the business segments EMEA (Europe/ Middle East/ Africa), Asia-Pacific, and Latin America
3 Including sales generated by corporate functions of US\$28 million in 2015 and US\$67 million in 2014
Again in 2015, physicians and clinical staff in our dialysis clinics offered patients the highest-quality treatment, illustrated by clinical quality parameters shown in the table below. Please see page 30 of the Management Report for further details on treatment quality.
Please refer to page 56 of the Management Report for the 2016 financial outlook of Fresenius Medical Care. For further information, please see Fresenius Medical Care's Annual Report 2015 or visit the website at www.freseniusmedicalcare.com.
| North America | Europe/ Middle East/ Africa |
Latin America | Asia-Pacific | Total 2015 |
Change 2015/2014 |
|
|---|---|---|---|---|---|---|
| Dialysis clinics (December 31) | 2,210 | 659 | 229 | 320 | 3,418 | 2% |
| Dialysis patients (December 31) | 182,852 | 54,857 | 30,200 | 26,472 | 294,381 | 3% |
| Treatments | 27,686,877 | 8,211,464 | 4,907,181 | 3,790,924 | 44,596,446 | 4% |
QUALITY Parameters OF FRESENIUS MEDICAL CARE PATIENTS 1
| USA | EMEA | Latin America | Asia-Pacific | |||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Kt/V ≥1.2 | 98% | 96% | 96% | 95% | 92% | 90% | 97% | 97% |
| Hemoglobin = 10 – 12 g/dl | 72% | 74% | 77% | 76% | 52% | 50% | 60% | 60% |
| Hemoglobin = 10 – 13 g/dl | 78% | 80% | 77% | 77% | 69% | 66% | 68% | 69% |
| Albumin ≥3.5 g/dl 2 | 81% | 83% | 92% | 92% | 90% | 90% | 89% | 91% |
| Phosphate ≤5.5 mg/dl 2 | 64% | 64% | 79% | 79% | 75% | 75% | 72% | 70% |
| Hospitalization days | 10.03 | 10.33 | 9.5 | 9.4 | 3.5 | 3.2 | 4.2 | 4.3 |
1 Data refer to the last quarter
2 International standard BCR CRM470
3 U.S. hospitalization data source was revised in 2015, therefore the numbers for 2014 were restated.
Fresenius Kabi. Our business grew across all regions in 2015. The strong growth in North America and in the emerging markets deserves special mention. Organic sales growth of 8% and EBIT growth of 36% significantly exceeded original expectations.
Fresenius Kabi specializes in the therapy and care of chronically and critically ill people. The portfolio includes IV drugs, i.e., intravenously administered generic anesthetics, analgesics, anti-infectives, and drugs for the treatment of oncological and other critical diseases. Another product segment is clinical nutrition. In this segment, we are one of the few companies worldwide that offer both parenteral and enteral nutrition products. The infusion therapy portfolio includes infusion solutions and blood volume substitutes.
In the medical devices /transfusion technology segment, we offer infusion and nutrition pumps, as well as consumables, for the administration of pharmaceuticals and clinical nutrition products. Moreover, our portfolio includes products used in the collection and processing of blood components, as well as in transfusion medicine.
Sales increased by 16% to €5,950 million in 2015. Of this, 8% was attributable to organic sales growth and 1% to acquisitions. Divestitures reduced sales by 2%. Positive currency translation effects (9%) were mainly related to the euro's depreciation against the U.S. dollar and the Chinese yuan.
In Europe, we achieved organic sales growth of 4%. In North America, organic sales growth was 16%, driven by persisting IV drug shortages and new product launches. Fresenius Kabi also showed strong overall growth in the emerging markets. We achieved organic sales growth of 15% in Latin America. In Asia-Pacific, organic sales growth of 10% to €707 million in China is worth special mention.
| € in millions | 2015 | 2014 | Change | Currency translation effects |
% of total Fresenius Kabi sales |
|---|---|---|---|---|---|
| Europe | 2,123 | 2,102 | 1% | 0% | 36% |
| North America | 2,093 | 1,531 | 37% | 21% | 35% |
| Asia-Pacific | 1,141 | 987 | 16% | 14% | 19% |
| Latin America/ Africa | 593 | 526 | 13% | -4% | 10% |
| Total | 5,950 | 5,146 | 16% | 9% | 100% |
| € in millions | 2015 | 2014 | Organic sales growth |
|---|---|---|---|
| IV drugs | 2,429 | 1,813 | 18% |
| Clinical nutrition | 1,560 | 1,384 | 7% |
| Infusion therapy | 914 | 977 | 1% |
| Medical devices / | |||
| Transfusion technology | 1,047 | 972 | 0% |
| Total | 5,950 | 5,146 | 8% |
EBIT1 rose by 36% to €1,189 million. Currency translation had a positive effect of 15%.
| € in millions | 2015 | 2014 | Change |
|---|---|---|---|
| Europe | 352 | 345 | 2% |
| North America | 798 | 557 | 43% |
| Asia-Pacific / Latin America/ Africa |
314 | 239 | 31% |
| Administrative and corporate R & D expenses |
-275 | -268 | 3% |
| EBIT 1 | 1,189 | 873 | 36% |
| EBIT margin1 | 20.0% | 17.0% | |
| Net income 2 | 669 | 468 | 43% |
1 Before special items
2 Net income attributable to the shareholders of Fresenius Kabi AG; before special items
Fresenius Kabi's initiatives to increase production efficiency and streamline administrative structures were well on track. The main project is the centralization and cost reduction in our blood bag production in Europe.
Costs of €105 million before tax were incurred in the year under review. These costs are reported in the Group segment Corporate/Other.
In the year under review, we sold our oncology compounding business in Germany and in Australia. Fresenius Kabi will remain active in compounding, but in the future the focus will be on parenteral nutrition products, an area that offers the most attractive growth opportunities.
In the generic IV drugs segment, we expanded our product portfolio to additional regional markets. In the United States, we introduced eight IV drugs in the year under review. Worldwide, we introduced over 80 IV drugs. In addition, we are continuously working on offering our products in packaging that is especially user-friendly and safe.
In clinical nutrition, we expanded the global market presence of our three-chamber bag for parenteral nutrition. For example, we successfully introduced SmofKabiven in Mexico. We also introduced the trace element Addaven in 16 countries. In enteral nutrition, we are seeing success in Europe, especially with our sip feed products, due to the continuous expansion of our range of new flavors and textures.
In the infusion therapy product segment, we were able to help alleviate shortages in the supply of infusion products on the basis of a temporary import permit granted by the U.S. Food and Drug Administration (FDA).
In the medical devices/transfusion technology segment, we increased U.S. sales of our infusion pump Agilia in the year under review. We received CE approval for our Agilia products ProNeo, Homecare and Connect. We introduced our product CATSmart in Europe, Australia, and the Middle East. CATSmart is a device for collecting and processing the patient's own blood and is used during operations to reduce the amount of donor blood required. The new device stands out for its powerful data management and ease of use, among other features.
Please refer to page 56f. of the Management Report for the 2016 financial outlook of Fresenius Kabi. For further information, please see Fresenius Kabi's website at www.freseniuskabi.com.
Before special items
Fresenius Helios. In 2015, we continued the successful integration of the 41 hospitals acquired from Rhön-Klinikum AG. We also continuously improved our established business. Our sales and earnings targets were achieved.
Fresenius Helios is the leading hospital operator in Germany. At the end of 2015, the HELIOS Group operated 111 hospitals: 87 acute care hospitals, including 7 maximum care hospitals in Berlin-Buch, Duisburg, Erfurt, Krefeld, Schwerin, Wiesbaden, and Wuppertal, as well as 24 post-acute care clinics. In addition, it also operated 72 outpatient clinics, 5 outpatient post-acute care centers, 17 prevention centers, and 15 nursing homes. The Group has more than 34,000 beds and treats over 4.7 million patients – including approximately 1.3 million inpatients – each year.
In 2015, Fresenius Helios increased sales by 6% to €5,578 million, positively influenced by the full-year consolidation of the acquired hospitals from Rhön-Klinikum AG (2014: €5,244 million). Organic sales growth was 3%. Acquisitions contributed 4%. Divestitures reduced sales by 1%.
The acute care hospitals accounted for 91% of sales (2014: 90%), while the post-acute care clinics accounted for 6% (2014: 7%). 3% was attributable to other revenues (2014: 3%).
Fresenius Helios increased EBIT 1 by 16% to €640 million (2014: €553 million). The EBIT margin1 was 11.5% (2014: 10.5%). The increase is attributable both to the successful integration of the acquired hospitals from Rhön-Klinikum AG and to continuous improvements of the established business. Net income 2 increased by 21% to €483 million (2014: €400 million).
| € in millions | 2015 | 2014 | Change |
|---|---|---|---|
| Sales | 5,578 | 5,244 | 6% |
| thereof acute care | 5,080 | 4,736 | 7% |
| thereof post-acute | |||
| care | 348 | 344 | 1% |
| EBIT 1 | 640 | 553 | 16% |
| EBIT margin1 in % |
11.5 | 10.5 | |
| Net income 2 | 483 | 400 | 21% |
Before special items
2 Net income attributable to HELIOS Kliniken GmbH, before special items
Sales of the established hospitals (consolidation > 1 year) grew by 3% to €5,379 million (2014: €5,222 million). EBIT 1 increased by 15% to €631 million (2014: €551 million). The EBIT margin1 was 11.7% (2014: 10.6%).
The acquired hospitals (consolidation ≤ 1 year) achieved EBIT 1 of €9 million with an EBIT margin1 of 4.5%.
We have established a six-year development plan for acute care and post-acute care clinics acquired. The development plan provides for the EBIT margin to improve by two percentage points each year until the target margin of 12% to 15% is achieved. The current status is shown in the table beside.
2 Net income attributable to HELIOS Kliniken GmbH, before special items
In 2015, Fresenius Helios continued the successful integration of the 41 hospitals acquired from Rhön-Klinikum AG. The associated integration costs totaled €63 million. The targeted synergies of €85 million per year will be fully realized starting from spring 2016.
As of April 1, 2015, HELIOS acquired a majority holding in the specialist lung clinic Diekholzen. The clinic has 66 beds, 126 employees, and works closely with the nearby HELIOS hospitals. HELIOS now operates 17 acute care and post-acute care clinics in Lower Saxony, making it the largest private hospital operator in that state.
HELIOS also acquired the women's clinic of the St. Anna hospital in Wuppertal in April 2015. With a total of 91 beds, the hospital has one of the largest gynecology and obstetrics wards in North Rhine-Westphalia.
In addition, HELIOS expanded its outpatient clinic network from 49 to 72 in 2015.
Due to the acquired hospitals, as well as to the broad range of services and high treatment quality of HELIOS – the number of inpatients and outpatients treated increased further in 2015:
| 2015 | 2014 | Change | |
|---|---|---|---|
| Inpatient and semi inpatient admissions |
1,251,982 | 1,207,195 | 4% |
| Acute care hospitals | 1,193,423 | 1,148,473 | 4% |
| Post-acute care clinics |
58,559 | 58,722 | 0% |
| Outpatient admissions | 3,488,045 | 3,362,292 | 4% |
Key structural data and performance indicators developed as follows:
| 2015 | 2014 | Change | |
|---|---|---|---|
| Acute care hospitals | 87 | 86 | 1% |
| Beds | 28,914 | 29,068 | -1% |
| Length of stay (days) | 6.4 | 6.6 | -3% |
| Post-acute care clinics | 24 | 24 | 0% |
| Beds | 5,162 | 5,120 | 1% |
| Length of stay (days) | 26.4 | 26.5 | 0% |
| Occupancy | 82% | 83% |
In 2015, Fresenius Helios invested a total of €480 million (2014: €1,185 million). Of this amount, €99 million accounted for acquisitions and €381 million primarily for new buildings and the modernization of the hospitals in Duisburg, Schleswig, Hamburg, Stralsund, and Wiesbaden. Own investments were €277 million, about 5% of sales.
| € in millions | 2015 | 2014 | Change |
|---|---|---|---|
| Investments | 480 | 1,185 | -59% |
| Own investments (property, plant and equipment) |
277 | 266 | 4% |
| Subsidies 1 (property, plant and equipment) |
104 | 95 | 9% |
| Acquisitions | 99 | 824 | -88% |
1 Total of purpose-related public investment subsidies
according to Section 9 of the Hospital Funding Act (KHG)
Please refer to page 56f. of the Management Report for the 2016 financial outlook of Fresenius Helios. For further information, please see Fresenius Helios' website at www.helios-kliniken.de.
| Years in portfolio | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| <1 | 1 | 2 | 3 | 4 | 51 | 6 | >6 | Total 1 | |
| Number of clinics | 1 | – | – | 12 | 3 | 40 | – | 55 | 111 |
| Sales in million € | 7 | – | – | 410 | 173 | 2,002 | – | 2,837 | 5,429 |
| Target | |||||||||
| EBIT margin in % | – | 2.0 | 4.0 | 6.0 | 8.0 | 10.0 | 12.0 | 12.0 – 15.0 | |
| EBIT in million € | – | – | – | 24.6 | 13.8 | 200.2 | – | 340.5 | 579.1 |
| Reported | |||||||||
| EBIT margin in % | 6.2 | – | – | 9.8 | 6.9 | 10.4 | – | 13.2 | 11.7 |
| EBIT in million € | 0.4 | – | – | 40.1 | 11.9 | 207.9 | – | 373.3 | 633.6 |
| Number of clinics > target | – | – | – | 8 | 1 | 19 | – | 25 | 53 |
| Number of clinics < target | – | – | – | 4 | 2 | 21 | – | 30 | 57 |
Reported figures according to IFRS
1 Includes all hospitals acquired from Rhön-Klinikum AG; EBIT includes €12 million integration costs allocated to individual hospitals
Fresenius vamed. We generated strong sales and EBIT growth in 2015. The service business developed exceptionally well. This stabilized our business and, together with the new record high in order intake and backlog, forms an excellent basis for future growth.
Fresenius Vamed manages projects and provides services for hospitals and other health care facilities worldwide. Our portfolio ranges along the entire value chain: from project development, planning, and turnkey construction, via maintenance and technical management, to total operational management, as illustrated in the diagram on page 19. Our offerings target different areas of health care, from prevention to acute care, post-acute care, and outpatient care. This range of competencies enables us to support complex health care facilities efficiently and successfully at each stage of their life cycle. As a specialist provider that can deliver the full spectrum of services worldwide, VAMED is in a unique position. We have successfully completed more than 760 projects in 78 countries.
In 2015, Fresenius Vamed increased sales by 7% to €1,118 million (2014: €1,042 million). Organic growth made a 6% contribution to this increase, and currency translation effects contributed 1%. Acquisitions had no major impact on sales.
| € in millions | 2015 | 2014 | Change | % of total Fresenius Vamed sales |
|---|---|---|---|---|
| Europe | 833 | 807 | 3% | 74% |
| Africa | 96 | 117 | -18% | 9% |
| Asia-Pacific | 156 | 85 | 84% | 14% |
| Latin America | 33 | 33 | 0% | 3% |
| Total | 1,118 | 1,042 | 7% | 100% |
The table shows the sales development by activity:
| € in millions | 2015 | 2014 | Change | % of total sales |
|---|---|---|---|---|
| Project business | 575 | 558 | 3% | 51% |
| Service business | 543 | 484 | 12% | 49% |
EBIT grew by 8% to €64 million (2014: €59 million). The EBIT margin was unchanged at 5.7%. In the project business, EBIT was €25 million (2014: €27 million), and in the service business it increased to €39 million (2014: €32 million). Net income 1 improved to €44 million, an increase of 7% (2014: €41 million).
Our business has a low capital intensity. This is reflected in the share of property, plant and equipment in the balance sheet of 18% and the pre-tax return on equity of 19.4% (2014: 20.4%).
The project business comprises the consulting, project development, planning, turnkey construction, and financing management of projects. VAMED responds flexibly to the local needs of clients, providing custom-tailored solutions all from one source. We also carry out projects in cooperation with partners. VAMED is a pioneer in public-private partnership (PPP) models. As of the end of 2015, 23 of these models have been or are now being implemented.
In Europe, VAMED continued its positive development. In summer 2015, we began the modernization of the University Hospital of Schleswig-Holstein/Germany (UKSH). This contract also includes technical management by VAMED for 30 years.
It is the largest PPP model in the German health care sector. In Austria, we opened the Landesklinikum Neunkirchen after only two years of construction. The post-acute care clinic Zihlschlacht in Switzerland was expanded. In Poland, we successfully entered the market with the assignment of general planning and supply of medical equipment for the University Hospital in Krakow.
In Africa, VAMED's activities include the expansion and modernization of a university hospital in Ghana. We were able to complete the General Hospital in Libreville, Gabon, by the end of the year. In the Middle East and Far East regions, we received new contracts in Oman and the United Arab Emirates. As part of a life cycle project, VAMED will provide all services for an integrated health center with an acute care hospital, post-acute care clinic, and center for primary care in Abu Dhabi, including planning, construction, supply of medical equipment, and total operational management. In Laos, we are modernizing and expanding a hospital. In Latin America, VAMED is managing new medical equipment projects in Nicaragua and Peru.
| € in millions | 2015 | 2014 | Change |
|---|---|---|---|
| Order intake | 904 | 840 | 8% |
| Order backlog | |||
| (December 31) | 1,650 | 1,398 | 18% |
VAMED offers a full range of facility management services for health care facilities. Modular in design, our service offering encompasses every aspect of technical, commercial, and infrastructural facility management. This ranges from building and equipment maintenance, medical technology management, and technical management through to the operational management. Our integrated portfolio of services is aimed at the optimal operation of a health care facility.
We were responsible for the total operational management of 54 health care facilities on four continents with more than 7,000 beds in 2015. In addition, as part of its technical operation services, VAMED provides services globally to more than 550 hospitals with approximately 135,000 beds.
In the major European markets, such as Germany, Austria, Switzerland, and Italy, VAMED signed new contracts. In Austria, we continued the partnership we have maintained since 1986 with Vienna's General Hospital (AKH), one of Europe's largest hospitals. Our 12 facilities make us the largest private rehabilitation provider in Austria. In Switzerland, VAMED operates two well-known post-acute care facilities. In Germany, we began providing technical services to UKSH in mid-2015. VAMED has also led a consortium responsible for all technical and infrastructural services at Berlin's Charité Hospital since 2006.
In China, as part of a life cycle project in Hainan, we signed a contract for the planning, equipment with medical technology and IT, as well as the total operational management of a private clinic. In addition, we established a training program for health management in Shanghai.
With approximately 3.1 million guests annually, VAMED Vitality World bridges the gap between preventive medicine and health care tourism. We are the market leader in Austria, with eight thermal spas and wellness resorts. We also operate Aqua World Budapest in Hungary, the largest thermal spa in the country. We continuously expand our range of services to include innovative offerings, such as our one-day holiday program. The expansion of Therme Laa, begun in 2015, combines modern architecture with innovative spa offerings.
Please refer to page 56f. of the Management Report for the 2016 financial outlook. For further information on VAMED, please see Fresenius Vamed's website at www.vamed.com.
MANAGEMENT REPORT. 2015 was an outstanding year for Fresenius. We fully met our guidance, exceeding €27.6 billion in sales and achieving €1.4 billion in net income. Operating cash flow margin was 12.0%.
Fresenius is a global health care group in the legal form of an SE & Co. KGaA (a partnership limited by shares). We offer products and services for dialysis, hospitals, and outpatient medical care. In addition, Fresenius focuses on hospital operations. We also manage projects and provide services for hospitals and other health care facilities worldwide.
The operating business comprises four business segments, all of which are legally independent entities managed by the operating parent company Fresenius SE & Co. KGaA. The business segments have a regional and decentralized structure.
▶ Fresenius Medical Care offers services and products for patients with chronic kidney failure. As of December 31, 2015, Fresenius Medical Care treated 294,381 patients at 3,418 dialysis clinics. Dialyzers, dialysis machines, and
Group structure
renal pharmaceuticals are among the most important product lines. In addition, Fresenius Medical Care offers dialysis-related services, among others in the field of Care Coordination.
Fresenius has an international sales network and maintains approximately 90 production sites. Large production sites are located in the United States, China, Japan, Germany, and Sweden. Production plants are also located in other European countries and in Latin America, Asia-Pacific, and South Africa.
Fresenius operates in about 80 countries through its subsidiaries. The main markets are North America and Europe with 46% and 38% of sales, respectively.
Fresenius Medical Care holds the leading position worldwide in dialysis care as it serves about 10% of all dialysis patients, as well as in dialysis products, with a market share of about 34%. Fresenius Kabi holds leading market positions in Europe and has significant market shares in the growth markets of Asia-Pacific and Latin America. In the United States, Fresenius Kabi is one of the leading suppliers of generic IV drugs. Fresenius Helios is the largest hospital operator in Germany. Fresenius Vamed is one of the world's leading companies in its field.
Overall, the legal and economic factors for the Fresenius Group were largely unchanged. The life-saving and life-sustaining products and therapies that the Group offers are of intrinsic importance for people worldwide. Therefore, our markets are fundamentally stable and relatively independent of economic cycles. For detailed information on our markets, please see pages 34ff.
Furthermore, the diversification across four business segments and our global reach provide additional stability for the Group.
The statement of income and the balance sheet can be influenced by currency translation effects as a result of exchange rate fluctuations, especially in the rate between the U.S. dollar and the euro. In 2015, the average annual exchange rate between the U.S. dollar and the euro of 1.11 was below the 2014 rate of 1.33, and therefore had a significant positive effect on the income statement. The changed spot rate of 1.09 as of December 31, 2015 – compared to 1.21 as of December 31, 2014 – also caused a significant increase on the balance sheet due to exchange rate effects.
There were no legal aspects that significantly affected business performance in 2015.
In the legal form of a KGaA, the Company's corporate bodies are the General Meeting, the Supervisory Board, and the general partner, Fresenius Management SE. Fresenius Management SE is wholly owned by Else Kröner-Fresenius-Stiftung. The KGaA has a two-tier management system – management and control are strictly separated.
The general partner, represented by its Management Board, conducts the business and represents the Company in dealings with third parties. The Management Board has seven members. According to the Management Board's rules of procedure, each member is accountable for his or her own area of responsibility. However, the members have joint responsibility for the management of the Group. In addition to the Supervisory Board of Fresenius SE & Co. KGaA, Fresenius Management SE has its own Supervisory Board. The Management Board is required to report to the Supervisory Board of Fresenius Management SE regularly, in particular on its corporate policy and strategies, business profitability, current operations, and any other matters that could be of significance for the Company's profitability and liquidity. The Supervisory Board of Fresenius Management SE also advises and supervises the Management Board in its management of the Company. It is prohibited from managing the Company directly. However, the Management Board's rules of procedure require it to obtain the approval of the Supervisory Board of Fresenius Management SE for specific activities.
The members of the Management Board are appointed and dismissed by the Supervisory Board of Fresenius Management SE. Appointment and dismissal is in accordance with Article 39 of the SE Regulation. The articles of association of Fresenius Management SE also provide that deputy members of the Management Board may be appointed.
The Supervisory Board of Fresenius SE & Co. KGaA advises and supervises the management of the Company's business by the general partner, reviews the annual financial statements and the consolidated financial statements, and performs the other functions assigned to it by law and the Company's articles of association. It is involved in corporate planning and strategy, and in all matters of fundamental importance for the Company. The Supervisory Board of Fresenius SE & Co. KGaA has six shareholder representatives and six employee representatives. A Nomination Committee of the Supervisory Board of Fresenius SE & Co. KGaA has been instituted for election proposals for the shareholder representatives. Its activities are aligned with the provisions of law and the Corporate Governance Code. The shareholder representatives are elected by the General Meeting of Fresenius SE & Co. KGaA. The European works council elects the employee representatives to the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board must meet at least twice per calendar half-year. The Supervisory Board of Fresenius SE & Co. KGaA has two permanent committees: the Audit Committee, consisting of five members, and the Nomination Committee, consisting of three members. The members of the committees are listed on page 189 of this Annual Report. The Company's annual corporate governance declaration describes the procedures of the Supervisory Board's committees. The declaration can be found on pages 69 to 93 of the Annual Report and on the website www.fresenius.com.
The description of both the compensation system and individual amounts paid to the Management Board and Supervisory Board of Fresenius Management SE, and the Supervisory Board of Fresenius SE & Co. KGaA, are included in the Compensation Report on pages 81 to 93 of the annual report. The Compensation Report is part of the Group's Management Report.
The subscribed capital of Fresenius SE & Co. KGaA amounted to 545,727,950 ordinary shares as of December 31, 2015 (December 31, 2014: 541,532,600).
The shares of Fresenius SE & Co. KGaA are non-par-value bearer shares. Each share represents €1.00 of the capital stock. Shareholders' rights are regulated by the German Stock Corporation Act (AktG – Aktiengesetz).
Fresenius Management SE, as general partner, is authorized, subject to the consent of the Supervisory Board of Fresenius SE & Co. KGaA:
▶ to increase the subscribed capital of Fresenius SE & Co. KGaA by a total amount of up to €120.96 million, until May 15, 2019, through a single or multiple issuance of new bearer ordinary shares against cash contributions and / or contributions in kind (Authorized Capital I). Shareholders' pre-emptive rights of subscription can be excluded.
In addition, there are the following Conditional Capitals, of which the Conditional Capitals I and II are adjusted for stock options that have been exercised in the meantime:
The Company is authorized, until May 15, 2019, to purchase and use its own shares up to a maximum amount of 10% of the subscribed capital. In addition, when purchasing own shares, the Company is authorized to use equity derivatives
with possible exclusion of any tender right. The Company had not utilized these authorizations as of December 31, 2015.
As the largest shareholder, Else Kröner-Fresenius-Stiftung informed the Company on December 18, 2015, that it held 144,695,094 ordinary shares of Fresenius SE & Co. KGaA. This corresponds to an equity interest of 26.51% as of December 31, 2015.
Amendments to the articles of association are made in accordance with Section 278 (3) and Section 179 (2) of the German Stock Corporation Act (AktG) in conjunction with Section 17 (3) of the articles of association of Fresenius SE & Co. KGaA. Unless mandatory legal provisions require otherwise, amendments to the articles of association require a simple majority of the subscribed capital represented in the resolution. If the voting results in a tie, a motion is deemed rejected. Furthermore, in accordance with Section 285 (2) sentence 1 of the German Stock Corporation Act (AktG), amendments to the articles of association require the consent of the general partner, Fresenius Management SE. The Supervisory Board is entitled to make such amendments to the articles of association that only concern their wording without a resolution of the General Meeting.
Under certain circumstances, a change of control as the result of a takeover bid could impact some of our long-term financing agreements, which contain customary change of control provisions that grant creditors the right to terminate agreements early or to request early repayments of outstanding amounts in case of a change of control. These termination rights partly become effective if the change of control is followed by a decline of the Company's rating or of the respective financing instruments.
Our goal is to strengthen the position of Fresenius as a leading global provider of products and therapies for critically and chronically ill people. With our four business segments, we are concentrating on a limited number of health care areas. Thanks to this clear focus, we have developed unique competencies. We are following our long-term strategies consistently and are seizing our opportunities.
The key elements of Fresenius Group's strategy and goals are to:
▶ Expand market position and worldwide presence: Fresenius seeks to ensure and expand its long-term position as a leading international provider of products and services in the health care industry. To this end, and to geographically expand our business, we plan to grow organically as well as through selective small to medium-sized acquisitions, complementing our existing portfolio. We focus on markets with strong growth rates.
Fresenius Medical Care is the worldwide leader in dialysis, with a strong market position in the United States. Future opportunities in dialysis will arise from further international expansion in dialysis care and products, as well as the expansion in the field of Care Coordination. In this area, Fresenius Medical Care offers additional services for dialysis patients. These include, e.g., vascular care services, laboratory services as well as hospitalist and intensivist services. In 2015, Fresenius Medical Care has significantly strengthened this area through several acquisitions. By expanding its business, the company addresses a growing need for integrated patient care.
Fresenius Kabi is the market leader in infusion therapy and clinical nutrition in Europe and in the key markets in Asia-Pacific and Latin America. In the United States, Fresenius Kabi is one of the leading players in the market for generic IV drugs. In addition, Fresenius Kabi is one of the most important providers of transfusion technology. Fresenius Kabi plans to roll out products from its existing portfolio to the growth markets and to launch existing products in the United States. Market share is to be expanded further through the launch of new products in the field of IV drugs and medical devices for infusion therapy and clinical nutrition, as well as in transfusion technology.
With 111 hospitals, Fresenius Helios is operating in nearly the whole of Germany. Building on this, Fresenius Helios is now in the position to develop new patient care models and take advantage of further growth opportunities arising from the privatization process in the German hospital market.
Fresenius Vamed will further expand its position as a global specialist for projects and services for hospitals and other health care facilities.
We report on our goals in detail in the Outlook section on pages 52 to 58.
The Management Board controls the business segments by setting strategic and operating targets and through financial ratios. The most important ratios are explained below.
In line with our growth strategy, sales growth (in constant currency) of the Group and, in our business segments, in particular organic sales growth are of central importance. EBIT, EBIT growth, and the EBIT margin, respectively, are useful yardsticks for measuring the profitability of the business segments. At Group level, we primarily use net income and net income growth to this end.
At Group level, operating cash flow and the cash flow margin are also used as key performance figures. With regard to the operating cash flow contributions of our business segments, we also analyze the key performance indicators days sales outstanding (DSO) and scope of inventory (SOI).
Our investments are controlled using a detailed coordination and evaluation process. As a first step, the Management Board sets the Group's investment targets and the budget based on investment proposals. In a second step, the respective business segments and the internal Acquisition & Investment Council (AIC) determine the proposed projects and measures while taking into account the overall strategy, the total investment budget, and the required and potential return on investment. The investment projects are evaluated based on commonly used processes, such as the internal rate of return (IRR) and net present value (NPV). Graduated according to investment volume, a project is submitted for approval to the executive committees or respective managements of the business segments, or to the Management Board of Fresenius Management SE or its Supervisory Board.
Another key performance indicator at the Group level is the leverage ratio, which is the ratio of net debt to EBITDA. This measure indicates how far a company is in a position to meet its payment obligations. Our business segments usually hold leading positions in growing and mostly non-cyclical markets. They generate mainly stable, predictable cash flows since the majority of our customers are of high credit quality. The Group is therefore able to finance its growth with a high proportion of debt compared to companies in other industries.
At Group level, we use return on operating assets (ROOA ) and return on invested capital (ROIC) as benchmarks for evaluating our business.
Product and process development as well as the improvement of therapies are at the core of our growth strategy. Fresenius focuses its R & D efforts on its core competencies in the following areas:
Apart from new products, we are concentrating on developing optimized or completely new therapies, treatment methods, and services.
Research and development expenses were €464 million (2014: €369 million), approximately 5.2% of our product sales (2014: 4.8%). Fresenius Medical Care increased its R & D spending by 37%, Fresenius Kabi increased its R & D spending by 22%. Detailed figures are included in the segment reporting on pages 100f.
As of December 31, 2015, there were 2,247 employees in research and development (2014: 2,107). Of that number, 671 were employed at Fresenius Medical Care (2014: 628) and 1,576 at Fresenius Kabi (2014: 1,479).
Our main research sites are in Europe, the United States, and India. Product-related development activities are also carried out in China. Our R & D projects are mainly conducted in-house; external research is commissioned only on a limited scale.
The complex interactions and side effects that lead to kidney failure are better explored today than ever before. Technological advances develop in parallel to improve the possibilities for treating patients. Our R & D activities at Fresenius Medical Care aim to translate new insights into novel developments and to bring them to market as quickly as possible, and thus make an important contribution towards rendering the treatment of patients increasingly comfortable, safe, and individualized.
With our global R & D portfolio management, we seek to standardize basic functions and single components of our therapy systems internationally and to standardize process and
control structures. This allows us to address local requirements, to reduce development time, and to bundle our resources. We benefit from our vertical integration in the development of new technologies and applications. It gives us access to the experiences of patients and specialized medical personnel.
In 2015, we moved forward with the development of our products and have introduced several innovative products onto the markets in which we are active. For example, we developed the multiFiltratePRO therapy system for continuous renal replacement therapy (CRRT). It is used mainly in the treatment of acute kidney failure in intensive care units. Other innovations include software that facilitates workflows in dialysis centers by providing easier access to patient and treatment data at the patient's bedside, improved centralized monitoring, and optimized treatment orders for individual patients.
The year 2016 will be marked by the launch of a new dialysis machine, our next-generation hemodialysis platform for the treatment of chronic renal failure. At the core of this system is an array of new technologies and inventions that combine user-friendliness and cost-efficiency with the highest treatment quality.
In the area of peritoneal dialysis, we are working with our partners to develop a portfolio of advanced technologies for Automated Peritoneal Dialysis (APD).
In addition, we develop products for the emerging markets that meet the highest quality requirements and are also affordable. In 2015, we opened our China Design Center in Shanghai as part of this effort.
Fresenius Kabi's research and development activities concentrate on products for the therapy and care of critically and chronically ill patients. Our products help to support medical advancements in acute and post-acute care and improve the patients' quality of life. Our development expertise includes all the related components, such as the drug raw material, the pharmaceutical formulation, the primary packaging, the medical device needed for application, and the production technology.
In the area of IV drugs, we are continuously working on the extension of our drug portfolio. Our aim is to launch new generic drug formulations directly after the patents of the branded products expire. We also develop new formulations for non-patented drugs. In 2015, we had around 112 active projects in the area of generics. We focus, among other items, on complex formulations such as active ingredients in liposomal1 solutions. We develop ready-to-use products that are especially convenient and safe, including, for example, prefilled syringes and ready-to-use solutions in our freeflex infusion bags.
Clinical nutrition provides care for patients who cannot nourish themselves normally or sufficiently. This includes, for example, patients in intensive care and those with serious or chronic illnesses or malnourishment. Early and correct intervention can help patients avoid malnutrition and its consequences.
In parenteral nutrition, we devote our efforts to products that make a significant contribution to improving clinical treatment and the nutritional condition of patients and to innovative containers such as multi-chamber bags that are safe
and convenient in everyday use. In 2015, we continued the development of, among other products, parenteral formulations designed specifically for the needs of individual patient groups. One example is a parenteral nutrition solution that addresses the protein needs of critically ill patients.
In enteral nutrition, we worked on sip feed products with high nutritional concentration in a range of flavors and textures. Patient acceptance and therapeutic compliance increases when the volume to be ingested is lowered as much as possible and when a variety of flavors and textures is available. In tube feed nutrition, we are developing concepts for products with high protein content for critically ill patients.
In the development of our medical devices /transfusion technology, we concentrate on the safe application of IV drugs and infusion therapies as well as enteral and parenteral nutrition products. In transfusion technology we are developing medical devices and disposables to support the secure, user-friendly, and efficient production of blood products. In 2015, we developed a version of our Agilia pumps for the home care area, as well as a remote alarm management system and a version for integration within the clinical network environment. We plan to introduce the extensions to the Agilia pumps in 2016.
The knowledge, experience, and commitment of our employees are critical to our success. For this reason, Fresenius values a culture of diversity. The interplay of a wide range of views, opinions, cultural backgrounds, experiences, and values helps us to achieve our full potential and contributes to our success.
of these ingredients to the location where they are needed within an organism.
| 2015 | 2014 | 2013 | 2012 | 2011 | |
|---|---|---|---|---|---|
| R & D expenses, € in millions | 464 | 369 | 348 | 305 | 267 |
| as % of product sales | 5.2 | 4.8 | 4.6 | 4.4 | 4.3 |
| R & D employees | 2,247 | 2,107 | 1,969 | 1,903 | 1,592 |
The number of employees increased to 222,305 employees at the end of 2015, which was 3% more than last year. The increase applies to all business segments.
Personnel expenses for the Fresenius Group were €10,862 million in 2015 (2014: €8,996 million), equivalent to 39.3% of sales (2014: 38.7%). The increase of 21% is mainly attributable to currency effects but also to acquisitions and wage scale progression due to tariff agreements. Personnel expenses per employee were at €49.3 thousand (2014: €42.7 thousand) and at €45.7 thousand in constant currency. In Germany, Fresenius companies have signed tariff agreements with IG BCE, Marburger Bund, as well as ver.di (labor union for services). There were no significant structural changes to compensation or employment agreements in 2015.
We are constantly adapting our human resources tools to meet new requirements arising from demographics, the transformation to a service economy, skills shortages, and the compatibility of job and family life. For example, we offer flexible working hours.
Part of our identity as a health care company includes creating the right conditions to foster the health of the employees.
In order to ensure that our long-term needs for highly qualified employees are met, and to recruit new employees, we make use of online personnel marketing and regularly participate in
recruiting events and careers fairs. In addition, we encourage long-term retention with attractive development programs.
The approaches and measures for employee recruitment and personnel development in the business segments are based on the market structure of each segment. They are coordinated, developed, and realized independently for each business segment.
We support the development of our employees' professional and personal skills across the Group through personal career talks as well as through our comprehensive range of training sessions and seminars. We continue to expand these at all hierarchy levels.
Fresenius promotes the long-term, sustainable advancement of women. At Fresenius, qualifications are the only thing that matters in the selection of personnel. Consequently, at Fresenius women and men with comparable qualifications will continue to have the same career opportunities. As of December 31, 2015, the proportion of female employees within the Fresenius Group was 68%. Women also held 30% of
| Number of employees | Dec. 31, 2015 | Dec. 31, 2014 | Change | % of total |
|---|---|---|---|---|
| Fresenius Medical Care | 110,242 | 105,917 | 4% | 50% |
| Fresenius Kabi | 33,195 | 32,899 | 1% | 15% |
| Fresenius Helios | 69,728 | 68,852 | 1% | 31% |
| Fresenius Vamed | 8,262 | 7,746 | 7% | 4% |
| Corporate/Other | 878 | 861 | 2% | 0% |
| Total | 222,305 | 216,275 | 3% | 100% |
senior management positions, based on the number of worldwide participants in the stock option plans. Detailed information on the statutory targets for the participation of women and men in management positions is available within the Corporate Governance Declaration pursuant to Section 289a of the German Commercial Code (HGB) on www.fresenius.com ("Corporate Governance" section) as well as on pages 78f. of this Annual Report.
The Fresenius Group devotes a lot of attention to vocational training. We trained more than 3,600 young people in 48 different occupations at our German locations in 2015, and also put more than 70 university students through 12 degree programs in cooperation with dual institutions of higher learning. Alongside the traditional channel of direct job entry, Fresenius offers trainee programs for university graduates.
You can visit our award-winning careers portal at www.career.fresenius.com.
For many years, we have paid a stock-based profit-sharing bonus that is tied to the annual operating profit (EBIT) of Fresenius Group. The table below shows the development in the profit-sharing bonus over the last several years.
With our Long Term Incentive Program 2013, we have a global compensation instrument linking management's entrepreneurial responsibility to future opportunities and risks. It comprises the Stock Option Plan 2013, as well as the Phantom Stock Plan 2013, and combines the granting of stock options with the granting of phantom stock awards. For further information on stock options, please see pages 169ff. of this Annual Report.
COST OF MATERIAL BY BUSINESS SEGMENT 1
Before consolidation
In 2015, the cost of raw materials and supplies and of purchased components and services was €7,973 million (2014: €7,053 million). The cost of raw materials and supplies was 13% above the previous year's level. The increase was mainly due to higher sales volume.
| € in millions | 2015 | 2014 |
|---|---|---|
| Cost of raw materials and supplies | 6,923 | 6,079 |
| Cost of purchased components and services | 1,050 | 974 |
| Total | 7,973 | 7,053 |
An efficient value chain is important for our profitability. In an environment characterized by ongoing cost-containment pressure from health insurers as well as price pressure, security and quality of supply play a crucial role. Within each business segment of the Fresenius Group, procurement processes are coordinated centrally, enabling us to bundle similar requirements, negotiate global framework agreements, constantly monitor market and price trends, and ensure the safety and quality of materials.
| 2014 | 2013 | 2012 | 2011 | 2010 | |
|---|---|---|---|---|---|
| Profit-sharing bonus 1 in € |
2,335 | 2,134 | 2,164 | 2,036 | 2,000 |
| Eligible employees 2 | 2,310 | 2,155 | 2,313 | 2,220 | 1,790 |
The profit-sharing bonus is paid retroactively for the respective fiscal year. It forms part of compensation in some German Group companies. Without eligible employees of Fresenius Medical Care AG & Co. KGaA
The quality of our products, services, and therapies is the basis for optimal medical care. All processes are subject to the highest quality and safety standards, for the benefit of the patients and to protect our employees. Our quality management has the following three main objectives:
As a life-saving treatment, the highest demands are placed on dialysis in terms of safety and quality. This applies both to the production of our dialysis products and to the administration of dialysis treatments in our own hospitals. For this reason, Fresenius Medical Care has established quality management systems at all production sites and dialysis clinics and we commission regular external audits on their use.
In Europe, the German technical certification organization TÜV audits our clinical organizations annually to verify their compliance with ISO 9001 for quality management and ISO 14001 for environmental management. In the United States, our clinics are monitored by the Centers for Medicare and Medicaid Services (CMS), a public health care authority. We also regularly review our quality management systems through internal audits.
We measure and compare our quality performance in our dialysis clinics using generally recognized quality standards. In addition to industry-specific clinical benchmarks, they include our own quality targets, set by Fresenius Medical Care, and linked to the services and advice we provide, for example. Fresenius Medical Care uses quality parameters that are generally recognized in the dialysis industry, e. g., the hemoglobin value.
The global quality management system at Fresenius Kabi is based on the internationally recognized ISO 9001 standard. This covers, for example, Good Clinical Practice (GCP), Good Manufacturing Practice (GMP), Good Distribution Practice (GDP), the Code of Federal Regulations (CFR) of the U.S. Food and Drug Administration (FDA), as well as the ISO 13485 quality management standard for medical devices. The global quality management system is certified and audited by TÜV. Our quality management comprises:
At Fresenius Kabi, inspections by regulatory authorities and audits by independent organizations and customers are performed along the entire value chain.
However, our quality management system does not just extend to internal processes. It also covers the application of our products and services by customers. In order to be able to receive information about their problems in a timely manner and deal with them appropriately, Fresenius Kabi has set up a global monitoring and reporting system (vigilance system). The responsible regulatory authorities monitor this system and keep an increasingly close eye on it in the interests of patient safety.
In 2015, we made further progress in transferring our quality management processes into electronic quality systems. These global systems support further harmonization of our processes and the availability of data for risk prevention.
The HELIOS quality management system has been further expanded and implemented at all hospitals acquired from Rhön-Klinikum AG. HELIOS has developed a method that combines the use of quality indicators with internal quality management measures. The quality of medical outcomes resulting from the different treatments is measured using key indicators compiled from administrative data and then made transparent on the basis of G-IQI quality indicators (German Inpatient Quality Indicators). The results are continuously monitored, and should statistical abnormalities arise, HELIOS examines these in a peer review process using patient data.
In addition, HELIOS is involved in the Initiative of Quality Medicine (IQM) to exchange ideas and knowledge with other hospital operators. IQM members are committed to observing three basic principles: quality measurement with administrative data, publication of results, and peer review processes. The IQM members provide acute care for approximately 5 million patients in 350 hospitals in Germany and Switzerland. In Germany, their share of acute care is 28%.
We have defined specific targets for 451 of the G-IQI quality indicators. These targets are set at a level above the national average for Germany. In 2015, we achieved this target for 41 quality indicators, a success rate of 91% (2014: 91%). If targets are not met, HELIOS analyzes the cases in the hospitals concerned in order to identify opportunities for improvement and to implement appropriate measures for all HELIOS hospitals. HELIOS has focused strongly on the area of hygiene in 2015. In addition to inspections by our hospital hygienists and the public health service, 3 of the 19 HELIOS peer review processes were carried out in this segment, for the first time.
We are convinced that transparency creates the best incentive for improvement. HELIOS provides full transparency for all quality data. For each acute care hospital, the results for medical treatment quality, results of patient surveys as well as key indicators in the field of hygiene are published on the website www.helios-kliniken.de. HELIOS exceeds mandatory legal requirements.
From 2016, a new national quality institute will rate the quality of care in German hospitals and publish comparative data. With its own quality management system, HELIOS is well prepared.
Indications / standardized mortality ratio
| (SMR 1 ) |
2015 SMR | 2014 SMR 2 | |
|---|---|---|---|
| Chronic obstructive pulmonary disease (COPD) |
0.76 | 0.71 | |
| Acute myocardial infarction (AMI) | 0.73 | 0.80 | |
| Heart failure | 0.63 | 0.67 | |
| Ischemic stroke | 0.85 | 0.88 | |
| Pneumonia 3 | 0.68 | 0.68 | |
| Hip fracture | 0.81 | 0.90 |
1 SMR 1 corresponds to the German average.
SMR < 1 = means that mortality is below the German average.
2 Adjusted for the current reference value of the German Federal Statistical Office,
and updated considering the hospitals acquired from Rhön-Klinikum AG 3 Adjusted for the final target indicator for pneumonia (G-IQI 14.2, version 4.2H)
More information can be found at: www.helios-kliniken.de/medizin/qualitaetsmanagement
In the planning and construction of hospitals, Fresenius Vamed sets high quality standards. In particular, these are aimed at optimizing processes by care level, and ensuring maximum flexibility in the use of buildings and wards.
Internally, Fresenius Vamed designs its processes for effi ciency and sustainability, using interdisciplinary quality standards. These standards are mostly based on the ISO 9001:2008, ISO 13485:2003, ISO 14001:2009, and ISO 15224:2012 standards, as well as the standards of the European Foundation for Quality Management (EFQM). EFQM honored VAMED, which is responsible for the technical operation of Vienna's General Hospital, with an "Excellence Award" for the fourth time in 2015.
For health care facilities, VAMED uses, alongside others, the certification model JCI (Joint Commission International). Four facilities managed by VAMED in the Czech Republic and Austria received this certification. These hospitals were certified to have the highest level of quality, firstly regarding patient care, secondly regarding hygiene and safety, and thirdly regarding patient and employee satisfaction.
We orient our activities within the Fresenius Group to longterm goals, and thus ensure that our work is aligned to the needs of patients and employees, as well as shareholders and business partners, in a sustainable manner. Our responsibility as a health care group goes beyond our business operations. We are committed to protecting nature as the basis
of life and using its resources responsibly. It is our mission to constantly improve our performance in the areas of environmental protection, occupational health and technical safety, and product responsibility and logistics, and to comply with legal requirements.
The international ISO Standard 14001 for environmental management is implemented at our various production plants and most of our dialysis clinics. Among other things, key environmental performance indicators are, for instance, not only energy and water consumption, but also the volumes of waste and recycling rates at our locations.
In Europe, our production sites are subject to the EU regulation REACH (Registration, Evaluation, and Authorization of CHemicals). The aim of REACH is to protect human health and the environment against hazards and risks from chemical substances.
In the environmental management of our operations we work to comply with environmental regulations and to make our products and processes resource-efficient. We also support the business segments in creating added value for our clients with eco-friendly products and services.
In Europe, the Middle East, and Africa (EMEA), TÜV-certified environmental management is part of the integrated management system. At the end of 2015, eight (2014: nine) European production sites and our medical device development department were certified according to ISO 14001. The decrease is due to the closure of an Italian production site. We use an energy management system as per ISO 50001 at our German production sites in St. Wendel and Schweinfurt. We have also implemented the certified environmental management system in 14 (2014: 13) European countries.
One of our central concerns is to further reduce the environmental effects of dialysis treatments. We have set ourselves the goal of further reducing water consumption by an average of 11% and electricity use by 7% per dialysis treatment from 2013 to 2018. By 2015, we had already achieved reductions of 7% (water) and 15% (electricity). The central element for managing the resource efficiency of our dialysis centers in EMEA and Latin America is the software e-con5 that we use in 518 (2014: 502) European and 209 (2014: 206) Latin American dialysis centers.
This environmental data management system allows us to capture and compare data on resource efficiency and take prompt advantage of opportunities for improvements. The results for the EMEA region show that we have been able to use this system to consistently reduce water and energy use and the amount of contaminated blood waste in our dialysis centers in recent years.
In the United States, we work with external service providers in our dialysis centers, who collect and document the energy and water use of all the centers. At the end of 2015, two of our North American dialysis centers were certified in accordance with ISO 14001. Our goal is to work towards establishing this environmental standard in other dialysis centers in the region.
An integral component of the quality management of Fresenius Kabi is an environmental management system that complies with the international standard ISO 14001. We have also implemented the occupational health and safety assessment system OHSAS 18001 at several sites and set guidelines for all of our sites worldwide. In 2015, all sites of Fresenius Kabi Deutschland GmbH were certified under ISO 50001, the international standard for energy management systems.
We continued to implement environmental measures at our production sites. At the site in Graz, in Austria, we were able to keep energy consumption at the previous year's level despite the growth in production volume and area. By recycling packaging, we saved nearly 2,200 t of CO2. We also maintained our recycling rate of over 80% in 2015.
At the Uppsala site in Sweden, energy consumption per liter of solution produced was reduced by 6% in 2015. Approximately 40% of the energy needed at the Swedish sites in
Uppsala and Brunna is provided by renewable sources (2014: 38%). We increased our recycling rate to 99.5% (2014: 97%).
We also expanded our environmental activities outside of Europe. At our site in Wuxi, China, we rebuilt a cooling unit as part of a project for continuous energy savings, reducing total power consumption by 12%. In July 2015, the site was successfully certified as compliant with ISO 50001, the international standard for energy management systems. At the Haina site in the Dominican Republic, noise was reduced from 99 dB(A) to 82 dB(A) by isolating the power production facility. At our Melrose Park site in the United States, we reduced water consumption per manufactured product by 13.5%.
Hospitals require a great deal of energy and water. In order to create awareness for the economical use of resources, we intensified the environmental campaign within HELIOS.
The structural condition of a hospital building has an important influence on energy consumption. All new construction projects and modernizations conform to the latest standards of efficient heat insulation pursuant to the currently valid energy savings regulations. Further improvements are based on our comprehensive controlling system for property management, which makes possible the timely analysis of targets against figures achieved. Compared to the previous year, adjusted energy consumption has been reduced by 4.6%. This represents a CO2 reduction of around 2,231 Mg/a and saves approximately €2 million, which can be usefully invested in medicine.
This system also formed the basis for the certification of all HELIOS hospitals in accordance with the requirement of the new Energy Services Act (Energiedienstleistungsgesetz; EDL-G). We continually review measures to further reduce the resources required and we implement these measures as promptly as possible. In addition, we continue to shift heating to renewable energies, for instance wood pellets. This form of heating is CO2-neutral and therefore more eco-friendly than gas or oil heating. Thanks to the steps taken, we saved approximately 29,747 Mg CO2 (2014: 34,500 Mg CO2).
Water consumption in all HELIOS hospitals was 4,434,810 m3 (2014: 4,152,704 m3 ). The majority of all water is consumed for sterilization processes, process cooling, and water recycling plants. To reduce consumption, some hospitals are using well water, for instance for the cooling towers of air-conditioning systems.
Proper waste disposal is of great importance to hospitals. HELIOS views waste disposal management as a process. It starts with avoiding any future waste, and ends with the consistent recycling or environmentally friendly disposal of the same. Requirements pertaining to environmental protection, occupational health and safety, as well as infection protection and hospital hygiene, are taken into account. That relates particularly to major waste groups such as clinical waste, i.e., from the diagnosis and treatment of human diseases. In 2015, the total amount of waste generated in all HELIOS hospitals was 20,775 t (2014: 21,125 t).
In the fiscal year 2015, the energy management of Fresenius Vamed in Austria was certified as compliant with ISO 50001:2011.
In our project business, we already integrate national environmental standards and regulations into the planning and construction of a hospital or other health care facility. VAMED's extensive expertise in environmental management is an important success factor, especially in growth markets in Africa and Asia. For instance, VAMED built and now operates a hospital in Gabon, which features a modern sewage treatment plant and a high-temperature incineration plant designed to European standards.
We also achieved success in the service business in the area of environmental protection. VAMED, for instance, has been responsible for the technical management of the hospital AKH, Vienna, for over 29 years. During the period, energy and water consumption were significantly reduced: energy consumption decreased by 13%, demand for longdistance heat by 21%, and drinking water consumption by 47%. The volume of waste classified as hazardous medical waste at AKH fell by about 79%.
The health care sector is one of the world's largest industries. It is relatively insensitive to economic fluctuations compared to other sectors and has posted above-average growth over the past several years.
The main growth factors are:
In the emerging countries, drivers are:
At the same time, the cost of health care is rising and claiming an ever-increasing share of national income. Health care spending averaged 8.9% of GDP in the OECD countries in 2013, with an average of US\$3,453 spent per capita.
As in previous years, the United States had the highest per capita spending (US\$8,713). Germany ranked sixth among the OECD countries with per capita spending of US\$4,819.
In Germany, 76% of health spending was funded by public sources in 2013, above the average of 73% in the OECD countries.
Most of the OECD countries have enjoyed large gains in life expectancy over the past decades, thanks to improved living standards, public health interventions, and progress in medical care. In 2013, average life expectancy in the OECD countries was 80.5 years.
Health care structures are being reviewed and cost-cutting potential identified in order to contain the steadily rising health care expenditures. However, such measures cannot compensate for the cost pressure. Market-based elements are increasingly being introduced into the health care system to create incentives for cost- and quality-conscious behavior. Overall treatment costs will be reduced through improved quality standards. In addition, ever-greater importance is being placed on disease prevention and innovative reimbursement models linked to treatment quality standards.
Our most important markets developed as follows:
In 2015, the global dialysis market (products and services) was worth approximately US\$73 billion. In constant currency, the global dialysis market grew by 4%.
Worldwide, approximately 3.5 million patients with chronic renal failure were treated in 2015. Of these patients, around 2.8 million received dialysis treatments and about 709,000 were living with a transplanted kidney. About 88% were treated with hemodialysis and 12% with peritoneal dialysis.
| in % | 2013 | 2000 | 1990 | 1980 | 1970 |
|---|---|---|---|---|---|
| USA | 16.4 | 12.5 | 11.3 | 8.2 | 6.2 |
| France | 10.9 | 9.5 | 8.0 | 6.7 | 5.2 |
| Germany | 11.0 | 9.8 | 8.0 | 8.1 | 5.7 |
| Switzerland | 11.1 | 9.3 | 7.4 | 6.6 | 4.9 |
Source: OECD Health Data 2015 (2013 data most recent available)
The major growth driver is the growing number of patients suffering from diabetes and high blood pressure, two diseases that often precede the onset of chronic kidney failure.
The number of dialysis patients worldwide increased by about 6% in 2015. The United States, Japan, and Western and Central Europe recorded below-average growth in the number of patients in 2015. In economically weaker regions, growth was above average.
The prevalence rate, which is the number of people with terminal kidney failure treated per million population, differs widely from region to region. In developing countries it can be well below 100. It averages just over 1,100 in the countries of the European Union. Prevalence is very high in countries such as Japan and the United States, being well over 2,000. The significant divergence in prevalence rates is due, on the one hand, to differences in age demographics, incidence of renal risk factors, genetic predisposition, and cultural habit, such as nutrition. On the other hand, access to dialysis treatment is still limited in many countries. A great many individuals with terminal kidney failure do not receive treatment and are therefore not included in the prevalence statistics.
In 2015, the global dialysis care market (including renal pharmaceuticals) was worth approximately US\$60 billion.
10% of worldwide dialysis patients were treated by Fresenius Medical Care. With 3,418 dialysis clinics and 294,381 dialysis patients in over 45 countries, Fresenius Medical Care operates by far the largest and most international network of hospitals. In the United States, Fresenius Medical Care maintained its position of approximately 37% (~178,000) dialysis patients in 2015. The market for dialysis care in the United States is already highly consolidated. Taken together, Fresenius Medical Care and DaVita − another provider of dialysis care − treat over 75% of all U.S. dialysis patients.
Outside the United States, the market for dialysis care is much more fragmented. Here, Fresenius Medical Care competes mainly with independent clinics and with clinics that are affiliated with hospitals.
Dialysis reimbursement systems differ from country to country and often vary even within individual countries. The public health care programs, the Centers for Medicare& Medicaid Services (CMS), cover the medical services for the majority of all dialysis patients in the United States.
In 2015, the global dialysis products market was worth approximately US\$13 billion.
Fresenius Medical Care is the leading provider of dialysis products in the world, with a market share of about 34%, followed by its largest competitor, Baxter, with 28%. Each of the other competitors, mainly from Japan, held a single-digit percentage market share.
Fresenius Medical Care is the leading supplier worldwide of hemodialysis products with a market share of 38%. With a market share of 21%, Fresenius Medical Care is the secondlargest provider worldwide of products for peritoneal dialysis after Baxter.
The market for care coordination includes medical services outside dialysis, such as services in the area of vascular surgery, non-dialysis-related laboratory services, administrative services for resident physicians, hospitalist and intensivist services, health plan services for dialysis patients, coordinated delivery of pharmacy services as well as primary care.
In the United States, Fresenius Medical Care provides care coordination mainly within its network of more than 2,000 specialized inpatient physicians (hospitalists and intensivists) and post-acute care providers. The company cared for more than one million patients in 2015, at over 180 hospitals.
The global market for generic IV drugs, clinical nutrition, infusion therapy, and medical devices /transfusion technology was worth about €33 billion in 2015.
Thereof, the global market for generic IV drugs was worth about €15 billion. In Europe and the United States, the market for generic IV drugs grew by about 6% to 7%. Growth is mainly achieved through new generics that are brought to market when the original drug goes off-patent. The market is characterized by moderate volume growth, steady price erosion, and fierce competition. In the United States, the most important generic IV drug market for Fresenius Kabi, the company is one of the leading suppliers. Competitors include Pfizer, Sandoz, and Teva Pharmaceutical Industries.
The global market for clinical nutrition was worth about €7 billion in 2015. In Europe, the market grew by about 3%. In the emerging markets of Asia-Pacific, Latin America, and Africa, the clinical nutrition market saw growth of up to 10% in individual countries. Growth potential is offered by the often insufficient administration of nutrition therapies within patient care – although studies have demonstrated the medical and economical benefit. In cases of health or age-induced nutritional deficiencies, for example, the administration of clinical nutrition can reduce hospital costs through shorter stays and less nursing care. Estimates regarding the European Union situation indicate that as many as 20 million individuals are at risk of malnutrition. In the market for clinical nutrition, Fresenius Kabi is one of the leading companies worldwide. In parenteral nutrition, the company is the leading supplier worldwide. In the market for enteral nutrition,
Fresenius Kabi is one of the leading suppliers in Europe. In parenteral nutrition, competitors include Baxter and B.Braun. In the market for enteral nutrition, Fresenius Kabi competes with, among others, Abbott, Danone, and Nestlé.
Fresenius Kabi considers its global market for infusion therapy to have been worth about €5 billion in 2015. In Europe, the market declined slightly due to restrictions imposed on the use of blood volume substitutes. In the regions Asia-Pacific, Latin America, and Africa, the market grew by 7%. Infusion therapies, such as electrolytes, are standard medical products to hospitals worldwide. Market growth is mainly driven by increasing product demand in the emerging markets. Fresenius Kabi is the market leader in infusion therapy in Europe. Competitors include Baxter and B.Braun.
The global market for medical devices /transfusion technology was worth about €6 billion in 2015, including approximately €4 billion for medical devices and about €2 billion for transfusion technology. The market grew about 3% in 2015. In the medical devices market, the main growth drivers are technical innovations that focus on application safety and therapy efficiency. In the transfusion technology market, growth is driven by increased demand in emerging markets. Moreover, growth is driven by the growing demand for apheresis and other automated transfusion systems. Reduced demand for blood bags and related price reductions have a negative effect. In the medical devices segment, Fresenius Kabi ranks among the leading suppliers worldwide. International competitors include Baxter, B. Braun, and Becton, Dickinson and Company, as well as Pfizer. In transfusion technology, Fresenius Kabi is one of the world's leading companies. Competitors include Haemonetics, Macopharma, and Terumo. In all product segments, Fresenius Kabi also competes with smaller local providers.
1 Market data refer to Fresenius Kabi's addressable markets. Those are subject to annual volatility due to currency fluctuations and patent expiries of original drugs in the IV drug market, among other things.
In 2014, the market of acute care hospitals in Germany was about €91 billion2 . Personnel costs accounted for about 61% of hospital costs, and material costs for 38%. Personnel and material costs each rose by approximately 4%.
Through the increase in admissions, the organic growth of the acute care hospital market was around 1%. In addition, potential for growth for private hospital operators arises from hospital acquisitions or privatization.
The financial situation at hospitals in Germany remained difficult in 2014, despite a slight easing. 32% of all hospitals reported a loss at year-end (2013: 42%). The difficult economic and financial situation is often accompanied by significant investment needs. This is due, in large part, to an investment backlog that has accumulated because, in the past, the federal states failed to meet their statutory obligation to finance necessary investments and major maintenance measures sufficiently due to budget constraints. At the same time, investment needs are driven by technological advances, higher quality requirements, and necessary modernizations. The Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) estimates that the annual investment requirement at German hospitals (not including university hospitals) is at least €5.3 billion. This is twice the funding for investment currently being provided by the federal states.
The number of hospitals in 2014 was 1,980 and the number of beds was 500,680. For further figures on the German hospital market please see the table below.
Fresenius Helios is the leading hospital operator in Germany, with a share of about 6% in the acute care market.
2014: 500,680
Source: German Federal Statistical Office 2015
The hospitals of Fresenius Helios compete mainly with individual hospitals or local and regional hospital associations. Among private hospital chains, our main competitors are Asklepios, Rhön-Klinikum, and Sana Kliniken.
The so-called change in value figure is relevant for the increase in reimbursements of hospital treatments. It is used to compensate for rising costs in the hospital market, particularly with regard to personnel and material costs. The change in value figure is redetermined each year for the following year. For the year 2015 it was 2.53% (2014: 2.81%).
The post-acute care market in Germany comprised 1,158 clinics with a total of 165,657 beds. Of these, two-thirds (66%) were in private preventive or post-acute care clinics, 15% were in independent non-profit clinics, and 19% in public clinics. The number of treated patients increased nationwide by over 19,000 to 1.97 million. The average length of stay was 25.3 days (2013: 25.3 days).
| 2014 | 2013 | 2012 | 2011 | 2010 | Change 2014/2013 |
|
|---|---|---|---|---|---|---|
| Hospitals | 1,980 | 1,996 | 2,017 | 2,045 | 2,064 | -0.8% |
| Beds | 500,680 | 500,671 | 501,475 | 502,029 | 502,749 | 0% |
| Beds per 1,000 population | 6.18 | 6.21 | 6.24 | 6.26 | 6.15 | -0.5% |
| Length of stay (days) | 7.4 | 7.5 | 7.6 | 7.7 | 7.9 | -1.3% |
| Number of admissions (millions) | 19.15 | 18.79 | 18.62 | 18.34 | 18.03 | 1.9% |
| Average costs per admission in €1 | 4,893 | 4,792 | 4,663 | 4,547 | 4,432 | 2.1% |
1 Total costs, gross
Source: German Federal Statistical Office 2015
1 Most recent data available on the German hospital market
Total costs, gross of the German hospitals less academic research and teaching
The market for Projects and services for hospitals and other health care facilities The market for projects and services for hospitals and other health care facilities is very fragmented. Therefore, an overall market size cannot be determined. The market is countryspecific and depends, to a large extent, on factors such as public health care policies, government regulation, and levels of privatization, as well as demographics and economic and political conditions.
In markets with established health care systems and mounting cost pressure, the challenge for hospitals and other health care facilities is to increase their efficiency. Here, demand is especially high for sustainable planning and energy-efficient construction, optimized hospital processes, and the outsourcing of medical-technical support services to external specialists. This enables hospitals to concentrate on their core competency − treating patients. In emerging markets, the focus is on building and developing infrastructure and improving the level of health care.
Fresenius Vamed is one of the world's leading companies in the market for projects and services for hospitals and other health care facilities. The company has no competitors that cover its comprehensive portfolio of services across the entire life cycle worldwide. Competitors offer only parts of Fresenius Vamed's service portfolio. Depending on the service, the company competes with international companies and consortia, as well as with smaller local providers.
Overall, the development of the world economy had an only negligible impact on our industry in 2015. On the whole, the health care sector, both in mature and growth markets, developed positively, with continued increasing demand for health services. This had a positive effect on our business development.
The Management Board is of the opinion that the Fresenius Group's performance in 2015 was excellent – with sales and earnings growth across all business segments.
Fresenius Medical Care sales increased by 6% to US\$16,738 million. The business was significantly influenced by currency developments. Growth in constant currency was 11%. Net income attributable to shareholders of Fresenius Medical Care excluding one-time items 1 increased by 2%. Fresenius Kabi achieved organic sales growth of 8% and increased EBIT 2 by 36% (21% in constant currency) to €1,189 million. Persisting IV drug shortages and new product launches in the United States led to a better than expected development in this region. Organic sales growth of Fresenius Helios was 3%. The integration of the hospitals acquired from Rhön-Klinikum AG progressed well in 2015. The company increased EBIT 2 by 16% to €640 million. Fresenius Vamed achieved organic sales growth of 6%. EBIT grew by 8% to €64 million.
1 2015 before settlement costs for an agreement in principle for GranuFlo® /NaturaLyte® case (-US\$37 million after tax), before divestiture of dialysis business in Venezuela (-US\$27 million after tax) and European pharmaceutical business (US\$11 million after tax); 2014 before closing of manufacturing plant (-US\$13 million after tax) Before special items
For 2015, we had assumed that strong demand for our products and services would continue. This proved to be the case.
The table below shows the guidance development for 2015 for the Group as well as for the business segments.
Based on the strong business development, exceeding our expectations, especially at Fresenius Kabi in the United States, we increased Group guidance three times during the year.
The forecast for the currency-adjusted sales growth was achieved by Fresenius Group. At 9%, this was well in line with the targeted range. Net income 1 increased by 21% in constant currency and was well in line with the targeted range of 20% to 22%.
Fresenius invested €1,512 million in property, plant and equipment (2014: €1,345 million). That was well in line with the budgeted level of about 6% as percentage of sales.
Operating cash flow was €3,327 million (2014: €2,585 million). The cash flow margin was 12.0% (2014: 11.1%) and therefore above our expectations. We had expected to achieve a cash flow margin between 9% and 11%.
Group net debt/EBITDA was 2.68 2 and thus as expected below 3.0.
Group ROIC increased to 8.3%3 (2014: 7.5%4 ), and Group ROOA was 10.1%3 (2014: 9.1%4 ) and hence as expected above the level of 2014.
| Targets for 2015 announced in February 2015 |
Guidance announced in April 2015 |
Guidance announced in July 2015 |
Guidance announced in October 2015 |
Achieved in 2015 |
|
|---|---|---|---|---|---|
| Group | |||||
| Sales (growth, in constant currency) | 7%– 10% | 8%– 10% | 9% | ||
| Net income 1 (growth, in constant currency) |
9%– 12% | 13%– 16% | 18%– 21% | 20%– 22% | 21% |
| Fresenius Medical Care 2 | |||||
| Sales (growth) | 5%– 7% | 6% | |||
| Net income (growth) 3 | 0%– 5% | 2%4 | |||
| Fresenius Kabi 5 | |||||
| Sales (growth, organic) | 3%– 5% | 4%– 7% | 6%– 8% | ~8% | 8% |
| EBIT (growth, in constant currency) | 4%– 6% | 11%– 14% | 18%– 21% | 19%– 22% | 21% |
| Fresenius Helios 6 | |||||
| Sales (growth, organic) | 3%– 5% | 3% | |||
| EBIT | €630 m –€650 m | €640 m | |||
| Fresenius Vamed | |||||
| Sales (growth, organic) | Single-digit % | 5%– 10% | 6% | ||
| EBIT (growth) | 5%– 10% | 8% |
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2015 before integration costs (€12 million before tax for hospitals acquired from Rhön-Klinikum AG), before costs for the efficiency program at Fresenius Kabi (€105 million before tax), and before the disposal gains from the divestment of two HELIOS hospitals (€34 million before tax); 2014 before special items
2 Savings from the global efficiency program are included, while earnings contributions from potential acquisitions are not. The outlook reflects further operating cost investments within the Care Coordination segment.
3 Net income attributable to the shareholders of Fresenius Medical Care AG & Co. KGaA
4 2015 before settlement costs for an agreement in principle for GranuFlo® /NaturaLyte® case (-US\$37 million after tax), before divestiture of dialysis business in Venezuela (-US\$27 million after tax) and European pharmaceutical business (US\$11 million after tax); 2014 before closing of manufacturing plant (-US\$13 million after tax)
5 2015 Fresenius Kabi's outlook excludes €105 million costs before tax for the efficiency program, 2014 before special items
6 2015 Fresenius Helios' outlook excludes integration costs for the hospitals acquired from Rhön-Klinikum AG (€12 million before tax) and disposal gains from the divestment of two HELIOS hospitals (€34 million before tax), 2014 before special items
4 Pro forma acquisitions; before special items; adjusted due to debt issuance cost restatement (U.S. GAAP standard ASU 2015-03)
For a detailed overview of special items please see the reconciliation table on page 42. The special items are reported in the Group Corporate/Other segment.
RESULTS OF OPERATIONS, FINANCIAL POSITION, ASSETS AND LIABILITIES
In 2015, we increased Group sales by 9% in constant currency and by 19% at actual rates to €27,626 million (2014: €23,231 million). The chart on the right shows the various influences on Fresenius' Group sales.
In 2015, there were no major effects due to changes in product mix, as expected.
Price effects occurred at Fresenius Medical Care. Medicare reimbursement rates remained virtually unchanged in 2015, while personnel costs have increased.
Sales growth by region is shown in the table below.
Positive currency translation effects (9%) were mainly related to the euro's depreciation against the U.S. dollar and the Chinese yuan.
| € in millions | 2015 | 2014 | Change | Organic sales growth |
Currency translation effects |
Acquisitions / divestitures |
% of total sales |
|---|---|---|---|---|---|---|---|
| North America | 12,621 | 9,307 | 36% | 8% | 22% | 6% | 46% |
| Europe | 10,557 | 10,162 | 4% | 3% | 0% | 1% | 38% |
| Asia-Pacific | 2,779 | 2,205 | 26% | 9% | 12% | 5% | 10% |
| Latin America | 1,297 | 1,186 | 9% | 10% | -3% | 2% | 5% |
| Africa | 372 | 371 | 0% | -1% | 1% | 0% | 1% |
| Total | 27,626 | 23,231 | 19% | 6% | 10% | 3% | 100% |
Management Report
existing business. Order intake in the project business again developed well; it increased to €904 million (2014: €840 million). The prior-year period was boosted by the major project for the modernization of the University Hospital of Schleswig-Holstein in Germany. Fresenius Vamed increased its order backlog by 18% to €1,650 million (December 31, 2014: €1,398 million). Fresenius Vamed is the only business segment within the Fresenius Group whose business is significantly determined by order intake and order backlog.
Group net income (before special items) 1 rose by 31% to €1,423 million (2014: €1,086 million). Growth in constant currency was 21%. Earnings per share (before special items) 1 rose to €2.61 (2014: €2.01). This represents an increase of 30% at actual rates and of 20% in constant currency. The weighted average number of shares was 543.9 million.
Including special items, Group net income attributable to shareholders of Fresenius SE & Co. KGaA increased by 27% to €1,358 million (2014: €1,067 million). Earnings per share 1 increased by 27% to €2.50 (2014: €1.97).
Inflation had no significant effect on results of operations in 2015.
Group EBITDA 2 increased by 24% to €5,073 million (2014: €4,095 million). This corresponds to an increase of 12% in constant currency. Group EBIT 2 increased by 25% to €3,958 million (2014: €3,158 million). This corresponds to an increase of 13% in constant currency.
▶ Fresenius Medical Care's EBIT increased by 24% (constant currency: 8%) to €2,097 million (2014: €1,697 million). Unchanged Medicare reimbursement rates in North America were offset by cost savings on the procurement side for pharmaceutical products and cost savings from the global efficiency program. In addition, Care Coordination made a positive contribution to operating income. The EBIT margin of Fresenius Medical Care Group decreased to 13.9% (2014: 14.2%). The agreement in principle to resolve the GranuFlo® /NaturaLyte® product liability litigation, had a 2015 pre-tax financial impact at Fresenius Medical Care of US\$60 million. Adjusted for onetime items 3 , EBIT increased by 5% to US\$2,388 million.
| € in millions | 2015 | 2014 | Change | Organic sales growth |
Currency translation effects |
Acquisitions / Divestitures |
% of total sales |
|---|---|---|---|---|---|---|---|
| Fresenius Medical Care | 15,086 | 11,917 | 27% | 6% | 16% | 5% | 55% |
| Fresenius Kabi | 5,950 | 5,146 | 16% | 8% | 9% | -1% | 21% |
| Fresenius Helios | 5,578 | 5,244 | 6% | 3% | 0% | 3% | 20% |
| Fresenius Vamed | 1,118 | 1,042 | 7% | 6% | 1% | 0% | 4% |
| € in millions | 2015 | 2014 | 2013 | 2012 | 2011 |
|---|---|---|---|---|---|
| Order intake | 904 | 840 | 744 | 657 | 604 |
| Order backlog (December 31) | 1,650 | 1,398 | 1,139 | 987 | 845 |
3 2015 before settlement costs for an agreement in principle for GranuFlo® /NaturaLyte® case (-US\$60 million before tax), before divestiture of dialysis business in Venezuela (-US\$26 million before tax) and European pharmaceutical business (US\$25 million before tax); 2014 before closing of manufacturing plant (-US\$16 million before tax)
For a detailed overview of special items please see the reconciliation table on page 42. The special items are reported in the Group Corporate/Other segment.
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA
2 Before special items
The Group's U.S. GAAP financial results as of December 31, 2015, and as of December 31, 2014, comprise special items. In order to show the operating performance of the Group in the reporting period, the relevant positions of the profit and loss statement were adjusted for these special items. The
Group gross profit rose to €8,534 million, exceeding the previous year's gross profit of €6,842 million by 25% (13% in constant currency). The gross margin increased to 30.9% (2014: 29.5%). The cost of sales rose by 16% to €19,092 million (2014: €16,389 million). Cost of sales as a percentage of Group sales decreased to 69.1% in 2015, compared to 70.5% in 2014.
Selling, general, and administrative expenses consisted primarily of personnel costs, marketing and distribution costs, and depreciation and amortization. These expenses rose by 25% to €4,195 million (2014: €3,359 million). The increase is primarily due to currency translation effects, business expansion as well as the agreement in principle to resolve the GranuFlo®/NaturaLyte® product liability litigation. Their ratio as a percentage of Group sales increased therefore to 15.2% (2014: 14.5%). R & D expenses were €464 million (2014: €369 million). With 5% they are within the targeted range of approximately 4% to 5% of our product sales. Depreciation and amortization was €1,115 million (2014: €937 million). The ratio as a percentage of sales was 4.0% (2014: 4.0%). Group Personnel costs increased to €10,862 million (2014:
| € in millions | Q1 – 4/ 2015 (before special items) |
Kabi efficiency program |
Integration costs for acquired Rhön hospitals |
Disposal gains from two HELIOS hospitals |
Q1 – 4/ 2015 according to U.S. GAAP (incl. spe cial items) |
Q1 – 4/ 2014 (before special items) |
Fenwal integration costs |
Integration costs for acquired Rhön hospitals |
Disposal gains from two HELIOS hospitals |
Disposal gain from Rhön stake |
Q1 – 4/ 2014 according to U.S. GAAP (incl. spe cial items) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | 27,626 | 27,626 | 23,231 | 23,231 | |||||||
| EBIT | 3,958 | -105 | -12 | 34 | 3,875 | 3,158 | -50 | -51 | 22 | 35 | 3,114 |
| Interest result | -613 | -613 | -602 | -602 | |||||||
| Net income before taxes |
3,345 | -105 | -12 | 34 | 3,262 | 2,556 | -50 | -51 | 22 | 35 | 2,512 |
| Income taxes | -983 | 16 | 2 | 0 | -965 | -725 | 17 | 10 | -1 | -1 | -700 |
| Net income | 2,362 | -89 | -10 | 34 | 2,297 | 1,831 | -33 | -41 | 21 | 34 | 1,812 |
| Less noncontrolling interest |
-939 | -939 | -745 | -745 | |||||||
| Net income 1 | 1,423 | -89 | -10 | 34 | 1,358 | 1,086 | -33 | -41 | 21 | 34 | 1,067 |
1 Net income attributable to the shareholders of Fresenius SE & Co. KGaA
The costs are reported in the Group Corporate/Other segment.
RECONCILIATION
€8,996 million). The personnel cost ratio was 39.3% (2014: 38.7%). The chart on the right shows the earnings structure in 2015.
Group net interest increased slightly to -€613 million (2014: -€602 million). More favorable financing terms and interest rate savings on lower debt were more than offset by currency translation effects.
The Group tax rate (before special items) was 29.4% and hence above the prior-year level (2014: 28.4%).
Noncontrolling interest increased to €939 million (2014: €745 million). Of this, 95% was attributable to the noncontrolling interest in Fresenius Medical Care.
The table on page 44 shows the profit margin development in 2015.
Financial management policies and goals
The financing strategy of the Fresenius Group has the following main objectives:
Earnings structure (before special items)
Ensuring financial flexibility is key to the financing strategy of the Fresenius Group. This is achieved through a broad spectrum of financing instruments, taking market capacity, investor diversification, utilization flexibility, credit covenants, and the current maturity profile into consideration.
| € in millions | 2015 | 2014 | Change | Change in constant currency |
|---|---|---|---|---|
| Sales | 27,626 | 23,231 | 19% | 9% |
| Cost of goods sold | -19,092 | -16,389 | -16% | -7% |
| Gross profit | 8,534 | 6,842 | 25% | 13% |
| Selling, general, and administrative expenses | -4,195 | -3,359 | -25% | -14% |
| Research and development expenses | -464 | -369 | -26% | -15% |
| EBIT (operating result after special items) | 3,875 | 3,114 | 24% | 12% |
| Net interest | -613 | -602 | -2% | 8% |
| Income taxes | -965 | -700 | -38% | -23% |
| Noncontrolling interest in profit | -939 | -745 | -26% | -9% |
| Net income (before special items) 1 | 1,423 | 1,086 | 31% | 21% |
| Net income 1 | 1,358 | 1,067 | 27% | 17% |
| Earnings per ordinary share in € (before special items) 1 | 2.61 | 2.01 | 30% | 20% |
| Earnings per ordinary share in €1 | 2.50 | 1.97 | 27% | 16% |
| EBITDA | 4,990 | 4,051 | 23% | 11% |
| Depreciation and amortization | 1,115 | 937 | 19% | 9% |
1 Net income attributable to the shareholders of Fresenius SE & Co. KGaA
For a detailed overview of special items please see the reconciliation table on page 42. The special items are reported in the Group Corporate/Other segment.
Dec. 31, 2015: €14,769 million
The Group's maturity profile is characterized by a broad spread of maturities with a large proportion of mid- to longterm financing. We also take into account the currency in which our earnings and cash flows are generated when selecting the financing instruments, and match them with appropriate debt structures in the respective currencies.
The Group's main debt financing instruments are illustrated in the chart above.
Sufficient financial cushion is assured for the Fresenius Group by unused syndicated and bilateral credit lines. In addition, Fresenius SE & Co. KGaA has a commercial paper program. The Fresenius Medical Care receivable securitization program offers additional financing options.
Another main objective of Fresenius Group's financing strategy is to optimize the weighted-average cost of capital by employing a balanced mix of equity and debt. Due to the Company's diversification within the health care sector and the strong market positions of the business segments in global,
growing, and non-cyclical markets, predictable and sustainable cash flows are generated. These allow for a reasonable proportion of debt, i.e., the use of a comprehensive mix of financial instruments. A capital increase may also be considered in exceptional cases to ensure long-term growth, for example to finance a major acquisition.
In line with the Group's structure, financing for Fresenius Medical Care and the rest of the Fresenius Group is conducted separately. There are no joint financing facilities and no mutual guarantees. The Fresenius Kabi, Fresenius Helios, and Fresenius Vamed business segments are financed primarily through Fresenius SE & Co. KGaA, in order to avoid any structural subordination.
Fresenius meets its financing needs through a combination of operating cash flows generated in the business segments and short-, mid-, and long-term debt. In addition to bank loans, important financing instruments include the issuance of Senior Notes, Schuldschein Loans, a commercial paper program, and a receivable securitization program.
Financing activities during the past fiscal year were related to the refinancing of matured Senior Notes, to further improving terms and conditions, and to extending the Company's maturity profile.
▶ In February 2015, Fresenius SE & Co. KGaA extended the revolving facilities and term loan A tranches under the syndicated credit agreement by two years. These
| in % | 2015 | 2014 | 2013 | 2012 | 20112 |
|---|---|---|---|---|---|
| EBITDA margin1 | 18.4 | 17.6 | 19.1 | 20.0 | 19.8 |
| EBIT margin1 | 14.3 | 13.6 | 15.0 | 15.9 | 15.7 |
| Return on sales (before taxes and noncontrolling interest) 3 | 12.1 | 11.0 | 12.1 | 12.5 | 12.4 |
1 2012 – 2015 before special items
2 2011 sales were adjusted by -€161 million according to a U.S. GAAP accounting change; this solely relates to Fresenius Medical Care North America.
3 2011 – 2015 before special items
For a detailed overview of special items please see the reconciliation table on page 42. The special items are reported in the Group Corporate/Other segment.
tranches would have been due in June 2018. As part of an amendment to the agreement, its terms were improved and certain loan covenants were simplified.
The chart on the right shows the maturity profile of the Fresenius Group.
Fresenius SE & Co. KGaA has a commercial paper program under which up to €1 billion in short-term notes can be issued. As of December 31, 2015, the commercial paper program was not utilized.
The Fresenius Group has drawn about €5.2 billion of bilateral and syndicated credit lines. In addition, as of December 31, 2015, the Group had approximately €3.4 billion in unused credit lines available (including committed credit lines of about €2.8 billion). These credit facilities are generally used for covering working capital needs and – with the exception of the syndicated credit agreements of Fresenius SE & Co. KGaA and Fresenius Medical Care − are usually unsecured.
As of December 31, 2015, both Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA, including all subsidiaries, complied with the covenants under its debt arrangements.
1 As of December 31, 2015, major long-term financing instruments
Detailed information on the Fresenius Group's financing can be found on pages 132 to 140 of the Notes. Further information on financing requirements in 2016 is included in the Outlook section on page 57.
Fresenius is not involved in any off-balance-sheet transactions that could, or will, have a significant impact on its financial position, expenses or income, results of operations, liquidity, investments, assets and liabilities, or capitalization.
In 2015, key sources of liquidity were operating cash flows and cash inflow from financing activities including short-, mid-, and long-term debt. Cash flow from operations is influenced by the profitability of the business of Fresenius and by net working capital, especially accounts receivable. Cash inflow from financing activities is generated from short-term
borrowings through the commercial paper program, and by drawing on bilateral bank credit agreements. Additionally, receivables under the Fresenius Medical Care accounts receivable securitization program can be sold. Mid- and long-term funding are mostly provided by the syndicated credit facilities of Fresenius SE & Co. KGaA and Fresenius Medical Care, and by Senior Notes. Fresenius is convinced that its existing credit facilities, inflows from Senior Note issuances, as well as the operating cash flows and additional sources of shortterm funding, are sufficient to meet the Company's foreseeable liquidity needs.
The general partner and the Supervisory Board will propose a dividend increase to the Annual General Meeting. For 2015, a dividend of €0.55 per share is proposed. This is an increase of about 25%. The total dividend distribution will increase by about 26% to €300 million (2014: €238 million).
Cash flow increased by 22% to €3,469 million (2014: €2,842 million). The change in working capital was -€142 million (2014: -€257 million), mainly due to business expansion.
Operating cash flow increased by 29% to €3,327 million (2014: €2,585 million). The cash flow margin was 12.0% (2014: 11.1%). Operating cash flow in the prior-year
FINANCIAL POSITION – FIVE-YEAR OVERVIEW
period was reduced by the US\$115 million payment for the W.R. Grace bankruptcy settlement. Operating cash flow was more than sufficient to meet all financing needs for investing activities excluding acquisitions, whereby cash used for capital expenditure was €1,489 million, and proceeds from the sale of property, plant and equipment were €27 million (2014: €1,345 million and €22 million, respectively).
| € in millions | 2015 | 2014 | 2013 | 2012 | 2011 |
|---|---|---|---|---|---|
| Operating cash flow | 3,327 | 2,585 | 2,320 | 2,438 | 1,689 |
| as % of sales | 12.0 | 11.1 | 11.4 | 12.6 | 10.3 |
| Working capital 1 | 6,090 | 5,448 | 4,571 | 4,470 | 4,067 |
| as % of sales | 22.0 | 23.5 | 22.5 | 23.2 | 24.9 |
| Investments in property, plant and equipment, net | 1,462 | 1,323 | 1,047 | 952 | 758 |
| Cash flow before acquisitions and dividends | 1,865 | 1,262 | 1,273 | 1,486 | 931 |
| as % of sales | 6.8 | 5.4 | 6.3 | 7.7 | 5.7 |
1 Trade accounts receivable and inventories, less trade accounts payable and payments received on accounts Cash flow before acquisitions and dividends was €1,865 million (2014: €1,262 million). This was sufficient to finance the Group dividends of €639 million. Group dividends consisted of dividend payments of €238 million to the shareholders of Fresenius SE & Co. KGaA, payments of €237 million by Fresenius Medical Care to its shareholders, and dividends paid to third parties of €237 million (primarily relating to Fresenius Medical Care). These payments were offset by the dividend of €74 million, which Fresenius SE & Co. KGaA received as a shareholder of Fresenius Medical Care. Net acquisition expenditures of €32 million were financed by cash flow.
Cash used for financing activities (without dividend payments) was -€1,343 million (2014: €1,625 million). In 2015, it was predominantly characterized by the reduction of debt due to the strong free cash flow and refinancing measures. Cash and cash equivalents as of December 31, 2015, were €1,044 million (December 31, 2014: €1,175 million).
In 2015, the Fresenius Group provided €2,029 million (2014: €3,795 million) for investments and acquisitions. Investments in property, plant and equipment increased to €1,512 million (2014: €1,345 million). At 5.5% of sales (2014: 5.8%), this
INVESTMENTS, OPERATING CASH FLOW, DEPRECIATION AND AMORTIZATION IN € MILLIONs – FIVE-YEAR OVERVIEW
Depreciation and amortization
was well above the depreciation level of €1,115 million and serves as the basis for enabling expansion and preserving the Company's value over the long term. A total of €517 million was invested in acquisitions (2014: €2,450 million). Of the total capital expenditure in 2015, 75% was invested in property, plant and equipment, 25% was spent on acquisitions.
| € in millions | 2015 | 2014 | Change | Margin |
|---|---|---|---|---|
| Earnings after tax | 2,297 | 1,812 | 27% | |
| Depreciation and amortization | 1,115 | 937 | 19% | |
| Change in pension provisions | 57 | 93 | -39% | |
| Cash flow | 3,469 | 2,842 | 22% | 12.6% |
| Change in working capital | -142 | -257 | 45% | |
| Operating cash flow | 3,327 | 2,585 | 29% | 12.0% |
| Property, plant and equipment | -1,489 | -1,345 | -11% | |
| Proceeds from the sale of property, plant and equipment | 27 | 22 | 23% | |
| Cash flow before acquisitions and dividends | 1,865 | 1,262 | 48% | 6.8% |
| Cash used for acquisitions /proceeds from disposals | -32 | -2,028 | 98% | |
| Dividends | -639 | -582 | -10% | |
| Cash flow after acquisitions and dividends | 1,194 | -1,348 | 189% | |
| Cash provided by/used for financing activities (without dividends paid) | -1,343 | 1,625 | -183% | |
| Effect of exchange rate changes on cash and cash equivalents | 18 | 34 | -47% | |
| Change in cash and cash equivalents | -131 | 311 | -142% |
The detailed cash flow statement is shown in the consolidated financial statements.
The table below shows the distribution of investments / acquisitions by business segment. The chart on the right shows the regional breakdown.
The cash outflow for acquisitions is primarily related to the following business segments:
Fresenius Medical Care invested primarily in the acquisition of companies to expand the business in medical services related to dialysis.
Fresenius Kabi invested primarily in the acquisition of 100% of the shares in medi1one medical gmbh, Germany, and the purchase of further shares in Fresenius Kabi Bidiphar JSC, Vietnam.
Fresenius Helios' acquisition spending was mainly for subsequent purchase price payments, the acquisition of outpatient facilities, and the purchase of 94% of the shares in Lungenklinik Diekholzen gGmbH, Germany.
Fresenius Vamed invested primarily as a partner in the expansion of a thermal spa in Austria.
The main investments in property, plant and equipment were as follows:
▶ optimization and expansion of production facilities, primarily in North America and Europe for Fresenius Medical Care, and for Fresenius Kabi, primarily in Europe, North America, and Asia
▶ new building and modernization of hospitals at Fresenius Helios. The most significant individual projects were the hospitals in Duisburg, Schleswig, Hamburg, Stralsund, and Wiesbaden
Investments in property, plant and equipment of €206 million will be made in 2016, to continue with major ongoing investment projects on the reporting date. These are investment obligations mainly for hospitals at Fresenius Helios as well as investments to expand and optimize production facilities for Fresenius Medical Care and Fresenius Kabi. These projects will be financed from operating cash flow.
| € in millions | 2015 | 2014 | Thereof property, plant and equipment |
Thereof acquisitions |
Change | % of total |
|---|---|---|---|---|---|---|
| Fresenius Medical Care | 1,244 | 2,196 | 859 | 385 | -43% | 61% |
| Fresenius Kabi | 389 | 479 | 352 | 37 | -19% | 19% |
| Fresenius Helios | 376 | 1,090 | 277 | 99 | -66% | 19% |
| Fresenius Vamed | 15 | 22 | 11 | 4 | -32% | 1% |
| Corporate/Other | 5 | 8 | 13 | -8 | -38% | 0% |
| Total | 2,029 | 3,795 | 1,512 | 517 | -47% | 100% |
| € in millions | 2015 | 2014 | Change |
|---|---|---|---|
| Investment in property, plant and equipment |
1,512 | 1,345 | 12% |
| thereof maintenance | 48% | 42% | |
| thereof expansion | 52% | 58% | |
| Investment in property, plant and equipment as % of sales |
5.5 | 5.8 | |
| Acquisitions | 517 | 2,450 | -79% |
| Total investments and acquisitions |
2,029 | 3,795 | -47% |
The total assets of the Group rose by 9% to €43,170 million (Dec. 31, 2014: €39,788 million). In constant currency, this was an increase of 3%. Inflation had no significant impact on the assets of Fresenius in 2015.
Current assets increased to €10,917 million (Dec. 31, 2014: €10,012 million). Within current assets, trade accounts receivable increased by 9% to €4,596 million (Dec. 31, 2014: €4,235 million). At 61 days, average days sales outstanding was below the previous year's level of 65 days.
Inventories rose by 23% to €2,860 million (Dec. 31, 2014: €2,333 million). The scope of inventory in 2015 was 55 days (Dec. 31, 2014: 52 days). The ratio of inventories to total assets increased to 6.6% (Dec. 31, 2014: 5.9%).
Non-current assets increased by 8% to €32,253 million (Dec. 31, 2014: €29,776 million). In constant currency, the increase was 2%. Additions to property, plant and equipment, and acquisitions had an effect. The goodwill in the amount of €21,523 million (Dec. 31, 2014: €19,868 million) has proven sustainable and increased mainly due to currency translation effects. In fiscal year 2015, the additions to the goodwill from acquisitions was €189 million. Please see page 127ff. of the Notes for further information.
Shareholders' equity, including noncontrolling interest, rose by 16% to €18,003 million (Dec. 31, 2014: €15,483 million). In constant currency, shareholders' equity, including noncontrolling interest, rose by 11%. Group net income attributable to Fresenius SE&Co. KGaA increased shareholders' equity by €1,358 million. The equity ratio, including noncontrolling interest, was 41.7% as of December 31, 2015 (Dec. 31, 2014: 38.9%).
The liabilities and equity side of the balance sheet shows a solid financing structure. Total shareholders' equity, including noncontrolling interest, covers 56% of non-current assets (Dec. 31, 2014: 52%). Shareholders' equity, noncontrolling interest, and long-term liabilities cover all non-current assets and 90% of inventories.
Long-term liabilities increased by 2% to €16,811 million as of December 31, 2015 (Dec. 31, 2014: €16,536 million). Short-term liabilities increased by 5% to €7,409 million (Dec. 31, 2014: €7,088 million).
The Group has one major accrual of US\$250 million related to the reached agreement in principle to resolve the resolution of the GranuFlo® /NaturaLyte® product liability litigation, within the business segment Fresenius Medical Care. At the same time, receivables against insurers were recorded as they will fund the majority of the settlement amount (US\$220 million).
Group debt decreased by 4% to €14,769 million (Dec. 31, 2014: €15,345 million). In constant currency, the decrease was 9%. Its relative weight in the balance sheet was 34% (Dec. 31, 2014: 39%). Approximately 52% of the Group's debt is in U.S. dollars. Liabilities due in less than 1 year were €1,162 million (Dec. 31, 2014: €1,652 million), while liabilities with a remaining term of 1 to 5 years and over 5 years were €13,607 million (Dec. 31, 2014: €13,693 million).
The net debt to equity ratio including noncontrolling interest (gearing) is 76% (Dec. 31, 2014: 92%).
The return on equity after taxes (equity attributable to shareholders of Fresenius SE & Co. KGaA) increased to 13.0%1 (Dec. 31, 2014: 11.6%1 ). The return on total assets after taxes and before noncontrolling interest increased to 5.5%1 (2014: 4.6%1 ).
Group ROIC increased to 8.3%1 (2014: 7.5%2 ), and Group ROOA to 10.1%1 (2014: 9.1%2 ). Within the position invested capital, the goodwill of €21.5 billion had a significant effect on the calculation of ROIC. It is important to take into account that approximately 64% of the goodwill is attributable to the strategically significant acquisitions of National Medical Care in 1996, Renal Care Group and HELIOS Kliniken in 2006, APP Pharmaceuticals in 2008, Liberty Dialysis Holdings in 2012, and hospitals of Rhön-Klinikum AG in 2014. Those have significantly strengthened the competitive position of the Fresenius Group.
The summary shows ROIC and ROOA by business segment:
| ROIC | ROO A | ||||
|---|---|---|---|---|---|
| in % | 2015 | 2014 4 | 2015 | 2014 4 | |
| Fresenius Medical Care 1 | 6.9 | 6.9 | 9.6 | 9.7 | |
| Fresenius Kabi 2 | 10.6 | 8.7 | 13.2 | 10.6 | |
| Fresenius Helios 1, 2 | 7.7 | 7.0 | 8.1 | 7.4 | |
| Fresenius Vamed3 | – | – | 11.1 | 11.2 | |
| Group1, 2 | 8.3 | 7.5 | 10.1 | 9.1 |
2014: pro forma acquisitions
1
2 Before special items
3 ROIC: Invested capital is insignificant due to prepayments, cash and cash equivalents.
4 Adjusted due to debt issuance cost restatement (U.S. GAAP standard ASU 2015-03)
In 2015, the Fresenius Group's return on invested capital (ROIC) substantially exceeded our cost of capital. The WACC (weighted average cost of capital) of Fresenius Medical Care was 6.2%, the WACC of the other business segments was 5.6%.
The return on assets for 2015 was calculated before special items.
| € in millions | 2015 | 2014 3 | 2013 3 | 2012 3 | 2011 3 |
|---|---|---|---|---|---|
| Total assets | 43,170 | 39,788 | 32,663 | 30,558 | 26,223 |
| Shareholders' equity 1 | 18,003 | 15,483 | 13,260 | 12,758 | 10,577 |
| as % of total assets 1 | 42 | 39 | 41 | 42 | 40 |
| Shareholders' equity 1 /non-current assets, in % | 56 | 52 | 54 | 57 | 55 |
| Debt | 14,769 | 15,345 | 12,709 | 10,922 | 9,701 |
| as % of total assets | 34 | 39 | 39 | 36 | 37 |
| Gearing in % | 76 | 92 | 732 | 79 | 86 |
1 Including noncontrolling interest
2 Pro forma excluding advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition
of hospitals and outpatient facilities of Rhön-Klinikum AG
3 Adjusted due to debt issuance cost restatement (U.S. GAAP standard ASU 2015-03)
1 Before special items
2 Pro forma acquisitions; before special items
The nominal value of all foreign currency hedging contracts was €2,372 million as of December 31, 2015. These contracts had a market value of €26 million. The nominal value of interest rate hedging contracts was €587 million. These contracts had a market value of -€6 million. Please see the Risk Report on pages 66f. and the Notes on pages 158 to 165 for further details.
The credit quality of Fresenius is assessed and regularly reviewed by the leading rating agencies Moody's, Standard& Poor's, and Fitch. Standard & Poor's raised Fresenius rating to investment-grade status in January 2015 and Moody's followed suit in November 2015.
The table below shows the company rating and the respective outlook as of December 31, 2015.
| Dec. 31, 2015 | Dec. 31, 2014 | |
|---|---|---|
| Standard&Poor's | ||
| Corporate Credit Rating | BBB- | BB+ |
| Outlook | stable | positive |
| Moody's | ||
| Corporate Credit Rating | Baa3 | Ba1 |
| Outlook | stable | negative |
| Fitch | ||
| Corporate Credit Rating | BB+ | BB+ |
| Outlook | stable | positive |
| Dec. 31, 20151 | Dec. 31, 20142,3 | Dec. 31, 20133,4 | Dec. 31, 20122,3 | Dec. 31, 20113 | |
|---|---|---|---|---|---|
| Debt/EBITDA | 2.9 | 3.7 | 2.7 | 2.8 | 3.0 |
| Net debt/EBITDA 5 | 2.7 | 3.2 | 2.5 | 2.6 | 2.7 |
| EBITDA /interest ratio | 8.3 | 6.8 | 6.7 | 5.8 | 6.1 |
1 Before special items
2 Pro forma acquisitions; before special items
Adjusted due to debt issuance cost restatement (U.S. GAAP standard ASU 2015-03)
4 Pro forma excluding advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG; before special items
5 At LTM average exchange rates for both net debt and EBITDA
On January 8, 2016, Fresenius Kabi and Becton, Dickinson and Company (BD) announced that Fresenius Kabi has acquired the BD Rx business, which includes a pharmaceutical manufacturing plant in the United States and the BD line of seven drugs in ready-to-administer prefilled glass syringes. Fresenius Kabi and BD have also signed a 10-year supply and distribution agreement under which Fresenius Kabi will supply BD with a portfolio of intravenous (IV) solutions.
On February 17, 2016, Fresenius Medical Care announced that Fresenius Medical Care North America has reached an agreement in principle with a committee designated by the plaintiffs to resolve litigation in the United States involving GranuFlo® /NaturaLyte®. Under the agreement in principle, the settlement amount would be US\$250 million, provided that 97% of all plaintiffs agree to the settlement by July 2016 with the funding provided in August 2016. Insurers will fund the settlement amount with US\$220 million. Therefore, the settlement has a pre-tax charge of US\$60 million including other costs to finalize this matter.
On February 22, 2016, Fresenius announced, that HELIOS will acquire the municipal hospital in Velbert, in the German state of North Rhine-Westphalia. The hospital has 519 beds and, with approximately 1,000 employees, treats 45,000 patients each year, including 20,000 inpatients. HELIOS will fully own the hospital. Sales were approximately €67 million in 2014. The acquisition is subject to approval by the German antitrust authorities. The transaction is expected to close in the second quarter of 2016.
There have been no significant changes in the Fresenius Group's operating environment following the end of the fiscal year 2015 until February 24, 2016. No other events of material importance on the assets and liabilities, financial position, and results of operations of the Group have occurred following the end of the fiscal year.
At the time this Group Management Report was prepared, the Management Board continued to assess the development of the Fresenius Group as positive. Demand for our products and services continues to grow steadily around the world.
This Management Report contains forward-looking statements, including statements on future sales, expenses, and investments, as well as potential changes in the health care sector, our competitive environment, and our financial situation. These statements were made on the basis of the expectations and assessments of the Management Board regarding events that could affect the Company in the future, and on the basis of our mid-term planning. Such forward-looking statements are subject, as a matter of course, to risks, uncertainties, assumptions, and other factors, so that the actual results, including the financial position and profitability of Fresenius, could therefore differ materially – positively or negatively – from those expressly or implicitly assumed or described in these statements. For further information, please see our Opportunities and Risk Report on pages 59ff.
The outlook for the Fresenius Group for the coming years continues to be positive. We are able to treat patients and supply customers reliably, continuously striving to optimize our costs, to adjust our capacities and to improve our product mix, as well as to expand our products and services business. We expect these efforts to increase our earnings in the coming years. In addition, good growth opportunities for Fresenius are, above all, presented by the following factors:
▶ The sustained growth of the markets in which we operate: Fresenius still sees very good opportunities to benefit from the growing health care needs arising from aging populations, with their growing demand for comprehensive care, and technical advances, but driven also by the still insufficient access to health care in the developing and emerging countries. There are above-average growth opportunities for us not only in the markets of Asia and Latin America, but also in Eastern Europe. Efficient health care systems with appropriate reimbursement structures will evolve over time in these countries, as economic conditions improve. We will strengthen our activities in these regions and introduce further products from our portfolio into these markets successively.
best-in-class quality, reliability, and the convenience of our products and therapies are key factors here. In our dialysis business, we expect home therapies to gain further importance, leading to growth potential for Fresenius Medical Care. Home dialysis and the corresponding technologies and products will continue to be a major focus of our R & D activities. In addition, Fresenius Kabi is developing new dosage forms for its products.
▶ Selective acquisitions: Besides retaining organic sales growth as the basis for our business, we will continue to utilize opportunities to grow by making small and midsized acquisitions that expand our product portfolio and strengthen our regional presence.
We are also exploiting any opportunities for potential within our operations for cost-management and efficiencyenhancement measures. These include plans for cost-efficient production and a further-optimized procurement process. Thus, Fresenius Kabi initiated a program in 2015. This program is designed to increase production efficiency and streamline administrative structures.
The outlook takes account of all events known at the time the annual financial statements were prepared that could influence our operating performance in 2016 and beyond. Significant risks are discussed in the Risk Report. As in the past, we will do our utmost to achieve and – if possible – exceed our targets.
We expect the consolidation process to continue among competitors in our markets in Europe, Asia-Pacific, and Latin America. Consequently, we expect that there will be opportunities for us to penetrate new markets, both by expanding our regional presence and by extending our product portfolio.
New markets will open up as Fresenius Medical Care successively rolls out its product and services portfolio, especially in emerging countries. In addition, Fresenius Medical Care continues to expand its Care Coordination business with services related to dialysis. With Care Coordination, Fresenius Medical Care can address the needs of dialysis patients even more comprehensively.
Fresenius Kabi plans to introduce products already offered outside the United States into that country as well. It also aims to further roll out its product portfolio internationally, especially in the fast-growing markets of Asia-Pacific and Latin America. Market share is to be expanded further through the launch of new products in the field of IV drugs and medical devices for infusion therapy and clinical nutrition, as well as in transfusion technology.
With its broad hospital network across Germany, Fresenius Helios is able to develop new patient care models. In addition, further acquisition opportunities are expected to arise in the German hospital market.
Fresenius Vamed is expecting to grow in the life cycle and PPP project areas, both with regard to the project and the services business. Moreover, the company intends to further expand its position with follow-up orders, as well as to enter new target markets.
The health care sector is considered to be widely independent of economic cycles. The demand, especially for lifesaving and life-sustaining products and services, is expected to increase, given that they are medically needed and the population is aging. Moreover, medical advances and the large number of diseases that are still difficult to cure – or are incurable – are expected to remain growth drivers.
In the emerging countries, the availability of basic health care and the growing demand for high-quality medical treatment is increasing. As per-capita income increases, individuals increasingly have to cope with the illnesses associated with lifestyle diseases.
On the other hand, experts estimate that further financial constraints in the public sector could result in more pricing pressure and a slowdown in revenue for companies in the health care industry. Some countries are experiencing significant financing problems in the health care sector due to the strained public finance situation. Especially in the industrialized countries, increased pressure to encourage saving can be expected as health care costs constitute a large portion of the budget.
It will be increasingly important for companies to increase patient benefit, to improve treatment quality, and to offer preventive therapies. In addition, especially those products and therapies that are not only medically but also economically advantageous will be of increasing importance.
The global dialysis market is expected to grow by about 4% at constant exchange rates in 2016.
The number of dialysis patients worldwide is expected to rise by approximately 6% in 2016, although significant regional differences will remain. For the United States, Japan, and the countries of Central and Western Europe, where prevalence is already relatively high, we forecast patient growth in the region of 1% to 4%. In economically weaker regions, the growth rates are even higher with values of up to 10%, and in some countries even more.
Driven by the development of infrastructure, the establishment of health care systems, and the growing number of chronically ill patients, overproportional growth is expected in Asia, Latin America, Eastern Europe, the Middle East, and Africa. The fact that a large part of the world's population lives in these regions underscores the strong growth potential for the entire spectrum of dialysis services and products.
Overall, factors such as aging populations and the growing number of people suffering from diabetes and hypertension, which are ailments often preceding terminal kidney failure, are contributing toward continued growth of the dialysis markets. The age expectancy of dialysis patients is also rising thanks to ongoing advances in treatment quality and the rising standard of living, especially in the emerging countries.
The market for care coordination opens up additional growth opportunities for Fresenius Medical Care.
Further information is provided on pages 34ff. of the Management Report.
We expect the global market for generic IV drugs, clinical nutrition, infusion therapy, and medical devices /transfusion technology to grow by approximately 4% in 2016.
1 Market data refer to Fresenius Kabi's addressable markets. Those are subject to annual volatility due to currency fluctuations and patent expiries of original drugs in the IV drug market, among other things.
The market for generic IV drugs in Europe and the United States is expected to grow by about 4% to 5% in 2016. The demand for generic drugs is likely to grow because of their significantly lower price. The growth dynamic will continue to be driven by originator drugs going off-patent. A factor working in the opposite direction is the price erosion for generic drugs that are already in the market.
Growth of about 3% is expected for the clinical nutrition market in Europe in 2016. However, given the financial constraints in these countries, the efforts to contain costs in the health care sector are being pursued undiminished. Continued high growth potential is projected in Asia-Pacific, Latin America, and Africa. We expect growth of up to 10% in individual countries.
We expect the market for infusion therapy in Europe to remain at the prior year's level in 2016. Besides a slightly decreasing blood volume substitutes market due to restrictions imposed on the use of these products, continuous price pressure in the tender-driven standard-solutions business is expected to affect growth. Outside Europe, growth of up to 7% is expected.
The worldwide market for medical devices /transfusion technology is expected to grow by up to 4% in 2016.
We expect the acute care hospital market in Germany to grow slightly in 2016. Admissions are forecast to increase by approximately 1%.
The so-called change in value figure is relevant for the increase in reimbursements of hospital treatments. For 2016 it was set at 2.95%. This is the highest level since the introduction of the DRG system. In addition, the hospital funding system provides for various increases and reductions for acute hospitals. For example, a reduction of 25% had to be accepted for surplus services previously agreed upon with the health insurance companies. A reduction of 65% applies to surplus services not agreed upon. To compensate the reduction, a 0.8% extra charge on invoiced hospital treatments is provided. We expect the overall effect of the increases and reductions on the result of HELIOS in 2016 to be slightly positive.
The German Hospital Structures Act (KHSG) entered into force in January 2016. However, no significant changes in the compensation for hospital services are expected until 2017 and 2018. These include the fixed cost digression discount, the care supplement, and taking medical outcomes into account in compensation. The specific financial impact this will have on HELIOS cannot currently be quantified since the key compensation parameters have not yet been established. However, we do not expect any negative effects since the HELIOS Group is well prepared for quality-based compensation thanks to its clear focus on quality and transparency of medical results.
Despite higher revenues, the expectations of the hospitals are rather pessimistic with respect to their economic situation in 2016. According to the Krankenhaus-Barometer 2015 survey by the German Hospital Institute (DKI), 39% of the hospitals expect their economic situation to worsen. Specifically, personnel costs will be a burden due to tariff increases. Moreover, investment needs are growing while government support is declining. The Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) forecasts that more hospitals will respond to economic pressures by joining together into networks and bundling their services. Networks offer opportunities for individual hospitals to reduce costs, for example in purchasing.
We anticipate that privatization and consolidation will continue in the German hospital market.
For 2016, we expect the worldwide demand for projects and services for hospitals and other health care facilities to grow at a low single-digit rate.
In the Central European markets with established health care systems, we expect solid growth. The demand for projects and services for hospitals and other health care facilities will continue to grow due to demographic changes and the rising investment and modernization needs of public health facilities. The focus is on services ranging from the maintenance and repair of medical and hospital equipment, facility management, and technical operation, through to total operational management and infrastructure process optimization – especially within the framework of public-private partnership (PPP) models. Additional growth opportunities are presented by an increasing number of non-medical services, which are outsourced from public facilities to private service providers.
In the emerging markets, we anticipate an overall dynamic development. Growth in markets such as Africa, Latin America, and southeast Asia will initially be driven by the demand for efficient, needs-oriented medical care. In China and the Middle East, growth will be driven by the development of infrastructure and the creation of new care services, as well as research and training facilities.
In 2016, we expect to increase Group sales by 6% to 8% in constant currency. We expect to increase Group net income 1 by 8% to 12% in constant currency.
GROUP FINANCIAL TARGETS
| Targets 2016 | Fiscal year 2015 | |
|---|---|---|
| Sales growth (in constant currency) |
6%– 8% | €27,626 m |
| Net income 1 growth (in constant currency) |
8%– 12% | €1,423 m |
| Capital expenditure | ~6% of sales | €1,512 m |
| Dividend | Profit-driven dividend policy |
Proposal +25% per share |
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA;
2015 before integration costs (€12 million before tax for hospitals acquired from Rhön-Klinikum AG), before costs for the efficiency program at Fresenius Kabi (€105 million before tax), and before the gain from the divestment of two HELIOS hospitals (€34 million before tax)
SALES AND EARNINGS BY BUSINESS SEGMENT In 2016, we expect sales and earnings development in our business segments as shown below:
| Targets 2016 | Fiscal year 2015 | |
|---|---|---|
| Fresenius Medical Care | ||
| Sales growth1 | ||
| (in constant currency) | 7%– 10% | US\$16,738 m |
| Net income 1, 2 growth |
15%– 20% | US\$1,057 m |
| Fresenius Kabi 3 | ||
| Sales growth | low single | |
| (organic) | digit % | €5,950 m |
| EBIT | ||
| (in constant currency) | roughly flat | €1,189 m |
| Fresenius Helios | ||
| Sales growth (organic) | 3%– 5% | €5,578 m |
| EBIT 4 | €670 – 700 m | €640 m |
| Fresenius Vamed | ||
| Sales growth (organic) | 5%– 10% | €1,118 m |
| EBIT growth | 5%– 10% | €64 m |
1 Savings from the global efficiency program are included, while acquisitions 2015/2016 are not taken into account; the outlook is based on current exchange rates. Before settlement costs for the agreement in principle for the GranuFlo® /NaturaLyte® case (-US\$37 million after tax) and before acquisitions (US\$9 million after tax); hence the basis for net income outlook 2016 are US\$1,057 million.
Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA
3
2015 before costs for the efficiency program at Fresenius Kabi (€105 million before tax) 4 2015 before integration costs (€12 million before tax for hospitals acquired from Rhön-Klinikum AG) and before the gain from the divestment of two HELIOS hospitals (€34 million before tax)
For 2016, Fresenius Medical Care expects sales to grow by 7% to 10% in constant currency. Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA is expected to increase 15% to 20%.
Fresenius Kabi expects to achieve low single-digit organic sales growth (in %) for 2016. In addition, the business seg-
ment is forecasting a roughly flat EBIT in constant currency. Fresenius Helios projects organic sales growth of 3% to
5% for 2016. EBIT is expected to increase to €670 to €700 million.
For 2016, Fresenius Vamed expects to achieve organic sales growth of 5% to 10% and EBIT growth of 5% to 10%.
For 2016, we expect continued strong cash flow with a cash flow margin between 9% and 11%.
In addition, unused credit lines under syndicated or bilateral credit facilities from banks provide us with a sufficient financial cushion.
In 2016, refinancing activities are limited due to our wellbalanced maturity profile.
At the end of 2016, we expect Group net debt/EBITDA1 to be approximately 2.5.
In 2016, we expect to invest about 6% of sales in property, plant and equipment. About 50% of the capital expenditure planned will be invested at Fresenius Medical Care, about 25% at Fresenius Kabi, and about 25% at Fresenius Helios. At Fresenius Medical Care, investments will primarily be used for the expansion of production capacity, optimizing production costs, and the establishment of new dialysis clinics. Fresenius Kabi will primarily invest in expanding and maintaining production facilities, as well as in introducing new
manufacturing technologies. At Fresenius Helios, we will primarily be investing in the new building, the modernizing, and equipping of existing hospitals, and in the hospitals acquired during the fiscal year 2014 from Rhön-Klinikum AG.
The regional focus of the Group's investment spending will be on Europe and North America, which will account for about 55% and 35%, respectively. The remainder will be invested in Asia, Latin America, and Africa. About 35% of total funds will be invested in Germany.
We assume that the return on operating assets (ROOA) and the return on invested capital (ROIC) will be approximately above the level of 2015.
We will continue optimizing our procurement management in 2016; prices, terms, and especially quality are key factors for securing further earnings growth.
Based on the developments in the financial and the real markets, we assume that price fluctuations will continue despite tension easing in the commodities markets in the short and medium terms.
Our R & D activities will continue to play a key role in securing the Group's long-term growth through innovations and new therapies.
We plan to increase the Group's R & D spending in 2016. About 4% to 5% of our product sales will be reinvested in research and development.
Market-oriented research and development with strict time-to-market management processes is crucial for the success of new products. We continually review our R & D results using clearly defined milestones. Innovative ideas, product
development, and therapies with a high level of quality will continue to provide the basis for future market-leading positions. Given the continued cost-containment efforts in the health care sector, cost-efficiency combined with a strong quality focus is acquiring ever-greater importance in product development, and in the improvement of treatment concepts.
At Fresenius Medical Care we will continue to expand our global R & D product platform. Home dialysis as well as associated technologies and products will be a focal point of our activities. We will continue to expand our range of innovative products and technologies in the future to react to growth opportunities – also with the aim of best meeting demand for integrated care.
Infusion and nutrition therapies and generic IV drugs are primary focus areas of development at Fresenius Kabi. In particular, we are concentrating on being in a position to offer the corresponding generic drug formulation promptly upon the expiration of patents for originator drugs. We are also working to expand our portfolio to include additional ready-to-use IV drugs.
The Fresenius Kabi portfolio of medical devices makes a contribution to the safe and effective application of infusion solutions and clinical nutrition. We will continue to develop new products and improve on existing ones in this segment. In transfusion technology, we are focusing our development work on devices and disposables that enable the safe, efficient, and user-friendly production of blood products and the treatment of specific diseases, including autoimmune diseases.
The number of employees in the Group will continue to rise in the future, as a result of the expected expansion. We anticipate that the number of employees will increase to approximately 230,000 (December 31, 2015: 222,305). The number of employees is expected to increase in all business segments. The regional distribution of our employees will remain almost unchanged – approximately 50% will be located in Europe, approximately 30% in North America, and approximately 20% in Asia-Pacific, Latin America, and Africa.
The dividend increases provided by Fresenius in the last 22 years show impressive continuity. Our dividend policy aims to align dividends with earnings per share growth (before special items) and thus broadly maintains a payout ratio of 20% to 25%. Based on our positive earnings forecast, we expect to offer our shareholders an earnings-linked dividend.
The Fresenius Group is exposed to a number of risks due to the complexity and the dynamics of its business. These risks are inevitable consequences of entrepreneurial activities. The willingness to take risks has to be accommodated if opportunities are to be exploited.
As a provider of products and services for the severely and chronically ill, we are relatively independent of economic cycles. The diversification into four business segments, which operate in different segments of the health care market, and the global footprint further minimize the Group's risk profile. Our experience, as well as our strong market positions, serve as a solid basis for a reliable assessment of risks.
At the same time, we will continue to take advantage of the wide-ranging opportunities for sustainable growth and expansion that the health care market offers to the Fresenius Group.
Managing opportunities is an ongoing, integral part of corporate activity aimed at securing the Company's long-term success. In this way, we can explore new prospects and consolidate and improve on what we have already achieved. The Group's decentralized and regional organizational and management structure enables the early identification and analysis of trends, requirements, and opportunities in our often fragmented markets; and we can respond to them flexibly and in line with local market needs. Furthermore, we maintain regular contact and dialogue with research groups and scientific institutions, and keep a close watch on markets and competitors in order to identify opportunities. Within the Group, opportunities and synergies can be exploited through continuous communication involving the exchange of information and know-how between the business segments. Anticipated future opportunities for the Fresenius Group are discussed in the Outlook starting on page 52.
The risk management is also a continuous process. Identifying, controlling, and managing risks are key tools of solid corporate governance. The Fresenius risk management system is closely linked to the corporate strategy. Opportunities are not recognized in the risk management system.
Responsibilities for the processes and monitoring risks in the business segments have been assigned as follows:
The risk management system is supported both at Group level and in the business segments by our risk controlling measures and our management information system. Detailed monthly and quarterly reports are used to identify and analyze deviations of the actual compared to the planned business development. In addition, the risk management system comprises a control system that oversees organizational processes and measures, as well as internal controls and audits, with which we can identify significant risks at an early stage and counteract each one individually.
The functionality and effectiveness of our risk management system is reviewed regularly by the Management Board and the internal auditing department. Conclusions arising from the audits are taken into account in the ongoing refinement of the system, to allow prompt reaction to changes in our environment. This system has thus far proved effective. The control system is also regularly reviewed by the Management Board and the internal auditing department. Moreover, the external auditor reviews whether the control system set up by the Management Board is suitable for the early identification of risks that would put the continued existence of the Company in danger. The insights gained from the audit regarding the internal financial reporting controls are taken into account in the continued development of the system.
Fresenius has ensured that the scope and focus of the organizational structure and systems for identifying, assessing, and controlling risks, and for developing countermeasures and for the avoidance of risks, are aligned suitably with the Company-specific requirements and that they are properly functional. However, there can be no absolute certainty that this will enable all risks to be fully identified and controlled.
Numerous measures and internal controls assure the correctness and reliability of accounting processes and financial reporting, and thus preparation of annual financial statements, consolidated financial statements, and management reports in compliance with applicable principles. Our four-tier reporting process especially promotes intensive discussion and ensures control of the financial results. At each reporting level,
financial data and key figures are reported, discussed, and compared on a regular monthly basis with the prior-year figures, budget, and latest forecast. In addition, all parameters, assumptions, and estimates that are of relevance for
the externally reported Group and segment results are discussed intensively with the department responsible for preparing the Group's consolidated financial statements. These matters are also reviewed and discussed quarterly by the Supervisory Board's Audit Committee.
Control mechanisms, such as automated and manual reconciliation procedures, are further precautions put in place to assure that financial reporting is reliable and that transactions are correctly accounted for. All consolidated entities report according to Group-wide standards, which are determined at the head office. These are regularly adjusted to allow for changes made to the accounting regulations. The consolidation proposals are supported by the IT system. In this context, reference is made to the comprehensive consolidation of internal Group balances. To prevent abuse, we take care to maintain a strict separation of functions. Management control and evaluations also help to ensure that risks having a direct impact on financial reporting are identified and that controls are in place to minimize them. Moreover, changes in accounting principles are monitored and employees involved in financial reporting are instructed regularly and comprehensively. External experts and specialists are engaged if necessary. The Treasury, Tax, Controlling, and Legal departments are involved in supporting the preparation of the financial statements. Finally, the information provided is verified once again by the department responsible for preparing the consolidated financial statements.
Fresenius Medical Care is subject to the controls of Section 404 of the Sarbanes-Oxley Act.
The main risk areas for the operations of the Fresenius Group are as follows:
At present, the development of the global economy exhibits no significant risk to the Fresenius Group. In 2016, we largely expect overall economic growth to continue. Moreover, Fresenius is affected only to a small extent by general
economic fluctuations. We expect demand for our life-saving and life-sustaining products and services to continue to grow. Furthermore, Fresenius is striving for the firm balance of its business in the main regions and between established and emerging markets.
The risk situation for each business segment also depends on the development of its markets. Country-specific political, legal, and financial conditions are therefore monitored and evaluated carefully, particularly in the current macro-economic environment. This applies, for example, to countries with budget problems as a result of the sovereign debt crisis, in particular with regard to our accounts receivable.
Risks related to changes in the health care market are of major importance to the Fresenius Group. The main risks are the development of new products and therapies and increased product availability at competitors, the financing of health care systems, and reimbursement in the health care sector.
In our largely regulated business environment, changes in the law – also with respect to reimbursement – can have decisive consequences for our business progress. This applies especially in the United States, where a large portion of our sales are generated, and where changes in the reimbursement system, for example, could have a considerable impact on our business. Furthermore, a portion of our dialysis care business in the United States is currently reimbursed by private insurers or managed care organizations. If these organizations enforce reductions in the reimbursement, it would significantly reduce the revenues and earnings for the products and services of Fresenius Medical Care.
The same applies to the hospital market in Germany, where the DRG system (Diagnosis Related Groups) is intended to increase the efficiency of hospitals while reducing health care spending. The Company constantly monitors legislative developments. Patients are largely assigned to hospitals by the public health and pension insurers. It is therefore important for Fresenius Helios that the contracts between its hospitals
and the insurers and health care institutions are maintained. We not only monitor legislative changes continually, but also work together with governmental health care institutions.
Reductions in health care spending could also negatively affect the pricing of Fresenius Kabi products.
Generally, our aim is to counter possible regulatory risks through enhanced performance and cost reductions.
In the United States, almost all Fresenius Kabi injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations (GPOs) and distributors. The majority of hospitals undertake contracts with GPOs of their choice for their purchasing needs. Currently, fewer than five GPOs control a large majority of sales in the United States to hospital customers. Fresenius Kabi currently derives a large percentage of its revenue in the United States through a small number of GPOs and has purchasing agreements with the most important among them. To maintain these business relationships, Fresenius Kabi needs to be a reliable supplier of a comprehensive and high-quality product line, remain price-competitive, and comply with the regulations of the U.S. Food and Drug Administration (FDA). The GPOs also have purchasing agreements with other manufacturers and the bidding process for products is highly competitive. Most of the agreements Fresenius has with GPOs in the United States can be terminated at short- or mid-term notice. The main customers in the area of transfusion technology are plasma companies and blood centers. There are four major plasma companies serving the United States. Blood centers in the United States are consolidating in response to blood-saving efforts at hospitals, which is having an effect on pricing.
Cooperation with medical doctors and scientists allows us to identify and support relevant technological innovations and to keep abreast of developments in alternative treatment methods. These enable us to evaluate and adjust our corporate strategy if necessary.
Our business and operations around the world are exposed to a number of risks and to extensive regulation, which include, among others:
If Fresenius fails to comply with laws or regulations, this may give rise to a number of legal consequences, including monetary and administrative penalties, increased compliance costs, exclusion from governmental programs, or a complete or partial curtailment of our authorization to conduct business. Any of these consequences could have a material adverse effect on our business, financial condition, or results of operations.
In the following, the main risks for the Fresenius Group are described.
Compliance with product and manufacturing regulations is ensured by our quality management systems in accordance with the internationally recognized quality standard ISO 9001, reflecting a large number of national and international regulations. Application is ensured by internal standards such as quality and work procedure manuals. Regular internal and external audits are carried out at the Group's production sites, distribution companies, and dialysis clinics. These audits
test compliance with regulations in all areas – from management and administration to production and clinical services and patient satisfaction. Our production facilities comply with the Good Manufacturing Practice (GMP) of the markets they supply. Our facilities are audited by the FDA and other public authorities. If observations are filed, the Company is required to remedy these issues immediately, as during the inspections in prior years of our U.S. production facility in Grand Island or our production facility in Kalyani, India, for example.
Non-compliance with the requirements of these authorities in our production facilities or at our suppliers could lead to regulatory actions such as warnings, product recalls, production interruptions, monetary sanctions, or delays in new product approvals. Any of these regulatory actions could adversely affect our ability to generate sales and result in significant expenses.
Potential risks, such as those arising from the start-up of new production sites or the introduction of new technologies, are countered through careful planning, regular analysis, and continual progress reviews. Production capacities at some of our manufacturing plants could be adversely affected by events such as technical failures, natural disasters, regulatory rulings, or supply disruptions, e.g., of raw materials.
We counter the risk of poor-quality purchased raw materials, semifinished products, and components mainly by requiring our suppliers to meet strict quality standards. Besides certification by external institutes and regular supplier audits, this includes an exhaustive evaluation of advance samples and regular quality controls. We only purchase high-quality products with proven safety and suitability from qualified suppliers that conform to our specifications and standards.
Performing medical treatments on patients in our hospitals, rehabilitation clinics, and dialysis clinics presents inherent risks. For example, disruptions to processes involve risks for patients and the clinic. In addition, there are operational risks, for example regarding hygiene and sterile conditions. We counteract these risks with strict operating procedures, continuous personnel training, and patient-oriented working procedures. Furthermore, we are constantly striving to improve the standard of patient treatment through our quality management systems.
Further risks arise from increasing pressure on our product prices, for example in tender businesses. On the procurement side, we counter risks – which mainly involve possible price increases and the availability of raw materials and goods – by appropriately selecting and working together with our suppliers through long-term framework agreements in certain purchasing segments and by bundling volumes within the Group.
Under the Medicare bundled reimbursement system, payment for Erythropoietin stimulating agents (ESA) is generally included in the bundled rate. An interruption of supply or material increases in the utilization or acquisition costs for ESAs could materially affect sales and profitability adversely.
In 2015, patents on certain ESAs expired. This enables us to diversify the procurement sources and to reduce the risks in conjunction with supply interruptions as well as with price increases.
Growing competition, among other things induced by the re-entry of competitors in the U.S. market for generic IV drugs after production halts, could materially affect the future pricing and sale of our products and services adversely. The introduction of new products and services, or the development of new technologies by competitors, could render one or more of our products and services less competitive or even obsolete, and thus have a significant negative impact on future sales, the prices of products, and our range of services. This includes the introduction of generic or patented drugs by competitors, which may have an impact on sales and operational results.
Generally, the health care markets are characterized by price pressure, competition, and efforts to contain costs. These could result in lower sales and adversely affect our business, our financial position, and our operational results.
We counter the risks of fulfilment of service associated with Fresenius Vamed's project business through professional project management and control, and with a proven system tailored to each business activity for identifying, evaluating, and minimizing these risks. This system consists of organizational measures, such as standards for pricing-in risks already when preparing quotations, risk assessment before accepting orders, regular project controlling, and continual risk assessment updates. To avert the risk of default, financial measures are taken, such as checking creditworthiness and, usually, prepayments, letters of credit, and secured credits.
Our operations are subject to strict governmental regulatory demands and controls. We must comply with these rules and regulations, which particularly monitor the safety and effectiveness of our medical products and services. Therefore, it is of special importance to us that our compliance programs and guidelines are adhered to. Through compliance, we aim to meet our own expectations and those of our partners, and to orient our business activities to generally accepted standards and local laws and regulations.
The Corporate Compliance department reports to the Chief Compliance Officer, who is the Management Board member for Legal Affairs, Compliance, and Human Resources, and is accountable for establishing and implementing guidelines and procedures. A compliance officer has been appointed in each business segment. He or she is supported by additional compliance officers appointed based on organizational and business structures. The Corporate Compliance department supports the compliance officers at the business segment, regional, and country levels.
These compliance programs and guidelines set binding rules of conduct for our employees. We believe that we have taken adequate measures to ensure that national and international rules are observed and complied with.
Fresenius is subject to comprehensive government regulation in nearly all countries. This is especially true in the United States and Germany. In addition, Fresenius must comply with general rules of law, which differ from country to country. There could be far-reaching legal repercussions should Fresenius fail to comply with these laws or regulations.
A large part of Group revenue derives from government reimbursement programs, e.g. for dialysis services. In 2015, approximately 32% of Fresenius Medical Care's sales in the U.S. were attributable to U.S. federal health care benefit programs, such as Medicare and Medicaid (CMS). A reduction of reimbursement rates or reimbursed services could result in significantly lower sales and operational results.
Effective 2011, Medicare implemented an end stage renal disease (ESRD) prospective payment system (ESRD PPS), which expanded the scope of the products and services covered by a bundled rate and resulted in lower reimbursement per treatment than under the reimbursement system in place. ESRD-related drugs with only an oral form are expected to be reimbursed under the ESRD PPS starting in January 2016, with an adjusted payment amount to be determined by the Secretary of Health and Human Services to reflect the additional cost to dialysis facilities of providing these medications. The ESRD PPS payment amount is subject to annual adjustment based on increases in the costs of a "market basket" of certain health care items and services less a productivity adjustment. The centers for Medicare and Medicaid Services, however, did not increase ESRD PPS base rates for 2015, and they will remain virtually unchanged in 2016.
The American Taxpayer Relief Act of 2012 (ATRA) directed CMS to reduce the ESRD PPS payment rate, effective January 1, 2014, to account for changes in the utilization of certain drugs and biologicals that are included in the ESRD PPS. In making such a reduction, the law requires CMS to use the most recently available pricing data for such drugs and biologicals.
In November 2013, CMS issued the final rule regarding the 2014 ESRD PPS payment rate. CMS decided to split the settled reduction of the ESRD PPS payment rate (US\$29.93 reduction) over a period between three and four years (2014 – 2017). The payment rate for 2015 amounted to US\$239.43, which represented a small increase of 0.2% compared to 2014.
Regarding the ESRD PPS rate for 2016, large dialysis organizations will experience a 0.2% increase in payments. The base rate per treatment is US\$230.39, which represents an approximate reduction of 4%, net, from the 2015 base rate. However, the approximate 4% reduction is almost completely offset with CMS proposed case mix adjustments based upon their analysis of the fiscal years 2012 and 2013.
The ESRD PPS's quality incentive program (QIP) affects Medicare payments based on the performance of each facility on a set of quality measures. Dialysis facilities that fail to achieve the established quality standards could have payments for a particular year reduced by up to 2% based on a year's performance. In the next few years, the respective quality measures will be continuously adapted and extended. A material failure by Fresenius Medical Care to achieve the minimum client quality standards under the QIP could materially and adversely affect its business, financial condition, and results of operations.
Fresenius Medical Care mitigated the impact of the ESRD PPS and the other legislative initiatives referenced above with two broad measures. First, it worked with medical directors and treating physicians to make clinical protocol changes used in treating patients consistent with the QIP and good clinical practices, and it negotiated pharmaceutical acquisition cost savings. In addition, Fresenius Medical Care achieved greater efficiencies and better patient outcomes by introducing new initiatives to improve patient care upon initiation of dialysis, increasing the percentage of patients using home therapies, and achieving additional cost reductions in its clinics. Working with health care provider groups, also known as ESRD Seamless Care Organizations (ESCOs), CMS plans to test a
new Comprehensive ESRD Care Model, for payment and care delivery that seeks to deliver better health outcomes for ESRD patients while lowering CMS's costs. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS's cost of care above certain thresholds for the ESRD patients covered by the ESCO will receive a share of the cost savings. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and reimburse CMS a share of any such increases. The model commenced on October 1, 2015, and includes six of our organizations. The initial agreement period for the model lasts for three years.
The Bundled Payments for Care Improvement ("BPCI") initiative is a CMS three-year pilot initiative with bundled payments for the individual services furnished to Medicare beneficiaries during a single episode of illness or course of treatment, including acute inpatient hospital services, physician services, and post-acute services. Sound Inpatient Physicians, Inc., a majority-owned subsidiary of Fresenius Medical Care, commenced participation under BPCI in April 2015 in several markets. Under the BPCI, we have the ability to receive additional payments if we are able to deliver quality care at a cost that is lower than certain established benchmarks, but also have the risk of incurring financial penalties if we are not successful in doing so. Should we fail to perform as required under the BPCI initiative and our agreement with CMS, CMS may, among other remedies, terminate our right to participate in the BPCI program, in whole or in part.
Changes in the law or the reimbursement method could affect the scope of payments for services, as well as for insurance coverage and the product business. This could have a significant adverse impact on the assets and liabilities, financial position, and results of operations.
The development of new products and therapies always carries the risk that the ultimate goal might not be achieved, or might take longer than planned. Regulatory approval of new products requires comprehensive, cost-intensive preclinical and clinical studies. Furthermore, there is a risk that regulatory authorities either do not grant, or delay, product approval. In addition, adverse effects of our products that
may be discovered after regulatory approval or registration may lead to a partial or complete withdrawal from the market, due either to regulatory actions or our voluntary decision to stop marketing a product. The Fresenius Group spreads its risk widely by conducting development activities in various product segments. We also counteract risks from research and development projects by regularly analyzing and assessing development trends and examining the progress of research projects. We also strictly comply with the legal regulations for clinical and chemical-pharmaceutical research and development. With IV drugs, it is also crucial that new products are continually brought to the market in a timely manner. The product development process can be controlled on the basis of detailed project roadmaps and a tight focus on the achievement of specific milestones. If the defined targets are called into question, countermeasures can be initiated.
The acquisition and integration of companies carries risks that can adversely affect the assets and liabilities, financial position, and results of operations of Fresenius. Following an acquisition, the acquired company's structure must be integrated while clarifying legal questions and contractual obligations. Marketing, patient services, and logistics must also be unified. During the integration phase, key managers can leave the company and both the course of ongoing business processes and relationships with customers and employees can be harmed. In addition, change-of-control clauses may be claimed. The integration process may prove to be more difficult and cost-intensive, or last longer than expected. Risks can arise from the operations of the newly acquired company that Fresenius regarded as insignificant or was unaware of. An acquisition may also prove to be less beneficial than initially expected. Future acquisitions may be a strain on the finances and management of our business. Moreover, as a consequence of an acquisition, Fresenius may become directly or indirectly liable toward third parties, or claims against third parties may turn out to be non-assertable.
We counter risks from acquisitions through detailed integration roadmaps and strict integration and project management, so that countermeasures can be initiated in good time if there are deviations from the expected development.
The Company addresses potential shortages of qualified personnel externally by utilizing personnel marketing measures, and internally by offering comprehensive personnel development programs. We also seek to retain our employees by introducing life-work time accounts in various areas. Furthermore, employees are entitled to attractive fringe benefits and, in part, bonuses. By using target group-specific measures, Fresenius addresses the overall shortage of specialized hospital personnel. We thereby recruit qualified, dedicated, and specialized personnel, thus ensuring our high standard of treatment quality. At the same time, by supporting the training of young employees, we seek their commitment to Fresenius. As a result of these measures, risks in personnel marketing are not considered to be significant.
The international operations of the Fresenius Group expose us to a variety of currency risks. In addition, the financing of the business exposes us to certain interest rate risks. We use derivative financial instruments as part of our risk management to avoid any possible negative impacts of these risks. However, we limit ourselves to non-exchange-traded, marketable instruments, used exclusively to hedge our operations and not for trading or speculative purposes. All transactions are conducted with banks that have a high rating.
The Fresenius Group's foreign exchange risk management is based on a policy approved by the Management Board that defines the targets, organization, and handling of the risk management processes. In particular, the guidelines assign responsibilities for risk determination, the execution of hedging transactions, and the regular reporting of risk management. These responsibilities are coordinated with the management structures in the residual business processes of the Group. Decisions on the use of derivative financial instruments
in interest rate management are taken in close consultation with the Management Board. Hedging transactions using derivatives are carried out by the Corporate Treasury department of the Fresenius Group – apart from a few exceptions in order to adhere to foreign currency regulations. These transactions are subject to stringent internal controls. This policy ensures that the Management Board is fully informed of all significant risks and current hedging activities.
The Fresenius Group is protected, to a large extent, against currency and interest rate risks. As of December 31, 2015, approximately 67% of the Fresenius Group's debt was protected against increases in interest rates either by fixed-rate financing arrangements or by interest rate hedges; 33%, or €4,874 million, was exposed to interest rate risks. A sensitivity analysis shows that a rise of 0.5% in the reference rates relevant for Fresenius would have a less than 1.0% impact on Group net income.
As a global company, Fresenius is widely exposed to translation effects due to foreign exchange rate fluctuations. The exchange rate of the U.S. dollar to the euro is of particular importance because of our extensive operations in the United States. Translation risks are not hedged. A sensitivity analysis shows that a one cent change in the exchange rate of the U.S. dollar to the euro would have an annualized effect of about €115 million on Group sales, about €21 million on EBIT, and about €5 million on Group net income.
As a globally active company, we have production facilities in all the main currency areas. In the service businesses, our revenue and cost base largely coincide. The Fresenius Group uses a Cash-Flow-at-Risk (CFaR) model in order to estimate and quantify such transaction risks from foreign currencies. The foreign currency cash flows that are reasonably expected to arise within the following 12 months, less any hedges, form the basis for the analysis of the currency risk. As of December 31, 2015, the Fresenius Group's cash flow at risk was €66 million. Hence, with a probability of 95%, a potential loss in relation to the forecasted foreign exchange cash flows of the next 12 months will not be higher than €66 million. Further details on financial risks can be found on pages 158 to 165 in the Notes.
Financial risks that could arise from acquisitions, investments in property, plant and equipment, and in intangible assets are assessed through careful and in-depth reviews of the projects, sometimes assisted by external consultants.
Goodwill and other intangible assets with an indefinite useful life carried in the Group's consolidated balance sheet are tested for impairment each year. Further information can be found on pages 127ff. of the Notes.
By normally assessing the creditworthiness of new customers, we limit the risk of late payment and defaults by customers. We also conduct follow-up assessments and review credit lines on an ongoing basis. Receivables outstanding from existing customers are monitored, and the risk of defaults is assessed. This particularly applies to countries with budgetary problems and countries exposed to political risks. In 2015, we again worked on our receivables, taking certain measures such as factoring.
As a global corporation, Fresenius is subject to numerous tax codes and regulations. Risks arising therefrom are identified and evaluated on an ongoing basis. The Fresenius Group's companies are subject to regular tax audits. Any changes in tax regulations or resulting from tax audits could lead to higher tax payments. Information on the status of the tax audits can be found on pages 121ff. of the Notes.
Fresenius' debt was €14,796 million as of December 31, 2015. The debt could limit the ability to pay dividends, arrange refinancing, be in compliance with its credit covenants, or implement the corporate strategy. Other financing risks could arise for Fresenius in the case of an ongoing general financial market crisis. We reduce these risks through a high proportion of mid- and long-term funding with a balanced maturity profile. Our financing agreements contain covenants requiring us to comply with certain financial ratios and additional financial criteria. Non-compliance with these covenants could result in a default and acceleration of the debt under the agreements.
Additional information on conditions and maturities can be found on pages 132ff. of the Notes and on pages 44ff. of the Management Report.
Risks that arise from legal disputes are continually identified, analyzed, and communicated within the Company. Companies in the health care industry are regularly exposed to actions for breach of their duties of due care, product liability, breach of warranty obligations, patent infringements, treatment errors, and other claims. This can result in high claims for damages and substantial costs for legal defense, regardless of whether a claim for damages is actually justified. Legal disputes can also result in an inability to insure against risks of this kind at acceptable terms in future. Products from the health care industry can also be subject to recall actions. This could have a negative effect on the assets and liabilities, financial position, and results of operations of the Group.
Information regarding legal matters and an ongoing internal compliance review at Fresenius Medical Care can be found on pages 152 to 157 of the Notes.
The Fresenius Group is also involved in various legal issues resulting from business operations. Although it is not possible to predict the outcome of these disputes, none is expected to have a significant adverse impact on the assets and liabilities, financial position, and results of operations of the Group.
Other risks, such as environmental risks and risks involving management and control systems, or our IT systems, were not considered to be significant. IT risks are countered through security measures, controls, and monitoring. In addition, we counter these risks with constant investment in hardware and software, as well as by improving our system know-how. Potential risks are covered by a detailed contingency plan, which is continuously improved and tested. Redundant systems are maintained for all key systems, such as IT systems or communications infrastructure. A password system is in place to minimize organizational risks, such as manipulation and unauthorized access. In addition, there are Company guidelines regulating the granting of access authorization, and compliance with these rules is monitored. We also conduct operational and security-related audits.
Risks with effect on the 1-year forecast period The chart above shows the significant risks that could lead to deviations from the expected business performance within the 1-year forecast period.
In the course of the risk classification, besides quantitative factors, especially qualitative factors are applied. The scales for classification of potential impact and probabilities are depicted in the two following tables:
| Potential impact | Description of impact |
|---|---|
| High | Substantial negative impact on the 1-year forecast |
| Medium | Moderate negative impact on the 1-year forecast |
| Low | Small negative impact on the 1-year forecast |
| Probability | Classification |
|---|---|
| High | ≥ 66% to 100% |
| Medium | ≥ 33% to < 66% |
| Low | 0% to < 33% |
Risks with potential effect on the 1-year forecast are shown in the chart beside.
With regard to the classification of the risks in terms of probability and potential impact, the following changes occurred compared to the previous year. With the advance and intensification of the use of information technology in all areas of the Group, the dependence on such systems and thus the risks that arise from them increase equally. The development of the economic conditions as well as the constitution of the financial markets in several of our markets, which amongst others may cause increasing days sales outstanding or bad debts and which may increase the risk of goodwill impairments, also affect our risk situation in a negative way.
The basis for evaluating overall risk is the risk management that is regularly audited by management. Potential risks for the Group include factors beyond its control, such as the evolution of economies, which are constantly monitored by Fresenius. Risks also include factors immediately within its control, such as operating risks, which the Company anticipates and reacts to appropriately, as required. There are currently no recognizable risks regarding future performance that appear to present a long-term and material threat to the Group's assets and liabilities, financial position, and results of operations. We have created organizational structures that provide all the conditions needed to rapidly alert us to possible risk situations and allow us to take suitable counteraction.
In this Corporate Governance Declaration, the Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE (Management Board), report, pursuant to Section 289a of the German Commercial Code (HGB), on corporate management and, pursuant to number 3.10 of the German Corporate Governance Code, on the Corporate Governance at the Company (Corporate Governance Report). The Corporate Governance Declaration and the Corporate Governance Report are published on the website at www.fresenius.com.
The Company has the legal form of a KGaA (Kommanditgesellschaft auf Aktien – partnership limited by shares). The Annual General Meeting, the Supervisory Board, and the general
partner Fresenius Management SE are the legal corporate bodies. There have been no changes in the Group management and the supervision structure in the reporting period. The chart on the following page provides an overview of the Group structure.
The articles of association of Fresenius SE & Co. KGaA, which, in addition to legal provisions, further define the responsibilities of the individual corporate bodies, can be downloaded from our website at www.fresenius.com.
The shareholders uphold their rights at the Annual General Meeting, where they exercise their voting rights. Every ordinary share of Fresenius SE & Co. KGaA confers one vote. None of the shares carry multiple or preferential voting rights.
We report in detail on our investor relations activities on page 80 and in the section "Fresenius share" on page 11.
Our Annual General Meeting (AGM) was held on May 20, 2015, in Frankfurt/Main. Approximately 74% of the share capital was represented.
During the AGM, the shareholders voted with a large majority of the votes cast for the proposals made by the general partner and the Supervisory Board. With a majority of above 88%, the shareholders approved increasing the 2014 dividend by 6% to €0.44 per ordinary share. With a vote of 98%, the shareholders elected Michael Diekmann to the Supervisory Board and the Joint Committee.
With regard to certain subject matters, legally required voting right exclusions exist for the general partner and in some instances for its sole shareholder, the Else Kröner--Fresenius-Stiftung. These pertain, for example, to the appointment of the Supervisory Board of Fresenius SE & Co. KGaA, the approval of the actions of the general partner and the members of the Supervisory Board, and the selection of the auditor. This guarantees that the remaining shareholders retain the sole authority to decide on these matters, especially those that pertain to the supervision of management.
Documents and information on the Annual General Meeting, as well as the voting results, are available on our website at www.fresenius.com.
structure fresenius se & co. kgaa
The responsibilities are distributed as follows in Fresenius SE & Co. KGaA: The Management Board of the general partner is responsible for conducting the business of Fresenius SE & Co. KGaA. The Supervisory Board of Fresenius SE & Co. KGaA supervises the management of the Company's business by the general partner.
The general partner Fresenius Management SE, represented by its Management Board, manages Fresenius SE & Co. KGaA at its own responsibility and conducts its business. The Management Board formulates the Company's strategy, discusses it with the Supervisory Boards of Fresenius Management SE and of Fresenius SE & Co. KGaA, and oversees its implementation. Its actions and decisions are aligned with the best interests of Fresenius SE & Co. KGaA. The Management Board is committed to increasing the value of the Company on a
1 For selected items no voting power, e.g., election of Supervisory Board of Fresenius SE & Co. KGaA, discharge of general partner and Supervisory Board of Fresenius SE & Co. KGaA, election of the auditor
sustainable basis. The rules of procedure for the Management Board were established by the Supervisory Board of Fresenius Management SE. They define the activities within the board more specifically, especially with regard to the individual duties and responsibilities of the members, matters reserved for the full Management Board, and resolutions to be passed by the full Management Board. The meetings of the Management Board are convened as required, but at least once a month, and are chaired by the Chairman of the Management Board or, if he is incapacitated, by the Chief Financial Officer or, if he is also incapacitated, by the Management Board member present who is most senior in age. However, Management Board meetings are usually held twice a month. The person chairing the meeting decides the order in which the items on the agenda are dealt with and the form in which the voting is conducted. The Management Board passes its resolutions by a simple majority of the votes cast or, outside its meetings, by a simple majority of its members, except in cases where mandatory provisions of law impose stricter requirements. The Chairman of the Management Board has the casting vote if a vote is tied. If the Chairman is incapacitated or absent, the motion is deemed rejected if a vote is tied. The rules of procedure for the Management Board also govern the relations between the Management Board and the Supervisory Board of the general partner as well as between the general partner and the Supervisory Board of Fresenius SE & Co. KGaA, and also matters that require approval of the general partner's Supervisory Board.
The Management Board consists of seven members: the Chairman, the Chief Financial Officer, the Chief Legal and Compliance Officer and Labor Relations Director, as well as the chief executive officers of the four business segments. This ensures that the full Management Board is kept constantly informed about important events, plans, developments, and measures within the business segments. There are no Management Board committees owing to Fresenius SE & Co. KGaA's role as an operating holding company. The Management Board is listed on page 190 of the Annual Report.
As a European company (SE – Societas Europaea), Fresenius Management SE has its own Supervisory Board. It consists of six members, and its Chairman is Dr. Gerd Krick. The Supervisory Board appoints the members of the Management Board of Fresenius Management SE and supervises and advises the Management Board by conducting the business. It established its rules of procedure following the recommendation in number 5.1.3 of the Code.
The Supervisory Board members of Fresenius Management SE can be found on page 191 of the Annual Report.
The Supervisory Board of Fresenius SE & Co. KGaA The Supervisory Board of Fresenius SE & Co. KGaA supervises the management of the Company's business by the general partner. It supervises business operations to ensure that corporate decisions are compliant, suitable, and financially sound. The members of the Management Board of the general partner are appointed by the Supervisory Board of Fresenius Management SE, not – as already explained – by the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board of Fresenius SE & Co. KGaA consists of twelve members. Half of its members are elected by the AGM. The proposals for the members of the Supervisory Board primarily take account of the knowledge, ability, and expert experience required to perform the tasks. The election proposal provided by the Supervisory Board will take into account the Company's international activities, potential conflicts of interest, the number of independent members of the Supervisory Board within the meaning of number 5.4.2 of the Code, and diversity. For the Supervisory Board of Fresenius SE & Co. KGaA, the law requires a quota of at least 30% women and 30% men. These quotas will be met by the Supervisory Board election at our Annual General Meeting in May 2016. In the Company's interest not to limit the selection of qualified candidates in a general way, the Supervisory Board confines itself to a general declaration of intent and particularly refrains from an age limit as well as a regular limit of length of membership. The statutorily required declaration of conformity concerning the Code accordingly includes a justified limitation. A Nomination Committee has been instituted for election proposals for the shareholders' representatives. Its activities are aligned with the provisions of law and the Code. In this one case, the involvement of the Nomination Committee for the proposal of the successor of Dr. Gerhard Rupprecht was not sought. The Nomination Committee did not have a quorum because Dr. Rupprecht was himself a member of this committee. Furthermore, there was consensus in the Supervisory Board that Mr. Diekmann would be recommended for election as Dr. Rupprecht's successor. Against this background, an interim appointment to and action by the Nomination Committee appeared to be a pointless formality. In the meantime, the Nomination Committee is now complete again.
With regard to future cases, the intention is that the Nomination Committee recommends suitable Supervisory Board candidates for the proposals of the Supervisory Board to the General Meeting. The European works council elects the employee representatives to the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board includes what it deems to be an appropriate number of independent members who do not have any business or personal relationship with the Company, its corporate bodies, a controlling shareholder, or a party related to the latter that may give grounds for a material and not merely temporary conflict of interest. The articles of association of Fresenius SE & Co. KGaA regulate the details with regard to the Supervisory Board's election, constitution, term of office, meetings and resolutions, and rights and duties. They are published on our website at www.fresenius.com.
The Supervisory Board of Fresenius SE & Co. KGaA has established its rules of procedure in accordance with number 5.1.3 of the Code. The Chairman of the Supervisory Board is responsible for coordinating the activities of the Supervisory Board, chairing the meetings, and representing its interests externally. The Supervisory Board should convene once each calendar quarter, and must convene twice each calendar halfyear. The meetings are convened and chaired by the Chairman or, if he is incapacitated, by a chairperson named by the Chairman. The person chairing the meeting decides the order in which the items on the agenda are dealt with and the form in which the voting is conducted. Unless other majorities are mandatory by law, the Supervisory Board passes its resolutions by a simple majority of the votes submitted in the voting. If a vote is tied, the Chairman has the casting vote or, if he does not take part in the voting, the matter is decided by the vote of the Deputy Chairman, who is a shareholder representative.
The Supervisory Board of Fresenius SE & Co. KGaA conducts its business in accordance with the provisions of law, the articles of association of Fresenius SE & Co. KGaA, and its rules of procedure. The Management Board of the general partner Fresenius Management SE continuously informs the Supervisory Board of the corporate development, planning, and strategy. The Supervisory Board supervises the Company's management and, taking into account the auditor's reports,
reviews the Group's annual financial statements. Another important part of the Supervisory Board's activities is the work conducted within the committees formed in accordance with the requirements of the German Stock Corporation Act and the recommendations of the Code.
The members of the Supervisory Board keep themselves regularly informed, through internal and external sources, about the latest requirements with regard to their supervisory activities. With the support of the Company, the Supervisory Board at all times ensures that its members are suitably qualified, keep their professional knowledge up to date, and further develop their judgment and expertise to the extent necessary for the proper performance of their duties, including those of the Supervisory Board committees. Various external experts as well as experts from the Company provide information about important developments, for example about the strategic orientation of the Company in growth markets, relevant new laws and precedents, or changes in the U.S. GAAP and IFRS accounting and auditing standards.
The members of the Supervisory Board of Fresenius SE & Co. KGaA can be found on pages 188 to 189 of the Annual Report. On pages 182 to 187 of the Annual Report, the Supervisory Board reports on the main focuses of its activities and those of its committees in 2015.
The Supervisory Board of Fresenius SE & Co. KGaA deliberated on the efficiency evaluation in accordance with number 5.6 of the Code at its meeting in March 2015.
It reviewed the efficiency of its activities through an open discussion within the full Supervisory Board. A companyspecific questionnaire covering the salient points for a selfevaluation served as the basis for the discussion. Among other things, this included the organization and structuring of the meetings, the amount of information, and how this information was provided. The self-evaluation showed that the Supervisory Board assesses its organization as well as its work as efficient.
Cooperation between general partner and Supervisory Board of Fresenius SE & Co. KGaA Good corporate governance requires trusting and efficient cooperation between the Management and the Supervisory Board. The Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA closely cooperate for the benefit of the Company. Open communication is essential. The common goal is to sustainably increase the
company value in line with the corporate governance and compliance principles. The Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA coordinate with each other, especially with regard to the Company's strategic focus. As the monitoring body, the Supervisory Board of Fresenius SE & Co. KGaA also needs to be fully informed about operating performance and corporate planning, as well as the risk situation, risk management, and compliance. The Management Board of the general partner provided this information in full and in compliance with its duties.
The Supervisory Board of Fresenius SE & Co. KGaA forms two permanent committees from among its members: the Audit Committee, consisting of five members, and the Nomination Committee, consisting of three members. The committee members were elected for the duration of their term as a member of the Supervisory Board of Fresenius SE & Co. KGaA. In accordance with the articles of association of Fresenius SE & Co. KGaA, only members of the Audit Committee receive additional compensation (Section 13 (2)). There is no Personnel Committee in the KGaA because the Supervisory Board of Fresenius SE & Co. KGaA is not responsible for appointing members of the Management Board of the general partner or for their contracts. Responsibility for these personnel matters lies with the Supervisory Board of the general partner.
The provisions for the Supervisory Board of Fresenius SE & Co. KGaA apply analogously to the committees. The committees hold meetings as required. The meetings are convened by the committee chairmen. They report during the following Supervisory Board meeting about the work of the respective committee. The rules of procedure for the committees are regulated in the rules of procedure of the Supervisory Board of Fresenius SE & Co. KGaA. The committees do not have their own rules of procedure.
The members of the Supervisory Board's committees are listed on page 189 of the Annual Report.
Prof. Dr. h. c. Roland Berger is the Chairman of the Audit Committee. He has the required expertise in the fields of accounting and auditing stated in Section 100 (5) of the German Stock Corporation Act (AktG). The Committee's function is, among other things, to prepare the Supervisory Board's approval of the financial statements – and the consolidated financial statements – and the Supervisory Board's proposal to the AGM on the appointment of the auditor for the financial statements, and to make a preliminary review of the proposal on the allocation of distributable profits. It also reviews the quarterly reports before they are published and – following discussions with the Management Board – engages the auditor for the financial statements (and concludes the agreement on the auditor's fees), determines the main focuses of the audit, and defines the auditor's reporting duties in relation to the Supervisory Board of Fresenius SE & Co. KGaA. Other matters within its remit are to review the effectiveness of the internal controls system, of the risk management system, of the internal audit system, and of the compliance.
The Audit Committee consists of Prof. Dr. h. c. Roland Berger (Chairman), Konrad Kölbl, Dr. Gerd Krick, Gerhard Roggemann, and Rainer Stein.
The Nomination Committee proposes suitable candidates to the Supervisory Board for the nominations it makes to the AGM for the election of Supervisory Board members on the shareholders' side. It consists solely of shareholder representatives. In making its proposals, the Nomination Committee is guided by the requirements of the Code.
The Nomination Committee consists of Dr. Gerd Krick (Chairman), Prof. Dr. h. c. Roland Berger, and Michael Diekmann.
Fresenius SE & Co. KGaA does not have a Mediation Committee because the provisions of the German Co-Determination Act that require such a committee do not apply to a partnership limited by shares and because the Code does not require such a committee either.
For some matters, which are defined in further detail in Section 13c (1) of the articles of association of Fresenius SE & Co. KGaA, the general partner requires the approval of the Joint Committee if 40% of the consolidated sales, the consolidated balance sheet total, and the consolidated profit are
affected by the matter. These include, for example, the divestiture and acquisition of large investments and business units or the divestiture of large business units from the assets of Fresenius SE & Co. KGaA or a wholly owned company. The approval of the Joint Committee is also required for certain legal transactions between Fresenius SE & Co. KGaA or its affiliates and the Else Kröner-Fresenius-Stiftung.
Dr. Gerd Krick and Michael Diekmann are members of the Joint Committee. The other members are Dr. Dieter Schenk (Chairman) and Dr. Karl Schneider, who were appointed by the general partner. The Joint Committee did not meet in 2015.
Information on positions held by committee members on statutorily required supervisory boards and comparable domestic and foreign control bodies of other business enterprises can be found on pages 188 to 191 of the Annual Report.
The general partner, represented by its Management Board, manages the Company's business with the due care and diligence of a prudent and conscientious company director in compliance with the provisions of the law, the articles of association, the rules of procedure for the Management Board, the resolutions passed by the full Management Board, and the Supervisory Board of the general partner. Corporate governance practices extending beyond the requirements of law are defined in the Fresenius Code of Conduct. This Code of Conduct contains the key principles and rules for our conduct within the Company and in our relations with external partners and with the public. We have published the Fresenius Code of Conduct on our website at www.fresenius.com. The Code of Conduct is binding for all Company employees and must be complied with regarding any type of business relationship. Our executives regard ensuring compliance with the principles of the Code of Conduct as part of their managerial responsibilities.
Our "Forward Thinking Healthcare" model is the maxim for corporate governance at Fresenius, determines our corporate culture, and is an integral part of our day-to-day work. It is the basis for our corporate values reflected in the Fresenius Code of Conduct. In this Code of Conduct, the Management Board commits itself without limitation to binding principles and rules for conduct within the Company and in its course of the business. These include professionalism, honesty, and integrity in relations with our patients, customers, suppliers, employees, and shareholders. Furthermore, in its Code of Conduct, Fresenius commits itself to fair competition and to dealing honestly with business partners and officials. Fresenius expects all of its employees to comply with all applicable principles, laws, and regulations. Breaches will not be tolerated and will be pursued.
Company guidelines and rules of procedure provide specific details regarding the regulations included in the Fresenius Code of Conduct. Their purpose is to help our employees make the right decisions in their day-to-day work. The Fresenius Code of Conduct is complemented by the codes of conduct and compliance programs of the Company's business segments. The latter comply with the requirements that arise from their specific activities and are generally not interfered with as long as they are not in conflict with the Fresenius Code of Conduct. The Fresenius Code of Conduct accordingly applies to all employees of the Fresenius Group.
Employees are obliged to report any non-compliance with the Code, or if they become aware of a potential non-compliance, to their superiors or a compliance manager. The Code of Conduct explicitly rules that no employee may incur any disadvantage as a result of reporting a potential breach of the Code. That is why breaches of the Code of Conduct may also be reported anonymously to an e-mail address set up for this purpose. In various business segments breaches may also be reported via a whistleblower hotline.
Regular training, for example on the Code of Conduct in general or on specific topics, such as anticorruption and cartel law, helps our employees to comply with the Fresenius Code of Conduct, the Company guidelines, and our rules of procedure. Fresenius gives top priority to this training, which is obligatory for all employees, including management. The
aim is to make participants aware of potential breaches of compliance and for them to learn to recognize and avoid risks and conflicts of interest at an early stage. Besides participating in person, it has been possible to do the training online.
The Internal Audit division audits business segments and Group companies also in regard to compliance-relevant issues. It discusses potential areas of risk prior to, and takes account of them in, its audit. If the results of an audit reveal any potential for improvement, this will be implemented jointly with the Corporate Compliance department at Fresenius SE & Co. KGaA.
Monitoring compliance is a central duty of management at all levels. The Corporate Compliance department reports to the Chief Compliance Officer – the member of the Management Board responsible for Legal Affairs, Compliance, and Human Resources. It supports him in developing and implementing guidelines and procedures aimed at ensuring compliance with statutory regulations and the requirements of the Fresenius Compliance Program.
Each business segment has initiated compliance activities and guidelines, and appointed a Chief Compliance Officer. This officer is in charge of introducing, developing, and monitoring compliance. Depending on the organizational and business structures, the Chief Compliance Officer is assisted by additional compliance officers. The employees at the Corporate Compliance department similarly support and advise the compliance officers of the business segments, as well as at the regional and local levels.
The Compliance Steering Committee is the central committee for discussing compliance issues. It comprises the Chief Compliance Officer, the Chief Financial Officer, and the heads of Legal Affairs, Internal Audit, and the Corporate Compliance department. It deals with the status of major projects and discusses procedures concerning recognized risks and the steps to be taken to identify breaches of compliance. It also specifies procedures for dealing with any breach.
The supervisory bodies at Fresenius SE & Co. KGaA as well as the general partner, Fresenius Management SE, are regularly informed – no less than once a year – about compliance within the Group.
In our view, the responsible handling of risks is an element of good corporate governance. Fresenius has a systematic risk management and control system that allows the Management Board to make early identifications of risks and market trends and to react promptly to relevant changes in our risk profile. Our risk management and control system and efficiently designed processes help to enhance the Company's performance. Our risk management is reviewed as part of the annual audit of the financial statements. The control system is regularly reviewed by the Management Board and the Internal Audit division. Further information can be found on pages 59 to 60 of the Management Report.
The Internal Audit division supports the Management Board as an independent function outside the Company's dayto-day operations. The division assesses internal processes from an objective viewpoint and with the necessary distance. Our goal is to create added value for Fresenius, and thus to help achieve organizational goals through improved internal controls, optimized business processes, cost reduction, and efficiency increases, as well as the prevention of corruption.
Fresenius Medical Care AG & Co. KGaA has its own internal risk management and control system.
The German Corporate Governance Code aims to provide more transparency for investors with regard to existing regulations covering the management and monitoring of companies. Our value-enhancing strategies, as well as the majority of the guidelines, recommendations, and suggestions for responsible management contained in the Code, have been basic components of our activities for many years. Extensive information on Corporate Governance can be found on our website at www.fresenius.com.
The Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, and the Supervisory Board of Fresenius SE&Co.KGaA have issued the required Declaration of Conformity pursuant to Section 161 of the German Stock Corporate Act (AktG) and have made it available to shareholders on the website of the Company:
"Declaration by the Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, and by the Supervisory Board of Fresenius SE & Co. KGaA on the German Corporate Governance Code pursuant to Section 161 German Stock Corporation Act (Aktiengesetz).
The Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, (hereafter the Management Board) and the Supervisory Board of Fresenius SE & Co. KGaA declare that since the issuance of the previous declaration of conformity in December 2014 (amended in March 2015), the recommendations of the "Government Commission on the German Corporate Governance Code" published by the Federal Ministry of Justice (Bundesministerium der Justiz) in the official section of the Federal Gazette (Bundesanzeiger) (hereafter the Code) in the version of June 24, 2014 as well as in the version of May 5, 2015 since its publication in the Federal Gazette have been met and that the recommendations of the Code in the version of May 5, 2015 will also be met in the future. Only the following recommendations of the Code in the versions of June 24, 2014 and May 5, 2015 have not been and will not be met:
Pursuant to Code number 4.2.3 paragraph 2 sentence 6, the amount of compensation for Management Board members shall be capped, both overall and for variable compensation components.
This recommendation is not met. The service agreements with members of the Management Board do not provide for caps regarding specific amounts for all compensation components and accordingly not for caps regarding specific amounts for the overall compensation. The performance-oriented short-term compensation (the variable bonus) is capped. As regards stock options and phantom stocks as compensation components with long-term incentives, the service agreements with members of the Management Board do provide for a possibility of limitation but not for caps regarding specific amounts. Introducing caps regarding specific amounts in relation to such stock-based compensation components would contradict the basic idea of the members of the Management Board participating appropriately in the economic risks and opportunities of the company. Instead of that,
Fresenius pursues a flexible concept considering each individual case. In situations of extraordinary developments in relation to the stock-based compensation which are not related to the performance of the Management Board, the Supervisory Board may cap the stock-based compensation.
▶ Code number 4.2.3 paragraph 4: Severance payment cap Pursuant to Code number 4.2.3 paragraph 4, in concluding Management Board contracts, care shall be taken to ensure that payments made to a Management Board member on premature termination of his /her contract, including fringe benefits, do not exceed the value of two years' compensation (severance payment cap) and compensate no more than the remaining term of the service agreement. The severance payment cap shall be calculated on the basis of the total compensation for the past full financial year and if appropriate also the expected total compensation for the current financial year.
These recommendations are not met insofar as the service agreements of the members of the Management Board do not contain severance payment arrangements for the case of premature termination of the contract and consequently do not contain a limitation of any severance payment amount to this extent. Uniform severance payment arrangements of this kind would contradict the concept practiced by Fresenius in accordance with the German Stock Corporation Act (Aktiengesetz) according to which service agreements of the members of the Management Board are, in principle, concluded for the period of their appointment. They would also not allow for a wellbalanced assessment of the individual case.
Pursuant to Code number 4.2.5 paragraph 3, the presentation of the compensation for each individual member of the Management Board in the compensation report shall present the maximum and minimum achievable compensation for variable compensation components by using corresponding model tables. The presentation of the compensation granted pursuant to the description for model table 1 shall also specify the target value or a comparable value of an "average probability scenario" for the one-year variable compensation and for the deferrable portions from one-year variable compensations (deferrals).
Fresenius, in deviation from Code number 4.2.3 paragraph 2 sentence 6, does not provide for caps regarding specific amounts for all variable compensation components and, therefore, does not provide for caps regarding specific amounts for the overall compensation. There are no target values or comparable values for the one-year variable compensation and for the deferrable portions from one-year variable compensations (deferrals). The oneyear variable compensation is determined on the basis of bonus curves applicable to several years. In this respect, the compensation report cannot meet the recommendations of the Code. Irrespective thereof, Fresenius will continue to present its compensation system and the amounts paid to members of the Management Board in its compensation report in a comprehensive and transparent manner. The compensation report will include tables relating to the value of the benefits granted as well as to the allocation in the year under review which follow the structure and largely also the specifications of the model tables.
Pursuant to Code number 5.3.2 sentence 3, the Chairman of the Audit Committee shall be independent. Pursuant to Code number 5.4.2 sentence 2, a Supervisory Board member is not to be considered independent in particular if he / she has personal or business relations with the company, its executive bodies, a controlling shareholder or an enterprise associated with the latter which may cause a substantial and not merely temporary conflict of interests.
The Chairman of the Audit Committee of Fresenius SE & Co. KGaA, Prof. Dr. h. c. Roland Berger, is at the same time a shareholder of Roland Berger Strategy Consultants Holding GmbH and the Honorary Chairman of the Supervisory Board of Roland Berger Strategy Consultants Holding GmbH. During the course of the 2014 financial year (as in previous years), the Fresenius Group has made use of consultancy services provided by Roland Berger Strategy Consultants GmbH, an affiliated enterprise of the management consultancy Roland Berger Strategy Consultants Holding GmbH. The Management Board and Supervisory Board believe that these business relations neither constitute a substantial or long-term conflict of interest, nor do they interfere with the tasks of the Chairman of the Audit Committee. As a precaution, however, a deviation from Code number 5.3.2 sentence 3 is being declared, given the legal views taken with regards to the question of independence.
Pursuant to Code number 5.3.3, the Supervisory Board shall form a Nomination Committee which proposes suitable candidates to the Supervisory Board for recommendation to the General Meeting.
In this one case, the involvement of the Nomination Committee for the proposal of the successor of Dr. Gerhard Rupprecht was not sought. The Nomination Committee did not have a quorum because Dr. Rupprecht was himself a member of this committee. Furthermore, there was consensus in the Supervisory Board that Mr. Diekmann would be recommended for election as Dr. Rupprecht's successor. Against this background, an interim appointment to and action by the Nomination Committee appeared to be a pointless formality.
In the meantime, the Nomination Committee is now complete again. With regard to future cases, the intention is to once again fully comply with the recommendations of the Code number 5.3.3.
Pursuant to code number 5.4.1 paragraph 2 and paragraph 3, the Supervisory Board shall specify concrete objectives regarding its composition and, when making recommendations to the competent election bodies, take these objectives into account. The objectives specified by the Supervisory Board and the status of the implementation shall be published in the Corporate Governance Report.
These recommendations are not met. The composition of the Supervisory Board needs to be aligned to the enterprise's interest and has to ensure the effective supervision and consultation of the Management Board. Hence, it is a matter of principle and of prime importance that each member is suitably qualified. When discussing its recommendations to the competent election bodies, the Supervisory Board will take into account the international activities of the enterprise, potential conflicts of interest, the number of independent Supervisory Board members within the meaning of Code number 5.4.2, and diversity.
In the enterprise's interest not to limit the selection of qualified candidates in a general way, the Supervisory Board, however, confines itself to compliance with statutory requirements and particularly refrains from an age limit and a regular limit of length of membership.
Pursuant to Code number 5.4.6 paragraph 2 sentence 2, a performance-related compensation, if promised to the members of the Supervisory Board, shall be oriented toward sustainable growth of the enterprise. The variable compensation of the Supervisory Board members of Fresenius SE & Co. KGaA does not have a calculation basis of several years and is, therefore, not oriented, in this sense, toward the sustainable growth of the enterprise. Instead, the Supervisory Board receives a performancerelated compensation which depends on the dividend pursuant to Section 13 paragraph 1 of the Articles of Association of Fresenius SE & Co. KGaA. This compensation model has been in existence since the year 1995. It continues to bring forth an adequate compensation of the Supervisory Board in line with the law and with the interests of the shareholders.
Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, and Supervisory Board of Fresenius SE & Co. KGaA"
In accordance with Section 161 para. 2 AktG and number 3.10 sentence 3 of the Code, this declaration and all past declarations are published on our website at www.fresenius.com.
The Management Board takes diversity into account when filling executive positions. At Fresenius, the individual's qualifications are the paramount consideration in all hiring and promotion decisions. This means that women and men with comparable qualifications and suitability have the same career opportunities. Fresenius will continue to consistently act upon this principle, and will of course comply with the new law on the equal participation of women and men in executive positions in private companies and the public service:
For the Supervisory Board of Fresenius SE & Co. KGaA, the new law requires a quota of at least 30% women and 30% men. These quotas must be met by the Supervisory Board election at our Annual General Meeting in May 2016.
The legally stipulated targets for the Management Board do not apply to Fresenius Management SE or to Fresenius SE & Co. KGaA. Due to its legal form, Fresenius SE & Co. KGaA does not have a Management Board. Fresenius Management SE is not listed on the stock exchange and is also not subject to codetermination.
In accordance with the legal requirements, the Management Board specifies composition of the two management levels directly below the Management Board as follows:
The first management level includes all Senior Vice Presidents and Vice Presidents who have an employment contract with Fresenius SE & Co. KGaA and who report directly to a Member of the Management Board. As of August 31, 2015, women held 30 percent of the positions at this level. This is the target that was set for the proportion of women at this level, to be reached by December 31, 2015. This target was reached by December 31, 2015.
The second management level includes all Vice Presidents who have an employment contract with Fresenius SE & Co. KGaA and who report directly to a member of the first management level. As of August 31, 2015, women held 37.5 percent of the positions at this level. This is the target that was set for the proportion of women at this level, to be reached by December 31, 2015. This target was also reached by December 31, 2015.
Through a decision that becomes effective on January 1, 2016, the Management Board has set new targets for the proportion of women at the first and second management levels directly below the Management Board. The new targets are to be met by December 31, 2020, and call for a proportion of women of 33.3% at the first management level and of 37.5% at the second management level directly below the Management Board.
The Management Board believes that inclusion in the company-wide stock option program is a strong indicator that an individual holds a leading executive position. The proportion of women in this group of our top 1,200 executives was 30 percent as of December 31, 2015.
Further information on diversity as well as personnel development and personnel management are included in the Group Management Report on page 28f.
The general partner and the Supervisory Board of Fresenius SE & Co. KGaA have a duty to act in the best interests of the Company. In performing their activities, they do not pursue personal interests or bestow unjustified benefits on others. Any sideline activities or transactions with the Company by members of the corporate bodies must be reported to, and approved by, the Supervisory Board. The Supervisory Board of Fresenius SE & Co. KGaA reports to the AGM on any conflicts of interest and how they are dealt with.
Fresenius SE & Co. KGaA reports the following relationships existing between Fresenius group companies and companies in which members of the Supervisory Board of Fresenius SE & Co. KGaA or members of the Supervisory or Management Board of Fresenius Management SE held an executive or other function in 2015:
Prof. Dr. med. D. Michael Albrecht is a member of the Supervisory Board of Fresenius SE & Co. KGaA and medical director and spokesman for the management board of the University Hospital Carl Gustav Carus Dresden, as well as a member of the supervisory board of the University Hospital in Aachen. The Fresenius Group maintains business relations with these hospitals in the ordinary course of business under customary conditions.
Klaus-Peter Müller is a member of the Supervisory Boards of Fresenius Management SE and of Fresenius SE & Co. KGaA and the Chairman of the Supervisory Board of Commerzbank AG, with which the Fresenius Group maintains business relationships under customary conditions. Michael Diekmann has been a member of the Supervisory Board of Fresenius Management SE and Deputy Chairman of the Supervisory Board of Fresenius SE & Co. KGaA since May 20, 2015, and currently is a Non-Executive Director of the Board of Directors of Allianz Australia Ltd. In 2015, the Fresenius Group paid insurance premiums to Allianz under customary conditions.
Consultancy or other service relationships between members of the Supervisory Board and the Company existed with regard to Dr. Dieter Schenk, Deputy Chairman of the Supervisory Board of Fresenius Management SE. Dr. Schenk is a partner in the law firm Noerr LLP. The entities of the internationally acting law firm Noerr provided legal advice to the Fresenius Group in 2015. In 2015, the Fresenius Group paid a total of about €1.4 million to the law firm Noerr (2014: €1.8 million). This corresponds to 1% of the total amount paid by the Fresenius Group for services and legal advice in 2015 (2014: 1%). Not included in the amount paid or processed for payment are such payments made in 2015 that had already been processed for payment in 2014 and have therefore already been reported for the 2014 fiscal year. Of the total amount for fiscal year 2015, about €0.3 million were attributable to services for Group companies not related to the business segment Fresenius Medical Care. The services rendered for Group companies of the business segment Fresenius Medical Care require a separate approval by the Supervisory Boards of Fresenius Medical Care Management AG and Fresenius Medical Care AG & Co. KGaA. The Supervisory Board of Fresenius Management SE has examined the mandate closely, and has approved this mandate. Dr. Schenk did not take part in the voting. The approval was made on the basis of a written submission to the Supervisory Board, which listed all individual mandates and their corresponding individual invoices. In 2015, the invoices were paid after the Supervisory Board gave its approval. The Supervisory Board of Fresenius SE &Co. KGaA dealt with the amounts for legal services paid to the law firm Noerr in relation to the amounts paid to other law firms.
The payments mentioned in the above section "Legal relationships with members of the corporate bodies" are net amounts. In addition, VAT was paid.
There are no other consulting or service contracts – neither directly nor indirectly – between Supervisory Board members and the Company.
Fresenius has disclosed the information on related parties in its 2015 quarterly reports and on page 177 of the Annual Report.
Members of the Management and Supervisory Boards of the general partner, members of the Supervisory Board of Fresenius SE & Co. KGaA, other executive officers, and persons closely related to them are required, pursuant to Section 15a of the German Securities Trading Act (WpHG), to disclose purchases and sales of Fresenius SE & Co. KGaA's shares and financial instruments based on them (directors' dealings). Directors' dealings in 2015 are disclosed on our website at www.fresenius.com in the Corporate Governance section.
Pursuant to number 6.2 of the Code, ownership of shares of the Company and financial instruments based on them must be disclosed by Management Board and Supervisory Board members if more than 1% of the shares issued by the Company are held either directly or indirectly. None of the Management or Supervisory Board members of the general partner or of the Supervisory Board of Fresenius SE & Co. KGaA directly or indirectly holds more than 1% of the shares issued by Fresenius or any related financial instruments.
The members of the Management and Supervisory Boards of Fresenius Management SE and the members of the Supervisory Board of Fresenius SE & Co. KGaA together hold 0.82% of the shares of Fresenius SE & Co. KGaA outstanding as of December 31, 2015, in the form of shares or related financial instruments and stock options under the Fresenius SE & Co. KGaA stock option plans. 0.35% are held by members of the Management Board of Fresenius Management SE, 0.46% by members of the Supervisory Board of Fresenius Management SE, and 0.46% by members of the Supervisory Board of Fresenius SE & Co. KGaA. Due to the fact that some persons are members of both Supervisory Boards, the amount of
shares or related financial instruments and stock options held by the Boards of Fresenius SE & Co. KGaA and Fresenius Management SE in total is smaller than the cumulative holdings of the three Boards as reported herein.
There were no notifications that the shareholdings of members of the Management and Supervisory Boards had reached, exceeded, or fallen below the reporting thresholds stipulated in the German Securities Trading Act.
Fresenius adheres to all recommendations under number 6 of the Code. Transparency is guaranteed by continuous communication with the public. In that way we are able to validate and deepen the trust given to us. Of particular importance to us is the equal treatment of all recipients. To ensure that all market participants receive the same information at the same time, we post all important publications on our website at www.fresenius.com. We report in detail on investor relations activities on page 11 of the Annual Report.
Fresenius prepares its consolidated financial statements in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP). Fresenius, as a publicly traded company based in a member country of the European Union, is required to prepare and publish its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) pursuant to Section 315a of the German Commercial Code (HGB). Our largest subsidiary, Fresenius Medical Care, prepares its financial statements in accordance with U.S. GAAP. We therefore publish our consolidated financial statements in accordance with U.S. GAAP and our statutory consolidated financial statements in accordance with IFRS. This enables us to disclose our financial results to all our shareholders in a comparable and transparent manner.
The leading auditor Marcus Rohrbach, KPMG AG Wirtschaftsprüfungsgesellschaft, has been responsible for the audit of the consolidated financial statements since 2012.
The compensation report summarizes the main elements of the compensation system for the members of the Management Board of Fresenius Management SE as the general partner of Fresenius SE & Co. KGaA, and in this regard notably explains the amounts and structure of the compensation paid to the Management Board as well as the principles for determining the compensation of the Supervisory Board and the amounts of the compensation. The compensation report is part of the Management Report of the annual financial statements and the annual consolidated financial statements of Fresenius SE & Co. KGaA. The compensation report is prepared on the basis of the recommendations of the German Corporate Governance Code as well as under consideration of the declaration of conformity of Fresenius SE & Co. KGaA of December 2015, and also includes the disclosures as required pursuant to the applicable statutory regulations, notably in accordance with the German Commercial Code.
The entire Supervisory Board of Fresenius Management SE is responsible for determining the compensation of the Management Board. The Supervisory Board is assisted in this task by a personnel committee. In the fiscal year 2015, the acting personnel committee was composed of Dr. Gerd Krick, Dr. Dieter Schenk, and Dr. Karl Schneider.
The objective of the compensation system is to enable the members of the Management Board to participate reasonably in the sustainable development of the Company's business and to reward them based on their duties and performance as well as their successes in managing the Company's economic and financial position, giving due regard to the peer environment.
The compensation of the Management Board is, as a whole, performance-based and was composed of three elements in the fiscal year 2015:
In addition, there are pension commitments for the seven members of the Management Board.
The design of the individual elements is based on the following criteria:
The fixed compensation was paid in 12 monthly installments in the fiscal year 2015. Mr. Rice Powell was paid a part of his fixed compensation from Fresenius Medical Care North America in 24 installments. Moreover, the members of the Management Board received additional benefits consisting mainly of insurance premiums, the private use of a company car, special payments such as rent supplements and reimbursement of certain other charges, tuition fees, cost of intrusion detection systems, as well as contributions to pension and health insurance.
The performance-based compensation will also be granted for the fiscal year 2015 as a short-term cash component (oneyear variable compensation) and as compensation components with long-term incentive effects (stock options, share-based compensation with cash settlement (phantom stocks), and postponed payments of the one-year variable compensation). The amount of the one-year variable compensation in each case is dependent on certain target parameters oriented on the net income attributable to Fresenius SE & Co. KGaA and/or to the relevant business segments being achieved. In the case of the members of the Management Board with functional responsibility for the entire Group – such members being Dr.Schneider, Mr.Sturm, and Dr.Götz – the amount of the oneyear variable compensation is based in its entirety on the respective net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest). For Mr.Henriksson and Dr. De Meo, approximately half of the amount of the one-year variable compensation depends on the development of the net income attributable to Fresenius SE & Co. KGaA and for the remainder on the development of the net income of the business segment (in each case after deduction of noncontrolling interest) for which the respective member of the Management Board is responsible. Approximately half of the amount of the one-year variable compensation of Dr. Wastler is oriented on the net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest) as well as on the net income before tax and extraordinary income/ expenditures of the VAMED group. Mr. Rice Powell receives his compensation exclusively from Fresenius Medical Care. Furthermore, the Supervisory Board may grant members of the Management Board a discretionary bonus for extraordinary performance.
For the fiscal year 2015, the Supervisory Board of Fresenius Medical Care Management AG has granted such a discretionary bonus to Mr.Rice Powell in the total amount of €541 thousand (2014: €376 thousand).
For the fiscal years 2015 and 2014, the amount of cash payment to the Management Board of the general partner of Fresenius SE & Co. KGaA consisted of the following:
| Non-performance-based compensation |
Short-term performance-based compensation |
Cash compensation (without long-term incentive components) |
||||||
|---|---|---|---|---|---|---|---|---|
| Fixed compensation | Fringe benefits 2 | Bonus | ||||||
| € in thousands | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| Dr. Ulf M. Schneider | 1,100 | 990 | 143 | 92 | 1,712 | 1,454 | 2,955 | 2,536 |
| Dr. Francesco De Meo | 600 | 550 | 22 | 19 | 1,242 | 1,015 | 1,864 | 1,584 |
| Dr.Jürgen Götz | 460 | 415 | 70 | 35 | 869 | 697 | 1,399 | 1,147 |
| Mats Henriksson | 600 | 550 | 185 | 175 | 1,239 | 943 | 2,024 | 1,668 |
| Rice Powell 1 | 1,239 | 941 | 342 | 151 | 1,0323 | 7373 | 2,613 | 1,829 |
| Stephan Sturm | 600 | 550 | 109 | 41 | 1,142 | 929 | 1,851 | 1,520 |
| Dr. Ernst Wastler | 500 | 470 | 85 | 37 | 707 | 671 | 1,292 | 1,178 |
| Total | 5,099 | 4,466 | 956 | 550 | 7,943 | 6,446 | 13,998 | 11,462 |
1 Mr. Rice Powell received his compensation only from Fresenius Medical Care, of which Fresenius SE & Co. KGaA held around 31% of the total subscribed capital.
As a member of the Management Board of Fresenius Management SE, his compensation has to be included in the compensation report of the Fresenius Group.
2 Includes insurance premiums, private use of a company car, contributions to pension and health insurance, as well as other benefits. This amount contains a discretionary bonus for Mr. Rice Powell in the amount of €541 thousand for the 2015 fiscal year (2014: €376 thousand).
In the fiscal year 2015, the one-year variable compensation, excluding the payment to Mr.Rice Powell, amounted to €6,911 thousand. This equals the total one-year variable compensation.
To ensure that the overall system of compensation of the members of the Management Board is oriented towards long-term and sustained corporate development, the compensation system provides that the share of long-term variable compensation components is at least equal in its amount to half of the total variable compensation components granted to the respective member of the Management Board. As a means of ensuring this minimum ratio in favor of the compensation components oriented towards the long term, it is expressly provided that the Supervisory Board may determine that the one-year variable compensation to be paid as a rule annually is converted (pro rata) into a variable compensation component based on a multi-year assessment, in order to also take account of any negative developments within the assessment period. This is done in such a way that the maturity of the yearly one-year variable compensation earned on a variable basis is postponed at the discretion of the Supervisory Board, either on a pro rata basis or in its entirety, by two years. At the same time, it is ensured that any payment is made to the member of the Management Board after expiration of such multi-year period only if (i) no subsequent adjustment of the net income (adjusted for extraordinary effects)
attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest) decisive for assessing the one-year variable compensation beyond an amount equal to a tolerance range of 10% is made, and (ii) the amount of net income attributable to Fresenius SE & Co. KGaA (adjusted for extraordinary effects) in the two relevant subsequent years is not substantially less than the net income attributable to Fresenius SE & Co. KGaA (adjusted for extraordinary effects, after deduction of noncontrolling interest) of the respective preceding fiscal years. In the event of the aforementioned conditions for payment being missed only to a minor and/or partial extent, the Supervisory Board may resolve on a corresponding pro rata payment of the converted portion of the one-year variable compensation. No interest is payable on the converted one-year variable compensation claim from the time when it first arises until the time of its effective payment. In this way, the one-year variable compensation can be converted pro rata or in its entirety into a genuine variable compensation component on a multi-year assessment basis, which also participates in any negative developments during the relevant assessment period.
In the fiscal year 2015, no portion of the one-year variable compensation was converted into a component based on a multi-year assessment.
In the fiscal year 2015, benefits under LTIP 2013 of Fresenius SE & Co. KGaA, and for Mr. Rice Powell, benefits under LTIP 2011 of Fresenius Medical Care AG & Co. KGaA, were granted as another component with long-term incentive effect. Such benefits consist, on the one hand, of sharebased compensation with cash settlement (phantom stocks) and, on the other hand, of stock options on the basis of the Stock Option Plan 2013 of Fresenius SE & Co. KGaA and, for Mr. Rice Powell, on the basis of the Stock Option Plan 2011 of Fresenius Medical Care AG & Co. KGaA. The LTIP 2013 is available both for members of the Management Board and other executives. In accordance with the division of powers under stock corporation law, grants to members of the Management Board are made by the Supervisory Board of Fresenius Management SE, and grants to other executives are made by the Management Board. The number of stock options and phantom stocks for Management Board members to be granted is determined by the Supervisory Board at the Supervisory Board's own due discretion, provided that generally all Management Board members receive the same amount of stock options and phantom stocks, with the exception of the Chairman of the Management Board, who receives double the respective amount of stock options and phantom stocks. At the time of the grant, the participants in LTIP 2013 may elect whether they wish to receive stock options and phantom stocks in a ratio of 75:25, or in a ratio of 50:50.
Exercise of the stock options and the phantom stocks granted under LTIP 2013 of Fresenius SE & Co. KGaA is subject to several conditions, such as expiry of a four-year waiting period, observance of vesting periods, achievement of the specified performance target, and continuance of the service or employment relationship. The vested stock options can be exercised within a period of four years. The vested phantom stocks are settled on March 1 of the year following the end of the waiting period.
The amount of the cash settlement pursuant to the Phantom Stock Plan 2013 is based on the volume-weighted average market price of the share of Fresenius SE & Co. KGaA during the three months preceding the exercise date.
The respective performance target has been reached if the adjusted consolidated net income of the Company (net income attributable to the shareholders of the Company) has increased by a minimum of 8% per year in comparison to the previous year within the waiting period, after adjustment for foreign currency effects. The performance target has also been achieved if the average annual growth rate of the adjusted consolidated net income of the Company during the four-year waiting period is at least 8%, adjusted for foreign currency effects. If, with respect to one or more of the four reference periods within the waiting period, neither the adjusted consolidated net income of the Company has increased by a minimum of 8% per year in comparison to the previous year,
after adjustment for foreign currency effects, nor the average annual growth rate of the adjusted consolidated net income of the Company during the four-year waiting period is at least 8%, adjusted for foreign currency effects, the respective granted stock options and phantom stocks are forfeited on a pro-rata basis according to the proportion of the performance target that has not been achieved within the waiting period, i.e., by one fourth, by two fourths, by three fourths, or completely.
The principles of LTIP 2013 of Fresenius SE & Co. KGaA and of LTIP 2011 of Fresenius Medical Care AG & Co. KGaA are described in more detail in note 33 of the notes of the Fresenius Group, Stock options.
The previous share-based compensation component with cash settlement (performance shares) has been combined with the current share-based compensation component with cash settlement (phantom stocks). The members of the Management Board, with the exception of Mr. Rice Powell, were granted an entitlement to further share-based compensation with cash settlement (further phantom stocks, previously performance shares) in the equivalent value of €100 thousand per Management Board member in the fiscal year 2015. With regard to the performance target and waiting period, the same conditions that pertain to the phantom stocks granted under LTIP 2013 apply to them.
For the fiscal years 2015 and 2014, the number and value of stock options issued, the value of the share-based compensation with cash settlement (phantom stocks), and the value of the postponed performance-based compensation is shown in the following table.
The number of stock options granted to members of the Management Board under LTIP 2013 in the fiscal year 2015 is unchanged when compared with 2014. The stated values correspond to their fair value at the time of grant, namely a value of €14.76 (2014: €8.28) per stock option of Fresenius SE & Co. KGaA and €15.02 (2014: €9.01) per stock option of Fresenius Medical Care AG & Co. KGaA. The exercise price of the granted stock options of Fresenius SE & Co. KGaA was €60.64 (2014: €36.92). The considerably higher values in comparison to 2014, as well as the significantly higher exercise price, reflect the excellent Fresenius share price development.
The fair value of the phantom stocks granted to members of the Management Board in the fiscal year 2015 corresponds to a value at the time of grant of €58.70 (2014: €34.18) per phantom stock of Fresenius SE & Co. KGaA and €73.30 (2014: €46.26) per phantom stock of Fresenius Medical Care AG & Co. KGaA.
| Stock options 1 | Postponed payment of the one-year variable compensation |
Share-based compensation with cash settlement (phantom stocks) |
Total Value, € in thousands |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number | Value, € in thousands | Value, € in thousands | Value, € in thousands | |||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||
| Dr. Ulf M. Schneider | 90,000 | 90,000 | 1,328 | 745 | 0 | 0 | 1,424 | 897 | 2,752 | 1,642 | ||||
| Dr. Francesco De Meo | 67,500 | 45,000 | 996 | 373 | 0 | 143 | 430 | 499 | 1,426 | 1,015 | ||||
| Dr.Jürgen Götz | 45,000 | 45,000 | 664 | 373 | 0 | 0 | 762 | 499 | 1,426 | 872 | ||||
| Mats Henriksson | 45,000 | 45,000 | 664 | 373 | 0 | 71 | 762 | 499 | 1,426 | 943 | ||||
| Rice Powell | 149,400 | 74,700 | 2,244 | 673 | 0 | 0 | 941 | 351 | 3,185 | 1,024 | ||||
| Stephan Sturm | 45,000 | 45,000 | 664 | 373 | 0 | 57 | 762 | 499 | 1,426 | 929 | ||||
| Dr. Ernst Wastler | 45,000 | 45,000 | 664 | 373 | 0 | 0 | 762 | 499 | 1,426 | 872 | ||||
| Total | 486,900 | 389,700 | 3,283 | 0 271 |
5,843 | 3,743 | 13,067 | 7,297 |
1 Stock options that were granted in 2015 and 2014 under the Fresenius SE & Co. KGaA stock option plan. Mr. Rice Powell received stock options
under the Fresenius Medical Care stock option plan.
At the end of the fiscal year 2015, the members of the Management Board held a total of 1,527,960 (2014: 2,345,904) stock options and convertible bonds (jointly referred to as
stock options) of Fresenius SE & Co. KGaA and 465,318 (2014: 407,737) of Fresenius Medical Care AG & Co. KGaA.
The development and the status of the stock options of the Management Board in the fiscal year 2015 are shown in the following table:
| Dr. Ulf M. Schneider |
Dr.Francesco De Meo |
Dr.Jürgen Götz |
Mats Henriksson |
Rice Powell 1 |
Stephan Sturm |
Dr. Ernst Wastler |
Total 2 | |
|---|---|---|---|---|---|---|---|---|
| Options outstanding on January 1, 2015 | ||||||||
| Number | 690,840 | 385,854 | 260,280 | 220,800 | 407,737 | 411,210 | 376,920 | 2,345,904 |
| Average exercise price in € | 25.81 | 25.11 | 28.42 | 27.74 | 45.80 | 24.74 | 25.25 | 25.89 |
| Options granted during fiscal year | ||||||||
| Number | 90,000 | 67,500 | 45,000 | 45,000 | 149,400 | 45,000 | 45,000 | 337,500 |
| Exercise price in € | 60.64 | 60.64 | 60.64 | 60.64 | 76.99 | 60.64 | 60.64 | 60.64 |
| Options exercised during the fiscal year | ||||||||
| Number | 283,800 | 210,714 | 170,280 | 52,800 | 49,800 | 150,930 | 286,920 | 1,155,444 |
| Average exercise price in € | 20.20 | 20.48 | 24.94 | 19.11 | 35.49 | 18.40 | 22.19 | 21.16 |
| Average stock price in € | 57.52 | 64.77 | 60.13 | 54.67 | 78.12 | 56.22 | 60.63 | 59.70 |
| Options forfeited in the fiscal year | ||||||||
| Number | 0 | 0 | 0 | 0 | 42,019 | 0 | 0 | 0 |
| Average exercise price in € | n. a. | n. a. | n. a. | n. a. | 57.30 | n. a. | n. a. | n. a. |
| Options outstanding on December 31, 2015 | ||||||||
| Number | 497,040 | 242,640 | 135,000 | 213,000 | 465,318 | 305,280 | 135,000 | 1,527,960 |
| Average exercise price in € | 35.32 | 39.02 | 43.55 | 36.83 | 55.88 | 33.17 | 43.55 | 37.14 |
| Average remaining life in years | 5.1 | 5.7 | 6.7 | 5.4 | 5.1 | 4.6 | 6.7 | 5.4 |
| Range of exercise prices in € |
23.76 to 60.64 |
26.11 to 60.64 |
33.10 to 60.64 |
23.76 to 60.64 |
31.97 to 76.99 |
23.76 to 60.64 |
33.10 to 60.64 |
23.76 to 60.64 |
| Exercisable options on December 31, 2015 | ||||||||
| Number | 227,040 | 85,140 | 0 | 78,000 | 152,512 | 170,280 | 0 | 560,460 |
| Average exercise price in € | 25.52 | 26.11 | n. a. | 25.21 | 40.98 | 24.94 | n. a. | 25.39 |
Mr. Rice Powell holds stock options under the Fresenius Medical Care stock option plan.
Only stock options of Fresenius SE & Co. KGaA, excluding stock options of Mr. Rice Powell
The following table shows the total compensation of the Management Board of the general partner of Fresenius SE & Co. KGaA for the years 2015 and 2014:
| Cash compensation (without long-term incentive components) |
incentive components | Long-term | Total compensation (including long-term incentive components) |
|||||
|---|---|---|---|---|---|---|---|---|
| € in thousands | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||
| Dr. Ulf M. Schneider | 2,955 | 2,536 | 2,752 | 1,642 | 5,707 | 4,178 | ||
| Dr. Francesco De Meo | 1,864 | 1,584 | 1,426 | 1,015 | 3,290 | 2,599 | ||
| Dr.Jürgen Götz | 1,399 | 1,147 | 1,426 | 872 | 2,825 | 2,019 | ||
| Mats Henriksson | 2,024 | 1,668 | 1,426 | 943 | 3,450 | 2,611 | ||
| Rice Powell | 2,613 | 1,829 | 3,185 | 1,024 | 5,798 | 2,853 | ||
| Stephan Sturm | 1,851 | 1,520 | 1,426 | 929 | 3,277 | 2,449 | ||
| Dr. Ernst Wastler | 1,292 | 1,178 | 1,426 | 872 | 2,718 | 2,050 | ||
| Total | 13,998 | 11,462 | 13,067 | 7,297 | 27,065 | 18,759 |
The stock options and the entitlement to a share-based compensation (phantom stocks) can be exercised only after the expiry of minimum terms (vesting periods). Their value is
recognized over the vesting period as expense in the respective fiscal year. The expenses attributable to the fiscal years 2015 and 2014 are stated in the following table.
Expenses for Long-term incentive components
| Stock options | Share-based compensation with cash settlement (phantom stocks) |
Total expenses for share-based compensation |
|||||
|---|---|---|---|---|---|---|---|
| € in thousands | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Dr. Ulf M. Schneider | 729 | 864 | 1,482 | 518 | 2,211 | 1,382 | |
| Dr. Francesco De Meo | 399 | 432 | 892 | 334 | 1,291 | 766 | |
| Dr.Jürgen Götz | 365 | 432 | 929 | 334 | 1,294 | 766 | |
| Mats Henriksson | 321 | 298 | 686 | 228 | 1,007 | 526 | |
| Rice Powell | 377 | 176 | 699 | 435 | 1,076 | 611 | |
| Stephan Sturm | 365 | 432 | 929 | 334 | 1,294 | 766 | |
| Dr. Ernst Wastler | 365 | 432 | 929 | 334 | 1,294 | 766 | |
| Total | 2,921 | 3,066 | 6,546 | 2,517 | 9,467 | 5,583 |
The short-term performance-based compensation is limited in its amount. As regards stock options and phantom stocks, there are contractually agreed limitation possibilities. This makes it possible to adequately take account in particular of those extraordinary developments that are not in any relevant proportion to the performance of the Management Board.
Under the compensation system, the amount of the fixed and the total compensation of the members of the Management Board was, and will be, assessed giving particular regard to the relevant comparison values of other DAX companies and similar companies of comparable size and performance from the relevant industrial sector.
There are individual contractual pension commitments for the Management Board members Dr. Ulf M. Schneider, Dr.Francesco De Meo, Dr.Jürgen Götz, and Mr.Stephan Sturm based on their service agreements with the general partner of Fresenius SE & Co. KGaA. The Management Board member Dr. Ernst Wastler has a pension commitment of VAMED AG, Vienna; Fresenius SE & Co. KGaA has issued a guarantee for the commitments thereunder. The Management Board member Mats Henriksson has an individual contractual pension commitment of Fresenius Kabi AG. The Management Board member Mr.Rice Powell has received an individual contractual pension commitment from Fresenius Medical Care Management AG. Furthermore, he has acquired non-forfeitable
entitlements from participating in pension plans for employees of Fresenius Medical Care North America, and during the fiscal year 2015, he participated in the U.S.-based 401(k) Savings Plan. This plan generally enables employees in the United States to invest part of their gross income into
retirement plans. With regard to these pension commitments, the Fresenius Group had pension obligations of €30,318 thousand as of December 31, 2015 (2014: €24,381 thousand). The additions to pension liability in the fiscal year 2015 amounted to €5,937 thousand (2014: €8,418 thousand).
The pension commitments are as follows:
| € in thousands | As of January 1, 2015 |
Additions | As of December 31, 2015 |
|---|---|---|---|
| Dr. Ulf M. Schneider | 4,294 | 913 | 5,207 |
| Dr. Francesco De Meo | 1,912 | 490 | 2,402 |
| Dr.Jürgen Götz | 1,682 | 410 | 2,092 |
| Mats Henriksson | 3,593 | 522 | 4,115 |
| Rice Powell | 6,654 | 2,743 | 9,397 |
| Stephan Sturm | 2,477 | 530 | 3,007 |
| Dr. Ernst Wastler | 3,769 | 329 | 4,098 |
| Total | 24,381 | 5,937 | 30,318 |
Each of the pension commitments provides for a pension and survivor benefit, depending on the amount of the most recent fixed compensation, from the 63rd year of life (or 65th year for Mr. Rice Powell), or, in the case of termination because of professional or occupational incapacity, from the time of ending active work.
The pension's starting percentage of 30% of the last fixed compensation increases with every full year of service as a Management Board member by 1.5 percentage points, 45% being the attainable maximum.
Current pensions increase according to legal requirements (Section 16 of the German law to improve company pension plans, BetrAVG).
Thirty percent of the gross amount of any post-retirement income from an occupation of the Management Board member is offset against the pension for professional or occupational incapacity.
In the event of the death of one of the Management Board members, the widow receives a pension equivalent to 60% of the pension entitlement accruing at the time of death. In addition, legitimate biological children of the deceased Management Board member and/or, in individual cases, biological children of the deceased Management Board member's wife who were adopted by the deceased Management Board member as children receive an orphan's pension equivalent to 20% of the pension entitlement accruing at the time of death until completion of their vocational training, but at the most until the age of 25 years. However, all orphans' pensions and the widow's pension are capped at an aggregate 90% of the Management Board member's pension entitlement.
If a Management Board member's service as a member of the Management Board of Fresenius Management SE (or Mr. Rice Powell as a member of the Management Board of Fresenius Medical Care Management AG) ends before the age of 63 years (or 65 years for Mr. Rice Powell) for reasons other than professional or occupational incapacity, the rights to the said pension benefits vest, but the pension payable upon the occurrence of a pensionable event is reduced pro rata according to the actual length of service as a Management Board member compared to the potential length of service until the age of 63 years (or 65 years for Mr. Rice Powell).
The pension commitment for Dr.Ernst Wastler provides for a normal pension, an early retirement pension, a professional incapacity pension, and a widow's and orphan's pension. The normal pension is payable at the earliest at the age of 60 years and the early retirement pension at the earliest at the age of 55 years. The pension benefits are equivalent to 1.2% per year of service based on the last fixed compensation, with a cap of 40%. The widow's pension (60%) and the orphan's pension (20% each) are capped in aggregate at not more than Dr. Ernst Wastler's pension entitlement at the time of death. Pensions, retirement, and other benefits from third parties are set off against the pension benefit.
The Management Board member Mr. Mats Henriksson has solely a pension commitment of Fresenius Kabi AG from the period of his previous service. This pension commitment
remained unaffected by the service agreement with Fresenius Management SE, beginning on January 1, 2013. It is based on the pension policy of the Fresenius companies from January 1, 1988, and provides for retirement, incapacity, and survivors' pensions. It does not set forth any deduction of other income or pension benefits. The widow's pension amounts to 60% of the incapacity or retirement pension to be granted at the time of death; the orphan's pension amounts to 10% (half-orphans) or 20% (orphans) of the incapacity or retirement pension to be granted at the time of death. The total entitlements of widows and orphans are limited to 100% of Mr. Mats Henriksson's pension entitlements.
A post-employment non-competition covenant was agreed upon for all Management Board members. If such a covenant becomes applicable, the Management Board members receive a waiting allowance that is generally equivalent to half of the respective annual fixed compensation for each year of respective application of the non-competition covenant, up to a maximum of two years.
The service agreements of the Management Board members do not contain any explicit provision for the event of a change of control.
All members of the Management Board have received individual contractual commitments for the continuation of their compensation in the event of sickness for a maximum period of 12 months, provided that, after six months of sicknessrelated absence, any insurance benefits that may be paid are to be deducted from such continued compensation. In the event of death of a member of the Management Board, the surviving dependents will receive three monthly payments after the month in which the death occurred, at maximum, however, until the expiry of the respective employment agreement.
During the fiscal year 2015, no loans or advance payment on future compensation components were granted to any member of the Management Board of Fresenius Management SE.
Fresenius SE & Co. KGaA undertook to indemnify the Management Board members, to the legally permitted extent, against any claims that may be asserted against them in the course of their service for the Company and its affiliated
Group companies to the extent that such claims exceed their liability under German law. To cover such obligations, the Company purchased a directors & officers insurance, the deductible complying with the requirements of stock corporation law. The indemnification covers the period during which the respective member of the Management Board holds office as well as any claim in this regard after termination of the service on the Management Board.
Based on pension commitments to former members of the Management Board, €1,081 thousand were paid in the fiscal year 2015 (2014: €1,049 thousand) and €588 thousand (2014: €494 thousand) were paid to Dr. Ben Lipps as a result of a consultancy agreement entered into with Fresenius Medical Care Management AG. The benefit obligation for these persons amounted to €17,835 thousand (2014: €18,465 thousand).
The German Corporate Governance Code stipulates that specific information shall be presented in the compensation report pertaining to the benefits granted for the year under review as well as the allocations and service costs in/for the year under review. The model tables provided in the appendix of the German Corporate Governance Code shall be used to present the information.
The following tables contain disclosures on both the value of the benefits granted and on the allocations. They conform to the structure and, to a large degree, to the specification of the model tables of the German Corporate Governance Code. The table displaying allocations additionally shows the allocation for the fiscal year, that is, without multi-year variable compensation / components with long-term incentive effect. This illustrates clearly which allocation is to be attributed to the activity in the respective year under review and which allocation results from the compensation components that were granted in previous – or even several – reporting years. Through differentiation, the comparability of the respective development in compensation is also increased.
| Dr. Ulf M. Schneider Chairman of the Management Board Board member since May 28, 2003 |
Dr. Francesco De Meo CEO Fresenius Helios Board member since January 1, 2008 |
Dr. Jürgen Götz Chief Legal and Compliance Officer, and Labor Relations Director Board member since July 1, 2007 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Benefits granted Value € thousands |
2015 | 2015 min. |
2015 max. |
2014 | 2015 | 2015 min. |
2015 max. |
2014 | 2015 | 2015 min. |
2015 max. |
2014 | |
| Fixed compensation | 1,100 | 1,100 | 1,100 | 990 | 600 | 600 | 600 | 550 | 460 | 460 | 460 | 415 | |
| Fringe benefits | 143 | 143 | 143 | 92 | 22 | 22 | 22 | 19 | 70 | 70 | 70 | 35 | |
| Total non-performance-based compensation |
1,243 | 1,243 | 1,243 | 1,082 | 622 | 622 | 622 | 569 | 530 | 530 | 530 | 450 | |
| One-year variable compensation1 |
1,712 | 1,200 | 1,750 | 1,454 | 1,242 | 750 | 1,250 | 1,015 | 869 | 700 | 950 | 697 | |
| Multi-year variable compensation/ components with long-term incentive effect |
2,752 | 0 | n. a. | 1,642 | 1,426 | 0 | n. a. | 1,015 | 1,426 | 0 | n. a. | 872 | |
| Thereof postponed one-year variable compensation |
0 | 0 | n. a. | 0 | 0 | 0 | n. a. | 143 | 0 | 0 | n. a. | 0 | |
| Thereof Stock Option Plan 2013 (part of LTIP 2013) (5-year term) |
1,328 | 0 | n. a. | 745 | 996 | 0 | n. a. | 373 | 664 | 0 | n. a. | 373 | |
| Thereof phantom stocks (part of LTIP 2013) (5-year term) |
1,324 | 0 | n. a. | 797 | 330 | 0 | n. a. | 399 | 662 | 0 | n. a. | 399 | |
| Thereof further phantom stocks | 100 | 0 | n. a. | 100 | 100 | 0 | n. a. | 100 | 100 | 0 | n. a. | 100 | |
| Total non-performance-based and performance-based compensation |
5,707 | 2,443 | n. a. | 4,178 | 3,290 | 1,372 | n. a. | 2,599 | 2,825 | 1,230 | n. a. | 2,019 | |
| Service cost | 342 | 342 | 342 | 234 | 273 | 273 | 273 | 201 | 190 | 190 | 190 | 136 | |
| Value of benefits granted | 6,049 | 2,785 | n. a. | 4,412 | 3,563 | 1,645 | n. a. | 2,800 | 3,015 | 1,420 | n. a. | 2,155 |
1 For the one-year variable compensation, there are no target values or comparable values for Board members who receive their remuneration from Fresenius Management SE. The one-year
variable compensation is calculated on the basis of bonus curves that are valid for several years. For this reason, the allocation from the one-year variable remuneration is stated here.
This amount contains a discretionary bonus for Mr. Rice Powell in the amount of €541 thousand for the 2015 fiscal year (2014: €376 thousand).
3 Mr. Rice Powell was granted stock options and phantom stocks from the stock option program of Fresenius Medical Care as follows:
in 2015: €164 thousand from the Share Based Award – New Incentive Bonus Plan 2010, €2,244 thousand from the Long Term Incentive Program 2011 – Stock Option Plan 2011, and €777 thousand from the Long Term Incentive Program 2011 – Phantom Stock Plan 2011
in 2014: €120 thousand from the Share Based Award – New Incentive Bonus Plan 2010, €673 thousand from the Long Term Incentive Program 2011 – Stock Option Plan 2011,
and €231 thousand from the Long Term Incentive Program 2011 – Phantom Stock Plan 2011.
| Mats Henriksson | CEO Fresenius Kabi | CEO Fresenius Medical Care | Rice Powell | Chief Financial Officer | Stephan Sturm | Dr. Ernst Wastler CEO Fresenius Vamed |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Board member since January 1, 2013 | Board member since January 1, 2013 | Board member since January 1, 2005 | Board member since January 1, 2008 | ||||||||||||
| 2015 | 2015 min. |
2015 max. |
2014 | 2015 | 2015 min. |
2015 max. |
2014 | 2015 | 2015 min. |
2015 max. |
2014 | 2015 | 2015 min. |
2015 max. |
2014 |
| 600 | 600 | 600 | 550 | 1,239 | 1,239 | 1,239 | 941 | 600 | 600 | 600 | 550 | 500 | 500 | 500 | 470 |
| 185 | 185 | 185 | 175 | 342 | 342 | 342 | 151 | 109 | 109 | 109 | 41 | 85 | 85 | 85 | 37 |
| 785 | 785 | 785 | 725 | 1,581 | 1,581 | 1,581 | 1,092 | 709 | 709 | 709 | 591 | 585 | 585 | 585 | 507 |
| 1,239 | 750 | 1,250 | 943 | 2,5862 | 169 | 2,995 | 1,9292 | 1,142 | 850 | 1,150 | 929 | 707 | 350 | 750 | 671 |
| 1,426 | 0 | n. a. | 943 | 3,1853 | 0 | n. a. | 1,0243 | 1,426 | 0 | n. a. | 929 | 1,426 | 0 | n. a. | 872 |
| 0 | 0 | n. a. | 71 | 0 | 0 | n. a. | 57 | 0 | 0 | n. a. | 0 | ||||
| 664 | 0 | n. a. | 373 | 664 | 0 | n. a. | 373 | 664 | 0 | n. a. | 373 | ||||
| 662 | 0 | n. a. | 399 | 662 | 0 | n. a. | 399 | 662 | 0 | n. a. | 399 | ||||
| 100 | 0 | n. a. | 100 | 100 | 0 | n. a. | 100 | 100 | 0 | n. a. | 100 | ||||
| 3,450 | 1,535 | n. a. | 2,611 | 7,352 | 1,750 | n. a. | 4,045 | 3,277 | 1,559 | n. a. | 2,449 | 2,718 | 935 | n. a. | 2,050 |
| 173 3,623 |
173 1,708 |
173 n. a. |
120 2,731 |
570 7,922 |
570 2,320 |
570 n. a. |
429 4,474 |
251 3,528 |
251 1,810 |
251 n. a. |
182 2,631 |
133 2,851 |
133 1,068 |
133 n. a. |
92 |
| 2,142 |
| Dr. Ulf M. Schneider Chairman of the Management Board Board member since May 28, 2003 |
Dr. Francesco De Meo CEO Fresenius Helios Board member since January 1, 2008 |
Dr. Jürgen Götz Chief Legal and Compliance Officer, and Labor Relations Director Board member since July 1, 2007 |
|||||
|---|---|---|---|---|---|---|---|
| Allocations | |||||||
| Value € thousands | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Fixed compensation | 1,100 | 990 | 600 | 550 | 460 | 415 | |
| Fringe benefits | 143 | 92 | 22 | 19 | 70 | 35 | |
| Total non-performance-based compensation |
1,243 | 1,082 | 622 | 569 | 530 | 450 | |
| One-year variable compensation |
1,712 | 1,454 | 1,242 | 1,015 | 869 | 697 | |
| Multi-year variable compensation/ components with long-term incentive effect |
10,590 | 6,395 | 9,333 | 29 | 5,993 | 0 | |
| Thereof postponed one-year variable compensation |
0 | 0 | 0 | 29 | 0 | 0 | |
| Thereof Stock Option Plan 2003 (5-year term) |
|||||||
| Issue 2006 | |||||||
| Issue 2007 | 2,488 | 1,845 | |||||
| Thereof Stock Option Plan 2008 (5-year term) |
|||||||
| Issue 2009 | 3,907 | ||||||
| Issue 2010 | 5,771 | 3,996 | |||||
| Issue 2011 | 4,819 | 3,492 | 2,493 | ||||
| Issue 2012 | 3,500 | ||||||
| Other | 0 | 0 | 0 | 0 | 0 | 0 | |
| Total non-performance-based and | |||||||
| performance-based compensation | 13,545 | 8,931 | 11,197 | 1,613 | 7,392 | 1,147 | |
| Service cost | 342 | 234 | 273 | 201 | 190 | 136 | |
| Allocation including multi-year variable compensation/compo nents with long-term incentive effect |
13,887 | 9,165 | 11,470 | 1,814 | 7,582 | 1,283 | |
| Allocation for the year under review (not including multi-year variable compensation/ compo nents with long-term incentive |
|||||||
| effect) | 3,297 | 2,770 | 2,137 | 1,785 | 1,589 | 1,283 | |
This amount contains a discretionary bonus for Mr. Rice Powell in the amount of €541 thousand for the 2015 fiscal year (2014: €376 thousand).
2 Mr. Rice Powell had this allocation from stock options from the Fresenius Medical Care Stock Option Program:
in 2015: €485 thousand from the Share Based Award – New Incentive Bonus Plan 2010 issue 2011 and €2,123 thousand from the Stock Option Plan 2006 issue 2008;
in 2014: €399 thousand from the Share Based Award – New Incentive Bonus Plan 2010 issue 2010.
| Dr. Ernst Wastler CEO Fresenius Vamed |
Stephan Sturm Chief Financial Officer |
Rice Powell CEO Fresenius Medical Care |
Mats Henriksson CEO Fresenius Kabi |
|||
|---|---|---|---|---|---|---|
| Board member since January 1, 2008 | Board member since January 1, 2005 | Board member since January 1, 2013 | Board member since January 1, 2013 | |||
| 2014 2015 |
2015 | 2014 | 2015 | 2014 | 2015 | |
| 550 500 |
600 | 941 | 1,239 | 550 | 600 | |
| 41 85 |
109 | 151 | 342 | 175 | 185 | |
| 591 585 |
709 | 1,092 | 1,581 | 725 | 785 | |
| 929 707 |
1,142 | 7371 | 1,0321 | 943 | 1,239 | |
| 3,569 11,030 |
5,757 | 3992 | 2,6082 | 0 | 1,878 | |
| 79 0 |
49 | 0 | 0 | 0 | 0 | |
| 1,523 | ||||||
| 992 | 2,078 | |||||
| 1,967 2,792 |
3,630 | 1,525 | ||||
| 3,723 | 353 | |||||
| 3,523 | ||||||
| 0 0 |
0 | 0 | 0 | 0 | 0 | |
| 5,089 12,322 182 133 |
7,608 251 |
2,228 429 |
5,221 570 |
1,668 120 |
3,902 173 |
|
| 5,271 12,455 |
7,859 | 2,657 | 5,791 | 1,788 | 4,075 | |
| 1,702 1,425 |
2,102 | 2,258 | 3,183 | 1,788 | 2,197 |
The compensation of the Supervisory Board is determined by the Annual General Meeting and is subject to the provisions contained in Section 13 of the articles of association of Fresenius SE & Co. KGaA. Each member of the Supervisory Board shall receive a fixed compensation of €13 thousand for each full fiscal year.
The members of the Audit Committee of Fresenius SE & Co. KGaA receive an additional €10 thousand each and the Chairman of the committee a further €10 thousand. For each full fiscal year, the remuneration increases by 10% for each percentage point that three times the dividend paid on each ordinary share for that year (gross dividend according to the resolution of the Annual General Meeting) exceeds 3.6% of the amount equal to the subscribed capital divided by the number of non-par value shares; residual amounts are interpolated. If the General Meeting resolves a higher remuneration in view of the annual results, the increased amount shall be applicable. The Chairman receives twice this amount and the deputies to the Chairman one and a half times the amount of a Supervisory Board member. All members of the Supervisory Board receive appropriate compensation for costs of travel and accommodation incurred in connection with their duties as members of the Supervisory Board, including any applicable value-added tax. Additionally, in his capacity as Chairman of the Supervisory Board of Fresenius Management SE, Dr. Krick will be reimbursed for the costs of an intrusion detection system in the amount of €8 thousand.
Fresenius SE & Co. KGaA provides to the members of the Supervisory Board insurance coverage in an adequate amount (relating to their function) with an excess equal to those of the Management Board.
If a member of the Supervisory Board of Fresenius SE & Co. KGaA is, at the same time, a member of the Supervisory Board of the general partner Fresenius Management SE and receives remuneration for his service on the Supervisory Board for Fresenius Management SE, the remuneration shall be reduced by half. The same applies with respect to the additional part of the remuneration for the Chairman or one of his deputies if they are, at the same time, the Chairman or one of his deputies on the Supervisory Board of Fresenius Management SE. If the deputy of the Chairman of the Supervisory Board of Fresenius SE & Co. KGaA is, at the same time, the Chairman of the Supervisory Board of Fresenius Management SE, he shall not receive remuneration for his service as Deputy Chairman of the Supervisory Board of Fresenius SE & Co. KGaA. According to Section 7 of the articles of association of Fresenius SE & Co. KGaA, the remuneration of the Supervisory Board of Fresenius Management SE was charged to Fresenius SE & Co. KGaA.
For the fiscal years 2015 and 2014, the compensation for the members of the Supervisory Boards of Fresenius SE & Co. KGaA and Fresenius Management SE (excluding expenses and reimbursements), including compensation for committee services, was as follows:
| Fixed compensation | Compensation for committee services |
Variable compensation |
Total compensation |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fresenius SE & Co. KGaA |
Fresenius Management SE |
Fresenius SE & Co. KGaA |
Fresenius Management SE |
Fresenius SE & Co. KGaA |
Fresenius Management SE |
|||||||||
| € in thousands | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| Dr. Gerd Krick | 13 | 13 | 13 | 13 | 10 | 10 | 20 | 20 | 210 | 167 | 210 | 167 | 476 | 390 |
| Michael Diekmann (as of May 20, 2015) |
8 | 0 | 4 | 0 | 0 | 0 | 0 | 0 | 129 | 0 | 65 | 0 | 206 | 0 |
| Dr. Dieter Schenk | 0 | 0 | 19 | 19 | 0 | 0 | 10 | 10 | 0 | 0 | 315 | 250 | 344 | 279 |
| Niko Stumpfögger | 19 | 19 | 0 | 0 | 0 | 0 | 0 | 0 | 315 | 250 | 0 | 0 | 334 | 269 |
| Prof. Dr. med. D. Michael Albrecht | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 210 | 167 | 0 | 0 | 223 | 180 |
| Prof. Dr. h. c. Roland Berger | 7 | 7 | 6 | 6 | 20 | 20 | 0 | 0 | 104 | 83 | 105 | 84 | 242 | 200 |
| Dario Ilossi | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 210 | 167 | 0 | 0 | 223 | 180 |
| Konrad Kölbl | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 210 | 167 | 0 | 0 | 233 | 190 |
| Klaus-Peter Müller | 7 | 7 | 6 | 6 | 0 | 0 | 0 | 0 | 104 | 83 | 105 | 84 | 222 | 180 |
| Dieter Reuß | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 210 | 167 | 0 | 0 | 223 | 180 |
| Gerhard Roggemann | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 210 | 167 | 0 | 0 | 233 | 190 |
| Dr. Gerhard Rupprecht († August 8, 2014) |
0 | 8 | 0 | 4 | 0 | 0 | 0 | 0 | 0 | 101 | 0 | 50 | 0 | 163 |
| Dr. Karl Schneider | 0 | 0 | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 210 | 167 | 233 | 190 |
| Stefan Schubert | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 210 | 167 | 0 | 0 | 223 | 180 |
| Rainer Stein | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 210 | 167 | 0 | 0 | 233 | 190 |
| Total | 145 | 145 | 61 | 61 | 60 | 60 | 40 | 40 | 2,332 | 1,853 | 1,010 | 802 | 3,648 | 2,961 |
Fresenius SE & Co. KGaA has taken out a consequential loss liability insurance policy (D & O insurance), on an excess amount basis, for the members of the Management Board and the Supervisory Board of the general partner of Fresenius SE & Co. KGaA and for the Supervisory Board of Fresenius SE &
Co. KGaA as well as for all representative bodies of affiliates in Germany and elsewhere. The D & O policy applies throughout the world and runs until the end of June 2016. The policy covers the legal defense costs of a member of a representative body when a claim is made and, where relevant, any damages to be paid that are covered by the policy.
| 95 Consolidated statement of income | 98 Consolidated statement of changes in equity |
|---|---|
| 95 Consolidated statement of comprehensive income | 100 Consolidated segment reporting |
| 96 Consolidated statement of financial position | 102 Notes |
| 97 Consolidated statement of cash flows |
| € in millions | Note | 2015 | 2014 |
|---|---|---|---|
| Sales | 4 | 27,626 | 23,231 |
| Cost of sales | 5 | -19,092 | -16,389 |
| Gross profit | 8,534 | 6,842 | |
| Selling, general and administrative expenses | 8 | -4,195 | -3,359 |
| Research and development expenses | -464 | -369 | |
| Operating income (EBIT) | 3,875 | 3,114 | |
| Interest income | 9 | 255 | 128 |
| Interest expenses | 9 | -868 | -730 |
| Income before income taxes | 3,262 | 2,512 | |
| Income taxes | 10 | -965 | -700 |
| Net income | 2,297 | 1,812 | |
| Less noncontrolling interest | 11 | 939 | 745 |
| Net income attributable to shareholders of Fresenius SE & Co. KGaA | 1,358 | 1,067 | |
| Earnings per share in € | 12 | 2.50 | 1.97 |
| Fully diluted earnings per share in € | 12 | 2.48 | 1.96 |
The following notes are an integral part of the consolidated financial statements.
| € in millions | Note | 2015 | 2014 |
|---|---|---|---|
| Net income | 2,297 | 1,812 | |
| Other comprehensive income (loss) | |||
| Foreign currency translation | 27, 29 | 869 | 953 |
| Cash flow hedges | 27, 29 | 63 | 1 |
| Change of fair value of available for sale financial assets | 27, 29 | – | -23 |
| Actuarial gains /losses on defined benefit pension plans | 24, 27 | 95 | -340 |
| Income taxes related to components of other comprehensive income (loss) | 27 | -76 | 85 |
| Other comprehensive income, net | 951 | 676 | |
| Total comprehensive income | 3,248 | 2,488 | |
| Comprehensive income attributable to noncontrolling interest subject to put provisions |
221 | 171 | |
| Comprehensive income attributable to noncontrolling interest not subject to put provisions |
1,270 | 1,018 | |
| Comprehensive income attributable to shareholders of Fresenius SE & Co. KGaA |
1,757 | 1,299 |
| as of December 31, € in millions | Note | 2015 | 2014 |
|---|---|---|---|
| Cash and cash equivalents | 13 | 1,044 | 1,175 |
| Trade accounts receivable, less allowance for doubtful accounts | 14 | 4,596 | 4,235 |
| Accounts receivable from and loans to related parties | 78 | 36 | |
| Inventories | 15 | 2,860 | 2,333 |
| Other current assets | 16 | 1,901 | 1,827 |
| Deferred taxes | 10 | 438 | 406 |
| I. Total current assets | 10,917 | 10,012 | |
| Property, plant and equipment | 17 | 7,428 | 6,776 |
| Goodwill | 18 | 21,523 | 19,868 |
| Other intangible assets | 18 | 1,510 | 1,446 |
| Other non-current assets | 16 | 1,479 | 1,365 |
| Deferred taxes | 10 | 313 | 321 |
| II. Total non-current assets | 32,253 | 29,776 | |
| Total assets | 43,170 | 39,788 |
| as of December 31, € in millions | Note | 2015 | 2014 |
|---|---|---|---|
| Trade accounts payable | 1,291 | 1,052 | |
| Short-term accounts payable to related parties | 9 | 5 | |
| Short-term accrued expenses and other short-term liabilities | 19, 20 | 4,691 | 4,164 |
| Short-term debt | 21 | 202 | 230 |
| Short-term debt from related parties | 4 | 3 | |
| Current portion of long-term debt and capital lease obligations | 21 | 607 | 738 |
| Current portion of Senior Notes | 22 | 349 | 681 |
| Short-term accruals for income taxes | 195 | 161 | |
| Deferred taxes | 10 | 61 | 54 |
| A. Total short-term liabilities | 7,409 | 7,088 | |
| Long-term debt and capital lease obligations, less current portion | 21 | 5,502 | 5,948 |
| Senior Notes, less current portion | 22 | 7,267 | 6,923 |
| Convertible bonds | 23 | 838 | 822 |
| Long-term accrued expenses and other long-term liabilities | 19, 20 | 955 | 661 |
| Pension liabilities | 24 | 1,078 | 1,099 |
| Long-term accruals for income taxes | 221 | 216 | |
| Deferred taxes | 10 | 950 | 867 |
| B. Total long-term liabilities | 16,811 | 16,536 | |
| I. Total liabilities | 24,220 | 23,624 | |
| II. Noncontrolling interest subject to put provisions | 25 | 947 | 681 |
| A. Noncontrolling interest not subject to put provisions | 25 | 7,068 | 6,148 |
| Subscribed capital | 26 | 546 | 542 |
| Capital reserve | 26 | 3,095 | 3,018 |
| Other reserves | 26 | 7,014 | 5,894 |
| Accumulated other comprehensive income (loss) | 27 | 280 | -119 |
| B. Total Fresenius SE & Co. KGaA shareholders' equity | 10,935 | 9,335 | |
| III. Total shareholders' equity | 18,003 | 15,483 | |
| Total liabilities and shareholders' equity | 43,170 | 39,788 |
| January 1 to December 31, € in millions | Note | 2015 | 2014 |
|---|---|---|---|
| Operating activities | |||
| Net income | 2,297 | 1,812 | |
| Adjustments to reconcile net income to cash and cash equivalents provided by operating activities |
|||
| Depreciation and amortization | 16, 17, 18 | 1,115 | 937 |
| Gain on sale of investments and divestitures | 2 | -34 | -66 |
| Change in deferred taxes | 10 | -73 | 60 |
| Loss on sale of fixed assets | 1 | 7 | |
| Changes in assets and liabilities, net of amounts from businesses acquired or disposed of |
|||
| Trade accounts receivable, net | 14 | -303 | -204 |
| Inventories | 15 | -451 | -134 |
| Other current and non-current assets | 16 | 51 | -5 |
| Accounts receivable from/payable to related parties Trade accounts payable, accrued expenses |
6 | -8 | |
| and other short-term and long-term liabilities | 19, 20 | 695 | 246 |
| Accruals for income taxes | 23 | -60 | |
| Net cash provided by operating activities | 3,327 | 2,585 | |
| Investing activities | |||
| Purchase of property, plant and equipment | 17 | -1,489 | -1,345 |
| Proceeds from sales of property, plant and equipment | 27 | 22 | |
| Acquisitions and investments, net of cash acquired | |||
| and net purchases of intangible assets | 2, 31 | -396 | -2,214 |
| Proceeds from sale of investments and divestitures | 2 | 364 | 186 |
| Net cash used in investing activities | -1,494 | -3,351 | |
| Financing activities | |||
| Proceeds from short-term debt | 21 | 260 | 202 |
| Repayments of short-term debt | 21 | -349 | -933 |
| Proceeds from short-term debt from related parties | – | – | |
| Repayments of short-term debt from related parties | – | – | |
| Proceeds from long-term debt and capital lease obligations | 21 | 281 | 2,541 |
| Repayments of long-term debt and capital lease obligations | 21 | -985 | -3,299 |
| Proceeds from the issuance of Senior Notes | 22 | 269 | 2,094 |
| Repayments of liabilities from Senior Notes | 22 | -729 | 0 |
| Proceeds from the issuance of convertible bonds | 23 | 0 | 900 |
| Changes of accounts receivable securitization program | 21 | -262 | -7 |
| Proceeds from the exercise of stock options | 33 | 173 | 125 |
| Dividends paid | -639 | -582 | |
| Change in noncontrolling interest | 25 | -3 | – |
| Exchange rate effect due to corporate financing | 2 | 2 | |
| Net cash used in/provided by financing activities | -1,982 | 1,043 | |
| Effect of exchange rate changes on cash and cash equivalents | 18 | 34 | |
| Net decrease/increase in cash and cash equivalents | -131 | 311 | |
| Cash and cash equivalents at the beginning of the reporting period | 13 | 1,175 | 864 |
| Cash and cash equivalents at the end of the reporting period | 13 | 1,044 | 1,175 |
| Subscribed Capital | Reserves | |||||||
|---|---|---|---|---|---|---|---|---|
| Note | Number of ordinary shares in thousand1 |
Amount € in thousands |
Amount € in millions |
Capital reserve € in millions |
Other reserves € in millions |
|||
| As of December 31, 2013 | 539,085 | 539,085 | 539 | 2,955 | 5,052 | |||
| Proceeds from the exercise of stock options | 33 | 2,448 | 2,448 | 3 | 67 | |||
| Compensation expense related to stock options |
33 | 19 | ||||||
| Dividends paid | 26 | -225 | ||||||
| Purchase of noncontrolling interest not subject to put provisions |
25 | |||||||
| Noncontrolling interest subject to put provisions | 25 | -23 | ||||||
| Comprehensive income (loss) | ||||||||
| Net income | 1,067 | |||||||
| Other comprehensive income (loss) | ||||||||
| Cash flow hedges | 27, 29 | |||||||
| Change of fair value of available for sale financial assets |
27, 29 | |||||||
| Foreign currency translation | 27, 29 | |||||||
| Actuarial losses on defined benefit pension plans |
24, 27 | |||||||
| Comprehensive income | 1,067 | |||||||
| As of December 31, 2014 | 541,533 | 541,533 | 542 | 3,018 | 5,894 | |||
| Proceeds from the exercise of stock options | 33 | 4,195 | 4,195 | 4 | 110 | |||
| Compensation expense related to stock options |
33 | 19 | ||||||
| Vested subsidiary stock incentive plans | -1 | |||||||
| Dividends paid | 26 | -238 | ||||||
| Sale of noncontrolling interest not subject to put provisions |
25 | |||||||
| Noncontrolling interest subject to put provisions | 25 | -51 | ||||||
| Comprehensive income (loss) | ||||||||
| Net income | 1,358 | |||||||
| Other comprehensive income (loss) | ||||||||
| Cash flow hedges | 27, 29 | |||||||
| Change of fair value of | ||||||||
| available for sale financial assets | 27, 29 | |||||||
| Foreign currency translation | 27, 29 | |||||||
| Actuarial gains on defined | ||||||||
| benefit pension plans | 24, 27 | |||||||
| Comprehensive income | 1,358 | |||||||
| As of December 31, 2015 | 545,728 | 545,728 | 546 | 3,095 | 7,014 |
1 Figures as of December 31, 2013 were adjusted due to the stock split in 2014.
Total Fresenius
Noncontrolling
Accumulated
| other com prehensive |
SE & Co. KGaA shareholders' |
interest not subject to put |
Total shareholders' |
||
|---|---|---|---|---|---|
| Note | income (loss) € in millions |
equity € in millions |
provisions € in millions |
equity € in millions |
|
| As of December 31, 2013 | -351 | 8,195 | 5,065 | 13,260 | |
| Proceeds from the exercise of stock options | 33 | 70 | 55 | 125 | |
| Compensation expense related to | |||||
| stock options | 33 | 19 | 4 | 23 | |
| Dividends paid | 26 | -225 | -240 | -465 | |
| Purchase of noncontrolling interest | |||||
| not subject to put provisions | 25 | 0 | 297 | 297 | |
| Noncontrolling interest subject to put provisions | 25 | -23 | -51 | -74 | |
| Comprehensive income (loss) | |||||
| Net income | 1,067 | 635 | 1,702 | ||
| Other comprehensive income (loss) | |||||
| Cash flow hedges | 27, 29 | -2 | -2 | 2 | – |
| Change of fair value of | |||||
| available for sale financial assets | 27, 29 | -16 | -16 | – | -16 |
| Foreign currency translation | 27, 29 | 393 | 393 | 470 | 863 |
| Actuarial losses on defined | |||||
| benefit pension plans | 24, 27 | -143 | -143 | -89 | -232 |
| Comprehensive income | 232 | 1,299 | 1,018 | 2,317 | |
| As of December 31, 2014 | -119 | 9,335 | 6,148 | 15,483 | |
| Proceeds from the exercise of stock options | 33 | 114 | 59 | 173 | |
| Compensation expense related to stock options |
33 | 19 | 7 | 26 | |
| Vested subsidiary stock incentive plans | -1 | -3 | -4 | ||
| Dividends paid | 26 | -238 | -250 | -488 | |
| Sale of noncontrolling interest not subject to put provisions |
25 | 0 | -45 | -45 | |
| Noncontrolling interest subject to put provisions | 25 | -51 | -118 | -169 | |
| Comprehensive income (loss) | |||||
| Net income | 1,358 | 793 | 2,151 | ||
| Other comprehensive income (loss) | |||||
| Cash flow hedges | 27, 29 | 25 | 25 | 21 | 46 |
| Change of fair value of | |||||
| available for sale financial assets | 27, 29 | – | – | – | – |
| Foreign currency translation | 27, 29 | 325 | 325 | 439 | 764 |
| Actuarial gains on defined | |||||
| benefit pension plans | 24, 27 | 49 | 49 | 17 | 66 |
| Comprehensive income | 399 | 1,757 | 1,270 | 3,027 | |
| As of December 31, 2015 | 280 | 10,935 | 7,068 | 18,003 | |
| Fresenius Medical Care | Fresenius Kabi | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | 2015 | 2014 | Change | 20151 | 20142 | Change | |
| Sales | 15,086 | 11,917 | 27% | 5,950 | 5,146 | 16% | |
| thereof contribution to consolidated sales | 15,062 | 11,869 | 27% | 5,903 | 5,104 | 16% | |
| thereof intercompany sales | 24 | 48 | -50% | 47 | 42 | 12% | |
| contribution to consolidated sales | 55% | 51% | 21% | 22% | |||
| EBITDA | 2,744 | 2,223 | 23% | 1,446 | 1,084 | 33% | |
| Depreciation and amortization | 647 | 526 | 23% | 257 | 211 | 22% | |
| EBIT | 2,097 | 1,697 | 24% | 1,189 | 873 | 36% | |
| Net interest | -353 | -310 | -14% | -184 | -196 | 6% | |
| Income taxes | -560 | -440 | -27% | -306 | -189 | -62% | |
| Net income attributable to | |||||||
| shareholders of Fresenius SE & Co. KGaA | 928 | 786 | 18% | 669 | 468 | 43% | |
| Operating cash flow | 1,767 | 1,401 | 26% | 913 | 641 | 42% | |
| Cash flow before acquisitions and dividends | 923 | 709 | 30% | 589 | 289 | 104% | |
| Total assets 9 | 23,453 | 20,906 | 12% | 10,451 | 9,642 | 8% | |
| Debt 9 | 7,942 | 7,797 | 2% | 5,234 | 5,192 | 1% | |
| Capital expenditure, gross | 859 | 701 | 23% | 352 | 361 | -2% | |
| Acquisitions, gross /investments | 385 | 1,495 | -74% | 37 | 118 | -69% | |
| Research and development expenses | 126 | 92 | 37% | 336 | 276 | 22% | |
| Employees (per capita on balance sheet date) | 110,242 | 105,917 | 4% | 33,195 | 32,899 | 1% | |
| Key figures | |||||||
| EBITDA margin | 18.2% | 18.7% | 24.3% | 21.1% | |||
| EBIT margin | 13.9% | 14.2% | 20.0% | 17.0% | |||
| Depreciation and amortization in % of sales | 4.3% | 4.4% | 4.3% | 4.1% | |||
| Operating cash flow in % of sales | 11.7% | 11.8% | 15.3% | 12.5% | |||
| ROOA 9 | 9.6% | 9.7% | 13.2% | 10.6% | |||
Before costs for the efficiency program
2 Before integration costs
3 Before integration costs and disposal gains (two HELIOS hospitals)
4 Before integration costs and disposal gains (two HELIOS hospitals, Rhön stake)
5 After costs for the efficiency program, integration costs and disposal gains (two HELIOS hospitals)
6 After integration costs and disposal gains (two HELIOS hospitals, Rhön stake)
The underlying EBIT does not include costs for the efficiency program, integration costs and disposal gains (two HELIOS hospitals).
8 The underlying pro forma EBIT does not include integration costs and disposal gains (two HELIOS hospitals, Rhön stake).
9 After reclassification of debt issuance costs according to ASU 2015-03
| Europe | North America | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | 2015 | 2014 | Change | 2015 | 2014 | Change | |
| Sales | 10,557 | 10,162 | 4% | 12,621 | 9,307 | 36% | |
| contribution to consolidated sales | 38% | 44% | 46% | 40% | |||
| EBIT | 888 | 865 | 3% | 2,337 | 1,684 | 39% | |
| Depreciation and amortization | 467 | 432 | 8% | 521 | 398 | 31% | |
| Total assets 1 | 16,007 | 15,636 | 2% | 22,658 | 19,754 | 15% | |
| Capital expenditure, gross | 672 | 670 | 0% | 615 | 451 | 36% | |
| Acquisitions, gross /investments | 241 | 879 | -73% | 213 | 1,233 | -83% | |
| Employees (per capita on balance sheet date) | 114,753 | 112,829 | 2% | 68,859 | 65,817 | 5% |
After reclassification of debt issuance costs according to ASU 2015-03 The consolidated segment reporting by region is an integral part of the notes.
1
| Fresenius Kabi | Fresenius Helios | Fresenius Vamed | Corporate/Other | Fresenius Group | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change | 20153 | 20143 | Change | 2015 | 2014 | Change | 20155 | 20146 | Change | 2015 | 2014 | Change |
| 16% | 5,578 | 5,244 | 6% | 1,118 | 1,042 | 7% | -106 | -118 | 10% | 27,626 | 23,231 | 19% |
| 16% | 5,578 | 5,244 | 6% | 1,077 | 1,009 | 7% | 6 | 5 | 20% | 27,626 | 23,231 | 19% |
| 0 | 0 | 41 | 33 | 24% | -112 | -123 | 9% | 0 | 0 | |||
| 20% | 23% | 4% | 4% | 0% | 0% | 100% | 100% | |||||
| 831 | 732 | 14% | 75 | 71 | 6% | -106 | -59 | -80% | 4,990 | 4,051 | 23% | |
| 191 | 179 | 7% | 11 | 12 | -8% | 9 | 9 | 0% | 1,115 | 937 | 19% | |
| 640 | 553 | 16% | 64 | 59 | 8% | -115 | -68 | -69% | 3,875 | 3,114 | 24% | |
| -48 | -56 | 14% | -3 | -1 | -200% | -25 | -39 | 36% | -613 | -602 | -2% | |
| -108 | -86 | -26% | -16 | -16 | 0% | 25 | 31 | -19% | -965 | -700 | -38% | |
| 483 | 400 | 21% | 44 | 41 | 7% | -766 | -628 | -22% | 1,358 | 1,067 | 27% | |
| 618 | 558 | 11% | 53 | -9 | -- | -24 | -6 | -- | 3,327 | 2,585 | 29% | |
| 347 | 295 | 18% | 42 | -18 | -- | -36 | -13 | -177% | 1,865 | 1,262 | 48% | |
| 8,430 | 8,352 | 1% | 988 | 891 | 11% | -152 | -3 | -- | 43,170 | 39,788 | 9% | |
| 1,282 | 1,394 | -8% | 161 | 159 | 1% | 150 | 803 | -81% | 14,769 | 15,345 | -4% | |
| 277 | 266 | 4% | 11 | 10 | 10% | 13 | 7 | 86% | 1,512 | 1,345 | ||
| 99 | 824 | -88% | 4 | 12 | -67% | -8 | 1 | -- | 517 | 2,450 | -79% | |
| – | – | -- | 0 | 0 | 2 | 1 | 100% | 464 | 369 | 26% | ||
| 69,728 | 68,852 | 1% | 8,262 | 7,746 | 7% | 878 | 861 | 2% | 222,305 | 216,275 | ||
| 14.9% | 14.0% | 6.7% | 6.8% | 18.4%1,3 | 17.6%4 | |||||||
| 11.5% | 10.5% | 5.7% | 5.7% | 14.3%1,3 | 13.6%4 | |||||||
| 3.4% | 3.4% | 1.0% | 1.2% | 4.0% | 4.0% | |||||||
| 11.1% | 10.6% | 4.7% | -0.9% | 12.0% | 11.1% | |||||||
| 8.1% | 7.4% | 11.1% | 11.2% | 10.1%7 | 9.1%8 |
The consolidated segment reporting by business segment is an integral part of the notes. The following notes are an integral part of the consolidated financial statements.
| Asia-Pacific | Latin America | Africa | Fresenius Group | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 2014 |
Change | 2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||
| 2,205 | 2,779 | 26% | 1,297 | 1,186 | 9% | 372 | 371 | 0% | 27,626 | 23,231 | 19% | |
| 9% | 10% | 5% | 5% | 1% | 2% | 100% | 100% | |||||
| 511 392 |
30% | 79 | 131 | -40% | 60 | 42 | 43% | 3,875 | 3,114 | 24% | ||
| 85 65 |
31% | 36 | 36 | 0% | 6 | 6 | 0% | 1,115 | 937 | 19% | ||
| 2,960 | 3,115 | 5% | 1,230 | 1,273 | -3% | 160 | 165 | -3% | 43,170 | 39,788 | 9% | |
| 109 124 |
-12% | 106 | 92 | 15% | 10 | 8 | 25% | 1,512 | 1,345 | 12% | ||
| 53 208 |
-75% | 10 | 130 | -92% | 0 | 0 | 517 | 2,450 | -79% | |||
| 19,690 | 20,257 | 3% | 16,498 | 16,136 | 2% | 1,938 | 1,803 | 7% | 222,305 | 216,275 | 3% |
After reclassification of debt issuance costs according to ASU 2015-03 The consolidated segment reporting by region is an integral part of the notes.
131 20. Other liabilities
Fresenius is a global health care group with products and services for dialysis, hospitals and outpatient medical care. In addition, the Fresenius Group focuses on hospital operations and also manages projects and provides services for hospitals and other health care facilities worldwide. Besides the activities of the parent company Fresenius SE & Co. KGaA, Bad Homburg v. d. H., the operating activities were split into the following legally independent business segments in the fiscal year 2015:
Fresenius Medical Care is the world's largest integrated provider of products and services for individuals with renal diseases. As of December 31, 2015, Fresenius Medical Care was treating 294,381 patients in 3,418 dialysis clinics. Along with its core business, the company seeks to expand the range of medical services in the field of care coordination.
Fresenius Kabi offers infusion therapies, intravenously administered generic drugs and clinical nutrition for seriously and chronically ill patients in the hospital and outpatient environments. The company is also a leading supplier of medical devices and transfusion technology products.
Fresenius Helios is Germany's largest hospital operator. At the end of 2015, the HELIOS Group operated 111 hospitals, thereof 87 acute care hospitals (including 7 maximum care hospitals in Berlin-Buch, Duisburg, Erfurt, Krefeld, Schwerin, Wiesbaden and Wuppertal) and 24 post-acute care clinics. Fresenius Helios treats more than 4.7 million patients per year, thereof approximately 1.3 million inpatients, and operates more than 34,000 beds.
Fresenius Vamed manages projects and provides services for hospitals and other health care facilities worldwide. The portfolio ranges along the entire value chain: from project development, planning, and turnkey construction, via maintenance and technical management, to total operational management.
Fresenius SE & Co. KGaA owned 30.91% of the subscribed capital of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) at the end of the fiscal year 2015. Fresenius Medical Care Management AG, the general partner of FMC-AG & Co. KGaA, is a wholly owned subsidiary of Fresenius SE & Co. KGaA. Through this structure, Fresenius SE & Co. KGaA has rights that give Fresenius SE & Co. KGaA the ability to direct the relevant activities and, hence, the earnings of FMC-AG & Co. KGaA. Therefore, FMC-AG & Co. KGaA is fully consolidated in the consolidated financial statements of the Fresenius Group.
Fresenius SE & Co. KGaA continued to hold 100% of the management companies of the business segments Fresenius Kabi (Fresenius Kabi AG) as well as Fresenius Helios and Fresenius Vamed (both held through Fresenius ProServe GmbH) on December 31, 2015. Through Fresenius ProServe GmbH, Fresenius SE & Co. KGaA holds 100% in HELIOS Kliniken GmbH and a 77% stake in VAMED AG. In addition, Fresenius SE & Co. KGaA holds interests in companies with holding functions regarding real estate, financing and insurance, as well as in Fresenius Netcare GmbH which offers services in the field of information technology.
The reporting currency in the Fresenius Group is the euro. In order to make the presentation clearer, amounts are mostly shown in million euros. Amounts under €1 million after rounding are marked with "–".
The accompanying consolidated financial statements have been prepared in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP).
Fresenius SE & Co. KGaA, as a stock exchange listed company with a domicile in a member state of the European Union, fulfills the obligation to prepare and publish the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) applying Section 315a of the German Commercial Code (HGB). Simultaneously, the Fresenius Group voluntarily prepares and publishes the consolidated financial statements in accordance with U.S. GAAP.
In order to improve readability, various items are aggregated in the consolidated statement of financial position and in the consolidated statement of income. These items are shown separately in the notes to provide useful information to the readers of the consolidated financial statements.
The consolidated statement of financial position is classified on the basis of the maturity of assets and liabilities; the consolidated statement of income is classified using the cost-ofsales accounting format.
The financial statements of consolidated entities have been prepared using uniform accounting methods. The acquisitions of companies are accounted for applying the purchase method.
Capital consolidation is performed by offsetting investments in subsidiaries against the underlying revaluated equity at the date of acquisition. The identifiable assets and liabilities of subsidiaries as well as the noncontrolling interest are recognized at their fair values. Any remaining debit balance between the investments in subsidiaries plus the noncontrolling interest and the revaluated equity is recognized as goodwill and is tested at least once a year for impairment.
All significant intercompany sales, expenses, income, receivables and payables are eliminated. Profits and losses on items of property, plant and equipment and inventory acquired from other Group entities are also eliminated. Deferred tax assets and liabilities are recognized on temporary differences resulting from consolidation procedures.
Noncontrolling interest subject to put provisions is recognized between liabilities and equity in the consolidated statement of financial position. Noncontrolling interest not subject to put provisions is comprised of the interest of noncontrolling shareholders in the consolidated equity of Group entities. Profits and losses attributable to the noncontrolling shareholders are separately disclosed in the consolidated statement of income. Noncontrolling interest not subject to put provisions of acquired entities is valuated at fair value.
Associated companies, over which Fresenius SE & Co. KGaA has significant exercisable influence (generally it holds more than 20% and less than 50% of the voting rights), are consolidated using the equity method. Investments that are not classified as in associated companies are recorded at acquisition costs or at fair value, respectively.
The consolidated financial statements include all material companies in which Fresenius SE & Co. KGaA has legal or effective control. This includes variable interest entities (VIEs) for which the Fresenius Group is deemed the primary beneficiary.
Fresenius Medical Care has entered into various arrangements with certain legal entities whereby the entities' investors own disproportionate equity ownership interests in relation to the risks and rewards they retain for these arrangements or the entities are unable to provide their own funding for their operations. In these arrangements, the entities are VIEs, in which Fresenius Medical Care has been determined to be the primary beneficiary and which therefore have been fully consolidated. Fresenius Medical Care has provided some or all of the following services to these VIEs: management, financing or product supply. They generated approximately €687 million (US\$762 million) and €402 million (US\$534 million) in sales in 2015 and 2014, respectively. Fresenius Medical Care provided funding to these VIEs through loans and accounts receivable of €255 million (US\$277 million) and €246 million (US\$299 million) in 2015 and 2014, respectively. Relating to the VIEs, in 2015, Fresenius Medical Care consolidated assets in an amount of €381 million (US\$415 million), liabilities in an amount of €366 million (US\$399 million) and €15 million (US\$16 million) in equity. In 2014, €432 million (US\$525 million) assets, €423 million (US\$514 million) liabilities and €9 million (US\$11 million) equity were consolidated. The interest held by the other shareholders in the consolidated VIEs is reported as noncontrolling interest in the consolidated statement of financial position.
Fresenius Vamed participates in project entities which are set up for long-term defined periods of time and for the specific purpose of constructing and operating thermal centers. Some of these project entities qualify as VIEs, in which Fresenius Vamed is not the primary beneficiary based on the cash flow analysis of the involved parties. The project entities generated approximately €110 million in sales in 2015 (2014: €98 million). The VIEs finance themselves mainly through debt, profit participation rights and investment grants. Assets and liabilities relating to the VIEs are not material.
Fresenius Vamed made no payments to the VIEs other than contractually stipulated. From today's perspective and due to the contractual situation, Fresenius Vamed is not exposed to any material risk of loss from these VIEs.
The consolidated financial statements of 2015 included, in addition to Fresenius SE & Co. KGaA, 2,323 fully consolidated companies and 31 companies were accounted for under the equity method. In 2015, there were no material changes in the scope of consolidated entities, except for those mentioned in note 2, Acquisitions, divestitures and investments.
The complete list of the investments of Fresenius SE & Co. KGaA, registered office in 61352 Bad Homburg v. d. H., Else-Kröner-Straße 1, will be submitted to the electronic Federal Gazette and the electronic companies register.
In 2015, the following fully consolidated German subsidiaries of the Fresenius Group applied the exemption provided in Sections 264 (3) and 264b, respectively, of the German Commercial Code (HGB):
| Name of the company | Registered office |
|---|---|
| Corporate/Other | |
| Fresenius Biotech Beteiligungs GmbH | Bad Homburg v. d. H. |
| Fresenius Immobilien-Verwaltungs GmbH &Co. Objekt Friedberg KG |
Bad Homburg v. d. H. |
| Fresenius Immobilien-Verwaltungs GmbH &Co. Objekt St.Wendel KG |
Bad Homburg v. d. H. |
| Fresenius Immobilien-Verwaltungs GmbH &Co. Objekt Schweinfurt KG |
Bad Homburg v. d. H. |
| Fresenius Netcare GmbH | Bad Homburg v. d. H. |
| Fresenius ProServe GmbH | Bad Homburg v. d. H. |
| FPS Immobilien Verwaltungs GmbH &Co. Reichenbach KG ProServe Krankenhaus Beteiligungs |
Bad Homburg v. d. H. |
| gesellschaft mbH &Co. KG | München |
| Fresenius Kabi | |
| Fresenius Kabi AG | Bad Homburg v. d. H. |
| Fresenius Kabi Deutschland GmbH | Bad Homburg v. d. H. |
| Fresenius Kabi | |
| Vermögensverwaltung GmbH | Bad Homburg v. d. H. |
| Hosped GmbH | Friedberg |
| medi1one medical gmbh | Waiblingen |
| V. Krütten Medizinische Einmalgeräte GmbH |
Idstein |
| Name of the company | Registered office |
|---|---|
| Fresenius Helios | |
| Betriebsführungsgesellschaft Schloß Schönhagen GmbH |
Damp |
| HELIOS Agnes-Karll-Krankenhaus GmbH | Bad Schwartau |
| HELIOS Aukamm-Klinik Wiesbaden GmbH | Wiesbaden |
| HELIOS Care GmbH | Berlin |
| HELIOS Fachklinik Schleswig GmbH | Schleswig |
| HELIOS Fachklinik Vogelsang Gommern GmbH |
Vogelsang-Gommern |
| HELIOS Fachpflege Schleswig GmbH | Schleswig |
| HELIOS Hanseklinikum Stralsund GmbH | Stralsund |
| HELIOS Kids in Pflege GmbH | Geesthacht |
| HELIOS Klinik Ahrenshoop GmbH | Ostseebad Ahrenshoop |
| HELIOS Klinik Berching GmbH | Berching |
| HELIOS Klinik Blankenhain GmbH | Blankenhain |
| HELIOS Klinik Bleicherode GmbH | Bleicherode |
| HELIOS Klinik für Herzchirurgie Karlsruhe GmbH |
Karlsruhe |
| HELIOS Klinik Geesthacht GmbH | Geesthacht |
| HELIOS Klinik Leisnig GmbH | Leisnig |
| HELIOS Klinik Lengerich GmbH | Lengerich |
| HELIOS Klinik Schkeuditz GmbH | Schkeuditz |
| HELIOS Klinik Schloss Schönhagen GmbH | Damp |
| HELIOS Klinik Volkach GmbH | Volkach |
| HELIOS Kliniken | |
| Breisgau-Hochschwarzwald GmbH | Müllheim |
| HELIOS Kliniken GmbH | Berlin |
| HELIOS Kliniken Mansfeld-Südharz GmbH | Sangerhausen |
| HELIOS Klinikum Aue GmbH | Aue |
| HELIOS Klinikum Bad Saarow GmbH | Bad Saarow |
| HELIOS Klinikum Berlin-Buch GmbH | Berlin |
| HELIOS Klinikum Erfurt GmbH | Erfurt |
| HELIOS Klinikum Meiningen GmbH | Meiningen |
| HELIOS Klinikum Pirna GmbH | Pirna |
| HELIOS Klinikum Schwelm GmbH | Schwelm |
| HELIOS Klinikum Wuppertal GmbH | Wuppertal |
| HELIOS Management&Personal | |
| Nord-West GmbH | Hamburg |
| HELIOS Ostseeklinik Damp GmbH | Damp |
| HELIOS Privatkliniken GmbH | Bad Homburg v. d. H. |
| HELIOS Rehaklinik Damp GmbH | Damp |
| HELIOS-SERVICE GMBH | Berlin |
| HELIOS Spital Überlingen GmbH | Überlingen |
| HELIOS St.Josefs-Hospital GmbH | Bochum |
| HELIOS Versorgungszentren GmbH | Berlin |
| HELIOS Vogtland-Klinikum Plauen GmbH | Plauen |
| Herzzentrum Leipzig GmbH | Leipzig |
| HUMAINE Kliniken GmbH | Berlin |
| Medizinisches Versorgungszentrum am | |
| HELIOS Klinikum Bad Saarow GmbH | Bad Saarow |
| ostsee resort damp GmbH | Damp |
| Poliklinik am HELIOS Klinikum Buch GmbH | Berlin |
| Senioren- und Pflegeheim Erfurt GmbH | Erfurt |
| St. Elisabeth-Krankenhaus GmbH | |
| Bad Kissingen | Bad Kissingen |
| Verwaltungsgesellschaft | |
| ENDO-Klinik mbH | Hamburg |
Certain items in the consolidated financial statements of 2014 have been reclassified to conform with the presentation in 2015.
Sales from services are recognized at the amount estimated to be receivable under reimbursement arrangements with third party payors. Sales are recognized on the date services and related products are provided and the customer is obligated to pay.
Product sales are recognized when the title to the product passes to the customers, either at the time of shipment, upon receipt by the customer or upon any other terms that clearly define passage of title. As product returns are not typical, no return provisions are recognized. In the event that a return is required, the appropriate reductions to sales, cost of sales and accounts receivable are made. Sales are presented net of discounts, allowances and rebates.
In the business segment Fresenius Vamed, sales for longterm production contracts are recognized using the percentage of completion (PoC) method when the accounting conditions are met. The sales to be recognized are calculated as a percentage of the costs already incurred based on the estimated total cost of the contract, milestones laid down in the contract or the percentage of completion. Profits are only recognized when the earnings of a production contract accounted for using the PoC method can be measured reliably. Any expected excess of total contract costs over total contract revenue for a contract is recognized as an expense immediately.
Any tax assessed by a governmental authority that is incurred as a result of a sales transaction (e. g. sales tax) is excluded from sales and the related sale is reported on a net basis.
The Fresenius Group primarily receives governmental funding for hospitals in Germany to finance buildings and medical equipment. Public sector grants are not recognized until there is reasonable assurance that the respective conditions are met and the grants will be received. Initially, the grant is recorded as a liability and as soon as the asset is acquired, the grant is offset against the acquisition costs. Expenserelated grants are recognized as income in the periods in which related costs occur.
Research is the independent and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development is the technical and commercial implementation of research results and occurs before the start of the commercial production or use. Research and development expenses are expensed as incurred.
The Fresenius Group reviews the carrying amounts of its property, plant and equipment, intangible assets and other noncurrent assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of an asset to the future net cash flow directly associated with the asset. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying amount exceeds the fair value of the asset. The Fresenius Group uses a discounted cash flow approach or other methods, if appropriate, to assess fair value. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell and depreciation is ceased.
The Fresenius Group includes capitalized interest as part of the cost of the asset if it is directly attributable to the acquisition, construction or manufacture of qualifying assets. For the fiscal years 2015 and 2014, interest of €5 million and €3 million, based on an average interest rate of 4.48% and 5.09%, respectively, was recognized as a component of the cost of assets.
Current taxes are calculated based on the earnings of the fiscal year and in accordance with local tax rules of the respective tax jurisdictions. Expected and executed additional tax payments and tax refunds for prior years are also taken into account.
Deferred tax assets and liabilities are recognized for the future consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Furthermore, deferred taxes are recognized on certain consolidation procedures affecting net income attributable to shareholders of Fresenius SE & Co. KGaA. Deferred tax assets also include claims to future tax reductions which arise from the more likely than not expected usage of existing tax losses available for carryforward. The recognition of deferred tax assets from net operating losses and their utilization is based on the budget planning of the Fresenius Group and implemented tax strategies.
Deferred taxes are computed using enacted or adopted tax rates in the relevant national jurisdictions when the amounts are recovered. Tax rates which will be valid in the future but are not adopted till the date of the statement of financial position are not considered.
The realizability of the carrying amount of a deferred tax asset is reviewed at each date of the statement of financial position. In assessing the realizability of deferred tax assets, the Management considers whether it is more likely than not that some portion or all of a deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and tax loss carryforwards become deductible. The Management considers the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment.
If it is no longer more likely than not that sufficient taxable income will be available to allow the benefit of part or of the entire deferred tax asset to be utilized, the carrying amount of the deferred tax asset is reduced to that certain extent. The reduction is reversed to the date and extent that it becomes probable that sufficient taxable profit will be available.
It is Fresenius Group's policy that assets on uncertain tax positions are recognized to the extent it is more likely than not the tax will be recovered. It is also Fresenius Group's policy to recognize interest and penalties related to its tax positions as income tax expense.
The recognition and measurement of all tax positions taken or expected to be taken on a tax return requires a two step approach. The Fresenius Group determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If the threshold is met, the tax position is measured at the largest amount of tax benefit that is more than 50% likely of being realized upon settlement and is recognized in the consolidated financial statements.
Basic earnings per share are computed by dividing net income attributable to shareholders of Fresenius SE&Co. KGaA by the weighted-average number of ordinary shares outstanding during the year. Diluted earnings per share include the effect of all potentially dilutive instruments on ordinary shares that would have been outstanding during the fiscal year. The equity-settled awards granted under Fresenius' and Fresenius Medical Care's stock option plans can result in a dilutive effect.
Cash and cash equivalents are comprised of cash funds and all short-term, liquid investments with original maturities of up to three months (time deposits and securities).
Trade accounts receivable are stated at their nominal value less an allowance for doubtful accounts. The allowances are estimates comprised of customer-specific evaluations regarding their payment history, current financial stability, and applicable country-specific risks for receivables that are overdue more than one year. From time to time, accounts receivable are reviewed for changes from the historic collection experience to ensure the appropriateness of the allowances.
Inventories are comprised of all assets which are held for sale in the normal course of business (finished goods), in the process of production for such sale (work in process) or consumed in the production process or in the rendering of services (raw materials and purchased components).
Inventories are stated at the lower of acquisition and manufacturing cost (determined by using the average or firstin, first-out method) or net realizable value. Manufacturing costs are comprised of direct costs, production and material overhead, including depreciation charges.
Investments in equity instruments, debt instruments and fund shares are classified as available for sale financial assets and measured at fair value. The Fresenius Group regularly reviews if objective substantial evidence occurs that would indicate an impairment of a financial asset or a portfolio of financial assets. After testing the recoverability of these assets, a possible impairment loss is recorded in the consolidated statement of financial position. Gains and losses of available for sale financial assets are recognized directly in the consolidated statement of equity until the financial asset is disposed of or if it is considered to be impaired. In the case of an impairment, the accumulated net loss is retrieved from the consolidated statement of equity and recognized in the consolidated statement of income.
Property, plant and equipment are stated at acquisition and manufacturing cost less accumulated depreciation. Significant improvements are capitalized; repairs and maintenance costs that do not extend the useful lives of the assets are charged to expense as incurred. Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 50 years for buildings and improvements (with a weighted-average life of 16 years) and 2 to 15 years for machinery and equipment (with a weighted-average life of 11 years).
q) Intangible assets with finite useful lives Intangible assets with finite useful lives, such as patents, product and distribution rights, non-compete agreements, technology as well as licenses to manufacture, distribute and sell pharmaceutical drugs, are amortized using the straight-line method over their respective useful lives to their residual values and reviewed for impairment (see note 1. III. g, Impairment). The useful life of patents, product and distribution rights ranges from 5 to 20 years, the average useful life is 13 years. The useful lives of customer relationships vary from 6 to 15 years, the average useful life is 10 years. Non-compete agreements with finite useful lives have useful lives ranging from 2 to 25 years with an average useful life of 6 years. Technology has a finite useful live of 15 years. Licenses to manufacture, distribute and sell pharmaceutical drugs are amortized over the contractual license period based upon the annual estimated units of sale of the licensed product. All other intangible assets are amortized over their individual estimated useful lives between 3 and 15 years.
Losses in value of a lasting nature are recorded as an impairment.
The Fresenius Group identified intangible assets with indefinite useful lives because, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which those assets are expected to generate net cash inflows for the Group. The identified intangible assets with indefinite useful lives such as trade names and certain qualified management contracts acquired in a purchase method business combination are recognized and reported apart from goodwill. They are recorded at acquisition costs. Goodwill and intangible assets with indefinite useful lives are not amortized but tested for impairment annually or when an event becomes known that could trigger an impairment (impairment test).
To perform the annual impairment test of goodwill, the Fresenius Group identified several reporting units and determined their carrying amount by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. A reporting unit is usually defined one level below the segment level based on regions or the nature of the business activity. 4 reporting units were identified in the segments Fresenius Medical Care and Fresenius Kabi, respectively (Europe, Latin America, Asia-Pacific and North America). According to the regional organizational structure, the segment Fresenius Helios consists of 10 reporting units, which are managed by a central division. The segment Fresenius Vamed consists of 2 reporting units (Project business and Service business). At least once a year, the Fresenius Group compares the fair value of each reporting unit to the reporting unit's carrying amount. The fair value of a reporting unit is determined using a discounted cash flow approach based upon the cash flow expected to be generated by the reporting unit. In case that the fair value of the reporting unit is less than its carrying amount, the difference is at first recorded as an impairment of the fair value of the goodwill.
To evaluate the recoverability of separable intangible assets with indefinite useful lives, the Fresenius Group compares the fair values of these intangible assets with their carrying amounts. An intangible asset's fair value is determined using a discounted cash flow approach and other methods, if appropriate.
The recoverability of goodwill and other separable intangible assets with indefinite useful lives recorded in the Group's consolidated statement of financial position was verified. As a result, the Fresenius Group did not record any impairment losses in 2015 and 2014.
Any excess of the net fair value of identifiable assets and liabilities over cost (badwill) still existing after reassessing the purchase price allocation is recognized immediately in profit or loss.
Leased assets assigned to the Fresenius Group based on the risk and rewards approach (finance leases) are recognized as property, plant and equipment and measured on receipt date at the present values of lease payments as long as their fair values are not lower. Leased assets are depreciated in straight-line over their useful lives. If there is doubt as to whether title to the asset passes at a later stage and there is no opportune purchase option, the asset is depreciated over the lease term if this is shorter. An impairment loss is recognized if the recoverable amount is lower than the amortized cost of the leased asset.
Finance lease liabilities are measured at the present value of the future lease payments and are recognized as a financial liability.
Property, plant and equipment that is rented by the Fresenius Group is accounted for at its purchase cost. Depreciation is calculated using the straight-line method over the leasing time and its expected residual value.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Purchases and sales of financial assets are accounted for on the trading day. The Fresenius Group does not make use of the fair value option, which allows financial assets or financial liabilities to be classified as at fair value through profit or loss upon initial recognition.
The following categories (according to International Accounting Standard 39, Financial Instruments: Recognition and Measurement) are relevant for the Fresenius Group: loans and receivables, financial liabilities measured at amortized cost, available for sale financial assets as well as financial liabilities / assets measured at fair value in the consolidated statement of income. Other categories are immaterial or not existing in the Fresenius Group. No financial instruments were reclassified during the fiscal year 2015.
According to their character, the Fresenius Group classifies its financial instruments into the following classes: cash and cash equivalents, assets recognized at carrying amount, liabilities recognized at carrying amount, derivatives for hedging purposes as well as assets recognized at fair value, liabilities recognized at fair value and noncontrolling interest subject to put provisions recognized at fair value.
The relationship between classes and categories as well as the reconciliation to the consolidated statement of financial position is shown in tabular form in note 29, Financial instruments.
The Fresenius Group has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Fresenius Group would be required to purchase all or part of the third-party owners' noncontrolling interests at the appraised fair value at the time of exercise. To estimate the fair values of the noncontrolling interest subject to put provisions, the Fresenius Group recognizes the higher of net book value or a multiple of earnings, based on historical earnings, the development stage of the underlying business and other factors. Additionally, there are put provisions that are valued by an external valuation firm. The external valuation estimates the fair values using a combination of discounted cash flows and a multiple of earnings and/or revenue. Depending on the market conditions, the estimated fair values of the noncontrolling interest subject to these put provisions can also fluctuate, the discounted cash flows and the implicit multiple of earnings and/or revenue at which the noncontrolling interest subject to put provisions may ultimately be settled could vary significantly from Fresenius Group's current estimates.
Derivative financial instruments, which primarily include foreign currency forward contracts and interest rate swaps, are recognized at fair value as assets or liabilities in the consolidated statement of financial position. Changes in the fair value of derivative financial instruments classified as fair value hedges and in the corresponding underlying assets and liabilities are recognized periodically in earnings. The effective portion of changes in fair value of cash flow hedges is recognized in accumulated other comprehensive income (loss) in
shareholders' equity until the secured underlying transaction is realized (see note 29, Financial instruments). The ineffective portion of cash flow hedges is recognized in current earnings. Changes in the fair value of derivatives that are not designated as hedging instruments are recognized periodically in earnings.
Derivatives embedded in host contracts are accounted for as separate derivatives if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in the income statement.
Liabilities are generally stated at present value, which normally corresponds to the value of products or services which are delivered. As a general policy, short-term liabilities are measured at their repayment amount.
In the ordinary course of Fresenius Group's operations, the Fresenius Group is involved in litigation, arbitration, administrative procedure and investigations relating to various aspects of its business. The Fresenius Group regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including the estimated legal expenses and consulting services in connection with these matters, as appropriate. The Fresenius Group utilizes its internal legal department as well as external resources for these assessments. In making the decision regarding the need for a loss accrual, the Fresenius Group considers the degree of probability of an unfavorable outcome and its ability to make a reasonable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim, or the disclosure of any such suit or assertion, does not necessarily indicate that an accrual of a loss is appropriate.
Accruals for taxes and other obligations are recognized when there is a present obligation to a third party arising from past events, it is probable that the obligation will be settled in the future and the amount can be reliably estimated.
Accruals for warranties and complaints are estimated based on historical experience.
Tax accruals include obligations for the current year and for prior years.
The Fresenius Group recognizes the underfunded status of its defined benefit plans, measured as the difference between the fair value of the plan assets and the present value of the benefit obligation, as a liability (funded status).
The Fresenius Group uses December 31 as the measurement date when measuring the funded status of all plans.
Changes in the funded status of a plan resulting from actuarial gains or losses and prior service costs or credits that are not recognized as components of the net periodic benefit cost are recognized through accumulated other comprehensive income (loss), net of tax, in the year in which they occur.
The Fresenius Group uses the corridor method for the recognition of the actuarial gains and losses. Actuarial gains and losses that exceed a corridor of 10% of the present value of the defined benefit obligation are spread over the expected average remaining working lives of the employees participating in the plans, adjusted for fluctuation.
Actuarial gains or losses and prior service costs are subsequently recognized as components of net periodic benefit cost when realized.
Debt issuance costs related to a recognized debt liability are presented in the consolidated statement of financial position as a direct deduction from the carrying amount of that debt liability. These costs are amortized over the term of the related obligation.
In line with the standard for share-based payment, the Fresenius Group uses the modified prospective transition method. Under this transition method, in 2014 and 2015, the Fresenius Group recognized compensation cost for all stock-based payments subsequent to January 1, 2011 (based on the grant-date fair value estimated).
The measurement date fair value of cash-settled phantom stocks granted to members of the Management Board and executive employees of the Fresenius Group is calculated using the Monte Carlo simulation. The corresponding liability based on the measurement date fair value is accrued over the vesting period of the phantom stock plans.
Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, the largest subsidiary of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA), located in North America, is partially self-insured for professional liability claims. For all other coverage, FMC-AG & Co. KGaA assumes responsibility for incurred claims up to predetermined amounts, above which third party insurance applies. Reported liabilities for the year represent estimated future payments of the anticipated expense for claims incurred (both reported and incurred but not reported) based on historical experience and existing claim activity. This experience includes both the rate of claims incidence (number) and claim severity (cost) and is combined with individual claim expectations to estimate the reported amounts.
The reporting currency is the euro. Substantially all assets and liabilities of the foreign subsidiaries that use a functional currency other than the euro are translated at the mid-closing rate on the date of the statement of financial position, while income and expense are translated at average exchange rates. Adjustments due to foreign currency translation fluctuations are excluded from net earnings and are reported in accumulated other comprehensive income (loss). In addition, the translation adjustments of certain intercompany borrowings, which are of a long-term nature, are also reported in accumulated other comprehensive income (loss).
Gains and losses arising from the translation of foreign currency positions as well as those arising from the elimination of foreign currency intercompany loans are recorded as
general and administrative expenses, as far as they are not considered foreign equity instruments. In the fiscal year 2015, only immaterial losses resulted out of this translation.
The exchange rates of the main currencies affecting foreign currency translation developed as follows:
| Year-end exchange rate 1 | Average exchange rate | |||
|---|---|---|---|---|
| Dec. 31, 2015 | Dec. 31, 2014 | 2015 | 2014 | |
| U.S. dollar per € | 1.0887 | 1.2141 | 1.1095 | 1.3285 |
| Pound sterling per € | 0.7340 | 0.7789 | 0.7259 | 0.8061 |
| Swedish krona per € | 9.1895 | 9.3930 | 9.3535 | 9.0985 |
| Chinese renminbi per € | 7.0608 | 7.5358 | 6.9733 | 8.1857 |
| Japanese yen per € | 131.07 | 145.23 | 134.31 | 140.31 |
| Russian ruble per € | 80.6736 | 72.3370 | 68.0720 | 50.9518 |
| Brazilian real per € | 4.3117 | 3.2207 | 3.7004 | 3.1211 |
Mid-closing rate on the date of the statement of financial position
The three-tier fair value hierarchy as defined in Financial Accounting Standards Boards Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, classifies assets and liabilities recognized at fair value based on the inputs used in estimating the fair value. 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. The three-tier fair value hierarchy is used in note 24, Pensions and similar obligations, and in note 29, Financial instruments.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Estimates and discretionary decisions are required
in particular for the positions trade accounts receivable, deferred tax assets and pension liabilities as well as when examining the recoverability of goodwill.
The entities of the Fresenius Group perform ongoing evaluations of the financial situation of their customers and generally do not require a collateral from the customers for the supply of products and provision of services. Approximately 17% and 16% of Fresenius Group's sales were earned and subject to the regulations under governmental health care programs, Medicare and Medicaid, administered by the United States government in 2015 and 2014, respectively.
The Fresenius Group has prepared its consolidated financial statements at December 31, 2015 in conformity with U.S. GAAP that have to be applied for fiscal years beginning on January 1, 2015 or U.S. GAAP that can be applied earlier on a voluntary basis.
The Fresenius Group applied the following standards, as far as they are relevant for Fresenius Group's business, for the first time:
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2015-03 (ASU 2015-03), FASB Accounting Standards Codification (ASC) Subtopic 835-30, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that liability, consistent with debt discounts. This update is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Earlier adoption is permitted. The Fresenius Group adopted ASU 2015-03 as of December 31, 2015. In accordance with ASU 2015-03, the Fresenius Group has adjusted prepaid expenses and other current assets, other noncurrent assets and debt in the amount of €16 million, €93 million and €109 million, respectively, as of December 31, 2014.
The FASB issued the following for the Fresenius Group rele vant new standards, which are mandatory for fiscal years commencing on or after January 1, 2016:
In January 2016, the FASB issued Accounting Standards Update 2016-01 (ASU 2016-01), FASB ASC Subtopic 825-10, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 focuses on improving the recognition and measurement of financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 affects the accounting treatment and disclosures related to financial instruments and equity instruments. The update is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Earlier adoption is generally not permitted. The Fresenius Group is currently evaluating the impact of ASU 2016-01 on its consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update 2015-17 (ASU 2015-17), FASB ASC Topic 740, Income Taxes – Balance Sheet Classification of Deferred Taxes, which focuses on reducing the complexity of classifying deferred taxes on the balance sheet. ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet and requires the classification of all deferred tax assets and liabilities as non-current. The update is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Earlier adoption is permitted. The Fresenius Group will adopt ASU 2015-17 as of January 1, 2016.
In September 2015, the FASB issued Accounting Standards Update 2015-16 (ASU 2015-16), FASB ASC Topic 805, Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update also requires that the acquirer separately discloses the portion of the amount recorded in current period earnings that would have been recorded in previous periods as a result of an adjustment to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The update is effective for fiscal years and interim periods within those years beginning after December 15, 2015. The Fresenius Group is currently evaluating the impact of ASU 2015-16 on its consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update 2015-02 (ASU 2015-02), FASB ASC Topic 810, Consolidation – Amendments to the Consolidation Analysis, which focuses on clarifying guidance related to the evaluation of various types of legal entities such as limited partnerships, limited liability corporations and certain security transactions for consolidation. The update is effective for fiscal years and interim periods within those years beginning after December 15, 2015. The Fresenius Group is currently evaluating the impact of ASU 2015-02 on its consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU 2014-09), FASB ASC Topic 606, Revenue from Contracts with Customers. Simultaneously, the International Accounting Standards Board (IASB) published its equivalent revenue standard, IFRS 15, Revenue from Contracts with Customers. The standards are the result of a convergence project between FASB and the IASB. This update specifies how and when companies reporting under U.S. GAAP will recognize revenue as well as providing users of financial statements with more informative and relevant disclosures. ASU 2014-09 supersedes some guidance included in Topic 605, Revenue Recognition, some guidance within the scope of Topic 360, Property, Plant, and Equipment, and some guidance within the scope of Topic 350, Intangibles – Goodwill and Other. This ASU applies to nearly all contracts with customers, unless those contracts are within the scope of other standards (for example, lease contracts or insurance contracts). With the issuance of Accounting Standards Update 2015-14 (ASU 2015-14), FASB ASC Topic 606, Revenue from Contracts with Customers – Deferral
of the Effective Date, in August 2015, the effective date of ASU 2014-09 for public business entities, among others, was deferred from fiscal years and interim periods within those years beginning after December 15, 2016 to fiscal years and interim periods within those years beginning after December 15, 2017. Earlier adoption is not permitted. The Fresenius Group is currently evaluating the impact of ASU 2014-09, in conjunction with ASU 2015-14, on its consolidated financial statements.
In the Fresenius Group's view, all other pronouncements issued by the FASB do not have a material impact on the consolidated financial statements, as expected.
In the opinion of the Management of the Fresenius Group, the following accounting policies and topics are critical for the consolidated financial statements in the present economic environment. The influences and judgments as well as the uncertainties which affect them are also important factors to be considered when looking at present and future operating earnings of the Fresenius Group.
The amount of intangible assets, including goodwill, product rights, tradenames and management contracts, represents a considerable part of the total assets of the Fresenius Group. At December 31, 2015 and December 31, 2014, the carrying amount of goodwill and non-amortizable intangible assets with indefinite useful lives was €21,750 million and €20,076 million, respectively. This represented 50%, respectively, of total assets.
An impairment test of goodwill and non-amortizable intangible assets with indefinite useful lives is performed at least once a year, or if events occur or circumstances change that would indicate the carrying amount might be impaired (Impairment test).
To determine possible impairments of these assets, the fair value of the reporting units is compared to their carrying amount. The fair value of each reporting unit is determined using estimated future cash flows for the unit discounted by
a weighted-average cost of capital (WACC) specific to that reporting unit. Estimating the discounted future cash flows involves significant assumptions, especially regarding future reimbursement rates and sales prices, number of treatments, sales volumes and costs. In determining discounted cash flows, the Fresenius Group utilizes for every reporting unit its approved three-year budget, projections for years 4 to 10 and a corresponding growth rate for all remaining years. These growth rates are 0% to 4% for Fresenius Medical Care, 3% for Fresenius Kabi and 1% for Fresenius Helios and Fresenius Vamed. Projections for up to 10 years are possible due to historical experience and the stability of Fresenius Group's business, which is largely independent from the economic cycle. The discount factor is determined by the WACC of the respective reporting unit. Fresenius Medical Care's WACC consisted of a basic rate of 6.15% and the WACC in the business segment Fresenius Kabi consisted of a basic rate of 5.64% for 2015, respectively. This basic rate is then adjusted by a country-specific risk rate and, if appropriate, by a factor to reflect higher risks associated with the cash flow from recent material acquisitions, until they are appropriately integrated, within each reporting unit. In 2015, WACCs (after tax) for the reporting units of Fresenius Medical Care ranged from 6.13% to 19.41% and WACCs (after tax) for the reporting units of Fresenius Kabi ranged from 5.64% to 14.44%. In the business segments Fresenius Helios and Fresenius Vamed, the WACC (after tax) was 5.64%, country-specific adjustments did not occur. If the fair value of the reporting unit is less than its carrying amount, the difference is recorded as an impairment of the fair value of the goodwill at first. An increase of the WACC (after tax) by 0.5% would not have resulted in the recognition of an impairment loss in 2015.
A prolonged downturn in the health care industry with lower than expected increases in reimbursement rates and/or higher than expected costs for providing health care services could adversely affect the estimated future cash flows of certain countries or segments. Future adverse changes in a reporting unit's economic environment could affect the discount rate. A decrease in the estimated future cash flows and/or a decline in the reporting unit's economic environment could result in impairment charges to goodwill and other intangible assets with indefinite useful lives which could materially and adversely affect Fresenius Group's future operating results.
The Fresenius Group is involved in several legal matters arising from the ordinary course of its business. The outcome of these matters may have a material effect on the financial position, results of operations or cash flows of the Fresenius Group. For details, please see note 28, Commitments and contingent liabilities.
The Fresenius Group regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including estimated expenses for legal services, as appropriate. The Fresenius Group utilizes its internal legal department as well as external resources for these assessments. In making the decision regarding the need for a loss accrual, the Fresenius Group considers the degree of probability of an unfavorable outcome and its ability to make a reasonable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim, or the disclosure of any such suit or assertion, does not necessarily indicate that an accrual of a loss is appropriate.
Trade accounts receivable are a significant asset and the allowance for doubtful accounts is a significant estimate made by the Management. Trade accounts receivable were €4,596 million and €4,235 million in 2015 and 2014, respectively, net of allowance. Approximately 66% of receivables derive from the business segment Fresenius Medical Care and mainly relate to the dialysis care business in North America.
The major debtors or debtor groups of trade accounts receivable were U.S. Medicare and Medicaid health care programs with 17% and private insurers in the United States with 11% at December 31, 2015. Other than that, the Fresenius Group has no significant risk concentration, due to its international and heterogeneous customer structure.
The allowance for doubtful accounts was €650 million and €545 million as of December 31, 2015 and December 31, 2014, respectively.
The allowances are estimates comprised of customerspecific evaluations regarding their payment history, current financial stability, and applicable country-specific risks for overdue receivables. In the Fresenius Group's opinion, these analyses result in a well-founded estimate of allowances for doubtful accounts. From time to time, the Fresenius Group reviews changes in collection experience to ensure the appropriateness of the allowances.
A valuation allowance is calculated if specific circumstances indicate that amounts will not be collectible. When all efforts to collect a receivable, including the use of outside sources where required and allowed, have been exhausted, and after appropriate management review, a receivable deemed to be uncollectible is considered a bad debt and written off.
Deterioration in the aging of receivables and collection difficulties could require that the Fresenius Group increases the estimates of allowances for doubtful accounts. Additional expenses for uncollectible receivables could have a significant negative impact on future operating results.
Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, the largest subsidiary of Fresenius Medical Care AG & Co. KGaA, located in North America, is partially self-insured for professional liability claims. For further details regarding the accounting policies for self-insurance programs, please see note 1. III. aa, Self-insurance programs.
The Fresenius Group made acquisitions, investments and purchases of intangible assets of €517 million and €2,450 million in 2015 and 2014, respectively. Of this amount, €396 million was paid in cash and €121 million was assumed obligations in 2015.
In 2015, Fresenius Medical Care spent €385 million on acquisitions, mainly for the purchase of dialysis clinics and for a loan to an associated company. In the third quarter of 2015, Fresenius Medical Care sold the dialysis service business in Venezuela. The transaction resulted in an after-tax loss of €24 million (US\$26.9 million).
Furthermore, in the third quarter of 2015, Fresenius Medial Care sold the European marketing rights for certain renal pharmaceuticals to the joint venture, Vifor Fresenius Medical Care Renal Pharma. The transaction resulted in an after-tax gain of €10.0 million (US\$11.1 million).
In 2014, Fresenius Medical Care spent €1,495 million on acquisitions. Besides the transactions described separately in the following, this amount mainly comprises the purchase of dialysis clinics, the short-term investment in available for sale securities and the purchase of intangible assets.
On May 23, 2014, Fresenius Medical Care acquired MedSpring Urgent Care Centers with operations in Illinois and Texas. MedSpring Urgent Care Centers' 14 urgent care centers provide convenient, consistent, high-quality primary care and customer service.
On July 1, 2014, Fresenius Medical Care completed a transaction to become the controlling majority shareholder of Sound Inpatient Physicians, Inc., United States, a physician services organization focused on hospitalist and post-acute care services.
On October 21, 2014, Fresenius Medical Care acquired National Cardiovascular Partners. National Cardiovascular Partners is the leading operator of endovascular, vasuclar and cardiovascular specialty services in the United States.
On November 21, 2014, Fresenius Medical Care, through Sound Inpatient Physicians, Inc., acquired Cogent Healthcare with more than 650 providers, who offer hospitalist and intensivist services to more than 80 hospitals throughout the United States.
In 2015, Fresenius Kabi spent €37 million on acquisitions, which mainly related to the purchase of 100% of the shares in medi1one medical gmbh, Germany, and the purchase of further shares in Fresenius Kabi Bidiphar JSC, Vietnam.
On February 16, 2015, Fresenius Kabi sold its German oncology compounding business. On September 30, 2015, Fresenius Kabi also sold its compounding business in Australia. The transactions resulted in a book gain in an immaterial amount, respectively.
In 2014, Fresenius Kabi spent €118 million on acquisitions.
Throughout 2014, Fresenius Kabi purchased further shares in Fresenius Kabi Oncology Ltd., India.
On May 9, 2014, Fresenius Kabi announced the acquisition of the Brasilian pharmaceutical company Novafarma Indústria Farmacêutica Ltda. After antitrust approval, the transaction could be closed on July 3, 2014. Furthermore, on July 4, 2014, Fresenius Kabi acquired two companies in Ecuador, Medisumi, a pharmaceutical distributor, as well as Labfarm, an IV antibiotic manufacturer.
In 2015, Fresenius Helios spent €99 million on acquisitions, mainly for the purchase of 49% of the minority interest in HELIOS Kreiskrankenhaus Gotha / Ohrdruf GmbH, for subsequent purchase price payments, the acquisition of outpatient facilities and the purchase of 94% of the shares in Lungenklinik Diekholzen gGmbH, Germany.
In 2014, Fresenius Helios spent €824 million on acquisitions. Thereof, €816 million related to the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG, Germany. Taking into account the advance payment of €2,178 million transferred at the end of the year 2013 in conjunction with this acquisition and subsequent purchase price payments of €18 million effected in 2015, the total purchase price finally added up to €3,012 million.
In connection with the acquisition of hospitals of Rhön-Klinikum AG, Fresenius Helios sold two hospitals in Borna and Zwenkau in the first quarter of 2014 due to antitrust authority requirements. The corresponding book gain in the amount of €22 million before tax is included in selling, general and administrative expenses in the consolidated statement of income of 2014. In 2015, an additional book gain in the amount of €34 million before tax resulted from this transaction. This book gain is included in selling, general and administrative expenses in the consolidated statement of income of 2015.
In fiscal year 2014, Fresenius Helios completed the acquisition of 41 hospitals and 13 outpatient facilities of Rhön-Klinikum AG, Germany. The majority of the acquired hospitals and outpatient facilities was consolidated as of January 1, 2014. In most instances, 100% of the share capital was purchased, only in a few cases 94% to 99% of the share capital was acquired. In relation to HSK Dr. Horst Schmidt Kliniken, 49% of the share capital was acquired.
The transaction strengthens Fresenius Helios' position as Europe's largest hospital operator and provides the basis for offering nationwide care models across Germany.
Due to contractual conditions, the Fresenius Group was primary beneficiary of the majority of the acquired hospitals and outpatient facilities for the period from January 1, 2014 until the closing of the majority of the transaction on February 27, 2014. During this period, the Fresenius Group therefore fully consolidated these companies according to regulations for variable interest entities. The majority of the other acquired companies has been fully consolidated as of February 27, 2014. The acquired HSK Dr. Horst Schmidt Kliniken have been consolidated since June 30, 2014 as the Fresenius
Group has rights that give the Fresenius Group the ability to direct the relevant activities and, hence, the earnings of the company. The acquired hospital in Cuxhaven has been consolidated since August 1, 2014.
The transaction was accounted for as a business combination. The following table comprises the final fair values of assets acquired and liabilities assumed at the date of the acquisition. Any adjustments to acquisition accounting until finalization on December 31, 2014 was recorded with a corresponding adjustment to goodwill, net of related income tax effects.
€ in millions
| Trade accounts receivable | 231 |
|---|---|
| Working capital and other assets | 409 |
| Assets | 991 |
| Liabilities | -787 |
| Goodwill | 2,280 |
| Noncontrolling interest | -12 |
| Fair value of consideration transferred | 3,112 |
| Net cash acquired | -100 |
| Transaction amount | 3,012 |
The consideration transferred was fully paid in cash.
The transaction amount contained contingent purchase price elements in an amount of €49 million in connection with the implementation of antitrust authority requirements. The contingent consideration amounted to €31 million by the end of 2014. At December 31, 2015, there was no contingent consideration outstanding.
The goodwill in the amount of €2,280 million that was acquired as part of the acquisition is not deductible for tax purposes.
Goodwill is an asset mainly representing the market position of the acquired hospitals, the established nationwide hospital network, economics of scale of the substantially grown hospital network and the know-how of employees.
The noncontrolling interests acquired as part of the acquisition are stated at fair value.
In 2015, Fresenius Vamed spent €4 million on acquisitions, mainly for a participation for the expansion of a thermal spa in Austria.
In 2014, Fresenius Vamed spent €12 million on acquisitions, mainly for the acquisition of kneipp-hof Dussnang AG, Switzerland.
In 2015, the segment Corporate / Other includes the con solidation of an intercompany transaction in the amount of €8 million.
On June 30, 2014, the Fresenius Group sold the 5% stake in Rhön-Klinikum AG which was acquired in 2012 as part of the takeover offer to the shareholders of Rhön-Klinikum AG. Sales proceeds of €160 million were achieved. The corresponding book gain in the amount of €35 million before tax is included in selling, general and administrative expenses in the consolidated statement of income.
In the fiscal year 2015, all acquisitions have been accounted for applying the purchase method and accordingly have been consolidated starting with the date of acquisition. The excess of the total acquisition costs over the fair value of the net assets acquired was €307 million and €3,882 million in 2015 and 2014, respectively.
The purchase price allocations are not yet finalized for all acquisitions of the current year. Based on preliminary purchase price allocations, the recognized goodwill was €189 million and the other intangible assets were €118 million. Of this goodwill, €105 million is attributable to the acquisitions of Fresenius Medical Care, €27 million to Fresenius Kabi's acquisitions and €57 million to the acquisitions of Fresenius Helios.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill arises principally due to the fair value placed on an established stream of future cash flows versus building a similar business.
The acquisitions completed in 2015 or included in the consolidated statements for the first time for a full year, contributed the following amounts to the development of sales and earnings:
| € in millions | 2015 |
|---|---|
| Sales | 314 |
| EBITDA | 35 |
| EBIT | 26 |
| Net interest | -7 |
| Net income attributable to shareholders of Fresenius SE & Co. KGaA |
8 |
The acquisitions increased the total assets of the Fresenius Group by €202 million.
Net income attributable to shareholders of Fresenius SE & Co. KGaA for the year 2015 in the amount of €1,358 million includes special items relating to Fresenius Kabi's efficiency program and the integration of the acquired Rhön hospitals. The divestment of two HELIOS hospitals in the fiscal year 2014 led to an additional disposal gain in 2015.
The special items had the following impact on the consolidated statement of income:
| Earnings 2015 according to U.S.GAAP | 3,875 | 1,358 |
|---|---|---|
| of two HELIOS hospitals | 34 | 34 |
| Disposal gains from the divestment | ||
| acquired Rhön hospitals | -12 | -10 |
| Integration costs for the | ||
| efficiency program | -105 | -89 |
| Costs for Fresenius Kabi's | ||
| Earnings 2015, adjusted | 3,958 | 1,423 |
| € in millions | EBIT | of Fresenius SE & Co. KGaA |
| Net income attributable to shareholders |
Net income attributable to shareholders of Fresenius SE & Co. KGaA for the year 2014 in the amount of €1,067 million includes special items relating to the integration of Fenwal and the acquired Rhön hospitals as well as relating to the divestment of two HELIOS hospitals and of the Rhön stake.
The special items had the following impact on the consolidated statement of income:
| Earnings 2014 according to U.S.GAAP | 3,114 | 1,067 |
|---|---|---|
| Disposal gain from the divestment of the Rhön stake |
35 | 34 |
| Disposal gain from the divestment of two HELIOS hospitals |
22 | 21 |
| Integration costs for the acquired Rhön hospitals |
-51 | -41 |
| Integration costs for Fenwal | -50 | -33 |
| Earnings 2014, adjusted | 3,158 | 1,086 |
| € in millions | EBIT | Net income attributable to shareholders of Fresenius SE & Co. KGaA |
Sales by activity were as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Sales of services | 18,558 | 15,176 |
| less patient service bad debt provision | -369 | -228 |
| Sales of products and related goods | 8,851 | 7,713 |
| Sales from long-term production contracts |
577 | 564 |
| Other sales | 9 | 6 |
| Sales | 27,626 | 23,231 |
A sales analysis by business segment and region is shown in the segment information on pages 100 to 101.
Cost of sales was comprised of the following:
| € in millions | 2015 | 2014 |
|---|---|---|
| Cost of services | 13,929 | 11,677 |
| Manufacturing cost of products and related goods |
4,637 | 4,217 |
| Cost of long-term production contracts | 524 | 493 |
| Other cost of sales | 2 | 2 |
| Cost of sales | 19,092 | 16,389 |
Cost of materials was comprised of cost of raw materials, supplies and purchased components and cost of purchased services:
| € in millions | 2015 | 2014 |
|---|---|---|
| Cost of raw materials, supplies and purchased components |
6,923 | 6,079 |
| Cost of purchased services | 1,050 | 974 |
| Cost of materials | 7,973 | 7,053 |
Cost of sales, selling, general and administrative expenses and research and development expenses included personnel expenses of €10,862 million and €8,996 million in 2015 and 2014, respectively.
Personnel expenses were comprised of the following:
| € in millions | 2015 | 2014 |
|---|---|---|
| Wages and salaries | 8,732 | 7,209 |
| Social security contributions, cost of retirement pensions and social assistance |
2,130 | 1,787 |
| thereof retirement pensions | 321 | 257 |
| Personnel expenses | 10,862 | 8,996 |
Fresenius Group's annual average number of employees by function is shown below:
| 2015 | 2014 | |
|---|---|---|
| Production | 37,143 | 35,970 |
| Service | 151,903 | 144,326 |
| Administration | 19,078 | 18,238 |
| Sales and marketing | 10,041 | 10,052 |
| Research and development | 2,180 | 2,047 |
| Total employees (per capita) | 220,345 | 210,633 |
Selling expenses were €915 million (2014: €841 million) and mainly included expenditures for sales personnel of €444 million (2014: €406 million).
General and administrative expenses amounted to €3,280 million (2014: €2,518 million) and were related to expenditures for administrative functions not attributable to research and development, production or selling.
In 2015, other operating income of €303 million (2014: €317 million) and other operating expenses of €224 million (2014: €114 million) were included in selling, general and administrative expenses.
Net interest of -€613 million included interest expenses of €868 million and interest income of €255 million. The main portion of the interest expenses resulted from Fresenius Group's financial liabilities, which are not recognized at fair value in the consolidated statement of income (see note 29, Financial instruments). The main portion of interest income resulted from the valuation of the call options in connection with the convertible bonds.
10. TAXES
Income before income taxes was attributable to the following geographic regions:
| € in millions | 2015 | 2014 |
|---|---|---|
| Germany | 698 | 686 |
| International | 2,564 | 1,826 |
| Total | 3,262 | 2,512 |
Income tax expenses (benefits) for 2015 and 2014 consisted of the following:
| Current taxes |
Deferred taxes |
Income taxes |
|---|---|---|
| 197 | -32 | 165 |
| 841 | -41 | 800 |
| 1,038 | -73 | 965 |
| 122 | 16 | 138 |
| 518 | 44 | 562 |
| 640 | 60 | 700 |
A reconciliation between the expected and actual income tax expense is shown in the following table. The expected cor porate income tax expense is computed by applying the German corporation tax rate (including the solidarity surcharge) and the effective trade tax rate on income before income taxes. The respective combined tax rate was 30.5% for the fiscal year 2015 (2014: 30.0%).
| € in millions | 2015 | 2014 |
|---|---|---|
| Computed "expected" income tax expense | 995 | 754 |
| Increase (reduction) in income taxes resulting from: |
||
| Items not recognized for tax purposes | 50 | 52 |
| Tax rate differential | 35 | 35 |
| Tax-free income | -63 | -60 |
| Taxes for prior years | 26 | -20 |
| Changes in valuation allowances on deferred tax assets |
40 | 1 |
| Noncontrolling interests | -99 | -61 |
| Other | -19 | -1 |
| Income tax | 965 | 700 |
| Effective tax rate | 29.6% | 27.9% |
The tax effects of the temporary differences that gave rise to deferred tax assets and liabilities at December 31 are presented below:
| € in millions | 2015 | 2014 |
|---|---|---|
| Deferred tax assets | ||
| Accounts receivable | 29 | 25 |
| Inventories | 95 | 78 |
| Other current assets | 9 | 19 |
| Other non-current assets | 80 | 95 |
| Accrued expenses | 474 | 315 |
| Other short-term liabilities | 47 | 65 |
| Other liabilities | 41 | 44 |
| Benefit obligations | 230 | 236 |
| Losses carried forward from prior years | 324 | 326 |
| Deferred tax assets, before valuation allowance |
1,329 | 1,203 |
| less valuation allowance | 128 | 88 |
| Deferred tax assets | 1,201 | 1,115 |
| Deferred tax liabilities | ||
| Accounts receivable | 41 | 35 |
| Inventories | 32 | 29 |
| Other current assets | 90 | 14 |
| Other non-current assets | 1,030 | 999 |
| Accrued expenses | 10 | 13 |
| Other short-term liabilities | 169 | 150 |
| Other liabilities | 89 | 69 |
| Deferred tax liabilities | 1,461 | 1,309 |
| Net deferred taxes | -260 | -194 |
In the consolidated statement of financial position, the net amounts of deferred tax assets and liabilities are included as follows:
| 2015 | 2014 | ||||
|---|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
|||
| Deferred tax assets | 751 | 438 | 727 | 406 | |
| Deferred tax liabilities |
1,011 | 61 | 921 | 54 | |
| Net deferred taxes | -260 | 377 | -194 | 352 |
As of December 31, 2015, Fresenius Medical Care has not recognized a deferred tax liability on approximately €6.9 billion of undistributed earnings of its foreign subsidiaries, because those earnings are considered indefinitely reinvested.
The expiration of net operating losses is as follows:
| for the fiscal years | € in millions |
|---|---|
| 2016 | 27 |
| 2017 | 23 |
| 2018 | 30 |
| 2019 | 42 |
| 2020 | 50 |
| 2021 | 29 |
| 2022 | 32 |
| 2023 | 9 |
| 2024 | 21 |
| 2025 and thereafter | 55 |
| Total | 318 |
The total remaining operating losses of €864 million can mainly be carried forward for an unlimited period.
Based upon the level of historical taxable income and projections for future taxable income, the Management of the Fresenius Group believes it is more likely than not that the Fresenius Group will realize the benefits of these deductible differences, net of the existing valuation allowances, at December 31, 2015.
Fresenius SE & Co. KGaA and its subsidiaries are subject to tax audits in Germany and the United States on a regular basis and ongoing tax audits in other jurisdictions.
In Germany, for Fresenius SE & Co. KGaA and its subsidiaries, the tax years 2006 through 2009 are currently under audit by the tax authorities. Furthermore, for a few relatively small companies of Fresenius Medical Care, the tax years 2010 through 2013 are already under audit. The Fresenius Group recognized and recorded the current proposed adjustments of these audit periods in the consolidated financial statements. Fiscal years 2014 until 2015 are open to audit. All proposed adjustments are deemed immaterial.
For Fresenius Kabi USA, the audit actions for fiscal years 2008 until 2010 are concluded, whereby the formal completion is still pending. Fiscal years 2011 until 2015 are open to audit.
In the United States, for Fresenius Medical Care, the tax years 2011 and 2012 are currently under audit by the tax authorities. Fiscal years 2013 until 2015 are open to audit. Fresenius Medical Care Holdings, Inc. (FMCH) is also subject to audit in various state jurisdictions. A number of these audits are in progress and various years are open to audit in various state jurisdictions. All expected results for both federal and state income tax audits have been recognized in the consolidated financial statements.
Subsidiaries of Fresenius SE & Co. KGaA in a number of countries outside of Germany and the United States are also subject to tax audits. The Fresenius Group estimates that the effects of such tax audits are not material to the consolidated financial statements.
The following table shows the changes to unrecognized tax benefits during the year 2015:
| € in millions | 2015 |
|---|---|
| Balance at January 1, 2015 | 234 |
| Increase in unrecognized tax benefits prior periods | 48 |
| Decrease in unrecognized tax benefits prior periods | -31 |
| Increase in unrecognized tax benefits current periods | 16 |
| Changes related to settlements with tax authorities | -7 |
| Reductions as a result of a lapse of the statute of limitations | -1 |
| Foreign currency translation | 1 |
| Balance at December 31, 2015 | 260 |
Included in the balance at December 31, 2015 are €258 million of unrecognized tax benefits, which would affect the effective tax rate if recognized. The Fresenius Group is currently not in a position to forecast the timing and magnitude of changes in other unrecognized tax benefits.
It is Fresenius Group's policy to recognize interest and penalties related to its tax positions as income tax expense. During the fiscal year 2015, the Fresenius Group recognized €10 million in interest and penalties. The Fresenius Group had a total accrual of €25 million of tax related interest and penalties at December 31, 2015.
As of December 31, noncontrolling interest in net income in the Fresenius Group was as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Noncontrolling interest | ||
| in Fresenius Medical Care | 641 | 542 |
| Noncontrolling interest | ||
| in Fresenius Vamed | 10 | 10 |
| Noncontrolling interest | ||
| in the business segments | ||
| Fresenius Medical Care | 256 | 161 |
| Fresenius Kabi | 30 | 20 |
| Fresenius Helios | 1 | 11 |
| Fresenius Vamed | 1 | 1 |
| Total noncontrolling interest | 939 | 745 |
In the fiscal year 2015, Fresenius Medical Care AG & Co. KGaA paid dividends to noncontrolling interests in the amount of €163 million (2014: €159 million).
The following table shows the earnings per share including and excluding the dilutive effect from stock options issued:
| 2015 | 2014 | |
|---|---|---|
| Numerators, € in millions | ||
| Net income attributable to | ||
| shareholders of | ||
| Fresenius SE & Co. KGaA | 1,358 | 1,067 |
| less effect from dilution due to | ||
| Fresenius Medical Care shares | 1 | 1 |
| Income available to | ||
| all ordinary shares | 1,357 | 1,066 |
| Denominators in number of shares | ||
| Weighted-average number of | ||
| ordinary shares outstanding | 543,893,874 | 540,347,847 |
| Potentially dilutive | ||
| ordinary shares | 4,266,418 | 3,950,327 |
| Weighted-average number of ordinary | ||
| shares outstanding assuming dilution | 548,160,292 | 544,298,174 |
| Basic earnings per share in € | 2.50 | 1.97 |
| Fully diluted earnings per share in € | 2.48 | 1.96 |
As of December 31, cash and cash equivalents were as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Cash | 992 | 1,127 |
| Time deposits and securities | ||
| (with a maturity of up to 90 days) | 52 | 48 |
| Total cash and cash equivalents | 1,044 | 1,175 |
As of December 31, 2015 and December 31, 2014, earmarked funds of €57 million and €52 million, respectively, were included in cash and cash equivalents.
The Fresenius Group operates a multi-currency notional pooling cash management system. The Fresenius Group met the conditions to offset balances within this cash pool for reporting purposes. At December 31, 2015, €106 million (December 31, 2014: €72 million) of the cash balances and the equivalent amount of the overdraft balances were offset. Thereof €44 million related to Fresenius Medical Care.
As of December 31, trade accounts receivable were as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Trade accounts receivable | 5,246 | 4,780 |
| less allowance for doubtful accounts | 650 | 545 |
| Trade accounts receivable, net | 4,596 | 4,235 |
All trade accounts receivable are due within one year.
The following table shows the development of the allowance for doubtful accounts during the fiscal year:
| € in millions | 2015 | 2014 |
|---|---|---|
| Allowance for doubtful accounts at the beginning of the year |
545 | 487 |
| Change in valuation allowances as recorded in the consolidated statement of income |
431 | 241 |
| Write-offs and recoveries of amounts previously written-off |
-353 | -216 |
| Foreign currency translation | 27 | 33 |
| Allowance for doubtful accounts at the end of the year |
650 | 545 |
The following table shows the aging analysis of trade accounts receivable and their allowance for doubtful accounts:
| € in millions | not overdue |
up to 3 months overdue |
3 to 6 months overdue |
6 to 12 months overdue |
more than 12 months overdue |
Total |
|---|---|---|---|---|---|---|
| Trade accounts receivable | 2,961 | 1,002 | 413 | 328 | 542 | 5,246 |
| less allowance for doubtful accounts | 64 | 118 | 75 | 115 | 278 | 650 |
| Trade accounts receivable, net | 2,897 | 884 | 338 | 213 | 264 | 4,596 |
As of December 31, inventories consisted of the following:
| € in millions | 2015 | 2014 |
|---|---|---|
| Raw materials and purchased components | 602 | 527 |
| Work in process | 526 | 451 |
| Finished goods | 1,839 | 1,440 |
| less reserves | 107 | 85 |
| Inventories, net | 2,860 | 2,333 |
The companies of the Fresenius Group are obliged to purchase approximately €1,010 million of raw materials and purchased components under fixed terms, of which €513 million was committed at December 31, 2015 for 2016. The terms of these agreements run one to six years. Advance payments from customers of €564 million (2014: €427 million) have been offset against inventories. These exclusively related to long-term construction contracts.
As of December 31, other current and non-current assets were comprised of the following:
| 2015 | 2014 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Investments | 660 | 0 | 620 | 0 |
| Prepaid expenses | 143 | 80 | 133 | 69 |
| Advances made | 118 | 59 | 86 | 55 |
| Prepaid rent and insurance | 74 | 74 | 69 | 69 |
| Other assets | 540 | 386 | 661 | 500 |
| Other non-financial assets, net | 1,535 | 599 | 1,569 | 693 |
| Tax receivables | 375 | 352 | 462 | 434 |
| Derivative financial instruments | 375 | 39 | 176 | 30 |
| Securities and long-term loans | 324 | 259 | 362 | 152 |
| Accounts receivable resulting from German hospital law | 265 | 250 | 249 | 233 |
| Insurance recovery Fresenius Medical Care | 202 | 202 | 0 | 0 |
| Leasing receivables | 112 | 49 | 91 | 46 |
| Cost report receivable from Medicare and Medicaid | 100 | 100 | 113 | 113 |
| Discounts | 46 | 46 | 72 | 72 |
| Deposits | 46 | 5 | 65 | 21 |
| Assets held for sale | 0 | 0 | 33 | 33 |
| Other financial assets, net | 1,845 | 1,302 | 1,623 | 1,134 |
| Other assets, net | 3,380 | 1,901 | 3,192 | 1,827 |
| Allowances | 10 | 7 | 10 | 7 |
| Other assets, gross | 3,390 | 1,908 | 3,202 | 1,834 |
As of December 31, 2015, investments were comprised of investments of €592 million (2014: €558 million), mainly regarding the joint venture between Fresenius Medical Care and Galenica Ltd., that were accounted for under the equity method. In 2015, income of €28 million (2014: €19 million) resulting from this valuation was included in selling, general and administrative expenses in the consolidated statement of income. Securities and long-term loans included €257 million financial assets available for sale as of December 31, 2015 (2014: €148 million) mainly relating to shares in funds.
The receivables resulting from the German hospital law primarily contain approved but not yet received earmarked subsidies of the Fresenius Helios operations. The approval is evidenced in a letter written by the granting authorities that Fresenius Helios has already received.
The item "Insurance recovery Fresenius Medical Care" includes the recognized amount in relation to the NaturaLyte® and GranuFlo® agreement in principle, which partially offsets the accrued settlement amount recorded in Accrued expenses (see note 19, Accrued expenses). For further information, see note 28, Commitments and contingent liabilities.
In the fiscal year 2015, no depreciation was recognized on other non-current assets (2014: depreciation in an immaterial amount).
As of December 31, the acquisition and manufacturing costs as well as accumulated depreciation of property, plant and equipment consisted of the following:
| € in millions | As of Jan. 1, 2015 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2015 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 524 | 2 | – | 4 | 13 | 7 | 536 |
| Buildings and improvements | 4,863 | 189 | -1 | 109 | 288 | 60 | 5,388 |
| Machinery and equipment | 5,907 | 161 | -4 | 613 | 206 | 218 | 6,665 |
| Machinery, equipment and rental equipment under capital leases |
171 | 5 | 3 | 8 | -1 | 1 | 185 |
| Construction in progress | 862 | 29 | -1 | 744 | -540 | 20 | 1,074 |
| Property, plant and equipment | 12,327 | 386 | -3 | 1,478 | -34 | 306 | 13,848 |
| € in millions | As of Jan. 1, 2015 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2015 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 6 | – | 3 | 1 | 1 | – | 11 |
| Buildings and improvements | 2,031 | 108 | -3 | 298 | -2 | 46 | 2,386 |
| Machinery and equipment | 3,458 | 94 | -10 | 611 | -16 | 184 | 3,953 |
| Machinery, equipment and rental equipment under capital leases |
51 | 2 | – | 15 | -1 | 1 | 66 |
| Construction in progress | 5 | – | 0 | – | -1 | – | 4 |
| Property, plant and equipment | 5,551 | 204 | -10 | 925 | -19 | 231 | 6,420 |
| € in millions | As of Jan. 1, 2014 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2014 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 294 | 1 | 221 | 11 | – | 3 | 524 |
| Buildings and improvements | 3,825 | 178 | 615 | 208 | 170 | 133 | 4,863 |
| Machinery and equipment | 4,961 | 239 | 192 | 526 | 161 | 172 | 5,907 |
| Machinery, equipment and rental equipment under capital leases |
145 | 2 | 25 | 8 | -8 | 1 | 171 |
| Construction in progress | 584 | 29 | 63 | 551 | -358 | 7 | 862 |
| Property, plant and equipment | 9,809 | 449 | 1,116 | 1,304 | -35 | 316 | 12,327 |
| € in millions | As of Jan. 1, 2014 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2014 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 6 | – | 0 | – | 0 | – | 6 |
| Buildings and improvements | 1,732 | 106 | 2 | 257 | -1 | 65 | 2,031 |
| Machinery and equipment | 2,944 | 136 | 5 | 522 | -9 | 140 | 3,458 |
| Machinery, equipment and rental equipment under capital leases |
44 | – | – | 12 | -4 | 1 | 51 |
| Construction in progress | 1 | – | 0 | – | 4 | – | 5 |
| Property, plant and equipment | 4,727 | 242 | 7 | 791 | -10 | 206 | 5,551 |
| € in millions | Dec. 31, 2015 | Dec. 31, 2014 |
|---|---|---|
| Land and land facilities | 525 | 518 |
| Buildings and improvements | 3,002 | 2,832 |
| Machinery and equipment | 2,712 | 2,449 |
| Machinery, equipment and rental equipment under capital leases | 119 | 120 |
| Construction in progress | 1,070 | 857 |
| Property, plant and equipment | 7,428 | 6,776 |
Depreciation on property, plant and equipment for the years 2015 and 2014 was €925 million and €791 million, respectively. It is allocated within cost of sales, selling, general and administrative expenses and research and development expenses, depending upon the use of the asset.
Machinery and equipment as of December 31, 2015 and 2014 included medical devices which Fresenius Medical Care and Fresenius Kabi lease to customers, patients and physicians under operating leases in an amount of €720 million and €652 million, respectively.
To a lesser extent, property, plant and equipment are also leased for the treatment of patients by other business segments.
As of December 31, the acquisition cost and accumulated amortization of intangible assets consisted of the following:
| € in millions | As of Jan. 1, 2015 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2015 |
|---|---|---|---|---|---|---|---|
| Goodwill | 19,868 | 1,465 | 176 | 13 | 2 | 1 | 21,523 |
| Patents, product and distribution rights | 633 | 61 | -4 | 14 | 9 | – | 713 |
| Technology | 349 | 40 | 0 | 0 | -5 | 1 | 383 |
| Customer relationships | 272 | 30 | 22 | 0 | – | 0 | 324 |
| Tradenames | 202 | 19 | 0 | 0 | 0 | 0 | 221 |
| Software | 336 | 12 | – | 45 | 21 | 8 | 406 |
| Non-compete agreements | 281 | 30 | 14 | – | 2 | 5 | 322 |
| Management contracts | 6 | – | 0 | 0 | 0 | 0 | 6 |
| Other | 392 | 19 | 1 | 26 | -18 | 6 | 414 |
| Goodwill and other intangible assets | 22,339 | 1,676 | 209 | 98 | 11 | 21 | 24,312 |
| € in millions | As of Jan. 1, 2015 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2015 |
|---|---|---|---|---|---|---|---|
| Goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Patents, product and distribution rights | 288 | 25 | -4 | 47 | 0 | – | 356 |
| Technology | 77 | 9 | 0 | 25 | 0 | – | 111 |
| Customer relationships | 29 | 3 | 0 | 29 | 0 | – | 61 |
| Tradenames | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Software | 205 | 7 | – | 40 | 1 | 5 | 248 |
| Non-compete agreements | 212 | 24 | 0 | 20 | 0 | 5 | 251 |
| Management contracts | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 214 | 14 | – | 29 | -1 | 4 | 252 |
| Goodwill and other intangible assets | 1,025 | 82 | -4 | 190 | 0 | 14 | 1,279 |
| € in millions | As of Jan. 1, 2014 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2014 |
|---|---|---|---|---|---|---|---|
| Goodwill | 14,826 | 1,423 | 3,643 | 7 | – | 31 | 19,868 |
| Patents, product and distribution rights | 571 | 64 | 0 | 5 | – | 7 | 633 |
| Technology | 303 | 42 | 0 | 5 | -1 | 0 | 349 |
| Customer relationships | 137 | 27 | 107 | 0 | 1 | – | 272 |
| Tradenames | 182 | 21 | – | – | -1 | – | 202 |
| Software | 282 | 14 | 5 | 35 | 6 | 6 | 336 |
| Non-compete agreements | 237 | 31 | 15 | 1 | – | 3 | 281 |
| Management contracts | 5 | 1 | – | 0 | 0 | 0 | 6 |
| Other | 352 | 1 | 39 | 20 | -11 | 9 | 392 |
| Goodwill and other intangible assets | 16,895 | 1,624 | 3,809 | 73 | -6 | 56 | 22,339 |
| € in millions | As of Jan. 1, 2014 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2014 |
|---|---|---|---|---|---|---|---|
| Goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Patents, product and distribution rights | 235 | 26 | 0 | 32 | -1 | 4 | 288 |
| Technology | 48 | 8 | 0 | 21 | – | 0 | 77 |
| Customer relationships | 7 | 3 | 0 | 19 | – | 0 | 29 |
| Tradenames | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Software | 170 | 7 | – | 32 | – | 4 | 205 |
| Non-compete agreements | 174 | 24 | 0 | 17 | – | 3 | 212 |
| Management contracts | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 194 | 13 | – | 25 | -9 | 9 | 214 |
| Goodwill and other intangible assets | 828 | 81 | – | 146 | -10 | 20 | 1,025 |
| € in millions | Dec. 31, 2015 | Dec. 31, 2014 |
|---|---|---|
| Goodwill | 21,523 | 19,868 |
| Patents, product and distribution rights | 357 | 345 |
| Technology | 272 | 272 |
| Customer relationships | 263 | 243 |
| Tradenames | 221 | 202 |
| Software | 158 | 131 |
| Non-compete agreements | 71 | 69 |
| Management contracts | 6 | 6 |
| Other | 162 | 178 |
| Goodwill and other intangible assets | 23,033 | 21,314 |
The split of intangible assets into amortizable and non-amortizable intangible assets is shown in the following tables:
| Dec. 31, 2015 | Dec. 31, 2014 | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | Acquisition cost |
Accumulated amortization |
Carrying amount |
Acquisition cost |
Accumulated amortization |
Carrying amount |
|
| Patents, product and distribution rights | 713 | 356 | 357 | 633 | 288 | 345 | |
| Technology | 383 | 111 | 272 | 349 | 77 | 272 | |
| Customer relationships | 324 | 61 | 263 | 272 | 29 | 243 | |
| Software | 406 | 248 | 158 | 336 | 205 | 131 | |
| Non-compete agreements | 322 | 251 | 71 | 281 | 212 | 69 | |
| Other | 414 | 252 | 162 | 392 | 214 | 178 | |
| Total | 2,562 | 1,279 | 1,283 | 2,263 | 1,025 | 1,238 |
Estimated regular amortization expenses of intangible assets for the next five years are shown in the following table:
| € in millions | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| Estimated amortization expenses | 179 | 172 | 166 | 162 | 155 |
| Dec. 31, 2015 | Dec. 31, 2014 | |||||
|---|---|---|---|---|---|---|
| € in millions | Acquisition cost |
Accumulated amortization |
Carrying amount |
Acquisition cost |
Accumulated amortization |
Carrying amount |
| Tradenames | 221 | 0 | 221 | 202 | 0 | 202 |
| Management contracts | 6 | 0 | 6 | 6 | 0 | 6 |
| Goodwill | 21,523 | 0 | 21,523 | 19,868 | 0 | 19,868 |
| Total | 21,750 | 0 | 21,750 | 20,076 | 0 | 20,076 |
Amortization on intangible assets amounted to €190 million and €146 million for the years 2015 and 2014, respectively. It is allocated within cost of sales, selling, general and administrative expenses and research and development expenses, depending upon the use of the asset.
The carrying amount of goodwill has developed as follows:
| € in millions | Fresenius Medical Care |
Fresenius Kabi |
Fresenius Helios |
Fresenius Vamed |
Corporate/ Other |
Fresenius Group |
|---|---|---|---|---|---|---|
| Carrying amount as of January 1, 2014 | 8,454 | 4,116 | 2,165 | 85 | 6 | 14,826 |
| Additions | 1,287 | 99 | 2,250 | 14 | 0 | 3,650 |
| Disposals | 0 | -3 | -28 | 0 | 0 | -31 |
| Reclassifications | 0 | – | 0 | 0 | 0 | – |
| Foreign currency translation | 1,034 | 389 | 0 | 0 | 0 | 1,423 |
| Carrying amount as of December 31, 2014 | 10,775 | 4,601 | 4,387 | 99 | 6 | 19,868 |
| Additions | 105 | 27 | 57 | – | 0 | 189 |
| Disposals | 0 | -1 | 0 | 0 | 0 | -1 |
| Reclassifications | 0 | 2 | 0 | 0 | 0 | 2 |
| Foreign currency translation | 1,091 | 374 | 0 | 0 | 0 | 1,465 |
| Carrying amount as of December 31, 2015 | 11,971 | 5,003 | 4,444 | 99 | 6 | 21,523 |
The goodwill additions in the segment Fresenius Helios in 2014 mainly resulted from the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG.
As of December 31, 2015 and December 31, 2014, the carrying amounts of the other non-amortizable intangible assets were €198 million and €179 million, respectively, for Fresenius Medical Care as well as €29 million, respectively, for Fresenius Kabi.
As of December 31, accrued expenses consisted of the following:
| 2015 | 2014 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Personnel expenses | 1,151 | 1,004 | 1,109 | 976 |
| Invoices outstanding | 366 | 366 | 314 | 314 |
| Settlement Fresenius Medical Care | 257 | 257 | 0 | 0 |
| Self-insurance programs | 212 | 212 | 197 | 197 |
| Bonuses and discounts | 170 | 170 | 136 | 136 |
| Warranties and complaints | 125 | 124 | 118 | 117 |
| Legal matters, advisory and audit fees | 114 | 114 | 87 | 87 |
| Accrued variable payments outstanding for acquisition | 51 | 48 | 42 | 27 |
| Commissions | 32 | 32 | 28 | 28 |
| Other accrued expenses | 780 | 650 | 628 | 551 |
| Accrued expenses | 3,258 | 2,977 | 2,659 | 2,433 |
The following table shows the development of accrued expenses in the fiscal year:
| € in millions | As of Jan. 1, 2015 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Utilized | Reversed | As of Dec. 31, 2015 |
|---|---|---|---|---|---|---|---|---|
| Personnel expenses | 1,109 | 33 | 1 | 745 | -35 | -631 | -71 | 1,151 |
| Invoices outstanding | 314 | 1 | – | 363 | 2 | -289 | -25 | 366 |
| Settlement Fresenius Medical Care |
0 | 5 | 0 | 252 | 0 | 0 | 0 | 257 |
| Self-insurance programs | 197 | 22 | 0 | 25 | 0 | -1 | -31 | 212 |
| Bonuses and discounts | 136 | 8 | – | 161 | 1 | -132 | -4 | 170 |
| Warranties and complaints | 118 | 1 | 0 | 42 | – | -19 | -17 | 125 |
| Legal matters, advisory and audit fees |
87 | 2 | 2 | 65 | 1 | -32 | -11 | 114 |
| Accrued variable payments outstanding for acquisition |
42 | 3 | 32 | 4 | – | -25 | -5 | 51 |
| Commissions | 28 | – | 0 | 27 | 0 | -21 | -2 | 32 |
| Other accrued expenses | 628 | 8 | 32 | 532 | 31 | -348 | -103 | 780 |
| Total | 2,659 | 83 | 67 | 2,216 | – | -1,498 | -269 | 3,258 |
Accruals for personnel expenses mainly refer to bonus, severance payments, contribution of partial retirement and holiday entitlements.
The item "Settlement Fresenius Medical Care" includes accruals related to the NaturaLyte® and GranuFlo® agreement in principle, partially offset by "Insurance recovery Fresenius
Medical Care" recorded in Other current and non-current assets. For further information, see note 28, Commitments and contingent liabilities.
For details regarding accruals for self-insurance programs, please see note 1. III. aa, Self-insurance programs.
As of December 31, other liabilities consisted of the following:
| thereof € in millions short-term short-term Debtors with credit balances 378 378 295 295 Accounts payable resulting from German hospital law 256 253 251 248 Accounts receivable credit balance 173 55 160 58 Advance payments from customers 75 65 69 58 All other liabilities 479 280 491 330 Other non-financial liabilities 1,361 1,031 1,266 989 Derivative financial instruments 355 15 232 80 Tax liabilities 208 208 205 204 Personnel liabilities 204 200 186 181 Interest liabilities 159 159 172 172 Leasing liabilities 101 101 90 90 Liabilities held for sale 0 0 15 15 Other financial liabilities 1,027 683 900 742 Other liabilities 2,388 1,714 2,166 1,731 |
2015 | |||
|---|---|---|---|---|
| thereof | ||||
The payables resulting from the German hospital law primarily contain earmarked subsidies received but not yet spent appropriately by Fresenius Helios. The amount not yet spent appropriately is classified as liability.
At December 31, 2015, the total amount of other non-current liabilities was €674 million, thereof €594 million was due between one and five years and €80 million was due after five years. The statement of financial position line item longterm accrued expenses and other long-term liabilities of €955 million also included other long-term accrued expenses of €281 million as of December 31, 2015.
The Fresenius Group had short-term debt of €202 million and €230 million at December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015, this debt consisted of borrowings by certain entities of the Fresenius Group under
lines of credit with commercial banks. The average interest rates on these borrowings at December 31, 2015 and 2014 were 6.31% and 5.83%, respectively.
As of December 31, long-term debt and capital lease obligations net of debt issuance costs consisted of the following:
| € in millions | 2015 | 2014 |
|---|---|---|
| Fresenius Medical Care 2012 Credit Agreement | 2,399 | 2,374 |
| 2013 Senior Credit Agreement | 2,203 | 2,538 |
| Schuldschein Loans | 914 | 1,021 |
| Accounts Receivable Facility of Fresenius Medical Care | 46 | 280 |
| Capital lease obligations | 151 | 151 |
| Other | 396 | 322 |
| Subtotal | 6,109 | 6,686 |
| less current portion | 607 | 738 |
| Long-term debt and capital lease obligations, less current portion | 5,502 | 5,948 |
Maturities of long-term debt and capital lease obligations are shown in the following table:
| € in millions | up to 1 year | 1 to 3 years | 3 to 5 years | more than 5 years |
|---|---|---|---|---|
| Fresenius Medical Care 2012 Credit Agreement | 208 | 415 | 1,789 | 0 |
| 2013 Senior Credit Agreement | 213 | 426 | 1,584 | 0 |
| Schuldschein Loans | 108 | 526 | 262 | 21 |
| Accounts Receivable Facility of Fresenius Medical Care | 0 | 47 | 0 | 0 |
| Capital lease obligations | 15 | 28 | 14 | 94 |
| Other | 75 | 82 | 197 | 45 |
| Long-term debt and capital lease obligations | 619 | 1,524 | 3,846 | 160 |
Aggregate annual repayments applicable to the above listed long-term debt and capital lease obligations for the years subsequent to December 31, 2015 are:
| for the fiscal years | € in millions |
|---|---|
| 2016 | 619 |
| 2017 | 660 |
| 2018 | 864 |
| 2019 | 2,478 |
| 2020 | 1,368 |
| Subsequent years | 160 |
| Total | 6,149 |
Fresenius Medical Care 2012 Credit Agreement Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) originally entered into a syndicated credit facility (Fresenius Medical Care 2012 Credit Agreement) of US\$3,850 million and a 5-year period with a large group of banks and institutional investors (collectively, the Lenders) on October 30, 2012.
On November 26, 2014, the Fresenius Medical Care 2012 Credit Agreement was amended to increase the total credit facility to approximately US\$4,400 million and extend the term for an additional two years until October 30, 2019.
The following tables show the available and outstanding amounts under the Fresenius Medical Care 2012 Credit Agreement at December 31:
| 2015 | |||||
|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | ||||
| € in millions | € in millions | ||||
| Revolving Credit (in US\$) | US\$1,000 million | 918 | US\$25 million | 23 | |
| Revolving Credit (in €) | €400 million | 400 | €0 million | 0 | |
| US\$ Term Loan | US\$2,300 million | 2,113 | US\$2,300 million | 2,113 | |
| € Term Loan | €276 million | 276 | €276 million | 276 | |
| Total | 3,707 | 2,412 | |||
| less financing cost | 13 | ||||
| Total | 2,399 | ||||
| 2014 | |||||
| Maximum amount available | Balance outstanding | ||||
| € in millions | € in millions | ||||
| Revolving Credit (in US\$) | US\$1,000 million | 824 | US\$36 million | 30 | |
| Revolving Credit (in €) | €400 million | 400 | €0 million | 0 | |
| US\$ Term Loan | US\$2,500 million | 2,059 | US\$2,500 million | 2,059 | |
| € Term Loan | €300 million | 300 | €300 million | 300 | |
| Total | 3,583 | 2,389 | |||
| less financing cost | 15 |
Total 2,374
As of December 31, 2015, the Fresenius Medical Care 2012 Credit Agreement consisted of:
Interest on the credit facilities is, at Fresenius Medical Care's option, at a rate equal to either (i) LIBOR or EURIBOR (as applicable) plus an applicable margin or (ii) the Base Rate as defined in the Fresenius Medical Care 2012 Credit Agreement plus an applicable margin. As of December 31, 2015 and 2014, the U.S. dollar-denominated tranches outstanding under the Fresenius Medical Care 2012 Credit Agreement had a weighted-average interest rate of 1.72% and 1.61%, respectively. As of December 31, 2015 and 2014, the euro-denominated tranche had an interest rate of 1.38% and 1.42%, respectively.
The applicable margin is variable and depends on Fresenius Medical Care's consolidated leverage ratio which is a ratio of its consolidated funded debt (less cash and cash equivalents) to consolidated EBITDA (as these terms are defined in the Fresenius Medical Care 2012 Credit Agreement).
In addition to scheduled principal payments, indebtedness outstanding under the Fresenius Medical Care 2012 Credit Agreement would be reduced by portions of the net cash proceeds received from certain sales of assets.
Obligations under the Fresenius Medical Care 2012 Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the Lenders.
The Fresenius Medical Care 2012 Credit Agreement contains affirmative and negative covenants with respect to FMC-AG & Co. KGaA and its subsidiaries. Under certain circumstances, these covenants limit indebtedness, investments and restrict the creation of liens. Under the Fresenius Medical Care 2012 Credit Agreement, FMC-AG & Co. KGaA is required to comply with a maximum leverage ratio (ratio of net debt to EBITDA). Additionally, the Fresenius Medical Care 2012 Credit Agreement provides for a limitation on dividends, share buy-backs and similar payments. Dividends to be paid are subject to an annual basket, which is €400 million for 2016, and will increase in subsequent years. Additional dividends and other restricted payments may be made subject to the maintenance of a maximum leverage ratio. In default, the outstanding balance under the Fresenius Medical Care 2012 Credit Agreement becomes immediately due and payable at the option of the Lenders.
As of December 31, 2015, FMC-AG & Co. KGaA and its sub sidiaries were in compliance with all covenants under the Fresenius Medical Care 2012 Credit Agreement.
In addition, at December 31, 2015 and December 31, 2014, Fresenius Medical Care had letters of credit outstanding in the amount of US\$4 million and US\$7 million, respectively, under the U.S. dollar revolving credit facility, which were not included above as part of the balance outstanding at those dates but which reduce available borrowings under the applicable revolving credit facility.
On December 20, 2012, Fresenius SE & Co. KGaA and various subsidiaries entered into a delayed draw syndicated credit agreement (2013 Senior Credit Agreement) in the original amount of US\$1,300 million and €1,250 million. Since the initial funding of the 2013 Senior Credit Agreement in June 2013, additional tranches were added. In February 2014, for example, additional facilities in the amount of €1,200 million were drawn down and used to fund the acquisition of hospitals from Rhön-Klinikum AG. Furthermore, scheduled amortization payments have been made. In addition, on January 29, 2015, a Term Loan B facility of €297 million was voluntarily prepaid. On February 12, 2015, the revolving credit facilities and the Term Loan A tranches were extended ahead of time by two years to a new maturity date on June 28, 2020. These tranches would have otherwise matured in June 2018. The maturities of the 2013 Senior Credit Agreement shown in the consolidated statement of financial position as of December 31, 2014, already take into account the amendments made in February 2015.
The following tables show the available and outstanding amounts under the 2013 Senior Credit Agreement at December 31:
| 2015 | ||||
|---|---|---|---|---|
| Maximum amount available | Balance outstanding | |||
| € in millions | € in millions | |||
| Revolving Credit Facilities (in €) | €900 million | 900 | €0 million | 0 |
| Revolving Credit Facilities (in US\$) | US\$300 million | 276 | US\$0 million | 0 |
| Term Loan A (in €) | €1,057 million | 1,057 | €1,057 million | 1,057 |
| Term Loan A (in US\$) | US\$781 million | 717 | US\$781 million | 717 |
| Term Loan B (in US\$) | US\$489 million | 449 | US\$489 million | 449 |
| Total | 3,399 | 2,223 | ||
| less financing cost | 20 | |||
| Total | 2,203 |
| 2014 | ||||
|---|---|---|---|---|
| Maximum amount available | Balance outstanding | |||
| € in millions | € in millions | |||
| Revolving Credit Facilities (in €) | €900 million | 900 | €0 million | 0 |
| Revolving Credit Facilities (in US\$) | US\$300 million | 247 | US\$0 million | 0 |
| Term Loan A (in €) | €1,125 million | 1,125 | €1,125 million | 1,125 |
| Term Loan A (in US\$) | US\$890 million | 733 | US\$890 million | 733 |
| Term Loan B (in €) | €297 million | 297 | €297 million | 297 |
| Term Loan B (in US\$) | US\$494 million | 406 | US\$494 million | 406 |
| Total | 3,708 | 2,561 | ||
| less financing cost | 23 | |||
| Total | 2,538 |
As of December 31, 2015, the 2013 Senior Credit Agreement consisted of:
The interest rate on each borrowing under the 2013 Senior Credit Agreement is a rate equal to either (i) LIBOR or EURIBOR (as applicable) plus an applicable margin or (ii) the Base Rate as defined in the 2013 Senior Credit Agreement plus an applicable margin. The applicable margin is variable and depends on the leverage ratio as defined in the 2013 Senior Credit Agreement.
In addition to scheduled principal payments, indebtedness outstanding under the 2013 Senior Credit Agreement would be reduced by mandatory prepayments in the case of certain sales of assets and the incurrence of certain additional indebtedness, with the amount to be prepaid depending on the proceeds which are generated by the respective transaction.
The 2013 Senior Credit Agreement is guaranteed by Fresenius SE & Co. KGaA, Fresenius ProServe GmbH, Fresenius Kabi AG and certain U.S. subsidiaries of Fresenius Kabi AG. Obligations under the 2013 Senior Credit Agreement are secured by pledges of capital stock of certain material subsidiaries of Fresenius Kabi AG, and since funding of incremental facilities in February 2014 are additionally secured by a pledge of the capital stock of HELIOS Kliniken GmbH, in favor of the lenders.
The 2013 Senior Credit Agreement contains a number of customary affirmative and negative covenants. Under certain conditions, these covenants include limitations on liens, sale of assets and incurrence of debt, among other items. The 2013 Senior Credit Agreement also includes financial covenants – as defined in the agreement – that require Fresenius SE & Co. KGaA and its subsidiaries (other than Fresenius Medical Care and its subsidiaries) to maintain a maximum leverage ratio and a minimum interest coverage ratio.
As of December 31, 2015, the Fresenius Group was in compliance with all covenants under the 2013 Senior Credit Agreement.
As of December 31, Schuldschein Loans of the Fresenius Group consisted of the following:
| Book value € in millions |
||||
|---|---|---|---|---|
| Maturity | Interest rate | 2015 | 2014 | |
| Fresenius SE & Co. KGaA 2012/2016 | April 4, 2016 | 3.36% | 108 | 156 |
| Fresenius SE & Co. KGaA 2012/2016 | April 4, 2016 | variable | 0 | 129 |
| Fresenius SE & Co. KGaA 2013/2017 | Aug. 22, 2017 | 2.65% | 51 | 51 |
| Fresenius SE & Co. KGaA 2013/2017 | Aug. 22, 2017 | variable | 74 | 74 |
| Fresenius SE & Co. KGaA 2014/2018 | April 2, 2018 | 2.09% | 96 | 96 |
| Fresenius SE & Co. KGaA 2014/2018 | April 2, 2018 | variable | 76 | 75 |
| Fresenius SE & Co. KGaA 2014/2018 | April 2, 2018 | variable | 65 | 65 |
| Fresenius SE & Co. KGaA 2012/2018 | April 4, 2018 | 4.09% | 72 | 72 |
| Fresenius SE & Co. KGaA 2012/2018 | April 4, 2018 | variable | 0 | 43 |
| Fresenius SE & Co. KGaA 2015/2018 | October 8, 2018 | 1.07% | 36 | 0 |
| Fresenius SE & Co. KGaA 2015/2018 | October 8, 2018 | variable | 55 | 0 |
| Fresenius SE & Co. KGaA 2014/2020 | April 2, 2020 | 2.67% | 105 | 105 |
| Fresenius SE & Co. KGaA 2014/2020 | April 2, 2020 | variable | 55 | 55 |
| Fresenius SE & Co. KGaA 2014/2020 | April 2, 2020 | variable | 100 | 100 |
| Fresenius SE & Co. KGaA 2015/2022 | April 7, 2022 | variable | 21 | 0 |
| Schuldschein Loans | 914 | 1,021 |
In March 2015, Fresenius SE & Co. KGaA voluntarily terminated floating rate tranches of Schuldschein Loans due in 2016 and 2018 in the amount of €172 million ahead of time. Furthermore, the Company made a termination offer to investors of its fixed rate €156 million Schuldschein Loans maturing in April 2016 which was accepted for €48 million. The respective repayments were made on April 7, 2015. The remaining Schuldschein Loans of €108 million due in 2016 are shown as current portion of long-term debt and capital lease obligations in the consolidated statement of financial position. Furthermore, in April 2015, new Schuldschein Loans with maturities in 2018 and 2022 were issued in a total amount of €112 million.
The Schuldschein Loans issued by Fresenius Finance B.V. in the amount of €300 million, which were due in April and July 2014, were repaid as scheduled. Fresenius SE & Co. KGaA issued Schuldschein Loans in the amount of €334 million for the refinancing of the €300 million Schuldschein Loans as well as for general corporate purposes on April 2, 2014. In addition, an agreement for the issuance of further Schuldschein Loans in an amount of €166 million was reached. These additional Schuldschein Loans were issued on July 2, 2014.
The Schuldschein Loans issued by Fresenius Medical Care AG & Co. KGaA in the amount of €28 million, which were due on October 27, 2014, were repaid as scheduled.
The Schuldschein Loans of Fresenius SE & Co. KGaA are guaranteed by Fresenius Kabi AG and Fresenius ProServe GmbH. The Schuldschein Loans of FMC-AG & Co. KGaA were guaranteed by Fresenius Medical Care Holdings, Inc. and Fresenius Medical Care Deutschland GmbH.
As of December 31, 2015, the Fresenius Group was in compliance with all of its covenants under the Schuldschein Loans.
On November 24, 2014, the asset securitization facility (Accounts Receivable Facility) of Fresenius Medical Care was refinanced for a term expiring on November 24, 2017 with available borrowings of US\$800 million.
At December 31, 2015, there were outstanding borrowings under the Accounts Receivable Facility of US\$51 million (€47 million) (2014: US\$342 million (€281 million)). In the amounts shown, debt issuance costs are not included. Fresenius Medical Care also had letters of credit outstanding under the Accounts Receivable Facility in the amount of US\$17 million (€15 million) at December 31, 2015 and US\$67 million (€55 million) at December 31, 2014. These letters of credit are not included above as part of the balance outstanding at December 31, 2015, however, they reduce available borrowings under the Accounts Receivable Facility.
Under the Accounts Receivable Facility, certain receivables are sold to NMC Funding Corp. (NMC Funding), a wholly owned subsidiary of Fresenius Medical Care. NMC Funding then assigns percentage ownership interests in the accounts receivable to certain bank investors. Under the terms of the Accounts Receivable Facility, NMC Funding retains the right, at any time, to recall all the then outstanding transferred interests in the accounts receivable. Consequently, the receivables remain on the consolidated statement of financial position and the proceeds from the transfer of percentage ownership interests are recorded as long-term debt.
NMC Funding pays interest to the bank investors, calculated based on the commercial paper rates for the particular tranches selected. At December 31, 2015 and 2014, the interest rate was 0.89% and 0.65%, respectively. Refinancing fees, which include legal costs and bank fees, are amortized over the term of the facility.
In addition to the financial liabilities described before, the Fresenius Group maintains additional credit facilities which have not been utilized, or have only been utilized in part, as of the reporting date. At December 31, 2015, the additional financial cushion resulting from unutilized credit facilities was approximately €3.4 billion.
Syndicated credit facilities accounted for €2.5 billion. This portion is comprised of the Fresenius Medical Care 2012 Credit Agreement in the amount of US\$1,407 million (€1,292 million) and the 2013 Senior Credit Agreement in the amount of US\$1,280 million (€1,176 million). Furthermore, bilateral facilities of approximately €950 million were available. They
include credit facilities which certain entities of the Fresenius Group have arranged with commercial banks. These credit facilities are used for general corporate purposes and are usually unsecured.
In addition, Fresenius SE & Co. KGaA has a commercial paper program under which up to €1,000 million in short-term notes can be issued. As of December 31, 2015, the commercial paper program was not utilized.
Additional financing of up to US\$800 million can be provided using the Fresenius Medical Care Accounts Receivable Facility which had been utilized in the amount of US\$68 million as of December 31, 2015.
As of December 31, Senior Notes of the Fresenius Group net of debt issuance costs consisted of the following:
| Book value € in millions |
|||||
|---|---|---|---|---|---|
| Notional amount | Maturity | Interest rate | 2015 | 2014 | |
| Fresenius Finance B.V. 2014/2019 | €300 million | Feb. 1, 2019 | 2.375% | 297 | 297 |
| Fresenius Finance B.V. 2012/2019 | €500 million | Apr. 15, 2019 | 4.25% | 497 | 495 |
| Fresenius Finance B.V. 2013/2020 | €500 million | July 15, 2020 | 2.875% | 496 | 495 |
| Fresenius Finance B.V. 2014/2021 | €450 million | Feb. 1, 2021 | 3.00% | 443 | 442 |
| Fresenius Finance B.V. 2014/2024 | €450 million | Feb. 1, 2024 | 4.00% | 450 | 449 |
| Fresenius US Finance II, Inc. 2009/2015 | €275 million | July 15, 2015 | 8.75% | 0 | 273 |
| Fresenius US Finance II, Inc. 2009/2015 | US\$500 million | July 15, 2015 | 9.00% | 0 | 408 |
| Fresenius US Finance II, Inc. 2014/2021 | US\$300 million | Feb. 1, 2021 | 4.25% | 275 | 246 |
| Fresenius US Finance II, Inc. 2015/2023 | US\$300 million | Jan. 15, 2023 | 4.50% | 273 | 0 |
| FMC Finance VI S.A. 2010/2016 | €250 million | July 15, 2016 | 5.50% | 249 | 248 |
| FMC Finance VII S.A. 2011/2021 | €300 million | Feb. 15, 2021 | 5.25% | 295 | 294 |
| FMC Finance VIII S.A. 2011/2016 | €100 million | Oct. 15, 2016 | variable | 100 | 100 |
| FMC Finance VIII S.A. 2011/2018 | €400 million | Sept. 15, 2018 | 6.50% | 396 | 394 |
| FMC Finance VIII S.A. 2012/2019 | €250 million | July 31, 2019 | 5.25% | 244 | 243 |
| Fresenius Medical Care US Finance, Inc. 2007/2017 | US\$500 million | July 15, 2017 | 6.875% | 457 | 408 |
| Fresenius Medical Care US Finance, Inc. 2011/2021 | US\$650 million | Feb. 15, 2021 | 5.75% | 590 | 527 |
| Fresenius Medical Care US Finance II, Inc. 2011/2018 | US\$400 million | Sept. 15, 2018 | 6.50% | 363 | 325 |
| Fresenius Medical Care US Finance II, Inc. 2012/2019 | US\$800 million | July 31, 2019 | 5.625% | 732 | 655 |
| Fresenius Medical Care US Finance II, Inc. 2014/2020 | US\$500 million | Oct. 15, 2020 | 4.125% | 456 | 408 |
| Fresenius Medical Care US Finance II, Inc. 2012/2022 | US\$700 million | Jan. 31, 2022 | 5.875% | 639 | 572 |
| Fresenius Medical Care US Finance II, Inc. 2014/2024 | US\$400 million | Oct. 15, 2024 | 4.75% | 364 | 325 |
| Senior Notes | 7,616 | 7,604 |
Financial Statements
All Senior Notes included in the table are unsecured.
The Senior Notes issued by Fresenius US Finance II, Inc. which were due on July 15, 2015 have been repaid as scheduled and refinanced with the issuance of commercial paper.
On September 25, 2015, Fresenius US Finance II, Inc. issued US\$300 million of unsecured Senior Notes with a maturity of seven years. The Senior Notes have a coupon of 4.50% and were issued at par. The proceeds from the offering of Senior Notes were used to refinance commercial paper.
On January 23, 2014, Fresenius Finance B.V. issued unsecured Senior Notes of €750 million. The €300 million tranche due 2019 has a coupon of 2.375% and was issued at a price of 99.647%. The €450 million tranche which has a coupon of 3.00% was issued at a price of 98.751% and is due in 2021.
Moreover, Fresenius Finance B.V. placed €300 million of unsecured Senior Notes with a maturity of 10 years on January 28, 2014. The Senior Notes have a coupon of 4.00% and were placed at par. On February 6, 2014, these Senior Notes were increased by an amount of €150 million at a price of 102%. The Senior Notes in the nominal amount of €450 million were issued on February 11, 2014.
Furthermore, on February 14, 2014, Fresenius US Finance II, Inc. issued US\$300 million of unsecured Senior Notes with a maturity of seven years. The Senior Notes have a coupon of 4.25% and were issued at par.
Net proceeds of the Senior Notes issued in January and February 2014 were used to partially refinance the drawing under a Bridge Financing Facility.
All Senior Notes of Fresenius Finance B.V. and of Fresenius US Finance II, Inc. are guaranteed by Fresenius SE & Co. KGaA, Fresenius Kabi AG and Fresenius ProServe GmbH. The holders have the right to request that the issuers repurchase the Senior Notes at 101% of principal plus accrued interest upon the occurrence of a change of control followed by a decline in the rating of the respective Senior Notes. All Senior Notes of Fresenius Finance B.V. and of Fresenius US Finance II, Inc. may be redeemed prior to their maturity at the option of the issuers at a price of 100% plus accrued interest and a premium calculated pursuant to the terms of the indentures under observance of certain notice periods.
Fresenius SE & Co. KGaA has agreed to a number of cove nants to provide protection to the bondholders, which partly restrict the scope of action of Fresenius SE & Co. KGaA and its subsidiaries (excluding Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) and its subsidiaries). These covenants include restrictions on further debt that can be raised, the mortgaging or sale of assets, the entering into sale and leaseback transactions as well as mergers or consolidations with other companies. Some of these restrictions are lifted automatically when the rating of the respective Senior Notes reaches investment grade. In the event of non-compliance with certain terms of the Senior Notes, the bondholders (owning in aggregate more than 25% of the outstanding Senior Notes) are entitled to call the Senior Notes and demand immediate repayment plus interest. As of December 31, 2015, the Fresenius Group was in compliance with all of its covenants.
The Senior Notes issued by FMC Finance VI S.A. which are due on July 15, 2016 and the Senior Notes issued by FMC Finance VIII S.A. which are due on October 15, 2016 have been reclassified as short-term debt and are shown as current portion of Senior Notes in the consolidated statement of financial position.
On October 29, 2014, Fresenius Medical Care US Finance II, Inc., issued US\$500 million and US\$400 million unsecured Senior Notes to repay a short-term loan under the Fresenius Medical Care 2012 Credit Agreement as well as other short-term debt, and for acquisitions and general corporate purposes. The Senior Notes were issued at par.
The Senior Notes of Fresenius Medical Care US Finance, Inc., Fresenius Medical Care US Finance II, Inc., FMC Finance VI S.A., FMC Finance VII S.A. and FMC Finance VIII S.A. (wholly owned subsidiaries of FMC-AG & Co. KGaA) are guaranteed on a senior basis jointly and severally by FMC-AG & Co. KGaA, Fresenius Medical Care Holdings, Inc. and Fresenius Medical Care Deutschland GmbH. The holders have the right to request that the respective issuers repurchase the respective Senior Notes at 101% of principal plus accrued interest upon the occurrence of a change of control of FMC-AG & Co. KGaA followed by a decline in the rating of the respective Senior Notes. The issuers may redeem the Senior Notes (except for the floating-rate Senior Notes of FMC Finance VIII S.A.) at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the indentures.
FMC-AG & Co. KGaA has agreed to a number of covenants to provide protection to the holders which, under certain circumstances, limit the ability of FMC-AG & Co. KGaA and its subsidiaries to, among other things, incur debt, incur liens,
engage in sale and leaseback transactions and merge or consolidate with other companies or sell assets. As of December 31, 2015, FMC-AG & Co. KGaA and its subsidiaries were in compliance with all of their covenants under the Senior Notes.
As of December 31, the convertible bonds of the Fresenius Group net of debt issuance costs consisted of the following:
| Book value € in millions |
||||||
|---|---|---|---|---|---|---|
| Notional amount | Maturity | Coupon | Current conversion price |
2015 | 2014 | |
| Fresenius SE & Co. KGaA 2014/2019 | €500 million | Sept. 24, 2019 | 0.000% | €49.6611 | 464 | 454 |
| Fresenius Medical Care AG & Co. KGaA 2014/2020 | €400 million | Jan. 31, 2020 | 1.125% | €73.6354 | 374 | 368 |
| Convertible bonds | 838 | 822 |
The fair value of the derivative embedded in the convertible bonds of Fresenius SE & Co. KGaA was €228 million at December 31, 2015. The derivative embedded in the convertible bonds of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) was recognized with a fair value of €107 million at December 31, 2015. Fresenius SE & Co. KGaA and FMC-AG & Co. KGaA have purchased stock options (call options) to secure against future fair value fluctuations of these derivatives. The call options also had an aggregate fair value of €228 million and €107 million, respectively, at December 31, 2015.
The conversions will be cash-settled. Any increase of Fresenius' share price and of Fresenius Medical Care's share price above the conversion price would be offset by a corresponding value increase of the call options.
The derivatives embedded in the convertible bonds and the call options are recognized in other non-current liabilities / assets in the consolidated statement of financial position.
The Fresenius Group recognizes pension costs and related pension liabilities for current and future benefits to qualified current and former employees of the Fresenius Group. Fresenius Group's pension plans are structured in accordance with the differing legal, economic and fiscal circumstances in each country. The Fresenius Group currently has two types of plans, defined benefit and defined contribution plans. In general, plan benefits in defined benefit plans are based on all or a portion of the employees' years of services and final salary. Plan benefits in defined contribution plans are determined by the amount of contribution by the employee and the employer, both of which may be limited by legislation, and the returns earned on the investment of those contributions.
Upon retirement under defined benefit plans, the Fresenius Group is required to pay defined benefits to former employees when the defined benefits become due. Defined benefit plans may be funded or unfunded. The Fresenius Group has funded defined benefit plans in particular in the United States, Norway, the United Kingdom, the Netherlands and Austria. Unfunded defined benefit plans are located in Germany and France.
Actuarial assumptions generally determine benefit obligations under defined benefit plans. The actuarial calculations require the use of estimates. The main factors used in the actuarial calculations affecting the level of the benefit obligations are: assumptions on life expectancy, the discount rate and future salary and benefit levels. Under Fresenius Group's funded plans, assets are set aside to meet future payment obligations. An estimated return on the plan assets is recognized as income in the respective period. Actuarial gains and losses are generated when there are variations in the actuarial assumptions and by differences between the actual and the estimated projected benefit obligations and the return on plan assets for that year. A company's pension liability is impacted by these actuarial gains or losses.
Related to defined benefit plans, the Fresenius Group is exposed to certain risks. Besides general actuarial risks, e. g. the longevity risk and the interest rate risk, the Fresenius Group is exposed to market risk as well as to investment risk. In the case of Fresenius Group's funded plans, the defined benefit obligation is offset against the fair value of plan assets (funded status). A pension liability is recognized in the consolidated statement of financial position if the defined benefit obligation exceeds the fair value of plan assets. An asset is recognized and reported under other assets in the consolidated statement of financial position if the fair value of plan assets exceeds the defined benefit obligation and if the Fresenius Group has a right of reimbursement against the fund or a right to reduce future payments to the fund.
Under defined contribution plans, the Fresenius Group pays defined contributions to an independent third party as directed by the employee during the employee's service life which satisfies all obligations of the Fresenius Group to the employee. The employee retains all rights to the contributions made by the employee and to the vested portion of the Fresenius Group paid contributions upon leaving the Fresenius Group. The Fresenius Group has a main defined contribution plan in the United States.
At December 31, 2015, the projected benefit obligation (PBO) of the Fresenius Group of €1,482 million (2014: €1,472 million) included €424 million (2014: €391 million) funded by plan assets and €1,058 million (2014: €1,081 million) covered by pension provisions. Furthermore, the pension liability contains benefit obligations offered by other subsidiaries of Fresenius Medical Care in an amount of €38 million (2014: €35 million). The current portion of the pension liability in an amount of €18 million is recognized in the consolidated statement of financial position within short-term accrued expenses and other short-term liabilities. The noncurrent portion of €1,078 million is recorded as pension liability.
The major part of pension liabilities relates to Germany. At December 31, 2015, 68% of the pension liabilities were recognized in Germany and 29% predominantly in the rest of Europe and North America. 57% of the beneficiaries were located in North America, 32% in Germany and the remainder throughout the rest of Europe and other continents.
60% of the pension liabilities in an amount of €1,096 million relate to the "Versorgungsordnung der Fresenius-Unternehmen" established in 1988 (Pension plan 1988), which applies for most of the German entities of the Fresenius Group except Fresenius Helios. The remaining pension liabilities relate to individual plans from Fresenius Helios entities in Germany and non-German Group entities.
Plan benefits are generally based on an employee's years of service and final salary. Consistent with predominant practice in Germany, the benefit obligations of the German entities of the Fresenius Group are unfunded. The German Pension Plan 1988 does not have a separate pension fund.
Fresenius Medical Care Holdings, Inc. (FMCH), a subsidiary of Fresenius Medical Care AG & Co. KGaA, has a defined benefit pension plan for its employees in the United States
and supplemental executive retirement plans. During the first quarter of 2002, FMCH curtailed these pension plans. Under the curtailment amendment for substantially all employees eligible to participate in the plan, benefits have been frozen as of the curtailment date and no additional defined benefits for future services will be earned. FMCH has retained all employee benefit obligations as of the curtailment date. Each year, FMCH contributes at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In 2015, FMCH's minimum funding requirement was US\$19 million (€17 million). In addition to the compulsory contributions, FMCH voluntarily provided US\$1 million (€1 million) to the defined benefit plan. Expected funding for 2016 is US\$16 million (€14 million).
Benefit plans offered by other subsidiaries of Fresenius Medical Care outside of the United States and Germany contain separate benefit obligations. The total pension liability for these other plans was €38 million and €35 million at December 31, 2015 and 2014, respectively, and consists of a pension asset of €56 thousand (2014: €56 thousand) recognized as other non-current assets and a current pension liability of €3 million (2014: €2 million), which is recognized as a current liability in the line item short-term accrued expenses and other short-term liabilities. The non-current pension liability of €35 million (2014: €33 million) for these plans is recorded as pension liability in the consolidated statement of financial position.
Fresenius Group's benefit obligations relating to fully or partly funded pension plans were €688 million. Benefit obligations relating to unfunded pension plans were €794 million.
The following table shows the changes in benefit obligations, the changes in plan assets, the funded status of the pension plans and the pension liability. Benefits paid as shown in the changes in benefit obligations represent payments made from both the funded and unfunded plans while the benefits paid as shown in the changes in plan assets include only benefit payments from Fresenius Group's funded benefit plans.
The pension liability has developed as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Benefit obligations at the beginning of the year |
1,472 | 1,020 |
| Changes in entities consolidated | – | 17 |
| Foreign currency translation | 55 | 50 |
| Service cost | 52 | 35 |
| Prior service cost | 3 | -1 |
| Interest cost | 43 | 43 |
| Contributions by plan participants | 3 | 2 |
| Transfer of plan participants | 3 | – |
| Curtailments / settlements | -11 | -2 |
| Actuarial gains /losses | -99 | 339 |
| Benefits paid | -38 | -31 |
| Plan amendments | -1 | 0 |
| Benefit obligations at the end of the year | 1,482 | 1,472 |
| thereof vested | 1,267 | 1,242 |
| Fair value of plan assets at the beginning | ||
|---|---|---|
| of the year | 391 | 312 |
| Changes in entities consolidated | 0 | 7 |
| Foreign currency translation | 32 | 29 |
| Actual return on plan assets | -8 | 19 |
| Contributions by the employer | 26 | 40 |
| Contributions by plan participants | 3 | 2 |
| Settlements | -1 | -1 |
| Transfer of plan participants | 3 | – |
| Benefits paid | -22 | -17 |
| Fair value of plan assets at the end | ||
| of the year | 424 | 391 |
| Funded status as of December 31 | 1,058 | 1,081 |
| Benefit plans offered by other subsidiaries | 38 | 35 |
| Pension liability as of December 31 | 1,096 | 1,116 |
As of December 31, 2015 and December 31, 2014, the fair value of plan assets did not exceed the benefit obligations in any pension plan.
The discount rates for all plans are based upon yields of portfolios of equity and highly rated debt instruments with maturities that mirror the plan's benefit obligation. Fresenius Group's discount rate is the weighted average of these plans based upon their benefit obligations.
The following weighted-average assumptions were utilized in determining benefit obligations as of December 31:
| in % | 2015 | 2014 |
|---|---|---|
| Discount rate | 3.16 | 2.77 |
| Rate of compensation increase | 2.91 | 3.00 |
| Rate of pension increase | 1.68 | 1.63 |
Mainly changes in the discount factor, as well as inflation and mortality assumptions used for the actuarial computation resulted in actuarial gains in 2015 which decreased the fair value of the defined benefit obligation. Unrecognized actuarial losses were €538 million (2014: €634 million).
Increases and decreases in principal actuarial assumptions by 0.5 percentage points would affect the pension liability as of December 31, 2015 as follows:
| Development of pension liability € in millions | 0.5 pp increase |
0.5 pp decrease |
|---|---|---|
| Discount rate | -127 | 146 |
| Rate of compensation increase | 20 | -20 |
| Rate of pension increase | 72 | -63 |
The sensitivity analysis was calculated based on the average duration of the pension obligations determined at December 31, 2015. The calculations were performed isolated for each significant actuarial parameter, in order to show the effect on the fair value of the pension liability separately. The sensitivity analysis for compensation increases and for pension increases excludes the U.S. pension plan, because it is frozen and therefore is not affected by changes from these two actuarial assumptions.
At December 31, 2015, the accumulated benefit obligations for all defined benefit pension plans were €1,363 million (2014: €1,344 million).
The following table relates to pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
| € in millions | 2015 | 2014 |
|---|---|---|
| Projected benefit obligation (PBO) | 1,482 | 1,472 |
| Accumulated benefit obligation (ABO) | 1,363 | 1,344 |
| Fair value of plan assets | 424 | 391 |
The pre-tax changes of other comprehensive income (loss) relating to pension liabilities during the years 2015 and 2014 are shown in the following tables:
| € in millions | As of Jan. 1, 2015 |
Reclassifications 1 | Additions | Foreign currency translation |
As of Dec. 31, 2015 |
|---|---|---|---|---|---|
| Actuarial gains and losses | -634 | 44 | 77 | -25 | -538 |
| Prior service cost | – | 1 | -2 | – | -1 |
| Transition obligation | – | – | 0 | – | 0 |
| Adjustments related to pension liabilities | -634 | 45 | 75 | -25 | -539 |
Effects recognized in the consolidated statement of income
| € in millions | As of Jan. 1, 2014 |
Reclassifications 1 | Additions | Foreign currency translation |
As of Dec. 31, 2014 |
|---|---|---|---|---|---|
| Actuarial gains and losses | -293 | 20 | -339 | -22 | -634 |
| Prior service cost | -1 | 1 | – | – | – |
| Transition obligation | – | – | – | – | – |
| Adjustments related to pension liabilities | -294 | 21 | -339 | -22 | -634 |
Effects recognized in the consolidated statement of income
For the tax effects on other comprehensive income at December 31, 2015 see note 27, Other comprehensive income (loss).
The Fresenius Group expects the following amounts to be amortized from other comprehensive income into net periodic pension cost in the year 2016:
| 40 |
|---|
| 1 |
| – |
Defined benefit pension plans' net periodic benefit costs of €115 million (2014: €80 million) were comprised of the following components:
| € in millions | 2015 | 2014 |
|---|---|---|
| Service cost | 52 | 35 |
| Interest cost | 43 | 43 |
| Expected return on plan assets | -22 | -19 |
| Amortization of unrealized actuarial losses, net | 44 | 20 |
| Amortization of prior service costs | 1 | 1 |
| Amortization of transition obligations | – | – |
| Settlement loss | -3 | – |
| Net periodic benefit cost | 115 | 80 |
Net periodic benefit cost is allocated as personnel expense within cost of sales or selling, general and administrative expenses as well as research and development expenses. The allocation depends upon the area in which the beneficiary is employed.
The following weighted-average assumptions were used in determining net periodic benefit cost for the year ended December 31:
| in % | 2015 | 2014 |
|---|---|---|
| Discount rate | 2.86 | 4.09 |
| Expected return of plan assets | 4.77 | 4.71 |
| Rate of compensation increase | 3.06 | 3.09 |
| Rate of pension increase | 1.66 | 1.67 |
The following table shows the expected benefit payments for the next 10 years:
| for the fiscal years | € in millions |
|---|---|
| 2016 | 40 |
| 2017 | 42 |
| 2018 | 43 |
| 2019 | 46 |
| 2020 | 51 |
| 2021 to 2025 | 301 |
| Total expected benefit payments | 523 |
At December 31, 2015, the weighted-average duration of the defined benefit obligation was 19 years (December 31, 2014: 19 years).
The fair values of plan assets by categories were as follows:
| December 31, 2015 | December 31, 2014 | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | Quoted prices in active markets for identical assets Level 1 |
Significant observable inputs Level 2 |
Total | Quoted prices in active markets for identical assets Level 1 |
Significant observable inputs Level 2 |
Total | |
| Categories of plan assets | |||||||
| Equity investments | 62 | 59 | 121 | 56 | 57 | 113 | |
| Index funds 1 | 50 | 59 | 109 | 45 | 57 | 102 | |
| Other equity investments | 12 | 0 | 12 | 11 | 0 | 11 | |
| Fixed income investments | 101 | 164 | 265 | 89 | 154 | 243 | |
| Government securities 2 | 43 | 1 | 44 | 40 | 1 | 41 | |
| Corporate bonds 3 | 29 | 156 | 185 | 30 | 149 | 179 | |
| Other fixed income investments 4 | 29 | 7 | 36 | 19 | 4 | 23 | |
| Other 5 | 26 | 12 | 38 | 26 | 9 | 35 | |
| Total | 189 | 235 | 424 | 171 | 220 | 391 |
1 This category is mainly comprised of low-cost equity index funds not actively managed that track the S & P 500, S & P 400,
Russell 2000, the MSCI Emerging Markets Index and the Morgan Stanley International EAFE Index.
This category is primarily comprised of fixed income investments by the U.S. government and government sponsored entities.
This category primarily represents investment grade bonds of U.S. issuers from diverse industries.
4 This category is mainly comprised of private placement bonds as well as collateralized mortgage obligations as well as cash and
funds that invest in treasury obligations directly or in treasury backed obligations.
5 This category mainly represents cash, money market funds as well as mutual funds comprised of high grade corporate bonds. The methods and inputs used to measure the fair value of plan assets are as follows:
Index funds are valued based on market quotes.
Other equity investments are valued at their market prices as of the date of the statement of financial position.
Government bonds are valued based on both market prices (Level 1) and market quotes (Level 2).
Corporate bonds and other bonds are valued based on market quotes as of the date of the statement of financial position.
Cash is stated at nominal value which equals the fair value.
U.S. Treasury money market funds as well as other money market and mutual funds are valued at their market prices.
For the U.S. funded plan, the Fresenius Group periodically reviews the assumptions for long-term expected return on pension plan assets. As part of the assumptions review, a range of reasonable expected investment returns for the pension plan as a whole was determined based on an analysis of expected future returns for each asset class weighted by the allocation of the assets. The range of returns developed relies both on forecasts, which include the actuarial firm's expected longterm rates of return for each significant asset class or economic indicator, and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class. As a result, the expected rate of return on pension plan assets of the U.S. pension plan was 6% for the year 2015.
The overall investment strategy for the U.S. pension plan is to achieve a mix of approximately 98% of investments for long-term growth and income and 2% in cash or cash equivalents. Investment income and cash or cash equivalents are used for near-term benefit payments. Investments are governed by the investment policy and include well diversified index funds or funds targeting index performance.
The target allocations for plan assets in the United States are in a range around 30% equity and 70% long-term U.S. corporate bonds. The investment policy considers that there will be a time horizon for invested funds of more than five years. The total portfolio will be measured against a custom index that reflects the asset class benchmarks and the target asset allocation. The plan policy does not allow investments in securities of Fresenius Medical Care AG & Co. KGaA or other related party securities. The performance benchmarks for the separate asset classes include: S & P 500 Index, S & P 400 Mid Cap Index, Russell 2000 Index, MSCI EAFE Index, MSCI Emerging Markets Index and Barclays Capital Long-Corporate Bond Index.
The following schedule describes Fresenius Group's allocation for its funded plans.
| in % | Allocation 2015 |
Allocation 2014 |
Target allocation |
|---|---|---|---|
| Equity investments | 28.57 | 28.86 | 32.27 |
| Fixed income investments | 62.45 | 61.97 | 59.39 |
| Other incl. real estate | 8.98 | 9.17 | 8.34 |
| Total | 100.00 | 100.00 | 100.00 |
The overall expected long-term rate of return on assets of the Fresenius Group amounts to 5.16% compounded annually. Contributions to plan assets for the fiscal year 2016 are expected to amount to €23 million.
Fresenius Group's total expense under defined contribution plans for 2015 was €134 million (2014: €121 million). Of this amount, €84 million related to contributions by the Fresenius Group to several public supplementary pension funds for employees of Fresenius Helios. Further €42 million related to contributions to the U.S. savings plan, which employees of Fresenius Medical Care Holdings, Inc. can join.
Following applicable collective bargaining agreements, the Fresenius Group pays contributions for a given number of employees of Fresenius Helios to the Rheinische Zusatzversorgungskasse (a supplementary pension fund) and to other public supplementary pension funds (together referred to as ZVK ÖD) to complement statutory retirement pensions. Given that employees from multiple participating entities are insured by these ZVK ÖDs, these plans are Multi-Employer plans. Employees are entitled to the benefits defined in the statutes regardless of the contributed amounts.
The plan operates on a pay-as-you-earn system based on applying a collection rate to given parts of gross remuneration.
Paid contributions are accounted for as personnel expenses within cost of sales and selling, general and administrative expenses and amounted to €84 million in 2015 (2014: €80 million). Thereof, €45 million (2014: €43 million) were payments to Rheinische Zusatzversorgungskasse, to Versorgungsanstalt des Bundes und der Länder and to Zusatzversorgungskasse Wiesbaden (supplementary pension funds).
Further disclosures are either irrelevant or immaterial for plans in supplementary pension funds or the necessary information cannot be obtained from the ZVK ÖDs without undue cost and effort.
Under the U.S. savings plan, employees can deposit up to 75% of their pay up to an annual maximum of US\$18,000 if under 50 years old (US\$24,000 if 50 or over). Fresenius Medical Care will match 50% of the employee deposit up to a maximum Company contribution of 3% of the employee's pay. Fresenius Medical Care's total expense under this defined contribution plan for the years ended December 31, 2015 and 2014 was €42 million and €31 million, respectively.
The Fresenius Group has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Fresenius Group would be required to purchase all or part of third-party owners' noncontrolling interests at the appraised fair value at the time of exercise.
Noncontrolling interest subject to put provisions changed as follows:
| € in millions | 2015 |
|---|---|
| Noncontrolling interest subject to put provisions as of January 1, 2015 |
681 |
| Noncontrolling interest subject to put provisions in profit |
146 |
| Purchase of noncontrolling interest subject to put provisions |
23 |
| Dividend payments | -151 |
| Currency effects and other changes | 248 |
| Noncontrolling interest subject to put provisions as of December 31, 2015 |
947 |
99.4% of noncontrolling interest subject to put provisions applied to Fresenius Medical Care at December 31, 2015.
As of December 31, 2015 and 2014, put options with an aggregate purchase obligation of €237 million and €102 million, respectively, were exercisable. Six put options were exercised for a total consideration of €2 million in 2015 (2014: three put options for a total consideration of €7 million).
As of December 31, noncontrolling interest not subject to put provisions in the Fresenius Group was as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Noncontrolling interest not subject to put provisions in Fresenius Medical Care AG & Co. KGaA |
6,274 | 5,360 |
| Noncontrolling interest not subject to put provisions in VAMED AG |
49 | 43 |
| Noncontrolling interest not subject to put provisions in the business segments |
||
| Fresenius Medical Care | 559 | 482 |
| Fresenius Kabi | 120 | 123 |
| Fresenius Helios | 59 | 134 |
| Fresenius Vamed | 7 | 6 |
| Total noncontrolling interest not subject to put provisions |
7,068 | 6,148 |
For further financial information relating to Fresenius
Medical Care see the consolidated segment reporting on pages 100 to 101.
Noncontrolling interest not subject to put provisions changed as follows:
| € in millions | 2015 |
|---|---|
| Noncontrolling interest not subject to put provisions as of January 1, 2015 |
6,148 |
| Noncontrolling interest not subject to put provisions in profit |
793 |
| Stock options | 66 |
| Sale of noncontrolling interest not subject to put provisions |
-45 |
| Dividend payments | -250 |
| Currency effects and other changes | 356 |
| Noncontrolling interest not subject to put provisions as of December 31, 2015 |
7,068 |
Development of subscribed capital
As of January 1, 2015, the subscribed capital of Fresenius SE & Co. KGaA consisted of 541,532,600 bearer ordinary shares.
During the fiscal year 2015, 4,195,350 stock options were exercised. Consequently, as of December 31, 2015, the subscribed capital of Fresenius SE & Co. KGaA consisted of 545,727,950 bearer ordinary shares. The shares are issued as non-par value shares. The proportionate amount of the subscribed capital is €1.00 per share.
As of December 31, 2015, the general partner, Fresenius Management SE, is authorized, with the approval of the Supervisory Board, until May 15, 2019, to increase Fresenius SE & Co. KGaA's subscribed capital by a total amount of up to €120,960,000 through a single or multiple issues of new bearer ordinary shares against cash contributions and / or contributions in kind (Authorized Capital I).
A subscription right must be granted to the shareholders in principle. In defined cases, the general partner is authorized, with the consent of the Supervisory Board, to decide on the exclusion of the shareholders' subscription right (e. g. to eliminate fractional amounts). For cash contributions, the authorization can only be exercised if the issue price is not significantly below the stock exchange price of the already listed shares at the time the issue price is fixed with final effect by the general partner. Furthermore, in case of a capital increase against cash contributions, the proportionate amount of the shares issued with exclusion of subscription rights may not exceed 10% of the subscribed capital. An exclusion of subscription rights in the context of the use of other authorizations concerning the issuance or the sale of the shares of Fresenius SE & Co. KGaA or the issuance of rights which authorize or bind to the subscription of shares of Fresenius SE & Co. KGaA has to be taken into consideration during the duration of the Authorized Capital until its utilization. In the case of a subscription in kind, the subscription right can be excluded only in order to acquire a company, parts of a company or a participation in a company.
The authorizations granted concerning the exclusion of subscription rights can be used by Fresenius Management SE only to such extent that the proportional amount of the total number of shares issued with exclusion of the subscription rights does not exceed 20% of the subscribed capital. An exclusion of subscription rights in the context of the use of other authorizations concerning the issuance or the sale of the shares of Fresenius SE & Co. KGaA or the issuance of rights which authorize or bind to the subscription of shares of Fresenius SE & Co. KGaA has to be taken into consideration during the duration of the Authorized Capital until its utilization.
The following Conditional Capitals exist in order to fulfill the subscription rights under the stock option plans of Fresenius SE & Co. KGaA: Conditional Capital I (Stock Option Plan 2003), Conditional Capital II (Stock Option Plan 2008) and Conditional Capital IV (Stock Option Plan 2013) (see note 33, Stock options).
Another Conditional Capital III exists for the authorization to issue option bearer bonds and/or convertible bonds. Accordingly, the general partner is authorized, with the approval of the Supervisory Board, until May 15, 2019, to issue option
bearer bonds and/or convertible bearer bonds, once or several times, for a total nominal amount of up to €2.5 billion. To fulfill the granted subscription rights, the subscribed capital of Fresenius SE & Co. KGaA is increased conditionally by up to €48,971,202 through issuing of up to 48,971,202 new bearer ordinary shares. The conditional capital increase shall only be implemented to the extent that the holders of cash issued convertible bonds or of cash issued warrants from option bonds exercise their conversion or option rights and as long as no other forms of settlement are used. The new bearer ordinary shares shall participate in the profits from the start of the fiscal year in which they are issued.
The following table shows the development of the Conditional Capital:
| in € | Ordinary shares |
|---|---|
| Conditional Capital I Fresenius AG Stock Option Plan 2003 | 5,773,056 |
| Conditional Capital II Fresenius SE Stock Option Plan 2008 | 10,901,188 |
| Conditional Capital III option bearer bonds and/or convertible bonds | 48,971,202 |
| Conditional Capital IV Fresenius SE & Co. KGaA Stock Option Plan 2013 | 25,200,000 |
| Total Conditional Capital as of January 1, 2015 | 90,845,446 |
| Fresenius AG Stock Option Plan 2003 – options exercised | -511,069 |
| Fresenius SE Stock Option Plan 2008 – options exercised | -3,684,281 |
| Total Conditional Capital as of December 31, 2015 | 86,650,096 |
As of December 31, 2015, the Conditional Capital was composed as follows:
| in € | Ordinary shares |
|---|---|
| Conditional Capital I Fresenius AG Stock Option Plan 2003 | 5,261,987 |
| Conditional Capital II Fresenius SE Stock Option Plan 2008 | 7,216,907 |
| Conditional Capital III option bearer bonds and/or convertible bonds | 48,971,202 |
| Conditional Capital IV Fresenius SE & Co. KGaA Stock Option Plan 2013 | 25,200,000 |
| Total Conditional Capital as of December 31, 2015 | 86,650,096 |
Capital reserves are comprised of the premium paid on the issue of shares and the exercise of stock options (additional paid-in capital).
In connection with the capital increase from company's funds in 2014, the capital reserves were reduced by €360,341,088 due to a conversion of a portion of the capital reserves into subscribed capital.
Other reserves are comprised of earnings generated by Group entities in prior years to the extent that they have not been distributed.
Under the German Stock Corporation Act (AktG), the amount of dividends available for distribution to shareholders is based upon the unconsolidated retained earnings of Fresenius SE & Co. KGaA as reported in its statement of financial position determined in accordance with the German Commercial Code (HGB).
In May 2015, a dividend of €0.44 per bearer ordinary share was approved by Fresenius SE & Co. KGaA's shareholders at the Annual General Meeting and paid. The total dividend payment was €238 million.
Other comprehensive income (loss) is comprised of all amounts recognized directly in equity (net of tax) resulting from the currency translation of foreign subsidiaries' financial statements and the effects of measuring financial instruments at their fair value as well as the change in benefit obligation.
Changes in the components of other comprehensive income (loss) in 2015 and 2014 were as follows:
| € in millions | Amount before taxes |
Tax effect | Total before non controlling interest after taxes |
Non controlling interest |
Total after non controlling interest after taxes |
|---|---|---|---|---|---|
| Cash flow hedges | -1 | -1 | -2 | 2 | – |
| Change in unrealized gains /losses | -23 | 5 | -18 | -10 | -28 |
| Realized gains /losses due to reclassifications | 22 | -6 | 16 | 12 | 28 |
| Change of fair value of available for sale financial assets | -23 | 7 | -16 | – | -16 |
| Foreign currency translation | 422 | -29 | 393 | 531 | 924 |
| Actuarial losses on defined benefit pension plans | -203 | 60 | -143 | -89 | -232 |
| Total changes 2014 | 195 | 37 | 232 | 444 | 676 |
| Cash flow hedges | 34 | -9 | 25 | 21 | 46 |
| Change in unrealized gains /losses | 23 | -4 | 19 | 2 | 21 |
| Realized gains /losses due to reclassifications | 11 | -5 | 6 | 19 | 25 |
| Change of fair value of available for sale financial assets | – | – | – | – | – |
| Foreign currency translation | 355 | -30 | 325 | 514 | 839 |
| Actuarial gains /losses on defined benefit pension plans | 71 | -22 | 49 | 17 | 66 |
| Total changes 2015 | 460 | -61 | 399 | 552 | 951 |
Changes in accumulated other comprehensive income (loss) net of tax by component in 2015 and 2014 were as follows:
| € in millions | Cash flow hedges |
Change of fair value of available for sale financial assets |
Foreign currency translation |
Actuarial gains /losses on defined benefit pension plans |
Total, before non controlling interest |
Non controlling interest |
Total, after non controlling interest |
|---|---|---|---|---|---|---|---|
| Balance as of December 31, 2013 | -107 | 17 | -99 | -162 | -351 | -255 | -606 |
| Other comprehensive income (loss) before reclassifications |
-18 | – | 393 | -151 | 224 | 426 | 650 |
| Amounts reclassified from accumulated other comprehensive income (loss) |
16 | -16 | – | 8 | 8 | 18 | 26 |
| Other comprehensive income (loss), net | -2 | -16 | 393 | -143 | 232 | 444 | 676 |
| Balance as of December 31, 2014 | -109 | 1 | 294 | -305 | -119 | 189 | 70 |
| Other comprehensive income (loss) before reclassifications |
19 | – | 325 | 33 | 377 | 519 | 896 |
| Amounts reclassified from accumulated other comprehensive income (loss) |
6 | – | – | 16 | 22 | 33 | 55 |
| Other comprehensive income (loss), net | 25 | – | 325 | 49 | 399 | 552 | 951 |
| Balance as of December 31, 2015 | -84 | 1 | 619 | -256 | 280 | 741 | 1,021 |
Amount of gain or loss reclassified
Reclassifications out of accumulated other comprehensive income (loss) into net income in 2015 and 2014 were as follows:
| from accumulated other comprehensive income (loss)1 |
||||
|---|---|---|---|---|
| € in millions | 2015 | 2014 | Affected line item in the consolidated statement of income |
|
| Details about accumulated other comprehensive income (loss) components | ||||
| Cash flow hedges | ||||
| Interest rate contracts | 32 | 34 | Interest income/expense | |
| Foreign exchange contracts | 16 | 1 | Cost of sales | |
| Foreign exchange contracts | -11 | 3 | Selling, general and administrative expenses |
|
| Foreign exchange contracts | – | – | Interest income/expense | |
| Other comprehensive income (loss) | 37 | 38 | ||
| Tax expense or benefit | -12 | -10 | ||
| Other comprehensive income (loss), net | 25 | 28 | ||
| Change of fair value of available for sale financial assets | – | -23 | Selling, general and administrative expenses |
|
| Tax expense or benefit | – | 7 | ||
| Other comprehensive income (loss), net | – | -16 | ||
| Amortization of defined benefit pension items | ||||
| Prior service costs | 1 | 1 | 2 | |
| Transition obligations | – | – | 2 | |
| Actuarial gains /losses on defined benefit pension plans | 44 | 20 | 2 | |
| Other comprehensive income (loss) | 45 | 21 | ||
| Tax expense or benefit | -15 | -7 | ||
| Other comprehensive income (loss), net | 30 | 14 | ||
| Total reclassifications for the period | 55 | 26 |
1 Gains are shown with a negative sign, losses with a positive sign.
2 Net periodic benefit cost is allocated as personnel expense within cost of sales or selling,
general and administrative expenses as well as research and development expenses.
Fresenius Group's subsidiaries lease office and manufacturing buildings as well as machinery and equipment under various lease agreements expiring on dates through 2106. Rental expense recorded for operating leases for the years ended December 31, 2015 and 2014 was €821 million and €661 million, respectively.
Future minimum rental payments under non-cancellable operating leases for the years subsequent to December 31, 2015 are:
| for the fiscal years | € in millions |
|---|---|
| 2016 | 737 |
| 2017 | 629 |
| 2018 | 532 |
| 2019 | 450 |
| 2020 | 373 |
| Thereafter | 1,302 |
| Total | 4,023 |
As of December 31, 2015, future investment commitments existed up to the year 2020 from the acquisition contracts for hospitals at projected costs of up to €280 million. Thereof €64 million relates to the year 2016.
Besides the above mentioned contingent liabilities, the amount of other commitments is immaterial.
The Fresenius Group is routinely involved in numerous 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 Fresenius Group currently deems to be material or noteworthy are described below. For the matters described below in which the Fresenius Group believes a loss is both reasonably possible and estimable, an estimate of the loss or range of loss exposure is provided. For the other matters described below, the Fresenius Group 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 Fresenius Group's view of the merits can occur. The Fresenius Group 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 August 27, 2012, Baxter Health International, Inc. (Baxter) filed suit in the U.S. District Court for the Northern District of Illinois, styled Baxter International, Inc., et al., v. Fresenius Medical Care Holdings, Inc., Case No. 12-cv-06890, alleging that Fresenius Medical Care Holdings, Inc.'s Liberty ® cycler infringes certain U.S. patents that were issued to Baxter between October 2010 and June 2012. The parties have resolved this patent dispute.
On April 5, 2013, the U.S.Judicial Panel on Multidistrict Litigation ordered that the numerous lawsuits filed in various federal courts alleging wrongful death and personal injury claims against Fresenius Medical Care Holdings, Inc. (FMCH) and certain of its affiliates relating to FMCH's acid concentrate products NaturaLyte ® and GranuFlo ® be transferred and consolidated for pretrial management purposes into a consolidated multidistrict litigation in the United States District Court for the District of Massachusetts, styled In Re: Fresenius GranuFlo/ NaturaLyte Dialysate Products Liability Litigation, Case No. 2013-md-02428. The Massachusetts state courts and the
St. Louis City (Missouri) court subsequently established similar consolidated litigation for such cases filed in Massachusetts county courts and St. Louis City court. See In Re: Consolidated Fresenius Cases, Case No. MICV 2013-03400-O (Massachusetts Superior Court, Middlesex County). These lawsuits allege generally that inadequate labeling and warnings for these products caused harm to patients. In addition, similar cases have been filed in other state courts. On February 17, 2016, FMCH reached and reported to the courts an agreement in principle with a committee for plaintiffs in all cases. The agreement in principle calls for FMCH to pay US\$250 million into a settlement fund in August 2016 in exchange for releases of all or substantially all of the plaintiffs' claims, subject to FMCH's right to void the settlement under certain conditions, including if more than 3% of all plaintiffs reject the settlement by July 2016 or the distribution of rejecters meet certain criteria. FMCH's affected insurers have agreed to fund US\$220 million of the settlement fund, with a reservation of rights regarding certain coverage issues between and among FMCH and its insurers. FMCH has accrued a net expense of US\$60 million for consummation of the settlement, including legal fees and other anticipated costs.
Certain of the complaints in the litigation named combinations of Fresenius Medical Care AG & Co. KGaA, Fresenius Medical Care Management AG, Fresenius SE & Co. KGaA and Fresenius Management SE as defendants, in addition to FMCH and its domestic United States affiliates. The agreement in principle provides for dismissals and releases of claims encompassing these defendants.
The accruals for the agreement in principle, the related costs and insurance recoveries are based upon information currently available to FMCH. These estimates may change as more or new information becomes available.
Certain plaintiffs including the Attorneys General of Louisiana and Mississippi have 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. These cases, however, implicate different legal standards, theories of liability and forms of potential recovery and, as such, are not currently subject to the agreement in principle discussed above. FMCH believes that these deceptive practices lawsuits are without merit and will defend them vigorously.
On February 15, 2011, a whistleblower (relator) action under the False Claims Act against Fresenius Medical Care Holdings, Inc. (FMCH) was unsealed by order of the United States District Court for the District of Massachusetts and served by the relator. The United States did not intervene initially in the case 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. On October 2, 2015, the United States Attorney moved to intervene on the relator's complaint with respect only to certain hepa titis B surface antigen tests performed prior to 2011, when Medicare reimbursement rules for such tests changed. FMCH believes that the allegations of the complaint are without merit and will defend the litigation vigorously.
Subpoenas, or search warrants were issued by federal and state law enforcement authorities under the supervision of the United States Attorneys for the Districts of Connecticut, Southern Florida, Eastern Virginia and Rhode Island to American Access Care, LLC (AAC), which Fresenius Medical Care acquired in October 2011, and to Fresenius Medical Care's subsidiary Fresenius Vascular Care, Inc., which now operates former AAC centers as well as its own original facilities. As of September 30, 2015, Fresenius Medical Care had entered into settlements of allegation made by the United States Attorneys for Connecticut, Southern Florida, and Rhode Island under which Fresenius Medical Care paid approximately US\$8 million in exchange for releases related to activities of AAC prior to the acquisition. Pursuant to the AAC acquisition agreement, the prior owners are obligated to indemnify Fresenius Medical Care for payments under these settlements, subject to certain limitations and deductibles. The three settlements implicate only actions and events occurring prior to Fresenius Medical Care's acquisition of AAC. The Eastern Virginia investigation remains active and outstanding. It appears to relate to issues similar to the others, but is being conducted in part as a grand jury proceeding.
On October 6, 2015, the Office of Inspector General of the United States Department of Health and Human Services (OIG) issued a subpoena to Fresenius Medical Care seeking information about utilization and invoicing by Fresenius Vascular Care facilities as a whole for a period beginning after the acquisition of American Access Care, LLC (AAC). Fresenius Medical Care is cooperating in the OIG's inquiry.
Fresenius Medical Care has received communications alleging conduct in countries outside the United States and Germany that may violate the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-bribery laws. The Audit and Corporate Governance Committee of Fresenius Medical Care's Supervisory Board is conducting investigations with the assistance of independent counsel. Fresenius Medical Care voluntarily advised the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ). Fresenius Medical Care's investigations and dialogue with the SEC and DOJ are ongoing. Fresenius Medical Care has received a subpoena from the SEC requesting additional documents and a request from the DOJ for copies of the documents provided to the SEC. Fresenius Medical Care is cooperating with the requests. Conduct has been identified that may result in monetary penalties or other sanctions under the FCPA or other anti-bribery laws. In addition, Fresenius Medical Care's ability to conduct business in certain jurisdictions could be negatively impacted. Fresenius Medical Care has previously recorded a nonmaterial accrual for an identified matter. Given the current status of the investigations and remediation activities, Fresenius Medical Care cannot reasonably estimate the range of possible loss that may result from identified matters or from the final outcome of the investigations or remediation activities.
Fresenius Medical Care's independent counsel, in conjunction with Fresenius Medical Care's Compliance Department, has reviewed Fresenius Medical Care's anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws, and appropriate enhancements are being implemented. Fresenius Medical Care continues to be fully committed to FCPA and other antibribery law compliance.
In December 2012, Fresenius Medical Care Holdings, Inc. (FMCH) received a subpoena from the United States Attorney for the District of Massachusetts requesting production of a broad range of documents related to two products manufactured by FMCH: electron-beam sterilization of dialyzers and the Liberty peritoneal dialysis cycler. FMCH has cooperated fully in the government's investigation. In December 2014, FMCH was advised that the government's investigation was precipitated by a whistleblower, who first filed a complaint under seal in June 2013. In September 2014, the government declined to intervene in the whistleblower's actions. On March 31, 2015, the relator served his complaint styled Reihanifam v. Fresenius USA, Inc., 2013 Civ. 11486 (D.Mass.). On May 14, 2015, the Court dismissed without prejudice the relator's False Claims Act allegations after receiving the United States' confirmation that it would not intervene as to those allegations. The relator acting pro se has filed motions requesting extended time to identify and retain counsel.
In January 2013 and April 2015, FMCH received subpoenas from the United States Attorney for the Western District of Louisiana and the Attorney General for the Commonwealth of Massachusetts, respectively, requesting discovery responses relating to the GranuFlo ® and NaturaLyte ® acid concentrate products that are also the subject of personal injury litigation described above. FMCH cooperated fully in the government's investigations. FMCH has learned that these subpoenas were issued in connection with a relator's complaint under the False Claims Act first filed in March 2012 that has been dismissed by the relator.
In August 2014, Fresenius Medical Care Holdings, Inc. (FMCH) received a subpoena from the United States Attorney for the District of Maryland inquiring into FMCH's contractual arrangements with hospitals and physicians, including 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 styled Hawaii v. Liberty Dialysis – Hawaii, LLC et al., Case No. 15-1-1357-07 (Hawaii 1st Circuit) alleging that Xerox State Healthcare, LLC, M Group Consulting, LLC and certain Liberty Healthcare subsidiaries of Fresenius Medical Care Holdings, Inc. (FMCH) conspired to overbill 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. The complaint alleges that Xerox State Healthcare, LLC, which acted as Hawaii's contracted administrator for its Medicaid program reimbursement operations during 2006 – 2010, provided incorrect and unauthorized billing guidance to Liberty and its consultant, M4 Consultants, Inc. (a subsidiary of M Group Consulting, LLC until 2008, and now a subsidiary of Liberty), which Liberty relied on for purposes of its Epogen billing to the Hawaii Medicaid program. The complaint seeks civil damages authorized under the Hawaii False Claims Act. FMCH will vigorously contest the complaint.
On August 31 and November 25, 2015, respectively, Fresenius Medical Care Holdings, Inc. (FMCH) received subpoenas from the United States Attorneys for the District of Colorado and the Eastern District of New York inquiring into FMCH's participation in and management of dialysis facility joint ventures in which physicians are partners. FMCH is cooperating in the investigations.
In November 2014, Fresenius Kabi Oncology Limited (FKOL) received a subpoena from the U.S. Department of Justice (DOJ), U.S. Attorney for the District of Nevada. The subpoena requests documents in connection with the January 2013 inspection by the U.S. Food and Drug Administration (FDA) of FKOL's plant for active pharmaceutical ingredients in Kalyani, India. That inspection resulted in a warning letter from the FDA in July 2013. The subpoena marks the DOJ's criminal and/or civil investigation in this connection and seeks information from throughout the Fresenius Kabi group. Through an ancillary subpoena of January 2016, the DOJ has requested additional historic information and data. Fresenius Kabi fully cooperates with the governmental investigation.
From time to time, the Fresenius Group 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 Fresenius Group's defenses and insurance coverage and, as necessary, provides accruals for probable liabilities for the eventual disposition of these matters.
The Fresenius Group, like other health care providers, 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 and dialysis clinics, 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 Fresenius Group could be subject to significant adverse regulatory actions by the U.S. Food and Drug Administration (FDA) and comparable regulatory authorities outside the United States. These regulatory actions could include warning letters or other enforcement notices from the FDA, and/or comparable foreign regulatory authority, which may require the Fresenius Group to expend significant time and resources in order to implement appropriate corrective actions. If the Fresenius Group 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 United States, 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 Fresenius Group's products and/or criminal prosecution. FMCH is currently engaged in remediation efforts with respect to three pending FDA warning letters, Fresenius Kabi with respect to two pending FDA warning letters. The Fresenius Group 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 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 Fresenius Group'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, Fresenius Group'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 Fresenius Group's compliance with applicable laws and regulations. The Fresenius Group 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 Fresenius Group operates many facilities throughout the United States and other parts of the world. 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. The Fresenius Group 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 these employees. On occasion, the Fresenius Group may identify instances where employees or other agents deliberately, recklessly or inadvertently contravene Fresenius Group's policies or violate applicable law. The actions of such persons may subject the Fresenius Group and its subsidiaries to liability under the Anti-Kickback Statute, the Stark Law, the False Claims Act and the Foreign Corrupt Practices Act, among other laws and comparable laws of other countries.
Physicians, hospitals and other participants in the health care 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 Fresenius Group 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 Fresenius Group 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 Fresenius Group 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 Fresenius Group's reputation and business.
The Fresenius Group 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 Fresenius Group has, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Fresenius Group 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 Fresenius Group's reputation and business.
The relationship between classes and categories as well as the reconciliation to the statement of financial position line items is shown in the following table:
| Categories | ||||||
|---|---|---|---|---|---|---|
| Loans and receivables | Financial liabilities measured at amortized cost |
Financial liabilities /assets measured at fair value in the consolidated statement of income |
Available for sale financial assets |
Relating to no category | ||
| Cash and cash equivalents |
▶ Cash and cash equivalents |
|||||
| Assets recognized at carrying amount |
▶ Trade accounts receiv able (incl. receivables from and loans to related parties) ▶ 2014: Other non-current assets (loan to a dialysis provider) |
|||||
| Assets recognized at fair value |
▶ Shares in funds | |||||
| Classes | Liabilities recognized at carrying amount |
▶ Trade accounts payable ▶ Short-term accounts pay able to related parties ▶ Short-term debt (incl. short-term loans from related parties) ▶ Long-term debt excluding capital lease obligations ▶ Senior Notes ▶ Convertible bonds |
▶ Long-term capital lease obligations |
|||
| Liabilities recognized at fair value |
▶ Other long-term liabilities |
|||||
| Noncontrolling interest subject to put provisions recognized at fair value |
▶ Noncontrolling interest subject to put provisions |
|||||
| Derivatives for hedging purposes |
▶ Other current assets ▶ Other non-current assets ▶ Other short-term liabilities ▶ Other long-term liabilities |
▶ Other current assets ▶ Other non-current assets ▶ Other short-term liabilities ▶ Other long-term liabilities |
The carrying amounts of financial instruments at December 31, classified into categories, were as follows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Loans and receivables | 4,674 | 4,419 |
| Financial liabilities measured at amortized cost | 15,918 | 16,251 |
| Assets measured at fair value in the consolidated statement of income 1 | 358 | 166 |
| Liabilities measured at fair value in the consolidated statement of income 1 | 360 | 198 |
| Available for sale financial assets | 257 | 148 |
| Relating to no category | -47 | 304 |
1 There are no financial instruments designated as at fair value through profit or loss upon initial recognition.
The following table presents the carrying amounts and fair values as well as the fair value hierarchy levels of Fresenius Group's financial instruments as of December 31, classified into classes:
| 2015 | 2014 | ||||
|---|---|---|---|---|---|
| € in millions | Fair value hierarchy level |
Carrying amount |
Fair value | Carrying amount |
Fair value |
| Cash and cash equivalents | 1 | 1,044 | 1,044 | 1,175 | 1,175 |
| Assets recognized at carrying amount | 3 | 4,674 | 4,674 | 4,419 | 4,420 |
| Assets recognized at fair value | 1 | 257 | 257 | 148 | 148 |
| Liabilities recognized at carrying amount | 2 | 16,069 | 17,171 | 16,402 | 17,356 |
| Liabilities recognized at fair value | 2 | 353 | 353 | 161 | 161 |
| Noncontrolling interest subject to put provisions recognized at fair value |
3 | 947 | 947 | 681 | 681 |
| Derivatives for hedging purposes | 2 | 358 | 358 | 90 | 90 |
The significant methods and assumptions used to estimate the fair values of financial instruments as well as classification of fair value measurements according to the three-tier fair value hierarchy are as follows:
Cash and cash equivalents are stated at nominal value, which equals the fair value.
The nominal value of short-term financial instruments such as accounts receivable and payable and short-term debt represents its carrying amount, which is a reasonable estimate of the fair value due to the relatively short period to maturity for these instruments.
The fair values of major long-term financial instruments are calculated on the basis of market information. Financial instruments for which market quotes are available are measured with the market quotes at the reporting date. The fair values of the other long-term financial liabilities are calculated at the present value of respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Fresenius Group as of the date of the statement of financial position are used.
In 2015, the class assets recognized at carrying amount consisted of trade accounts receivable. In 2014, this class additionally contained a loan which Fresenius Medical Care granted to a middle-market dialysis provider. The fair value of the loan was based on significant unobservable inputs of comparable instruments and thus the class is classified as fair value hierarchy Level 3.
The class assets recognized at fair value was comprised of shares in funds. The fair values of these assets are calculated on the basis of market information. The fair value of available for sale financial assets quoted in an active market is based on price quotations at the period-end date (Level 1). Therefore, this class is classified as Level 1.
The class liabilities recognized at carrying amount is classified as hierarchy Level 2.
The derivatives embedded in the convertible bonds are included in the class liabilities recognized at fair value. The fair value of the embedded derivatives is calculated using the difference between the market value of the convertible bond and the market value of an adequate straight bond discounted with the market interest rates as of the reporting date. The class was classified as Level 2.
The valuation of the class noncontrolling interest subject to put provisions recognized at fair value is determined using significant unobservable inputs. It is therefore classified as Level 3.
Derivatives, mainly consisting of interest rate swaps and foreign exchange forward contracts, are valued as follows: The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract as of the date of the statement of financial position. To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract as of the date of the statement of financial position. The result is then discounted on the basis of the market interest rates prevailing at the date of the statement of financial position for the respective currency.
Fresenius Group's own credit risk is incorporated in the fair value estimation of derivatives that are liabilities. Counterparty credit risk adjustments are factored into the valuation of derivatives that are assets. The Fresenius Group monitors
and analyses the credit risk from derivative financial instruments on a regular basis. For the valuation of derivative financial instruments, the credit risk is considered in the fair value of every individual instrument. The basis for the default probability are Credit Default Swap Spreads of each counterparty appropriate for the duration. The calculation of the credit risk considered in the valuation is done by multiplying the default probability appropriate for the duration with the expected discounted cash flows of the derivative financial instrument.
The class of derivatives for hedging purposes includes the call options which have been purchased to hedge the convertible bonds. The fair values of these call options are derived from market quotes. For the fair value measurement of the class derivatives for hedging purposes, significant other observable inputs are used. Therefore, the class is classified as Level 2 in accordance with the defined fair value hierarchy levels.
Currently, there is no indication that a decrease in the value of Fresenius Group's financing receivables is probable. Therefore, the allowances on credit losses of financing receivables are immaterial.
| Dec. 31, 2015 | Dec. 31, 2014 | |||
|---|---|---|---|---|
| € in millions | Assets | Liabilities | Assets | Liabilities |
| Interest rate contracts (current) | 0 | 2 | 0 | 0 |
| Interest rate contracts (non-current) | 0 | 1 | 1 | 6 |
| Foreign exchange contracts (current) | 16 | 6 | 9 | 43 |
| Foreign exchange contracts (non-current) | 1 | 1 | 0 | – |
| Derivatives designated as hedging instruments 1 | 17 | 10 | 10 | 49 |
| Interest rate contracts (non-current) | 0 | 3 | 0 | 1 |
| Foreign exchange contracts (current) 1 | 23 | 7 | 21 | 37 |
| Foreign exchange contracts (non-current) 1 | – | – | – | – |
| Derivatives embedded in the convertible bonds | 0 | 335 | 0 | 145 |
| Call options to secure the convertible bonds 1 | 335 | 0 | 145 | 0 |
| Derivatives not designated as hedging instruments | 358 | 345 | 166 | 183 |
1 Derivatives designated as hedging instruments, foreign exchange contracts and call options to secure the convertible bonds not designated as hedging instruments are classified as derivatives for hedging purposes.
Derivative financial instruments are marked to market each reporting period, resulting in carrying amounts equal to fair values at the reporting date.
Derivatives not designated as hedging instruments, which are derivatives that do not qualify for hedge accounting, are also solely entered into to hedge economic business transactions and not for speculative purposes.
Derivatives for hedging purposes as well as the derivatives embedded in the convertible bonds were recognized at gross value within other assets in an amount of €375 million and other liabilities in an amount of €355 million.
The current portion of derivatives indicated as assets in the preceding table is recognized within other current assets in the consolidated statement of financial position, while the current portion of those indicated as liabilities is included in short-term accrued expenses and other short-term liabilities. The non-current portions indicated as assets or liabilities are recognized in other non-current assets or in long-term
accrued expenses and other long-term liabilities, respectively. The derivatives embedded in the convertible bonds and the call options to secure the convertible bonds are recognized in other non-current liabilities /assets in the consolidated statement of financial position.
The net gains and losses from financial instruments consisted of allowances for doubtful accounts in an amount of €431 million and foreign currency transactions of €-33 million. Interest income of €255 million resulted mainly from the valuation of call options in connection with the convertible bonds, trade accounts receivable and loans to related parties. Interest expense of €868 million resulted mainly from financial liabilities, which are not recognized at fair value in the consolidated statement of income.
| 2015 | |||||
|---|---|---|---|---|---|
| € in millions | Gain or loss recognized in other comprehensive income (loss) (effective portion) |
Gain or loss reclassified from accumulated other comprehensive income (loss) (effective portion) |
Gain or loss recognized in the consolidated statement of income |
||
| Interest rate contracts | -1 | 32 | 0 | ||
| Foreign exchange contracts | 27 | 5 | 0 | ||
| Derivatives in cash flow hedging relationships 1 | 26 | 37 | 0 | ||
| Foreign exchange contracts | 0 | ||||
| Derivatives in fair value hedging relationships | 0 | ||||
| Derivatives designated as hedging instruments | 26 | 37 | 0 |
1 The amount of gain or loss recognized in the consolidated statement of income solely relates to the ineffective portion.
| 2014 | |||||
|---|---|---|---|---|---|
| € in millions | Gain or loss recognized in other comprehensive income (loss) (effective portion) |
Gain or loss reclassified from accumulated other comprehensive income (loss) (effective portion) |
Gain or loss recognized in the consolidated statement of income |
||
| Interest rate contracts | – | 34 | 0 | ||
| Foreign exchange contracts | -37 | 4 | 0 | ||
| Derivatives in cash flow hedging relationships 1 | -37 | 38 | 0 | ||
| Foreign exchange contracts | -14 | ||||
| Derivatives in fair value hedging relationships | -14 | ||||
| Derivatives designated as hedging instruments | -37 | 38 | -14 |
1 The amount of gain or loss recognized in the consolidated statement of income solely relates to the ineffective portion.
| Derivatives not designated as hedging instruments | 28 | 56 | |
|---|---|---|---|
| Call options to secure the convertible bonds | 190 | 70 | |
| Derivatives embedded in the convertible bonds | -190 | -70 | |
| Foreign exchange contracts | 28 | 56 | |
| Interest rate contracts | – | – | |
| € in millions | 2015 | 2014 | |
| Gain or loss recognized in the consolidated statement of income |
Gains from foreign exchange contracts not designated as hedging instruments recognized in the consolidated statement of income are faced by losses from the underlying transactions in the corresponding amount. Losses from derivatives in fair value hedging relationships recognized in the consolidated statement of income in 2014 are faced by gains from the underlying transactions in the corresponding amount.
The Fresenius Group expects to recognize a net amount of €2 million of the existing losses for foreign exchange contracts deferred in accumulated other comprehensive income (loss) in the consolidated statement of income within the next 12 months. For interest rate contracts, the Fresenius
Group expects to recognize €29 million of losses in the course of normal business during the next 12 months in interest expense.
Gains and losses from foreign exchange contracts and the corresponding underlying transactions are accounted for as cost of sales, selling, general and administrative expenses and net interest. Gains and losses resulting from interest rate contracts are recognized as net interest in the consolidated statement of income.
In 2015, losses of €79 thousand (2014: €16 million) for available for sale financial assets were recognized in other comprehensive income (loss).
The following table shows when the cash flow from derivative financial instruments is expected to occur.
| expected in period of | ||||||
|---|---|---|---|---|---|---|
| € in millions | 1 year | 1 to 3 years | 3 to 5 years | over 5 years | ||
| Derivatives designated as hedging instruments | 8 | – | -1 | 0 | ||
| Derivatives not designated as hedging instruments | 16 | -3 | – | – |
The Fresenius Group is exposed to effects related to foreign exchange fluctuations in connection with its international business activities that are denominated in various currencies. In order to finance its business operations, the Fresenius Group issues senior notes and commercial papers and enters into mainly long-term credit agreements and Schuldschein Loans with banks. Due to these financing activities, the Fresenius Group is exposed to interest risk caused by changes in variable interest rates and the risk of changes in the fair value of statement of financial position items bearing fixed interest rates.
In order to manage the risk of interest rate and foreign exchange rate fluctuations, the Fresenius Group enters into certain hedging transactions with highly rated financial institutions as authorized by the Management Board. Derivative financial instruments are not entered into for trading purposes.
In general, the Fresenius Group conducts its derivative financial instrument activities under the control of a single centralized department. The Fresenius Group has established guidelines derived from best practice standards in the banking industry for risk assessment procedures and supervision concerning the use of financial derivatives. These guidelines require amongst other things a clear segregation of duties in the areas of execution, administration, accounting and controlling. Risk limits are continuously monitored and, where appropriate, the use of hedging instruments is adjusted to that extent.
The Fresenius Group defines benchmarks for individual exposures in order to quantify interest and foreign exchange risks. The benchmarks are derived from achievable and sustainable market rates. Depending on the individual benchmarks, hedging strategies are determined and generally implemented by means of micro hedges.
Earnings of the Fresenius Group were not materially affected by hedge ineffectiveness in the reporting period since the critical terms of the interest and foreign exchange derivatives mainly matched the critical terms of the underlying exposures.
To reduce the credit risk arising from derivatives, the Fresenius Group concluded master netting agreements with banks. Through such agreements, positive and negative fair values of the derivative contracts could be offset against one another if a partner becomes insolvent. This offsetting is valid for transactions where the aggregate amount of obligations owed to and receivable from are not equal. If insolvency occurs, the party which owes the larger amount is obliged to pay the other party the difference between the amounts owed in the form of one net payment.
Fresenius elects not to offset the fair values of derivative financial instruments subject to master netting agreements in the consolidated statement of financial position.
At December 31, 2015 and December 31, 2014, the Fresenius Group had €37 million and €30 million of derivative financial assets subject to netting arrangements and €19 million and €77 million of derivative financial liabilities subject to netting arrangements. Offsetting these derivative financial instruments would have resulted in net assets of €28 million and €15 million as well as net liabilities of €10 million and €62 million at December 31, 2015 and December 31, 2014, respectively.
The Fresenius Group has determined the euro as its financial reporting currency. Therefore, foreign exchange translation risks resulting from the fluctuation of exchange rates between the euro and the local currencies, in which the financial statements of the foreign subsidiaries are prepared, have an impact on results of operations and financial positions reported in the consolidated financial statements.
Besides translation risks, foreign exchange transaction risks exist. These mainly relate to transactions denominated in foreign currencies, such as purchases and sales, projects and services as well as intragroup sales from production sites to other Fresenius Group entities in different currency areas. Solely for the purpose of hedging existing and foreseeable foreign exchange transaction exposures, the Fresenius Group enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. To ensure that no foreign exchange risks result from loans in foreign currencies, the Fresenius Group enters into foreign exchange swap contracts.
As of December 31, 2015, the notional amounts of foreign exchange contracts totaled €2,372 million. These foreign exchange contracts have been entered into to hedge risks from operational business and in connection with loans in foreign currency. As of December 31, 2015, foreign exchange forward contracts to hedge risks from operational business were exclusively recognized as cash flow hedges, while as of December 31, 2014, foreign exchange contracts in connection with loans in foreign currencies were also partly recognized as fair value hedges. The fair value of cash flow hedges was €10 million. As of December 31, 2015, no fair value hedges were recognized in the Fresenius Group.
The hedge-effective portion of changes in the fair value of foreign exchange forward contracts that are designated and qualified as cash flow hedges of forecasted product purchases and sales is reported in accumulated other comprehensive income (loss). These amounts are subsequently reclassified into earnings as a component of cost of sales or as selling, general and administrative expenses in the same period in which the hedged transaction affects earnings.
As of December 31, 2015, the Fresenius Group was party to foreign exchange contracts with a maximum maturity of 30 months.
The Fresenius Group uses a Cash-Flow-at-Risk (CFaR) model in order to estimate and quantify such transaction risks from foreign currencies. The basis for the analysis of the currency risks are the foreign currency cash flows that are reasonably expected to arise within the following 12 months, less any hedges. Under the CFaR approach, the potential currency fluctuations of these net exposures are shown as probability distributions based on historical volatilities and correlations of the preceding 250 business days. The calculation is made assuming a confidence level of 95% and a holding period of up to one year. The aggregation of currency risks has riskmitigating effects due to correlations between the transactions concerned, i. e. the overall portfolio's risk exposure is generally less than the sum total of the underlying individual risks. As of December 31, 2015, the Fresenius Group's cash flow at risk amounts to €66 million, this means, with a probability of 95%, a potential loss in relation to the forecasted foreign exchange cash flows of the next 12 months will be not higher than €66 million.
The following table shows the net positions in foreign currencies at December 31, 2015 which have a significant influence on Fresenius Group's foreign currency risk.
| Nominal € in millions | 2015 |
|---|---|
| Hong Kong dollar | -192 |
| Chinese renminbi | 186 |
| U.S. dollar | 105 |
| Korean won | 69 |
| Turkish lira | 53 |
Fresenius Group's interest rate risks mainly arise from money market and capital market transactions of the Group for financing its business activities.
The Fresenius Group enters into interest rate swaps and, on a small scale, into interest rate options in order to protect against the risk of rising interest rates. These interest rate derivatives are mainly designated as cash flow hedges and have been entered into in order to convert payments based on variable interest rates into payments at a fixed interest rate and in anticipation of future long-term debt issuances (prehedges). As of December 31, 2015, the euro denominated interest rate swaps had a notional volume of €587 million
and a fair value of -€6 million. These euro interest rate swaps expire in the years 2016 to 2022. They bear an average interest rate of 0.67%.
The pre-hedges are used to hedge interest rate exposures with regard to interest rates which are relevant for the future long-term debt issuance and which could rise until the respective debt is actually issued. These pre-hedges are settled at the issuance date of the corresponding long-term debt with the settlement amount recorded in accumulated other comprehensive income (loss) amortized to interest expense over the life of the debt. At December 31, 2015 and December 31, 2014, the Fresenius Group had €68 million and €89 million, respectively, related to such settlements of pre-hedges deferred in accumulated other comprehensive income (loss), net of tax.
Interest payables and interest receivables in connection with the swap agreements are accrued and recorded as an adjustment to the interest expense at each reporting date. Concerning interest rate contracts, unscheduled repayments or the renegotiation of hedged items may in some cases lead to the de-designation of the hedging instrument, which existed up to that point. From that date, the respective hedging transactions are recognized in the consolidated statement of income.
For purposes of analyzing the impact of changes in the relevant reference interest rates on Fresenius Group's results of operations, the Group calculates the portion of financial debt which bears variable interest rates and which has not been hedged by means of interest rate swaps or options against rising interest rates. For this particular part of its liabilities, the Fresenius Group assumes an increase in the reference rates of 0.5% compared to the actual rates as of the date of the statement of financial position. The corresponding additional annual interest expense is then compared to the net income attributable to shareholders of Fresenius SE & Co. KGaA. This analysis shows that an increase of 0.5% in the relevant reference rates would have an effect of less than 1.0% on the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA and Fresenius SE & Co. KGaA shareholders' equity.
The Fresenius Group is exposed to potential losses regarding financial instruments in the event of non-performance by counterparties. With respect to derivative financial instruments, it is not expected that any counterparty fails to meet its obligations as the counterparties are highly rated financial institutions. The maximum credit exposure of derivatives is represented by the fair value of those contracts with a positive fair value amounting to €40 million for foreign exchange derivatives. As of December 31, 2015, there was no credit exposure from interest rate derivatives. The maximum credit risk resulting from the use of non-derivative financial instruments is defined as the total amount of all receivables. In order to control this credit risk, the Management of the Fresenius Group performs an aging analysis of trade accounts receivable. For details on the aging analysis and on the allowance for doubtful accounts, please see note 14, Trade accounts receivable.
The liquidity risk is defined as the risk that a company is potentially unable to meet its financial obligations. The Management of the Fresenius Group manages the liquidity of the Group by means of effective working capital and cash management as well as an anticipatory evaluation of refinancing alternatives. The Management of the Fresenius Group believes that existing credit facilities as well as the cash generated by operating activities and additional short-term borrowings are sufficient to meet the Company's foreseeable demand for liquidity (see note 21, Debt and capital lease obligations).
The following table shows the future undiscounted contractual cash flows (including interests) resulting from recognized financial liabilities as well as the fair value of noncontrolling interest subject to put provisions and the fair value of derivative financial instruments:
| € in millions | up to 1 year | 1 to 3 years | 3 to 5 years | more than 5 years |
|---|---|---|---|---|
| Long-term debt and capital lease obligations (including accounts receivable securitization program) 1 |
714 | 1,681 | 3,918 | 188 |
| Short-term debt | 215 | 0 | 0 | 0 |
| Senior Notes | 723 | 1,912 | 3,201 | 3,623 |
| Convertible bonds | 5 | 9 | 907 | 0 |
| Trade accounts payable | 1,291 | 0 | 0 | 0 |
| Noncontrolling interest subject to put provisions | 430 | 253 | 150 | 114 |
| Derivative financial instruments – designated as cash flow hedge | 8 | 1 | 1 | 0 |
| Derivative financial instruments – not designated as hedging instruments | 7 | 3 | 335 | – |
| Total | 3,393 | 3,859 | 8,512 | 3,925 |
1 Future interest payments for financial liabilities with variable interest rates were calculated using the latest interest rates fixed prior to December 31, 2015.
The Fresenius Group has a solid financial profile. Capital management includes both equity and debt. A principal objective of Fresenius Group's capital management is to optimize the weighted-average cost of capital. Further, it is sought to achieve a balanced mix of equity and debt. To secure growth on a long-term basis, a capital increase may also be considered in exceptional cases, for instance to finance a major acquisition.
Due to the Company's diversification within the health care sector and the strong market positions of the business segments in global, growing and non-cyclical markets, predictable and sustainable cash flows are generated. They allow a reasonable proportion of debt, i. e. the employment of an extensive mix of financial instruments. Moreover, Fresenius Group's customers are generally of high credit quality.
Shareholders' equity and debt have developed as follows:
SHAREHOLDERS' EQUITY
| € in millions | Dec. 31, 2015 | Dec. 31, 2014 |
|---|---|---|
| Shareholders' equity | 18,003 | 15,483 |
| Total assets | 43,170 | 39,788 |
| Equity ratio | 41.7% | 38.9% |
Fresenius SE & Co. KGaA is not subject to any capital requirements provided for in its articles of association. Fresenius SE & Co. KGaA has obligations to issue shares out of the Conditional Capital relating to the exercise of stock options and convertible bonds on the basis of the existing 2003, 2008 and 2013 stock option plans (see note 33, Stock options).
DEBT
| Dec. 31, 2015 | Dec. 31, 2014 |
|---|---|
| 14,769 | 15,345 |
| 43,170 | 39,788 |
| 34.2% | 38.6% |
Assuring financial flexibility is the top priority in the Group's financing strategy. This flexibility is achieved through a wide range of financing instruments and a high degree of diversification of the investors. Fresenius Group's maturity profile displays a broad spread of maturities with a high proportion of medium- and long-term financing. In the choice of financing instruments, market capacity, investor diversification, flexibility, credit conditions and the existing maturity profile are taken into account.
The leverage ratio on the basis of net debt/EBITDA is a key financial figure for the Fresenius Group. As of December 31, 2015, the leverage ratio (before special items) was 2.7.
Fresenius Group's financing strategy is reflected in its credit ratings. The Fresenius Group is covered by the rating agencies Moody's, Standard&Poor's and Fitch.
The following table shows the company rating of Fresenius SE & Co. KGaA:
RATING OF FRESENIUS SE & CO. KGAA
| Dec. 31, 2015 | Dec. 31, 2014 | |
|---|---|---|
| Standard&Poor's | ||
| Corporate Credit Rating | BBB- | BB+ |
| Outlook | stable | positive |
| Moody's | ||
| Corporate Credit Rating | Baa3 | Ba1 |
| Outlook | stable | negative |
| Fitch | ||
| Corporate Credit Rating | BB+ | BB+ |
| Outlook | stable | positive |
In 2015, the rating agencies have conducted several adjustments on Fresenius' rating. On January 12, 2015, Moody's raised the outlook from negative to stable. On January 16, 2015, Standard&Poor's upgraded the credit rating from BB+ to BBB- with a stable outlook. On March 19, 2015, Fitch adjusted the outlook from positive to stable. On November 16, 2015, Moody's upgraded the credit rating from Ba1 to Baa3 with a stable outlook.
The consolidated statements of cash flows of the Fresenius Group for the fiscal years 2015 and 2014 are shown on page 97.
Cash funds reported in the consolidated statement of cash flows and in the consolidated statement of financial position are comprised of cash on hand, checks, securities and cash at bank which are readily convertible within three months and are subject to insignificant risk of changes in value.
The following table provides additional information with regard to the consolidated statement of cash flows:
| € in millions | 2015 | 2014 |
|---|---|---|
| Interest paid | 575 | 567 |
| Income taxes paid | 860 | 781 |
In 2015, Fresenius Helios has used subsidies for investments in property, plant and equipment in the amount of €103 million (2014: €89 million), that were offset in purchase of property, plant and equipment in the consolidated statement of cash flows.
Cash paid for acquisitions (without investments in licenses) consisted of the following:
| € in millions | 2015 | 2014 |
|---|---|---|
| Assets acquired | 428 | 3,728 |
| Liabilities assumed | -45 | -938 |
| Noncontrolling interest | -84 | -331 |
| Notes assumed in connection with acquisitions | -94 | -238 |
| Cash paid | 205 | 2,221 |
| Cash acquired | -4 | -232 |
| Cash paid for acquisitions, net | 201 | 1,989 |
| Cash paid for investments, net of cash acquired |
166 | 207 |
| Cash paid for intangible assets, net | 29 | 18 |
| Total cash paid for acquisitions and investments, net of cash acquired, |
||
| and net purchases of intangible assets | 396 | 2,214 |
Proceeds from the sale of subsidiaries were €149 million in 2015 (2014: €18 million).
The consolidated segment reporting tables shown on pages 100 to 101 of this Annual Report are an integral part of the notes.
The Fresenius Group has identified the business segments Fresenius Medical Care, Fresenius Kabi, Fresenius Helios and Fresenius Vamed, which corresponds to the internal organizational and reporting structures (Management Approach) at December 31, 2015.
The key data disclosed in conjunction with the consolidated segment reporting correspond to the key data of the internal reporting system of the Fresenius Group. Internal and external reporting and accounting correspond to each other; the same key data and definitions are used.
Sales and proceeds between the segments are indicative of the actual sales and proceeds agreed with third parties. Administrative services are billed in accordance with service level agreements.
The business segments were identified in accordance with FASB ASC Topic 280, Segment Reporting, which defines the segment reporting requirements in the annual financial statements and interim reports with regard to the operating business, product and service businesses and regions. The business segments of the Fresenius Group are as follows:
The segment Corporate / Other is mainly comprised of the holding functions of Fresenius SE & Co. KGaA as well as Fresenius Netcare GmbH, which provides services in the field of information technology. In addition, the segment Corporate/Other includes intersegment consolidation adjustments as well as special items (see note 3, Special items).
Details on the business segments are shown on page 103 of the notes.
Segment reporting by region takes account of geographical factors and the similarity of markets in terms of opportunities and risks. The allocation to a particular region is based on the domicile of the customers.
The key figures used by the Management Board to assess segment performance, have been selected in such a way that they include all items of income and expenses which fall under the area of responsibility of the business segments. The Management Board is convinced that the most suitable performance indicator is the operating income (EBIT). The Management Board believes that, in addition to the operating income, the figure for earnings before interest, taxes and depreciation/amortization (EBITDA) can also help investors to assess the ability of the Fresenius Group to generate cash flows and to meet its financial obligations. The EBITDA figure is also the basis for assessing Fresenius Group's compliance with the terms of its credit agreements (e. g. the Fresenius Medical Care 2012 Credit Agreement or the 2013 Senior Credit Agreement).
Depreciation and amortization is presented for property, plant and equipment and intangible assets with definite useful lives of the respective business segment.
Net interest is comprised of interest expenses and interest income.
Net income attributable to shareholders of Fresenius SE & Co. KGaA is defined as earnings after income taxes and noncontrolling interest.
The operating cash flow is the cash provided by / used in operating activities.
The cash flow before acquisitions and dividends is the operating cash flow less net capital expenditure.
Debt is comprised of bank loans, senior notes, convertible bonds, capital lease obligations, liabilities relating to outstanding acquisitions as well as intercompany liabilities.
Capital expenditure mainly includes additions to property, plant and equipment.
Acquisitions refer to the purchase of shares in legally independent companies and the acquisition of business divisions and intangible assets (e. g. licenses). The key figures shown with regard to acquisitions present the contractual purchase prices comprising amounts paid in cash (less cash acquired), debts assumed and the issuance of shares, whereas for the purposes of the statement of cash flows, only cash purchase price components less acquired cash and cash equivalents are reported.
The EBITDA margin is calculated as a ratio of EBITDA to sales.
The EBIT margin is calculated as a ratio of EBIT to sales. The return on operating assets (ROOA) is defined as the ratio of EBIT to average operating assets. Operating assets are defined as total assets less deferred tax assets, trade accounts payable and advance payments from customers as well as guaranteed subsidies.
In addition, the key indicators "Depreciation and amortization in % of sales" and "Operating cash flow in % of sales" are also disclosed.
| € in millions | 2015 | 2014 |
|---|---|---|
| Total EBIT of reporting segments | 3,990 | 3,182 |
| Special items | -83 | -44 |
| General corporate expenses Corporate/Other (EBIT) |
-32 | -24 |
| Group EBIT | 3,875 | 3,114 |
| Interest expenses | -868 | -730 |
| Interest income | 255 | 128 |
| Income before income taxes | 3,262 | 2,512 |
| € in millions | Dec. 31, 2015 | Dec. 31, 2014 |
|---|---|---|
| Short-term debt | 202 | 230 |
| Short-term debt from related parties | 4 | 3 |
| Current portion of long-term debt and capital lease obligations |
607 | 738 |
| Current portion of Senior Notes | 349 | 681 |
| Long-term debt and capital lease obligations, less current portion |
5,502 | 5,948 |
| Senior Notes, less current portion | 7,267 | 6,923 |
| Convertible bonds | 838 | 822 |
| Debt | 14,769 | 15,345 |
| less cash and cash equivalents | 1,044 | 1,175 |
| Net debt | 13,725 | 14,170 |
The following table shows the non-current assets by geographical region:
| € in millions | Dec. 31, 2015 | Dec. 31, 2014 |
|---|---|---|
| Germany | 8,042 | 7,816 |
| Europe (excluding Germany) | 2,968 | 2,899 |
| North America | 18,385 | 16,485 |
| Asia-Pacific | 1,610 | 1,476 |
| Latin America | 556 | 586 |
| Africa | 43 | 47 |
| Total non-current assets 1 | 31,604 | 29,309 |
1 The aggregate amount of net non-current assets is the sum
of non-current assets less deferred tax assets and less derivative
financial instruments.
In 2015, the Fresenius Group generated sales of €6,625 million (2014: €6,292 million) in Germany. Sales in the United States were €12,417 million at actual rates and €10,370 million in constant currency in 2015 (2014: €9,110 million).
In 2015, the Fresenius Group recognized compensation cost in an amount of €26 million for stock options granted since 2011. For stock incentive plans which are performance-based, the Fresenius Group recognizes compensation cost over the vesting periods, based on the market values of the underlying stock at the grant date.
The Fresenius Group uses a binomial option pricing model in determining the fair value of stock options granted under the stock option plans of Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA. Option valuation models require the input of highly subjective assumptions including expected stock price volatility. Fresenius Group's assumptions are based upon its past experiences, market trends and the experiences of other entities of the same size and in similar industries. To incorporate the effects of expected early exercise in the model, an early exercise of vested options was assumed as soon as the share price exceeds 150% of the exercise
price. Fresenius Group's stock options have characteristics that vary significantly from traded options and changes in subjective assumptions can materially affect the fair value of the option.
The weighted-average assumptions for the calculation of the fair value of grants of the Fresenius SE & Co. KGaA Stock Option Plan 2013 made during 2015 and 2014 are as follows:
| 2015 | 2014 | ||
|---|---|---|---|
| € in millions | July Grant |
December Grant |
July Grant |
| Expected dividend yield |
1.16% | 1.09% | 1.47% |
| Risk-free interest rate | 0.44% | 0.34% | 0.85% |
| Expected volatility | 26.52% | 26.57% | 26.83% |
| Life of options | 8 years | 8 years | 8 years |
| Exercise price per option in € |
60.64 | 67.99 | 36.92 |
The expected volatility results from the historical volatility calculated over the expected life of options. The volatility was determined when the fair value of stock options was calculated for the first time and since then has been controlled every year upon issuance of a new tranche.
Description of the Fresenius SE & Co. KGaA stock option plans in place
As of December 31, 2015, Fresenius SE & Co. KGaA had three stock option plans in place: the Fresenius AG Stock Option Plan 2003 (2003 Plan) which is based on convertible bonds, the stock option based Fresenius SE Stock Option Plan 2008 (2008 Plan) and the Fresenius SE & Co. KGaA Long Term Incentive Program 2013 (2013 LTIP) which is based on stock options and phantom stocks. In 2015, stock options were solely granted under the 2013 LTIP.
The 2013 LTIP is comprised of the Fresenius SE & Co. KGaA Stock Option Plan 2013 (2013 SOP) and the Fresenius SE & Co. KGaA Phantom Stock Plan 2013 (2013 PSP). It combines the granting of stock options with the granting of phantom stock awards which entitle the holder to receive cash payments upon exercising the phantom stock. Each of the 2013 SOP and 2013 PSP making up the 2013 LTIP have been established under a stand-alone legal documentation.
Under the 2013 SOP, which was approved by the Annual General Meeting of Fresenius SE & Co. KGaA on May 17, 2013, Fresenius Management SE was originally authorized to issue up to 8.4 million subscription rights for an amount of 8.4 million non-par value ordinary bearer shares of Fresenius SE & Co. KGaA until May 16, 2018.
Of the up to 8.4 million options, up to 1.6 million options were designated for members of the Management Board of Fresenius Management SE; up to 4.4 million options were designated for members of the management of directly or indirectly affiliated companies (except for Fresenius Medical Care) and up to 2.4 million options were designated for executive employees of Fresenius SE & Co. KGaA and its affiliated companies (except for Fresenius Medical Care).
In connection with the stock split in 2014, the total volume of not yet granted subscription rights increased in the same proportion as the subscribed capital (factor 3) as far as options have not yet been granted under the 2013 SOP. The same applies to the subsets of the subscription rights that are attributable to individual groups of participants. For stock options that were granted before the stock split 2014 came into effect, the entitlement of the participants to receive new shares through the exercise of stock options increased in the same proportion as the subscribed capital (factor 3). The participants are now entitled to receive three bearer ordinary shares of Fresenius SE & Co. KGaA. The exercise price was reduced proportionally.
The granting of the options shall occur in five annual tranches, each to the last Monday in July or the first Monday in December. With respect to new options, the Supervisory Board of Fresenius Management SE determines the stock options granted to members of Fresenius Management SE's Management Board, whereas the Management Board of Fresenius Management SE determines the other participants in the 2013 SOP and the stock options granted to them.
The exercise price of an option shall equal the volumeweighted average stock market price (closing price) of the non-par value ordinary bearer share of Fresenius SE & Co. KGaA in the electronic Xetra trading of Deutsche Börse AG in Frankfurt am Main, or a comparable successor system, on the last 30 calendar days prior to the respective grant date.
Options granted have an eight-year term but can be exercised only after a four-year vesting period. The exercise of options is subject to the condition precedent, in each case, that the annual success target within a four-year waiting period is achieved. The success target is achieved in each case if, after the granting of the options to the respective entitled person, either (i) the consolidated net income attributable to shareholders of Fresenius SE&Co. KGaA according to U.S. GAAP, adjusted for extraordinary effects and on a constant currency basis, has increased by at least 8% per annum in comparison to the previous year in each case within the waiting period, or (ii) – if this is not the case – the compounded annual growth rate of the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA according to U.S. GAAP, adjusted for extraordinary effects and on a constant currency basis, during the four years of the waiting period amounts to at least 8%. In the event that the success target within the four-year waiting period is not achieved for the individual years or for the compounded annual growth rate, the options issued in each case are forfeited in proportion to the non-achievement of the success target within the waiting period, i. e. by one quarter, two quarters, three quarters, or completely. The performance targets for 2013, 2014 and 2015 were met.
The adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA according to U.S. GAAP (currency adjusted) and changes thereto compared to the adjusted net income according to U.S. GAAP (without currency adjustment) of the relevant comparison year shall be verified with binding effect in each case by the auditors of Fresenius SE & Co. KGaA on the basis of the audited consolidated financial statements. Upon exercise of vested options, Fresenius SE & Co. KGaA has the right to grant treasury shares in lieu of increasing capital by the issuance of new shares.
After the expiration of the waiting period, all options in respect of which the success target has been achieved may be exercised at any time outside the designated blackout periods.
Fresenius SE & Co. KGaA's 2013 PSP was established in May 2013, together with the 2013 SOP in line with the 2013 LTIP. Awards of phantom stock can be granted on each stock option grant date. Phantom stock awarded under the 2013 PSP may be granted to the members of Fresenius Management SE's Management Board, the members of the management of directly or indirectly affiliated companies (except for Fresenius Medical Care) and for executive employees of Fresenius SE & Co. KGaA and its affiliated companies (except for Fresenius Medical Care).
The holders of phantom stocks, that were issued before the stock split 2014 came into effect, were granted an economic compensation through retroactively tripling the number of phantom stocks granted before the stock split 2014 came into effect.
As under the 2013 SOP, the Supervisory Board of Fresenius Management SE determines the phantom stock granted to members of Fresenius Management SE's Management Board, whereas the Management Board of Fresenius Management SE determines the other participants in the 2013 PSP and the phantom stock granted to them.
Phantom stock awards under the 2013 PSP entitle the holder to receive a cash payment. Each phantom stock award shall entitle the holder to receive the volume-weighted average stock market price (closing price) of the non-par value ordinary bearer share of Fresenius SE & Co. KGaA in the electronic Xetra trading of Deutsche Börse AG in Frankfurt am Main, or a comparable successor system, during the last three months prior to the date the phantom stock is exercised.
The exercise of phantom stock is subject to the condition precedent, in each case, that the annual success target within a four-year waiting period is achieved. The success target is achieved in each case if, after the granting of the subscription rights to the respective entitled person, either (i) the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA according to U.S. GAAP, adjusted for extraordinary effects and on a constant currency basis, has increased by at least 8% per annum in comparison to the previous year in each case within the waiting period, or (ii) – if this is not the case – the compounded annual growth rate of the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA according to U.S. GAAP, adjusted for extraordinary effects and on a constant currency basis, during the four years of the waiting period amounts to at least 8%. In the event that the success target within the four-year waiting period is not achieved for the individual years or for the compounded annual growth rate, the phantom stock awards issued in each case are forfeited in proportion to the non-achievement of the success target within the waiting-period, i. e. by one quarter, two quarters, three quarters, or completely. The performance targets for 2013, 2014 and 2015 were met.
The adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA according to U.S. GAAP (currency adjusted) and changes thereto compared to the adjusted net income according to U.S. GAAP (without currency adjustment) of the relevant comparison year shall be verified with binding effect in each case by the auditors of Fresenius SE & Co. KGaA on the basis of the audited consolidated financial statements.
After the expiration of the waiting period, all exercisable phantom stock will be deemed to be exercised and cashed out on March 1 following the end of the waiting period (or the following banking day).
During 2008, Fresenius SE adopted the 2008 Plan to grant subscription rights to members of the Management Board and executive employees of the Company and affiliated companies. Under the 2008 Plan, originally, up to 6.2 million options could be issued, which carried the entitlement to exclusively obtain 6.2 million ordinary shares.
For stock options that were granted before the stock split 2014 came into effect, the entitlement of the participants to receive new shares through the exercise of stock options increased in the same proportion as the subscribed capital (factor 3). The participants are now entitled to receive three bearer ordinary shares of Fresenius SE & Co. KGaA. The maximum number of ordinary shares to be issued increased accordingly. The exercise price was reduced proportionally.
The options granted have a seven-year term but can be exercised only after a three-year vesting period. The vesting of options granted is mandatorily subject to the condition, in each case, that the annual success target within the threeyear vesting period is achieved. For each such year, the success target is achieved if the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA, adjusted for extraordinary effects, has increased by at least 8% compared to the respective adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA of the previous fiscal year. For each year in which the success target has not been met, one-third of the options granted shall forfeit. The adjusted net income attributable to shareholders
of Fresenius SE & Co. KGaA shall be calculated on the basis of the calculation method of the accounting principles according to U.S. GAAP. For the purposes of the 2008 Plan, the adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA is determined and will be verified with binding effect by Fresenius SE & Co. KGaA's auditor during the audit of the consolidated financial statements. The performance targets were met in all years. If all conditions are fulfilled, stock options may be exercised throughout the year with the exception of certain pre-determined blackout periods.
This stock incentive plan was replaced by the 2013 SOP. The last options were granted in 2012.
During 2003, Fresenius AG adopted the 2003 Plan for members of the Management Board and executive employees. This incentive plan which is based on convertible bonds was replaced by the 2008 Plan and no convertible bonds have been granted since 2008. Under the 2003 Plan, eligible employees have the right to acquire ordinary shares of Fresenius SE & Co. KGaA. The bonds expire in 10 years and one third of them can be exercised beginning after two, three and four years after the grant date, respectively.
In 2015, Fresenius SE & Co. KGaA awarded 2,260,465 stock options under the 2013 LTIP, including 337,500 options to members of the Management Board of Fresenius Management SE, at a weighted-average exercise price of €60.76, a weighted-average fair value of €14.77 each and a total fair value of €33 million, which will be amortized over the fouryear vesting period. Fresenius SE & Co. KGaA also awarded 296,199 phantom stocks under the 2013 LTIP, including 73,307 phantom stocks granted to members of the Management Board of Fresenius Management SE, at a measure ment date (December 31, 2015) fair value of €63.43 each and a total fair value of €19 million, which will be revalued if the fair value changes, and amortized over the four-year vesting period.
During the fiscal year 2015, Fresenius SE & Co. KGaA received cash of €88 million from the exercise of 4,195,350 stock options. The average stock price of the ordinary share at the exercise date was €58.77. The intrinsic value of convertible bonds and stock options exercised in 2015 was €152 million.
533,072 convertible bonds were outstanding and exercisable under the 2003 Plan at December 31, 2015. The members of the Fresenius Management SE Management Board held no more convertible bonds. At December 31, 2015, out of 3,802,820 outstanding and exercisable stock options issued under the 2008 Plan, 560,460 were held by the members of the Fresenius Management SE Management Board. 6,313,417 stock options issued under the 2013 LTIP were outstanding at December 31, 2015. The members of the Fresenius Management SE Management Board held 967,500 stock options. 920,387 phantom stocks issued under the 2013 LTIP were outstanding at December 31, 2015. The members of the Fresenius Management SE Management Board held 236,729 phantom stocks.
Stock option transactions are summarized as follows:
| Ordinary shares Dec. 31 |
Number of options |
Weighted average exercise price in € |
Number of options exercisable |
|---|---|---|---|
| Balance 2013 | 13,489,503 | 23.06 | 4,657,380 |
| Granted | 2,233,812 | 36.92 | |
| Exercised | 2,448,113 | 18.29 | |
| Forfeited | 371,436 | 27.42 | |
| Balance 2014 | 12,903,766 | 26.27 | 5,325,004 |
| Granted | 2,260,465 | 60.76 | |
| Exercised | 4,195,350 | 21.08 | |
| Forfeited | 319,572 | 33.00 | |
| Balance 2015 | 10,649,309 | 35.44 | 4,335,892 |
The following table provides a summary of fully vested options outstanding and exercisable for ordinary shares at December 31, 2015:
| Options outstanding | Options exercisable | |||||
|---|---|---|---|---|---|---|
| Range of exercise price in € |
Number of options | Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
Number of options | Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
| 10.01 – 15.00 | 301,948 | 0.50 | 12.22 | 301,948 | 0.50 | 12.22 |
| 15.01 – 20.00 | 889,320 | 1.49 | 18.38 | 889,320 | 1.49 | 18.38 |
| 20.01 – 25.00 | 1,033,452 | 2.49 | 23.76 | 1,033,452 | 2.49 | 23.76 |
| 25.01 – 30.00 | 2,111,172 | 3.51 | 26.21 | 2,111,172 | 3.51 | 26.21 |
| 30.01 – 35.00 | 1,942,590 | 5.64 | 32.28 | 0 | ||
| 35.01 – 40.00 | 2,131,737 | 6.58 | 36.92 | 0 | ||
| 60.01 – 65.00 | 2,200,840 | 7.58 | 60.64 | 0 | ||
| 65.01 – 70.00 | 38,250 | 7.92 | 67.99 | 0 | ||
| 10,649,309 | 5.02 | 35.44 | 4,335,892 | 2.64 | 23.05 |
At December 31, 2015, the aggregate intrinsic value of exercisable options for ordinary shares was €186 million.
At December 31, 2015, total unrecognized compensation cost related to non-vested options granted under the 2008 Plan and the 2013 LTIP was €45 million. This cost is expected to be recognized over a weighted-average period of 3.0 years.
On May 12, 2011, the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2011 (2011 SOP) was established by resolution of Fresenius Medical Care AG & Co. KGaA's (FMC-AG & Co. KGaA) Annual General Meeting (AGM). The 2011 SOP, together with the Phantom Stock Plan 2011, which was established by resolution of Fresenius Medical Care Management AG's (FMC Management AG) Management and Supervisory Boards, forms FMC-AG & Co. KGaA's Long Term Incentive Program 2011 (2011 Incentive Program). Under the 2011 Incentive Program, participants were granted awards, which consisted of a combination of stock options and phantom stock.
Awards under the 2011 Incentive Program were granted over a five-year period and were able to be granted on the last Monday in July and / or the first Monday in December each year. The final grant under the 2011 Incentive Program was made in December 2015. Generally and prior to the respective grants, participants were able to choose how much of the granted value is granted in the form of stock options and phantom stock in a predefined range of 75:25 to 50:50, stock options vs. phantom stock. For grants made in 2014 and 2015 related to the participants who did not belong to FMC Management AG's Management Board, the grant ratio was predefined at 50:50. The number of phantom shares granted instead of stock options and within the aforementioned proportions was determined on the basis of a fair value assessment pursuant to a binomial model. With respect to grants made in July, this fair value assessment was conducted on the day following FMC-AG & Co. KGaA's AGM and with respect to the grants made in December, on the first Monday in October. The awards under the 2011 Incentive Program are subject to a four-year vesting period. The vesting of the awards granted is subject to achievement of performance targets. The 2011 Incentive Program was established with a conditional capital increase up to €12 million subject to the issue of up to 12 million non-par value bearer ordinary shares with a nominal value of €1.00, each of which can be exercised to obtain one ordinary share.
Members of the Management Board of FMC Management AG, members of the management boards of FMC-AG & Co. KGaA's affiliated companies and the managerial staff members of FMC-AG & Co. KGaA and of certain affiliated companies are entitled to participate in the 2011 Incentive Program. With respect to participants who are members of FMC Management AG's Management Board, FMC Management AG's Supervisory Board has sole authority to make plan interpretations, decide on certain adjustments and to grant awards under the 2011 Incentive Program. FMC Management AG has such authority with respect to all other participants in the 2011 Incentive Program.
The exercise price of stock options granted under the 2011 Incentive Program shall be the average stock exchange price on the Frankfurt Stock Exchange of FMC-AG & Co. KGaA's ordinary shares during the 30 calendar days immediately prior to each grant date. Stock options granted under the 2011 Incentive Program have an eight-year term and can be exercised only after a four-year vesting period. Stock options granted under the 2011 Incentive Program to U.S. participants are non-qualified stock options under the United States Internal Revenue Code of 1986, as amended. Options under the 2011 Incentive Program are not transferable by a participant or a participant's heirs, and may not be pledged, assigned, or disposed of otherwise.
Phantom stock under the 2011 Incentive Program entitles the holders to receive payment in euro from FMC-AG & Co. KGaA upon exercise of the phantom stock. The payment per phantom share in lieu of the issuance of such stock shall be based upon the closing stock exchange price on the Frankfurt Stock Exchange of one of FMC-AG & Co. KGaA's ordinary shares on the exercise date. Phantom stock will have a fiveyear term and can be exercised only after a four-year vesting period, beginning with the grant date, however a shorter period may apply for certain exceptions. For participants who are U.S. tax payers, the phantom stock is deemed to be exercised in any event in the month of March following the end of the vesting period.
The Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 (Amended 2006 Plan) was established with a conditional capital increase up to €12.8 million subject to the issue of up to 5 million non-par value bearer ordinary shares with a nominal value of €1.00, each of which can be exercised to obtain one ordinary share. In connection with the share split affected in 2007, the principal amount was adjusted to the same proportion as the share capital out of the capital increase up to €15 million by the issue of up to 15 million new nonpar value bearer ordinary shares.
After December 2010, no further grants were issued under the Amended 2006 Plan. Options granted under this plan are exercisable through December 2017.
Options granted under the Amended 2006 Plan to U.S. participants are non-qualified stock options under the United States Internal Revenue Code of 1986, as amended. Options under the Amended 2006 Plan are not transferable by a participant or a participant's heirs, and may not be pledged, assigned, or otherwise disposed of.
Under the Fresenius Medical Care 2001 International Stock Incentive Plan (2001 Plan), options in the form of convertible bonds with a principal of up to €10.24 million were issued to the members of the Management Board and other employees of FMC-AG & Co. KGaA representing grants for up to 4 million non-voting preference shares. The convertible bonds originally had a par value of €2.56 and bear interest at a rate of 5.5%. In connection with the share split affected in 2007, the principal amount was adjusted in the same proportion as the share capital out of the capital increase and the par value of the convertible bonds was adjusted to €0.85 without affecting the interest rate.
Based on the resolution of the Annual General Meeting and the separate Meeting of the Preference Shareholders on May 16, 2013 regarding the conversion of all bearer preference shares into bearer ordinary shares, the 2001 Plan was amended accordingly. The partial amount of the capital increase which was formerly referred to as the issuance of bearer preference shares will now be referred exclusively to the issuance of bearer ordinary shares.
Effective May 2006, no further grants can be issued under the 2001 Plan and no options were granted under this plan after 2005. As of December 31, 2015, there are no outstanding options under the 2001 Plan.
During 2015, FMC-AG & Co. KGaA awarded 3,073,360 options under the 2011 Incentive Program, including 502,980 stock options granted to members of the Management Board of FMC Management AG, at a weighted-average exercise price of €77.06, a weighted-average fair value of €15.00 each and a total fair value of €46 million, which will be amortized over the four-year vesting period. FMC-AG & Co. KGaA awarded 607,828 phantom stocks, including 62,516 phantom stocks
granted to members of the Management Board of FMC Management AG, at a measurement date (December 31, 2015) weighted-average fair value of €73.81 each and a total fair value of €45 million, which will be revalued if the fair value changes, and amortized over the four-year vesting period.
During 2015, FMC-AG & Co. KGaA received cash of €69 million from the exercise of stock options. The intrinsic value of convertible bonds and stock options exercised in 2015 was €67 million. FMC-AG & Co. KGaA recorded a related tax benefit of €16 million for 2015. In connection with cash-settled share-based payment transactions under the 2011 Incentive Plan, FMC-AG & Co. KGaA recognized expenses of €11 million and €4 million for the years ending December 31, 2015 and 2014, respectively.
At December 31, 2015, the Management Board members of FMC Management AG held 1,565,195 stock options and employees of FMC-AG & Co. KGaA held 7,172,075 stock options under the various stock-based compensation plans of Fresenius Medical Care.
At December 31, 2015, the Management Board members of FMC Management AG held 118,703 phantom stocks and employees of FMC-AG & Co. KGaA held 1,046,070 phantom stocks under the 2011 Incentive Program.
The table below provides reconciliations for options outstanding at December 31, 2015 as compared to December 31, 2014:
| Balance at December 31, 2014 (options for ordinary shares) 9,189 Granted 3,073 Exercised 1,759 Forfeited 1,766 Balance at December 31, 2015 (options for ordinary shares) 8,737 |
Number of options in thousands |
Weighted-average exercise price in € |
|---|---|---|
| 48.34 | ||
| 77.06 | ||
| 39.09 | ||
| 56.02 | ||
| 58.75 |
The following table provides a summary of fully vested options for ordinary shares outstanding and exercisable at December 31, 2015:
| Number of options in thousands |
Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
Aggregate intrinsic value € in millions |
|
|---|---|---|---|---|
| Options for ordinary shares | 1,611 | 2.05 | 43.81 | 55 |
At December 31, 2015, total unrecognized compensation cost related to non-vested options granted under all plans was €50 million. This cost is expected to be recognized over a weighted-average period of 2 years.
Prof. Dr. h. c. Roland Berger, a member of the Supervisory Board of Fresenius Management SE and of Fresenius SE & Co. KGaA, is a partner of Roland Berger Strategy Consultants Holding GmbH. In 2015, after discussion and approval by the Supervisory Board of Fresenius Management SE and Fresenius SE & Co. KGaA, the Fresenius Group paid €0.05 million to affiliated companies of the Roland Berger group for consulting services rendered (2014: €3.1 million).
Dr. Dieter Schenk, deputy chairman of the Supervisory Board of Fresenius Management SE, is a partner in the international law firm Noerr LLP, which provides legal services to the Fresenius Group. In 2015, after discussion and approval of each mandate by the Supervisory Board of Fresenius Management SE, the Fresenius Group paid about €1.4 million to this law firm for legal services rendered (2014: €1.8 million). Not included in the amount paid are such payments made in the fiscal year 2015 that had already been processed for payment in 2014 and have therefore already been reported for the fiscal year 2014.
In 2015, €18 million (2014: €11 million) were paid to Fresenius Management SE as compensation for the Management Board and the Supervisory Board, general partners' fees and other reimbursements of out-of pocket expenses. At December 31, 2015, there were outstanding liabilities payable to Fresenius Management SE in the amount of €34 million (December 31, 2014: €22 million), consisting mainly of pension obligations and Management Board compensation.
In 2015, Fresenius Medical Care provided unsecured loans to an associated company under customary conditions, which had been utilized in the amount of €60 million as of December 31, 2015.
The payments mentioned in this note are net amounts. In addition, VAT and insurance tax were paid.
On January 8, 2016, Fresenius Kabi and Becton, Dickinson and Company (BD) announced that Fresenius Kabi has acquired the BD Rx business, which includes a pharmaceutical manufacturing plant in the United States and the BD line of seven drugs in ready-to-administer prefilled glass syringes. Fresenius Kabi and BD have also signed a 10-year supply and distribution agreement under which Fresenius Kabi will supply BD with a portfolio of intravenous (IV) solutions.
On February 17, 2016, Fresenius Medical Care reached an agreement in principle to resolve the GranuFlo ® / NaturaLyte ® product liability litigation, which has been reflected in the consolidated financial statements as of December 31, 2015 (see notes 16, Other current and non-current assets, 19, Accrued expenses, and 28, Commitments and contingent liabilities) as well as within the Management Report.
On February 22, 2016, Fresenius announced that Fresenius Helios will acquire the municipal hospital in Velbert, in the German state of North Rhine-Westphalia. The hospital has 519 beds and, with approximately 1,000 employees, treats 45,000 patients each year, including 20,000 inpatients. Fresenius Helios will fully own the hospital. Sales were approximately €67 million in 2014. The acquisition is subject to approval by the German antitrust authorities. The transaction is expected to close in the second quarter of 2016.
There have been no significant changes in the Fresenius Group's operating environment following the end of the fiscal year 2015 until February 24, 2016. No other events of material importance on the assets and liabilities, financial position, and results of operations of the Group have occurred following the end of the fiscal year.
Individualized information regarding the compensation of the members of the Management Board and of the Supervisory Board is disclosed in the audited Compensation Report (see page 81ff.), which is part of the Management Report.
The compensation of the Management Board is, as a whole, performance-based and was composed of three elements in the fiscal year 2015:
The cash compensation paid to the Management Board for the performance of its responsibilities was €13,998 thousand (2014: €11,462 thousand). Thereof, €6,055 thousand (2014: €5,016 thousand) is not performance-based and €7,943 thousand (2014: €6,446 thousand) is performance-based. The amount of the performance-based compensation depends on the achievement of targets relating to the net income of the Fresenius Group and business segments. As a long-term incentive component, the members of the Management Board received 337,500 stock options under the Fresenius SE & Co. KGaA Stock Option Plan 2013 and 149,400 stock options under the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2011 and a share-based compensation with cash settlement in an amount of €5,843 thousand.
The total compensation of the Management Board was €27,065 thousand (2014: €18,759 thousand).
The total compensation paid to the Supervisory Boards of Fresenius SE & Co. KGaA and Fresenius Management SE and their committees was €3,648 thousand in 2015 (2014: €2,961 thousand). Of this amount, €206 thousand was fixed compensation (2014: €206 thousand), €100 thousand was compensation for committees services (2014: €100 thousand), and €3,342 thousand was variable compensation (2014: €2,655 thousand).
In 2015, based on pension commitments to former members of the Management Board, €1,081 thousand (2014: €1,049 thousand) was paid. The pension obligation for these persons amounted to €17,835 thousand in 2015 (2014: €18,465 thousand).
In the fiscal years 2015 and 2014, no loans or advance payments of future compensation components were made to members of the Management Board of Fresenius Management SE.
In 2015 and 2014, fees for the auditor KPMG AG Wirtschaftsprüfungsgesellschaft were expensed as follows:
| 2015 | 2014 | |||
|---|---|---|---|---|
| € in millions | Total | Germany | Total | Germany |
| Audit fees | 17 | 6 | 16 | 6 |
| Audit-related fees | 1 | 1 | 1 | 1 |
| Tax consulting fees | 1 | 0 | 1 | 0 |
| Other fees | 7 | 7 | 6 | 6 |
| Total auditor's fees | 26 | 14 | 24 | 13 |
The leading auditor has been responsible for the audit of the consolidated financial statements since 2012.
For each consolidated stock exchange listed entity, the declaration pursuant to Section 161 of the German Stock Corporation Act (Aktiengesetz) has been issued and made available to shareholders on the website of Fresenius SE & Co. KGaA (www.fresenius.com/corporate-governance), and of Fresenius Medical Care AG & Co. KGaA (www.freseniusmedicalcare.com).
The general partner and the Supervisory Board of Fresenius SE & Co. KGaA propose to the Annual General Meeting that the earnings for 2015 of Fresenius SE & Co. KGaA are distributed as follows:
| Retained earnings | 300,198,550.02 |
|---|---|
| Balance to be carried forward | 48,177.52 |
| shares entitled to dividend | 300,150,372.50 |
| Payment of a dividend of €0.55 per bearer ordinary share on the 545,727,950 ordinary |
"To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the
Bad Homburg v. d. H., February 24, 2016
Fresenius SE & Co. KGaA, represented by: Fresenius Management SE, its general partner
The Management Board
Dr. U. M. Schneider Dr. F. De Meo Dr.J. Götz
M. Henriksson R. Powell S. Sturm Dr. E. Wastler
Group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group."
To the Fresenius SE & Co. KGaA
We have audited the consolidated financial statements prepared by the Fresenius SE & Co. KGaA, Bad Homburg v. d. Höhe, comprising the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and the notes to the consolidated financial statements for the business year from January 1 to December 31, 2015. The preparation of the consolidated financial statements in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP) is the responsibility of the legal representative of the Company. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. In addition, we have been engaged to express an opinion as to whether the voluntarily prepared group management report is in agreement with the group management report of Fresenius SE & Co. KGaA, Bad Homburg v. d. Höhe, prepared in accordance with § 290 and § 315 HGB [Handelsgesetzbuch "German Commercial Code"] apart from appropriate incorporation of U.S. GAAP financial data.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the
applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accountingrelated internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the legal representative, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with U.S. GAAP and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The voluntarily prepared group management report is consistent with the consolidated financial statements prepared in accordance with U.S. GAAP and is, apart from appropriate incorporation of U.S. GAAP financial data, in agreement with the group management report of Fresenius SE & Co. KGaA prepared in accordance with § 290 and § 315 HGB, on which we issued an unqualified statutory audit opinion. Based on this, the group management report as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Frankfurt am Main, February 24, 2016
KPMG AG Wirtschaftsprüfungsgesellschaft
Rohrbach Walter German Public Auditor German Public Auditor
In 2015, the Supervisory Board of Fresenius SE & Co. KGaA fulfilled its obligations in its respective terms in accordance with the provisions of the law, the articles of association, and the rules of procedure. It regularly advised the Management Board of the general partner, Fresenius Management SE, regarding the management of the Company, and has supervised the management in accordance with its Supervisory Board responsibilities.
Carrying out its monitoring and advisory activities, the Management Board regularly kept the Supervisory Board informed − in a timely and comprehensive oral and written manner − about all important matters relating to business policy, business development, profitability, the economic and financial position of the Company and the Group, the corporate strategy and planning, risk situation, risk management, and compliance, as well as important business events. Based on the reports submitted from the Management Board of the general partner, the Supervisory Board discussed all business transactions that were important for the Company in its committees and at its meetings. The Management Board of the general partner discussed the Company's strategic direction with the Supervisory Board. The Supervisory Board passed resolutions within the framework of its legal and Company statutory authority.
The Supervisory Board of Fresenius SE & Co. KGaA convened for four regular meetings in 2015 – in March, May, October, and December. Before the meetings, the Management Board of the general partner sent detailed reports and comprehensive approval documents to the members of the Supervisory Board. At the meetings, the Supervisory Board discussed in detail the business development and any important corporate decisions based on the reports from the general partner's Management Board.
All matters requiring Supervisory Board approval were submitted with sufficient time for proper scrutiny. After reviewing the related approval documents and detailed consultation with the Management Board of the general partner, the Supervisory Board approved all matters submitted to it.
The Supervisory Board was also informed about any important business events occurring between meetings. In addition, the Chairman of the general partner's Management Board regularly informed the Chairman of the Supervisory Board in separate meetings about the latest development of the business and forthcoming decisions and discussed them with him.
Every member of the Supervisory Board of Fresenius SE & Co. KGaA attended more than half of the Supervisory Board Meetings in 2015.
In 2015, the Supervisory Board mostly focused its monitoring and consulting activities on business operations and investments by the business segments. Furthermore, the Supervisory Board thoroughly reviewed and discussed all other significant business activities with the Management Board. The main consulting focus was on acquisitions, especially the acquisition of a plant and a portfolio of drugs in ready-to-administer prefilled glass syringes by Fresenius Kabi, as well as the strategic enhancement of the IT system and process structure at Fresenius Kabi. The Supervisory Board discussed in detail the 2016 budget and the mid-term planning of the Fresenius Group. It also focused on the strategies of the business segments, especially on the business perspectives for Fresenius Medical Care and Fresenius Vamed. At its meetings and within the Audit Committee, the Supervisory Board also kept itself regularly informed about the Group's risk situation and risk management activities, as well as compliance.
The Supervisory Board and the Management Board of the general partner jointly issued a Declaration of Conformity in accordance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG) on December 20, 2015.
The Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA have a duty to act in the best interests of the Company. In performing their activities, they do not pursue personal interests or bestow unjustified benefits on others. Any sideline activities or transactions with the Company by members of the corporate bodies must be reported to, and approved by, the Supervisory Board.
Prof. Dr. med. D. Michael Albrecht is a member of the Supervisory Board of our Company and is medical director and spokesman for the management board of the University Hospital Carl Gustav Carus Dresden, as
well as a member of the supervisory board of the University Hospital in Aachen. The Fresenius Group maintains regular business relationships with these hospitals in the ordinary course under customary conditions. Klaus-Peter Müller is a member of the Supervisory Boards of our Company and of Fresenius Management SE, as well as chairman of the supervisory board of Commerzbank AG, with which the Fresenius Group maintains business relationships under customary conditions. Michael Diekmann has been a member of the Supervisory Board of Fresenius Management SE and Deputy Chairman of the Supervisory Board of Fresenius SE & Co. KGaA since May 20, 2015. Until May 7, 2015 he was Chairman of the Board of Management of Allianz SE, and currently he is a Non-Executive Director of the Board of Directors of Allianz Australia Ltd. In 2015, the Fresenius Group paid insurance premiums to Allianz under customary conditions.
There are no direct consultant or other service agreements between the Company and any member of the Supervisory Board.
Various companies of the Fresenius Group were advised by affiliated companies of the internationally acting law firm Noerr. Dr. Dieter Schenk, member of the Supervisory Board of Fresenius Management SE and Deputy Chairman of the same, is also a partner of the law firm Noerr LLP. In 2015, the Fresenius Group paid about €1.4 million to the law firm Noerr (2014: €1.8 million). This corresponds to 1% of the total amount paid by the Fresenius Group for services and legal advice in 2015 (2014: 1%). Not included in the amount paid are such payments made in 2015 that had already been processed for payment in 2014, and have therefore already been reported for the 2014 fiscal year. Of the total amount for the 2015 fiscal year, about €0.3 million was attributable to services for Group companies not related to the business segment Fresenius Medical Care. The services rendered for Group companies of the business segment Fresenius Medical Care require separate approval by the Supervisory Boards of Fresenius Medical Care Management AG and Fresenius Medical Care AG & Co. KGaA. The Supervisory Board of Fresenius Management SE, of which Dr. Schenk is a member, closely examined this mandate and approved it. Dr. Schenk abstained from voting. The Supervisory Board of Fresenius SE & Co. KGaA, of which Dr. Schenk is not a member, dealt with the amounts for legal services paid to the law firm Noerr in relation to the amounts paid to other law firms.
The payments mentioned in this section are net amounts in euros. VAT was paid also.
For more information on corporate governance at Fresenius, please refer to the Corporate Governance Declaration and Report on pages 69 to 93 of the Annual Report. Fresenius has disclosed the information on related parties in its quarterly reports and on page 177 of the Annual Report.
The Audit Committee held three meetings and four conference calls in 2015. The main focus of its monitoring activities was on the preliminary audit of the annual financial statements of Fresenius SE & Co. KGaA and the Group for 2014 and discussions with the auditors about their reports and the terms of reference of the audit. Another matter dealt with by the Audit Committee was its recommendation to the Supervisory Board regarding which auditing firm to propose to the Annual General Meeting for election as auditor for the annual financial statements of Fresenius SE & Co. KGaA and the Group for 2015. The Supervisory Board's proposal to the Annual General Meeting in 2015 to elect KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, as auditor was based on a recommendation to this effect by the Audit Committee. The Audit Committee also reviewed the 2015 quarterly reports, the controlling reports on the development of the acquisitions, the compliance, the risk management system, the internal control system, and the internal auditing system. The Chairman of the Audit Committee reported regularly in the following Supervisory Board meetings on the work of the committee.
In preparation of the Supervisory Board election in May 2016, the Company's Nomination Committee met twice in 2015.
The Joint Committee, whose approval is necessary for certain important transactions of Fresenius SE & Co. KGaA and for certain legal acts between the Company and the Else Kröner-Fresenius Foundation, did not meet in 2015 because no transactions were effected that required the Joint Committee's approval.
There is no Mediation Committee because the Supervisory Board of Fresenius SE & Co. KGaA does not appoint the Management Board members of Fresenius Management SE.
For more information about the committees, their composition, and their work methods, please refer to the Corporate Governance Declaration and Report on pages 73, 74, and 189 of the Annual Report.
Michael Diekmann has been elected by the General Meeting on May 20, 2015 as a member of the Supervisory Board and as a member of the Joint Committee. In the meeting of the Supervisory Board directly following the General Meeting, he was elected as Deputy Chairman of the Supervisory Board and as a member of the Nomination Committee.
In 2015, there were no changes in the composition of the Management Board of the general partner Fresenius Management SE.
The accounting records, the financial statements prepared according to the German Commercial Code (HGB), and the 2015 Management Report of the Company were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin. The firm was elected as auditor in accordance with the resolution passed at the Annual General Meeting of Fresenius SE & Co. KGaA on May 20, 2015, and was subsequently commissioned by the Supervisory Board. The auditors of KPMG issued their unqualified audit opinion for these statements. The same applies to the Company's consolidated financial statements, prepared according to IFRS accounting principles, and to the regulations that govern these statements pursuant to Section 315a of the German Commercial Code (HGB). It also applies to the Company's consolidated financial statements, which are prepared voluntarily according to U.S. GAAP.
The financial statements, the consolidated financial statements, the Management Reports, and the auditor's reports were submitted to each member of the Company's Supervisory Board within the required time. At their meetings on March 10 and 11, 2016, the Audit Committee and then the Supervisory Board discussed all the documents in detail.
The auditors delivered a detailed report on the results of the audit at each of these meetings. They found no weaknesses in the risk management system and the internal control system with regard to the accounting process. The auditors attended all meetings of the Supervisory Board and all meetings and conference calls of the Audit Committee.
The Audit Committee and the Supervisory Board approved the auditor's findings. Also the Audit Committee's and the Supervisory Board's own review found no objections to the Company's financial statements and Management Report or the consolidated financial statements and the Group Management Reports.
At its meeting on March 11, 2016, the Supervisory Board approved the financial statements and Management Reports presented by the general partner and the statements contained therein with respect to future development.
The Supervisory Board concurs with the general partner's proposal on the allocation of the 2015 distributable profit.
The Supervisory Board would like to thank the members of the Management Board of the general partner and all employees for their outstanding achievements.
Bad Homburg v. d. H., March 11, 2016
The Supervisory Board
Dr. Gerd Krick Chairman
Former Chairman of Fresenius AG
Offices Supervisory Board Fresenius Management SE (Chairman) Fresenius Medical Care AG & Co. KGaA (Chairman) Fresenius Medical Care Management AG VAMED AG, Austria (Chairman)
Medical Director and Spokesman of the
klinikum Carl Gustav Carus Dresden
Offices Supervisory Board GÖK Consulting AG Universitätsklinikum Aachen
Offices Supervisory Board Deutsche Oppenheim Family Office AG (until July 15, 2015; Deputy Chairman) Fresenius Management SE Rocket Internet SE Schuler AG WMP EuroCom AG (Deputy Chairman)
Board of Directors Geox S.p.A., Italy RCS Mediagroup S.p.A., Italy
(until April 23, 2015; Vice President)
Former Chairman of the Management Board of Allianz SE
Offices Supervisory Board BASF SE (Deputy Chairman) Fresenius Management SE (since May 20, 2015) Linde AG (Deputy Chairman) Siemens AG
Board of Directors Allianz Australia Ltd. (Non-Executive Director)
Trade Union Officer FEMCA Cisl – Energy, Fashion, and Chemicals
Konrad Kölbl Full-time Works Council Member
Member of the Manual Workers' Works Council of VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H.
Chairman of the Group Works Council of VAMED AG
Deputy Chairman of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H., Austria
Chairman of the Supervisory Board of Commerzbank AG
Offices Supervisory Board Commerzbank AG (Chairman) Fresenius Management SE Linde AG
Board of Directors Parker Hannifin Corporation, USA
Dieter Reuß Full-time Works Council Member
Chairman of the Joint Works Council of Fresenius SE & Co. KGaA/ Bad Homburg site
Deputy Chairman of the General Works Council of Fresenius SE & Co. KGaA
Senior Advisor and Advisory Counsel to
the Frankfurt branch Edmond de Rothschild Private Merchant Banking LLP, London
Offices
Supervisory Board Deutsche Beteiligungs AG (Deputy Chairman) Deutsche Börse AG (Deputy Chairman until May 13, 2015) GP Günter Papenburg AG (Chairman) WAVE Management AG (Deputy Chairman)
Hospital nurse and full-time Works Council Member
Chairman of the Works Council of HELIOS Klinik Bad Schwalbach and of HELIOS Klinik Idstein
Chairman of the Group Works Council of Wittgensteiner Kliniken GmbH
Member of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board Wittgensteiner Kliniken GmbH (until November 16, 2015)
Full-time Works Council Member
Chairman of the Group Works Council of HELIOS Kliniken GmbH
Chairman of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board HELIOS Kliniken GmbH (until September 7, 2015)
Secretary of the Trade Union ver.di, Head of Company and Industry Politics in Health Care and Social Affairs
Deputy Chairman
Offices Supervisory Board HELIOS Kliniken GmbH (until September 7, 2015; Deputy Chairman)
Audit Committee Prof. Dr. h. c. Roland Berger (Chairman) Konrad Kölbl Dr. Gerd Krick Gerhard Roggemann Rainer Stein
Nomination Committee Dr. Gerd Krick (Chairman) Prof. Dr. h. c. Roland Berger Michael Diekmann (since May 20, 2015) Joint Committee 1 Dr. Dieter Schenk (Chairman) Michael Diekmann (since May 20, 2015) Dr. Gerd Krick Dr. Karl Schneider
(General partner of Fresenius SE & Co. KGaA)
Corporate Offices Supervisory Board FPS Beteiligungs AG (until July 20, 2015; Chairman) Fresenius Kabi AG (Chairman) Medical Care Management AG (Chairman) HELIOS Kliniken GmbH (until September 7, 2015; Chairman)
Board of Directors Fresenius Kabi USA, Inc., USA
Offices Board of Directors E. I. Du Pont de Nemours and Company, USA
Corporate Offices Supervisory Board
HELIOS Beteiligungs AG (Chairman) HELIOS Kliniken Schwerin GmbH (Chairman)
and Labor Relations Director
Corporate Offices Supervisory Board FPS Beteiligungs AG (until July 20, 2015; Deputy Chairman) HELIOS Kliniken GmbH (until September 7, 2015) Wittgensteiner Kliniken GmbH (until November 16, 2015; Chairman)
Corporate Offices Supervisory Board Fresenius Kabi Austria GmbH, Austria (Chairman) Fresenius Kabi España S.A.U., Spain Labesfal – Laboratórios Almiro, S.A., Portugal
Administrative Board Fresenius Kabi Italia S.p.A., Italy (Chairman)
Board of Directors Fenwal, Inc., USA Fenwal Canada Holdings, Inc., USA (until January 30, 2015) Fenwal Holdings, Inc., USA (until January 31, 2015) FHC (Holdings) Ltd., Great Britain Fresenius Kabi Asia Pacific Ltd., Hong Kong (until September 15, 2015) Fresenius Kabi Pharmaceuticals Holding, Inc., USA Fresenius Kabi (Singapore) Pte Ltd., Singapore Fresenius Kabi USA, Inc., USA Sino-Swed Pharmaceutical Corp, Ltd., China
Corporate Offices Administrative Board Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland (Deputy Chairman)
Board of Directors
Fresenius Medical Care Holdings, Inc., USA (Chairman)
Stephan Sturm
Chief Financial Officer
Corporate Offices Supervisory Board FPS Beteiligungs AG (until July 20, 2015) Fresenius Kabi AG (Deputy Chairman) Fresenius Kabi España S.A.U., Spain (until March 12, 2015) HELIOS Kliniken GmbH (until September 7, 2015) Labesfal – Laboratórios Almiro, S.A., Portugal (until March 12, 2015) VAMED AG, Austria (Deputy Chairman) Wittgensteiner Kliniken GmbH (until November 16, 2015)
Administrative Board Fresenius Kabi Groupe France S.A., France (until March 12, 2015)
Board of Directors FHC (Holdings) Ltd., Great Britain (until March 12, 2015)
Offices Supervisory Board Deutsche Lufthansa AG (since April 29, 2015)
Business Segment Fresenius Vamed
Corporate Offices Supervisory Board Charité CFM Facility Management GmbH (Deputy Chairman) VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H., Austria (Chairman)
(General partner of Fresenius SE & Co. KGaA)
| Dr. Gerd Krick Dr. Dieter Schenk |
Dr. Karl Schneider | ||
|---|---|---|---|
| Chairman | Lawyer and Tax Consultant | ||
| Prof. Dr. h. c. Roland Berger | Deputy Chairman | Offices Foundation Board |
|
| Offices | |||
| Michael Diekmann (since May 20, 2015) | Supervisory Board Bank Schilling & Co. AG (since May 1, 2015; Chairman since May 5, 2015) |
||
| Fresenius Medical Care AG & Co. KGaA (Deputy Chairman) Fresenius Medical Care Management AG |
|||
| Klaus-Peter Müller | (Deputy Chairman) Gabor Shoes AG (Chairman) |
||
| Greiffenberger AG (Deputy Chairman) TOPTICA Photonics AG (Chairman) |
|||
Foundation Board Else Kröner-Fresenius-Stiftung (Chairman)
Former Spokesman of Südzucker AG
Else Kröner-Fresenius-Stiftung (Deputy Chairman)
Data transmitted to sickness funds as part of the billing process or to federal agencies like the German Federal Statistical Office due to legal requirements. In Germany, this includes information about coded diagnoses and procedures.
Protein that is indicative of a patient's general nutritional status.
They are used for the temporary stabilization and/or maintenance of blood volume, for example, in the event of major blood loss.
Form of renal replacement therapy where a semipermeable membrane – in peritoneal dialysis the peritoneum of the patient, in hemodialysis the membrane of the dialyzer – is used to clean a patient's blood.
The hemodialysis process is controlled by a dialysis machine, which pumps blood, adds anticoagulants, regulates the cleansing process, and controls the mixture of dialysate and its flow rate through the system.
Fluid used in the process of dialysis in order to remove the filtered out substances and excess water from the blood.
Special filter used in hemodialysis for removing toxic substances, waste products of metabolic processes, and excess water from the blood. The dialyzer is sometimes referred to as the "artificial kidney."
Application of liquid nutrition as a tube or sip feed via the gastrointestinal tract.
Hormone that stimulates red blood cell production. Recombinant (i.e., artificially produced) human EPO is commonly prescribed to patients on dialysis who suffer from anemia.
Official authority for food observation and drug registration in the United States.
A treatment method for dialysis patients where the blood of the patient is cleansed by a dialyzer. The solute exchange between blood and dialysate is dominated by diffusive processes.
Component of red blood cells that transports oxygen around the body. An insufficient level of hemoglobin is indicative of anemia, which typically occurs in patients with chronic kidney failure. Besides dialysis, anemia is treated with iron supplements and the hormone compound erythropoietin (EPO).
Provides information on urea content in the blood. Urea is mostly excreted by healthy kidneys, but for dialysis patients it must be filtered from the blood through renal replacement therapy. The Kt/V value shows whether a patient was detoxified effectively during dialysis.
A program developed by the federal U.S. Social Security Administration that reimburses health insurance companies and providers of medical services for medical care to individuals over 65, people with chronic kidney failure, or the disabled.
Interdisciplinary facility for outpatient care, managed by physicians. The responsible body of a medical care center includes all service providers (such as physicians, pharmacists, health care facilities), which are authorized to treat patients with statutory health insurance.
Application of nutrients directly into the bloodstream of the patient (intravenously). This is necessary if the condition of a patient does not allow to absorb and metabolize essential nutrients orally or as sip and tube feed in a sufficient quantity.
Dialysis treatment method using the patient's peritoneum as a filter to cleanse his blood.
Phosphate concentrations show whether treating the patient with dialysis and medication is sufficient for the body to absorb phosphate ingested with food. Healthy people excrete excess phosphate via the kidney, but a diseased kidney is unable to do this. If the phosphate concentrations in the blood are too high, this can lead to severe conditions.
Number of all patients who suffer from a specific disease within a defined period. The prevalence rate indicates the number of people with this specific disease (e.g., terminal kidney failure) treated per million population.
Public-private partnership describes a government service or private business venture that is funded and operated through a partnership of government and one or more private-sector companies. In most cases, PPP accompanies a part-privatization of governmental services.
The three-chamber bag contains all the macronutrients like amino acids, glucose, and lipids, as well as electrolytes, in three separate chambers. Immediately before infusion, all nutrients are mixed thoroughly within the bag simply by opening individual chambers. This reduces the risk of contamination and saves time when preparing the infusions.
Certificate that represents indirect ownership of shares in a non-U.S. company and enables trading in the United States.
Financial key figure that shows the net balance of incoming and outgoing payments during a reporting period.
Financing instrument issued by corporations in need of short-term loans. Typically, commercial paper maturities range from a few days up to under two years.
Measures for adherence to laws and company policies.
Designation in international parlance for company management and company controlling focused on responsible, long-term value creation.
Indicates the average number of days it takes for a receivable to be paid. A shorter DSO results in less interest for the creditor and a lower risk of default.
Earnings before interest and income taxes.
Earnings before interest, income taxes, depreciation, and amortization.
A German legal form meaning partnership limited by shares. An entity with its own legal identity in which at least one general partner has full liability (personally liable shareholder, or Komplementäraktionär), while the other shareholders have an interest in the capital stock divided into shares without being personally liable for the debts of the company.
Growth that is generated by a company's existing businesses and not by acquisitions, divestitures, or foreign exchange impact.
Trading of securities that are not listed on a stock exchange in the respective country. Fresenius' sponsored Level 1 ADRs are traded on the OTC market in the United States.
A classification of the creditworthiness of a company recognized by the international capital markets. It is granted by independent rating agencies such as Standard & Poor's, Moody's, or Fitch based on a company analysis.
Measure of a corporation's profitability revealing how much profit a company generates with the money shareholders have invested. ROE = fiscal year's net income/total equity x 100.
Calculated by: (EBIT – taxes) : Invested capital Invested capital = total assets + amortization of goodwill (accumulated) – deferred tax assets – cash and cash equivalents – trade accounts payable – accruals (without pension accruals) – other liabilities not bearing interest.
This key figure can be found on pages 25, 39, 50, and 57 of the Management Report.
Calculated by: EBIT x 100 : operating assets (average)
Operating assets = total assets – deferred tax assets – trade accounts payable – payments received on account – approved subsidies.
This key figure can be found on pages 25, 39, 50, and 57 of the Management Report.
Legal form of a European stock corporation. The supranational legal entity is based on European Community law. Subject to European regulations, the SE is treated in all member states of the European Union as a stock corporation according to the national law of the member state in which the SE is incorporated.
Indicates the average number of days between receiving goods as inventory and the sale of the finished product.
Calculated by: (Inventories /Costs of goods sold) x 365 days.
Current assets (including deferred assets) – accruals – trade accounts payable – other liabilities – deferred charges.
Electronic trading system of Deutsche Börse AG to buy or sell stocks, foreign currencies, or other financial instruments.
| Accounting policies | 104 |
|---|---|
| Acquisitions | 12f., 14f., 16f., |
| 24f., 47f., 53, 116ff. | |
| ADR | Inside cover, 8, 194 |
| Analyst recommendation | 11 |
| Annual General Meeting | 69f. |
| Articles of association | 23f. |
| Assets and liabilities | 49ff. |
| Authorized capital | 23, 148 |
| B | |
| Boards | 70ff., 188ff. |
| Business development | 38ff. |
| C | |
| Capital | 23f. |
| Cash and cash equivalents | 97, 107, 124 |
| Cash flow | 7, 46f., 97, 194 |
| Cash flow statement | 46f., 97, 167 |
| Clinical nutrition | 14f., 27, 36, 55 |
| Compensation of | |
| Management Board | |
| and Supervisory Board | 81ff., 92f., 178 |
| Compliance | 63, 74f., 194 |
| Composition of the Group | 104f. |
| Conditional capital | 23f., 149 |
| Corporate governance | 69ff., 179, 183ff., 194 |
| Corporate governance | |
| declaration | 69ff. |
| Corporate performance | |
| criteria | 25f. |
| Currency and | |
| interest risk management | 51, 66f., 159ff. |
| Currency translation | 22, 66f., 111f. |
| Current assets | 49, 96, 125 |
| Declaration of conformity | 75ff. |
|---|---|
| Dialysis care | 12f., 35, 54 |
| Dialysis products | 12f., 35, 54 |
| Distribution of earnings | 179 |
| Diversity | 27, 78f. |
| Divestitures | 12f. |
| Dividend | 10, 46, 58, 149 |
| Earnings per share | 41ff., 107, 123 |
|---|---|
| Employees | 27ff., 58 |
| Employee participation | 29 |
| Enteral nutrition | 14f., 27, 36, 192 |
| Environment | 31ff. |
| Equity ratio | 49, 166 |
| F | |
| Financial position | 43ff. |
| Financing | 44f., 57, 165f. |
| G | |
| Group structure | 21, 103 |
| H | |
| Health care industry | 34ff. |
| Hemodialysis | 12, 26, 34f., 192 |
| I | |
| Infusion therapy | 14f., 27, 36, 55 |
| Inventories | 108, 124 |
| Investments | 17, 25, 47ff., 57 |
| Investor Relations | 11 |
| IV drugs | 14f., 27, 36, 55 |
| M | |
| Management Board | 2ff., 69ff., 190 |
| Market capitalization | 9 |
| N | |
| Net income | 6, 41ff., 56f., 123 |
| Net interest | 43, 120 |
| Noncontrolling interests | 49, 96, 123, 147f. |
| Non-current assets | 49, 96, 125 |
| O | |
| Operating cash flow | 7, 46f. |
|---|---|
| Opportunities management | 59 |
| Outlook | 52ff., 56f. |
| Parenteral nutrition | 14f., 27, 36, 193 |
|---|---|
| Pensions | 96, 111, 141ff. |
| Peritoneal dialysis | 12, 26, 34f., 193 |
| Personnel expenses | 28, 120 |
| Procurement | 29f., 57 |
| Q | |
| Quality management | 30ff. |
| R | |
| Rating | 51f., 166, 194 |
| Renal pharmaceuticals | 35, 53 |
| Research and development | 26f., 57f. |
| Results of operations | 40ff. |
| Risk management/risk areas | 59ff., 75 |
| ROE | Inside cover, 194 |
| ROIC | Inside cover, |
| 25, 39, 50, 57, 194 | |
| ROOA | Inside cover, |
| 25, 39, 50, 57, 168, 194 | |
| S | |
| Sales | 6, 40f., 56f., 119 |
| Segment reporting | 100f., 167ff. |
| Share | Inside cover, 8ff. |
| Shareholder structure | 10 |
| Share price development | 8f. |
| Stock option plan | 29, 81ff., 169ff. |
| Strategy | 24f. |
| Subsequent events | 52 |
| Supervisory Board | 22ff., 70ff., 182ff., 188ff. |
| Supervisory Board | |
| Committees | 23, 73f., 189 |
| Sustainability | 31ff. |
| T | |
| Transfusion technology | 14f., 27, 36, 55 |
| V | |
| Vocational training | 29 |
| W | |
| Working capital | 45f., 194 |
Commercial Register: Bad Homburg v. d. H.; HRB 11852 Chairman of the Supervisory Board: Dr. Gerd Krick
General Partner: Fresenius Management SE Registered Office and Commercial Register: Bad Homburg v. d. H.; HRB 11673 Management Board: Dr. Ulf M. Schneider (President and CEO), Dr. Francesco De Meo, Dr.Jürgen Götz, Mats Henriksson, Rice Powell, Stephan Sturm, Dr. Ernst Wastler Chairman of the Supervisory Board: Dr. Gerd Krick
The German version of this Annual Report is legally binding. The editorial closing date of this Annual Report was on March 16, 2016, and it was published on March 17, 2016.
The Annual Report, the financial statements of Fresenius SE & Co. KGaA, and the consolidated statements in accordance with IFRS accounting principles are available on our website and may be obtained upon request under Investor Relations.
You will find further information and current news about our company on our website at: www.fresenius.com.
Forward-looking statements:
This Annual Report contains forward-looking statements. These statements represent assessments that we have made on the basis of the information available to us at the time. Should the assumptions on which the statements are based not occur, or if risks should arise – as mentioned in the risk report and the SEC filings of Fresenius Medical Care AG & Co. KGaA – the actual results could differ materially from the results currently expected.
Design concept/ realization: Hilger & Boie Design, Wiesbaden Print: Ziegler GmbH & Co. KG, Neckarbischofsheim, Germany
| Report on 1st quarter 2016 | |
|---|---|
| Conference call, live webcast | May 3, 2016 |
| Annual General Meeting, Frankfurt am Main, Germany | May 13, 2016 |
| Payment of dividend1 | May 16, 2016 |
| Report on 2nd quarter 2016 | |
| Conference call, live webcast | August 2, 2016 |
| Report on 3rd quarter 2016 | |
| Conference call, live webcast | October 27, 2016 |
1 Subject to prior approval by the Annual General Meeting
Schedule updates, information on live webcasts and other events at www.fresenius.com/events-and-presentations
| Ordinary share | ADR | ||
|---|---|---|---|
| Securities identification no. | 578 560 | CUSIP | 35804M105 |
| Ticker symbol | FRE | Ticker symbol | FSNUY |
| ISIN | DE0005785604 | ISIN | US35804M1053 |
| Bloomberg symbol | FRE GR | Structure | Sponsored Level 1 ADR |
| Reuters symbol | FREG.de | Ratio | 4 ADR = 1 share |
| Main trading location | Frankfurt/Xetra | Trading platform | OTCQX |
Else-Kröner-Straße 1 Bad Homburg v. d. H. Germany
Fresenius SE & Co. KGaA 61346 Bad Homburg v. d. H. Germany
Investor Relations Telephone: ++49 61 72 6 08-24 87 Telefax: ++49 61 72 6 08-24 88 E-mail: [email protected]
Corporate Communications Telephone: ++49 61 72 6 08-23 02 Telefax: ++49 61 72 6 08-22 94 E-mail: [email protected]
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