Annual Report • Mar 21, 2012
Annual Report
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ANNUAL REPORT
100 Sales, marketing, and logistics
Overall assessment of the business situation
Dividend
Consolidated financial statements
fresenius group in figures (U.S. GAAP)
| € in millions | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Sales and Earnings | |||||
| Sales | 16,522 | 15,972 | 14,164 | 12,336 | 11,358 |
| EBITDA | 3,237 | 3,057 | 2,616 | 2,260 | 2,030 |
| EBIT | 2,563 | 2,418 | 2,054 | 1,7271 | 1,609 |
| Net income 2 | 7701 | 6601 | 5141 | 4501 | 410 |
| Depreciation and amortization | 674 | 639 | 562 | 783 | 421 |
| Earnings per share in € | 4.731 | 4.081 | 3.181 | 2.851 | 2.64 |
| Cash flow and Balance sheet | |||||
| Operating cash flow | 1,689 | 1,911 | 1,553 | 1,074 | 1,296 |
| Operating cash flow in % of sales | 10.2% | 12.0% | 11.0% | 8.7% | 11.4% |
| Total assets | 26,321 | 23,577 | 20,882 | 20,544 | 15,324 |
| Non-current assets | 19,170 | 17,142 | 15,519 | 15,466 | 11,033 |
| Equity 3 | 10,577 | 8,844 | 7,491 | 6,943 | 6,059 |
| Net debt | 9,164 | 8,015 | 7,879 | 8,417 | 5,338 |
| Net debt/EBITDA6 | 2.8 | 2.6 | 3.0 | 3.6 | 2.6 |
| Equity ratio 3 | 40% | 38% | 36% | 34% | 40% |
| Investments 4 | 2,395 | 1,402 | 931 | 4,617 | 1,318 |
| Profitability | |||||
| EBIT margin | 15.5% | 15.1% | 14.5% | 14.0%1 | 14.2% |
| Return on equity after taxes (ROE) 6, 7 | 12.9% | 13.3% | 12.1% | 10.5% | 12.0% |
| Return on operating assets (ROOA) 6 | 10.9% | 11.6% | 10.5% | 9.8% | 11.4% |
| Return on invested capital (ROIC) 6 | 8.8% | 8.9% | 8.2% | 7.3% | 8.4% |
| Dividend per share in € | 0.955 | 0.86 | 0.75 | 0.70 | 0.66 |
| Employees (December 31) | 149,351 | 137,552 | 130,510 | 122,217 | 114,181 |
1 2008 before special items from the APP acquisition; 2009 to 2011, adjusted for the effects of the mark-to-market accounting of the MEB and the CVR. Both are non-cash items.
4 Investments in property, plant and equipment and intangible assets, acquisitions 5 Proposal
6 2008, pro forma APP Pharmaceuticals and excluding special items from the APP acquisition
Net income attributable to Fresenius SE & Co. KGaA 3 Equity, including noncontrolling interest
7 2009 to 2011, adjusted for the effects of the mark-to-market accounting of the MEB and the CVR
You will find a 10-year overview on our website: www.fresenius.com under "Investor Relations".
Dialysis products , Dialysis care
Fresenius kabi
Infusion therapy , IV drugs, clinical nutrition, Medical devices / Transfusion technology
| 2011 US\$ in millions |
2010 US\$ in millions |
Change | 2011 € in millions |
2010 € in millions |
Change | |
|---|---|---|---|---|---|---|
| Sales | 12,795 | 12,053 | 6% | 3,964 | 3,672 | 8% |
| EBIT | 2,075 | 1,924 | 8% | 803 | 737 | 9% |
| Net income 1 | 1,071 | 979 | 9% | 354 | 294 | 20% |
| Operating cash flow | 1,446 | 1,368 | 6% | 462 | 567 | -19% |
| Capital expenditure/ acquisitions |
2,614 | 1,314 | 99% | 188 | 205 | -8% |
| R & D expenses | 111 | 97 | 15% | 162 | 143 | 13% |
| Employees (December 31) | 83,476 | 77,442 | 8% | 24,106 | 22,851 | 5% |
Hospital operation
Engineering and Services for hospitals and other health care facilities
| 2011 € in millions |
2010 € in millions |
Change | 2011 € in millions |
2010 € in millions |
Change | |
|---|---|---|---|---|---|---|
| Sales | 2,665 | 2,520 | 6% | 737 | 713 | 3% |
| EBIT | 270 | 235 | 15% | 44 | 41 | 7% |
| Net income 1 | 163 | 131 | 24% | 34 | 30 | 13% |
| Operating cash flow | 294 | 311 | -5% | -83 | 47 | -- |
| Capital expenditure/ acquisitions |
202 | 179 | 13% | 10 | 14 | -29% |
| Order intake | n/a | n/a | 604 | 625 | -3% | |
| Employees (December 31) | 37,198 | 33,321 | 12% | 3,724 | 3,110 | 20% |
1 Net income attributable to the parent company of the respective business segment
Fresenius is a health care group providing products and services for dialysis, hospitals and the medical care of patients at home. In addition, Fresenius focuses on hospital operation, as well as on engineering and services for hospitals and other health care facilities. Approximately 150,000 employees have dedicated themselves to the service of health in about 100 countries worldwide.
2011 was an excellent year for Fresenius, with new records for sales and earnings. In the United States, our largest market, the new Medicare end-stage renal disease prospective payment system was implemented. Fresenius Medical Care managed this challenge exceptionally well. Fresenius Kabi exceeded its strong 2010 fiscal year results with outstanding sales and earnings growth. Fresenius Helios once again posted a healthy increase in organic sales and further improved its operating margin, leading to an impressive increase in earnings. Fresenius Vamed also delivered solid sales and earnings growth despite difficult market conditions caused by political unrest in the Middle East/North Africa region.
Our strategy is to expand our global presence not only through organic growth, but also through acquisitions, so I would like to highlight the major transactions we announced or completed last year.
The acquisition of Liberty Dialysis Holdings will further underline Fresenius Medical Care's leading dialysis services position in the United States, while the acquisition of American Access Care Holdings significantly bolsters our position in vascular access management, a vital part of dialysis care. Fresenius Medical Care has also increased its market presence in dialysis services outside the United States, especially in Eastern Europe, with the acquisition of International Dialysis Centers.
Fresenius Helios substantially expanded in the German hospital market with two major acquisitions. The Damp Hospital Group in northern Germany and a maximum care hospital in Duisburg fit Fresenius Helios' strategy perfectly and complement its regional hospital network.
We plan to swiftly and successfully integrate the newly acquired companies into the Group this year.
In January 2011, we successfully converted our preference shares into ordinary shares. Creating a single share class considerably enhanced the attractiveness of our stock, while increasing trading liquidity and the index-relevant free float. The stock's DAX30 ranking in market capitalization improved from 26th to 19th, and in turnover from 34th to 29th. The trading volume increased by 17 percent.
Fresenius continued its trend of strong growth in 2011. Group sales rose by 6 percent in constant currency to €16.5 billion. We posted even stronger growth in Group net income before special items, achieving an increase of 18 percent in constant currency to €770 million. We also reached a record EBIT margin of 15.5 percent.
Looking ahead, we see attractive growth opportunities. In 2012, on a constant-currency basis, Group sales are projected to grow by 10 to 13 percent and Group net income by 8 to 11 percent. In addition, we have set ourselves an ambitious mid-term financial goal, aiming for Group net income of more than €1 billion in 2014, which will require average annual earnings growth of approximately 10 percent. We expect average annual organic sales growth of 6 to 9 percent, based on the increasing worldwide demand for high-quality, affordable health care. Small and mid-sized acquisitions will continue to complement our organic growth.
To realize our goals, we will diligently pursue our long-term strategy, which is based on medical innovation, market leadership, and the global rollout of our products and services portfolio. Operational excellence and commercial prudence will continue to be top priorities.
Fresenius marks its 100th anniversary this year. We have always dedicated our knowledge and experience to the best possible care for our patients, and we will continue to do so in the future. I sincerely thank all our employees for helping us meet this standard through their hard work, achievements, and exceptional commitment.
Thank you for your continued trust and support.
Dr. Ulf M. Schneider Chairman of the Management Board
SALES. Consolidated sales increased by 3% to €16,522 million in 2011 (2010: €15,972 million). Organic sales growth of 4% was achieved, while acquisitions contributed 2%. Currency translation had a negative effect of 3%.
EARNINGS. Operating income (EBIT) grew by 6% to €2,563 million (2010 adjusted: €2,418 million). All business segments contributed to this substantial growth. The EBIT margin increased to excellent 15.5% (2010: 15.1%). Earnings per share 1 rose by 16% to €4.73 (2010: €4.08).
| 1st Quarter | 2nd Quarter | |||
|---|---|---|---|---|
| Fresenius Group: Change of legal form/ stock conversion completed |
Fresenius Vamed: Additional order intake in the Ukraine – turnkey project to build a health care facility |
Fresenius Group: Annual General Meeting – 18th consecutive dividend increase |
Fresenius Kabi: Start of production expansion in the U.S. |
Fresenius Medical Care: Euromedic acquisition completed |
CASH FLOW. Operating cash flow was €1,689 million. Strong earnings growth was offset by increased working capital requirements due to business expansion. Cash flow before acquisitions and dividends was €931 million (2010: €1,178 million).
BALANCE SHEET. Total assets rose by 12% to €26,321 million. Due to strong earnings growth and the maturity of the MEB, total shareholder's equity, including noncontrolling interest, increased by 20% to €10,577 million. The net debt / EBITDA ratio of 2.8 (December 31, 2010: 2.6) was within the target corridor.
Fresenius Medical Care: Announcement of the acquisitions of Liberty Dialysis and American Access Care in the U.S.
Fresenius Vamed: Construction start of hospitals in Sotschi/Russia and Hofheim/Germany
Fresenius Kabi: Opening of new production facility in Vietnam
Fresenius Helios: Acquisition of Katholisches Klinikum Duisburg (KKD)/acquisition announcement of Damp Group
4th Quarter
Fresenius Group: Sponsored Level I ADR Program established in the U.S.
FRESENIUS SHARE. 2011 stock markets were characterized by the European financial crisis and the associated uncertainty on the global capital markets. The Fresenius share successfully defended itself against the significant price turbulences and benefited from its relative independence from the greater economy. With a 14% gain at the end of the year, the Fresenius share clearly outperformed the DAX.
At the beginning of the year 2011, the stock markets followed the positive economic trend and started out with rising share prices. However, the development on the capital market
slowed in March because of the tsunami on the Japanese coast. Except for some minor price corrections, the positive price trend continued in the following months. The markets were characterized by a high degree of volatility and reached their
Fresenius ordinary share Monthly price range
Fresenius ordinary share DAX
highest level at the end of April. Shortly thereafter, however, growing debt problems of some Southern European countries, especially Greece, triggered an increase in the overall uncertainty on the capital market. In addition, the U.S. uncertainty about raising the debt ceiling caused fluctuations on the stock exchanges. New fears of a recession surfaced, followed at the beginning of August by one of the most serious stock exchange crises in over 20 years: The DAX dropped by more than 30% within just a short time. The markets did recover later on from their lowest points, but only very gradually and without being able to return to their previous levels.
The DAX reached its peak of 7,528 points for the year at the beginning of May. Starting from a level that was just slightly below its peak, prices dropped significantly at the beginning of August. This caused the DAX to reach its lowest point for the year of 5,072 points, the lowest level since 2009. Over the course of the year, it fell by 15% and closed at 5,898 points at the end of 2011.
That was a weak performance in comparison with other European blue chip indices as well. The Euro Stoxx 50 lost 17% within the year. The European Dow Jones Stoxx 600 index closed 2011 with a loss of 11%. The best performing sectors in this index were Health Care (12%), Food & Beverages (5%), and Oil & Gas (1%), while Automotives (-24%),
Basic Resources (-30%), and Banks (-32%) were the worst three performers. The leading U.S. indices fared somewhat better: The S & P 500 closed 2011 on par with the previous year, while the Dow Jones Industrial Average gained 6%.
In 2011, our ordinary shares clearly outperformed the DAX.
At the beginning of the year, the Fresenius share showed a modest performance in line with the market as a whole. The Fresenius share price initially followed the DAX. Consequently, the Fresenius share reached its annual low point of €59.90 early in the year on January 21, 2011. After the successful conversion of all preference shares into ordinary shares on January 28, 2011, the Fresenius share experienced an upward trend. Following a brief drop in price caused by the tsunami on the Japanese coast, the price gained significant momentum during the second quarter of 2011 and kept rallying. Driven by the excellent first quarter results and the raised Group outlook, the Fresenius share price reached its high for the year of €75.62 on July 28, 2011, which was also an all-time high.
But the European debt crisis worsened, and the ongoing discussions about the stability of the euro created a great deal of uncertainty on the global capital markets. This, coupled with the downgrading of the United States' credit rating, precipitated one of the deepest plunges experienced by international stock markets in many years; not even the Fresenius share was able to escape unscathed. However, the share price steadied and was able to recover quickly because of excellent financial results announced for the first half of 2011 and another upward adjustment in the earnings outlook. The Fresenius share held against the overall downward trend and closed the year at €71.48. It achieved an increase of 14% over the year-end 2010 closing price and clearly outperformed the DAX at 29%.
Fresenius' market capitalization was €11.7 billion as of December 31, 2011, an increase of 13% compared to December 31, 2010.
As the table shows, the average daily trading volume in Fresenius shares on Xetra increased by 16% compared to the previous year. DAX trading volume increased by 36% in the same time period.
| Average trading volume 2011 No. of shares /day |
Average trading volume 2010 No. of shares /day |
Change in % |
|
|---|---|---|---|
| Fresenius share | 502,241 | 431,460 | 16 |
The Fresenius share is listed on the stock exchanges in Frankfurt am Main, Düsseldorf, and Munich. Fresenius is included in Germany's leading index, the DAX, as well as the Prime Standard Pharma & Healthcare index, and the Dow Jones Stoxx 600 Healthcare index. The Fresenius share is also listed in the Dow Jones Euro Stoxx and the FTSE Eurofirst 300 indices.
On October 26, 2011, Fresenius initiated a Sponsored Level I American Depositary Receipt (ADR) program in the U.S. ADRs are certificates that enable U.S. investors to indirectly hold shares in a non-American company and to trade these in the U.S. The ADR program provides U.S. investors with an easy way to invest in Fresenius in their domestic market and in their local currency, and to share in the company's future development. Fresenius ADRs are traded in the U.S. on the over-the-counter (OTC) market. Eight ADRs correspond to one Fresenius share. The Deutsche Bank acts as the depository bank for the ADR program.
The change of legal form to Fresenius SE & Co. KGaA became effective with its entry in the Commercial Register Bad Homburg v. d. H. on January 28, 2011. In accordance with the resolution of the General Meeting and the articles of association of Fresenius SE & Co. KGaA, all the ordinary shares of Fresenius SE thereby became ordinary shares of Fresenius SE & Co. KGaA. At the same time, all nonvoting preference shares of Fresenius SE were mandatorily converted at a 1:1 exchange ratio into voting ordinary shares of Fresenius SE & Co. KGaA. The Company's total share capital remained unchanged. Accordingly, the listing of the two classes of the Fresenius SE share was discontinued on January 28, 2011. The ordinary shares of Fresenius SE & Co. KGaA commenced trading on January 31, 2011.
With the stock conversion we have created a single share class. The simplified share structure strengthens Fresenius' position in the capital market and increases the liquidity of the Fresenius share. A higher index weighting will consolidate the share's position in the DAX and enables better access to the capital market. This considerably enhances Fresenius' attractiveness and transparency for investors.
Stock options under the 1998 and 2003 stock option plans were exercised in 2011, increasing the number of shares by 787,246 to a total of 163,237,336 shares. Further information on the stock option plans can be found on pages 197 to 205 of the Notes of this Annual Report.
Based on the Group's excellent financial results, we intend to increase the dividend for 2011 and thus continue our earnings-linked dividend policy. For the 19th consecutive year, we are proposing to our shareholders a dividend increase to €0.95 (2010: €0.86) per share, an increase of 10% per share. The total proposed dividend distribution will be €155.1 million, equivalent to 20% of Group net income before special items. Based on the proposed dividend and the closing price of our share at the end of 2011, the dividend yield would be approximately 1.3%.
Fresenius shares are an attractive investment, especially for long-term investors. Anyone who invested about €1,000 in Fresenius ordinary shares five years ago and reinvested the dividends would have increased their capital to €1,451 as of December 31, 2011. That is an average annual return of 9%. We have added a total return calculator as a service on our website at www.fresenius.com under Investor Relations – Fresenius Share/ADR – Share Price. You can use the value calculator to determine the total return on your Fresenius shares, including dividend payments.
The following describes the shareholder structure by the end of 2011. The Else Kröner-Fresenius-Stiftung was the largest shareholder of Fresenius SE & Co. KGaA, with approximately 29% of the shares. In addition, we received several
Great Britain 14%
notifications pursuant to the German Securities Trading Act (WpHG). For further information on these notifications, please see pages 179 and 180 of the Notes.
As of December 31, 2011, a shareholder survey identified the ownership of about 90% of our subscribed capital. According to this survey, a total of 425 institutional investors held about 90.2 million shares (55% of subscribed capital). 9.2 million shares were identified as retail holdings. The top ten investors held 19% of the share capital. Our shares were mostly held by investors in Germany, Great Britain, and the United States.
The performed survey showed that our shareholder base is solid also after the conversion. This confirms we are right in pursuing our path of intensifying the dialogue with institutional investors and conduct our roadshow activities in Europe and the United States.
Adjusted for the special effects of the mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) relating to the acquisition of APP Pharmaceuticals, the Fresenius Group achieved earnings per share of €4.73 in 2011 – an increase of 16%. Further details on earnings and information on earnings per share can be found on page 67 of the Management Report and on page 154 of the Notes.
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 22, 2012, we were rated with 23 "buy", 2 "hold", and 0 "sell" recommendations. This reflects analysts' confidence in the long-term earnings power of the Fresenius Group and the potential both for our business and for our share.
Number of recommendations as of February 22, 2012
The above graph shows the allocation of the analyst recommendations. The latest list of banks which provide regular analyst coverage of Fresenius and their latest recommendations can be found on our website www.fresenius.com under Investor Relations – Fresenius Share/ADR – Analysts.
Our Investor Relations activities are in accordance with the transparency rules of the German Corporate Governance Code. We pursue comprehensive, timely, and open communication with private and institutional investors as well as financial analysts. The equal treatment of all market actors is very important to us.
In 2011, we intensified our dialogue with the capital market in order to enable investors and analysts to make a fair assessment of Fresenius Group's business situation and market conditions. In addition to the annual analysts' meeting and the quarterly conference calls /webcasts, Fresenius also made presentations in important financial markets in Europe and the United States as well as for the first time in Asia. Regular contacts were further extended at 16 international investor conferences, 19 roadshows, and numerous one-on-one meetings with institutional investors and analysts. In collaboration with banks, we also conducted so-called field trips, which offer the possibility for investors and analysts to discuss matters with the Management Board. In June 2012, a Capital Market Day is planned, where we will present the business,
| 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|
| Number of shares | 163,237,336 | 162,450,090 | 161,315,376 | 161,143,734 | 155,164,770 |
| Stock exchange quotation1 in € |
|||||
| High | 75.62 | 67.59 | 43.76 | 60.87 | 63.35 |
| Low | 59.90 | 41.80 | 27.69 | 31.93 | 50.17 |
| Year-end quotation | 71.48 | 62.75 | 43.45 | 36.23 | 56.00 |
| Market capitalization2 in million € |
11,668 | 10,301 | 7,538 | 6,270 | 8,759 |
| Total dividend distribution in million € | 155.13 | 139.74 | 121.8 | 113.6 | 103.2 |
| Dividend per share in € | 0.953 | 0.86 | 0.75 | 0.70 | 0.66 |
| Earnings per share in € | 4.734 | 4.084 | 3.184 | 2.855 | 2.64 |
1 Xetra closing prices 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 Adjusted for special items resulting from changes in the market value (mark-to-market accounting) of the Mandatory Exchangeable Bonds (MEB)
and Contingent Value Rights (CVR) in connection with the acquisition of APP Pharmaceuticals
5 Before special items relating to the APP acquisition
the strategy, and the future growth perspective of Fresenius Kabi. We will also provide a webcast, so that all shareholders will have the opportunity to follow the presentations live via internet.
We also continued the dialogue with our private investors. The internet is an important tool for us in this regard. Our private shareholders can follow live webcasts of the quarterly conference calls and annual analysts' meetings on our website at www.fresenius.com. Presentations can be downloaded shortly before and, of course, after the events in the "Investor
Relations" section under "Presentations". We also publish all presentations given at international investor conferences. We intend to make further improvements in the ways we communicate with private shareholders and would welcome any suggestions you may care to make. In 2012, we also plan to increase the information content of our website.
If you would like to contact us or find out about key dates in our 2012 financial calendar, please take a look at the last page of this report or visit us at our website www.fresenius.com under "Investor Relations".
and Report. The Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner of Fresenius SE & Co. KGaA are committed to responsible management that is focused on achieving a sustainable increase in the value of the Company. Long-term corporate strategies, solid financial management, strict adherence to legal and ethical business standards, and transparency in corporate communication are key factors.
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 clause 3.10 of the German Corporate Governance Code on the Corporate Governance at the Company (Corporate Governance Report). The Management and Supervisory Boards have published the Corporate Governance Declaration and the Corporate Governance Report on the company website at www.fresenius.com, see Who we are − Corporate Governance.
The company started 2011 still in the legal form of an SE (Societas Europaea). Since the change of legal form was entered in the commercial register of Bad Homburg v. d. H. on January 28, 2011, the company's name has been Fresenius SE & Co. KGaA. In this legal form, the Annual General Meeting, the Supervisory Board, and the general partner Fresenius Management SE are now the legal corporate bodies. There have
been no changes in the group management and the supervision structure since the change of legal form. The chart below 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 www.fresenius.com see Who we are – Corporate Governance.
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 treat all shareholders and principal interest groups equally. We make information on significant new circumstances publicly available without delay. Equal treatment is essential for building confidence in the capital market.
We report in more detail on our investor relations activities in the section "Fresenius share" on pages 12 and 13.
Our Annual General Meeting (AGM) was held on May 13, 2011 in Frankfurt am Main. Approximately 76% of the share capital was represented. Those shareholders unable to attend the AGM were able to listen to the speech of the Chairman of the Management Board, which is broadcast live over the internet on our website www.fresenius.com, see Investor Relations – Annual General Meeting. In addition, shareholders were able to have their voting rights exercised by proxy, or, in line with the recommendation in the Code, by a voting representative appointed by Fresenius SE & Co. KGaA.
During the AGM on May 13, 2011, the shareholders voted with a majority of 99% of the cast votes for the proposal made by the general partner and the Supervisory Board to increase the dividend for 2010 by 15% to €0.86 per ordinary share. Other resolutions referred, for example, to the creation of new authorized capital and amendments of the articles of association.
Since the change of legal form, which took effect in January 2011, the AGM also votes on the adoption of the annual financial statement, which also requires the consent of the general partner.
1 For selected items no voting power, e. g.: election of Supervisory Board SE & Co. KGaA, discharge of general partner and Supervisory Board of SE & Co. KGaA for the fiscal year, election of auditors
With regard to certain subject matters, legally required voting right exclusions exist for the general partner and/or 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 are available on our website at www.fresenius.com, see Investor Relations − Annual General Meeting.
Since the change of legal form of Fresenius SE into an SE & Co. KGaA, the responsibilities are distributed as follows: 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 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 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. Except in cases where mandatory provisions of law or the Company's articles of association require a unanimous vote or action by all the Management Board members, 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. 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 in the Annual Report on page 219. Its composition is identical to that of the former Management Board of Fresenius SE.
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 and supervises and advises the Management Board by conducting the business of Fresenius SE & Co. KGaA. It established its rules of procedure following the recommendation in Clause 5.1.3 of the Code.
An overview of the Supervisory Board members of Fresenius Management SE can be found on page 220 of the Annual Report.
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 by the Supervisory Board of the 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, and diversity. This also includes the goal to establish long-term, appropriate female representation. It is not in the Company's interest to generally limit the selection of qualified candidates. Therefore, the Supervisory Board makes a general declaration of intent and particularly refrains from fixed diversity quotas or an age limit. A Nomination Committee has been instituted for election proposals on the shareholders' side. Its activities are aligned with the provisions of law and the Corporate Governance Code. Due to the change of legal form, the term of office of the former Supervisory Board members ended on January 28, 2011, and the Supervisory Board had to be reconfigured. In light of status procedure conducted beforehand, the Supervisory Board of Fresenius SE & Co. KGaA consists, as before, of an equal number of six shareholder representatives and six employee representatives. The legal provisions governing the employee co-determination in case of cross-border mergers (MgVG) were applied. The six shareholder representatives on the Supervisory Board of Fresenius SE & Co. KGaA were elected at the AGM on May 12, 2010. The six employee representatives were appointed provisionally by court order of the District Court in Bad Homburg v. d. H. on January 31, 2011. As part of the change in legal form of Fresenius SE into an SE & Co. KGaA, a European works council was formed instead of the SE works council. In the constitutive meeting of the European works council on May 5, 2011, the current employee representatives were elected to the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board includes an, in its opinion, sufficient number of independent members who have no business or personal relations with the Company or the Management Board that could cause a 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, see Who we are − Corporate Governance, where they can be downloaded.
The Supervisory Board of Fresenius SE & Co. KGaA has established its rules of procedure in accordance with clause 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 operating performance 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 (AktG) 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. Information is sourced from various external experts. In addition, representatives from the Company's specialists division 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.
An overview of the members of the Supervisory Board of Fresenius SE & Co. KGaA can be found on pages 217 to 218 of the Annual Report.
On pages 210 to 216 of the Annual Report, the Supervisory Board reports on the main focuses of its activities and those of its committees in 2011.
The Supervisory Board of Fresenius SE & Co. KGaA deliberated on the efficiency evaluation in accordance with clause 5.6 of the Code at its meeting in March 2011.
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. These self-evaluations showed that the Supervisory Board was efficiently organized, and that the cooperation between the Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA worked very well.
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 of great importance. The common goal is to sustainably increase the company value according to the corporate governance and compliance principles. 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, including risk management and compliance. 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 during the meeting on March 11, 2011 for the duration of their term as a member of the Supervisory Board of Fresenius SE & Co. KGaA. In preparation for the balance sheet meeting, the Supervisory Board had already formed an Audit Committee in February 2011 by written procedure and thereby elected four members. Gerhard Roggemann was elected as fifth member in the meeting of the Supervisory Board on March 11, 2011. 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 members of the Personnel Committee of the
legal predecessor Fresenius SE, which existed until January 28, 2011, were Dr. Gerd Krick (Chairman), Wilhelm Sachs, and Dr. Karl Schneider.
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 218 of the Annual Report.
The Chairman of the Audit Committee of Fresenius SE & Co. KGaA satisfies the requirements of clause 5.3.2 of the Code. Prof. Dr. h. c.Roland Berger is the Chairman of the Audit Committee and meets the required qualification of the financial expert stated in Section 100 (5) of the German Stock Corporation Act (AktG). The Audit 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 concluded 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, especially, the review of the effectiveness of the internal controls system, risk management, and the internal audit system as well as compliance issues.
Since March 11, 2011, the Audit Committee consists of Prof.Dr. h. c.Roland Berger (Chairman), Konrad Kölbl, Dr. Gerd Krick, Gerhard Roggemann, and Rainer Stein. Dr.Karl Schneider was a member of the Audit Committee and a member of the Supervisory Board of the legal predecessor Fresenius SE until January 28, 2011. Prof. Dr. h. c.Roland Berger (Chairman), Konrad Kölbl, Dr. Gerd Krick, and Rainer Stein were also members of the Audit Committee of the legal predecessor Fresenius SE until January 28, 2011.
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.
Since their election as committee members on March 11, 2011, the Nomination Committee consists of Dr. Gerd Krick (Chairman), Prof. Dr. h. c. Roland Berger, and Dr. Gerhard Rupprecht. Dr.Krick (Chairman), Dr. Dieter Schenk and Dr.Karl Schneider were members of the Nomination Committee and members of the Supervisory Board of the legal predecessor Fresenius SE until January 28, 2011.
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 the legal form of a partnership limited by shares and because the Code also does not require such a committee.
By resolution of the AGM on May 13, 2011, and upon entry of the respective amendment of the articles of association on July 11, 2011, a Joint Committee was established for the first time.
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.
On July 11, 2011, Dr.Gerd Krick and Dr.Gerhard Rupprecht became members of the Joint Committee. Other members are Dr. Dieter Schenk (Chairman) and Dr. Karl Schneider, who were appointed by the general partner.
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 217 to 220 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, see Who we are − Corporate Governance. The principles and
regulations of this Code of Conduct are binding for all Company employees and must be complied with regarding any type of business relationship. The Fresenius Code of Conduct was implemented by the Management Board in 2010. Ensuring compliance with the principles of the Code of Conduct is regarded as part of our executives' managerial responsibilities.
The Management Board is committed to responsible management and to complying with all domestic and international legal and ethical business principles as an integral part of the Fresenius corporate culture. These principles, which underpin our professionalism, include honesty and integrity in relations with our patients, customers, suppliers, governments, employees, shareholders, and the general public. We make every effort to ensure that our employees know and comply with the relevant national and international rules.
The Fresenius Code of Conduct contains the key principles and rules for conduct within the Company and in relations with external partners and the public. These are based on all applicable laws or internationally accepted principles and standards such as the UN Global Compact, the worldwide largest initiative of enterprises that are committed to sustainability and corporate citizenship. They are embodied in the Company guidelines and procedures. The principles may not be undermined by individual directives and instructions, and must be heeded in business relations of any kind. Their purpose is to help our employees make the right decisions in their dayto-day work. The Fresenius Code of Conduct serves as model for the adoption and further elaboration of proprietary codes of conduct within all the business segments. Complementing the principles and regulations of the Fresenius Code of Conduct, these codes reflect the requirements of the specific task areas of the business units. As a rule, this does not affect the compliance programs already in place if they do not conflict with the spirit and intent of the principles of the Fresenius Code of Conduct. The principles and rules of the Code of Conduct apply globally − through the compliance programs and the codes of practice of the business segments − to all employees of the Fresenius Group. We organize training programs to instruct our employees about the applicable legal requirements and internal Company guidelines. The managers and compliance officers in the Group and the business units will
support and assist them with regard to any questions on the implementation and application of these provisions. By complying with the laws and observing the principles and rules of the Fresenius Code of Conduct, every employee makes his or her contribution toward ensuring that Fresenius is perceived as an honest and reliable partner in the health care sector for patients, customers, suppliers, governments, and the public.
At Fresenius, compliance is generally regarded as a management task on all decision levels. As a corporate governance function, the Corporate Compliance division reports to the Chief Compliance Officer, the member of the Management Board responsible for Legal Affairs, Compliance, and Human Resources. The division supports the Chief Compliance Officer in establishing and implementing guidelines and procedures which shall ensure adherence to the applicable statutory requirements as well as the requirements of the Fresenius compliance program.
Compliance activities and guidelines have been implemented in each business segment and a chief compliance officer has been appointed, who is responsible for communicating information and for introducing, elaborating, and monitoring the compliance procedures in the respective business segment. He is supported by additional compliance officers appointed on the basis of the organizational and business structures. The employees at the Corporate Compliance departments support and advise the compliance officers at the business unit, regional, and country levels. Our goals are to ensure that the same high ethical standards are applied throughout the Company, that we live our values, and that the international and local laws and regulations and the Company's guidelines and procedures are adhered to.
An internal reporting system and individual audits by the Internal Audit division help to monitor and ensure adherence to legal requirements and compliance standards. The Internal Audit division conducts audits at the companies and in the business segments worldwide. The auditors have unrestricted authority within the scope of their audit assignment to demand information and inspect records at the companies audited.
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 101 to 102 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 was established to increase confidence in the corporate governance of publicly traded companies. It aims to provide more transparency for domestic and foreign 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 proposals for responsible management contained in the Code, have been basic components of our activities for many years. Extensive information on the subject of corporate governance can be found on our website www.fresenius.com, see Who we are – Corporate Governance.
The Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner 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 Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, on the German Corporate Governance Code pursuant to Section 161 German Stock Corporation Act (Aktiengesetz).
The Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner of Fresenius SE & Co. KGaA (hereafter the "Management Board") declare that the recommendations of the "Government Commission on the German Corporate Governance Code" published by the Federal Ministry of Justice (Justizministerium) in the official section of the electronic Federal Gazette (Bundesanzeiger) (hereafter the "Code") in the version of May 26, 2010, have been met since issuance of the previous declaration of conformity in March 2011 and will continue to be met. Only the following recommendations have not been adhered to:
▶ Clause 4.2.3, para. 4 of the Code: Compensation cap Pursuant to clause 4.2.3 paragraph 4 of the Code, upon termination of a Management Board contract, it should be ensured that the payments to the Management Board member whose service for the Company is prematurely terminated shall not, including all ancillary payments, exceed the value of two annual remunerations (compensation cap) and shall remunerate for no more than the remaining term of the Management Board agreement. The compensation cap shall be calculated on the basis of the total compensation for the previous financial year and, as applicable, also the expected total compensation for the current financial year.
The service agreements of the members of the Management Board do not include a provision dealing with the early termination of service for the Company without good cause. Such compensation provision would contradict the concept to conclude the service agreements with the Management Board members for the period of their appointment, such concept practiced by Fresenius since long in line with the German Stock Corporation Act (Aktiengesetz). Applying this concept, any early termination of the service agreement requires good cause.
Pursuant to clause 5.1.2, paragraph 2, sentence 3 of the Code, an age limit shall be specified for the members of the Management Board. As in the past, Fresenius will
refrain from determining an age limit for the members of the Management Board in the future, since this would generally limit the selection of qualified candidates.
Pursuant to clause 5.4.1, paragraphs 2 and 3 of the Code, 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 adhered to. As 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, 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, and diversity. This includes the aim to establish an appropriate female representation on a long-term basis.
However, in the enterprise'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 fixed diversity quotas and from an age limit. As the next regular elections of the Supervisory Board will take place in the year 2016, reasonably a report on implementation of the general declaration of intent cannot be made till then.
Bad Homburg v. d. H., December 2011 The Supervisory Board of Fresenius SE & Co. KGaA The Management Board of the general partner of Fresenius SE & Co. KGaA (Fresenius Management SE)"
In accordance with Section 161 AktG and clause 3.10 sentence 4 of the Code, this declaration and all past declarations are published on our website at www.fresenius.com. To download these documents, see Who we are − Corporate Governance.
The Management Board takes diversity into account when filling executive positions. An appropriate degree of female representation is especially important when selecting equally qualified candidates. The commitment to diversity within Fresenius Group is underlined by the fact that 27% of our executive officers are women.
Further information on diversity as well as personnel development and personnel management are included in the Group Management Report pages 77ff.
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 2011.
Prof. Dr. med.Albrecht, a member of the Supervisory Board of Fresenius SE & Co. KGaA, 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 boards of the University Hospitals in Aachen, Rostock, and Magdeburg. The Fresenius Group maintains business relations with these hospitals in the ordinary course under customary conditions. Klaus-Peter Müller is a member of the Supervisory Board of our Company and the Chairman of the Supervisory Board of Commerzbank AG, with which the Fresenius Group maintains business relationships under customary conditions. In 2011, the Fresenius Group paid about
€600,000 to Commerzbank AG for services provided in connection with the Senior Notes issuances of Fresenius Medical Care. Dr. De Meo, a member of the Management Board of Fresenius Management SE (and formerly member of the Management Board of Fresenius SE), was a member of the supervisory board of Allianz Private Krankenversicherungs-AG until July 6, 2011. The Fresenius Group pays insurance premiums to Allianz under customary conditions and in customary amounts. They amounted to €4.34 million in 2011 (2010: €3 million).
Consultancy or other service relationships between members of the Supervisory Board and the Company existed with regard to Dr. Schenk, Deputy Chairman of the Supervisory Board of Fresenius SE until January 28, 2011, member of the Supervisory Board of Fresenius Management SE since March 11, 2010, and Deputy Chairman of the same since May 12, 2010. Dr. Schenk is a partner in the international law firm Noerr LLP. The law firm Noerr provided legal advice to the Fresenius Group in 2011. The Fresenius Group paid a total of €1.43 million to the law firm Noerr in 2011 (2010: €1 million). This corresponds to 2% of the total amount paid by Fresenius Group for services and legal advice in 2011 (2010: 1.5%). Thereof, about €45,000 were attributable to services for Group companies not related to the business segment Fresenius Medical Care. Those 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 and the Supervisory Board of Fresenius SE & Co. KGaA have examined the mandate closely. The Supervisory Board of Fresenius Management SE has approved this mandate. Dr. Schenk did not take part in the voting. The Supervisory Board of Fresenius SE & Co. KGaA, where Dr. Schenk is not a member, unanimously approved the mandate for the period of January 1 until the change of legal form. 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 2011, the invoices were paid after the Supervisory Board gave its approval.
Further consulting or service contracts between Supervisory Board members and the Company existed in the case of Prof. Dr. h. c.Berger, who is both a member of the Supervisory Board of Fresenius Management SE and of Fresenius SE & Co. KGaA and is at the same time a partner in Roland Berger Strategy Consultants. The Fresenius Group paid €675,000 to that company for services rendered in 2011 (2010: €0.2 million). The Supervisory Boards of Fresenius Management SE and Fresenius SE & Co. KGaA have examined this mandate closely. The Supervisory Board of Fresenius Management SE and the Supervisory Board of Fresenius SE & Co. KGaA have approved this mandate. Prof. Dr. h. c. Berger abstained from the voting. The approval was made on the basis of a written submission to the Supervisory Board and prior to the payment of the invoices for the services.
The payments mentioned in the above section "Avoidance of conflicts of interest" are net amounts. In addition, VAT and insurance tax was paid.
There are no other consulting or service contracts between Supervisory Board members and the Company.
Fresenius has disclosed the information on related parties in the quarterly reports for 2011 and on page 205 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 2011 are disclosed in the tables below.
Pursuant to clause 6.6 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.
| 2011 | Name | Quantity | Price in €1 | Total volume in € |
Type of transaction |
|---|---|---|---|---|---|
| February 28 | R.Baule | 21,930 | 42.90 | 940,871.63 | Stock option exercise 2 |
| May 23 | R.Baule | 12,000 | 40.79 | 489,532.02 | Stock option exercise 2 |
| May 31 | R.Baule | 9,930 | 41.89 | 415,939.02 | Stock option exercise 2 |
| August 30 | R.Baule | 10,965 | 30.01 | 329,062.62 | Stock option exercise 2 |
| August 31 | R.Baule | 10,965 | 30.95 | 339,366.75 | Stock option exercise 2 |
| May 18 | U. Schneider | 10,002 | 49.09 | 491,022.00 | Stock option exercise 2 |
| May 19 | U. Schneider | 10,002 | 49.92 | 499,252.92 | Stock option exercise 2 |
| May 31 | U. Schneider | 10,002 | 48.65 | 486,585.50 | Stock option exercise 2 |
| June 1 | U. Schneider | 13,854 | 50.16 | 694,863.11 | Stock option exercise 2 |
| November 8 | U. Schneider | 14,620 | 44.12 | 645,086.40 | Stock option exercise 2 |
| August 4 | S. Sturm | 1,000 | 69.60 | 69,604.05 | Purchase |
| September 1 | S. Sturm | 8,800 | 72.31 | 636,304.94 | Sale |
| August 24 | E. Wastler | 3,300 | 48.39 | 159,671.56 | Stock option exercise 2 |
1 Price rounded to two decimals
Exercise of stock options on Fresenius shares of the stock option plan and sale of the shares (cash settlement)
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 1.2% of the shares of Fresenius SE & Co. KGaA outstanding as of December 31, 2011, in the form of shares or related financial instruments and stock options under the Fresenius SE & Co. KGaA stock option plans. 0.6% are held by members of the Management Board of Fresenius Management SE, 0.6% by members of the Supervisory Board of Fresenius Management SE, and also 0.6% 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.
We received 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 of clause 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 www.fresenius.com in the "Investor Relations" section and under Who we are − Corporate Governance. These publications include, for instance, financial reports and disclosures on directors' dealings in accordance with Section 15a of the German Securities Trading Act (WpHG). We report in detail on our 2011 investor relations activities in the section "Fresenius share" on pages 12 to 13 of the Annual Report.
Fresenius prepares its consolidated financial statements in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP). As of the 2005 fiscal year, Fresenius, as a publicly traded company based in a member country of the European Union, has been 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.
| 2011 | Name | Quantity | Price in €1 | Total volume in € |
Type of transaction |
|---|---|---|---|---|---|
| May 16 | G. Krick | 7,740 | 52.40 | 405,545.24 | Stock option exercise 2 |
| May 17 | G. Krick | 7,740 | 52.26 | 404,510.73 | Stock option exercise 2 |
| May 20 | G. Krick | 7,740 | 52.52 | 406,539.82 | Stock option exercise 2 |
| May 30 | G. Krick | 7,740 | 51.72 | 400,282.08 | Stock option exercise 2 |
| September 6 | G. Krick | 7,740 | 51.58 | 399,237.73 | Stock option exercise 2 |
| November 11 | G. Krick | 12,900 | 52.43 | 676,394.39 | Stock option exercise 2 |
1 Price rounded to two decimals
Exercise of stock options on Fresenius shares of the stock option plan and sale of the shares (cash settlement)
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. The compensation report is prepared on the basis of the recommendations made by the German Corporate Governance Code 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 year under review, the acting personnel committee was composed of Dr. Gerd Krick, Dr. Dieter Schenk and Dr. Karl Schneider.
The Management Board compensation system was reviewed by an independent external compensation expert in the fiscal year 2010 and later submitted to the Annual General Meeting of Fresenius SE (since January 28, 2011: Fresenius SE & Co. KGaA) for approval. On May 12, 2010, the Annual General Meeting approved of the Management Board compensation system with a majority of 99.51% of the votes cast. In 2011, it was complemented by a share-based compensation with cash settlement (performance shares) in order to strengthen the component with long-term incentive effects. The amended Management Board compensation system was reviewed by an independent external compensation expert and will be submitted to the Annual General Meeting on May 11, 2012 for approval.
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 with the compensation paid and to reward them based on their duties and performance as well as their successes in managing the Company's economic and the financial position while giving due regard to the peer environment.
The compensation of the Management Board is, as a whole, performance-oriented and was composed of three elements in the fiscal year 2011:
In addition, six members of the Management Board had pension commitments in the reporting period.
The design of the individual components is based on the following criteria:
The non-performance-related compensation was paid in twelve monthly installments as basic salary in the fiscal year 2011. Moreover, the members of the Management Board received additional benefits consisting mainly of insurance premiums, the private use of company cars, special payments such as rent supplements and reimbursement of certain other charges as well as contributions to pension and health insurance.
The performance-related compensation will also be granted for the fiscal year 2011 as a short-term cash component (annual bonus) and as a longer-term compensation component (stock options, postponed bonus payments, sharebased compensation with cash settlement (performance shares)). The amount of the bonus 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 variable bonus is based in its entirety on the respective net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest). For Mr.Baule and Dr. De Meo, half of the amount of the variable bonus in each case depends on the development of the net income attributable to Fresenius SE & Co. KGaA as well as 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. Half of the amount of the variable bonus of Dr. Wastler in each case 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.
Dr. Lipps receives his compensation exclusively from Fresenius Medical Care. Furthermore, the Supervisory Board may grant a discretionary bonus for extraordinary performance.
For the fiscal years 2011 and 2010, the amount of cash payment of the Management Board of the general partner of Fresenius SE & Co. KGaA consisted of the following:
| Non-performance-related compensation |
Performance-related compensation |
Cash compensation (without long-term incentive components) |
||||||
|---|---|---|---|---|---|---|---|---|
| Salary | Other 2 | Bonus | ||||||
| € in thousands | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Dr. Ulf M. Schneider | 900 | 900 | 61 | 47 | 1,150 | 908 | 2,111 | 1,855 |
| Rainer Baule | 500 | 500 | 120 | 42 | 764 | 608 | 1,384 | 1,150 |
| Dr. Francesco De Meo | 500 | 500 | 19 | 18 | 671 | 498 | 1,190 | 1,016 |
| Dr.Jürgen Götz | 375 | 375 | 33 | 30 | 584 | 464 | 992 | 869 |
| Dr.Ben Lipps 1 | 862 | 905 | 182 | 354 | 1,078 | 1,172 | 2,122 | 2,431 |
| Stephan Sturm | 500 | 500 | 86 | 85 | 721 | 574 | 1,307 | 1,159 |
| Dr. Ernst Wastler | 425 | 425 | 33 | 32 | 571 | 461 | 1,029 | 918 |
| Total | 4,062 | 4,105 | 534 | 608 | 5,539 | 4,685 | 10,135 | 9,398 |
1 Dr.Ben Lipps receives his compensation only from Fresenius Medical Care, of which Fresenius SE & Co. KGaA held 30% of the total subscribed capital.
As Dr.Ben Lipps is 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 company cars, contributions to pension and health insurance as well as other benefits.
In the fiscal year 2011, the directly paid bonus, excluding the payment to Dr. Ben Lipps, amounts to €4,461 thousand. This equals 95% of the total bonus of €4,691 thousand. The remaining part in an amount of €230 thousand was converted into a component based on a multi-year assessment and the payment was postponed by two years.
To ensure that the overall system of compensation of the members of the Management Board is oriented towards longterm 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 variable bonus 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 bonus 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 expiry of such multi-year period only if (i) no subsequent adjustment of the decisive (i. e. adjusted by extraordinary effects) net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest) 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 by 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 variable bonus. No interest is payable on the converted bonus claim from the time when it first arises until the time of its effective payment. In this way, the variable bonus 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.
The system of compensation for the Management Board moreover provides for a contractually stipulated cap or possibility of capping the amount of the annual compensation to be claimed by the member of the Management Board overall, i. e. including all variable compensation components. This makes it possible to adequately take account in particular of those extraordinary developments which are not in any relevant proportion to the performance of the Management Board.
Under the compensation system, the amount of the basic 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.
In the fiscal year 2011, stock options based on the Stock Option Plan 2008 of Fresenius SE & Co. KGaA and the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2011 as well as a share-based compensation with cash settlement were granted as components with long-term incentive effects. The number of stock options to be granted is defined in each case by the Supervisory Board at its discretion, with all members of the Management Board, except for the Chairman of the Management Board who receives double the number of stock options, receiving the same number of stock options.
The principles of both plans are described in more detail in note 34 of the notes of the Fresenius Group, Stock options.
In the fiscal year 2011, as a further long-term incentive component, the members of the Management Board were granted an entitlement to a share-based compensation with cash settlement (performance shares) for the first time.
The entitlement is subject to a four-year vesting period although a shorter period may apply in special cases (e. g. professional incapacity, retirement, non-renewal of expired service agreements by the Company). The amount of cash payment corresponds to the share price of Fresenius SE & Co. KGaA's ordinary shares upon exercise at the end of the fouryear vesting period.
The payment is subject to the achievement of the performance target of an 8% increase of the consolidated net income attributable to Fresenius SE & Co. KGaA (adjusted for extraordinary effects) year over year during the four-year vesting period. For each year in which the success target has not been met, one-fourth of the entitlement shall forfeit. Apart from that, the total entitlement for payment is earned if an average increase of the consolidated net income attributable to Fresenius SE & Co. KGaA of 8% is achieved over the four-year vesting period.
For the fiscal years 2011 and 2010, the number and value of stock options issued, the value of the postponed performance-related compensation as well as the value of the sharebased compensation with cash settlement (performance shares) is shown in the following table.
The stated values of the stock options granted to members of the Management Board in the fiscal year 2011 correspond to their fair value at the time of grant, namely a value of €19.10 (2010: €12.92) per stock option of Fresenius SE & Co. KGaA and €13.44 (2010: €8.07) per stock option of FMC-AG & Co. KGaA. The exercise price of the granted stock options of Fresenius SE & Co. KGaA was €71.28 (2010: €53.44).
As the financial targets of the year 2011 were achieved, Dr. Ben Lipps is entitled to a share-based compensation in an amount of €684 thousand (2010: €391 thousand) in accordance with the bonus agreement of Fresenius Medical Care. The entitlement is based on the development of the ordinary share of Fresenius Medical Care and has a three-year vesting period.
| Stock options 1 | Postponed performance-related compensation |
Share-based compensation with cash settlement (performance shares) |
Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Number | Value, € in thousands | Value, € in thousands | Value, € in thousands | Value, € in thousands | ||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Dr. Ulf M. Schneider | 56,760 | 56,760 | 1,084 | 733 | 0 | 174 | 100 | 0 | 1,184 | 907 |
| Rainer Baule | 28,380 | 28,380 | 542 | 367 | 122 | 241 | 100 | 0 | 764 | 608 |
| Dr. Francesco De Meo | 28,380 | 28,380 | 542 | 367 | 29 | 131 | 100 | 0 | 671 | 498 |
| Dr.Jürgen Götz | 28,380 | 28,380 | 542 | 367 | 0 | 98 | 100 | 0 | 642 | 465 |
| Dr.Ben Lipps | 74,700 | 99,600 | 1,004 | 804 | 0 | 0 | 684 | 391 | 1,688 | 1,195 |
| Stephan Sturm | 28,380 | 28,380 | 542 | 367 | 79 | 208 | 100 | 0 | 721 | 575 |
| Dr. Ernst Wastler | 28,380 | 28,380 | 542 | 367 | 0 | 95 | 100 | 0 | 642 | 462 |
| Total | 273,360 | 298,260 | 4,798 | 3,372 | 230 | 947 | 1,284 | 391 | 6,312 | 4,710 |
1 Stock options that were granted in 2011 and 2010 under the Fresenius SE & Co. KGaA stock option plan.
Dr.Ben Lipps received stock options under the Fresenius Medical Care stock option plan.
At the end of the fiscal year 2011, the members of the Management Board held a total of 1,050,050 (2010: 978,960) stock options and convertible bonds (together referred to as stock options) of Fresenius SE & Co. KGaA and 572,700 (2010: 598,870) stock options and convertible bonds of FMC-AG & Co. KGaA.
The development and the status of the stock options of the Management Board in the fiscal year 2011 are shown in the following table:
| Dr. Ulf M. Schneider |
Rainer Baule |
Dr.Francesco De Meo |
Dr.Jürgen Götz |
Dr.Ben Lipps 1 |
Stephan Sturm |
Dr. Ernst Wastler |
Total 2 | |
|---|---|---|---|---|---|---|---|---|
| Options outstanding on January 1, 2011 | ||||||||
| number | 335,400 | 167,700 | 109,980 | 87,300 | 598,870 | 167,700 | 110,880 | 978,960 |
| average exercise price in € | 42.51 | 42.51 | 48.41 | 48.90 | 32.15 | 43.63 | 46.44 | 44.38 |
| Options granted during fiscal year | ||||||||
| number | 56,760 | 28,380 | 28,380 | 28,380 | 74,700 | 28,380 | 28,380 | 198,660 |
| average exercise price in € | 71.28 | 71.28 | 71.28 | 71.28 | 52.48 | 71.28 | 71.28 | 71.28 |
| Options exercised during fiscal year | ||||||||
| number | 58,480 | 65,790 | 0 | 0 | 100,870 | 0 | 3,300 | 127,570 |
| average exercise price in € | 24.48 | 30.95 | 18.54 | 22.81 | 27.77 | |||
| average stock price in € | 72.65 | 69.18 | 49.22 | 71.20 | 70.82 | |||
| Options outstanding on December 31, 2011 | ||||||||
| number | 333,680 | 130,290 | 138,360 | 115,680 | 572,700 | 196,080 | 135,960 | 1,050,050 |
| average exercise price in € | 50.37 | 54.37 | 52.72 | 53.98 | 37.20 | 47.26 | 51.83 | 51.18 |
| average remaining life in years | 4.9 | 5.1 | 5.1 | 5.1 | 4.1 | 4.7 | 5.0 | 5.0 |
| range of exercise prices in € |
29.50 to 71.28 |
33.81 to 71.28 |
33.81 to 71.28 |
33.81 to 71.28 |
30.49 to 52.48 |
29.50 to 71.28 |
29.50 to 71.28 |
29.50 to 71.28 |
| Exercisable options on December 31, 2011 | ||||||||
| number | 168,560 | 47,730 | 55,800 | 33,120 | 298,800 | 113,520 | 53,400 | 472,130 |
| average exercise price in € | 47.35 | 55.95 | 51.63 | 55.30 | 33.30 | 42.76 | 49.34 | 48.40 |
Dr.Ben Lipps holds stock options under the Fresenius Medical Care stock option plan.
Only stock options of Fresenius SE & Co. KGaA, excluding stock options of Dr.Ben Lipps
The following table shows the total compensation of the Management Board of the general partner of Fresenius SE & Co. KGaA for the years 2011 and 2010:
| Cash compensation (without long-term incentive components) |
Long-term incentive components |
Total compensation (including long-term incentive components) |
||||
|---|---|---|---|---|---|---|
| € in thousands | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Dr. Ulf M. Schneider | 2,111 | 1,855 | 1,184 | 907 | 3,295 | 2,762 |
| Rainer Baule | 1,384 | 1,150 | 764 | 608 | 2,148 | 1,758 |
| Dr. Francesco De Meo | 1,190 | 1,016 | 671 | 498 | 1,861 | 1,514 |
| Dr.Jürgen Götz | 992 | 869 | 642 | 465 | 1,634 | 1,334 |
| Dr.Ben Lipps | 2,122 | 2,431 | 1,688 | 1,195 | 3,810 | 3,626 |
| Stephan Sturm | 1,307 | 1,159 | 721 | 575 | 2,028 | 1,734 |
| Dr. Ernst Wastler | 1,029 | 918 | 642 | 462 | 1,671 | 1,380 |
| Total | 10,135 | 9,398 | 6,312 | 4,710 | 16,447 | 14,108 |
The stock options and the entitlement to a share-based compensation (performance shares) can be exercised only after the expiry of the specified vesting period. Their value is
recognized over the vesting period as expense in the respective fiscal year. The expenses attributable to the fiscal years 2011 and 2010 are stated in the following table.
| Stock options | Share-based compensation with cash settlement (performance shares) |
Total expenses for share-based compensation |
||||
|---|---|---|---|---|---|---|
| € in thousands | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Dr. Ulf M. Schneider | 736 | 681 | 2 | 0 | 738 | 681 |
| Rainer Baule | 368 | 341 | 2 | 0 | 370 | 341 |
| Dr. Francesco De Meo | 351 | 268 | 2 | 0 | 353 | 268 |
| Dr.Jürgen Götz | 368 | 327 | 2 | 0 | 370 | 327 |
| Dr.Ben Lipps | 1,098 | 879 | 780 | 860 | 1,878 | 1,739 |
| Stephan Sturm | 368 | 341 | 2 | 0 | 370 | 341 |
| Dr. Ernst Wastler | 351 | 268 | 2 | 0 | 353 | 268 |
| Total | 3,640 | 3,105 | 792 | 860 | 4,432 | 3,965 |
There are individual contractual pension commitments for the Management Board members Dr. Ulf M. Schneider, Rainer Baule, Dr.Jürgen Götz and 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. The Management Board member Dr.Ben Lipps has acquired non-forfeitable benefits from participation in employee pension plans of Fresenius Medical Care North America. With regard to these pension commitments, the Fresenius Group had pension obligations of €8,678 thousand as of December 31, 2011 (2010: €7,870 thousand). The additions to pension liability in the fiscal year 2011 amounted to €808 thousand (2010: €2,830 thousand).
The pension commitments are as follows:
| € in thousands | As of January 1, 2011 |
Additions | As of December 31, 2011 |
|---|---|---|---|
| Dr. Ulf M. Schneider | 1,240 | 95 | 1,335 |
| Rainer Baule | 3,362 | 330 | 3,692 |
| Dr.Jürgen Götz | 416 | 65 | 481 |
| Dr.Ben Lipps | 401 | 247 | 648 |
| Stephan Sturm | 675 | 89 | 764 |
| Dr. Ernst Wastler | 1,776 | -18 | 1,758 |
| Total | 7,870 | 808 | 8,678 |
Each of the pension commitments provides for a pension and survivor benefit, depending on the amount of the most recent basic salary, from the 63rd year of life, 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 basic salary increases with every full year of service as 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).
30% of the gross amount of any later income from an occupation of the Management Board member is set off against the pension. Furthermore, 100% (or in the case of Management Board member Rainer Baule 70%) of any amounts accruing to Management Board members or their surviving dependents from the Management Board member's vested rights in other company pension plans, also from employment with other companies, is also set off.
In the event of the death of one of the aforesaid Management Board members, the widow receives a pension equivalent to 60% of the pension entitlement accruing at the time of death. In addition, own legitimate children of the deceased Management Board member 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 ends before the age of 63 years 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.
With the Management Board member Rainer Baule it was agreed in 2010 that instead of increasing the amounts of the life insurance policies taken out by Fresenius in his favor a sum of €78 thousand be paid, due at the age of 63 years. This amount carried interest as from January 1, 2010 until payment at an annual rate of 4.4% and became due in 2011.
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 basic 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.
With the Management Board member Dr. Ben Lipps, there is the following individual agreement in plan: Instead of a pension provision, and taking account of a restriction of competition after the ending of the service agreement between him and Fresenius Medical Care Management AG, he can, for a period of ten years, act in a consultative capacity for the Company. The consideration to be granted annually by Fresenius Medical Care Management AG in return would amount to approximately 33% of the non-performance-related compensation components paid to him in the fiscal year 2011. The net present value of this commitment as of December 31, 2011 is €2,304 thousand. In addition, the Management Board member Dr.Ben Lipps has acquired non-forfeitable benefits from participation in employee pension plans of Fresenius Medical Care North America which provide payment of pensions as of the age of 65 and the payment of reduced benefits as of the age of 55. Due to plan cuts in March 2002, the rights to receive benefits from the pension plans have been frozen at the level then applicable.
A post-employment non-competition covenant was agreed upon for all Management Board members. If such covenant becomes applicable, the Management Board members receive a waiting allowance that is generally equivalent to half of the annual basic compensation for each year of respective application of the non-competition covenant, up to a maximum of two years.
The Management Board members' service agreements do not contain express provisions for the event of a "change of control".
All Management Board members have received individual contractual commitments for the continuation of their payments in cases of sickness for a maximum of 12 months, although as of 6 months of sick leave, insurance benefits may be set off therewith. If a Management Board member dies, the surviving dependents will be paid three more monthly amounts after the month of death, until the end of the respective service agreement at the longest, however.
In the fiscal year 2011, no loans or advance payments of future compensation components were made to members of the Management Board of Fresenius Management SE.
To the extent permitted by law, Fresenius SE & Co. KGaA undertook to indemnify the members of the Management Board against claims against them arising out of their work for the Company and its affiliates, if such claims exceed their liability under German law. To secure such obligations, the Company concluded a Directors'& Officers' insurance with an excess, which complies with the requirements of the German Stock Corporation Act. The indemnity applies for the time in which each member of the Management Board is in office and for claims in this connection after the termination of the membership of the Management Board in each case.
Based on pension commitments, to former members of the Management Board, €776 thousand and €776 thousand were paid in the years 2011 and 2010, respectively. The benefit obligation for these persons amounted to €10,513 thousand in 2011 (2010: €11,039 thousand).
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. 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 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. 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. 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 years 2011 and 2010, the compensation for the members of the Supervisory Boards of Fresenius SE & Co. KGaA and Fresenius Management SE, 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 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Dr. Gerd Krick | 14 | 26 | 12 | 0 | 10 | 30 | 16 | 0 | 128 | 214 | 110 | 0 | 290 | 270 |
| Dr. Dieter Schenk 1 | 1 | 20 | 18 | 0 | 0 | 0 | 8 | 0 | 14 | 161 | 165 | 0 | 206 | 181 |
| Niko Stumpfögger | 19 | 20 | 0 | 0 | 0 | 0 | 0 | 0 | 177 | 161 | 0 | 0 | 196 | 181 |
| Prof. Dr. med. D. Michael Albrecht (since January 28, 2011) |
12 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 110 | 0 | 0 | 0 | 122 | 0 |
| Prof. Dr. h. c. Roland Berger | 7 | 13 | 6 | 0 | 18 | 20 | 0 | 0 | 64 | 107 | 55 | 0 | 150 | 140 |
| Dario Ilossi | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 118 | 107 | 0 | 0 | 131 | 120 |
| Konrad Kölbl | 13 | 13 | 0 | 0 | 9 | 10 | 0 | 0 | 118 | 107 | 0 | 0 | 140 | 130 |
| Klaus-Peter Müller | 7 | 13 | 6 | 0 | 0 | 0 | 0 | 0 | 64 | 107 | 55 | 0 | 132 | 120 |
| Dieter Reuß (since May 5, 2011) | 9 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 78 | 0 | 0 | 0 | 87 | 0 |
| Gerhard Roggemann (since January 28, 2011) |
12 | 0 | 0 | 0 | 8 | 0 | 0 | 0 | 110 | 0 | 0 | 0 | 130 | 0 |
| Dr. Gerhard Rupprecht | 12 | 13 | 6 | 0 | 0 | 0 | 0 | 0 | 112 | 107 | 55 | 0 | 185 | 120 |
| Wilhelm Sachs (until May 5, 2011) | 4 | 13 | 0 | 0 | 1 | 10 | 0 | 0 | 40 | 107 | 0 | 0 | 45 | 130 |
| Dr. Karl Schneider 1 | 1 | 13 | 12 | 0 | 2 | 20 | 8 | 0 | 9 | 107 | 110 | 0 | 142 | 140 |
| Stefan Schubert | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 118 | 107 | 0 | 0 | 131 | 120 |
| Rainer Stein | 13 | 13 | 0 | 0 | 9 | 10 | 0 | 0 | 118 | 107 | 0 | 0 | 140 | 130 |
| Total | 150 | 183 | 60 | 0 | 57 | 100 | 32 | 0 | 1,378 | 1,499 | 550 | 0 | 2,227 | 1,782 |
Until January 28, 2011 member of the Supervisory Board of Fresenius SE & Co. KGaA, since January 28, 2011 member of the Supervisory Board of Fresenius Management SE
Fresenius SE & Co. KGaA has concluded 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 2012. 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 which are covered by the policy.
Fresenius medical care. In 2011, we once again achieved strong results both in sales and in earnings. We have successfully met the challenges of the new reimbursement scheme in the United States. In addition, we are substantially growing our leading position in the global dialysis market through acquisitions and cooperations.
Fresenius Medical Care is the world's leading provider of dialysis services and dialysis products for patients with chronic kidney failure. When the kidney function of patients with this disease fails, dialysis takes over the vital task of cleansing the blood from toxins and surplus water.
In dialysis, two treatment methods are distinguished: hemodialysis (HD) and peritoneal dialysis (PD). With HD, the patient's blood is cleansed with a dialyzer, or "artificial kidney", a process that is controlled by a hemodialysis machine. In the case of PD, the patient's peritoneum is used as a "filter" to cleanse the blood. Fresenius Medical Care treats
dialysis patients and also manufactures the dialysis products. As a vertically integrated company, we offer our services and dialysis products along the entire dialysis value chain in over 120 countries. Fresenius Medical Care has a worldwide network of more than 40 production sites. Our largest plants are in the United States, Germany, and Japan.
As the table shows, we further expanded our leading market position in 2011: we treated 233,156 patients at 2,898 dialysis clinics worldwide and the number of treatments increased by 9% to 34.4 million.
| North America | Europe/ Middle East/ Africa |
Latin America | Asia-Pacific | Total 2011 |
Change 2011/2010 |
|
|---|---|---|---|---|---|---|
| Dialysis clinics (December 31) | 1,838 | 600 | 218 | 242 | 2,898 | 6% |
| Dialysis patients (December 31) | 142,319 | 48,346 | 25,381 | 17,110 | 233,156 | 9% |
| Treatments (in millions) | 21.61 | 6.61 | 3.68 | 2.50 | 34.39 | 9% |
Fresenius Medical Care sales increased by 6% to US\$12,795 million in 2011 (2010: US\$12,053 million). Organic growth was 2%. Acquisitions accounted for 3% of the growth.
Sales from dialysis services increased by 5% to US\$9,507 million (2010: US\$9,070 million). With 74%, dialysis services contributed the largest share to Fresenius Medical Care's total sales.
Sales of dialysis products grew by 10% to US\$3,288 million (2010: US\$2,983 million). Dialysis products accounted for 26% of Fresenius Medical Care's total sales.
In 2011, EBIT increased by 8% to US\$2,075 million (2010: US\$1,924 million). The EBIT margin improved to 16.2% (2010: 16.0%), primarily due to the EBIT margin improvement in North America.
Net income 1 increased by 9% to US\$1,071 million (2010: US\$979 million).
Accounting for 64% of sales, North America remained Fresenius Medical Care's largest business region. 2011 sales of US\$8,150 million were slightly higher than last year's (2010: US\$8,130 million). Organic growth was 0%.
Dialysis services was by far the largest contributor to sales, with a share of 90%. Sales were US\$7,337 million (2010: US\$7,303 million). Organic growth was 0%. In 2011, the average revenue per treatment in the United States decreased to US\$348 compared to US\$356 in 2010. This decrease was primarily the result of the introduction of the new bundled reimbursement system for dialysis treatments.
Dialysis product sales declined by 2% to US\$813 million (2010: US\$827 million) since improved sales of products for hemodialysis and peritoneal dialysis could not fully compensate for lower pricing of renal drugs.
EBIT grew by 4% to US\$1,435 million compared to US\$1,386 million in 2010. The EBIT margin increased 60 basis points to 17.6% (2010: 17.0%). This increase was primarily driven by the favorable development of pharmaceutical costs. The average cost per treatment in the U.S. fell from US\$291 to US\$282 in 2011.
| US\$ in millions | 2011 | 2010 | Change |
|---|---|---|---|
| North America | |||
| Dialysis services | 7,337 | 7,303 | 0% |
| Dialysis products | 813 | 827 | -2% |
| Total | 8,150 | 8,130 | 0% |
| International | |||
| Dialysis services | 2,170 | 1,767 | 23% |
| Dialysis products | 2,458 | 2,156 | 14% |
| Total | 4,628 | 3,923 | 18% |
| Worldwide | |||
| Dialysis services | 9,507 | 9,070 | 5% |
| Dialysis products 2 | 3,288 | 2,983 | 10% |
| Total | 12,795 | 12,053 | 6% |
In 2011, the International segment, comprising the business regions Europe /Middle East/ Africa, Asia-Pacific, and Latin America, achieved excellent results. About 36% of Fresenius Medical Care's total sales were derived from these regions. Sales in the International segment increased by 18% to US\$4,628 million (2010: US\$3,923 million). Organic growth was 7%, acquisitions contributed also 7%.
Sales from dialysis services increased by 23% to US\$2,170 million compared to US\$1,767 million in 2010. Acquisitions contributed 11%; organic growth was 8%.
Sales from dialysis products grew by 14% to US\$2,458 million (2010: US\$2,156 million). The growth was mainly driven by higher sales of peritoneal dialysis products, dialyzers, dialysis machines, and acute care products.
EBIT in the International segment rose by 19% to US\$807 million (2010: US\$678 million). The EBIT margin improved to 17.4% from 17.3% in 2010. This development was mainly due to the growth in the Asia-Pacific region.
The table below shows the development of sales by business region.
Fresenius Medical Care considerably strengthened its business in both dialysis products and dialysis services through acquisitions and alliances, especially in North America and Europe:
US\$1billion and operates approximately 260 dialysis clinics. Fresenius Medical Care anticipates that facilities may need to be divested to secure regulatory approval of the transaction.
| US\$ in millions | 2011 | 2010 | Change | Currency translation effects |
% of total sales |
|---|---|---|---|---|---|
| North America | 8,150 | 8,130 | 0% | 0% | 64% |
| Europe/Middle East/Africa | 2,948 | 2,549 | 16% | 5% | 23% |
| Asia-Pacific | 980 | 777 | 26% | 7% | 8% |
| Latin America | 700 | 597 | 17% | 1% | 5% |
| Corporate | 17 | 0 | – | – | 0% |
| Total | 12,795 | 12,053 | 6% | 1% | 100% |
Business Segments
Renal pharmaceuticals vertically broaden the portfolio beyond our offering of dialysis products and dialysis services. Patients receiving dialysis treatment also usually have to take drugs, for instance to maintain the right balance of minerals in the body or to prevent anemia. The spectrum of renal pharmaceuticals includes erythropoiesis-stimulating agents (EPO), phosphate binders, iron preparations, vitamin D preparations, and so-called calcimimetics.
Broadening the portfolio of renal pharmaceuticals is an integral part of Fresenius Medical Care's growth strategy. Fresenius Medical Care therefore set up a joint venture with the Swiss company Galenica: the Vifor Fresenius Medical Care Renal Pharma Ltd. The joint venture develops and distributes drugs for kidney patients. The products serve to treat anaemia and to regulate the bone metabolism of dialysis patients and patients suffering from chronic kidney failure who do not yet need dialysis treatment.
In 2011, the new Medicare end-stage renal disease prospective payment system for the reimbursement of dialysis treatment for patients in the United States covered by the public health care program was implemented. Products and services previously reimbursed at a composite rate, and other services, such as the administration of certain drugs and the performance of diagnostic laboratory tests, are now reimbursed at a single flat-rate payment (bundled rate). The bundled rate takes individual patient parameters, such as age and weight, into account. Adjustments are also provided for patients who require exceptional medical care, with correspondingly high costs. The new reimbursement system provided for a reduction of the composite rate of 2% in 2011. An additional 3.1% transition adjustment was imposed on the reimbursement in order to achieve a budget-neutral implementation of the new reimbursement scheme. This transition adjustment was eliminated early on April 1, 2011.
Another feature of the new reimbursement scheme, besides being inflation-linked, is its orientation to certain quality parameters, such as the regulation of the hemoglobin content of the blood or the bone metabolism.
Due to its integrated business model, Fresenius Medical Care is not only in a position to offer all products and services at the required standard of quality but also to work in an even more focused way on the further development of products and services.
Our central concern is the health of our patients. Our longterm mission is to improve their quality of life by continuously optimizing their dialysis treatment.
As shown by the various quality indicators in the table below, we were able to further improve the quality of our dialysis treatment in 2011.
This applies for instance to the hemoglobin value as well as to albumin, a protein, which is used as a quality parameter to monitor a patient's general nutritional condition. The Kt/V value gives an indication of the filtering performance of a treatment by establishing the ratio of the length of treatment and the filtration rate of certain toxic molecules.
For further information, please see Fresenius Medical Care's Annual Report 2011 or visit the website at www.fmc-ag.com.
Please see page 117 of the Management Report for the 2012 outlook of Fresenius Medical Care.
| USA | EMEA | AP | ||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Kt/V≥1.2 | 97% | 97% | 95% | 95% | 97% | 97% |
| Hemoglobin=10 – 12 g/dl | 78% | 71% | 57% | 53% | 61% | 62% |
| Albumin≥3.5 g/dl 2 | 85% | 84% | 87% | 88% | 88% | 90% |
| Phosphate≤5.5 mg/dl | 64% | 63% | 76% | 77% | 72% | 72% |
Data refer to the last quarter
International standard BCR CRM470
Fresenius Kabi. Our business grew once again in all regions and product segments. In North America, we even exceeded the strong 2010 results. In the emerging markets, we again achieved high growth rates. We have introduced products all over the world and increased our global market presence.
Fresenius Kabi specializes in the therapy and care of chronically and critically ill patients, providing intravenously administered generic drugs (IV drugs), infusion therapies, clinical nutrition, and related medical devices. Our products cover the full range of patient care: emergency cases, surgery, intensive care, hospital wards, and outpatient care.
Our portfolio of IV drugs includes anesthetics, analgesics, anti-infectives, and drugs for the treatment of oncological and other critical diseases. For infusion therapy, we provide blood volume replacement products and infusion solutions. In the area of clinical nutrition, we are one of the few companies worldwide that offer both parenteral and enteral nutrition products. To administer our products, we supply infusion pumps, infusion management systems, nutrition pumps, and disposables. For transfusion technology, we offer a range of products used by blood banks and blood donation units to produce blood products.
In 2011, Fresenius Kabi increased sales by 8% to €3,964 million (2010: €3,672 million) and achieved excellent organic growth of 9%. Currency translation had a negative effect of 1%.
The sales by region were as follows:
| € in millions | 2011 | 2010 | Change |
|---|---|---|---|
| Europe | 1,826 | 1,702 | 7% |
| North America | 1,002 | 975 | 3% |
| Asia-Pacific | 702 | 593 | 18% |
| Latin America/Africa | 434 | 402 | 8% |
| Total | 3,964 | 3,672 | 8% |
In North America we achieved organic sales growth of 7% compared to a strong 2010. The growth was mainly due to product launches and continuing drug shortages in the injectable drug market. Organic sales growth in Europe reached a strong 6%, in Asia-Pacific 18%, and in Latin America/Africa 10%. China is our third largest market after the United States and Germany. We have continuously achieved double-digit organic growth rates in China for years.
Sales by product segment were as follows:
| € in millions | 2011 | 2010 | Organic growth |
|---|---|---|---|
| Infusion therapy | 895 | 843 | 4% |
| IV drugs | 1,438 | 1,328 | 12% |
| Clinical nutrition | 1,154 | 1,062 | 9% |
| Medical devices / Transfusion technology |
477 | 439 | 8% |
| Total | 3,964 | 3,672 | 9% |
We improved the excellent earnings development from last year: EBIT grew by 9% to €803 million (2010: €737 million). EBIT growth is due to very good business development in all regions. The EBIT margin increased to 20.3% (2010: 20.1%).
All regions contributed to the EBIT growth:
| 2011 | 2010 | Change |
|---|---|---|
| 385 | 359 | 7% |
| 21.1% | 21.1% | |
| 368 | 335 | 10% |
| 36.7% | 34.4% | |
| 232 | 183 | 27% |
| 20.4% | 18.4% | |
| -182 | -140 | -30% |
| 803 | 737 | 9% |
| 20.3% | 20.1% | |
Fresenius Kabi's net income 1 increased by 20% to €354 million (2010: €294 million).
Whether for treating fluid loss or electrolyte deficiencies or as a carrier solution for intravenously administered drugs, infusion solutions are needed everyday in the hospital routine. Our product portfolio includes a comprehensive range of infusion solutions, offered in infusion bags and bottles. Our
PVC-free bag freeflex ® and the plastic bottle KabiPac ® are characterized by their high application safety. Due to their sterile membrane, the two separate and visually easy to distinguish infusion and injection ports in both containers make the infusion solutions safe and easy to administer. They thereby help prevent possible mistakes in the use of the infusion and injection ports.
For blood volume replacement, we are the global market leader with our artificial colloids. Our products contain hydroxyethyl starch (HES), which is based on maize starch and can therefore be infused regardless of blood type. Our blood volume replacement solutions are also used during surgeries and for intensive medical care. With our innovative HES products, we have been active in the blood volume replacement market for decades, and have set standards for blood volume replacement as well as therapy. We sell our proven product Voluven ® in more than 100 countries throughout the world, and in over half of these markets we are the leading supplier. In 2011, we strengthened our market leadership for colloid blood volume replacements. We successfully introduced our blood volume replacement solution Volulyte ® in several new countries. Volulyte ® is particularly developed for patients with high blood loss or who must be treated with volume replacement products for a longer period of time. To support scientific dialog on blood volume replacement therapy, we organized symposiums on the efficacy and safety of artificial colloids at internal and external conferences.
With regard to our medical devices for the application of infusion therapies, we continue to be successfull and remain one of the leading companies in Europe. Our infusion pumps and disposables ensure that the infusions and blood volume replacements are easy and safe to apply. Our business with volumetric infusion pumps and syringe pumps from the Agilia product group was particularly successful. This is partially due to our syringe pump Injectomat ® TIVA Agilia ®, which we were able to launch in several new countries. This syringe pump is used to administer anesthesia during surgeries.
In the area of transfusion technology, we are one of the leading suppliers of blood bag systems and medical devices for collecting, processing, and transporting blood products, both in Europe and Latin America. We have introduced our new, portable sealer for blood bag tubes CompoSeal Mobilea II in several European countries. It is used in donating, processing, and storing blood and provides the possibility to safely, quickly, and easily seal filled blood bag systems. The sealer
melts the plastic on the blood bag tubes with radio-frequency energy. The resulting weld seam allows the blood tubes to be easily detached from each other again afterwards.
In September, we opened a new production facility in Vietnam. It manufactures infusion solutions and liquid medications, primarily for the domestic market. With the new facility, we have almost doubled our manufacturing capacity in order to satisfy the growing demand for our products in the future. The investment costs totaled to approximately €20 million. The facility is operated by Fresenius Kabi Bidiphar JSC, our joint venture with the Vietnamese company Bidiphar. Fresenius Kabi Bidiphar JSC, where we are the majority shareholder, is market leader for standard solutions and holds a leading position for intravenously administered drugs in Vietnam.
Fresenius Kabi is one of the world's top five suppliers of generic IV drugs. Our product portfolio is geared towards treatment of and care for chronically and critically ill patients. We not only manufacture the drug, but also produce some of the active ingredients. We therefore have manufacturing competency along the entire value chain. This is crucial in terms of quality and price flexibility for us.
We successfully grew our business in 2011. New products and the continued internationalization of our existing product portfolio have contributed to this success. Supply constraints at competitors in the U.S. market continued. Based on our broad product portfolio, we were again able to contribute to a reliable IV drug supply in that market. Its manufacturing facilities were able to flexibly and quickly respond to market conditions. They were able to adjust their produced quantities to the growing demand.
We are one of the globally leading companies in the areas of generic IV anesthetics and IV analgesics. Our anesthetic Propofol is global market leader in the IV anesthetics segment. In the area of IV analgesics, we introduced the pain medication Paracetamol Kabi in Germany at the end of 2010. We also advanced the European marketing of this product as well as launched it on the Indian market. We successfully entered the market with the two IV analgesics Remifentanil and Cisatricurium. In addition, we introduced Clonidine Hydrochloride on the U.S. market, an analgesic which is mostly used in oncology.
We have been very successful with our product portfolio of IV oncology drugs. We significantly increased sales in Eastern Europe, e. g. in Poland and the Czech Republic. Immediately after patent expiration in Portugal and France, we introduced the cytostatic drug Topotecan Kabi, which is used to treat pulmonary carcinoma. Other IV oncology drugs for which we received approval and which were launched in many European countries include: Irinotecan Kabi, Paclitaxcel Kabi, and Oxaliplatin Kabi.
We launched several cytostatic drugs in the Asia-Pacific region. Pemetrexed, a therapeutic agent for patients with bronchial carcinoma, was introduced in India. We successfully launched Letrozole on the Philippine market to treat breast cancer. In Taiwan we introduced Bicalutamide, a drug used to treat prostate cancer.
In the United States we were one of the first generic drug providers to offer all three dosages of the cytostatic drug Gemcitabine. At the beginning of the year we entered into a manufacturing and distribution agreement with Teva Pharmaceuticals for Gemcitabine. This agreement enabled us to distribute the product during the 180 day marketing exclusivity, which Teva owned for it. In addition, we started the introduction of Letrozole in the United States.
We further internationalized our product portfolio for the treatment of infectious diseases. We launched the anti-infective drug Levofloxacin in Europe immediately after patent expiry. The product treats bacterial infections. In the U.S., we introduced Nafcilin as well as Piperacillin/Tazobactam.
In the area of products used to treat critical diseases, we feature a comprehensive product range in the U.S. and are the market leader for high-molecular Heparin. In 2011, we successfully introduced two additional dosages for this product, and also launched Metoprolol Tartrate. This drug is used for cardiovascular diseases such as dysrhythmic or cardiac infarction.
We also offer patient-specific IV drugs (compounding) for the treatment of critically and chronically ill patients. Our product portfolio also includes clinical nutrition products that help to improve the nutritional status of these patients. We offer medical devices used to administer the solutions as well as patient-specific drugs, which can also be used in outpatient care.
We are one of a few companies that have global compounding centers for the preparation of patient-specific IV drugs. In order to cover the growing local demand for customized oncology drugs, we opened our first compounding center for oncology products in Malaysia. Located close to the capital city of Kuala Lumpur, it provides state-of-the-art manufacturing technologies and highly qualified staff specifically trained for cytological compounding.
Clinical nutrition serves to supply patients who are unable to eat any or sufficient normal food. This applies especially to patients in intensive care units, to the critically and chronically ill, and to those who are malnourished. The use of clinical nutrition products is steadily increasing. Weight loss and deficiencies in essential nutrients can result in higher complication rates, longer recovery periods, a diminished quality of life, and elevated mortality rates.
Our three-chamber bags are reference products for parenteral nutrition in hospitals. One bag ensures the simultaneous infusion of amino acids, lipids, glucose and electrolytes, and thus covers the complete daily required intake for these important nutrients. We are pioneering this market segment. We are, for example, the only suppliers of three-chamber bags on the Chinese market. The innovative bag design provides an impressively high level of safety and user friendliness in everyday hospital use. We are selling this product in 85 countries (2010: 70 countries).
In 2011, further SmofKabiven ® market launches contributed to the growth in the three-chamber bag segment. SmofKabiven ® contains, as a lipid component, our product SMOFlipid ® and high levels of amino acids. It is also characterized by a balanced fatty acid profile and an optimized
Omega-6 to Omega-3 fatty acid ratio. In 2011, we registered and introduced this product in additional countries, and are currently selling it in 36 countries.
Advanced tumor diseases are often accompanied by unwanted weight loss, which can have a negative effect on the success of chemotherapy. Especially as an additional nutritional supplement for the treatment of oncological and critically ill patients, we started introducing a small packing unit of SmofKabiven ®. The small package is designed to provide handling advantages to this particular patient group.
In the field of enteral nutrition therapy, we offer a comprehensive range of sip and tube feed products. Enteral products are used, for instance, in geriatric, pediatric, and intensive care as well as in outpatient care. Enteral nutrition is acquiring growing importance in clinical routine and as a supportive component of the overall medical therapy process.
At the end of 2011, we introduced a new product for patients with heightened nutritional needs or suffering from dysphagia in France. Fresubin ® Dessert Fruit is fruit-based and therefore provides an alternative to milk-based enteral products. Its puree-like consistency enables these patients to swallow it easily and in a controllable manner.
In the area of medical devices, our products are characterized by high user-friendliness and thereby significantly contribute to safe and effective administration of nutritional therapy. The increasing significance of clinical nutrition is also reflected in the growth of our medical devices business. For example, we successfully grew our business with nutrition pumps and application systems.
For further information, please see Fresenius Kabi's website at www.fresenius-kabi.com.
Please see page 117 of the Management Report for the 2012 financial outlook of Fresenius Kabi.
Fresenius helios. 2011 was a successful year with strong sales and earnings growth. Our established clinics achieved excellent operating results. With the acquisition of the maximum care hospital Katholisches Klinikum Duisburg and the announced acquisition of Damp Group, we continue our growth path within the German hospital market and strengthen our clinic network.
Fresenius Helios is one of the largest German private hospital operators. The HELIOS Group operates 65 proprietary clinics. In addition to 45 acute care hospitals, including 6 maximum care clinics in Berlin-Buch, Duisburg, Erfurt, Krefeld, Schwerin, and Wuppertal, the HELIOS Group has 20 post-acute care clinics. 30 medical care centers and 10 nursing homes are also affiliated with HELIOS. The Group has more than 20,000 beds and treats more than 2 million patients – including approximately 700,000 inpatients – each year. HELIOS had more than 37,000 employees at the end of 2011.
HELIOS' medical and commercial success is based on four strategic goals:
▶ safeguarding the existence and further development of the clinics on a sustainable basis
▶ building HELIOS into a knowledge enterprise
In 2011, Fresenius Helios increased its sales by 6% to €2,665 million (2010: €2,520 million). Organic growth was 4%. Acquisitions contributed 2%.
The acute care clinics accounted for 88% of sales (2010: 88%), while the post-acute care clinics accounted for 8% of sales (2010: 9%). 4% was attributable to other revenues (2010: 3%).
These figures reflect the high confidence that patients and doctors place in us. They are also evidence for the successful restructuring of the acquired clinics.
As the table shows, both sales and earnings were much improved:
| € in millions | 2011 | 2010 | Change |
|---|---|---|---|
| Sales | 2,665 | 2,520 | 6% |
| thereof acute care | 2,354 | 2,229 | 6% |
| thereof post-acute care |
220 | 222 | -1% |
| EBITDA | 369 | 318 | 16% |
| EBITDA margin in % | 13.8 | 12.6 | |
| EBIT | 270 | 235 | 15% |
| EBIT margin in % | 10.1 | 9.3 | |
| Net income 1 | 163 | 131 | 24% |
Net income attributable to HELIOS Kliniken GmbH
EBITDA increased by 16% to €369 million (2010: €318 million). The EBITDA margin rose to 13.8% (2010: 12.6%). Fresenius Helios achieved an excellent EBIT growth of 15% to €270 million (2010: €235 million). The EBIT margin also improved, climbing by 80 basis points to 10.1% (2010: 9.3%). Net income 1 was €163 million, and surpassed the prior-year figure by 24% (2010: €131 million).
Fresenius Helios' business exhibits stable cash flows: The cash flow margin was 11.0% (2010: 12.3%). In 2011, days sales outstanding were 39 days (2010: 38 days). Bad debt as percentage of sales was again low at 0.2% (2010: 0.2%).
HELIOS' business model is based on growth through acquisitions on the one hand, and growth in admissions and treatment services on the other. One element of our acquisition
strategy is the regional proximity of hospitals – sufficiently close to one another to form networks (clusters). Regional clustering enables cost savings, especially by concentrating non-medical services (for example, laundry or catering) in one hospital. Moreover, patients benefit from the bundling of medical expertise from the HELIOS clinics in – and also outside – the region.
We have defined a five-year restructuring plan for the acquired acute care hospitals. Our goal is to increase the EBITDA margin of an acute care clinic to 15% within five years after acquisition. To achieve this goal, we implement the following initiatives following an acquisition: Besides structural improvements, this also includes alterations – in some cases even the construction of completely new buildings – and investment in medical equipment. We also reorganize the hospital's internal processes and implement the proven HELIOS quality management system. This ensures earningsdriven, quality-oriented management of the hospital according to the HELIOS standard.
The restructuring plan of our acute care clinics includes all clinics within the Group according to their years of consolidation. In 2011, we were once again able to exceed our target EBITDA.
In 2011, HELIOS successfully continued the expansion in the German hospital market: In October, the company agreed to acquire 94.7% of the share capital in the privatelyowned hospital operator Damp Group. Damp operates 7 acute care hospitals and 4 post acute care hospitals with a total of 4,112 beds (thereof 2,649 in acute care) and is among the 10 largest private hospital operators in Germany. In addition, Damp operates 8 outpatient medical care centers, 2 nursing care facilities with a total of 606 beds and a wellness resort.
Business Segments
| Years in portfolio | ||||||||
|---|---|---|---|---|---|---|---|---|
| <1 | 1 | 2 | 3 | 4 | 5 | >5 | Total | |
| Number of clinics | 1 | 1 | – | 6 | 4 | 7 | 25 | 43 |
| Sales in million € | 16 | 34 | – | 183 | 271 | 172 | 1,662 | 2,336 |
| Target | ||||||||
| EBITDA margin, in % | – | 3.0 | 6.0 | 9.0 | 12.0 | 15.0 | 15.0 | |
| EBITDA in million € | – | 1.0 | – | 16.4 | 32.5 | 25.7 | 249.2 | 324.8 |
| Reported | ||||||||
| EBITDA margin, in % | – | -2.6 | – | 2.9 | 13.2 | 11.2 | 16.9 | 14.4 |
| EBITDA in million € | -3.2 | -0.9 | – | 5.3 | 35.7 | 19.2 | 280.3 | 336.4 |
| Number of clinics > target | – | – | – | 3 | 2 | 3 | 15 | 23 |
| Number of clinics < target | – | 1 | – | 3 | 2 | 4 | 10 | 20 |
Reported figures according to IFRS
The acquisition of Damp is an excellent geographic fit with the HELIOS hospital network in the north and northeast of Germany. In 2010, Damp achieved sales of €487 million and operating profit (EBIT) of €21 million. Due to the geographic proximity of the HELIOS hospital Schwerin, HELIOS had to divest the Damp hospital Wismar (505 beds, sales of approximately €60 million) to secure regulatory clearance of the transaction. Adjusted for this divestiture, the Damp Group achieved sales of approximately €427 million in 2010. HELIOS anticipates closing the transaction at the end of the first or at the beginning of the second quarter 2012.
In December, HELIOS completed the acquisition of 51% of the share capital of Katholisches Klinikum Duisburg hospital (KKD), North-Rhine Westphalia, Germany. The acquisition strengthens HELIOS' position as the largest private hospital operator in the state of North-Rhine Westphalia. KKD operates now as HELIOS Klinikum Duisburg.
HELIOS Klinikum Duisburg operates a maximum care hospital with 4 locations in Duisburg and a total of 1,034 beds as well as a post-acute care clinic with 220 beds and 2 nursing care facilities. In 2010, HELIOS Klinikum Duisburg's hospitals provided inpatient care for about 30,000 patients (thereof 26,500 in acute care). KKD has about 2,200 employees and achieved 2010 sales of approximately €134 million.
HELIOS will consolidate the acute care hospitals into two locations and build two new hospitals. The total investments will be approximately €176 million, over five years. The new locations will offer full inpatient care as well as additional medical specializations.
HELIOS acquired the St. Marienberg district hospital in Helmstedt/Lower Saxony in early 2011. The hospital has 267 beds and achieved sales of about €34 million in 2011. It is being consolidated as from January 1, 2011. The acquisition of the municipal hospital in Rottweil, southwestern Germany, is being consolidated as from July 1, 2011. The hospital generated sales of about €31 million in 2011.
As an experienced privatization partner, HELIOS is in an excellent position for further acquisitions and will continue to focus on expanding its market position in Germany.
The introduction of Diagnosis Related Groups (DRG), with standardized base rates in each federal state, means hospitals in Germany face increasing competition for patients. The HELIOS clinics have successfully adjusted to the changed reimbursement and competitive conditions. Due to the broadening of services being offered and our high treatment quality, we were able to again increase the number of inpatients and outpatients treated:
| 2011 | 2010 | Change | |
|---|---|---|---|
| Inpatient and semi inpatient admissions |
665,108 | 640,296 | 4% |
| Acute care clinics | 632,778 | 606,880 | 4% |
| Post-acute care clinics | 32,330 | 33,416 | -3% |
| Outpatient admissions | 1,726,704 | 1,696,919 | 2% |
As the table below shows, our other structural data and performance indicators also improved:
| 2011 | 2010 | Change | |
|---|---|---|---|
| Acute care clinics | 45 | 42 | 7% |
| Beds | 16,690 | 15,097 | 11% |
| Length of stay (days) | 6.7 | 6.9 | -3% |
| Post-acute care clinics | 20 | 20 | 0% |
| Beds | 3,422 | 3,467 | -1% |
| Length of stay (days) 1 | 29.6 | 29.5 | 0% |
| Occupancy 1 | 78% | 80% |
Germany only
In 2011, Fresenius Helios invested €306 million (2010: €268 million). Own investments were €157 million (2010: €166 million), equivalent to 6% of sales. About €49 million of this was invested in new buildings under construction at two hospitals in Krefeld. A first building, a 654-bed hospital, was completed as scheduled in 2011. A total of €180 million will be invested there by 2014.
| € in millions | 2011 | 2010 | Change |
|---|---|---|---|
| Investments | 306 | 268 | 14% |
| Own investments in property, plant and equipment |
157 | 166 | -5% |
| Subsidies 1 | 104 | 89 | 17% |
| Acquisitions | 45 | 13 | – |
1 Total of purpose-related public investment subsidies
according to Section 9 of the Hospital Funding Act (KHG).
Our investments assure the continued operation of the hospitals and the high standards of medical quality they provide over the long-term. The level of public subsidies was 42% (2010: 43%).
In April, HELIOS signed a new wage agreement both with the Marburger Bund and with ver.di. The wage agreements are part of the group-wide wage agreements that HELIOS had already signed with the two unions at the end of 2006 and beginning of 2007, respectively.
The wage agreement entered into with the Marburger Bund stipulates for physicians at HELIOS an initial average salary increase of 3%. A further increase of 2.4% will follow in March 2012. According to the wage agreement with ver.di, employees in non-medical staff services will initially receive a salary increase of 2%. A further increase of 3% will follow as per May 1, 2012. For employees returning to their job earlier from parental leave, the bargaining parties agreed on an increase of the monthly childcare subsidy from €100 to €150 per child. Once again, HELIOS emphasizes its desire to promote a healthy work-life balance.
The HELIOS Group offers patients competent services in acute and outpatient care as well as post-acute care and residential care for the elderly. Our goal is to provide high standards of medical care in all areas and at all levels.
Acute care is the Group's core focus. 45 acute care clinics cover virtually the whole medical spectrum, with a broadbased portfolio ranging from basic and standard care hospitals through to maximum care hospitals with over 1,500 beds.
The total medical care we provide for our patients also includes relevant outpatient care after hospital treatment. Possibilities for treatment at either the clinic itself or our medical care centers and the collaboration with numerous external doctors enable a seamless integration of outpatient and inpatient care within the HELIOS network.
Our acute and outpatient care concept is supplemented, both regionally and medically, by our post-acute care clinics.
At our nursing homes, the mission is to provide quality residential care with dignity and respect.
In 2011, HELIOS continued its program for further improving the quality of its medical results. A unique quality management system, developed in-house, assures continuous improvement in the standards of patient care. With its focus on treatment quality based on administrative data, HELIOS owns a pioneering role in quality management. More information on quality management and the "Initiative of Quality Medicine" (IQM) co-founded by HELIOS can be found on page 94 of the Management Report.
Another integral part of patients' benefit, besides the quality of the medical outcomes, is the quality of the nursing care, which is also a factor of strategic relevance for HELIOS. Our patients' satisfaction is critically important for us. We therefore conduct continuous patient surveys and evaluate the outcomes.
We want to achieve standards of treatment quality that are better than the German average or other customary international benchmarks in all important areas in 2012.
For further information, please see Fresenius Helios' website at www.helios-kliniken.de (German only).
Please see page 117 of the Management Report for the 2012 financial outlook of Fresenius Helios.
Fresenius VAMED. In 2011, sales and EBIT exceeded the strong previous year's levels despite challenging market conditions in the Middle East / North Africa region. Order backlog reached a new all-time high. Order intake was again at an excellent level.
Fresenius Vamed specializes in international projects and services for hospitals and other health care facilities. Our portfolio ranges along the entire value chain in the health care area: from consulting, project development, planning, and turnkey construction, via maintenance, and technical management to total operational management. This entire competency enables us to support complex health care facilities efficiently and successfully at each level of their life cycle. The company is also a pioneer in public-private partnership (PPP) models for hospitals in Central Europe.
VAMED is a worldwide acting provider of a full line of services for the health care industry. Meanwhile, we hold a unique position with our comprehensive range of services. We have successfully completed approximately 600 projects in more than 60 countries.
In 2011, sales of Fresenius Vamed increased to €737 million (2010: €713 million). Organic growth was 4%. Prior-year sales included a substantial medical supply contract with the Ukraine. In addition, current sales were impacted by the unrest in the Middle East/North Africa region.
The table shows the sales development by activity:
| € in millions | 2011 | 2010 | Change |
|---|---|---|---|
| Project business | 494 | 487 | 1% |
| Service business | 243 | 226 | 8% |
The strongest region was Europe with 72% of total sales. Africa and Asia-Pacific contributed 17% and 11%, respectively.
In addition, VAMED was responsible for revenues of €595 million from management contracts. The related fees are included in VAMED's financial statements.
Order intake and order backlog for projects developed as follows:
| € in millions | 2011 | 2010 | Change |
|---|---|---|---|
| Order intake | 604 | 625 | -3% |
| Order backlog | |||
| (December 31) | 845 | 801 | 5% |
EBIT of Fresenius Vamed rose by 7% to €44 million (2010: €41 million). At 6.0%, the EBIT margin exceeded previous year's level (2010: 5.8%). In the project business, EBIT increased by 22% to €28 million (2010: €23 million). In the service business, EBIT was slightly below previous year's level with €16 million (2010: €18 million). Fresenius Vamed's net income 1 was €34 million, an increase of 13% (2010: €30 million).
Property, plant and equipment including intangible assets amounted to 13% of Fresenius Vamed's total assets. Since the business model has a low capital intensity, Fresenius Vamed achieved an excellent return on equity (ROE) before taxes of 21.0% (2010: 21.9%).
The project business comprises the consulting, project development, planning, turnkey construction, and financing management of projects. VAMED responds flexibly to clients'
local needs, providing custom-tailored solutions, all from one source. VAMED also carries out projects in cooperation with partners. In particular among public clients there is growing interest in public-private partnership (PPP) models. With these business models, hospitals or other health care facilities are planned, constructed, financed, and operated by public and private partners together through a joint project company.
The following highlights some of our main projects in the respective target markets of our project business:
We achieved another major success in Germany: On behalf of the hospitals in the Main-Taunus county, VAMED will construct a new hospital building in Hofheim. The purpose of the new building is to further increase treatment quality and to render hospital operations more efficient. The investment volume is €42 million. The turnkey construction project of the new examination and treatment center (U / B West) at the University Clinic in Cologne will be completed in 2012, at a cost of €65 million. Within the framework of the project, we have also been entrusted with the technical operational management for 25 years. The project for the construction of a new wing at a hospital in Cologne-Merheim, begun in 2009, is proceeding according to plan. A special feature of this contract is that we are carrying out the construction work while the hospital is still operating. The investment volume is €58 million.
In the Austrian market, the focus was on further PPP projects and holistic realization models. At the beginning of 2011, we completed the reconstruction and expansion of the rehabilitation facility Gars am Kamp. Operations have commenced successfully. In addition, we completed a center for psychosocial health in Rust. We also opened the la pura women's health resort in Kamptal. This one-of-a-kind exclusive hotellike facility focuses exclusively on women's health and offers services based on insights from modern gender medicine. It features a holistic prevention and treatment concept, which combines traditional medical approaches with proven methods from complementary medicine. At the Otto Wagner Hospital in Vienna, we started with the turnkey construction of an inpatient rehabilitation center to expand its orthopedic acute care services. VAMED will also be managing this facility. Having been awarded another contract for the expansion and management of a third nursing home, we are further expanding the existing PPP partnership for nursing homes in the Burgenland region.
Business Segments
In Bosnia, the large contract we received for the turnkey realization of the 220-bed Bijeljina General Hospital is proceeding according to plan.
In Romania, contracts were signed for the modernization and refurbishment of a total of three hospitals.
In Russia, work continued according to plan on the turnkey construction of a 300-bed hospital in Krasnodar. It is due to be completed in 2012. We were able to win a large contract for the reconstruction and expansion of the municipal hospital no. 4 in Sotschi. With 350 beds and 16 operating rooms, it will make a considerable contribution to the health care provided for the Olympic Winter Games in 2014. It is also considered a reference facility for further health care projects in Russia.
In Turkmenistan, the first orders for medical technology are already being processed.
In Gabon, the work on the turnkey construction of the specialist hospital for cancer diseases in Angondje was completed before schedule. Other extension projects at the central hospital in Libreville, begun in 2008, were continued according to plan.
In Ghana, we received a follow-up order for the construction of five additional turnkey polyclinics after having successfully completed and started up five initial polyclinics.
In Nigeria, we successfully finalized the total of 14 university clinics which we have modernized.
In Mali, we successfully entered the market by building a radiation therapy center.
Key markets in Asia are Malaysia, Vietnam, and China, where VAMED has been operating successfully for many years. High client satisfaction with the execution of existing contracts helped us win new contracts in China, among other countries. In 2011, we received a total of seven large-scale contracts for the supply of medical equipment from different provinces with a total investment volume of €33 million.
In Malaysia, we were asked to build the National Cancer Institute. The investment volume is €34 million.
In addition to its work relating to existing projects, VAMED received another pioneering contract in Vietnam: The expansion of the hospital in Hue with special oncology facilities.
In Laos, we successfully entered the market with the help of our first contract for the modernization and expansion of the Mahosot University Hospital.
In addition to existing projects in El Salvador, Peru, and Columbia, VAMED received a first order from Honduras. It involves the planning, delivery, installation, and start-up of medical equipment for two hospitals.
One year after the devastating earthquake, the new HÔpital Communautaire Autrichien – HaÏtien was opened in Haiti. It provides basic health care for tens of thousands of people. This project was made possible with the cooperation of several partners in Austria and Germany. VAMED acts as a partner for the facility and is operating the hospital during the starting phase.
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, ranging from building and equipment maintenance, medical technology management, waste management, energy management, security services, and the cleaning of buildings and outdoor facilities through to technical and operational management. With this integrated portfolio of services, we guarantee optimal operation of a facility over its entire life cycle, from the construction of the buildings to the end of primary use, modernization, or renewal. In addition to facility and operational management, we also specialize in logistics for the health care industry. By optimizing the processes, logistics costs are minimized while still maintaining the necessary supply standards.
The following gives an overview of the relevant developments in the target markets of our service business:
In 2011, VAMED successfully continued its 25-year partnership with University Clinic AKH in Vienna. In addition to VAMED's technical management role, which we have been performing since 1986, this included a number of structural building projects to round off the hospital's facilities. AKH is one of Europe's largest hospitals and comprises 30 clinics and institutes with a total of about 2,100 beds.
We also successfully continued performing the technical management of two hospitals in Lower Austria with a total of 1,230 beds. After AKH Vienna, this is the largest technical service contract ever awarded in Austria.
Counting the start-up of the rehabilitation facility in Gars am Kamp, VAMED is now operating seven rehabilitation facilities.
The PPP model in Oberndorf near Salzburg is a VAMED reference project for integrated health care. After having assumed the overall management responsibility in 2008, the expansion and remodeling project of the existing acute hospital as well as the turnkey construction of the rehabilitation center were successfully completed. The planned medical center will be built in 2012.
In Germany, the consortium Charité CFM Facility Management GmbH, headed by VAMED, has been responsible for all operations at Charité except the purely medical services since 2006. In 2011, approximately 2,600 employees again successfully carried out their services under this contract, which is one of the largest service contracts in the hospital sector in Europe.
The service contract with the University Clinic in Hamburg-Eppendorf was also continued to the customer's complete satisfaction. It has been renewed earlier than scheduled.
The five-year cooperation with the University Clinic Schleswig-Holstein, concluded in 2010, was successfully continued. The aim is to further improve the quality of IT-services and operate the IT-infrastructure more efficiently.
The total operational management contract in Abu Dhabi was once again prolonged. After the National Research Center for Maternal and Child Health in Astana, Kazakhstan with about 500 beds, the Al Ain Hospital in Abu Dhabi, United Arab Emirates is the second hospital in our target markets in Asia where we are responsible for the total operational management. All these projects are being conducted in cooperation with the Vienna and Graz University of Medicine and are important reference projects for VAMED's total operational management competence.
Through close market coverage, business in Thailand has also developed very positively for VAMED. After initial contracts in 2009, the service contract for the Ramathibodi University Clinic and the consulting contract for a medical spa in Bangkok were successfully continued.
In Gabon, VAMED is responsible for the overall management of a total of seven regional hospitals and for the technical management of the Omar Bongo Ondimba Hospital in Libreville.
As a result of the new health consciousness trend and desire for vitality, thermal spa and wellness resorts are acquiring ever greater importance as health facilities. Thanks to its many decades of experience in health care, VAMED was able to build a bridge between preventive medicine and health tourism with the thermal spas and the health resorts of the VAMED Vitality World and to develop a program that offers healthconscious guests both the benefits of a health-touristic facility as well as the natural experience of the surroundings. VAMED operates eight thermal spas and health resorts in six different Austrian states, and is therefore the market leader in this region.
In 2011, the resorts of VAMED Vitality World received not just one, but three of the internationally coveted World Travel Awards. The judges nominated the Tauern SPA Zell am See-Kaprun to be "Europe's Leading Lifestyle Resort 2011". The St. Martins Therme & Lodge took first in the "Austria's Leading Resort" category, and the Aqua Dome Tirol Therme in Längenfeld in the "Austria's Leading SPA Resort" category.
In Europe, the focus of VAMED's activities will continue to be on holistic realization and PPP projects in 2012. As health care facilities have high value for preventive care, and health tourism is becoming increasingly popular, we see development potential in this segment as well. Outside Europe, the focus will be on custom-tailored solutions for hospitals along the VAMED value chain.
Further information on VAMED can be found on its website at www.vamed.com.
Please see page 117 of the Management Report for the 2012 financial outlook of Fresenius Vamed.
MANAGEMENT REPORT. 2011 was an excellent year for Fresenius. We again achieved record sales and earnings. All business segments contributed to the strong sales and earnings growth. We also improved our profitability and increased Group net income by 18% in constant currency.
Fresenius is an international health care group with products and services for dialysis, hospitals, and outpatient medical care. In addition, Fresenius focuses on hospital operations and offers engineering and services for hospitals and other health care facilities.
The Annual General Meeting of Fresenius SE on May 12, 2010 had approved the change of the Company's legal form into an SE & Co. KGaA (a partnership limited by shares). The change was registered with the commercial register and thereby became effective on January 28, 2011. Fresenius SE
has since been operating as Fresenius SE & Co. KGaA. As part of the transaction, all non-voting preference shares in Fresenius SE were mandatorily converted into voting ordinary shares at a 1:1 exchange ratio. The Company's total share capital remained unchanged.
The operating business comprises the business segments, all of which are legally independent entities managed by the operating parent company Fresenius SE & Co. KGaA. This Group structure has not changed in the reporting period.
▶ Fresenius Kabi specializes in infusion therapies, intravenously administered drugs (IV drugs), and clinical nutrition for critically and chronically ill people in hospitals and outpatient care. The company is also a leading supplier of medical devices and products in the area of
▶ Fresenius Helios is one of the largest private hospital operators in Germany. The HELIOS-Kliniken Group operates 65 proprietary clinics, of which 64 are located in Germany and one in Switzerland. HELIOS has a total of more than 20,000 beds.
The Fresenius Group operates internationally and all business segments have a regional and decentralized structure. Responsibilities are clearly defined in line with the Company's "entrepreneur in the enterprise" management principle. Additionally, management accountability is reinforced by an earnings-oriented and target-linked compensation system. Fresenius has an international sales network and maintains more than 80 production sites around the globe. Large production sites are located in the United States, China, Japan, Germany, and Sweden. Production plants are also located in other European countries, in Latin America, Asia-Pacific, and South Africa. This international production network allows us to implement our business model while meeting the most exacting logistical and regulatory requirements. The decentralized structure of the production sites also substantially reduces transportation costs and currency exposure.
Since the change of legal form to a KGaA took effect, 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 the Else Kröner-Fresenius-Stiftung. The KGaA has a two-tier management system – management and control are strictly separated.
The Management Board of the general partner conducts the business and represents the Company in dealings with third parties. It has seven members. According to the Management Board's rules of procedure, each member is accountable for his 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. All twelve members of the Supervisory Board are appointed by the General Meeting, with six of the members, who can come from various European countries, being appointed on the basis of a proposal put forward by the employees. The General Meeting is bound by the employees' proposal.
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 218 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 14 to 33 of this annual report and on our website www.fresenius.com, see Who we are − Corporate Governance.
The description of both the compensation structure 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 26 to 33 of this annual report. The Compensation Report is part of the Group's Management Report.
Fresenius Medical Care offers a comprehensive range of products for hemodialysis and peritoneal dialysis, and provides dialysis care at its own dialysis clinics in about 40 countries. Dialyzers, dialysis machines and renal pharmaceuticals are among the most important product lines in the dialysis products business. These products are sold to Group clinics as well as to external dialysis care providers in more than 120 countries. In the United States, the company also performs clinical laboratory tests. Fresenius Kabi is one of the few companies to offer a comprehensive range of enteral and parenteral nutrition therapies. The company also offers a broad spectrum of products for fluid and blood volume replacement as well as an extensive portfolio of IV drugs. Fresenius Kabi's portfolio consists of more than 100 product families. The company sells its products mainly to hospitals in over 160 countries. Fresenius Helios treats more than 2 million patients, thereof about 700,000 inpatients each year at its hospitals. Fresenius Vamed provides engineering and services for hospitals and other health care facilities internationally.
Fresenius operates in about 80 countries through its subsidiaries. The main markets are Europe and North America. Fresenius generates 42% of its sales in Europe and 41% in North America.
Fresenius Medical Care is the worldwide leader in dialysis. The company holds the leading position in dialysis care as it treats the most dialysis patients, and operates the largest number of dialysis clinics. In dialysis products, Fresenius Medical Care is also the leading supplier, with a market share
of about 33%. Fresenius Kabi holds leading market positions in Europe and has strong positions 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 one of the top three private hospital operators in Germany. Fresenius Vamed is one of the world's leading companies specializing in engineering and services for hospitals and other health care facilities.
The markets of the Fresenius Group are fundamentally stable and relatively independent of economic cycles due to the intrinsic importance of the life-saving and life-sustaining products and treatments that the Group offers. The markets in which we offer our products and services are expanding, mainly for three reasons:
Furthermore, the diversification across four business segments provides 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 of the U.S. dollar to the euro. In 2011, this had a negative impact on the statement of income due to the altered average annual exchange rate between the U.S. dollar and the euro of 1.39 in 2011 as compared to 1.33 in 2010. The changed spot rate of 1.29 as of December 31, 2011 – compared to 1.34 as of December 31, 2010 – also had an impact on the balance sheet.
There were no legal aspects that significantly affected business performance in 2011.
On the whole, the legal and economic factors for the Fresenius Group were largely unchanged, so the Group's operating business was not materially affected.
The summary below shows the subscribed capital of Fresenius SE & Co. KGaA. The shares of Fresenius SE & Co. KGaA are nonpar-value bearer shares. Shareholders' rights are regulated by the German Stock Corporation Act (AktG – Aktiengesetz).
The change of legal form to a KGaA was registered with the commercial register on January 28, 2011, and thereby became effective. In accordance with the resolution of the General Meeting and the articles of association of Fresenius SE & Co. KGaA, all the ordinary shares of Fresenius SE thereby became ordinary shares of Fresenius SE & Co. KGaA. At the same time, all non-voting preference shares of Fresenius SE were mandatorily converted at a 1:1 exchange ratio into voting ordinary shares of Fresenius SE & Co. KGaA. The Company's total share capital remained unchanged.
By resolution of the Annual General Meeting on May 13, 2011, the previous Authorized Capitals I to V were revoked and a new Authorized Capital I was created.
Accordingly, 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 €40,320,000.00 until May 12, 2016, 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, adjusted for stock options that have been exercised in the meantime:
▶ The subscribed capital is conditionally increased by up to €888,428.00 through the issuance of new bearer ordinary shares (Conditional Capital I). The conditional capital
increase will only be executed to the extent that subscription rights have been issued under the 1998 Stock Option Plan and the holders of these subscription rights exercise their rights.
Fresenius SE & Co. KGaA does not have a share buyback program.
Direct and indirect ownership interests in Fresenius SE & Co. KGaA are listed on page 178 of the Notes. The Else Kröner-Fresenius-Stiftung, as the largest shareholder, informed the Company on December 30, 2011, that it held 46,871,154 ordinary shares of Fresenius SE & Co. KGaA. This corresponds to an equity interest of 28.71% as of December 31, 2011.
Amendments to the articles of association are made in accordance with Section 278 (3), 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,
| December 31, 2011 | December 31, 2010 | |||
|---|---|---|---|---|
| Number of shares |
Subscribed capital € |
Number of shares |
Subscribed capital € |
|
| Ordinary shares / capital | 163,237,336 | 163,237,336.00 | 81,225,045 | 81,225,045.00 |
| Preference shares / capital | 0 | 0 | 81,225,045 | 81,225,045.00 |
| Total | 163,237,336 | 163,237,336.00 | 162,450,090 | 162,450,090.00 |
amendments of 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 which only concern their wording without a resolution of the General Meeting.
A change of control as the result of a takeover bid under certain circumstances could impact some of our long-term financing agreements embodying change of control agreements. These agreements are customary change of control clauses that grant creditors the right of premature call in the event of a change of control. However, the right of premature call usually only becomes effective if the change of control is followed by a downgrading of the Company's rating.
The Management Board controls the business segments by setting strategic and operative targets and through various financial ratios. In line with our growth strategy, organic growth is a key performance indicator. Operating income (EBIT – earnings before interest and taxes) is another useful yardstick for measuring the profitability of the business segments.
In addition to operating income, EBITDA (earnings before interest and taxes, depreciation and amortization) is a good indicator of the business segments' ability to achieve positive cash flows and to service their financial commitments. The criteria on which the Management Board measures the performance of the business segments are selected Group-wide in such a way that they include income and expenses within the control of these segments. We also control the operating cash flow contributions of our business segments on the basis of days sales outstanding (DSO) and scope of inventory (SOI).
Financing is a central Group function over which the business segments have no control. The financial targets for the business segments therefore exclude both interest payments resulting from financing activities and tax expenses.
Another key performance indicator at the Group level is the debt 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. The Group's business segments hold important market positions, and operate in growing and mostly noncyclical markets. They generate stable, predictable, and sustainable 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 sectors.
At Group level we use return on operating assets (ROOA) and return on invested capital (ROIC) as benchmarks for evaluating our business segments and their contribution to Group value added. Group ROIC was at 8.8% (2010: 8.9%), and Group ROOA was at 10.9% (2010: 11.6%). The strong earnings growth in all business segments corresponds with an increase in total assets. This increase is a result of the expansion of the existing business, acquisitions and currency translation effects. Within the position invested capital, the goodwill in the amount of €12.7 billion had a significant effect on the calculation of the ROIC. It is important to take into account that about 65% of the goodwill is attributable to the strategically significant acquisitions of National Medical Care in 1996, Renal Care Group and HELIOS, both in 2006 and APP Pharmaceuticals in 2008. Those have significantly strengthened the position of the Fresenius Group. We expect a continuing improvement in ROIC and ROOA in the future.
The summary shows ROIC and ROOA by business segment:
| ROIC | ROOA | |||
|---|---|---|---|---|
| in % | 2011 | 2010 | 2011 | 2010 |
| Fresenius Medical Care | 8.7 | 8.8 | 12.0 | 12.5 |
| Fresenius Kabi | 10.0 | 9.0 | 12.4 | 11.9 |
| Fresenius Helios | 8.3 | 7.5 | 8.4 | 7.8 |
| Fresenius Vamed1 | – | – | 16.0 | 22.2 |
| Group | 8.8 | 8.9 | 10.9 | 11.6 |
1 ROIC: Invested capital is insignificant due to prepayments, cash, and cash equivalents.
We calculate our cost of capital as weighted average of the cost of equity and the cost of debt. The WACC (weighted average cost of capital) of Fresenius Medical Care and the WACC of the other business segments was 6.3% and 5.9%, respectively, in 2011 and was clearly exceeded by Group ROIC of 8.8%.
Our investments are generally 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 an internal Acquisition& Investment Council (AIC) determine the individual projects and measures while taking into account the overall strategy, the total budget, and the required and potential return on investment. The investment projects are evaluated based on commonly used methods, such as internal rate of return (IRR) and net present value (NPV). The respective investment project is then finally 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 if the projects exceed a given size.
Our goal is to build Fresenius into a leading global provider of products and therapies for critically and chronically ill people. We are concentrating our business segments on a few 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. Our aim is:
The key elements of Fresenius Group's strategy and goals are:
▶ To expand our market position: Fresenius' goal is to ensure the long-term future of the Company as a leading international provider of products and services in the health care industry and to grow its market share. Fresenius Medical Care is the largest dialysis company in the world, with a strong market position in the United States. Future opportunities in dialysis will arise from further international expansion in dialysis care and products and in renal pharmaceuticals. 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 through APP Pharmaceuticals. To strengthen its position, Fresenius Kabi plans to roll out more products from its portfolio to the growth markets. Market share is also to be expanded further through the launch of new products in the field of IV drugs and new medical devices for infusion therapy and clinical nutrition. In addition, products from the existing portfolio are to be launched in the U.S. market. Fresenius Helios is in a strong position to take advantage of the further growth opportunities offered by the continuing privatization process in the German hospital market. Investment decisions are based on the continued existence and long-term potential of the hospitals to be acquired. Fresenius Vamed will be further strengthening its position as a global specialist provider of engineering and services for hospitals and other health care facilities.
chronically ill. Fresenius Helios' goal is to widen brand recognition for its health care services and innovative therapies. Fresenius Vamed's goal is to realize further projects in integrated health care services and to support patient-oriented health care systems more efficiently.
▶ To enhance profitability: our goal is to continue to improve Group profitability. To contain costs, we are concentrating particularly on making our production plants more efficient, exploiting economies of scale, leveraging the existing marketing and distribution infrastructure more intensively, and practicing strict cost control. By focusing on our operating cash flow and employing efficient working capital management, we will increase our investment flexibility and improve our balance sheet ratios. Another goal is to optimize our weighted average cost of capital (WACC) by deliberately employing a balanced mix of equity and debt funding. In present capital market conditions we optimize our cost of capital if we hold the net debt/EBITDA ratio within a range of 2.5 to 3.0. It was 2.8 as of December 31, 2011. At the end of 2012, we expect Group leverage to be ≤3.0, due to the recently announced acquisitions.
We report on our goals in detail in the Outlook section on pages 110 to 120.
The global economy continued to grow in 2011 in spite of events that curbed business activities. Effects from the strong increase of the oil price, which was caused by political unrest in the Arabic region and the earthquake in Japan, were mostly handled by the middle of 2011. An economic slow-down and the escalation of the debt crisis in some industrial countries, however, led to uncertainty and continued volatility in the stock markets during the second half of the year. In spite of the subsequent recovery, the global economic situation remained tense. During the first half of 2011, the main positive effects on the economy were the continuous expansive monetary and fiscal policy of the industrial countries and the still consistent export and investment demand.
Against the backdrop of the weak economy of the industrial countries, the robust economic development in developing and emerging market economies increasingly proved to be the most important pillar of the global economy. In 2011, their average growth was more than three times as high as that of industrial countries and contributed more than half to the growth in global production. Once again, the People's Republic of China provided important impulses, but Brazil and India have also gained significantly in importance. In 2011, the global economy grew by approximately 3.6% (2010: 5.2%).
| in % | 2010 | 2009 |
|---|---|---|
| United States | 19.5 | 20.4 |
| China | 13.6 | 12.6 |
| Japan | 5.8 | 6.0 |
| India | 5.5 | 5.1 |
| Germany | 4.0 | 4.0 |
| Russia | 3.0 | 3.0 |
Sources: IMF, World Economic Outlook 2011, 2010
In Europe, the growth in 2011 was associated with the slow recovery of the Eurozone during the previous year. The GDP growth declined to 1.6% (2010: 1.9%). The development in the individual countries, however, was very heterogenous: Germany experienced above-average growth, whereas Italy and Spain remained below average. In Portugal (-1.5%) and Greece (-5.3%), the GDP decreased.
The unchanged high unemployment rate of about 10.0% in 2011 prevented a general recovery of the already weak private consumption demand in the Eurozone. While the unemployment rates decreased in Germany, Austria, the Netherlands, and Italy, the situation in the labor market worsened in many countries, including Ireland, Portugal, Greece, and Spain. The effects of the real estate crisis remained especially still noticeable in Spain and Ireland.
The high debt level, the credit rating downgrade by the rating agencies, and the increased risk markup for treasuries especially in the peripheral countries of the Eurozone increased the pressure to pursue ambitious consolidation plans. The economies of the countries in Southern Europe need to become more efficient; with public sector reform especially urgent. Some core countries must also make efforts to bring debt down to sustainable levels. By the end of 2011, problems in the Eurozone finally caused the euro to reach its all-time low against the U.S. dollar since September 2010.
The economic recovery in Germany continued in 2011. Although the good export demand from the first half of the year decreased due to the slowdown of the global economy towards the end of the year, GDP still rose by an average of 3.0% in 2011 (2010: 3.6%). The stable domestic demand, the relatively solid public finance situation, and the decreased unemployment rate contributed to the positive development.
The emerging economies in Central and Eastern Europe face problems that are similar to those of many industrial countries. Restrictive stance of the fiscal policy dampened economic development, and only a few countries, such as Poland, were able to counter with robust private demand. GDP in that region grew by about 3.5%.
The economy in the United States somewhat recovered after a weak first half of 2011; GDP grew by 1.7% in 2011, which is below the previous year's level of 3.0%. The main reasons for this growth were private consumption and increased investment demand, predominantly from the manufacturing industry, which is gaining in importance.
Also in 2011, the ailing U.S.real estate market was unable to make a true recovery. The labor market with an unemployment rate of about 9.0% – including many long-term unemployed – picked up somewhat, but in essence remained structurally weak. While the private sector created jobs, the public sector cut the number of jobs.
In the U.S., the debt to economic strength ratio has increased since 2008 by 30% to its current 100%. The country was consequently threatened with insolvency during the summer of 2011; its credit rating was downgraded for the first
time since the postwar period. In order to stimulate the economy, the U.S. Federal Reserve continued its expansive monetary policy and significantly increased the amount of U.S. Treasuries on its balance sheet. In September 2011, "Operation Twist" was implemented, in which short-term bonds were traded for long-term bonds with a volume of US\$400 billion with the goal of lowering interest rates.
The U.S. would like to save US\$4.4 trillion over the course of the next ten years in order to stabilize its debt level. Current estimates of likely debt restrictions project total savings of US\$1.2 trillion already in 2013. Expense cuts are planned in all public budgets.
The prospering countries in Asia once again proved to be an important pillar of the global economy. Asia continues to be the most dynamic region in the world. GDP in Asia (excluding Japan) grew by 7.3% in 2011 (2010: 9.4%).
China and India recorded the highest growth rates, with 9.1% (2010: 10.3%) and 7.3% (2010: 9.9%), respectively. Both countries distinguished themselves with pronounced intra-regional networking of their markets and lively domestic demand development. A low unemployment rate, especially in China, productivity gains, and rising wages fostered private consumption. Investment expenses increased due to high capacity utilization and infrastructural initiatives.
In order to counter rising inflation and overheating, the Chinese Central Bank increased the prime rate at the end of 2010 to reduce lending. Thanks to additional measures, the Chinese currency appreciated significantly against the U.S. dollar. After several years of a less expansive monetary policy, a trend towards monetary easing measures has been observed in some emerging economies since the end of 2011: China for instance decreased its minimum reserve requirements in order to counter a cool-down in the economy.
In March 2011, the earthquake and tsunami disaster shook the economy in Japan and significantly impacted the already weak economic development. Experts estimate the financial loss at up to 4.0% of GDP. In spite of additional interventions by the central bank, the significantly appreciated domestic currency continues to put a strain on the Japanese export industry. In 2011, GDP decreased by -0.8% (2010: +4.5%).
The other Asian countries were only slightly affected by the financial crisis. Most of these countries continued to benefit from the revival of world trade. This positive growth environment and the structural catch-up process explain the much higher growth rates in some cases compared to the developed industrial countries.
Stable domestic demand and decreased dependency on developments in the U.S. led to a good, but lower growth of 4.3% (2010: 6.1%) in the Latin American countries compared to the previous year. Due to increased trading relationships with other emerging economies, countries such as Brazil, Argentina, and Chile were less affected by the weak economies of the industrial countries than countries that were highly integrated with industrial countries.
Due to continued strong trading ties with the U.S. and higher inflation rate, the GDP increase in Mexico declined compared to year 2010 to 3.9% in 2011 (2010: 5.5%).
In 2011, Latin America's biggest economy Brazil was unable to maintain the upward trend of the previous year, which was mainly driven by private consumption. Steps taken to slow down inflation and credit development also decreased economic growth, until the Brazilian central bank initiated a surprise reversal of its monetary policy in August 2011 by lowering the prime rate. Further economic stimulating is expected from the reduction of the consumption tax. Overall, the GDP growth rate clearly decreased to 2.8% (2010: 7.5%).
Argentina, however, again registered the highest increase in the region in 2011, and raised GDP by 7.8% (2010: 9.2%).
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 9.5% of GDP in the OECD countries in 2009, with an average of US\$3,223 spent per capita. The United States had the highest per capita spending (US\$7,960), as in previous years, followed by Norway (US\$5,352) and Switzerland (US\$5,144). Germany ranked ninth among the OECD countries with per capita spending of US\$4,218.
| in % | 2009 | 2000 | 1990 | 1980 | 1970 |
|---|---|---|---|---|---|
| USA | 17.4 | 13.6 | 12.2 | 9.0 | 7.1 |
| France | 11.8 | 10.1 | 8.4 | 7.0 | 5.4 |
| Germany | 11.6 | 10.3 | 8.3 | 8.4 | 6.0 |
| Switzerland | 11.4 | 10.2 | 8.2 | 7.3 | 5.4 |
Source: OECD Health Data 2011
Per capita health care spending in the OECD countries grew at an average annual rate of 4% between 2000 and 2009. In Germany, per capita health care spending increased by 2% per year over the same period. This is one of the smallest increases among all OECD countries during this period. The relatively slow growth in health care spending in Germany is due in particular to the introduction of cost-containment measures.
The public sector is the main source of health funding in all OECD countries, except Chile, the United States and Mexico, where public spending was below 50% in 2009. In Germany, 76.9% of health spending was funded by public sources in 2009, above the average of 71.7% in the OECD countries, but below the over 80% public share in the Czech Republic, Japan and Luxembourg (both in 2008), New Zealand as well as several Nordic countries, such as Sweden.
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 2009, the average life expectancy in the OECD countries was 79.5 years. In Germany, life expectancy of 80.3 years was nearly a year more than the OECD average. Japan has the highest life expectancy of all OECD countries with 83 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 pressures arising from medical advances and demographic change. Market-based elements are increasingly being introduced in the health care system to create incentives for cost and quality-conscious behavior. Overall treatment costs shall be reduced through improved quality standards and optimized medical processes. In addition, ever greater importance is being placed on disease prevention and innovative reimbursement models linked to treatment quality standards.
In the United States, the government passed a sweeping health care reform in 2010. It is planned to phase-in health insurance coverage for the roughly 46 million people – about 15% of the population – who are currently not insured. Basic health insurance is to be compulsory from 2014 onwards. Larger companies must offer their employees health insurance coverage, while small companies and low-income households will receive government assistance to take out health insurance. Several lawsuits have been filed in federal courts challenging the constitutionality of the reform, some of which upheld it while others declared portions of it a violation of the U.S. Constitution. A decision of the United States Supreme Court is expected in 2012.
Our most important markets developed as follows:
In 2011, the value of the global dialysis market was approximately US\$75 billion, equivalent to growth of 4% in constant currency. The market for dialysis care (including renal pharmaceuticals) accounted for approximately US\$62 billion and the market for dialysis products for about US\$13 billion.
The number of dialysis patients worldwide increased by about 6% to around 2.2 million. The pie chart shows their regional distribution:
Prevalence, which is the number of people with terminal kidney failure treated per million population, differs widely from region to region, ranging from well below 100 to over 2,000 patients per million population (p. m. p.). Prevalence is highest in Taiwan with 2,850 p. m. p., followed by Japan with 2,520 p. m. p., and the United States with approximately 1,950 p. m. p. It averages about 1,050 in the 27 countries of the European Union. The far lower global average of approximately 400 p. m. p. is due, on the one hand, to differences in age demographics, distribution of renal risk factors (such as diabetes and hypertension), and genetic pre-disposition 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. A comparison of economic output and national prevalence rates suggests that access to treatment is restricted especially in countries where GDP per capita is less than US\$10,000 per person per year. In countries with a higher GDP, there is no noticeable correlation between economic strength and prevalence. However, the generally rising global prevalence rate suggests that more and more people are receiving renal replacement therapy treatment over the years.
Of the around 2.2 million patients receiving regular dialysis treatment in 2011, more than 89% are treated with hemodialysis, while about 11% choose peritoneal dialysis. The majority of hemodialysis patients are treated in dialysis clinics. There are about 31,700 dialysis clinics worldwide with an average of 70 hemodialysis patients per clinic.
The organization of the clinics varies significantly depending on whether the health systems in the individual countries are state-run or private: In the United States, most of the approximately 5,800 dialysis clinics are run privately, and only about 1% are publicly operated. By contrast, about 60% of the approximately 5,400 dialysis clinics in the European Union are publicly owned. In Japan, private nephrologists play a key role, treating about 80% of dialysis patients in their facilities.
In the United States, the market for dialysis care is already highly consolidated. Taken together, Fresenius Medical Care and the second largest provider of dialysis care − DaVita − treat about 66% of all U.S. dialysis patients. In 2011, Fresenius Medical Care maintained its market-leading position of approximately 33%.
Outside the United States, the markets for dialysis care are much more fragmented. Here, Fresenius Medical Care competes mainly with independent clinics and with clinics that are affiliated with hospitals. Fresenius Medical Care operates 1,081 dialysis clinics in about 40 countries and treats approximately 95,000 patients. Together, these represent by far the largest and most international network of dialysis clinics.
In 2011, the number of peritoneal dialysis patients worldwide was about 237,000. Fresenius Medical Care has a market share of about 19% (2010: 17%) according to sales. The increase in the market share is mainly a result of the acquisition of Gambro's global peritoneal dialysis business, closed in December 2010. Fresenius Medical Care is the global No. 2 in this market after Baxter. In the United States, our market share was 41%.
Dialysis reimbursement systems differ from country to country and often vary even within individual countries. In the United States, the treatment costs for terminal kidney failure are covered by the public health insurers. 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 2011, CMS reimbursements accounted for about 30% of Fresenius Medical Care's revenues. Changes in the CMS rates or method of reimbursement therefore have a significant importance on our business in North America.
In the dialysis products market, the most important products are dialyzers, hemodialysis machines, concentrates and dialysis solutions, and products for peritoneal dialysis. Fresenius Medical Care is the world market leader in dialysis products with a market share of about 33%, followed by Baxter with 19% and Gambro with 13%. These top three manufacturers serve about 65% of the market demand. Each of the other competitors, mainly from Japan, have a single-digit percentage market share.
Dialyzers are the largest product group in the dialysis market with a worldwide sales volume of around 211 million units in 2011. Around 93 million, or almost half, were produced by Fresenius Medical Care.
Of the approximately 73,000 new hemodialysis machines that were brought onto the market in 2011, about 55% were from Fresenius Medical Care. In the United States, our most important business region, Fresenius Medical Care had a share of over 80% of the independent market in these two product segments. We define the independent market as all dialysis clinics that do not belong to the major dialysis care provider Fresenius Medical Care or DaVita. In 2011, China was our second largest market, where we sold more than 6,030 new hemodialysis machines. Over 49%, or almost half of all machines used in China, were produced by Fresenius Medical Care.
In the market for infusion therapy and clinical nutrition, therapies that offer high standards of health care paired with cost advantages are increasingly gaining importance in Central and Western Europe due to the general cost pressure. Studies show that, in cases of health or age-induced nutritional deficiencies, the administration of food supplements can reduce hospital costs by an average of €1,000 per patient – through shorter stays and less nursing care. At the time when they are admitted to hospital, at least 25% of all patients in Europe are suffering from nutritional deficiencies, or have an elevated risk of developing nutritional deficiencies. Much higher figures of 50 to 60% are reported for people who require nursing care, especially the elderly. The costs caused by healthinduced nutritional deficiencies are about €170 billion per year Europe-wide.
In Central and Western Europe, the total market for infusion therapy and clinical nutrition is growing at a low singledigit rate. Growth rates are in the high single to double digits in the emerging markets of Asia-Pacific, Latin America, and Eastern Europe.
Based on its own estimates, Fresenius Kabi considers its relevant market for infusion therapy and clinical nutrition (excluding the United States and Japan) to be about €9 billion.
We also expect the demand for generics to continue growing. Generic drugs are more advantageous from health economics aspects than original drugs because of their significantly lower price and they already make a vital contribution to health care today. In our view, and judged from today's
vantage point, the focus is mainly on the pricing of patented drugs and the prescription drugs segment in the pharmacy market.
The market for IV generics is characterized by moderate volume growth, steady price erosion, and fierce competition. Growth is mainly achieved through new generics that are brought to market when the original drug goes off-patent. In Europe and the United States, the market for IV generics is growing at a mid-single-digit rate. We expect the U.S. market for IV drugs that go off-patent from 2012 to 2022 to grow to approximately US\$20 billion on a cumulative basis. These figures are based on the sales of the original drugs in 2010 and do not take account of the usual price erosions for generics. We therefore see considerable growth potential for generic drugs.
Based on its own estimates, Fresenius Kabi considers its relevant market for intravenously administered generics (without Japan) to be around €15 billion.
The market for medical devices for infusion therapy, IV drugs, and clinical nutrition is growing in Europe at midsingle-digit rates. Here, the main growth drivers are technical innovations that focus on application safety and therapy efficiency.
The total volume for hospital treatment (excluding research and teaching) in Germany was about €77 billion in 2010. This was approximately one-fourth of total health care expenditures. Personnel costs account for about 61% of hospital costs, and material costs for 39%. Personnel and material costs rose by 3.6% each.
| 2010 | 2009 | 2008 | 2007 | 2006 | Change 2010/2009 |
|
|---|---|---|---|---|---|---|
| Hospitals | 2,064 | 2,084 | 2,083 | 2,087 | 2,104 | -1.0% |
| Beds | 502,749 | 503,341 | 503,360 | 506,954 | 510,767 | -0.1% |
| Beds per 1,000 population | 6.15 | 6.15 | 6.13 | 6.16 | 6.20 | 0% |
| Length of stay (days) | 7.9 | 8.0 | 8.1 | 8.3 | 8.5 | -1.3% |
| Number of admissions (millions) | 18.03 | 17.82 | 17.52 | 17.18 | 16.83 | 1.2% |
| Average costs per admission in €1 | 4,432 | 4,327 | 4,146 | 4,028 | 3,932 | 2.4% |
1 Total costs, gross
Source: German Federal Statistics Office
The number of hospitals in 2010 was 2,064 (2009: 2,084). After declining for years, the number of beds only fell slightly to 502,749 (2009: 503,341). Over the last five years the number of beds has declined at an average annual rate of 0.4%. Nonetheless, with 6.15 beds per 1,000 population, Germany is still well above the OECD average of 3.5 (2009). The average stay of a patient in an acute care clinic in Germany fell slightly over the same period and was 7.9 days in 2010 (2009: 8.0 days).
On the other hand, the number of inpatient admissions has increased. This is largely due to changing demographics. In 2010, the number of admissions increased by about 216,000 or 1.2% compared to 2009 and increased for the first time to more than 18 million. This is equivalent to 221 admissions per 1,000 population (2009: 218). Other countries rank well below the German level. In the years 2006 to 2010, the number of admissions in Germany has risen at an average annual rate of 1.7%. The average costs per admission have increased by 3.0% on average over the five years leading up to 2010.
According to a survey by the German Hospital Institute (DKI), the economic situation at many hospitals in Germany remains difficult: 48.8% of the hospitals expect to earn a surplus in 2011 (2010: 56%), 20.6% expect to make a loss (2010: 16%), and 30.6% expect to break even (2010: 28%). Of the clinics surveyed, about 41% assess their economic situation as good and 18% as unsatisfactory. The other 41% saw the situation as mixed. Consequently, the assessment of the economic situation has worsened even further compared to the previous year.
Many hospitals are facing a difficult economic and financial situation as well as significant investment needs. This is due in large part to an investment backlog that has accumulated because the federal states have not met their statutory obligation to finance necessary investments and major maintenance measures sufficiently in the past due to budget constrains. Moreover, the investment needs are mainly driven by technological advances, higher quality requirements, and necessary modernizations. The Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) estimates that the investment backlog at German hospitals is about €14 billion.
According to the German Federal Statistics Office, the privatization trend in the German hospital market continued in 2010, albeit on a modest scale, with the share of private
Source: German Federal Statistics Office
hospital beds rising to 16.9% (2009: 16.6%). However, as the chart shows, with a share of 48.6%, the bulk of the hospital beds continued to be in the public sector (2009: 48.7%).
In 2011, however, the privatization of hospitals increased once again: According to our research, about €850 million in hospital transaction revenues were acquired in 2011, which was a significant increase compared to the previous year (2010: €230 million).
Quality is increasingly becoming a key competitive factor for the hospital market. Transparency and comparability of the treatments for the patients and their doctors will play an ever more decisive role.
In 2010 the post-acute care market in Germany comprised a total of 1,237 clinics, almost the same as the year before. The number of beds was 171,724 (2009: 171,489). 56.1% (2009: 55.8%) of the clinics were private clinics. An almost unchanged 25.9% (2009: 26.1%) were independent non-profit clinics and the share of public clinics decreased to 17.9% (2009: 18.1%). Private clinics accounted for 67.0% of the total number of post-acute care beds (2009: 66.8%). Independent non-profit clinics and public clinics accounted for 15.8% (2009: 16.0%) and 17.2% (2009: 17.3%), respectively. The total number of admissions in Germany decreased by about 30,800 admissions to 1.97 million. The average length of stay decreased to 25.4 days (2009: 25.5 days).
The market for engineering and services for hospitals and other health care facilities is very country-specific and depends to a large extent on factors such as public health care policies, government regulation, levels of privatization, economic conditions, and demographics.
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.
The development of the world economy had an only negligible impact on our industry. On the whole, the health care sector, both in mature and growth markets, developed positively for Fresenius in 2011, with a continued increasing demand for health services. Strong demand for its products and services enabled Fresenius to grow with its respective markets or even outpace their growth.
In 2011, the Fresenius Group's positive development was again driven to a large extent by the very good operating development in all business segments. Acquisitions, mainly at Fresenius Medical Care, further strengthened organic growth.
The annual financial statements for 2011 include for the last time special effects of the mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) relating to the acquisition of APP Pharmaceuticals in 2008. The special effects were also included in the annual financial statements 2010. The adjusted earnings figures represent the Group's business operations in the given reporting period.
As the CVR were delisted in March 2011, the effect relates solely to Q1 2011. As the MEB came to maturity on August 14, 2011, no further effect will occur after Q3 2011.
The Management Board is of the opinion that the Fresenius Group's performance in 2011 was excellent – with sales and earnings improvements across all business segments. Fresenius Medical Care sustained its positive performance trend with organic sales growth of 2% and a significant increase in earnings. Fresenius Kabi once again reported excellent results and exceeded the already strong previous year's base, which was bolstered by supply constraints at competitors. Fresenius Kabi profited from the continued strong demand for products and generally outperformed the market. This was reflected in excellent organic growth of 9% and a strong increase in earnings. Fresenius Helios also achieved excellent organic growth of 4% and further improved its earnings. Growth at Fresenius Vamed was affected by the challenging previous year's figure, which included a substantial order from the Ukraine, and by the unrest in the Middle East/North Africa region. Fresenius Vamed still managed to increase sales by 3% and achieved further earnings growth of 13%, as well as an increase in order backlog, which is an important indicator for the project business. In 2011, order intake was slightly below the previous year's figure.
For 2011, we had assumed that strong demand for our products and services would continue despite ongoing costcontainment efforts in the health care sector. This proved to be the case.
We achieved our guidance of approximately 6% sales growth in constant currency. As the table below shows, we initially increased our guidance over the course of the year. Due to the sales growth in the first three quarters of 2011, we had to slightly reduce it. Net income 1 reached new records: The outlook for fiscal year 2011 was increased a total of four times based on the excellent earnings growth at Fresenius Kabi and Fresenius Helios. We finally expected net income to increase by 18% in constant currency. With 18%, we met this target. Fresenius Kabi and Fresenius Helios also fully achieved their sales and earnings guidance. At the beginning of August, Fresenius Vamed slightly revised the sales and earnings targets downwards due to the unrest in the region Middle East/ North Africa and the resulting impact on the project business. Fresenius Medical Care slightly reduced its sales target in December. Both business segments fully met their revised guidance.
The Group's cost positions in 2011 developed as expected. Cost of sales were improved as percentage rate of sales, and at the same time operating expenses increased slightly. We increased our R & D expenses as planned. With 4%, they are fully within the targeted range of approximately 4% to 5% of our product sales.
Fresenius invested €783 million in property, plant and equipment in 2011, equivalent to about 5% of Group sales. That was well in line with the budgeted level of about 5% as percentage of sales.
We also clearly exceeded our guidance for operating cash flow with a cash flow rate of more than 10%. We had forecasted a cash flow rate at a high single-digit percentage rate of sales.
In 2011, we increased Group sales by 6% in constant currency and by 3% at actual rates to €16,522 million (2010: €15,972 million).
The chart shows the various influences on Fresenius' Group sales. Organic growth was 4%, acquisitions contributed 2%. Currency translation had a negative impact of 3%. More information can be found on page 53.
There were no significant consequences from changes in product mix. Changes relate to price effects, mainly attributable to our dialysis business in the U.S. as a result of the introduction of the new reimbursement system based on a bundled rate. No significant changes are currently expected in these two factors in the foreseeable future.
| Increased guidance announced in December 2011 |
Achieved in 2011 |
|---|---|
| Group | Targets for 2011 announced in February 2011 |
Increased guidance announced in May 2011 |
Increased guidance announced in August 2011 |
Adjusted guidance announced in November 2011 |
Increased guidance announced in December 2011 |
Achieved in 2011 |
|---|---|---|---|---|---|---|
| Sales (growth, in constant currency) | ≥7% | 7 – 8% | ~6% | 6% | ||
| Net income (growth, in constant currency) 1 |
8 – 12% | 12 – 16% | 15 – 18% | upper half of range |
~18% | 18% |
1 Net income attributable to Fresenius SE & Co. KGaA adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) relating to the acquisition of APP Pharmaceuticals. Both are non-cash items.
Sales growth by region was as follows:
The largest regions in the Group are Europe and North America, contributing 42% and 41% of total sales, followed by Asia-Pacific with 10%, and Latin America and Africa with 5% and 2%, respectively. Germany contributed 22% to Group sales.
In North America, organic sales growth was 1%. The moderate increase was mainly due to the introduction of the reimbursement system based on a bundled rate for dialysis services. In constant currency, sales increased also by 1%. In Europe, sales were up 6% in constant currency, with organic growth of 3%. Prior-year sales in Europe were positively influenced by Fresenius Vamed's large medical supply contract to the Ukraine. Excellent organic growth was again achieved in Asia-Pacific with 16% and in Latin America with 13%. In these regions, sales growth in constant currency was 21% and 14%, respectively.
▶ Fresenius Medical Care achieved sales of €9,192 million in 2011 (2010: €9,091 million). Organic growth was 2%, while acquisitions contributed 3%. Currency translation had a negative effect of 4%. Sales growth was mainly
attributable to the excellent development, both in dialysis products as well as in dialysis services outside North America. In North America, Fresenius Medical Care's sales remained stable in spite of the one-time loss in sales resulting from the introduction of the new bundled reimbursement system for dialysis treatments by the Medicare program in the U.S.
| € in millions | 2011 | 2010 | Change | Organic growth |
Currency translation effects |
Acquisitions / divestitures |
% of total sales |
|---|---|---|---|---|---|---|---|
| North America | 6,762 | 7,020 | -4% | 1% | -5% | 0% | 41% |
| Europe | 6,919 | 6,515 | 6% | 3% | 0% | 3% | 42% |
| Asia-Pacific | 1,582 | 1,307 | 21% | 16% | 0% | 5% | 10% |
| Latin America | 899 | 814 | 10% | 13% | -4% | 1% | 5% |
| Africa | 360 | 316 | 14% | 16% | -2% | 0% | 2% |
| Total | 16,522 | 15,972 | 3% | 4% | -3% | 2% | 100% |
| € in millions | 2011 | 2010 | Change | Organic growth |
Currency translation effects |
Acquisitions / divestitures |
% of total sales |
|---|---|---|---|---|---|---|---|
| Fresenius Medical Care | 9,192 | 9,091 | 1% | 2% | -4% | 3% | 56% |
| Fresenius Kabi | 3,964 | 3,672 | 8% | 9% | -1% | 0% | 24% |
| Fresenius Helios | 2,665 | 2,520 | 6% | 4% | 0% | 2% | 16% |
| Fresenius Vamed | 737 | 713 | 3% | 4% | 0% | -1% | 4% |
medical supply contract with the Ukraine. In addition, current sales were impacted by the unrest in the Middle East/North Africa region. Sales in the services business rose by 8% to €243 million (2010: €226 million).
Order intake and order backlog in Fresenius Vamed's project business developed well: order intake was €604 million (2010: €625 million). Fresenius Vamed increased its order backlog by 5% to €845 million (December 31, 2010: €801 million). Order backlog surpassed 2011 project sales of €494 million by 1.7 times. This assures a stable level of capacity utilization for Fresenius Vamed in the current year. Fresenius Vamed is the only business segment within the Fresenius Group whose business is significantly determined by order intake and order backlog. Driven by the continued strong demand for health care and hospital infrastructure, Fresenius Vamed was again able to sustain the trend in order intake and order backlog, as the overview below shows.
We achieved excellent earnings growth rates in 2011. Group net income 1 rose by 17% to €770 million (2010: €660 million). Currency translation had a negative effect, leading to growth in constant currency of 18%. Earnings per share 1 rose to €4.73 (2010: €4.08). This represents an increase of 16% at actual rates and of 17% in constant currency. Including special items, Group net income 2 was €690 million (2010: €622 million) and earnings per share were €4.24 (2010: €3.85). Inflation had no significant effect on results of operations in 2011.
ORDER INTAKE AND ORDER BACKLOG − FRESENIUS VAMED
€ in millions 2011 2010 2009 2008 2007 Order intake 604 625 539 425 395 Order backlog (December 31) 845 801 679 571 510
Group EBITDA rose by 8% in constant currency and by 6% at actual rates to €3,237 million (2010: €3,057 million). Group EBIT increased by 9% in constant currency and by 6% at actual rates to €2,563 million (2010: €2,418 million).
The EBIT development by business segment was as follows:
1 Net income attributable to Fresenius SE & Co. KGaA adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable
Bonds (MEB) and the Contingent Value Rights (CVR) relating to the acquisition of APP Pharmaceuticals. Both are non-cash items.
2 Net income attributable to Fresenius SE & Co. KGaA
| 2011 | 2010 | |||
|---|---|---|---|---|
| € in millions | Other financial result |
Net income | Other financial result |
Net income |
| Net income 1 | 770 | 660 | ||
| Other financial result: 2 | ||||
| Mandatory Exchangeable Bonds (MEB) (mark-to-market accounting) | -105 | -85 | -98 | -70 |
| Contingent Value Rights (CVR) (mark-to-market accounting) | 5 | 5 | 32 | 32 |
| Earnings according to U.S. GAAP 3 | -100 | 690 | -66 | 622 |
1 Net income attributable to Fresenius SE & Co. KGaA adjusted for the special items relating to the acquisition of APP Pharmaceuticals
The special items are included in the column "Corporate/Other" in the segment reporting.
Net income attributable to Fresenius SE & Co. KGaA
The table above shows the special items relating to the acquisition of APP Pharmaceuticals in the reconciliation from net income 1 to earnings according to U.S. GAAP.
The Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) were recognized as liabilities. The repayment value of the CVR and the derivative elements of the MEB were measured at market prices. The change in value (mark-to-market accounting) resulted either in a gain or an expense until the end of maturity. As the CVR were delisted in March 2011, the effect relate solely to the first quarter of 2011. Since Adjusted EBITDA for the CVR measuring period did not exceed the threshold amount, no amounts were paid
on the CVRs and the CVRs expired valueless. The MEB came to maturity on August 14, 2011, therefore no further effect will occur after the third quarter of 2011. Upon maturity, the MEB was converted into 15,722,644 ordinary shares of Fresenius Medical Care AG & Co. KGaA.
Group gross profit rose to €5,639 million, exceeding the previous year's gross profit of €5,326 million by 6% (8% in constant currency). We improved the gross margin to 34.1% (2010: 33.3%). The cost of sales rose by 2% to €10,883 million (2010: €10,646 million). Cost of sales as a percentage
| € in millions | 2011 | 2010 | Change | Change in constant currency |
|---|---|---|---|---|
| Sales | 16,522 | 15,972 | 3% | 6% |
| Cost of goods sold | -10,883 | -10,646 | -2% | - 5% |
| Gross profit | 5,639 | 5,326 | 6% | 8% |
| Selling, general and administrative expenses | -2,809 | -2,664 | -5% | -8% |
| Research and development expenses | -267 | -244 | -9% | -11% |
| EBIT (operating result) | 2,563 | 2,418 | 6% | 9% |
| Net interest | -531 | -566 | 6% | 4% |
| Other financial result | -100 | -66 | -52% | -52% |
| Income taxes | -604 | -581 | -4% | -7% |
| Noncontrolling interest in profit | -638 | -583 | -9% | -13% |
| Net income 1 | 770 | 660 | 17% | 18% |
| Net income 2 | 690 | 622 | 11% | 12% |
| Earnings per ordinary share in €1 | 4.73 | 4.08 | 16% | 17% |
| Earnings per ordinary share in €2 | 4.24 | 3.85 | 10% | 11% |
| EBITDA | 3,237 | 3,057 | 6% | 8% |
| Depreciation and amortization | 674 | 639 | 5% | 8% |
1 Net income attributable to Fresenius SE & Co. KGaA adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB)
and the Contingent Value Rights (CVR) relating to the acquisition of APP Pharmaceuticals. Both are non-cash items.
2 Net income attributable to Fresenius SE & Co. KGaA
of Group sales decreased from 66.7% in 2010 to 65.9%. Selling, general, and administrative expenses consisted primarily of personnel costs, marketing and distribution costs, and depreciation and amortization. These expenses rose by 5% to €2,809 million (2010: €2,664 million). Their ratio as a percentage of Group sales was 17,0% (2010: 16.7%). Depreciation and amortization was €674 million (2010: €639 million). Their ratio as a percentage of sales was 4.1% (2010: 4.0%). Personnel costs increased to €5,555 million (2010: €5,354 million). The personnel cost ratio amounted to 33.6% (2010: 33.5%).
The chart above shows the earnings structure in 2011.
Group net interest was -€531 million (2010: -€566 million). Lower average interest rates for liabilities had a positive
effect as well as currency translation due to the weakness of the U.S. dollar against the euro.
The other financial result of -€100 million includes the valuation changes of the fair redemption value of the Mandatory Exchangeable Bonds (MEB) of -€105 million and the Contingent Value Rights (CVR) of €5 million. Both are noncash items.
The adjusted Group tax rate (adjusted for the effects of the mark-to-market accounting of MEB and CVR) decreased to 30.7% (2010: 32.9%).
Noncontrolling interest rose to €638 million from €583 million in 2010 mainly due to the good earnings performance at Fresenius Medical Care. Of this, 92% was attributable to the noncontrolling interest in Fresenius Medical Care.
The table below shows the profit margin progress.
The value added statement on the next page shows Fresenius' total output in 2011 less purchased goods and services and less depreciation and amortization. The value added of the Fresenius Group reached €8,245 million (2010: €7,904 million). This is an increase of 4% over 2010. The distribution statement shows that, at €5,555 million or 67%, the largest portion of our value added went to our employees. Governments came next with €731 million (9%) and lenders with €531 million (7%). Shareholders received €155 million and noncontrolling interests €638 million. The Company retained €635 million for reinvestment.
| in % | 2011 | 2010 | 2009 | 20082 | 2007 |
|---|---|---|---|---|---|
| EBITDA margin | 19.6 | 19.1 | 18.5 | 17.9 | 17.9 |
| EBIT margin | 15.5 | 15.1 | 14.5 | 14.0 | 14.2 |
| Return on sales (before taxes and noncontrolling interest) | 12.31 | 11.61 | 10.41 | 10.5 | 10.9 |
1 Return on sales adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB)
and Contingent Value Rights (CVR).
2 2008 is adjusted for special items relating to the APP acquisition
| € in millions | 2011 | % | 2010 | % |
|---|---|---|---|---|
| Creation | ||||
| Company output | 16,628 | 100 | 16,046 | 100 |
| Materials and services purchased | 7,709 | 46 | 7,503 | 47 |
| Gross value added | 8,919 | 54 | 8,543 | 53 |
| Depreciation and amortization | 674 | 4 | 639 | 4 |
| Net value added | 8,245 | 50 | 7,904 | 49 |
| Distribution | ||||
| Employees | 5,555 | 67 | 5,354 | 68 |
| Governments | 731 | 9 | 713 | 9 |
| Lenders | 531 | 7 | 566 | 7 |
| Shareholders | 155 | 2 | 140 | 2 |
| Company and noncontrolling interest | 1,273 | 15 | 1,131 | 14 |
| Net value added | 8,245 | 100 | 7,904 | 100 |
The financing strategy of the Fresenius Group has the following main objectives:
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,
December 31, 2011
investor diversification, utilization flexibility, credit covenants, and the current maturity profile into consideration. The Group's maturity profile is characterized by a broad spread of maturities with a large proportion of mid to long-term financing. When selecting the financing instruments, we also take into account in which currency our earnings and cash flow are generated, and match them with appropriate debt structures in the respective currencies. The Group's main financing instruments are illustrated in the chart below.
Sufficient financial cushion is assured for the Fresenius Group by revolving, syndicated, and bilateral credit lines that are only partially drawn. 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 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. To ensure long-term growth, a capital increase may also be considered in exceptional cases, for example to finance a major acquisition.
MATURITY PROFILE OF THE FRESENiUS GROUP
FINANCING FACILITIES 1
In line with the Group's structure, financing for Fresenius Medical Care and for 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, Euro Notes, a commercial paper program, and a receivables securitization program.
In 2011, the Group's financing activities mainly involved the refinancing of existing and maturing financing instruments and the long-term financing for acquisitions and general corporate purposes.
1 As of December 31, 2011, major financing instruments
the admendment, the interest rate for the approximately US\$1.2 billion term loan C (new: term loan D) was reduced. The new interest rate is composed of the respective money market rate (LIBOR and EURIBOR), which is subject to a 1.0% floor (formerly 1.5%) and a margin of currently 2.5% (formerly 3.0%).
| € in millions | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Operating cash flow | 1,689 | 1,911 | 1,553 | 1,074 | 1,296 |
| as % of sales | 10.2 | 12.0 | 11.0 | 8.7 | 11.4 |
| Working capital 1 | 4,067 | 3,577 | 3,088 | 2,937 | 2,467 |
| as % of sales | 24.6 | 22.4 | 21.8 | 23.8 | 21.7 |
| Investments in property, plant and equipment, net | 758 | 733 | 662 | 736 | 662 |
| Cash flow before acquisitions and dividends | 931 | 1,178 | 891 | 338 | 634 |
| as % of sales | 5.6 | 7.4 | 6.3 | 2.7 | 5.6 |
1 Trade accounts receivable and inventories, less trade accounts payable and payments received on accounts
In 2012, the Group has financing requirements due to acquisition projects and the refinancing of indebtedness. The chart on page 71 shows the maturity profile of the Fresenius Group.
Fresenius SE & Co. KGaA has a commercial paper program under which up to €250 million in short-term notes can be issued. No commercial papers were outstanding as of December 31, 2011 and December 31, 2010.
The Fresenius Group has drawn about €4.3 billion of bilateral and syndicated credit lines. In addition, the Group had approximately €2.0 billion in unused credit lines as of December 31, 2011 (including committed credit lines of €1.4 billion) available. These credit facilities are generally used for covering working capital needs and are – with the exception of the Fresenius SE & Co. KGaA 2008 credit agreement and the Fresenius Medical Care 2006 credit agreement − usually unsecured.
As of December 31, 2011, both Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA, including all subsidiaries, complied with the covenants under all the credit agreements.
Detailed information on the Fresenius Group's financing can be found on pages 163 to 172 of the Notes. Further information on financing requirements in 2012 is included in the outlook section on page 117f.
| € in millions | 2011 | 2010 | Change | Margin |
|---|---|---|---|---|
| Earnings after tax | 1,328 | 1,205 | 10% | |
| Depreciation and amortization | 674 | 639 | 5% | |
| Change in pension provisions | 52 | 42 | 24% | |
| Cash flow | 2,054 | 1,886 | 9% | 12.4% |
| Change in working capital | -445 | -13 | -- | |
| Change in mark-to-market valuation of the MEB and CVR | 80 | 38 | 111% | |
| Operating cash flow | 1,689 | 1,911 | -12% | 10.2% |
| Property, plant and equipment | -783 | -754 | -4% | |
| Proceeds from the sale of property, plant and equipment |
25 | 21 | 19% | |
| Cash flow before acquisitions and dividends | 931 | 1,178 | -21% | 5.6% |
| Cash used for acquisitions /proceeds from disposals | -1,314 | -504 | -161% | |
| Dividends | -365 | -329 | -11% | |
| Cash flow after acquisitions and dividends | -748 | 345 | -- | -- |
| Cash provided by/used for financing activities (without dividends paid) | 607 | -23 | -- | |
| Effect of exchange rate changes on cash and cash equivalents | 7 | 27 | -74% | |
| Change in cash and cash equivalents | -134 | 349 | -138% |
The detailed cash flow statement is shown in the consolidated financial statements.
Fresenius is not involved in any off-balance-sheet transactions that could have or will have a significant impact on its financial position, expenses or income, results of operations, liquidity, investments, assets and liabilities, or capitalization.
In 2011, key sources of liquidity were operating cash flows and short, medium, and long-term debt. Cash flow from operations is influenced by the profitability of Fresenius' business and by net working capital, especially accounts receivable. Cash flow can be generated from short-term borrowings through the sale of receivables under the Fresenius Medical Care accounts receivable securitization program, by using the commercial paper program, and by drawing on bilateral bank credit agreements. Medium and long-term funding is provided by the syndicated credit facilities of Fresenius SE & Co. KGaA and Fresenius Medical Care and by bonds, as well as by various other financing instruments. Fresenius believes that its existing credit facilities, as well as the operating cash flows and additional sources of short-term 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 2011, a dividend of €0.95 per share is proposed. This is an increase of about 10%. The total dividend distribution will also increase by 11% to €155.1 million (2010: €139.7 million).
CVR, MEB
The cash flow statement shows a sustainable development, as can be seen from the chart. Cash flow increased by 9% to €2,054 million (2010: €1,886 million). This was mainly due to the Group's excellent earnings 1 performance. In 2011, the change in working capital was -€445 million (2010: -€13 million), mainly due to business expansion.
Operating cash flow was €1,689 million in 2011 (2010: €1,911 million). The cash flow margin of 10.2% was below the extraordinary previous year's margin of 12.0%. Operating cash flow was more than sufficient to meet all the financing
| € in millions | 2011 | 2010 | Thereof property, plant and equipment |
Thereof acquisitions |
Change | % of total |
|---|---|---|---|---|---|---|
| Fresenius Medical Care | 1,858 | 991 | 429 | 1,429 | 87% | 78% |
| Fresenius Kabi | 188 | 205 | 177 | 11 | -8% | 8% |
| Fresenius Helios | 202 | 179 | 157 | 45 | 13% | 8% |
| Fresenius Vamed | 10 | 14 | 7 | 3 | -29% | 0% |
| Corporate/Other | 137 | 13 | 13 | 124 | -- | 6% |
| Total | 2,395 | 1,402 | 783 | 1,612 | 71% | 100% |
2011: €2,395 million
needs for investing activities excluding acquisitions, whereby cash used for capital expenditure was €783 million, and proceeds from the sale of property, plant and equipment were €25 million (2010: €754 million and €21 million, respectively).
Cash flow before acquisitions and dividends was €931 million (2010: €1,178 million). This was sufficient to finance the Group dividends of €365 million. Group dividends consisted of dividend payments of €140 million to the shareholders of Fresenius SE & Co. KGaA, payments of €197 million by Fresenius Medical Care to its shareholders, and dividends paid to third parties of €97 million. These payments were offset by the dividend of €69 million which Fresenius SE & Co. KGaA received as a shareholder of Fresenius Medical Care. Almost one third of net acquisition expenditure of €1,314 million was financed by cash flow, the remainder by debt.
The cash inflow from financing activities (without dividend payments) was €607 million (2010: -€23 million). In 2011, it was predominantly characterized by the partial debt financing of acquisitions. Cash and cash equivalents as of December 31, 2011, were €635 million (December 31, 2010: €769 million).
In 2011, the Fresenius Group continued its growth path and invested €2,395 million (2010: €1,402 million). Investments in property, plant and equipment increased to €783 million (2010: €758 million). At 4.7% of sales, that was in line with the targeted level (2010: 4.7% of sales). This was well above the depreciation level of €674 million and serves as the basis for enabling expansion and preserving the Company's value over the long term. €1,612 million was invested in acquisitions (2010: €644 million). Of the total capital expenditure in 2011, 33% was invested in property, plant and equipment; 67% was spent on acquisitions.
| € in millions | 2011 | 2010 | Change |
|---|---|---|---|
| Investment in property, plant and equipment |
783 | 758 | 3% |
| thereof maintenance | 47% | 44% | |
| thereof expansion | 53% | 56% | |
| Investment in property, plant and equipment as % of sales |
4.7% | 4.7% | |
| Acquisitions | 1,612 | 644 | 150% |
| Total investments and acquisitions |
2,395 | 1,402 | 71% |
The table on page 73 shows the distribution of investments by business segment. The chart above shows the regional breakdown.
The cash outflows for acquisitions related mainly to Fresenius Medical Care in particular for the acquisition of the dialysis service business of Euromedic in Europe, the acquisition of a minority share in Renal Advantage, Inc., USA, and the take-over of American Access Care Holdings, LLC (AAC). AAC operates 28 out-patient centers primarily dedicated to serving vascular access needs of dialysis patients.
| € in millions | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Total assets | 26,321 | 23,577 | 20,882 | 20,544 | 15,324 |
| Shareholders' equity 1 | 10,577 | 8,844 | 7,491 | 6,943 | 6,059 |
| as % of total assets 1 | 40 | 38 | 36 | 34 | 40 |
| Shareholders' equity 1 /non-current assets, in % | 55 | 52 | 48 | 45 | 55 |
| Debt | 9,799 | 8,784 | 8,299 | 8,787 | 5,699 |
| as % of total assets | 37 | 37 | 40 | 43 | 37 |
| Gearing in %1 | 87 | 91 | 105 | 121 | 88 |
1 Including noncontrolling interest
Including special items of €307 million related to the acquisition of APP Pharmaceuticals
Fresenius Helios acquired the Katholische Klinikum Duisburg, a maximum care hospital, as well as two other acute care hospitals in Germany.
There were no major acquisitions at Fresenius Kabi and Fresenius Vamed. The largest single project at Fresenius Kabi was the acquisition of a compounding center in Germany.
In the fourth quarter of 2011, Fresenius SE & Co. KGaA acquired 1,399,996 ordinary shares of Fresenius Medical Care. At December 31, 2011, the voting interest in Fresenius Medical Care AG & Co. KGaA was 30.7%. After maturity of the Mandatory Exchangeable Bond in August 2011, Fresenius' voting interest in Fresenius Medical Care was 30.3% as per September 30, 2011. By exercising options of Fresenius Medical Care's stock option program, this percentage could have been diluted in the mid-term to up to 29.3%. The share purchase is meant to preserve a long-term voting interest in Fresenius Medical above 30%, maintaining the current ownership situation. The acquisition, which will comprise 3.5 million ordinary shares in total, is expected to be concluded in 2012.
The main investments in property, plant and equipment were as follows:
▶ start-up of 64 de novo dialysis clinics, of which 33 were in the United States, and expansion and modernization of existing clinics at Fresenius Medical Care.
Investments in property, plant and equipment of €202 million will be made in 2012 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.
The total assets of the Group rose by €2,744 million (12%) to €26,321 million (Dec. 31, 2010: €23,577 million). In constant currency, this was an increase of 10%. 6% of the increase of total assets is attributable to acquisitions that were effected during 2011, especially by Fresenius Medical Care. The expansion of the existing business accounted for 4%. Inflation had no significant impact on the assets of Fresenius in 2011.
Non-current assets increased by 12% to €19,170 million (Dec. 31, 2010: €17,142 million). The increase was driven mainly by additions to property, plant and equipment and to intangible assets. The goodwill in the amount of €12,669 million (Dec. 31, 2010: €11,464 million) has proven itself to be sustainable.
Current assets were at €7,151 million (Dec. 31, 2010: €6,435 million). Within current assets, trade accounts receivable rose by 10% to €3,234 million (Dec. 31, 2010: €2,935 million). At 72 days, average days sales outstanding was above the previous year's level of 68 days. Through strict accounts receivable management we were able to keep average days sales outstanding stable despite the continued difficult financial operating environment. The increase in the average days sales outstanding is mostly related to the expansion of our existing business.
Inventories rose by 22% to €1,717 million (Dec. 31, 2010: €1,411 million). Scope of inventory in 2011 increased to 58 days (Dec. 31, 2010: 48 days), mainly attributable to provisioning of inventories due to an increase in market demand as well as the prefinancing of projects at Fresenius Vamed. Those projects will be finalized in 2012. The ratio of inventories to total assets increased slightly to 6.5% as of December 31, 2011 (Dec. 31, 2010: 6.0%).
Shareholders' equity, including noncontrolling interest, rose by 20%, or €1,733 million, to €10,577 million (Dec. 31, 2010: €8,844 million). Group net income attributable to Fresenius SE & Co. KGaA increased shareholders' equity by €690 million. In addition, the maturity of the Mandatory Exchangeable Bonds also increased this amount. The equity ratio, including noncontrolling interest, rose to 40.2% as of December 31, 2011 (Dec. 31, 2010: 37.5%).
The liabilities and equity side of the balance sheet shows a solid financing structure. Total shareholders' equity, including noncontrolling interest, covers 55% of non-current assets (Dec. 31, 2010: 52%). Shareholders' equity, noncontrolling interest, and long-term liabilities cover all non-current assets and 49% of inventories.
Long-term liabilities increased by 7% to €9,439 million as of December 31, 2011 (Dec. 31, 2010: €8,813 million). Shortterm liabilities increased by 5% to €5,988 million (Dec. 31, 2010: €5,711 million). This was mainly due to the fact that parts of Fresenius Medical Care's 2006 credit agreement will be maturing in 2012. This was partially offset by the Mandatory Exchangeable Bonds of €554 million and the Trust Preferred Securities of €468 million, which matured in 2011.
The Group has no significant accruals. The largest single accrual is to cover the settlement of fraudulent conveyance claims and all other legal matters relating to the National
Medical Care transaction in 1996 that resulted from the bankruptcy of W.R. Grace. The accrual amounts to US\$115 million (€89 million). Please see page 182f. of the Notes for further information.
Group debt rose to €9,799 million (Dec. 31, 2010: €8,784 million). In constant currency, the increase was 9%. Its relative weight in the balance sheet declined slightly to 37.2% (Dec. 31, 2010: 37.3%). Approximately 56% of the Group's debt is in U.S. dollars. Liabilities due in less than one year were €2,026 million (Dec. 31, 2010: €1,496 million), while liabilities with a remaining tenor of one to five years and over five years were €7,773 million (Dec. 31, 2010: €7,288 million).
The net debt to equity ratio including noncontrolling interest (gearing) has improved and is 86.6% (Dec. 31, 2010: 90.6%). The return on equity after taxes (equity attributable to shareholders of Fresenius SE & Co. KGaA) was 12.9% (Dec. 31, 2010: 13.3%). The return on total assets after taxes and before noncontrolling interest of 5.3% remained at the previous year's level; the above figures have been adjusted for the effects of the mark-to-market accounting of the MEB and the CVR.
The table below provides a five-year overview of other key assets and capital ratios.
The nominal value of all foreign currency hedging contracts was €3,955 million as of December 31, 2011. These contracts had a market value of -€49 million. The nominal value of interest rate hedging contracts was €3,942 million. These contracts had a market value of -€166 million. Please see the Risk Report on page 106 and 107 and the Notes on pages 187 to 193 for further details.
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 | Dec. 31, 2009 | Dec. 31, 20081 | Dec. 31, 2007 |
|---|---|---|---|---|---|
| Debt/EBITDA | 3.0 | 2.9 | 3.2 | 3.8 | 2.8 |
| Net debt/EBITDA | 2.8 | 2.6 | 3.0 | 3.6 | 2.6 |
| EBITDA/interest ratio | 6.1 | 5.4 | 4.5 | 4.0 | 5.5 |
1 Pro-forma APP Pharmaceuticals and excluding special items
Well-trained and experienced employees are an important prerequisite for our company success. It is largely thanks to their achievements, their skills, and their commitment that we hold leading positions in our markets. We offer a variety of attractive opportunities for personnel development and actively support international and interdisciplinary collaboration. We promote diversity across all business segments, and regions.
The Fresenius Group had 149,351 employees at the end of 2011, an increase of 11,799 or 9% (December 31, 2010: 137,552). Organically, the number of employees increased by 4%, while acquisitions contributed 5% to this growth.
The employee numbers increased in all business segments, as the table below shows. At the end of 2011, there were 45,262 employees (30%) in Germany, an increase of 11% (2010: 40,823). 104,089 employees (70%) are employed at our foreign companies. The chart shows the distribution of our employees by region. These percentages approximately correspond to the sales contributions of the respective continents. In Europe, the number of employees grew by 12%. This was mainly due to the acquisitions at Fresenius Medical Care and Fresenius Helios. The number of employees also rose strongly in Asia-Pacific, with an increase of 7%, mainly due to the extension of production facilities at Fresenius Kabi.
Personnel expenses for the Fresenius Group were €5,555 million in 2011 (2010: €5,354 million), equivalent to 33.6% of sales (2010: 33.5%). The increase was mainly due to collectively bargained pay increases and the higher overall number of employees. Personnel expenses per employee were €38.8 thousand (2010: €39.9 thousand). In constant currency, they remained close to the previous year's level. In Germany, Fresenius has signed tariff agreements with IG Chemie, the Marburger Bund, as well as ver.di (labor union for services). There were no significant structural changes to compensation or employment agreements in 2011.
Fresenius takes diversity into account and promotes it. We are convinced that our potential for continued success can only be tapped through the heterogeneity of perspectives, opinions, cultures, and backgrounds. One of the most important factors in this respect is our internationalism, especially of our management executives.
It is indispensible for companies to hire qualified women and, going forward, to benefit even more from the potential of its female employees. Fresenius relies in this regard on the long-term, sustainable advancement of women. The aim is to continuously expand the already very high percentage of women in leadership positions through company-specific measures such as flexible working hours, part-time job schemes, or home office regulations. As per December 31, 2011, at the top management level, based on the worldwide circle of executive officers covered by the stock option plans, the proportion of female executives at Fresenius Group is 27%. The proportion of female employees within the Fresenius Group is 67%. We will, however, continue not to set any fixed quotas
| Number of employees | Dec. 31, 2011 | Dec. 31, 2010 | Change | % of total |
|---|---|---|---|---|
| Fresenius Medical Care | 83,476 | 77,442 | 8% | 56% |
| Fresenius Kabi | 24,106 | 22,851 | 5% | 16% |
| Fresenius Helios | 37,198 | 33,321 | 12% | 25% |
| Fresenius Vamed | 3,724 | 3,110 | 20% | 2% |
| Corporate/Other | 847 | 828 | 2% | 1% |
| Total | 149,351 | 137,552 | 9% | 100% |
in this regard, since this would generally restrict the choice of suitable candidates. At Fresenius, what matters for the selection of personnel is qualification, and not gender or other personality characteristics. Consequently, women and men with comparable qualifications will continue to have the same career opportunities at Fresenius.
Highly skilled and motivated employees are the foundation for sustained growth. The parameters for human resources management at Fresenius have changed. Responsible for this are factors such as demographics, the transformation toward a service society, higher skill shortages, and the compatibility of job and family. These issues are set to play an even greater role in the coming years and present new challenges for human resources management.
We are constantly adapting our human resources tools to future needs. For instance, in addition to the established internal HELIOS Mentor Network for women, we extended our collaboration with a mentor network for women in science and technology at universities in the state of Hesse in 2011. This network supports female undergraduate and postgraduate students of science and technology subjects and furthers their personal and professional development. We see the opportunity to combine professional career and personal family
planning as a key factor in attracting employees and keeping them with the Company. So we have for example extended the child daycare schemes offered at HELIOS.
In 2011, the life work time accounts that were introduced in some business segments in Germany were once again intensively promoted. They provide employees with the opportunity to save parts of their compensation or certain hours worked for a leave of absence at a later point in time. This leave can be flexibly used for further personal education purposes, for nursing leave to look after family members, or for phased early retirement.
Modern talent management is becoming ever more important given the global market changes that are taking place. This means designing components such as:
in a way that we are able to meet future challenges. We concentrate on the professional development of employees in an international and dynamic environment. Personnel development concepts and measures are coordinated, developed, and executed on a segment-specific basis because the demands of our business segments differ depending on their customer and market structure. In 2011 for instance, we supported the development of talents in medical and nursing by setting up a central talent management system at HELIOS. All measures are oriented toward overarching corporate goals on the one hand, and individual development needs on the other. The "Ready to Lead" program we offer is a new and innovative development program for future executives in medical service, which is scheduled to be continued in 2012 in all HELIOS regions.
Across the group, we support the development of our employees' professional and personal skills through a wideranging offering of internal training measures as well as through personal career talks. The strengths of each individual employee are deliberately furthered and tapped. Through the systematic transfer of know-how within the framework of our successor planning, we ensure that valuable expertise is not lost and our well-qualified staff is trained and supported.
A firmly established component of Fresenius' talent management is a centrally coordinated personnel development module, which is used for the top management executives throughout the world. In cooperation with the Harvard Business School, one of the leading business schools in the world, we have restructured the content offered to this group of employees. With the program "Maximizing Leadership Impact", we focus even more on the leadership issue.
Another central component is the training of personnel in middle and lower management. Here, we have systematically developed the target-group-specific support for the various management levels. For the middle management, we have for example implemented an executive development program with the university of St. Gallen. Furthermore, we established a new program for trainees and young talents including aspects on personnel development as preparation on further tasks. We want to expand the content once again in 2012.
Within the framework of our efforts to attract and further young talents, our trainee programs offer promising university graduates an alternative opportunity to start a successful career with the Fresenius Group alongside the classic channel of direct job entry. The programs combine challenging on-the-job assignments with internal and external training modules.
A new global trainee program was implemented at Fresenius Kabi in 2011. It has an international orientation and focuses on finance, innovation and development, as well as compounding. The HELIOS trainee programs serve to prepare university graduates for future management positions within the HELIOS Kliniken Group so as also to meet the demand for management resources created by the Group's ongoing growth. The trainees spend their two-year training at different hospital locations.
The HELIOS Academy and the HELIOS Educational Centers represent a comprehensive, competency-oriented training, and continuing education portfolio for all professional groups. The HELIOS Student Academy also provide students through its internet platform "Students at HELIOS" specific offers to deepen their know-how and their practical and clinical skills. Over 400 medical students annually complete at least one trimester of their Practical Year at one of the HELIOS academic teaching hospitals.
In cooperation with the Donau-University Krems in Austria, Fresenius Medial Care provides an extra-occupational MBAprogram for qualified employees without education in economic sciences. This way, especially scientists and physicians will be prepared for management and executive functions.
In a global company like Fresenius, the close interaction among employees of different nationalities and with different cultures plays an important role. We therefore advance the mobility of our employees and offer them the opportunity to work in a foreign country. We support our employees and their family members who travel with them in developing awareness and sensitivity towards cultural differences by a wide range of preparatory measures such as intercultural training programs and respective language courses. The same applies for employees who come to Germany from our international locations. The program "Living + Working in Germany", for instance, offers language courses and help with handling formalities.
Positioning the Company as an attractive employer in the market for highly qualified specialists and managers is an important part of our efforts to support our ongoing growth from the human resources side. We therefore expanded our personnel marketing activities in 2011.
We increasingly attended recruiting events and job fairs. Fresenius presented itself nationwide with a new overall concept, which includes a stronger involvement and presence of employees from different operating departments, for example within the context of presentations or trade shows. For the first time, Fresenius attended the two-day graduate
convention in Cologne, Germany's largest job fair for university graduates. The specifically developed marketing concept makes it possible to address the applicant groups relevant to Fresenius. Applicants can obtain information directly from the employees of different business segments about the many different entry opportunities. The new Fresenius Career App was also presented during the convention.
We celebrated a premiere with the first Career Day for Students. Under the motto "Boost Your Career", 25 students had the opportunity to visit the Fresenius head office and receive valuable information on how to start their careers. For an entire day, Fresenius managers and personnel experts were made available to the future job entrants. Top managers talked about how they got started, their personal development, decisions they made, and the challenges they faced. In several workshop rounds, participants worked on important career planning questions and deepened these in a personal exchange.
We also have further expanded our presence in the online area. The Fresenius Career Portal was expanded by a few new functions: In an interactive test offered by the Fresenius Navigator, it is now possible to find out if Fresenius is a good match; the qualification matcher shows jobs and content that relate to the respective training; a career newsletter provides anyone interested with information about our career opportunities; and thanks to the new media center, all videos can easily be viewed. The continuous improvements are paying for themselves: In the annual ranking compiled by the Swedish market research institute Potentialpark, the Fresenius Career web page took first place in Germany. Our online application system also achieved excellent reviews and came in second. The study used to analyze overall online appeal to applicants was rated for the first time; Fresenius took first place. The study involved several thousand students and graduates, who were asked what they expect from the career web pages. Consequently, the career web pages of 100 German companies were evaluated on the basis of the criteria that were most important to those queried.
The new careers portal for the Fresenius Group can be found on our website www.fresenius.com in the Careers section or directly at http:// career.fresenius.com.
The vocational training of young men and women is an important investment into our company's sustainability. At our German locations, in 2011 we trained more than 1.900 young men and women in 34 different occupations, as well as 40 university students in 10 degree programs in cooperation with dual institutions of higher learning. In 2011, we were again able to increase the number of apprenticeship training positions offered by over 5% compared to 2010.
The range of dual courses of study is continuously expanded. They are the Group's response to the increasing internal demand. Based on demographic changes as well as on the high number of high school students who will graduate in the next two to three years (caused by a reduction of the number of years required to graduate from 13 to 12 years) the Group uses the extension of apprenticeship training positions to recruit future employees. In 2011, for example, the dual course of study, Health Care Management, was added. It combines International Business Studies with courses covering the sciences and health economics, and specifically prepares graduates for a career in health care. In the summer of 2012, we will offer the dual course of study of Accounting and Controlling for the first time to target and educate young professionals for the consolidation or controlling areas. This course of study teaches practical information about accounting standards as well as domestic and international tax laws for companies.
With our cooperation with schools in the form of informational days, plant visits, internships, and application guidance, we are trying to increase the interest of young men and women in starting their professional life at Fresenius. In September 2011, for example, the Night for Education took place for the first time, which is the result of a Fresenius initiative. A total of 13 Bad Homburg-based companies that offer training programs participated. Students and parents were able to come to the corporate head office to obtain information about all occupations and dual courses of study, as well as learn about overall professional opportunities. With more than 700 visitors to Fresenius, the Night for Education was a great success.
In our annual Management Game, trainees from all occupations, training classes, and locations take on the role of entrepreneurs. In addition to purely technical content, they also learn the social skills that are so necessary in professional life, such as team spirit and responsibility.
All these training management measures are bearing fruit. In light of the increasing number of high-quality applications we receive, our management training shows that we are an attractive employer not only for school-leavers, but also for interns and students.
Our economic success would not be possible without the outstanding commitment of our employees. Over the past few years, we have launched different programs that strengthen the manner in which employees identify with Fresenius, and that allow employees to participate in our successful business model. Depending on country-specific rules or functions, these programs supplement different compensation models. This is done to reward the continuous willingness of our employees to work hard and to let them participate in the dynamic growth of Fresenius.
Our profit-sharing scheme is stock-based. The amount of the profit-sharing bonus paid for each employee and therefore the number of shares depends on the annual operating profit (EBIT) of the Fresenius Group. A full-time employee received €2,000 gross for fiscal year 2010. Employees in Germany can invest either the full amount of their profit-sharing bonus in Fresenius shares or two-thirds of it in Fresenius shares. The table shows the increase in the profit-sharing bonus over the last several years.
| 2010 | 2009 | 2008 | 2007 | 2006 | |
|---|---|---|---|---|---|
| Profit-sharing bonus 1 in € |
2,000 | 1,749 | 1,586 | 1,526 | 1,444 |
| Eligible employees | 1,790 | 1,710 | 1,630 | 1,690 | 1,830 |
The profit-sharing bonus is paid retroactively for the respective fiscal year.
With our stock option plan, we have a global compensation instrument linking management's entrepreneurial responsibility to future opportunities and risks. Based on the decision made by the Annual General Meeting on May 21, 2008, the Management Board of the general partner of Fresenius SE & Co. KGaA and certain other executive officers can receive options from the 2008 stock option plan until the end of 2012. In total, it is therefore feasible that up to 6,200,000 options on Fresenius SE & Co. KGaA ordinary shares can be issued. The stock options are subject to a three-year vesting period. To ensure that the stock options can be exercised, the net income of the Fresenius Group must be increased by an annual rate of at least 8%; otherwise they are forfeited proportionally. In 2011, 1,143,440 stock options were issued under this plan. For further information please see pages 197 to 205 of this annual report.
Fresenius focuses its R & D efforts on its core competencies in the following areas:
Apart from products, we are concentrating on developing optimized or completely new therapies, treatment methods, and services. In 2011, we again successfully continued numerous projects and a number of new products were launched.
Research and development expenses were €267 million (2010: €244 million). We therefore invested about 4% of our product sales in R & D (2010: 4%). The chart shows R & D expenses by segment. In 2011, Fresenius Medical Care increased its R & D spending by 10%, and Fresenius Kabi by 13%. In the segment Corporate / Other, €25 million was spent on R & D at Fresenius Biotech, mostly on the clinical development of trifunctional antibodies. This was below the €28 million spent in the previous year. Detailed figures are included in the segment reporting on pages 130 to 131.
As of December 31, 2011, there were 1,592 employees in research and development in the Group (2010: 1,449). Of that number, 543 were employed at Fresenius Medical Care (2010: 518), 985 at Fresenius Kabi (2010: 844), and 64 at Fresenius Biotech (2010: 87).
The table below shows a historical comparison of R & D expenses and the number of employees working in R & D.
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.
In the following, we shall now inform you about the R & D activities in our business segments:
The complex interactions and side effects that lead to kidney failure are better explored today than ever before. Parallel with the medical insights, technological advances also improve the possibilities for treating patients. For the R & D activities at Fresenius Medical Care, this means that our aim is to translate new insights into novel or improved developments and bring them to market as quickly as possible, and thus make an important contribution toward rendering the treatment of patients increasingly comfortable, safe, and individualized.
With advancing age, dialysis patients become more prone to side effects such as severe heart and vascular diseases. Such ailments typically occur when the body perpetually suffers from overhydration as a result of kidney failure. Side effects are therefore a growing focus in our R & D activities – in the form of diagnostic and therapy systems surpassing general dialysis.
Home dialysis treatment methods – peritoneal dialysis, home hemodialysis, and, in the long term, a wearable artificial kidney – and related technologies and products are another focus of our R & D. Home dialysis not only means that patients who are suitable for such treatment can organize their dayto-day life more freely. It also increasingly relieves the limited capacities of the dialysis clinics and makes dialysis possible in the first place for people living in areas with a weak health care infrastructure.
| 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|
| R & D expenses, € in millions | 267 | 244 | 240 | 2071 | 184 |
| as % of product sales | 4.3 | 4.2 | 4.7 | 4.71 | 4.9 |
| R & D employees | 1,592 | 1,449 | 1,421 | 1,336 | 999 |
1 Excluding amortization expenses of €272 million on in-process R & D activities acquired with APP Pharmaceuticals
Given rising cost pressure in the health care sector, innovations must also be affordable. High-quality treatment delivers cost efficiency when it minimizes risks and complications and thus avoids additional costs, for instance for hospital treatment. In our R & D we are focusing on products and services that support our customers in providing quality care to patients at affordable cost.
We now describe some of the focuses of our work in more detail:
In our continuous product improvement process, for instance, we are focusing on minimizing the risk of harm to patients as a result of technical faults or human error. A rare but particularly high-risk hazard is blood loss during dialysis – for instance as a result of leaks in the bloodline or dislodgement of the needle connecting the patient's blood vessel to the bloodline system. Blood loss can then occur directly and cause death within a short time. Therefore Fresenius Medical Care has developed a new safety system based on innovative software: the Venous Needle Disconnect (VND). This is capable of intelligently evaluating extracorporeal pressure signals. It can detect normal disruptions as such and reacts to fine but potentially hazardous pressure irregularities – for instance as a result of the dislodgement of the needle, leakages, or buckled bloodline segments – with an alarm that activates the necessary safety responses on the dialysis device. The VND is an important innovation that makes it easier to recognize blood loss. Nevertheless, the risk of blood loss cannot be completely eliminated with this innovation, but it can be minimized, for example by combining the VND with a wetness detector. We are convinced that this new system offers a particularly reliable technology, for which there are no comparable alternatives in the dialysis market to date.
Since November 2011, these features have been on the market under the name Venous Access Monitoring (VAM) with special software for the hemodialysis therapy system 5008. This software version also includes the interface for connecting a Wetness Detector to the patient's vascular access. The Wetness Detector is a sensor that reacts to blood escaping at the vascular access. The VAM has proven successful in comprehensive clinical tests encompassing around 40,000 hemodialysis treatments.
We have also made progress in the dialyzer area and launched the FX CorDiax Dialyzer in June 2011. It contains a highperformance Helixone ® plus membrane that selectively filters out toxins with a medium molecular size and low molecular weight, such as phosphates, from the blood, thus reducing the risk of cardiovascular diseases. The membrane also ensures that substances beneficial to the patient, such as the essential blood component albumin, are not flushed out at the same time.
A typical consequence of chronic kidney failure is overhydration because the patient's body is no longer able to naturally excrete surplus fluids. Around a quarter of hemodialysis patients are overhydrated to a critical degree. Overhydration is a problem as it is frequently the cause of cardiovascular diseases. In addition, overhydration can reduce the effectiveness of medication prescribed for diseases associated with kidney failure.
With the new Crit-Line analysis device, changes in fluid levels in hemodialysis patients during treatment can get measured exactly. Crit-Line measures the percentage of red blood corpuscles (hematocrit level) and uses this to determine the percentage change in the volume of blood during dialysis – non-invasively and with laboratory quality results. The results of the analysis are then transferred to the device monitor. Based on these results, the medical staff can adjust the dialysis so that exactly the right amount of fluid is removed from the body. In this way, it is possible to reduce overhydration and its impact on the cardiovascular system as well as high blood pressure without causing undesirable attendant symptoms.
In addition, Crit-Line helps in the treatment of anemia in renal patients. The measured hematocrit values can also be used to adjust the EPO dose so that no additional blood samples need to be taken.
In November 2011, at the ASN Renal Week organized by the American Society for Nephrology (ASN) we introduced a treatment system especially developed for flexible use in home hemodialysis on the U.S. market: the new 2008K@home. It is
one of only two devices for home hemodialysis with FDA approval in the entire North American market. With the new 2008K@home, treatment can be individually adapted to the medical requirements of the patients. Physicians have the flexibility of offering patients a treatment schedule that is tailored to their lifestyle. The 2008K@home is especially configured for home use: It takes up less space than comparable machines used in dialysis clinics, for example. In addition, the user interface has been drastically simplified so that patients can operate the machine intuitively: For example, instructions on the screen guide the patient step by step through the set-up and treatment procedure. The 2008K@ home also contains a new alarm feature for additional safety: the wetness detector. A signal sounds as soon as a leak at the vascular access occurs during dialysis, which, if it were to go unnoticed, could be fatal. In the current financial year, we are planning to continue working on further optimizing our 2008 series.
Another R & D focus is integrating therapy systems and software solutions. This improves the performance of the dialysis treatment on the one hand, and it's recording and monitoring on the other, resulting not only in higher treatment quality but also in a more efficient use of human, medical, and financial resources. One example of such a therapy system is our 2008T hemodialysis machine. It is the first approved hemodialysis machine on the U.S. market with an integrated software platform for entering and managing clinical treatment data directly at the treatment couch. The new module is designed to assist physicians and clinic staff in efficiently and promptly recording data and to improve clinical data and quality management. The 2008T can be connected to the various data management systems. Clinic staff benefit from the device as it enables them for the first time to access both dialysis treatment data and data from the medical information system in the treatment room. This data was previously recorded and stored in a variety of sources. Thereby treatment and treatment plans can be directly adjusted individually. In the current financial year, we will continue to work on an infusion pump for administering iron products intravenously as a module for the 2008T. The pump is designed to
make it easier for clinic staff to prepare and administer the exact dosage of iron products, thereby further increasing patients' safety.
Fresenius Kabi's R & D activities concentrate on products for the treatment and care of critically and chronically ill patients. Our focus is on therapy areas with high medical requirements, such as oncology patients. We develop products that help to support medical advancements in acute and postacute care and improve the patients' quality of life. At the same time, we want to make high-quality treatments available to patients worldwide through our comprehensive range of generics.
Our R & D strategy is aligned with this focus:
We have an encompassing development competency which includes all the relevant components: the drug raw material, the pharmaceutical solution, the primary packaging, the medical device for application, and the production technology. We are also one of the few companies in the world that cover the entire production chain for IV drugs: from the processing of the raw materials and the production of the active ingredient through to the manufacture of the drug. This competence enables us to offer IV drugs that place special demands on development and especially on production, as is for example the case with oncological products. Here, we also develop
and manufacture cytostatics both as finished products and as patient-specific compounding preparations. Wherever possible, we develop and produce the active pharmaceutical ingredient in our own research labs and production facilities in order to ensure first-rate quality.
Another important element of our activities is the preparations for obtaining marketing approval for new products. We are constantly working on dossiers for the registration of our products for all the world's major markets. This applies to our established portfolio, which we roll out on a broader international basis through marketing authorizations for new local markets, while at the same time we work on applications for new products.
We continued our existing research and development efforts in the area of blood volume replacement. In this regard it is important for us to continuously add to clinical evidence. Voluven ® is one of our most successful blood volume replacement products. About 30 million1 patients have been treated with this preparation. We have continued to support a clinical study that is examining our product Voluven ® 6% in comparison with crystalloids in the treatment of about 7,000 intensive care patients. Furthermore, the randomized doubleblinded studies with Voluven ® 6% for patients with penetrating trauma and caesarean section, which we had financed, were concluded. Both studies had positive results for the treatment with Voluven ® compared to crystalloid solutions. Patients who had undergone a caesarean section under spinal anesthesia and who had been given Voluven ® had significantly fewer low blood pressure phases. Also, the frequency of vomiting and nausea caused by the treatment was lower in this group. In patients with a penetrating trauma, Voluven ® achieved a quick and consistent, but most of all, safe hemodynamic stabilization.
We also supported several studies about anesthesia and intensive care medicine for our product Volulyte ®, which includes our proven HES ingredient (hydroxyethyl starch) in a balanced electrolyte solution.
In the development of IV drugs, we are working on developing a comprehensive range of generics for the therapy areas of anesthetics, analgesics, infectious diseases, oncology, and critical diseases medicine, and developed both generic and also, if appropriate, new and improved drug formulations.
In 2011, we continued our work to make it possible that intravenously administered drugs, that currently only exist in lyophilized form as a powder, can be offered in a ready-to-use solution. The conversion to the ready-to-use solution requires modification of the drug formulation in such a way that the pharmaceutical drugs are also stable in liquid form. The readyto-use solutions can be administered directly by the medical staff. This makes their use in the day-to-day hospital routine safe and simple, and saves time in their preparation. We plan to introduce the first products in a ready-to-use solution in 2012.
The packaging of our IV drugs is critical as well. We therefore developed intelligent packaging concepts, like our color code safety concept. This provides the possibility to easily distinguish all products and their different active substance concentrations. It is therewith guaranteeing a high degree of safety for patients and nursing staff. This clear, safe, and readily transparent system complies with national and international standards. We are already offering the majority of our products in the new packaging concept.
Furthermore we are already using our freeflex ® bag as the liquid container for selected IV drugs. This PVC-free bag is characterized by very good drug compatibility and can safely be used in day-to-day medical care due to its port system.
Our R & D pipeline contains an extensive portfolio of active drugs that are expected to be coming to market in the next few years. Our aim is to offer a comprehensive portfolio of high-quality generics globally. It is important that we bring
products to the market as quickly as possible. In our marketing approval activities we therefore worked intensively on dossiers for the registration of new generics.
The table below lists important approvals obtained in 2011.
In parenteral nutrition we develop products which have a highly therapeutic effect in the care of critically and chronically ill patients. Our focuses are:
The regional rollout of our successful product portfolio is also a central part of our R & D activities. The introduction of our parenteral products in the U.S. market plays an important role. We therefore worked intensively on the documentation for the products for which we wish to obtain marketing approval.
One of our development focuses in parenteral nutrition is the use of lipids, especially in the area of premature and newborn infants, nurslings, and children. This includes, for example, the international launch of Omegaven ®, a unique product 100% based on fish oil.
Our product SmoFlipid ® is a lipid emulsion, which has more balanced composition of the lipid components than currently used lipid emulsions. In 2011, we continued our development activities on another variation of our product SmofKabiven ®.
In the development activities in the area of enteral nutrition, we are focusing on sip and tube feed nutrition products for malnourished – often geriatric – patients and on therapeutic products for dysphagia (difficulties in swallowing), diabetes, oncology, and critical illness. We are thus combining the latest insights in both medical and nutritional science and food and process technology into our product development. This approach enables us to offer innovative nutrition products matched to the specific patient profile. In the area of dysphagia, we are working on products that would have the same consistency and flow characteristics as a contrast medium that is used for esophageal tests. It would make the swallowing process safer for patients, because the risk that fluids or food enter the air ways or the lungs is significantly reduced.
We are also constantly working on new, improved flavors for our sip feed products to counter side effects that arise during long-term therapy, e. g. patients growing tired of the taste. Our broad range of products in different flavors increases patients' adherence to the dietetic regime and helps to improve their quality of life at the same time.
For critically ill patients with chronic inflammatory bowel diseases, pancreatic insufficiency, and short bowel syndrome, we have introduced the tube feed nutrition product Survimed OPD NH in the market. This product is characterized by increased protein to balance out protein catabolic conditions.
Informing people about the consequences of malnutrition is an important concern of ours. Nutritional and energy deficiencies are often due to heightened needs, e. g. as a result of tumor diseases, injuries, or surgery, or due to insufficient intake, e. g. because of difficulties chewing or swallowing and neurological ailments, or due to excessive loss, e. g. as a result of intestinal disorders. We are working together with
| Product | Country/Region | Indication |
|---|---|---|
| Bicalutamide | Taiwan | Oncology |
| Cisatricurium | Several European countries | Anesthesia/Analgesia |
| Clonidine Hydrochloride | USA | Critical Care |
| Gemcitabine | USA | Oncology |
| Letrozole | Phillipines | Oncology |
| Nafcilin | USA | Anti-infectives |
| Piperacillin/Tazobactam | USA | Anti-infectives |
| Remifentanil | Several European countries | Anesthesia/Analgesia |
| Topotecan | Several European countries | Oncology |
| Vancomycin | Several European countries | Anti-infectives |
the European Society for Clinical Nutrition and Metabolism (ESPEN), the European Nutrition for Health Alliance (ENHA), and the International Medical Nutrition Industry Group (MNI) on ways to inform people about the consequences of malnutrition for patients and possible therapies. In 2011, we organized our own scientific symposium FRANC (Fresenius Advanced Nutrition Course) and initiated a symposium specifically on dysphagia.
In the field of medical devices we have set ourselves the goal to develop safe application products for effective therapies. One main focus of our development work was the international expansion and adaptation to local and/or regional specifications. We plan to offer selected medical devices on the U.S. market. In 2011, we adapted the products to local requirements and for example modified menu navigation.
Fresenius Biotech develops and commercializes innovative therapies with immunotherapeutic products. Two products are currently being marketed: firstly, ATG-Fresenius S in transplantation medicine and, secondly, the trifunctional antibody Removab for the treatment of cancer patients with malignant ascites.
In 2011, we continued to focus on the marketing of Removab (catumaxomab). Since market launch in May 2009, we have generated total sales to date of approximately €8.4 million, about €4 million of which was in 2011. The majority of the sales are still generated in Germany and Austria, where we are increasingly able to position Removab for malignant ascites.
We have made progress with regard to the European market launch. We entered, for example, into a distribution agreement with Swedish Orphan Biovitrum, which covers Scandinavia and Eastern Europe. We have also received the reimbursement approval for the price-controlled countries Italy and Belgium.
Several studies were conducted to support the ongoing marketing of Removab. The CASIMAS study, which was being carried out in key European countries parallel with the market introduction, was successfully concluded at the end of 2011. This randomized phase IIIb study examined the tolerability, safety, and effectiveness of a treatment with Removab, applied as a three-hour infusion combined with a simultaneous premedication of a corticosteroid. The outcome of the study supports the application of Removab as a three-hour infusion. The results also confirmed the outcome of the first pivotal study. In 2011, the by three hours shorter infusion time was approved by the European Medicines Agency (EMA). Consequently, the infusion time can be cut in half, which is an important aspect in the oncological practice.
In 2011, we continued to analyze the data from the pivotal study for malignant ascites and presented the results at international congresses. These analyses show for patients with malignant ascites, who were treated with Removab, a statistically significant survival benefit. The six-month survival rate of these patients was more than four times as high as of the patients in the control group. In addition to an improved survival rate, patients treated with Removab also enjoyed a better quality of life. We believe that this aspect will gain importance also when it comes to the reimbursability of drugs.
In addition, we have started a study on the safety and feasibility of the repeated intravenous application of Removab. This form of application enables the use of Removab, as the only antibody in the world currently approved for EpCAMpositive tumors, to be extended to indications such as lung cancer.
With ATG-Fresenius S, a polyclonal antibody, Fresenius Biotech has a proven immunosuppressive agent that is used for two therapeutic areas: It has been used for many years for organ transplant patients in order to avoid the rejection of transplanted organs. In addition, medical data from a European study demonstrated the efficacy of ATG-S in the prophylaxis
of Graft-versus-Host-Disease (GvHD) in stem cell transplantation. Based on these results, Fresenius Biotech was granted approval for this therapeutic area for countries such as Germany and Austria in 2011.
Fresenius Biotech is in contact with European authorities in order to obtain approval for the indication of stem cell transplantation in other countries. A pivotal phase III study was initiated in the U.S. Its objective is to obtain FDA approval for ATG-Fresenius S at the prophylaxis of GvHD.
In 2011, ATG-Fresenius S was awarded with the Drug Award of the Munich Medical Journal (Münchener Medizinische Wochenschrift (MMW)) in recognition for its specific effect and its contribution for successful transplantations. This award is specifically given to drugs that, over many years, have become a fixed-point as a therapeutic instrument, while at the same time continue to broaden the indications to be used against.
Sales of ATG-Fresenius S were about €27 million in 2011.
An efficient management of the value chain is important for the Fresenius Group's profitability. One key element is global procurement management, which assures the availability of goods and services as well as the consistent quality of the materials used in production. In an environment characterized by ongoing cost-containment pressure from health insurers as well as price pressure, security of supply and quality play a crucial role. For this reason we are constantly striving to optimize our procurement processes, to tap new procurement sources, and to achieve the best possible pricing agreements while remaining flexible and maintaining our strict quality and safety standards.
Global procurement processes are coordinated centrally within the Fresenius Group, enabling us to bundle similar requirements and negotiate global framework agreements. Current market and price developments are also analyzed on an ongoing basis. In addition, these central coordinating offices organize purchases for the production sites and arrange comprehensive quality and safety checks of purchased materials and goods.
In 2011, the cost of raw materials and supplies and of purchased components and services was €5,067 million (2010: €4,732 million), as the table shows:
| € in millions | 2011 | 2010 |
|---|---|---|
| Cost of raw materials and supplies | 4,404 | 4,092 |
| Cost of purchased components and services | 663 | 640 |
| Total | 5,067 | 4,732 |
The cost of raw materials and supplies of €4,404 million were 8% above the previous year's level (2010: €4,092 million). The increase was mainly due to higher production volume. Purchased components and services accounted for 13% of the Group's total cost of materials (2010: 14%).
Before consolidation
Since 2010, the Global Manufacturing Operations (GMO) division coordinates the global procurement processes. The core responsibility of GMO is also to coordinate the competencies in manufacturing methods and processes, quality management, strategic sourcing, and supply chain management closely within Fresenius Medical Care. The aim is to
Our production sites that were previously organized at a regional level have been fused into an integrated production network. Facilities with long-standing experience in manufacturing have now become company-wide competence
centers to encourage the exchange of best practices – i. e. especially successful procedures and methods – between the different regions and sites. We further examine the extent to which the production plants in the regions can supply each other with finished products and intermediate goods. This applies to products that can be adapted to local requirements but are based on standardized core materials and technologies, enabling manufacturing capacities to be employed more flexibly and thus more efficiently on a global basis.
The GMO division monitors developments on the global procurement markets and in key currencies. The aim is to exploit international price advantages when sourcing raw materials and components for production while at the same time achieving a better spread of the related risks, e. g. potential costs of currency movements or dependencies on individual suppliers.
All of our locations need to be supplied with raw materials and components of consistent high quality. We are therefore sourcing increasingly from suppliers who operate internationally and have production capacities throughout the world. Our existing supplier management system is supplemented by our risk management process. This monitors the relations with strategic suppliers on the basis of standardized criteria. These criteria include the solvency of our suppliers, their short and mid-term supply capacity, currency risks and quality risks as well as the likeliness of natural disasters.
We initiated a project to standardize the demand planning in Europe, the Middle East, Africa, and Latin America. This includes an automatic supply management, ensuring that our national warehouses are refilled when their inventory reaches a defined minimum level. In this way, we intend to further enhance the service quality as well as the cost efficiency of our supply chain.
In 2011, the volatile price development on the global commodity markets influenced the procurement activities of Fresenius Kabi. In the first half of 2011, the underlying raw material prices for most of our procurement materials increased. During the second half of the year the prices
stagnated, and for some underlying raw materials they even recovered. Overall, the prices were even higher in 2011 than in 2010.
Many different factors contributed to this development. First, the continued demand coming from Asia, and especially China, and secondly, the temporary economic recovery in Europe. The price development on the commodities markets was also impacted by the volatility of the exchange rates, the various social changes in some Arabic countries, as well as various natural disasters which lead to crop shortfalls. The tsunami on the Japanese coast and the nuclear power plant accident in Fukushima that followed even interrupted the manufacturing of several basic natural resources.
In this challenging environment, our global purchasing and sourcing system has proven its reliability: At no point in time, was the supply for our global manufacturing network at risk, as the main criteria for our purchasing activities and the selection of our suppliers are not only high quality, but also flexible and timely supply at competitive prices. Our purchasing risk management also proved to be efficient. For more information on risk management, please refer to page 104 in the Management Report.
The price development on the energy markets continued to be very volatile and driven by speculation. Through our careful and forward looking purchasing strategy, we had already concluded supply contracts for electricity for 2011 and were able to lower costs compared to the previous year. This effect was almost neutralized, however, as the renewable energy premium was increased by 72%, and tax reliefs fell away. The price for natural gas went up.
At HELIOS, high medical standards go hand in hand with an efficient, economically sound management of available resources. The HELIOS purchasing concept defines binding regulations and standards that have proven themselves effective especially with regard to cost-intensive materials such as drugs, medicinal products, medical technology as well as operational and administrative needs. Some of the important regulations are:
The HELIOS purchasing concept was expanded in 2011 to also include the areas fleet, food, laundry, and laboratory. Based on first analyses, we already achieved synergies in these areas.
Today, over 85% of our medical supplies are standardized Group-wide at HELIOS. A system of more than 850 product groups promotes transparency, planning efficiency, and competition. The aim of this standardization is to optimize quality. Due to the binding product standards, HELIOS can bundle large volumes and is thus in a very good position to negotiate excellent procurement terms. The hospitals that HELIOS most recently acquired especially benefit from this.
To keep the high standard of medical quality, the HELIOS clinics place value on close cooperation with their suppliers. Their strategic selection by our supplier management also serves to minimize risks in the sourcing process. Only suppliers that have an adequate fault management process, a convincing fault and defects reporting process, and a low risk of business failure can be considered as a business partner for HELIOS. We introduced the HELIOS partner rating system with the aim to review the business relationship between HELIOS and its suppliers from the perspective of both partners. The results provide feedback on how to improve the partnership. The 2011 ratings are due out in the first half of 2012 and will also be published on the company's website.
Hospitals' energy requirements are a key cost factor. In 2011, HELIOS spent a total of about €55 million on energy, water, and fuels (2010: about €55 million). HELIOS has created a web-based sourcing platform, enPortal, which provides transparency on all utilities at all clinic locations. Variances in consumption and costs are promptly detected and directly acted upon. HELIOS monitors the latest price trends on the energy exchanges on a daily basis. The enPortal platform, to which more than 380 energy utilities in Germany are linked, is used by other Fresenius business segments besides HELIOS. For 2011, the price of electricity increased by approximately 4%, after we had achieved significant savings for 2010 compared to the previous year. We also achieved good results in our natural gas sourcing and are now covering requirements until October 31, 2012. The cost of natural gas was reduced by about 7% for the 2011 supply year (October 31, 2010 to October 31, 2011).
Globally increased food prices did not have a significant impact on HELIOS in 2011. One reason is that they only make up a small part of the overall purchasing volume, and therefore a small part of the total cost of our hospitals. Another reason is that we concluded price agreements.
Procurement management at Fresenius Vamed consists of the following activities:
The VAMED sourcing platform systematically identifies synergies for customers from the project and service activities. Considerable cost-cutting potentials are tapped through bidding competitions and framework agreements for several assignments, e. g. bundling cleaning services and energy supplies. Emphasis is placed on so-called life-cycle cost. In its sourcing decisions VAMED takes account of the total cost of materials and products over the entire life cycle, i. e. acquisition cost, servicing, maintenance, and replacement parts. The strategic aim is to procure the optimum product for the customer at the best price.
In the case of public-private partnership (PPP) models with public-sector clients, consideration is also given to local value added, i. e. sourcing materials and services locally.
Based on the EFQM (European Foundation for Quality Management) model, we set targets for the procurement management process, such as customer satisfaction, the percentage of framework agreements, and supplier ratings.
The quality of our products and therapies is the basis for best-in-class 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 objectives:
These objectives overlay the quality of our products as well as all services and therapies that we provide. Our quality management system integrates all product groups – such as drugs, medical devices, and nutrition – as well as our clinics.
We regularly evaluate our quality management system through internal audits. It is also certified by external bodies. Our products are already closely controlled at the development stage. Our drugs are subject to regulatory approval, so appropriate documentation has to be prepared and submitted in accordance with national and international regulations. Medical devices undergo − for instance in Europe − a conformity assessment procedure that documents compliance with the appropriate norms. In enteral nutrition, we already follow the Hazard Analysis Critical Control Point (HACCP) principle during the development process. The HACCP principle is a generally acknowledged method of identifying and examining risk areas in the production of food. We have established a quality assurance system in all our production plants. In addition to the controlled use of materials, validated production procedures, and ambience and in-process controls, each batch produced also undergoes final controls and a formal release procedure. Our quality assurance system also includes measures for the protection of employees, for instance when handling hazardous substances. Our production facilities are regularly inspected by regulatory authorities or other independent institutions. Sales and marketing are also an integral part of the quality management system. For example, at any given time we are able to trace where every batch has been supplied.
In recent years, HELIOS, in cooperation with the Technical University of Berlin (TU) has developed and established a quality management system for hospitals. The system measures the quality of medical results in the hospital, based on quality indicators compiled from administrative data about the respective treatment. In combination with conducting peer review processes, this method demonstrably has led to significant improvements of the medical treatment quality and patient safety. More than 500 hospitals in Germany, Austria, and Switzerland are already using a quality management system based on the HELIOS system. Last year, the concept was introduced in all state hospitals in Lower Austria, which have been using it since then for internal control purposes. As of 2012, the Swiss Federal Office for Health is publishing the key figures of the treatment results of all Swiss acute care hospitals. The implementation of these Swiss quality indicators is equally based on the system developed by HELIOS and the TU Berlin.
As the world's leading provider of dialysis care and products, Fresenius Medical Care has a special commitment to maintaining the best possible quality standards for its patients and customers. To meet these demands and the numerous regulatory requirements, Fresenius Medical Care has implemented comprehensive quality management systems in its regions, which reflect both the specific local conditions and the company's global responsibility. These systems regulate and monitor compliance with quality and safety standards for all products and procedures, from development, production, and regulatory approval to clinical application, customer training and handling complaints.
The quality management system combines internal regulations and processes with the specification of external standards – such as ISO 9001:2000 for quality management systems and ISO 13485:2003 for medical products. We also apply the guidelines issued by the U.S. Food and Drug Administration, the EU Medical Device Directive (MDD) and Good Manufacturing Practices (GMP), and international rules for the safe and high-quality manufacture of pharmaceutical products and medical devices. Today, our sites are already certified to various regional quality standards. This enables products to be supplied flexibly to different markets, thus increasing the reliability of supply. The GMO division described in the procurement management section on page 88 harmonized the
quality management generally, e. g. to achieve supra-regionally comparable processes and systems for quality assurance and quality improvement.
Our UltraCare brand in North America and our NephroCare brand in the other regions are part of an integrated therapy concept that sets internal quality standards in our clinics as well as for home dialysis. We aim at introducing our quality standards into newly acquired clinics efficiently, systematically and to improve the risk management regarding applying to those standards. In doing this, we intend to continue improving the quality of our services in our clinic network as a whole.
We measure and compare our quality performance in our individual clinics using certain performance indicators. In addition to industry-specific clinical benchmarks they include our own quality targets, i. e. linked to the services and advice we provide. To assess quality in dialysis care, Fresenius Medical Care uses quality parameters that are generally recognized throughout the dialysis industry:
▶ The number of days patients are hospitalized is also crucial for determining treatment quality, because they are particularly cost-intensive and can significantly reduce the quality of life of dialysis patients.
Constantly measuring these and other parameters helps us to further improve our standards in providing dialysis treatment.
The quality management implemented at our sites and at our dialysis clinics is regularly audited. In Europe, this is handled by the TÜV. These conformance and certification experts check our corporate headquarters, the production plants as well as sales organization and clinical organizations as part of their annual audits. In the United States our clinics are audited by the Centers for Medicare and Medicaid Services (CMS), the bodies responsible for the public health care program. For Fresenius Medical Care North America, 2011 was also marked by the foundation of a "Patient Safety Organizanization (PSO)". All employees in our about 1,800 clinics in the U.S. report critical incidents to an internal PSO analysis system. Our PSO then carries out a cause analysis on the basis of the aggregated data. We adapt any procedures that are prone to error and train both our staff and patients to improve these procedures. In this way, we want to guarantee that dialysis treatments in our clinics are as safe as possible. In March 2011, the PSO was officially certified by the U.S. Agency for Healthcare Research and Quality under the direction of the U.S. secretary of health.
In the International segment our dialysis care business is marked by the penetration of new markets and regions. The legal and health care systems differ from country to country and newly acquired dialysis centers might not conform to our quality and management standards. In the past year, we successfully introduced NephroCare quality standards and tools in further clinics; among others, the implementation objectives under NephroCare are now fully integrated into the local business development targets for all subsidiaries.
Quality management at Fresenius Kabi is based on the internationally recognized quality management standard ISO 9001 and a great many other national and international regulations that govern product manufacturing at Fresenius Kabi. These include,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 quality management standard ISO 13485 for medical devices. All regulations were implemented in our company-wide quality management standards. In 2011, we reviewed the quality management system's compliance with the relevant requirements, which was successfully validated. The entire value chain at Fresenius Kabi is additionally covered by inspections by regulatory authorities and audits by independent organizations and customers.
In 2011, we optimized our organizational structure and regrouped the areas of responsibility at Fresenius Kabi in a better way. Our Code of Conduct applies globally and now harmonizes the existing corporate guidelines and standards. The quality management reflects the new structure.
We are continuously adapting our quality management system to changing legal requirements. In 2011, for example, new requirements regarding the EU GMP Directive became effective. In addition, a EU Directive about counterfeit medical products was published and comprehensive EU regulations were passed to control the effects of the nuclear power plant accident in Japan. These regulations cover the use and control of origin of raw materials used for manufacturing pharmaceuticals.
The matrix certification as per ISO 9001 was continued as planned in 2011. Over 90% of all manufacturing and sales locations of Fresenius Kabi are already included in the certification. The remaining organizations will be successively integrated.
You can only initiate changes, if you are aware of your own strengths and weaknesses. The objective of the HELIOS quality management system is to continuously improve the results of medical treatments in all HELIOS clinics. One main requirement is to make one's own quality transparent on the basis of G-IQI quality indicators (German Inpatient Quality Indicators). With the help of now more than 1,500 key figures (2010: more than 1,300), clinically relevant indications and surgical procedures are documented. The timely, efficient measurement of quality indicators from administrative data has become critical for our result-oriented quality management.
In 2011, the HELIOS clinics made comprehensive additions to the existing set of indicators. Continuous monitoring can now be guaranteed for far more indications and surgical procedures than before. Heart and thorax surgery, for example, is now included in the process. The individual specialist groups of HELIOS also monitor and analyze additional key figures on the details of the medical and nursing care in the various disciplines.
For 46 of these quality indicators, ambitious group-wide targets were defined, of which 39 were reached in 2011 on the corporate level. The aim is for the HELIOS clinics to be at least as good as the German average for these indicators. From 2012 onwards, comparison data from the Federal Statistics Office will be available also for complex defined quality indicators. This will further increase the transparency of quality and improve the comparison of HELIOS' clinics with other hospitals to continuously improve their quality of treatment. Previously, HELIOS clinics had been using other scientific sources to determine comparable quality targets. The reason for doing so was that reference values from the statistics of the German Federal Statistics Office had previously only been available for basic diagnoses (e. g. heart attacks), but not for complex cases.
HELIOS provides full transparency for all quality data: They are published to all HELIOS employees monthly on the intranet. The same applies for the transparency towards patients and the public. For each acute care clinic, the results for medical treatment quality are published on the website www.helios-kliniken.de.
| Indications / standardized mortality ratio (SMR) 1 |
2011 SMR | 2010 SMR 2 |
|---|---|---|
| Chronic obstructive pulmonary disease (COPD) |
0.72 | 1.06 |
| Acute myocardial infarction (AMI) | 0.65 | 0.77 |
| Heart failure | 0.60 | 0.68 |
| Ischemic stroke | 0.88 | 0.88 |
| Pneumonia | 0.65 | 0.76 |
| Hip fracture | 0.89 | 0.93 |
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 Federal Statistics Office
and newly acquired clinics
More information can be found at: http://www.helios-kliniken.de/medizin/qualitaetsmanagement
In 2011, HELIOS achieved an SMR of 0.60 for heart failure (2010: 0.68). This indicates that the mortality in the HELIOS clinics was 40% below the average of all German clinics (2010: 32%). In 2011, a German average for certain diseases was available for the first time. HELIOS integrated the corresponding quality indicators, for example for the chronic obstructive pulmonary disease (COPD), accordingly. COPD leads to damaged airways in the lungs, causing them to become narrower and making it harder for air to get in and out of the lungs. Where the few targets were not achieved, the deviation from the German average was so small as to be statistically insignificant.
HELIOS is one of the founding members of the Initiative of Quality Medicine (IQM) in which hospitals, hospital operators, and university hospitals joined together. Its members commit to three basic principles: The first is to take quality measurements with routine data, the second to transparently publish the results, and the third to carry out peer review processes. In May 2011, the results from 2009 and 2010 were published on the respective websites of the member hospitals. This accommodates the growing demand for transparency that comes from patients, cost carriers, and referring physicians.
Measuring and showing quality helps assess treatment results and to demonstrably improve them for the benefit of the patients. The peer review is, in this context, an appropriate instrument to follow up on statistic abnormalities. Experienced, specially trained physicians visit other hospitals as a peer review team. That team analyses together with the responsible chief physicians how the treatment quality could be further improved.
In 2011, IQM carried out 42 peer review processes across different providers; 13 of them in HELIOS' acute care clinics. The number of reviewers within the initiative is continuously growing and at the same time, the training of the participating physicians, the so-called peers, is strengthened. The German Medical Association supported the IQM peer review process from the start with its own experts, and after the 2011 evaluation, introduced the continuing education curriculum "Medical Peer Review". To date, more than 150 chief physicians are active as peers for IQM, so next year more departments will be able to benefit from the helpful assistance provided by physicians for physicians. For more information, please refer to the initiative's website: www.initiative-qualitaetsmedizin.de.
However, quality management at HELIOS goes beyond the medical results. Our perception of quality also includes the standard of nursing care, the aim being to provide patients with the best medical and nursing care. This is a precondition for successful medical treatment. Our nursing staff – the biggest professional group at the HELIOS clinics – is in continuous communication with the doctors and other professional groups, e. g. therapists. The aim is to activate the patient's physical, mental, and social abilities, and to restore their natural functioning to the greatest possible extent through preventive, curative, and rehabilitative measures.
Medical devices and drugs have direct relevance for the standard of medical quality. The patient-specific preparation of pharmaceuticals in our hospital's pharmacies is subject to high quality standards and must be prepared in a hygienically correct manner. HELIOS continuously invests in safety and quality standards to be able to reach these high quality standards. In 2011, three new hospital pharmacies were set up in Erfurt, Krefeld, and Plauen. The investment required for each amounted to approximately €10 million.
In the planning and construction of hospitals, Fresenius Vamed sets high quality standards in its flexible design of parameters across processes and structures. These parameters include:
VAMED has an internationally experienced team of experts who assure the quality of the structural and process design even when the project is at the concept stage and when services are established.
Internally, the processes are also designed for efficiency and sustainability, using interdisciplinary quality standards. These standards are mostly based on ISO 9001:2000 and ISO 13485:2003 standards, as well as the standards of the European Foundation for Quality Management (EFQM). These high standards are paying off: Within the context of EFQM Excellence Awards, the subsidiary VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H. has already been honored several times for excellent operational management.
In the hospital area, VAMED uses the certification model JCI (Joint Commission International). The Neurological Therapy Center Kapfenberg was awarded the Joint Commission International's "Golden Seal" for the fourth consecutive time in 2011. The National Research Center for Maternal and Child Health in Astana, Kazakhstan, achieved the JCI certification for the first time in 2011. Both healthcare organizations have thus demonstrated the highest level of quality: firstly regarding patient care, secondly regarding hygiene and safety, and thirdly regarding the very high patient and employee satisfaction. In 2010, the Al Ain Hospital in Abu Dhabi, United Arab Emirates was successfully certified in accordance with the JCI. This hospital also received recognition of Hospital of the Year from SEHA (Abu Dhabi Health Service Company). VAMED operates the Al Ain Hospital in collaboration with the Medical University Vienna International. SEHA is an independent corporation that is owned by the government of the Emirate of Abu Dhabi. The corporation owns and operates all public hospitals and clinics in the emirate and was set up with the purpose to expand public health care.
We orient our activities within the Fresenius Group to longterm goals, and thus ensure that our work is aligned to the needs of patients, employees, and third parties 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 14001:2004 is the most important benchmark for environmental management in the corporate sector. Among other things, it stresses the need for continuous assessment of a production site's impact on the environment, for instance with respect to emissions and waste. These international standards are implemented at our various production plants and most of our dialysis clinics. 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. We have implemented this regulation. Fresenius Medical Care is also an active member of the REACH Working Group of the German Federal Association of the Medical Device Industry (Bundesverband Medizintechnologie or BVMed). In the few cases where Fresenius Kabi produces within the EU or imports products into the European market, all the relevant substances are pre-registered in compliance with the REACH regulation.
In 2011, Fresenius Medical Care continuously expanded its environmental activities. In Europe, the Middle East and Africa, TÜV-certified environmental management is part of the integrated management system. At the end of 2011, our seven largest European production sites (2010: also seven) and our medical device development department were certified according to ISO 14001. In addition, we have now introduced the environmental management system at 294 of our European dialysis clinics (2010: 259 clinics).
Our R & D divisions work on designing our products and processes to be as environmentally compatible as possible by employing new materials with improved environmental properties, pushing the development of new technologies that further reduce the resources used by our dialysis machines, and not least by using energy and raw materials efficiently in production.
In 2011, we introduced a new environmental program in Europe and Latin America with the aim to improve environmental awareness and environmentally responsible behavior, enhance knowledge relating to strategic and operational environmental issues, to improve our eco-efficiency and reinforce measures to control environmental risks, and ensure that environmental regulations are complied with. Those goals are measured by a number of environmental objectives for the individual stages of the value chain, for example R & D or at our dialysis clinics.
At our key production site for dialyzers in St. Wendel in Germany, for example, we reduced the quantity of rinse water used in the manufacture of dialysis membranes by 25% in 2011 by feeding it back into the manufacturing process. As a result, we were also able to reduce our energy requirements for treating the contaminated rinse water by 25%. We already replaced older burner and boilers at the St.Wendel plant with modern, high-efficiency heating units with low levels of harmful emissions; as a result we were able to reduce nitrogen oxide emissions by around 45%.
We gather data on our eco-efficiency, such as our water and energy consumption, and on waste disposal in 405 of our European clinics (2010: 313). We are now able to compare the ecological efficiency of those clinics on a monthly basis, quickly identify potential for improvement and take this into account when planning new investments.
In addition, in 2011 we started merging the existing local occupational safety systems for our dialysis clinics in Europe into one centralized occupational safety management system and incorporating it into our Integrated Management System.
In the U.S., we have established a formal certified environmental health and safety audit program at our production sites to review all of our manufacturing and laboratory operations on an annual basis. Fresenius Medical Care North America received the "Safety in Excellence Award" for the twelfth time from the U.S. casualty and property insurer CNA. They underlined the company's commitment to the health of its employees, safety, the prevention of accidents and risk control. The fact that in the past ten years, absences due to work-related accidents have fallen significantly at Fresenius Medical Care, was also highlighted. Since the end of 2010, we record and document energy and water consumption in all our dialysis clinics. In the course of 2011, we expanded the scope of the analysis: It now also compiles greenhouse gas emissions and our carbon footprint. We also improved the recycling at our production plants. At our Walnut Creek plant, California, we are separating and recycling medical and electronic devices.
We also made further progress in the area of environmental management in the Latin America region. In Columbia, an environmental management system that meets the ISO 14001 standard has already been established in 60% of our clinics. In Venezuela, we continued an environmental awareness campaign for our clinic staff on the subjects of waste disposal and energy and water consumption in 2011. In Argentina, we continuously record water and energy consumption and the disposal of medical waste at all dialysis clinics.
We have developed an environmental guideline specifically for the Asia-Pacific region. It includes the waste management as well as guidelines on how to save resources and to avoid environmental pollution. In our plants, we monitor the consumption of resources such as electricity, gas, as well as water, and identify areas for improvements. At our plant in Buzen in Japan, we achieved a recycling rate of nearly 93% in 2011, thanks to our environmental management. We have set ourselves the goal of achieving this high recycling rate again in 2012.
An integral component of the quality management of Fresenius Kabi is an environmental management system that complies with the international standard ISO 14001. We are also pursuing the implementation of the occupational health and safety assessment system OHSAS 18001.
These goals lead to individual objectives for our locations.
In 2011, Fresenius Kabi continued the matrix certification for the environmental management system. As part of the certification, we analyze and assess work flows and processes according to sustainability criteria, and document the responsible use of energies and natural resources as well as employee safety and protection of the environment. This allows us to reveal opportunities for improvement, both with regard to the value chain and how we deal with external partners. Our international production network improves, for example, delivery to our customers and reduces emissions associated with transportation. Our goal is to base all internal and external processes not only on economic, but also ecologic provisions, and to expand the matrix certification to other production sites and sales offices.
At our production sites in Friedberg and Bad Homburg, Germany, the recycling rate in 2011 of more than 97% was slightly above the previous year's figure of about 97%. Approximately 5,800 t of waste were recycled (2010: approximately 5,600 t). The waste volume rose by 3% in Friedberg and by 21% in Bad Homburg. This was mainly attributable to the increase in production volume for enteral nutrition products. This also led to a higher energy consumption. The percentage of renewable energies of the total energy consumption is approximately 23%.
In 2011, Fresenius Kabi continued to implement measures to reduce energy consumption, CO2 emissions and the consumption of raw materials. Fresenius Kabi uses, for example, the produced coolant heat to heat the logistics spaces. In addition, we use dark radiators in production areas. These radiators use energy-efficient infrared technology. It ensures the heating of work spaces only close to the floor, and saves approximately 30% of the energy used by traditional heating systems. The difference is that the air close to the ceiling is not unnecessarily heated.
In 2011, Fresenius Kabi invested in the modernization of its technical systems, for example the pressure decrease in the compressed air system. This reduced the system's CO2 emissions. In addition, waste water is used to compensate for condensation losses in the steam generator system in order to reduce water consumption. A landscaped roof now protects the building better against heat in the summer, and reduces the heat loss in winter. It also significantly slows down the roof's aging process.
All these activities not only serve the primary purpose of environmental protection, but also helped to reduce energy costs in 2011.
In Austria, the production sites in Graz and Linz have an integrated management system for quality, the environment, safety, and risk. Long-term goals are to guarantee and continuously improve the efficiency of the environmental management, to handle environmental resources carefully, and to keep the impact on the environment as small as possible.
The environmental management system at the site in Graz has been certified pursuant to ISO 14001:2004. The system defines various environmental performance indicators, such as the recycling rate. In 2011, we further optimized our waste processing and energy consumption. The recycling rate increased significantly from about 70% in 2010 to now 85%. We are working closely with the local waste management companies, thus consequently improving our waste collection and separation system. 14% of the waste volume serves as energy source, and is used in thermal waste treatment plants. The remaining 1% is taken to a biogas plant or chemically processed. In addition, the logistics department optimized the transport packaging. This allows us to sustainably save about 2 t of plastic waste each year.
At the Graz location, we review the energy consumption every year in order to identify new savings opportunities. Since 2010, we have been successively switching to LED bulbs. We continued this project in 2011 and decreased energy consumption by 10,000 kWh.
Since 2010, the environmental management system of the production site in Linz is also certified pursuant to ISO 14001:2004.
In 2011, energy consumption of 46 GWh was at the previous year's level despite a significantly higher production volume. Already in 2010, we had started to successively switch our production processes to energy-efficient technologies. We decreased our energy consumption in the years 2010 and 2011 by a total of 55,000 kWh. All old systems in the agitators will be replaced by 2013. We also decommissioned the oil heating system at the site. We are now covering our energy needs with natural gas. It is therefore no longer necessary to pre-heat the oil and maintain a certain temperature in the storage tanks. This leads to an additional savings of 85,000 kWh per year.
In 2011, we also improved our waste processing and reduced commercial waste similar to household waste by 10%.
Other long-term measures are planned that will save energy and other resources in the future in the interest of successful environmental management.
At our Swedish production plants in Uppsala and Brunna, the waste volume increased in 2011 to 4,751 t (2010: 4,073 t). Thanks to the projects initiated earlier in the disposal area, the waste increase is much lower than the increase in production volume.
Energy consumption decreased compared to the previous year by 9% or 10 GWh, also because of the energy savings initiatives that were started the year before. Approximately 43% of the energy needed at both sites is covered by renewable energies. At the Brunna plant, we have decreased energy consumption by using a band filter, in order to reduce solvent extraction, and by starting to operate an energy-efficient cooling tower.
Water consumption amounted to about 232,266 m3 , which is slightly above at the previous year's level. In Uppsala, we switched from a fresh water cooling system to a centrally controlled cooling system that is supplied by a long-distance cooling network. Heat energy, for example, from waste incineration plants, is used to cool down water. Fresenius Kabi obtains this long-distance cooling through insulated pipelines directly from the producer. This reduces the demand for water, and additionally, the system is more energy-efficient.
We were also able to lower our use of nitrogen: The performance parameters that were implemented in 2010 in production have improved the monitoring of wire lines and thus reduced consumption.
Fresenius Kabi also integrates standardized requirements for health, safety, and environmental protection into its quality management system. In the manufacturing of pharmaceuticals, the employees of Fresenius Kabi sometimes have to work with toxic substances. Consequently, protecting the environment, and the health and safety of our employees is of utmost importance. New requirements relating to occupational health and safety are integrated into our quality management, e. g. those in the REACH Regulation (Registration, Evaluation, Authorization and Restriction of CHemicals).
Hospitals are part of the health care system and bear a special responsibility in terms of environmental protection: They are expected to handle resources and energy consumption carefully, and to comply with demanding waste disposal and hygiene standards. They must also avoid any health risks for patients, employees, and the local environment.
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. All waste is documented in a standardized manner and categorized into waste groups. 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 obstetrics, diagnosis, treatment, or prevention of human diseases, or mixed municipal waste. This includes general waste such as household waste, bulky waste, and potential recyclables. In 2011, the total amount of waste generated in all HELIOS hospitals amounted to 11,960 t (2010: 11,631 t). Of this waste, about 99% is attributable to the two waste groups listed above.
A major source of energy consumption at hospitals is the need for air-conditioning in the working areas and in patients' rooms. For instance, medical equipment that generates heat, such as a magnetic resonance tomographs, computer tomographs, and other imaging equipment, linear accelerators, and left cardiac catheter measuring devices must constantly be cooled. The higher usage of IT technology also increases the energy demand, because the server rooms must be operated and cooled.
The structural condition of a hospital building also has an important influence on energy consumption. HELIOS invests in environmental protection on an ongoing basis through structural measures. All new construction projects and modernizations conform to the latest standards of efficient heat insulation pursuant to the currently valid energy savings regulations. In 2011, maintenance costs remained at the previous year's level of €84 million.
The energy sourcing for all of the Group's clinics is done centrally through an online purchasing platform. This platform not only supplies data on consumption at the clinics, but also benchmarks that enable higher-than-average levels of energy consumption to be detected and appropriate action to be taken. In addition, HELIOS is successively switching over the heating for its clinics to renewable energies, for instance wood pellets. This form of heating is CO2-neutral and therefore more environment-friendly than gas or oil heating. Following the Borna location, five additional locations followed in 2011, so that now six hospitals generate a part of the needed heat from renewable energies. Other locations will follow in 2012. The aim is successively to convert the heating at all HELIOS clinics to wood pellets as structural alterations are planned or boilers need to be replaced.
Water consumption in all HELIOS hospitals amounted to 2,140,000 m3 (2010: 2,055,000 m3 ). The increase of 4% is predominantly due to the initial consolidation of the hospitals in Helmstedt and Rottweil in 2011. Excluding these hospitals, water consumption would have slightly decreased. The majority of all water is consumed for sterilization processes, process cooling, and water recycling plants. Overly high water savings would not make sense, because a too low water change-out in the pipes would cause hygienic issues. In order to comply with the critical values stipulated by the German Drinking Water Ordinance, sections of pipes that are not used frequently, would have to be flushed on a regular basis. This would, once again, increase water consumption. To reduce consumption, some hospitals are using well water, for instance for the cooling towers of air-conditioning systems.
In the future, health care systems will also have to pay greater attention to sustainability. In project business, VAMED already integrates national environmental standards and regulations into the planning and construction of a hospital or other health care facility as an active contribution toward environmental protection. VAMED's extensive expertise in environmental management is an important success factor especially in growth markets in Africa and Asia. VAMED built and now operates, for instance, a hospital in Gabon, Africa, which features a modern sewage treatment plant and a high-temperature incineration plant designed to European standards.
VAMED has also achieved successes in the service business. VAMED, for instance, is responsible for the technical management of the Vienna General Hospital and University Hospital AKH. The AKH is one of the largest operations in Austria and has more than 10,000 employees. Since 1996, the operating area of the AKH has increased by approximately 9% due to new construction. Compared to 1996, its energy and drinking water consumption has decreased significantly, which is a remarkable success considering the increased operating area. Energy consumption decreased by 12%, the demand for long-distance heat by 21%, and the drinking water consumption even by 43%. As a result, the direct and indirect greenhouse gas emissions of the AKH also decreased.
Compared to 1996, emissions decreased by 14%, which is nearly three times higher than the international target set by the Kyoto Protocol, to reduce emissions by 5.2%. The success is especially due to improved air-conditioning and heat recovery. In addition to CO2, achievement of the Kyoto targets also takes into account other greenhouse gases. The AKH, together with VAMED, has set itself the goal of reducing greenhouse gas emissions by 2012 by three times the amount required by the Kyoto Protocol.
Over the past 15 years, VAMED has also realized major improvements in the waste management of the AKH. One main project was, for example, the separation of waste. Compared to 2010, we reduced the volume of waste classified as hazardous medical waste by another 5%; since 1995, the total amount was reduced by 65%. The percentage of waste and recycling materials amounts to approximately 31% of the overall waste volume.
VAMED is also an active member of working groups and committees that formulate E-STANDARDS for hospitals. These are Austrian standards issued by the Austrian Standards Institute. In addition, an international working group dealing with hospital waste issues was founded by the IWWG (International Waste Working Group). IWWG is a working group of international scientists and companies focusing on sustainable waste management.
Long-term, mutually trusting cooperation with our customers is an essential basis for sustainable growth. We strive to guarantee top quality and outstanding service for our customers, together with reliable logistics and product availability. Thanks to its broad product portfolio and long experience, Fresenius has been able to build and maintain close relationships with its customers worldwide. Close cooperation between sales and research&development divisions enables us to integrate concepts and ideas generated by the sales force into our product development. Fresenius has its own sales organizations with trained sales personnel. The Company also employs distributors in countries where we do not have our own sales team.
Fresenius' products are shipped by the production plants to central warehouses. These central warehouses dispatch the products to the regional warehouses, which then distribute them to the clinics and other customers, or directly to a patient's home. Fresenius Kabi concluded the expansion of its logistics center in Friedberg in October 2011. The warehouse capacity was more than doubled, and the Friedberg plant was expanded to become the international logistics hub for the entire product range of Fresenius Kabi.
The business segments offer after-sales services, training in the local language, technical support, servicing, and maintenance and warranty arrangements in every country in which Fresenius sells its products. Product training is also provided, while regional service centers are responsible for day-to-day international service support.
The business segments have the following customer structure. Dialysis clinics and hospitals are Fresenius Medical Care's main customers for its products business. Approximately 30% of its revenues are derived from the U.S. government's Medicare and Medicaid programs, with about 70% from private and other health care payors and from hospitals.
Fresenius Kabi has a broadly diversified customer base that includes hospitals, wholesalers, purchasing organizations, medical and similar institutions, hospital operators, and home care patients. Fresenius Kabi has no significant dependence on any one source of revenue. In the U.S., the products of Kabi's subsidiary APP Pharmaceuticals are distributed primarily through group purchasing organizations (GPOs). Especially in international business, there is a growing tendency for government entities to award contracts by public tender, in which Fresenius Kabi also participates.
The customers of Fresenius Helios include social security institutions, health insurers, and private patients.
The clients of Fresenius Vamed are public institutions, e. g. ministries and authorities, public and private hospitals and other health care facilities.
At the time this Group Management Report was prepared, the Management Board continued to assess the development of the Fresenius Group as positive. Our products and services continue to be in sustainable demand around the world. Operating performance in the first weeks of 2012 has been in line with our expectations, with further increases in sales and earnings.
Through the complexity and dynamics of our business, the Fresenius Group is exposed to a number of risks. These risks are inevitable consequences of active entrepreneurial activities. The willingness to take risks has to be accommodated if opportunities are to be exploited.
As a provider of life-saving products and services for the severely and chronically ill, we are relatively independent of economic cycles. The diversification through our four business segments, which operate in different segments of the health care market, further minimizes the Group's risk profile. Our experience in the development and manufacture of products, as well as in our markets, serves 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 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 various business segments. Anticipated future opportunities for the Fresenius Group are discussed in the Outlook starting on page 110.
Like opportunities management, risk management is 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. Its main element is our control system, with which we can identify significant risks at an early stage and counteract them individually.
Responsibilities for the processes and monitoring risks in the individual business segments have been assigned as follows:
The risk management system is supported both at Group level and in the individual 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. Our risk management system is regularly evaluated and, if necessary, adjusted to allow prompt reaction to changes in the markets. This system has proved effective to date.
The functionality and effectiveness of the 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 our risk management system. The control system is also regularly reviewed by the Management Board and the internal auditing department. The 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 control system as it pertains to accounting 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 and evaluating risks, and for developing counter-measures and for the avoidance of risks, are aligned suitably with the companyspecific 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.
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 rules, is assured by numerous measures and internal controls. Our four-tier reporting process especially promotes intensive discussion and ensures controls of the financial results. At each reporting level
financial data and key figures are reported, discussed, and compared on a regular monthly and quarterly 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 in the Supervisory Board's Audit Committee.
Control mechanisms, such as automated and manual reconciliation procedures, are further precautions 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 determined at the head office. These are regularly adjusted to changes made to the accounting regulations. The consolidation proposals are supported by the IT system. In this context, please refer 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 rules are monitored and employees involved in financial reporting are instructed regularly and comprehensively. If necessary, external experts and specialists are engaged. The Treasury, Tax, Controlling, and Legal departments are involved to support 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, an important Group company, is additionally 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, although overall economic growth in 2012 will probably be lower than in 2011. Moreover, Fresenius is affected only to a small extent by general economic fluctuations. We also expect continued growing demand for our life-saving and life-sustaining products and services.
The risk situation for each business segment also depends on the development of its markets. Political, legal, and financial conditions are therefore monitored and evaluated carefully. This applies especially to countries with budget problems as a result of the sovereign debt, in particular with regard to our accounts receivables. In addition, the growing internationalization of our markets requires us to keep abreast of countryspecific risks.
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 by 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 e. g. changes in the reimbursement system 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 in the United States, it would significantly reduce the revenues for 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 further legislative developments of the DRG system as well as discussions about ending dual financing in the hospital sector. Patients are largely assigned to hospitals by the public health and pension insurers. It is therefore especially important for the Company that the contracts between its hospitals and the insurers and health care institutions are maintained. We do not only continually monitor legislative changes, but also
work together with governmental health care institutions. Generally, our aim is to counter possible regulatory risks through enhanced performance and cost reductions.
In the United States, almost all injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations (GPOs) and distributors. The majority of hospitals contract with the GPO of their choice for their purchasing needs. APP Pharmaceuticals currently derives, and expects to continue to derive, a large percentage of its revenue through a small number of GPOs. Currently, fewer than ten GPOs control a large majority of sales to hospital customers. APP Pharmaceuticals has purchasing agreements with the major GPOs. To maintain these business relationships, APP Pharmaceuticals believes it needs to be a reliable supplier, offer a comprehensive 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 bid process for products is highly competitive. Most of APP Pharmaceuticals' GPO agreements can be terminated at short notice.
In addition, 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.
Compliance with product and manufacturing regulations is ensured by our quality management systems in accordance with the internationally recognized quality standard ISO 9001 and the corresponding internal standards as defined, for example, in our quality and work procedure manuals. Regular audits are carried out at the Group's production sites and dialysis clinics. These audits test compliance with all regulations in all areas – from management and administration to production and clinical services and patient satisfaction. Our production facilities comply with the international "Good Manufacturing Practice" (GMP) and U.S. "Current Good Manufacturing Practice" (cGMP) guidelines and other recognized
standards. Potential risks, such as those arising from the start-up of a new production site or the introduction of new technologies, are countered through careful planning, regular analysis, and continual progress reviews. We counter the risk of poor-quality purchased raw materials, semi-finished products, and components mainly by requiring that suppliers 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 products of high quality, maximum safety, and proven 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; in addition there are operational risks, for example the need for strict hygiene and sterile conditions. We counteract these risks with strict operating procedures, continuous personnel training, and patient-oriented working procedures. Furthermore, through our quality management systems we are constantly striving to improve the standard of patient treatment.
Further risks arise from increasing pressure on our product prices and from potential price increases on the procurement side. Changes in the guidelines for the reimbursement of erythropoietin (EPO), a change in the administration of EPO to patients, interruption of supply or less favorable terms and conditions for the purchase of EPO could materially adversely affect sales and profitability. Especially the expanded bundled reimbursement system, accordingly to which the reimbursement of EPO is included in the bundled rate, could in combination with material increase in the acquisition costs for EPO materially adversely affect revenue and operating profit. EPO is a hormone used in dialysis that stimulates the production of red blood cells.
Growing competition could materially adversely affect the future pricing and sale of our products and services. The introduction of new products and services by competitors could render one or more of our products and services less
competitive or even obsolete. This also could affect renal pharmaceuticals of Fresenius Medical Care for which we are partly obligated to make minimum royalty payments.
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. Generally, the markets in which we operate are characterized by price pressure, competition, and efforts to contain health care costs. These could result in lower sales and adversely affect our business, our financial position, and our operational results.
We counter the risks associated with the engineering and hospital services 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 when preparing quotations, risk assessment before accepting orders, regular project controlling, and continual risk assessment updates), quality assurance measures, and financial measures, such as checking creditworthiness, prepayments, letters of credit, and secured credits.
Our operations are subject to strict governmental regulatory demands and controls. We have to comply with these rules and regulations monitoring safety and effectiveness of our medical products an 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, the Management Board member for Legal Affairs, Compliance, and Human Resources, who is
accountable for establishing and implementing guidelines and procedures. In each business segment a chief compliance officer has been appointed. He 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 complied with.
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. 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 not achieved, counter-measures can be initiated.
The acquisition and integration of companies carries risks that can adversely affect Fresenius' assets and liabilities, our financial position, and results of operations. Following an acquisition, the infrastructure of the acquired company 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 the course of ongoing business processes as well as relationships with customers 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.
Acquired by Fresenius in 2008, APP Pharmaceuticals has agreed to indemnify Abraxis BioScience, Inc., which split from it in 2007, from and after the spin-off with respect to all liabilities of the preseparation company related to APP Pharmaceuticals' business. At the same time, Abraxis BioScience agreed to indemnify APP Pharmaceuticals from and after the spin-off with respect to all liabilities of the preseparation company not related to APP Pharmaceuticals' business. The extent to which Abraxis BioScience will be able to satisfy these potential claims in future cannot be predicted.
We counter risks from acquisitions through detailed integration roadmaps and strict integration and project management so that counter-measures can be initiated in good time if there are deviations from the expected development.
The company addresses potential shortage 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 partly to 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 thereby seek their commitment to
Fresenius. HELIOS presents itself as an attractive employer, for example by providing young doctors with intensive support very early in their careers, e. g. throughout their studies and during their practical year. Risks in personnel marketing are not considered to be significant because of all these measures.
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 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 of high rating.
The Fresenius Group's currency 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 – and 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, 2011, approximately 69% of the Fresenius Group's debt was protected against increases in interest rates either by fixed-rate financing arrangements or by interest rate hedges. Only 31%, or €3,038 million, was exposed to an interest rate risk.
A sensitivity analysis shows that a rise of 0.5% in the reference rates relevant for Fresenius would have a less than 1% impact on Group net income.
As an international 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 €60 million on Group sales and about €2.5 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 exposure to currency risks arising from our business activities (transaction risks) does not rise to the same extent as sales. In order to estimate and quantify the transaction risks from foreign currencies, the Fresenius Group considers the cash flows reasonably expected for the following three months as the relevant assessment basis for a sensitivity analysis. For this analysis, the Fresenius Group assumes that all foreign exchange rates in which the Group had unhedged positions as of the reporting date would be negatively impacted by 10%. By multiplying the calculated unhedged risk positions with this factor, the maximum possible negative impact of the foreign exchange transaction risks on the Group's results of operations would be €9 million. Information can be found on pages 187 to 193 of 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 page 141 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. We worked on our accounts receivable taking certain measures such as factoring or selling through product distributors. We will continue to focus on these countries in our 2012 receivables management.
As a global corporation, Fresenius is subject to numerous tax codes and regulations. 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 page 153 of the Notes.
Fresenius' debt was €9,799 million as of December 31, 2011. The debt could limit the ability to pay dividends, to arrange refinancing, to be in compliance with its credit covenants, or to implement corporate strategy. Other financing risks could arise for Fresenius against the background of the general financial market crisis. We reduce these risks through a high proportion of medium and long-term funding with a balanced maturity profile. Additional information on conditions and maturities can be found on pages 164ff. of the Notes as well as on page 71 of the Management Report.
Fresenius is subject to comprehensive government regulation in nearly all countries. This is especially true in the United States and Germany. In addition, Fresenius has to 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, such as the federal dialysis reimbursement programs in the United States under Medicare and Medicaid. As of January 1, 2011, a new reimbursement
system based on a bundled rate for dialysis patients covered by the public health care program (Medicare) was introduced. Beginning in 2012, the payment amount will be 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 adjustment for the year 2012 is 2.1%. Furthermore, effective January 1, 2012, the payment amount includes a quality incentive program which full payment of the Medicare bundled rate to a dialysis facility is contingent upon such dialysis facility's achievement of certain minimum performance criteria, focusing in 2012 on anemia management and dialysis adequacy and in subsequent years on additional measures to determine whether dialysis patients are receiving high quality care. Failure to achieve these minimum criteria in any year subjects the facility to up to a 2% reduction in Medicare reimbursement two years later. A material failure by the Company to achieve the minimum clinical quality standards could lead to lower revenue and operating profit.
Fresenius Medical Care is working with hospital administrations and treating physicians to make protocol changes used in treating patients, and is negotiating pharmaceutical acquisition cost savings. To achieve greater efficiencies and better patient outcomes the Company introduces initiatives to improve patient care upon initiation of dialysis, to increase the percentage of home dialysis patients and to generate cost savings in its dialysis centers. Without these initiatives the composite rate could lead to lower revenue and operating profit.
Changes in the law or the reimbursement method could affect the scope of the payments for services as well as of the insurance coverage. This could have a significant adverse impact on the assets and liabilities, financial position, and results of operations of the Group.
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 claims for damages and costs for legal defense, regardless of whether a claim for damages is actually justified. Legal disputes can also result in 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 and patent infringement suits.
In 2003, a definitive agreement was signed regarding the settlement of fraudulent conveyance claims and all other legal matters in connection with the National Medical Care transaction in 1996 arising from the bankruptcy of W.R. Grace. Under the settlement agreement, Fresenius Medical Care will pay a total of US\$115 million without interest into the W.R. Grace & Co. bankruptcy estate or as otherwise directed by the court upon plan confirmation. The settlement agreement was approved by the competent U.S.Bankruptcy Court. In January and February 2011, the U.S. Bankruptcy Court entered orders confirming the joint plan of reorganization and the confirmation orders were affirmed by the U.S. District Court on January 31, 2012.
In July 2007, the U.S. Attorney General filed a civil action against Renal Care Group, Inc. (RCG) and FMCH – in its capacity as the present holding company of RCG – before the U.S. District Court for the Eastern District of Missouri. The action claims damages and penalties in respect of the business activities of the RCG Method II supplier company in 2005 – before RCG was acquired by FMCH. On June 17, 2011, the District Court entered summary judgment against Renal Care Group, Inc. (RCG) for US\$83 million on one of the False
Claims Act counts of the complaint. On June 23, 2011, Fresenius Medical Care appealed to the United States Court of Appeals. Although Fresenius Medical Care cannot provide any assurance of the outcome, Fresenius Medical Care believes that RCG's operation of its Method II supply company was in compliance with applicable law, that no relief is due to the United States, that the decisions made by the District Court will be reversed, and that its position in the litigation will ultimately be sustained.
RCG could face possible indemnification claims from former members of the Board of Directors. They are defendants in a class action in which they are being sued for damages by former shareholders of the company.
Fresenius Medical Care is confident that the former Board members will win the case and that a possible claim will therefore not arise.
Further information to legal matters, especially in respect to essential patent infringement claims, can be found on pages 182 to 186 of the Notes.
The Fresenius Group is also involved in various legal issues resulting from business operations and, 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 knowhow. 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 international 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.
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 national and global 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 to be able to take suitable counteraction.
Fresenius' credit quality is assessed and regularly reviewed by the leading rating agencies Moody's, Standard& Poor's, and Fitch. Standard& Poor's continues to rate Fresenius SE & Co. KGaA with BB and a positive outlook, while Moody's with Ba1 and a stable outlook. In August 2011, Fitch improved Fresenius SE & Co. KGaA's rating and assessed us with BB + and a stable outlook.
| Standard & Poor's |
Moody's | Fitch | |
|---|---|---|---|
| Rating | BB | Ba1 | BB + |
| Outlook | positive | stable | stable |
In August 2011, Fresenius Medical Care has executed a merger agreement with Liberty Dialysis Holdings, Inc., the holding company for Liberty Dialysis and Renal Advantage. The investment, including assumed debt, will be approximately US\$1.7 billion. In addition, Fresenius Medical Care previously invested approximately US\$300 million in Renal Advantage. The merger is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to close in the first quarter of 2012. Liberty Dialysis Holdings, Inc. has annual sales of approximately US\$1 billion and operates around 260 dialysis clinics. Fresenius Medical Care anticipates that facilities may need to be divested to secure regulatory clearance of the transaction.
In October 2011, HELIOS Kliniken GmbH has agreed to acquire 94.7% of the share capital in Damp Group. Damp is among the ten largest private hospital operators in Germany. The acquisition is an excellent geographic fit with the HELIOS hospital network in the north and northeast of Germany. The Damp hospitals enjoy a strong local market position and offer considerable growth potential.
Due to the geographic proximity of the HELIOS hospital Schwerin, HELIOS had to divest the Damp hospital Wismar (505 beds, sales of approximately €60 million) to secure regulatory clearance of the transaction. Adjusted for this divestiture, Damp achieved sales of €427 million in 2010. HELIOS anticipates to close the transaction at the end of the first or at the beginning of the second quarter 2012, respectively.
In January 2012, Fresenius Medical Care successfully placed three tranches of U.S. dollar and euro-denominated senior unsecured notes. Proceeds amounting to approximately US\$1.81 billion are intended to be used for acquisitions, including the acquisition of Liberty Dialysis Holdings, Inc., to refinance indebtedness and for general corporate purposes. The coupon for the dollar-denominated senior notes in the principal amount of US\$800 million due 2019 is 5.625% and the coupon for the dollar-denominated senior notes in the principal amount of US\$700 million due 2022 is 5.875%. The coupon for the euro-denominated senior notes in the principal amount of €250 million due 2019 is 5.25%. All tranches were issued at par.
There have been no significant changes in the Fresenius Group's operating environment following the end of the fiscal year 2011. 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.
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 101ff.
The outlook for the Fresenius Group for the coming years continues to be positive. We are continuously striving to optimize our costs, to adjust our capacities to be able to treat patients and supply customers reliably, and to improve our product mix. We expect these efforts to improve our earnings. 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 sees very good opportunities to benefit from the considerable health care needs due to aging populations and technical advances, but driven also by the still insufficient access to health care in the developing and emerging countries. There are above-average and sustained growth opportunities for us not only in the markets
of Asia and Latin America, but also in Eastern Europe. Appropriate reimbursement structures and efficient health care systems will evolve over time in these countries as economic conditions improve. We will strengthen our local business activities in these regions and successively introduce further products from our portfolio to these markets.
We also plan to successively roll out products and therapies from our existing portfolio in countries where we do not yet offer a comprehensive range. The acquisition of APP Pharmaceuticals in the Fresenius Kabi business segment, for instance, provides us with a platform to introduce products from the existing portfolio to the U.S. market.
▶ The broadening of our services business: Fresenius Helios has opportunities in the German hospital market to profit from the further privatization of public hospitals. New opportunities could also emerge for Fresenius Medical Care. Whether or not private companies can offer dialysis
treatment and in what form depends on the health care system of the country in which they operate and its legal framework. For Fresenius Medical Care, opportunities to extend into new markets or to expand its market share arise if a country opens up to private dialysis providers or allows cooperation between public and private providers. Since Japan is one of the world's biggest dialysis markets, changes in the framework conditions for operating dialysis clinics as a private company could open up new revenue potential for Fresenius Medical Care. Germany is the fifth largest market in the world in terms of the number of dialysis patients. We are the market leader in dialysis products. Dialysis clinics are mostly operated by practitioners, hospitals and non-profit organizations. However, for some years the company is in a position to offer dialysis care through medical care centers. Here, Fresenius Medical Care perceives its role as a partner for customers in creating new supply structures in the German health care sector and sees such ventures as an opportunity to strengthen its business long term. At the end of 2011, Fresenius Medical Care participated in ten medical care centers (2010: 8).
▶ Selective acquisitions: besides good organic growth as basis for our business, we will continue to utilize opportunities to grow by making small and mid-sized acquisitions that extend our product portfolio and strengthen our regional presence.
We are also exploiting any opportunities for tapping potential within our operations for cost management and efficiency enhancement measures. These include plans for a further optimized procurement process and cost-efficient production. We are increasingly globalizing our sourcing processes in order to realize further synergies.
Acquisitions, primarily the acquisition of APP Pharmaceuticals, led in 2008 to appreciably higher Group debt with a corresponding impact on net interest. Meanwhile we strongly improved the Group's leverage ratios. As of December 31, 2011, the net debt/EBITDA ratio was 2.8. At the end of 2012, we expect Group leverage to be ≤ 3.0, due to the recently announced acquisitions.
This outlook takes account of all events known at the time the annual financial statements were prepared that could influence our operating performance in 2012 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.
As an international company, we offer our products and services in about 170 countries. We expect the consolidation process among competitors in our markets in Europe, Asia-Pacific, and Latin America to continue. 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.
In the United States, since Fresenius Medical Care and its competitor DaVita already share about 66% of the market, acquisitions – also with regard to potential antitrust restrictions – are likely to be small. Other new markets will also open up for Fresenius as we successively roll out our existing product portfolio in other regions. For instance, due to different regional and legal conditions, Fresenius Medical Care only supplies dialysis products in some countries. If conditions change, the company might provide dialysis care in these countries as well.
In 2011, Fresenius Medical Care once again significantly expanded its product business as well as cooperations with hospitals in dialysis services in China, and plans to continue this in the coming years. In addition, we have initiated a pilot project to start up a dialysis clinic by our own: Approval has already been granted for a dialysis clinic in the Chinese province of Jiangsu; it should open in mid-2012. Apart from China, mid-term the Indian market is also becoming more attractive in the Asia. So far, we have been represented by distributors on the product market since the 1990s. The regional and local public health authorities in India promote Public Private
Partnerships (PPP) models. We expect to sign dialysis service contracts with larger regional and municipal public hospitals, and also aim to open our own dialysis clinic in Delhi in 2012. The growing importance of the Chinese and Indian markets with growing rates of dialysis patient numbers of much more than 10% annually should accelerate our growth in the region as a whole.
Fresenius Kabi plans to introduce products from its program in the United States in 2012.
In the developed countries, Fresenius Vamed is expecting to grow in the life cycle and PPP project areas both with regard to the project and the services business. In the emerging economies, the company intends to further consolidate its market position with successfully completed contracts in the project and services business, and wants to open new target markets.
The financial and economic crisis is not over yet. The development of the global economy remains fraught with risk in 2012. Many industrial countries are suffering from high unemployment, a weak asset price development and extended private household debt, which dampens private consumption. Economic development will therefore be dominated by the debt and banking crisis as well as the successful implementation of consolidation plans. A continued very expansive monetary policy should, however, have a stabilizing effect. For emerging markets, the outlook remains positive; Asian countries in particular should provide a helpfulboost to the global economy. Against this backdrop, global GDP for 2012 is anticipated to increase by 3.3%.
Experts anticipate weaker economic development in the Eurozone for 2012, with significant differences between individual countries. At best, the Eurozone is expected to stagnate; more prudent scenarios envision a GDP decrease of -0.5%.
Core countries such as France, Germany, and the Benelux countries will probably distinguish themselves positively from the peripheral economies, such as Spain, Portugal, and Italy, since the former have less significant fiscal, labor, and real estate problems.
In the peripheral countries the massive consolidation and refinancing requirements will continue to slow down economic growth, particularly in Spain and Italy. The recession will persist in Greece and Portugal. Decreasing demand from these countries will also have a negative effect on the export economy of the core countries.
Due to the increasingly depressed economic environment, Germany is expected to experience a slowdown, which could lead to growth stagnation in 2012. Positive impulses are expected from domestic demand, though the trade balance will possibly have a negative impact on economic development.
Comprehensive steps to minimize the Eurozone debt crisis were taken at the end of 2011. Credit leverage is being employed to increase volume of the European Financial Stability Facility (EFSF) for higher effectiveness, especially with regard to potentially necessary support for Italy and Spain. For Greece, a significantly higher haircut for private creditors is expected, which will limit the deficit, and most likely make it possible for the country to return to the capital market by 2020.
The economy in the United States will probably recover slightly. Consumer demand will be further dampened, given that labor conditions have only slightly improved and private household debt remains high. In addition, the real estate market will probably not recover quickly, even though recent developments are pointing towards an end to the decline in prices. Increased investment activities are foreseen, however, due to the unexpectedly strong, productivity-driven increase of corporate profits in the previous year. Expansive monetary policy should also provide some positive impulses. Since the effects of public budget consolidations will probably not be felt until 2013, the 2012 GDP is expected to increase by 2.5%.
For the Asian emerging economies, especially China and India, the strongest economic development is expected for 2012, with an overall GDP increase of 6.9% (Asia ex Japan). Private demand should continue to grow. Decreased exports and the slowed economy in the industrial countries, however, could affect growth negatively.
The emerging economies will remain dependent to a lesser extent on the industrial countries, which are the destination of most of their exports. Structural factors, such as the catch-up process versus the industrial countries, the young and still growing population, and improvements in infrastructure, will continue to be growth drivers for the economy. Increasing inflation should be expected due to the high growth rates.
Export and investment activities should remain the most important drivers in China. Increasing domestic demand can also be expected, though it will not be able to cushion expected sluggish export demand from slow economies in its most important markets. The reversion to a less restrictive monetary policy occurring at the end of 2011 and increased governmental social benefits should counteract the slowed growth. Other fiscal impulses intended to stimulate consumption are expected. For 2012, projections call for a decreased growth of 8.3%.
India's economy is primarily stimulated by private consumption. Its growth rate for 2012 could remain at the previous year's level of 7.3%, provided India can curb its high inflation.
Economic development in Japan is still hampered by the strong Japanese currency and the weak global economy. However, both catch-up effects and the reconstruction work taking place in the areas that were affected by the earthquake should exert a positive effect. Experts estimate GDP growth will be 0.7% in 2012.
For Latin America, slightly slower but still robust growth of 3.6% is expected for 2012. The economic activities of raw materials exporters, for example Brazil, are losing some momentum due to slightly lower raw materials prices. Economic development in these countries will, however, most likely be better than average in this region.
For Brazil, prospects for employment and income are expected to remain good, which will generate positive impulses for consumer demand. Brazil's GDP is projected to increase by 3.2% in 2012.
GDP in Argentina is expected to decrease significantly to 2.9% in 2012: no growth impulses are expected from governmental policy makers, and the ongoing flight of capital and the high inflation continue to strain the economy.
Due to the unchanged strong dependence on the U.S. economy, Mexico's growth is estimated at 3.3%.
The health care sector continues to be one of the world's largest industries and is considered to be independent of economic cycles to a great extent. The demand especially for lifesaving and life-sustaining products and services is expected to increase as they are medically needed and the population is aging.
However, 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. Due to the global financial and budget deficit crisis, some countries, such as Greece, are experiencing significant financing problems in the health care sector. Especially in the industrialized countries, increased pressure to encourage saving can be expected as health care costs constitute a large portion of the budget.
Nonetheless, industry observers believe that, despite all challenges, the sector will also see a comparatively solid financial performance in the foreseeable future. Favorable demographic trends, medical advances, and the large number of diseases that are still difficult to cure or are incurable should remain growth drivers. In addition, the need to increase the availability of basic health care and the growing demand for high-quality medical treatment in the emerging countries should also continue to generate steady growth rates. Furthermore, the improvement of patient benefits, the treatment quality, as well as prevention will play an increasingly greater role in health care.
We expect the worldwide number of dialysis patients to rise by approximately 6% p. a. in 2012, 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 2 to 4% p. a. In many emerging countries, however, where needs are still not met sufficiently, we expect growth in patient numbers of up to 10%, and in some countries even higher rates. This growth is driven by steadily evolving health care systems that are providing broader patient care. As more than 80% of the world's population lives in these countries, this opens up strong potential for the entire spectrum of dialysis care and dialysis products.
In addition, demographic 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 a rising standard of living, especially in the emerging countries.
We estimate that the volume of the global dialysis market, which was about US\$75 billion in 2011 could rise by about 4% annually – unchanged currency relations assumed.
In January 2011, the United States, our largest sales market, introduced a new bundled reimbursement system for the dialysis treatment of public health care patients. All products and services that used to be reimbursed according to the composite rate are now reimbursed in a flat fee. This includes services such as the administration of certain drugs and diagnostic laboratory tests that were reimbursed separately in the old system. The bundled reimbursement rate is adapted to patients' characteristics such as age and weight while considering adjustments for patients who require exceptional medical care that results in higher costs. In addition to inflationary adjustments starting in 2012, other special features of this new reimbursement system include adherence to certain
quality parameters such as regulation of the hemoglobin content of the blood (anemia management) and the mineral metabolism in the bones.
The initial new bundled reimbursement rate for 2011 was introduced with a 2% cut as compared to the estimated costs under the prior reimbursement system. In addition, the authority of the state health care program (Centers for Medicare and Medicaid, CMS) initially implemented a further 3.1% reduction. However, this was subsequently eliminated effective April 1, 2011 after successful negotiations with the authority.
Beginning in 2012, the payment amount will be subject to an annual inflation adjustment. For 2012, the rate increase will be 2.1%. The inflation rate should be at a comparable level in forthcoming years according to earlier draft bills.
The new bundled reimbursement system in the United States will be phased in over a period of four years. Accordingly the implementation of the new payment system will be completed in January, 2014 for all dialysis clinics. Fresenius Medical Care decided at an early stage to convert nearly all of the clinics to the new reimbursement system already on January 1, 2011.
Further information is provided on page 107 f. of the Management Report.
The market for infusion therapies and clinical nutrition in Central and Western Europe is expected to continue to grow at a low single-digit rate in the coming years. 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 expected in Asia-Pacific, Latin America and Eastern Europe. We expect the market in these regions to continue growing at high single to double-digit rates.
In view of the financial challenges in health care and in order to ensure high-quality care, we believe that the more cost-effective generics drugs will be utilized even more than now. With generic IV drugs 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 products that are already in the market. We expect the market for IV generics in Central and Western Europe, as well as in the United States, to grow at mid-single-digit rates in 2012.
The market for medical devices for infusion therapy, intravenously administered drugs, and clinical nutrition are expected to grow in Europe in 2012 at mid-single-digit rates.
With regard to their funding, hospitals can also expect rising budgets in principle again in 2012. The price increase for hospital services for 2012 is 1.48% (2011: 0.9%). This includes a flat rate reduction according to the GKV-FinG of 0.5 percentage points (2011: 0.25 percentage points).
With regard to the reimbursement of additional admissions HELIOS does not expect significant changes in 2012, despite legislative changes.
Even considering the revenue increases, it will probably not be possible to cover all the expected cost increases at the hospitals – especially with regard to personnel costs as a result of wage tariff increases. Hospitals will continue to face cost pressure and the need for further savings in their operations.
Effective January 1, 2012, the German Bundestag passed the Act on the Improvement of Provisioning Structures in the German Statutory Health Insurance (GKV-VStG). The objective of this legislation is to restructure the need-based provision in outpatient medical care. We do not expect any material changes in the financing of our outpatient care.
In Germany as from the beginning of 2010, inpatient acute care services are reimbursed only on the basis of the standardized base rates of the individual federal states (DRG system). The different base rates from state to state are to be successively harmonized over a period of five years from 2010 onwards toward a standardized, nationwide base rate corridor. The originally planned convergence to a standardized,
nationwide base rate starting in 2015 was lifted. However, in light of the past experience with the DRG system, the positive development in the number of admissions, and the now completed convergence phase, HELIOS does not expect any major changes in the reimbursement of its services.
Given their growing investment needs but declining government support, hospitals are under growing pressure to rigorously tap the potential for rationalization. Financing investments is a challenge especially for public hospitals. The financial situation of local governments will remain constrained, reducing their ability to cover their hospitals' operating losses and finance investments. This will further limit the financial scope for supporting loss-making hospitals and investment in public health care facilities, and will encourage privatizations.
It is generally expected that the proportion of private hospitals will rise at the expense of public hospitals. Private hospital chains and alliances are likely to be able to respond to the pressure to improve efficiency better than public hospitals. They often have more experience in operating commercially and creating efficient structures. They also have the potential to secure cost advantages in procurement. Finally, private operators have more experience with the process know-how for acquiring and integrating new facilities and quickly adjusting their cost structures. Experts anticipate that privatizations will increase in 2012 due to the difficult economic and financial situation of the hospitals.
Another future challenge for hospitals will be personnel shortages due to, among other things, restrictive regulations on working hours and a higher demand for specialized staff in some areas. Retaining qualified staff over the long term and training them are seen as important success factors for a hospital.
Other crucial factors for a hospital's success are not only cost-efficient processes, a well-structured medical offering, and well-trained staff, but also excellent medical quality. HELIOS is convinced that systematic quality management and the documentation of medical outcomes should not just serve as marketing instruments, but should be an element of hospital management, and thus part of the reimbursement. In the long run, initiatives are expected that provide for the introduction of quality-based reimbursement (pay-for-performance) and allow hospitals the option of concluding selective contracts with health insurers. With its strict focus on quality and transparency, HELIOS would be well prepared for such a future development.
No consequences from changes in the law are expected in the post-acute clinic segment. However, pricing and other controls by health insurers will continue to increase. Experts assume the importance of post-acute care will rise due to demographic trends, longer working lives, and the growing prevalence of chronic diseases. As a result of growth in acute care admissions and continuous improvements in HELIOS' internal referral management, we expect to be able to leverage potentials from the combination of acute care and postacute care, thereby increasing our number of post-acute care admissions.
In industrialized countries, owing to demographic trends, growing demand for high-quality, efficient medical care – and thus for engineering and services for hospitals and other health care facilities – is expected to continue. 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 the advancing privatization of health care.
In the emerging countries, there is growing demand above all for infrastructure development, but also for efficient, needs-oriented medical care. The provision of primary health care is now very largely in place. In many markets, the focus now is therefore on building up secondary care, developing tertiary health care structures in the form of "centers of excellence", and creating training and research structures.
All in all, we expect the market for engineering and services for hospitals and other health care facilities to continue growing in 2012. In markets with established health care systems, we expect solid growth, in emerging markets we anticipate an overall dynamic development.
With its international production and sales platform and its market-oriented products and services, the Fresenius Group is well positioned for continued growth in the coming years. Specific opportunities for profitable growth are indicated by the developments described in the section "Health Care Sector and Markets". In 2012, we therefore expect to increase Group sales by 10% to 13% in constant currency.
While our traditional markets in Europe and North America are growing at average low to mid-single-digit rates, we see stronger growth potential in the Asia-Pacific region and in Latin America. Here the demand for our life-saving and lifesustaining products continues to be high as access to medical care is still limited. This will also be reflected in sales.
We expect to increase Group net income once again in 2012. We aim to achieve this through the growth in sales discussed and by ongoing measures to optimize costs. Despite a market environment which continues to be marked by cost containment and price pressure, we expect to increase net income by 8% to 11% in constant currency.
| Targets 2012 | Fiscal year 2011 | |
|---|---|---|
| Sales growth (in constant currency) |
10%– 13% | €16,522 m |
| Net income 1 , growth (in constant currency) |
8%– 11% | €770 m |
| Capital expenditure | ~5% of sales | €783 m |
| Dividend | Profit-driven dividend policy |
Proposal: +10% per ordinary share |
Net income attributable to Fresenius SE & Co. KGaA; 2011 adjusted for special items relating to the acquisition of APP Pharmaceuticals.
We have set ourselves a new mid-term target and plan to achieve average organic sales growth of 6% to 9% p. a. for the Group. We also have set ourselves an ambitious earnings goal. We aim to achieve Group net income of more than €1 billion by 2014.
In 2012, we expect further increases in sales and earnings in each of our business segments. The table gives an overview.
| FINANCIAL TARGETS BY BUSINESS SEGMENT | |||
|---|---|---|---|
| --------------------------------------- | -- | -- | -- |
| Targets 2012 | Fiscal year 2011 | |
|---|---|---|
| Fresenius Medical Care | ||
| Sales | ~ US\$14.0 bn | US\$12.795 bn |
| Net income 1 | ~ US\$1.14 bn | US\$1.071 bn |
| Fresenius Kabi | ||
| Sales growth (organic) |
4%– 6% | €3,964 m2 |
| EBIT margin | 19.5%– 20.0% | 20.3% |
| Fresenius Helios | ||
| Sales growth (organic) |
3%– 5% | €2,665 m2 |
| EBIT | €310 m – €320 m | €270 m |
| Fresenius Vamed | ||
| Sales growth | 5%– 10% | €737 m2 |
| EBIT growth | 5%– 10% | €44 m3 |
| Fresenius Biotech | ||
| EBIT | -€25 m – -€30 m | -€30 m |
Net income attributable to Fresenius Medical Care AG & Co. KGaA Sales
3 EBIT
The number of dialysis patients worldwide should rise by about 6% again in 2012, leading to continued growth in demand for dialysis products and a higher number of treatments. For 2012, Fresenius Medical Care expects sales to grow to around US\$14.0 billion. This takes into account a change in U.S. GAAP in the presentation of U.S. dialysis service sales which will be shown net of the provision for bad
debt. Based on the comparable 2011 sales of US\$12,571 million the sales outlook represents an increase of 11% and between 13% and 15% based on constant currencies. Net income is expected to grow to around US\$1.3 billion and net income 1 is expected to grow to around US\$1.14 billion with operating margins forecast to increase to approximately 16.9%.
Fresenius Kabi expects its positive operating performance to continue. The company projects organic sales growth of 4% to 6%. High growth potential is expected again in emerging markets. Based on this positive sales projection, further cost optimizations, especially in production, and an improved product mix, Fresenius Kabi again expects to increase earnings in 2012. Fresenius Kabi forecasts an EBIT margin of 19.5% to 20.0%, again achieving an excellent margin level.
Fresenius Helios expects a continued good performance in the hospital operations business. The company forecasts an organic sales growth of 3% to 5% in 2012. EBIT is expected to increase to between €310 million to €320 million.
Given its excellent order backlog of €845 million and longterm agreements in its service business, Fresenius Vamed has an excellent base for further growth. In 2012, Fresenius Vamed expects to achieve both sales and EBIT growth between 5% and 10%.
Fresenius Biotech is expected to further reduce its negative EBIT to about -€25 million and -€30 million.
In 2011, we generated an excellent operating cash flow of €1,689 million mainly driven by strong earnings and tight working capital management. The cash flow margin was 10.2%. In 2012, we expect to achieve a similar cash flow margin.
The net debt/EBITDA ratio is a key financial figure for the Fresenius Group. As of December 31, 2011, the net debt/ EBITDA ratio was 2.8. At the end of 2012, we expect Group leverage to be ≤ 3.0, due to the recently announced acquisitions.
Unused credit lines under syndicated or bilateral credit facilities from banks will generally provide us with a sufficient financial cushion. Fresenius SE & Co. KGaA's €250 million commercial paper program was not utilized. For further details please see page 170.
Financing measures are planned for 2012 due to acquisitions and refinancing requirements. Fresenius SE & Co. KGaA is planning to finance the acquisition of the Damp Group. In addition, it is planned to refinance tranches of Euro notes that were issued in 2007 and 2008 and that will become due, as well as the 2006 senior notes that will become due on January 31, 2013.
On January 26, 2012, Fresenius Medical Care placed senior notes to finance the acquisition of Liberty Dialysis Holdings. Proceeds are amounting to approximately US\$1.81 billion. Fresenius Medical Care is also planning to refinance the credit facilities due on March 31, 2013 under the Fresenius Medical Care 2006 Senior Credit Agreement, including repayments of Loan B, and the tranches of 2009 Euro Notes that will become due October 27, 2012.
We will continue to invest in our future growth. In 2012, we expect to invest about 5% of sales in property, plant and equipment, which will be roughly in line with the 2011 rate.
About 55% of the capital expenditure planned will be invested at Fresenius Medical Care, about 25% at Fresenius Kabi and more than 20% at Fresenius Helios. Investments at Fresenius Medical Care will focus on the construction of dialysis clinics, on expanding production capacities, and on cost optimization. Fresenius Kabi will invest in expanding and maintaining production facilities and in introducing new
manufacturing technologies, enabling further improvements in production efficiency. An important project is the expansion of our production and logistics center in Friedberg, Germany. At Fresenius Helios we will primarily be investing in modernizing and equipping hospitals.
The regional focus of the Group's investment spending will be on Europe and North America, which will account for about 55% and 30%, respectively. The remainder will be invested in Asia, Latin America, and Africa. About 35% of total funds will be invested in Germany.
We will continue optimizing our procurement management in 2012: prices, terms, and especially quality are key factors for securing further earnings growth.
Based on recent developments in the financial and the real markets, we assume that price fluctuations will intensify despite an easing in the commodities markets in the short and medium term. Fresenius Medical Care will concentrate all the tools in the market strategy towards this, for example by networking more closely with strategic partners, by increasing the diversification of the supplier portfolio and using more flexible contracts. In 2012, the automated replenishment control described on page 89 will be introduced into additional country warehouses in Europe.
For the beginning of 2012, we expect the prices for relevant raw materials of Fresenius Kabi to slightly decrease, including cardboard packaging, and a series of active pharmaceutical ingredients for IV drugs. The prices for glass, plastic granulates, and carbohydrates are expected to increase.
The premium for renewable energies will be increased once again in 2012. Consequently, our energy costs will increase from 2011 as well. The discussions about phasing out nuclear energy as well as the continued unrest in some African and Arabic countries have caused insecurity at the energy exchanges and increasing prices. We believe that this will continue, even though the European debt crisis initially caused slightly lower prices on the electricity exchange. Global markets are influenced by many factors, and their developments are increasingly more difficult to predict. Natural disasters, political unrest, financial policy developments, or budget deficits in individual countries and regions now have a material impact. We aim to compensate these uncertainties by long-term sourcing strategies and purchasing agreements, in order to further guarantee security of supply based on a best-possible planning reliability. Our global procurement management will take advantage of all opportunities.
In 2012, the HELIOS Purchasing Department will integrate the recently acquired hospitals into the central procurement systems and the HELIOS purchasing concept. This applies to pharmacy, purchasing, medical technology, operating and administrative supplies, as well as catering. The newly acquired hospitals will quickly benefit from structures, standards, and terms. In 2012, changes in the food prices will not have a significant impact on the cost structure of the HELIOS hospitals, as their share in the overall procurement volume and therefore in total costs is insignificant.
We had already contracted our electricity supplies until October 31, 2012, in 2010. As a consequence, the highly volatile price development at the European Energy Exchange EXX did not affect us. However, we aim to disengage ourselves from these market price developments by switching the energy carriers. HELIOS plans to switch all clinics to partially renewable energy-based heat generation over the long term. Six clinics already produce energy from a biomass boiler (wood pellets). Further clinics will follow in 2012.
Our R & D activities will continue to play a key role in securing the Group's long-term growth through innovations and new therapies.
As a vertically integrated company not only supplying dialysis products but also operating its own clinics, Fresenius Medical Care aims to offer a complete portfolio of high-quality products and services for the treatment of chronic kidney failure that can be tailored flexibly to local market conditions and, in part, rapidly changing health care systems and reimbursement structures. Given the increasing challenge in the health care sector to provide comprehensive, high-quality, and at the same time cost-efficient care for growing numbers of patients, we increasingly want to leverage this extensive portfolio in order to offer holistic or integrated health care concepts (disease management) to our partners in the health care sector.
Consequently, one focus of our work will be innovations that integrate additional treatment elements in our offerings or match these offerings more effectively with one another so as to improve the quality and safety of the therapy and make it more cost efficient. For instance, we will be working on devices for our hemodialysis machines that facilitate the handling of the bloodline system and reduce the number of connecting steps to a few manual operations, thus relieving the clinic staff. Integrating the dosage and the administration of particular medications into the process of the dialysis machine and developing new supplementary functions that increase treatment quality and safety will be other focuses.
We will also be looking generally into ways to use new medical and technological insights to improve the quality of life for more and more patients with chronic kidney failure – for instance through home therapies. Treatment safety will remain a focus of our ongoing efforts to improve our products and services, and we will continue to tackle side-effects associated with chronic kidney failure.
Another focus of our development work is infusion and nutrition therapies and the development of generic IV drugs at Fresenius Kabi.
Fresenius Biotech is concentrating on the further clinical development of the antibody catumaxomab in order to achieve a stronger commercial success with the Removab product. More information on this can be found on page 87.
We plan to increase the Group's R & D spending in 2012. About 4% to 5% of our product sales will be reinvested in research and development. The number of employees in research and development will also be increased.
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 be the basis for future market-leading products. 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 the improvement of treatment concepts.
In 2011, Fresenius SE & Co. KGaA was converted into a partnership limited by shares. No further change in the Company's legal form is planned for the foreseeable future.
The Fresenius Group is divided into four business segments, each of which is a legally independent entity. The business segments are organized on a regional and decentralized basis to provide the greatest flexibility for meeting the demands of their respective markets. The "entrepreneur in the enterprise" principle, with clearly defined responsibilities, has proven itself over many years. We will continue to follow this principle.
The number of employees in the Group will continue to rise in the future as a result of the expected expansion. We expect that the number of employees will increase to more than 165,000 mainly due to the recently closed or announced acquisitions by Fresenius Medical Care and Fresenius Helios. As of December 31, 2011, the Group had 149,351 employees. The number of employees is expected to increase in all business segments. The regional distribution of our employees will not change significantly – close to 50% will be located in Europe and one-third in North America – with the remainder spread over Asia-Pacific, Latin America, and Africa.
Continuity in our dividend policy remains an important priority, clearly demonstrated by dividend increases over the last 18 years. On average, we have passed on about half of the percentage growth in Group net income to our shareholders as a percentage dividend increase. Based on our positive earnings forecasts we want to remain true to our dividend policy in the 2012 fiscal year and again expect to offer our shareholders an earnings-linked dividend.
| 122 Consolidated statement of income | 128 Consolidated statement of changes in equity |
|---|---|
| 123 Consolidated statement of comprehensive income | 130 Consolidated segment reporting |
| 124 Consolidated statement of financial position | 134 Notes |
| 126 Consolidated statement of cash flows |
| Note | 2011 | 2010 |
|---|---|---|
| 4 | 16,522 | 15,972 |
| 5 | -10,883 | -10,646 |
| 5,639 | 5,326 | |
| 8 | -2,809 | -2,664 |
| -267 | -244 | |
| 2,563 | 2,418 | |
| 9 | 56 | 30 |
| 9 | -587 | -596 |
| 10 | -100 | -66 |
| -631 | -632 | |
| 1,932 | 1,786 | |
| 11 | -604 | -581 |
| 1,328 | 1,205 | |
| 26 | 638 | 583 |
| 690 | 622 | |
| 12 | 4.24 | 3.85 |
| 12 | 4.18 | 3.79 |
| 12 | n/a | 3.85 |
| 12 | n/a | 3.79 |
The following notes are an integral part of the consolidated financial statements.
| € in millions | Note | 2011 | 2010 |
|---|---|---|---|
| Net income | 1,328 | 1,205 | |
| Other comprehensive income (loss) | |||
| Foreign currency translation | 28, 30 | 71 | 377 |
| Cash flow hedges | 28, 30 | -81 | -15 |
| Actuarial losses on defined benefit pension plans | 25, 28 | -66 | -54 |
| Income taxes related to components of other comprehensive income (loss) | 28 | 48 | 11 |
| Other comprehensive income (loss) | -28 | 319 | |
| Total comprehensive income | 1,300 | 1,524 | |
| Comprehensive income attributable to noncontrolling interest subject to put provisions |
39 | 33 | |
| Comprehensive income attributable to noncontrolling interest not subject to put provisions |
571 | 689 | |
| Comprehensive income attributable to Fresenius SE & Co. KGaA | 690 | 802 |
The following notes are an integral part of the consolidated financial statements.
| as of December 31, € in millions | Note | 2011 | 2010 |
|---|---|---|---|
| Cash and cash equivalents | 13 | 635 | 769 |
| Trade accounts receivable, less allowance for doubtful accounts | 14 | 3,234 | 2,935 |
| Accounts receivable from and loans to related parties | 13 | 15 | |
| Inventories | 15 | 1,717 | 1,411 |
| Other current assets | 16 | 1,184 | 925 |
| Deferred taxes | 11 | 368 | 380 |
| I. Total current assets | 7,151 | 6,435 | |
| Property, plant and equipment | 17 | 4,210 | 3,954 |
| Goodwill | 18 | 12,669 | 11,464 |
| Other intangible assets | 18 | 981 | 984 |
| Other non-current assets | 16 | 1,185 | 628 |
| Deferred taxes | 11 | 125 | 112 |
| II. Total non-current assets | 19,170 | 17,142 | |
| Total assets | 26,321 | 23,577 |
| as of December 31, € in millions | Note | 2011 | 2010 |
|---|---|---|---|
| Trade accounts payable | 807 | 691 | |
| Short-term accounts payable to related parties | 21 | 2 | |
| Short-term accrued expenses and other short-term liabilities | 19, 20 | 2,898 | 2,731 |
| Short-term debt | 21 | 171 | 606 |
| Short-term loans from related parties | 3 | 2 | |
| Current portion of long-term debt and capital lease obligations | 21 | 1,852 | 420 |
| Mandatory Exchangeable Bonds | 23 | 0 | 554 |
| Trust preferred securities of Fresenius Medical Care Capital Trusts |
24 | 0 | 468 |
| Short-term accruals for income taxes | 184 | 163 | |
| Deferred taxes | 11 | 52 | 74 |
| A. Total short-term liabilities | 5,988 | 5,711 | |
| Long-term debt and capital lease obligations, less current portion | 21 | 3,777 | 4,919 |
| Senior Notes | 22 | 3,996 | 2,369 |
| Long-term accrued expenses and other long-term liabilities | 19, 20 | 409 | 458 |
| Pension liabilities | 25 | 484 | 383 |
| Long-term accruals for income taxes | 200 | 196 | |
| Deferred taxes | 11 | 573 | 488 |
| B. Total long-term liabilities | 9,439 | 8,813 | |
| I. Total liabilities | 15,427 | 14,524 | |
| II. Noncontrolling interest subject to put provisions | 26 | 317 | 209 |
| A. Noncontrolling interest not subject to put provisions | 26 | 4,606 | 3,879 |
| Subscribed capital | 27 | 163 | 162 |
| Capital reserve | 27 | 2,115 | 2,085 |
| Other reserves | 27 | 3,658 | 2,683 |
| Accumulated other comprehensive income | 28 | 35 | 35 |
| B. Total Fresenius SE & Co. KGaA shareholders' equity | 5,971 | 4,965 | |
| III. Total shareholders' equity | 10,577 | 8,844 | |
| Total liabilities and shareholders' equity | 26,321 | 23,577 |
The following notes are an integral part of the consolidated financial statements.
| January 1 to December 31, € in millions | Note | 2011 | 2010 |
|---|---|---|---|
| Operating activities | |||
| Net income | 1,328 | 1,205 | |
| Adjustments to reconcile net income to cash and cash equivalents provided by operating activities |
|||
| Depreciation and amortization | 16, 17, 18 | 674 | 639 |
| Change in deferred taxes | 11 | 81 | 11 |
| Gain/loss on sale of fixed assets | -3 | 1 | |
| Changes in assets and liabilities, net of amounts from businesses acquired or disposed of |
|||
| Trade accounts receivable, net | 14 | -222 | -275 |
| Inventories | 15 | -264 | -81 |
| Other current and non-current assets | 16 | -114 | 57 |
| Accounts receivable from/payable to related parties | 23 | 6 | |
| Trade accounts payable, accrued expenses and other short-term and long-term liabilities |
165 | 346 | |
| Accruals for income taxes | 21 | 2 | |
| Net cash provided by operating activities | 1,689 | 1,911 | |
| Investing activities | |||
| Purchase of property, plant and equipment | -783 | -754 | |
| Proceeds from sales of property, plant and equipment | 25 | 21 | |
| Acquisitions and investments, net of cash acquired and net purchases of intangible assets |
2, 32 | -1,326 | -615 |
| Proceeds from investments and divestitures | 12 | 111 | |
| Net cash used in investing activities | -2,072 | -1,237 |
| January 1 to December 31, € in millions | Note | 2011 | 2010 |
|---|---|---|---|
| Financing activities | |||
| Proceeds from short-term loans | 21 | 146 | 233 |
| Repayments of short-term loans | 21 | -191 | -196 |
| Proceeds from short-term loans from related parties | – | – | |
| Repayments of short-term loans from related parties | – | – | |
| Proceeds from long-term debt and capital lease obligations | 21 | 543 | 541 |
| Repayments of long-term debt and capital lease obligations | 21 | -936 | -1,185 |
| Proceeds from the issuance of Senior Notes | 22 | 1,471 | 242 |
| Changes of accounts receivable securitization program | 21 | 18 | 223 |
| Proceeds from the exercise of stock options | 34 | 99 | 121 |
| Redemption of trust preferred securities of Fresenius Medical Care Capital Trusts |
24 | -470 | 0 |
| Dividends paid | -365 | -329 | |
| Change in noncontrolling interest | 26 | -73 | -3 |
| Exchange rate effect due to corporate financing | – | 1 | |
| Net cash provided by/used in financing activities | 242 | -352 | |
| Effect of exchange rate changes on cash and cash equivalents | 7 | 27 | |
| Net decrease/increase in cash and cash equivalents | -134 | 349 | |
| Cash and cash equivalents at the beginning of the reporting period | 13 | 769 | 420 |
| Cash and cash equivalents at the end of the reporting period | 13 | 635 | 769 |
The following notes are an integral part of the consolidated financial statements.
| Ordinary shares | Preference shares | Subscribed Capital | |||||
|---|---|---|---|---|---|---|---|
| Note | Number of shares in thousand |
Amount € in thousands |
Number of shares in thousand |
Amount € in thousands |
Amount € in thousands |
Amount € in millions |
|
| As of December 31, 2009 | 80,658 | 80,658 | 80,658 | 80,658 | 161,316 | 161 | |
| Proceeds from the exercise of stock options | 34 | 567 | 567 | 567 | 567 | 1,134 | 1 |
| Compensation expense related to stock options |
34 | ||||||
| Dividends paid | 27 | ||||||
| Purchase of noncontrolling interest not subject to put provisions |
26 | ||||||
| Change in fair value of noncontrolling interest subject to put provisions |
26 | ||||||
| Comprehensive income (loss) | |||||||
| Net income | |||||||
| Other comprehensive income (loss) | |||||||
| Cash flow hedges | 28, 30 | ||||||
| Foreign currency translation | 28, 30 | ||||||
| Actuarial losses on defined benefit pension plans |
25, 28 | ||||||
| Comprehensive income | |||||||
| As of December 31, 2010 | 81,225 | 81,225 | 81,225 | 81,225 | 162,450 | 162 | |
| Conversion of the preference shares into ordinary shares |
1 | 81,225 | 81,225 | -81,225 | -81,225 | 0 | 0 |
| Proceeds from the exercise of stock options | 34 | 787 | 787 | 787 | 1 | ||
| Compensation expense related to stock options |
34 | ||||||
| Dividends paid | 27 | ||||||
| Purchase of noncontrolling interest not subject to put provisions |
26 | ||||||
| Maturity of Mandatory Exchangeable Bonds | 23 | ||||||
| Purchase of ordinary shares of Fresenius Medical Care AG & Co. KGaA |
2, 26 | ||||||
| Change in fair value of noncontrolling interest subject to put provisions |
26 | ||||||
| Comprehensive income (loss) | |||||||
| Net income | |||||||
| Other comprehensive income (loss) | |||||||
| Cash flow hedges | 28, 30 | ||||||
| Foreign currency translation | 28, 30 | ||||||
| Actuarial losses on defined benefit pension plans |
25, 28 | ||||||
| Comprehensive income | |||||||
| As of December 31, 2011 | 163,237 | 163,237 | 0 | 0 | 163,237 | 163 |
| Note | Capital reserve € in millions |
Other reserves € in millions |
Accumulated other com prehensive income (loss) € in millions |
Total Fresenius SE & Co. KGaA shareholders' equity € in millions |
Noncontrolling interest not subject to put provisions € in millions |
Total shareholders' equity € in millions |
|
|---|---|---|---|---|---|---|---|
| As of December 31, 2009 | 2,035 | 2,183 | -145 | 4,234 | 3,257 | 7,491 | |
| Proceeds from the exercise of stock options | 34 | 37 | 38 | 83 | 121 | ||
| Compensation expense related to stock options |
34 | 19 | 19 | 14 | 33 | ||
| Dividends paid | 27 | -122 | -122 | -172 | -294 | ||
| Purchase of noncontrolling interest not subject to put provisions |
26 | 0 | 35 | 35 | |||
| Change in fair value of noncontrolling interest subject to put provisions |
26 | -6 | -6 | -27 | -33 | ||
| Comprehensive income (loss) | |||||||
| Net income | 622 | 622 | 561 | 1,183 | |||
| Other comprehensive income (loss) | |||||||
| Cash flow hedges | 28, 30 | -12 | -12 | 0 | -12 | ||
| Foreign currency translation | 28, 30 | 230 | 230 | 128 | 358 | ||
| Actuarial losses on defined benefit pension plans |
25, 28 | -38 | -38 | 0 | -38 | ||
| Comprehensive income | 622 | 180 | 802 | 689 | 1,491 | ||
| As of December 31, 2010 | 2,085 | 2,683 | 35 | 4,965 | 3,879 | 8,844 | |
| Conversion of the preference shares into ordinary shares |
1 | 0 | 0 | 0 | |||
| Proceeds from the exercise of stock options | 34 | 30 | 31 | 68 | 99 | ||
| Compensation expense related to stock options |
34 | 20 | 20 | 15 | 35 | ||
| Dividends paid | 27 | -140 | -140 | -192 | -332 | ||
| Purchase of noncontrolling interest not subject to put provisions |
26 | 0 | 42 | 42 | |||
| Maturity of Mandatory Exchangeable Bonds | 23 | 467 | 467 | 298 | 765 | ||
| Purchase of ordinary shares of Fresenius Medical Care AG & Co. KGaA |
2, 26 | -42 | -42 | -28 | -70 | ||
| Change in fair value of noncontrolling interest subject to put provisions |
26 | -20 | -20 | -47 | -67 | ||
| Comprehensive income (loss) | |||||||
| Net income | 690 | 690 | 605 | 1,295 | |||
| Other comprehensive income (loss) | |||||||
| Cash flow hedges | 28, 30 | -54 | -54 | 0 | -54 | ||
| Foreign currency translation | 28, 30 | 95 | 95 | -34 | 61 | ||
| Actuarial losses on defined benefit pension plans |
25, 28 | -41 | -41 | 0 | -41 | ||
| Comprehensive income | 690 | – | 690 | 571 | 1,261 | ||
| As of December 31, 2011 | 2,115 | 3,658 | 35 | 5,971 | 4,606 | 10,577 |
Reserves
The following notes are an integral part of the consolidated financial statements.
by business segment
| Fresenius Medical Care | Fresenius Kabi | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | 2011 | 2010 | Change | 2011 | 2010 | Change | |
| Sales | 9,192 | 9,091 | 1% | 3,964 | 3,672 | 8% | |
| thereof contribution to consolidated sales | 9,177 | 9,088 | 1% | 3,916 | 3,629 | 8% | |
| thereof intercompany sales | 15 | 3 | -- | 48 | 43 | 12% | |
| contribution to consolidated sales | 56% | 57% | 24% | 23% | |||
| EBITDA | 1,891 | 1,830 | 3% | 955 | 893 | 7% | |
| Depreciation and amortization | 400 | 379 | 6% | 152 | 156 | -3% | |
| EBIT | 1,491 | 1,451 | 3% | 803 | 737 | 9% | |
| Net interest | -213 | -211 | -1% | -278 | -279 | 0% | |
| Income taxes | -432 | -436 | 1% | -145 | -142 | -2% | |
| Net income attributable to Fresenius SE & Co. KGaA | 770 | 738 | 4% | 354 | 294 | 20% | |
| Operating cash flow | 1,039 | 1,032 | 1% | 462 | 567 | -19% | |
| Cash flow before acquisitions and dividends | 629 | 649 | -3% | 289 | 401 | -28% | |
| Total assets | 15,096 | 12,793 | 18% | 7,282 | 6,860 | 6% | |
| Debt | 5,573 | 4,400 | 27% | 4,395 | 4,298 | 2% | |
| Capital expenditure, gross | 429 | 395 | 9% | 177 | 174 | 2% | |
| Acquisitions, gross /investments | 1,429 | 596 | 140% | 11 | 31 | -65% | |
| Research and development expenses | 80 | 73 | 10% | 162 | 143 | 13% | |
| Employees (per capita on balance sheet date) | 83,476 | 77,442 | 8% | 24,106 | 22,851 | 5% | |
| Key figures | |||||||
| EBITDA margin | 20.6% | 20.1% | 24.1% | 24.3% | |||
| EBIT margin | 16.2% | 16.0% | 20.3% | 20.1% | |||
| Depreciation and amortization in % of sales | 4.4% | 4.2% | 3.8% | 4.2% | |||
| Operating cash flow in % of sales | 11.3% | 11.4% | 11.7% | 15.4% | |||
| ROOA | 12.0% | 12.5% | 12.4% | 11.9% | |||
Including special items from the acquisition of APP Pharmaceuticals, Inc. The consolidated segment reporting by business segment is an integral part of the notes.
| Fresenius Helios | Fresenius Vamed | Corporate/Other 1 | Fresenius Group | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change |
| 2,665 | 2,520 | 6% | 737 | 713 | 3% | -36 | -24 | -50% | 16,522 | 15,972 | 3% |
| 2,665 | 2,520 | 6% | 737 | 713 | 3% | 27 | 22 | 23% | 16,522 | 15,972 | 3% |
| 0 | 0 | – | – | -- | -63 | -46 | -37% | 0 | 0 | ||
| 16% | 16% | 4% | 4% | 0% | 0% | 100% | 100% | ||||
| 369 | 318 | 16% | 51 | 49 | 4% | -29 | -33 | 12% | 3,237 | 3,057 | 6% |
| 99 | 83 | 19% | 7 | 8 | -13% | 16 | 13 | 23% | 674 | 639 | 5% |
| 270 | 235 | 15% | 44 | 41 | 7% | -45 | -46 | 2% | 2,563 | 2,418 | 6% |
| -51 | -55 | 7% | 2 | 2 | 0% | 9 | -23 | 139% | -531 | -566 | 6% |
| -43 | -37 | -16% | -11 | -12 | 8% | 27 | 46 | -41% | -604 | -581 | -4% |
| 163 | 131 | 24% | 34 | 30 | 13% | -631 | -571 | -11% | 690 | 622 | 11% |
| 294 | 311 | -5% | -83 | 47 | -- | -23 | -46 | 50% | 1,689 | 1,911 | -12% |
| 138 | 150 | -8% | -89 | 38 | -- | -36 | -60 | 40% | 931 | 1,178 | -21% |
| 3,495 | 3,270 | 7% | 594 | 549 | 8% | -146 | 105 | -- | 26,321 | 23,577 | 12% |
| 1,104 | 1,096 | 1% | 44 | 16 | 175% | -1,317 | -1,026 | -28% | 9,799 | 8,784 | 12% |
| 157 | 166 | -5% | 7 | 9 | -22% | 13 | 14 | -7% | 783 | 758 | 3% |
| 45 | 13 | -- | 3 | 5 | -40% | 124 | -1 | -- | 1,612 | 644 | 150% |
| – | – | -- | 0 | 0 | 25 | 28 | -11% | 267 | 244 | 9% | |
| 37,198 | 33,321 | 12% | 3,724 | 3,110 | 20% | 847 | 828 | 2% | 149,351 | 137,552 | 9% |
| 13.8% | 12.6% | 6.9% | 6.9% | 19.6% | 19.1% | ||||||
| 10.1% | 9.3% | 6.0% | 5.8% | 15.5% | 15.1% | ||||||
| 3.7% | 3.3% | 0.9% | 1.1% | 4.1% | 4.0% | ||||||
| 11.0% | 12.3% | -11.3% | 6.6% | 10.2% | 12.0% | ||||||
| 8.4% | 7.8% | 16.0% | 22.2% | 10.9% | 11.6% |
Including special items from the acquisition of APP Pharmaceuticals, Inc. 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.
by region
| Europe | ||||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | Change | 2011 | 2010 | Change | |
| 6,919 | 6,515 | 6% | 6,762 | 7,020 | -4% | |
| 42% | 41% | 41% | 44% | |||
| 758 | 723 | 5% | 1,382 | 1,347 | 3% | |
| 322 | 294 | 10% | 268 | 265 | 1% | |
| 9,759 | 8,935 | 9% | 13,670 | 12,152 | 12% | |
| 422 | 400 | 6% | 210 | 223 | -6% | |
| 924 | 267 | -- | 596 | 277 | 115% | |
| 74,415 | 66,179 | 12% | 47,701 | 46,082 | 4% | |
| North America |
| Asia-Pacific | Latin America | Africa | Fresenius Group | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | |
| 1,582 | 1,307 | 21% | 899 | 814 | 10% | 360 | 316 | 14% | 16,522 | 15,972 | 3% | |
| 10% | 8% | 5% | 5% | 2% | 2% | 100% | 100% | |||||
| 251 | 205 | 22% | 125 | 107 | 17% | 47 | 36 | 31% | 2,563 | 2,418 | 6% | |
| 50 | 47 | 6% | 29 | 27 | 7% | 5 | 6 | -17% | 674 | 639 | 5% | |
| 1,888 | 1,610 | 17% | 877 | 755 | 16% | 127 | 125 | 2% | 26,321 | 23,577 | 12% | |
| 69 | 73 | -5% | 71 | 52 | 37% | 11 | 10 | 10% | 783 | 758 | 3% | |
| 75 | 89 | -16% | 17 | 11 | 55% | – | – | -- | 1,612 | 644 | 150% | |
| 13,134 | 12,258 | 7% | 12,754 | 11,726 | 9% | 1,347 | 1,307 | 3% | 149,351 | 137,552 | 9% |
The consolidated segment reporting by region is an integral part of the notes. The following notes are an integral part of the consolidated financial statements.
163 21. Debt and capital lease obligations
170 22. Senior Notes
Fresenius is a worldwide operating health care group with products and services for dialysis, the hospital and the medical care of patients at home. Further areas of activity are hospital operations as well as engineering and services for hospitals and other health care facilities. In addition to the activities of the parent company Fresenius SE & Co. KGaA, Bad Homburg v. d. Höhe, the operating activities were split into the following legally-independent business segments (subgroups) in the fiscal year 2011:
Fresenius Medical Care is the world's leading provider of dialysis products and dialysis care for the life-saving treatment of patients with chronic kidney failure. Fresenius Medical Care treats 233,156 patients in its 2,898 own dialysis clinics.
Fresenius Kabi is a globally active company, providing infusion therapies, intravenously administered generic drugs, clinical nutrition and the related medical devices. The products are used for the therapy and care of critically and chronically ill patients in and outside the hospital. In Europe, Fresenius Kabi is the market leader in infusion therapies and clinical nutrition, in the U.S., the company is a leading provider of intravenously administered generic drugs.
Fresenius Helios is one of the largest private hospital operators in Germany.
Fresenius Vamed provides engineering and services for hospitals and other health care facilities internationally.
Fresenius SE & Co. KGaA owned 30.74% of the ordinary voting shares of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) and 30.34% of the total subscribed capital of FMC-AG & Co. KGaA at the end of the fiscal year 2011. Fresenius Medical Care Management AG, the general partner of FMC-AG & Co. KGaA, is a wholly-owned subsidiary of Fresenius SE & 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, 2011. Through Fresenius ProServe GmbH, Fresenius SE & Co. KGaA holds a 100% stake 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 and in Fresenius Biotech Beteiligungs GmbH.
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 "–".
On May 12, 2010, Fresenius SE's Annual General Meeting approved the change of Fresenius SE's legal form into a partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA) with the name Fresenius SE & Co. KGaA in combination with the conversion of all non-voting preference shares into voting ordinary shares. The change of legal form as well as the conversion of shares was also approved by the preference shareholders through a special resolution.
Upon registration with the commercial register of the local court in Bad Homburg v. d. H., the change of legal form into Fresenius SE & Co. KGaA became effective on January 28, 2011. According to the resolution passed, the holders of preference shares received one ordinary share of Fresenius SE & Co. KGaA for each preference share held in Fresenius SE; the ordinary
shareholders received one ordinary share of Fresenius SE & Co. KGaA for each ordinary share held in Fresenius SE. The notional proportion of each non-par value share in the subscribed capital as well as the subscribed capital itself remained unchanged. The change of Fresenius SE's legal form into a KGaA neither led to the liquidation of the Company nor to the formation of a new legal entity. The legal and commercial identity of the Company was preserved.
The legal form of the KGaA enables Fresenius to achieve the benefits of a single share class while maintaining the control position of the Else Kröner-Fresenius-Stiftung which held approximately 58% of the ordinary shares in Fresenius SE prior to the change. The European company Fresenius Management SE, a wholly-owned subsidiary of the Else Kröner-Fresenius-Stiftung, is the general partner (Komplementärin) of Fresenius SE & Co. KGaA. The Else Kröner-Fresenius-Stiftung's right to provide the general partner is tied to the holding of more than 10% of the subscribed capital in Fresenius SE & Co. KGaA.
The effects of the change of legal form are described in the respective notes.
The registration of the change of legal form with the commercial register was finally cleared following a court settlement of pending disputes initiated by minority shareholders.
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 its 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 costof-sales accounting format.
The financial statements of consolidated entities have been prepared using uniform accounting methods.
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 is recognized as goodwill and is tested at least once a year for impairment.
Associated companies (over which Fresenius SE & Co. KGaA has significant exercisable influence, even when it holds less than 50% ownership) are consolidated using the equity method. Investments that are not classified as in associated companies are recorded at acquisition costs.
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 comprises 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 recently acquired entities is valuated at fair value.
The consolidated financial statements include all material companies in which Fresenius SE & Co. KGaA has legal or effective control. In addition, the Fresenius Group consolidates variable interest entities (VIEs) for which it is deemed the primary beneficiary.
Fresenius Medical Care entered into various arrangements with certain dialysis clinics and a dialysis product distributor to provide management services, financing and product supply. The dialysis clinics and the dialysis product distributor have either negative equity or are unable to provide their own funding and operations. Therefore, Fresenius Medical Care has agreed to fund their operations through loans.
The compensation for the funding can carry interest, exclusive product supply agreements or Fresenius Medical Care is entitled to a prorata share of profits, if any, and has a right of first refusal in the event the owners sell the business or assets. These clinics and the dialysis product distributor are VIEs, in which Fresenius Medical Care has been determined to be the primary beneficiary and which therefore have been fully consolidated. They generated approximately €140 million (US\$195 million) and €100 million (US\$133 million) in sales in 2011 and 2010, respectively. Fresenius Medical Care provided funding to these VIEs through loans and accounts receivable of €114 million (US\$148 million) and €83 million (US\$111 million) in 2011 and 2010, respectively. Relating to the VIEs, in 2011, Fresenius Medical Care consolidated assets in an amount of €168 million (US\$217 million), liabilities in an amount of €125 million (US\$162 million) and €43 million (US\$55 million) in equity. In 2010, €130 million (US\$174 million) assets, €89 million (US\$119 million) liabilities and €41 million (US\$55 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 at December 31, 2011.
Fresenius Vamed participates in long-term 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 €78 million in sales in 2011 (2010: €54 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 2011 included, in addition to Fresenius SE & Co. KGaA, 163 (2010: 144) German and 1,094 (2010: 972) foreign companies.
The composition of the Group changed as follows:
| Germany | Abroad | Total | |
|---|---|---|---|
| December 31, 2010 | 144 | 972 | 1,116 |
| Additions | 20 | 159 | 179 |
| of which newly founded | 4 | 45 | 49 |
| of which acquired | 9 | 100 | 109 |
| Disposals | 1 | 37 | 38 |
| of which no longer consolidated | 1 | 17 | 18 |
| of which merged | 0 | 20 | 20 |
| December 31, 2011 | 163 | 1,094 | 1,257 |
19 companies (2010: 17) were accounted for under the equity method.
The complete list of the investments of Fresenius SE & Co. KGaA, registered office in Bad Homburg v. d. H., will be submitted to the electronic Federal Gazette and the electronic companies register.
In 2011, 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 GmbH | Gräfelfing | |
| 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 |
Bad Homburg v. d. H. | |
| ProServe Krankenhaus Beteiligungs gesellschaft mbH &Co. KG |
München | |
| Fresenius Kabi | ||
| CFL GmbH | Frankfurt am Main | |
| Fresenius HemoCare GmbH | Bad Homburg v. d. H. | |
| Fresenius HemoCare Beteiligungs GmbH | Bad Homburg v. d. H. | |
| Fresenius Kabi AG | Bad Homburg v. d. H. | |
| Fresenius Kabi Deutschland GmbH | Bad Homburg v. d. H. | |
| Hosped GmbH | Friedberg | |
| MC Medizintechnik GmbH | Alzenau | |
| V. Krütten Medizinische Einmalgeräte GmbH |
Idstein |
| Name of the company | Registered office |
|---|---|
| Fresenius Helios | |
| D.i.a.-Solution GmbH | Erfurt |
| HELIOS Agnes Karll Krankenhaus GmbH | Bochum |
| HELIOS Care GmbH | Berlin |
| HELIOS Catering GmbH | Berlin |
| HELIOS Kids in Pflege GmbH | Geesthacht |
| HELIOS Klinik Dresden-Wachwitz GmbH | Dresden |
| HELIOS Klinik Geesthacht GmbH | Geesthacht |
| HELIOS Klinik Lengerich GmbH | Lengerich |
| HELIOS Kliniken GmbH | Berlin |
| HELIOS Kliniken Breisgau Hochschwarzwald GmbH |
Müllheim |
| HELIOS Kliniken Leipziger Land GmbH | Borna |
| HELIOS Klinikum Bad Saarow GmbH | Bad Saarow |
| HELIOS Klinikum Erfurt GmbH | Erfurt |
| HELIOS Klinikum Wuppertal GmbH | Wuppertal |
| HELIOS Privatkliniken GmbH | Bad Homburg v. d. H. |
| HELIOS Schlossbergklinik Oberstaufen GmbH |
Oberstaufen |
| HELIOS Service GmbH | Berlin |
| HELIOS Versorgungszentren GmbH | Berlin |
| HELIOS Versorgungszentrum Bad Saarow GmbH |
Bad Saarow |
| HELIOS Vogtland-Klinikum Plauen GmbH | Plauen |
| HUMAINE Kliniken GmbH | Berlin |
| Poliklinik am HELIOS Klinikum Buch GmbH |
Berlin |
| Senioren- und Pflegeheim Erfurt GmbH | Erfurt |
| St.Josefs-Hospital GmbH | Bochum |
Certain items in the consolidated financial statements of 2010 have been reclassified to conform with the presentation in 2011.
Due to the inflationary development in Venezuela, Fresenius Medical Care's subsidiaries operating in Venezuela apply Financial Accounting Standards Board Accounting Standards Codification Topic 830, Foreign Currency Matters, as of January 1, 2010. All gains and losses resulting from the remeasurement of assets and liabilities were recognized in 2010 in the consolidated statement of income.
Sales from services are recognized at the amount estimated to be received 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 allowances are established. 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 outcome of a production contract accounted for using the PoC method can be measured reliably.
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.
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. Expense-related grants are recognized as income in the periods in which related costs occur.
Research is original 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 findings. 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 2011 and 2010, interest of €4 million, based on an average interest rate of 4.12% and 4.90%, respectively, was recognized as a component of the cost of assets.
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 consolidation procedures affecting net income attributable to 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 taxes, the Management considers whether it is more likely than not that some portion or all of a deferred tax asset will be realized or whether deferred tax liabilities will be reversed. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Management considers the scheduled 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.
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 must determine 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 benefit that is greater than 50% likely of being realized upon ultimate settlement and is recognized in the consolidated financial statements.
Basic earnings per ordinary share are computed by dividing net income attributable to 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. In prior year, basic earnings per ordinary share were computed by dividing net income attributable to Fresenius SE & Co. KGaA less preference amounts by the weighted-average number of ordinary shares and preference shares outstanding during the year. Basic earnings per preference share were derived by adding the preference dividend per preference share to the basic earnings per ordinary share.
Due to the conversion of the preference shares into ordinary shares in combination with the change of legal form, the dilutive effects are only calculated on ordinary shares as of fiscal year 2011.
Cash and cash equivalents comprise cash funds and all shortterm, 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. Allowances are estimated mainly on the basis of payment history to date, the age structure of balances and the contractual partner involved. In order to assess the appropriateness of allowances, the Fresenius Group checks regularly whether there have been any divergences to previous payment history.
Inventories comprise 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 first-in, first-out method) or market value. Manufacturing costs comprise direct costs, production and material overhead, including depreciation charges.
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).
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. IV h, Impairment). The useful life of patents, product and distribution rights ranges from 5 to 20 years. Non-compete agreements with finite useful lives have useful lives ranging from 2 to 25 years with an average useful life of 8 years. The useful life of management contracts with finite useful lives ranges from 5 to 40 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 legal entities. Four reporting units were identified in the segment Fresenius Medical Care (Europe, Latin America, Asia-Pacific and North America). In the segment Fresenius Kabi there is one reporting unit for the region North America and one reporting unit for the business outside of North America. According to the regional organizational structure, the segment Fresenius Helios consists of seven reporting units, which are managed by a central division. The segment Fresenius Vamed consists of two 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 2011 and 2010.
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 straightline 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. 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 as well as financial liabilities / assets measured at fair value. Other categories are immaterial or not existing in the Fresenius Group. 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 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 30, Financial instruments.
The Fresenius Group has potential obligations to purchase 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. The methodology the Fresenius Group uses to estimate the fair values of the noncontrolling interest subject to put provisions assumes the greater of net book value or a multiple of earnings, based on historical earnings, development stage of the underlying business and other factors. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate and the implicit multiple of earnings at which these noncontrolling interest obligations may ultimately be settled could vary significantly from Fresenius Group's current estimates depending upon market conditions.
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 underlyings 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 30, 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.
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 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.
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.
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 benefit obligation and plan assets at fair value, as a liability. Changes in the funded status of a plan, net of tax, resulting from actuarial gains or losses, prior service costs or costs that are not recognized as components of the net periodic benefit cost, will be recognized through accumulated other comprehensive income (loss) in the year in which they occur. Actuarial gains or losses and prior service costs are subsequently recognized as components of net periodic benefit cost when realized.
Debt issuance costs are capitalized separately from the underlying debt and 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 2010 and 2011, the Fresenius Group recognized compensation cost for all stock-based payments subsequent to January 1, 2006 (based on the grant-date fair value estimated).
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 coverages, 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 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 considered foreign equity investments, 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 2011, only immaterial losses resulted out of this transaction.
The exchange rates of the main currencies affecting foreign currency translation developed as follows:
| Year-end exchange rate 1 | Average exchange rate | |||
|---|---|---|---|---|
| Dec. 31, 2011 | Dec. 31, 2010 | 2011 | 2010 | |
| U.S. dollar per € | 1.2939 | 1.3362 | 1.3920 | 1.3259 |
| Pound sterling per € | 0.8353 | 0.8608 | 0.8679 | 0.8581 |
| Swedish krona per € | 8.9120 | 8.9655 | 9.0298 | 9.5387 |
| Chinese renminbi per € | 8.1588 | 8.8220 | 8.9960 | 8.9729 |
| Japanese yen per € | 100.20 | 108.65 | 110.96 | 116.32 |
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 25, Pensions and similar obligations, and in note 30, Financial instruments.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the 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.
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 18% 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 2011 and 2010, respectively.
The Fresenius Group has prepared its consolidated financial statements at December 31, 2011 in conformity with U.S. GAAP that have to be applied for fiscal years beginning on January 1, 2011 or U.S. GAAP that can be applied earlier on a voluntary basis.
In 2011, the Fresenius Group did not apply any new standards relevant for its business for the first time.
The Financial Accounting Standards Board (FASB) issued the following for the Fresenius Group relevant new standards, which are mandatory for fiscal years commencing on or after January 1, 2012:
In December 2011, the FASB issued Accounting Standards Update 2011-11 (ASU 2011-11), FASB Accounting Standards Codification (ASC) Topic 210, Balance Sheet – Disclosures about Offsetting Assets and Liabilities. This amendment requires disclosing and reconciling gross and net amounts for financial instruments that are offset in the statement of financial position, and amounts for financial instruments that are subject to master netting arrangements and other similar clearing and repurchase arrangements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Fresenius Group is currently evaluating the impact on its consolidated financial statements.
In July 2011, the FASB issued Accounting Standards Update 2011-07 (ASU 2011-07), FASB ASC Topic 954, Health Care Entities – Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts and the Allowance for Doubtful Accounts for Certain Health Care Entities, in order to provide financial statement users with greater transparency about a health care entity's net patient service revenue and the related allowance for doubtful accounts. The amendments require health care entities that recognize significant amounts of patient service revenue at the time the services are rendered even though they do not assess the patient's ability to pay to present the provision for bad debts related to patient service revenue as a deduction from patient service revenue (net of contractual allowances and discounts) on their statement of operations. The provision for bad debts must be reclassified from an operating expense to a deduction from patient service revenue. Additionally, these health care entities are required to provide enhanced disclosures about their policies for recognizing revenue and assessing bad debts. The amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. For public entities, the disclosures required under ASU 2011-07 are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption permitted. The amendments to the presentation of the provision for bad debts related to patient service revenue in the statement of operations should be applied retrospectively to all prior periods presented. The Fresenius Group adopted the provisions of ASU 2011-07 as of January 1, 2012. The Fresenius Group estimates that this reduced 2011 revenue by approximately €161 million with a corresponding reduction to the selling, general and administrative expenses.
In July 2011, the FASB issued Accounting Standards Update 2011-06 (ASU 2011-06), FASB ASC Topic 720, Other Expenses – Fees Paid to the Federal Government by Health Insurers. The amendments in ASU 2011-06 address how health insurers should recognize and classify their income statement fees mandated by the Health Care and Educational Affordability Reconciliation Act. The amendments require that the liability for the fee be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straightline allocation method unless a another method better allocates the fee over the entire calendar year for which it is payable. In addition, the amendments state that this fee does not meet the definition of an acquisition cost. The disclosures required under ASU 2011-06 are effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. The Fresenius Group will apply the guidance under ASU 2011-06 beginning January 1, 2014.
In June 2011, the FASB issued Accounting Standards Update 2011-05 (ASU 2011-05), FASB ASC Topic 220, Comprehensive Income – Presentation of Comprehensive Income. The amendments in ASU 2011-05 require that all components of comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements. In the two statement approach, the first statement should present total net income and its components followed consecutively by a second statement presenting total other comprehensive income, the components of other comprehensive income and total of comprehensive
income. The disclosures required under ASU 2011-05 are effective retrospectively for fiscal years and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted. As the Fresenius Group currently presents two separate but continuous statements of net income and comprehensive income, the Fresenius Group is already in compliance with the amended guidance issued in ASU 2011-05.
In May 2011, the FASB issued Accounting Standards Update 2011-04 (ASU 2011-04), FASB ASC Topic 820, Fair Value Measurement – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. These amendments include clarifications of the application of highest and best use and valuation premise concepts, the measurement of the fair value of an instrument classified in a reporting entity's shareholders' equity, and disclosures about fair value measurements. ASU 2011-04 also changes the measurement or disclosure requirements related to measuring the fair value of financial instruments that are managed within a portfolio, the application of premiums and discounts in a fair value measurement, and additional disclosure about fair value measurements. The disclosures required under ASU 2011-04 are effective for interim and annual reporting periods beginning on or after December 15, 2011. Earlier adoption by public entities is not permitted. The Fresenius Group will apply the guidance under ASU 2011-04 beginning January 1, 2012.
The Fresenius Group generally does not adopt new accounting standards before compulsory adoption date.
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, 2011 and December 31, 2010, the carrying amount of goodwill and non-amortizable intangible assets with indefinite useful lives was €12,853 million and €11,641 million, respectively. This represented 49%, 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 6.27% for 2011. This basic rate is then adjusted by a country-specific risk rate within each reporting unit. In 2011, WACCs (after tax) for the reporting units of Fresenius Medical Care ranged from 6.27% to 12.73%. In the business segments Fresenius Kabi, Fresenius Helios and Fresenius Vamed, the WACC (after tax) was 5.87%, countryspecific 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 2011.
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 29, 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 €3,234 million and €2,935 million in 2011 and 2010, respectively, net of allowance. Approximately two thirds 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 14% and private insurers in the U.S. with 12% at December 31, 2011. 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 €383 million and €317 million as of December 31, 2011 and December 31, 2010, respectively.
Sales are invoiced at amounts estimated to be receivable under reimbursement arrangements with third party payors. Estimates for the allowance for doubtful accounts are mainly based on historic collection experience, taking into account the aging of accounts receivable and the contract partners. The Fresenius Group believes that these analyses result in a wellfounded 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.
Deterioration in the ageing 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. IV aa, Self-insurance programs.
The Fresenius Group made acquisitions and investments of €1,612 million and €644 million in 2011 and 2010, respectively. Of this amount, €1,397 million was paid in cash and €215 million was assumed obligations in 2011.
In 2011, Fresenius Medical Care spent €1,429 million on acquisitions, primarily for acquisitions of International Dialysis Centers, the dialysis service business of Euromedic International, and American Access Care Holdings, LLC, which operates vascular access centers, and for loans provided to, as well as the purchase of a 49% ownership of, the related party Renal Advantage Partners, LLC, the parent company of Renal Advantage, Inc., a provider of dialysis services.
In December 2010, Fresenius Medical Care announced a renal pharmaceutical joint venture between Fresenius Medical Care and Galenica Ltd., Vifor Fresenius Medical Care Renal Pharma Ltd. (VFMCRP), to develop and distribute products to treat iron deficiency anemia and bone mineral metabolism for pre-dialysis and dialysis patients. Closing in the U.S. occurred at the end of 2010. In the fourth quarter of 2011, VFMCRP received approval from the responsible European Union antitrust commission and formal closing occurred on November 1, 2011. After closing in the European Union, VFMCRP now operates worldwide, except for in Turkey and Ukraine, where antitrust approval has not yet been granted.
Further acquisition spending related mainly to the purchase of dialysis clinics.
In the year 2010, Fresenius Medical Care spent €596 million, primarily for acquisitions of dialysis clinics, the formation of VFMCRP, the acquisition of licenses and the acquisition of Gambro's peritoneal dialysis business outside the United States.
Fresenius Kabi spent €11 million on acquisitions in the year 2011, mainly for compounding companies in Germany.
In the year 2010, Fresenius Kabi spent €31 million on acquisitions, mainly for the purchase of the cas central compounding baden-württemberg GmbH, Germany and the Fortuna Herstellung GmbH, Germany.
In 2011, Fresenius Helios spent €45 million on acquisitions, mainly for the acquisition of 51% of the share capital in the Katholisches Klinikum Duisburg GmbH, Germany, in December 2011 and for the acquisition of the Gesundheitszentren Landkreis Rottweil GmbH, Germany, in May 2011. Furthermore, Fresenius Helios made an additional purchase price payment for the HELIOS St. Marienberg Klinik Helmstedt GmbH, Germany.
In 2010, Fresenius Helios spent €13 million on acquisitions, mainly for the purchase of the Kreiskrankenhaus St. Marienberg in Helmstedt, Germany and medical centres.
In the years 2011 and 2010, Fresenius Vamed did not make any material acquisition.
In November and December 2011, Fresenius SE & Co. KGaA purchased 1,399,996 ordinary shares of Fresenius Medical Care AG & Co. KGaA. Therefore, the voting rights in Fresenius Medical Care AG & Co. KGaA increased to 30.74% at December 31, 2011. A total of 3.5 million shares shall be acquired.
Furthermore, in the first quarter of 2011, in the segment Corporate/Other, the remaining shares of HELIOS Kliniken GmbH, Germany, were acquired for a purchase price of €54 million.
In the fiscal year 2011, all acquisitions have been accounted for applying the purchase method and accordingly have been consolidated starting with the date of acquisition. Each single acquisition is not material. The excess of the total acquisition costs over the fair value of the net assets acquired was €1,057 million and €480 million in 2011 and 2010, respectively.
The purchase price allocations are not yet finalized for all acquisitions. Based on preliminary purchase price allocations, the recognized goodwill was €931 million and the other intangible assets were €126 million. Of this goodwill, €822 million is attributable to the acquisitions of Fresenius Medical Care, €14 million to Fresenius Kabi's acquisitions and €95 million to the acquisitions of Fresenius Helios.
The acquisitions completed in 2011 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 | 2011 |
|---|---|
| Sales | 178 |
| EBITDA | 25 |
| EBIT | 19 |
| Net interest | 14 |
| Net income attributable to Fresenius SE & Co. KGaA | 6 |
The acquisitions increased the total assets of the Fresenius Group by €1,442 million.
The consolidated statement of income for the year 2011 ultimately includes several special items relating to the acquisition of APP Pharmaceuticals, Inc. in 2008. The tables below reconcile adjusted earnings to earnings according to U.S. GAAP in 2011 and 2010.
| € in millions | Other financial result |
Net income attributable to Fresenius SE & Co. KGaA |
|---|---|---|
| Earnings 2011, adjusted | 770 | |
| Mandatory Exchangeable Bonds (mark-to-market) |
-105 | -85 |
| Contingent Value Rights (mark-to-market) |
5 | 5 |
| Earnings 2011 according to U.S. GAAP | 690 | |
| € in millions | Other financial result |
Net income attributable to Fresenius SE & Co. KGaA |
|---|---|---|
| Earnings 2010, adjusted | 660 | |
| Mandatory Exchangeable Bonds (mark-to-market) |
-98 | -70 |
| Contingent Value Rights (mark-to-market) |
32 | 32 |
| Earnings 2010 according to U.S. GAAP | 622 |
For further information regarding Mandatory Exchangeable Bonds and Contingent Value Rights see note 10, Other financial result.
Sales by activity were as follows:
| Sales | 16,522 | 15,972 |
|---|---|---|
| Other sales | 6 | 1 |
| Sales from long-term production contracts |
498 | 490 |
| Sales of products and related goods | 6,230 | 5,850 |
| Sales of services | 9,788 | 9,631 |
| € in millions | 2011 | 2010 |
A sales analysis by business segment and region is shown in the segment information on pages 130 to 133.
Cost of sales comprised the following:
| € in millions | 2011 | 2010 |
|---|---|---|
| Cost of services | 7,247 | 7,144 |
| Manufacturing cost of products and related goods |
3,212 | 3,098 |
| Cost of long-term production contracts | 424 | 404 |
| Other cost of sales | – | – |
| Cost of sales | 10,883 | 10,646 |
Cost of materials comprised cost of raw materials, supplies and purchased components and of purchased services:
| € in millions | 2011 | 2010 |
|---|---|---|
| Cost of raw materials, supplies and purchased components |
4,404 | 4,092 |
| Cost of purchased services | 663 | 640 |
| Cost of materials | 5,067 | 4,732 |
Cost of sales, selling, general and administrative expenses and research and development expenses included personnel expenses of €5,555 million and €5,354 million in 2011 and 2010, respectively.
Personnel expenses comprised the following:
| € in millions | 2011 | 2010 |
|---|---|---|
| Wages and salaries | 4,392 | 4,221 |
| Social security contributions, cost of retirement pensions and social assistance |
1,163 | 1,133 |
| thereof retirement pensions | 144 | 132 |
| Personnel expenses | 5,555 | 5,354 |
Fresenius Group's annual average number of employees by function is shown below:
| 2011 | 2010 | |
|---|---|---|
| Production | 26,240 | 23,710 |
| Service | 89,341 | 84,097 |
| Administration | 17,924 | 17,095 |
| Sales and marketing | 8,170 | 7,816 |
| Research and development | 1,513 | 1,445 |
| Total employees (per capita) | 143,188 | 134,163 |
Selling expenses were €677 million (2010: €615 million) and mainly included expenditures for sales personnel of €336 million (2010: €304 million).
General and administrative expenses amounted to €2,132 million (2010: €2,049 million) and are related to expenditures for administrative functions not attributable to research and development, production or selling.
Net interest of -€531 million included interest expenses of €587 million and interest income of €56 million. Interest expenses resulted from Fresenius Group's financial liabilities (see note 30, Financial instruments).
The item other financial result includes the following special expenses and income with regard to the acquisition of APP Pharmaceuticals, Inc. (APP) and its financing:
The Contingent Value Rights (CVR) awarded to the APP shareholders were traded on the NASDAQ Stock Exchange in the United States. Following a request to the U.S. Securities and Exchange Commission, in the first quarter of 2011, the CVR were deregistered and delisted from the NASDAQ due to the expiration of the underlying agreement and became valueless. As a result, an income of €5 million was recognized in 2011 (2010: income of €32 million resulting from the valuation of the liability).
The issued Mandatory Exchangeable Bonds matured on August 14, 2011. Due to their contractual definition, they included derivative financial instruments that were measured at fair value. This measurement resulted in an expense (before tax) of €105 million in 2011 (2010: expense before tax of €98 million).
Income before income taxes was attributable to the following geographic regions:
| € in millions | 2011 | 2010 |
|---|---|---|
| Germany | 404 | 338 |
| International | 1,528 | 1,448 |
| Total | 1,932 | 1,786 |
Income tax expenses (benefits) for 2011 and 2010 consisted of the following:
| € in millions | Current taxes |
Deferred taxes |
Income taxes |
|
|---|---|---|---|---|
| 2010 | ||||
| Germany | 97 | -10 | 87 | |
| International | 472 | 22 | 494 | |
| Total | 569 | 12 | 581 | |
| 2011 | ||||
| Germany | 96 | 9 | 105 | |
| International | 427 | 72 | 499 | |
| Total | 523 | 81 | 604 |
In 2011 and 2010, Fresenius SE & Co. KGaA was subject to German federal corporation income tax at a base rate of 15% plus a solidarity surcharge of 5.5% on federal corporation taxes payable.
A reconciliation between the expected and actual income tax expense is shown below. The expected corporate 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 29.0% for the fiscal years 2011 and 2010.
| € in millions | 2011 | 2010 |
|---|---|---|
| Computed "expected" income tax expense | 560 | 518 |
| Increase (reduction) in income taxes resulting from: |
||
| Items not recognized for tax purposes | 12 | 12 |
| Tax rate differential | 56 | 63 |
| Tax-free income | -12 | -23 |
| Taxes for prior years | 4 | 9 |
| Changes in valuation allowances on deferred tax assets |
5 | 24 |
| Noncontrolling partnership interests | -22 | -20 |
| Other | 1 | -2 |
| Income tax | 604 | 581 |
| Effective tax rate | 31.3% | 32.5% |
In the consolidated statement of financial position, the net amounts of deferred tax assets and liabilities are included as follows:
| 2011 | 2010 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Deferred tax assets | 493 | 368 | 492 | 380 |
| Deferred tax liabilities |
625 | 52 | 562 | 74 |
| Net deferred taxes |
-132 | 316 | -70 | 306 |
The tax effects of the temporary differences that gave rise to deferred tax assets and liabilities at December 31 are presented below:
| € in millions | 2011 | 2010 |
|---|---|---|
| Deferred tax assets | ||
| Accounts receivable | 14 | 29 |
| Inventories | 79 | 65 |
| Other current assets | 93 | 47 |
| Other non-current assets | 127 | 84 |
| Accrued expenses | 183 | 235 |
| Other short-term liabilities | 86 | 88 |
| Other liabilities | 28 | 37 |
| Benefit obligations | 92 | 55 |
| Losses carried forward from prior years | 151 | 145 |
| Deferred tax assets, before valuation allowance |
853 | 785 |
| less valuation allowance | 121 | 116 |
| Deferred tax assets | 732 | 669 |
| Deferred tax liabilities | ||
| Accounts receivable | 23 | 12 |
| Inventories | 22 | 15 |
| Other current assets | 11 | 18 |
| Other non-current assets | 560 | 511 |
| Accrued expenses | 23 | 8 |
| Other short-term liabilities | 123 | 148 |
| Other liabilities | 102 | 27 |
| Deferred tax liabilities | 864 | 739 |
| Net deferred taxes | -132 | -70 |
As of December 31, 2011, Fresenius Medical Care has not recognized a deferred tax liability on approximately €3.3 billion of undistributed earnings of its foreign subsidiaries, because those earnings are intended to be indefinitely reinvested.
The expiration of net operating losses is as follows:
| for the fiscal years | € in millions |
|---|---|
| 2012 | 19 |
| 2013 | 13 |
| 2014 | 21 |
| 2015 | 22 |
| 2016 | 38 |
| 2017 | 18 |
| 2018 | 15 |
| 2019 | 10 |
| 2020 | 7 |
| 2021 and thereafter | 27 |
| Total | 190 |
The total remaining operating losses of €219 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, 2011.
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, the tax years 2002 to 2005 are currently under audit by the tax authorities. The Fresenius Group recognized and recorded the current proposed adjustments of this audit period in the consolidated financial statements. All proposed adjustments are deemed immaterial. In the fourth quarter of 2011, the tax audit for the years 2006 through 2009 was started. Fiscal years 2010 and 2011 are open to audit. For the tax year 1997, Fresenius Medical Care recognized an impairment of one of its subsidiaries which the German tax authorities disallowed in 2003 at the conclusion of its audit for the years 1996 and 1997. Fresenius Medical Care filed a complaint with the appropriate German court to challenge the tax authority's decision. In January 2011, Fresenius Medical Care reached an agreement with the tax authorities. The additional benefit related to the agreement has been recognized in the consolidated financial statements in 2011.
In the United States, Fresenius Medical Care filed claims for refunds contesting the Internal Revenue Service's (IRS) disallowance of Fresenius Medical Care Holdings, Inc.'s (FMCH) civil settlement payment deductions taken by FMCH in prior year tax returns. As a result of a settlement agreement with the IRS, Fresenius Medical Care received a partial refund in September 2008 of US\$37 million, inclusive of interest, and preserved the right to continue to pursue claims in the United States Courts for refunds of all other disallowed deductions. On December 22, 2008, Fresenius Medical Care filed a complaint for a complete refund in the United States District Court
for the District of Massachusetts, styled as FMCH v. United States. The court has denied motions for summary judgment by both parties and the litigation is proceeding towards trial. The unrecognized tax benefit relating to these deductions is included in the total unrecognized tax benefit noted below.
The IRS tax audits of FMCH for the years 2002 through 2008 have been completed. On January 23, 2012, Fresenius Medical Care executed a closing agreement with the IRS with respect to the 2007 – 2008 tax audit. The agreement reflected a full allowance of interest deductions on intercompany mandatorily redeemable preferred shares for the 2007 – 2008 tax years. The agreement evidenced a revocation by the IRS in December of 2011 of an initial disallowance of the deductions on mandatorily redeemable shares for the 2007 – 2008 tax years that was reflected in an IRS examination report issued on November 21, 2011. Fresenius Medical Care also protested the IRS's disallowance of interest deductions associated with mandatorily redeemable shares for the years 2002 – 2006. Although Fresenius Medical Care's protests remain pending before IRS Appeals, the IRS has advised Fresenius Medical Care that it will withdraw its disallowance of, and will accordingly permit the deductions associated with, mandatorily redeemable shares for the years 2002 – 2006. During the IRS tax audit for 2007 – 2008, the IRS proposed other adjustments which have been recognized in the consolidated financial statements. In the U.S., fiscal years 2009, 2010 and 2011 are open to audit. 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 these consolidated financial statements.
The following table shows the changes to unrecognized tax benefits during the year 2011:
| € in millions | 2011 |
|---|---|
| Balance at January 1, 2011 | 354 |
| Increase in unrecognized tax benefits prior periods | 18 |
| Decrease in unrecognized tax benefits prior periods | -19 |
| Increase in unrecognized tax benefits current periods | 18 |
| Changes related to settlements with tax authorities | -156 |
| Reductions as a result of a lapse of the statute of limitations |
-2 |
| Foreign currency translation | 11 |
| Balance at December 31, 2011 | 224 |
Included in the balance at December 31, 2011 are €224 million of unrecognized tax benefits, which would affect the effective tax rate if recognized. As a result of the settlement agreement for 1997 noted above, the Fresenius Group reduced the unrecognized tax benefits at December 31, 2011 by US\$206 million and a portion of the reduction was realized as an additional tax benefit in 2011. The Fresenius Group estimates that the uncertain tax benefit at December 31, 2011 will be reduced by approximately US\$13 million due to expected settlements with tax authorities. 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 2011, the Fresenius Group recognized €2 million in interest and penalties. The Fresenius Group had a total accrual of €47 million of tax related interest and penalties at December 31, 2011.
The following table shows the earnings per share including and excluding the dilutive effect from stock options issued and the Mandatory Exchangeable Bonds (MEB):
| 2011 | 2010 | |
|---|---|---|
| Numerators, € in millions | ||
| Net income attributable to Fresenius SE & Co. KGaA |
690 | 622 |
| less preference on preference shares |
n/a | 0 |
| less effect from dilution due to Fresenius Medical Care shares and MEB |
3 | 6 |
| Income available to all classes of shares |
687 | 616 |
| Denominators in number of shares | ||
| Weighted-average number of ordinary shares outstanding |
162,797,197 | 80,870,695 |
| Weighted-average number of preference shares outstanding |
0 | 80,870,695 |
| Weighted-average number of shares outstanding of all classes |
162,797,197 | 161,741,390 |
| Potentially dilutive ordinary shares |
1,522,534 | 541,580 |
| Potentially dilutive preference shares |
0 | 541,580 |
| Weighted-average number of ordinary shares outstanding assuming dilution |
164,319,731 | 81,412,275 |
| Weighted-average number of preference shares outstanding assuming dilution |
0 | 81,412,275 |
| Weighted-average number of shares outstanding of all classes assuming dilution |
164,319,731 | 162,824,550 |
| Basic earnings per ordinary share in € |
4.24 | 3.85 |
| Preference per preference share in € | n/a | 0.00 |
| Basic earnings per preference share in € |
n/a | 3.85 |
| Fully diluted earnings per ordinary share in € |
4.18 | 3.79 |
| Preference per preference share in € | n/a | 0.00 |
| Fully diluted earnings per preference share in € |
n/a | 3.79 |
The owners of preference shares were entitled to a preference of €0.01 per bearer preference share per fiscal year.
Due to the conversion of the preference shares into ordinary shares in combination with the change of legal form, the dilutive effects are only calculated on ordinary shares as of fiscal year 2011.
As of December 31, cash and cash equivalents were as follows:
| € in millions | 2011 | 2010 |
|---|---|---|
| Cash | 627 | 650 |
| Time deposits and securities (with a maturity of up to 90 days) |
8 | 119 |
| Total cash and cash equivalents | 635 | 769 |
As of December 31, 2011 and December 31, 2010, earmarked funds of €40 million and €65 million, respectively, were included in cash and cash equivalents.
As of December 31, trade accounts receivable were as follows:
| € in millions | 2011 | 2010 |
|---|---|---|
| Trade accounts receivable | 3,617 | 3,252 |
| less allowance for doubtful accounts | 383 | 317 |
| Trade accounts receivable, net | 3,234 | 2,935 |
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 | 2011 | 2010 |
|---|---|---|
| Allowance for doubtful accounts at the beginning of the year |
317 | 285 |
| Change in valuation allowances as recorded in the consolidated statement of income |
216 | 175 |
| Write-offs and recoveries of amounts previously written-off |
-154 | -158 |
| Foreign currency translation | 4 | 15 |
| Allowance for doubtful accounts at the end of the year |
383 | 317 |
The following table shows the ageing 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 | 1,965 | 606 | 295 | 306 | 445 | 3,617 |
| less allowance for doubtful accounts | 22 | 49 | 43 | 64 | 205 | 383 |
| Trade accounts receivable, net | 1,943 | 557 | 252 | 242 | 240 | 3,234 |
As of December 31, inventories consisted of the following:
| € in millions | 2011 | 2010 |
|---|---|---|
| Raw materials and purchased components | 385 | 350 |
| Work in process | 326 | 255 |
| Finished goods | 1,076 | 874 |
| less reserves | 70 | 68 |
| Inventories, net | 1,717 | 1,411 |
The companies of the Fresenius Group are obliged to purchase approximately €2,316 million of raw materials and purchased components under fixed terms, of which €700 million was committed at December 31, 2011 for 2012. The terms of these agreements run 1 to 14 years. Advance payments from customers of €236 million (2010: €170 million) have been offset against inventories.
Inventories as of December 31, 2011 and December 31, 2010 included approximately €37 million and approximately €25 million, respectively, of the product Erythropoietin (EPO), which is supplied by a single source supplier in the United States. Effective January 1, 2012, Fresenius Medical Care entered into a new three-year sourcing and supply agreement
with its EPO supplier. Delays, stoppages, or interruptions in the supply of EPO could adversely affect the operating results of Fresenius Medical Care.
As of December 31, other current and non-current assets comprised the following:
| thereof short-term |
thereof short-term |
||
|---|---|---|---|
| 796 | 9 | 254 | 6 |
| 311 | 287 | 240 | 224 |
| 143 | 143 | 124 | 124 |
| 101 | 82 | 111 | 79 |
| 98 | 9 | 108 | 10 |
| 77 | 76 | 53 | 52 |
| 72 | 29 | 73 | 29 |
| 54 | 52 | 25 | 18 |
| 45 | 18 | 45 | 15 |
| 11 | 0 | 25 | 0 |
| 8 | 8 | 7 | 7 |
| 662 | 478 | 496 | 367 |
| 2,378 | 1,191 | 1,561 | 931 |
| 9 | 7 | 8 | 6 |
| 2,369 | 1,184 | 1,553 | 925 |
| 2011 | 2010 |
Investments and long-term loans comprised investments of €537 million (2010: €190 million), mainly regarding the joint venture between Fresenius Medical Care and Galenica Ltd., that were accounted for under the equity method. In 2011, income of €22 million (2010: €4 million) resulting from this valuation was included in general and administrative expenses in the consolidated statement of income. Furthermore, investments and long-term loans include €181 million (2010: €0 million) that Fresenius Medical Care loaned to Renal Advantage Partners, LLC.
The receivables resulting from the German "Krankenhausfinanzierungsgesetz" 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.
In the fiscal year, the amount of depreciation recognized on other non-current assets was immaterial (2010: €2 million).
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, 2011 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2011 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 221 | 1 | 5 | 2 | 1 | – | 230 |
| Buildings and improvements | 2,976 | 31 | 44 | 84 | 175 | 40 | 3,270 |
| Machinery and equipment | 3,796 | 16 | 50 | 372 | 100 | 177 | 4,157 |
| Machinery, equipment and rental equipment under capital leases |
98 | – | – | 9 | 3 | 5 | 105 |
| Construction in progress | 419 | – | -1 | 310 | -286 | 12 | 430 |
| Property, plant and equipment | 7,510 | 48 | 98 | 777 | -7 | 234 | 8,192 |
| € in millions | As of Jan. 1, 2011 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2011 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 4 | – | 0 | 1 | 0 | – | 5 |
| Buildings and improvements | 1,246 | 20 | 4 | 190 | 3 | 32 | 1,431 |
| Machinery and equipment | 2,269 | 13 | 1 | 367 | – | 147 | 2,503 |
| Machinery, equipment and rental equipment under capital leases |
36 | – | 0 | 10 | 1 | 5 | 42 |
| Construction in progress | 1 | – | 0 | 0 | – | – | 1 |
| Property, plant and equipment | 3,556 | 33 | 5 | 568 | 4 | 184 | 3,982 |
| € in millions | As of Jan. 1, 2010 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2010 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 206 | 7 | 1 | 8 | – | 1 | 221 |
| Buildings and improvements | 2,628 | 111 | 16 | 86 | 193 | 58 | 2,976 |
| Machinery and equipment | 3,355 | 178 | 42 | 326 | 110 | 215 | 3,796 |
| Machinery, equipment and rental equipment under capital leases |
146 | 3 | 7 | 20 | -65 | 13 | 98 |
| Construction in progress | 340 | 18 | 12 | 304 | -250 | 5 | 419 |
| Property, plant and equipment | 6,675 | 317 | 78 | 744 | -12 | 292 | 7,510 |
| € in millions | As of Jan. 1, 2010 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2010 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 2 | 2 | 0 | – | – | – | 4 |
| Buildings and improvements | 1,038 | 48 | 1 | 173 | 37 | 51 | 1,246 |
| Machinery and equipment | 2,001 | 97 | 16 | 351 | – | 196 | 2,269 |
| Machinery, equipment and rental equipment under capital leases |
74 | 1 | – | 8 | -39 | 8 | 36 |
| Construction in progress | 1 | – | 0 | – | 0 | – | 1 |
| Property, plant and equipment | 3,116 | 148 | 17 | 532 | -2 | 255 | 3,556 |
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 |
|---|---|---|
| Land and land facilities | 225 | 217 |
| Buildings and improvements | 1,839 | 1,730 |
| Machinery and equipment | 1,654 | 1,527 |
| Machinery, equipment and rental equipment under capital leases | 63 | 62 |
| Construction in progress | 429 | 418 |
| Property, plant and equipment | 4,210 | 3,954 |
Depreciation on property, plant and equipment for the years 2011 and 2010 was €568 million and €532 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.
renal disease on a month-to-month basis and hemodialysis machines which Fresenius Medical Care leases to physicians under operating leases in an amount of €349 million and €312 million, respectively.
To a lesser extent, property, plant and equipment are also leased for the treatment of patients by other business segments.
For details of minimum lease payments see note 21, Debt and capital lease obligations.
Machinery and equipment as of December 31, 2011 and 2010 included peritoneal dialysis cycler machines which Fresenius Medical Care leases to customers with end-stage
As of December 31, the acquisition cost and accumulated amortization of intangible assets consisted of the following:
| € in millions | As of Jan. 1, 2011 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2011 |
|---|---|---|---|---|---|---|---|
| Goodwill | 11,464 | 274 | 875 | 56 | – | – | 12,669 |
| Patents, product and distribution rights | 617 | 13 | 2 | 5 | – | 55 | 582 |
| Tradenames | 173 | 5 | 0 | – | 1 | 1 | 178 |
| Technology | 83 | 3 | – | 0 | 0 | 0 | 86 |
| Non-compete agreements | 184 | 6 | 11 | 0 | 0 | – | 201 |
| Management contracts | 4 | – | – | 0 | 2 | 0 | 6 |
| Other | 484 | 7 | 72 | 36 | 5 | 8 | 596 |
| Goodwill and other intangible assets | 13,009 | 308 | 960 | 97 | 8 | 64 | 14,318 |
| € in millions | As of Jan. 1, 2011 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2011 |
|---|---|---|---|---|---|---|---|
| Goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Patents, product and distribution rights | 139 | 4 | 0 | 45 | 0 | 6 | 182 |
| Tradenames | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Technology | 19 | 1 | 0 | 5 | 0 | 0 | 25 |
| Non-compete agreements | 125 | 5 | – | 14 | 0 | 0 | 144 |
| Management contracts | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 278 | 4 | – | 42 | – | 7 | 317 |
| Goodwill and other intangible assets | 561 | 14 | – | 106 | – | 13 | 668 |
| € in millions | As of Jan. 1, 2010 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2010 |
|---|---|---|---|---|---|---|---|
| Goodwill | 10,356 | 587 | 355 | 4 | 162 | 0 | 11,464 |
| Patents, product and distribution rights | 538 | 35 | 4 | 39 | 2 | 1 | 617 |
| Tradenames | 161 | 12 | – | – | – | 0 | 173 |
| Technology | 69 | 6 | 8 | 0 | 0 | 0 | 83 |
| Non-compete agreements | 157 | 12 | 20 | – | – | 5 | 184 |
| Management contracts | 153 | 13 | 0 | 0 | -162 | 0 | 4 |
| Other | 423 | 32 | 15 | 35 | – | 21 | 484 |
| Goodwill and other intangible assets | 11,857 | 697 | 402 | 78 | 2 | 27 | 13,009 |
| € in millions | As of Jan. 1, 2010 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2010 |
|---|---|---|---|---|---|---|---|
| Goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Patents, product and distribution rights | 93 | 4 | – | 43 | – | 1 | 139 |
| Tradenames | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Technology | 12 | 1 | 0 | 6 | 0 | 0 | 19 |
| Non-compete agreements | 109 | 8 | 0 | 13 | – | 5 | 125 |
| Management contracts | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 234 | 22 | – | 43 | – | 21 | 278 |
| Goodwill and other intangible assets | 448 | 35 | – | 105 | – | 27 | 561 |
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 |
|---|---|---|
| Goodwill | 12,669 | 11,464 |
| Patents, product and distribution rights | 400 | 478 |
| Tradenames | 178 | 173 |
| Technology | 61 | 64 |
| Non-compete agreements | 57 | 59 |
| Management contracts | 6 | 4 |
| Other | 279 | 206 |
| Goodwill and other intangible assets | 13,650 | 12,448 |
The split of intangible assets into amortizable and non-amortizable intangible assets is shown in the following tables:
| Dec. 31, 2011 | Dec. 31, 2010 | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | Acquisition cost |
Accumulated amortization |
Carrying amount |
Acquisition cost |
Accumulated amortization |
Carrying amount |
|
| Patents, product and distribution rights | 582 | 182 | 400 | 617 | 139 | 478 | |
| Technology | 86 | 25 | 61 | 83 | 19 | 64 | |
| Non-compete agreements | 201 | 144 | 57 | 184 | 125 | 59 | |
| Other | 596 | 317 | 279 | 484 | 278 | 206 | |
| Total | 1,465 | 668 | 797 | 1,368 | 561 | 807 |
| Dec. 31, 2011 | Dec. 31, 2010 | |||||
|---|---|---|---|---|---|---|
| € in millions | Acquisition cost |
Accumulated amortization |
Carrying amount |
Acquisition cost |
Accumulated amortization |
Carrying amount |
| Tradenames | 178 | 0 | 178 | 173 | 0 | 173 |
| Management contracts | 6 | 0 | 6 | 4 | 0 | 4 |
| Goodwill | 12,669 | 0 | 12,669 | 11,464 | 0 | 11,464 |
| Total | 12,853 | 0 | 12,853 | 11,641 | 0 | 11,641 |
In the second quarter of 2010, administrative services agreements of Fresenius Medical Care in an amount of US\$215 million (€162 million) were reclassified from the category management contracts to goodwill due to a change in New York state regulations that allowed Fresenius Medical Care, beginning in April 2010, to directly own the managed facilities in that state.
Amortization on intangible assets amounted to €106 million and €105 million for the years 2011 and 2010, 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.
Estimated regular amortization expenses of intangible assets for the next five years are shown in the following table:
| € in millions | 2012 | 2013 | 2014 | 2015 | 2016 |
|---|---|---|---|---|---|
| Estimated amortization expenses | 102 | 96 | 89 | 80 | 76 |
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, 2010 | 5,214 | 3,466 | 1,626 | 44 | 6 | 10,356 |
| Additions | 324 | 30 | 1 | 4 | 0 | 359 |
| Reclassifications | 162 | 0 | 0 | 0 | 0 | 162 |
| Foreign currency translation | 392 | 195 | 0 | 0 | 0 | 587 |
| Carrying amount as of December 31, 2010 | 6,092 | 3,691 | 1,627 | 48 | 6 | 11,464 |
| Additions | 822 | 14 | 95 | 0 | 0 | 931 |
| Foreign currency translation | 186 | 88 | 0 | 0 | 0 | 274 |
| Carrying amount as of December 31, 2011 | 7,100 | 3,793 | 1,722 | 48 | 6 | 12,669 |
As of December 31, 2011 and December 31, 2010, the carrying amounts of the other non-amortizable intangible assets were €168 million and €161 million, respectively, for
Fresenius Medical Care as well as €16 million, respectively, for Fresenius Kabi.
As of December 31, other accrued expenses consisted of the following:
| 2011 | 2010 | ||||
|---|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
|||
| Personnel expenses | 568 | 497 | 482 | 423 | |
| Invoices outstanding | 215 | 215 | 188 | 188 | |
| Self-insurance programs | 126 | 126 | 123 | 123 | |
| Bonuses and discounts | 108 | 108 | 89 | 89 | |
| Special charge for legal matters | 89 | 89 | 86 | 86 | |
| Legal matters, advisory and audit fees | 70 | 70 | 66 | 66 | |
| Warranties and complaints | 40 | 39 | 36 | 34 | |
| Commissions | 27 | 27 | 21 | 21 | |
| All other accrued expenses | 453 | 400 | 391 | 343 | |
| Other accrued expenses | 1,696 | 1,571 | 1,482 | 1,373 |
| € in millions | As of Jan. 1, 2011 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Utilized | Reversed | As of Dec. 31, 2011 |
|---|---|---|---|---|---|---|---|---|
| Personnel expenses | 482 | 5 | 18 | 436 | 2 | -344 | -31 | 568 |
| Invoices outstanding | 188 | 3 | 2 | 157 | 1 | -116 | -20 | 215 |
| Self-insurance programs | 123 | 4 | – | 14 | – | -5 | -10 | 126 |
| Bonuses and discounts | 89 | 2 | – | 158 | -1 | -138 | -2 | 108 |
| Special charge for legal matters |
86 | 3 | 0 | 0 | 0 | 0 | 0 | 89 |
| Legal matters, advisory and audit fees |
66 | – | 2 | 24 | 1 | -20 | -3 | 70 |
| Warranties and complaints | 36 | – | – | 21 | – | -13 | -4 | 40 |
| Commissions | 21 | – | – | 22 | – | -14 | -2 | 27 |
| All other accrued expenses | 391 | – | 26 | 445 | -5 | -362 | -42 | 453 |
| Total | 1,482 | 17 | 48 | 1,277 | -2 | -1,012 | -114 | 1,696 |
The following table shows the development of other accrued expenses in the fiscal year:
Accruals for personnel expenses mainly refer to bonus, severance payments, contribution of partial retirement and holiday entitlements.
In 2001, Fresenius Medical Care recorded a US\$258 million special charge to address legal matters relating to transactions pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996 by and between W.R. Grace&Co. and Fresenius AG, estimated liabilities and legal expenses arising in connection with the W.R. Grace & Co. Chapter 11 proceedings (Grace Chapter 11 Proceedings) and the cost of resolving pending litigation and other disputes with certain
commercial insurers. During the second quarter of 2003, the court supervising the Grace Chapter 11 Proceedings approved a definitive settlement agreement entered into among Fresenius Medical Care, the committee representing the asbestos creditors and W.R. Grace&Co. Under the settlement agreement, Fresenius Medical Care will pay US\$115 million (€89 million), without interest, upon plan confirmation. In January and February 2011, the U.S. Bankruptcy Court entered orders confirming the joint plan of reorganization and the confirmation orders were affirmed by the U.S. District Court on January 31, 2012 (see note 29, Commitments and contingent liabilities). With the exception of the proposed US\$115 million settlement payment, all other matters included in the special charge have been resolved.
As of December 31, other liabilities consisted of the following:
| 2011 | 2010 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Derivative financial instruments | 269 | 200 | 363 | 239 |
| Tax liabilities | 155 | 152 | 117 | 114 |
| Accounts payable resulting from German "Krankenhausfinanzierungsgesetz" | 133 | 127 | 183 | 177 |
| Interest liabilities | 131 | 131 | 126 | 126 |
| Personnel liabilities | 116 | 112 | 102 | 97 |
| Accounts receivable credit balance | 103 | 23 | 104 | 22 |
| Advance payments from customers | 77 | 77 | 79 | 72 |
| Leasing liabilities | 59 | 59 | 54 | 54 |
| All other liabilities | 568 | 446 | 579 | 457 |
| Other liabilities | 1,611 | 1,327 | 1,707 | 1,358 |
The payables resulting from the German "Krankenhausfinanzierungsgesetz" 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, 2011, the total amount of other noncurrent liabilities was €284 million, thereof €242 million was due between one and five years and €42 million was due after five years. The statement of financial position line item longterm accrued expenses and other long-term liabilities of €409 million also included other long-term accrued expenses of €125 million as of December 31, 2011.
The Fresenius Group had short-term debt of €171 million and €606 million at December 31, 2011 and December 31, 2010, respectively. As of December 31, 2011, this debt consisted of borrowings by certain subsidiaries of the Fresenius Group under lines of credit with commercial banks. The average interest rates on these borrowings at December 31, 2011 and 2010 were 6.62% and 5.14%, respectively.
At December 31, 2010, the accounts receivable facility of Fresenius Medical Care was classified as short-term debt. During the third quarter of 2011, the accounts receivable facility was renewed for a period of three years. As a result, it has been classified as long-term debt at December 31, 2011. At December 31, 2011, there were no outstanding short-term borrowings under the accounts receivable facility (December 31, 2010: €382 million).
As of December 31, long-term debt and capital lease obligations consisted of the following:
| € in millions | 2011 | 2010 |
|---|---|---|
| Fresenius Medical Care 2006 Senior Credit Agreement | 2,161 | 2,211 |
| 2008 Senior Credit Agreement | 1,326 | 1,484 |
| Euro Notes | 800 | 800 |
| European Investment Bank Agreements | 527 | 531 |
| Accounts receivable facility of Fresenius Medical Care | 413 | 0 |
| Capital lease obligations | 53 | 54 |
| Other | 349 | 259 |
| Subtotal | 5,629 | 5,339 |
| less current portion | 1,852 | 420 |
| Long-term debt and capital lease obligations, less current portion | 3,777 | 4,919 |
Maturities of long-term debt and capital lease obligations are shown in the following table:
| € in millions | up to 1 year |
1 to 5 years |
more than 5 years |
|---|---|---|---|
| Fresenius Medical Care 2006 Senior Credit Agreement | 976 | 1,185 | 0 |
| 2008 Senior Credit Agreement | 243 | 1,083 | 0 |
| Euro Notes | 461 | 339 | 0 |
| European Investment Bank Agreements | 8 | 495 | 24 |
| Accounts receivable facility of Fresenius Medical Care | 0 | 413 | 0 |
| Capital lease obligations | 10 | 32 | 11 |
| Other | 154 | 162 | 33 |
| Long-term debt and capital lease obligations | 1,852 | 3,709 | 68 |
Aggregate annual repayments applicable to the above listed long-term debt and capital lease obligations for the years subsequent to December 31, 2011 are:
| Total | 5,629 |
|---|---|
| Subsequent years | 68 |
| 2016 | 32 |
| 2015 | 49 |
| 2014 | 1,833 |
| 2013 | 1,795 |
| 2012 | 1,852 |
| for the fiscal years | € in millions |
Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) and several of its subsidiaries entered into a US\$4.6 billion syndicated credit facility (Fresenius Medical Care 2006
Senior Credit Agreement) with several banks and institutional investors (the Lenders) on March 31, 2006, which replaced a prior credit agreement.
Since entering into the 2006 Senior Credit Agreement, Fresenius Medical Care arranged several amendments with the Lenders and effected voluntary prepayments of the Term Loans, which led to a change in the total amount available under this facility. Pursuant to an amendment together with an extension arranged on September 29, 2010, the Revolving Credit Facility was increased from US\$1,000 million to US\$1,200 million and the Term Loan A facility by US\$50 million to US\$1,365 million at the time of the amendment. The maturity for both tranches was extended from March 31, 2011 to March 31, 2013. Furthermore, the parties agreed to new limitations on dividends and other restricted payments for 2011, 2012 and 2013. In addition, this amendment and subsequent amendments have included increases in certain types of permitted borrowings outside of the Fresenius Medical Care 2006 Senior Credit Agreement, provide further flexibility for certain types of investments and acquisitions
and included changes in the definition of Fresenius Medical Care's consolidated leverage ratio, which is used to determine the applicable margin.
The following tables show the available and outstanding amounts under the Fresenius Medical Care 2006 Senior Credit Agreement at December 31:
| 2011 | |||||
|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | ||||
| US\$ in millions | € in millions | US\$ in millions | € in millions | ||
| Revolving Credit | 1,200 | 927 | 59 | 46 | |
| 1,215 | 939 | 1,215 | 939 | ||
| 1,522 | 1,176 | 1,522 | 1,176 | ||
| 3,937 | 3,042 | 2,796 | 2,161 |
| 2010 | ||||||
|---|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | |||||
| US\$ in millions | € in millions | US\$ in millions | € in millions | |||
| Revolving Credit | 1,200 | 898 | 81 | 61 | ||
| Term Loan A | 1,335 | 999 | 1,335 | 999 | ||
| Term Loan B | 1,538 | 1,151 | 1,538 | 1,151 | ||
| Total | 4,073 | 3,048 | 2,954 | 2,211 |
In addition, at December 31, 2011 and December 31, 2010, Fresenius Medical Care had letters of credit outstanding in the amount of US\$181 million and US\$122 million, respectively, which were not included above as part of the balance outstanding at those dates but which reduce available borrowings under the Revolving Credit Facility.
As of December 31, 2011, after consideration of all amendments and repayments to date, the Fresenius Medical Care 2006 Senior Credit Agreement consisted of:
Interest on these facilities will be, at Fresenius Medical Care's option, depending on the interest periods chosen, at a rate equal to either LIBOR plus an applicable margin or the higher of (a) Bank of America's prime rate or (b) the U.S. Federal Funds rate plus 0.5%, plus an applicable margin.
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 all cash and cash equivalents) to consolidated EBITDA (as these terms are defined in the Fresenius Medical Care 2006 Senior Credit Agreement).
For a portion of the floating rate borrowings under the Fresenius Medical Care 2006 Senior Credit Agreement, interest rate hedges have been arranged (see note 30, Financial instruments).
In addition to scheduled principal payments, indebtedness outstanding under the Fresenius Medical Care 2006 Senior Credit Agreement will be reduced by mandatory prepayments utilizing portions of the net cash proceeds from certain sales of assets, securitization transactions other than Fresenius Medical Care's existing accounts receivable facility, the issuance of subordinated debt other than certain intercompany transactions, certain issuances of equity and excess cash flow.
The obligations under the Fresenius Medical Care 2006 Senior Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the Lenders.
The Fresenius Medical Care 2006 Senior Credit Agreement contains affirmative and negative covenants with respect to FMC-AG & Co. KGaA and its subsidiaries and other payment restrictions. Certain of the covenants limit indebtedness of Fresenius Medical Care and require Fresenius Medical Care to maintain certain financial ratios defined in the agreement. Additionally, the Fresenius Medical Care 2006 Senior Credit Agreement provides for a limitation on dividends and other restricted payments which was US\$330 million for 2011 and is US\$360 million and US\$390 million for 2012 and 2013, respectively. Fresenius Medical Care paid dividends of US\$281 million in May of 2011 which was in compliance with the restrictions set forth in the Fresenius Medical Care 2006 Senior Credit Agreement. In default, the outstanding balance under the Fresenius Medical Care 2006 Senior Credit Agreement becomes immediately due and payable at the option of the Lenders. As of December 31, 2011, FMC-AG & Co. KGaA and its subsidiaries were in compliance with all covenants under the Fresenius Medical Care 2006 Senior Credit Agreement.
Fresenius Medical Care incurred fees of approximately US\$86 million in conjunction with the Fresenius Medical Care 2006 Senior Credit Agreement and fees of approximately US\$21 million in conjunction with the amendment and extension which will be amortized over the life of the credit agreement.
On August 20, 2008, in connection with the acquisition of APP Pharmaceuticals, Inc. (APP), the Fresenius Group entered into a syndicated credit agreement (2008 Senior Credit Agreement) in an original amount of US\$2.45 billion.
Since entering into the 2008 Senior Credit Agreement, amendments and voluntary prepayments have been made which have resulted in a change of the total amount available under this facility. In March 2011, after negotiations with the lenders, Fresenius SE & Co. KGaA again improved the conditions of the 2008 Senior Credit Agreement. The amendments led to a reduction of the interest rate of Term Loan C (new: Term Loan D). The new interest rate is a rate equal to the money market interest rate (LIBOR and EURIBOR) with a minimum of 1.00% (previously: 1.50%) and a current margin of 2.50% (previously: 3.00%). An earlier amendment in March 2010 had already led to a replacement of Term Loan B by Term Loan C and an improvement of the applicable interest rate.
The following tables show the available and outstanding amounts under the 2008 Senior Credit Agreement at December 31:
| 2011 | ||||||
|---|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | |||||
| € in millions | € in millions | |||||
| Revolving Credit Facilities | US\$550 million | 425 | US\$0 million | 0 | ||
| Term Loan A | US\$537 million | 415 | US\$537 million | 415 | ||
| Term Loan D (in US\$) | US\$971 million | 751 | US\$971 million | 751 | ||
| Term Loan D (in €) | €160 million | 160 | €160 million | 160 | ||
| Total | 1,751 | 1,326 | ||||
| 2010 | ||||||
| Maximum amount available | Balance outstanding | |||||
| € in millions | € in millions | |||||
| Revolving Credit Facilities | US\$550 million | 411 | US\$0 million | 0 | ||
| Term Loan A | US\$782 million | 586 | US\$782 million | 586 | ||
| Term Loan C (in US\$) | US\$984 million | 736 | US\$984 million | 736 | ||
| Term Loan C (in €) | €162 million | 162 | €162 million | 162 | ||
| Total | 1,895 | 1,484 |
As of December 31, 2011, the 2008 Senior Credit Agreement consisted of:
The interest rate on each borrowing under the 2008 Senior Credit Agreement is a rate equal to the aggregate of (a) the applicable margin (as described below) and (b) LIBOR or, in relation to any loan in euros, EURIBOR for the relevant interest period. The applicable margin is variable and depends on the Leverage Ratio as defined in the 2008 Senior Credit Agreement. In the case of Term Loan D, a minimum LIBOR or EURIBOR was set for 1.00%.
To hedge large parts of the interest rate risk connected with the floating rate borrowings under the 2008 Senior Credit Agreement, the Fresenius Group entered into interest rate hedges.
In addition to scheduled principal payments, indebtedness outstanding under the 2008 Senior Credit Agreement will be reduced by mandatory prepayments in the case of certain sales of assets, incurrence of additional indebtedness, equity issuances and certain intercompany loan repayments, with the amount to be prepaid depending on the proceeds which are generated by the respective transaction.
The 2008 Senior Credit Agreement is guaranteed by Fresenius SE & Co. KGaA, Fresenius ProServe GmbH and Fresenius Kabi AG. The obligations of APP Pharmaceuticals, LLC under the 2008 Senior Credit Agreement that refinanced indebtedness under the former APP credit facility
are secured by the assets of APP and its subsidiaries and guaranteed by APP's subsidiaries on the same basis as the former APP credit facility. All lenders also benefit from indirect security through pledges over the shares of certain subsidiaries of Fresenius Kabi AG and pledges over certain intercompany loans.
The 2008 Senior Credit Agreement contains a number of customary affirmative and negative covenants and other payment restrictions. These covenants include limitations on liens, sale of assets, incurrence of debt, investments and
acquisitions and restrictions on the payment of dividends, among other items. The 2008 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, a minimum fixed charge coverage ratio, a minimum interest coverage ratio and limits amounts spent on capital expenditure. As of December 31, 2011, the Fresenius Group was in compliance with all covenants under the 2008 Senior Credit Agreement.
As of December 31, Euro Notes (Schuldscheindarlehen) of the Fresenius Group consisted of the following:
| Book value/nominal value € in millions |
||||
|---|---|---|---|---|
| Maturity | Interest rate | 2011 | 2010 | |
| Fresenius Finance B.V. 2008/2012 | April 2, 2012 | 5.59% | 62 | 62 |
| Fresenius Finance B.V. 2008/2012 | April 2, 2012 | variable | 138 | 138 |
| Fresenius Finance B.V. 2007/2012 | July 2, 2012 | 5.51% | 26 | 26 |
| Fresenius Finance B.V. 2007/2012 | July 2, 2012 | variable | 74 | 74 |
| Fresenius Finance B.V. 2008/2014 | April 2, 2014 | 5.98% | 112 | 112 |
| Fresenius Finance B.V. 2008/2014 | April 2, 2014 | variable | 88 | 88 |
| Fresenius Finance B.V. 2007/2014 | July 2, 2014 | 5.75% | 38 | 38 |
| Fresenius Finance B.V. 2007/2014 | July 2, 2014 | variable | 62 | 62 |
| Fresenius Medical Care AG & Co. KGaA 2009/2012 | Oct. 27, 2012 | 7.41% | 36 | 36 |
| Fresenius Medical Care AG & Co. KGaA 2009/2012 | Oct. 27, 2012 | variable | 119 | 119 |
| Fresenius Medical Care AG & Co. KGaA 2009/2014 | Oct. 27, 2014 | 8.38% | 15 | 15 |
| Fresenius Medical Care AG & Co. KGaA 2009/2014 | Oct. 27, 2014 | variable | 30 | 30 |
| Euro Notes | 800 | 800 |
The Euro Notes issued by Fresenius Finance B.V. in the amounts of €200 million and €100 million, which are due on April 2, 2012 and on July 2, 2012, respectively, are shown as current portion of long-term debt and capital lease obligations in the consolidated statement of financial position. The Euro Notes issued by FMC-AG & Co. KGaA of €155 million, which are due on October 27, 2012, are also shown as current portion of long-term debt and capital lease obligations in the consolidated statement of financial position.
The Euro Notes of Fresenius Finance B.V. are guaranteed by Fresenius SE & Co. KGaA. The Euro Notes of FMC-AG & Co. KGaA are guaranteed by Fresenius Medical Care Holdings, Inc. (FMCH) and Fresenius Medical Care Deutschland GmbH (FMC D-GmbH).
Interest of the floating rate tranches of the Euro Notes is based on EURIBOR plus applicable margin. For a large portion of these tranches, interest rate swaps have been arranged (see note 30, Financial instruments). Only the floating rate tranches of the Euro Notes of FMC-AG & Co. KGaA in an amount of €149 million are exposed to the risk of interest rate increases.
As of December 31, 2011, the Fresenius Group was in compliance with all of its covenants under the Euro Notes.
Various subsidiaries of the Fresenius Group maintain credit facilities with the European Investment Bank (EIB). The following table shows the amounts outstanding under the EIB facilities as of December 31:
| Maximum amount available € in millions |
Book value € in millions |
||||
|---|---|---|---|---|---|
| Maturity | 2011 | 2010 | 2011 | 2010 | |
| Fresenius SE & Co. KGaA | 2013 | 196 | 196 | 196 | 196 |
| Fresenius Medical Care AG & Co. KGaA | 2013/2014 | 2711 | 2711 | 2671 | 2631 |
| HELIOS Kliniken GmbH | 2019 | 64 | 72 | 64 | 72 |
| Loans from EIB | 531 | 539 | 527 | 531 |
Difference due to foreign currency translation
The majority of the loans are denominated in euros. The U.S. dollar denominated borrowings of FMC-AG & Co. KGaA amounted to US\$165 million (€127 million) at December 31, 2011.
The EIB is the not-for-profit long-term lending institution of the European Union and loans funds at favorable rates for the purpose of specific capital investment and research and development projects. The facilities were granted to finance certain research and development projects, to invest in the expansion and optimization of existing production facilities in Germany and for the construction of a hospital.
In February 2010, a loan of €50 million was disbursed from the loan agreement FMC-AG & Co. KGaA entered into with the EIB in December 2009. The loan has a four-year term and is guaranteed by FMCH and FMC D-GmbH. In addition,
FMC-AG & Co. KGaA drew down the remaining available balance of US\$81 million on a revolving credit facility with the EIB in March 2010.
Repayment of the loan of HELIOS Kliniken GmbH already started in December 2007 and will continue through December 2019 with constant half-yearly payments.
The above mentioned loans bear variable interest rates which are based on EURIBOR or LIBOR plus applicable margin. These interest rates change quarterly. The loans under the EIB Agreements entered before 2009 are secured by bank guarantees. The 2009 loan of Fresenius SE & Co. KGaA is guaranteed by Fresenius Kabi AG and Fresenius ProServe GmbH. All credit agreements with the EIB have customary covenants. As of December 31, 2011, the Fresenius Group was in compliance with the respective covenants.
Details of capital lease obligations are given below:
| € in millions | 2011 | 2010 |
|---|---|---|
| Capital lease obligations (minimum lease payments) | 65 | 68 |
| due within one year | 12 | 12 |
| due between one and five years | 37 | 32 |
| due later than five years | 16 | 24 |
| Interest component included in future minimum lease payments | 12 | 14 |
| due within one year | 2 | 2 |
| due between one and five years | 5 | 6 |
| due later than five years | 5 | 6 |
| Present value of capital lease obligations (minimum lease payments) | 53 | 54 |
| due within one year | 10 | 10 |
| due between one and five years | 32 | 26 |
| due later than five years | 11 | 18 |
In August 2011, the asset securitization facility (accounts receivable facility) of Fresenius Medical Care was renewed to July 31, 2014 and increased by US\$100 million to US\$800 million.
As the accounts receivable facility was renewed annually in the past, it has historically been classified as a short-term debt. Since the recent renewal extended the due date to 2014, the accounts receivable facility has been reclassified into long-term debt. At December 31, 2011, there were outstanding borrowings under the accounts receivable facility of US\$535 million (€413 million).
Under the accounts receivable facility, certain receivables are sold to NMC Funding Corp. (NMC Funding), a whollyowned 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. The average interest rate during 2011 was 1.29%. 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, 2011, the additional financial cushion resulting from unutilized credit facilities was approximately €2 billion.
Syndicated credit facilities accounted for €1.1 billion. This portion comprises the Fresenius Medical Care 2006 Senior Credit Agreement in the amount of US\$960 million (€742 million) and the 2008 Senior Credit Agreement in the amount of US\$550 million (€425 million). Furthermore, bilateral facilities of approximately €850 million were available. They include credit facilities which subsidiaries 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 €250 million in short-term notes can be issued. As of December 31, 2011, no commercial papers were outstanding.
Additional financing of up to US\$800 million can be provided using the Fresenius Medical Care accounts receivable facility which had been utilized by US\$535 million as of December 31, 2011.
As of December 31, Senior Notes of the Fresenius Group consisted of the following:
| Book value € in millions |
|||||
|---|---|---|---|---|---|
| Notional amount | Maturity | Interest rate | 2011 | 2010 | |
| Fresenius Finance B.V. 2006/2013 | €500 million | Jan. 31, 2013 | 5.00% | 500 | 500 |
| Fresenius Finance B.V. 2006/2016 | €650 million | Jan. 31, 2016 | 5.50% | 637 | 635 |
| Fresenius US Finance II, Inc. 2009/2015 | €275 million | July 15, 2015 | 8.75% | 264 | 261 |
| Fresenius US Finance II, Inc. 2009/2015 | US\$500 million | July 15, 2015 | 9.00% | 372 | 356 |
| FMC Finance VI S.A. 2010/2016 | €250 million | July 15, 2016 | 5.50% | 248 | 247 |
| FMC Finance VII S.A. 2011/2021 | €300 million | Feb. 15, 2021 | 5.25% | 294 | 0 |
| FMC Finance VIII S.A. 2011/2016 | €100 million | Oct. 15, 2016 | variable | 100 | 0 |
| FMC Finance VIII S.A. 2011/2018 | €400 million | Sept. 15, 2018 | 6.50% | 395 | 0 |
| Fresenius Medical Care US Finance, Inc. 2007/2017 | US\$500 million | July 15, 2017 | 6.875% | 383 | 370 |
| Fresenius Medical Care US Finance, Inc. 2011/2021 | US\$650 million | Feb. 15, 2021 | 5.75% | 498 | 0 |
| Fresenius Medical Care US Finance II, Inc. 2011/2018 | US\$400 million | Sept. 15, 2018 | 6.50% | 305 | 0 |
| Senior Notes | 3,996 | 2,369 |
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. Since January 31, 2011, the Senior Notes of Fresenius Finance B.V. maturing in 2016 may be redeemed at the option of the issuer at prices that have already been fixed at the date of issuance in the indentures. All other 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, in whole but not in part, 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 covenants to provide protection to the bondholders, which, under certain circumstances, 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 payment of dividends, the volume of capital expenditure, the redemption of subordinated liabilities and the mortgaging or sale of assets, among other items. Some of these restrictions are lifted automatically when the rating of the respective 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, 2011, the Fresenius Group was in compliance with all of its covenants.
On October 17, 2011, FMC Finance VIII S.A. issued €100 million of unsecured, floating-rate Senior Notes at par, which are due in 2016. The Senior Notes carry interest of threemonth EURIBOR plus 350 basis points. Net proceeds were used for acquisitions, to repay indebtedness and for general corporate purposes.
On September 14, 2011, Fresenius Medical Care US Finance II, Inc. and FMC Finance VIII S.A. issued unsecured Senior Notes of US\$400 million and €400 million, respectively. The Senior Notes have a coupon of 6.5% and are due in 2018. They were issued at an issue price of 98.62% and had a yield to maturity of 6.75%. Net proceeds were used for acquisitions, to refinance indebtedness and for general corporate purposes.
On June 20, 2011, Fresenius Medical Care US Finance, Inc. acquired substantially all of the assets of FMC Finance III S.A. and assumed the obligations of FMC Finance III S.A. under its US\$500 million 6.875% Senior Notes due in 2017 and the related indenture. The guarantees of FMC-AG & Co. KGaA, Fresenius Medical Care Holdings, Inc. (FMCH) and Fresenius Medical Care Deutschland GmbH (FMC D-GmbH) for these Senior Notes have not been amended and remain in full force and effect.
On February 3, 2011, Fresenius Medical Care US Finance, Inc. and FMC Finance VII S.A. issued unsecured Senior Notes of US\$650 million and €300 million, respectively, which are due in 2021. The Senior Notes issued by Fresenius Medical Care US Finance, Inc. with a coupon of 5.75% at an issue price of 99.06% had a yield to maturity of 5.875%. The Senior Notes issued by FMC Finance VII S.A. have a coupon of 5.25% and were issued at par. Net proceeds were used to repay indebtedness, for acquisitions and for general corporate purposes.
On January 20, 2010, FMC Finance VI S.A. issued €250 million of unsecured Senior Notes with a coupon of 5.50% at an issue price of 98.66%. The Senior Notes had a yield to maturity of 5.75% and are due in 2016. Net proceeds were used to repay short-term indebtedness and for general corporate purposes.
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, FMCH and FMC D-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 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, 2011, FMC-AG & Co. KGaA and its subsidiaries were in compliance with all of their covenants under the Senior Notes existing at this point in time.
To finance the acquisition of APP Pharmaceuticals, Inc., Mandatory Exchangeable Bonds (MEB) in an aggregate nominal amount of €554.4 million were issued by Fresenius Finance (Jersey) Ltd. in July 2008. Fresenius Finance B.V. subscribed for these MEB at 100% of their principal amount. Afterwards, the MEB were on-lent to Fresenius SE (since January 28, 2011: Fresenius SE & Co. KGaA), who placed the MEB in the market. The bonds carried a coupon of 5 5/8% per annum and matured on August 14, 2011. Upon maturity, the bonds were mandatorily exchangeable into ordinary shares of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA). Each holder of an MEB received 1,418 ordinary shares of FMC-AG & Co. KGaA per MEB, corresponding to a final conversion price of €35.26. The ordinary shares of FMC-AG & Co. KGaA were owned by Fresenius SE & Co. KGaA and there was no issuance of new shares. Fresenius SE & Co. KGaA's shareholding in FMC-AG & Co. KGaA was thus reduced by 15,722,644 ordinary shares to 30.4% of the ordinary share capital.
The MEB were shown under short-term liabilities in an amount of €554 million until their maturity on August 14, 2011.
The derivative financial instruments embedded in the MEB were measured at fair value and were shown separately in the consolidated statement of financial position within short-term accrued expenses and other short-term liabilities until the maturity of the MEB.
Fresenius Medical Care issued trust preferred securities through Fresenius Medical Care Capital Trusts, statutory trusts organized under the laws of the State of Delaware, United States. Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) owned all of the common securities of these trusts. The sole asset of each trust was a senior subordinated note of FMC-AG & Co. KGaA or a wholly-owned subsidiary of FMC-AG & Co. KGaA. FMC-AG & Co. KGaA, Fresenius Medical Care Deutschland GmbH (FMC D-GmbH) and Fresenius Medical Care Holdings, Inc. (FMCH) have guaranteed payment and performance of the senior subordinated notes to the respective Fresenius Medical Care Capital Trusts. The trust preferred securities were guaranteed through a series of undertakings by FMC-AG & Co. KGaA, FMC D-GmbH and FMCH.
The trust preferred securities entitled the holders to distributions at a fixed annual rate of the stated amount and were mandatorily redeemable after 10 years.
On June 15, 2011, Fresenius Medical Care redeemed the trust preferred securities that became due on that date and that were issued in 2001 by Fresenius Medical Care Capital Trust IV and V in the amount of US\$225 million and €300 million, respectively, primarily with funds obtained under existing credit facilities.
The trust preferred securities as of December 31 were as follows:
| Year issued | Stated amount | Interest rate | Mandatory redemption date |
2011 € in millions |
2010 € in millions |
|
|---|---|---|---|---|---|---|
| Fresenius Medical Care Capital Trust IV | 2001 | US\$225 million | 77 ⁄8% |
June 15, 2011 | 0 | 168 |
| Fresenius Medical Care Capital Trust V | 2001 | €300 million | 73⁄8% | June 15, 2011 | 0 | 300 |
| Trust preferred securities | 0 | 468 |
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 differently according to the 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 benefits obligations and the return on plan assets for that year. A company's pension liability is impacted by these actuarial gains or losses.
In the case of Fresenius Group's funded plans, the defined benefit obligation is offset against the fair value of plan assets. 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 North America.
At December 31, 2011, the projected benefit obligation (PBO) of the Fresenius Group of €753 million (2010: €655 million) included €260 million (2010: €261 million) funded by plan assets and €496 million (2010: €394 million) covered by pension provisions. The current portion of the pension liability in an amount of €12 million is recognized in the consolidated statement of financial position within short-term accrued expenses and other short-term liabilities. The non-current portion of €484 million is recorded as pension liability.
58% of the pension liabilities in an amount of €496 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 rest of the pension liabilities relates 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. There was no minimum funding requirement for FMCH for the defined benefit plan in the year 2011. FMCH voluntarily contributed US\$0.6 million (€0.4 million) during the year 2011. Expected funding for 2012 is US\$10.8 million (€8.3 million).
Fresenius Group's benefit obligations relating to fully or partly funded pension plans were €373 million. Benefit obligations relating to unfunded pension plans were €380 million.
The following table shows the changes in benefit obligations, the changes in plan assets and the funded status of the pension plans. 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 funded status has developed as follows:
| € in millions | 2011 | 2010 |
|---|---|---|
| Benefit obligations at the beginning of the year |
655 | 556 |
| Changes in entities consolidated | 4 | 0 |
| Foreign currency translation | 12 | 16 |
| Service cost | 19 | 16 |
| Prior service cost | 0 | 2 |
| Interest cost | 35 | 33 |
| Contributions by plan participants | 1 | 1 |
| Transfer of plan participants | – | – |
| Curtailments / settlements | 0 | -2 |
| Actuarial losses | 47 | 50 |
| Benefits paid | -20 | -18 |
| Amendments | – | 1 |
| Benefit obligations at the end of the year | 753 | 655 |
| thereof vested | 638 | 558 |
| Fair value of plan assets at the beginning of the year |
261 | 237 |
| Changes in entities consolidated | – | 0 |
| Foreign currency translation | 6 | 14 |
| Actual return on plan assets | -4 | 13 |
| Contributions by the employer | 6 | 4 |
| Contributions by plan participants | 1 | 1 |
| Settlements | – | – |
| Transfer of plan participants | – | 0 |
| Benefits paid | -10 | -8 |
| Fair value of plan assets at the end of the year |
260 | 261 |
| Funded status as of December 31 | 493 | 394 |
As of December 31, 2011, the fair value of plan assets relating to one single pension plan exceeded the corresponding benefit obligations. The resulting amount of €3 million (2010: €0 million) was recognized as an asset. For all the remaining pension plans of the Fresenius Group, the benefit obligations exceeded the fair value of plan assets and resulted in a total amount of €496 million (2010: €394 million) recognized as a pension liability.
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:
The following table relates to pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
| in % | 2011 | 2010 |
|---|---|---|
| Discount rate | 5.15 | 5.43 |
| Rate of compensation increase | 3.12 | 3.32 |
| Rate of pension increase | 1.71 | 1.73 |
€ in millions 2011 2010 Projected benefit obligation (PBO) 711 655 Accumulated benefit obligation (ABO) 667 601 Fair value of plan assets 215 261
At December 31, 2011, the accumulated benefit obligations for all defined benefit pension plans were €703 million (2010: €601 million).
The pre-tax changes of other comprehensive income (loss) relating to pension liabilities during the years 2011 and 2010 are shown in the following tables:
| € in millions | As of Jan. 1, 2011 |
Reclassifications 1 | Additions | Foreign currency translation |
As of Dec. 31, 2011 |
|---|---|---|---|---|---|
| Actuarial gains and losses | -107 | 8 | -68 | -6 | -173 |
| Prior service cost | 3 | – | – | – | 3 |
| Transition obligation | -1 | – | – | – | -1 |
| Adjustments related to pension liabilities | -105 | 8 | -68 | -6 | -171 |
Effects recognized in the consolidated statement of income
| € in millions | As of Jan. 1, 2010 |
Reclassifications 1 | Additions | Foreign currency translation |
As of Dec. 31, 2010 |
|---|---|---|---|---|---|
| Actuarial gains and losses | -54 | 5 | -54 | -4 | -107 |
| Prior service cost | 4 | 1 | -2 | – | 3 |
| Transition obligation | -1 | – | – | – | -1 |
| Adjustments related to pension liabilities | -51 | 6 | -56 | -4 | -105 |
Effects recognized in the consolidated statement of income
For the tax effects on other comprehensive income at December 31, 2011 see note 28, 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 2012:
| € in millions | 2012 |
|---|---|
| Actuarial gains and losses | 15 |
| Prior service cost | – |
| Transition obligation | – |
Defined benefit pension plans' net periodic benefit costs of €45 million (2010: €36 million) were comprised of the following components:
| € in millions | 2011 | 2010 |
|---|---|---|
| Service cost | 19 | 16 |
| Interest cost | 35 | 33 |
| Expected return on plan assets | -17 | -17 |
| Amortization of unrealized actuarial losses, net | 8 | 5 |
| Amortization of prior service costs | – | 1 |
| Amortization of transition obligations | – | – |
| Settlement loss | 0 | -2 |
| Net periodic benefit cost | 45 | 36 |
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 % | 2011 | 2010 |
|---|---|---|
| Discount rate | 5.40 | 5.86 |
| Expected return of plan assets | 5.50 | 5.58 |
| Rate of compensation increase | 3.30 | 3.30 |
Changes in the discount factor, inflation and mortality assumptions used for the actuarial computation resulted in actuarial losses in 2011 which increased the fair value of the defined benefit obligation. Unrecognized actuarial losses were €173 million (2010: €107 million).
The fair values of plan assets by categories were as follows:
December 31, 2011 December 31, 2010 € 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 31 43 74 32 49 81 Index funds 1 27 43 70 23 49 72 Other equity investments 4 0 4 9 0 9 Fixed income investments 50 113 163 41 118 159 Government securities 2 25 2 27 20 2 22 Corporate bonds 3 13 111 124 13 114 127 Other fixed income investments 4 12 – 12 8 2 10 Other 5 21 2 23 18 3 21 Total 102 158 260 91 170 261
Financial Statements
1 This category mainly comprises 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 primarily comprises 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 mainly comprises private placement bonds as well as collateralized mortgage obligations 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 following table shows the expected benefit payments for the next 10 years:
| for the fiscal years | € in millions |
|---|---|
| 2012 | 23 |
| 2013 | 24 |
| 2014 | 26 |
| 2015 | 28 |
| 2016 | 32 |
| 2017 to 2021 | 187 |
| Total expected benefit payments | 320 |
The Fresenius Group uses December 31, 2011 as the measurement date in determining the funded status of all plans.
The major part of pension liabilities relates to Germany. At December 31, 2011, 70% of the pension liabilities were recognized in Germany, 30% in the rest of Europe and North America.
60% of the beneficiaries were located in North America, 30% in Germany and the remainder throughout the rest of Europe and other continents.
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 and market quotes.
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 North American 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 long-term 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 North American pension plan was 7.5% for the year 2011.
The overall investment strategy for the North American pension plan is to achieve a mix of approximately 96% of investments for long-term growth and 4% for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers.
The target allocations for plan assets in North America are 35% equity securities and 65% long-term U.S. 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 policy 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 Index, Russell 2000 Growth Index, MSCI EAFE Index, MSCI Emerging Markets Index, Barclays Capital Long Term Government Index and Barclays Capital 20 Year U.S. Treasury Strip Index.
The following schedule describes Fresenius Group's allocation for its funded plans.
| in % | Allocation 2011 |
Allocation 2010 |
Target allocation |
|---|---|---|---|
| Equity investments | 28.47 | 31.12 | 36.08 |
| Fixed income investments | 62.58 | 60.73 | 59.64 |
| Other incl. real estate | 8.95 | 8.15 | 4.28 |
| Total | 100.00 | 100.00 | 100.00 |
The overall expected long-term rate of return on assets of the Fresenius Group amounts to 6.62% compounded annually. Contributions to plan assets for the fiscal year 2012 are expected to amount to €13 million.
Fresenius Group's total expense under defined contribution plans for 2011 was €63 million (2010: €63 million). Of this amount, €31 million related to contributions by the Fresenius Group to the Rheinische Zusatzversorgungskasse (a supplementary pension fund) and to other public supplementary pension funds for employees of Fresenius Helios. Further €24 million related to contributions to the North American savings plan, which employees of FMCH can join.
Following applicable collective bargaining agreements, the 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 €31 million in 2011 (2010: €32 million). Thereof €15 million were payments to the Rheinische Zusatzversorgungskasse (2010: €15 million).
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 North American savings plan, employees can deposit up to 75% of their pay up to an annual maximum of US\$16,500 if under 50 years old (US\$22,000 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, 2011 and 2010 was €24 million and €24 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.
As of December 31, 2011 and 2010 the Fresenius Group's potential obligations under these put options were €317 million and €209 million, respectively, of which, at December 31, 2011, €88 million were exercisable.
As of December 31, noncontrolling interest not subject to put provisions in the Group was as follows:
| € in millions | 2011 | 2010 |
|---|---|---|
| Noncontrolling interest not subject to put provisions in Fresenius Medical Care AG & Co. KGaA |
4,254 | 3,574 |
| Noncontrolling interest not subject to put provisions in HELIOS Kliniken GmbH |
0 | 4 |
| Noncontrolling interest not subject to put provisions in VAMED AG |
28 | 23 |
| Noncontrolling interest not subject to put provisions in the business segments |
||
| Fresenius Medical Care | 123 | 110 |
| Fresenius Kabi | 63 | 46 |
| Fresenius Helios | 136 | 119 |
| Fresenius Vamed | 2 | 3 |
| Total noncontrolling interest not subject to put provisions |
4,606 | 3,879 |
Due to the maturity of the Mandatory Exchangeable Bonds on August 14, 2011, Fresenius SE & Co. KGaA's shareholding in Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) was reduced by 15,722,644 ordinary shares to 30.4% of the ordinary share capital. In November and December 2011, Fresenius SE & Co. KGaA purchased 1,399,996 ordinary shares of FMC-AG & Co. KGaA. Therewith, Fresenius SE & Co. KGaA's shareholding in FMC-AG & Co. KGaA amounted to 30.74% of the ordinary share capital at December 31, 2011.
Noncontrolling interest not subject to put provisions changed as follows:
| € in millions | 2011 |
|---|---|
| Noncontrolling interest not subject to put provisions at December 31, 2010 |
3,879 |
| Noncontrolling interest not subject to put provisions in profit |
605 |
| Maturity of the Mandatory Exchangeable Bonds | 298 |
| Dividend payments | -192 |
| Purchase of ordinary shares of FMC-AG & Co. KGaA | -28 |
| Stock options, currency effects and first-time consolidations |
44 |
| Noncontrolling interest not subject to put provisions at December 31, 2011 |
4,606 |
As a result of Fresenius SE's change of legal form to Fresenius SE & Co. KGaA and its registration with the commercial register on January 28, 2011, all bearer preference shares were converted into bearer ordinary shares.
During the fiscal year 2011, 787,246 stock options were exercised. Consequently, at December 31, 2011, the subscribed capital of Fresenius SE & Co. KGaA consisted of 163,237,336 bearer ordinary shares. The shares are issued as non-par value shares. The proportionate amount of the subscribed capital is €1.00 per share.
The following table shows the notifications disclosed in 2011 in accordance with Section 26 (1) of the German Securities Trading Act (WpHG). They reflect the corresponding level of investments held in Fresenius SE & Co. KGaA:
| Notifying party | Date of reaching, exceeding or falling below |
Reporting threshold | Attribution pursuant to Section 22 WpHG |
Percentage of voting rights |
Number of voting rights |
|---|---|---|---|---|---|
| Allianz SE, Munich, Germany 1 | January 28, 2011 | Falling below 5% |
Section 22 (1) sentence 1 No. 1 |
4.26 | 6,919,271 |
| as well as (1) sentence 1 No. 6 |
0.0008 | 1,281 | |||
| Artio Global Investors, Inc., New York, USA 2 | January 28, 2011 | Falling below 3% |
Section 22 (1) sentence 1 No. 6 in connection with (1) sentence 2 |
2.36 | 3,840,708 |
| BlackRock, Inc., New York, USA 3 | September 2, 2011 | Exceeding 3% and 5% |
Section 22 (1) sentence 1 No. 6 in connection with (1) sentence 2 |
5.04 | 8,218,197 |
| Else Kröner-Fresenius-Stiftung, Bad Homburg v. d. H., Germany |
January 28, 2011 | Falling below 50% and 30% |
– | 28.85 | 46,871,154 |
| FMR, LLC, Boston, USA 4 | January 28, 2011 | Falling below 3% |
Section 22 (1) sentence 1 No. 6 in connection with (1) sentence 2 |
1.69 | 2,740,382 |
| Skandinaviska Enskilda Banken AB (publ), Stockholm, Sweden5 |
May 13, 2011 | Exceeding 3% and 5% |
Section 22 (1) sentence 1 No. 1 |
5.58 | 9,068,446 |
| May 16, 2011 | Falling below 5% and 3% |
Section 22 (1) sentence 1 No. 1 |
1.77 | 2,868,446 |
1 Attribution of voting rights via: Allianz Deutschland AG, Jota Vermögensverwaltungsgesellschaft mbH, Allianz Lebensversicherungs-AG
Attribution of voting rights via: Artio Global Holdings, LLC, Artio Global Management, LLC
3 Attribution of voting rights via: BlackRock Holdco 2, Inc., BlackRock Financial Management, Inc., BlackRock Advisors Holdings, Inc.,
BlackRock International Holdings, Inc., BR Jersey International Holdings LP, BlackRock Group Limited
4 Attribution of voting rights via: Fidelity Management&Research Company
5 Attribution of voting rights via: SEB Bank AG The Else Kröner-Fresenius-Stiftung informed on December 30, 2011, that it still holds 46,871,154 ordinary shares of Fresenius SE & Co. KGaA representing 28.71% of the voting rights on December 31, 2011.
All WpHG-notifications by shareholders are published on the website of the Company www.fresenius.com under Investor Relations – Fresenius Share/ADR – Shareholder Structure.
By resolution of the Annual General Meeting on May 13, 2011, the previous Authorized Capitals I to V were revoked and a new Authorized Capital I was created.
In accordance with the new provision in the articles of association of Fresenius SE & Co. KGaA, the general partner, Fresenius Management SE, is authorized, with the approval of the Supervisory Board, until May 12, 2016, to increase Fresenius SE & Co. KGaA's subscribed capital by a total amount of up to €40,320,000 through a single issue 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, the proportionate amount of the shares issued with exclusion of subscription rights may not exceed 10% of the subscribed capital neither at the time of the resolution on the authorization nor at the time of the utilization of the authorization. In the case of a contribution 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 the general partner 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, neither at the time of the resolution on the authorization nor at the time of the utilization of the authorization.
The changes to the Authorized Capital became effective upon registration of the amendments to the articles of association with the commercial register on July 11, 2011.
Corresponding to the stock option plans, the Conditional Capital of Fresenius SE & Co. KGaA is divided into Conditional Capital I, Conditional Capital II and Conditional Capital III. These are used to satisfy the subscription rights in connection with previously issued stock options or convertible bonds, as the case may be, for bearer ordinary shares under the stock option plans of 1998, 2003 and 2008 (see note 34, Stock options).
After the registration of the change of legal form with the commercial register on January 28, 2011, the Conditional Capitals in the articles of association of Fresenius SE & Co. KGaA correspond in their scope to the Conditional Capitals of the former Fresenius SE, adjusted for stock options that have been exercised in the interim.
Due to the conversion of all preference shares into ordinary shares, the Conditional Capital was amended to the effect that only subscription rights for bearer ordinary shares are granted.
The following table shows the development of the Conditional Capital:
| in € | Ordinary shares | Preference shares | Total |
|---|---|---|---|
| Conditional Capital I Fresenius AG Stock Option Plan 1998 | 495,255 | 495,255 | 990,510 |
| Conditional Capital II Fresenius AG Stock Option Plan 2003 | 1,743,159 | 1,743,159 | 3,486,318 |
| Conditional Capital III Fresenius SE Stock Option Plan 2008 | 3,100,000 | 3,100,000 | 6,200,000 |
| Total Conditional Capital as of January 1, 2011 | 5,338,414 | 5,338,414 | 10,676,828 |
| Conversion of the preference shares into ordinary shares in combination with the change of legal form |
5,337,526 | -5,337,526 | 0 |
| Fresenius AG Stock Option Plan 1998 – options exercised | -102,082 | 0 | -102,082 |
| Fresenius AG Stock Option Plan 2003 – options exercised | -508,800 | -888 | -509,688 |
| Fresenius SE Stock Option Plan 2008 – options exercised | -175,476 | 0 | -175,476 |
| Total Conditional Capital as of December 31, 2011 | 9,889,582 | 0 | 9,889,582 |
Capital reserves comprise the premium paid on the issue of shares and the exercise of stock options (additional paid-in capital).
Dividends
(HGB).
Other reserves comprise 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
In May 2011, a dividend of €0.86 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 €140 million.
Other comprehensive income (loss) comprises 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 2011 and 2010 were as follows:
| 2011 | 2010 | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | Amount before taxes |
Tax effect | Amount after taxes |
Amount before taxes |
Tax effect | Amount after taxes |
|
| Changes in unrealized gains /losses on derivative financial instruments |
-81 | 27 | -54 | -15 | 3 | -12 | |
| Change in unrealized gains /losses | -91 | 31 | -60 | -32 | 7 | -25 | |
| Realized gains /losses due to reclassifications | 10 | -4 | 6 | 17 | -4 | 13 | |
| Benefit obligation adjustment | -66 | 25 | -41 | -54 | 16 | -38 | |
| Foreign currency translation adjustment | 99 | -4 | 95 | 238 | -8 | 230 | |
| Other comprehensive income (loss) | -48 | 48 | 0 | 169 | 11 | 180 |
Fresenius Group's subsidiaries lease office and manufacturing buildings as well as machinery and equipment under various lease agreements expiring on dates through 2101. Rental expense recorded for operating leases for the years ended December 31, 2011 and 2010 was €497 million and €480 million, respectively.
Future minimum rental payments under non-cancellable operating leases for the years subsequent to December 31, 2011 are:
| for the fiscal years | € in millions |
|---|---|
| 2012 | 436 |
| 2013 | 376 |
| 2014 | 320 |
| 2015 | 270 |
| 2016 | 221 |
| Thereafter | 677 |
| Total | 2,300 |
As of December 31, 2011, future investment commitments existed up to the year 2016 from the acquisition contracts for hospitals at projected costs of up to €350 million. Thereof €75 million relates to the year 2012.
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 healthcare services and products. Legal matters that the Fresenius Group currently deems to be
material 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.
Fresenius Medical Care was originally formed as a result of a series of transactions it completed pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996, by and between W.R. Grace&Co. and Fresenius SE (the Merger). At the time of the Merger, a W.R. Grace&Co. subsidiary known as W.R. Grace&Co.-Conn. had, and continues to have, significant liabilities arising out of product-liability related litigation (including asbestos-related actions), pre-Merger tax claims and other claims unrelated to National Medical Care, Inc. (NMC), which was W.R. Grace & Co.'s dialysis business prior to the Merger. In connection with the Merger, W.R. Grace&Co.-Conn. agreed to indemnify Fresenius Medical Care, Fresenius Medical Care Holdings, Inc. (FMCH), and NMC against all liabilities of W.R. Grace&Co., whether relating to events occurring before or after the Merger, other than liabilities arising from or relating to NMC's operations. W.R. Grace & Co. and certain of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the Grace Chapter 11 Proceedings) on April 2, 2001.
Prior to and after the commencement of the Grace Chapter 11 Proceedings, class action complaints were filed against W.R. Grace & Co. and FMCH by plaintiffs claiming to be creditors of W.R. Grace&Co.-Conn., and by the asbestos creditors' committees on behalf of the W.R. Grace&Co. bankruptcy estate in the Grace Chapter 11 Proceedings, alleging among other things that the Merger was a fraudulent conveyance, violated the uniform fraudulent transfer act and constituted a conspiracy. All such cases have been stayed and transferred to or are pending before the U.S. District Court as part of the Grace Chapter 11 Proceedings.
In 2003, Fresenius Medical Care reached agreement with the asbestos creditors' committees on behalf of the W.R. Grace&Co. bankruptcy estate and W.R. Grace&Co. in the matters pending in the Grace Chapter 11 Proceedings for the settlement of all fraudulent conveyance and tax claims against it and other claims related to Fresenius Medical Care that arise out of the bankruptcy of W.R. Grace&Co. Under the terms of the settlement agreement as amended (Settlement Agreement), fraudulent conveyance and other claims raised on behalf of asbestos claimants will be dismissed with prejudice and Fresenius Medical Care will receive protection against existing and potential future W.R. Grace&Co. related claims, including fraudulent conveyance and asbestos claims, and indemnification against income tax claims related to the non-NMC members of the W.R. Grace&Co. consolidated tax group upon confirmation of a W.R. Grace & Co. bankruptcy reorganization plan that contains such provisions. Under the Settlement Agreement, Fresenius Medical Care will pay a total of US\$115 million without interest to the W.R. Grace&Co. bankruptcy estate, or as otherwise directed by the Court, upon plan confirmation. No admission of liability has been or will be made.
The Settlement Agreement has been approved by the U.S. District Court. In January and February 2011, the U.S. Bankruptcy Court entered orders confirming the joint plan of reorganization and the confirmation orders were affirmed by the U.S. District Court on January 31, 2012.
Subsequent to the Merger, W.R. Grace & Co. was involved in a multi-step transaction involving Sealed Air Corporation (Sealed Air, formerly known as Grace Holding, Inc.). Fresenius Medical Care is engaged in litigation with Sealed Air to confirm its entitlement to indemnification from Sealed Air for all losses and expenses incurred by Fresenius Medical Care relating to pre-Merger tax liabilities and Merger-related claims. Under the Settlement Agreement, upon final confirmation of a plan of reorganization that satisfies the conditions of Fresenius Medical Care's payment obligation, this litigation will be dismissed with prejudice.
On April 4, 2003, FMCH filed a suit in the U.S. District Court for the Northern District of California, styled Fresenius USA, Inc., et al., v. Baxter International, Inc., et al., Case No. C 03-1431, seeking a declaratory judgment that FMCH does not infringe patents held by Baxter International, Inc. and its subsidiaries and affiliates (Baxter), that the patents are invalid, and that Baxter is without right or authority to threaten or maintain suit against FMCH for alleged infringement of Baxter's patents. In general, the asserted patents concern the use of touch screen interfaces for hemodialysis machines. Baxter filed counterclaims against FMCH seeking more than US\$140 million in monetary damages and injunctive relief, and alleging that FMCH willfully infringed on Baxter's patents. On July 17, 2006, the court entered judgment on a jury verdict in favor of FMCH finding that all the asserted claims of the Baxter patents are invalid as obvious and/or anticipated in light of prior art.
On February 13, 2007, the court granted Baxter's motion to set aside the jury's verdict in favor of FMCH and reinstated the patents and entered judgment of infringement. Following a trial on damages, the court entered judgment on November 6, 2007 in favor of Baxter on a jury award of US\$14.3 million. On April 4, 2008, the court denied Baxter's motion for a new trial, established a royalty payable to Baxter of 10% of the sales price for continuing sales of FMCH's 2008K hemodialysis machines and 7% of the sales price of related disposables, parts and service beginning November 7, 2007, and enjoined sales of the touchscreen-equipped 2008K machine effective January 1, 2009. Fresenius Medical Care appealed the court's rulings to the United States Court of Appeals for the Federal Circuit (Federal Circuit). In October 2008, Fresenius Medical Care completed design modifications to the 2008K machine that eliminate any incremental hemodialysis machine royalty payment exposure under the original District Court order. On September 10, 2009, the Federal Circuit reversed the district court's decision and determined that the asserted claims in two of the three patents at issue are invalid. As to the third patent, the Federal Circuit affirmed the district court's decision; however, the Court also vacated the injunction and award of damages. These issues were remanded to the District Court for reconsideration in light of the invalidity ruling on most of the claims. As a result, FMCH is no longer required to fund the court-approved escrow account set up to hold the royalty payments ordered by the district court. Funds of US\$70 million were contributed to the escrow fund. In the parallel reexamination of the last surviving patent, the U.S. Patent and Trademark Office (USPTO) and the Board of Patent Appeals and Interferences ruled that the remaining Baxter patent is invalid. Baxter appealed the Board's ruling to the Federal Circuit.
On October 17, 2006, Baxter and DEKA Products Limited Partnership (DEKA) filed suit in the U.S. District Court for the Eastern District of Texas which was subsequently transferred to the Northern District of California, styled Baxter Healthcare Corporation and DEKA Products Limited Partnership v. Fresenius Medical Care Holdings, Inc. d/b/ a Fresenius Medical Care North America and Fresenius USA, Inc., Case No. CV 438 TJW. The complaint alleged that FMCH's Liberty™ cycler infringes nine patents owned by or licensed to Baxter. During and after discovery, seven of the asserted patents were dropped from the suit. On July 28, 2010, at the conclusion of the trial, the jury returned a verdict in favor of FMCH finding that the Liberty™ cycler does not infringe any of the asserted claims of the Baxter patents. The District Court denied Baxter's request to overturn the jury verdict and Baxter appealed the verdict and resulting judgment to the United States Court of Appeals for the Federal Circuit. On February 13, 2012, the Federal Circuit affirmed the District Court's non-infringement verdict.
Renal Care Group, Inc. (RCG), which Fresenius Medical Care acquired in 2006, is named as a nominal defendant in a complaint originally filed September 13, 2006 in the Chancery Court for the State of Tennessee Twentieth Judicial District at Nashville styled Indiana State District Council of Laborers and Hod Carriers Pension Fund v. Gary Brukardt et al. Following the trial court's dismissal of the complaint, plaintiff's appeal in part, and reversal in part by the appellate court, the cause of action purports to be a class action on behalf of former shareholders of RCG and seeks monetary damages only against the individual former directors of RCG. The individual defendants, however, may have claims for indemnification and reimbursement of expenses against Fresenius Medical Care. Fresenius Medical Care expects to continue as a defendant in the litigation, which is proceeding toward trial in the Chancery Court, and believes that defendants will prevail.
On July 17, 2007, resulting from an investigation begun in 2005, the United States Attorney filed a civil complaint in the United States District Court for the Eastern District of Missouri (St. Louis) against RCG, its subsidiary RCG Supply Company, and FMCH in its capacity as RCG's current corporate parent. The complaint seeks monetary damages and penalties with respect to issues arising out of the operation of RCG's Method II supply company through 2005, prior to FMCH's acquisition of RCG in 2006. The complaint is styled United States of America ex rel. Julie Williams et al. vs. Renal Care Group, Renal Care Group Supply Company and FMCH. On August 11, 2009, the Missouri District Court granted RCG's motion to transfer venue to the United States District Court for the Middle District of Tennessee (Nashville). On March 22, 2010, the Tennessee District Court entered judgment against defendants for approximately US\$23 million in damages and interest under the unjust enrichment count of the complaint but denied all relief under the six False Claims Act counts of the complaint. On June 17, 2011, the District Court entered summary judgment against RCG for US\$83 million on one of the False Claims Act counts of the complaint. On June 23, 2011, Fresenius Medical Care appealed to the United States Court of Appeals for the Sixth Circuit. Although Fresenius Medical Care cannot provide any assurance of the outcome, Fresenius Medical Care believes that RCG's operation of its Method II supply company was in compliance with applicable law, that no relief is due to the United States, that the decisions made by the District Court on March 22, 2010 and June 17, 2011 will be reversed, and that its position in the litigation will ultimately be sustained.
On November 27, 2007, the United States District Court for the Western District of Texas (El Paso) unsealed and permitted service of two complaints previously filed under seal by a qui tam relator, a former FMCH local clinic employee. The first complaint alleged that a nephrologist unlawfully employed in his practice an assistant to perform patient care tasks that the assistant was not licensed to perform and that Medicare billings by the nephrologist and FMCH therefore violated the False Claims Act. The second complaint alleged that FMCH unlawfully retaliated against the relator by constructively discharging her from employment. The United States Attorney for the Western District of Texas declined to intervene and to prosecute on behalf of the United States. On March 30, 2010, the District Court issued final judgment in favor of the defendants on all counts based on a jury verdict rendered on February 25, 2010 and on rulings of law made by the Court during the trial. The plaintiff has appealed from the District Court judgment.
On February 15, 2011, a qui tam relator's complaint under the False Claims Act against FMCH was unsealed by order of the United States District Court for the District of Massachusetts and served by the relator. The United States has not intervened 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, alleges that FMCH seeks and receives reimbursement from government payors for serum ferritin and hepatitis B laboratory tests that are medically unnecessary
or not properly ordered by a physician. FMCH has filed a motion to dismiss the complaint. On March 6, 2011, the United States Attorney for the District of Massachusetts issued a Civil Investigative Demand seeking the production of documents related to the same laboratory tests that are the subject of the relator's complaint. FMCH is cooperating fully in responding to the additional Civil Investigative Demand, and will vigorously contest the relator's complaint.
On June 29, 2011, FMCH received a subpoena from the United States Attorney for the Eastern District of New York (E.D.N.Y). On December 6, 2011, a single Company facility in New York received a subpoena from the OIG that was substantially similar to the one issued by the U.S. Attorney for the E.D.N.Y. These subpoenas are part of a criminal and civil investigation into relationships between retail pharmacies and outpatient dialysis facilities in the State of New York and into the reimbursement under government payor programs in New York for medications provided to patients with end-stage renal disease. Among the issues encompassed by the investigation is whether retail pharmacies may have provided or received compensation from the New York Medicaid program for pharmaceutical products that should be provided by the dialysis facilities in exchange for the New York Medicaid payment to the dialysis facilities. FMCH is cooperating in the investigation.
In the ordinary course of Fresenius Group's operations, the Fresenius Group is subject to litigation, arbitration 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 estimated expenses for legal services, as appropriate.
At December 31, 2001, Fresenius Medical Care recorded a pre-tax special charge of US\$258 million to reflect anticipated expenses associated with the defense and resolution of pre-Merger tax claims, Merger-related claims, and commercial insurer claims. The costs associated with the Settlement Agreement and settlements with insurers have been charged against this accrual. With the exception of the proposed US\$115 million (€89 million) payment under the Settlement Agreement in the Grace Chapter 11 Proceedings, all other matters included in the special charge have been resolved. While Fresenius Medical Care believes that its remaining accrual reasonably estimates its currently anticipated costs related to the continued defense and resolution of this matter, no assurances can be given that its actual costs incurred will not exceed the amount of this accrual.
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:
| Loans and receivables | Financial liabilities measured at amortized cost |
Financial liabilities /assets measured at fair value |
Relating to no category | ||
|---|---|---|---|---|---|
| Cash and cash equivalents | ▶ Cash and cash equivalents | ||||
| Assets recognized at carrying amount |
▶ Trade accounts receivable (incl. receivables from and loans to related parties) ▶ Other non-current assets (solely loan to Renal Advan tage Partners, LLC) |
||||
| Classes | Liabilities recognized at carrying amount |
▶ Trade accounts payable ▶ Short-term accounts payable to related parties ▶ Short-term debt (incl. short term loans from related parties) ▶ Long-term debt excluding capital lease obligations ▶ Senior Notes ▶ Trust preferred securities (until June 15, 2011) ▶ Mandatory exchangeable bonds (excluding embedded derivatives) (until August 14, 2011) |
▶ Long-term capital lease obligations |
||
| Liabilities recognized at fair value |
▶ Other short-term liabilities (solely Contingent Value Rights (until March 31, 2011) and derivatives embedded in the Mandatory Exchangeable Bonds (until August 14, 2011)) |
||||
| 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 derivative financial instruments embedded in the Mandatory Exchangeable Bonds (MEB) were included in the statement of financial position item short-term accrued expenses and other short-term liabilities until the maturity of the MEB (for details relating to the MEB, please see note 23, Mandatory Exchangeable Bonds). Due to their special character and the
difference in valuation, the embedded derivatives were classified separately. Also because of their special character and different valuation, the Contingent Value Rights (CVR) were classified separately from their statement of financial position item.
The carrying amounts of financial instruments at December 31, classified into categories, were as follows:
| € in millions | 2011 | 2010 |
|---|---|---|
| Loans and receivables | 3,428 | 2,950 |
| Financial liabilities measured at amortized cost | 10,574 | 9,977 |
| Assets measured at fair value 1 | 44 | 11 |
| Liabilities measured at fair value 1 | 77 | 174 |
| Relating to no category | 68 | 311 |
1 There are no financial instruments designated as at fair value through profit or loss upon initial recognition.
The significant methods and assumptions used to estimate the fair values of financial instruments 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 receivables and payables 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 of these instruments.
The fair values of the 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. The fair value of Fresenius Medical Care's loan to Renal Advantage Partners, LLC is based on significant unobservable inputs of comparable instruments. The fair values of the noncontrolling interest subject to put provisions are determined using significant unobservable inputs.
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.
The carrying amounts of derivatives embedded in the MEB and the CVR corresponded with their fair values. The MEB matured on August 14, 2011. The embedded derivatives were measured at fair value, which was estimated based on a Black-Scholes model. The CVR were traded on the stock exchange in the United States and were therefore valued with the current stock exchange price until December 31, 2010. In the first quarter of 2011, the CVR were deregistered and delisted from the NASDAQ due to the expiration of the underlying agreement and became valueless.
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 following table presents the carrying amounts and fair values of Fresenius Group's financial instruments as of December 31:
| 2011 | 2010 | |||
|---|---|---|---|---|
| € in millions | Carrying amount | Fair value | Carrying amount | Fair value |
| Cash and cash equivalents | 635 | 635 | 769 | 769 |
| Assets recognized at carrying amount | 3,428 | 3,427 | 2,950 | 2,950 |
| Liabilities recognized at carrying amount | 10,627 | 10,874 | 10,031 | 10,259 |
| Liabilities recognized at fair value | 18 | 18 | 133 | 133 |
| Noncontrolling interest subject to put provisions recognized at fair value | 317 | 317 | 209 | 209 |
| Derivatives for hedging purposes | -212 | -212 | -225 | -225 |
Derivative and non-derivative financial instruments recognized at fair value are classified according to the three-tier fair value hierarchy. For the fair value measurement of derivatives for hedging purposes, significant other observable inputs are used. Therefore, they are classified as Level 2 in accordance with the defined fair value hierarchy levels. The derivatives embedded in the MEB were also classified as Level 2. Until December 31, 2010, the valuation of the CVR was based on the current stock exchange price, they were therefore classified as
Level 1. The class liabilities recognized at fair value consisted of embedded derivatives and the CVR and was consequently classified in its entirety as the lower hierarchy Level 2. As of December 31, 2011, this class no longer existed due to the expiration of the CVR and the maturity of the MEB. The valuation of the noncontrolling interests subject to put provisions is determined using significant unobservable inputs, they are therefore classified as Level 3.
| Dec. 31, 2011 | Dec. 31, 2010 | |||
|---|---|---|---|---|
| € in millions | Assets | Liabilities | Assets | Liabilities |
| Interest rate contracts (current) | 0 | 103 | – | 43 |
| Interest rate contracts (non-current) | 0 | 60 | 1 | 115 |
| Foreign exchange contracts (current) | 9 | 39 | 8 | 49 |
| Foreign exchange contracts (non-current) | 1 | 5 | 5 | 2 |
| Derivatives designated as hedging instruments 1 | 10 | 207 | 14 | 209 |
| Interest rate contracts (current) | 0 | 0 | 0 | 2 |
| Interest rate contracts (non-current) | 0 | 3 | 0 | 0 |
| Foreign exchange contracts (current) 1 | 43 | 58 | 10 | 34 |
| Foreign exchange contracts (non-current) 1 | 1 | 1 | 1 | 7 |
| Derivatives embedded in the MEB (current) | 0 | 0 | 0 | 111 |
| Derivatives not designated as hedging instruments | 44 | 62 | 11 | 154 |
1 Derivatives designated as hedging instruments and foreign exchange contracts 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 were recognized at gross value within other assets in an amount of €54 million and other liabilities in an amount of €266 million.
The current portion of interest rate contracts and foreign exchange contracts indicated as assets in the previous 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 MEB were recognized within other short-term liabilities until the maturity of the MEB.
The net gains and losses from financial instruments consisted of allowances for doubtful accounts in an amount of €216 million and foreign currency transactions of -€6 million. In addition, income of €5 million resulted from the fair value measurement of the CVR and expenses of €100 million resulted from the fair value measurement of the derivatives embedded in the MEB. Interest income of €56 million resulted mainly from trade accounts receivable and loans to related parties. Interest expense of €587 million resulted mainly from financial liabilities.
| 2011 | ||||
|---|---|---|---|---|
| € 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 | -60 | -14 | -7 | |
| Foreign exchange contracts | -31 | 4 | – | |
| Derivatives in cash flow hedging relationships 1 | -91 | -10 | -7 | |
| Foreign exchange contracts | -7 | |||
| Derivatives in fair value hedging relationships | -7 | |||
| Derivatives designated as hedging instruments | -91 | -10 | -14 | |
1 The amount of gain or loss recognized in the consolidated statement
of income solely relates to the ineffective portion.
| 2010 | ||||
|---|---|---|---|---|
| € 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 | -25 | -8 | 1 | |
| Foreign exchange contracts | -7 | -9 | -1 | |
| Derivatives in cash flow hedging relationships 1 | -32 | -17 | 0 | |
| Foreign exchange contracts | -24 | |||
| Derivatives in fair value hedging relationships | -24 | |||
| Derivatives designated as hedging instruments | -32 | -17 | -24 |
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 | -54 | -187 |
|---|---|---|
| Derivatives embedded in the MEB | -100 | -90 |
| Foreign exchange contracts | 43 | -97 |
| Interest rate contracts | 3 | – |
| € in millions | 2011 | 2010 |
| Gain or loss recognized in the consolidated statement of income |
Gains from derivatives in fair value hedging relationships and 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.
The Fresenius Group expects to recognize a net amount of €9 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 €55 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. The position other financial result in the consolidated statement of income includes gains and losses from the valuation of the derivatives embedded in the MEB, which was made until August 14, 2011 (see note 10, Other financial result).
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 euro notes (Schuldscheindarlehen) 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 deriv atives mainly matched the critical terms of the underlying exposures.
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, which mainly relate to transactions such as purchases and sales as well as engineering and services provided by the Fresenius Group which are denominated in foreign currencies. A major part of transaction risks arise from products manufactured in Fresenius Group's worldwide production sites which are usually denominated in the local currency of the respective manufacturer and are delivered worldwide to various Fresenius Group entities. These intragroup sales are mainly denominated in euros, U.S. dollars and yens. Therefore, Group companies are exposed to changes of the foreign exchange rates between the invoicing currencies and the local currencies in which they conduct their businesses. 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, 2011, the notional amounts of foreign exchange contracts totaled €3,955 million. These foreign exchange contracts have been entered into to hedge risks from operational business and in connection with loans in foreign currency. The predominant part of the foreign exchange forward contracts to hedge risks from operational business was recognized as cash flow hedge, while foreign exchange contracts in connection with loans in foreign currencies are partly recognized as fair value hedges. The fair values of cash flow hedges and fair value hedges were -€35 million and €1 million, respectively.
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, 2011, the Fresenius Group was party to foreign exchange contracts with a maximum maturity of 47 months.
In order to estimate and quantify the transaction risks from foreign currencies, the Fresenius Group considers the cash flows reasonably expected for the following three months as the relevant assessment basis for a sensitivity analysis. For this analysis, the Fresenius Group assumes that all foreign exchange rates in which the Group had unhedged positions as of reporting date would be negatively impacted by 10%. By multiplying the calculated unhedged risk positions with this factor, the maximum possible negative impact of the foreign exchange transaction risks on the Group's results of operations would be €9 million.
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 debt issuances. The U.S. dollar interest rate swaps with a notional volume of US\$3,850 million (€2,976 million) and a fair value of -US\$174 million (-€134 million) expire at various dates in the years 2012 to 2014. The euro interest rate swaps with a notional volume of €966 million and a fair value of -€32 million expire in the years 2012 to 2016. The U.S. dollar interest rate swaps bear an average interest rate of 3.45% and the euro interest rate swaps bear an average interest rate of 3.19%.
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 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% on the consolidated net income attributable to 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 €54 million for foreign exchange derivatives at December 31, 2011. No credit exposure existed 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 ageing analysis of trade accounts receivable. For details on the ageing 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 5 years | more than 5 years |
|---|---|---|---|
| Long-term debt and capital lease obligations (including accounts receivable securitization program) 1 |
1,979 | 3,833 | 78 |
| Short-term debt | 182 | 0 | 0 |
| Senior Notes | 256 | 3,020 | 2,218 |
| Trade accounts payable | 807 | 0 | 0 |
| Noncontrolling interest subject to put provisions | 83 | 113 | 121 |
| Derivative financial instruments | 200 | 69 | 0 |
| Total | 3,507 | 7,035 | 2,417 |
1 Future interest payments for financial liabilities with variable interest rates were calculated using the latest interest rates fixed prior to December 31, 2011.
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.
Equity and debt have developed as follows:
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 |
|---|---|---|
| Shareholders' equity | 10,577 | 8,844 |
| Total assets | 26,321 | 23,577 |
| Equity ratio | 40.2% | 37.5% |
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 1998, 2003 and 2008 stock option plans (see note 34, Stock options).
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 |
|---|---|---|
| Debt | 9,799 | 8,784 |
| Total assets | 26,321 | 23,577 |
| Debt ratio | 37.2% | 37.3% |
According to the definitions in the underlying agreements, the Mandatory Exchangeable Bonds and the Contingent Value Rights were not categorized as debt until their maturity.
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 net debt/EBITDA ratio is a key financial figure for the Fresenius Group. As of December 31, 2011, the net debt/ EBITDA ratio was 2.8 and was therefore within Fresenius Group's target corridor of 2.5 to 3.0. At the end of 2012, the Fresenius Group expects the net debt/EBITDA ratio to be ≤3.0, due to the recently announced acquisitions.
Fresenius Group's financing strategy is reflected in its credit ratings. Fresenius 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:
| Standard& Poor's | Moody's | Fitch | |
|---|---|---|---|
| Company rating | BB | Ba1 | BB + |
| Outlook | positive | stable | stable |
On August 2, 2011, Fitch has upgraded the company rating to BB + from BB, the outlook is stable.
The consolidated statements of cash flows of the Fresenius Group for the fiscal years 2011 and 2010 are shown on pages 126 to 127.
Cash funds reported in the consolidated statement of cash flows and in the consolidated statement of financial position comprise 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 | 2011 | 2010 |
|---|---|---|
| Interest paid | 474 | 526 |
| Income taxes paid | 516 | 504 |
Cash paid for acquisitions (without investments in licenses) consisted of the following:
| € in millions | 2011 | 2010 |
|---|---|---|
| Assets acquired | 1,412 | 562 |
| Liabilities assumed | -168 | -85 |
| Noncontrolling interest | -34 | -29 |
| Notes assumed in connection with acquisitions | -56 | -32 |
| Cash paid | 1,154 | 416 |
| Cash acquired | -46 | -14 |
| Cash paid for acquisitions, net | 1,108 | 402 |
The consolidated segment reporting tables shown on pages 130 to 133 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, 2011.
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 mainly comprises the holding functions of Fresenius SE & Co. KGaA as well as Fresenius Netcare GmbH, which provides services in the field of information technology and Fresenius Biotech, which does not fulfill the characteristics of a reportable segment. In addition, the segment Corporate /Other includes intersegment consolidation adjustments as well as special items in connection with the fair value measurement of the Mandatory Exchangeable Bonds and the Contingent Value Rights.
Details on the business segments are shown on page 135 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 2006 Senior Credit Agreement or the 2008 Senior Credit Agreement).
Depreciation and amortization is presented for property, plant and equipment, intangible assets with definite useful lives of the respective business segment.
Net interest comprises interest expenses and interest income.
Net income attributable to 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 comprises bank loans, senior notes, capital lease obligations, liabilities relating to outstanding acquisitions as well as intercompany liabilities. Until their maturity in 2011, trust preferred securities were also included in debt. The Mandatory Exchangeable Bonds and the Contingent Value Rights were not categorized as debt (see note 31, Supplementary information on capital management).
Capital expenditure mainly includes additions to property, plant and equipment.
Acquisitions refer to the purchase of shares in legallyindependent 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 | 2011 | 2010 |
|---|---|---|
| Total EBIT of reporting segments | 2,608 | 2,464 |
| General corporate expenses Corporate/Other (EBIT) |
-45 | -46 |
| Group EBIT | 2,563 | 2,418 |
| Interest expenses | -587 | -596 |
| Interest income | 56 | 30 |
| Other financial result | -100 | -66 |
| Income before income taxes | 1,932 | 1,786 |
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 |
|---|---|---|
| Short-term debt | 171 | 606 |
| Short-term loans from related parties | 3 | 2 |
| Current portion of long-term debt and capital lease obligations |
1,852 | 420 |
| Trust preferred securities of Fresenius Medical Care Capital Trusts (current) |
0 | 468 |
| Long-term debt and capital lease obligations, less current portion |
3,777 | 4,919 |
| Senior Notes | 3,996 | 2,369 |
| Debt | 9,799 | 8,784 |
| less cash and cash equivalents | 635 | 769 |
| Net debt | 9,164 | 8,015 |
The following table shows the non-current assets by geographical region:
| € in millions | Dec. 31, 2011 | Dec. 31, 2010 |
|---|---|---|
| Germany | 3,715 | 3,574 |
| Europe (excluding Germany) | 2,588 | 1,984 |
| North America | 11,294 | 10,182 |
| Asia-Pacific | 1,008 | 882 |
| Latin America | 390 | 354 |
| Africa | 47 | 47 |
| Total non-current assets 1 | 19,042 | 17,023 |
1 The aggregate amount of net non-current assets is
the sum of non-current assets less deferred tax assets
and derivative financial instruments.
In 2011, the Fresenius Group generated sales of €3,573 million (2010: €3,355 million) in Germany. Sales in the United States were €6,588 million at actual rates and €6,916 million in constant currency in 2011 (2010: €6,849 million).
In 2011, the Fresenius Group recognized compensation cost in an amount of €35 million for convertible bonds and stock options granted since 2007. 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 elected to adopt FAS 123(R), Share-Based Payment, prospectively.
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 Stock Option Plan 2008 made during the years 2011 and 2010 are as follows:
| 2011 | 2010 | |||
|---|---|---|---|---|
| € in millions | December Grant |
July Grant |
December Grant |
July Grant |
| Expected dividend yield |
1.60% | 1.58% | 1.58% | 1.92% |
| Risk-free interest rate | 1.70% | 2.68% | 2.38% | 2.12% |
| Expected volatility | 29.18% | 29.15% | 28.44% | 28.94% |
| Life of options | 7 years | 7 years | 7 years | 7 years |
| Exercise price per option in € |
71.37 | 71.28 | 63.94 | 53.49 |
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.
On December 31, 2011, Fresenius SE & Co. KGaA had three stock option plans in place: the Fresenius AG stock option based plan of 1998 (1998 Plan), the Fresenius AG Stock Option Plan 2003 (2003 Plan) which is based on convertible bonds and the stock option based Fresenius SE Stock Option Plan 2008 (2008 Plan). Currently, stock options can only be granted under the 2008 Plan.
The following descriptions reflect the stock option plans at December 31, 2010 whereas the changes resulting from the conversion of the subscribed capital into bearer ordinary shares in combination with the change of legal form are shown in a separate chapter thereafter.
During 2008, Fresenius SE adopted the 2008 Plan to grant subscription rights to members of the Management Board and managerial employees of the Company and affiliated companies.
Under the 2008 Plan, up to 6.2 million options can be issued, which carry entitlement to obtain 3.1 million ordinary shares and 3.1 million preference shares. Up to 1.2 million options are designated for members of the Management Board of Fresenius SE, up to 3.2 million options are designated for members of the management of directly or indirectly affiliated companies (except for Fresenius Medical Care) and up to 1.8 million options are designated for managerial staff members of Fresenius SE and its affiliated companies (except for Fresenius Medical Care). With respect to the members of Fresenius SE's Management Board, the Supervisory Board has sole authority to grant stock options and administer the 2008 Plan. The Management Board of Fresenius SE has such authority with respect to all other participants in the 2008 Plan. The options can be granted in five tranches with effect as of the first bank working day in July and/or the first bank working day in December. The exercise price of options shall be the average closing price of Fresenius SE's ordinary shares and preference shares, respectively, on the Frankfurt Stock Exchange during the 30 trading days immediately prior to each grant date. For participants in the United States, the exercise price may be the average closing price of both share classes during the 30 calendar days immediately prior to the grant date, if these are higher. 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 three-year vesting period is achieved. For each such year, the success target is achieved if the consolidated net income attributable to Fresenius SE, adjusted for extraordinary effects, has increased by at least 8% compared to the respective adjusted net income attributable to Fresenius SE 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 Fresenius SE 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 Fresenius SE is determined and will be verified bindingly by Fresenius SE's auditor during the audit of the consolidated financial statements. The performance targets for 2009, 2010 and 2011 were met. Upon exercise of vested options, Fresenius SE has the right to grant treasury shares or a cash payment in lieu of increasing capital by the issuance of new shares. If all conditions are fulfilled, stock options may be exercised throughout the year with the exception of certain pre-determined black-out periods.
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 options have been granted since 2008. Under the 2003 Plan, eligible employees have the right to acquire ordinary and preference shares of Fresenius SE. 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. Upon issuance of the option, the employees have the right to choose options with or without a stock price target. The conversion price of options subject to a stock price target corresponds to the stock exchange quoted price of the ordinary or preference shares upon the first time the stock exchange quoted price exceeds the initial value (after the share split in 2007: 1 �3 of the initial value) by at least 25%. If converted after the share split, the conversion price which entitles to three ordinary shares or preference shares, respectively, is equal to the triple of one third of the initial value. The initial value is the joint average stock exchange price of bearer ordinary shares and non-voting bearer preference shares during the last 30 trading days prior to the date of grant. The conversion price of options without a stock price target is the initial value. In the case of options not subject to a stock price target, the number of convertible bonds awarded to the eligible employee would be 15% less than if the employee elected options subject to the stock price target. Each convertible bond granted after the share split entitles to subscribe one ordinary or preference share, subject to payment of the conversion price. Bonds granted and converted prior to the share split were entitled to subscribe one ordinary or preference share, conversion after the share split entitles to three ordinary or preference shares.
During 1998, Fresenius AG adopted the 1998 Plan for members of the Management Board and executive employees. This stock incentive plan was replaced by the 2003 Plan and no options have been granted since 2003. Under the 1998 Plan, eligible employees have the right to acquire ordinary and preference shares of Fresenius SE. Options granted under this plan have a 10-year term. At December 31, 2011, all options were exercisable. Prior to the share split, one ordinary or one preference share could be acquired for each option. After the share split in 2007, each option entitles to acquire three ordinary or preference shares. The maximum number of ordinary or preference shares to be issued to the members of the Management Board or executive employees has been adjusted accordingly.
Upon registration of Fresenius SE's change of legal form to Fresenius SE & Co. KGaA with the commercial register on January 28, 2011, adaptations of the three stock option plans were required. Due to the conversion of all preference shares into ordinary shares in combination with the change of legal form, all previously issued subscription rights under the respective stock option plan are to be satisfied, in case of exercise,
with ordinary shares. Furthermore, the beneficiaries under the 2008 Plan are exclusively granted subscription rights for ordinary shares. With regard to the eligible beneficiaries, the members of Fresenius Management SE's Management Board replace the previous members of the Fresenius SE Management Board for future stock option grants. With regard to the 2008 Plan, the Supervisory Board of Fresenius Management SE determines the grants for the Management Board members of that company. All other plan participants will be determined by the Management Board of Fresenius Management SE. In addition, due to the discontinuation of the preference shares, the success target of the 2003 Plan was adjusted to the effect, that it is deemed to be achieved if and when the sum of the following price increases amounts to at least 25%:
Whereas the number of stock options remained unchanged, in future, the exercise price of the stock options corresponds to the stock exchange price of the ordinary share without considering the stock exchange price of the preference share.
In 2011, Fresenius SE & Co. KGaA awarded 1,143,440 stock options under the 2008 Plan, including 198,660 options to members of the Management Board of Fresenius Management SE, at a weighted-average exercise price of €71.28, a weighted-average fair value of €19.09 each and a total fair value of €22 million, which will be amortized over the threeyear vesting period.
During the fiscal year 2011, Fresenius SE & Co. KGaA received cash of €31 million from the exercise of 787,246 stock options. The average stock price at the exercise date
was €71.16 for ordinary shares and €61.64 for preference shares. The intrinsic value of options exercised in 2011 was €25 million.
Under the 1998 Plan, 29,942 stock options were outstanding and exercisable at December 31, 2011. No options were held by the members of the Fresenius Management SE Management Board. 1,412,135 convertible bonds were outstanding and exercisable under the 2003 Plan at December 31, 2011. The members of the Fresenius Management SE Management Board held 291,530 convertible bonds. At December 31, 2011, out of 4,052,050 outstanding stock options issued under the 2008 Plan, 806,006 were exercisable and 758,520 were held by the members of the Fresenius Management SE Management Board.
Stock option transactions are summarized as follows:
| Balance 2011 | 5,494,127 | 50.25 | 2,248,083 |
|---|---|---|---|
| Converted from preference shares |
2,643,773 | 43.87 | |
| Forfeited | 151,389 | 48.38 | |
| Exercised | 786,358 | 38.85 | |
| Granted | 1,143,440 | 71.28 | |
| Balance 2010 | 2,644,661 | 43.87 | 906,895 |
| Forfeited | 39,577 | 47.82 | |
| Exercised | 567,357 | 32.90 | |
| Granted | 554,869 | 53.61 | |
| Balance 2009 | 2,696,726 | 39.49 | 1,205,185 |
| Ordinary shares Dec. 31 |
Number of options |
Weighted average exercise price in € |
Number of options exercisable |
| Preference shares Dec. 31 |
Number of options |
Weighted average exercise price in € |
Number of options exercisable |
|---|---|---|---|
| Balance 2009 | 2,696,726 | 40.73 | 1,205,185 |
| Granted | 554,869 | 53.54 | |
| Exercised | 567,357 | 34.63 | |
| Forfeited | 39,577 | 48.95 | |
| Balance 2010 | 2,644,661 | 44.74 | 906,895 |
| Exercised | 888 | 48.71 | |
| Converted into ordinary shares |
2,643,773 | 44.74 | |
| Balance 2011 | 0 |
The following table provides a summary of fully vested options outstanding and exercisable for ordinary shares at December 31, 2011:
| 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 | 87,033 | 1.50 | 13.65 | 87,033 | 1.50 | 13.65 |
| 15.01 – 20.00 | 42,338 | 0.79 | 19.32 | 42,338 | 0.79 | 19.32 |
| 20.01 – 25.00 | 100,235 | 2.50 | 21.96 | 100,235 | 2.50 | 21.96 |
| 25.01 – 30.00 | 262,811 | 3.46 | 28.58 | 262,811 | 3.46 | 28.58 |
| 30.01 – 35.00 | 1,008,816 | 4.50 | 33.81 | 0 | ||
| 35.01 – 40.00 | 396,164 | 4.40 | 39.23 | 392,664 | 4.39 | 39.26 |
| 40.01 – 45.00 | 67,310 | 3.92 | 41.62 | 67,310 | 3.92 | 41.62 |
| 45.01 – 50.00 | 14,496 | 4.50 | 48.81 | 14,496 | 4.50 | 48.81 |
| 50.01 – 55.00 | 1,819,984 | 4.72 | 54.00 | 738,696 | 3.58 | 54.69 |
| 55.01 – 60.00 | 525,646 | 5.50 | 56.43 | 525,646 | 5.50 | 56.43 |
| 60.01 – 65.00 | 9,000 | 5.92 | 63.53 | 0 | ||
| 70.01 – 75.00 | 1,160,294 | 6.49 | 71.27 | 16,854 | 5.50 | 70.79 |
| 5,494,127 | 4.91 | 50.25 | 2,248,083 | 4.01 | 45.33 |
At December 31, 2011, the aggregate intrinsic value of exercisable options for ordinary shares was €59 million.
At December 31, 2011, total unrecognized compensation cost related to non-vested options granted under the 2003 Plan and the 2008 Plan was €24 million. This cost is expected to be recognized over a weighted-average period of 2.1 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 may be granted awards, which will consist of a combination of stock options and phantom stock. Awards under the 2011 Incentive Program will be granted over a five-year period and can be granted on the last Monday in July and/or the first Monday in December each year. Prior to the respective grant, the participants will be 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. The number of phantom shares that plan participants may choose to receive instead of stock options within the aforementioned predefined range is 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 will be 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.
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 grant awards and exercise other decision making powers under the 2011 Incentive Program (including decisions regarding certain adjustments and forfeitures). FMC Management AG has such authority with respect to all other participants in the 2011 Incentive Program.
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 measured over a four-year period beginning with the first day of the year of the grant. For each such year, the performance target is achieved if FMC-AG & Co. KGaA's adjusted basic income per ordinary share (Adjusted EPS), as calculated in accordance with the 2011 Incentive Program, increases by at least 8% year over year during the vesting period or, if this is not the case, the compounded annual growth rate of the Adjusted EPS reflects an increase of at least 8% per year of the Adjusted EPS during the four-year vesting period. At the end of the vesting period, one-fourth of the awards granted is forfeited for each year in which the performance target is not achieved. All awards are considered vested if the compounded annual growth rate of the Adjusted EPS reflects an increase of at least 8% per year during the four-year vesting period. Vesting of the portion or portions of a grant for a year or years in which the performance target is met does not occur until completion of the four-year vesting period.
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. Of these 12 million shares, up to 2 million stock options are designated for members of the Management Board of FMC Management AG, up to 2.5 million stock options are designated for members of management boards of direct or indirect subsidiaries of FMC-AG & Co. KGaA and up to 7.5 million stock options are designated for managerial staff members of FMC-AG & Co. KGaA and such subsidiaries. FMC-AG & Co. KGaA may issue new shares to fulfill the stock option obligations or FMC-AG & Co. KGaA may issue shares that it has acquired or which FMC-AG & Co. KGaA itself has in its own possession.
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. 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.
On May 9, 2006, as amended on May 15, 2007, the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 (Amended 2006 Plan) was established by resolution of FMC-AG & Co. KGaA's Annual General Meeting with a conditional capital increase up to €15 million subject to the issue of up to 15 million non-par value bearer ordinary shares with a nominal value of €1.00 each, which can be exercised to obtain one ordinary share. Of the 15 million ordinary shares, up to 3 million options were designated for members of the Management Board of FMC Management AG, up to 3 million options were designated for members of management boards of direct or indirect subsidiaries of FMC-AG & Co. KGaA and up to 9 million options
were designated for managerial staff members of FMC-AG & Co. KGaA and such subsidiaries. With respect to participants who are members of the Management Board of FMC Management AG, its Supervisory Board has sole authority to grant stock options and exercise other decision making powers under the Amended 2006 Plan (including decisions regarding certain adjustments and forfeitures). The Management Board of FMC Management AG has such authority with respect to all other participants in the Amended 2006 Plan.
The exercise price of options granted under the Amended 2006 Plan was the average closing 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. Options granted under the Amended 2006 Plan have a seven-year term but can be exercised only after a three-year vesting period. The vesting of options granted is subject to achievement of performance targets measured over a three-year period from the grant date. For each such year, the performance target is achieved if FMC-AG & Co. KGaA's adjusted basic income per ordinary share (Adjusted EPS), as calculated in accordance with the Amended 2006 Plan, increases by at least 8% year over year during the vesting period, beginning with Adjusted EPS for the year of grant as compared to Adjusted EPS for the year preceding such grant. Calculation of Adjusted EPS under the Amended 2006 Plan excluded, among other items, the costs of the transformation of Fresenius Medical Care's legal form and the conversion of preference shares into ordinary shares. For each grant, one-third of the options granted are forfeited for each year in which EPS does not meet or exceed the 8% target. The performance targets for 2011, 2010 and 2009 were met. Vesting of the portion or portions of a grant for a year or years in which the performance target is met does not occur until completion of the entire three-year vesting period.
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.
After December 2010, no further grants were issued under the Amended 2006 Plan.
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 effected 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. Except for the members of the Management Board, eligible employees may purchase the bonds by issuing a non-recourse note with terms corresponding to the terms of and secured by the bond. FMC-AG & Co. KGaA has the right to offset its obligation on a bond against the employee's obligation on the related note; therefore, the convertible bond obligations and employee note receivables represent stock options issued by FMC-AG & Co. KGaA and are not reflected in the consolidated financial statements. The options expire 10 years from issuance and can be exercised beginning two, three or four years after issuance. Compensation costs related to awards granted under this plan are amortized on a straightline basis over the vesting period for each separately vesting portion of the awards. Bonds issued to Management Board members who did not issue a note to FMC-AG & Co. KGaA are recognized as a liability on the Group's statement of financial position. All awards granted under this plan are fully vested.
Upon issuance of the option, the employees had the right to choose options with or without a stock price target. The exercise price of options subject to a stock price target corresponds to the stock exchange quoted price of the preference shares upon the first time the stock exchange quoted price exceeds the initial value by at least 25%. The initial value is the average price of the preference shares during the last 30 trading days prior to the date of grant. In the case of options
not subject to a stock price target, the number of convertible bonds awarded to the eligible employee would be 15% less than if the employee elected options subject to the stock price target. The exercise price of the options without a stock price target is the initial value. Each option entitles the holder thereof, upon payment of the respective conversion price, to acquire one preference share. Effective May 2006, no further grants can be issued under the 2001 Plan and no options were granted under the 2001 Plan after 2005.
During 2011, FMC-AG & Co. KGaA awarded 1,947,231 options under the 2011 Incentive Program, including 307,515 stock options granted to members of the Management Board of FMC Management AG, at a weighted-average exercise price of €52.45, a weighted-average fair value of €13.41 each and a total fair value of €26 million, which will be amortized over the four-year vesting period. FMC-AG & Co. KGaA awarded 215,638 phantom shares, including 29,313 phantom shares
granted to members of the Management Board of FMC Management AG, at a measurement date average fair value of €49.24 each and a total fair value of €11 million as of December 31, 2011, which will be amortized over the four-year vesting period.
During 2011, FMC-AG & Co. KGaA received cash of €58 million from the exercise of stock options. The intrinsic value of options exercised in 2011 was €36 million. FMC-AG & Co. KGaA recorded a related tax benefit of €9 million for 2011.
At December 31, 2011, the Management Board members of FMC Management AG held 2,354,875 stock options for ordinary shares and employees of FMC-AG & Co. KGaA held 9,669,942 stock options for ordinary shares and 49,090 stock options for preference shares under the various stock-based compensation plans of Fresenius Medical Care.
At December 31, 2011, the Management Board members of FMC Management AG held 29,313 phantom shares and employees of FMC-AG & Co. KGaA held 186,149 phantom shares under the 2011 Incentive Plan.
The table below provides reconciliations for options outstanding at December 31, 2011 as compared to December 31, 2010:
| Number of options in thousand |
Weighted-average exercise price in € |
|
|---|---|---|
| Balance at December 31, 2010 (options for ordinary shares) | 12,152 | 33.78 |
| Granted | 1,947 | 52.45 |
| Exercised | 1,886 | 30.87 |
| Forfeited | 188 | 34.93 |
| Balance at December 31, 2011 (options for ordinary shares) | 12,025 | 37.24 |
| Balance at December 31, 2010 (options for preference shares) | 59 | 19.19 |
| Exercised | 9 | 22.52 |
| Forfeited | 1 | 18.21 |
| Balance at December 31, 2011 (options for preference shares) | 49 | 18.64 |
The following table provides a summary of fully vested options outstanding and exercisable for both preference and ordinary shares at December 31, 2011:
| Number of options in thousand |
Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
Aggregate intrinsic value € in millions |
|
|---|---|---|---|---|
| Options for ordinary shares | 4,767 | 2.79 | 30.57 | 105 |
| Options for preference shares | 49 | 2.80 | 18.64 | 1 |
At December 31, 2011, total unrecognized compensation cost related to non-vested options granted under all plans was €37 million. This cost is expected to be recognized over a weighted-average period of 1.9 years.
Prof. Dr. med. D. Michael Albrecht, a member of the Supervisory Board of Fresenius SE & Co. KGaA, is medical director and spokesman of the management board of the Universitätsklinikum Carl Gustav Carus Dresden and a member of the supervisory boards of the Universitätsklinika Aachen, Rostock and Magdeburg. The Fresenius Group maintains business relations with these clinics in the ordinary course and under customary conditions.
Prof. Dr. h. c. Roland Berger, a member of the Supervisory Board of Fresenius SE & Co. KGaA, is a partner and was the chairman of the supervisory board of Roland Berger Strategy Consultants Holding GmbH until August 1, 2010. In 2011, the Fresenius Group paid one or more affiliated companies of the Roland Berger group €1 million for consulting services rendered (2010: €0.2 million).
Klaus-Peter Müller, a member of the Supervisory Board of Fresenius SE & Co. KGaA, is the chairman of the supervisory board of Commerzbank AG. The Fresenius Group maintains business relations with Commerzbank under customary conditions. In 2011, the Fresenius Group paid €0.6 million to Commerzbank AG for services provided in connection with the Senior Notes issuances of Fresenius Medical Care.
Dr. Gerhard Rupprecht, a member of the Supervisory Board of Fresenius SE & Co. KGaA, was a member of the management board of Allianz SE until December 31, 2010 and the chairman of the management board of Allianz Deutschland AG until June 30, 2010. Dr.Franceso De Meo, a member of the Management Board of the general partner of Fresenius SE & Co. KGaA, was a member of the supervisory board of Allianz Private Krankenversicherungs-AG until July 6, 2011. In 2011, the Fresenius Group paid €4 million for insurance premiums to Allianz (2010: €3 million).
Dr. Dieter Schenk, deputy chairman of the Supervisory Board of Fresenius SE until January 28, 2011, member of the Supervisory Board of Fresenius Management SE since March 11, 2010 and deputy chairman of the Supervisory Board of Fresenius Management SE since May 12, 2010, is a partner in the law firm Noerr LLP, which provides legal services to the Fresenius Group. In 2011, the Fresenius Group paid this law firm €1 million for services rendered (2010: €1 million).
On August 2, 2011, Fresenius Medical Care announced its plans to acquire 100% of Liberty Dialysis Holdings, Inc., the owner of all of the business of Liberty Dialysis and owner of a 51% stake in Renal Advantage Partners, LLC. Fresenius
Medical Care owns a 49% stake in Renal Advantage Partners, LLC. Fresenius Medical Care's total investment, including the assumption of incremental debt, will be approximately US\$1.7 billion. The transaction remains subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and is expected to close in the first quarter of 2012. Upon completion, the acquired operations would add approximately 260 out-patient dialysis clinics to Fresenius Medical Care's network in the U.S. and approximately US\$1 billion in annual revenue before the anticipated divestiture of some centers as a condition of government approval of the transaction. The transaction will be financed from cash flow from operations and debt.
On October 12, 2011, Fresenius Helios announced the conclusion of a contract to acquire 94.7% of the share capital in the Damp Holding AG, Germany. The Damp Group (Damp) operates seven acute care hospitals and four post acute care hospitals with a total of 4,112 beds (thereof 2,649 in acute care). In addition, Damp operates eight outpatient medical care centers, two nursing care facilities with a total of 606 beds and a wellness resort. In 2010, Damp achieved sales of €487 million and an operating profit (EBIT) of €21 million. The acquisition is still subject to the approval of local and antitrust authorities. Due to the geographic proximity of the HELIOS hospital Schwerin, the Damp hospital Wismar (505 beds, sales of approximately €60 million) was divested to secure regulatory clearance of the transaction. Fresenius Helios anticipates to close the transaction at the end of the first or at the beginning of the second quarter of 2012, respectively.
On January 26, 2012, Fresenius Medical Care US Finance II, Inc. issued unsecured Senior Notes of US\$800 million with a coupon of 5.625% at par and unsecured Senior Notes of US\$700 million with a coupon of 5.875% at par. In addition, FMC Finance VIII S.A. issued unsecured Senior Notes of €250 million with a coupon of 5.25% at par. The Senior Notes issued by Fresenius Medical Care US Finance II, Inc. in the amount of US\$800 million are due on July 31, 2019 and the US\$700 million Senior Notes are due on January 31, 2022. The Senior Notes issued by FMC Finance VIII S.A. are due on July 31, 2019. Net proceeds are used for acquisitions, to refinance indebtedness and for general corporate purposes.
There have been no significant changes in the Fresenius Group's operating environment following the end of the fiscal year 2011. 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 26ff.), which is part of the Management Report.
The Management Board's compensation is, as a whole, performance-oriented and was composed of three elements in 2011: non-performance-related compensation (basic salary), performance-related compensation (variable bonus), components with long-term incentive effects (stock options, postponed bonus payments and a share-based compensation with cash settlement (performance shares)).
The cash compensation paid to the Management Board for the performance of its responsibilities was €10,135 thousand (2010: €9,398 thousand). Thereof, €4,062 thousand (2010: €4,105 thousand) is not performance-related and €5,539 thousand (2010: €4,685 thousand) is performance-related. The amount of the performance-related 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 198,660 stock options under the Fresenius SE Stock Option Plan 2008 and 74,700 stock options under the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2011 and a share-based payment with cash settlement in an amount of €1,284 thousand.
The payment of a part of the performance-related compensation in an amount of €230 thousand was postponed by two years as a long-term incentive component. The payment depends on the achievement of targets relating to the net income attributable to Fresenius SE & Co. KGaA of the years 2012 and 2013.
The total compensation paid to the Supervisory Boards of Fresenius SE & Co. KGaA and Fresenius Management SE and their committees was €2,227 thousand in 2011 (2010: €1,782 thousand). Of this amount, €210 thousand was fixed compensation (2010: €183 thousand), €89 thousand was compensation for committees services (2010: €100 thousand), and €1,928 thousand was variable compensation (2010: €1,499 thousand).
In 2011, to former members of the Management Board, €776 thousand (2010: €776 thousand) was paid. The pension obligation for these persons amounted to €10,513 thousand in 2011 (2010: €11,039 thousand).
In the fiscal years 2011 and 2010, no loans or advance payments of future compensation components were made to members of the Management Board of Fresenius Management SE.
In 2011 and 2010, fees for the auditor KPMG AG Wirtschaftsprüfungsgesellschaft were expensed as follows:
| 2011 | 2010 | |||
|---|---|---|---|---|
| € in millions | Total | Germany | Total | Germany |
| Audit fees | 14 | 5 | 15 | 5 |
| Audit-related fees | 1 | – | 1 | – |
| Tax consulting fees | 1 | 0 | 1 | – |
| Other fees | – | – | – | – |
| Total auditor's fees | 16 | 5 | 17 | 5 |
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 under Who we are/Corporate Governance/ Declaration of Conformity and of Fresenius Medical Care AG & Co. KGaA www.fmc-ag.com under Investor Relations /Corporate Governance /Declaration of Compliance, respectively.
The general partner and the Supervisory Board of Fresenius SE & Co. KGaA propose to the Annual General Meeting that the earnings for 2011 of Fresenius SE & Co. KGaA are distributed as follows:
| Payment of a dividend of €0.95 per bearer ordinary share on the 163,237,336 ordinary |
|
|---|---|
| shares entitled to dividend | 155,075,469.20 |
| Additions to other reserves | 299,700,000.00 |
| Balance to be carried forward | 40,788.92 |
| Retained earnings | 454,816,258.12 |
"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 22, 2012
Fresenius SE & Co. KGaA, represented by: Fresenius Management SE, its general partner
The Management Board
Dr. U. M. Schneider R.Baule Dr. F. De Meo
Dr.J. Götz Dr.B. Lipps 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 (until January 28, 2011: Fresenius SE), 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, 2011. 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 22, 2012
KPMG AG Wirtschaftsprüfungsgesellschaft
Hölzl Hommel German Public Auditor German Public Auditor
The change of Fresenius SE's legal form into Fresenius SE & Co. KGaA was entered into the commercial register on January 28, 2011. On that day, the term of office of Fresenius SE's Supervisory Board ended and the term of Fresenius SE & Co. KGaA's Supervisory Board began. In 2011, both Supervisory Boards fulfilled their obligations in their respective terms in accordance with the provisions of the law, the articles of association, and the rules of procedure. They regularly advised the Fresenius SE Management Board and the management board of the general partner, Fresenius Management SE, respectively, regarding the management of the Company, and have supervised the management in accordance with their Supervisory Board responsibilities.
This report refers to the activities of the Supervisory Board of Fresenius SE and of the Supervisory Board of Fresenius SE & Co. KGaA. Information regarding the composition and the tasks of the Supervisory Board of the general partner, Fresenius Management SE, can be found in the annual report on page 16 – Corporate Governance Declaration and Report.
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, economic and financial position, profitability 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 Boards of both Fresenius SE and the general partner, respectively, the Supervisory Board discussed all business transactions that were important for the Company in its committees and at its meetings. The Management Boards of Fresenius SE and of the general partner, respectively, 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 held no meetings throughout the remainder of its term, which ended on January 28, 2011. The Supervisory Board of Fresenius SE & Co. KGaA convened for four regular meetings in 2011 – in March, May, October, and December. In addition, the Supervisory Board had three informational events in July, September, and November in which the members of the Fresenius SE & Co. KGaA Supervisory Board were informed in particular about the Fresenius Management SE Supervisory Board's approval of business management measures of Fresenius Management SE. 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 each of its 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 to the Supervisory Board 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 a few cases, it passed resolutions by written proceeding in lieu of a meeting. In addition, the Chairman of Fresenius SE's and the Chairman of the general partner's Management Board, respectively, regularly informed the Chairman of the Supervisory Board in separate meetings about the latest developments of the business and forthcoming decisions and discussed them with him.
Every member of the Supervisory Board of Fresenius SE & Co. KGaA attended at least half of the regular Supervisory Board Meetings during their term of office in 2011.
In 2011, the Supervisory Board mostly focused its monitoring and consulting activities on business operations and investments in the business segments. The Supervisory Board furthermore thoroughly reviewed and discussed all other significant business activities with the Management Board. One main consulting focus was on acquisitions, for example, the acquisition of Liberty Dialysis Holdings, Inc. in the dialysis segment
and the acquisitions of Damp Holding AG and Katholisches Klinikum Duisburg within our German hospital business. In addition, the Supervisory Board was kept informed about the implementation of the change of legal form and the share conversion. It discussed in detail the 2012 budget and the midterm planning of the Fresenius Group. 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 March 9, 2011, and on December 20, 2011.
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.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 boards of the University Hospitals in Aachen, Rostock, and Magdeburg. 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 Board of our Company and the Chairman of the supervisory board of Commerzbank AG, with which the Fresenius Group maintains business relationships under customary conditions. In 2011, the Fresenius Group paid about €600,000 to Commerzbank AG for services provided in connection with the Senior Notes issuances of Fresenius Medical Care. Dr. De Meo, member of the Management Board of the general partner of Fresenius SE & Co. KGaA, was a member of the supervisory board of Allianz Private Krankenversicherungs-AG until July 6, 2011. The Fresenius Group pays insurance premiums to Allianz under customary conditions and in customary amounts. They amounted to €4.34 million in 2011 (2010: €3 million).
There are no direct consultancy or other service relationships between the Company and any given member of the Supervisory Board. However, one of the Group's companies had consultancy contracts with the management consultancy firm Roland Berger Strategy Consultants. Prof. Dr. h. c. Berger − also a member
of the Supervisory Board of Fresenius Management SE − was a member of the Fresenius SE Supervisory Board until January 28, 2011, and has been a member of the Fresenius SE & Co. KGaA Supervisory Board since then. Prof. Dr. h. c.Berger is at the same time a partner in Roland Berger Strategy Consultants. The Fresenius Group paid €675,000 to that company for services rendered in 2011 (2010: €0.2 million). The Supervisory Board has closely examined this mandate and approved it. Prof. Dr. h. c.Berger abstained from the voting. The approval was made on the basis of a written submission to the Supervisory Board and prior to the payment of the invoices for the services.
Furthermore, various companies of the Fresenius Group were advised by the international law firm Noerr LLP. Dr. Schenk, Deputy Chairman of the Supervisory Board of Fresenius SE until January 28, 2011, member of the Supervisory Board of Fresenius Management SE since March 11, 2010, and Deputy Chairman of the same since May 12, 2010, is also a partner of this law firm. The Fresenius Group paid a total of €1.43 million to this law firm in 2011 (2010: €1 million). This corresponds to 2% of the total amount paid by Fresenius Group for services and legal advice in 2011 (2010: 1.5%). Thereof, about €45,000 were attributable to services for Group companies not related to the business segment Fresenius Medical Care. Those 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 SE & Co. KGaA, of which Dr. Schenk is not a member, has closely examined the mandate of the law firm Noerr from January 1, 2011 until the change of legal form on January 28, 2011 and approved it unanimously. The approval was made on the basis of a written submission which listed all individual mandates and their corresponding individual invoices. In 2011, the invoices were paid only after the Supervisory Board gave its approval. The Supervisory Board of Fresenius SE & Co. KGaA did not pass a resolution with respect to the commissioning of the law firm Noerr after the change of legal form became effective because Dr. Schenk is not a member of this Supervisory Board. Instead, the Supervisory Board of Fresenius Management SE, of which Dr. Schenk is a member, oversaw the commissioning of the law firm Noerr and approved it.
The payments mentioned in the above section "Corporate Governance" are net amounts in Euro. In addition, VAT and insurance tax were paid.
For more information on corporate governance at Fresenius, please refer to the Corporate Governance Declaration and Report on pages 14 to 33 of the Annual Report. Fresenius has disclosed the information on related parties in the quarterly reports and on page 205 of the Annual Report.
The Audit Committee held three meetings and four conference calls in 2011. The main focus of its controlling activities was on the preliminary audit of the annual financial statements of Fresenius SE & Co. KGaA and the Group for 2010 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 on which auditing firm to propose to the AGM for election as auditor for the annual financial statements of Fresenius SE & Co. KGaA and the Group for 2011. The Supervisory Board's proposal to the Annual General Meeting in 2011 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 2011 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 Company's Nomination Committee did not meet in 2011.
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 2011 because no transactions were effected that required the Joint Committee's approval.
The chairman of the Audit Committee reported regularly to next Supervisory Board meetings on the work of the committee.
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 18 to 20 and to page 218 of the Annual Report.
The term of office of the Supervisory Board of Fresenius SE ended with the change of legal form of Fresenius SE to Fresenius SE & Co. KGaA on January 28, 2011. The Supervisory Board of Fresenius SE & Co. KGaA met in its constitutive meeting on March 11. Effective May 5, 2011, Wilhelm Sachs resigned from the Supervisory Board. By resolution of the European Works Council effective as of May 5, 2011, Dieter Reuß has been elected to succeed him in the Supervisory Board. We would like to thank Mr. Sachs for his many years of dedicated service. Since then, no other changes were made to the composition of the Supervisory Board of Fresenius SE & Co. KGaA.
The change of legal form also brought the terms of office of the Management Board members of Fresenius SE to an end. The members of the Management Board of Fresenius SE became members of the Management Board of the general partner Fresenius Management SE. Since then, no other changes were made to 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 Management Report of the Company for 2011 were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin. The firm was elected as auditor at the Annual General Meeting of Fresenius SE & Co. KGaA on May 13, 2011, 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 Company's consolidated financial statements prepared voluntarily according to U.S. GAAP.
The financial statements, the consolidated financial statements, the Management Reports, and the auditors' reports were submitted to each member of the Company's Supervisory Board within the required time. At their meetings on March 8 and 9, 2012, 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 internal control system and risk management 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 noted and approved the auditors' 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 9, 2012, 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 2011 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 in a still difficult economic environment.
Bad Homburg v. d. H., March 9, 2012
The Supervisory Board
Dr. Gerd Krick Chairman
Königstein
Former Chairman of Fresenius AG
Offices Supervisory Board
Fresenius Management SE (Chairman) Fresenius Medical Care AG & Co. KGaA (Chairman) Fresenius Medical Care Management AG Fresenius SE (until January 28, 2011; Chairman) VAMED AG, Austria (Chairman)
Dresden Medical Director and Spokesman of the Management Board of the Universitäts-
klinikum Carl Gustav Carus Dresden
Offices Supervisory Board
GÖK Consulting AG Universitätsklinikum Aachen Universitätsklinikum Magdeburg Universitätsklinikum Rostock
Munich
Management Consultant
Supervisory Board Fresenius Management SE Fresenius SE (until January 28, 2011) Prime Office AG (Chairman) Roland Berger Strategy Consultants Holding GmbH (Honorary Chairman) Schuler AG Wilhelm von Finck AG (Deputy Chairman) WMP EuroCom AG (Chairman)
Administrative Board Wittelsbacher Ausgleichsfonds
3W Power S.A., Luxembourg (Chairman) Fiat S.p.A., Italy Italy 1 Investment S.A., Luxembourg (Deputy Chairman) Loyalty Partner Holdings S.A., Luxembourg (until March 1, 2011) RCS Mediagroup S.p.A., Italy Telecom Italia S.p.A., Italy (until April 12, 2011)
(as of January 31, 2011) Rome, Italy Trade Union Officer FEMCA Cisl – Energy, Fashion and Chemicals
Offices Supervisory Board Fresenius SE (until January 28, 2011)
(as of January 31, 2011) Hof am Laithagebirge, Austria Full-time Works Council Member
Member of the Manual Workers' Works Council VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H.
Chairman of the Group Works Council VAMED AG
Deputy Chairman of the European Works Council of Fresenius SE & Co. KGaA
Betriebsführungsges. m.b.H., Austria
Bad Homburg v. d. H.
Chairman of the Supervisory Board of
Offices Supervisory Board Commerzbank AG (Chairman) Fresenius Management SE Fresenius SE (until January 28, 2011) Linde AG
Administrative Board Landwirtschaftliche Rentenbank
Board of Directors Parker Hannifin Corporation, USA
(as of May 5, 2011) Weilrod Full-time Works Council Member
Chairman of the Joint Works Council Fresenius SE & Co. KGaA / Bad Homburg site
Member of General Works Council Fresenius SE & Co. KGaA
Hanover Vice Chairman (Mitglied der Geschäftsleitung) Hawkpoint
Partners Ltd., Great Britain
Offices Supervisory Board
Deutsche Beteiligungs AG Deutsche Börse AG (Deputy Chairman) GP Günter Papenburg AG (Chairman)
Board of Directors F & C Asset Management plc, Great Britain (until May 3, 2011) Friends Life Group plc, Great Britain (former Friends Provident Holdings (UK) plc) Resolution Ltd., Guernsey
Gerlingen Former Member of the Management
Board of Allianz SE
Deputy Chairman
Offices Supervisory Board Euler Hermes Deutschland AG (since April 27, 2011) Fresenius Management SE Fresenius SE (until January 28, 2011) Heidelberger Druckmaschinen AG
(January 31 until May 5, 2011) Friedrichsdorf Full-time Works Council Member
Corporate Offices Supervisory Board Fresenius SE (until January 28, 2011)
(as of January 31, 2011) Limburg-Staffel 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 Fresenius SE (until January 28, 2011) Wittgensteiner Kliniken GmbH
(as of January 31, 2011) Berlin Full-time Works Council member
Chairman of the Group Works Council HELIOS Kliniken GmbH
Chairman of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board Fresenius SE (until January 28, 2011) HELIOS Kliniken GmbH
(as of January 31, 2011) Zeuthen Secretary of the Trade Union Ver.di, Head of Company and Industry Politics in Health Care and Social Affairs Deputy Chairman
Offices Supervisory Board
Fresenius SE (until January 28, 2011; Deputy Chairman) HELIOS Kliniken GmbH (Deputy Chairman)
Dr. Gerd Krick (Chairman) 1 Wilhelm Sachs 1 Dr. Karl Schneider 1, 2
The KGaA has no Personnel Committee.
Dr. Gerd Krick (Chairman) 1, 3 Prof. Dr. h. c. Roland Berger 3 Dr. Gerhard Rupprecht 3 Dr. Dieter Schenk 1, 2 Dr. Karl Schneider 1, 2
Prof.Dr.h.c.Roland Berger (Chairman)1, 3 Konrad Kölbl 1, 3 Dr. Gerd Krick 1, 3 Gerhard Roggemann3 Rainer Stein1, 3 Dr. Karl Schneider 1, 2
Dr. Dieter Schenk (Chairman) Dr. Gerd Krick Dr. Gerhard Rupprecht Dr. Karl Schneider
2
3
Committee member of the Supervisory Board of the legal predecessor Fresenius SE until January 28, 2011
Committee member of the Supervisory Board of Fresenius SE & Co. KGaA since March 11, 2011
4 The committee consists equally of two members each of the Supervisory Board of Fresenius SE & Co. KGaA and of Fresenius Management SE.
Member of the Supervisory Board of the legal predecessor Fresenius SE until January 28, 2011
(General partner of Fresenius SE & Co. KGaA)
Chairman
Supervisory Board Fresenius HemoCare Netherlands B.V., Netherlands Fresenius Kabi AG (Chairman) Fresenius Kabi España S.A., Spain Fresenius Medical Care Groupe France S.A.S., France (Chairman) Fresenius Medical Care Management AG (Chairman) HELIOS Kliniken GmbH (Chairman)
APP Pharmaceuticals, Inc., USA FHC (Holdings), Ltd., Great Britain Fresenius Kabi Pharmaceuticals Holding, Inc., USA (until February 24, 2011)
Business Segment Fresenius Kabi
Supervisory Board Fresenius HemoCare Netherlands B.V., Netherlands (Chairman) Fresenius Kabi Austria GmbH, Austria (Chairman) Fresenius Kabi España S.A., Spain Labesfal – Laboratórios Almiro, S.A., Portugal
Fresenius Kabi Groupe France S.A., France (Chairman) Fresenius Kabi Italia S.p.A., Italy
APP Pharmaceuticals, Inc., USA Dabur Pharma (Thailand) Co. Ltd., Thailand (until January 14, 2011) FHC (Holdings) Ltd., Great Britain Fresenius Kabi Asia Pacific Ltd., Hong Kong Fresenius Kabi Oncology Plc., Great Britain Fresenius Kabi Pharmaceuticals Holding, Inc., USA Fresenius Kabi (Singapore) Pte Ltd., Singapore
Business Segment Fresenius Helios
Supervisory Board HELIOS Klinikum Bad Saarow GmbH (Chairman) HELIOS Klinikum Emil von Behring GmbH (Chairman) HELIOS Klinikum Erfurt GmbH (Chairman) HELIOS Kliniken Leipziger Land GmbH (Chairman) HELIOS Kliniken Mansfeld-Südharz GmbH (Chairman) HELIOS Kliniken Schwerin GmbH (Chairman) HELIOS Spital Überlingen GmbH (Chairman)
Supervisory Board Allianz Private Krankenversicherungs-AG (until July 6, 2011)
Bad Soden am Taunus Chief Legal and Compliance Officer,
and Labor Relations Director
Supervisory Board HELIOS Kliniken GmbH Wittgensteiner Kliniken GmbH (Chairman)
Boston, Massachusetts (USA)
Business Segment Fresenius Medical Care
Hofheim am Taunus
Chief Financial Officer
Fresenius HemoCare Netherlands B.V., Netherlands Fresenius Kabi AG (Deputy Chairman) Fresenius Kabi España S.A., Spain HELIOS Kliniken GmbH Labesfal – Laboratórios Almiro, S.A., Portugal VAMED AG, Austria (Deputy Chairman) Wittgensteiner Kliniken GmbH
Administrative Board Fresenius Kabi Groupe France S.A., France
Board of Directors FHC (Holdings) Ltd., Great Britain
Linz, Austria
Business Segment Fresenius Vamed
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)
Königstein Chairman
Prof. Dr. h. c.Roland Berger Munich
Bad Homburg v. d. H.
Dr. Gerhard Rupprecht
Gerlingen
Munich
Lawyer and Tax Consultant Deputy Chairman
Supervisory Board Fresenius Medical Care AG & Co. KGaA (Deputy Chairman) Fresenius Medical Care Management AG (Deputy Chairman) Fresenius SE (until January 28, 2011; Deputy Chairman) Gabor Shoes AG (Chairman) Greiffenberger AG (Deputy Chairman) TOPTICA Photonics AG (Chairman)
Mannheim
Former Spokesman of Südzucker AG
Offices Supervisory Board Fresenius SE (until January 28, 2011)
Administrative Board 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 Statistics Office due to legal requirements. In Germany, this includes information about coded diagnoses and procedures.
Suppression of pain.
Antibodies are proteins that bind specifically to a particular substance, its antigen. Antibodies are known collectively as immunoglobulins. They are produced by B-lymphocytes and plasma cells in response to infection or immunization, and bind to and neutralize pathogens, thus preparing them for uptake and destruction of phagocytes.
Morbid accumulation of fluid in the peritoneal cavity, a medical condition also known as hydroperitoneum or abdominal dropsy. The term malignant ascites is used when the condition is caused by a tumor disease.
Polyclonal antibody that specifically binds to the patients T-lymphocytes and helps suppress the patient rejection of the transplanted organ. The antibody is used for organ transplants as well as for stem cell transplantation in some countries.
An expansion of the therapy options to more effectively influence the bone and mineral change in patients with chronic kidney disease. Calcimetics are administered when the thyroid gland is hyperactive, as is often the case with dialysis patients.
Blood and Plasma substitute.
The CompoFlow concept consists of three components: the blood component separator CompoMat G5, the CompoFlow blood bag system and a portable device for opening the CompoFlow blood bags. This concept prevents errors that can occur if the caps are opened manually.
Mixing of different solutions or components for IV or parenteral nutrition therapy.
Fluids which contain electrolytes like sodium or chloride. Crystalloids are used for fluid therapy in order to replace lost fluids by patients. By using crystalloids one can achieve a short-term compensation of blood loss. Moreover, crystalloids can be used as carrier solutions for intravenously administered drugs.
Substances that inhibit cell growth and/or cell division.
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 filtred out substances and excess water from the blood.
Special filter used in hemodialysis for removing toxic substances, waste products of metabolic processes and 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 USA.
Rejection of a transplanted organ, caused by T-cells in the donor graft that attack the host organism.
(primary, secondary, tertiary)
Primary health care refers to markets, in which basic infrastructure, health posts and rural hospitals are available.
Secondary health care refers to markets, in which general hospitals, specialist's clinics and rehabilitation are available.
Tertiary health care refers to markets, in which maximum care, teaching hospitals, university clinics, and centres of excellence are available.
Special type of ESRD (end-stage renal disease) treatment combining the advantages of hemodialysis and hemofiltration, i. e. high elimination rates are achieved for substances with small and large molecular weight via diffusive and convective mechanisms respectively.
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.
Norm on which a management system for occupational health and safety will be implemented.
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 metabolise 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.
Antibodies that recognize one specific structure, but are produced by different cell clones.
The prevalence of a disease in a statistical population defines the total number of cases of a disease in the population at a given time, or the total number of cases in the population based on a fix number – usually 10,000 or one million – of individuals in the population.
Public-private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. PPP accompanies in most cases with a part-privatization of governmental services.
The three-chamber bag contains all the macronutrients like – amino acids, glucose, lipids and as well 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.
Antibodies that bind to three different cell types in parallel (e. g. tumor cells, T-cells and accessory cells) resulting in a tumor-specific immune reaction.
Interdisciplinary facility for outpatient care, managed by a physician. Potential shareholders of the medical care center include all service providers (such as physicians, pharmacists, health care facilities) which are authorized to treat patients with statutory health insurance.
Certificate that represents indirect ownership of shares in a non-U.S. company and enables trading in the U.S.
Financial key figure that shows the net balance of incoming and outgoing payments during a reporting period.
Short-term unsecured promissory notes 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 U.S.
A classification of the creditworthiness of a company accepted on the international capital market. It is published 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.
Calculated by: EBIT x 100 : operating assets (average)
Operating assets = total assets – deferred tax assets – trade accounts payable – payments received on account – approved subsidies.
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.
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 | 136ff. | |
|---|---|---|
| Acquisitions | 36, 43f., 74f., 109ff., 148f. | |
| ADR | Inside cover, 10, 203 | |
| Analyst recommendation | 12 | |
| Annual General Meeting | 15f. | |
| Antibody therapies | 87f. | |
| Articles of association | 54f. | |
| Asset and liability structure | 75f. | |
| Assets and liabilities | 75f. | |
| Authorized Capital | 54, 180 | |
| Balance sheet structure | 7, 75f. |
|---|---|
| Business development | 57ff. |
| Cancer | 40, 87 |
|---|---|
| Capital | 54f. |
| Cash and cash equivalents | 124, 155 |
| Cash flow | 7, 72ff., 126f., 195, 223 |
| Cash flow statement | 72, 126f. |
| Change of legal form | 10, 135f. |
| Clinical nutrition | 41, 62, 86f., 114f. |
| Compensation of | |
| Management Board | |
| and Supervisory Board | 26ff. |
| Compliance | 20f., 104f., 223 |
| Composition of the Group | 137f. |
| Conditional capital | 54, 180f. |
| Corporate governance | 14ff., 207, 212f., 223 |
| Corporate governance | |
| declaration | 14ff. |
| Corporate performance | |
| criteria | 55ff. |
| Currency and | |
| interest risk management | 76, 187ff. |
| Currency translation | 53, 144 |
| Current assets | 75f.,124 |
| Declaration of conformity | 21f. |
|---|---|
| Dialysis care | 34ff., 61 |
| Dialysis products | 34ff., 61 |
| Distribution of earnings | 207 |
| Diversity | 23, 77 |
| Dividend | 11, 73, 120, 181 |
| Earnings | 6, 67 |
|---|---|
| Earnings per share | 12, 154 |
| Employees | 77ff., 120 |
| Employee participation | 81 |
| Enteral nutrition | 41, 86f., 221 |
| Environment | 95ff. |
| Equity ratio | 74, 194 |
| F | |
| Financial position | 70ff. |
| Financing | 70ff., 117f., 194 |
| Fresenius Biotech | 87ff. |
| G | |
| Group structure | 51ff., 134 |
| H | |
| Health care industry | 59ff. |
| Hemodialysis | 34ff., 61, 221 |
| I | |
| Infusion therapy | 39, 62, 85, 114f. |
| Management Board | 16ff., 219 |
|---|---|
| Market capitalization | 10, 13 |
Inventories 155f. Investments 74f., 118 Investor Relations 12f. IV drugs 40f., 62, 85f., 114f.
| Net income | 6, 67f., 116f., 154 |
|---|---|
| Net interest | 69, 151 |
| Noncontrolling interest | 125, 178f. |
| Non-current assets | 75, 124 |
| Operating cash flow | 7, 73f., 126 |
|---|---|
| Opportunities management | 101 |
| Outlook | 110ff. |
| Parenteral nutrition | 41, 86f., 222 |
|---|---|
| Pensions | 125, 173ff. |
| Peritoneal dialysis | 34, 61, 222 |
| Personnel expenses | 77, 150 |
| Procurement | 88ff., 118f. |
| Quality management | 91ff. |
|---|---|
| Rating | 109, 223 | |
|---|---|---|
| Renal pharmaceuticals | 37 | |
| Research and development | 81ff., 119f. | |
| Results of operations | 65ff. | |
| Risk management/risk areas | 101ff. | |
| ROE | Inside cover, 223 | |
| ROIC | Inside cover, 55, 223 | |
| ROOA | Inside cover, 55, 130, 223 |
| Sales | 6, 65f., 117, 150 |
|---|---|
| Segment reporting | 120ff., 195ff. |
| Share | Inside cover, 8ff. |
| Shareholder structure | 11f. |
| Share price development | 8f. |
| Stock option plan | 54, 81, 197ff. |
| Strategy | 55ff. |
| Subsequent events | 109f. |
| Supervisory Board | 16ff., 210ff., 217f., 220 |
| Supervisory Board | |
| Committees | 19f., 214f., 218 |
| Sustainability | 95 |
| Training | 80f. |
|---|---|
| Transfusion technology | 39f. |
| Transplantation | 86f. |
| V | |
| Value added | 69f. |
| W | |
| Working capital | 71, 223 |
Index
Employees: 83,476
Further information on the companies and production plants of Fresenius Medical Care AG & Co. KGaA can be found in the company's annual report.
Fresenius HemoCare GmbH Bad Homburg v. d. H., Germany Fresenius Kabi Deutschland GmbH Bad Homburg v. d. H., Germany Fresenius Vial S.A.S. Brézins, France Fresenius Kabi France S.A.S. Sèvres, France Fresenius Kabi Italia S.p.A. Verona, Italy Fresenius Kabi Anti-Infectives S.r.l. Cernusco sul Naviglio, Italy Fresenius Kabi Ltd. Runcorn/Cheshire, Great Britain Fresenius Kabi Nederland B.V. 's-Hertogenbosch, Netherlands Fresenius HemoCare Netherlands B.V. Emmen, Netherlands Fresenius Kabi N.V. Schelle, Belgium Fresenius Kabi (Schweiz) AG Oberdorf NW, Switzerland Fresenius Kabi Austria GmbH Graz, Austria
Fresenius Kabi España S.A. Barcelona, Spain Labesfal - Laboratórios Almiro, S.A. Campo de Besteiros, Portugal Fresenius Kabi Polska Sp. z o.o. Warsaw, Poland Fresenius Kabi AB Stockholm, Sweden Fresenius Kabi Norge A / S Halden, Norway Fresenius Kabi Pharmaceuticals Holding, Inc. Wilmington/Delaware, USA Calea Ltd. Toronto/Ontario, Canada Fresenius Kabi Brasil Ltda. São Paulo, Brazil Fresenius HemoCare Brasil Ltda. São Paulo, Brazil Laboratorio Sanderson S.A. Santiago de Chile, Chile Fresenius Kabi Mexico S.A. de C.V. Guadalajara, Mexico
The HELIOS Group owns 65 clinics, thereof maximum care clinics in: Berlin, Germany Duisburg, Germany Erfurt, Germany Krefeld, Germany Schwerin, Germany Wuppertal, Germany
VAMED Group has companies / subsidiaries in: Vienna, Austria Berlin, Germany Lisbon, Portugal Milan, Italy Eindhoven, Netherlands Prague, Czech Republic Novi Sad, Serbia Tuzla, Bosnia-Herzegovina Bucharest, Romania Moscow, Russia Kiev, Donetsk, Ukraine Astana, Kazakhstan Ashgabat, Turkmenistan Baku, Azerbaijan Ankara, Turkey Beijing, China Kuala Lumpur, Malaysia Bangkok, Thailand Hanoi, Vietnam Jakarta, Indonesia Manila, Philippines Abuja, Nigeria Libreville, Gabon Tripoli, Libya Abu Dhabi, UAE
Fresenius Kabi Colombia S.A.S. Bogota D.C., Colombia Beijing Fresenius Kabi Pharmaceutical Co., Ltd. Beijing, China Sino-Swed Pharmaceutical Corp. Ltd. Wuxi, China Fresenius Kabi Oncology Ltd. New Delhi, India Fresenius Kabi Korea Ltd. Seoul, Korea Fresenius Kabi Malaysia Sdn. Bhd. Kuala Lumpur, Malaysia Fresenius Kabi (Thailand) Ltd. Bangkok, Thailand Fresenius Kabi Bidiphar JSC Quy Nhon, Vietnam Fresenius Kabi Australia Pty Ltd. Sydney, Australia Fresenius Kabi South Africa (Pty) Ltd. Midrand, South Africa
| Report on 1st quarter 2012 | |
|---|---|
| Conference call | |
| Live webcast | May 3, 2012 |
| Annual General Meeting, Frankfurt am Main, Germany | May 11, 2012 |
| Payment of dividend1 | May 14, 2012 |
| Capital Market Day | |
| Fresenius Kabi, Bad Homburg v. d. H. | June 12, 2012 |
| Report on 1st half 2012 | |
| Conference call | |
| Live webcast | August 1, 2012 |
| Report on 1st – 3rd quarters 2012 | |
| Conference call | |
| Live webcast | October 31, 2012 |
1 Subject to prior approval by the Annual General Meeting
| Ordinary share | ADR | ||
|---|---|---|---|
| Securities identification no. | 578 560 | CUSIP | 35804M1053 |
| Ticker symbol | FRE | Ticker symbol | FSNUY |
| ISIN | DE0005785604 | ISIN | US35804M1053 |
| Bloomberg symbol | FRE GR | Structure | Sponsored Level 1 ADR |
| Reuters symbol | FREG.de | Ratio | 8 ADR = 1 Share |
| Main trading location | Frankfurt/Xetra | Trading location | OTC-market |
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 08-26 37 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]
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), Rainer Baule, Dr. Francesco De Meo, Dr.Jürgen Götz, Dr.Ben Lipps, Stephan Sturm, Dr. Ernst Wastler
Chairman of the Supervisory Board: Dr. Gerd Krick
The German version of this Annual Report is legally binding.
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 at Investor Relations.
You will find further information and current news about our company on our website at: http://www.fresenius.com.
This Annual Report contains forward-looking statements. These statements represent assessments which we have made on the basis of the information available to us at the time. Should the assumptions on which the statements are based on not occur, or if risks should arise – as mentioned in the risk report and the SEC filings of Fresenius Medical Care AG & Co. KGaA and Fresenius Kabi Pharmaceuticals Holding, Inc. – the actual results could differ materially from the results currently expected.
Hilger&Boie Design, Wiesbaden, Germany Print: Ziegler GmbH &Co. KG, Neckarbischofsheim, Germany
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