Annual Report • Mar 28, 2013
Annual Report
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2012
Letter to the Shareholders at the beginning of the chapter
Management Board page 12
Report of the Supervisory Board page 16
Capital Market and Shares page 22
Operations and Strategy page 33
Business Environment page 40
Results of Operations, Financial Situation, Assets and Liabilities page 53
Research and Development page 64
Procurement and Production page 70
Our Product Business page 74
Our Dialysis Services Business page 79
Employees page 87
Responsibility page 94
Risk and Opportunities Report page 104
Subsequent Events page 118
Outlook page 119
Corporate Governance Report and Declaration on Corporate Governance page 126
Directorships page 155
Glossary page 158
Index of Tables and Charts page 164
Subject Index page 166
Contacts page 167
Imprint page 168
Financial Calendar and Important Fairs 2013 at the end of the Corporate Report
Corporate Report
Continuity at Fresenius M edi c a l C a r e
It is a prerequisite for our long-term success. By continuously refining our ideas and proven principles, we have become the world market leader in dialysis.
We see continuity as growth and development, steadily moving in one direction towards one goal: giving kidney patients a better quality of life.
At Fresenius Medical Care, innovation is founded on our extensive experience as well as proven expertise and technologies. The result is reliable products and services, which we offer worldwide. Millions of dialysis patients benefit from them every single day, and this continuity ensures the success and safety of their usually life-long treatment.
More than three decades of experience in dialysis, innovative research, the global leader in dialysis services and products – that is Fresenius Medical Care.
Patients with kidney disease can now look ahead with much more confidence thanks to our innovative technologies and treatment concepts. We give them a future, one that offers them the best-possible quality of life. We use the increasing demand for modern dialysis methods to our advantage and work consistently to enhance the Company's growth. Together with our employees, we focus on pursuing strategies that will enable us to uphold our technological leadership. As a vertically integrated company, we offer products and services for the entire dialysis value chain.
The highest medical standards are our benchmark. This is our commitment to our patients, our partners in the healthcare system and our investors, who trust in the reliable performance and the future of Fresenius Medical Care.
page 9 – 30
supervisory Board page 16 – 21
1.3 C a p i ta l m a r k e t and shares page 22 – 30
As of the beginning of 2013, I have been given responsibility for leading Fresenius Medical Care's global operations. Together with our Management Board and Dr.Ben J. Lipps – my predecessor and long-acting Chief Executive Officer of our Company – we managed a demanding but overall successful year in 2012. I would like to take this opportunity to personally thank Ben for his service and his tireless dedication during more than 14 years as CEO. His leadership was an integral part of the organization's success these past years, and it allows me to announce a strong set of numbers for 2012.
The fiscal year 2012 was once again a year of record financial results for our Company. Our revenue reached \$ 13.8 billion, up 10% from 2011. In the same period, our net income grew on a reported basis by 11% to \$1,187million. Our free cash flow before acquisitions and dividends increased to \$ 1,373million in 2012 compared to \$ 876million in the previous year. We achieved this positive business performance in 2012 in spite of many challenges, including the integration of several large acquisitions, a much tougher economic environment for our product business and our efforts to help patients and employees following the Superstorm Sandy disaster in North America.
Our continued financial strength enabled us to adhere to our results-oriented dividend policy once again in 2012. We will propose an increase of our annual dividend by 9% to € 0.75 per ordinary share. Subject to this resolution being approved, our shareholders can expect the 16th consecutive increase since the foundation of our Company. As you might have observed, we have strengthened our mid-term dividend policy and would now like to establish dividend to grow approximately in line with the growth in earnings per share. In addition, we have established the ability to buy back stock if and when we think it is appropriate to do so.
Reflecting on our 2012 results, I am extremely pleased with how our Company performed in people terms. This really impressed me, especially since we as a Company asked for a lot from our people as I indicated above. No matter how difficult the circumstances and how challenging the events have been, our employees delivered outstanding and compassionate care for our patients and their communities by providing best-in-class products and lifesaving services.
On behalf of the entire Management Board, I would like to thank every one of our 86,153 employees around the globe for these outstanding efforts. We are proud of their ongoing commitment to make products based on the highest quality standards and their
pure enthusiasm in treating our patients with great compassion. In my new role, I am looking forward to meeting many of our employees who work for Fresenius Medical Care all around the globe.
We are doing the right thing by giving our patients top priority. I believe that doing so is also ultimately advantageous for our shareholders. This patient-first focus keeps us aware of the ongoing imperative to continually innovate and improve, and to overcome potential challenges ahead. It also underscores our aspiration to make life worth living for our patients around the world every day.
However positive the long-term performance of our stock may have been, we had to realize that our stock could not repeat its huge outperformance of the DAX in 2011, when the index dropped by 16% and our share price increased by 22%. One of the reasons for this not being the case in 2012 was that the general investment sentiment has been positive and markets have been up by as much as 30%, for example the DAX. In such a positive investment environment, defensive stocks like ours are clearly not on the top of the list for investors compared to cyclical investments that profit disproportionally from such a friendly investment environment and have even more attractive valuation multiples. Additionally, in 2012 our share price was affected by speculation as to how and when the prospective payment reimbursement system for Medicare patients in North America would be further adjusted for additional savings. In the third quarter of 2012, we also posted a year-on-year earnings decrease compared to 2011. Despite having communicated the reasons for this and indicating our ability to continue to meet our full-year guidance, this affected the value of our shares.
In the fiscal year 2012, we continued to invest in our Company's future and to expand our product and services businesses. This enabled us to secure our market-leading position around the world.
In 2013 and beyond, we will continue to focus on three areas: (1) investing in our employees; (2) maintaining quality services resulting in satisfied patients; and (3) producing outstanding and innovative products, to the benefit of people with kidney failure and our market position. The challenging demographic and megatrends surrounding diseases such as diabetes and hypertension afford us the opportunity to provide vital and impactful solutions, while at the same time doing business in a market niche that will grow consistently in coming years.
In my mind, there is no need to react to short-term influences or take on excessive risk. We are in this business, and will maintain our focus for the long run.
As I am a builder, rather than a renovator, our annual report reflects the theme of "continuity". To me, continuity manifests itself through ongoing improvements of our products and services and a steady development of our business and related areas to provide life-sustaining treatment to the growing number of patients who live with chronic kidney disease.
Although 2013 will not be an easy year for our Company, I feel positive about the Company's continued progress and new prospects. Challenges like the legislative overhang of a new reimbursement formula in North America, the newly introduced medical device tax and, finally, the outcome of the fiscal cliff discussions for our industry – so-called "sequestration", resulting in a 2% reimbursement cut across Medicare – will be an issue. Nevertheless, looking at the underlying operational performance of the Company that we can influence, it is fair to say that we are well prepared to sustain development and growth in our business and retain your ongoing trust in Fresenius Medical Care.
Yours sincerely
Rice Powell Chief Executive Officer of Fresenius Medical Care
Dr. Ben J. Lipps Chairman until December 31, 2012
Rice Powell Chairman since January 1, 2013
Dr. Ben J. Lipps (72) was Chief Executive Officer and Chairman of the Management Board of Fresenius Medical Care from 1999 until December 31, 2012. Prior to that, he was CEO of Fresenius Medical Care North America from 1996 to 1999 and of Fresenius U.S. from 1985 to 1996. He has worked in the field of dialysis for about 40 years. After earning his master's degree and doctorate in Chemical Engineering at the Massachusetts Institute of Technology, he led the research team at Dow Chemical that developed the first commercial hollow-fiber artificial kidney at the end of the 1960s.
Rice Powell (57) is Chief Executive Officer and Chairman of the Management Board effective January 1, 2013. Prior to that, he was Vice Chairman of the Management Board and Member of the Management Board responsible for the region North America from 2010 to 2012. He joined Fresenius Medical Care in 1997 and was appointed to the Company's Management Board and Co-CEO of Fresenius Medical Care North America in January 2004. He has over 30 years of experience in the healthcare industry. From 1978 to 1996, he held various positions, among others at Baxter International Inc. and Biogen Inc. in the U.S.
Michael Brosnan Finance
Roberto Fusté Asia-Pacific
Michael Brosnan (57) was appointed Chief Financial Officer on January 1, 2010. Previously, he served as Chief Financial Officer of Fresenius Medical Care North America for seven years. He joined the Company in 1998 as Vice President of Finance and Administration for Spectra Renal Management, the Company's laboratory services organization. Subsequently, he assumed several executive functions at Fresenius Medical Care North America. Prior to joining the Company, he held senior financial positions at Polaroid Corporation and was an audit partner at KPMG.
Roberto Fusté (60) is Chief Executive Officer for Asia-Pacific. After completing his studies in Economic Sciences at the University of Valencia, Spain, he founded the company Nephrocontrol S.A. in 1983. After Nephrocontrol was acquired by the Fresenius Group in 1991, he held several senior positions within the Company in the Latin America and Asia-Pacific regions, among others. He was appointed to the Management Board of Fresenius Medical Care in 1999.
Dr. Emanuele Gatti Europe, Middle-East, Africa and Latin America, and Global Chief Strategist
Dr. Emanuele Gatti (57) is Chief Executive Officer for Europe, Middle East, Africa and Latin America (EMEALA). He is also Global Chief Strategist. After completing his studies in Bioengineering, he lectured at several biomedical institutions in Milan. He continues to be involved in research and development activities, including the Danube University in Krems, Austria, at which he holds a position as honory senator. Emanuele Gatti has been with Fresenius Medical Care since 1989. Before being appointed to the Company's Management Board in 1997, he was responsible for its dialysis business in Southern Europe.
Ronald Kuerbitz North America
Ronald Kuerbitz (53) is Chief Executive Officer for North America effective January 1, 2013. He joined Fresenius Medical Care in 1997 and served recently as Executive Vice President for Market Development and Administration for Fresenius Medical Care North America. He has 20 years of experience in the health care field, having held positions in law, compliance, business development, government affairs and operations. Since 2011 Ronald Kuerbitz has served as Chairman of Kidney Care Partners, Washington D.C. He is a graduate of Albion College and received his juris doctor degree from the Yale Law School.
Dr. Rainer Runte Global Law, Compliance, Intellectual Property, Corporate Business Development, and Labor Relations Director Germany
Dr. Rainer Runte (53) is Member of the Management Board responsible for Global Law, Compliance, Intellectual Property and Corporate Business Development. He has also been appointed Labor Relations Director for Germany. He has worked for the Fresenius Group for more than 20 years. In 1997, he assumed the position of Senior Vice President for Law at Fresenius Medical Care and was appointed to the Management Board in 2002. Before joining the Company, he worked as a scientific assistant in the law department of Goethe University in Frankfurt and as an attorney in a firm specialized in economic law.
Kent Wanzek Production
Kent Wanzek (53) was appointed Chief Executive Officer for Global Manufacturing Operations on January 1, 2010. From 2004 onwards, he was in charge of North American operations for the Renal Therapies Group at Fresenius Medical Care North America. Prior to joining the Company in 2003, he held several senior executive positions at Philips Medical Systems, Perkin Elmer, and Baxter Healthcare Corporation, among others.
The Supervisory Board of Fresenius Medical Care AG & Co. KGaA again dealt thoroughly in the financial year 2012 with questions of the effects of the cost reimbursement system in the U.S., with the consequences of the worldwide economic situation for the opportunities and risks for the development of the company's business, with prospects to develop the current business, as well as the product innovations being developed.
In the expired financial year 2012, the Supervisory Board again dealt extensively with the situation and the business perspectives of the Company and various special issues as well as performing the duties imposed on it by the law, the Articles of Association, the rules of procedure and the German Corporate Governance Code. We regularly advised the Management Board of the general partner, Fresenius Medical Care Management AG, on the management of the Company and supervised the management of the Company within our responsibility as the Supervisory
Board of the partnership limited by shares. The management informed us in written and oral reports regularly, promptly and comprehensively about all significant questions of company policy and the company planning and strategy, the progress of transactions, acquisitions, the profitability and liquidity, the situation of the Company and the Group and the risk situation and risk management. All business processes significant for the Company were discussed by us on the basis of reports of the Management Board of the general partner in the committees and in full session comprehensively and the strategic direction of the Company was also discussed with the Management Board of the general partner. In accordance with the procedure of previous years, we again reviewed the economic development of acquisitions of the previous years and compared them with the planning and prognoses at the time of each acquisition. The Supervisory Board passed resolutions in the terms of its responsibilities under statutes and under the Articles of Association.
In the financial year 2012, five meetings – some of which extended to more than one day – of the Supervisory Board and several telephone conferences took place. No Supervisory Board Member attended less than half of the meetings. Between the meetings, written reports were provided. The Chairman of the Supervisory Board also maintained close contact with the Management Board of the general partner apart from at the meetings.
In the expired financial year 2012, the Supervisory Board dealt intensively and in all its meetings with the situation of the Company in the overall economic context particularly in view of worldwide developments. Since the products and services of the Company are paid for to a significant extent by health care systems which are financed either by taxes or by social security contributions, the financial liquidity of states and related organisations are of major relevance to the Company.
The amended provisions of the reimbursement system in the U.S. and their effects on the Company again received special attention. The Supervisory Board was regularly informed thereof. The developments in reimbursement systems outside the U.S. and the overall economic environment in each case were discussed.
The business development, the competitive situation and the planning of the Management Board in the various regions were again at the centre of the discussions. On the occasion of a meeting of several days' duration in Shanghai, the Supervisory Board particularly gave attention to the business development and the plans in Asia and met the executive employees of the Asia-Pacific region.
The Supervisory Board informed itself of the quality assurance systems and the qualitative results of the various production sites and, together with the Management Board, discussed the expected quantity development in the existing plants and their expansion. Moreover, the Supervisory Board discussed and conferred with the Management Board on the accusations in the context of the allegedly insufficient warning notices for two pharmaceutical products (NaturaLyte and GranuFlo).
The financing of the Company, in particular the refinancing of the existing syndicated credit agreement was again intensively discussed.
The Audit and Corporate Governance Committee Prof.Dr. Fahrholz, Mr. Johnston, Dr.Krick and Dr.Weisman were Members of the Audit and Corporate Governance Committee. The Audit and Corporate Governance Committee met under the chairmanship of Dr. Walter L. Weisman (independent financial expert in the meaning of section 100 para. 5 German Stock Corporation Act) in the year under report on a total of five occasions in meetings and held a number of telephone conferences. It dealt with the annual and consolidated financial statements, the proposal for the application of profit and the report according to form 20-F for the American Securities and Exchange Commission (SEC). The Audit and Corporate Governance Committee also discussed each quarterly report with the management. It also satisfied itself as to the independence of the auditor of the annual and consolidated financial statements, instructed him to undertake the audit, concluded the fee agreement with him and discussed and determined with him the points of emphasis of the audit. The Audit and Corporate Governance Committee further dealt with compliance of the Company and, in particular, with allegations by external third parties that, in countries outside the U.S. and Germany, infringements of the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-corruption regulations have occured. With the collaboration of the compliance department of the Company and external lawyers, the Audit and Corporate Governance Committee initiated an investigation, to which also the internal control processes are subject. It is anticipated that the progress of the investigation will
concern the Audit and Corporate Governance Committee also in the current financial year, because no conclusive results were available at the end of the year under report.
Representatives of the auditor participated in all meetings of the Audit and Corporate Governance Committee and in several telephone conferences and reported thereby on their auditing and the audit review of the quarterly financial statements and, in the absence of Members of the Management Board of the general partner, on the cooperation with them. Moreover, the representatives of the auditor reported on the material results of their audit and were also available for additional information.
The accounting process, the effectiveness of the internal control system, of the risk management and of the internal audit system, and the audit were discussed several times in the Audit and Corporate Governance Committee. KPMG AG Wirtschaftsprüfungsgesellschaft reviewed, in the course of the audit, the internal control system in relation to the accounting process and the establishment of the early risk recognition system and raised no objections thereto. The Management Board of the general partner provided periodic reports on larger individual risks. The Management Board of the general partner also informed the committee regularly i.e. at all ordinary meetings of the Audit and Corporate Government Committee and in part in telephone conferences on the compliance situation of the Company. In addition, the head of internal audit reported periodically to the committee.
In 2012, the Audit and Corporate Governance Committee again dealt with the internal control system of the Company in accordance with the Sarbanes-Oxley Act (SOX 404). On 26 February 2013, the Company received an unqualified audit certificate from KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, for the implementation of the regulations of SOX 404 in the financial year 2012.
The legal and business relations of the Company to Fresenius SE & Co. KGaA and/or its affiliates were again subject matter of the reviews of the Audit and Corporate Governance Committee. It was possible to confirm that the relationships corresponded to those "at arm's length".
The results of the discussions and resolutions in the Audit and Corporate Governance Committee have been reported to the Supervisory Board by its chairman in each case.
The Joint Committee, the approval of which is acquired in particular for certain important transactions and certain transactions between the Company and Fresenius SE&Co. KGaA and/or its affiliates, did not meet in 2012 because no transactions subject to the approval of the Joint Committee were undertaken.
For the general partner, its Supervisory Board Members Dr. Ulf M. Schneider and Dr.Gerd Krick are delegates to the Joint Committee of the Company, for Fresenius Medical Care AG& Co. KGaA, Dr. Walter L. Weisman and Mr. William P. Johnston are elected members to the Joint Committee.
The Nomination Committee of the Company, the members of which in the year under report were Dr.Gerd Krick (chairman), Dr. Walter L. Weisman and Dr. Dieter Schenk, prepares personnel proposals of the Supervisory Board and proposes to the Supervisory Board of the Company suitable candidates for its election proposals to the general meeting. In the year under report, the Nomination Committee did not hold a meeting, because there was no necessity.
The Supervisory Board again reviewed the efficiency of its activities and also dealt with the exchange of information between the Management Board of the general partner and the Supervisory Board (including information by the Management Board on recent developments concerning corporate governance and compliance on a regular basis) and between the Supervisory Board and the Audit and Corporate Governance Committee. No objections arose in the course thereof.
The Supervisory Board Members Mr. Classon, Mr. Johnston, Dr. Krick, Dr. Schenk and Dr. Weisman are also Members of the Supervisory Board of the general partner, Fresenius Medical Care Management AG. The Supervisory Board Members Dr. Krick and Dr. Schenk are also Members of the Supervisory Board (Dr. Krick as chairman and Dr. Schenk as vice-chairman) of Fresenius Management SE which acts as general partner of Fresenius SE & Co. KGaA, holding 31.2% of the shares in the Company and all shares in its general partner, Fresenius Medical Care Management AG. Dr.Krick is also a Member (chairman) of the Supervisory Board of Fresenius SE&Co.KGaA.
Consultancy or other service relationships between Supervisory Board Members and the Company apply in the year under report only to Dr. Schenk who is also partner in the law firm Noerr LLP; the companies of the internationally operating law firm Noerr provided legal advice to Fresenius Medical Care AG& Co. KGaA and affiliated companies in the year under report. In the year under report, an amount of approximately €1.4 M (plus VAT) was paid or processed for payment in December 2012 by Fresenius Medical Care to law firm Noerr (2011: approximately €1.4 M). This represents less than 3% of Fresenius Medical Care's worldwide legal and other consultancy fees. The Supervisory Board (just as the Supervisory Board of the general partner) approved the engagement and payment in each case after having been provided detailed information on this by resolution with Dr. Schenk abstaining; the payments were effected only after the approving resolutions by the Supervisory Board in each case.
The Supervisory Board found that it and its committees have, in its opinion, an appropriate number of independent members.
At the Supervisory Board meeting of 4 December 2012, the Supervisory Board discussed the conformity declaration of the Company under section 161 Stock Corporation Act on the German Corporate Governance Code and resolved on same. The version of the conformity declaration of December 2012 applies as it appears at present permanently accessible on the Internet page of the Company. The deviations from
the recommendations of the Code refer, firstly, to the (absence of an) age limit specified or set for Members of the Supervisory Board of the Company (likewise for the Members of the Supervisory Board and the Management Board of the general partner) and the lack of setting concrete objectives for the composition of the Supervisory Board of Fresenius Medical Care as well as taking these into account in election proposals and reporting on the status of their implementation. As the composition of the Supervisory Board needs to be aligned to the enterprise's interest and has to ensure 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 international activities of the enterprise, potential conflicts of interest, the number of independent Supervisory Board Members within the meaning of Code-No 5.4.2 and diversity. This includes the aim to establish an appropriate female representation on a longterm basis. 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. Furthermore, in service contracts of the Management Board Members of the general partner, no cap on severance is included for the reasons stated in the conformity declaration.
The Corporate Governance Report of the general partner and of the Supervisory Board together with the declaration on the management according to section 289a Commercial Code are on pages 126 et seqq. of the annual report. The declaration on Corporate Governance for the year under report was discussed by the Supervisory Board and approved at its meeting of 25 February 2013.
The annual financial statements of Fresenius Medical Care AG & Co. KGaA and the annual report were prepared in accordance with the regulations of the German Commercial Code, the consolidated financial statements and consolidated management report
pursuant to section 315a Commercial Code in accordance with International Financial Reporting Standards (IFRS) as applicable in the European Union. The accountancy, the annual financial statements and the annual report of Fresenius Medical Care AG & Co. KGaA and the consolidated financial statements and consolidated annual report of Fresenius Medical Care AG & Co. KGaA, in each case for the financial year 2012, were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin which was elected as auditor by resolution of the general meeting of 10 May 2012 and instructed by the Audit and Corporate Governance Committee. Each of the said documents carries an unqualified certificate. The audit reports of the auditor were laid before the Audit and Corporate Governance Committee and before the Supervisory Board. The Audit and Corporate Governance Committee reviewed the annual and consolidated financial statements and the annual reports taking account of the audit reports of the auditor, and reported to the Supervisory Board thereon.
The Supervisory Board also reviewed the annual financial statements, the annual report and the proposal for the application of profit and the consolidated financial statements and consolidated annual report in each case for the financial year 2012. The documents were provided to it in due time. The Supervisory Board has declared its agreement to the result of the audit of the annual financial statements and the consolidated financial statements by the auditor. The representatives of the auditor who signed the audit reports participated in the discussions of the Supervisory Board of the annual and consolidated financial statements, reported on the significant results of the audit and were available for additional information. Even after the final results of its own review, no objections are to be raised by the Supervisory Board to the annual financial statements and the annual report of the Company or to the consolidated financial statements and the consolidated annual report.
At its meeting on 25 February 2013, the Supervisory Board approved the annual financial statements and annual report of Fresenius Medical Care AG& Co. KGaA for 2012 presented to it by the general partner. The declaration on Corporate Governance for the reporting year 2012 was also a subject of discussion and resolution. At that meeting, the draft of the report according to form 20-F for filing with the Securities and Exchange Commission (SEC), which contains, inter alia, the consolidated financial statements and the consolidated annual report in accordance with the U.S. Generally Accepted Accounting Principles, (U.S. GAAP) with the US dollar as the currency of the report, was also discussed. At its meeting of 13 March 2013, the consolidated financial statements and the consolidated annual report were approved by the Supervisory Board. The Supervisory Board also approved the general partner's proposal for the application of profit which provides for a dividend of €0.75 for each ordinary share and €0.77 for each preference share.
The general partner, Fresenius Medical Care Management AG, prepared a report on the relationships to affiliates in accordance with section 312 Stock Corporation Act for the financial year 2012. The report contains the final declaration of the general partner that the Company, in accordance with the circumstances known to the general partner at the time at which the transaction was undertaken or the measures taken or omitted, received reasonable consideration for each transaction and was not disadvantaged by the conduct of the measures or their omission.
The Supervisory Board and the Audit and Corporate Governance Committee received the report in due time and reviewed it. The auditor participated in the relevant discussions, reported on the main results of his review and was available for additional information. The Supervisory Board and the Audit and Corporate Governance Committee share the view of the auditor who added the following certificate to that report on 25 February 2013:
"In accordance with our conscientious audit and assessment, we confirm that (1) the statements of fact in the report are correct, (2) the consideration of the Company in the course of the transactions listed in the report was not unreasonably high, (3) the measures listed in the report are not the occasion for an assessment substantially different from that of the general partner".
Even according to the final result of the review by the Supervisory Board, no objections to the declaration of the general partner on the relationships to affiliates at the foot of the report are to be raised.
At the end of 31 December 2012, the tenure of the Chairman of the Management Board of the general partner, Dr. Ben J. Lipps, ended. Dr. Lipps has formed the Company significantly since its start – with the merger of the dialysis division of Fresenius AG with National Medical Care in the year 1996 – initially as Chairman of the Board of Directors of Fresenius Medical Care North America, since 1999 as Chairman of the Management Board of Fresenius Medical Care AG, since the transformation of this company into a KGaA as Chairman of the Management Board of its general partner, Fresenius Medical Care Management AG. Even before his engagement at Fresenius Medical Care, Ben Lipps was since 1985 in charge of the dialysis activities of Fresenius in the U.S., when this business unit generated a turnover of little more than €100 M. Dr. Lipps stands for the development of dialysis since its beginnings like no other. Most of the time of his long business career, Ben Lipps has dedicated to the well-being of dialysis patients. The Company owes Dr. Lipps an extraordinary debt of gratitude.
In recognition of his extraordinary service in the development of the Company and his broad experiences in the Company, the Supervisory Boards of Fresenius Medical Care Management AG and of Fresenius Medical Care AG& Co. KGaA have appointed Dr. Lipps as their Honorary Chairman as of 1 January 2013.
Effective from 1 January 2013, the Supervisory Board of the general partner has appointed the previous Deputy Chairman of the Management Board, Mr. Rice Powell, as Chairman of the Management Board in succession of Dr. Lipps. Likewise effective from 1 January 2013, Mr. Ron Kuerbitz has been appointed
as a member of the Management Board for the region North America. Moreover, Dr. Olaf Schermeier has been appointed as of 1 March 2013 as an ordinary Management Board member of Fresenius Medical Care Management AG for research and development.
The Supervisory Board thanks the Members of the Management Board of the general partner as well as all employees for their commitment and for the diligent work performed in 2012.
Bad Homburg v.d.H., 13 March 2013 The Supervisory Board
Dr. Gerd Krick Chairman
Our strategy aims at sustainably increasing the shareholder value of Fresenius Medical Care. The long-term trend of our share price shows that investors have confidence in our growth strategy and our prospects.
Within the last ten years, the price of Fresenius Medical Care's ordinary shares has roughly quadrupled. An investor seeking long-term growth who invested €10,000 in Fresenius Medical Care ordinary shares ten years ago and reinvested the dividends would have reaped assets of €35,079 as of December 31, 2012. This reflects an average annual rate of return of 13.4%. Over the same period, the German DAX and the Dow Jones index in the U.S., for example, posted significantly smaller annual growth of 9 and 4% respectively.
The financial markets continued to be influenced by the global debt crisis in the year under review. Growing confidence in the economic development at the start of the year inspired stock markets in the first quarter of the year. With rising numbers of negative news on the budget situations of several countries in Europe and a lack of economic stimulation, prices on the stock markets began to slide significantly in the second quarter. Towards the middle of the year, robust quarterly results from many companies and improved economic data led to rising share prices – a development that continued in the fourth quarter of 2012, generating a very positive overall performance for stock prices in 2012. The DAX therefore ended 2012 at 7,612 points, an increase of 29% compared with 2011. Further information on the performance of the world's leading stock indices can be found in table 1.3.1.
| T. 1.3.1 | Stock indices/shares | |||||
|---|---|---|---|---|---|---|
| Country/ region |
31.12.2011 | 31.12.2012 | Change | High | Low | |
| DAX | GER | 5,898 | 7,612 | 29% | 7,672 | 5,969 |
| Dow Jones | U.S. | 12,218 | 13,104 | 7% | 13,610 | 12,101 |
| Nikkei | JP | 8,455 | 10,395 | 23% | 10,395 | 8,296 |
| CAC | FR | 3,160 | 3,641 | 15% | 3,674 | 2,950 |
| FTSE | GB | 5,572 | 5,898 | 6% | 5,966 | 5,260 |
| DJ EURO STOXX 50 | EUR | 2,317 | 2,636 | 14% | 2,660 | 2,069 |
| DJ EURO STOXX Healthcare | EUR | 435 | 488 | 12% | 498 | 425 |
| Fresenius Medical Care ordinary shares in € | GER | 52.50 | 52.31 | 0% | 59.51 | 50.80 |
| Fresenius Medical Care ADR in \$ | U.S. | 33.99 | 34.30 | 1% | 38.93 | 32.13 |
Source: Reuters data, own calculations
Fresenius Medical Care shares developed modestly in 2012: As of the end of the year, the price of the ordinary shares was €52.31, roughly at the same level of the previous year. This performance placed our ordinary shares among the lowest of those in the DAX. Fresenius Medical Care's ordinary shares recorded their high for the year on July, 30 (€59.51) and their low on January, 12 (€50.80).
The debate on the future terms of the new reimbursement system for dialysis patients with national health insurance (Medicare) in the U.S., that came into force in 2011, and associated impacts on our business in future years, were the significant factors that influenced the development of Fresenius Medical Care's share price in 2012 and especially from the middle of the year. Additionally, the discussions about the automatic budget cuts to reduce the government debt in the U.S. burdened the development of the share. Those measures also have an impact on government reimbursement levels in the healthcare system which affects the dialysis sector. Based on a bill the reimbursement rates for dialysis services in the U.S. have been reduced by 2% in March 2013 compared to the previous year.
In a very positive market environment with increasing stock quotations, defensive classified stocks only showed average performance.
The development of the share price was bolstered by the continuing positive revenue and profit performance of our Company: in 2012 we again achieved record results in revenue and earnings; see also the "Result of operations" section starting on page 53.
The exchange rate of the euro against the U.S. dollar continued to play an important role in the development of our share price in 2012. An appreciation of local currencies (especially the euro) against the U.S. dollar is advantageous for Fresenius Medical Care's reporting, as we report in U.S. dollars. As a result, we benefit from higher values when our balance sheet items and earnings (in local currencies) are translated into U.S. dollars. On the other hand, the appreciation of the euro also means that several conventional valuations, which are usually calculated in U.S. dollars, are less favorable when translated into euro. This can be significant as many investors base their decisions first and foremost on the euro share price.
Fresenius Medical Care ordinary share (€) Fresenius Medical Care ADR (\$) DAX Dow Jones DJ Euro Stoxx Healthcare Source: Reuters data, own calculations
In 2012, the price of Fresenius Medical Care shares traded on the New York Stock Exchange (NYSE) in the form of American depositary receipts (ADR) increased by 1%. The ADR price movement is basically tied to the ordinary and preference shares, taking into account the development of the euro/U.S. dollar exchange rate. Since implementing a 2:1 share split in our ADRs in December 2012, two ordinary or respectively preference ADRs now correspond to one ordinary or respectively preference share of Fresenius Medical Care.
The price of Fresenius Medical Care's preference shares normally develops in line with the ordinary share price. As the vast majority of preference shareholders accepted the offer to convert their preference shares into ordinary shares in February 2006, the number of preference shares outstanding and thus the volume of tradable shares is very low. As a result, any further statements regarding the price of our preference shares would be speculative.
The market capitalization of Fresenius Medical Care amounted to €15.99 BN as of December 31, 2012, and was therefore around €60 M higher than the figure for the previous year of €15.93 BN. The trading volume of ordinary shares – in line with general decrease in trading activity in DAX shares in 2012 – was down as compared with the previous year and averaged 0.68 M per trading day (previous year: 0.83 M). Due to the very small number of outstanding preference shares, their daily fluctuations are normally much beyond than those of ordinary shares.
At the end of the fiscal year, our ordinary shares still held a good position in the rankings published by Deutsche Börse, which serve as a basis for determining the composition of the DAX. The rankings are compiled monthly based on the trading volume and market capitalization relating to the free float. At the end of 2012, our weighting in the DAX was 1.64%, and therefore slightly lower than the previous year's value of 2.16%. This essentially reflects the weaker
Ordinary share Price range in each month Source: Reuters data, own calculations
(relative) performance of our ordinary shares compared to other DAX companies. In terms of market capitalization, we moved down four places last year and are now ranked 19th. With regard to trading volume, we fell two places from 26 to 28.
The Fresenius Medical Care shares are included in a number of other important international share indices, such as the Dow Jones, MSCI and the FTSE. For the fourth consecutive year, our ordinary shares were listed in the Dow Jones Euro Stoxx Sustainability Index, which takes into account ecological and social as well as economic criteria.
Fresenius Medical Care intends to continue its profit-oriented dividend policy. At the Annual General Meeting on May 16, 2013, the Management Board will propose the shareholders an increase of the dividend by 9% to €0.75 per ordinary share. Subject to the approval of the Annual General Meeting the shareholders can expect an increase of the dividend for the 16th year in a row since the foundation of Fresenius Medical Care in 1996. Based on the proposed dividend and the closing prices for our shares at the end of 2012, the dividend yield for our ordinary shares should be around 1.4% (2011: 1.3%). Since 1997, the dividend should have risen by around 10% on average each year.
The total payout for 2012 would amount to approximately €230 M. With the exchange rate at the end of the financial year, the total dividend works out approximately \$304 M. Based on our consolidated net income of \$ 1,187 M, this represents a payout ratio of about 26%.
Ordinary share Preference share
1 Proposal to be approved by the Annual General Meeting on May 16, 2013.
At the beginning of 2013, we again had our shareholder structure analyzed. We were able to identify the owners of around 97 % (previous year 94 %) of our 306.71 M outstanding shares. With regard to the shares in free float, we were able to attribute around 96% (previous year: 92%) to individual investors.
At the end of February 2012, Fresenius SE & Co. KGaA announced that it had completed its purchase of 3.5 M Fresenius Medical Care ordinary shares, as it had advised in November 2011. As of December 31, 2012, Fresenius SE & Co. KGaA therefore held a total of approximately 94.4 M ordinary shares in Fresenius Medical Care. With a holding of 30.8% of the share capital, Fresenius SE & Co. KGaA is our biggest shareholder. In our shareholder structure analysis, we identified nine more institutions with an investment of more than 1% in our share capital.
Overall, we identified 897 institutional investors (previous year: 808) through the shareholder structure analysis. The top 20 institutional investors in our Company held about 45% of identified shares in the free float (previous year: 40%). Nine of the top 20 investors are based in Great Britain, while six are in
the U.S., two each in Germany and France and one in Norway.
In terms of geographical distribution, 41.6% of identified shares based on free float were held by institutions in North America. 55.5% of shares were held in Europe, excluding Germany. The majority of these (28.5% of shares) were found in Great Britain. Around 8.3% of our Company's shares were held in Germany.
The survey carried out at the beginning of 2013 reveals a shareholder structure that, in our opinion, continues to be well balanced, both from a geographical point of view and in terms of private and institutional investors. For 2013 and 2014, we see the regional focus of our investor relations activities continuing in North America and Europe, as well as in selected countries in Asia and the Middle East.
In 2012 we received ten voting rights notifications as required by section 21(1) of the German Securities Trading Act (WpHG) as well as one voting right notification as required by section 41 (4d) of the German Securities Trading Act (WpHG). All voting rights notifications can be found on the Investor Relations section of our website www.fmc-ag.com.
| Number of identified shares as per shareholder structure analysis T. 1.3.5 figures rounded in M |
|||||
|---|---|---|---|---|---|
| Number of shares | in % | in % of free float | |||
| Number of shares outstanding as of December 31, 2012 | 306.71 | 100.0 | – | ||
| of which ordinary shares | 302.74 | 98.7 | – | ||
| of which preference shares | 3.97 | 1.3 | – | ||
| Identified shares | 297.94 | 97.1 | – | ||
| Unidentified shares | 8.77 | 2.9 | 4.1 | ||
| Shares in free float | 212.33 | 69.2 | – | ||
| Identified shares based on free float | 203.56 | – | 95.9 |
Our investor relations work in 2012 again focused on delivering comprehensive, transparent and timely information to the capital markets. This included disclosing information on the strategy and management principles of Fresenius Medical Care, its operational and financial business developments, as well as the Company's outlook to a wide audience encompassing not only shareholders, other capital market participants and analysts, but also employees, journalists and the general public. Our aim in doing this is to communicate our Company's business performance in an appropriate and accurate manner allowing existing and potential investors to make informed investment decisions and providing other target groups with a balanced overview of the Company and its activities, its strategy and prospects. We want to make a significant contribution to increasing the value of Fresenius Medical Care in the long-term by means of effective financial communication.
Fresenius Medical Care provides all stakeholders with equal and timely access to information which may affect the share price. All communication channels aim to avoid selectively distributing any information which might have an impact on the share price. Depending on the information and recipient, Fresenius Medical Care selects the communication channel that is most suitable at that point in time for effective communication. In doing so, we fulfill the requirements of the valid laws and guidelines in both the U.S. and Germany. These include the regulations of the Deutsche Börse and the New York Stock Exchange, as well as the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), the German Corporate Governance Code and the Sarbanes-Oxley Act. More on this and other corporate governance issues can be found starting on page 126.
Generally, Fresenius Medical Care does not respond to rumors relating to the Company unless it can be expected to have a significant impact on the Company's share price or related trading activities.
| T. 1.3.6 | Geographical distribution of identified shares | |||
|---|---|---|---|---|
| 2013 | 2012 | |||
| Number of shares |
in % | Number of shares |
in % | |
| North America | 74,485,623 | 41.6 | 65,125,282 | 38.3 |
| Germany | 14,792,631 | 8.3 | 14,075,232 | 8.3 |
| Great Britain | 51,123,272 | 28.5 | 51,767,913 | 30.5 |
| France | 14,394,428 | 8.0 | 13,204,422 | 7.8 |
| Norway | 5,735,595 | 3.2 | 5,275,742 | 3.1 |
| Rest of Europe | 13,311,669 | 7.4 | 13,975,306 | 8.2 |
| Rest of the world | 5,276,647 | 3.0 | 6,536,044 | 3.8 |
| Shares attributable to regions | 179,119,865 | 100.0 | 169,959,941 | 100.0 |
| Private investors | 24,440,222 | – | 24,330,449 | – |
| Identified shares based on free float | 203,560,087 | – | 194,290,390 | – |
In 2012, we again continued to intensify our contacts with financial analysts as well as with institutional and private investors worldwide. Financial analysts continue to express great interest in our Company. This is reflected by the fact that we are actively tracked and covered by 36 equity analysts, so-called sell-side analysts. We continue to expect the current banking and debt crisis to lead to further restructuring measures in the banks' equity departments, which could have an impact on the amount and quality of coverage. As of the end of 2012, 15 analysts rated our shares as a "Buy", 17 analysts voted for "Hold" and four analysts recommended investors to "Sell" their shares.
In the year under review, we presented Fresenius Medical Care in around 900 one-on-ones with analysts and investors and answered questions about our business performance and the Company's future. In addition, we showcased the Company and its prospects at 13 roadshows and 34 investment conferences around the globe. In the second half of the current fiscal year 2013, we intend to provide our investors and analysts with comprehensive information on our Company, including our strategy and our mid-term goals as part of a Capital Market Day. In recent years, we have welcomed large numbers of analysts and investors at regular intervals at such events. Private investors also play an extremely
| T. 1.3.7 | Basic share data | |
|---|---|---|
| Ordinary share | Preference share | |
| Share type | No par value bearer share | No par value bearer share |
| Stock exchanges | ||
| Germany: Frankfurt Stock Exchange / Prime Standard | FME | FME3 |
| U.S.: New York Stock Exchange (NYSE) | FMS | FMS /P |
| Security identification codes | ||
| Securities No. (WKN) | 578580 | 578583 |
| ISIN | DE0005785802 | DE0005785836 |
| CUSIP No. (NYSE) | 358029106 | 358029205 |
| Reuters | ||
| XETRA | FMEG.DE | FMEG_p.DE |
| Frankfurt Stock Exchange | FMEG.F | FMEG_p.F |
| ADR NYSE | FMS.N | FMS_p.N |
| Bloomberg | ||
| XETRA | FME GY | FME3 GY |
| Frankfurt Stock Exchange | FME GR | FME3 GR |
| ADR NYSE | FMS US | FMS /P US |
important role. For this reason, we took part, among others, in events organized by the German Association for the Protection of Shareholders (Deutsche Schutzvereinigung für Wertpapierbesitz, DSW) for private investors.
The business year 2012 was a repeated success for the Investor Relations department of Fresenius Medical Care: Our Company was again honored for its outstanding work – despite the moderate performance of the shares during the fiscal year. The Thomson Reuters news agency awarded Fresenius Medical Care its prize for best IR work in the "Med-Tech and Healthcare" category for the seventh time in a row. A survey carried out by the U.S. magazine "Institutional Investor" ranked our Company highest in the "healthcare" category in Europe for the fifth year in succession.
On our website www.fmc-ag.com, we also provide the following information:
In addition, it is possible to contact us directly via e-mail on our website, for example to receive automatic updates on Company developments in the future.
| T. 1.3.8 | Key figures for Fresenius Medical Care's ordinary shares | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2009 | 2008 | ||
| Number of shares1 | in M shares | 302.74 | 300.16 | 298.28 | 295.75 | 293.93 |
| Share prices (XETRA trading) |
||||||
| Year-high | in € | 59.51 | 55.13 | 45.79 | 37.71 | 39.10 |
| Year-low | in € | 50.80 | 41.11 | 36.10 | 26.07 | 29.73 |
| Year-end price | in € | 52.31 | 52.50 | 43.23 | 36.94 | 33.31 |
| Average daily trading volume | in shares | 682,226 | 825,970 | 824,535 | 1,040,200 | 1,498,696 |
| Share prices (ADR NYS ) |
||||||
| Year-high | in \$ | 38.93 | 39.96 | 32.01 | 27.48 | 29.51 |
| Year-low | in \$ | 32.13 | 27.88 | 23.71 | 17.83 | 19,92 |
| Year-end price | in \$ | 34.30 | 33.99 | 28.85 | 26.51 | 23.59 |
| Market capitalization | ||||||
| Year-end | in € M | 15,986 | 15,930 | 13,143 | 11,045 | 9,919 |
| Year-end | in \$ M | 21,092 | 20,621 | 17,270 | 15,911 | 13,787 |
| Exchange rate | \$ to € | 1.3194 | 1.2945 | 1.3141 | 1.4406 | 1.3900 |
| Index weight | ||||||
| DAX | in % | 1.64 | 2.16 | 1.36 | 1.31 | 1.41 |
| Dividend | ||||||
| per share | in € | 0.752 | 0.69 | 0.65 | 0.61 | 0.58 |
| Dividend yield3 | in % | 1.4 | 1.3 | 1.5 | 1.7 | 1.7 |
| Total payout | in € M | 2302 | 210 | 197 | 183 | 173 |
| Earnings per share (EPS ) |
||||||
| Number of shares4 | in M shares | 301.14 | 299.01 | 296.81 | 294.42 | 293.23 |
| Earnings per share (EPS) | in \$ | 3.89 | 3.54 | 3.25 | 2.99 | 2.75 |
1 As of December 31, 2012.
2 Subject to the approval of the Annual General Meeting on May 16, 2013.
3 Based on end of the year 2012.
4 Weighted average number of outstanding shares.
page 33 – 152
2.4
r e s e a r C h and development page 64 – 69
2.7 o u r d i a ly s i s serviCes Business page 79 – 86
2.8 employees page 87 – 93
2.10 r i s k a n d opportunities report page 104 – 117
2.13
C o r p o r at e g o v e r n a n C e r e p o r t a n d d e C l a r at i o n o n C o r p o r at e governanCe page 126 – 152
2.3 r e s u lt s o F o p e r at i o n s , F i n a n C i a l s i t u at i o n , a s s e t s a n d l i a B i l i t i e s page 53 – 63
2.6 o u r p r o d u C t Business page 74 – 78
2.9 responsiBility page 94 – 103
2.12 outlook page 119 – 125
and produCtion page 70 – 73
2.5
p r o C u r e m e n t
2.2
B u s i n e s s environment page 40 – 52
2.11
suBsequent events page 118
Chapter 2.1
Fresenius Medical Care is the world's leading provider of dialysis products and services. Dialysis is a vital blood cleansing procedure that substitutes the function of the kidney in case of kidney failure.
As a vertically integrated company, Fresenius Medical Care offers products and services along the entire dialysis value chain. In the year under review, we further expanded our business with dialysis products and in particular our services business. We now care for approximately 258,000 dialysis patients in around 3,200 proprietary dialysis clinics in approximately 40 countries worldwide. We are continuously developing this network of clinics – the largest and most international in the world – to accommodate the ever growing number of dialysis patients. At the same time, we operate more than 40 production sites on all continents, making us the leading provider of dialysis products including dialysis machines, dialyzers and disposable accessories. The Company's largest plants in terms of production output are in the U.S. (Ogden, Utah, and Walnut Creek, California), Germany (Schweinfurt and St. Wendel), and Japan (Buzen). We also maintain further manufacturing facilities worldwide which cover local demand for dialysis products as a rule. Therefore they are much smaller than the sites mentioned above. Further information on our production activities can be found in the "Procurement and production" chapter starting on page 70; a list of our major holdings can be found in the "Financial report" starting on page 120.
Fresenius Medical Care is organized regionally and divided into the segments North America, EMEA (Europe, Middle East, Africa), Latin America and Asia-Pacific. For reporting purposes, the EMEA, Latin America and Asia-Pacific regions are grouped into the "International" segment. Fresenius Medical Care's Company headquarters are in Bad Homburg, Germany. The headquarters of North America, our most important region in terms of revenue, are in Waltham, Massachusetts (U.S.). An overview of Fresenius Medical Care's main locations can be found in chart 2.1.1 on page 34.
Since February 2006, Fresenius Medical Care has had the legal form of a partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA). The corporate structure of Fresenius Medical Care AG & Co. KGaA as well as the Company's management and supervisory structure are discussed in the "Corporate governance report" starting on page 126. The Members of the Management Board are presented starting on page 12; information on the positions of the Management Board and the Supervisory Board can be found starting on page 155.
Fresenius Medical Care reports on the basis of U.S. GAAP (United States Generally Accepted Accounting Principles) with the U.S. dollar as the reporting currency. This is due to the Company's high business volume in the U.S. and the fact that it is listed on the New York Stock Exchange. Furthermore, the Company prepares its reports in accordance with International Financial Reporting Standards (IFRS).
At the end of 2012, about 2.306 M patients regularly underwent dialysis worldwide. Dialysis is a vital blood cleansing procedure that substitutes the function of the kidney in case of kidney failure. It removes toxins and surplus water from the body, which is normally discarded through urination in healthy individuals, as the patient's kidneys can no longer fulfill this task. We distinguish between two types of dialysis treatment: hemodialysis (HD) and peritoneal dialysis (PD). In the case of HD, a hemodialysis machine controls the flow of blood from the patient through a special filter, the dialyzer. With PD, the patient's peritoneum is used as a dialyzing membrane. Fresenius Medical Care's business encompasses both therapy methods.
34
| C . 2.1.1 | Major locations | |
|---|---|---|
| Waltham, U.S. 05 01 03 04 02 06 07 08 09 10 11 |
Bad Homburg, GER 16 13 12 17 15 14 18 19 |
Hong Kong,CN 2120 22 23 24 25 |
| America | Europe | Asia-Pacific |
| Waltham, U. S. Regional headquarters North America |
Bad Homburg, GER Company headquarters and regional headquarters for Europe, Middle East, Africa and Latin America |
Hong Kong, CN Regional headquarters Asia-Pacific |
| 01 Ogden, U.S. Dialyzers |
12 Schweinfurt, GER Dialysis machines |
20 Inukai, JP Fiber bundles |
| 02 Walnut Creek, U.S. | 13 St.Wendel, GER | 21 Buzen, JP |
| Dialysis machines | Dialyzers&bags for peritoneal dialysis | Dialyzers&dialysis solutions |
| 03 Toledo, U.S. Hemodialysis concentrates |
14 L'Arbresle, FR Dialyzers&hemodialysis concentrates |
22 Changshu, CN Tubing systems |
| 04 Livingston, U.S. Hemodialysis concentrates |
15 Cremona, IT Tubing systems |
23 Ipoh, MY Water treatment systems |
| 05 Montreal, CA Hemodialysis concentrates |
16 Borisov, BY Dialyzers&tubing systems |
24 Smithfield, AU Hemodialysis concentrates |
| 06 Irving, U.S. | 17 Krems, AT | 25 Scoresby, AU |
| Hemodialysis concentrates | Adsorbers | Equipment |
| 07 Reynosa, MX | 18 Vršac, SRB | |
| Tubing systems | Dialyzers, dialysis solutions&tubing systems | |
| 08 Guadalajara, MX | 19 Antalya, TR | |
| Dialysis solutions | Tubing systems | |
| 09 Santafé de Bogotá, CO Dialysis solutions |
||
| 10 Jaguariúna, BR | ||
| Dialysis solutions | ||
| 11 Pilar, AR Hemodialysis concentrate&dialysis solutions |
Headquarters Production
As a globally leading company, Fresenius Medical Care offers dialysis services and products in more than 120 countries around the world with a focus on the following areas:
Most dialysis patients undergo hemodialysis (HD) in specialized clinics. HD is by far the most common type of renal replacement therapy, accounting for more than 89% of all cases worldwide. It requires the use of special products, primarily hemodialysis machines and dialyzers that are connected to the device and act as "artificial kidneys", filtering toxic substances from the patient's blood. Fresenius Medical Care is the world's leading manufacturer of these and other dialysis products for use in both our own and third-party clinics. Further information can be found in the section "Dialysis market" starting on page 42 and in the glossary on page 161.
The two types of home dialysis are peritoneal dialysis (PD) see glossary on page 162 and home hemodialysis. In the year under review, about 11% of all dialysis patients worldwide underwent PD. Home hemodialysis continues to be a niche market: At the end of 2012, only around 0.6% of all patients received this treatment. We provided products to approximately 49,000 PD patients and more than 3,500 home hemodialysis patients by the end of 2012; as a result, around 20% of all PD patients and approximately 28% of all home hemodialysis patients use our dialysis products. More information on home dialysis can be found in the magazine starting on page 30.
Generally, dialysis patients suffer from chronic kidney failure – a disorder which in most cases develops gradually over many years. But in acute medical emergencies, patients may also be in need of dialysis because of rapid kidney failure, for instance after a serious accident. Fresenius Medical Care offers products and services for so-called acute dialysis as well.
Dialysis drugs enable us to expand our product portfolio horizontally beyond providing dialysis products and services; they therefore fit in perfectly with our strategic focus. Usually, patients undergoing dialysis require medication to counteract anemia and to control their mineral metabolism. This includes agents to stimulate red blood cell production (erythropoietin, EPO), iron compounds, phosphate binders, vitamin D preparations and so-called calcimimetics, see the glossary starting on page 159. We obtain the dialysis drugs EPO and vitamin D from specialized providers, but make phosphate binders ourselves for use in our own clinics as well as for sale to third parties. Iron compounds are produced by Vifor Fresenius Medical Care Renal Pharma Ltd., a joint venture between our Company and the Swiss company Galenica.
Laboratory services complete our service portfolio Nephrologists rely on extensive laboratory tests to tailor dialysis to each patient. The laboratory results have a significant impact on the quality of patients' treatment and therefore their quality of life. In 2012, Spectra Laboratories, our subsidiary in the U.S., provided around 60 M laboratory services for some 192,000 patients in our own as well as in external dialysis clinics.
Usually, patients requiring regular dialysis are constrained in their mobility. Vacations or business trips to other countries seem impossible. For patients on HD or PD who wish to travel, Fresenius Medical Care offers a complimentary reservation service for dialysis treatment outside their normal environment. We use not only our own global network of clinics for this, but also certified third-party dialysis providers, enabling dialysis patients to receive their vital treatment in many countries of the world.
Fresenius Medical Care is the world's leading provider of dialysis services with a market share of about 11% based on the number of treated patients. We not only provide services to most dialysis patients, with 3,160 clinics worldwide we also operate more dialysis clinics than any of our competitors in 2012. We treated 64% of our patients in North America, 19% in Europe, 10% in Latin America and 7% in the Asia-Pacific region.
Our dialysis products accounted for around 33% of the global market in 2012, which means that we are still the market leader in this area. The market share of our key products – dialyzers and dialysis machines – was even higher at around 45 and 55%, respectively.
Further information on the major markets and the position of Fresenius Medical Care can be found in the "Dialysis market" section starting on page 42.
Fresenius Medical Care provides life-saving products and therapies for patients suffering from chronic kidney failure and is therefore exposed to economic cycles to a relatively small extent. This sets us apart from manufacturers of consumer goods, for instance, whose products are subject to a more cyclical demand.
Fresenius Medical Care's business is impacted more by government reimbursement rates and systems. Reimbursement schemes for dialysis treatments differ from country to country and often even within countries. Fresenius Medical Care provides dialysis services in more than 40 countries with different economic conditions. Our international experience puts us in a position to support national healthcare systems in their endeavors to create suitable reimbursement structures, adapt our business to local needs and regulations, and at the same time act
profitably. Further information can be found in the "Dialysis market" section starting on page 42.
As a life-saving treatment, dialysis is subject to the highest safety and quality standards. These requirements are stipulated in numerous national and international legal provisions, standards and norms which are the basis for our corporate activities. For further information see the the section "Quality management systems are regularly reviewed" on page 81.
Finally, demographic factors contribute to the continued growth of the dialysis market. These include the aging population and the rising incidence of diabetes and hypertension, two diseases that often precede chronic kidney failure. In recent years, forecasts on the occurrence of these two diseases have continuously been adjusted upwards. In addition, the life expectancy of dialysis patients is increasing primarily due to ongoing improvements in the quality of treatment and higher standards of living, also in developing countries.
Our long-term strategy aims at sustainably increasing shareholder value. We focus our business activities on our patients' health and hence on the quality of treatment with the objective of improving their quality of life and raising their life expectancy. The Management Board uses a number of different tools and indicators to evaluate the Company's business performance, develop its strategy, and make investment decisions. Overall, we are still in an excellent position to achieve our growth targets described in this chapter.
Our strategy takes into account concrete, measurable growth targets as well as long-term trends forecast by us in the dialysis market. We not only expect the number of patients to increase but also the quality of services provided and of the products available to become even more important in future. We think, integrated care for kidney patients is another area that will continue to grow in the future. In response to this, we will not only focus our business on individual services or dialysis products, but also on combining the different areas of application related to dialysis.
In September 2010, we presented a mid-term strategy with defined targets in the form of GOAL 13 drawing upon the previous growth strategy GOAL 10. GOAL 13 stands for "Growth Opportunities to Assure Leadership in 2013". As GOAL 13 comes to a close in 2013, we intend to set new goals in the current financial year that will allow us to maintain our outstanding market position and to be successful in the dialysis market. Basically we will continue along our growth paths in the future:
We intend to strengthen our leading market position by the expansion of our clinic network and by introducing our innovative dialysis products. We are planning to expand our clinic network in all important markets and growth regions worldwide to maintain and even improve our leading market position. At the same time, we aim to advance our comprehensive, innovative treatment concepts (see "Our dialysis services business" chapter starting on page 79) and combine them with dialysis drugs, for example. This strategy makes us stand out significantly against our competitors. We expect that most of our future growth will be generated in an organic way.
With our long-term growth objectives and our aim to boost profitability in mind, we regularly screen possible acquisitions to selectively expand our dialysis clinic network. To this end, we focus on particularly attractive regions. In addition we also see potential for growth in the suitable serving of vascular access needs to our patients.
Already in the business year 2010, we had expanded our range of dialysis drugs in accordance with our strategy by the formation of a joint venture with the Swiss-based Galenica. The formation of Vifor Fresenius Medical Care Renal Pharma Ltd. in which Fresenius Medical Care has a 45% share had been completed at the end of 2011 after clearance by the antitrust commissions. The joint venture is designed to develop and distribute drugs for kidney patients. The products are used to counteract anemia and to regulate the bone metabolism of dialysis patients as well as patients with chronic kidney failure who do not yet need dialysis treatment.
As in the past, only a relatively small number of dialysis patients, approximately 11%, perform dialysis at home. Most patients receive their treatment in specialized dialysis clinics. In the long term, we want to assume an important role in the home therapies market, which includes peritoneal dialysis as well as home hemodialysis. To achieve this goal, we intend to combine our comprehensive and innovative product portfolio with our expertise in the area of dialysis services.
Additional information about our strategy in the different operation areas and regions are set out in the chapters "Subsequent events" and "Outlook" starting on page 118 and in various other sections of this annual report.
The Management Board uses various financial indicators when operating the Company. We manage the activities of our segments based on their operational results, defined as EBIT (Earnings before Interest and Taxes). EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is specifically used as an indicator to determine the total debt/EBITDA ratio allowing us to assess the Company's creditworthiness.
The Management Board evaluates each segment based on target figures that reflect those revenues and expenses that the segments are actually able to control. Therefore, interest expenses for financing, tax expenses, legal costs, expenses of the headquarter including controlling and finance, professional services and certain expenses for research and development are not included in a segment based target figure.
The operating cash flow is used to assess whether a business can itself generate the cash required to maintain the assets reported in its balance sheet and make expansion investments.
To determine the total debt/EBITDA ratio, financial liabilities are compared to EBITDA. The total debt/ EBITDA ratio is an indicator of the amount of debt and the length of time needed to service it. It provides more reliable information about the extent to which a company is able to meet its payment obligations than simply taking the absolute amount of financial liability into account. Fresenius Medical Care holds a strong market position in a growing, global and mainly non-cyclical market. Furthermore, most of the Company's customers have a high credit rating as the industry is characterized by stable and sustained cash flows that can be planned. This means that we can work with a relatively large share of debt capital compared with companies in other industries (see also "Principles and objectives of financial management" section starting on page 58).
We also gear our corporate management towards operating indicators based on the following yield calculations:
ROIC (Return on invested capital) expresses how efficiently a company allocates the capital under its control or how well it employs its capital with regard to a specific investment project. Fresenius Medical Care's ROIC in 2012 of 8.1% was at a comparable level as in the previous year of 8.7%.
ROOA (Return on operating assets) expresses how efficiently employed capital is managed throughout the Company by calculating profit in relation to total capital. Fresenius Medical Care's ROOA in 2012 of
11.4% was at a similarly high level as in the prior year (2011: 12.2%).
ROE (Return on equity) provides an insight into the Company's profitability. To calculate it, corporate net income (net income attributable to shareholders of Fresenius Medical Care AG& Co. KGaA) is placed in relation to employed shareholder capital (capital of shareholders of Fresenius Medical Care AG & Co. KGaA). With 12.5% in the fiscal year 2012 ROE (after tax) was at a comparable level to 2011.
When calculating our cost of capital, we use the WACC (weighted average cost of capital) formula. The WACC is derived using the weighted average of costs incurred for equity and debt. Fresenius Medical Care's WACC in 2012 was at 6.8%, after 6.7% in the prior year. Comparing the Company's WACC with its ROIC of 8.1% reveals that in 2012, Fresenius Medical Care not only generated its capital costs, but also increased its shareholder value.
We manage our investments using a detailed coordination and evaluation process. The Management Board sets the complete investment budget for the group as well as the investment targets. Before concrete investment projects or acquisitions are realized, our internal Acquisition Investment Committee (AIC) examines the individual projects and measures taking into account the return on investment and potential yield. The investment projects are evaluated based on commonly used methods such as the net present value and internal interest rate methods; payback periods are also included in the assessment. In this way, we try to ensure that we only make and implement investments and acquisitions that actually increase shareholder value.
Further Information on acquisitions can be found in the sections "Acquisitions and divestitures" on page 50, and "Financial situation" starting on page 58.
Details on the development of these indicators as well as other financial figures can also be found in the chapter "Results of operations, financial situation, assets and liabilities" starting on page 53, and in the "Financial report" starting on page 15.
| T. 2.1.3 | Key performance indicators | |
|---|---|---|
| 20121 | 2011 | |
| EBIT in \$M | 2,329 | 2,075 |
| EBITDA in \$M | 2,932 | 2,632 |
| Debt EBITDA ratio | 2.83 | 2.69 |
| Return on invested capital (ROIC) in % | 8.1 | 8.7 |
| Return on operating assets (ROOA) in % | 11.4 | 12.2 |
| Return on equity (ROE) in % | 12.5 | 13.6 |
1 Based on adjusted numbers; further details can be found in the section "Results of operations" starting on page 53.
Chapter 2.2
2012 WAS CHARACTERIZED BY CONSISTENTLY SLUGGISH OVERALL DEMAND, MAINLY CAUSED BY THE HIGH LEVEL OF SOVEREIGN DEBT IN MANY COUNTRIES, ESPECIALLY IN EUROPE. HOWEVER, THE DIALYSIS MARKET IS GROWING WORLDWIDE. AT THE END OF 2012, APPROXIMATELY 2.306 M DIALYSIS PATIENTS WERE BEING TREATED.
Declining growth rates of many leading economies and an economic slowdown in emerging countries resulted in lower year-on-year growth of the global gross domestic product (GDP); it amounted to just 3.2% in 2012, compared with 3.8% in 2011.
The U.S. economy posted slightly higher economic growth in 2012 compared to the previous year, boosted by the stabilization of the real estate market and an increase in investing activities. GDP rose by 2.2% in 2012, compared with 1.8% in 2011.
In 2012, the euro zone as a whole was affected by the sovereign debt crisis in the southern peripheral nations. The uncertain economic situation and persistently high unemployment ensured that consumer spending and investment remained at a low level, which increasingly impaired growth in other industrialized nations.
Asia again showed the strongest growth in 2012. However, in some key markets economic development tailed off compared to the previous year.
The economic situation in Latin America presented itself differently in 2012: Some countries expanded strongly, while in others the economy performed worse than in the previous year. In the region as a whole, economic growth slowed down, largely due to a drop in export demand. A GDP of 2.9% was generated in 2012 (2011: 6.3%).
| 2012 | 2011 | 2012 | 2011 |
|---|---|---|---|
| 2.2 | 1.8 | 2.1 | 3.2 |
| 0.7 | 3.0 | 2.0 | 2.3 |
| –0.5 | 1.4 | 2.5 | 2.7 |
| –0.3 | 1.5 | 2.5 | 3.1 |
| 0.9 | 2.2 | 3.8 | 2.9 |
| 4.5 | 4.3 | 5.5 | 8.4 |
| 2.0 | – 0.5 | –0.2 | –0.3 |
| 7.8 | 9.2 | 2.6 | 5.4 |
| 3.8 | 7.9 | 9.1 | 8.9 |
| 6.6 | 8.2 | 4.3 | 6.1 |
| 2.9 | 6.3 | 6.2 | 6.3 |
| 3.2 | 3.8 | 4.6 | 5.7 |
| Gross domestic product | Consumer prices |
Source: Institute for the Global Economy at the University of Kiel, "Weltkonjunktur im Winter 2012", December 18, 2012; monthly reports of the Deutsche Bundesbank and the European Central Bank
Costs for energy and commodities, especially oil, remained at a similarly high level on average in 2012 as in the previous year, with considerable fluctuations over the course of the year. For Fresenius Medical Care, an increase in transport and energy costs of 1% generally means a reduction in the Company's result after tax of approximately 0.3%. Fresenius Medical Care counters these price fluctuations by concluding long-term supply contracts. In this way, we can limit the possible negative effects of short-term price rises on the Company's results.
Compared with other industries, the dialysis market is barely affected by macroeconomic impacts: Demand for medical care as a whole, including life-preserving products and services for kidney patients, is rising because of the aging population. Consequently, the dialysis market is a growth market. Fresenius Medical Care is therefore only dependent on economic cycles to a limited extent.
For Fresenius Medical Care, movements in the U.S. dollar and the euro in relation to one another are especially crucial as we generate a major part of our sales in the U.S. and the euro zone. In reporting terms, an appreciation of the euro is advantageous for us, as our base currency is the U.S. dollar, so that the balance sheet values achieved in euros are higher (translation effect). Consequently, the decline of the euro against the U.S. dollar impacted our business in 2012.
\$/€ Year average Quarter average Source: Reuters data, own calculations
| Sensitivity analysis T. 2.2.3 10% appreciation in currency against the \$ |
|
|---|---|
| Impact on sales of Fresenius Medical Care 2012 |
|
| Euro | ~1.3 % |
| Other European currencies | ~0.7 % |
| Renminbi and Hong Kong dollar | ~0.2 % |
| Japanese Yen | ~0.1 % |
| Other Asian currencies | ~0.4 % |
| South American currencies | ~0.5 % |
Our global network of production sites enables us to meet the demand in our dialysis products business. Our production sites are to a large extent based in the markets they serve, so that costs occur in the same currency in which we generate our sales. As a result, we are less affected by long-term currency fluctuations, enabling us to minimize our transaction risks, i.e. risks due to foreign currency items or exchange rate fluctuations. In our service business, the risk is even less because we provide our services locally and therefore in the respective currency. As the service business constitutes Fresenius Medical Care's major area of operations, the currency risk can be classified as small overall.
Fresenius Medical Care's business is mainly subject to short-term effects due to volatility in exchange rates, especially fluctuations in the euro against the U.S. dollar, but also in the currencies of our other international locations against the euro.
Further information on the economic environment can be found in the "Comparison of the actual business results with forecasts" section starting on page 50 and in the "Outlook" chapter starting on page 119.
The dialysis market is growing worldwide. With our decades of experience, we can provide patients with high-quality dialysis products and services from a single source. We are therefore ideally placed to expand our business further and consolidate our position as market leader.
Reliable information on the development of the dialysis market and its general conditions is an important prerequisite for the success of our business. To obtain and manage representative market information, Fresenius Medical Care has developed its own tool, the Market & Competitor Survey (MCS). We use it to collect and analyze relevant dialysis market and competitor data and then leverage it within the Company. We use this information as a basis for strategic decisions made by management, research and development, and marketing on the one hand, and for our external reporting, such as the annual report, on the other. Unless otherwise stated, the data in this chapter is based on the survey. By regularly adapting the survey, we account for new trends such as changes in the use of certain treatments as well as in the structure of our competitive environment caused for example by the entry of new providers.
| T. 2.2.4 | Dialysis patients: Regional development | |
|---|---|---|
| 2012 | Change | |
| North America | 543,000 | ~+5% |
| U.S. | 436,000 | ~+4% |
| Europe/Middle East/Africa | 617,000 | ~+4% |
| EU | 332,000 | ~+2% |
| Asia-Pacific | 906,000 | ~+9% |
| Japan | 309,000 | ~+2% |
| Latin America | 240,000 | ~+6% |
| Worldwide | 2,306,000 | ~+7% |
Chronic kidney failure is a global problem: At the end of 2012, approximately 2.957 M patients were being treated.
At regional level, the frequency of chronic kidney failure varies. Prevalence, i.e. the relative number of people being treated for end-stage renal disease in a particular country, also differs significantly from one country to another. The prevalence rate, measured in patients per million population (pmp), can be well below 100 in developing countries. On average, the figure in countries in the European Union is just over 1,000 pmp. Countries such as Taiwan, Japan and the U.S. have very high figures. In some cases, they are well over 2,000 pmp. There are various reasons for the significant divergence in prevalence rates:
The countries differ demographically, as age structures in the population vary worldwide.
The incidence of risk factors for kidney disease such as diabetes and high blood pressure diverges.
The genetic predisposition for kidney disease differs around the world.
Access to dialysis is still limited in many countries, meaning that many kidney failure sufferers are not treated and thus do not appear in prevalence statistics.
Cultural factors such as nutrition play a role.
The number of dialysis patients in 2012 rose by around 7%. In the U.S., Japan, and Western and Central Europe, we again recorded below-average growth in the number of patients in 2012. In these regions, prevalence is already relatively high and patients generally have reliable access to treatment, normally dialysis. In economically weaker regions, growth was above average – an indication that access to dialysis treatment in these countries is still limited but is gradually improving. In addition to easier access to dialysis resulting in better recording of patient numbers, however, other factors also contribute to a rise in global prevalence, for example the spreading incidence of illnesses that cause renal damage such as diabetes and high blood pressure, as well as the general aging of the global population due to medical advances.
Of the 2.306 M patients who were undergoing dialysis treatment at the end of 2012, 2.056 M – about 89% – were being treated with hemodialysis and around 250,000 with peritoneal dialysis; see glossary on page 162. In a global comparison of treatment methods, hemodialysis is clearly the most commonly used.
The third option for treating patients with end-stage renal disease is kidney transplantation. Approximately 651,000 patients were living with a transplanted kidney at the end of 2012. However, for many years now, the number of donated organs
| Patients with end-stage renal disease (ESRD) T. 2.2.5 in M |
||||
|---|---|---|---|---|
| Patients with end-stage renal disease (ESRD ) |
2.957 | 100% | ||
| of which dialysis | 2.306 | 78% | ||
| Hemodialysis (HD) | 2.056 | 70% | ||
| Peritoneal dialysis (PD) | 0.250 | 8% | ||
| of which patients with transplants | 0.651 | 22% |
worldwide has been significantly lower than the number of patients on transplant waiting lists. Despite extensive efforts by regional initiatives to increase awareness of kidney donation and the willingness to donate, the share of patients receiving kidney transplantation compared to other treatment methods has remained relatively unchanged over the past ten years.
Dialysis patients can be treated either in a dialysis center or in their own home. Treatment options available for home therapy are home hemodialysis (relatively uncommon so far) and peritoneal dialysis. The ratio of patients treated in dialysis centers to patients on home dialysis varies from region to region.
Fresenius Medical Care's most important customers are state-owned or public health insurers, private health insurers, and companies. The Company's largest private customer, which is also the world's second-largest provider in the dialysis services sector after Fresenius Medical Care, is the U.S. company DaVita. We generated around 1% of our revenue with DaVita in the last fiscal year.
As renal replacement therapy is a life-saving medical service, patients do not usually have to pay for dialysis themselves. Instead, the costs are borne by the responsible healthcare system. The reimbursement systems for dialysis treatment – in other words, the schemes used by healthcare systems to govern the reimbursement costs for dialysis services – differ from country to country and often vary even within countries. The factors determining reimbursement include regional conditions, the kind of treatment provided, regulatory issues, and the type of dialysis service provider (public or private).
The healthcare debate in some countries is currently focused on establishing reimbursement structures based on treatment quality (pay for performance). In this case more responsibility is transferred to the medical service provider, subject to transparency and quality criteria. Such reimbursement models are aimed at achieving high treatment quality combined with lower overall costs for the healthcare system.
One example of a reimbursement model based on qualitative criteria is the bundled reimbursement system for dialysis introduced in the U.S., our biggest sales market, in 2011. It relates to dialysis treatment for patients in the U.S. who are predominantly covered by national health insurance (Medicare or Medicaid patients). All products and services that used to be reimbursed according to the composite rate as well as services that were reimbursed separately in the old system, such as the administration of certain intravenous drugs and diagnostic laboratory tests, are now reimbursed in a lump sum. This bundled reimbursement rate is adapted to patients' characteristics such as age and weight; it also provides adjustments for patients who require exceptional
| Regional breakdown of center dialysis and home dialysis T. 2.2.6 |
||
|---|---|---|
| Center dialysis | Home dialysis | |
| Europe/Middle East/Africa | 93% | 7% |
| Latin America | 88% | 12% |
| Asia-Pacific | 90% | 10% |
| North America | 82% | 18% |
| Worldwide | 89% | 11% |
medical care, which is more costly. The U.S. reimbursement system also takes into account quality parameters such as the regulation of the hemoglobin content of the blood (anemia management) and the effectiveness of dialysis treatment. Additional quality parameters will be introduced in the next few years, such as good results in patient satisfaction surveys and the monitoring of mineral metabolism in the bones.
The automatic budget cuts to reduce government debt in the U.S. also have an impact on government reimbursement levels in the healthcare system. This also affects the dialysis sector. Based on a bill, a reduction of the reimbursement rates for dialysis services by 2% in March 2013 is taken into consideration. However, reimbursement levels are subject to an annual inflation adjustment; this will amount to a 2.3% increase in 2013. Thanks to our vertical business model, we are well positioned to work with reimbursement systems that use qualitative criteria, such as the system in the U.S., and are also well-equipped for any future adjustments.
We estimate the volume of the global dialysis market at around \$75 BN for 2012, corresponding to an increase of around 2% compared to the previous year (4% in constant currency terms). We assume that market volume can be broken down as follows: dialysis products with around \$ 13 BN and dialysis services (including dialysis drugs) with approximately \$ 62 BN.
Dialysis product market with three major providers The main dialysis products include dialyzers, hemodialysis machines, concentrates and dialysis solutions, along with products for peritoneal dialysis, see also glossary on page 162. In terms of revenue, the three largest manufacturers of dialysis products together accounted for approximately 64% of the worldwide market in 2012. With a market share of approximately 33%, Fresenius Medical Care was the market leader in this segment, followed by Baxter and Gambro. The remaining, mainly Japanese, dialysis product providers all held market shares in the singledigit percentage range.
| T. 2.2.7 | Market position in major product groups in 2012 | ||||
|---|---|---|---|---|---|
| 1st | 2nd | 3rd | |||
| Dialyzers | Fresenius Medical Care | Gambro | Nipro | ||
| Dialysis machines | Fresenius Medical Care | Nikkiso | Gambro | ||
| Concentrates for hemodialysis | Fresenius Medical Care | Fuso | Gambro | ||
| Bloodline systems | Fresenius Medical Care | Gambro | Kawasumi | ||
| Products for peritoneal dialysis | Baxter | Fresenius Medical Care | Terumo |
Source: Company data and estimates
Dialyzers for hemodialysis are the largest product group in the dialysis market with a worldwide sales volume of around 222 M units in 2012. Around 100 M, or almost half, were made by Fresenius Medical Care, meaning that we comfortably held the largest market share in this segment. We set a new unit sales record in the U.S., our largest single market, with more than 38 M dialyzers sold in 2012.
Hemodialysis machines constitute another key segment of our product business. Here, too, we are the clear market leader: More than 77,000 dialysis machines were sold worldwide in 2012, and some 55% of them were produced by Fresenius Medical Care. Our biggest sales market for dialysis machines is the U.S. In the reporting year, more than 94% of the dialysis machines sold there were made by Fresenius Medical Care. Our 2008 series machine is the leading dialysis system in the U.S. with more than 114,000 units in use. China was our second-largest market after the U.S. for sales of new hemodialysis machines
in the reporting year: We delivered more than 7,000 machines there in 2012. Almost half (47%) of all hemodialysis machines currently in use in China were produced by Fresenius Medical Care.
In the area of peritoneal dialysis, we account for 20% of the global market in terms of revenue; see also chart 2.2.10. In the U.S., we hold a market share of 42%. Further information on our position in the home dialysis market, which comprises home hemodialysis and peritoneal dialysis, can be found in the "Home dialysis is still a niche market" section on page 35.
Renal patients generally receive dialysis treatment in clinics or dialysis centers, which they visit for several hours three times a week. They are treated either during the day or overnight while they sleep. Further treatment options include home dialysis,
Source: Company data and estimates
which patients mostly carry out themselves at home under expert guidance and with the necessary accessories, or dialysis on vacation, for example on a cruise ship or at a resort; Fresenius Medical Care also offers services for these cases. The vast majority of dialysis services, however, involve conventional treatment in clinics or centers.
In 2012, most dialysis patients were cared for in one of around 33,400 dialysis centers worldwide, resulting in an average of some 70 patients per center. The organization of the centers also differs significantly depending on whether the healthcare systems in the individual countries are mainly state-run or privately operated: There are approximately 5,900 dialysis clinics in the U.S. and about 5,400 in the European Union (EU). Whereas only approximately 1% of patients in the U.S. are treated by publicly operated clinics; in the EU, the figure is around 57%. In Japan, on the other hand, private nephrologists (doctors specializing in renal care) play a key role; around 80% of dialysis patients are treated in their dialysis facilities.
Fresenius Medical Care can operate its own therapy centers in countries where the healthcare system allows private-sector companies to provide medical services and an appropriate reimbursement system is in place. For some years now, healthcare systems in a large number of countries have been under pressure to improve the quality of treatment while at the same time keeping healthcare costs as low as possible. Some countries have therefore started to contemplate whether and how specialized private companies can help them in this. Other countries are only just setting up their healthcare systems and are looking to interact with healthcare companies with a good reputation for high quality in their business activities with the aim of developing modern treatment standards. In both cases, Fresenius Medical Care, as an experienced vertically integrated provider, is the right partner: With our high-quality and innovative products and services, we have the ideal prerequisites to continue expanding our position on the dialysis market.
In this respect, the Chinese market is also increasingly important to us: The country's government is making efforts to develop a modern healthcare system with corresponding reimbursement structures – an important prerequisite for opening the market for dialysis services to international providers. In 2012, we opened our first dialysis clinic in this region in the Eastern Chinese province of Jiangsu, where we care for around 40 patients. This makes Fresenius Medical Care one of the first foreign companies to open a dialysis clinic in this highly restrictive market. However, we will continue to drive our future growth in the Chinese dialysis services market primarily through cooperation with local clinics and management contracts. So far, this applies to 72 clinics (previous year: 52 clinics), which we provide with dialysis machines and disposable products.
| C . 2.2.11 | Dialysis clinic operators in 2012 Share of patients treated |
||||
|---|---|---|---|---|---|
| North America | 17% | 65% | 18% | ||
| U.S. | 1% | 79% | 20% | ||
| Europe/Middle East/Africa | 60% | 16% | 24% | ||
| EU | 57% | 21% | 22% | ||
| Asia-Pacific | 48% 6% | 46% | |||
| Japan | 20% | 80% | |||
| Latin America | 16% | 21% | 63% | ||
| Worldwide | 40% | 24% | 36% |
Public Private companies Private individuals Source: Company data and estimates
In the U.S., Fresenius Medical Care and the secondlargest provider, DaVita, together serve over 70% of all dialysis patients; this means that the concentration at dialysis clinics is already relatively high. In the reporting year, Fresenius Medical Care extended its position as market leader and treated more than 160,000 patients, approximately 37% of all dialysis patients in the U.S. (2011: 138,400 patients, approx. 33%). The number of patients we treated also increased significantly in 2012 as a result of the acquisition of dialysis clinic operator Liberty Dialysis Holdings, Inc. Further information on this can be found in the "Company strategy" section starting on page 36 and in the "Subsequent events" chapter on page 118.
Outside the U.S., the dialysis services segment is still considerably more fragmented: With 1,078 dialysis clinics and more than 93,000 patients in 40 countries, Fresenius Medical Care operates the largest and most international network of clinics by far.
Overall, Fresenius Medical Care further consolidated its clear position as market leader in the dialysis services business in the reporting period: Last year, it treated 257,916 dialysis patients (2011: 233,156) in 3,160 clinics (2011: 2,898).
Usually, patients undergoing dialysis require medication to counteract anemia and to control their mineral metabolism – both of which are consequences of chronic kidney failure. In 2012, the market volume of dialysis drugs amounted to about \$8.6 BN, based on data from the market research institution IMS MIDAS® and our own internal estimates. The majority of this is allotted to a few drug classes. Approximately \$5.5 BN, representing almost two thirds of the total market for dialysis drugs, is generated with erythropoesis-stimulating agents for treating anemia. We source them from the American company Amgen and its partners, for example.
| C . 2.2.12 | Dialysis services worldwide in 2012 Number of patients treated |
|
|---|---|---|
| Total: 2.306 M | ||
| North America | ||
| Fresenius Medical Care | 164,554 | |
| DaVita | 151,000 | |
| Dialysis Clinics Inc. | 13,700 | |
| Europe | ||
| Fresenius Medical Care | 48,902 | |
| Kuratorium für Dialyse | 18,400 | |
| Diaverum | 16,500 | |
| Asia-Pacific | ||
| Fresenius Medical Care | 17,504 | |
| Showai-Kai | 5,000 | |
| Tokushu-Kai | 4,800 | |
| Latin America | ||
| Fresenius Medical Care | 26,956 | |
| Baxter | 8,800 | |
| Diaverum | 3,700 |
Phosphate binders used to control bone metabolism, on the other hand, are produced in-house, both for use in our own dialysis centers as well as for distribution to third parties. The market volume of phosphate binders was about \$1.4 BN in the previous year. We produce iron compounds for the treatment of anemia as part of a joint venture with Galenica – Vifor Fresenius Medical Care Renal Pharma Ltd. We also use them in our own clinics and distribute them to third parties. The market volume of intravenous iron compounds such as these amounted to around \$800 M in 2012, of which around half is for the treatment of kidney disease.
Rice Powell succeeded Dr. Ben J. Lipps as Chief Executive Officer (CEO) of Fresenius Medical Care and Chairman of the Management Board, effective January 1, 2013. Previously, he served as Vice Chairman and Member of the Management Board responsible for the region North America. Furthermore, Ron Kuerbitz succeeded Rice Powell as Member of the Management Board responsible for the region North America, also effective January 1, 2013. Ron Kuerbitz joined Fresenius Medical Care North America in 1997, having held various positions within the company and most recently serving as General Counsel and Chief Administration Officer responsible for Market Development and Administration for Fresenius Medical Care North America. Fresenius Medical Care extended its Management Board
| C . 2.2.13 | Top 5 dialysis providers worldwide in 2012 Number of patients treated |
|---|---|
| Fresenius Medical Care | 257,916 |
| DaVita | 153,000 |
| Diaverum | 20,500 |
| Kuratorium für Dialyse | 18,400 |
| Dialysis Clinics Inc. | 13,700 |
Source: Company data and estimates
| C . 2.2.14 | Fresenius Medical Care: Patients treated in 2012 | |
|---|---|---|
| North America | 30% | 70% |
| U.S. | 37% | 63% |
| Europe/Middle East/Africa | 8% | 92% |
| EU | 10% | 90% |
| Asia-Pacific | 2% | 98% |
| Japan | 100% | |
| Latin America | 11% | 89% |
| Worldwide | 11% | 89% |
Fresenius Medical Care Other providers
effective March 1, 2013 and appointed Dr. Olaf Schermeier as Chief Officer of Global Research and Development (R & D) and Member of the Management Board. Before joining Fresenius Medical Care, he has served in a senior position in the field of research and development at the German based company Dräger Medical.
Our investment strategy remained unchanged in 2012. We stepped up investments in our future growth by continually expanding our network of clinics and product business and by increasing our production capacities. In the year under review, our budget for acquisitions was on a similar level compared to 2011. In total, we spent \$1.615 BN on acquisitions net of divestitures thereof \$1.5 BN for the acquisition of Liberty Dialysis Holdings, Inc. In spring 2012 we closed the acquisition following the approval by the United States' Federal Trade Commission FTC. Further information about our investitures and acquisitions can be found in the section "Financial situation" starting on page 58 and in the "Financial report" starting on page 15.
In January 2012, Fresenius Medical Care successfully completed the largest placement of senior notes in the history of the Company. Proceeds from the offering of three senior unsecured notes in euro and U.S. dollar amounting to approximately \$1.81 BN was used for acquisitions including the acquisition of Liberty Dialysis Holdings, Inc., to refinance indebtedness and for general corporate purposes.
Further information on senior unsecured notes can be found in the "Financial situation" section starting on page 58 and in the "Financial report" starting on page 72.
The Company's business environment remained largely unchanged in 2012, as did the relevant legal frameworks for our business. At the beginning of 2011, a new reimbursement system for the treatment of dialysis patients with national health insurance (Medicare) was introduced in the United States, our largest sales market. Specific products and services are now reimbursed with one flat fee instead of being paid individually as was previously the case. In addition to an annual inflationary adjustment starting in 2012 a particular feature of this new reimbursement system is the focus on certain quality parameters such as regulation of the hemoglobin content of the blood (anemia management) and the mineral metabolism in the bones. For further information see the "Healthcare and reimbursement systems" section starting on page 44.
No other significant events took place in 2012 that had a material impact on the operating business or legal structure of Fresenius Medical Care. Fresenius Medical Care continued its outstanding development in the previous fiscal year, achieving record revenue and earnings figures in the year under review. All regions and segments contributed to this success.
Fresenius Medical Care looks back on another successful business year: We once again achieved new records both in terms of revenue and earnings and were able to sustain our growth path. We largely met our ambitious targets for 2012.
Fresenius Medical Care set new records last year. Revenue rose by 10% to \$13.80 BN, our operating result (EBIT) by 7% to \$ 2.22 BN, and net income by 11% to \$ 1.19 BN. We achieved these results despite the difficult general conditions compared to previous years, in particular the negative impact of the devaluation of the euro and other currencies against the U.S. dollar.
At the beginning of the reporting year, we expected revenue of around \$14 BN and net income of around \$ 1.14 BN. As the year progressed, we adapted our targets for 2012 to current developments and modified them slightly. The actual figures were in line with our targets.
Consolidated revenue increased by 10% to \$13.80 BN in the 2012 fiscal year. The unfavorable development of several currencies against the U.S. dollar prevented us from reaching a higher figure; in constant currency terms, revenue was up by 12% in 2012. All regions – North America, Europe/Middle East/Africa, Asia-Pacific and Latin America – contributed to revenue growth. Further details on the development of revenue can be found in the "Results of operations" section starting on page 53.
Net income attributable to shareholders of Fresenius Medical Care AG& Co. KGaA increased by 11% to \$1.19 BN in the fiscal year 2012. This includes a nontaxable investment gain related to the acquisition of Liberty Dialysis Holdings, Inc. It also includes charges related to the amendment of the agreement for the iron product Venofer and a donation to the American Society of Nephrology. Excluding the investment gain and the before mentioned charges net income attributable to shareholders of Fresenius Medical Care AG&Co. KGaA was \$1.12 BN, an increase of 4% compared to 2011. Further information can be found in the "Results of operations" section starting on page 53.
The expected steady growth of the dividend is reflected in our dividend proposal: Subject to approval by the Annual General Meeting, the dividend per ordinary share will increase by 9% to €0.75 (2011: €0.69). More information on this can be found in the "Dividend continuity" section on page 25.
We earmarked around \$700 M for capital expenditures and around \$1.80 BN for acquisitions in 2012. We remained almost completely within our target and used \$666 M for capital expenditures (net) – corresponding to 4.8% of revenue – and \$1.615 BN for acquisitions less divestitures. For further information, see the "Financial situation" section starting on page 58.
The operating cash flow, driven by earnings development and ongoing excellent management of accounts receivables, increased by 41% to \$2.04 BN in 2012. At 14.8% of revenue, the operating cash flow was therefore well above the target of 10% of revenue.
| T. 2.2.15 | Targets and results for 2012 adjusted for special charges |
||
|---|---|---|---|
| Results 2012 | Targets 2012 | Target achieved |
|
| Revenue | +10% to \$13.80 BN | ~\$14 BN | |
| Net income | +4% to \$1.12 BN | ~\$1.14 BN | |
| Dividend1 | +9% per ordinary share to €0.75 |
Continuous rise |
|
| Capital expenditures, net | \$666 M | ~ \$700 M | |
| Acquisitions, net | \$1.615 BN | ~\$1.8 BN | |
| Tax rate | 33.9% | 33 to 35% | |
| Debt/EBITDA | 2.83 | < 3.0 | |
| Number of employees | 86,153 | > 86,000 | |
| Research and development expenses | \$112 M | ~ \$130 M | |
| Product innovations | 5008 CorDiax | Further expansion of product and service range |
1 Proposal subject to the approval of the Annual General Meeting on May 16, 2013.
According to our forecast, the leverage ratio (defined as the ratio of total financial debt to earnings before interest, taxes, depreciation and amortization = debt/EBITDA) should have been below 3.0 by the end of 2012. The actual leverage ratio was 2.83 as at the reporting date, and therefore also developed as predicted.
The number of employees at Fresenius Medical Care (full-time equivalents) grew from 79,159 at the end of 2011 to 86,153 at the end of 2012, reaching our forecast figure of more than 86,000. The Company's continued strong organic growth and acquisitions, especially in North America, were key contributing factors.
Research and development expenditures aimed at boosting and enhancing Fresenius Medical Care's ability to adapt to future requirements amounted to \$112 M, not quite meeting our target of around \$130 M. This discrepancy was mainly due to exchange rate movements and delays in projects. Our research and development activities are focused on further developing existing product groups. Details can be found in the "Research and development" chapter starting on page 64.
The dialysis market developed as we had predicted: the number of patients worldwide grew by around 7%. As expected, there were no significant changes compared to the previous year concerning the allocation of dialysis patients to different treatment methods. Hemodialysis continued to be by far the most important method used to treat chronic kidney failure in 2012. For further information, see the "Dialysis market" section starting on page 42.
2012 was a very successful year: Revenue and earnings climbed to record levels. We largely achieved all the ambitious targets we set ourselves.
Fresenius Medical Care experienced stronger growth in each of the regions than the dialysis industry as a whole. As a result, we managed to strengthen our market position. We maintained our position as market leader in North America, by far our biggest market, and recorded significant revenue growth in the markets outside of North America (Europe, Latin America and Asia), reinforcing our market position in these regions.
In addition, Fresenius Medical Care continued to boost its profitability in the year under review. Once again, there were improvements in all relevant key figures. This is partly due to our ongoing high level of investments in maintaining existing clinics, equipping new facilities, and expanding production capacities.
The financial year 2012 was very successful. Again, we achieved record revenues and earnings despite challenging market conditions and unfavorable currency effects.
In the year under review, Fresenius Medical Care again increased its revenue significantly by 10% to \$13.80 BN, corresponding to a 12% growth rate in constant currency terms. The Company's organic growth amounted to 5%, while acquisitions (net) accounted for 7% of revenue growth. Revenue from dialysis services were up by 13% (15% in constant currency) to \$10.49 BN. Revenue from dialysis products rose by 1% to \$3.31 BN (5% at constant currency).
Revenue in North America, still our most important business region with a share of 65%, was \$9.03 BN in 2012, 14% above the \$7.93 BN generated in the previous year. The organic growth amounted to 4%, while acquisitions (net) accounted for 10% of revenue growth. Revenue from dialysis services increased by 16% to \$8.23 BN (2011: \$7.11 BN). Revenue from dialysis products decreased by 1% to \$0.80 BN (2011: \$0.81 BN).
Revenue in the International segment, which includes all regions outside North America, improved by 2% to \$4.74 BN (9% at constant currency). Acquisitions had the positive effect to increase revenue by 3 %, while organic growth was 6 %. Revenue from dialysis services in that region grew by 4% over the previous year to \$2.26 BN. In constant currency terms, this represents an increase of 11%. Revenue from dialysis products rose by 1% to \$2.48 BN in 2011, corresponding to 7% in constant currency terms.
| T. 2.3.1 | Revenue by segment in \$ M |
|||||
|---|---|---|---|---|---|---|
| 2012 | 20112 | Change | Exchange rate effects |
Organic Growth |
Acquisitions / divestitures (net) |
|
| North America | ||||||
| Dialysis products | 801 | 813 | –1% | 0% | 2% | –3% |
| Dialysis services | 8,230 | 7,113 | 16% | 0% | 4% | 12% |
| Total | 9,031 | 7,926 | 14% | 0% | 4% | 10% |
| International | ||||||
| Dialysis products | 2,478 | 2,458 | 1% | –6% | 7% | 0% |
| Dialysis services | 2,262 | 2,170 | 4% | –7% | 6% | 5% |
| Total | 4,740 | 4,628 | 2% | –7% | 6% | 3% |
| Worldwide | ||||||
| Dialysis products1 | 3,308 | 3,288 | 1% | –4% | 6% | –1% |
| Dialysis services | 10,492 | 9,283 | 13% | –2% | 4% | 11% |
| Total | 13,800 | 12,571 | 10% | –2% | 5% | 7% |
1 Including revenue generated by corporate functions in the amount of \$29 M for 2012 and \$17 M for 2011.
2 Revenue of 2011 had been adjusted by \$ –224 M according to a U.S. GAAP accounting change.
54
At the end of 2012, we operated 3,160 dialysis clinics, 9% more than 2011. We treated 257,916 dialysis patients in the year under review, an increase of 11%. The number of treatments rose by 12% to around 38.59 M in the reporting year.
The largest business region in the International segment is Europe/Middle East/Africa (EMEA). Revenue in this region decreased by 2% to \$2.89 BN in 2012, and increased by 6% based on constant currencies. The region's share of total revenue was 21% (2011: 23%). By the end of 2012, we were treating 48,902 patients in 608 dialysis facilities, 556 patients or 1% more than twelve months before. In 2012, we generated revenue of \$ 1.33 BN from dialysis services in this region, up 1% over the preceding year. In constant currency terms, this represents a 10% increase. Revenue from dialysis products amounted to \$1.56 BN, minus 4% compared to the previous year and an increase of 3% based on constant currencies.
Revenue in the region Latin America increased by 15% to \$804 M (24% based on constant currencies). The share of total revenue slightly increased to 6% compared to the previous year. Revenue from dialysis services grew by 15% (23% in constant currency terms) to \$558 M. Revenue from dialysis products was at \$246 M, an increase of 14% compared to the previous year (27% in constant currency terms). By
the end of 2012, more than 26,956 patients were receiving dialysis treatments in the 225 clinics in this business region.
The Asia-Pacific region recorded an increase in revenue of 6% to \$1.04 BN. This corresponds to a 7% revenue growth based on constant currencies. The share of total revenue of that region accounted for 8%, same as in the previous year. Revenue from dialysis services increased by 1% (2% in constant currency terms) to \$371 M. Revenue from dialysis products in this region grew by 9% (10% in constant currency terms) to \$672 M.
Earnings before interest and taxes (EBIT) rose by 7% to \$2.22 BN in 2012. The operating income includes charges in the amount of \$110 M related to the amendment of the agreement for our iron product Venofer in North America and a donation to the American Society of Nephrology. Excluding those charges the operating income increased by 12% to \$2.33 BN. Based on the adjusted result the operating margin increased from 16.5 to 16.9%, mainly due to the increase in the North American segment. The operating income there improved by 19% to \$1.72 BN in 2012. The operating income margin increased from 18.1% in 2011 to 19.0% in 2012.
| Revenue by region T. 2.3.2 in \$ M |
||||
|---|---|---|---|---|
| 2012 | 2011 | Change | Percentage of total revenue |
|
| North America | 9,031 | 7,926 | 14% | 65% |
| Europe /Middle East/Africa | 2,893 | 2,948 | –2% | 21% |
| Latin America | 804 | 700 | 15% | 6% |
| Asia-Pacific | 1,043 | 980 | 6% | 8% |
| Corporate | 29 | 17 | 70% | 0% |
| Total | 13,800 | 12,571 | 10% | 100% |
In the International segment, we recorded an operating income of \$809 M around the level of the previous year. The operating income margin decreased from 17.4 to 17.1%.
Corporate costs increased in the course of 2012, as expected, particularly due to the donation to the American Society of Nephrology and increased legal fees. The total corporate operating expenditure amounted to \$205 M in 2012, after \$167 M in 2011.
In 2012, net income attributable to shareholders of Fresenius Medical Care AG& Co. KGaA grew by 11% to \$1.187 BN, compared to \$1.071 BN in 2011. This includes a non-taxable investment gain of \$140 M related to the acquisition of Liberty Dialysis Holdings, Inc. and after tax charges mentioned above in the amount of \$71 M (\$110 M before tax charges). Excluding the investment gain and the special charges net income attributable to shareholders of Fresenius Medical Care AG& Co. KGaA was \$1,118 M, up 4% compared to the previous year.
| T. 2.3.3 | Patients | ||
|---|---|---|---|
| 2012 | 2011 | Change | |
| North America | 164,554 | 142,319 | 16% |
| Europe /Middle East/Africa | 48,902 | 48,346 | 1% |
| Latin America | 26,956 | 25,381 | 6% |
| Asia-Pacific | 17,504 | 17,110 | 2% |
| Total | 257,916 | 233,156 | 11% |
| T. 2.3.4 | Treatments in M |
||
|---|---|---|---|
| 2012 | 2011 | Change | |
| North America | 24.41 | 21.61 | 13 % |
| Europe /Middle East/Africa | 7.49 | 6.60 | 13 % |
| Latin America | 4.10 | 3.68 | 11 % |
| Asia-Pacific | 2.59 | 2.50 | 4 % |
| Total | 38.59 | 34.39 | 12 % |
| T. 2.3.5 | Clinics | ||
|---|---|---|---|
| 2012 | 2011 | Change | |
| North America | 2,082 | 1,838 | 13 % |
| Europe /Middle East/Africa | 608 | 600 | 1 % |
| Latin America | 225 | 218 | 3 % |
| Asia-Pacific | 245 | 242 | 1 % |
| Total | 3,160 | 2,898 | 9 % |
56
Gross profit in 2012 amounted to \$4.60 BN, up 11% compared to 2011. The gross profit margin improved from 33.0 to 33.3%. The increase in the margin is largely due to the improved gross profit margin in North America.
Selling, general and administrative expenses rose by 11% to \$2.22 BN (2011: \$2 BN) and from 15.9 to 16.1% as a percentage of revenues. The increase resulted mainly from higher costs in the region North America, mainly due to an increase in personnel expenses and special charges relating to the acquisition of Liberty Dialysis Holdings, Inc.
Depreciation and amortization in 2012 grew to \$603 M compared to \$557 M in 2011. Depreciation as percentage of revenues remained unchanged at 4.4%.
Research and development costs were at \$112 M, on par with the previous year.
Net interest expenses in 2012 amounted to \$426 M, after \$297 M in 2011. This development is largely a consequence of a rise in debt from issuing several tranches of senior notes to refinance the acquisition of dialysis clinics, especially of Liberty Dialysis Holdings, Inc.
Detailed information on our "Financial situation" can be found starting on page 58 and in note 10 of the "Financial report" starting on page 70.
| Operating income (EBIT) T. 2.3.6 in \$ M |
|||
|---|---|---|---|
| 2012 | 2011 | Change | |
| North America | 1,615 | 1,435 | 12 % |
| International | 809 | 807 | 0 % |
| Corporate | (205) | (167) | 23 % |
| Total | 2,2191 | 2,075 | 7 % |
1 The operating income includes special charges in the amount of \$110 M.
| T. 2.3.7 | Condensed statement of income in \$ M |
||
|---|---|---|---|
| 2012 | 2011 | Change | |
| Net revenue | 13,800 | 12,571 | 10% |
| Cost of revenue | 9,199 | 8,419 | 9% |
| Gross profit | 4,601 | 4,152 | 11% |
| In % of revenue | 33.3 | 33.0 | – |
| Operating income (EBIT) | 2,219 | 2,075 | 7% |
| Investment gain | 140 | – | – |
| Interest expense, net | 427 | 297 | 44% |
| Earnings before taxes | 1,932 | 1,778 | 9% |
| Net income | 1,1871 | 1,071 | 11% |
1 Net income attributable to the shareholders of Fresenius Medical Care AG & Co. KGaA. The number includes a non-taxable investment gain of \$140 M and after tax charges in the amount of \$71 M related to the amendment of the agreement for the iron product Venofer in North America and a donation to the American Society of Nephrology.
Income tax in the year under review amounted to \$605 M, compared to \$601 M in 2011. This corresponds to an effective tax rate of 31.3%, after 33.8% in 2011. Excluding the investment gain and the special charges mentioned above the effective tax rate for 2012 was 33.9%.
Earnings per ordinary share (EPS) rose by 10% in 2012 to \$3.89, compared with \$3.54 in 2011. Excluding the investment gain and the special charges mentioned above earnings per ordinary share was \$3.66. The average weighted number of shares outstanding in 2012 was around 305.1 M (2011: 303.0 M), of which 301.1 M were ordinary shares (2011: 299.0 M ordinary shares). The increase in the number of shares outstanding resulted from stock options exercises. Details on how earnings per ordinary share are derived can be found in the "Financial report" on page 85.
The value added statement reflects Fresenius Medical Care's total economic output in 2012. All outlays, such as the consumption by value of purchased
goods and services, as well as depreciation and amortization have been deducted from the Company's performance. The value added of Fresenius Medical Care in 2012 was \$7.3 BN, up 12% from \$6.5 BN in 2011. The bulk of this, 67% or \$4.9 BN, was paid to staff, while 8% or \$605 M went to the public sector. Lenders partook of around \$470 M or 7%. The shareholders and other partners received around 6% or \$436 M. \$891 M from the value added remained in the Company for reinforcement of the business.
Order volume is not a significant indicator for Fresenius Medical Care as three-quarters of our business model are related to services that are performed regularly. Our product business mainly comprises single-use products and is not defined by project-related orders that could lead to significant changes in order volumes in the reporting period. As a result, Fresenius Medical Care does not report on the basis of this financial indicator.
| Value added statement in \$ M |
|||
|---|---|---|---|
| 2012 | 2011 | ||
| 13,839 | 100% | 12,672 | 100% |
| (5,962) | –43% | (5,618) | –44% |
| 7,877 | 57% | 7,054 | 56% |
| (603) | –4% | (557) | –5% |
| 7,274 | 53% | 6,497 | 51% |
| 4,872 | 67% | 4,362 | 67% |
| 605 | 8% | 601 | 9% |
| 470 | 7% | 357 | 6% |
| 436 | 6% | 398 | 6% |
| 891 | 12% | 779 | 12% |
| 7,274 | 100% | 6,497 | 100% |
1 Assuming the distribution of 2012 profits is approved by the Annual General Meeting on May 16, 2013.
58
Our investment and financing strategy did not change substantially in the past financial year. This is also due to our business model, which is based on stable and high cash flows, allowing a more consistent and higher level of debt than might be the case in other industries. We still regard our refinancing options as being very stable and flexible. We have successfully renewed our revolving credit facility in October 2012. In the current financial year, the focus of our investing activities is on our dialysis services business, with an emphasis on expanding our global dialysis clinic network.
Principles and objectives of financial management Besides optimizing our financial costs, financial flexibility takes top priority in Fresenius Medical Care's financing strategy. The Company ensures this flexibility by using a wide range of financial instruments and securing a high level of diversification with regard to our investors and banks. Our financing profile is characterized by a wide spread of maturities up to 2022.
The main financing instrument is the syndicated credit agreement with a revolving credit facility and a long-term loan. In addition, we use several other mid and long-term financing instruments, mainly including senior, unsecured notes in euro and U.S. dollar and to a lesser extent, senior, unsecured euro notes with fixed-rate and floating-rate tranches.
With only partially drawn credit facilities and our accounts receivable, we have sufficient financial resources. Our target for committed and unutilized credit facilities is between \$300 M and \$500 M. Our 2013 principal financing needs are the payment of \$140 M for a loan as well as our dividend payment of approximately \$304 M in May 2013. We intend to finance in accordance with our described financing strategy.
| T. 2.3.9 | Major financing instruments of Fresenius Medical Care | ||
|---|---|---|---|
| Amount in M | Coupon | Maturity | |
| Credit agreement revolving facility | ~ \$1,250 | – | October 30, 2017 |
| Credit agreement term loan A | \$2,6001 | – | October 30, 2017 |
| Senior notes 2010 – 2016 | €250 | 5.50% | July 15, 2016 |
| 3-month-Euribor | |||
| Senior notes 2011 – 2016 | €100 | +3.50% | October 15, 2016 |
| Senior notes 2007 – 2017 | \$500 | 6.875% | July 15, 2017 |
| Senior notes 2011 – 2018 | \$400 | 6.50% | September 15, 2018 |
| Senior notes 2011 – 2018 | €400 | 6.50% | September 15, 2018 |
| Senior notes 2011 – 2021 | \$650 | 5.75% | February 15, 2021 |
| Senior notes 2011 – 2021 | €300 | 5.25% | February 15, 2021 |
| Senior notes 2012 – 2019 | €250 | 5.25% | July 31, 2019 |
| Senior notes 2012 – 2019 | \$800 | 5.625% | July 31, 2019 |
| Senior notes 2012 – 2022 | \$700 | 5.875% | January 31, 2022 |
| Euro notes | €451 | – | October 27, 2014 |
| Accounts receivable facility | \$800 | – | January 15, 2016 |
1 Original amount before amortization.
In our long-term financial planning, we focus primarily on the leverage ratio, defined as total debt/EBITDA ratio. This sets our total financial debt in relation with our earnings before interest, taxes, depreciation and amortization (EBITDA). Fresenius Medical Care holds a strong position in the growing dialysis sector, which is considered in general non-cyclical. This industry is characterized by relatively stable cash flows. Our market position is further supported by a high creditworthiness of most of our customers. A substantial portion of our accounts receivables are generated by governmental healthcare institutions. While payment and collection practices vary not only between countries but also between individual authorities, governmental payors usually represent a lower to moderate credit risk. This allows us a more consistent and higher level of debt as this may be the case in other industries. At the end of 2012, the debt/EBITDA ratio was 2.83
compared to 2.69 in the previous year. Further information on this can be found in the "Strategy, objectives, and corporate management" section starting on page 36.
For detailed information on financing, please see the "Financial report", section "Liquidity and capital resources" starting on page 25 and the "Outlook" chapter starting on page 119.
In the beginning of 2012, Standard&Poor's Ratings Services upgraded the company's corporate credit to "BB+" from "BB" and confirmed a "stable outlook". The rating agencies Moody's and Fitch have confirmed Fresenius Medical Care's ratings, Moody's with "Ba1" and a "stable outlook", Fitch with "BB+" and also a "stable outlook".
| T. 2.3.10 | Rating | ||
|---|---|---|---|
| Standard & Poor's | Moody's | Fitch | |
| Corporate credit rating | BB+ | Ba1 | BB+ |
| Outlook | Stable | Stable | Stable |
| Senior secured debt | BBB– | Baa3 | BBB |
| Senior unsecured debt | BB+ | Ba2 | BB+ |
| T. 2.3.11 | Net investments and acquisitions by segment in \$ M |
|||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | of which property, plant and equipment |
of which acquisitions/ intangible assets and other investments |
of which divestitures |
Absolute change compared to 2011 |
|
| North America | 1,914 | 1,047 | 298 | 1,849 | 233 | 867 |
| International | 192 | 1,133 | 195 | 28 | 31 | –941 |
| Corporate | 175 | 165 | 173 | 2 | 0 | 10 |
| Total | 2,281 | 2,345 | 666 | 1,879 | 264 | –64 |
60
Effect of off-balance-sheet financing instruments on our financial situation and assets and liabilities Fresenius Medical Care is not involved in any off-balance-sheet transactions that could have or will be likely to materially affect the Company's financial situation, profit and loss position, liquidity, investments, assets or capitalization.
Our main sources of liquidity are our operating cash flow and credits granted by third parties, as well as the use of other financing instruments as required. We need these resources primarily to finance working capital, to fund acquisitions, to build, expand and equip our own dialysis centers and production facilities, and to repay debt and to pay dividends. For detailed information on liquidity, please see the "Liquidity and capital resources" section of the "Financial report" starting on page 25.
Fresenius Medical Care will propose the Annual General Meeting the 16th consecutive dividend increase. The recommended dividend per ordinary share is expected to increase by 9% from €0.69 for 2011 to €0.75 for 2012, the dividend per preference share by 8% to €0.77 (2011: €0.71). The total dividend payout expected
will amount to approximately €230 M (2011: €210 M). For further information on dividends, please refer to the "Dividend continuity" section on page 25.
In 2012, Fresenius Medical Care spent \$2.28 BN on capital expenditures, acquisitions and the purchase of intangible assets. \$1.91 BN of this was spent in the North America segment, \$192 M in the International segment and \$175 M for corporate functions.
Total net investment in property, plant and equipment was \$666 M, up from \$570 M the year before. A large portion of capital expenditures – \$372 M – concerned equipping existing and new clinics. In addition, \$170 M was invested in the maintenance and expansion of production capacity, primarily in Germany, North America, France and China. \$133 M was spent for the capitalization of dialysis machines provided to customers – mainly in the International segment. A lesser amount of \$9 M is accrued due to divestments. Capital expenditures in property, plant and equipment amounted to some 5% of overall revenue, at the same level as in the previous year.
| Days sales outstanding T. 2.3.13 in days, December 31 |
|||||
|---|---|---|---|---|---|
| 2012 | 2011 | Change | |||
| North America | 55 | 55 | 0 | ||
| International | 115 | 121 | –6 | ||
| Total | 76 | 80 | –4 |
41% of net investments were used for expansion activities, while 59% were spent on maintaining existing production sites and dialysis clinics.
In geographical terms, 45% of our net investments were made in North America, followed by corporate functions with 26%, Europe with 21%, Latin America with 4% and Asia-Pacific with 4%.
In 2012, around \$1,879 M was spent on acquisitions, primarily for purchasing dialysis clinics. \$1,849 M of this sum went to the North America segment, \$28 M to the International segment and \$2 M to corporate functions. Acquisitions in 2012 related primarily to the purchase of Liberty Dialysis Holdings, Inc.
The cash from operations, also known as operating cash flow, rose in 2012 by 41% and exceeded with 2.04 BN (previous year: \$1.45 BN) the mark of two billion for the first time in the history of the Company. The increase is mainly due to the favorable development of working capital. Cash flows were used for investing activities (expenditures and acquisitions). A detailed description of additional factors is presented in the "Liquidity and capital resources" section of the "Financial report" starting on page 25.
In 2012, we observed some regional differences in the payment patterns of our customers. The days sales outstanding, in other words the number of days that pass before customers settle outstanding invoices of Fresenius Medical Care, decreased significantly in the year under review. The days sales outstanding in the North America segment continued to be on a low level in 2012. In the International segment the improved payment behavior of individual European countries has contributed to a decline in days sales outstanding. The high days sales outstanding in this segment mainly reflect the average payment delays by government and private entities, and here particularly in European countries with relatively higher budget deficits.
In 2012, our free cash flow, before acquisitions and dividends, was \$1,373M compared to \$876M in 2011. Taking account of payments for acquisitions (net of divestitures) of \$1,615M (2011: \$1,775M) and dividends of \$272M (2011: \$281M), we achieved a free cash flow of \$–514M compared to \$–1,180M in the previous year.
For further information, please see the "Capital expenditures and acquisitions" section starting on page 60.
| Abbreviated statement of cash flow1 T. 2.3.14 in \$M |
||||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | Veränderung | ||||
| Cash at the beginning of the year | 457 | 523 | –13% | |||
| Cash flow from operating activities | 2,039 | 1,446 | 41% | |||
| Cash flow from investing activities | (2,281) | (2,345) | – | |||
| Cash flow from financing activities | 486 | 793 | – | |||
| Effect of exchange rate changes on cash and cash equivalents | 5 | 40 | – | |||
| Cash at the end of the year | 688 | 457 | 50% | |||
| Free cash flow | 1,373 | 876 | 57% |
1 A detailed representation can be found in the "Financial report" starting on page 44.
| C . 2.3.15 | Operating cash flow in \$M |
||
|---|---|---|---|
| 2012 | 2,039 | ||
| 2011 | 1,446 |
62
We recorded an increase in total assets and once again improved our asset situation in the year under review. The key balance sheet indicators reflect our Company's sustained growth and successful performance.
The Company's total assets grew by 14% year-onyear to \$22.33 BN (also 14% in constant currency terms).
Fixed assets rose by 17% (16% in constant currency) to \$16.20 BN at the end of 2012. This corresponds to approximately 73% of the Group's total assets. The increase in our assets in absolute terms is mainly attributable to acquisitions.
Fixed assets include goodwill of \$11.42 BN, mainly from the acquisition of Renal Care Group in 2006 and the acquisition of Liberty Dialysis Holdings, Inc. in 2012 as well as the founding of Fresenius Medical Care in 1996. The increase in goodwill in 2012 compared to the previous year (\$9.19 BN) resulted primarily from acquisitions undertaken in the reporting year, especially from the above mentioned acquisition of Liberty Dialysis Holdings, Inc. in the amount of \$ 2.0 BN. Property, plant and equipment were up 12% to \$2.94 BN in the year under review, mainly due to capital expenditures and acquisitions. Further information on this can be found in the "Capital expenditures and acquisitions" section starting on page 60.
Other non-current assets and notes receivable decreased from \$0.55 BN to \$0.35 BN due to the repayment of a loan regarding the acquisition of Liberty Dialysis Holdings, Inc.
Fixed assets Other current assets Accounts receivable Inventories
| Balance sheet structure – liabilities C . 2.3.17 |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2012 | \$22.33 BN | 41% | 45% | 14% | ||||
| 2011 | \$19.53 BN | 41% | 37% | 22% |
Shareholders' equity Long-term liabilities1 Short-term liabilities
1 Including minority interests of other shareholders with put options.
Current assets rose by 8% (7% in constant currency) to \$6.13 BN at the end of 2012. Key drivers were the increase in cash (by 50% to \$688 M) and the trade accounts receivable (by 8% to \$3.02 BN), mainly due to the acquisition of Liberty Dialysis Holdings, Inc. and to business growth related to a reduction of days sales outstanding (DSO).
Inventories grew by 7% (also 7% in constant currency terms) to \$1.04 BN in 2012. This development is mainly due to the business growth. For further information, see the "Financial situation" section starting on page 58.
The liabilities side of the balance sheet saw a 14% increase in shareholders' equity to \$9.21 BN at the end of 2012. This was mainly driven by earnings, stock option exercises and an increase in non-controlling interests without put-options. Shareholders' equity was reduced by dividend payouts for 2011. The equity ratio amounted to 41% and thus remained unchanged from the previous year's figure.
Liabilities increased by 14% (14% at constant currency) to \$13.12 BN. Debt amounted to \$8.30 BN (2011: \$7.21 BN), \$0.46 BN of which were attributable to short-term borrowings (2011: \$1.72 BN). The reduction is attributable to the closing of the new senior credits, reported under medium to long-term debt. These increased to \$ 7.84 BN from \$5.49 BN in 2011. The increase resulted from the issuance of bonds in January, 2012 and from the reclassification of the liabilities from the senior credits. 73% of our debt is U.S. dollar denominated, compared to 70% in the previous year.
The Group has no significant accruals. The largest single accrual of \$115 M covers a special charge for the final settlement of fraudulent conveyance claims and all other legal matters in connection with the National Medical Care transaction in 1996 resulting from the bankruptcy of W.R. Grace. Further information can be found in note 19 of the "Financial report" starting on page 95.
As part of our growth strategy, we develop new market-oriented products and enhance existing ones as well as improving dialysis treatments. Our R & D teams benefit from our vertically integrated business model. As we also operate dialysis clinics, they have access to the opinions and experience of patients, physicians, and nurses at all times.
In the reporting year, Fresenius Medical Care spent a total of around \$112 M on research and development (2011: \$ 111 M). Similar to previous years, R & D expenditure corresponded to approximately 3% of our dialysis product revenue and slightly less than 1% of our total revenue. At the end of 2012, our patent portfolio comprised some 4,850 property rights in approximately 850 patent families, i.e. groups of patents linked to an invention. Our development work in the reporting year produced around 80 additional patent families.
In 2012, a total of 530 highly qualified employees (full-time equivalents) worked for Fresenius Medical Care in R & D worldwide (2011: 530). They come from
various backgrounds: Physicians work side by side with software specialists, business economists and engineers in interdisciplinary teams. Our largest R & D unit with around 350 employees is in the EMEA region (Europe, Middle East and Africa); charts 2.4.4 and 2.4.5 provide information on their levels of education and professional backgrounds. Most of our R & D colleagues work at our German facilities in Schweinfurt and Bad Homburg. Smaller teams work in St. Wendel (also in Germany), and in Bucharest (Romania), where an R & D competency center specializing in software developments has been set up. In addition, we have specialist teams for research and development in the North America and Asia-Pacific regions.
Effective March 1, 2013 Fresenius Medical Care has appointed a new member to the Management Board,
| T. 2.4.1 | Expenditures for research and development in \$ M |
||||
|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Total | 112 | 111 | 97 | 94 | 80 |
| T. 2.4.2 | Number of patents | ||||
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Total | 4,850 | 4,415 | 3,601 | 2,850 | 2,402 |
| T. 2.4.3 | Number of employees in R&D full-time equivalents |
||||
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Total | 530 | 530 | 503 | 477 | 415 |
who is responsible for our R & D activities. This underscores our aspiration to constantly improve our products, develop new solutions for treating patients on dialysis, and at the same time increase the efficiency of our processes in general and control them at a global level – see "Subsequent events" on page 118.
In Krems in Austria, we operate our own R & D department for sorbent technology see glossary on page 163 as well as manufacturing products for various sorbent therapies. In Krems, we are also in close contact with local universities – see section "Cooperation in research extended" in this chapter. Over the next few years, we intend to expand our unit in Krems into a competency center for sorbent technologies, as we believe that these technologies hold considerable potential for new blood purification applications and treatments.
As part of our innovation culture, we also strive to carry out research and development responsibly. For more information on this, see the "Responsibility" chapter starting on page 94.
Our R & D work was again particularly influenced by the following four trends in 2012:
Advances in medicine and technology:
Dialysis is still a relatively young discipline. It has only been available as a standard treatment for chronic kidney failure for about 50 years. However, research on the complex interactions and concomitant effects that occur with kidney failure is increasing. At the same time, the technological possibilities for treating patients are also improving. Our R & D is geared towards quickly turning new findings into market-ready products, enabling us to offer patients gentler, safer and more individual treatment. Major technological trends in this area include new developments in information technology, technologies to gradually reduce the size of products and simplify their use, and the integration of various treatment elements to create holistic therapy systems. We are also working on promising methods such as sorbent technology for
recycling tap water, as large quantities of water are required for hemodialysis treatment.
More people than ever suffer from chronic kidney failure. It is estimated that by 2020, there may be around 3.8 M kidney patients worldwide. This development is exacerbated by the increase in the number of people suffering from diseases such as high blood pressure and diabetes – typical precursors of kidney failure that are becoming more and more common due to factors such as a lack of exercise, an unhealthy diet, or obesity. For this reason, a key focus of our research and development is also on home therapies such as peritoneal dialysis and home hemodialysis along with related technologies and products. Treatment at home provides patients who are suited to it with greater freedom in their daily lives. It also helps to free up the limited capacity in dialysis clinics and gives people who live in areas with a weak healthcare infrastructure access to treatment that may not have been available otherwise.
The increase in concomitant diseases:
Patients with chronic kidney failure are getting older. This is partly because society is aging overall and the risk of suffering from end-stage renal disease increases with age. Another reason is that advances in medicine are raising the life expectancy of kidney patients. The older patients get, however, the greater the likelihood of concomitant diseases occurring, for example severe cardiac and vascular conditions. Based on their growing prevalence and new scientific insights, these are increasingly becoming a focal point of our research and development as diagnostic and therapy systems that go beyond dialysis itself.
An aging population, the spread of chronic illnesses, and the aspiration to offer new or improved technologies in patient care all present major financial challenges to healthcare systems. Even more reason for Fresenius Medical Care to abide by a principle
that is also specified in our internal research guidelines: Innovations not only have to be of high quality, but must also be affordable so that patients can benefit from them. Based on our experience in operating our own dialysis clinics, we do not consider these to be incompatible demands.
To meet the challenges described and achieve the best possible therapeutic performance, our R & D teams continued to enhance our dialysis products and therapy systems in 2012. The focus was on further improving clinical results and the quality of life of patients as well as minimizing cardiovascular risks while keeping therapy costs under control and making sure that our products are easy and safe to handle.
In the past year, we introduced a new therapy system, the 5008 CorDiax. We also provided care teams in the U.S. with new modules for the 2008T therapy system.
Introducing the new 5008 CorDiax therapy system In the reporting year, we launched the new 5008 CorDiax therapy system in the EMEALA (Europe, Middle East, Africa and Latin America) region. It combines proven and new functions to offer topquality therapy and maximum patient safety as well as being easy to use and making sustainable use of available resources. This enables us to attain optimum treatment results and further minimize the risks of cardiovascular diseases.
The outstanding functions of the 5008 CorDiax are:
Venous Access Monitor (VAM):
A rare but dangerous occurrence is the loss of blood during dialysis. This can happen if there are leaks in the bloodline system or if the fixture of the venous needle that connects the patient's vascular access with the bloodline system comes loose, for example. The software-based monitoring system VAM detects
such problems and reacts with an alarm that activates the necessary safety responses in the dialysis device. VAM has been available for the 5008 therapy system since 2011 and is already well established on the market. We work constantly on its optimization.
Current data shows that ONLINE HDF treatment see glossary on page 162 with our 5008 therapy system is particularly gentle and efficient if the volume of blood replaced during dialysis is as high as possible. However, if this level is too high, adverse side-effects can occur. As the maximum replacement volume can be different for individual patients and even for individual dialysis treatments, we developed the Auto-Sub plus software for the 5008 CorDiax in the reporting year. It enables optimized, fully automatic regulation of the volume of blood to be replaced, tailored to each patient's needs.
The new FX CorDiax dialyzer, which we introduced in Europe in 2011, is particularly effective. It contains the high-performance Helixone plus membrane, which selectively filters toxins with a medium molecular size and low molecular weight, such as phosphates, out of the blood, thus reducing the risk of cardiovascular diseases. The membrane also ensures that beneficial substances for the patient, such as the essential blood component albumin, are not flushed out at the same time.
Children suffering from kidney failure need special care when undergoing dialysis treatment. With this in mind, we launched the 5008 CorDiax HD-Paed in the reporting year. It is the first hemodialysis (HD) device in the world to be approved for children with a body weight of ten kilograms or more.
We also improved our 2008T therapy system for the U.S. market in the reporting year. It is the first hemodialysis machine to be approved on the U.S. market
with an integrated software platform for entering and managing clinical treatment data directly at the treatment room. The module helps physicians and clinic staff to record data efficiently and promptly as required by the authorities for billing services pursuant to the new reimbursement system in the U.S. The 2008T can be connected to various data management systems used in U.S. dialysis clinics. The advantage for care staff is that they can access dialysis treatment data and data from the medical information system (MIS), which were previously recorded and stored in a variety of sources, in the treatment room, enabling them to adjust the treatment and treatment plans directly.
In the reporting year, we added an infusion pump for intravenously administered iron compounds to the dialysis device and tested it at several dialysis centers. Studies have shown that the pump makes it easier for clinic staff to prepare and administer the exact dosage of iron products, thereby further increasing patient safety as well. We continue to establish the infusion pump on the market as a component of the 2008T in 2013.
A further module to be launched in 2013 for the 2008T is the bibag system. It contains dry bicarbonate concentrate as a pure substance. This dispenses with the need for storing the water contained in liquid concentrates, reducing the amount of packaging and the corresponding waste to a minimum.
In the reporting year, we also enhanced and compacted our Crit-Line analysis device so that it can be integrated in our 2008T dialysis machine. Crit-Line is used to control the fluid balance of patients with chronic and acute kidney failure – and therefore also to detect and treat attendant symptoms. We expect to launch the enhanced analysis device, called CLiC (Crit-Line in a clip) on the U.S. market in 2013 following approval from the U.S. Food and Drug Administration (FDA).
One way of treating the rising number of dialysis patients outside of dialysis centers is home hemodialysis. In the reporting year, we enhanced two home hemodialysis machines – the 2008K@home in the U.S. and the 5008 S CorDiax home HD in the EMEALA region – that adapt treatment to patients' individual medical needs and daily lives.
The 2008K@home is one of only two devices specifically for home hemodialysis with FDA approval in the entire U.S. market. The user interface has been simplified to enable patients to operate the machine intuitively. We also improved other products in the reporting year. A new wireless wetness detector will be launched in 2013 that features a new alarm function, providing additional safety. A signal sounds as soon as a leak occurs at the vascular access during dialysis, which, if it were to go unnoticed, could be fatal.
Previously, Fresenius Medical Care's ONLINE HDF treatment method was restricted to dialysis in clinics. Thanks to the 5008 S CorDiax home HD, which we introduced in 2012, this therapy method is now also available as a standard feature in home hemodialysis. Functions such as cable-free remote control, an intuitive user interface designed with patients in mind, and innovative safety functions have been developed for the special needs of home hemodialysis patients.
Our home hemodialysis systems already give some of our patients greater flexibility in their daily lives. The Portable Artificial Kidney (PAK), which we aim to launch on the North American market following approval from the U.S. Food and Drug Administration (FDA), is another device that should provide even more dialysis patients with even greater independence in future.
The key advantages of the Portable Artificial Kidney are:
It can be quickly and easily dismantled into two portable sections that are easy to transport. In addition, it is simple to assemble and take apart without the help of a technician and is easy to use.
Thanks to innovative sorbent technology, the PAK needs just six liters of potable tap water for hemodialysis treatment. By comparison, conventional hemodialysis requires 120 to 200 liters of specially treated warm water per treatment. Consequently, the PAK no longer needs to be connected to the water supply for dialysis treatment.
This means that the PAK is extremely resourceefficient, flexible and can be used almost anywhere, giving dialysis patients maximum independence and mobility.
In addition to developing new products and procedures and continuously enhancing existing ones, a process known as sustaining engineering, we are also active in relevant areas of clinical research such as chronic kidney failure in the broadest sense and technologically related blood purification procedures.
In the reporting year, we undertook clinical studies to examine the automatic regulation of the electrolyte balance. The overall electrolyte balance of the human body and the individual electrolyte concentrations in the various bodily fluids and tissues are hugely significant for the function of the entire organism. In healthy people, the natural kidney assumes the complex task of regulating this; in patients with end-stage renal disease, dialysis performs this function. Particularly in hemodialysis, where the dialysis solution is continuously prepared by a dialysis machine, it is possible to influence these processes favorably by adapting the dialysis solution accordingly. As the underlying issues are complex, we need to test these thoroughly in clinical studies before we can offer an automated method of this kind as a routine procedure to aid physicians. We are currently performing clinical tests on such a procedure.
Another focus of our clinical studies at present is peritoneal dialysis (PD) and especially overhydration, which affects over half of PD patients. Active fluid management can offer patients numerous benefits: It could increase the survival rate, reduce the number and duration of hospital stays, diminish the occurrence of an enlarged left ventricle of the heart, improve patients' quality of life, and better maintain residual renal function. In the area of hemodialysis, our Body Composition Monitor analysis system is already an integral part of therapy, enabling us to determine the individual fluid status and body composition of each patient. We are currently conducting a study to show that the Body Composition Monitor can also be used to improve fluid management in PD patients.
In a study started in 2011, we are accompanying 1,000 adult patients over a three-to-four-year period, who were about to have their first PD treatment after diagnosis when the study began. Data is recorded regularly on each patient including their current medication, typical laboratory results and fluid status. In this way, we aim to track the status and development of fluid levels before and during PD treatment in relation to residual renal function, nutrition levels and the treatment prescribed by the physician. We also intend to obtain information on the best time to switch treatment from PD to HD.
In another study, we are assessing a low-sodium PD solution for patients with high blood pressure compared to a conventional solution already available on the market. The aim is to reduce high blood pressure and improve sodium and water management. High blood pressure and sodium and water deposits are typical concomitant diseases in PD patients with end-stage renal disease.
We work with universities and research institutes around the world that operate in our specialist field. One example is the Danube University Krems in Austria, whose research into extracorporeal blood purification processes with sorbents has been funded by us for about 20 years. This long-standing partnership with an excellent team of specialists was ultimately one of the reasons why we decided to invest further in our Krems facility.
We also maintain close contact with research institutes in the U.S., where our cooperation partners include renowned universities as well as the Renal Research Institute (RRI). The RRI was founded in 1997 as a joint venture between Fresenius Medical Care North America and the Beth Israel Medical Center, a hospital in New York. It is a leading institute in the field of clinical treatment and research into chronic kidney failure. Together, we are working on some fundamental issues related to dialysis treatment. These include the complex causes of kidney disease, particular aspects of treating children with kidney disease, or issues such as fluid management in dialysis patients or the effects of kidney disease on the natural acid-base balance in the human body.
Our R & D projects are mainly carried out by our own employees and research departments. To date, we have only used third-party services for these purposes to a small extent. When cooperating with national and international universities and other scientific institutions, we use various financing models. Some of our research alliances are also publicly funded.
As the industry leader with many years' experience in dialysis, we can call on considerable internal resources in the area of production. These include manufacturing capacity in all regions as well as expertise in complex production technologies and processes. Furthermore we have extensive skills in quality management, procurement and logistics for sophisticated medical products.
Our largest sites in terms of production volume are in the U.S., Germany and Japan. Chart 2.1.1 on page 34 presents an overview of our main production sites.
We manufacture dialysis machines at two sites: Schweinfurt (Germany) and Walnut Creek (U.S.). In November 2012, Fresenius Medical Care produced its 500,000th dialysis machine. The device that belongs to the multi-award-winning 5008 series rolled off the production line at the Schweinfurt plant and was donated to the German Kidney Foundation. Further information can be found in our magazine starting on page 44.
We manufacture most of our other products directly in the regions in which they are needed. For example, we produce and assemble dialyzers and the corresponding hollow fibers at our facilities in Ogden (U.S.), St. Wendel (Germany), L'Arbresle (France), and Buzen (Japan), among others. Concentrates for hemodialysis are manufactured at different sites across the globe, for example in Germany, Italy, Turkey, Morocco, the U.S., Argentina and Australia.
Most of the solutions used for peritoneal dialysis are supplied by our production sites in St. Wendel and Ogden. In terms of production volume, our plant in Reynosa (Mexico) is the largest facility for bloodline systems both within the Company and worldwide.
The Global Manufacturing Operations division (GMO) bundles our expertise in production methods and processes, quality management, strategic purchasing, and supply chain management across all regions. The central GMO division enables us to:
At the end of 2012, the division comprised 13,175 employees (2011: 12,600) and more than 40 production sites in around 30 countries. The functions and activities of the GMO division in the reporting year are set out in the sections below.
Some of our production sites have longstanding experience in manufacturing certain products. As Company-wide centers of excellence, they use their expertise in core technologies and materials to advise our local production sites on harmonizing their processes. With this approach, GMO encourages the exchange of particularly successful procedures and methods between the different regions and sites.
At the same time, we are continuously assessing new opportunities for the different regions to supply each other with products and components, thus further increasing the efficiency of production. For example, in 2012 we started manufacturing empty bags for hemodialysis for the Latin American market at our site in L'Arbresle (France). These bags are then filled with dry concentrate in Colombia and Brazil.
Furthermore, we expanded and optimized many of our production sites in the reporting year. For instance, several new production lines as well as a new high-bay warehouse were put into operation at our St. Wendel facility in 2012. At our plant in Ogden, we raised our dialyzer capacity from 37 M to 48 M and added another production line for hollow fibers for dialyzers in the reporting year. This enables us to meet the growing global demand for dialyzers. We also boosted production of our dialysis machines in Schweinfurt by approximately 20%.
In the area of quality management, we continued initiatives to improve quality, cut costs, and reduce processing times in production as part of implementing a cross-regional program.
To offer our patients and customers worldwide products and treatment of the highest quality, we have installed comprehensive quality management systems in all our business regions. These ensure that all of our products and procedures comply with quality and safety standards from development and production to market approval and use in clinics, right up to training customers and dealing with complaints. The quality management systems used in our production unite internal regulations, processes and procedures that do not only meet the demands of generally recognized external standards and guidelines but also represent best practice. Our plants apply recognized quality management tools such as "Lean Six Sigma", a quality management system to describe, measure, analyze, improve and monitor processes with the aim of boosting quality in production.
Our quality and production management teams work closely with local authorities in the respective regions. Some of our production sites are certified according to several regional quality standards. Therefore linking quality issues throughout the Company is so important to us. This multiple certification enables us to be flexible and supply markets worldwide with our products while minimizing potential risks relating to potential supply shortages.
To ensure compliance with the defined quality levels and legal requirements for production in all regions, we have established similar processes worldwide. This enables us to ensure minimum standards for guidelines and processes relating to quality management systems at all Fresenius Medical Care production facilities. In addition, we aim to further harmonize our internal audit processes in quality management in the next fiscal year.
We made further progress with the global "FOSY" initiative in our regions in the reporting year. FOSY stands for Fresenius Operating System. It is a management philosophy with which we aim to improve quality in production, cut costs and reduce processing times, thus enhancing our operational efficiency. In the reporting year, we incorporated all operating units as well as quality management in FOSY. GMO finance and GMO administration will follow in 2013. FOSY is based on the efficient processes of Lean Management and process control as part of the Six Sigma method, but goes significantly further. We are guided by the following four principles of this philosophy:
To achieve the efficiency and quality objectives of FOSY, staff undergoes appropriate training courses, for example, taking part in workshops, called Kaizen events.
In the area of strategic purchasing, it is becoming increasingly important to closely observe regional as well as global developments in the procurement markets and their individual currencies. Only in this way can we benefit from international price advantages and compensate for dependencies on individual suppliers when purchasing raw materials and components. Our employees in strategic purchasing in Europe, the U.S. and Asia therefore work closely together to coordinate procurement and further expand our competitive, globally balanced supplier network. The key objectives are to ensure the supply of raw materials from different currency areas and manage our relationships with the Company's main suppliers as effectively as possible.
We coordinate tenders and negotiations for the purchase of raw materials or components that are needed by more than one site centrally in cross-regional project teams. To enable us to manufacture products at several sites throughout the Company in line with demand, we also enter into partnerships with suppliers that provide us with components of a consistently high quality. They also need to meet strict production specifications and comply with the principles of our codes of conduct. These also include multinational suppliers that can produce and deliver raw materials in more than one region.
Based on recent developments in the financial and real markets, we assume that prices will continue to fluctuate to some extent despite easing of tension in the commodities markets in the short and medium term. Therefore, in the reporting year, we focused our instruments for market development partly on forging even stronger links with our strategic partners and further diversifying our supplier portfolio.
Our procurement strategy is geared to purchasing high-quality materials and components at optimum economic conditions through long-term mutual relationships with our suppliers. We select our suppliers very carefully according to their suitability and performance, and develop innovative products and processes together with key suppliers. At the same time, we avoid risks relating to our supply of raw materials, for instance by ensuring that we are not dependent on one or just a few suppliers for core materials or components. Comprehensive risk management allows us to monitor our supply of components and raw materials as well as our relationships with strategic suppliers across regions according to uniform criteria, and thus identify potential risks at an early stage. These criteria include consistently high delivery quality, availability in the short, medium and long term, currency risks, and the likeliness of natural disasters. In 2013, we will introduce further forecasting and analysis tools to enable us to further minimize potential procurement risks.
Within the North America segment, GMO manages the entire supply chain, from distributing raw materials to our production sites all the way to delivering finished products to our customers. In the other regions, GMO's responsibility only goes as far as delivering finished goods to our central distribution centers; the regions themselves are responsible for the further stages of the supply chain.
In the reporting year, we stepped up cooperation between GMO, our regional supply chain management teams, and sales and marketing. This enabled us to align our production capacity and inventory management more closely with medium-term demand
patterns. In addition, we continuously expanded our planning system for demand assessment and inventory management with respect to our most important disposable products: Whereas it was initially limited to bloodline systems, it can now also be used for dialysis solutions, dry concentrates and dialyzers. The system enables us to centrally plan and manage all tasks along the supply chain for these products across all regions and production sites within the International segment. A special distribution logic ensures that production orders for the same products and manufacturing methods are efficiently spread between the relevant production sites.
Our system for demand assessment and inventory management is based on the SCALE (Supply Chain Alignment EMEALA) initiative. We are gradually implementing this program in the EMEALA (Europe, Middle East, Africa, Latin America) region. SCALE comprises numerous measures to improve and harmonize the flexibility, service quality and cost efficiency of supply chain management. In 2012, we introduced automated replenishment control in additional national warehouses, including those in Switzerland, Turkey and Russia; thereby we already integrated the system in 15 countries in the EMEA region. This ensures that our national warehouses are refilled when their inventory reaches a defined minimum level. We plan to link our subsidiary in Serbia to the system in 2013.
In December 2011, we also integrated our production of hemodialysis devices for the EMEALA region in Schweinfurt into the processes developed as part of the SCALE project. However, unlike in the case of disposable items, a production order for HD devices is not triggered by demand planning ("make to stock"), but by a customer order, whereby the device is configured according to the customer's specifications ("make to order"). Thanks to the transparency created by the new process, we have increased the supply capability of this facility.
Chapter 2.6
We use our many years of experience and extensive technological expertise to continuously enhance our products with the aim of constantly optimizing the success of dialysis treatment, minimizing the risk factors for cardiovascular diseases and making life easier for dialysis patients. Our main considerations in developing and manufacturing our dialysis products are their quality and safety.
Hemodialysis (HD) is the most common type of renal replacement therapy. In dialysis centers, the patient's blood is filtered outside the body in a socalled dialyzer. In this process, toxins and excess water are removed, while blood cells and important proteins remain in the blood. Blood circulation is monitored and controlled by a dialysis machine during treatment. Fresenius Medical Care offers a comprehensive range of products for HD, including HD machines and modular machine components, dialyzers, bloodline systems, HD solutions and concentrates, needles, water treatment systems, data processing and analysis systems, and dialysis chairs.
Computer-driven dialysis machines perform key tasks during hemodialysis: They pump blood from the patient's body through a bloodline system into the dialyzer. A dialysis fluid absorbs the toxins and excess water filtered out of the blood and transports them out of the body. The dialysis fluid is fed into the dialyzer via a separate cycle. The device also adds an anti-coagulation drug to the blood. In addition, the machine is equipped with various automatic monitoring and control functions that ensure safe and efficient dialysis treatment. The modular design of our hemodialysis machines allows treatment to be tailored to patients' individual needs and makes it easier for us to constantly enhance our devices and modules. For further information, see the "Research and development" chapter starting on page 64.
With its 2008T, 4008S classic and 5008 series dialysis machines, Fresenius Medical Care is the clear market leader. We sold 42,350 dialysis machines worldwide in 2012 (2011: 40,150). This means that more than one in two systems sold are produced by Fresenius Medical Care.
The 5008 therapy system features an extremely intuitive user interface. Its touchscreen makes the device easy and safe for doctors and nursing staff to use. In addition, this dialysis machine allows for ONLINE hemodiafiltration (HDF) – see glossary on page 162 – as a standard feature. One of the advantages of this type of treatment is that it controls blood pressure and anemia more effectively and therefore has a positive impact on risk factors for cardiovascular diseases. By upgrading the device to the 5008 Cordiax, launched in the reporting year, Fresenius Medical Care has combined proven functions with totally new or improved applications. For example, the new 5008 Cordiax includes a special monitoring system that reacts promptly if the venous needle comes loose.
The 4008S classic system boasts impressive standard features and delivers very high treatment quality as well as reliability and safety at a low price. This gives even more dialysis patients easier access to high-quality dialysis treatment, for instance in regions with a poor infrastructure.
The 2008T dialysis machine for the North American market combines state-of-the-art treatment technology with the "Fresenius Clinical Data Exchange (CDX)" system, a software to record and exchange clinical data. This gives nursing staff direct on-site access to dialysis treatment data and all other clinical data that would otherwise be recorded and stored in different sources. As a result, this integrated treatment system simplifies routines as well as billing under the bundled reimbursement system in force in the U.S.
The dialyzer assumes key functions of the kidney. In a plastic tube approximately 30 centimeters long, the patient's blood flows through up to 20,000 ultrathin fibers. These extremely high-performance fibers are made of Fresenius Polysulfone, a special plastic characterized by exceptional cleansing properties and blood compatibility. This material is the result of our pioneering work in the development and production of dialyzers, and sets new standards in dialysis. The Helixone membrane, also developed and produced by Fresenius Medical Care, is an enhanced form of Polysulfone.
Dialyzers are generally used only once. Fresenius Medical Care also leads the field in this area. With our FX and FX CorDiax dialyzer series as well as its Optiflux series in North America, we provide a wide range of dialyzers. Thereby we meet the specific requirements of various therapy methods and patients' individual needs. Fresenius Medical Care has also developed dialyzers with a low blood priming volume specifically for treating children with dialysis.
Fresenius Medical Care sold about 100 M dialyzers in 2012 (2011: 93 M). The Company thus accounts for almost half of the global market of this product group.
From manufacturing membranes to packaging – Fresenius Medical Care carries out the entire production process for dialyzers under one roof. This enables us to observe high quality standards.
Overhydration is a widespread problem among dialysis patients and a significant cause of cardiovascular diseases. In addition, it can reduce the effectiveness of medication prescribed for illnesses associated with kidney failure. An optimum fluid balance is therefore a key challenge in treating patients with chronic kidney failure.
The patient's individual fluid status can be measured extremely well with the Fresenius Medical Care Body Composition Monitor analysis system. The results can also be used to track and better understand the correlation between overhydration and blood pressure in each patient.
The Crit-Line analysis device developed for the North American market also measures changes in the fluid balance of hemodialysis patients during treatment. This makes it possible to identify risk patients who are severely overhydrated but otherwise show no clinical symptoms. Crit-Line is also used to support the treatment of anemia in kidney patients.
In peritoneal dialysis the peritoneum is a natural filter. It has properties similar to the membranes used in the dialyzer, allowing certain substances to permeate its pores while keeping others back. Dialysis via the peritoneum is called peritoneal dialysis (PD). PD is carried out by patients themselves at home or on the move, for example at work. We offer PD systems and solutions for continuous ambulatory peritoneal dialysis (CAPD) and automated peritoneal dialysis (APD). Both therapies are supported by our patient management software.
In continuous ambulatory peritoneal dialysis, dialysis solution is fed from a bag through a catheter into the patient's abdominal cavity, where it is flushed through the peritoneum. This process is carried out three to five times a day. After four to five hours, the patient drains the dialysis solution – now mixed with metabolic products – into an empty bag and replaces it with new solution. This ensures that the blood is continuously cleansed.
Stay.safe is a system provided by Fresenius Medical Care for continuous ambulatory peritoneal dialysis. It consists of a bag filled with fresh dialysis solution, an empty bag for the used solution, a system of tubes, and DISC, a central control switch specially developed by Fresenius Medical Care. Thanks to DISC technology, all treatment steps can be performed safely and easily in a defined sequence, virtually eliminating operating errors. In addition, the DISC features a special valve system that prevents bacteria from entering the catheter and causing an infection in the peritoneum. All stay.safe components are made of Biofine, an environmentally friendly plastic developed by Fresenius Medical Care comprising only carbon and hydrogen. Products made of Biofine can either be recycled or disposed of in an environmentally friendly way. The PD-Paed System is a product combination that is specifically approved for babies and small children with a body weight of up to 10 kg. It is suitable for treating chronic and acute kidney failure and also enables treatment in an incubator.
Automated peritoneal dialysis (APD) is mostly carried out at night. A special device called a cycler takes over the exchange of dialysis fluid. In the evening, the patient connects up with the cycler, which then automatically replaces the dialysate after just a short time in the abdominal cavity several times during the night.
Fresenius Medical Care offers modern cyclers for APD such as sleep.safe and the Liberty Cycler specifically for the North American market. They are simple and safe to operate thanks to user-friendly software, easy to carry and allow patients to sleep comfortably during overnight treatment. In the cycler, a hydraulic pump controlled by several pressure sensors performs the fluid exchange. A microprocessor monitors the entire treatment process, and the bags are automatically connected by means of barcode recognition. An integrated heater warms up the dialysis fluid before it is fed into the abdomen. A special version of the sleep.safe is also available for treating children.
We offer various patient management programs in our regions that support both CAPD and APD treatment. They include PatientOnLine, IQsystem, Pack-PD, and FITTesse. These programs help medical staff to tailor dialysis treatment to the patient's individual needs.
Fresenius Medical Care also produces and sells a host of other products essential to peritoneal dialysis such as PD catheters, disinfectant, or heating plates for heating the PD fluid to body temperature safely and conveniently.
Home hemodialysis (home HD) is an alternative to dialysis in a clinic. In this form of therapy, patients perform their own dialysis treatment at home, possibly with the assistance of a partner or trained personnel. To do this, patients must be trained at a training center.
Fresenius Medical Care's home hemodialysis products are easy to use and extremely safe. In addition, patients can be connected to the dialysis center from home via a data line to ensure even greater safety. Fresenius Medical Care also supports home HD patients with comprehensive, easy-to-understand training and special services.
Our home HD therapy systems – the 2008K@home for the North American market and the 5008S with a special home HD package – are specifically geared to the requirements of this form of treatment. The package includes a remote control, an integrated blood pressure monitor, and user-friendly software, among other things.
Continuous renal replacement therapy is used as part of routine clinical practice to treat acute kidney failure in critically ill patients.
Fresenius Medical Care has developed multiFiltrate, a therapy system that can be used for a wide variety of continuous treatment methods. Special therapy options are also available for children's intensivecare wards.
To prevent blood coagulation during dialysis treatment, heparin is generally administered to patients. Fresenius Medical Care was the first company to develop a system for continuous renal replacement therapy that uses citrate as an anticoagulant with the multiFiltrate Ci-Ca. In contrast to heparin, citrate only prevents coagulation in the blood circulation outside the body. This helps patients in particular with acute bleeding or a susceptibility to bleeding, for example as a result of an injury or after operations.
Extracorporeal blood cleansing is not only used to treat chronic kidney failure, but also to support the liver function on a temporary basis. Excess blood fats or pathogenic antibodies can also be removed in this way.
The liver performs numerous vital functions in the body. If it cannot fulfill them adequately due to illness, harmful substances quickly build up in the patient's blood. This can lead to life-threatening symptoms and, in extreme cases, even make a liver transplant necessary. To bridge the gap until the transplant or to prevent one altogether, fast and effective treatment is required.
Fresenius Medical Care's Prometheus therapy system combines hemodialysis treatment with an adsorptive method, thus temporarily relieving the liver.
Therapeutic apheresis is a medical process whereby specific pathogenic components are removed from the blood or plasma outside the body. It is mainly used in patients who can no longer be treated successfully with medication.
The therapeutic removal of specific blood fats (lipoproteins) is called lipid apheresis. DALI and MONET are two effective and gentle therapy methods developed by Fresenius Medical Care for lipid apheresis. Treatment usually lasts one to two hours. One treatment per week is sufficient for most patients.
Immunoapheresis is a therapy option for removing pathogenic antibodies. Immunosorba and Globaffin are two different sorbents offered by Fresenius Medical Care for immunoapheresis. During treatment, plasma is separated from the blood and fed through one of the two adsorbers. This binds the antibodies so that they accumulate in the adsorber and are removed from the plasma.
Although dialysis assumes many key functions of the kidney, it cannot replace all of them. For this reason, patients with chronic kidney disease must also take drugs to keep the body's mineral levels balanced and prevent anemia. Fresenius Medical Care produces and sells selected preparations for treating patients with chronic kidney disease.
Healthy kidneys produce the hormone erythropoietin (EPO), which stimulates the formation of red blood cells. Insufficient levels of EPO can result in anemia. Frequent consequences are fatigue and an increased risk of cardiovascular diseases. Because iron is also essential for the formation of red blood cells, an iron supplement is also administered to many dialysis patients in addition to EPO.
Phosphate is a mineral that contributes to bone, tissue and muscle formation. However, excessive phosphate levels can cause hardening of the arteries and damage the vascular muscles. In healthy people, excess phosphate is excreted via the kidneys. In people with chronic kidney disease, however, it remains in the blood. Dialysis patients therefore have to take phosphate binders.
If the calcium level in the blood is too low, vitamin D ensures that the body absorbs more calcium from food. Insufficient quantities of vitamin D often lead to calcium deficiency. In healthy people, the kidney produces vitamin D. Dialysis patients can counter a deficiency by taking vitamin D supplements.
In hemodialysis, the blood must not clot outside the body. Therefore, an anticoagulant such as heparin or citrate is added to it via the dialysis machine.
Chapter 2.7
Our unrivaled experience as a provider of both dialysis services and products makes us a valued partner in the healthcare system. By interacting directly with patients, doctors and specialist dialysis staff, we are able to constantly improve our services while ensuring that we never lose sight of the needs of our stakeholders.
Comprehensive care of patients with chronic kidney disease is a key factor when it comes to achieving the best possible treatment quality. We take all aspects of treatment into account, from the vascular access in the patient's arm to high-quality dialysis as well as individual diet programs and supplementary services. With our UltraCare brand in North America and our NephroCare brand in the Europe, Middle East, Africa and Latin America (EMEALA) and Asia-Pacific regions, we have established an integrated therapy concept as the standard in our clinics and in home dialysis. This enables us to achieve a sustained improvement in patients' quality of life and keep costs for healthcare systems in check.
Our therapy concept is based on the following principles:
We use our own high-quality products, pharmaceuticals and procedures in our clinics and for home dialysis patients; these are continually refined by our research and development team.
We provide our patients with comprehensive treatment and medical advice from qualified, highly motivated clinical personnel and physicians.
We create a safe and pleasant atmosphere in our dialysis centers for both patients and employees.
We systematically improve our performance and efficiency levels by working according to both external and internal quality standards, and running our clinics in a professional manner. In addition we obtain important results by analyzing and evaluating treatment data of our own clinics on an ongoing basis.
In line with these principles, our dialysis clinics are subject to specific standards relating to patient care, hygiene in clinical practice, the design of our clinics, and the purity of water used in treatment, to name just a few. As we offer our patients comprehensive care, our teams of doctors and dialysis personnel in many dialysis centers are assisted by nutrition specialists and social workers. To help patients better understand the issues of living with dialysis, we also provide our own educational material such as films and patient journals.
In North America, various internal advisory boards promote the development of our standards and services: For example, a social work advisory board deals with the psychosocial concerns of patients and designs training programs for our social workers; a committee for dialysis nurses develops guidelines and procedures for clinical care; medical advisory boards assist us in our work with nephrologists to achieve the best outcome for our patients; and the patient advisory board advises us on such matters as how to make health educational material more readily understandable. In the International segment, too, we engage in direct dialog with our patients to continuously improve our services, for example through regular surveys or roundtable discussions. In addition, we set up the EMEALA Medical Board in the reporting year. This advises us on shaping our medical and scientific strategy for the EMEALA region.
To monitor how well we deliver on the brand promises of our therapy concepts NephroCare and Ultra-Care, we measure and compare our quality performance in our individual clinics as well as at a regional level using certain performance indicators. These are defined in the NephroCare Balanced Scorecard and UltraScore performance measurement systems, among others. As well as industry-specific clinical benchmarks (see table 2.7.1), they include our own quality targets. In the U.S., we present an annual UltraCare Center of Excellence Award to dialysis centers that meet our performance targets exceptionally well. In the EMEA region (Europe, Middle East and Africa), the "Nephro-Care Award" is given each year to the management of the countries that perform best in seven different categories as a recognition of outstanding clinical and operational excellence.
Our doctors and nursing staff work according to quality standards that are generally recognized in the industry. In 2012, they again provided our patients with top-quality treatment, as shown by the current medical quality parameters in table 2.7.1. We collect this information continuously by means of clinical data management systems and evaluate it in anonymized form. This enables us to measure the quality of our dialysis treatments so that we can continuously enhance it.
The Kt/V value shows whether a patient was detoxified effectively during dialysis. It provides information on urea content in the blood. Urea is mostly excreted by healthy kidneys. In dialysis patients, it has to be filtered out of the blood using renal replacement therapy. The Kt/V value of more than 1.2 recommended by general guidelines and standards was again attained in our clinics in almost 100% of cases in 2012.
| T. 2.7.1 | Quality data for the last respective quarter, in % |
|||||||
|---|---|---|---|---|---|---|---|---|
| Description | Possible impact | U.S. | Europe/ Middle East/ Africa |
Asia-Pacific1 | ||||
| Kt/V > 1.2 | Effectiveness of dialysis: measures how well the patient was detoxified |
More days spent in hospital; increased mortality |
2012 97 |
2011 97 |
2012 97 |
2011 95 |
2012 97 |
2011 97 |
| Hemoglobin = 10 –12 g/dl Hemoglobin = 10 –13 g/dl (international) |
Hemoglobin is responsible for transporting oxygen around the body |
An insufficient level of hemoglobin in the blood is indicative of anemia |
75 82 |
78 88 |
58 78 |
57 78 |
59 67 |
58 66 |
| Calcium 8.4 – 10.2 mg/dl Albumin ≥ 3.5 g/dl2 Phosphate ≤ 5.5 mg/dl |
Measures the patient's nutritional status and mineral balance |
Increased mortality | 84 85 66 |
81 85 64 |
78 86 79 |
78 88 76 |
75 89 71 |
76 90 73 |
| Patients without catheter (>90 days) |
Measures the number of patients with vascular access |
More days spent in hospital |
82 | 82 | 85 | 84 | 94 | 96 |
| Days in hospital per patient |
The result of complications during dialysis |
Restriction to patients' quality of life; cost-intensive |
9.8 | 9.8 | 9.3 | 9.3 | 4.6 | 5.2 |
1 Philippines and Taiwan included.
2 International standard BCR CRM470.
Figures based on:
- KDOQI guidelines (Kidney Disease Outcomes Quality Initiative) from the U.S.
- EBPG standard (European Best Practice Guidelines) from Europe.
- KDIGO guidelines (Kidney Disease: Improving Global Outcomes), a recent global initiative, which is gaining in significance.
In addition, we aim for a specific hemoglobin value in our patients. Hemoglobin is the component of red blood cells that transports oxygen around the body. Too little hemoglobin in the blood implies anemia, which typically occurs in patients with chronic kidney failure. Besides dialysis, anemia is treated with iron supplements and the hormone compound erythropoietin (EPO) see glossary on page 160.
The level of albumin in the blood is indicative of a patient's general nutritional status. Phosphate concentrations show whether treating the patient with dialysis and medication is sufficient to enable the body to absorb phosphate ingested with food. Healthy people excrete excess phosphate via the kidney, but a diseased kidney is unable to do this. If the phosphate concentrations in the blood are too high, this can lead to bone diseases, parathyroid gland damage, and vascular calcification, among other conditions. The number of days patients spend in hospital because of complications as part of their kidney desease is also an important indicator for us. We managed to reduce this figure again in 2012. Days spent in hospital significantly reduce the quality of life of dialysis patients and are also extremely cost-intensive.
In order to guarantee a sufficient blood flow and therefore an effective dialysis treatment a permanent vascular access is necessary. In this context, we record the number of patients who do not use a hemodialysis catheter as a vascular access for dialysis treatment. This is because catheters are associated with serious infections and more days spent in hospital. We are committed to further enhance the number of patients without using catheters.
As at our production sites, we have installed quality management systems at our dialysis centers, which are regularly checked by third-party certification bodies. In Europe, for example, this is performed by the technical certification organization TÜV. Its experts inspect our clinics in annual audits to control conformance to the ISO 9001 standard for quality management and the ISO 14001 standard for environmental management. In the U.S., our clinics are monitored by the Centers for Medicare and Medicaid Services (CMS), a public healthcare authority. We also check our quality management systems on a regular basis using internal audits, carried out by employees who we train specifically for this purpose.
We regularly carry out patient surveys to find out where we can make further improvements and in which areas we should expand our services. At the end of the reporting year, we started a patient survey in 24 European and Latin American countries and questioned more than 60,000 patients. Initial evaluations have shown that over 95% of patients would recommend their Fresenius Medical Care dialysis center to friends or relatives if they needed dialysis. They rated our services as good or very good, and feel well cared for and informed by our employees.
We also regularly conduct patient surveys in North America. In 2012 CMS stipulated the content of the patient satisfaction survey for the first time. The survey was conducted by an independent company to ensure confidentiality and anonymity.
Our dialysis services business is characterized by highly diverse and complex healthcare and remuneration systems. This presents us with a particular challenge as we intend to penetrate new markets. In some regions, when we set up our dialysis clinics we are the first operator to actually invest in establishing a sustainable care infrastructure. Dialysis centers that we acquire, on the other hand, do not always meet our quality and management standards. However, these standards are crucial to the quality of life of our patients, the satisfaction of our employees and our own commercial success. The NephroCare Excellence program in the EMEALA region (Europe, Middle East, Africa and Latin America) enables us to operate successfully and continue to grow steadily
even under such heterogeneous conditions. It defines medium and long-term quality and business targets for each of our countries in the EMEALA region. These targets relate to medical quality as well as to assigning and promoting employees, enhancing efficiency, standardizing processes, and using natural resources in a sustainable way.
To attain the targets defined in the NephroCare Excellence program, our national organizations have a range of management tools at their disposal. We are constantly developing these tools and can adapt them to changes in the economic conditions, for instance amendments to the reimbursement system. In this context, for example, the national organizations have access to clinical databases that we use throughout the Company and to training courses on our guidelines for medical care, patient care and the production of ultrapure water for treatment. In managing the dialysis centers, they can also draw on reporting systems such as the NephroCare Balanced Scorecard, NephroCare Cost Efficiency Benchmarking and satisfaction surveys for patients and employees. A central NephroCare Excellence program project team is responsible for coordinating and continuously monitoring target achievement.
In the reporting year, the dialysis centers taken over by Fresenius Medical Care as part of the acquisition of Euromedic's service business were integrated into the NephroCare Excellence program. A review of the business and quality targets for each country was another focal point in 2012. In addition, our central teams of experts developed new management tools in conjunction with our clinics in the reporting year, such as the medical peer review process. Clinic staff can use this to track the quality of treatment for each individual patient quickly and easily and identify any need for action.
Over the last few years, we have gradually introduced EuCliD (European Clinical Database) into our dialysis centers and consistently enhanced it. More than 500 dialysis centers in the EMEALA (Europe, Middle East, Africa and Latin America) regions worked with the system in the reporting year. EuCliD is used to obtain specific quality indicators for patients in a dialysis center. The data from all participating centers is pooled and used for benchmarking. Thanks to the EuCliD database, we now have access to anonymized treatment data for 50,000 patients and 22 M dialysis treatments. As a result, we can compare the treatment quality of the various dialysis facilities and our centers can maintain and improve their own quality on an ongoing basis.
In the North American market, we use eCube Clinical, an internet-based clinical information system. In 2012 we could access anonymized clinical data of nearly 54,000 dialysis patients from 672 own clinics. This comprehensive database provides clinic staff and doctors with important information as well as allowing us to analyze treatment quality in detail.
In the reporting year, Fresenius Medical Care North America further expanded its Patient Safety Organization (PSO), certified by the U.S. Agency for Healthcare Research and Quality. The aim of PSOs is generally to improve patient safety and the quality of the healthcare system and in this way reduce errors or occurrences that can endanger the lives of patients. For this purpose, the PSO creates a framework so that doctors and other healthcare practitioners can supply information to it about such events freely and in confidence. The PSO makes this data available to
healthcare providers according to fixed rules to enable them to recognize and minimize the risks in patient care. After all, mistakes can occur even in our well-balanced system of continuous quality improvements, qualified and committed staff and structured clinic procedures – but they can be rectified if the relevant communication channels are available. All employees in clinics in the U.S. therefore report critical incidents to an internal PSO analysis system. We adapt any procedures that are prone to error and train our staff and patients to improve these procedures.
For Fresenius Medical Care, a holistic quality concept means providing the best possible patient care, even beyond dialysis products and services. We therefore supplement our core offering as a dialysis company with advice for patients and healthcare partners as well as other services.
The better informed kidney patients are about their illness and how they themselves can influence the course of the disease, the better the treatment results are likely to be. This is why Fresenius Medical Care places great value on providing dialysis patients with intensive medical advice and education. One example is "Thrive! with UltraCare". In this series of informational videos and audio CDs, dialysis patients discuss topics which many patients find difficult, but which can have a significant influence on the success of their treatment. Our patients in the U.S. can watch or listen to the Thrive! material either in the clinic or at home with their families. The program also comprises training modules aimed at helping our clinic employees to empathize more strongly with patients. In this way, they can respond even more effectively to patients' needs and motivate them to adhere to their treatment plan in a more disciplined manner.
Our Treatment Options Program (TOPs) is geared to patients in the preliminary stages of chronic kidney failure. In the U.S., we offer this free of charge in both English and Spanish to educate patients and their families about the various treatment options for chronic kidney failure, from hemodialysis at the clinic or peritoneal dialysis therapy at home to kidney transplants. From September 2006 to June 2012, we trained as many as 73,500 patients with TOPs. You can find further information on the internet at www. ultracare-dialysis.com. In the International segment, we use the Kidney Options program to give patients initial information on the course of chronic kidney failure and the therapy options. This educational series is now available in 25 languages and used in more than 40 countries worldwide.
The first phase of treatment is often especially difficult for dialysis patients as it changes their daily routine drastically: They need to schedule several hours for treatment a few times a week; in addition, the range of food they are allowed to eat is restricted; and they are required to take a number of drugs every day while greatly reducing their fluid intake. Many patients find it difficult to muster the necessary discipline for this treatment plan, especially when they know little about their illness. To support these patients during this difficult phase beyond their visits to our clinics, Fresenius Medical Care offers the RightStart program in North America. In the reporting year, we added additional information to this program to give new dialysis patients the best possible start to life with dialysis. In addition, dialysis patients receive a weekly visit or phone call from
a dialysis specialist during the first months of treatment. The specialists provide patients with comprehensive information on the course of the illness and treatment, the importance of a high-quality vascular access, a healthy diet and specific treatment needs, for example if the patient also suffers from diabetes. They answer patients' questions and work closely with the dialysis clinic team. RightStart helps the clinic teams to improve the quality of patients' life during the critical initial phase of therapy, while boosting their confidence. After all, patients contribute greatly to the success of their treatment if they use sound information and make the right decisions for their health.
We also started offering a comprehensive introductory program at our dialysis centers in the EMEALA region in 2012: the Patient Introduction Package. The intention is to make the transition to life on dialysis easier for patients and provide them with a wide range of individual information.
It is important that patients who need to go to hospital are cared for consistently. However, patients' biochemical and physical parameters often deteriorate significantly in hospital, even if they only stay for a short time. One in three dialysis patients have to return to the clinic within 30 days after spending several days in hospital. Therefore, Fresenius Medical Care developed the RightReturn program for patients in North America when they return to an outpatient dialysis center after a hospital stay. Right-Return is aimed at keeping the health of dialysis patients stable by improving communication between care teams as well as constantly monitoring the patients' hemoglobin levels and dry weight.
In addition to holistic treatment concepts for our patients in dialysis centers, we offer various home dialysis programs.
In the North American market, we have developed "UltraCare at home", a home dialysis program that not only supplies patients with the products they need, but also provides supplementary services to boost the success of home therapy. These include ongoing training and support for our patients and their partners from doctors, dieticians, social workers and other members of the dialysis support team, technical assistance and constant access to the dialysis center. To ensure maximum safety for our home dialysis patients, we launched an extremely effective monitoring system in 2012. It transmits vital functions and data from the dialysis machine to the dialysis support team every day and provides immediate notification of any abnormalities. This increases the patients' sense of safety and means that their treatment can be adapted even more effectively to their individual needs.
In the EMEALA region, we have developed a holistic treatment concept specifically for peritoneal dialysis under the brand name P³. It is designed to improve patients' quality of life and supports nursing staff, doctors and patients every step of the way during therapy. The P³ program enables us to align the medical parameters of peritoneal dialysis even more closely to patients' needs to ensure that their dialysis treatment at home is as successful as possible.
In the complex and comparatively new medical discipline of dialysis, training doctors and nursing staff on an ongoing basis is just as important as providing advice to patients. The Advanced Renal Education Program (AREP) is our U.S. internet-based training program on the treatment and care of dialysis patients. It offers full and half-day seminars for nephrologists as well as e-learning courses for doctors and nursing staff. We have also stepped up training on quality issues in dialysis for doctors in Asia, Africa and the Middle East. Treatment standards are often still being developed in these regions, and demand for professional advice is correspondingly high. Fresenius Medical Care also organizes conferences, lectures, and workshops around the world in conjunction with international nephrology experts.
In addition to our advice, educational and training programs, we offer a range of other services. One example is our internal pharmacy service, Fresenius Rx, in the U.S. In previous years, Fresenius Rx was geared to providing all-round pharmaceutical services for our patients. In 2012, we focused our services on kidney disease with the aim of becoming the leading pharmacy nationwide in this area. On the basis of this realigned strategy, Fresenius Rx can now use its expertise even better to support doctors and patients in the treatment of kidney disease. In the reporting year, we relaunched the "Strong Bones, Healthy Heart" program with Fresenius Rx to improve the mineral metabolism of the bones. The
main objective of this initiative is to enhance the clinical results of dialysis patients with the help of the specialist pharmacy service. In addition, the program should help to prepare us for the expected changes in the reimbursement of costs for bone mineral metabolism drugs in 2016.
Most dialysis patients are extremely restricted in their mobility, as they are dependent on dialysis treatment several times a week. To allow them to go on vacation or on business trips despite these constraints, Holiday Dialysis International, a Fresenius Medical Care company, offers dialysis patients a free booking service so that they can be treated in clinics in many countries of the world. The Patient Travel Service helps patients in North America to plan and book dialysis treatment on trips in the U.S. and to Puerto Rico.
To continue patients' vital dialysis treatment even in extreme weather conditions such as severe storms or floods, Fresenius Medical Care's professional emergency response teams are called into action in the affected regions. Their task is to protect patients and employees in emergency situations, for example during natural disasters or pandemics, and to give patients the best possible care as well as maintaining business operations, even in difficult situations. In the reporting year, the crisis management team in Asia-Pacific in particular further optimized its processes and infrastructure following its experience in previous years, and is therefore even better prepared for any new events.
In North America, the Fresenius Medical Care incident command center coordinates emergency task forces in critical situations, for example during the hurricane season. The incident command center is in close contact with the U.S.-wide Kidney Community Emergency Response Coalition (KCER). This is a network of different organizations and institutions, such as patient and professional nephrology associations, dialysis providers, hospitals, and authorities such as the Food and Drug Administration (FDA) and the Centers for Medicare and Medicaid Services (CMS). By working with KCER, we can closely coordinate our crisis management as needed with the activities of government emergency organizations, such as the Federal Emergency Management Agency (FEMA), a U.S. national coordination office for disaster relief, and the United States Department of Homeland Security, which FEMA reports to.
In June 2012, emergency task forces were in action during the severe storms in large parts of North America. Power failures and gas and water shortages posed a significant health risk to more than 71,000 dialysis patients in the region. Our action teams were also on duty during Hurricane Isaac in August and Hurricane Sandy, which wreaked considerable damage on the East Coast of the U.S. in October 2012 and affected 230 of our dialysis clinics in total. The teams acted extremely quickly to provide dialysis centers and home dialysis patients with water, generators, food and medication, thus ensuring that all of Fresenius Medical Care's dialysis patients received the treatment they needed.
In Italy, a severe earthquake struck the province of Emilia Romagna in May 2012. Fresenius Medical Care also had a crisis management system in place here. More than 200 dialysis machines were sent to Italy in a very short time and installed there, thus enabling that dialysis patients were cared for.
Fresenius Medical Care owes its business success and its leading position in the dialysis market to the commitment of its employees. We offer a rewarding working environment and good long-term prospects for their professional growth. By recruiting new talents and supporting their development in our thriving international Company using targeted measures, we are also investing in our own future.
As at December 31, 2012, Fresenius Medical Care employed a total of 86,153 members of staff (full-time equivalents) in more than 50 countries. Our workforce therefore yet again increased significantly by more than 9% or almost 7,000 compared to the previous year in absolute figures. This was attributable to our continued organic growth as well as acquisitions, especially in the area of dialysis services. In the reporting year, acquisitions accounted for 5% of our worldwide increase in employee numbers. The positive trend seen in previous years therefore continued: In the past ten years, the number of employees rose by more than 8% a year on average.
At the end of the reporting year, 59% of our employees were based in North America, 24% in the EMEA region (Europe, Middle East, Africa), 10% in Latin America and 7% in the Asia-Pacific region. Our staff count grew fastest in the North America region in 2012 with a rise of 5,707 employees, followed by the EMEA region with an increase of 526 employees. In the reporting year, our growth was supported by acquisitions, primarily to expand our clinic network; in North America, special mention should be made of the acquisition of Liberty Dialysis Holdings, Inc. In all other regions, the number of clinics and thus the workforce also increased again.
Staff costs at Fresenius Medical Care totaled \$4,872 M in 2012 (2011: \$4,362 M). This equates to 35% (2011:
| Number of employees C . 2.8.1 full-time equivalents |
||||
|---|---|---|---|---|
| 2012 | 86,153 | |||
| 2011 | 79,159 | |||
| 2010 | 73,452 | |||
| 2009 | 67,988 | |||
| 2008 | 64,666 |
| T. 2.8.2 | Employees by functional area full-time equivalents |
||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | Change | Share | ||||
| Production and services | 69,963 | 64,757 | 5,206 | 81% | |||
| Headquarters | 13,379 | 11,598 | 1,781 | 15% | |||
| Sales and marketing | 2,281 | 2,274 | 7 | 3% | |||
| Research and development | 530 | 530 | – | 1% | |||
| Total | 86,153 | 79,159 | 6,994 | 100% |
2.8 E mployees
88
35%) of revenue. Average staff costs per employee stood at \$56,546 (2011: \$55,108).
In Germany, Fresenius Medical Care employed approximately 4,300 people (full-time equivalents 2011: 4,200) at the end of the reporting year, accounting for around 5% of the total workforce. This underlines our high degree of internationalization. The average age of our employees in Germany was 42.2 years, somewhat above the previous year's figure (40.9 years). The average length of employment in the Company increased from 11.0 years in 2011 to 11.2 years in 2012. The staff turnover rate was once again low at 2.8% (2011: 3.2%).
We place great value on enabling our employees to apply their individual skills in our Company as best as they can and to continue developing them on their career path as a specialist, manager or project leader. Life-long learning, continuous feedback on performance and work quality, and professional challenges in line with employees' abilities, including the opportunity to work abroad, are key instruments of our Company-wide personnel development program. In this way, we can offer talented employees clear development prospects while ensuring effective succession planning.
| T. 2.8.3 | Employees by regions and segments full-time equivalents |
|||
|---|---|---|---|---|
| 2012 | 2011 | Change | Share | |
| North America | 51,189 | 45,488 | 5,707 | 59% |
| Dialysis services | 42,767 | 37,584 | ||
| Dialysis products | 8,422 | 7,904 | ||
| Europe /Middle East /Africa | 20,687 | 20,300 | 387 | 24% |
| Dialysis services | 12,845 | 12,624 | ||
| Dialysis products | 7,842 | 7,676 | ||
| Latin America | 8,400 | 7,874 | 526 | 10% |
| Dialysis services | 7,170 | 6,740 | ||
| Dialysis products | 1,230 | 1,134 | ||
| Asia-Pacific | 5,682 | 5,310 | 372 | 7% |
| Dialysis services | 3,514 | 3,423 | ||
| Dialysis products | 2,168 | 1,887 | ||
| Worldwide | 86,153 | 79,159 | 6,994 | 100% |
| Dialysis services | 66,296 | 60,371 | ||
| Dialysis products | 19,662 | 18,601 | ||
| Corporate | 195 | 187 |
Our managers and employees with leadership potential take part in targeted training programs.
Global Executive Challenge (GEC) is a worldwide program for employees in management positions. The program, which we ran for the first time as a pilot project in the reporting year, will be continued in the coming years. Further information can be found in our magazine starting on page 52.
Fresenius Advanced Management Program is a Company-specific program for developing employees in upper management positions. We are running the program in cooperation with Harvard Business School.
The MBA program is a part-time management course for qualified employees who have not had any formal business training. This enables us to prepare scientists and physicians in particular for management positions. We offer the program in collaboration with the Danube University Krems in Austria, with which we also cooperate on research (see the "Research and development" chapter starting on page 64).
As one of the largest employers of medical personnel worldwide, we place great value on providing our specialist dialysis staff with a wide range of training and further educational opportunities. We provide needs-based training for employees at our clinics, mostly at a regional level.
UltraCare Clinical Advancement Program (UCAP) is one of our staff Renal Nurse (RN) development programs in the U.S. We have continuously enhanced the program over the past few years. UCAP consists of five advancing stages of Nephrology Nursing practice and is aimed at new and experienced employees in our clinics as well as in the areas of home dialysis and acute dialysis. The program helps dialysis nurses and care staff to develop and expand their knowledge and leadership skills and prepares them for the next step in their career, for example as a clinic manager, clinical educator providing health training for patients, or mentor to clinic staff. In 2013, we will roll out UCAP to additional clinics in the U.S. with the ultimate aim of enrolling all our dialysis nurses in North America. In the reporting year we have greater than 800 RNs enrolled.
Mentor Connection is our mentoring program in the U.S., in which experienced nurse managers offer advice to new colleagues. In this way, we support nurse managers on-site and enable them to thrive in their new leadership positions.
We also recognize clinic managers who are particularly committed to their patients and employees and achieve excellent treatment results in their dialysis centers.
A medium that gained in importance once again for personnel development at Fresenius Medical Care across all functional areas is e-learning – digital training courses via the internet and intranet. At the end of 2012, more than 25,000 employees had signed up to the Online Learning Center in the EMEALA region (Europe, Middle East, Africa, Latin America). In the U.S., we also expanded our e-learning portal "Learning Management System" into a learning tool with a wide variety of subjects in the reporting year. Fresenius Medical Care aims to integrate e-learning into personnel development to an even greater extent in future in the form of blended learning.
Fresenius Medical Care is committed to paying its employees in line with their performance and letting them share in the Company's success. Our remuneration concept therefore comprises fixed and variable components for most employees.
We encourage our employees to identify more with Fresenius Medical Care by giving them a stake in our Company's success. Annual bonuses for all employees in Germany are based on the operating earnings (EBIT) of the Fresenius Group. In 2012, each eligible employee received €2,036 for the preceding financial year. Employees receive half of this amount in the form of stocks. The other half will be distributed as a cash component.
Our stock option plans allow our senior managers to participate in the Company's economic success and the development of the Fresenius Medical Care share price. In 2011, we introduced a long-term remuneration program with a long-term incentive effect, a combination of a stock option plan and a phantom stock plan. In this program, the exercising of options is linked directly to the Company's success. Over a period of five years, senior managers receive a total of up to 12 M options for ordinary bearer shares or phantom stocks. They can exercise these after a period of four years on condition that the adjusted earnings per share (EPS) have increased by at least 8% in each year over the four-year period. If this hurdle is cleared in one or two years only, the options are reduced accordingly. If earnings per share fall short of the mark completely, the options are canceled. Some 730 senior managers worldwide participated in this program in 2012. Further information on the stock option plan and the phantom stock plan can be found in the "Financial report" starting on page 86.
We aim to create an attractive working environment for our employees to enable them to combine their professional and family lives. With our flexible working hours, part-time work models and care allowances we could contribute to this.
To supplement our other working time models, we have introduced compensation time accounts in Germany. In addition to a salary component in line with collective pay agreements, employees can "pay"
| T. 2.8.4 | Profit sharing | ||||
|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Figure in € | 2,036 | 2,000 | 1,749 | 1,586 | 1,527 |
| Number of eligible employees | 3,231 | 3,068 | 2,918 | 2,765 | 2,581 |
value equivalents such as vacation days or compensation components into these personal time accounts and use them later for example for their professional development or to ensure a flexible transition to retirement. The aim of this program is to offer employees attractive long-term prospects within the Company and thus benefit from their experience for as long as possible.
We also offer Company sports programs as well as health-related information and events at various sites. In Bad Homburg we provide for example the "active lunch break", a basic fitness and yoga program. Also the Health Care Day takes place each year with presentations and health checks as well as the "healthy back campaign" where we offer individualized back-training to our employees. In addition, we offer confidential counseling and other support services. In the U.S., for example, we provide these jointly with an external partner.
Open house days at our plants and clinics, employee celebrations and joint projects such as charity campaigns encourage our employees to identify with the Company and its values.
As a global company, we value the diversity that our employees provide in the form of personal strengths, characteristics, interests and ideas. We aim to continue fostering and benefiting from this diversity at Fresenius Medical Care in future. One key issue in this respect is the percentage of men and women in the Company as a whole and in management positions. In 2012, 70% of employees were women.
Fresenius Medical Care also has a high proportion of women in upper management positions of 31% (2011: 30%). Our employees' qualifications are most important to us. Gender is not a determining factor for employee selection. For this reason, we still do not intend to introduce fixed quotas.
In Germany, we also invest in the Company's future by offering vocational training for young people. As we train in association with the Fresenius Group, we can offer young men and women a wide range of prospects in a variety of trades, from electronics technicians for devices and systems, IT specialists and biological and chemical laboratory technicians to industrial business management assistants and
| T. 2.8.5 | Percentage of men and women in the Company | |
|---|---|---|
| 2012 | 2011 | |
| Total employees in % | ||
| Male | 30 | 31 |
| Female | 70 | 69 |
| Employees in upper management positions in % | ||
| Male | 69 | 70 |
| Female | 31 | 30 |
Source: Company data, based on headcount
industrial mechanics. In the reporting year, we also offered additional training opportunities for systems IT specialists, technical product designers and warehouse logistics specialists.
In the year under review, we provided more than 2,300 apprentices with vocational training jointly with the Fresenius Group. The number of positions in all training facilities in Germany rose again by over 20%. In addition, in 2012, more than 70 students were enrolled in work-study courses such as business information technology, electrical engineering, healthcare management and international business administration that we offer in cooperation with the Fresenius Group and several universities. In summer 2012, we offered training positions in a work-study course on accounting and controlling for the first time to attract junior staff to work in consolidation or controlling. We will continue to expand the choice of work-study courses to respond to growing internal demand.
Our trainee program and Graduate Development Program also offer interesting opportunities for students looking to gain a foothold in the Company. In the 18-month trainee program, graduates gain practical experience in internships lasting several months in various areas of the Company, including one abroad, as well as accompanying seminars to train them for work in a special field, for example controlling. The Graduate Development Program prepares young professionals over a period of up to twelve months for a particular function as part of their career as a specialist, project leader, or manager. Besides intensive on-the-job training accompanied by a mentor, the participants build up a network within the Company and assume more and more responsibility. The program is supplemented by further educational offers tailored to each employee including technical and communication training, as well as temporary employment abroad.
In addition, we organize initiatives such as the annual management simulation game, in which apprentices from all specialist areas, age groups and locations get to step into the role of an entrepreneur. This teaches young people social skills that will be crucial in their professional lives, such as teamwork and a sense of responsibility, in addition to their vocational training. Fresenius Medical Care apprentices were once again recognized for their outstanding performance in the reporting year, garnering local Chamber of Commerce awards. In previous years, we have been able to take on all apprentices and workstudy trainees who completed their courses with good grades and intended to stay in our Company.
Through our involvement in and with schools, we aim to continue getting young people interested in a career at Fresenius Medical Care. To this end, we organize information days, visits to plants, internships and job application training courses. For example, in September 2012, we were involved in the "Training Night" in Bad Homburg, where our Group headquarters are located. Under the motto "Interactive Training", 19 other companies offering apprenticeships joined Fresenius Medical Care at the event. Students and parents were able to find information about vocational training and work-study courses as well as career prospects. Attended by over 750 people, the "Training Night" was once again hugely successful.
In Schweinfurt, where we produce dialysis machines, we set up "wissenswerkstatt Schweinfurt e.V." in conjunction with other companies, associations and Schweinfurt city council. This science workshop aimed at making technology more exciting and tangible for young people is due to open at the end of 2013.
The results of our training management efforts are very good and the growing number of high quality applications show that we are an attractive employer for graduates, trainees and students.
As well as retaining talented employees at Fresenius Medical Care, it is more important now than ever to position ourselves on the job market as an interesting and attractive employer to gain qualified new employees.
Fresenius Medical Care gives students the opportunity to gain practical experience in various areas of the Company: We offer internships, research, project and graduate programs, and cooperate closely with institutions of higher education to enable talented young people to get to know us as an attractive employer early on. One example is the University of Applied Sciences in Würzburg-Schweinfurt (FHWS). As this college offers students an excellent education in the fields of business engineering, plastics technology, mechanical engineering, engineering IT and especially electrical engineering with a focus on medical and automation technology, many of its students and graduates are attractive potential employees for Fresenius Medical Care and especially for our Schweinfurt plant, where we develop and manufacture dialysis machines. For this reason, we have signed a cooperation agreement with FHWS including scholarships, student excursions to the plant, as well as lectures and semester-long projects within various divisions of our Company.
We get the opportunity to meet young researchers through measures other than classic recruitment activities by cooperating with international institutions of higher education in the area of research and development or by supporting young scientists, for example as part of their doctoral thesis.
We have also revamped our careers website in the reporting year: Since May 2012, applicants can inform themselves even better about current vacancies on our career portal. Moreover we provide useful information about the Company on our new career-website. In Germany, as many as 367 job vacancies were posted on the career portal in 2012 and we received around 4,159 online applications. In the U.S., we announced around 12,000 job vacancies and received some 500,000 applications.
Our concept of responsibility begins with our business model: As we are in constant dialog with patients, employees and doctors, we always keep an eye on their needs. At the same time, we are expanding environmental management at our sites to limit the impact of our business on the environment.
Environmental management is a key factor of our business success: It enables us to implement increasingly stringent environmental requirements and design our operational processes to use resources as efficiently as possible, thus saving on costs. It also increasingly supports our business divisions in creating added value for our customers with eco-friendly products and services. Lastly, it ensures that we as a company take our responsibility to the environment seriously.
Our EMEA (Europe, Middle East and Africa), North America, Asia-Pacific and Latin America regions step up their environment-related activities from year to year. Due to our decentralized corporate structure, we implement our environmental management at a regional level, as we do for most of our other operating areas. The responsible environmental managers develop strategies, sometimes in cooperation with external consultants, to boost environmental protection at our production sites and clinics and promote environmental awareness among our employees. They also coordinate environmental audits carried out by external government agencies, institutions and our own auditors at our production sites and clinics.
Environmental management is part of our integrated management system in the EMEA region. The German technical inspection association TÜV regularly checks compliance with the ISO 14001 environmental management standard at our Company headquarters, in our certified plants and at national clinic organizations in Europe. At the end of 2012, our seven largest European production sites (2011: also seven) and our medical product development were certified according to ISO 14001. Furthermore, we have now introduced the environmental management system in 13 national regions in Europe (2011: twelve).
In the year under review, we began to implement our second environmental program for the Europe and Latin America regions. Management has defined five strategic environmental objectives as a framework for the program. At its sites and clinics, Fresenius Medical Care aims to:
Together with the respective business divisions, our environmental managers have derived a large number of environmental objectives from these points for the individual stages of the value chain, for example for research and development, our production sites, for logistics and our dialysis clinics. The managers of our production sites, for instance, are required to set targets to improve their environmental performance. Additionally they identify potential
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savings in raw materials, energy and water, and plan measures to achieve improvements. By 2015, for example, we intend to recycle or incinerate at least 85% of production waste in the EMEA region. This target had already been achieved or exceeded at five of our seven biggest certified production sites in the EMEA region by the end of 2012. In the year under review, we launched projects to reduce water consumption at three plants. Four plants implemented measures to cut energy consumption and two sites curtailed their use of raw materials. At the Schweinfurt plant, for example, we have slashed the electricity consumption of each dialysis machine by a total of 27% over the last six years thanks to a variety of individual measures. At our Serbian site in Vršac, we reduced plastic waste in the production of dialysis filters by around a fifth.
Led by our St. Wendel site, we intend to develop performance indicators for energy use and raw materials consumption in 2013 to verify the sustainability of our production processes moving forward. Only in this way can we identify untapped potential in a production process that has already been largely optimized. We also plan to install a gas turbine at the St. Wendel plant in 2013 to generate energy. Coupling electricity and heat production can significantly increase efficiency when using natural gas as a fuel.
From 2007 to the end of 2010, we successfully implemented our first comprehensive environmental program for our European facilities. The main goals of this were to develop more environmentally friendly products, to curb the use of resources such as energy and water at production sites and dialysis clinics, and to avoid waste. One project was an energy efficiency initiative at our largest European production sites, thanks to which we now save more than €1.5 M in energy costs per year. Another project involved developing and launching our e-con5 clinic software, which we use in our European dialysis centers to gather data on our eco-efficiency, such as our water and energy consumption and waste
disposal. In Europe, 452 of our clinics now use e-con5 (2011: 405), and we are continuing to roll out the software to gradually build up a comprehensive environmental data management system throughout Europe and, since 2012, in Latin America. Thanks to e-con5, our country organizations are now able to compare the ecological efficiency of their clinics on a monthly basis and quickly identify potential for improvement.
For our product business in the U.S., we have established a formal certified program to review environmental and occupational safety standards, to which all production plants and laboratories are subjected on an annual basis. The audits monitor compliance with regulations from the U.S. Occupational Safety & Health Administration, the Department of Transportation and the Environmental Protection Agency in addition to state and local statutes. At the end of August 2012, Fresenius Medical Care North America received the "Safety in Excellence Award" for the 13th time from the U.S. casualty and property insurer CNA. This award honors the Company's commitment to its employees' health, to safety, damage prevention and risk control. The fact that absences due to work-related accidents have fallen significantly at Fresenius Medical Care is also acknowledged by the CNA.
Environmental management at our clinics is reviewed both internally and by federal agencies. One criterion is compliance with regulations for the disposal of medical waste. We have also begun to look at whether our clinics and production sites in the U.S. fulfill the criteria for certification according to the ISO 14001 environmental standard. The first certification process is set to begin in April 2013 at our plant in Livingston, California, and should be completed by the end of the year.
As in our other regions, both Company environmental management staff and external partners support
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our U.S. plants and clinics in making their procedures more environmentally friendly with recycling programs, for example. For some years now, we have been running a program to reuse medical waste containers in our clinics together with a specialist waste disposal partner. At the Ogden site, our largest production facility in the U.S., we recycle materials from different areas of the plant, including different types of plastics and cardboard. At our Walnut Creek plant, we are working with a recycling company specialized in separating and recycling medical and electronic devices. As a result, we reprocess approximately 5% of all components from old dialysis machines for use as spare parts. In 2013, we intend to launch a program to continue to step up the recycling of paper and cardboard at our U.S. clinics.
Since the end of 2010, we have been working with an external service company in the U.S. that records and documents energy and water consumption in all our dialysis clinics on an ongoing basis. This enables us to collect data on the consumption of resources in our dialysis centers according to uniform criteria so that we can better identify opportunities to further improve our energy efficiency in future. Other tasks performed by the service provider include checking and settling the corresponding energy and water bills and compiling analysis reports on subjects such as greenhouse gas emissions and our carbon footprint for an internal mailing list. In 2013, we will also produce a monthly energy consumption report for the region, allowing us to identify clinics with unusually high water, gas and/or electricity consumption. This will enable us to avoid unnecessarily high energy consumption in future.
We comply with internal regulations to ensure that the equipment, fixtures and furnishings in our clinic buildings and interiors in the U.S. are as environmentally compatible as possible. Accordingly, we use energy-efficient lighting and air-conditioning systems, as well as eco-friendly flooring and wall paint. We meet or surpass industry standards for the insulation
of roofs, walls, doors and windows. When purchasing water treatment systems for dialysis, we also increasingly ensure that these use resources and energy efficiently. In 2011, the first clinic in the U.S. equipped by Fresenius Medical Care received environmental certification in accordance with the U.S. LEED standard. LEED stands for "Leadership in Energy and Environmental Design" and establishes regulations for resource conservation and sustainability in construction.
In the Asia-Pacific region, local government agencies regularly carry out inspections of our wastewater systems and energy consumption, among other things. In addition, a Fresenius Medical Care team conducts annual audits to examine to what extent production, logistics, laboratories and administration comply with Company regulations for resource efficiency and environmental protection, and identifies areas for improvement. To this end, the auditors also utilize data on electricity, gas and water consumption as well as on waste disposal, which is collected on an ongoing basis in our production plants. We have implemented several energy efficiency projects at our Changshu site in China since 2010. For example, we now use air from one of our production areas that is kept at a constant temperature for air-conditioning in the warehouse. In 2012, we also installed hot air curtains to keep heat inside the rooms and warehouses. Since 2011, we have also reused waste water from the reverse osmosis plant and carried out further work to improve the site's pipeline system. In the area of production, we have recycled condensation water since 2012. Furthermore, we have separated and recycled materials such as paper, plastic and waste since 2011, thereby saving on disposal costs.
We also made further progress in the area of environmental management in the Latin America region. In the past year, we continued to train our staff in Columbia in environmental protection issues. This is essentially about raising their awareness of
how they can contribute to environmental protection on a day-to-day basis. Our environmental department in Bogotá also initiated a "Green Day" for all employees with activities covering all aspects of environmental protection. In our clinics, for example, dialysis teams made a film on environmental protection at the workplace. Prizes were awarded for especially creative work. In addition, we continued the "Environmental Leaders" program in the past year; this involves training volunteers at the individual clinics who then go on to support the implementation of environmental projects. To raise awareness among staff of Fresenius Medical Care Columbia's commitment to social responsibility, the environmental and HR departments – together with Fundación Fresenius (see "Commitment to patients' quality of life" in this section) – issue a quarterly newsletter. In 2013, we intend to introduce a waste management plan at our head office to train employees to reduce solid waste and promote the issue of recycling. In the past year, production and the medical department also initiated an occupational health and safety campaign.
In Argentina, we continue to record water and energy consumption and the disposal of medical waste at all dialysis centers on an ongoing basis. Using the consumption data obtained, we were able to negotiate successfully with water suppliers and specifically investigate water loss through damaged pipes; we also stepped up water treatment. In Venezuela, we continued an environmental awareness campaign for our clinic staff on the subject of waste disposal and energy and water consumption in 2012. The disposal of medical waste has also been improved. In Brazil, we intensively monitor water and energy consumption and the generation of medical waste in our clinics. To save water, we increasingly recycle the water from hemodialysis using the reverse osmosis method. This offers huge potential as the blood purification solution comprises 95% water. In 2012, we implemented the project at seven further clinics, bringing the current total to 15.
We are increasingly concerned with making our products and processes more environmentally-friendly. The aim is to provide our customers with added value by helping them save on costs or fulfill environmental requirements better.
Our research and development division is continuously striving to make our products and processes more environmentally compatible by employing new materials with improved environmental properties, pushing the development of new technologies that further reduce the resource consumption of our dialysis machines, and lastly by using energy and raw materials efficiently in production.
To enable us to improve and report on the Company's environmental performance in the long term, it is essential to track and analyze the impact of our products and services on the environment over their entire life cycle (ecological audit). In the reporting year, we therefore initiated the "Comparative life cycle assessment" project, which links information on product design, resource efficiency in production, logistics and the use of the products in dialysis. Data sources include in particular internal environmental reports, product specifications and data from external ecological audit databases. The aim of this project is to calculate and compare the ecological performance of different product groups for dialysis concentrates. By doing this, we can highlight especially environmentally friendly products in dialog with our customers and provide substantiated product information on the environmental impact of the concentrates. Moreover, this information can be used in the development of new products. In future, ecological auditing will be expanded to include further products and product groups.
At our key production site for dialyzers in St.Wendel in Germany, for example, we reduced the quantity of rinse water used in manufacturing dialysis membranes
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see glossary on page 159 by 25% last year by feeding it back into the production process. A quarter of the rinse water is now reused with only the remaining three-quarters being replaced with fresh water. As a result, we were also able to reduce our energy requirements for treating contaminated rinse water by 25%, corresponding to annual savings of €150,000. The rinse water is used to clean residues of the solvent DMAC out of the freshly woven fibers for the dialysis membranes. The water and solvents are then separated again in a complex thermal process so that both can be reused in a closed cycle. The less rinse water has to be regenerated, the less thermal energy in the form of steam is required, and thus the greater the energy savings.
In addition to conserving natural resources, processing improvements enable us to achieve savings of more than €1 M per year.
Achieving further reductions in the environmental impacts of dialysis treatment while maintaining resource and cost efficiency is one of our top priorities. In 2010, in collaboration with the German Energy Agency (DENA), we developed an environmentally friendly energy concept that takes into account the specific requirements of dialysis clinics. According to this model for a CO2-neutral dialysis clinic, the clinic uses eco-friendly power and heat supplies to reduce its greenhouse gas emissions by as much CO2 (carbon dioxide) as it produces due to energy consumption for dialysis, water treatment and other operations. On the basis of these findings, we devised a manual for the ecological construction and renovation of dialysis clinics in conjunction with the Anhalt University of Dessau in 2011. This provides our architectural staff in the various countries in the EMEA region (Europe, Middle East and Africa) with practical architectural and technical guidelines on how to implement the findings from the model, taking into account the special requirements of dialysis patients and clinical teams. This can be done, for example, by generating electricity with solar cells on the roof, recovering heat from dialysis wastewater, installing special heat insulation in the building shell, and placing the windows to use daylight as efficiently as possible.
Based on the concept of the CO2-neutral clinic and the manual, we opened an especially environmentally friendly dialysis clinic in Roccadaspide, Italy, in 2012. The new building has brought together two nearby Fresenius Medical Care dialysis clinics and, compared to them, uses only half as much water and around a quarter less electricity. A core aspect of the environmental protection work is the installation of state-of-the-art water treatment technology by Fresenius Medical Care: A special two-stage water treatment facility produces the ultra-pure water required to manufacture the dialysis solution with very low water consumption, and a control device ensures a highly efficient supply of the dialysis concentrate from large tanks. The wastewater is also completely reused. As a result, this clinic saves around 2.5 M liters of water per year – in a very dry area where water is urgently needed for agriculture. Lower energy consumption is also aided by economical LED lights, which give off more even and more pleasant light and are also easier to dispose of than the conventional neon tubes. Moreover, the building is well insulated and its heating and cooling are particularly environmentally friendly and free from drafts thanks to the air conditioning built directly into the floors with an integrated heat exchanger. Fresenius Medical Care is planning to build further environmentally friendly clinics in Europe in the coming years. Another "green" dialysis clinic is already in planning near Barcelona; it is also expected to share many attributes of a CO2-neutral clinic.
We will start monitoring the environmental status of our clinics in the first quarter of 2013. All dialysis clinics will undergo a self-assessment entitled "How green is your dialysis clinic?" and rate the extent to which key environmental protection measures have already been established on site. The questionnaire consists of 50 items on the subjects of clinic management, building management, energy and transportation, water and concentrates, waste, and materials. For example, clinics will be asked if they have people in charge of energy, water and waste management, whether environmental protection projects were carried out, whether the building is equipped with photovoltaic elements, sun protection blinds, and energy-efficient lighting and equipment, and to what extent the consumption of scarce resources is
Fresenius Medical Care 2012
analyzed. This assessment has two benefits: Firstly, we gain an overview of the environmental status of our clinics, which we can use as a basis for the renovation and refurbishment of clinic buildings. Secondly, we can monitor the extent to which planned new buildings comply with defined minimum standards. In addition, clinic management and employees are likely to further hone their awareness of environmental aspects, generate suggestions for improvement and implement them.
We also continued our environmental initiatives with external partners in 2012, such as the "Go Green in Dialysis" project that we started jointly with the European Dialysis and Transplant Nurses Association/European Renal Care Association (EDTNA/ERCA) in 2009. In September 2011, our environmental guidelines for dialysis specialists were published. These were developed as part of the "Go Green in Dialysis" project and are designed to support clinic employees in organizing the processes in the workplace in a more environmentally friendly manner. The official presentation of the guidelines at the EDTNA/ERCA annual conference met with great interest among conference participants. The guidelines have now been translated into another six languages.
In addition, together with EDTNA/ERCA, we will be presenting the Green Innovation Award for the first time in 2013. The ceremony will take place at the 42nd EDTNA/ERCA Conference 2013 in Malmo, Sweden. Prizes will be awarded for three ideas, best practices, projects or promising concepts from individuals or teams representing companies or institutions helping to promote or advance environmental protection in hemodialysis. A requirement for participation is that the benefit of the competition entry can be transferred to other projects and that it can be measured and is sustainable.
As a manufacturer and provider of life-sustaining medical products and services, Fresenius Medical Care has a special responsibility towards its stakeholders, especially its patients and business partners. We base our conduct towards them as well as our research and development processes on Company and industry standards and legislation. Moreover, we are committed to improving the quality of life of kidney patients – as a service provider in our clinics, as a member of and together with associations and as a company in society. In this way, we aim not only to meet our responsibilities, but at the same time strengthen our good reputation in the dialysis market.
As part of our environmental program in the EMEALA region, we also began in 2011 to merge the existing local occupational safety systems in our dialysis clinics into one centralized occupational safety management system certified to the BSOHSAS 18001 standard and to incorporate it into our integrated management system. In the year under review, we successfully tested the new occupational safety management system in two dialysis clinics. Building on this, we have drawn up a training concept to serve as a basis for staff courses geared to specific target groups from 2013 to accompany the launch of the occupational safety management system.
In the past year, we implemented our revised quality policy for the EMEALA region. It focuses on people within and outside our Company; our primary concern is their health and well-being. We have broken down our quality goals into different target groups, including patients, employees and our social environment.
We want to increase the life expectancy of people with kidney disease, liver failure and immunodeficiency and improve their quality of life.
We want to offer the best possible working conditions, win the long-term loyalty of qualified employees at our Company and promote their professional development.
We want to fulfill our social responsibility, comply with safety standards and legal requirements and gear our actions to the Fresenius Medical Care code of conduct.
With the implementation of these goals we want to ensure that we uphold our corporate values, cultivate our corporate identity and our constructive dialog by improving our integrated management system on an ongoing basis.
Fresenius Medical Care's code of conduct provides the framework for responsible and correct conduct of our employees towards our patients and business partners in accordance with legal statutes; for more details on the code of conduct see page 134. Among other things, it contains specific guidelines on conduct for management and employees in our clinics as well as in sales and marketing. These regulations cover matters such as billing products and services correctly, behaving fairly vis-à-vis the competition, and treating patients with respect and integrity. Our marketing and sales employees receive specific compliance training tailored to their field of activity.
Whenever Fresenius Medical Care wants to launch a new medical device or pharmaceutical product, the Company is legally required to prove and extensively document the new device's or product's effectiveness and safety based on clinical studies. This means that it must be used with a group of patients in a clinical environment over a specified period. For purposes of comparison, one or more additional groups of patients are treated using existing state-of-the-art products and methods.
Our industry is subject to extensive guidelines and laws to ensure that no ethical principles are violated during such studies, that physicians and institutions carrying out studies on companies' behalf are carefully selected based on their qualifications, and that scientifically accepted methods are applied. They include, for example, the declaration of the World Medical Association, which prescribes basic ethical principles for clinical research, EU regulations on pharmaceuticals such as Directive 2001/20/EC, the EU Medical Device Directive (MDD) and ISO standard 14155, which defines the criteria for clinical investigation and reporting in clinical research. Fresenius Medical Care's clinical research is founded on these regulations and laws. In addition, we observe national laws and regulations such as the Pharmaceuticals Act (AMG) and the Medical Devices Act (MPG) in Germany, or the U.S. Food and Drug Administration (FDA) regulations. Our own Fresenius Medical Care Standard Operating Procedures combine these regulations with internal rules to ensure that clinical studies commissioned by us are carried out and documented properly. Before a study can even begin, our application must be approved by ethics committees in the relevant countries. Compliance with such regulations by manufacturers of medical devices and pharmaceutical products is an important precondition for publishing their research results in the scientific media.
We only use animal testing to obtain approval of new products and forms of treatment where this is prescribed by law. Such tests are carried out by third-party research institutes in recognized test laboratories, and are always first approved by an ethics committee for animal testing. As a matter of principle, our strategy is to avoid animal testing and to use alternative methods wherever possible.
As a dialysis company, our aim is to continuously improve the quality of life of kidney patients. We pursue this even beyond our core products and services through our involvement in various initiatives to promote an active, healthy lifestyle for dialysis patients, improve patients' access to high-quality treatment and provide health information and education about chronic kidney failure.
Fresenius Medical Care cooperates globally with regional and national associations and institutions that champion the interests of dialysis patients. In addition, we develop our own initiatives to help patients lead a healthier and more active life. In the U.S., for instance, we sponsor the Renal Support Network, a charitable association by and for patients with chronic kidney failure, which aims at providing patients and their families with health information, giving them more confidence in their everyday lives and strengthening their initiative.
In Brazil, we provide financial and professional support to the Fundação do Rim, a charitable foundation committed to helping more than 200 young dialysis patients in the province of Rio de Janeiro. This organization works with authorities and the public to provide access to medication and kidney transplants for children and adolescents, and promotes the establishment of more pediatric dialysis units in hospitals. At the same time, it organizes special programs for young patients, such as exercise, art and music classes and therapy courses, and trains parents in how to deal with their children's disease.
In Chile, we started an initiative in 2011 to help patients find work and coach them at their new jobs. Various employers have already provided around 100 jobs for patients with working hours that leave sufficient time for dialysis treatment.
In Columbia, we have set up our own foundation to promote the health and well-being of our patients other than through actual dialysis treatment. The Fundación Fresenius is financed by donations from industry, our employees and private individuals. We prepare regular reports to show how the funds are used. In 2012, for example, the foundation provided patients with a warm, healthy meal immediately after their dialysis treatment; for patients with a low income, this was often the only meal of the day. The foundation also offered free travel between their homes and the dialysis center for patients with disabilities or on a low income. In addition, a large number of patients took part in cultural and sporting events and craft courses organized by the foundation. The foundation provided patients on peritoneal dialysis who do not have adequate conditions at home for their PD treatment with aseptic tents, in which conditions are hygienic and stable for treatment. The foundation intends to continue these activities and programs in 2013. For example, it intends to offer a cooking workshop for the first time to show chronic kidney patients who do not yet require dialysis the importance of healthy nutrition.
According to their registration data, one in three patients in Argentina does not have the elementary school leaving certificate presented after seven years, which means that many patients have insufficient reading skills. The low level of education also limits patients' quality of life: It makes it harder for them to find a job on an already tough employment market and amplifies the typical problems of living with dialysis, above all the need to comply with the treatment plan and take medication in a disciplined fashion. To offer these patients new opportunities and boost their initiative, we began a joint project with the Ministry of Education of Buenos Aires province in 2008: The ministry now sends teachers from its adult education program to seven of our dialysis clinics, while Fresenius Medical Care provides the teaching materials. In 2012, around 90 of our dialysis patients were taught by 14 teachers with the prospect of achieving their school-leaving certificate. By the end of 2012, 23 patients had attained this goal thanks to the project and five moved on to a higher level of education. The project's initiators as well as teachers and students consider the program to be exceptionally rewarding.
In Argentina, 25% of our patients suffer from disabilities and 70% have problems finding paid or even unpaid work. For ten years now, Fresenius Medical Care has therefore been involved in the "ProHuerta"
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initiative (roughly translated as "pro kitchen garden") by the Argentine Institute for Agricultural Technology and the Ministry for Social Development. When Argentina experienced a severe economic crisis in 2002, access to food was also restricted for many dialysis patients. That was when the idea came about to provide patients with seeds for various types of vegetables and gardening equipment sufficient for an area of around 100 square meters and to feed a typical Argentine family. Together with their relatives, patients took part in classes and learned how to plant their vegetables, care for them as they grow and finally harvest and prepare them. In 2012, the program reached half and therefore more than 4,500 of our patients; one in seven of our employees were also involved in the program. 87% of our dialysis centers are now "green centers", which means that they distribute seeds twice per year (fall/winter and spring/summer seasons). In 2012, more than 5,000 seed kits were handed out to patients and employees for the first time. Patients are now also being provided with small livestock like chickens and small fruit trees.
Fresenius Medical Care organizes and supports scientific conferences with international nephrology experts as well as training programs for doctors and dialysis specialists worldwide, thereby helping to ensure quality in dialysis. This is especially important in regions where modern healthcare standards are still being developed. We also participate in projects aimed at encouraging young doctors to become interested in nephrology and promoting new talent in this area. In Brazil, for example, we have been supporting an initiative by the Brazilian Society of Nephrology. Every two years, medical students at the end of their training are awarded for research projects in which they have developed solutions that improve the prevention of chronic renal disease in the population.
We also take part in local projects to improve the care of dialysis patients. The Renal Research Institute, a joint venture between Fresenius Medical Care North America and a hospital in New York, is a partner of the Sustainable Kidney Care Foundation. This promotes projects in Tanzania, Africa, to give patients with acute kidney failure in regions without an existing supply structure access to dialysis treatment. Acute kidney failure frequently occurs there in connection with other severe diseases such as HIV or tuberculosis.
Fresenius Medical Care is also involved in raising the health awareness of the general public. In Taiwan, for instance, we organize an annual information event together with the national nephrology society and several hospitals with the aim of raising public awareness of a healthier lifestyle and promoting the early diagnosis of kidney disease.
In the past year, we also launched the "pre-ESRD" campaign in the U. S., with which we aim to draw media attention to the risk of kidney disease. The idea is intended to motivate people to pursue a lifestyle and diet that helps them to avoid kidney damage and completely prevent kidney failure as far as possible, and enable them to recognize the symptoms of kidney disease and ensure that it is treated in time before there is no alternative to dialysis. To this end, we offer information to the media on chronic kidney failure and interviews with our nephrologists.
As part of the World Kidney Day, we carried out a national information campaign in Argentina in 2012 to inform people about the negative impact of kidney disease as well as the connection between kidney and cardiovascular disease and diabetes. To this end, we organized public lectures and television interviews, distributed information material and offered diabetes and high blood pressure examinations free
of charge. More than 1,500 people took part in these health screenings throughout the country and were given advice on the subjects of health promotion, disease prevention and chronic renal failure. In Argentina, more than 27,000 patients underwent dialysis treatment in 2012. One in ten of the country's more than 40 M inhabitants showed first signs of chronic kidney failure and almost half of them were unaware of this. As a result, more than half of the patients receive their first dialysis treatment as emergency cases.
We provide funds, dialysis machines and medical supplies in crisis situations and for institutions that need specific aid immediately. In May 2012, we delivered and installed dialysis equipment in the Emilia Romagna region in Italy at short notice after it had been struck by an earthquake. Our crisis teams were also at work in North America during the hurricanes in June, August and October. For more information see the chapter "Our dialysis services business" starting on page 79.
Chapter 2.10
As a company with global operations, Fresenius Medical Care is naturally exposed to risks associated with its business activities. Ultimately, we can only leverage opportunities for our business if we are willing to take certain risks. Many years of expertise and our extensive knowledge of the markets enable us to uncover and assess risks and opportunities for our business as early and reliably as possible.
We see risk management as the ongoing task of determining, analyzing and evaluating the spectrum of potential and actual risks in the Company and our environment, and, where possible, taking corrective measures. Our risk management system, which is described in more detail below, provides us with a basis for doing so. It enables management to identify at an early stage risks that could jeopardize the growth or continued existence of Fresenius Medical Care, and to take steps to minimize any negative impact. As such, it is an important component of Fresenius Medical Care's management and governance.
We identify opportunities based on comprehensive quantitative and qualitative analyses. This includes evaluating market data and closely examining research projects, while also taking general societal health trends into consideration. In the process, we monitor general economic, industry-specific, regional and local developments to an equal extent. Our goal is to anticipate trends at an early stage and adjust our business model accordingly. The close cooperation between our strategy departments, planning departments and other departments shall allow us to recognize global opportunities as early as possible. An overview of the most important opportunities we intend to capture for our Company can be found in the "Outlook" chapter starting on page 119.
Risk management is part of Fresenius Medical Care's integrated management system. The two pillars of our risk management are the corporate controlling function and the internal risk monitoring system. In the monitoring system, regional risk managers are responsible for identifying, assessing and managing potential as well as existing industry and marketrelated risks in their region and reporting them to the regional CFO's. Twice a year, the regional chief financial officers send their aggregated risk management reports to the central risk management coordinator who consolidates the reports and presents them to the Management Board. The risk management reports contain further information on potential risks. The Management Board is informed directly and immediately of any newly identified significant risks (for risk reporting see chart 2.10.1 on page 105). The effectiveness of the risk management system is monitored by the Audit and Corporate Governance Committee of the Supervisory Board. More information is available in the "Report of the Supervisory Board" starting on page 16.
In addition to risk reporting, traditional reporting to management is an important tool for managing and controlling risks, as well as for taking preventive measures in a timely manner. Therefore, the Management Board of Fresenius Medical Care is informed on a monthly basis about the industry situation, our operating and non-operating business, and the outcome of analyses of our earnings and financial position, as well as of the assets position on a quarterly basis.
Part of our risk management system is the Global Internal Audit department. This department audits a selected number of Company departments and subsidiaries worldwide each year. The department works according to the internationally accepted standards of the Institute of Internal Auditors (IIA). At the beginning of 2012, a quality assessment of our internal audit in form of a peer review confirmed the compliance with the standards of the IIA. The scope of internal auditing is widespread and involves, among others, the effectiveness of controls over business processes, the reliability of financial reporting and the compliance with accounting regulations and internal policies. The Company locations and units to be audited are determined annually on the basis of a selection model taking various risks into consideration. This annual audit plan is reviewed by the Management Board and finally approved by the Audit and Corporate Governance Committee of the Supervisory Board. It comprises financial audits of individual units, as well as full audits of all business processes of subsidiaries or business units. All audit reports are presented to the Management Board. The Global Internal Audit department is also responsible for monitoring the implementation of measures documented in the reports. The Management Board is informed about the implementation status on a quarterly basis. The Audit and Corporate Governance Committee of the Supervisory Board is also
informed of the audit results. In 2012, a total of 40 audits were carried out. These included full-scope audits – reviews of all business processes – at our sites in Thailand and Portugal, among others.
It is nevertheless important to note that even a functioning and adequate risk management system such as that installed in our Company cannot guarantee that all risks are fully identified and controlled.
Fresenius Medical Care's internal control system over financial reporting ensures compliance with applicable accounting standards. The goal is to provide reasonable assurance that the Group financial statements are issued in accordance with the accounting principles. The Company's internal reporting process is generally carried out at four levels and ensures that financial data and key figures are reliably recorded, processed and controlled. At each of these four reporting levels – the local entity, the region, the segment and the entire Group – the figures and data are compared regularly on a monthly and quarterly basis with the previous year's values, budget targets, and the latest projections. In
Assessment of general and specific risks and identification of new risks;
review and consolidation of risks in the Risk Management Report.
Reporting and review of Risk Management Report. Ad hoc risk reporting (considerable new risks).
Reporting of Risk Management Report.
addition, the Management Board and the departments responsible for preparing the annual and consolidated Group financial statements discuss indepth all parameters, assumptions and estimates that substantially affect the Group and segment results reported externally. The Audit and Corporate Governance Committee of the Supervisory Board also deals with current quarterly results and compares them with budgets and projections.
The internal control system contains guidelines and instructions that guarantee, for example, that all Fresenius Medical Care transactions are presented accurately, or that significant earnings and expenses are only recorded after management approval (dual control principle).
Further control mechanisms to ensure reliable financial reporting and correct recording of transactions include systematic and manual reconciliations, as well as the separation of certain personnel functions to prevent potential conflicts of interest. The fact that all process owners assess the risks of their respective processes in terms of their implications for accounting also ensures that risks with a direct impact on financial reporting are identified and that controls are in place to minimize these risks. Changes to accounting standards are discussed on an ongoing basis and considered in the financial statements. Employees responsible for financial reporting are given regular and extensive training to deal with this.
Furthermore, Fresenius Medical Care has implemented comprehensive quality management systems and a compliance program, which is monitored continuously, in all of its regions with the intention to ensure at any time and permanently that its business activities are in line with recognized standards as well as local laws and regulations. To monitor compliance is basically a management task at all the Company's decision-making levels. An important element of the compliance program is the code of conduct that is effective in all regions and considers the locally different legal and ethical standards. It encourages our employees worldwide to conduct themselves in a professional and responsible manner at all times. More information on this can be found in the "Compliance" section starting on page 132.
As Fresenius Medical Care is also listed on the New York Stock Exchange, it is required to adhere to the requirements of the U.S. Sarbanes-Oxley Act. Section 404 of this federal law stipulates that the management boards of companies listed in the U.S. must take responsibility for implementing and adhering to an appropriate internal control system to guarantee reliable financial reporting. Based on this requirement, we review the design and operating effectiveness of our internal control system over financial reporting on a regular basis. These criteria are also included in the review by our external auditors.
To assess the effectiveness of our internal control system over financial reporting, we apply the criteria of the COSO model see chart 2.10.2. This was developed by the Committee of Sponsoring Organizations of the Treadway Commission and is recognized as a standard by the Securities and Exchange Commission (SEC). In accordance with the COSO model, Fresenius Medical Care's internal control system over financial reporting is divided into the five levels control environment, risk assessment, control activities, information and communication, as well as the monitoring of the internal control system. Each of these five levels is regularly documented, tested and assessed.
Our review of the internal control system over financial reporting complies with a specific SEC guideline (Commission Guidance Regarding Management's Report on Internal Control Over Financial Reporting). For our review, we use a special software which takes into account the definitions and requirements of this guideline. In a first step, regional project teams coordinate the assessment of the internal control system in each region, after which the results are consolidated for the whole Group. Based on this, management then evaluates the effectiveness of the internal control system for the current fiscal year. External advisers are consulted as needed. A corporate steering committee meets several times a year to review changes and new requirements of the Sarbanes-Oxley Act, to discuss possible control deficiencies, and derive further measures. In addition, in its meetings, the Audit and Corporate Governance Committee of the Supervisory Board is informed regularly of the results of management's assessment.
As of December 31, 2012, management assessed Fresenius Medical Care's internal control system over financial reporting and deemed it effective.
Internal control systems over financial reporting are subject to inherent limitations, no matter how carefully they are designed. As a result, there is no absolute assurance that financial reporting objectives can be met, nor that misstatements will always be prevented or detected.
The following risks could have an impact on our business activities:
The international business activities of Fresenius Medical Care are subject to a number of political, legal and financial risks, which we carefully monitor
1 Entity level controls.
and assess in addition to the general development of the global economy. We also conduct continuous, intensive analyses of country-specific risks with our international markets in mind.
The dialysis market is a growth market that is generally unaffected by macroeconomic influences. This can be partly explained by the fact that an aging population requires increasingly comprehensive medical care. Due to the stable demand for dialysis products and services, Fresenius Medical Care is only subject to economic fluctuations to a relatively small extent.
More information on this can be found in the "Overall economic environment" section starting on page 40 and the "Outlook" chapter starting on page 119.
Risks related to changes in the healthcare market are of major importance to Fresenius Medical Care. Key factors here are new products and therapies developed by competitors as well as regulatory changes in the healthcare sector.
We carry out research and development activities to counter the risk of a competitor impairing our sales opportunities with its products and processes or of our strategy falling short of the trends in the market. We work closely with the medical and scientific communities to allow us to quickly identify and further develop important technological and pharmaceutical innovations. These alliances also guarantee that Fresenius Medical Care has extensive knowledge of recent advances in alternative treatment methods and enable us to evaluate and, if necessary, adjust our corporate strategy. Based on this, we analyze and evaluate trends and review the progress of research and development projects on an ongoing basis.
Additionally, we closely monitor the market, especially the products of our competitors and newly launched dialysis-related products. This includes pharmaceutical generics and patented drugs for kidney patients, as they can affect the business with drugs distributed by Fresenius Medical Care. The Company maintains internal strategic departments that monitor the markets, whose main tasks are to identify and analyze all activities that could affect the dialysis market and the Group's business, and communicate these within the Company on a regular basis. This helps us to quickly react on new market conditions.
Last but not least, our many years of experience and our leading position in the dialysis industry give us a competitive edge, as do the synergies resulting from the teamwork between the various technical, medical and academic institutions within our vertically integrated Group.
In the highly regulated environment in which we operate, changes in the law, such as those relating to reimbursement, can have a major impact on Fresenius Medical Care's business success and strategy. For this reason, we not only carefully monitor regulatory activities and planning, but also work intensively with government healthcare agencies.
Details on the changes in the reimbursement system in the U.S., our most important market, can be found in the "Healthcare and reimbursement systems" section starting on page 44.
We counter potential risks in our business with products and services with preventive and qualityenhancing measures.
We ensure that we comply with legal and Company product and production regulations first and foremost by means of extensive quality management systems in our regions. In implementing these regulations, our employees have access to documented process and
work instructions. Regular audits are carried out by authorized quality management staff at each of our production sites to ensure adherence to the guidelines. The audits cover all areas and aspects related to quality, from management and administration to development, production and customer satisfaction. Furthermore, the production processes in our plants are inspected by external bodies, for example in Europe by Technischer Überwachungsverein (TÜV) and by the Food and Drug Administration (FDA) in the U.S.
We also apply the methods of lean management and Six Sigma see glossary on page 162 in our plants. These management tools are used to analyze and improve all production processes to permanently reduce the error rate. Our goal here is to achieve more consistent production results and to continuously improve the quality of our products and related production processes. Since 2010, our quality management has been centrally coordinated by our international business unit Global Manufacturing Operations (GMO) with the aim of identifying and managing quality risks even better. For further information on GMO, see the "Procurement and production" chapter starting on page 70.
Like all blood cleansing procedures that are performed outside of the human body, dialysis is associated with certain risks for the patient whose occurance could potentially damage Fresenius Medical Care's reputation. National as well as international standards and laws stipulate binding safety standards for dialysis products. In addition, we have created our own quality guidelines for research and development that in part exceed the legal requirements. We also document our research and development work in comprehensive scientific studies and publications; we produce detailed product information packs and instructions for users of our products, and conduct risk and error analyses according to the most stringent criteria. In addition, Fresenius Medical Care focuses on developing procedures and devices within the scope of a continuous product improvement process, to minimize as far as possible the risk
of a patient being harmed due to a technical fault or human error.
The very nature of the medical services we provide to patients at our dialysis clinics presents inherent risks. These include operational risks, for example in the area of hygiene. We counteract these with strict organizational and operational procedures, ongoing personnel training and by gearing our working methods to patients' needs. In Europe, for instance, our healthcare services quality management system, certified according to ISO 9001, is part of our integrated management system. In the U.S., our quality improvement program successfully complies with the standards outlined in the Kidney Disease Outcomes Quality Initiative (KDOGI) and the Center for Medicare and Medicaid Services (CMS). We assess both our treatment data and our methods in annual internal audits to enable us to improve our processes and treatment results for the long-term. Our clinic quality management system is also audited each year by external certification institutes such as the German TÜV or CMS in the U.S. As a consequence, we are able to quickly identify quality flaws and risks and to remedy them in a timely manner.
Our quality management also includes environmental management, as environmental resources are used for manufacturing dialysis products and the operation of dialysis centers produces clinical waste. More information on this can be found in the "Responsibility" chapter starting on page 94.
The risk of goals not being achieved or being achieved much later than anticipated is inherent in the development of new products and therapies. Most new products have to undergo comprehensive, cost-intensive preclinical and clinical tests before they receive regulatory approval and are launched on the market. All products, packages, applications and technologies are continuously and systematically monitored, tested and improved. The development cycle for products made by Fresenius Medical Care is generally substantially shorter than for pharmaceutical products. It normally takes between two and three years from concept to market launch. Fresenius Medical Care counteracts risks in research and development projects by regularly analyzing and assessing development trends and reviewing the progress of projects. Furthermore, we ensure that the legal regulations governing clinical and chemical-pharmaceutical research and development are strictly adhered to. Our research team for dialysis products develops new products and technologies in close cooperation with representatives from the medical and scientific communities. For further information see the "Research and development" chapter starting on page 64.
One of the typical patent risks faced by Fresenius Medical Care is inadequate protection in the form of patents for technologies and products developed by the Company. This means that competitors could copy our products without incurring comparable development costs. To mitigate this risk, we have installed a comprehensive patent management program with defined processes, responsibilities and reporting lines.
In addition, Fresenius Medical Care could infringe the patent of a competitor and thus be liable for damages; this could result in a ban on the Company further selling the affected product. We minimize this risk by systematically monitoring and reviewing patent applications by competitors as well as issued patents to ensure that our products do not infringe the rights of third parties. However, as the claim of a patent, i.e. its scope, cannot be determined until a product has been launched, this risk can never be fully eliminated.
We impose comprehensive quality standards on suppliers to counter the risk of low quality in sourced raw materials, semi-finished goods and other components. For example, we demand that our suppliers provide certification from external institutes and undergo regular audits; in addition, Fresenius Medical Care carries out extensive evaluations of sample products and regular quality control checks. We source only high-quality products that are verifiably safe and suitable from certified suppliers that meet Fresenius Medical Care's specifications and requirements and have a proven track record in manufacturing these materials. These suppliers are constantly evaluated as part of our exacting supplier management system.
Our purchasing strategy is aimed at developing partnerships with strategic suppliers through long-term contracts and building relationships with new high-performing partners. At the same time we ensure that we have at least two sources for all supply and price-critical primary products (dual sourcing, multiple sourcing). This strategy in combination with ongoing monitoring of market developments enables us to minimize the risk of bottleneck situations considerably, even at times of limited availability of materials. All relevant suppliers are subject to regular Company-wide performance and risk monitoring. More information on this can be found in the "Strategic purchasing and materials management" section on page 72.
Fresenius Medical Care is also exposed to marketdriven price fluctuations for raw materials. By continuously conducting market analyses, shaping supplier relations and contracts in accordance with our needs, and reviewing the use of financial instruments on a case-by-case basis, we are able to counteract these fluctuations to a certain extent. The intense cooperation between our procurement
teams in different regions means that we are able to benefit from international pricing advantages and manage risks related to currency fluctuations or dependencies on individual suppliers. More information on this can be found in the "Strategic purchasing and materials management" section on page 72.
Our Company's success depends to a large extent on the dedication, motivation and abilities of our employees. We counter the risk of not being able to win and retain sufficient qualified personnel with extensive personnel marketing and recruitment measures as well as personnel development programs for specific target groups. More information can be found in our magazine starting on page 52.
Our continued growth in the area of dialysis services in particular depends on our ability to recruit and retain qualified care personnel. Especially in the U.S., where we operate most of our dialysis clinics, competition for such employees is intense. As a result, we are currently extending various measures and initiatives aimed at further increasing the satisfaction of our clinic personnel, maintaining their high level of motivation and further lowering the fluctuation rate in our clinics. We base these efforts on the results of extensive clinical employee satisfaction analyses. Our UltraCare Clinical Advancement Program (UCAP) in the U.S. is one example of such an initiative; more information can be found in the "Employees" chapter starting on page 87.
Our personnel management department addresses the overall risk of not being able to attract or retain highly qualified personnel. Its job is to find and cultivate new talent with targeted measures. Fresenius Medical Care offers employees a challenging work environment and long-term perspectives for their professional development. Furthermore, our employees enjoy performance-based bonus payments and attractive social benefits. Detailed information relating to personnel management can be found in the "Employees" chapter starting on page 87.
Fresenius Medical Care has developed a code of conduct that applies to employees in all regions, specifying their conduct within the Company as well as towards our patients, external partners and the public, and encouraging them to comply with applicable laws and Company standards at all times. Together with our overall compliance program, this code is intended to help us meet our own expectations and those of our partners, and to successfully align our business activities to recognized standards as well as applicable laws and regulations. Further details on our compliance program can be found starting on page 132.
In addition to a number of state-owned and public health insurance funds, Fresenius Medical Care's customers include private health insurers and companies. Our biggest private-sector customer, U.S. dialysis clinics operator DaVita, is also the second largest provider of dialysis services in the world.
However, DaVita only accounted for about 1% of Fresenius Medical Care's total revenue in 2012. Therefore we consider the risk arising from relationships with major private-sector customers to be relatively small.
Fresenius Medical Care assesses potential financial risks arising from acquisitions and capital expenditures early on with the help of internal and, if necessary, external specialists. Potential acquisitions and investments are analyzed by an internal committee
(Acquisition Investment Council, AIC) based on minimum requirements relating to a number of parameters, with the objective of ensuring that the decision to buy or invest is profitable. The profitability of acquisitions and investments is also monitored after the event on the basis of these key indicators. More information on corporate management and control can be found on page 33.
The main financial risks that affect our Company are currency and interest rate risks. We use derivative financial instruments to protect us against these risks, but not for trading or speculation purposes. All transactions are conducted with highly rated banks (the majority have at least an "a" rating) that have been approved by the Management Board.
We use interest rate hedging instruments to avert the risk of rising interest rates from our floating rate long-term debt. A sensitivity analysis revealed that if the relevant reference interest rates for the Company like Libor increased by 50 basis points, based on the current high level of hedging, the effect on the net income (attributable to shareholders of Fresenius Medical Care AG& Co.KGaA) would be around 1%. The interest derivatives expire in 2016.
Our foreign exchange exposures primarily result from transactions such as sales and purchases between Group companies located in different regions and currency areas. Most of our transaction exposures arise from sales of products from Group companies in the euro zone to other international business units. The foreign exchange risks are therefore related to changes in the euro against various other currencies. To hedge against these risks, we generally use foreign exchange forward contracts. The estimation and quantification of transaction
risks from foreign currencies is determined according to the statistical model Cash-Flow-at-Risk (CFaR). CFaR indicates the amount of a potential loss of the forecasted foreign exchange cash flows of the next twelve months that occurs with a probability of 95%. As of December 31, 2012, Fresenius Medical Care's CFaR amounted to \$39.7 M.
Please see the "Quantitative and qualitative disclosures about market risk" chapter of the "Financial report" for further details starting on page 34.
To reduce the risk of delayed or non-payment by customers, we evaluate the credit standing of new customers and review the credit limits of existing ones. We monitor outstanding receivables of existing customers while assessing the possibility of default. For further details on outstanding receivables please see the "Financial report" on page 11.
Risks associated with litigation are continuously identified, assessed and reported within our Company. Fresenius Medical Care is involved in various legal proceedings resulting from our business operations among others. For details on ongoing proceedings and further information on material legal risks to which Fresenius Medical Care is exposed, please refer to note 19 of the "Financial report" starting on page 95.
Fresenius Medical Care is subject to tax audits, which can lead to secondary changes in tax assessments and assessments of withdrawal restrictions. Risks resulting from this are continually identified and evaluated. Further details on ongoing legal proceedings and more information on major tax risks of the "Financial report" can be found on page 93.
As Fresenius Medical Care continues to grow in size and become more international, the processes within the Company are increasingly complex. Accordingly, we are dependent to an ever greater extent on information and communication technologies to structure our processes and harmonize them between different regions. Fresenius Medical Care uses constantly updated and newly developed hardware and software to prevent potential security risks in the area of information technology (IT). With the help of our Information Security Management System (ISMS), which is based on the internationally recognized security standard ISO 27002, we continuously enhance IT security guidelines and processes within Fresenius Medical Care. Business data is backed up regularly. The frequency of these backups depends on how important the respective IT system is for our business. Potential IT risks are covered by a detailed disaster recovery plan, which is tested and improved on an ongoing basis. Fresenius Medical Care operates three data centers at geographically separate locations, each with an associated disaster recovery plan, to maximize the availability and data security of our IT systems. We use a mirrored infrastructure that creates a copy of critical systems, including clinical systems as well as the communication infrastructure and servers. To minimize organizational risks such as manipulation and unauthorized access, access is protected by passwords that must be changed regularly. With our strategy of operating three separate data centers (at major geographic regions) we further reduce the risk of complete, worldwide system outages. Moreover, Company guidelines relating to data protection, which also regulate the assignment of access rights, must be observed. Compliance is monitored with controls including those relating to Section 404 of the Sarbanes-Oxley Act please refer to page 106. Operational and security audits are carried out every year both internally and by external auditors.
Potential risks from the construction of new production sites or the introduction of new technologies are considered early on in the planning stage and reviewed on an ongoing basis. When building new production units, we use internal milestones and continuously monitor whether they are achieved. Further preventive risk management measures limit the effect of environmental factors on dialysis services: Many of our proprietary dialysis clinics have emergency generators to ensure that life-saving dialysis treatments can be continued even in the event of a complete power failure. Furthermore, in the U.S. for example, a Fresenius Medical Care emergency team (disaster response team) steps in all-season during natural disasters such as hurricanes to professionally coordinate relief efforts and provide dialysis treatment for patients in the affected regions. More information on this can be found in the "Dialysis services in emergency situations" section starting on page 85.
As a vertically integrated dialysis company, Fresenius Medical Care can offer almost all of the products and services that a patient with chronic kidney failure requires for treatment. Our international network of 3,160 dialysis clinics in more than 40 countries is the largest and most international network in the world. As a result, we possess valuable dialysis expertise that is unique in the industry. Thanks to this wealth of experience, we understand that high quality is not only the key to a better quality of life for patients, but that it can also make a significant contribution to reducing the costs of healthcare. Based on this knowledge and our business model, we see several opportunities for further growth, which are explained in greater detail in the following section.
Patient growth and demographic development According to estimates, the number of people worldwide suffering from chronic kidney failure and requiring dialysis treatment is rising by around 6% annually. This number is expected to reach more than 2.4 M in 2013. By 2020 the number of dialysis patients could reach around 3.8 M. Several social trends contribute to this growth in patient numbers. In Europe and the U.S., for example, these include the aging population and the increasing incidence of diabetes and hypertension, two illnesses which frequently precede the onset of chronic kidney failure. In developing and emerging countries, the expanding population and an increase in wealth are key factors that boost demand for dialysis products and services. We want to continue to make a significant contribution to meeting this demand in the future.
Whether or not private companies can offer dialysis treatment and in what form depends on the healthcare system of the country in which they operate and its legal framework. For Fresenius Medical Care, opportunities to tap 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. These decisions are increasingly influenced by the following factors:
In many countries, the resources for financing, managing and providing healthcare services are becoming ever scarcer. This situation has worsened as a result of the financial and economic crisis.
At the same time, healthcare systems face the challenge of providing their population with increasingly comprehensive medical services. This is due to longer life expectancy and the associated increase in concomitant diseases or because fully-functioning healthcare provision is still being established.
Dialysis is a complex life-sustaining procedure, which places high demands on a healthcare system in terms of expertise and efficiency.
For these reasons, public healthcare providers are increasingly looking to work with private providers to develop high-quality, sustainable healthcare solutions for patients with chronic kidney failure. This constitutes a huge opportunity for Fresenius Medical Care.
One example is Germany, the fifth-largest market worldwide in terms of the number of dialysis patients. We lead the market here with our products. Dialysis centers are predominantly operated by doctors in private practice, hospitals, and non-profit organizations; however, for a number of years, Fresenius Medical Care has also offered dialysis services in medical care centers. These are facilities for outpatient care managed by doctors with different areas of expertise who are employed as salaried physicians. At the end of 2012, the Company was involved in 14 medical care centers (2011: ten). As an experienced partner, we want to continue to support our customers when it comes to setting up new structures in the German healthcare system, and take advantage of the opportunity to strengthen our business in the long term. In Japan, where dialysis centers are primarily managed by private nephrologists, new sales opportunities could also open up for private companies such as Fresenius Medical Care in the long term if these are approved as clinic operators in Asia's largest dialysis market.
In some countries, public private partnerships (PPP) promise to be an attractive business model for Fresenius Medical Care. These are contractually defined project alliances between the public sector and private companies in which both partners assume a specified share of the financing, tasks, risks, and opportunities. Here, too, our broad expertise in dialysis
gives us a competitive edge, as it enables us to prepare suitable offers for various levels of care for hospitals, health insurances, local or national authorities. Depending on the contract, we can set up new dialysis clinics and install the equipment, train medical personnel on quality, hygiene and nutrition or manage the clinics ourselves on the terms agreed. PPP therefore offers an opportunity for both partners: The public sector benefits from private investments in a dialysis infrastructure based on high standards of treatment, from the transfer of knowledge on quality, technology and management issues, and from the operational efficiency of a global dialysis company, helping it to provide patients with better and, at the same time, more cost-effective healthcare. In turn, Fresenius Medical Care can tap new markets, expand its market share, and extend its range of products and services with new forms of healthcare thanks to the PPP model. Partnerships of this type can also be the first step towards complete privatization. We are already part of PPP initiatives, for example in Italy, Bosnia, Portugal, South Africa, UAE, Australia, the Philippines, India and Indonesia. The relevant contracts are tailored to the respective needs of the partners involved as well as to the local legal conditions.
Cost pressures on the one hand and the growing number of patients on the other are causing an increase in global demand for a comprehensive – or integrated – healthcare concept for patients with chronic kidney failure. This is based on the following principle: All healthcare services and therapies associated with the treatment of a kidney patient – possibly going even one step further to include the treatment of concomitant diseases – are combined to create an integrated program that is tailored to the individual requirements of the patient and the needs of the insurer. Depending on the contract and which elements a healthcare system prescribes as
part of basic treatment, this can involve, for example, special medical tests, drugs for kidney patients, the insertion and medical supply of the vascular access connecting a patient to the dialysis equipment (vascular access management), or the patient's travel to and from the dialysis center in addition to dialysis itself. This comprehensive care from a single source improves the way in which the different stages of treatment are coordinated and controlled, minimizes complications and thereby avoids additional stays in hospital, which are a significant burden for patients, as far as possible. As a consequence, the patient's quality of life and the quality of treatment increase, while the overall costs of the treatment decrease.
Payors increasingly no longer reimburse the components of this type of holistic treatment separately but combined in a "service bundle", which is linked to contractually defined, measurable treatment targets on which the dialysis provider must submit regular reports (pay for performance). These quality parameters are generally based on national and international guidelines on good treatment practice for kidney patients and in some cases even exceed them. Failure to meet these criteria results in measures ranging from a reduction in the reimbursement to a full withdrawal of the license.
Integrated healthcare using the pay-for-performance model offers opportunities for all those involved: Dialysis patients can enjoy a sustainably improved quality of life; pooling healthcare provision with a single provider reduces the overall costs of treatment as resources are used more efficiently and makes these costs easier to control and calculate for the public sector and for health insurers; dialysis providers can in turn expand their range of offers by providing the additional services required by the contract.
Fresenius Medical Care is particularly well placed to offer integrated treatment programs on a high level of quality for chronically ill kidney patients for several reasons:
As a manufacturer of leading dialysis products and an operator of the largest international dialysis clinic network worldwide, we have long-standing experience in providing comprehensive care for dialysis patients.
Thanks to the high quality and reliability of our products and services, we enjoy a very good reputation in the industry.
We use sophisticated internal feedback instruments to measure and compare the success of treatment at our clinics and to rapidly identify any potential for improvements.
Dialysis drugs supplement our range of dialysis services and products, enabling us to expand our portfolio horizontally. In line with our strategy see page 36 and the general trend towards integrated healthcare (see above), they offer the Company further opportunities for growth.
If patient numbers grow as strongly as anticipated, cost pressure continues to rise, and the capacity of clinics is no longer sufficient to treat all patients, home therapies look set to take on a more crucial role. This development offers Fresenius Medical Care opportunities for growth. As a result, we are expanding our expertise in peritoneal dialysis with high-quality products and treatment programs as well as acquisitions see page 33 and in the glossary on page 162. Sorbent technology already provides us with a key method for other forms of home therapy: home hemodialysis and the wearable artificial kidney, which an international team is currently developing in a long-term project. We use sorbents to make simple tap water suitable for use in dialysis and to recycle dialysis solution. These are major prerequisites for providing dialysis
outside of medical healthcare facilities. We will continue to expand our range of innovative products and technologies in the future to react to growth opportunities – increasingly also with the aim of best meeting the demand for integrated care.
The organization and management of its operational business presents Fresenius Medical Care with a series of opportunities that will help to improve the Company's success in the long term. For example, we use the Lean Management and Six Sigma management methods to analyze and better coordinate our production processes worldwide in order to further reduce both our defect rates and manufacturing cycles. We are systematically expanding environmental management at our production sites and clinics to improve our operating efficiency, for example by saving resources; see the chapter "Procurement and production" starting on page 70.
By expanding our global network of clinics through acquisitions as well as procuring know-how and relevant technologies in the area of research and development, we are investing in our future growth. The close collaboration between our strategy and planning departments and the managers responsible for our acquisitions ensures that we are able to identify suitable potential acquisitions worldwide as early as possible. Further information on our acquisitions in the year under review can be found in the section "Acquisitions and divestitures" on page 50 and in the section "Financial situation" starting on page 58.
Finally, our business model also provides opportunities for the future growth of our Company. As a vertically integrated dialysis company, we not only offer almost all of the products and services that a patient with chronic kidney failure requires for treatment, we also use these on a daily basis in our own clinics. Consequently, we benefit from the feedback of patients, physicians and nurses worldwide in developing and manufacturing new products as well as in organizing our clinic management.
The Management Board bases its assessment of overall risk on the risk management system used by Fresenius Medical Care, which is regularly checked by third parties and by the Management Board. The effectiveness of this risk management system is monitored and, if necessary, improved as part of the Company-wide review of the integrated management system. The Management Board will continue to expand our risk management and its review of the associated management system to be able to identify, investigate and assess potential risks even more quickly and implement appropriate countermeasures. Based on the general principles for estimating risk factors described starting on page 104, we currently assume that none of the risks mentioned will significantly impair the earnings, financial and assets position of Fresenius Medical Care in the long term. Furthermore, no material changes to risks were identified compared to 2011. From an organizational point of view, we believe that we have created all necessary conditions in order to identify emerging risk situations early and to be able to react properly if necessary.
Effective March 1, 2013 Fresenius Medical Care has appointed a new Member of the Management Board responsible for research and development. Until the annual report's editorial deadline, no further significant events took place.
Effective March 1, 2013 Fresenius Medical Care has expanded its Management Board and has appointed Dr. Olaf Schermeier as new Member of the Management Board being responsible for our global research and development activities. It is important for our future to continue to ensure market-oriented product innovations and at the same time to further increase the efficiency of our processes on a global basis. For this reason, we created the new role Chief Officer of Global R & D. Dr. Schermeier has many years of experience in various areas of the health care industry. Since 2004 he has served in a senior management position for the German company Dräger Medical.
No further significant events took place between the closing date of December 31, 2012, and the annual report's editorial deadline of March 13, 2013. There were no fundamental changes in the economic and business environment in our field of activity.
We are currently not planning any major changes in Fresenius Medical Care's organizational structure, administration, legal form or with regard to personnel which could lead to a significant impairment of the asset, financial and earnings situation of our Company.
Fresenius Medical Care's business development met our expectations in the first weeks of 2013.
As discussed in the "Outlook" chapter starting on page 119, demand for our dialysis products and services worldwide continues to be high. Overall, the Management Board again assessed the Company's business development as positive when this annual report was compiled. From today's perspective, we expect to achieve our revenue, earnings and the other performance ratios as planned. At this report's editorial deadline, the current development of our business is basically in line with our expectations.
Having attained our targets once again in the last financial year, we also expect to perform positively in 2013. We consider ourselves to be well prepared to continue on our path of sustainable growth in the years to come.
Fresenius Medical Care is the world's leading dialysis company. We aim to consolidate and, if possible, build on this position in the years ahead. We intend to maintain our vertically integrated business model; there are no plans to make significant changes to our business policy. Back in 2005, we defined our long-term growth strategy, the basic principles of which we continue to pursue. For further information on this, see the "Company strategy" section starting on page 36.
After a year of slower growth, the global economy is expected to stabilize in 2013. But the high levels of government debt in many countries are furthermore dampening global demand. Overall, gross national product (GDP) is likely to grow by around 3.4% worldwide in 2013, following a rise of 3.2% in 2012.
A slight economic recovery is expected in the U.S., based on falling unemployment and an associated increase in domestic demand. Spending cuts and tax rises cause negative effects.
In the overall assessment of the euro zone, a slowdown in growth is anticipated. The weak economic situation in the southern peripheral nations is countering the positive development in northern core countries such as Germany.
In Asia, the emerging countries, in particular China and India, are expected to be the key growth drivers, as in previous years.
| T. 2.12.1 | Real gross domestic product and consumer prices Expected change from the previous year in % |
|||
|---|---|---|---|---|
| Gross domestic product | Consumer prices | |||
| 2012 | 2013 | 2012 | 2013 | |
| U.S. | 2.2 | 1.5 | 2.1 | 2.1 |
| Germany | 0.7 | 0.3 | 2.0 | 2.0 |
| Euro zone | –0.5 | –0.2 | 2.5 | 1.9 |
| European Union | –0.3 | 0.1 | 2.5 | 2.0 |
| New EU member states | 0.9 | 1.3 | 3.8 | 3.0 |
| Russia | 4.5 | 3.8 | 5.5 | 5.5 |
| Japan | 2.0 | 0.5 | –0.2 | –0.3 |
| China | 7.8 | 8.0 | 2.6 | 2.5 |
| India | 3.8 | 6.5 | 9.1 | 8.5 |
| Asia | 6.6 | 7.3 | 4.3 | 4.2 |
| Latin America | 2.9 | 3.8 | 6.2 | 5.6 |
| Worldwide | 3.2 | 3.4 | 4.6 | 4.2 |
Sources: Institute for the Global Economy at the University of Kiel, "Weltkonjunktur im Winter 2012", December 18, 2012; monthly reports of the Deutsche Bundesbank and the European Central Bank
Fresenius Medical Care 2012
2.12 O utlook
An economic upturn is also expected in Latin America in 2013, mainly driven by domestic demand.
Fresenius Medical Care expects the number of dialysis patients worldwide to grow by about 6% in 2013. Some significant regional differences will probably remain. We anticipate a 2 to 4% increase in patient numbers in the U.S., Japan, Western and Central Europe. In these regions, the prevalence of chronic kidney failure is already relatively high and patients generally have reliable access to treatment, normally dialysis. In economically weaker regions, the growth rates are even higher with values of up to 10%, and in some countries even more. We expect patient numbers to continue to rise in the coming years, see chart 2.12.3 on page 121.
Demographic factors are one of the main reasons for the continued growth of dialysis markets, including the aging population and the mounting incidence of diabetes and hypertension – two diseases that often precede end stage renal disease. In addition, the life expectancy of dialysis patients is increasing primarily
due to ongoing improvements in the quality of treatment and higher standards of living, even in developing countries.
As a result of the anticipated differences in growth rates, a higher proportion of patients will undergo dialysis treatment in Asia, Latin America, Eastern Europe, the Middle East and Africa in future. This opens up huge potential for the entire spectrum of dialysis services and products, as more than 80% of the world's population lives in these regions.
We do not expect significant changes in treatment methods. Hemodialysis will remain the treatment of choice, accounting for about 89% of all dialysis therapies. Peritoneal dialysis should continue to be the preferred treatment for about 11% of all dialysis patients.
The volume of the worldwide dialysis market, which amounted to about \$75 BN last year according to preliminary estimates, is expected to increase by around 4%. This is based on the assumption that exchange rates will remain stable in the forecasting period. The overall volume of the dialysis market could thus reach around \$78 BN by 2013.
| T. 2.12.2 | Expected growth in patient numbers in 20131 | |
|---|---|---|
| Change | ||
| North America | ~ 5% | |
| U.S. | ~ 4% | |
| Europe/Middle East/Africa | ~ 4% | |
| EU | ~ 2% | |
| Asia-Pacific | ~ 10% | |
| Japan | ~ 2% | |
| Latin America | ~ 6% | |
| Worldwide | ~ 6% |
1 Internal estimates.
In the product business, we have had our own sales organizations in key growth markets in Eastern Europe and Asia for several years and already hold leading market positions. We serve small markets via distributors. We want to continue to expand our local range of products and local production. Acquisitions can also help us to achieve our aim of strengthening our product business. At the same time, we use acquisitions to grow our network of clinics in these regions. In China, we again strongly expanded our product business and our alliances with hospitals in the area of dialysis services in 2012 and plan to continue this in the coming years. Furthermore, we opened our own dialysis center in the Chinese province of Jiangsu in mid-2012 as part of a pilot project. In addition to China, another Asian market that looks increasingly promising is India. We have been represented on this product market through distributors since the 1990s. We also plan to open 30 of our own dialysis centers in India by 2015. Regional and local health authorities in India also promote the public private partnership model (PPP). Therefore, we also intend to conclude
corresponding supply contracts with larger regional and municipal hospitals. The increasing importance of the Chinese and Indian markets with dialysis patient numbers rising by considerably more than 10% annually should accelerate our growth in the region as a whole.
Fresenius Medical Care's outlook for 2013 is based on the exchange rates at the beginning of the reporting year. As mentioned in the "Economic environment" section starting on page 40, the relationship of the U. S. dollar to the euro is especially important for Fresenius Medical Care. In its forecasts, Fresenius Medical Care also takes into account other exchange rates that are particularly relevant to the economic performance of its subsidiaries, such as the Taiwanese dollar against the U.S. dollar or the Chinese Yuan against the euro. Volatile exchange rates affect the forecast results of the subsidiaries, as well as the conversion of these results into U.S. dollars.
1 Internal estimates.
We aim to further significantly increase our revenue in the current financial year to more than \$14.6 BN, which would correspond to a growth rate of more than 6%. We intend to continue this positive development in the years to come.
In 2013, we aim to achieve net income (attributable to shareholders of Fresenius Medical Care AG& Co. KGaA) between \$1.1 BN and \$1.2 BN. Net income in 2013 is expected to increase by 5 to 15% compared to the net income excluding an investment gain in 2012. In 2013, the operating income is expected to be between \$2.3 BN and \$2.5 BN, which would correspond to an increase of 4 to 13%.
At the time of this annual report's editorial deadline, no one-time effects that might have a significant impact on net income in 2013 were anticipated.
For 2013, we expect earnings per shares to grow in parallel with net income.
Fresenius Medical Care intends to continue its profitoriented dividend policy. At the Annual General Meeting on May 16, 2013, the Management Board will propose to the shareholders an increase of the dividend by 9% to €0.75 per ordinary share. Subject to the approval of the Annual General Meeting, the shareholders can expect an increase of the dividend the 16th year in a row since the foundation of Fresenius Medical Care in 1996. In the subsequent years, we will align our dividend development to the growth in earnings per share. Information on the proposed dividend increase can be found in the "Dividend continuity" section on page 25.
In 2013, we intend to spend around \$1 BN in absolute terms – or some 7% of revenue – on capital expenditures and acquisitions. Investments should account for around \$0.7 BN or 5% of revenue in 2013. Around 50% of this amount is earmarked for expansion investments. Approximately \$0.3 BN or 2% of revenue is to be used for acquisitions and equity investments.
In addition to the ongoing modernization of our dialysis clinics and production facilities, capital expenditures will primarily be used to open new dialysis clinics and expand our worldwide production capacities as well as on dialysis machines within the framework of long-term supply contracts. Additionally, capital expenditures will be used to rationalize production processes and to improve system support of internal processes. Furthermore, the Company is planning to continue making selective acquisitions to further consolidate the global business.
In 2013 the operating cash flow is again expected to account for more than 10% of revenue. To ensure that cash flow targets are met, the emphasis will continue to be on the management of current assets. With revenue forecast of more than \$14.6 BN, this would result in an operating cash flow of around \$1.5 BN in 2013.
Fresenius Medical Care takes the debt/EBITDA ratio as its guideline for long-term financial planning. This ratio was 2.83 at the end of 2012. For 2013, the target figure is expected to be equal or below 3.0.
The Company's financing strategy gives top priority to ensuring our financial flexibility. With our only partly used credit facilities and accounts receivable facility Fresenius Medical Care has sufficient financial resources. In doing so, we are pursuing a target value for secured and unutilized credit facilities of at least \$300 M to \$500 M. Our 2013 principal financing needs are the payment of \$140 M for a loan coming due in 2013. These payments as well as our dividend payment of approximately \$300 M in May 3013 are
123 2.12 O utlook
expected to be covered by our cash flows and by using existing credit facilities.
For further information, see the "Financial situation" section starting on page 58.
The holding company of Fresenius Medical Care has been a partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA) since 2006. Changes to the legal form are not planned in the foreseeable future. We intend to retain our decentralized organizational structure and the division into the three operating segments "North America", "International" and "Asia-Pacific". To our view, this well-proven structure ensures the best-possible flexibility and adaptation to market requirements.
We plan to spend approximately \$140 M on research and development in the current financial year. The number of employees (currently 530 full-time equivalents) in this area is not expected to change significantly in 2013.
As a vertically integrated company, we aim to offer a complete portfolio of high-quality products and services for the treatment of chronic kidney failure that can be adapted flexibly to local market conditions and to the sometimes dynamic changes in healthcare systems and reimbursement structures.
In view of the growing challenge faced by healthcare systems to provide comprehensive, high-quality yet cost-effective care for an increasing number of patients, we want to use this extensive portfolio
| T. 2.12.4 | Targets for 2013 and 2014 | ||||||
|---|---|---|---|---|---|---|---|
| Results 2012 | Targets 2013 | Targets 2014 | |||||
| Revenue | \$13.80 BN | >\$14.6 BN | Increase of 6 – 8% at constant currency |
||||
| Net income | \$1.047 BN1 | \$1.1 BN – \$1.2 BN | Based on revenue growth | ||||
| Dividend | +9% per ordinary share to €0.752 |
Based on development of earnings |
Based on development of earnings |
||||
| Investments, net | \$666 M | ~\$700 M | ~7 – 9% of revenues 3 | ||||
| Acquisitions, net | \$1.615 BN | ~\$300 M | ~7 – 9% of revenues 3 | ||||
| Debt/EBITDA ratio | 2.84 | ≤3.0 | ≤2.8 | ||||
| Employees5 | 86,153 | >90,000 | >92,000 | ||||
| Research and development expenses |
\$112 M | ~\$140 M | ~\$150 M | ||||
| Product innovations | 5008 CorDiax | Further expansion of product and service range |
Further expansion of product and service range |
1 Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA. Adjusted for tax-free income from other investments
to the amount of \$140 M.
2 Proposal to be approved by the Annual General Meeting on May 16, 2013.
3 Based on capital expenditures and acquisitions.
4 Pro forma numbers including Liberty Dialysis Holdings, Inc., after FTC mandated divestitures.
5 Full-time equivalents.
124 2.12 O utlook
more and more to offer our healthcare partners integrated concepts for patient care. Thanks to our business model and our long-standing experience in operating an international network of clinics, we are in a particularly strong position to offer comprehensive high-quality solutions of this kind from a single source; see "Opportunities" section in the "Risk and opportunities report" starting on page 113.
One focus of our research and development work will be on developing innovations that incorporate additional treatment elements into our products and services or help to better align them – always with the aim of improving the quality, safety and cost-efficiency of treatment in equal measure. For example, we will be working on devices for our hemodialysis machines that reduce the handling of the bloodline system and its connections to just a few operations, thereby easing the workload of clinic staff. We will also be looking at integrating the dosage and administration of certain drugs into the dialysis machine cycle, along with new functions to improve the quality and safety of treatment.
In the interest of more comprehensive patient care, we will also continue to focus our software development efforts on developing integrated system solutions for clinical quality data management. These will be designed to enable a larger volume of data to be captured faster and more easily, enhance the quality of the data and thus continuously improve treatment. It is feasible in the long term, for example, that these systems will not only record the complete history of a patient's hemodialysis treatment, but also manage
data as early as the preliminary stages of chronic kidney failure so that treatment can be better coordinated and possible preventive measures applied more specifically. A common data management solution for peritoneal and hemodialysis patients could also help to improve the coordination of treatment and thus its quality. These two patient groups are now normally logged in separate IT systems, although many peritoneal dialysis patients frequently switch to hemodialysis after a certain period due to the limitations of using the human peritoneum as a dialysis membrane.
In general, we will also continue to look into the issue of how new scientific and technological findings can be used to further improve the quality of life of a growing number of patients with chronic kidney failure – for example, through innovations in home therapies. Treatment safety will remain at the forefront of our efforts to continuously improve our products and services, and the concomitant diseases of chronic kidney failure will also remain a focus of our research.
A further research topic is transferring the blood cleansing process used for dialysis to other illnesses, like liver disease, septicemia or certain autoimmune and metabolic disorders. In the long term, we will continue researching new approaches to treating severe kidney and liver disease based on regenerative medicine. To do this, we work together with internationally renowned scientific institutions and universities that conduct research on adult liver and kidney stem cells.
Finally, we want to contribute further to reducing the environmental impact of our products and services during their lifecycle as far as possible.
Due to the anticipated expansion in business, we expect the number of employees to grow in all regions in the current year, particularly in the area of dialysis services. By the end of 2013, the number of people working for Fresenius Medical Care is estimated to increase to more than 90,000 (full-time equivalents).
With the assistance of the Global Manufacturing Operations division (GMO), we aim to help our regions to keep on providing their patients and customers with top product quality at the best price. At the same time, we intend to enable our regionally responsible Board Members and their teams to focus their work on developing and growing their dialysis services business. In 2013, one priority of GMO will be to diversify the global supplier portfolio even more so that we can reduce our product costs and offset currency and supply risks.
We will continue to harmonize our processes globally along the manufacturing chain, for example by migrating the current regional production systems to a common information technology system in the coming years. We will also introduce uniform IT systems in quality management, for example to document our processes internally and for complaint management.
In the current year, we aim to enhance the Fresenius Operating System (FOSY) (see the chapter "Procurement and production" starting on page 70) and promote its implementation in all regions. The management philosophy FOSY will enable us to increase quality in production, reduce costs and shorten lead times. In 2012, all operating units and quality management were included in FOSY. GMO finance and GMO administration will follow in 2013. In addition, we will strive to standardize improvement measures (use of same measures) or harmonize improvement measures (use of similar measures) across all regions. This will enable us to better identify best-practice approaches and use our strengths more effectively globally.
126 Chapter 2.13
The Management Board of Fresenius Medical Care Management AG and the Supervisory Board of Fresenius Medical Care AG & 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 the communication of the company are its key elements.
The Management Board of the General Partner, Fresenius Medical Care Management AG, and the Supervisory Board of Fresenius Medical Care AG & Co. KGaA hereinafter report pursuant to section 289a of the German Commercial Code (Handelsgesetzbuch – HGB) and to number 3.10 of the German Corporate Governance Code (Deutscher Corporate Governance Kodex – DCGK) on the Company's corporate governance.
The Declaration on Corporate Governance is publicly available on the Company's website at www.fmc-ag. com in the section Investor Relations/ Corporate Governance /Declaration on Corporate Governance.
The legal form of the Company is that of a partnership limited by shares (Kommanditgesellschaft auf Aktien – KGaA). The statutory bodies are the General Meeting, the Supervisory Board and the General Partner, which is Fresenius Medical Care Management AG. In the year under review 2012, there were no significant changes to the Group's management and supervision structure. The group management and supervisory structure is displayed in the chart 2.13.1.
1 ~ 68.8 % Free Float, ~ 31.2 % Fresenius SE & Co. KGaA
2 100 % Free Float
FMC = Fresenius Medical Care
The Articles of Association of Fresenius Medical Care AG& Co. KGaA, which also specify the responsibilities of the bodies of the Company, are available online at www.fmc-ag.com in the section Investor Relations/ Corporate Governance /Articles of Association.
Fresenius Medical Care aims for a corporate governance that ensures the highest transparency possible. The Management Board of the General Partner manages the business of the Company. In addition to the Company's Supervisory Board, Fresenius Medical Care Management AG has its own Supervisory Board.
The German Stock Corporation Act prescribes a dual management system for stock corporations (Aktiengesellschaft) as well as for partnerships limited by shares consisting of a management body and a supervisory board. The peculiarity in the case of the legal form of a KGaA is that its business activities are conducted by a personally liable shareholder (General Partner). In the case of Fresenius Medical Care AG& Co. KGaA, this is Fresenius Medical Care Management AG, whose Management Board is also responsible for conducting the business activities of the KGaA. Within the scope of statutory allocation of competences, the Supervisory Board is responsible for supervising and advising the Management Board and it is involved in making decisions that are fundamental to the Company. The duties and responsibilities of both bodies are clearly defined by legislation and are strictly separated from one another.
The General Partner – Fresenius Medical Care Management AG – represented by its Management Board is responsible for managing the Company and conducting the Company's business. Its actions and decisions are directed towards the interests of the Company. Within the scope of filling managerial positions, the Management Board considers diversity and especially female representation in terms of selection from professionally qualified candidates. About one third of the participants of the stock option programs, which are reserved for managers, are female. In the year under review, the Management
Board of the General Partner was composed of seven members.
In addition to observing legislation, the Articles of Association and the principles as explained herein, the General Partner's Management Board conducts the business activities of the Company in accordance with the applicable rules of procedure within the meaning of section 77 para. 2 of the German Stock Corporation Act (Aktiengesetz – AktG) and number 4.2.1 Sentence 2 of the German Corporate Governance Code. These rules of procedure define the principles of cooperation and provide for the schedule of responsibilities. Matters of special significance and scope are decided by the full Management Board in accordance with the rules of procedure. Deliberations of the Management Board are conducted by the Chairman of the Management Board or, if the latter is unavailable, by the Board member responsible for commercial matters or, if the latter is also unavailable, by the Board member who is the senior-most member in age of the Board Members present. The Chairman determines the order of the agenda items and the modus of voting. Unless unanimity or the acting of all Members of the Management Board is required by mandatory legal regulations or the Articles of Association, the Management Board adopts resolutions at meetings by simple majority of votes cast, and outside the meetings by simple majority of its members.
The rules of procedure determine that meetings of the Management Board are held as the circumstances require, but at least once a month. In practice, meetings of the Management Board generally take place twice a month.
In various cases, the rules of procedure require the Management Board to obtain the prior consent of the Supervisory Board or the competent Supervisory Board committee of the General Partner.
The Members of the Management Board and their areas of responsibility are introduced in the notes to the annual financial statements of Fresenius Medical Care AG& Co. KGaA for the year under review (the "notes") under "Management Board of the General Partner Fresenius Medical Care Management AG" (www.fmc-ag.com in the section Investor
Relations/ Publications 2012 / Financial Statements according to German law (HGB)), on the internet at www.fmc-ag.com in the section Our Company / Management / Management Board and in the "Corporate report" starting on page 12.
As a stock corporation, Fresenius Medical Care Management AG also has its own Supervisory Board consisting of six members, which is chaired by Dr. Ulf M. Schneider. Other Members of the Supervisory Board of Fresenius Medical Care Management AG are Messrs. Dr. Dieter Schenk (Vice Chairman), Rolf A. Classon, William P. Johnston, Dr.Gerd Krick and Dr. Walter L. Weisman. As far as Members of the Supervisory Board of Fresenius Medical Care Management AG are also Members of the Supervisory Board of Fresenius Medical Care AG& Co. KGaA, further information with regard to them can be found within the scope of information provided with regard to the Members of the Supervisory Board of Fresenius Medical Care AG& Co. KGaA in the notes under the header "Supervisory Board" (www.fmc-ag.com in the section Investor Relations/ Publications 2012 / Financial Statements according to German law (HGB)), on the internet at www. fmc-ag.com in the section Our Company / Management / Supervisory Board and in the "Corporate report" starting on page 155. In addition to this, for the year under review the following information is provided with regard to Dr. Schneider, who is not a member of the Supervisory Board of Fresenius Medical Care AG& Co. KGaA:
Chairman of the Management Board of Fresenius Management SE
Fresenius Kabi AG (Chairman) HELIOS Kliniken GmbH (Chairman) Fresenius Medical Care Group France S.A.S., France (Chairman) Fresenius Kabi España S.A.U., Spain Fresenius HemoCare Netherlands B.V., The Netherlands FPS Beteiligungs AG (Chairman; as of 25 April 2012)
Fresenius Kabi USA, Inc., USA (Board of Directors) FHC (Holdings), Ltd., Great Britain (Board of Directors)
The Supervisory Board of Fresenius Medical Care Management AG appoints the Members of the Management Board and supervises and advises the Management Board in its management responsibilities. In accordance with number 5.1.3 of the German Corporate Governance Code, the Supervisory Board has established rules of procedure. Unaffected by the independence requirements according to statutory rules and to the demands of the German Corporate Governance Code, Fresenius Medical Care Management AG has committed itself by virtue of a so-called Pooling Agreement with Fresenius SE & Co. KGaA (inter alia) to a specific form of independence as defined therein. Pursuant to the Pooling Agreement, an "independent member" is a member of the Supervisory Board with no substantial business or professional relationship with Fresenius Medical Care AG& Co. KGaA, its General Partner, Fresenius SE & Co. KGaA, or its General Partner Fresenius Management SE, or any affiliates of these companies.
The Supervisory Board of Fresenius Medical Care AG& Co. KGaA advises and supervises the business activities as conducted by the General Partner and performs the other duties assigned to it by law and by the Articles of Association. It is involved in strategy and planning as well as all matters of fundamental importance for the Company.
The Supervisory Board of Fresenius Medical Care AG& Co. KGaA consists of the following six members: Dr.Gerd Krick (Chairman), Dr. Dieter Schenk (Vice Chairman), Rolf A. Classon, Prof. Dr. Bernd Fahrholz, William P. Johnston and Dr. Walter L. Weisman. Further information on the Members of the Supervisory Board can be found in the notes under the header "Supervisory Board" (www.fmc-ag.com in the section Investor Relations/ Publications 2012 / Financial Statements according to German law (HGB)), on the internet at www.fmc-ag.com in the section Our Company / Management / Supervisory Board and in the "Corporate report" starting on page 155.
All Members of the Supervisory Board are elected by the General Meeting of Fresenius Medical Care AG& Co. KGaA as the competent election body according to the provisions of the German Stock Corporation Act. Such resolution of the General Meeting requires a majority of at least three quarters of the votes cast. Fresenius SE & Co. KGaA is excluded from voting on this issue (further explanations on this matter can be found under "Further Information regarding Corporate Governance" in the section titled "Shareholders"). When discussing its recommendations for the election of Members of the Supervisory Board to the General Meeting, the Supervisory Board will take into account the international activities of the enterprise, potential conflicts of interest, what it considers an adequate number of independent Supervisory Board Members and diversity. This includes the aim to establish an appropriate female representation on a long-term basis. As the composition of the Supervisory Board needs to be aligned with the interests of the enterprise 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. 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. Therefore, the Supervisory Board has overall refrained from determining and taking into account specific objectives with respect to its composition when proposing candidates and from publishing the state of their implementation in the Corporate Governance Report. Accordingly, non-compliance is declared in the declaration of compliance of the 2012 financial year insofar. The declaration of compliance is included hereinafter, and can also be viewed on the Company's website under www.fmc-ag.com in the section Investor Relations/ Corporate Governance / Declaration of Compliance.
There is a strict separation between the Members of the Supervisory Board and those of the Management Board: simultaneous membership in both the Supervisory Board and the Management Board is not compatible with the law. In the year under review,
the Supervisory Board did not include any members who were also Members of the General Partner's Management Board during the previous two years. The Members of the Company's Supervisory Board are independent in their decisions and are not bound by requirements or instructions of third parties.
The Supervisory Board consists of what it considers an adequate number of independent members, who also do not entertain any personal or business relations with the company, its corporate bodies, a controlling shareholder or an enterprise associated with the latter which may cause a substantial and not merely temporary conflict of interests. Details on the treatment of potential conflicts of interests are set out in the section "Legal relationships with members of the Company's corporate bodies" below.
The term of office of the Members of the Supervisory Board is five years; the current term of office ends on conclusion of the General Meeting for 2016.
Details on the election, constitution and term of office of the Supervisory Board, its meetings and the adoption of resolutions, as well as its rights and obligations, are set out in Articles 8 et seq. of the Company's Articles of Association, which can be viewed on the Company's website under www.fmc-ag.com in the section Investor Relations/ Corporate Governance / Articles of Association. According to number 5.1.3 of the German Corporate Governance Code, the Supervisory Board has furthermore adopted rules of procedure which set out, among other things, the modalities for convening meetings and the manner in which resolutions are adopted. Accordingly, the Supervisory Board meets at least twice per calendar half year. The deliberations of the Supervisory Board are conducted by the Chairman or, if the latter is unavailable, by his deputy, who also determines the order of the agenda items and the type of voting. As a rule, the Supervisory Board decides by simple majority of votes cast unless other majorities are prescribed by a mandatory provision of law. The Chairman of the Supervisory Board is responsible for coordinating and directing the Supervisory Board and represents the Supervisory Board vis-à-vis third parties.
In accordance with number 5.6 of the German Corporate Governance Code, the Members of the Supervisory Board regularly carry out efficiency evaluations with regard to their work. These take place in the form of open discussions in plenary meetings. On these occasions, also the complexity and the design of the presentations, as well as the meetings' procedure and structuring are discussed. The results of the evaluations carried out show that each of the Supervisory Board and the committees are efficiently organised and that the co-operation of the Supervisory and Management Boards of the General Partner works very well, too.
The Members of the Supervisory Board regularly update themselves via in-house sources and via external sources about the current status of supervisory requirements. In addition to information provided to them by several external experts, also experts of the Company's departments regularly provide reports about relevant developments, such as – for example – relevant new developments in the revision of legal rules or in jurisprudence and also about recent developments in regulations on accounting according to U.S. GAAP and IFRS. In this way, the Supervisory Board, with the Company's reasonable assistance, ensures an ongoing qualification of its members and also a further development and updating of their expertise, power of judgment and experience, which is required for the Supervisory Board including its committees to duly perform their tasks.
In the year under review, five meetings of the Supervisory Board – partly lasting for several days – and several telephone conferences have taken place. Significant discussion topics have been the effects of the changes in the cost reimbursement system in the U.S., consequences of the worldwide economic situation for opportunities and risks for the development of the Company's business, possibilities to extent the current business as well as product innovations in development.
Further details about the aforementioned members' memberships in other statutory supervisory boards or in comparable domestic or foreign supervisory committees of business enterprises can be found in the notes to the financial statements under "Supervisory Board" (www.fmc-ag.com in the section
Investor Relations/ Publications 2012 / Financial Statements according to German law (HGB)), on the internet at www.fmc-ag.com in the section Our Company / Management / Supervisory Board and in the "Corporate report" starting on page 155.
From the midst of its members, the Supervisory Board of Fresenius Medical Care AG& Co. KGaA forms two standing committees, the Audit and Corporate Governance Committee and the Nomination Committee. Furthermore, there is a Joint Committee consisting of two members from each the Supervisory Board of the Company and the Supervisory Board of the General Partner.
The Supervisory Board of Fresenius Medical Care AG& Co. KGaA established an Audit and Corporate Governance Committee. During the year under review Messrs. Dr. Walter L. Weisman (Chairman), Prof. Dr. Bernd Fahrholz (Vice Chairman), Dr. William P. Johnston and Dr.Gerd Krick were members of this Committee.
The Audit and Corporate Governance Committee assists and advises the Supervisory Board and performs the duties incumbent on it by law and in accordance with the German Corporate Governance Code. Without prejudice to the responsibilities of the Supervisory Board, it also reviews the report of the General Partner on relationships with affiliated companies. In addition, the Audit and Corporate Governance Committee examines the report according to Form 20-F, which in addition to other disclosures includes the consolidated financial statements and the Group management report.
With the consent of the Supervisory Board, the Audit and Corporate Governance Committee adopted rules of procedure. The rules of procedure of the Audit and Corporate Governance Committees provide that between three and five members may belong to this Committee. The chairman shall not be a former member of the Management Board of the Company. All members of the Audit and Corporate Governance Committee must be independent within the meaning of the Articles of Association of the Company (section 12 para. 2 sentence 3), which means that, apart from their membership in the Supervisory Board of the General Partner, they do not have any substantial business, professional or personal relationship with the Company or any of its affiliates. The question of independence is assessed solely by the Supervisory Board of the Company, with such independence as a rule being assumed where the member in question satisfies the requirements for independence pursuant to section 100 para. 5 of the German Stock Corporation Act and those of the New York Stock Exchange. Furthermore, members of the Audit and Corporate Governance Committee are required to possess expert knowledge in the finance and accounting sector. All members are independent within this meaning and were appointed to the Committee based on their specialist knowledge, their independence and their experience.
The Audit and Corporate Governance Committee convenes as circumstances require, but at least four times a year in any case. Meetings of the Audit and Corporate Governance Committee are lead by its chairman. A quorum of the body is constituted by the majority of its members. Subsequent to the meetings, the Audit and Corporate Governance Committee reports regularly through its chairman to the Supervisory Board of the Company and together with the latter addresses issues falling under the responsibility of the committee. In consultation with the Audit and Corporate Governance Committee, the Supervisory Board proposed KPMG AG Wirtschaftsprüfungsgesellschaft as auditor of the annual financial statements for the year under review.
In accordance with number 5.3.3 of the German Corporate Governance Code, the Supervisory Board has furthermore established a Nomination Committee. In the year under review, the Company's Nomination Committee included Dr.Gerd Krick (Chairman), Dr. Walter L. Weisman and Dr. Dieter Schenk. The Nomination Committee prepares Supervisory Board candidate proposals, and suggests suitable candidates to the Supervisory Board for the latter's nomination proposals to the General Meeting. In the year under review, the Nomination Committee was not convened as there was no demand to do so.
Since 2006, Fresenius Medical Care AG& Co. KGaA has established a Joint Committee whose composition and activity is provided for in Articles 13a et seq. of the Articles of Association of the Company; these provisions can be viewed on the Company's website under www.fmc-ag.com in the section Investor Relations/ Corporate Governance / Articles of Association. The Joint Committee is convened only as required, namely in cases of certain legal transactions defined in the Articles of Association as substantial transactions and for which the General Partner requires the consent of this body.
The Joint Committee is composed of two members of the Supervisory Board of the General Partner and two members of the Supervisory Board of the Company, with the chairman of this body being appointed by the General Partner. For the General Partner, Dr. Ulf M. Schneider and Dr.Gerd Krick have been named as members of the Joint Committee. By resolution of May 12, 2011, the General Meeting of the Company furthermore appointed Dr. Walter L. Weisman and William P. Johnston as members of the Joint Committee for Fresenius Medical Care AG& Co. KGaA.
The Joint Committee constitutes a quorum if at least three members are attending a meeting. As a rule, resolutions are adopted by simple majority of votes. When the Joint Committee has met, it reports to the General Meeting on its work; in this regard, section 171 para. 2 sentence 1 and sentence 2 (first half-sentence) as well as section 176 para.1 sentence 1 of the German Stock Corporation Act apply mutatis mutandis. If resolutions have been adopted by the second vote being cast by the chairman, this fact must be disclosed in the report of the Joint Committee.
In the year under review, the Joint Committee was not convened as the requirements for a meeting have not been fulfilled.
Further details on the memberships of members of the aforementioned committees in other statutory supervisory boards or in comparable domestic or foreign supervisory committees of business enterprises can be found in the notes to the financial statements under "Supervisory Board" (www.fmc-ag.com in the section Investor Relations/ Publications 2012 / Financial Statements according to German law (HGB)) and on the internet at www.fmc-ag.com in the section Our Company / Management/ Supervisory Board.
Furthermore, at the level of the Supervisory Board of the General Partner, Fresenius Medical Care Management AG, further Committees have been in place. The purpose of these committees is to raise the efficiency of the Supervisory Board's work and to deal with special issues of a complex nature, such as the composition and compensation of the Management Board, candidate proposals of the Supervisory Board of the General Partner as well as regulatory requirements and reimbursement of services in the dialysis field. These committees act only in a consulting capacity.
In the year under review, the Human Resources Committee was composed of Dr. Ulf M. Schneider (Chairman), Dr.Gerd Krick, Mr. William P. Johnston and Dr. Walter L. Weisman.
In the year under review, members of the Regulatory and Reimbursement Assessment Committee were Messrs. William P. Johnston (Chairman), Rolf A. Classon (Vice Chairman) and Dr. Dieter Schenk.
Corresponding to number 5.3.3 of the German Corporate Governance Code, the Supervisory Board has furthermore established a Nomination Committee. In the year under review, the Nomination Committee of the General Partner's Supervisory Board included Dr. Ulf M. Schneider (Chairman), Dr.Gerd Krick (Deputy Chairman) and Dr. Walter L. Weisman. The Nomination Committee prepares Supervisory Board candidate proposals, and suggests suitable candidates to the General Partner's Supervisory Board for the latter's nomination proposals to its General Meeting. In the year under review, the Nomination Committee was not convened as there was no demand to do so.
Further details about the aforesaid members' membership in other statutory Supervisory Boards or in comparable domestic or foreign supervisory committees of business enterprises can be found in the notes to the financial statements under "Supervisory Board" (www.fmc-ag.com in the section Investor Relations/ Publications 2012 / Financial Statements according to German law (HGB)), on the internet at www.fmc-ag.com in the section Our Company / Management / Supervisory Board and in the "Corporate report" starting on page 155.
Good corporate governance requires an efficient co-operation between the management and the Supervisory Board on the basis of mutual trust. The General Partner and the Supervisory Board of the Company work together closely in the Company's interest: their joint goal is to increase the Company's value in the long term in compliance with the corporate governance principles and compliance regulations. The General Partner regularly informs the Company's Supervisory Board about all relevant issues regarding business policy, corporate planning and strategic enhancement, about the profitability of the Company as well as the development of business and the Group's position including an assessment of the risk situation. In the expired fiscal year, the Supervisory Board regularly advised the management, i.e. the Management Board of the General Partner, on the Company's management and supervised it in line with its responsibility as Supervisory Board of the partnership limited by shares.
Global business activities result in global responsibility. As the global market leader in dialysis, Fresenius Medical Care is aware of its responsibility.
We are committed to conduct the Company's business activities in compliance with local laws and regulations. We seek to demonstrate professionalism, honesty and integrity in the business relationships with our patients, customers, suppliers and other business partners, with the public authorities and the payors within the healthcare system, with our employees, shareholders and the general public.
For us, compliance means adhering to defined ethical and legal guidelines as part of our business activities. Observing compliance guidelines is an integral part of our corporate culture. We have implemented Fresenius Medical Care's compliance program in all of our business regions. Thus, our compliance guidelines apply to all our subsidiaries.
Our compliance program comprises of a code of conduct that has been approved by the Management Board. The code of conduct applies worldwide in every business section and combines our longterm interests with those of our partners. It describes our Company's business standards and emphasizes our commitment to operate in accordance with the applicable laws and regulations and with our own company policies. The code of conduct is based on the core values of our Company: quality, honesty and integrity, innovation and improvement, respect, teamwork and dignity. Our corporate culture and policy as well as our entire business activities are guided by these values. Each employee is called on to ensure, by complying with the laws as well as the guidelines and rules of the code of conduct, that Fresenius Medical Care is appreciated as a partner of integrity and reliability in the healthcare system for patients, customers, suppliers, public authorities and the general public.
All employees have the possibility of reporting suspected violations of applicable laws or company policies. Information on violations may also be provided anonymously.
Further details can be obtained from the code of conduct published on the website of the Company at www.fmc-ag.com in the section Our Company / Compliance / Code of Conduct.
In his capacity as the Chief Compliance Officer, the member of the Management Board responsible for compliance regularly provides a compliance update to the Audit and Corporate Governance Committee of Fresenius Medical Care AG& Co. KGaA and to the Supervisory Board of Fresenius Medical Care Management AG.
We continued our compliance training activities in 2012. As part of this training, local compliance officers were given the opportunity at conferences to exchange their experiences with the compliance officers from their respective business regions. As the chart below shows, these officers are assigned a key role: They are responsible that each employee is informed about our code of conduct and its goals. At the same time, they are responsible for related training measures. Compliance officers act as contacts for our employees and can be reached via special telephone numbers or by e-mail. Of course, our local compliance officers can also be approached in person.
In the year under review, we strengthened the network and global cooperation within our compliance organization and promoted the exchange on company-wide compliance topics by hosting our compliance conferences in several regions.
In addition, we have leveraged current resources to strategically strengthen our compliance program through initiatives like online employee training and increased communication within the Company.
Our compliance program is also an integral part of our risk and opportunity management.
At Fresenius Medical Care, an integrated management system is in place to ensure that risks and opportunities are already identified at an early stage, optimizing the risk profile and minimizing the costs potentially related to the occurrence of risks through timely intervention. Our risk management is therefore an important component of the corporate management of Fresenius Medical Care. The adequateness and effectiveness of our internal control systems for the financial reporting are reviewed on a regular basis by the Management Board and by our auditor.
Further information about the risk and opportunity management system, our internal control system for the financial reporting and the compliance program can be found in the risk management section of the management report, on the internet under www. fmc-ag.com in the section Investor Relations/ Publications 2012 / Financial Statements according to German law (HGB) and in the "Corporate report" starting on page 104.
The German Corporate Governance Code includes key recommendations for the management and supervision of companies listed on a German stock exchange with the aim of making the rules for managing and supervising companies in Germany more transparent for investors. The code is also intended to enhance the trust of the public as well as that of employees and customers in the management and supervision of listed stock corporations.
The Management Board of Fresenius Medical Care Management AG and the Supervisory Board of Fresenius Medical Care AG& Co. KGaA endorse the principles set forth in the German Corporate Governance Code. The majority of the guidelines, recommendations and suggestions in the code have been an integral and active part of Fresenius Medical Care's day-to-day operations since the founding of the Company. Comprehensive information regarding corporate governance is available on our website at www.fmc-ag.com in the Investor Relations section.
The annually required Declaration of Compliance according to section 161 of the German Stock Corporation Act issued by the Management Board of Fresenius Medical Care Management AG and the Supervisory Board of Fresenius Medical Care AG& Co. KGaA as of December 2012 as well as previous Declarations of Compliance are made permanently available to shareholders according to section 161 para. 2 of the German Stock Corporation Act and number 3.10 of the German Corporate Governance Code among other extensive information on corporate governance on the Company's website at www.fmc-ag.com in the section Investor Relations/ Corporate Governance / Declaration of Compliance.
Declaration by the Management Board of the general partner of Fresenius Medical Care AG&Co. KGaA, Fresenius Medical Care Management AG, and by the Supervisory Board of Fresenius Medical Care AG&Co.KGaA on the German Corporate Governance Code pursuant to Section 161 German Stock Corporation Act (Aktiengesetz)
The Management Board of the general partner of Fresenius Medical Care AG& Co. KGaA, Fresenius Medical Care Management AG, (hereafter the Management Board) and the Supervisory Board of Fresenius Medical Care AG& Co. KGaA declare that since issuance of the previous declaration of compliance in December 2011 the recommendations of the "German Corporate Governance Code Government Commission" published by the Federal Ministry of Justice in the official section of the Federal Gazette (hereafter the Code) in the version of May 26, 2010 as well as in the version of May 15, 2012 since its publication in the Federal Gazette have been met and that the recommendations of the Code in the version of May 15, 2012 will be met in the future. Only the following recommendations have not been and will not be met:
Pursuant to code number 4.2.3 paragraph 4, in concluding Management Board contracts, care shall be taken to ensure that payments made to a Management Board member on premature termination of his/her contract, including fringe benefits, do not exceed the value of two years' compensation (severance payment cap) and compensate no more than the remaining term of the employment contract. The severance payment cap shall be calculated on the basis of the total compensation for the past full financial year and if appropriate also the expected total compensation for the current financial year.
These recommendations are not met insofar as the employment contracts of the Members of the Management Board do not contain severance payment arrangements for the case of premature termination of the contract and consequentially do not contain a limitation of any severance payment amount. Uniform severance payment arrangements of this kind would contradict the concept practiced by Fresenius Medical Care in accordance with the German Stock Corporation Act according to which employment contracts of the Members of the Management Board are, in principle, concluded for the period of their appointment. They would also not allow for a well-balanced assessment in the individual case.
Age limit for Members of the Management Board Pursuant to code number 5.1.2 paragraph 2 sentence 3 an age limit shall be specified for Members of the Management Board. As in the past, Fresenius Medical Care will refrain from determining an age limit for Members of the Management Board in the future since this would unduly limit the selection of qualified candidates.
Code number 5.4.1 paragraph 2 and paragraph 3: Specification of concrete objectives regarding the composition of the Supervisory Board and their consideration when making recommendations to the competent election bodies Pursuant to code number 5.4.1 paragraph 2 and paragraph 3, the Supervisory Board shall specify concrete objectives regarding its composition and, when making recommendations to the competent election bodies, take these objectives into account. The objectives specified by the Supervisory Board and the status of the implementation shall be published in the Corporate Governance Report. These recommendations are not met.
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, the number of independent Supervisory Board Members within the meaning of code number 5.4.2, and diversity. This includes the aim to establish an appropriate female representation on a longterm 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.
Management Board of the general partner of Fresenius Medical Care AG& Co. KGaA, Fresenius Medical Care Management AG, and Supervisory Board of Fresenius Medical Care AG& Co. KGaA
Company shareholders exercise their rights and voting powers in the General Meeting. Each ordinary share of Fresenius Medical Care AG& Co. KGaA entitles the holder to one vote at the General Meeting. The preference shares of Fresenius Medical Care AG& Co. KGaA do not grant any voting rights. As compensation, preference shareholders receive a preference in earnings distribution and a higher dividend. Shares with multiple or preference voting rights do not exist. As a matter of principle, the General Partner (as far as it would be a shareholder in the Company, which was not the case in the year under review), respectively, its sole shareholder, Fresenius SE & Co. KGaA, can exercise at the General Meeting the voting rights connected with the ordinary shares it holds in Fresenius Medical Care AG& Co. KGaA. However, the General Partner and its sole shareholder are subject to various rules preventing them by law from voting on certain resolutions. These include, among others, the election of the Supervisory Board, formal approval of the actions of the General Partner and the Members of the Supervisory Board of Fresenius Medical Care AG& Co. KGaA, as well as the election of the auditor of the annual financial statements. This is to guarantee that the shareholders in the partnership limited by shares (KGaA) can solely decide on these matters, particularly those concerning the control of the Management.
According to the principles of the German Stock Corporation Act (Aktiengesetz), shareholders can exercise their voting rights at the Annual General Meeting themselves, by proxy via a representative of their choice, or by a company-nominated proxy acting on their instructions. Proxy voting instructions to a company nominee can be issued before and during the Annual General Meeting until the end of the open discussion period.
In the year under review, the Annual General Meeting of Fresenius Medical Care AG& Co. KGaA took place on May 10, 2012 in Frankfurt/Main (Germany). Approximately 78% of the ordinary share capital and approximately 2% of the preference share capital
were represented. In 2011, more than 79% of the ordinary share capital and about 2.2% of the preference share capital were represented at the Annual General Meeting. All shareholders who were not able to participate had the possibility to follow the speech of the Chairman of the Management Board live on the internet. At the Annual General Meeting, resolutions were passed on the following topics:
All documents and information about the General Meeting and in particular the voting results and the speech of the Chairman of the Management Board are available on our website at www.fmc-ag.com in the section Investor Relations/Annual General Meeting.
When making decisions and in connection with the tasks and activities performed by them, the Members of the Management Board of the General Partner and of the Supervisory Board of Fresenius Medical Care AG&Co. KGaA, as well as the Supervisory Board of Fresenius Medical Care Management AG, do not pursue personal interests or give unjustified advantages to other people. Any outside activities or business dealings with the Company by members of the corporate bodies are to be disclosed to the Supervisory Board immediately and are subject to its approval, if necessary. The Supervisory Board reports to the General Meeting about possible conflicts of interests and how to deal with them. Furthermore, Dr. Ben J. Lipps as the Chairman of Fresenius Medical Care Management AG's Management Board, in the year under review, with the approval of Fresenius Medical Care Management AG's Supervisory Board, without a change remained at the same time a member of the Management Board of Fresenius
Management SE. The Members of the Supervisory Board of Fresenius Medical Care AG& Co. KGaA Dr. Krick (Chairman) and Dr. Schenk (Vice Chairman) were, in the year under report, also Members of the Supervisory Board of Fresenius Medical Care Management AG (Dr. Schenk as Vice Chairman) and of the Supervisory Board of Fresenius Management SE (Dr. Krick as Chairman, Dr. Schenk as Deputy Chairman), the general partner of Fresenius SE & Co. KGaA. Furthermore, Dr. Krick is the Chairman of the Supervisory Board of Fresenius SE & Co. KGaA. Dr. Schenk continues to be chairman of the administrative board of the Else Kröner-Fresenius-Stiftung, the sole shareholder of Fresenius Management SE as well as limited shareholder of Fresenius SE & Co. KGaA, and co-executor of the estate of Mrs. Else Kröner. Dr. Krick receives a pension from Fresenius SE & Co. KGaA due to his previous work on the Management Board of the company. During the year under review, consulting or other service relationships between Members of the Supervisory Board and the Company existed only in the case of Dr. Schenk, who was in the year under review a member of the Supervisory Board of the Company and of the Supervisory Board of Fresenius Medical Care Management AG, a member of the Supervisory Board of Fresenius Management SE and, at the same time, a partner of the law firm Noerr LLP. In the year under review, the companies of the internationally operating law firm Noerr acted for Fresenius Medical Care AG& Co. KGaA and affiliated companies as legal advisor. The Supervisory Board of Fresenius Medical Care Management AG and the Supervisory Board of Fresenius Medical Care AG& Co. KGaA have concerned themselves with each of the assignments in a detailed manner; moreover, the Supervisory Board dealt with the fee volume for the legal advice rendered by the law firm Noerr in proportion to the fee volume for other law firms. As regards specific mandates for future services to be provided by law firm Noerr and as regards the first three quarters of the year under review, the Supervisory Board of Fresenius Medical Care Management AG and the Supervisory Board of Fresenius Medical Care AG& Co. KGaA have already given their consent to such activity, with Dr. Schenk abstaining from the vote. The resolutions were in each case passed on the basis of a written document for the Supervisory Board specifically stating each single mandate and the invoices rendered for each
mandate. All payments rendered to the law firm Noerr in the year under review were made only after the approval of both Supervisory Boards. Any services rendered in the fourth quarter of the year under review will presumably be topic of the Supervisory Board's Meeting in March 2013 and will also be compensated only after approval has been obtained.
In the year under review, an amount of approximately €1.4 M (plus VAT) was paid or processed for payment in December 2012 by Fresenius Medical Care to law firm Noerr (2011: approximately €1.4 MIO). This represents less than 3% of Fresenius Medical Care's worldwide legal and other consultancy fees.
According to section 15a of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), Members of the Management and Supervisory Boards or other employees in management positions are required to inform the Company when buying or selling shares in Fresenius Medical Care and related financial instruments if the volume exceeds €5,000 within a single year. During fiscal year 2012, we received a total of fifteen disclosures according to section 15a of the German Securities Trading Act, on which further information is provided in the chart 2.13.3 starting on page 138.
In accordance with applicable regulation, we have published these disclosures on our website at www. fmc-ag.com in the section Investor Relations/Corporate Governance /Directors' Dealings/ Single Dealings.
Fresenius Medical Care meets all transparency requirements imposed by number 6 of the German Corporate Governance Code. We attach special importance to informing our shareholders simultaneously and uniformly about our Company in our regular financial reporting events. Ad hoc releases and our corporate website play an essential role in these efforts. They provide investors and other interested persons equally with direct and timely access to the information we release.
138
| T. 2.13.3 | Director's Dealings 2012 | ||
|---|---|---|---|
| Notifying Date March 9, 2012 |
Issuer Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Notifying Party Dr. Ben J. Lipps, Chairman of the Management Board of Fresenius Medical Care |
Transaction Date of Transaction: March 6, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) |
| Management AG | Type of Transaction: Sale Quotation/Price per Share: €52.60550 Quantity: 70,935 Amount: €3,731,571.14 Place: XETRA Comments: Sale of Ordinay Shares |
||
| March 14, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Walter L. Weisman, Member of the Supervisory Board of Fresenius Medical Care AG & Co. KGaA |
Date of Transaction: March 9, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ADR; ISIN US 3580291066) Type of Transaction: Purchase Quotation/Price per Share: \$68.17 Quantity: 2,000 Amount: \$136,340.00 Place: NYSE Comments: Purchase of Ordinay Shares (ADR) |
| March 27, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Rolf A. Classon, Member of the Supervisory Board of Fresenius Medical Care AG & Co. KGaA |
Date of Transaction: March 23, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ADR; ISIN US 3580291066) Type of Transaction: Purchase Quotation/Price per Share: \$68.50 Quantity: 2,857 Amount: \$195,714.49 Place: NYSE Comments: Purchase of Ordinay Shares (ADR) |
| May 16, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Emanuele Gatti, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: May 17, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €52.60 Quantity: 25,469 Amount: €1,339,669.40 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| May 16, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Ben J. Lipps, Chairman of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: May 17, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €52.692998 Quantity: 99,600 Amount: €5,248,222.80 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| T. 2.13.3 | Director's Dealings 2012 | ||
|---|---|---|---|
| Notifying Date | Issuer | Notifying Party | Transaction |
| June 6, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Michael Brosnan, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: June 5, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €53.71 Quantity: 1,140 Amount: €61,229.40 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| June 26, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Roberto Fusté, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: June 26, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €54.522365 Quantity: 10,469 Amount: €570,794.64 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| November 16, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Rainer Runte, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: November 13, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €52.997595 Quantity: 35,469 Amount: €1,879,771.70 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| November 16, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Rainer Runte, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: November 15, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Purchase Quotation/Price per Share: €52.08648333 Quantity: 600 Amount: €31,567.51 Place: XETRA Comments: Purchase of ordinary shares |
140
| T. 2.13.3 | Director's Dealings 2012 | ||
|---|---|---|---|
| Notifying Date November 23, 2012 |
Issuer Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Notifying Party Dr. Emanuele Gatti, Member of the Management Board of Fresenius Medical Care Management AG |
Transaction Date of Transaction: November 23, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement |
| Quotation/Price per Share: €51.615761 Quantity: 45,000 Amount: €2,322,709.25 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
|||
| November 30, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Roberto Fusté, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: November 28, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €51.187736 Quantity: 40,275 Amount: €2,061,586.07 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| December 12, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Michael Brosnan, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: December 7, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €53.703031 Quantity: 2,280 Amount: €122,442.84 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| December 12, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Ben J. Lipps, Chairman of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: December 10, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €54.0828 Quantity: 199,200 Amount: €10,773,293.76 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
| T. 2.13.3 | Director's Dealings 2012 | ||
|---|---|---|---|
| Notifying Date | Issuer | Notifying Party | Transaction |
| December 12, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Dr. Ben J. Lipps, Chairman of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: December 11, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Purchase Quotation/Price per Share: €53.9688 Quantity: 55,000 Amount: €2,968,284.00 Place: XETRA Comments: Purchase of ordinary shares |
| December 14, 2012 | Fresenius Medical Care AG & Co. KGaA, 61346 Bad Homburg v.d.H. |
Roberto Fusté, Member of the Management Board of Fresenius Medical Care Management AG |
Date of Transaction: December 13, 2012 Title of Security/Right: Fresenius Medical Care AG & Co. KGaA Ordinary Share (ISIN DE 0005785802) Type of Transaction: Exercise of stock options against cash settlement Quotation/Price per Share: €54.193635 Quantity: 4,773 Amount: €258,666.22 Place: XETRA Comments: Exercise of stock options on Fresenius Medical Care shares of the stock option plan and sale of the shares (cash settlement) |
All ad hoc releases as well as other news are published on our website at www.fmc-ag.com in the section Investor Relations/News. We keep our shareholders informed of key dates on the website of Fresenius Medical Care at www.fmc-ag.com in the section Investor Relations/ Financial Calendar.
Fresenius Medical Care prepares its consolidated financial statements in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP) and in U.S. dollars. In line with this, the consolidated financial statements as well as the interim consolidated quarterly reports are also prepared in accordance with these principles. The consolidated financial statements are published within the first 90 days of the end of each fiscal year, and the quarterly reports within the first 45 days of the end of each quarter.
As required by law, consolidated financial statements and a Group management report as well as quarterly reports continue to be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
The annual financial statements and the management report of Fresenius Medical Care AG& Co. KGaA are prepared in accordance with the German Commercial Code (Handelsgesetzbuch, HGB). The annual financial statements are decisive for the distribution of the annual profit.
Moreover, an annual report of Fresenius Medical Care, which equally reflects the requirements of U.S. GAAP and the German Commercial Code, is published each year.
Fresenius Medical Care shares are listed on the stock exchange in the U.S. (as American Depositary Receipts) and in Germany. We are therefore subject to a number of regulations and recommendations regarding the management, administration and monitoring of our Company. On the one hand, in addition to mandatory requirements under stock corporation and commercial law, we comply with the regulations of Deutsche Börse and adhere to most of the
recommendations of the German Corporate Governance Code. On the other hand, being a non U.S. company (a "foreign private issuer") we are subject to the regulations connected to our listing in the U.S. Observance of the Sarbanes-Oxley Act (SOX) and portions of the Corporate Governance Rules of the New York Stock Exchange in particular is required. The Sarbanes-Oxley Act includes provisions governing companies and their auditors and is aimed at improving financial reporting, ensuring auditor independence and implementing other matters. The extension of regulations for financial reporting and internal control systems is intended to increase the trust of investors and other parties interested in the Company. We fully meet all of the current requirements applicable to our Company.
Fresenius Medical Care's declaration concerning significant differences between the systems of corporate governance in Germany and the U.S. – which is based on the listing standards of the New York Stock Exchange – can be accessed on the internet under www.fmc-ag.com in the section Investor Relations/ Corporate Governance / NYSE-Declaration.
The compensation report of Fresenius Medical Care AG& Co. KGaA summarizes the main elements of the compensation system for the Members of the Management Board of Fresenius Medical Care Management AG as general partner of Fresenius Medical AG& Co. KGaA and in this regard notably explains the amounts and structure of the compensation paid to the Management Board. Furthermore, the principles and the amount of the remuneration of the Supervisory Board are described. The compensation report is part of the management report of the annual financial statements and the annual consolidated group financial statements of Fresenius Medical Care AG& Co. KGaA as of December 31, 2012. The compensation report is prepared on the basis of the recommendations of 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 (HGB).
The entire Supervisory Board of Fresenius Medical Care Management AG is responsible for determining the compensation of the Management Board. The Supervisory Board is assisted in this task by a personnel committee, the Human Resources Committee. In the year under review, the Human Resources Committee was composed of Dr. Ulf M. Schneider (Chairman), Dr.Gerd Krick (Vice Chairman), William P. Johnston and Dr. Walter L. Weisman.
The current Management Board compensation system was last approved by resolution of the General Meeting of Fresenius Medical Care AG& Co. KGaA on May 12, 2011, with a majority of 99.71% of the votes cast. Furthermore, this Management Board compensation system was reviewed by an independent external compensation expert at the beginning of the year under review.
The objective of the compensation system is to enable the Members of the Management Board to participate reasonably in the sustainable development of the Company's business and to reward them based on their duties and performance as well as their success in managing the Company's economic and financial position giving due regard to the peer environment.
The compensation of the Management Board is, as a whole, performance-based and was composed of three elements in fiscal year 2012:
The individual components are designed on the basis of the following criteria:
In fiscal year 2012, the non-performance-based compensation was paid in monthly installments, or with respect to several US resident Members of the Management Board in bi-weekly installments as base salary. Moreover, the Members of the Management Board
received additional benefits consisting mainly of payment for insurance premiums, the private use of company cars, special payments such as foreign supplements, rent supplements, reimbursement of fees for the preparation of tax returns and reimbursement of certain other charges and additional contributions to pension and health insurance.
Performance-based compensation will also be awarded for the fiscal year 2012 as a short-term cash component (annual bonus) and a longer-term sharebased compensation component (stock options, share-based compensation with cash settlement). The amount of the performance-based compensation component in each case depends on the achievement of individual and common targets:
The targets used to determine bonus awards for the Members of the Management Board are measured by growth of consolidated after-tax earnings (EAT growth), the development of free cash flow (cash flow before acquisitions) and operating profit margin. All values are derived from the comparison of target amounts and actual results. Furthermore, targets are divided into Group level (consolidated) targets and those to be achieved in individual regions. Lastly, the various target parameters are weighted differently by their relative share in the aggregate amount of variable compensation depending on the respective (regional) areas of responsibility assumed by the Members of the Management Board.
Variable compensation was based upon EAT growth of at least 6% in the year under review, with the maximum bonus payable upon achievement of EAT growth of 15% (cap). Furthermore, the Members of the Management Board assuming Group functions and the Members of the Management Board with regional responsibilities were also evaluated by reference to the development of free cash flow within the Group or in the relevant regions, respectively, during the period under review, with the targets being within a range of rates between 3 and 6% of the respective free cash flow related to the turnover. For Board members with regional responsibilities, variable compensation was also based on growth of regional operating margins within the year under review, with targets ranging between 13 and 18.5%.
As a rule, for Members of the Management Board with Group functions – these are Dr. Ben J. Lipps (until December 31, 2012), Mr. Michael Brosnan and Dr. Rainer Runte – EAT growth accounts for 80% of variable compensation and is thus weighted higher than for Board Members having responsibility for regional earnings (these are Mr. Roberto Fusté, Dr. Emanuele Gatti and Mr. Rice Powell) or in the Global Manufacturing Operations division (Mr. Kent Wanzek), where EAT growth accounts for 60%. Twenty percent of variable compensation for all Members of the Management Board is based upon achievement of the target for free cash flow; likewise, 20% of variable compensation is based upon achievement of target operating profit margins in the regions.
In the year under review, the bonus components to be paid via cash payment in principle consisted of a short-term annual cash bonus and – subject to the separate phantom stock component in accordance with the terms of the Company's Phantom Stock Plan 2011 which will be described hereinafter – a further share-based compensation component (longterm), to be paid by way of cash settlement based on the performance of the stock exchange price of the ordinary shares of Fresenius Medical Care AG & Co. KGaA. If the annual targets are achieved, the cash is paid after the end of the respective fiscal year in which the target is achieved. The share-based portion of the variable bonus to be granted yearly in case of achievement of the yearly targets is subject to a three- or four-year vesting period, although a shorter period may apply in special cases (e.g. professional incapacity, entry into retirement, non-renewal by the company of expired service agreements). The amount of the cash payment of this share-based compensation is based on the share price of Fresenius Medical Care AG& Co. KGaA ordinary shares upon exercise after the three- or fouryear vesting period. Therefore, the share-based portion of the variable bonus is included in long-term incentive compensation. The annual targets of the aforementioned and respectively applicable key data are valued at a maximum of 120% and subject to a fixed multiplier, thereby limiting the variable compensation.
In determining the variable compensation, the longterm compensation components (including the stock option and phantom stock components described below) are granted in amounts which constitute at least 50% of the total variable components. Should this turn out not to be the case mathematically, the Management Board members' contracts provide that the portion of variable compensation payable as short-term annual bonus shall be reduced and the portion payable as long-term share-based cash components be correspondingly increased, in order to meet this requirement. Total performance-based compensation payable for each of the Members of the Management Board is also capped. The sharebased compensation components also contain a limitation for cases of extraordinary developments. The Supervisory Board may also grant a discretionary bonus for extraordinary performance.
In addition, a special bonus component applied in some cases for fiscal years 2006, 2007 and 2008 which was linked to the achievement of targets measured only over this three-year period but whose payment was also subject, in part, to a vesting period of several years through 2012. This bonus component also included special components linked to the achievement of extraordinary financial targets related to special integration measures (e.g. in connection with the acquisition of Renal Care Group in the U.S.) and thus required the achievement of an extraordinary increase in earnings. The present report also reflects those payments based on this earlier bonus component but exercised and paid only in the year under review (see table 2.13.7 "Expenses for long-term incentive components" on page 146).
For fiscal years 2012 and 2011 the amount of cash compensation payments to Members of the General Partner's Management Board without long-term incentive components are shown in table 2.13.4.
In addition to the aforementioned payment of a portion of the variable bonus payable to Members of the Management Board in the form of a share-based compensation component with cash settlement, stock options under the Company's Stock Option Plan 2011 and phantom stock awards under the Phantom Stock Plan 2011 were granted as additional components with long-term incentive effects in fiscal year 2012. The Stock Option Plan 2011, together with the Phantom Stock Plan 2011, forms the Long Term Incentive Plan 2011 (LTIP 2011).
Members of the Management Boards of affiliated companies, managerial staff members of the Company and of certain affiliated companies, and the Members of the Management Board of the General Partner are entitled to participate in LTIP 2011. Under LTIP 2011 a combination of stock options and phantom
| T. 2.13.4 | Amount of cash payments in € THOUS |
|||||||
|---|---|---|---|---|---|---|---|---|
| Non-performance related compensation |
Performance related compensation |
Cash compensation (without long-term |
||||||
| Salary | Other 1 | Bonus | incentive components) | |||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |
| Dr. Ben J. Lipps | 973 | 862 | 302 | 182 | 1,438 | 1,078 | 2,713 | 2,122 |
| Michael Brosnan | 525 | 467 | 247 | 183 | 776 | 584 | 1,548 | 1,234 |
| Roberto Fusté | 550 | 500 | 251 | 188 | 692 | 552 | 1,493 | 1,240 |
| Dr. Emanuele Gatti | 700 | 675 | 115 | 121 | 937 | 734 | 1,752 | 1,530 |
| Rice Powell | 771 | 682 | 31 | 27 | 1,235 | 978 | 2,037 | 1,687 |
| Dr. Rainer Runte | 440 | 425 | 41 | 42 | 650 | 531 | 1,131 | 998 |
| Kent Wanzek | 405 | 359 | 29 | 17 | 649 | 515 | 1,083 | 891 |
| Total | 4,364 | 3,970 | 1,016 | 760 | 6,377 | 4,972 | 11,757 | 9,702 |
1 Includes insurance premiums, private use of company cars, rent supplements, contributions to pension and health insurance and other benefits.
stock awards are granted to the participants. Stock options and phantom stock awards will be granted on specified grant days during a period of five years. The number of stock options and phantom stock awards to be granted to the Members of the General Partner's Management Board is determined by the General Partner's Supervisory Board in its discretion. In principle all Members of the Management Board are entitled to receive the same quantity, with the exception of the Chairman of the Management Board, who is entitled to receive double the number of stock options and phantom stock awards granted to the Management Board Members, and the Vice Chairman of the Management Board who is entitled to receive one and a half times such number. At the time of the grant participants can choose a ratio based on the value of the stock options vs. the value of phantom stock awards in a range between 75:25 and 50:50. The exercise of stock options and phantom stock awards is subject to several conditions, including the expiration of a four year waiting period, the consideration of black-out periods, the achievement of a defined success target and the existence of a service or employment relationship. Stock options may be exercised within four years and phantom stock awards within one year after the expiration of the waiting period. For Management Board Members who are U.S. tax payers specific conditions apply with respect to the exercise period of phantom stock awards. The success target is
achieved in each case if, after the grant to participants, either the adjusted basic income per ordinary share increases by at least eight per cent per annum in comparison to the previous year in each case or – if this is not the case – the compounded annual growth rate of the adjusted basic income per ordinary share during the four years of the waiting period reflects an increase of at least eight per cent per annum. If with regard to any year or more than one of the four years within the waiting period neither the adjusted basic income per ordinary share increases by at least eight per cent per annum in comparison to the previous year nor the compounded annual growth rate of the adjusted basic income per ordinary share during the four years of the waiting period reflects an increase of at least eight per cent per annum, the stock options and phantom stock awards subject to such waiting period are cancelled in the proportion of 25% for each year in which the target is not achieved within the waiting period, up to 100%. For the purposes of this compensation report phantom stock awards are included in the share-based compensation component with cash settlement and therefore in the long-term incentive components and disclosed accordingly hereunder.
Additional information regarding the terms of Stock Option Plan 2011 and of the two other employee participation programs in place at January 1, 2012 and secured by conditional capital, which entitled their
| T. 2.13.5 | Long-term incentive effect | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Stock options | Share-based compensation with cash settlement 1 |
Total | |||||||
| Number | Value in € THOUS | Value in € THOUS | Value in € THOUS | ||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||
| Dr. Ben J. Lipps | 74,700 | 74,700 | 947 | 1,004 | 768 | 684 | 1,715 | 1,688 | |
| Michael Brosnan | 37,350 | 37,350 | 474 | 502 | 403 | 357 | 877 | 859 | |
| Roberto Fusté | 37,350 | 37,350 | 474 | 502 | 375 | 346 | 849 | 848 | |
| Dr. Emanuele Gatti | 29,880 | 29,880 | 379 | 402 | 558 | 505 | 937 | 907 | |
| Rice Powell | 56,025 | 56,025 | 710 | 753 | 628 | 570 | 1,338 | 1,323 | |
| Dr. Rainer Runte | 37,350 | 34,860 | 474 | 469 | 361 | 372 | 835 | 841 | |
| Kent Wanzek | 37,350 | 37,350 | 474 | 502 | 361 | 334 | 835 | 836 | |
| Total | 310,005 | 307,515 | 3,932 | 4,134 | 3,454 | 3,168 | 7,386 | 7,302 |
1 This includes Phantom Stocks granted to Board Members during the fiscal year. The share-based compensation amounts are based on the grant date fair value.
participants to convertible bonds or stock options (from which, however, in fiscal year 2012 no further options could be issued), are described in more detail in the notes of the annual financial statements/ annual consolidated group financial statements in the section on conditional capital and in the "Financial report" starting on page 9.
Under Stock Option Plan 2011 in the year under review 2,166,035 stock options were granted in total (in 2011: 1,947,231), with 310,005 stock options (in 2011: 307,515) granted to the Management Board
Members. Moreover, in fiscal year 2012 178,729 (in 2011: 215,638) phantom stock awards were granted under the Phantom Stock Plan 2011, 23,407 awards (in 2011: 29,313) granted to Management Board Members.
For fiscal years 2012 and 2011 the number and value of stock options issued to Members of the Management Board and the value of other share-based compensation with cash settlement paid to them is shown individually in table 2.13.5 on page 145.
| T. 2.13.6 | Total compensation in € THOUS |
||||||
|---|---|---|---|---|---|---|---|
| Cash compensation (without long term incentive components) |
Components with long-term incentive effect |
Total compensation (including long term incentive components) |
|||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||
| Dr. Ben J. Lipps | 2,713 | 2,122 | 1,715 | 1,688 | 4,428 | 3,810 | |
| Michael Brosnan | 1,548 | 1,234 | 877 | 859 | 2,425 | 2,093 | |
| Roberto Fusté | 1,493 | 1,240 | 849 | 848 | 2,342 | 2,088 | |
| Dr. Emanuele Gatti | 1,752 | 1,530 | 937 | 907 | 2,689 | 2,437 | |
| Rice Powell | 2,037 | 1,687 | 1,338 | 1,323 | 3,375 | 3,010 | |
| Dr. Rainer Runte | 1,131 | 998 | 835 | 841 | 1,966 | 1,839 | |
| Kent Wanzek | 1,083 | 891 | 835 | 836 | 1,918 | 1,727 | |
| Total | 11,757 | 9,702 | 7,386 | 7,302 | 19,143 | 17,004 |
| T. 2.13.7 | Expenses for long-term incentive components in € THOUS |
|||||||
|---|---|---|---|---|---|---|---|---|
| Stock options | Share-based compensation with cash settlement |
Share-based compensation |
||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||
| Dr. Ben J. Lipps | 2,136 | 1,098 | 1,681 | 780 | 3,817 | 1,878 | ||
| Michael Brosnan | 309 | 186 | 186 | 95 | 495 | 281 | ||
| Roberto Fusté | 383 | 408 | 221 | 125 | 604 | 533 | ||
| Dr. Emanuele Gatti | 348 | 398 | 469 | 405 | 817 | 803 | ||
| Rice Powell | 537 | 501 | 439 | 439 | 976 | 940 | ||
| Dr. Rainer Runte | 374 | 404 | 188 | 299 | 562 | 703 | ||
| Kent Wanzek | 309 | 186 | 164 | 80 | 473 | 266 | ||
| Total | 4,396 | 3,181 | 3,348 | 2,223 | 7,744 | 5,404 |
The stated values of the stock options granted to the Members of the Management Board in fiscal year 2012 correspond to their fair value at the time of grant, namely a value of €12.68 (2011: €13.44) per stock option. The exercise price for the stock options granted in 2012 is €57.30 (2011: €52.48).
At the end of fiscal year 2012, the Members of the Management Board held a total of 2,201,205 stock options and convertible bonds, which are collectively referred to as stock options (2011: 2,354,875 stock options).
| T. 2.13.8 | Development and status of the stock options | |||||
|---|---|---|---|---|---|---|
| Options outstanding January 1, 2012 | Options granted during the fiscal year | |||||
| Number | Weighted average exercise price in € |
Number | Weighted average exercise price in € |
|||
| Dr. Ben J. Lipps | 572,700 | 37.20 | 74,700 | 57.30 | ||
| Michael Brosnan | 306,948 | 33.56 | 37,350 | 57.30 | ||
| Roberto Fusté | 377,336 | 32.11 | 37,350 | 57.30 | ||
| Dr. Emanuele Gatti | 375,287 | 31.40 | 29,880 | 57.30 | ||
| Rice Powell | 280,125 | 39.90 | 56,025 | 57.30 | ||
| Dr. Rainer Runte | 319,329 | 34.98 | 37,350 | 57.30 | ||
| Kent Wanzek | 123,150 | 43.04 | 37,350 | 57.30 | ||
| Total | 2,354,875 | 35.31 | 310,005 | 57.30 | ||
| Number | Options exercised during the fiscal year Weighted average exercise price in € |
Weighted average share price in € |
||||
| Dr. Ben J. Lipps | 298,800 | 33.30 | 53.62 | |||
| Michael Brosnan | 3,420 | 12.88 | 53.71 | |||
| Roberto Fusté | 55,517 | 13.40 | 52.07 | |||
| Dr. Emanuele Gatti | 70,469 | 17.91 | 51.97 | |||
| Rice Powell | – | – | – | |||
| Dr. Rainer Runte | 35,469 | 18.33 | 53.00 | |||
| Kent Wanzek | – | – | – | |||
| Total | 463,675 | Options outstanding December 31, 2012 |
27.28 | Options exercisable December 31, 2012 |
53.14 | |
| Number | Weighted average exercise price in € |
Weighted average remain ing contractual life in years |
Range of exercise prices in € |
Number | Weighted average exercise price in € |
|
| Dr. Ben J. Lipps | 348,6001 | 44.85 | 5.36 | 30.49 – 57.30 | 99,6001 | 31.97 |
| 216,378 | 28.53 | |||||
| Michael Brosnan | 340,878 | 36.37 | 3.51 | 11.42 – 57.30 | ||
| Roberto Fusté | 359,169 | 37.62 | 3.41 | 11.42 – 57.30 | 234,669 | |
| Dr. Emanuele Gatti | 334,698 | 36.55 | 3.33 | 11.42 – 57.30 | 225,138 | |
| Rice Powell | 336,150 | 42.80 | 4.52 | 31.97 – 57.30 | 149,400 | |
| Dr. Rainer Runte | 321,210 | 39.42 | 3.59 | 14.47 – 57.30 | 199,200 | |
| Kent Wanzek | 160,500 | 46.36 | 5.40 | 31.97 – 57.30 | 36,000 | 31.04 30.32 33.79 32.97 33.73 |
1 Due to the leaving on age grounds of Dr. Ben J. Lipps as of December 31, 2012, his stock options remain unaffected by the ending of his service agreement according to the plan terms.
The development and status of stock options of the Members of the Management Board in fiscal year 2012 are shown in more detail in table 2.13.8 on page 147.
Based on the targets achieved in fiscal year 2012, performance-based bonuses payable in the form of share-based compensation with cash settlement totalling €2,141 THOUS (2011: €1,657 THOUS) were earned by Members of the Management Board. On the basis of that value of the share-based compensation, determination of the specific number of shares will not be made by the Supervisory Board until March 2013, based on the then current price of the ordinary shares of Fresenius Medical Care AG & Co. KGaA. This number will then serve as a multiplier for the share price and as a base for calculation of the payment after the three-year vesting period.
Phantom stock awards with a total value of €1,313 THOUS (in 2011: €1,511 THOUS) were granted to the Management Board Members under the Company's Phantom Stock Plan 2011 in July 2012 as further sharebased compensation component with cash settlement.
The amount of the total compensation of the General Partner's Management Board for fiscal years 2012 and 2011 is shown in table 2.13.6 on page 146.
Long term incentive compensation components, i.e. stock options and share-based compensation components with cash settlement, can be exercised only after the expiration of the specified vesting period. Their value is recognized over the vesting period as expense in the respective fiscal year of the vesting period. Compensation expenses for long-term incentive compensation attributable to fiscal years 2012 and 2011 are shown in table 2.13.7 on page 146.
The amount of the base salary and the amount of the total compensation of the Members of the Management Board in accordance with the requirements of the compensation system have been and will be measured taking into account relevant reference values of other DAX-listed companies and of similar companies with comparable size and performance in the relevant industry sector.
II. Commitments to Members of the Management Board for the Event of the Termination of their Appointment There are individual contractual pension commitments for the Management Board Members Roberto Fusté, Dr. Emanuele Gatti and Dr. Rainer Runte. In fiscal year 2012 further individual pension commitments have been made for the Management Board Members Michael Brosnan, Rice Powell and Kent Wanzek. Under all of these commitments, Fresenius Medical Care as of December 31, 2012 has aggregate pension obligations of €14,775 THOUS (as of December 31, 2011: €6,776 THOUS).
Each of the pension commitments provides for a pension and survivor benefit as of the time of conclusively ending active work, at age 65 at the earliest (at age 60 at the earliest with respect to Dr. Emanuele Gatti) or upon occurrence of disability or incapacity to work (Berufs- oder Erwerbsunfähigkeit), however, calculated by reference to the amount of the recipient's most recent base salary.
The retirement pension will pay of 30% from the last base salary and will increase for each complete year of service by 1.5 percentage points up to a maximum of 45%. Current pensions increase according to legal requirements (Sec. 16 of the German Law to improve company pension plans, "BetrAVG"). Thirty percent of the gross amount of any post-retirement income from an activity of the Management Board member is offset against the pension obligation. Any amounts to which the Management Board Members or their surviving dependents, respectively, are entitled from other company pension rights of the Management Board member, even from service agreements with other companies are to be set off. If a Management Board member dies, the surviving spouse receives a pension amounting to 60% of the resulting pension claim at that time. Furthermore, the deceased Management Board member's own legitimate children (leibliche eheliche Kinder) receive an orphan's pension amounting to 20% of the resulting pension claim at that time, until the completion of their education or they reach 25 years of age, at the latest. All orphans' pensions and the spousal pension together reach a maximum of 90% of the Management Board member's pension, however. If a Management Board member leaves the Management
Board of Fresenius Medical Care Management AG before he reaches 65 or (in the case of Dr.Gatti) 60, except in the event of a disability or incapacity to work (Berufs- oder Erwerbsunfähigkeit), the rights to the aforementioned benefits remain, although the pension to be paid is reduced in proportion to the ratio of the actual years of service as a Management Board member to the potential years of service until reaching 65 or (in the case of Dr.Gatti) 60 years of age.
With Dr. Ben J. Lipps, the Chairman of the Management Board until December 31, 2012, there is an individual agreement instead of a pension provision, to the effect that, upon termination of his employment contract/service agreement with Fresenius Medical Care Management AG, he will be retained to render consulting services to the Company for a period of 10 years. Accordingly Fresenius Medical Care Management AG and Dr. Ben J. Lipps entered into a consulting agreement for the period January 1, 2013 to December 31, 2022. By this consulting agreement Dr. Ben J. Lipps will provide consulting services on certain fields and within a specified time frame as well as considering a non-compete covenant. The annual consideration for the fiscal year 2013 for such services would amount to approximately 45% of the non-performance-linked compensation components paid to him in fiscal year 2012 (including reimbursement of expenses, temporary reimbursement of expenses for property leases, company car provided temporarily as well as pension payments for the surviving spouse in case of death). Based on calculation at this time the annual value for such services for the
fiscal years starting from 2014 will be reduced down to approximately 40% of the non-performance-linked compensation components paid to him in fiscal year 2012. The present value of this agreement amounted to €3,987 THOUS as of December 31, 2012.
Management Board Members Rice Powell, Michael Brosnan and Kent Wanzek participated in the U.S. based 401(k) savings plan in the year under review. This plan generally allows employees in the U.S. to invest a portion of their gross salaries in retirement pension programs. The company supports this investment, for full-time employees with at least one year of service, with a contribution of 50% of the investment made, up to a limit of 6% of income – whereupon the allowance paid by the Company is limited to 3% of the income – or a maximum of \$17,000 (\$22,500 for employees 50 years of age or older). The aforementioned Management Board Members were each contractually enabled to participate in this plan; in the past fiscal year the company paid out \$9,239.50 (in the previous year: \$9,310.00) respectively in this regard.
Furthermore, the Management Board Members Dr. Ben J. Lipps, Rice Powell and Michael Brosnan have acquired non-forfeitable benefits from participation in employee pension plan 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. In March 2002, the rights to receive benefits from the pension plans were frozen at the level then applicable.
| T. 2.13.9 | Development and status of pension commitments in € THOUS |
||||||
|---|---|---|---|---|---|---|---|
| As of January 1, 2012 |
Increase | As of December 31, 2012 |
|||||
| Dr. Ben J. Lipps | 648 | 79 | 727 | ||||
| Michael Brosnan | 69 | 1,251 | 1,320 | ||||
| Roberto Fusté | 2,132 | 883 | 3,015 | ||||
| Dr. Emanuele Gatti | 3,770 | 1,230 | 5,000 | ||||
| Rice Powell | 131 | 3,695 | 3,826 | ||||
| Dr. Rainer Runte | 874 | 393 | 1,267 | ||||
| Kent Wanzek | – | 578 | 578 | ||||
| Total | 7,624 | 8,109 | 15,733 |
Additions to pension obligations in fiscal year 2012 amounted to €8,109 THOUS (2011: €1,013 THOUS) The pension commitments are shown in table 2.13.9 on page 149.
A post-employment non-competition covenant was agreed upon with all Management Board Members. If such covenant becomes applicable, the Management Board Members receive compensation amounting to half their annual base salaries for each year of respective application of the non-competition covenant, up to a maximum of two years. The employment contracts of the Management Board Members contain no express provisions that are triggered by a change of control of the Company.
All Members of the Management Board have received individual contractual commitments for the continuation of their compensation in cases of sickness for a maximum of 12 months, although after six months of sick leave, insurance benefits may be set off against such payments. If a Management Board member dies, the surviving dependents will be paid three more monthly installments after the month of death, not to exceed, however, the amount due between the time of death and the scheduled expiration of the agreement.
In fiscal year 2012, no loans or advance payments of future compensation components were made to Members of the Management Board of Fresenius Medical Care Management AG.
The payments to United States Management Board Members Dr. Ben J. Lipps, Michael Brosnan and Kent Wanzek were paid in part in the U.S. in U.S. dollar and in part in Germany in Euro. For the part paid in Germany, the Company has agreed that due to varying tax rates in both countries, the increased tax burden to such Management Board Members arising from German tax rates in comparison to U.S. tax rates will be balanced (net compensation). Pursuant to a modified net compensation agreement, these Management Board Members will be treated as if they were taxed in their home country, the United States, only. Therefore the gross amounts may be retroactively changed. Since the actual tax burden can only be calculated subsequently in connection with preparation
of the Board Members' tax returns, subsequent adjustments may have to be made, which will then be retroactively covered in future compensation reports.
To the extent permitted by law, Fresenius Medical Care Management AG undertook to indemnify the Members of the Management Board from 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 has obtained Directors& Officers liability insurance carrying a deductible 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 termination of membership on the Management Board in each case.
Former Members of the Management Board did not receive any compensation in fiscal year 2012 other than that mentioned above under "Commitments to Members of the Management Board for the Event of the Termination of their Appointment". As of December 31, 2012 pension obligations to former Board Members exist in an amount of €646 THOUS (2011: €499 THOUS).
The compensation of the Fresenius Medical Care AG &Co. KGaA Supervisory Board is set out in clause 13 of the Articles of Association.
In accordance with this provision, the Members of the Supervisory Board are to be reimbursed for the expenses incurred in the exercise of their offices, which also include the applicable VAT.
As compensation, each Supervisory Board member receives in the first instance a fixed salary of \$80,000 per respective complete fiscal year, payable in four equal instalments at the end of a calendar quarter. Should the General Meeting resolve on a higher compensation, with a majority of three-fourths of the votes cast and taking the annual results into account, such compensation shall apply.
The chairman of the Supervisory Board receives additional compensation of \$80,000 and his deputy additional compensation of \$40,000 per respective complete fiscal year. In addition, each member of the Supervisory Board receives a variable performance related compensation as an additional remuneration which is based upon the respective average growth of earnings per share of the Company (EPS) during the period of the last three fiscal years prior to the payment date (3-year average EPS growth). The amount of the variable remuneration component is \$60,000 in case of achieving a 3-year average EPS growth corridor from 8.00 to 8.99%, \$70,000 in the corridor from 9.00 to 9.99% and \$80,000 in case of a growth of 10.00% or more. If the aforementioned targets are reached, the respective variable remuneration amounts are earned to their full extent, i.e. within these margins there is no pro rata remuneration. In any case, this variable component is limited to a maximum of \$80,000 per annum. Reciprocally, the Members of the Supervisory Board are only entitled to the variable remuneration component if the 3 year average EPS growth of at least 8.00% is reached. The variable remuneration component, based on the target achievement, is in principle disbursed on a yearly basis, namely following approval of the Company's annual financial statements, this for the fiscal year 2012 based on the 3-year average EPS growth for the fiscal years 2010, 2011 and 2012.
As a member of a committee, a Supervisory Board member of Fresenius Medical Care AG&Co. KGaA additionally annually receives \$40,000, or, as chairman or vice chairman of a committee, \$60,000 or \$50,000, respectively payable in identical instalments at the end of a calendar quarter. For memberships in the Nomination Committee and in the Joint Committee as well as in the capacity of their respective chairmen and deputy chairmen, no separate remuneration shall be granted.
Should a member of the Fresenius Medical Care AG &Co. KGaA Supervisory Board be a member of the Supervisory Board of the General Partner Fresenius Medical Care Management AG at the same time, and receive compensation for his work on the Supervisory Board of Fresenius Medical Care Management AG, the compensation for the work as a Fresenius Medical Care AG&Co. KGaA Supervisory Board member shall be reduced by half. The same applies to the additional compensation for the chairman of the Fresenius Medical Care AG&Co. KGaA Supervisory Board and his deputy, to the extent that they are at the same time chairman and deputy, respectively, of the Supervisory Board of Fresenius Medical Care Management AG. If the deputy chairman of the Fresenius Medical Care AG&Co. KGaA Supervisory Board is at the same time chairman of the Supervisory Board at Fresenius Medical Care Management AG, he shall receive no additional compensation for his work as deputy chairman of the Fresenius Medical Care AG&Co. KGaA Supervisory Board to this extent.
The compensation for the Supervisory Board of Fresenius Medical Care Management AG and the compensation for its committees were charged to Fresenius Medical Care AG&Co. KGaA in accordance with section 7 para. 3 of the Articles of Association of Fresenius Medical Care AG&Co. KGaA.
The total compensation of the Supervisory Board of Fresenius Medical Care AG& Co. KGaA including the amount charged by Fresenius Medical Care Management AG to Fresenius Medical Care AG& Co. KGaA, is listed in the tables 2.13.10 and 2.13.11 on page 152, with the table 2.13.10 fixed compensation, whilst the table 2.13.11 sets out the performance related compensation.
| T. 2.13.10 | Fixed compensation of the Supervisory Board in € THOUS1 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Fixed compensation for Supervisory Board at FMC Management AG |
Fixed compensation for Supervisory Board at FMC AG & Co. KGaA |
Compensation for committee services at FMC Management AG |
Compensation for committee services at FMC AG & Co. KGaA |
Non-Performance Related Compensation |
||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |
| Dr. Gerd Krick | 31 | 29 | 93 | 86 | 47 | 43 | 31 | 29 | 202 | 187 |
| Dr. Dieter Schenk | 47 | 43 | 47 | 43 | 39 | 36 | – | – | 133 | 122 |
| Dr. Ulf M. Schneider2 | 125 | 115 | – | – | 54 | 50 | – | – | 179 | 165 |
| Dr. Walter L. Weisman | 31 | 29 | 31 | 29 | 39 | 36 | 47 | 43 | 148 | 137 |
| John Gerhard Kringel3 | – | 14 | – | 11 | – | 22 | – | – | – | 47 |
| William P. Johnston | 31 | 29 | 31 | 29 | 93 | 86 | 31 | 29 | 186 | 173 |
| Prof. Dr. Bernd Fahrholz4 | – | – | 62 | 57 | – | – | 39 | 32 | 101 | 89 |
| Rolf A. Classon5 | 31 | 14 | 31 | 22 | 47 | 22 | – | – | 109 | 58 |
| Total | 296 | 273 | 295 | 277 | 319 | 295 | 148 | 133 | 1,058 | 978 |
1 Shown without VAT and withholding tax; translation of \$ amounts at respective average exchange rates for the respective year.
2 Chairman of the Supervisory Board of FMC Management AG, but not Member of the Supervisory Board of FMC AG & Co. KGaA;
compensation paid by FMC Management AG.
3 Member of the Supervisory Board of FMC AG & Co. KGaA until May 12, 2011,
Member of the Supervisory Board and Member of committee of FMC Management AG until July 7, 2011.
4 Member of the Supervisory Board of FMC AG & Co. KGaA, but not Member of the Supervisory Board of FMC Management AG;
compensation paid by FMC AG & Co. KGaA. 5 Member of the Supervisory Board of FMC AG & Co. KGaA as of May 12, 2011, Member of the Supervisory Board of FMC Management AG as of July 7, 2011.
| T. 2.13.11 | Performance related compensation of the Supervisory Board in € THOUS1 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performance related compensation in FMC Management AG |
Performance related compensation in FMC AG & Co. KGaA |
Performance related compensation |
Total compensation |
|||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||
| Dr.Gerd Krick | 27 | 22 | 27 | 22 | 54 | 44 | 256 | 231 | ||
| Dr.Dieter Schenk | 27 | 22 | 27 | 22 | 54 | 44 | 187 | 166 | ||
| Dr.Ulf M. Schneider2 | 54 | 43 | – | – | 54 | 43 | 233 | 208 | ||
| Dr. Walter L. Weisman | 27 | 22 | 27 | 22 | 54 | 44 | 202 | 181 | ||
| John Gerhard Kringel3, 4 |
– | 14 | – | 8 | – | 22 | – | 69 | ||
| William P. Johnston | 27 | 22 | 27 | 22 | 54 | 44 | 240 | 217 | ||
| Prof. Dr. Bernd Fahrholz5 | – | – | 54 | 43 | 54 | 43 | 155 | 132 | ||
| Rolf A. Classon6, 7 |
27 | 11 | 27 | 17 | 54 | 28 | 163 | 86 | ||
| Total | 189 | 156 | 189 | 156 | 378 | 312 | 1,436 | 1,290 |
1 Shown without VAT and withholding tax; translation of \$ amounts at respective average exchange rates for the respective year.
2 Chairman of the Supervisory Board of FMC Management AG, but not Member of the Supervisory Board of FMC AG & Co. KGaA.
3 Member of the Supervisory Board of FMC AG & Co. KGaA until May 12, 2011 and of FMC Management AG until July 7, 2011.
5 Member of the Supervisory Board of FMC AG & Co. KGaA, but not Member of the Supervisory Board of FMC Management AG.
6 Member of the Supervisory Board of FMC AG & Co. KGaA as of May 12, 2011 and of FMC Management AG as of July 7, 2011. 7 Amount for the year 2011 reflects the factual payment made in the reporting year, including a surplus payment (compaired to the last annual report), which results from the non simultaneous appointment to both Supervisory Boards.
4 Amount for the year 2011 reflects the factual payment made in the reporting year, including a surplus payment (compared to the last annual report), which results from the non simultaneous retirement from both Supervisory Boards.
page 155 – 168
3.1 direCtorships page 155 – 157
3.2 glossary page 158 – 163
3.3 i n d e X o F taBles and Charts
page 164 – 165
3.4 suBJeCt indeX page 166
3.5 ContaCts page 167
3.6 imprint page 168
Chapter 3.1
Dr.Gerd Krick Chairman Königstein, Germany
Supervisory Board Fresenius Management SE (Chairman) Fresenius SE & Co. KGaA (Chairman) Fresenius Medical Care Management AG Vamed AG, Austria (Chairman)
Vice Chairman Attorney and Tax Advisor Munich, Germany
Fresenius Management SE (Vice Chairman) Fresenius Medical Care Management AG (Vice Chairman) Gabor Shoes AG (Chairman) Greiffenberger AG (Vice Chairman) TOPTICA Photonics AG (Chairman)
Advisory Board Else Kröner-Fresenius-Stiftung (Chairman)
Former President and Chief Executive Officer of American Medical International, Inc., Los Angeles, California, U.S.
Supervisory Board Fresenius Medical Care Management AG
Board of Directors Occidental Petroleum Corporation, U.S. (until May 4, 2012)
California Institute of Technology, U.S. (Senior Trustee) Los Angeles County Museum of Art, U.S. (Life Trustee) Sundance Institute, U.S. (Chairman)
Former Chairman of the Board of Directors of Renal Care Group, Inc., Nashville, Tennessee, U.S.
Fresenius Medical Care Management AG
The Hartford Mutual Funds, Inc., U.S. LifeCare Holdings, Inc., U.S. Georgia O'Keeffe Museum, U.S. (until July 1, 2012) HCR-Manor Care, Inc., U.S.
The Carlyle Group, U.S. (Senior Advisor)
Attorney Berlin, Germany
SMARTRAC N.V., The Netherlands (Chairman)
Chairman of the Board of Directors of Hill-Rom Holdings, Inc., Martinsville, New Jersey, USA
Supervisory Board Fresenius Medical Care Management AG
Tecan Group Ltd., U.S. (Chairman)
Honorary Chairman (since January 1, 2013)
Audit and Corporate Governance Committee Dr. Walter L. Weisman (Chairman) Prof. Dr. Bernd Fahrholz (Vice Chairman) William P. Johnston Dr.Gerd Krick
Dr.Gerd Krick (Chairman) Dr. Dieter Schenk Dr. Walter L. Weisman
3.1 D ire c torships
Dr.Ulf M. Schneider Chairman Frankfurt am Main, Germany
Management Board Fresenius Management SE, General Partner of Fresenius SE & Co. KGaA (Chairman)
Fresenius Kabi AG (Chairman) HELIOS Kliniken GmbH (Chairman) Fresenius Kabi España S.A.U., Spain Fresenius Medical Care Group France S.A.S., France (Chairman) Fresenius HemoCare Netherlands B.V., the Netherlands FPS Beteiligungs AG (Chairman since April 25, 2012)
FHC (Holdings), Ltd., Great Britain Fresenius Kabi USA, Inc., USA (former APP Pharmaceuticals, Inc., U.S.)
Dr.Dieter Schenk Vice Chairman Munich, Germany
Dr.Gerd Krick Königstein, Germany
Dr. Walter L. Weisman Los Angeles, California, U.S.
William P.Johnston Nashville, Tennessee, U.S.
Rolf A. Classon Martinsville, New Jersey, U.S.
Dr. Ben J. Lipps Honorary Chairman (since January 1, 2013)
Dr. Ben J. Lipps Chairman and Chief Executive Officer (until December 31, 2012) Boston, Massachusetts, U.S.
Management Board Fresenius Management SE, General Partner of Fresenius SE & Co. KGaA (until December 31, 2012)
Board of Directors Fresenius Medical Care Holdings, Inc., U.S. (Chairman until December 31, 2012)
Board of Administration Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland
Vice Chairman and Member of the Management Board responsible for the region North America (until December 31, 2012) Chairman and Chief Executive Officer (since January 1, 2013) Boston, Massachusetts, U.S.
Management Board
Fresenius Management SE, General Partner of Fresenius SE & Co. KGaA (since January 1, 2013)
Board of Directors
Fresenius Medical Care Holdings, Inc., U.S. (Chairman since January 1, 2013)
Board of Administration
Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland (Deputy Chairman)
Chief Financial Officer Bad Homburg v.d.H., Germany
Board of Directors Fresenius Medical Care Holdings, Inc., U.S.
Board of Administration Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland
Chief Executive Officer for Asia-Pacific Hong Kong, China
Chief Executive Officer for Europe, Latin America, Middle East and Africa, Global Chief Strategist Bad Homburg v.d.H., Germany
Fresenius Medical Care España S.A., Spain (Chairman) National Medical Care of Spain S.A., Spain
Fresenius Medical Care Groupe France S.A.S., France (Vice Chairman)
Italian Chamber of Commerce for Germany (President, since May 11, 2012)
Chief Executive Officer for North America (since January 1, 2013) Boston, Massachusetts, U.S.
Fresenius Medical Care Holdings, Inc., U.S. Kidney Care Partners, Inc., U.S. (Chairman) SCSG EA Acquisition Co., Inc., U.S.
Chief Administrative Officer for Global Law, Compliance and Intellectual Property, Corporate Business Development and Labor Relations Director for Germany Bad Homburg v.d.H., Germany
Board of Directors Fresenius Medical Care Holdings, Inc., U.S.
Fresenius Medical Care Groupe France S.A.S., France Fresenius Medical Care SGPS, S.A., Portugal Fresenius Medical Care Japan, K.K., Japan Fresenius-Kawasumi Co., Ltd., Japan
Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland
Chief Executive Officer for Global Manufacturing Operations Boston, Massachusetts, U.S.
Fresenius Medical Care Holdings, Inc., U.S.
Human Resources Committee Dr. Ulf M. Schneider (Chairman) Dr.Gerd Krick (Vice Chairman) Dr. Walter L. Weisman William P. Johnston
Regulatory and Reimbursement Assessment Committee
William P. Johnston (Chairman) Rolf A. Classon (Vice Chairman) Dr. Dieter Schenk
Dr. Ulf M. Schneider Dr.Gerd Krick Dr. Walter L. Weisman
A protein that has two important functions. On the one hand, it contributes through its relatively large amount to the fact that the liquid contained in the blood remains in the bloodstream and does not penetrate the arterial walls in the surrounding tissue. On the other hand, it is an important transport protein for various substances. Among others, many drugs, but also free fatty acids and hormones are bound to albumin and are transported in the blood throughout the body. The level of this protein provides information on the general nutritional condition of a patient.
Reduced oxygen transport capacity of the blood, measured as decreased hemoglobin content in the blood.
An agent (e.C. heparin) that prevents blood coagulation.
A direct surgically created connection between an artery and a vein in a patient's forearm. This connection forms a large blood vessel with an increased blood flow, providing access for hemodialysis. Adequate vascular access is a prerequisite for hemodialysis.
A blood vessel that carries blood from the heart to the body.
Machine-supported version of peritoneal dialysis treatment usually performed at night.
This device can be used to precisely measure the composition of the human body and its fluid status and to quantify the level of overhydration in dialysis patients.
Dry bicarbonate concentrate for online production of liquid bicarbonate concentrate used in bicarbonate hemodialysis with our hemodialysis machines of the 4008 and 5008 series ONLINEplus System.
Environmentally friendly material for producing foils, tubing and other components for peritoneal and acute dialysis. Biofine is recyclable and PVC-free.
Fluid circulating in the body composed of plasma and cells (red blood cells, white blood cells, platelets, etc.). The main function of blood is to transport oxygen, nutrients and hormones to the cells and to remove waste products (such as carbon dioxide and urea). Blood also regulates the water and electrolyte balance and helps fight off contaminants as part of the immune system.
Cells responsible for transporting oxygen. They are created with the help of erythropoietin, a hormone produced in the kidneys.
Cells that defend the human body against infection. They are involved in allergic reactions and destroy damaged, old and dead cells in the body.
A complex process during which blood forms solid clots. It is an important part of hemostasis whereby a damaged blood vessel wall is covered by a fibrin clot that stops hemorrhaging and helps repair the damaged vessel. Disorders in coagulation can lead to increased hemorrhaging and/or thrombosis and embolism. During dialysis treatment, blood coagulation is inhibited with anticoagulants such as heparin.
System of tubes connecting a patient's blood circulation with a dialyzer during extracorporeal dialysis treatment.
An expansion of the therapy options to more effectively influence the bone and mineral change in patients with chronic kidney disease. Calcimimetics are administered when the thyroid gland is hyperactive, as is often the case with dialysis patients. Calcimimetics also have a positive effect on the calcium level in the bones.
A flexible tube inserted by surgery through the skin into a blood vessel or cavity to draw out body fluid or infuse fluid. In peritoneal dialysis, a catheter is used to infuse dialysis solution into the abdominal cavity and drain it out again. In hemodialysis, a catheter can be used as a vascular access for dialysis treatment. In this case, the catheter is usually inserted into the superior vena cava, or occasionally the femoral vein.
Medicare/Medicaid basic reimbursement rate for dialysis treatment.
A treatment method where the dialysis solution is exchanged manually, generally four times a day.
A condition characterized by raised blood glucose (sugar) resulting from the body's inability to use glucose efficiently. As the main regulatory hormone in sugar metabolism, insulin is normally used to control this condition.
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.
Fluid used in the process of dialysis in order to remove the filtered-out substances and excess water from the blood.
Special filter used in hemodialysis for removing toxic substances, waste products of metabolic processes and excess water from the blood. The dialyzer is sometimes referred to as the "artificial kidney".
Semipermeable barrier in the dialyzer to separate the blood from the dialysis solution.
An exchange in the chemical concentration of two fluids that are divided by a semipermeable membrane. The molecules move from one fluid to the other, with metabolic toxins being transferred through the membrane into the dialysis solution.
160 3.2 G lossary
Recombinant human EPO that is commonly prescribed to patients on dialysis who suffer from anemia.
Hormone that stimulates red blood cell production.
European Clinical Database for ensuring the quality of dialysis treatment. The database records the treatment data of dialysis patients and allows an efficient comparison of treatment quality among individual dialysis clinics.
F FDA U.S. Food and Drug Administration.
G
The GFR indicates the volume of liquid that the kidneys filter from the blood per minute (primary urine). This ranges from more than 90 ml/min in healthy kidneys (stage 1) to less than 15 ml/min (stage 5) when dialysis or a kidney transplant is needed. Persons with stage 4 chronic kidney disease (CKD) have advanced kidney damage (GFR of 15 to 29ml/min); it is highly likely that these patients will need dialysis or a kidney transplant in the near future.
Stages of chronic kidney disease according to the U.S. National Kidney Foundation
Stage 1 – Kidney damage with normal or increased GFR ≥ 90 GFR (ml/min/1.73m)
Stage 2 – Slightly decreased GFR 60 – 89 GFR (ml/min/1.73m)
Stage 3 – Moderately decreased GFR
30 – 59 GFR (ml/min/1.73m)
Stage 4 – Severely decreased GFR 15 – 29 GFR (ml/min/1.73m)
Stage 5 – Kidney failure < 15 (or dialysis) GFR (ml/min/1.73m)
Hemodiafiltration is a process that combines hemodialysis and hemofiltration. The theoretical starting point for combining these two processes is the fact that low-molecular substances such as urea and creatinine are predominantly removed through diffusive transportation such as hemodialysis, whereas the larger molecules are to be predominantly removed through convective transportation as in hemofiltration. In hemodiafiltration (HDF), the total amount of removed toxins is greater than in the individual processes, as convection and diffusion do not complement each other, but run in parallel and affect each other. The more permeable synthetic membranes ("high-flux dialyzers") with superior ultrafiltration performance are used for hemodiafiltration. As in hemofiltration, the ultrafiltrate is replaced by a sterile solution (substitution solution) in hemodiafiltration.
161 3.2 G lossary
Treatment method for dialysis patients where the patient's blood flows outside the body through disposable bloodlines into a special filter, the dialyzer. The dialysis solution carries away waste products and excess water, and the cleaned blood is returned to the patient. The process is controlled by a hemodialysis machine that pumps blood, adds anticoagulants, regulates the purification process, and controls the mixing of the dialysis solution and its flow rate through the system. A patient typically receives three treatments per week, lasting from three to six hours each.
A type of treatment for chronic kidney failure that does not use dialysis solution. The solutes are removed using convective forces to filter plasma water through a semipermeable membrane. Substitution solution is used to replace the volume removed by filtration.
Substance in red blood cells that carries oxygen around the body.
Universal anticoagulant substance that is administered during hemodialysis to inhibit blood coagulation during hemodialysis.
Iron product used to treat anemia in dialysis patients resulting from iron deficiency. An example is the product Venofer.
International Organization for Standardization.
The kidneys are located at the rear of the abdominal cavity, one each on the right and left side of the spinal column. These vital organs are approximately 12 cm long and weigh only around 160 grams each. The kidneys ensure a regulated acid-base balance by filtering excreta and producing urine. Approximately 1,500 liters of blood normally pass through the kidneys every 24 hours.
Acute loss of renal function. Depending on the severity of renal function loss, intermittent dialysis treatment may be necessary. In contrast to chronic kidney failure, dialysis can help completely restore kidney function in many patients.
Permanent failure of the kidney (terminal kidney failure) resulting from slow and progressive loss of kidney function over several years. Since the renal function cannot be recovered, the patient has to be treated with renal replacement therapy, i.e. kidney transplantation or dialysis. Chronic kidney failure is accompanied by long-term complications such as renal anemia, hypertension and other cardiovascular problems, as well as bone disease, loss of appetite and malnutrition.
Terminal renal failure occurs when the kidneys no longer detoxify the body, have lost this function finally and thus kidney substitute therapies become necessary.
A surgical procedure to implant a kidney from a donor.
Indicator to evaluate treatment quality. It is calculated by dividing the product of urea clearance (K) and the length of treatment (dialysis time, t) by the filtration rate of certain toxins (the urea distribution volume in the patient, V).
Quality management system used to describe, measure, analyze, improve and monitor processes with the goal of quality improvement.
Innovative device with PIN technology for automated peritoneal dialysis marketed exclusively in the U.S. The Liberty Cycler automatically regulates the exchange of used and fresh dialysis solution. It is equipped with a state-of-the-art pumping mechanism, is easy to set-up and also has integrated patient data management software.
Medicare / Medicaid
A program developed by the federal U.S. Social Security Administration that reimburses health insurance companies and providers of medical services for medical care to individuals over 65, people with chronic kidney failure (end-stage renal disease, ESRD) or the disabled.
A system for our 4008 and 5008 series hemodialysis machines to perform online hemodiafiltration and online hemofiltration. Online means that the dialysis machine automatically produces the infusion solution for treatment. The online method is a safe, userfriendly, resource-saving and costefficient alternative to ready-made infusion solutions in bags.
Passage of water from the blood through a semipermeable filter membrane. In osmosis, as opposed to diffusion, molecules move only in one direction.
Dialysis treatment method using the patient's peritoneum, i.e. the tissue that covers the inner surface of the abdominal cavity and the abdominal organs, as the dialyzing membrane for blood purification. A sterile dialysis solution is introduced and removed through a catheter that has been surgically implanted into the patient's abdominal cavity. The solution absorbs toxins and excess water. Most treatments are supported by a machine, the cycler, and are administered by the patients in their home or workplace several times a day or during the night.
Drainage bag Peritoneal dialysis solution
Phosphate binders bind excess phosphate that is consumed with food within the intestines. Excess phosphate is normally discharged by healthy kidneys. This filtering process can only partially be replaced through dialysis for patients with chronic kidney failure. Too much phosphate in the blood can have a number of adverse effects, such as bone disease, thyroid problems and vascular calcification. PhosLo and OsvaRen are examples of phosphate binders for patients with chronic kidney disease.
Unique automatic inline-closing system that eliminates the risk of contamination during disconnection from peritoneal dialysis (PD) systems.
A polymer (plastic) used to produce dialyzer membranes. It is characterized by extreme thermal stability, chemical resistance and blood compatibility.
Number of all patients who suffer from a specific disease within a defined period.
Technology used to treat tap water for dialysis so that the dialysis solution can be reused. As a result of its water- and space-saving properties, the technology is very suitable for home hemodialysis, and is thus an important step towards a portable artificial kidney. The technology centers on sorbents, specific substances that bind toxins in liquids so that they can be removed.
Management of all tasks along the supply chain, ranging from supplier selection, procurement and warehousing to the transport of goods to customers with the goal of improving efficiency in the value chain.
Taking an organ or tissue from the body and grafting it into another area of the same body or into another individual.
A blood vessel that carries blood to the heart.
The financial glossary is included in the "Financial report", starting on page 117.
Stock indices/shares T. 1.3.1 page 22
Index and share price performance, indexed C . 1.3.2 page 23
Share price performance, absolute C . 1.3.3 page 24
Development of the dividend C . 1.3.4 page 25
Number of identified shares as per shareholder structure analysis T. 1.3.5 page 26
Geographical distribution of identified shares T. 1.3.6 page 27
Basic share data T. 1.3.7 page 28
Key figures for Fresenius Medical Care's ordinary shares T. 1.3.8 page 30
Major locations C . 2.1.1 page 34
Dialysis market volume in 2012: ~\$75 BN C . 2.1.2 page 38
Key performance indicators T. 2.1.3 page 39
Real gross domestic product and consumer prices T. 2.2.1 page 40
Exchange rate development U.S. dollar/euro C . 2.2.2 page 41
Sensitivity analysis T. 2.2.3 page 41
Dialysis patients: Regional development T. 2.2.4 page 42
Patients with end-stage renal disease (ESRD) T. 2.2.5 page 43
Regional breakdown of center dialysis and home dialysis T. 2.2.6 page 44
Market position in major product groups in 2012 T. 2.2.7 page 45
Dialysis products in 2012 C . 2.2.8 page 45
Hemodialysis products 2012 C . 2.2.9 page 46
Peritoneal dialysis products 2012 C . 2.2.10 page 46
Dialysis clinic operators in 2012 C . 2.2.11 page 47
Dialysis services worldwide in 2012 C . 2.2.12 page 48
Top 5 dialysis providers worldwide in 2012 C . 2.2.13 page 49
Fresenius Medical Care: Patients treated in 2012 C . 2.2.14
page 49
Targets and results for 2012 T. 2.2.15 page 51
Revenue by segment T. 2.3.1 page 53
Revenue by region T. 2.3.2 page 54
Patients T. 2.3.3 page 55
Treatments T. 2.3.4 page 55
Clinics T. 2.3.5 page 55
Operating income (EBIT) T. 2.3.6 page 56
Condensed statement of income T. 2.3.7 page 56
Value added statement T. 2.3.8 page 57
Major financing instruments of Fresenius Medical Care T. 2.3.9 page 58
Rating T. 2.3.10 page 59
Net investments and acquisitions by segment T. 2.3.11 page 59
Net investments in property, plant and equipment by regions C . 2.3.12 page 60
Days sales outstanding T. 2.3.13 page 60
Abbreviated statement of cash flow T. 2.3.14 page 61
Operating cash flow C . 2.3.15 page 61
Balance sheet structure – assets C . 2.3.16 page 62
Balance sheet structure – liabilities C . 2.3.17 page 62
Expenditures for research and development T. 2.4.1 page 64
Number of patents T. 2.4.2 page 64
Number of employees in R&D T. 2.4.3 page 64
Level of education of R&D employees in the European region C . 2.4.4 page 65
Professional groups of R&D employees in the European region C . 2.4.5 page 65
Quality data T. 2.7.1 page 80
Number of employees C . 2.8.1 page 87
Employees by functional area T. 2.8.2 page 87
Employees by regions and segments T. 2.8.3 page 88
Profit sharing T. 2.8.4 page 90
Percentage of men and women in the Company T. 2.8.5 page 91
Risk reporting C . 2.10.1 page 105 COSO-Framework C . 2.10.2 page 107 Real gross domestic product and consumer prices T. 2.12.1 page 119 Expected growth in patient numbers in 2013 T. 2.12.2 page 120 Number of dialysis patients worldwide – forecast to 2020 C . 2.12.3 page 121 Targets for 2013 and 2014 T. 2.12.4 page 123 Structure of Fresenius Medical Care AG& Co. KGaA C . 2.13.1 page 126 Organizational structure of the compliance program C . 2.13.2 page 133 Director's Dealings 2012 T. 2.13.3 pages 138 – 141 Amount of cash payments T. 2.13.4 page 144 Long-term incentive effect T. 2.13.5 page 145 Total compensation T. 2.13.6 page 146 Expenses for long-term incentive components T. 2.13.7 page 146 Development and status of the stock options T. 2.13.8
page 147
Development and status of pension commitments T. 2.13.9 page 149
Fixed compensation of the Supervisory Board T. 2.13.10 page 152
Performance related compensation of the Supervisory Board T. 2.13.11 page 152
166
Chapter 3.4
Assets and liabilities page 62
Balance sheet page 62
Cash flow page 61, 122
Compliance page 132
Corporate governance page 16, 104, 126
Declaration on corporate governance page 126
Dialysis market page 42, 120
Dialysis products page 36, 45, 46, 53, 74
Dialysis service page 36, 45, 46, 53, 74
Directorships page 155
Dividend page 25, 122
Earnings per share page 57, 122
EBIT (Earnings before interest and taxes) page 37, 54
EBITDA (Earnings before interest, taxes and depreciation) page 38, 58
Economic environment page 40, 119
Environment page 94
Financial instruments page 58
Financial situation page 58
Income statement page 55
Investment page 39, 51, 60, 111, 122
Investor relations page 27
Net income page 55, 122
Objectives page 58
Opportunities page 113
Outlook page 119
Patents page 64
Procurement page 70
Product business page 74
Production page 70
Quality page 71, 109
Rating page 59
Research and development page 64
Responsibility page 94
Results of operations page 53
Revenue page 53, 121
Risk and opportunities report page 104
Share page 22
Shareholder structure page 26
Strategy page 36
Subsequent events page 118
Taxes page 56
Vocational training page 91
167 Chapter 3.5
61346 Bad Homburg v.d.H. Germany Tel. + 49 6172 609 0 www.fmc-ag.com
Head of Investor Relations & Corporate Communications Tel. + 49 6172 609 25 25 Fax + 49 6172 609 23 01 E-Mail: [email protected]
Tel. + 49 6172 609 52 16 Fax + 49 6172 609 23 01 E-Mail: [email protected]
Terry L. Morris Tel. + 1 800 948 25 38 Fax + 1 615 345 56 05 E-Mail: [email protected]
The Bank of New York Mellon P.O. Box 358516 Pittsburgh, PA 15252-8516, U.S. Tel. + 1 866 246 7190 (toll-free number in the U.S.) Tel. + 1 201 680 6825 (international) E-Mail: [email protected] www.bnymellon.com/shareowner
Subject to change.
This annual report is also available in German and may be obtained from the Company upon request.
Annual reports, interim reports, and further information on the Company are also available on our website: www.fmc-ag.com
Printed reports can be ordered online, by phone or in writing from Investor Relations.
Published by: Fresenius Medical Care AG & Co. KGaA
Editorial office: Investor Relations
Editorial deadline: March 13, 2013
Concept and design: hw.design gmbh
Photography: Matthias Ziegler pages 12 – 15
Andreas Pohlmann page 16
Copy editing: Textpertise, Heike Virchow
Produced by: Eberl Print GmbH, Immenstadt i. Allgäu This report contains forward-looking statements that are based on plans, projections and estimates and subject to various risks and uncertainties. Actual results could differ materially from those described in these forward-looking statements due to certain factors. The risks and uncertainties are detailed in Fresenius Medical Care AG & Co. KGaA's reports filed with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements in this report.
The title, text, and illustrations are subject to copyright. Reproduction in whole or in part requires the prior written authorization of Fresenius Medical Care AG & Co. KGaA.
Fresenius Medical Care AG & Co. KGaA Registered seat and commercial register: Hof an der Saale (Germany), HRB 4019
Chairman of the Supervisory Board: Dr. Gerd Krick
General partner: Fresenius Medical Care Management AG
Registered seat and commercial register: Hof an der Saale (Germany), HRB 3894
Management Board: Rice Powell (Chairman), Michael Brosnan, Roberto Fusté, Dr. Emanuele Gatti, Ronald Kuerbitz, Dr. Rainer Runte, Dr. Olaf Schermeier, Kent Wanzek
Chairman of the Supervisory Board: Dr. Ulf M. Schneider
The production of and the paper used for the Fresenius Medical Care Annual Report 2012 are certified in accordance with the criteria of the Programme for the Endorsement of Forest Certification (PEFC). Furthermore, the Annual Report 2012 has been produced in a carbon-neutral manner. The CO2 emissions caused by its production were compensated for by certified climate protection projects.
April 30, 2013 Report on the First Quarter 2013
May 16, 2013 Annual General Meeting Frankfurt am Main, Germany
May 17, 2013 Payment of Dividend subject to the approval of the Annual General Meeting
July 30, 2013 Report on the Second Quarter 2013
November 5, 2013 Report on the Third Quarter 2013
May 18 – 21, 2013 50th Congress of the European Renal and the European Dialysis and Transplantation Association (ERA-EDTA) Istanbul, Turkey
August 30 – September 3, 2013 16th Congress of the Pediatric Nephrology Association (IPNA) Shanghai, China
August 31 – September 3, 2013 42nd International Conference of the European Dialysis & Transplant Nurses Association and European Renal Care Association (EDTNA / ERCA) Malmö, Sweden
September 11 – 14, 2013 6th Congress of the International Society for Hemodialysis (ISHD) Buenos Aires, Argentina
October 11 – 14, 2013 11th European Peritoneal Dialysis Meeting (EuroPD) Maastricht, Netherlands
November 5 – 10, 2013 ASN Kidney Week 2013 The American Society of Nephrology Atlanta, U.S.
Else-Kröner-Str. 1 61352 Bad Homburg v.d.H., Germany www.fmc-ag.com
2012
1
Critical Accounting Policies page 9
Financial Condition and Results of Operations page 15
Results of Operations page 19
Liquidity and Capital Resources page 25
Quantitative and Qualitative Disclosures about Market Risk page 34
Consolidated Statements of Income page 41
Consolidated Statements of Comprehensive Income page 42
Consolidated Balance Sheets page 42
Consolidated Statements of Cash Flows page 44
Consolidated Statement of Shareholders' Equity page 46
Notes to Consolidated Financial Statements page 48
Management's Annual Report on Internal Control over Financial Reporting page 111
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting page 112
Report of Independent Registered Public Accounting Firm page 114
Financial Glossary page 117
Regional Organization page 119
Major Subsidiaries page 120
Five-Year Summary page 122
Index of Tables page 124
Subject Index page 126
Contacts page 127
Imprint page 128
Financial Calendar and Important Fairs 2013 at the end of the Financial Report
Financial Report
Since Fresenius Medical Care was founded in 1996, only three CEOs have stood at the Company's helm, a sign of real continuity. They were all commit- ted to upholding the Company's values.
+17% –9% +10%
in \$M
purchases of intangible assets (net)
Earnings per ordinary share in \$
Dividend per ordinary share4 in €
41.3 41.2
Employees full-time equivalents
16.5 16.1
Patients
+11% 233,156 257,916
Clinics
+9%
Treatments in M
1 Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA.
2 Before acquisitions and dividends.
3 Pro forma numbers including Liberty Dialysis Holdings, Inc., after FTC mandated divestitures and excluding the charge of \$110 M incurred in connection with the amendment to the agreement regarding Venofer and a charitable donation to the American Society of Nephrology.
4 2012: Proposal to be approved by the Annual General Meeting on May 16, 2013. All figures in this report are stated in \$ and in conformity with U.S. GAAP, if not indicated otherwise. Unless specified, all charts refer to fiscal year 2012. For more details please look to the Five-year summary starting on page 122. Fresenius Medical Care filed an annual report under Form 20-F with the Securities and Exchange Commission (SEC) with additional information on the Company. Fresenius Medical Care's annual report on Form 20-F may be obtained from the Company.
The audited financial statements of the Group's holding company, Fresenius Medical Care AG & Co. KGaA, will be submitted electronically to the electronic German Federal Gazette (Bundesanzeiger) who files these financial statements with the Company Register. These financial statements can be obtained from the Company.
The audited consolidated financial statements in accordance with § 315a Commercial Code (HGB) will be submitted electronically to the electronic German Federal Gazette (Bundesanzeiger) who files these consolidated financial statements with the Company Register. These financial statements can be obtained from the Company.
The publications can be also accessed on www.fmc-ag.com.
page 9 – 38
l i q u i d i t y a n d Capital resourCes page 25 – 33
Chapter 1.1
You should read the following discussion and analysis of the results of operations of Fresenius Medical Care AG& Co. KGaA and its subsidiaries in conjunction with our historical consolidated financial statements and related notes contained elsewhere in this report. Some of the statements contained below, including those concerning future revenue, costs and capital expenditures and possible changes in our industry and competitive and financial conditions include forward-looking statements. We made these forward-looking statements based on the expectations and beliefs of the management of the Company's General Partner concerning future events which may affect us, but we cannot assure that such events will occur or that the results will be as anticipated. Because such statements involve risks and uncertainties, actual results may differ materially from the results which the forward-looking statements express or imply. Such statements include the matters and are subject to the uncertainties that we described in "Outlook" and "Risk Report" in the corporate report.
Our business is also subject to other risks and uncertainties that we describe from time to time in our public filings. Developments in any of these areas could cause our results to differ materially from the results that we or others have projected or may project.
The Company's reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that are the basis for our financial statements. The critical accounting policies, the judgments made in the creation and application of these policies, and the sensitivities of reported results to changes in accounting policies, assumptions and estimates are factors to be considered along with the Company's financial statements, and the discussion below in "Results of Operations."
The growth of our business through acquisitions has created a significant amount of intangible assets, including goodwill and other non-amortizable intangible assets such as trade names and management contracts. At December 31, 2012, the carrying amount of goodwill amounted to \$11,422 M and non-amortizable intangible assets amounted to \$218 M representing in total approximately 52% of our total assets.
In accordance with current accounting standards, we perform an impairment test of goodwill and non-amortizable intangible assets at least once a year for each reporting unit, or if we become aware of events that occur or if circumstances change that would indicate the carrying value might be impaired see also note 1e.
To comply with the provisions of the accounting standards for the impairment testing, the fair value of the reporting unit is compared to the reporting unit's carrying amount. We did not adopt ASU 2011-08, Intangibles – Goodwill and Other as we are subject to the International Financial Reporting Standards requirements, which utilizes the two-step approach and therefore, we do not benefit from the introduced simplification in the impairment testing requirements. We estimate the fair value of each reporting unit using estimated future cash flows for the unit discounted by a weighted average cost of capital (WACC) specific to that reporting unit. Estimating the future cash flows involves significant assumptions, especially regarding future reimbursement rates and sales prices, treatments and sales volumes and costs. In determining cash flows, the Company utilizes for every reporting unit, its three-year budget, projections for years 4 to 10 and a representative growth
rate for all remaining years. Projections for up to ten years are possible due to the stability of the Company's business which results from the non-discretionary nature of the healthcare services we provide, the need for products utilized to provide such services and the availability of government reimbursement for a substantial portion of our services. The Company's weighted average cost of capital consisted of a basic rate of 5.79% for 2012. This basic rate is then adjusted by a country specific risk rate and, if appropriate, by a factor to reflect higher risks associated with the cash flows from recent material acquisitions until they are appropriately integrated within each reporting unit.
If the fair value of the reporting unit is less than its carrying value, a second step is performed which compares the fair value of the reporting unit's goodwill to the carrying value of its goodwill. If the fair value of the goodwill is less than its carrying value, the difference is recorded as an impairment.
A prolonged downturn in the healthcare industry with lower than expected increases in reimbursement rates and/or higher than expected costs for providing healthcare services and for procuring and selling products could adversely affect our estimated future cash flows. Future adverse changes in a reporting unit's economic environment could affect the country-specific rate and therefore the discount rate. An increase in interest rates could impact the basic rate and accordingly our weighted average cost of capital. These changes could result in impairment charges to goodwill and other intangible assets which could materially and adversely affect our future financial position and operating results.
We are party to litigation and subject to investigations relating to a number of matters as described in note 19. The outcome of these matters may have a material effect on our financial position, results of operations or cash flows.
We regularly analyze current information including, as applicable, our defenses and we provide accruals for probable contingent losses including the estimated legal expenses to resolve the matters. We use the resources of our internal legal department as well as external lawyers for the assessment. In making the decision regarding the need for loss accrual, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim or assessment, or the disclosure of any such suit or assertion, does not automatically indicate that accrual of a loss may be appropriate.
Trade accounts receivable are a substantial asset of ours and the allowance for doubtful accounts is based upon a significant estimate made by management. Trade accounts receivable were \$3,019 M and \$2,798 M at December 31, 2012 and 2011, respectively, net of allowances for doubtful accounts of \$329 M and \$300 M, respectively.
We sell dialysis products directly or through distributors in more than 120 countries and we provide dialysis services in approximately 40 countries through clinics we own or manage. Most payors are government institutions or government-sponsored programs with significant variations between the countries and even between payors within one country in local payment and collection practices.
Dialysis care revenues are recognized and billed at amounts estimated to be receivable under government reimbursement programs and reimbursement arrangements with third party payors. U.S. Medicare and Medicaid government programs are billed at pre-determined net realizable rates per treatment that are established by statute or regulation. Revenues for non-governmental payors where we have contracts or letters of agreement in place are recognized at the prevailing contract rates. The remaining non-governmental payors are billed at our standard rates for services and, in our North America Segment, a contractual adjustment is recorded to recognize revenues based on historic reimbursement experience with those payors for which contracted rates are not predetermined. The contractual adjustment and the allowance for doubtful accounts are reviewed quarterly for their adequacy. No material changes in estimates were recorded for the contractual allowance in the periods presented. The collectability of accounts receivable is reviewed locally on a regular basis, generally monthly.
In our U.S. operations, the collection process is usually initiated 30 days after service is provided or upon the expiration of the time provided by contract. For Medicare and Medicaid, once the services are approved for payment, the collection process begins upon the expiration of a period of time based upon experience with Medicare and Medicaid. In all cases where co-payment is required the collection process usually begins within 30 days after service has been provided. In those cases where claims are approved for amounts less than anticipated or if claims are denied, the collection process usually begins upon notice of approval of the lesser amounts or upon denial of the claim. The collection process can be confined to internal efforts, including the accounting and sales staffs and, where appropriate, local management staff. If appropriate, external collection agencies may be engaged.
Public health institutions in a number of countries outside the U.S. require a significant amount of time until payment is made because a substantial number of payors are government entities whose payments are often determined by local laws and regulations and budget constraints. Depending on local facts and circumstances, the period of time to collect can be quite lengthy. In those instances where there are commercial payors, the same type of collection process is initiated as in the U.S.
Due to the number of our subsidiaries and different countries that we operate in, our policy of determining when a valuation allowance is required considers the appropriate individual local facts and circumstances that apply to an account. While payment and collection practices vary significantly between countries and even agencies within one country, government payors usually represent low to moderate credit risks. It is our policy to determine when receivables should be classified as bad debt on a local basis taking into account local payment practices and local collection experience. A valuation allowance is calculated locally if specific circumstances indicate that amounts will not be collectible.
In our International Segment and North America product division, for receivables overdue by more than one year, an additional valuation allowance is recorded based on an individual country risk, since we believe that the length of time to collect does indicate an increased credit risk.
When all efforts to collect a receivable, including the use of outside sources where required and allowed, have been exhausted, and after appropriate management review, a receivable deemed to be uncollectible is considered a bad debt and written off.
In the Consolidated Statement of Income, expenses from our allowance for doubtful accounts is presented either as a deduction from revenue or as operating expense depending on the source of the receivable. For our dialysis care business, we determine an allowance for patient services provided where all or a portion of the amounts billed or billable cannot be determined to be collectible at the time services are performed, e.g., providing treatment to a patient when such treatment is not covered by an insurance program or a reimbursement arrangement regardless of the patient's ability to pay. This allowance is shown as a reduction to our Dialysis Care revenue. All of our other receivables are evaluated with the changes in the allowance for doubtful accounts recorded as an operating expense.
Write offs are taken on a claim-by-claim basis when the collection efforts are exhausted. Due to the fact that a large portion of our reimbursement is provided by public healthcare organizations and private insurers, we expect that most of our accounts receivables will be collectable, albeit potentially more slowly in the International Segment in the immediate future, particularly in countries which continue to be severely affected by the global financial crisis. See chapter 1.4 "Liquidity and capital resources – operations", for a discussion of days sales outstanding developments in 2012. A significant change in our collection experience, deterioration in the aging of receivables and collection difficulties could require that we increase our estimate of the allowance for doubtful accounts. Any such additional bad debt charges could materially and adversely affect our future operating results.
If, in addition to our existing allowances, 1% of the gross amount of our trade accounts receivable as of December 31, 2012 were uncollectible through either a change in our estimated contractual adjustment or as bad debt, our operating income for 2012 would have been reduced by approximately 1.5%.
The following tables show the portion and aging of trade accounts receivable of major debtors or debtor groups at December 31, 2012 and 2011. No single debtor other than U.S. Medicaid and Medicare accounted for more than 5% of total trade accounts receivable in either year. Amounts pending approval from third party payors represent less than 2% at December 31, 2012.
| T. 1.1.1 | Aging of net trade accounts receivable by major payor groups 2012 | ||||||
|---|---|---|---|---|---|---|---|
| current | overdue by up to 3 months |
overdue more than 3 months up to 6 months |
overdue more than 6 months up to 1 year |
overdue by more than 1 year |
Total | % of net trade A/R |
|
| U.S. Medicare and | |||||||
| Medicaid Programs | 473 | 89 | 47 | 36 | 27 | 672 | 22 |
| U.S. Commercial Payors | 292 | 175 | 42 | 35 | 21 | 565 | 19 |
| U.S. Hospitals | 107 | 33 | 4 | 3 | 2 | 149 | 5 |
| Self-Pay of U.S. patients | 1 | 11 | 6 | 2 | 2 | 22 | 1 |
| Other North America | 7 | 2 | – | – | – | 9 | – |
| International product cus tomers and dialysis payors |
901 | 279 | 124 | 113 | 185 | 1,602 | 53 |
| Total | 1,781 | 589 | 223 | 189 | 237 | 3,019 | 100 |
14
| T. 1.1.2 | Aging of net trade accounts receivable by major payor groups 2011 | ||||||
|---|---|---|---|---|---|---|---|
| in \$ M, as of December 31 | |||||||
| overdue by | overdue more than |
overdue more than |
overdue by | ||||
| up to | 3 months up | 6 months up | more than | % of net | |||
| current | 3 months | to 6 months | to 1 year | 1 year | Total | trade A/R | |
| U.S. Medicare and | |||||||
| Medicaid Programs | 379 | 92 | 51 | 44 | 29 | 595 | 21 |
| U.S. Commercial Payors | 250 | 142 | 37 | 33 | 21 | 483 | 17 |
| U.S. Hospitals | 101 | 25 | 5 | 2 | 1 | 133 | 5 |
| Self-Pay of U.S. patients | – | 4 | 4 | 1 | 1 | 11 | – |
| Other North America | 8 | 3 | 1 | – | – | 12 | 1 |
| International product cus | |||||||
| tomers and dialysis payors | 772 | 289 | 144 | 140 | 219 | 1,564 | 56 |
| Total | 1,510 | 555 | 242 | 220 | 271 | 2,798 | 100 |
Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, Fresenius Medical Care Holdings, Inc. (FMCH), our largest subsidiary, is partially self-insured for professional liability claims. For all other coverages we assume 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.
Chapter 1.2
We are engaged primarily in providing dialysis services and manufacturing and distributing products and equipment for the treatment of ESRD. We estimate that providing dialysis services and distributing dialysis products and equipment represents a worldwide market of approximately \$75 BN with expected annual worldwide market growth of around 4%, adjusted for currency. Patient growth results from factors such as the aging population and increased life expectancies; shortage of donor organs for kidney transplants; increasing incidence and better treatment of and survival of patients with diabetes and hypertension, which frequently precede the onset of ESRD; improvements in treatment quality, which prolong patient life; and improving standards of living in developing countries, which make life-saving dialysis treatment available. Key to continued growth in revenue is our ability to attract new patients in order to increase the number of treatments performed each year. For that reason, we believe the number of treatments performed each year is a strong indicator of continued revenue growth and success. In addition, the reimbursement and ancillary services utilization environment significantly influences our business. With the exception of the implementation of the ESRD PPS in the U.S., and possible adjustments to this payment system for changes in the utilization and costs of certain drugs and biologicals included in the ESRD PPS, we experienced and also expect in the future, generally stable reimbursements for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries. The majority of treatments are paid for by governmental institutions such as Medicare in the United States. As a consequence of the pressure to decrease healthcare costs, reimbursement rate increases have historically been limited. Our ability to influence the pricing of our services is limited.
With the enactment of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), Congress mandated the development of an expanded ESRD bundled payment system for services furnished on or after January 1, 2011. On July 26, 2010, CMS published a final rule implementing the ESRD PPS for ESRD dialysis facilities in accordance with MIPPA. Under the ESRD PPS, the Centers for Medicare and Medicard Services (CMS) reimburses dialysis facilities with a single payment for each dialysis treatment, inclusive of (i) all items and services included in the former composite rate, (ii) oral vitamin D analogues, oral levocarnitine (an amino acid derivative) and all ESAs and other pharmaceuticals (other than vaccines and certain other oral drugs) furnished to ESRD patients that were previously reimbursed separately under Part B of the Medicare program, (iii) most diagnostic laboratory tests and (iv) certain other items and services furnished to individuals for the treatment of ESRD. ESRD-related drugs with only an oral form, including PhosLo, are expected to be reimbursed under the ESRD PPS starting in January 2016 with an adjusted payment amount to be determined by the Secretary of Health and Human Services to reflect the additional cost to dialysis facilities of providing these medications. The base ESRD PPS payment is subject to case mix adjustments that take into account individual patient characteristics (e.g., age, body surface area, body mass, time on dialysis) and certain co-morbidities. The base payment is also adjusted for (i) certain high cost patient outliers due to unusual variations in medically necessary care, (ii) disparately high costs incurred by low volume facilities relative to other facilities, (iii) provision of home dialysis training and (iv) wage-related costs in the geographic area in which the provider is located.
The ESRD PPS is being phased in over four years with full implementation for all dialysis facilities on January 1, 2014. As part of the base payment for 2011, CMS included a negative 3.1% adjustment for each facility in order to ensure a budget-neutral transition, the "Transition Adjuster", based on its estimation that only 43% of dialysis facilities would elect to participate fully in the ESRD PPS in 2011. In April 2011, however, CMS reduced the Transition Adjuster to 0% for the remainder of 2011, based on the actual number of facilities that elected to fully participate in the ESRD PPS. CMS specified Transition Adjusters of 0% for 2012 and 0.1% in 2013.
The ESRD PPS payment amount is subject to annual adjustment based on increases in the costs of a "market basket" of certain healthcare items and services less a productivity adjustment. On November 9, 2012, CMS published a final rule finalizing the 2013 ESRD PPS rates. In the rule, CMS established the 2013 productivity adjusted market basket update at 2.3%, which was based on a market basket update of 2.9% less a productivity adjustment of 0.6%. Additionally, CMS set the 2013 wage index budget-neutrality adjusted base rate of \$240.36 per treatment.
The ESRD PPS's QIP, initially focusing on anemia management and dialysis adequacy, began affecting payments starting January 1, 2012. Dialysis facilities that fail to achieve the established quality standards have payments reduced by up to 2%. Performance on specified measures in 2010 affected payment in 2012, and 2013 payments will be affected by performance with respect to measures in 2011. Initially measures focused on anemia management and dialysis adequacy. For the payment year 2014, CMS has adopted four additional measures (i) prevalence of catheter and A/V fistula use; (ii) reporting of infections to the Centers for Disease Control and Prevention; (iii) administration of patient satisfaction surveys; and (iv) monthly monitoring of phosphorus and calcium levels. For payment year 2015 and subsequent years, CMS has continued certain of the existing QIP measures, expanded the scope of certain existing measures, and added new measures. The payment year 2015 clinical measures include anemia management, hypercalemia, vascular access type, hemodialysis adequacy (adult and pedatric patients) and peritoneal dialysis adequacy. The 2015 reporting measures include patient satisfaction surveys, mineral metabolism reporting, anemia management reporting and infection reporting. For a discussion of the impact of ESRD PPS and the above implementation plan on our business, see chapter 1.3 "Results of operations – North America".
The Patient Protection and Affordable Care Act was enacted in the United States on March 23, 2010 and subsequently amended by the Health Care and Educational Affordability Reconciliation Act (as amended, ACA). ACA implements broad healthcare system reforms, including (i) provisions to facilitate access to affordable health insurance for all Americans, (ii) expansion of the Medicaid program, (iii) an industry fee on pharmaceutical companies that began in 2011 based on sales of brand name pharmaceuticals to government healthcare programs, (iv) a 2.3% excise tax on manufacturers' medical device sales starting in 2013, (v) increases in Medicaid prescription drug rebates effective January 1, 2010, (vi) commercial insurance market reforms that protect consumers, such as bans on lifetime and annual limits, coverage of pre-existing conditions, limits on administrative costs, and limits on waiting periods, (vii) provisions encouraging integrated care, efficiency and coordination among providers and (viii) provisions for reduction of healthcare program waste and fraud. ACA does not modify the dialysis reimbursement provisions of MIPPA, except to change the annual update provision by substituting a productivity adjustment to the market basket rate of increase for
a MIPPA provision that specified for a one percentage point reduction in the market basket rate of increase. ACA's medical device excise tax, Medicaid drug rebate increases and annual pharmaceutical industry fees will adversely impact our product business earnings and cash flows. We expect modest favorable impact from ACA's integrated care and commercial insurance consumer protection provisions.
On August 2, 2011, the Budget Control Act was enacted, raising the U.S.'s debt ceiling and putting into effect a series of actions for deficit reduction. Automatic across-the-board spending cuts over nine fiscal years (2013 – 2021), projected to total \$1.2 TN for all Federal government programs, were scheduled to go into effect on January 2, 2013. Pursuant to the American Taxpayer Relief Act, which was enacted on January 3, 2013, these reductions are now scheduled to go into effect on March 1, 2013, unless the law is further changed. Medicare payments to providers and suppliers would be subject to these reductions, but these reductions would be limited to one adjustment of no more than 2% through 2021. The Medicare reimbursement reduction would be independent of annual inflation update mechanisms, such as the market basket update pursuant to the ESRD PPS. In addition to delaying the Budget Control Act's automatic spending reductions, the American Taxpayer Relief Act also directed CMS to reduce the ESRD PPS payment rate, effective January 1, 2014, to account for changes in the utilization of certain drugs and biologicals that are included in the ESRD PPS. In making such reduction, the law requires CMS to use the most recently available pricing data for such drugs and biologicals. CMS is expected to release a proposed rule incorporating such calculations in Spring or early Summer 2013, with a final rule to follow later in the year.
The ESRD PPS resulted in a lower reimbursement rate on average as a result of the above measures by CMS, at nearly all of our U.S. dialysis facilities that elected to be fully subject to the ESRD PPS starting on January 1, 2011. We mitigated the impact of the ESRD PPS and the other legislative initiatives referenced above with two broad measures. First, we worked with medical directors and treating physicians to make clinical protocol changes used in treating patients consistent with the QIP, and we negotiated pharmaceutical acquisition cost savings. In addition, we achieved greater efficiencies and better patient outcomes by introducing new initiatives to improve patient care upon initiation of dialysis, increase the percentage of patients using home therapies and achieve additional cost reductions in our clinics.
On February 4, 2013, CMS announced plans to test a new Comprehensive End-Stage Renal Disease (ESRD) Care Model and issued a solicitation for applications. As currently proposed, CMS will work with up to 15 healthcare provider groups, known as ESRD Seamless Care Organizations (ESCOs), to test a new system of payment and care delivery that seeks to deliver better health outcomes for ESRD patients while lowering CMS's costs. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS's cost of care above certain thresholds for the ESRD patients covered by the ESCO will receive a share of the cost savings. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and reimburse CMS a share of any such increases. Organizations must apply and be approved by CMS to participate in the program. Applications are due by May 1, 2013. We are reviewing the details of the proposed program to determine whether to participate in this program.
18
Any significant decreases in Medicare reimbursement rates could have material adverse effects on our provider business and, because the demand for products is affected by Medicare reimbursement, on our products business. To the extent that increases in operating costs that are affected by inflation, such as labor and supply costs, are not fully reflected in a compensating increase in reimbursement rates, our business and results of operations may be adversely affected.
We have identified three operating segments, the North America Segment, the International operating segment, and the Asia-Pacific operating segment, which were determined based upon how we manage our businesses. All segments are primarily engaged in providing dialysis care services and the distribution of products and equipment for the treatment of ESRD. For reporting purposes, we have aggregated the International and Asia-Pacific operating segments as the "International Segment." We aggregated these operating segments due to their similar economic characteristics. These characteristics include same services provided and same products sold, same type patient population, similar methods of distribution of products and services and similar economic environments. Our General Partner's management board member responsible for the profitability and cash flow of each segment's various businesses supervises the management of each operating segment. The accounting policies of the segments are the same as those we apply in preparing our consolidated financial statements under accounting principles generally accepted in the U.S. (U.S. GAAP).
Our management evaluates each segment using a measure that reflects all of the segment's controllable revenues and expenses. With respect to the performance of our business operations, our management believes the most appropriate measure in this regard is operating income which measures our source of earnings. We do not include the investment gain resulting from the acquisition of Liberty Dialysis Holdings, Inc., (Liberty Acquisition) nor income taxes as we believe these items to be outside the segments' control. Financing is a corporate function which segments do not control. Therefore, we do not include interest expense relating to financing as a segment measurement. Similarly, we do not allocate "corporate costs," which relate primarily to certain headquarters overhead charges, including accounting and finance, professional services, etc. because we believe that these costs are also not within the control of the individual segments. As of January 1, 2011, production of products, production asset management, quality management and procurement are centrally managed in Corporate by Global Manufacturing Operations. These corporate activities do not fulfill the definition of a segment. Products are transferred to the segments at cost; therefore no internal profit is generated. The associated internal revenues for the product transfers and their elimination are recorded as corporate activities see note 23. Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but are accounted for as "Corporate." Accordingly, all of these items are excluded from our analysis of segment results and are discussed below in the discussion of our consolidated results of operations.
The following tables summarize our financial performance and certain operating results by principal reporting segment and Corporate for the periods indicated. Inter-segment sales primarily reflect sales of medical equipment and supplies. We prepared the information using a management approach, consistent with the basis and manner in which our management internally disaggregates financial information to assist in making internal operating decisions and evaluating management performance.
| Segment data T. 1.3.1 |
||
|---|---|---|
| in \$ M | ||
| 2012 | 2011 | |
| Total revenue | ||
| North America | 9,041 | 7,935 |
| International | 4,740 | 4,628 |
| Corporate | 29 | 17 |
| Total | 13,810 | 12,580 |
| Inter-segment revenue | ||
| North America | 10 | 9 |
| International | – | – |
| Total | 10 | 9 |
| Total net revenue | ||
| North America | 9,031 | 7,926 |
| International | 4,740 | 4,628 |
| Corporate | 29 | 17 |
| Total | 13,800 | 12,571 |
| Amortization and depreciation | ||
| North America | 310 | 269 |
| International | 176 | 174 |
| Corporate | 116 | 114 |
| Total | 602 | 557 |
| Operating income | ||
| North America | 1,615 | 1,435 |
| International | 809 | 807 |
| Corporate | (205) | (167) |
| Total | 2,219 | 2,075 |
| Investment gain | 140 | – |
| Interest income | 44 | 60 |
| Interest expense | (470) | (357) |
| Income tax expense | (605) | (601) |
| Net income | 1,328 | 1,177 |
| Less: net income attributable to noncontrolling interests | (141) | (106) |
| Net income attributable to shareholders of FMC AG & Co. KGaA | 1,187 | 1,071 |
Revenues increased by 10% to \$13,800 M (12% at constant exchange rates) mainly due to contributions from acquisitions of 8% and organic growth of 5%, partially offset by the effect of closed or sold clinics (1%).
Operating income (EBIT) increased 7%. Net Income attributable to shareholders of FMC AG & CO. KGAA increased by 11%.
In 2012, we also successfully completed the Liberty Acquisition, renegotiated one of our credit facilities and issued senior notes.
| Key indicators for Consolidated Financial Statements T. 1.3.2 |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | Change as reported |
Change at constant exchange rates 1 |
|||||
| Number of treatments | 38,588,184 | 34,388,422 | 12% | – | ||||
| Same market treatment growth in % | 3.8 | 3.9 | – | – | ||||
| Revenue in \$ M | 13,800 | 12,571 | 10% | 12% | ||||
| Gross profit as a % of revenue | 33.3 | 33.0 | – | – | ||||
| Selling, general and administrative costs as a % of revenue | 16.1 | 15.9 | – | – | ||||
| Net income attributable to shareholders of FMC AG & Co. KGaA in \$ M |
1,187 | 1,071 | 11% | – |
1 For further information on "at constant exchange rates," see "Non-U.S. GAAP Measures – Constant currency" below.
Treatments increased by 12% for the twelve months ended December 31, 2012 as compared to the same period in 2011. The increase is due to acquisitions (9%), including the effect of the Liberty Acquisition (6%) and same market treatment growth (4%), partially offset by the effect of closed or sold clinics (1%).
At December 31, 2012, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 3,160 clinics compared to 2,898 clinics at December 31, 2011. During 2012, we acquired 276 clinics, opened 65 clinics and combined or closed 79 clinics. The number of patients treated in clinics that we own, operate or manage (excluding patients of clinics managed but not consolidated in the U. S.) increased by 11% to 257,916 at December 31, 2012 from 233,156 at December 31, 2011. Including 32 clinics managed but not consolidated in the U. S., the total number of patients was 260,282.
Net revenue increased by 10% (12% at constant exchange rates) for the twelve months ended December 31, 2012 over the comparable period in 2011 due to growth in dialysis care revenues.
Net dialysis care revenue increased by 13% to \$10,492 M (15% at constant exchange rates) for the year ended December 31, 2012 from \$9,283 M in the same period of 2011, mainly due to contributions from acquisitions (12%), growth in same market treatments (4%), partially offset by the negative effect of exchange rate fluctuations (2%) and the effect of closed or sold clinics (1%).
Dialysis product revenue increased by 1% (5% increase at constant exchange rates) to \$3,308 M compared to \$3,288 M in the same period of 2011. The increase at constant currency was driven by increased sales of hemodialysis products, especially of machines, bloodlines and dialyzers as well as peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals.
The increase in gross profit margin mostly reflects an increase in gross profit margin in North America, partially offset by a decrease in the International Segment. The increase in North America was due to higher revenue rate associated with Medicare, special collection efforts for services performed in prior years and the impact of the acquisition of LD Holdings, which contributed higher gross margins, partially offset by higher personnel expenses. The decrease in International was mainly due to lower margin sales in the dialysis care business.
Selling, general and administrative (SG & A) expenses increased to \$2,224 M for the year ended December 31, 2012 from \$2,002 M in the same period of 2011. SG & A expenses as a percentage of sales increased to 16.1% for the year ended December 31, 2012 from 15.9% in the same period of 2011 as a result of an increase in North America and in Corporate. The increase in North America was a result of higher personnel expense, and one-time costs related to the Liberty Acquisition, partially offset by the impact of the acquisition of LD Holdings, which has lower SG & A expenses as a percentage of revenue. The increase in Corporate was mainly driven by a \$10 M charitable donation to the American Society of Nephrology to establish a research fellowship program and increased legal costs.
In the year ended December 31, 2012, we had a \$36 M gain from the sale of dialysis clinics, including \$33 M from the sale of 24 FMC AG & CO. KGAA clinics, in connection with regulatory clearance of the Liberty Acquisition, which occurred in the first quarter of 2012 see note 2.
Research and development (R & D) expenses increased slightly to \$112 M for the year ended December 31, 2012 as compared to \$111 M in the same period in 2011.
Income from equity method investees decreased to \$17 M for the twelve months ended December 31, 2012 from \$31 M for the same period of 2011 due to reduced income from the VFMCRP renal pharmaceuticals joint venture.
Other operating expense was \$100 M due to charges incurred in connection with the amendment of our agreement with Luitpold Pharmaceuticals and American Regent, Inc. regarding Venofer see note 4.
Operating income increased to \$2,219 M for the year ended December 31, 2012 from \$2,075 M for the same period in 2011. Operating income margin decreased to 16.1% for the year ended December 31, 2012 as compared to 16.5% for the same period in 2011 as a result of the charge incurred for the amendment to the agreement regarding Venofer and higher SG & A as a percentage of revenue, partially offset by the increase in gross profit margin and the gain on the sale of FMC AG & CO. KGAA clinics, all as discussed above.
We recognized a non-taxable investment gain of \$140 M related to our acquisition of LD Holdings for the twelve months ended December 31, 2012 as a result of a fair valuation of our investment in Renal Advantage Partners, LLC at the time of the Liberty Acquisition.
Interest expense increased by 32% to \$470 M for the twelve months ended December 31, 2012 from \$357 M for the same period in 2011 mainly as a result of increased debt incurred to finance the Liberty Acquisition. Interest income decreased to \$44 M for the twelve months ended December 31, 2012 from \$60 M for the same period in 2011.
Income tax expense increased to \$605 M for the year ended December 31, 2012 from \$601 M for the same period in 2011. The effective tax rate decreased to 31.3% from 33.8% for the same period of 2011, as a result of the nontaxable investment gain noted above.
Net income attributable to FMC AG & CO. KGAA for the twelve months ended December 31, 2012 increased to \$1,187 M from \$1,071 M for the same period in 2011 as a result of the combined effects of the items discussed above.
We employed 86,153 people (full-time equivalents) as of December 31, 2012 compared to 79,159 as of December 31, 2011, an increase of 8.8%, primarily due to overall growth in our business and acquisitions.
The following discussions pertain to the North America Segment and the International Segment and the measures we use to manage these segments.
| Key indicators for North America Segment T. 1.3.3 |
||||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | Change | ||||
| Number of treatments | 24,412,416 | 21,608,620 | 13% | |||
| Same market treatment growth in % | 3.6 | 3.2 | – | |||
| Revenue in \$ M | 9,031 | 7,926 | 14% | |||
| Depreciation and amortization in \$ M | 310 | 269 | 15% | |||
| Operating income in \$ M | 1,615 | 1,435 | 13% | |||
| Operating income margin in % | 17.9 | 18.1 | – |
Treatments increased by 13% for the twelve months ended December 31, 2012 as compared to the same period in 2011 mostly due to the Liberty Acquisition, net of divestitures (7%) same market growth (4%) and contributions from other acquisitions (3%), partially offset by the effect of closed or sold clinics (1%). At December 31, 2012, 164,554 patients (a 16% increase over December 31, 2011) were being treated in the 2,082 clinics that we own or operate in the North America Segment, compared to 142,319 patients treated in 1,838 clinics at December 31, 2011. Average North America revenue per treatment, which includes Canada and Mexico, before bad debt expense, was \$348 for the twelve months ended December 31, 2012 and \$340 in the same period in 2011. In the U. S., the average revenue per treatment was \$355 for the twelve months ended December 31, 2012 and \$348 for the same period in 2011. The increase was mainly attributable to further development of our expanded service offerings, a modest increase in commercial rates, the impact
of the increase in Medicare reimbursement from the updated Medicare reimbursement rate and removal of the Transition Adjuster which occurred in the first quarter of 2011 as well as increased revenue due to the special collection efforts for services performed in prior years. This improvement was partially offset by reduced pharmaceutical utilization in non-bundled commercial treatments.
Net revenue for the North America Segment for year ended December 31, 2012 increased as a result of an increase in dialysis care revenue by 16% to \$8,230 M from \$7,113 M in the same period of 2011 partially offset by a decrease in dialysis product revenue to \$801 M from \$813 M in the year ended December 31, 2011.
The dialysis care revenue increase was driven by contributions from acquisitions (13%), same market treatment growth (4%) and the impact of the special collection efforts (1%), partially offset by the effect of closed or sold clinics (1%) and higher bad debt expense (1%).
The dialysis product revenue decrease was driven by lower sales of renal pharmaceuticals, machines and dialyzers, partially offset by higher sales of bloodlines and other hemodialysis products. The decrease in machines and dialyzers was mainly caused by the Liberty Acquisition, which resulted in the conversion of third party sales into internal sales.
Operating income increased to \$1,615 M for the year ended December 31, 2012 from \$1,435 M for the same period in 2011. Operating income margin decreased to 17.9% for the year ended December 31, 2012 from 18.1% for the same period in 2011, primarily due to higher personnel expenses, the \$100 M impact from the amendment of the agreement regarding Venofer, costs related to the Liberty Acquisition, partially offset by higher revenue per treatment rate associated with Medicare, the positive impact from the Liberty Acquisition, including divestiture gains and special collection efforts for services performed in prior years. Cost per treatment for North America increased to \$278 for the year ended December 31, 2012 from \$276 in 2011. Cost per treatment in the U. S. increased to \$283 for the year ended December 31, 2012 from \$282 in the same period of 2011.
| Key indicators for International Segment T. 1.3.4 |
|||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | Change as reported |
Change at constant exchange rates 1 |
||||
| Number of treatments | 14,175,768 | 12,779,802 | 11% | – | |||
| Same market treatment growth in % | 4.0 | 5.4 | – | – | |||
| Revenue in \$ M | 4,740 | 4,628 | 2% | 9% | |||
| Depreciation and amortization in \$ M | 176 | 174 | 1% | – | |||
| Operating income in \$ M | 809 | 807 | 0% | – | |||
| Operating income margin in % | 17.1 | 17.4 | – | – |
1 For further information on "at constant exchange rates," see "Non-U.S. GAAP Measures – Constant currency" below.
Treatments increased by 11% in the twelve months ended December 31, 2012 over the same period in 2011 mainly due to contributions from acquisitions (8%) and same market growth (4%), partially offset by the effect of closed or sold clinics (1%). As of December 31, 2012, we had 93,362 patients (a 3% increase over December 31, 2011) being treated at the 1,078 clinics that we own, operate or manage in the International Segment compared to 90,837 patients treated at 1,060 clinics at December 31, 2011. Average revenue per treatment for the twelve months ended December 31, 2012 decreased to \$160 in comparison with \$170 for the same period of 2011 due to the weakening of local currencies against the U. S. dollar (\$11), partially offset by slightly increased reimbursement rates and changes in country mix (\$1).
Net revenues for the International Segment for the year ended December 31, 2012 increased by 2% (9% at constant exchange rates) as compared to the same period in 2011 mainly as a result of an increase in dialysis care and a slight dialysis product increase. Organic growth during the period was 6% and acquisitions during the period contributed 3%, partially offset by the negative effect of exchange rate fluctuations (7%).
Including the effects of acquisitions, European region revenue decreased 2% (6% increase at constant exchange rates), Latin America region revenue increased 15% (24% at constant exchange rates), and Asia-Pacific region revenue increased 6% (7% at constant exchange rates).
Total dialysis care revenue for the International Segment increased for the year ended December 31, 2012 by 4% (11% increase at constant exchange rates) to \$2,262 M from \$2,170 M in the same period of 2011. This increase is a result of contributions from acquisitions (7%), same market treatment growth (4%), increases in organic revenue per treatment (2%), partially offset by the negative effect of exchange rate fluctuations (7%) and the effect of closed or sold clinics (2%).
Total dialysis product revenue for the year ended December 31, 2012 increased by 1% (7% increase at constant exchange rates) at \$2,478 M compared to \$2,458 M in the same period of 2011. The 7% increase in product revenue at constant currency was driven by increased sales of hemodialysis products, especially of machines, dialyzers, bloodlines and products for acute care as well as peritoneal dialysis products.
Operating income remained fairly flat at \$809 M compared to \$807 M for the same period in 2011. Operating income margin decreased to 17.1% for the twelve months ended December 31, 2012 from 17.4% for the same period in 2011 mainly due to lower margin sales in our dialysis care business, partially offset by favorable foreign currency exchange effects and business growth in Asia, mainly China.
Our primary sources of liquidity are typically cash from operations, cash from borrowings from third parties and related parties, as well as cash from issuance of debt and equity securities. We require this capital primarily to finance working capital needs, to fund acquisitions and joint ventures, to develop free-standing renal dialysis centers, to purchase equipment for existing or new renal dialysis centers and production sites, to repay debt and to pay dividends.
At December 31, 2012, we had cash and cash equivalents of \$688 M. For information regarding utilization and availability under our principal credit facility (the "2012 Credit Agreement"), see note 10. Effective October 30, 2012, our Amended 2006 Senior Credit Agreement was replaced by a new credit facility.
In 2012 and 2011 we generated net cash from operations of \$2,039 M and \$1,446 M, respectively. Cash from operations is impacted by the profitability of our business, the development of our working capital, principally receivables, and cash outflows that occur due to a number of specific items as discussed below. The increase 2012 versus 2011 was mainly a result of a 4 day decrease in days sales outstanding (DSO) as compared to a 4 day increase in the same period of 2011, higher earnings and positive effects from other working capital items, including a lower increase in inventory level, partially offset by higher tax payments.
The profitability of our business depends significantly on reimbursement rates. Approximately 76% of our revenues are generated by providing dialysis services, a major portion of which is reimbursed by either public health care organizations or private insurers. For the twelve months ended December 31, 2012, approximately 32% of our consolidated revenues were attributable to U. S. federal health care benefit programs, such as Medicare and Medicaid reimbursement. Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide, as well as the scope of Medicare coverage. A decrease in reimbursement rates or the scope of coverage could have a material adverse effect on our business, financial condition and results of operations and thus on our capacity to generate cash flow. With the exception of the implementation of the ESRD PPS in the U. S., and possible adjustments to this payment system for changes in the utilization and costs of certain drugs and biologicals included in the ESRD PPS, we experienced and also expect in the future, generally stable reimbursements for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries.
Our working capital, which is defined as current assets less current liabilities, was \$2,957 M at December 31, 2012 which increased from \$1,432 M at December 31, 2011. The change is primarily the result of the presentation of the obligations under the 2012 Credit Agreement as long-term as compared to portions classified as short-term under the prior credit agreement. At December 31, 2012, the obligations under the 2012 Credit Agreement represented \$2.659 BN of our total debt. See section "Financing," and also note 10. Our ratio of current assets to current liabilities was 1.9 at December 31, 2012.
We intend to continue to address our current cash and financing requirements by the generation of cash from operations, our existing and future credit agreements, and the issuance of debt securities. In addition, when funds are required for acquisitions or to meet other needs, we expect to successfully complete longterm financing arrangements, such as the issuance of senior notes, see section "Financing". We aim to preserve financial resources with a minimum of \$300 M to \$500 M of committed and unutilized credit facilities.
Cash from operations depends on the collection of accounts receivable. Customers and governments generally have different payment cycles. A lengthening of their payment cycles could have a material adverse effect on our capacity to generate cash flow. In addition, we could face difficulties in enforcing and collecting accounts receivable under some countries' legal systems and due to the economic conditions in some countries. Accounts receivable balances at December 31, 2012 and December 31, 2011, net of valuation allowances, represented DSO of approximately 76 and 80, respectively.
DSO by segment is calculated by dividing the segment's accounts receivable, converted to U.S. Dollars using the average exchange rate for the period presented, less any value added tax included in the receivables, by the average daily sales of the last twelve months for that segment, converted to U.S. dollars using the average exchange rate for the period. Receivables and sales are adjusted for amounts related to significant acquisitions made during the periods presented. The development of DSO by reporting segment is shown in the table below:
| 2012 | 2011 |
|---|---|
| 55 | 55 |
| 115 | 121 |
| 76 | 80 |
DSO remained flat for the North American Segment and decreased for the International Segment between December 31, 2011 and December 31, 2012. The International Segment's DSO decrease reflects significant cash collections from Spain, mostly offset by slight payment delays, particularly in countries with budget deficits and in China. Due to the fact that a large portion of our reimbursement is provided by public health care organizations and private insurers, we expect that most of our accounts receivable will be collectible, albeit slightly more slowly in the International Segment in the immediate future.
There are a number of tax and other items we have identified that will or could impact our cash flows from operations in the future as follows:
In the U. S., we filed claims for refunds contesting the Internal Revenue Service's (IRS) disallowance of FMCH's civil settlement payment deductions taken by FMCH in prior year tax returns. As a result of a settlement agreement with the IRS, we received a partial refund in September 2008 of \$37 M, inclusive of interest and preserved our right to pursue claims in the United States Courts for refunds of all other disallowed deductions, which totaled approximately \$126 M. On December 22, 2008, we filed a complaint for complete refund in the United States District Court for the District of Massachusetts, styled as Fresenius Medical Care Holdings, Inc. v. United States. On August 15, 2012, a jury entered a verdict for FMCH granting additional deductions of \$95 M. The District Court is now considering post trial motions by the IRS to set aside the verdict and the terms of the judgment to be entered against the United States to reflect the amount of the tax refund due to FMCH.
We are subject to ongoing and future tax audits in the U. S., Germany and other jurisdictions. We have received notices of unfavorable adjustments and disallowances in connection with certain of the audits, including those described above. We are contesting, including appealing, certain of these unfavorable determinations. If our objections and any final audit appeals are unsuccessful, we could be required to make additional tax payments, including payments to state tax authorities reflecting the adjustments made in our federal tax returns in the U.S. With respect to other potential adjustments and disallowances of tax matters currently under review, we do not anticipate that an unfavorable ruling could have a material impact on our results of operations. We are not currently able to determine the timing of these potential additional tax payments.
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. The settlement agreement with the asbestos creditors committees on behalf of the W.R.Grace & Co. bankruptcy estate, see note 19, provides for payment by us of \$115 M upon approval of the settlement agreement by the U.S. District Court, which has occurred, and confirmation by the U.S. District Court of a W.R.Grace & Co. bankruptcy reorganization plan that includes the settlement. In January and February 2011, the U.S. Bankruptcy Court entered orders confirming the plan of reorganization. These confirmation orders were affirmed by the U.S. District Court on January 31, 2012. Multiple parties have appealed to the Third Circuit Court of Appeals and the plan of reorganization will not be implemented until the appeals are finally resolved. The \$115 M obligation was included in the special charge we recorded in 2001 to address 1996 merger-related legal matters, see note 19. The payment obligation is not interest-bearing.
We used net cash of \$2,281 M and \$2,346 M in investing activities in 2012 and 2011, respectively.
Capital expenditures for property, plant and equipment, net of disposals were \$666 M and \$570 M in 2012 and 2011, respectively. In 2012, capital expenditures were \$298 M in the North America Segment, \$195 M for the International Segment and \$173 M at Corporate. Capital expenditures in 2011 were \$237 M in the North America Segment, \$175 M for the International Segment and \$158 M at Corporate. The majority of our capital expenditures was used for maintaining existing clinics, equipping new clinics, maintenance and expansion of production facilities, primarily in Germany, North America, France and China and capitalization of machines provided to our customers, primarily in the International Segment. Capital expenditures were approximately 5% of total revenue in 2012 and 2011.
We invested approximately \$1,879 M cash in 2012, \$1,849 M in the North America Segment, primarily through the \$1,697 M (\$1,466 M net of divestitures) acquisition of Liberty see note 2, \$28 M in the International Segment and \$2 M at Corporate. In 2011, we invested approximately \$1,785 M cash, primarily for the acquisitions of International Dialysis Centers, the dialysis service business of Euromedic International, and American Access Care Holdings, LLC, which operates vascular access centers, loans provided to, as well as the purchase of a 49% ownership of, Renal Advantage Partners LLC, the parent company of Renal Advantage, Inc., a provider of dialysis services, and payments for the extension of the activities of VFMCRP (\$818 M in the North America Segment, \$960 M in the International Segment, and \$7 M at Corporate). We received \$264 M and \$10 M in conjunction with divestitures in 2012 and 2011, respectively.
We anticipate capital expenditures of approximately \$0.7 BN and expect to make acquisitions of approximately \$0.3 BN in 2013.
Net cash provided by financing was \$468 M in 2012 compared to net cash provided by financing of \$793 M in 2011.
In 2012, cash was provided by the issuance of senior notes, refinancing of the Amended 2006 Senior Credit Agreement by the 2012 Credit Agreement, exercises of stock options, proceeds from short-term borrowings and short term borrowings from related parties as well as contributions from noncontrolling interests, partially offset by the repayment of long-term debt, reduction of the amount outstanding under our accounts receivable securitization program, the payment of dividends, distributions to noncontrolling interests as well as the repayment of short-term borrowings and short-term borrowings from related parties. For further information on the issuance of senior notes in 2012, see below. In 2011, cash was provided by the issuance of \$1,062 M in senior notes in February 2011, short-term borrowings and short-term borrowings from related parties, partially offset by repayment of long-term debt, the repayment of the Trust Preferred Securities, the repayment of short-term borrowings and short-term borrowings from related parties as well as the payment of dividends.
On May 11, 2012, we paid a dividend with respect to 2011 of €0.69 per ordinary share (for 2010 paid in 2011: €0.65) and €0.71 per preference share (for 2010 paid in 2011: €0.67). The total dividend payment was €210 M (\$272 M) and €197 M (\$281 M) in 2012 and 2011, respectively.
On January 26, 2012, Fresenius Medical Care U.S. Finance II, Inc. (U.S. Finance II), a wholly-owned subsidiary, issued \$800 M aggregate principal amount of senior unsecured notes with a coupon of 5 5/8% (the 5 5/8% Senior Notes) at par and \$700 M aggregate principal amount of senior unsecured notes with a coupon of 5 7/8% (the 5 7/8% Senior Notes) at par (together, the Dollar-denominated Senior Notes). In addition, FMC Finance VIII S.A. (Finance VIII), a wholly-owned subsidiary, issued €250 M aggregate principal amount (\$329 M at date of issuance) of senior unsecured notes with a coupon of 5.25% (the Euro-denominated Senior Notes) at par. Both the 5 5/8% Senior Notes and the Euro-denominated Senior Notes are due July 31, 2019 while the 5 7/8% Senior Notes are due January 31, 2022. U.S. Finance II may redeem each issue of the Dollar-denominated Senior Notes, Finance VIII may redeem the Euro-denominated Senior Notes, in each case, at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the applicable indenture. The holders of the Dollar-denominated Senior Notes and the Euro-denominated Senior Notes have a right to request that
the respective issuers of the notes repurchase the applicable issue of notes at 101% of principal plus accrued interest upon the occurrence of a change in control of FMC AG & CO. KGAA followed by a decline in the rating of the respective notes. We used the net proceeds of approximately \$1,807 M for acquisitions, including the acquisition of Liberty Dialysis Holdings, Inc., which closed on February 28, 2012, to refinance indebtedness and for general corporate purposes. The Dollar-denominated Senior Notes and the Euro-denominated Senior Notes are guaranteed on a senior basis jointly and severally by us, Fresenius Medical Care Holdings, Inc. (FMCH) and Fresenius Medical Care Deutschland GmbH (D-GmbH) (together, the Guarantor Subsidiaries).
The Company entered into a new \$3.85 BN syndicated credit facility, the 2012 Credit Agreement, with a large group of banks and institutional investors (collectively, the Lenders) on October 30, 2012 which replaced the Amended 2006 Senior Credit Agreement.
The new credit facility consists of:
a 5-year revolving credit facility of approximately \$1.25 BN comprising a \$400 M multicurrency revolving facility, a \$200 M revolving facility and a €500 M revolving facility which will be due and payable on October 30, 2017.
a 5-year term loan facility of \$2.6 BN, also scheduled to mature on October 30, 2017. The 2012 Credit Agreement requires 17 quarterly payments of \$50 M each, beginning in the third quarter of 2013 that permanently reduce the term loan facility. The remaining balance is due on October 30, 2017.
Interest on the new credit facilities will be, at the Company's option, at a rate equal to either (i) LIBOR or EURIBOR (as applicable) plus an applicable margin or (ii) the Base Rate as defined in the 2012 Credit Agreement plus an applicable margin. As of December 31, 2012, the tranches outstanding under the 2012 Credit Agreement had a weighted average interest rate of 2.35%.
The applicable margin is variable and depends on the Company's Consolidated Leverage Ratio which is a ratio of its Consolidated Funded Debt less cash and cash equivalents held by the Consolidated Group to Consolidated EBITDA (as these terms are defined in the 2012 Credit Agreement).
In addition to scheduled principal payments, indebtedness outstanding under the 2012 Credit Agreement will be reduced by portions of the net cash proceeds received from certain sales of assets and the issuance of certain additional debt.
Obligations under the 2012 Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the Lenders.
The 2012 Credit Agreement contains affirmative and negative covenants with respect to the Company and its subsidiaries and other payment restrictions. Certain of the covenants limit indebtedness of the Company and investments by the Company, and require the Company to maintain certain financial ratios defined in the agreement. Additionally, the 2012 Credit Agreement provides for a limitation on dividends and other restricted payments which is €300 M (\$396 M based upon the December 31, 2012 spot rate) for dividends to be paid in 2013, and increases in subsequent years. In default, the outstanding balance under the 2012 Credit Agreement becomes immediately due and payable at the option of the Lenders.
| T. 1.4.2 | Available sources of liquidity in \$ M |
||||
|---|---|---|---|---|---|
| Expiration per period of | |||||
| Total | less than 1 year |
1 – 3 years | 3 – 5 years | over 5 years | |
| Accounts receivable facility1 | 638 | – | – | 638 | – |
| Revolving Credit Facility of the Credit Agreement 20122 | 1,123 | – | – | 1,123 | – |
| Other unused lines of credit | 262 | 262 | – | – | – |
| Total | 2,023 | 262 | – | 1,761 | – |
The following table summarizes the Company's available sources of liquidity at December 31, 2012:
1 Subject to availability of sufficient accounts receivable meeting funding criteria. The Accounts Receivable facility was extended and renewed
on January 17, 2013 and will now mature on January 15, 2016. 2 At December 31, 2012, the Company had letter of credit outstanding in the amount of \$77 M which reduces the availability under the Revolving Credits Facility to the amount shown in this table.
The amount of guarantees and other commercial commitments at December 31, 2012 is not significant.
At December 31, 2012, we have short-term borrowings, excluding the current portion of long-term debt, other financial liabilities and short-term borrowings from related parties, in the total amount of \$122 M.
The following table summarizes, as of December 31, 2012, our obligations and commitments to make future payments under our long-term debt and other long-term obligations, and our commitments and obligations under lines of credit and letters of credit.
| Contractual cash obligations and commitments T. 1.4.3 in \$ M |
||||||
|---|---|---|---|---|---|---|
| Payments due by period of | ||||||
| Total | less than 1 year |
1 – 3 years | 3 – 5 years | over 5 years | ||
| Long-term debt1, 2 |
10,369 | 680 | 1,378 | 3,917 | 4,394 | |
| Capital lease obligations | 17 | 3 | 5 | 2 | 7 | |
| Operating leases | 3,288 | 566 | 950 | 727 | 1,045 | |
| Unconditional purchase obligations3 | 465 | 317 | 128 | 19 | 1 | |
| Other long-term obligations | 122 | 100 | 22 | – | – | |
| Letters of credit | 77 | – | – | 77 | – | |
| Total | 14,338 | 1,666 | 2,483 | 4,742 | 5,447 |
1 Includes expected interest payments which are based upon the principal repayment schedules and fixed interest rates or estimated variable interest rates
3 The unconditional purchase obligation was significantly reduced for 2012 and thereafter as a result of the amended of the Venofer Agreement. See note 4.
considering the applicable interest rates (e.g. Libor, Prime), the applicable margins, and the effects of related interest rate swaps. 2 Includes \$162 M of outstanding borrowings as of December 31, 2012 related to our accounts receivable facility that we refinanced on January 17, 2013. The accounts receivables facility will now mature on January 15, 2016.
Our 2012 Credit Agreement, EIB agreements, Euro Notes and Senior Notes include covenants that require us to maintain certain financial ratios or meet other financial tests. Under our 2012 Credit Agreement, we are obligated to maintain a minimum consolidated interest expense coverage ratio (ratio of EBITDA to net interest expense) and a maximum consolidated leverage ratio (ratio of consolidated funded debt to consolidated EBITDA as these terms are defined in the 2012 Credit Agreement). Other covenants in one or more of each of these agreements restrict or have the effect of restricting our ability to dispose of assets, incur debt, pay dividends and make other restricted payments, create liens or engage in sale-lease backs.
The breach of any of the covenants in any of the instruments or agreements governing our long-term debt – 2012 Credit Agreement, the EIB agreements, the Euro Notes or the Senior Notes – could, in turn, create additional defaults under one or more of the other instruments or agreements. In default, the outstanding balance under the 2012 Credit Agreement becomes due at the option of the lenders under that agreement, and the "cross default" provisions in our other long-term debt permit the lenders to accelerate the maturity of the debt upon such a default as well. As of December 31, 2012, we are in compliance with all covenants under the 2012 Credit Agreement and our other financing agreements. For information regarding our 2012 Credit Agreement, EIB agreements, Euro Notes and Senior Notes, see note 10.
Although we are not immune from the global financial crisis, we believe that we are well positioned to continue to grow our business while meeting our financial obligations as they come due. Due to the non-discretionary nature of the healthcare services we provide, the need for products utilized to provide such services and the availability of government reimbursement for a substantial portion of our services, our business is generally not cyclical. A substantial portion of our accounts receivable are generated by governmental payers. While payment and collection practices vary significantly between countries and even between agencies within one country, government payors usually represent low to moderate, credit risks. However, limited or expensive access to capital could make it more difficult for our customers to do business with us, or to do business generally, which could adversely affect our business by causing our customers to reduce or delay their purchases of our dialysis products. If the current conditions in the credit and equity markets continue, or worsen, they could also increase our financing costs and limit our financial flexibility.
Following our earnings-driven dividend policy, our General Partner's Management Board will propose to the shareholders at the Annual General meeting on May 16, 2013, a dividend with respect to 2012 and payable in 2013, of €0.75 per ordinary share (for 2011 paid in 2012: €0.69) and €0.77 per preference share (for 2011 paid in 2012: €0.71). The total expected dividend payment is approximately €230 M (approximately \$304 M based upon the December 31, 2012 spot rate) compared to dividends of €210 M (\$272 M) paid in 2012 with respect to 2011. The 2012 Credit Agreement provides for a limitation on dividends and other restricted payments which is €300 M (\$396 M based upon the December 31, 2012 spot rate) for dividends to be paid in 2013, and increases in subsequent years.
Our 2013 principal financing needs are the payment for our EIB loans coming due in 2013. These payments as well as our dividend payment of approximately \$304 in May 2013 and the anticipated dividend payment in 2014 are expected to be covered by our cash flows and by using existing credit facilities. We currently have sufficient flexibility under our debt covenants to meet our financing needs in the near future. Generally, we believe that we will have sufficient financing to achieve our goals in the future and to continue to promote our growth.
Changes in revenue include the impact of changes in foreign currency exchange rates. We use the non-GAAP financial measure "at constant exchange rates" in our filings to show changes in our revenue without giving effect to period-to-period currency fluctuations. Under U. S. GAAP, revenues received in local (non-U. S. dollar) currency are translated into U. S. dollars at the average exchange rate for the period presented. When we use the term "constant currency," it means that we have translated local currency revenues for the current reporting period into U.S. dollars using the same average foreign currency exchange rates for the conversion of revenues into U. S. dollars that we used to translate local currency revenues for the comparable reporting period of the prior year. We then calculate the change, as a percentage, of the current period revenues using the prior period exchange rates versus the prior period revenues. This resulting percentage is a non-GAAP measure referring to a change as a percentage "at constant exchange rates."
We believe that revenue growth is a key indication of how a company is progressing from period to period and that the non-GAAP financial measure constant currency is useful to investors, lenders, and other creditors because such information enables them to gauge the impact of currency fluctuations on its revenue from period to period. However, we also believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated could constitute a significant element of our revenue and could significantly impact our performance. We therefore limit our use of constant currency period-over-period changes to a measure for the impact of currency fluctuations on the translation of local currency revenue into U. S. dollars. We do not evaluate our results and performance without considering both constant currency period-over-period changes in non-U.S. GAAP revenue on the one hand and changes in revenue prepared in accordance with U. S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering data on constant currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenue prepared in accordance with U. S. GAAP. We present the fluctuation derived from U. S. GAAP revenue next to the fluctuation derived from non-GAAP revenue. Because the reconciliation is inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.
EBITDA (earnings before interest, tax, depreciation and amortization expenses) was approximately \$2,821 M, 20.4% of revenues for 2012 and \$2,632 M, 20.9% of revenues for 2011. EBITDA is the basis for determining compliance with certain covenants contained in our 2012 Credit Agreement, Euro Notes, EIB agreements, and the indentures relating to our Senior Notes. You should not consider EBITDA to be an alternative to net earnings determined in accordance with U. S. GAAP or to cash flow from operations, investing activities or financing activities. In addition, not all funds depicted by EBITDA are available for management's discretionary use. For example, a substantial portion of such funds are subject to contractual restrictions and functional requirements for debt service, to fund necessary capital expenditures and to meet other commitments from time to time as described in more detail elsewhere in this report. EBITDA, as calculated, may not be comparable to similarly titled measures reported by other companies. A reconciliation of EBITDA to cash flow provided by operating activities, which we believe to be the most directly comparable U.S. GAAP financial measure, is calculated as follows:
| Reconciliation of measures for consolidated totals T. 1.4.4 in \$ M |
||||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
| Total EBITDA | 2,821 | 2,632 | ||||
| Interest expense (net of interest income) | (426) | (297) | ||||
| Income tax expense, net | (605) | (601) | ||||
| Change in deferred taxes, net | 70 | 147 | ||||
| Changes in operating assets and liabilities | 174 | (366) | ||||
| Stock compensation expense | 26 | 29 | ||||
| Other items, net | (21) | (98) | ||||
| Net cash provided by operating activities | 2,039 | 1,446 |
Chapter 1.5
Our businesses operate in highly competitive markets and are subject to changes in business, economic and competitive conditions. Our business is subject to:
Our business is also subject to other risks and uncertainties that we describe from time to time in our public filings. Developments in any of these areas could cause our results to differ materially from the results that we or others have projected or may project.
We obtained approximately 32% of our worldwide revenue for 2012 from sources subject to regulations under U.S. government healthcare programs. In the past, U.S. budget deficit reduction and healthcare reform measures have changed the reimbursement rates under these programs, including the Medicare composite rate, the reimbursement rate for EPO, and the reimbursement rates for other dialysis and non-dialysis related services and products, as well as other material aspects of these programs, and they may change in the future. Effective January 1, 2011, the Medicare reimbursement rate for dialysis services is determined on the basis of a case-mix adjusted "blended" prospective payment system for ESRD dialysis facilities.
We also obtain a significant portion of our net revenues from reimbursement by non-government payors. Historically, these payors' reimbursement rates generally have been higher than government program rates in their respective countries. However, non-governmental payors are imposing cost containment measures that are creating significant downward pressure on reimbursement levels that we receive for our services and products.
The effects of inflation during the periods covered by the consolidated financial statements have not been significant to our results of operations. However, a major portion of our net revenues from dialysis care are subject to reimbursement rates regulated by governmental authorities, and a significant portion of other revenues, especially revenues from the U.S., is received from customers whose revenues are subject to these regulated reimbursement rates. Non-governmental payors are also exerting downward pressure on reimbursement rates. Increased operation costs that are subject to inflation, such as labor and supply costs, may not be recoverable through price increases in the absence of a compensating increase in reimbursement rates payable to us and our customers, and could materially adversely affect our business, financial condition and results of operations.
We are primarily exposed to market risk from changes in foreign exchange rates and changes in interest rates. In order to manage the risks from these foreign exchange rate and interest rate fluctuations, we enter into various hedging transactions, as authorized by the Management Board of the general partner, with banks which generally have ratings in the "A" Category or better. We do not use financial instruments for trading or other speculative purposes.
Fresenius SE, as provided for under a service agreement, conducts financial instrument activity for us and its other subsidiaries under the control of a single centralized department. Fresenius SE has established guidelines, that we have agreed to, for risk assessment procedures and controls for the use of financial instruments. They include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.
We conduct our business on a global basis in various currencies, although our operations are located principally in the United States and Germany. For financial reporting purposes, we have chosen the U.S. dollar as our reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar and the local currencies in which the financial statements of our international operations are maintained, affect our results of operations and financial position as reported in our consolidated financial statements. We have consolidated the balance sheets of our non-U.S. dollar denominated operations into U.S. dollars at the exchange rates prevailing at the balance sheet date. Revenues and expenses are translated at the average exchange rates for the period.
Our exposure to market risk for changes in foreign exchange rates relates to transactions such as sales and purchases. We have significant amounts of sales of products invoiced in euro from our European manufacturing facilities to our other international operations. This exposes our subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures we enter into foreign exchange forward contracts and, on a small scale, foreign exchange options. Our policy, which has been consistently followed, is that foreign exchange rate derivatives be used only for purposes of hedging foreign currency exposures. We have not used such instruments for purposes other than hedging.
In connection with intercompany loans in foreign currency, we normally use foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans.
The Company is exposed to potential losses in the event of non-performance by counterparties to financial instruments. We do not expect any counterparty to fail to meet its obligations. The current credit exposure of foreign exchange derivatives is represented by the fair value of those contracts with a positive fair value at the reporting date. The table below provides information about our foreign exchange forward contracts at December 31, 2012. The information is provided in U.S. dollar equivalent amounts. The table presents the notional amounts by year of maturity, the fair values of the contracts, which show the unrealized net gain (loss) on existing contracts as of December 31, 2012, and the credit risk inherent to those contracts with positive market values as of December 31, 2012. All contracts expire within 35 months after the reporting date.
| T. 1.5.1 | Foreign currency risk management in \$ M, December 31 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Nominal amount | Fair | Credit | ||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | Total | value | risk | |
| Purchase of € against \$ | 316 | 9 | – | – | – | 325 | 5 | 7 |
| Sale of € against \$ | 553 | – | – | – | – | 553 | (9) | – |
| Purchase of € against others | 846 | 61 | 29 | – | – | 936 | 11 | 23 |
| Sale of € against others | 268 | 31 | 29 | – | – | 328 | (1) | 1 |
| Others | 41 | 3 | – | – | – | 44 | (1) | 1 |
| Total | 2,024 | 104 | 58 | – | – | 2,186 | 5 | 32 |
A summary of the high and low exchange rates for the euro to U.S. dollars and the average exchange rates for the last five years is set forth below. The European Central Bank (ECB) determines such rates (Reference Rates) based on the regular daily averaging of rates between central banks within and outside the European banking system. The ECB normally publishes the Reference Rates daily at 2:15 p.m. (CET). In preparing our consolidated financial statements and in converting certain U.S. dollar amounts in this report, we have used the Year's Average Reference Rate of \$1.2848 or Year's Close Reference Rate of \$1.3194 per €1.00.
| T. 1.5.2 | Exchange rates | |||
|---|---|---|---|---|
| \$ per € | ||||
| Year's high | Year's low | Year's average | Year's close | |
| 2012 | 1.3454 | 1.2089 | 1.2848 | 1.3194 |
| 2011 | 1.4882 | 1.2889 | 1.3920 | 1.2939 |
| 2010 | 1.4563 | 1.1942 | 1.3259 | 1.3362 |
| 2009 | 1.5120 | 1.2555 | 1.3948 | 1.4406 |
| 2008 | 1.5990 | 1.2460 | 1.4713 | 1.3917 |
The Reference Rate on February 19, 2013 was \$1.3349 per €1.00.
We use a Cash-Flow-at-Risk (CFaR) model in order to estimate and quantify transaction risks from foreign currencies. The basis for the analysis of the currency risk is the foreign currency cash flows that are reasonably expected to arise within the following twelve months, less any hedges. As of December 31, 2012, the Company's cash flow at risk amounts to \$39.7 M; this means the potential loss in relation to the forecasted foreign exchange cash flows of the next twelve months has a 95% probability of not being higher than \$39.7 M.
We are exposed to changes in interest rates that affect our variable-rate borrowings. We enter into debt obligations including accounts receivable securitizations to support our general corporate purposes such as capital expenditures and working capital needs. Consequently, we enter into derivatives, particularly interest rate swaps to protect interest rate exposures arising from borrowings at floating rates by effectively swapping them into fixed rates.
These interest rate derivatives are designated as cash flow hedges and have been entered into in order to effectively convert payments based on variable interest rates into payments at a fixed rate. The euro-denominated interest rate swaps expire in 2016 and have an interest rate of 1.73%.
As of December 31, 2012, the notional amount of euro-denominated interest rate swaps in place was €100 M (\$132 M). Interest payable and interest receivable under the swap agreements are accrued and recorded as an adjustment to interest expense at each reporting date. At December 31, 2012, the negative fair value of our interest rate agreements is \$6 M.
For purposes of analyzing the impact of changes in the relevant reference interest rates on the Company's results of operations, the Company calculates the portion of financial debt which bears variable interest 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 Company assumes an increase in the reference rates of 0.5% compared to the actual rates as of reporting date. The corresponding additional annual interest expense is then compared to the Company's net income. This analysis shows that an increase of 0.5% in the relevant reference rates would have an effect of approximately 1% on the consolidated net income of the Company.
The table below presents principal amounts and related weighted average interest rates by year of maturity for interest rate swaps and for our significant debt obligations.
| T. 1.5.3 | Interest rate exposure | |||||||
|---|---|---|---|---|---|---|---|---|
| in \$ M | ||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | Fair Value Dec. 31, 2012 |
|
| Floating rate \$ debt Principal payments |
||||||||
| on Senior Credit Agreement Variable interest rate = 2.35% |
100 | 200 | 200 | 200 | 1,959 | – | 2,659 | 2,653 |
| Accounts receivable securitization programs Variable interest rate = 0.75% |
– | – | – | 1621 | – | – | 162 | 162 |
| EIB loans Variable interest rate = 0.438% |
140 | – | – | – | – | – | 140 | 140 |
| Floating rate € debt | ||||||||
| Euro Notes 2009/2014 Variable interest rate = 5.898% |
5 | 30 | – | – | – | – | 35 | 36 |
| EIB loan Variable interest rate = 0.97% |
– | 185 | – | – | – | – | 185 | 185 |
| Senior Notes 2011/2016 Variable interest rate = 3.71% |
– | – | – | 132 | – | – | 132 | 136 |
| Fixed rate \$ debt | ||||||||
| Senior Notes 2007/2017 fixed interest rate = 6.875% |
– | – | – | – | 496 | – | 496 | 572 |
| Senior Notes 2011/2018 fixed interest rate = 6.50% |
– | – | – | – | – | 396 | 396 | 452 |
| Senior Notes 2011/2021 fixed interest rate = 5.75% |
– | – | – | – | – | 645 | 645 | 705 |
| Senior Notes 2012/2019 fixed interest rate = 5.625% |
– | – | – | – | – | 800 | 800 | 870 |
| Senior Notes 2012/2022 fixed interest rate = 5.875% |
– | – | – | – | – | 700 | 700 | 765 |
| Fixed rate € debt | ||||||||
| Euro Notes 2009/2014 Fixed interest rate = 8.3835% |
3 | 14 | – | – | – | – | 17 | 19 |
| Senior Notes 2010/2016 Fixed interest rate = 5.50% |
– | – | – | 327 | – | – | 327 | 369 |
| Senior Notes 2011/2018 Fixed interest rate = 6.50% |
– | – | – | – | – | 522 | 522 | 617 |
| Senior Notes 2011/2021 Fixed interest rate = 5.25% |
– | – | – | – | – | 396 | 396 | 442 |
| Senior Notes 2012/2019 Fixed interest rate = 5.25% |
– | – | – | – | – | 330 | 330 | 368 |
| Interest rate derivatives | ||||||||
| € Payer swaps notional amount | – | – | – | 132 | – | – | 132 | (6) |
| Average fixed pay rate = 1.73% | – | – | – | 1.73% | – | – | – | – |
| Receive rate = 3-month EURIBOR | – | – | – | – | – | – | – | – |
1 On January 17, 2013 the A/R Facility was renewed and extended until January 15, 2016.
All variable interest rates depicted above are as of December 31, 2012.
38
page 41 – 114
inCoMe page 41
2.4
C o n s o l i d at e d s t a t e M e n t s o F Cash Flows page 44 – 45
M a n a g e M e n t ' s a n n u a l r e p o r t o n i n t e r n a l C o n t r o l over FinanCial reporting
page 111
2.5
C o n s o l i d at e d s tat e M e n t o F share holders' equity page 46 – 47
2.2
C o n s o l i d at e d s tat e M e n t s o F CoMprehensive inCoMe page 42
2.8 r e p o r t o F i n d e p e n d e n t r e g i s t e r e d p u b l i C a C C o u n t i n g F i r M o n i n t e r n a l C o n t r o l o v e r FinanCial reporting page 112 – 113
n o t e s t o C o n s o l i d at e d FinanCial stateMents page 48 – 110
2.9 r e p o r t o F i n d e p e n d e n t r e g i s t e r e d p u b l i C
aCCounting FirM
page 114
| Consolidated Statements of Income T. 2.1.1 in \$ THOUS, except share data |
|||
|---|---|---|---|
| Note | 2012 | 2011 | |
| Net revenue | |||
| Dialysis care | 10,772,124 | 9,507,173 | |
| Less: patient service bad debt provision | 280,365 | 224,545 | |
| Net dialysis care | 10,491,759 | 9,282,628 | |
| Dialysis products | 3,308,523 | 3,287,887 | |
| Total | 23 | 13,800,282 | 12,570,515 |
| Costs of revenue | |||
| Dialysis care | 7,649,514 | 6,861,197 | |
| Dialysis products | 1,549,515 | 1,557,277 | |
| Total | 9,199,029 | 8,418,474 | |
| Gross profit | 4,601,253 | 4,152,041 | |
| Operating (income) expenses | |||
| Selling, general and administrative | 2,224,715 | 2,001,825 | |
| Gain on sale of dialysis clinics | 2 | (36,224) | (4,551) |
| Research and development | 111,631 | 110,834 | |
| Income from equity method investees | 23 | (17,442) | (30,959) |
| Other operating expenses | 4 | 100,000 | – |
| Operating income | 2,218,573 | 2,074,892 | |
| Other (income) expense | |||
| Investment gain | 2 | (139,600) | – |
| Interest income | (44,474) | (59,825) | |
| Interest expense | 470,534 | 356,358 | |
| Income before income taxes | 1,932,113 | 1,778,359 | |
| Income tax expense | 17 | 605,136 | 601,097 |
| Net income | 1,326,977 | 1,177,262 | |
| Less: net income attributable to noncontrolling interests | 140,168 | 106,108 | |
| Net income attributable to shareholders of FMC AG & Co. KGaA | 1,186,809 | 1,071,154 | |
| Basic income per ordinary share | 15 | 3.89 | 3.54 |
| Fully diluted income per ordinary share | 15 | 3.87 | 3.51 |
Chapter 2.2
Note 2012 2011 Net income 1,326,977 1,177,262 Gain (loss) related to cash flow hedges 20, 21 24,019 (102,446) Actuarial gains (losses) on defined benefit pension plans 21 (103,178) (81,906) Gain (loss) related to foreign currency translation 21 63,803 (181,234) Income tax (expense) benefit related to components of other comprehensive income 20, 21 8,831 72,617 Other comprehensive income (loss), net of tax 21 (6,525) (292,969) Total comprehensive income 1,320,452 884,293 Comprehensive income attributable to noncontrolling interests 139,989 104,861 Comprehensive income attributable to shareholders of FMC AG & Co. KGaA 1,180,463 779,432 T. 2.2.1 Consolidated Statements of Comprehensive Income in \$ THOUS
See accompanying notes to consolidated financial statements.
Chapter 2.3
| Consolidated Balance Sheets T. 2.3.1 in \$ THOUS, except share data, December 31 |
|||||
|---|---|---|---|---|---|
| Assets | Note | 2012 | 2011 | ||
| Current assets | |||||
| Cash and cash equivalents | 688,040 | 457,292 | |||
| Trade accounts receivable less allowance for doubtful accounts of \$328,893 in 2012 and \$299,751 in 2011 |
3,019,424 | 2,798,318 | |||
| Accounts receivable from related parties | 3 | 137,809 | 111,008 | ||
| Inventories | 4 | 1,036,809 | 967,496 | ||
| Prepaid expenses and other current assets | 5 | 937,761 | 1,035,366 | ||
| Deferred taxes | 17 | 307,613 | 325,539 | ||
| Total current assets | 6,127,456 | 5,695,019 | |||
| Property, plant and equipment, net | 6 | 2,940,603 | 2,629,701 | ||
| Intangible assets | 7 | 710,116 | 686,652 | ||
| Goodwill | 7 | 11,421,889 | 9,186,650 | ||
| Deferred taxes | 17 | 133,753 | 88,159 | ||
| Investment in equity method investees | 23 | 637,373 | 692,025 | ||
| Other assets and notes receivables | 354,808 | 554,644 | |||
| Total assets | 22,325,998 | 19,532,850 | |||
| Consolidated Balance Sheets T. 2.3.1 in \$ THOUS, except share data, December 31 |
||||||
|---|---|---|---|---|---|---|
| Liabilities and shareholders' equity | Note | 2012 | 2011 | |||
| Current liabilities | ||||||
| Accounts payable | 622,294 | 541,423 | ||||
| Accounts payable to related parties | 3 | 123,350 | 111,226 | |||
| Accrued expenses and other current liabilities | 8 | 1,787,471 | 1,704,273 | |||
| Short-term borrowings and other financial liabilities | 9 | 117,850 | 98,801 | |||
| Short-term borrowings from related parties | 9 | 3,973 | 28,013 | |||
| Current portion of long-term debt and capital lease obligations | 10 | 334,747 | 1,589,776 | |||
| Income tax payable | 150,003 | 162,354 | ||||
| Deferred taxes | 17 | 30,303 | 26,745 | |||
| Total current liabilities | 3,169,991 | 4,262,611 | ||||
| Long-term debt and capital lease obligations, less current portion | 10 | 7,841,914 | 5,494,810 | |||
| Other liabilities | 294,569 | 236,628 | ||||
| Pension liabilities | 11 | 423,361 | 290,493 | |||
| Income tax payable | 201,642 | 189,000 | ||||
| Deferred taxes | 17 | 664,001 | 587,800 | |||
| Total liabilities | 12,595,478 | 11,061,342 | ||||
| Noncontrolling interests subject to put provisions | 12 | 523,260 | 410,491 | |||
| Shareholders' equity | ||||||
| Preference shares, no par value, €1.00 nominal value, 7,066,522 shares authorized, 3,973,333 issued and outstanding |
13 | 4,462 | 4,452 | |||
| Ordinary shares, no par value, €1.00 nominal value, 385,396,450 shares authorized, 302,739,758 issued and outstanding |
13 | 374,915 | 371,649 | |||
| Additional paid-in capital | 13 | 3,491,581 | 3,362,633 | |||
| Retained earnings | 13 | 5,563,661 | 4,648,585 | |||
| Accumulated other comprehensive (loss) income | 21 | (492,113) | (485,767) | |||
| Total FMC AG & Co. KGaA shareholders' equity | 8,942,506 | 7,901,552 | ||||
| Noncontrolling interests not subject to put provisions | 264,754 | 159,465 | ||||
| Total equity | 9,207,260 | 8,061,017 | ||||
| Total liabilities and equity | 22,325,998 | 19,532,850 | ||||
| Consolidated Statements of Cash Flows T. 2.4.1 in \$ THOUS |
|||
|---|---|---|---|
| Note | 2012 | 2011 | |
| Operating activities | |||
| Net income | 1,326,977 | 1,177,262 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | 6, 7, 23 | 602,896 | 557,283 |
| Change in deferred taxes, net | 70,462 | 147,454 | |
| (Gain) loss on sale of investments | (36,224) | (7,679) | |
| (Gain) loss on sale of fixed assets | 6,700 | (1,306) | |
| Investment (gain) | 2 | (139,600) | – |
| Compensation expense related to stock options | 16 | 26,476 | 29,071 |
| Cash inflow (outflow) from hedging | (13,947) | (58,113) | |
| Investments in equity method investees, net | 22,512 | (30,959) | |
| Changes in assets and liabilities, net of amounts from businesses acquired: | |||
| Trade accounts receivable, net | (43,344) | (252,794) | |
| Inventories | (48,279) | (151,890) | |
| Prepaid expenses, other current and non-current assets | 93,121 | (119,131) | |
| Accounts receivable from related parties | (25,859) | (11,669) | |
| Accounts payable to related parties | 10,064 | (4,495) | |
| Accounts payable, accrued expenses and other current and non-current liabilities | 225,586 | 132,406 | |
| Income tax payable | (38,478) | 41,042 | |
| Net cash provided by (used in ) operating activities | 2,039,063 | 1,446,482 |
| Consolidated Statements of Cash Flows T. 2.4.1 in \$ THOUS |
|||
|---|---|---|---|
| Note | 2012 | 2011 | |
| Investing activities | |||
| Purchases of property, plant and equipment | 23 | (675,310) | (597,855) |
| Proceeds from sale of property, plant and equipment | 9,667 | 27,325 | |
| Acquisitions and investments, net of cash acquired, and purchases of intangible assets | 2,23 | (1,878,908) | (1,785,329) |
| Proceeds from divestitures | 263,306 | 9,990 | |
| Net cash provided by (used in) investing activities | (2,281,245) | (2,345,869) | |
| Financing activities | |||
| Proceeds from short-term borrowings and other financial liabilities | 174,391 | 189,987 | |
| Repayments of short-term borrowings and other financial liabilities | (163,059) | (248,821) | |
| Proceeds from short-term borrowings from related parties | 39,829 | 146,872 | |
| Repayments of short-term borrowings from related parties | (64,112) | (127,015) | |
| Proceeds from long-term debt and capital lease obligations (net of debt issuance costs and other hedging costs of \$178,593 in 2012, \$127,854 in 2011) |
4,750,730 | 2,706,105 | |
| Repayments of long-term debt and capital lease obligations | (3,589,013) | (957,235) | |
| Redemption of trust preferred securities | – | (653,760) | |
| Increase (decrease) of accounts receivable securitization program | (372,500) | 24,500 | |
| Proceeds from exercise of stock options | 121,126 | 94,893 | |
| Dividends paid | 13 | (271,733) | (280,649) |
| Distributions to noncontrolling interests | (195,023) | (129,542) | |
| Contributions from noncontrolling interests | 37,704 | 27,824 | |
| Net cash provided by (used in) financing activities | 468,340 | 793,159 | |
| Effect of exchange rate changes on cash and cash equivalents | 4,590 | 40,650 | |
| Cash and cash equivalents | |||
| Net increase (decrease) in cash and cash equivalents | 230,748 | (65,578) | |
| Cash and cash equivalents at beginning of period | 457,292 | 522,870 | |
| Cash and cash equivalents at end of period | 688,040 | 457,292 |
Chapter 2.5
| Consolidated Statement of Shareholders' Equity T. 2.5.1 in \$ THOUS, except share data |
||||||
|---|---|---|---|---|---|---|
| Preference shares | Ordinary shares | |||||
| Note | Number of shares |
No par value |
Number of shares |
No par value |
||
| Balance at December 31, 2010 | 3,957,168 | 4,440 | 298,279,001 | 369,002 | ||
| Proceeds from exercise of options and related tax effects |
16 | 8,523 | 12 | 1,885,921 | 2,647 | |
| Compensation expense related to stock options | 16 | – | – | – | – | |
| Dividends paid | 13 | – | – | – | – | |
| Purchase/sale of noncontrolling interests | 13 | – | – | – | – | |
| Contributions from/to noncontrolling interests | – | – | – | – | ||
| Changes in fair value of noncontrolling interests subject to put provisions |
12 | – | – | – | – | |
| Net income | – | – | – | – | ||
| Other comprehensive income (loss) | 21 | – | – | – | – | |
| Comprehensive income | – | – | – | – | ||
| Balance at December 31, 2011 | 3,965,691 | 4,452 | 300,164,922 | 371,649 | ||
| Proceeds from exercise of options and related tax effects |
16 | 7,642 | 10 | 2,574,836 | 3,266 | |
| Compensation expense related to stock options | 16 | – | – | – | – | |
| Dividends paid | 13 | – | – | – | – | |
| Purchase/sale of noncontrolling interests | 13 | – | – | – | – | |
| Contributions from/to noncontrolling interests | – | – | – | – | ||
| Changes in fair value of noncontrolling interests subject to put provisions |
12 | – | – | – | – | |
| Net income | – | – | – | – | ||
| Other comprehensive income (loss) | 21 | – | – | – | – | |
| Comprehensive income | – | – | – | – | ||
| Balance at December 31, 2012 | 3,973,333 | 4,462 | 302,739,758 | 374,915 |
| Consolidated Statement of Shareholders' Equity T. 2.5.1 |
|||||||
|---|---|---|---|---|---|---|---|
| Note | Additional paid in capital |
Retained earnings |
Accumu lated other compre hensive income (loss) |
Total FMC AG & Co. KGaA share holders' equity |
Noncon trolling interests not subject to put provisions |
Total Equity | |
| Balance at December 31, 2010 | 3,339,781 3,858,080 (194,045) 7,377,258 | 146,653 | 7,523,911 | ||||
| Proceeds from exercise of options and related tax effects |
16 | 85,887 | – | – | 88,546 | – | 88,546 |
| Compensation expense related to stock options | 16 | 29,071 | – | – | 29,071 | – | 29,071 |
| Dividends paid | 13 | – | (280,649) | – | (280,649) | – | (280,649) |
| Purchase/sale of noncontrolling interests | 13 | (5,873) | – | – | (5,873) | 9,662 | 3,789 |
| Contributions from/to noncontrolling interests | – | – | – | – | (59,066) | (59,066) | |
| Changes in fair value of noncontrolling interests subject to put provisions |
12 | (86,233) | – | – | (86,233) | – | (86,233) |
| Net income | – | 1,071,154 | – | 1,071,154 | 63,251 | 1,134,405 | |
| Other comprehensive income (loss) | 21 | – | – | (291,722) | (291,722) | (1,035) | (292,757) |
| Comprehensive income | – | – | – | 779,432 | 62,216 | 841,648 | |
| Balance at December 31, 2011 | 3,362,633 4,648,585 (485,767) 7,901,552 | 159,465 | 8,061,017 | ||||
| Proceeds from exercise of options and related tax effects |
16 | 110,510 | – | – | 113,786 | – | 113,786 |
| Compensation expense related to stock options | 16 | 26,476 | – | – | 26,476 | – | 26,476 |
| Dividends paid | 13 | – | (271,733) | – | (271,733) | – | (271,733) |
| Purchase/sale of noncontrolling interests | 13 | (26,918) | – | – | (26,918) | 86,705 | 59,787 |
| Contributions from/to noncontrolling interests | – | – | – | – | (26,428) | (26,428) | |
| Changes in fair value of noncontrolling interests subject to put provisions |
12 | 18,880 | – | – | 18,880 | – | 18,880 |
| Net income | – 1,186,809 | – 1,186,809 | 45,450 | 1,232,259 | |||
| Other comprehensive income (loss) | 21 | – | – | (6,346) | (6,346) | (438) | (6,784) |
| Comprehensive income | – | – | – 1,180,463 | 45,012 | 1,225,475 | ||
| Balance at December 31, 2012 | 3,491,581 5,563,661 (492,113) 8,942,506 | 264,754 | 9,207,260 |
Unless otherwise noted, numbers are stated in thousands, except share data.
Fresenius Medical Care AG& Co. KGaA ("FMC AG & CO. KGAA" or the "Company"), a German partnership limited by shares (Kommanditgesellschaft auf Aktien), is the world's largest kidney dialysis company, operating in both the field of dialysis care and the field of dialysis products for the treatment of end-stage renal disease (ESRD). The Company's dialysis business is vertically integrated, providing dialysis treatment at dialysis clinics it owns or operates and supplying these clinics with a broad range of products. In addition, the Company sells dialysis products to other dialysis service providers.
In these Notes, "FMC AG & CO. KGAA," or the "Company," "we," "us" or "our" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. The term "North America Segment" refers to the North America operating segment. The term "International Segment" refers to the combined International and Asia-Pacific operating segments.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain items in the prior years' comparative consolidated financial statements have been reclassified to conform to the current years' presentation. Revenues have been restated to reflect the retrospective adoption of Accounting Standards Update 2011-07, Health Care Entities. Specifically, bad debt expense in the amount of \$224,545 and \$209,296 was reclassified from selling general and administrative (SG & A) as a reduction of revenue for 2011 and 2010, respectively. In addition, freight expense in the amount of \$144,115 and \$100,363 was reclassified from SG & A to cost of revenue to harmonize the presentation for all segments for 2011 and 2010, respectively.
The consolidated financial statements include the earnings of all companies in which the Company has legal or effective control. In addition, the Company consolidates variable interest entities (VIEs) for which it is deemed the primary beneficiary. In accordance with current accounting principles, the Company also consolidates certain clinics that it manages and financially controls. The equity method of accounting is used for investments in associated companies over which the Company has significant exercisable influence, even when the Company holds 50% or less of the common stock of the company. Noncontrolling interests represent the proportionate equity interests of owners in the Company's consolidated entities that are not wholly owned. Noncontrolling interests of recently acquired entities are valuated at fair value. All significant intercompany transactions and balances have been eliminated.
The Company has 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 for their operations. Therefore, the Company has agreed to fund their operations through loans. The compensation for the funding can carry interest, exclusive product supply agreements, or entitle the Company to a pro rata share of
profits, if any. The Company 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 the Company has been determined to be the primary beneficiary and which therefore have been fully consolidated. In the North America Segment, the Company has consolidated four new VIEs as a result of the acquisition of Liberty Dialysis Holdings, LLC (LD Holdings) in 2012. In the International Segment, one entity has ceased to be a VIE due to a change in the ownership structure. They generated approximately \$194,278 and \$195,296 in revenue in 2012 and 2011, respectively. The Company provided funding to these VIEs through loans and accounts receivable of \$146,500 and \$147,900 in 2012 and 2011, respectively.
The table below shows the carrying amounts of the assets and liabilities of these VIEs at December 31, 2012 and 2011:
| Carrying amounts VIEs T. 2.6.1 |
||
|---|---|---|
| in \$ THOUS | ||
| 2012 | 2011 | |
| Trade accounts receivable, net | 85,458 | 73,172 |
| Other current assets | 58,329 | 65,576 |
| Property, plant and equipment, intangible assets & other non-current assets | 24,298 | 25,978 |
| Goodwill | 31,678 | 52,251 |
| Accounts payable, accrued expenses and other liabilities | 120,753 | 148,924 |
| Non-current loans to related parties | 12,998 | 13,000 |
| Equity | 66,013 | 55,053 |
Cash and cash equivalents comprise cash funds and all short-term, liquid investments with original maturities of up to three months.
Inventories are stated at the lower of cost (determined by using the average or first-in, first-out method) or market value see note 4. Costs included in inventories are based on invoiced costs and/or production costs or the marked to market valuation, as applicable. Included in production costs are material, direct labor and production overhead, including depreciation charges.
Property, plant, and equipment are stated at cost less accumulated depreciation see note 6. Significant improvements are capitalized; repairs and maintenance costs that do not extend the useful lives of the assets are charged to expense as incurred. Property and equipment under capital leases are stated at the present value of future minimum lease payments at the inception of the lease, less accumulated depreciation. 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 43 years for buildings and improvements with a weighted average life of 12 years and 3 to 15 years for machinery and equipment with a weighted average life of 10 years. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Internal use platform software that is integral to the computer equipment it supports is included in property, plant and equipment. The Company capitalizes interest on borrowed funds during construction periods. Interest capitalized during 2012 and 2011 was \$3,952 and \$3,784, respectively.
50
Intangible assets such as non-compete agreements, technology, distribution rights, patents, licenses to treat, licenses to manufacture, distribute and sell pharmaceutical drugs, exclusive contracts and exclusive licenses, trade names, management contracts, application software, acute care agreements, lease agreements, and licenses acquired in a business combination are recognized and reported apart from goodwill see note 7.
Goodwill and identifiable intangibles with indefinite useful lives are not amortized but tested for impairment annually or when an event becomes known that could trigger an impairment. The Company identified trade names and certain qualified management contracts as intangible assets with indefinite useful lives because, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which those assets are expected to generate net cash inflows for the Company. Intangible assets with finite useful lives are amortized over their respective useful lives to their residual values. The Company amortizes non-compete agreements over their useful life which in average is 8 years. Technology is amortized over its useful life of 15 years. Licenses to manufacture, distribute and sell pharmaceutical drugs, exclusive contracts and exclusive licenses are amortized over their useful life which in average is 10 years. All other intangible assets are amortized over their weighted average useful lives of 6 years. The weighted average useful life of all amortizable intangible assets is 9 years. Intangible assets with finite useful lives are evaluated for impairment when events have occurred that may give rise to an impairment.
To perform the annual impairment test of goodwill, the Company identified its reporting units and determined their carrying value by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. One reporting unit was identified in the North America Segment. The International operating segment is divided into two reporting units (Europe and Latin America), while only one reporting unit exists in the operating segment Asia-Pacific. For the purpose of goodwill impairment testing, all corporate assets are allocated to the reporting units.
In a first step, the Company compares the fair value of a reporting unit to its carrying amount. Fair value is determined using estimated future cash flows for the unit discounted by an after-tax weighted average cost of capital (WACC) specific to that reporting unit. Estimating the 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 Company utilizes for every reporting unit, its three-year budget, projections for years 4 to 10 and a representative growth rate for all remaining years. Projections for up to ten years are possible due to the stability of the Company's business which, results from the non-discretionary nature of the healthcare services we provide, the need for products utilized to provide such services and the availability of government reimbursement for a substantial portion of our services. The reporting
units' respective expected growth rates for the period beyond ten years are: North America 1%, Europe 0%, Latin America 4%, and Asia-Pacific 4%. The discount factor is determined by the WACC of the respective reporting unit. The Company's WACC consists of a basic rate of 5.79% for 2012. The basic rate is then adjusted by a country-specific risk rate and, if appropriate, by a factor to reflect higher risks associated with the cash flows from recent material acquisitions, until they are appropriately integrated, within each reporting unit. In 2012, WACCs for the reporting units ranged from 6.35% to 13.51%.
In the case that the fair value of the reporting unit is less than its carrying value, a second step would be performed which compares the fair value of the reporting unit's goodwill to the carrying value of its goodwill. If the fair value of the goodwill is less than the carrying value, the difference is recorded as an impairment.
To evaluate the recoverability of intangible assets with indefinite useful lives, the Company compares the fair values of intangible assets with their carrying values. An intangible asset's fair value is determined using a discounted cash flow approach or other methods, if appropriate.
Derivative financial instruments which primarily include foreign currency forward contracts and interest rate swaps are recognized as assets or liabilities at fair value in the balance sheet see note 20. Changes in the fair value of derivative financial instruments classified as fair value hedges and in the corresponding underlyings are recognized periodically in earnings, while the effective portion of changes in fair value of cash flow hedges is recognized in accumulated other comprehensive income (loss) in shareholders' equity. The ineffective portion is recognized in current net earnings. The change in fair value of derivatives that do not qualify for hedge accounting are recorded in the income statement and usually offset the changes in value recorded in the income statement for the underlying asset or liability.
For purposes of these consolidated financial statements, the U.S. dollar is the reporting currency. Substantially all assets and liabilities of the parent company and all non-U.S. subsidiaries are translated at year-end exchange rates, while revenues and expenses are translated at average exchange rates. Adjustments for 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 reported in accumulated other comprehensive income (loss).
52
Dialysis care revenues are recognized on the date the patient receives treatment and includes amounts related to certain services, products and supplies utilized in providing such treatment. The patient is obligated to pay for dialysis care services at amounts estimated to be receivable based upon the Company's standard rates or at rates determined under reimbursement arrangements. In the U.S., these arrangements are generally with third party payors, like Medicare, Medicaid or commercial insurers. Outside the U.S., the reimbursement is usually made through national or local government programs with reimbursement rates established by statute or regulation.
Dialysis product revenues are recognized upon transfer of title to the customer, either at the time of shipment, upon receipt or upon any other terms that clearly define passage of title. Product revenues are normally based upon pre-determined rates that are established by contractual arrangement.
For both Dialysis Care and Dialysis Products, patients, third party payors and customers are billed at our standard rates net of contractual allowances, discounts or rebates to reflect the estimated amounts to be receivable from these payors.
As of January 1, 2012, the Company adopted ASU 2011-07, Health Care Entities-Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts and as a result, services performed for patients where the collection of the billed amount or a portion of the billed amount cannot be determined at the time services are performed, the difference between the receivable recorded and the amount estimated to be collectible must be recorded as a provision and the expense is presented as a reduction of Dialysis Care revenues. The provision includes such items as amounts due from patients without adequate insurance coverage, and patient co-payment and deductible amounts due from patients with health care coverage. The Company bases the provision mainly on past collection history and reports it as "Patient service bad debt provision" on the Consolidated Statements of Income.
A minor portion of International Segment product revenues is generated from arrangements which give the customer, typically a healthcare provider, the right to use dialysis machines. In the same contract the customer agrees to purchase the related treatment disposables at a price marked up from the standard price list. In this type of contract, FMC AG & CO. KGAA does not recognize revenue upon delivery of the dialysis machine but recognizes revenue on the sale of disposables. In certain sales type leases, the contract is structured whereby ownership of the dialysis machine is transferred to the user upon installation of the dialysis machine at the customer site. In this type of contract, revenue is recognized in accordance with the accounting principles for sales type leases.
Any tax assessed by a governmental authority that is incurred as a result of a revenue transaction (e.g. sales tax) is excluded from revenues and the related revenue is reported on a net basis.
In North America for receivables generated from Dialysis Care, the accounting for the allowance for doubtful accounts is based on an analysis of collection experience and recognizing the differences between payors. The Company also performs an aging of accounts receivable which enables the review of each customer and their payment pattern. From time to time, accounts receivable are reviewed for changes from the historic collection experience to ensure the appropriateness of the allowances.
The allowance for doubtful accounts in the International Segment and the North America products business are estimates comprised of customer specific evaluations regarding their payment history, current financial stability, and applicable country specific risks for receivables that are overdue more than one year. The changes in the allowance for these receivables are recorded in Selling, general and administrative as an expense.
Research and development expenses are expensed as incurred.
Current taxes are calculated based on the profit (loss) of the fiscal year and in accordance with local tax rules of the respective tax jurisdiction. Expected and executed additional tax payments and tax refunds for prior years are also taken into account. Benefits from income tax positions have been recognized only when it was more likely than not that the Company would be entitled to the economic benefits of the tax positions. The more likely than not threshold has been determined based on the technical merits that the position will sustain upon examination. If a tax position is not considered more likely than not to be sustained based solely on its technical merits, no benefits are recognized.
The Company recognizes deferred tax assets and liabilities for future consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis as well as on consolidation procedures affecting net income, tax credits and tax loss carryforwards which are more likely than not to be utilized. Deferred tax assets and liabilities are measured using the respective countries enacted tax rates to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. In addition, the recognition of deferred tax assets considers the budget planning of the Company and implemented tax strategies. A valuation allowance is recorded to reduce the carrying amount of the deferred tax assets unless it is more likely than not that such assets will be realized see note 17.
It is the Company's policy to recognize interest and penalties related to its tax positions as income tax expense.
The Company reviews the carrying value of its long-lived assets or asset groups with definite useful lives to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying value of an asset to the future net cash flows directly associated with the asset. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value exceeds the fair value of the asset. The Company uses a discounted cash flow approach or other methods, if appropriate, to assess fair value.
54
Long-lived assets to be disposed of by sale are reported at the lower of carrying value or fair value less cost to sell and depreciation is ceased. Long-lived assets to be disposed of other than by sale are considered to be held and used until disposal.
For the Company's policy related to goodwill impairment, see 1e above.
Certain costs related to the issuance of debt are amortized over the term of the related obligation see note 10.
Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, the Company's largest subsidiary is partially self-insured for professional liability claims. For all other coverages, the Company 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 Company is engaged in the manufacture and sale of products for all forms of kidney dialysis, principally to healthcare providers throughout the world, and in providing kidney dialysis treatment, clinical laboratory testing, and other medical ancillary services. The Company performs ongoing evaluations of its customers' financial condition and, generally, requires no collateral.
Approximately 32% and 30% of the Company's worldwide revenues were earned and subject to regulations under Medicare and Medicaid, governmental healthcare programs administered by the United States government in 2012 and 2011, respectively.
No single debtor other than U.S. Medicaid and Medicare accounted for more than 5% of total trade accounts receivable in any of these years. Trade accounts receivable in the International Segment are for a large part due from government or government-sponsored organizations that are established in the various countries within which we operate. Amounts pending approval from third party payors represent less than 2% at December 31, 2012.
From time to time, during the ordinary course of the Company's operations, the Company is party to litigation and arbitration and is subject to investigations relating to various aspects of its business see note 19. The Company regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including the estimated legal expenses and consulting services in connection with these matters, as appropriate. The Company utilizes its internal legal department as well as external resources for these assessments. In making the decision regarding the need for loss accrual, the Company 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 assessment, or the disclosure of any such suit or assertion, does not necessarily indicate that accrual of a loss is appropriate.
Basic earnings per ordinary share for all years presented has been calculated using the two-class method based upon the weighted average number of ordinary and preference shares outstanding. Basic earnings per share is computed by dividing net income less preference amounts by the weighted average number of ordinary shares and preference shares outstanding during the year. Diluted earnings per ordinary share include the effect of all potentially dilutive instruments on ordinary shares and preference shares that would have been outstanding during the year.
The equity-settled awards granted under the Company's stock incentive plans see note 16, are potentially dilutive equity instruments.
The Company recognizes the underfunded status of its defined benefit plans, measured as the difference between the fair value of the plan assets and the present value of the benefit obligation, as a liability. Changes in the funded status of a plan resulting from actuarial gains or losses and prior service costs or credits that are not recognized as components of the net periodic benefit cost are recognized through accumulated other comprehensive income, net of tax, 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. The Company uses December 31 as the measurement date when measuring the funded status of all plans.
In the case of the Company's funded plan, the defined benefit obligation is offset against the fair value of plan assets. A pension liability is recognized in the balance sheet if the defined benefit obligation exceeds the fair value of plan assets. A pension asset is recognized (and reported under other assets in the balance sheet) if the fair value of plan assets exceeds the defined benefit obligation and if the Company has a right of reimbursement against the fund or a right to reduce future payments to the fund.
In July 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-07 (ASU 2011-07), Health Care Entities (Topic 954): 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 healthcare entity's net patient service revenue and the related allowance for doubtful accounts. The standard requires healthcare 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 which we presented as an operating expense before 2012 has been reclassified to a deduction from patient service revenue. Additionally, these healthcare entities are required to provide enhanced disclosures about their policies for recognizing revenue and assessing bad debts. The update also requires 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.
The amendments to the presentation of the provision for bad debts related to patient service revenue in the statement of operations has been applied retrospectively to all prior periods presented. The Company adopted the provisions of ASU 2011-07 as of January 1, 2012 and has restated the financial results of 2011 and 2010, accordingly.
In June 2011, the FASB issued Accounting Standard Update 2011-05 (ASU 2011-05), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. In December 2011 the FASB issued Accounting Standard Update 2011-12 (ASU 2011-12), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. FASB additionally issued Accounting Standard Update 2013-02 (ASU 2013-02) Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income in February 2013, which is effective for reporting periods beginning after December 15, 2012.
The requirements established in ASU 2011-05 obliges that all components of comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements. FASB's ASU 2013-02 will require the adjustments to the components of accumulated other comprehensive income and their related tax effects to be presented on the face of the statement in which the components of other comprehensive income are presented or in the notes to the financial statements remains for year-end disclosure.
The Company presents two separate but continuous statements of net income and comprehensive income and as such we are in compliance with presentation of Comprehensive Income (Topic 220): Presentation of Comprehensive Income and Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income. Additionally, the Company has early adopted ASU 2013-02 for the adjustments to the components and their tax effects see note 21.
On January 31, 2013, FASB issued Accounting Standards Update 2013-01 (ASU 2013-01) an update to Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The main purpose of ASU 2013-01 is to clarify the scope of balance sheet offsetting under Accounting Standard Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11) to include derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset or subject to master netting agreements. The disclosures required under ASU 2011-11 would apply to these transactions and other types of financial assets or liabilities will no longer be subject to ASU 2011-11. The update is effective for periods beginning on or after January 1, 2013. The Company is currently evaluating the impact of ASU 2011-11 on its consolidated financial statements.
On February 28, 2012, the Company acquired 100% of the equity of LD Holdings, the owner of Liberty Dialysis and owner of a 51% stake in Renal Advantage Partners, LLC (the "Liberty Acquisition"). The Company accounted for this transaction as a business combination, subject to finalization of the acquisition accounting which will be finalized during the first quarter of 2013. LD Holdings mainly provided dialysis care in the United States through the 263 clinics it owned (the "Acquired Clinics"). Part of the Company's stated strategy is to expand and complement its existing business through acquisitions. Generally, these acquisitions do not change the Company's business model and are easy to integrate without disruption to its existing business, requiring little or no realignment of its structures. The Liberty Acquisition is consistent in this regard as it involves the acquisition of dialysis clinics, a business in which the Company is already engaged and, therefore, merely supplements its existing business.
Total consideration for the Liberty Acquisition was \$2,181,358, consisting of \$1,696,659 cash, net of cash acquired and \$484,699 non-cash consideration. Accounting standards for business combinations require previously held equity interests to be fair valued with the difference to book value to be recognized as a gain or loss in income. Prior to the Liberty Acquisition, the Company had a 49% equity investment in Renal Advantage Partners, LLC, the fair value of which, \$201,915, is included as non-cash consideration. The Company has determined the estimated fair value based on the discounted cash flow method, utilizing an approximately 13% discount rate. In addition to the Company's investment, it also had a loan receivable from Renal Advantage Partners, LLC of \$279,793, at a fair value of \$282,784, which was retired as part of the transaction.
The following table summarizes the estimated fair values as of the date of acquisition based upon information available, as of December 31, 2012, of assets acquired and liabilities assumed at the date of the acquisition. Any adjustments to acquisition accounting, net of related income tax effects, will be recorded with a corresponding adjustment to goodwill:
| Estimated fair values of assets acquired T. 2.6.2 and liabilities assumed – preliminary in \$ THOUS |
|
|---|---|
| Assets held for sale | 164,068 |
| Trade accounts receivable | 156,443 |
| Other current assets | 20,488 |
| Deferred tax assets | 14,932 |
| Property, plant and equipment | 167,360 |
| Intangible assets and other assets | 84,056 |
| Goodwill | 1,999,862 |
| Accounts payable, accrued expenses and other current liabilities | (116,153) |
| Income tax payable and deferred taxes | (42,697) |
| Short-term borrowings, other financial liabilities, long-term debt and capital lease obligations | (72,101) |
| Other liabilities | (29,800) |
| Noncontrolling interests (subject and not subject to put provisions) | (165,100) |
| Total acquisition cost | 2,181,358 |
| Less non-cash contributions at fair value: | |
| Investment at acquisition date | (201,915) |
| Long-term notes receivable | (282,784) |
| Total non-cash items | (484,699) |
| Net cash paid | 1,696,659 |
As of December 31, 2012, it is estimated that amortizable intangible assets acquired in this acquisition will have weighted average useful lives of 6-8 years.
Goodwill, in the amount of \$1,999,862 was acquired as part of the Liberty Acquisition and is allocated to the North America Segment. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill arises principally due to the fair value placed on acquiring an established stream of future cash flows versus building a similar franchise. Of the goodwill recognized in this acquisition, approximately \$436,000 is expected to be deductible for tax purposes and amortized over a 15 year period.
The noncontrolling interests acquired as part of the acquisition are stated at estimated fair value, subject to finalization of the acquisition accounting, based upon utilized implied multiples used in conjunction with the Liberty Acquisition, as well as the Company's overall experience and contractual multiples typical for such arrangements.
LD Holdings' results have been included in the Company's Consolidated Statements of Income since February 29, 2012. Specifically, LD Holdings has contributed revenue and operating income in the amount of \$713,774 and \$182,188, respectively, to the Company's consolidated income. This amount for operating income does not include synergies which may have resulted at consolidated entities outside LD Holdings since the acquisition closed. In addition, the Company's results include those of divested FMC AG & CO. KGAA clinics prior to their divestiture.
The fair valuation of the Company's 49% equity investment in Renal Advantage Partners, LLC at the time of the Liberty Acquisition resulted in a non-taxable gain of \$139,600 and is presented in the separate line item "Investment Gain" in the Consolidated Statements of Income. The retirement of the loan receivable resulted in a gain of \$8,501 which was recognized in interest income.
In connection with the Federal Trade Commission's consent order relating to the Liberty Acquisition, the Company agreed to divest a total of 62 renal dialysis centers. During the year ended December 31, 2012, 24 of the 61 clinics sold were FMC AG & CO. KGAA clinics, which resulted in a \$33,455 gain.
For the year ended December 31, 2012, the income tax expense related to the sale of these clinics of approximately \$20,804 has been recorded in the line item "Income tax expense," resulting in a net gain of approximately \$12,651. The after-tax gain was offset by the after-tax effects of the costs associated with the Liberty Acquisition.
The following financial information, on a pro forma basis, reflects the consolidated results of operations as if the Liberty Acquisition and the divestitures described above had been consummated on January 1, 2011. The pro forma information includes adjustments primarily for elimination of the investment gain and the gain from the retirement of debt. The pro-forma financial information is not necessarily indicative of the results of operations as it would have been had the transactions been consummated on January 1, 2011.
| Pro forma financial information T. 2.6.3 in \$ THOUS, except share data |
||||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
| Net revenue | 13,900,540 | 13,215,111 | ||||
| Net income attributable to the shareholders of FMC AG & Co. KGaA | 1,054,872 | 1,077,218 | ||||
| Income per ordinary share: | ||||||
| Basic | 3.46 | 3.56 | ||||
| Fully diluted | 3.44 | 3.53 | ||||
60
The Company's parent, Fresenius SE & Co. KGaA, is a German partnership limited by shares resulting from the change of legal form effective January 28, 2011, of Fresenius SE, a European Company (Societas Europaea), and which, prior to July 13, 2007, was called Fresenius AG, a German stock corporation. In these Consolidated Financial Statements, Fresenius SE refers to that company as a partnership limited by shares, effective on and after January 28, 2011, as well as both before and after the conversion of Fresenius AG from a stock corporation into a European Company. Fresenius SE owns 100% of the share capital of Fresenius Medical Care Management AG, the Company's general partner (General Partner). From November 16, 2011 until February 29, 2012, Fresenius SE purchased 3.5 M ordinary shares of FMC AG & CO. KGAA in market transactions. Fresenius SE, the Company's largest shareholder, owns approximately 31.2% of the Company's voting shares as of December 31, 2012.
The Company is party to service agreements with Fresenius SE and certain of its affiliates (collectively the "Fresenius SE Companies") to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, information technology services, tax services and treasury management services. During 2012 and 2011, amounts charged by Fresenius SE to the Company under the terms of these agreements were \$80,778 and \$75,969, respectively. The Company also provides certain services to the Fresenius SE Companies, including research and development, central purchasing and warehousing. The Company charged \$5,810 and \$6,555 for services rendered to the Fresenius SE Companies during 2012 and 2011, respectively.
Under real estate operating lease agreements entered into with the Fresenius SE Companies, which are leases for the corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany, the Company paid the Fresenius SE Companies \$25,179 and \$25,833 during 2012 and 2011, respectively. The majority of the leases expire in 2016 and contain renewal options.
The Company's Articles of Association provide that the General Partner shall be reimbursed for any and all expenses in connection with management of the Company's business, including remuneration of the members of the General Partner's supervisory board and the General Partner's management board. The aggregate amount reimbursed to the General Partner was \$18,995 and \$13,511, respectively, for its management services during 2012 and 2011 and included \$94 and \$84, respectively, as compensation for their exposure to risk as general partner. The Company's Articles of Association set the annual compensation for assuming unlimited liability at 4% of the amount of the General Partner's share capital, which increased by €1,500 to €3,000 on October 10, 2012.
During 2012 and 2011 the Company sold products to the Fresenius SE Companies for \$22,098 and \$20,220, respectively. During the same periods, the Company made purchases from the Fresenius SE Companies in the amount of \$46,072 and \$52,587, respectively.
In addition to the purchases noted above, the Company currently purchases heparin supplied by Fresenius Kabi USA, Inc. (Kabi USA), through an independent group purchasing organization (GPO). Kabi USA is whollyowned by Fresenius Kabi AG, a wholly-owned subsidiary of Fresenius SE. The Company has no direct supply agreement with Kabi USA and does not submit purchase orders directly to Kabi USA. During 2012 and 2011, Fresenius Medical Care Holdings, Inc. (FMCH) acquired approximately \$14,136 and \$24,106, respectively, of heparin from Kabi USA through the GPO contract, which was negotiated by the GPO at arm's length on behalf of all members of the GPO.
As of December 31, 2012, the Company provided a loan to Fresenius SE of €20,900 (\$27,575 as of December 31, 2012) at an interest rate of 1.484%, due and paid on January 11, 2013.
As of December 31, 2012, the Company had loans of CNY 362,425 (\$58,168 as of December 31, 2012) outstanding with a subsidiary of Fresenius SE at a weighted average interest rate of 6.115%, with the majority of the loans due on May 23, 2014.
The Company, at December 31, 2012, had a receivable from Fresenius SE in the amount of €4,721 (\$6,227 as of December 31, 2012) resulting from being a party to a German trade tax group agreement with Fresenius SE for the fiscal years 1997-2001.
On August 19, 2009, the Company borrowed €1,500 (\$1,979 as of December 31, 2012) from the General Partner at 1.335%. The loan repayment has been extended periodically and is currently due August 20, 2013 at an interest rate of 2.132%.
The Company performs clinical studies for certain of its joint ventures for which services the Company received approximately \$7,432 and \$9,355 in 2012 and 2011, respectively.
The Chairman of the Company's Supervisory Board is also the Chairman of the Supervisory Board of Fresenius SE and of the general partner of Fresenius SE. He is also a member of the Supervisory Board of the Company's General Partner.
The Vice Chairman of the Company's Supervisory Board is a member of the Supervisory Board of the general partner of Fresenius SE and Vice Chairman of the Supervisory Board of the Company's General Partner. He is also Chairman of the Advisory Board of a charitable foundation that is the sole shareholder of the general partner of Fresenius SE. He is also a partner in a law firm which provided services to the Company and certain of its subsidiaries. During 2012, the Company and its subsidiaries paid or processed for payment, approximately \$1,797 for services performed during the period October 1, 2011 through September 30, 2012. During 2011, the Company and its subsidiaries paid approximately \$1,930 for services performed during the period October 1, 2010 through September 30, 2011. Five of the six members of the Company's Supervisory Board, including the Chairman and Vice Chairman, are also members of the Supervisory Board of the Company's General Partner.
The Chairman of the Supervisory Board of the Company's general partner is also the Chairman of the Management Board of the general partner of Fresenius SE, and the Chairman and Chief Executive Officer of the Management Board of the Company's general partner is a member of the Management Board of the general partner of Fresenius SE.
62
As of December 31, 2012 and December 31, 2011, inventories consisted of the following:
| Inventories T. 2.6.4 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Finished goods | 627,338 | 610,569 |
| Raw materials and purchased components | 171,373 | 163,030 |
| Health care supplies | 154,840 | 133,769 |
| Work in process | 83,258 | 60,128 |
| Total | 1,036,809 | 967,496 |
Under the terms of certain unconditional purchase agreements, including the Venofer license, distribution, manufacturing and supply agreement (the "Venofer Agreement") with Luitpold Pharmaceuticals, Inc. and American Regent, Inc., the Company is obligated to purchase approximately \$465,348 of materials, of which \$316,954 is committed at December 31, 2012 for 2013. The terms of these agreements run 1 to 9 years. In the fourth quarter of 2012, the Company amended the Venofer Agreement which resulted in a decrease of the 2013 purchase commitment of \$91,764 and in 2014 and thereafter, the Company is required to determine their minimum purchase requirements for the subsequent year on a yearly basis. The Company incurred an other operating expense of \$100,000 related to this contract amendment.
Healthcare supplies inventories as of December 31, 2012 and 2011 include \$29,704 and \$47,654, respectively, of Erythropoietin (EPO). On January 1, 2012, the Company entered into a three-year sourcing and supply agreement with its EPO supplier.
As of December 31, 2012 and 2011, prepaid expenses and other current assets consisted of the following:
| Prepaid expenses and other current assets T. 2.6.5 in \$ THOUS |
||||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
| Taxes Refundable | 149,536 | 180,721 | ||||
| Receivables for supplier rebates | 61,248 | 185,152 | ||||
| Prepaid licence fees | 47,137 | 45,184 | ||||
| Leases receivable | 46,198 | 38,175 | ||||
| Prepaid rent | 44,894 | 39,468 | ||||
| Payments on account | 35,660 | 40,476 | ||||
| Derivatives | 31,235 | 60,877 | ||||
| Prepaid insurance | 24,803 | 14,163 | ||||
| Deposit/Guarantee/Security | 20,903 | 16,538 | ||||
| Other | 476,147 | 414,612 | ||||
| Total prepaid expenses and other current assets | 937,761 | 1,035,366 |
The other item in the table above includes other current receivables from Medicare and Medicaid, amounts due from managed locations and other deferred charges.
As of December 31, 2012 and 2011, property, plant and equipment consisted of the following:
| Acquisition or manufacturing costs T. 2.6.6 in \$ THOUS |
|||||||
|---|---|---|---|---|---|---|---|
| Jan. 1, 2012 |
Currency change |
Changes in consolida tion group |
Additions | Reclassi fications |
Disposals | Dec. 31, 2012 |
|
| Land and improvements | 53,147 | (805) | 132 | 516 | 2,280 | (495) | 54,775 |
| Buildings and improvements | 1,975,839 | 9,532 | 87,310 | 29,806 | 176,025 | (21,510) 2,257,002 | |
| Machinery and equipment | 3,060,132 | 28,648 | 85,645 | 387,290 | 89,285 | (180,028) 3,470,972 | |
| Machinery, equipment and rental equipment under capitalized leases |
36,450 | (301) | – | 1,424 | 593 | (1,850) | 36,316 |
| Construction in progress | 275,006 | 3,440 | 1,886 | 241,594 | (256,366) | (9,159) | 256,401 |
| Property, plant and equipment |
5,400,574 | 40,514 | 174,973 | 660,630 | 11,817 | (213,042) 6,075,466 |
| T. 2.6.7 | Depreciation | ||||||
|---|---|---|---|---|---|---|---|
| in \$ THOUS | |||||||
| Jan. 1, 2012 |
Currency change |
Changes in consolida tion group |
Additions | Reclassi fications |
Disposals | Dec. 31, 2012 |
|
| Land and improvements | 284 | (62) | – | – | 801 | 412 | 1,435 |
| Buildings and improvements | 976,082 | 3,289 | 327 | 169,654 | 6,674 | (20,388) 1,135,638 | |
| Machinery and equipment | 1,777,544 | 17,652 | (2,666) | 342,632 | 5,158 | (161,574) 1,978,746 | |
| Machinery, equipment and rental equipment under capitalized leases |
16,947 | (357) | – | 3,169 | 881 | (1,613) | 19,027 |
| Construction in progress | 16 | 1 | – | – | – | – | 17 |
| Property, plant and | |||||||
| equipment | 2,770,873 | 20,523 | (2,339) | 515,455 | 13,514 | (183,163) 3,134,863 |
| Net book value T. 2.6.8 in \$ THOUS, December 31 |
||
|---|---|---|
| 2012 | 2011 | |
| Land and improvements | 53,340 | 52,863 |
| Buildings and improvements | 1,121,364 | 999,757 |
| Machinery and equipment | 1,492,226 | 1,282,588 |
| Machinery, equipment and rental equipment under capitalized leases | 17,289 | 19,503 |
| Construction in progress | 256,384 | 274,990 |
| Property, plant and equipment | 2,940,603 | 2,629,701 |
Depreciation expense for property, plant and equipment amounted to \$515,455 and \$479,438 for the years ended December 31, 2012 and 2011, respectively.
Included in machinery and equipment as of December 31, 2012 and 2011 were \$532,088 and \$451,299, respectively, of peritoneal dialysis cycler machines which the Company leases to customers with end-stage renal disease on a month-to-month basis and hemodialysis machines which the Company leases to physicians under operating leases.
Accumulated depreciation related to machinery, equipment and rental equipment under capital leases was \$19,027 and \$16,947 at December 31, 2012 and 2011, respectively.
As of December 31, 2012 and 2011, the carrying value and accumulated amortization of intangible assets other than goodwill consisted of the following:
| T. 2.6.9 | Acquisition costs in \$ THOUS |
||||||
|---|---|---|---|---|---|---|---|
| Amortizable intangible assets | Jan. 1, 2012 |
Currency change |
Changes in consolida tion group |
Additions | Reclassi fications |
Disposals | Dec. 31, 2012 |
| Non-compete agreements | 257,466 | 423 | 58,872 | 319 | – | – | 317,080 |
| Technology | 110,866 | – | – | – | (3,170) | – | 107,696 |
| Licences and distribution agreements |
223,828 | 4,595 | – | 386 | – | (3,416) | 225,393 |
| Construction in progress | 58,661 | 345 | – | 17,662 | (18,991) | – | 57,677 |
| Self-developed software | 55,600 | 78 | 1,308 | 1,810 | 20,010 | (6,478) | 72,328 |
| Other | 317,579 | 4,581 | 13,384 | 8,891 | 3,929 | (4,497) | 343,867 |
| Total | 1,024,000 | 10,022 | 73,564 | 29,068 | 1,778 | (14,391) | 1,124,041 |
| Non-amortizable intangible assets |
|||||||
| Tradename | 240,942 | 77 | – | – | – | – | 241,019 |
| Management contracts | 8,342 | 152 | – | – | – | (151) | 8,343 |
| Total | 249,284 | 229 | – | – | – | (151) | 249,362 |
| Intangible assets | 1,273,284 | 10,251 | 73,564 | 29,068 | 1,778 | (14,542) | 1,373,403 |
| Goodwill | 9,632,655 | 42,368 2,192,066 | 1,210 | 1,000 | – 11,869,299 |
66
| Amortization T. 2.6.10 in \$ THOUS |
|||||||
|---|---|---|---|---|---|---|---|
| Amortizable intangible assets | Jan. 1, 2012 |
Currency change |
Changes in consolida tion group |
Additions | Reclassi fications |
Disposals | Dec. 31, 2012 |
| Non-compete agreements | 186,659 | 180 | (1,268) | 28,096 | – | (28) | 213,639 |
| Technology | 32,582 | – | – | 7,705 | 562 | – | 40,849 |
| Licences and distribution agreements |
80,622 | 1,822 | – | 19,630 | 99 | (3,416) | 98,757 |
| Construction in progress | – | – | – | – | – | – | – |
| Self-developed software | 28,193 | (42) | – | 10,947 | (138) | (6,464) | 32,496 |
| Other | 227,274 | 1,866 | (46) | 21,063 | (442) | (3,476) | 246,239 |
| Total | 555,330 | 3,826 | (1,314) | 87,441 | 81 | (13,384) | 631,980 |
| Non-amortizable intangible assets |
|||||||
| Tradename | 31,302 | 5 | – | – | – | – | 31,307 |
| Management contracts | – | – | – | – | – | – | – |
| Total | 31,302 | 5 | – | – | – | – | 31,307 |
| Intangible assets | 586,632 | 3,831 | (1,314) | 87,441 | 81 | (13,384) | 663,287 |
| Goodwill | 446,005 | 416 | (11) | – | 1,000 | – | 447,410 |
| Net book value T. 2.6.11 in \$ THOUS, December 31 |
||
|---|---|---|
| 2012 | 2011 | |
| Amortizable intangible assets | ||
| Non-compete agreements | 103,441 | 70,807 |
| Technology | 66,847 | 78,284 |
| Licences and distribution agreements | 126,636 | 143,206 |
| Construction in progress | 57,677 | 58,661 |
| Self-developed software | 39,832 | 27,407 |
| Other | 97,628 | 90,305 |
| Total | 492,061 | 468,670 |
| Non-amortizable intangible assets | ||
| Tradename | 209,712 | 209,640 |
| Management contracts | 8,343 | 8,342 |
| Total | 218,055 | 217,982 |
| Intangible assets | 710,116 | 686,652 |
| Goodwill | 11,421,889 | 9,186,650 |
The amortization on intangible assets amounted to \$87,441 and \$77,845 for the years 2012 and 2011, respectively. The table shows the estimated amortization expense of these assets for the following five years:
| T. 2.6.12 | |||||||
|---|---|---|---|---|---|---|---|
| Estimated amortization expense | |||||||
| in \$ THOUS | |||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | |||
| Estimated amortization expense | 83,685 | 79,719 | 77,507 | 75,567 | 71,060 | ||
68
In 2012 and 2011, goodwill related to general manufacturing operations was reclassified from the North America and International Segments to Corporate see note 23. For the purpose of goodwill impairment testing, all corporate assets are allocated to the reporting units see note 1 f.
Changes in the carrying amount of goodwill are mainly a result of acquisitions and the impact of foreign currency translations. During 2012 and 2011, the Company's acquisitions consisted primarily of the 2012 acquisition of LD Holdings as well as the acquisition of clinics in the normal course of operations. The segment detail is as follows:
| Goodwill T. 2.6.13 in \$ THOUS |
||||||
|---|---|---|---|---|---|---|
| North America | International | Segment Total | Corporate | Total | ||
| Balance as of January 1, 2011 | 7,024,745 | 955,774 | 7,980,519 | 159,949 | 8,140,468 | |
| Goodwill acquired, net of divestitures | 517,213 | 626,863 | 1,144,076 | – | 1,144,076 | |
| Reclassifications | (226,900) | (20,449) | (247,349) | 247,480 | 131 | |
| Foreign currency translation adjustment | (436) | (98,099) | (98,535) | 510 | (98,025) | |
| Balance as of December 31, 2011 | 7,314,622 | 1,464,089 | 8,778,711 | 407,939 | 9,186,650 | |
| Goodwill acquired, net of divestitures | 2,172,181 | 21,106 | 2,193,287 | – | 2,193,287 | |
| Reclassifications | – | (5,188) | (5,188) | 5,188 | – | |
| Foreign currency translation adjustment | 210 | 41,352 | 41,562 | 390 | 41,952 | |
| Balance as of December 31, 2012 | 9,487,013 | 1,521,359 | 11,008,372 | 413,517 | 11,421,889 |
At December 31, 2012 and 2011, accrued expenses and other current liabilities consisted of the following:
| Accrued expenses and other current liablilities T. 2.6.14 in \$ THOUS |
|||||
|---|---|---|---|---|---|
| 2012 | 2011 | ||||
| Accrued salaries, wages and incentive plan compensations | 481,920 | 420,613 | |||
| Unapplied cash and receivable credits | 198,834 | 158,006 | |||
| Accrued insurance | 187,254 | 162,149 | |||
| Special charge for legal matters | 115,000 | 115,000 | |||
| Accrued interest | 111,532 | 74,821 | |||
| Withholding tax and VAT | 96,157 | 79,764 | |||
| Accrued operating expenses | 91,529 | 71,324 | |||
| Derivative financial instruments | 26,578 | 192,729 | |||
| Other | 478,667 | 429,867 | |||
| Total | 1,787,471 | 1,704,273 |
In 2001, the Company recorded a \$258,159 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 SE (the "Merger"), estimated liabilities and legal expenses arising in connection with the W.R.Grace & Co. Chapter 11 proceedings (the "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 the Company, the committees representing the asbestos creditors and W.R.Grace & Co. Under the settlement agreement, the Company will pay \$115,000, without interest, upon plan confirmation see note 19. With the exception of the proposed \$115,000 payment under the Settlement Agreement, all other matters included in the special charge have been resolved.
The other item in the table 2.6.14 includes accruals for legal and compliance costs, physician compensation, commissions, short-term portion of pension liabilities, bonuses and rebates, and accrued rents.
As of December 31, 2012 and December 31, 2011, short-term borrowings, other financial liabilities and shortterm borrowings from related parties consisted of the following:
| Short-term borrowings T. 2.6.15 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Borrowings under lines of credit | 117,850 | 91,899 |
| Other financial liabilities | – | 6,902 |
| Short-term borrowings and other financial liabilities | 117,850 | 98,801 |
| Short-term borrowings from related parties see note 3c | 3,973 | 28,013 |
| Short-term borrowings, other financial liabilities and short-term borrowings from related parties |
121,823 | 126,814 |
Short-term borrowings of \$117,850 and \$91,899 at December 31, 2012 and 2011, respectively, represented amounts borrowed by the Company's subsidiaries under lines of credit with commercial banks. The average interest rates on these borrowings at December 31, 2012 and 2011 were 4.93% and 4.88%, respectively.
Excluding amounts available under the 2012 Credit Agreement see note 10, at December 31, 2012 and 2011, the Company had \$261,825 and \$234,005 available under other commercial bank agreements. In some instances, lines of credit are secured by assets of the Company's subsidiary that is party to the agreement or may require the Company's guarantee. In certain circumstances, the subsidiary may be required to meet certain covenants.
70
At December 31, 2012 and 2011, the Company had \$0 and \$6,902 of other financial liabilities which were mainly related the signing of a 2008 licensing and distribution agreement.
From time to time during each of the years presented, the Company received advances under the existing loan agreements with Fresenius SE for those years. During the year ended December 31, 2012, the Company received advances ranging from €8,300 to €196,400 with interest rates ranging from 1.365% to 1.838%. During the year ended December 31, 2011, the Company received advances ranging from €17,900 to €181,900 with interest rates ranging from 1.832% to 2.683%. For further information on short-term borrowings from related party outstanding as of December 31, 2012 and 2011, see note 3 c. Annual interest expense on these borrowings during the years presented was \$1,458 and \$2,362 for the years 2012 and 2011, respectively.
As of December 31, 2012 and December 31, 2011, long-term debt and capital lease obligations consisted of the following:
| Long-term debt and capital lease obligations T. 2.6.16 in \$ THOUS |
|||||
|---|---|---|---|---|---|
| 2012 | 2011 | ||||
| 2012 Credit Agreement and Amended 2006 Senior Credit Agreement | 2,659,340 | 2,795,589 | |||
| Senior Notes | 4,743,442 | 2,883,009 | |||
| Euro Notes | 51,951 | 258,780 | |||
| European Investment Bank Agreements | 324,334 | 345,764 | |||
| Accounts receivable facility | 162,000 | 534,500 | |||
| Capital lease obligations | 15,618 | 17,993 | |||
| Other1 | 219,976 | 248,951 | |||
| 8,176,661 | 7,084,586 | ||||
| Less current maturities | (334,747) | (1,589,776) | |||
| Total | 7,841,914 | 5,494,810 |
1 As of December 31, 2012 this amount includes the non-current portion of a loan from a Fresenius SE subsidiary of \$56,174 which is due on May 23, 2014.
On October 30, 2012, \$2,109,166 was reclassified from Current portion of long-term debt to Long-term debt as a result of entering into the new 2012 Credit Agreement.
The Company's long-term debt consists mainly of borrowings related to its 2012 Credit Agreement, its Senior Notes, its Euro Notes, borrowings under its European Investment Bank Agreements, borrowings under its accounts receivable facility (A/R Facility) and certain other borrowings as follows:
The Company entered into a new \$3,850,000 syndicated credit facility (the 2012 Credit Agreement) with a large group of banks and institutional investors (collectively, the Lenders) on October 30, 2012 which replaced its Amended 2006 Senior Credit Agreement.
The new credit facility consists of:
a 5-year revolving credit facility of approximately \$1,250,000 comprising a \$400,000 multicurrency revolving facility, a \$200,000 revolving facility and a €500,000 revolving facility which will be due and payable on October 30, 2017.
a 5-year term loan facility of \$2,600,000, also scheduled to mature on October 30, 2017. The 2012 Credit Agreement requires 17 quarterly payments of \$50,000 each, beginning in the third quarter of 2013 that permanently reduce the term loan facility. The remaining balance is due on October 30, 2017.
Interest on the new credit facilities will be, at the Company's option, at a rate equal to either (i) LIBOR or EURIBOR (as applicable) plus an applicable margin or (ii) the Base Rate as defined in the 2012 Credit Agreement plus an applicable margin. As of December 31, 2012, the tranches outstanding under the 2012 Credit Agreement had a weighted average interest rate of 2.35%.
The applicable margin is variable and depends on the Company's Consolidated Leverage Ratio which is a ratio of its Consolidated Funded Debt less cash and cash equivalents held by the Consolidated Group to Consolidated EBITDA (as these terms are defined in the 2012 Credit Agreement).
In addition to scheduled principal payments, indebtedness outstanding under the 2012 Credit Agreement will be reduced by portions of the net cash proceeds received from certain sales of assets and the issuance of certain additional debt.
Obligations under the 2012 Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the Lenders.
The 2012 Credit Agreement contains affirmative and negative covenants with respect to the Company and its subsidiaries and other payment restrictions. Certain of the covenants limit indebtedness of the Company and investments by the Company, and require the Company to maintain certain financial ratios defined in the agreement. Additionally, the 2012 Credit Agreement provides for a limitation on dividends and other restricted payments which is €300,000 (\$395,820 based upon the December 31, 2012 spot rate) for dividends to be paid in 2013, and increases in subsequent years. In default, the outstanding balance under the 2012 Credit Agreement becomes immediately due and payable at the option of the Lenders. The Company was in compliance with all covenants at December 31, 2012.
The Company incurred fees of approximately \$27,193 in conjunction with the 2012 Credit Agreement. Certain fees related to the Amended 2006 Senior Credit Agreement of approximately \$4,482 are also applicable to the 2012 Credit Agreement. These fees and the \$22,361 of newly incurred fees will be amortized over the life of the 2012 Credit Agreement.
The following table shows the available and outstanding amounts under the 2012 Credit Agreement at December 31, 2012 and the Amended 2006 Senior Credit Agreement at December 31, 2011:
T. 2.6.17 2012 Credit Agreement and Amended 2006 Senior Credit Agreement
| in THOUS | |||||
|---|---|---|---|---|---|
| Maximum amount | Balance outstanding | ||||
| 2012 Credit Agreement | 20121 | 20121 | |||
| Revolving credit U.S.-Dollar | \$600,000 | \$600,000 | \$59,340 | \$59,340 | |
| Revolving credit Euro | €500,000 | \$659,700 | – | – | |
| Term Loan A | \$2,600,000 | \$2,600,000 | \$2,600,000 | \$2,600,000 | |
| Total | \$3,859,700 | \$2,659,340 | |||
| Maximum amount | Balance outstanding | ||||
| Amended 2006 Senior Credit Agreement | 2011 | 2011 | |||
| Revolving credit | \$1,200,000 | \$58,970 | |||
| Term Loan A | \$1,215,000 | \$1,215,000 | |||
| Term Loan B | \$1,521,619 | \$1,521,619 | |||
| Total | \$3,936,619 | \$2,795,589 |
1 These amounts represent the maximum amount available under the 2012 Credit Agreement, which replaced the Amended 2006 Senior Credit Agreement on October 30, 2012. The 2012 Credit Agreement utilizes different tranches than the previous agreement and, as such, the tables are presented separately for increased clarity.
In addition, at December 31, 2012 and December 31, 2011, the Company had letters of credit outstanding in the amount of \$77,188 and \$180,766, respectively, which are not included above as part of the balance outstanding at those dates but which reduce available borrowings under the respective revolving credit facility.
As of December 31, 2012, the Company's Senior Notes consisted of the following:
| T. 2.6.18 | Senior Notes | ||||
|---|---|---|---|---|---|
| in THOUS, except nominal amounts, in \$ | |||||
| Notional amount |
Maturity | Coupon | Book value | ||
| Issuer/ Transaction | |||||
| FMC Finance VI S.A. 2010/2016 | € | 250,000 | July 15, 2016 | 5.50% | 327,420 |
| FMC Finance VIII S.A. 2011/20161 | € | 100,000 | October 15, 2016 | 3.71% | 131,940 |
| FMC US Finance, Inc. 2007/2017 | \$ | 500,000 | July 15, 2017 | 6 ⅞ % | 496,006 |
| FMC Finance VIII S.A. 2011/2018 | € | 400,000 | September 15, 2018 | 6.50% | 521,834 |
| FMC US Finance II, Inc. 2011/2018 | \$ | 400,000 | September 15, 2018 | 6.50% | 395,511 |
| FMC US Finance II, Inc. 2012/2019 | \$ | 800,000 | July 31, 2019 | 5.625% | 800,000 |
| FMC Finance VIII S.A. 2012/2019 | € | 250,000 | July 31, 2019 | 5.25% | 329,850 |
| FMC US Finance, Inc. 2011/2021 | \$ | 650,000 | February 15, 2021 | 5.75% | 645,061 |
| FMC Finance VII S.A. 2011/2021 | € | 300,000 | February 15, 2021 | 5.25% | 395,820 |
| FMC US Finance II, Inc. 2012/2022 | \$ | 700,000 | January 31, 2022 | 5.875% | 700,000 |
| Total | 4,743,442 |
1 This note carries a variable interest rate which was 3.71% at December 31, 2012.
In January 2012, \$800,000 and \$700,000 of dollar-denominated senior notes and €250,000 (\$328,625 at date of issuance) of euro-denominated notes were issued at par. Both the \$800,000 Senior Notes and the Eurodenominated Senior Notes are due July 31, 2019 while the \$700,000 Senior Notes are due January 31, 2022. The proceeds were used for acquisitions and for general corporate purposes.
In October 2011, €100,000 (\$137,760 at date of issuance) of floating rate senior notes were issued at par. These floating rate senior notes are due October 15, 2016. Proceeds were used for acquisitions, to refinance indebtedness outstanding under the Amended 2006 Senior Credit Agreement and for general corporate purposes.
In September 2011, \$400,000 of dollar-denominated senior notes and €400,000 (\$549,160 at date of issuance) of euro-denominated senior notes were issued at an issue price of 98.623%. Both the dollar- and euro-denominated senior notes have a coupon of 6.50% and a yield to maturity of 6.75% and mature on September 15, 2018. Proceeds were used for acquisitions, to refinance indebtedness outstanding under the revolving credit facility of the Amended 2006 Senior Credit Agreement and under the A /R Facility, and for general corporate purposes.
In June 2011, Fresenius Medical Care US Finance, Inc. acquired substantially all of the assets of FMC Finance III S.A. (FMC Finance III) and assumed the obligations of FMC Finance III under its \$500,000 6 7/8% Senior Notes due 2017 (the 6 7/8% Senior Notes) and the related indenture. The guarantees of the Company and its subsidiaries, FMCH and Fresenius Medical Care Deutschland GmbH (D-GmbH), (together, the Guarantor Subsidiaries) for the 6 7/8% Senior Notes have not been amended and remain in full force and effect. The 6 7/8% Notes were issued in July 2007 with a coupon of 6 7/8% at a discount, resulting in an effective interest rate of 7 1/8%.
In February 2011, \$650,000 of dollar-denominated senior notes and €300,000 (\$412,350 at date of issuance) of euro-denominated senior notes were issued with coupons of 5.75% and 5.25%, respectively, at an issue price of 99.060% and par, respectively. The dollar-denominated senior notes had a yield to maturity of 5.875%. Both the dollar- and euro-denominated senior notes mature on February 15, 2021. Proceeds were used to repay indebtedness outstanding under the A/R Facility and the revolving credit facility of the Amended 2006 Senior Credit Agreement, for acquisitions and for general corporate purposes to support the Company's renal dialysis products and services businesses.
In January 2010, €250,000 (\$353,300 at date of issuance) of senior notes was issued with a coupon of 5.50% at an issue price of 98.6636%. These senior notes had a yield to maturity of 5.75% and are due July 15, 2016. Proceeds were used to repay short-term indebtedness and for general corporate purposes.
All Senior Notes are unsecured and guaranteed on a senior basis jointly and severally by the Company and the Guarantor Subsidiaries. The issuers may redeem the Senior Notes (except for the Floating Rate Senior Notes) at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the indenture. 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 ratings of the respective Senior Notes.
The Company has agreed to a number of covenants to provide protection to the holders which, under certain circumstances, limit the ability of the Company and its subsidiaries to, among other things, incur debt, incur liens, engage in sale-leaseback transactions and merge or consolidate with other companies or sell assets. As of December 31, 2012, the Company was in compliance with all of its covenants under the Senior Notes.
74
In April 2009, the Company issued euro-denominated notes (Euro Notes) totaling €200,000, which are senior, unsecured and guaranteed by FMCH and D-GmbH, which originally consisted of 4 tranches having terms of 3.5 and 5.5 years with floating and fixed interest rate tranches. As of December 31, 2012, the Company was in compliance with all of its covenants under the Euro Notes. As of December 31, 2012, the Euro Notes had an outstanding balance of €39,375 (\$51,951).
The Company entered into various credit agreements with the European Investment Bank (EIB) in 2005, 2006 and 2009. The EIB is a not-for-profit long-term lending institution of the European Union and lends funds at favourable rates for the purpose of capital investment and R & D projects, normally for up to half of the funds required for such projects.
Borrowings under the four EIB credit facilities available at December 31, 2012 and 2011 are shown below:
| EIB credit facilities T. 2.6.19 in \$ THOUS |
||
|---|---|---|
| Balance outstanding | ||
| Maturity 2012 |
2011 | |
| Revolving credit | 2013 90,812 |
115,812 |
| Loan 2005 | 2013 48,806 |
48,806 |
| Loan 2006 | 2014 118,746 |
116,451 |
| Loan 2009 | 2014 65,970 |
64,695 |
| Total | 324,334 | 345,764 |
While the EIB agreements were granted in euro, advances under the Revolving Credit, Loan 2005 and Loan 2006 could be denominated in certain foreign currencies, including U.S. dollars. As a result, the borrowings under the Revolving Credit and Loan 2005 have been drawn down in U.S. dollars, while the borrowings under Loan 2006 and Loan 2009 have been drawn down in euro. As of December 31, 2012, all credit facilities are fully utilized.
In 2013, both the Revolving Credit and Loan 2005 will mature. The outstanding balances have been reclassified to Current portion of long-term debt and capital lease obligations.
All agreements with the EIB have variable interest rates that change quarterly. The Company's U.S. dollar borrowings had an interest rate of 0.438% and the euro borrowings had interest rates of 0.171% and 2.40% at December 31, 2012 and the dollar borrowings had an interest rate of 0.676% and the euro borrowings had interest rates of 1.565% and 3.666% at December 31, 2011.
Borrowings under the 2005 and 2006 agreements are secured by bank guarantees while the 2009 agreement is guaranteed by FMCH and D-GmbH. All EIB agreements have customary covenants. As of December 31, 2012, the Company was in compliance with the respective covenants.
The Company refinanced the A/R Facility on January 17, 2013 for a term expiring on January 15, 2016 with the available borrowings at \$800,000. At December 31, 2012 there are outstanding borrowings under the A /R Facility of \$162,000.
Under the A/R Facility, certain receivables are sold to NMC Funding Corporation (NMC Funding), a whollyowned subsidiary. NMC Funding then assigns percentage ownership interests in the accounts receivable to certain bank investors. Under the terms of the A/R 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 Company's Consolidated Balance Sheet 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 2012 was 1.697%. Refinancing fees, which include legal costs and bank fees, are amortized over the term of the facility.
At December 31, 2012 and 2011, in conjunction with certain acquisitions and investments, the Company had pending payments of the purchase considerations totaling approximately \$142,229 and \$228,398, respectively, of which \$75,266 and \$103,828, respectively, was classified as the current portion of long-term debt.
Aggregate annual payments applicable to the 2012 Credit Agreement, Senior Notes, Euro Notes, EIB agreements, capital leases, the A/R Facility and other borrowings for the five years subsequent to December 31, 2012 are:
| T. 2.6.20 | Annual payments | ||||||
|---|---|---|---|---|---|---|---|
| in \$ THOUS | |||||||
| 2013 | 2014 | 2015 | 20161 | 2017 | Thereafter | Total | |
| Annual | |||||||
| payments | 334,747 | 529,065 | 232,378 | 828,523 | 2,461,714 | 3,812,012 | 8,198,439 |
1 The Company refinanced the A/R facility, which was set to mature on July 31, 2014, on January 17, 2013. The payments related to this facility will mature on January 15, 2016.
76
FMC AG & CO. KGAA recognizes pension costs and related pension liabilities for current and future benefits to qualified current and former employees of the Company. The Company's pension plans are structured differently according to the legal, economic and fiscal circumstances in each country. The Company 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 Company is required to pay defined benefits to former employees when the defined benefits become due. Defined benefit plans may be funded or unfunded. The Company has two major defined benefit plans, one funded plan in North America and an unfunded plan in Germany.
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 the Company'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. The company's pension liability is impacted by these actuarial gains or losses.
Under defined contribution plans, the Company 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 Company to the employee. The employee retains all rights to the contributions made by the employee and to the vested portion of the Company paid contributions upon leaving the Company. The Company has a defined contribution plan in North America.
During the first quarter of 2002, FMCH, the Company's North America subsidiary, curtailed its defined benefit and supplemental executive retirement 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.
The Company has retained all employee benefit obligations as of the curtailment date. Each year FMCH contributes at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In 2012, FMCH's minimum funding requirement was \$6,200. In addition to the compulsory contributions, the Company voluntarily provided \$4,604 to the defined benefit plan. Expected funding for 2013 is \$10,307.
The benefit obligation for all defined benefit plans at December 31, 2012, is \$655,447 (2011: \$512,745) which consists of the gross benefit obligation of \$423,509 (2011: \$352,296) for the North America plan, which is funded by plan assets, and the benefit obligation of \$231,938 (2011: \$160,449) for the German unfunded plan.
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 the Company's funded benefit plan.
| Funded status of employee benefit plans T. 2.6.21 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Change in benefit obligation | ||
| Benefit obligation at beginning of year | 512,745 | 425,472 |
| Foreign currency translation | 4,955 | (6,207) |
| Service cost | 10,704 | 10,625 |
| Interest cost | 26,194 | 24,822 |
| Transfer of plan participants | (68) | 61 |
| Actuarial (gain) loss | 122,800 | 69,769 |
| Benefits paid | (21,883) | (11,797) |
| Benefit obligation at end of year | 655,447 | 512,745 |
| Change in plan assets | ||
| Fair value of plan assets at beginning of year | 218,990 | 232,325 |
| Actual return on plan assets | 18,356 | (4,174) |
| Employer contributions | 10,804 | 556 |
| Benefits paid | (19,757) | (9,717) |
| Fair value of plan assets at end of year | 228,393 | 218,990 |
| Funded status at end of year | 427,054 | 293,755 |
The Company had a pension liability of \$427,054 and \$293,755 at December 31, 2012 and 2011, respectively. The pension liability consists of a current portion of \$3,693 (2011: \$3,262) which is recognized as a current liability in the line item "accrued expenses and other current liabilities" in the balance sheet. The non-current portion of \$423,361 (2011: \$290,493) is recorded as non-current pension liability in the balance sheet. Approximately 83% of the beneficiaries are located in North America with the majority of the remaining 17% located in Germany.
The accumulated benefit obligation for all defined benefit pension plans was \$616,572 and \$486,143 at December 31, 2012 and 2011, respectively. The accumulated benefit obligation for all defined benefit pension plans with an obligation in excess of plan assets was \$616,572 and \$486,143 at December 31, 2012 and 2011, respectively; the related plan assets had a fair value of \$228,393 and \$218,990 at December 31, 2012 and 2011, respectively.
78
The table below reflects pre-tax effects of actuarial losses (gains) in other comprehensive income relating to pension liabilities. As of December 31, 2012, there are no cumulative effects of prior service costs included in other comprehensive income.
| Other comprehensive income (loss) T. 2.6.22 related to pension liabilities in \$ THOUS |
|
|---|---|
| Actuarial losses (gains) |
|
| Adjustments related to pensions at January 1, 2011 | 102,872 |
| Actuarial (gain) loss for the year | 91,693 |
| Amortization of unrealized losses | (8,737) |
| Foreign currency translation adjustment | (1,050) |
| Adjustments related to pensions at December 31, 2011 | 184,778 |
| Actuarial (gain) loss for the year | 119,685 |
| Amortization of unrealized losses | (18,334) |
| Foreign currency translation adjustment | 1,827 |
| Adjustments related to pensions at December 31, 2012 | 287,956 |
The actuarial loss expected to be amortized from other comprehensive income into net periodic pension cost over the next year is \$25,646.
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. The Company's discount rate is the weighted average of these plans based upon their benefit obligations at December 31, 2012. The following weighted-average assumptions were utilized in determining benefit obligations as of December 31:
| T. 2.6.23 | Weighted-average assumptions for benefit obligations | ||
|---|---|---|---|
| in % | |||
| 2012 | 2011 | ||
| Discount rate | 4.14 | 5.10 | |
| Rate of compensation increase | 3.32 | 3.69 | |
The defined benefit pension plans' net periodic benefit costs are comprised of the following components for each of the years ended December 31:
| T. 2.6.24 | Components of net periodic benefit cost in \$ THOUS |
||
|---|---|---|---|
| 2012 | 2011 | ||
| Service cost | 10,704 | 10,625 | |
| Interest cost | 26,194 | 24,822 | |
| Expected return on plan assets | (15,241) | (17,750) | |
| Amortization of unrealized losses | 18,334 | 8,737 | |
| Net periodic benefit costs | 39,991 | 26,434 |
Net periodic benefit cost is allocated as personnel expense within costs of revenues, selling, general and administrative expense or research and development expense. This is depending 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:
| Weighted-average assumptions for net periodic benefit costs T. 2.6.25 |
||
|---|---|---|
| in % | ||
| 2012 | 2011 | |
| Discount rate | 5.10 | 5.70 |
| Expected return of plan assets | 7.00 | 7.50 |
| Rate of compensation increase | 3.69 | 4.00 |
Expected benefit payments for the next five years and in the aggregate for the five years thereafter are as follows:
| T. 2.6.26 | Expected benefit payments | |||||
|---|---|---|---|---|---|---|
| in \$ THOUS | ||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 – 2022 | |
| Expected benefit payments | 15,817 | 17,320 | 18,909 | 20,723 | 22,690 | 143,456 |
The following table presents the fair values of the Company´s pension plan assets at December 31, 2012 and 2011:
| in \$ THOUS | ||
|---|---|---|
| Quoted prices in active markets for identical assets |
Significant observable inputs |
|
| (Level 1) | (Level 2) | |
| – | 58,511 | |
| 8,504 | 1,355 | |
| – | 152,332 | |
| – | 457 | |
| 2,975 | – | |
| 4,259 | – | |
| 15,738 | 212,655 | |
| Quoted prices in active markets for identical assets |
Significant observable inputs |
|
| (Level 1) | (Level 2) | |
| – | 55,538 | |
| 1,587 | ||
| 143,782 | ||
| – | 483 | |
| 6,600 | – | |
| 5,975 | – | |
| 218,990 | 17,600 | 201,390 |
| Plan assets | Fair value measurements at Dec. 31, 2012 Total 58,511 9,859 152,332 457 2,975 4,259 228,393 Fair value measurements at Dec. 31, 2011 Total 55,538 6,612 5,025 143,782 – 483 6,600 5,975 |
1 This category comprises low-cost equity index funds not actively managed that track the S&P 500, S&P 400, Russell 2000, MSCI Emerging Markets Index and the Morgan Stanley International EAFE Index.
2 This Category comprises fixed income investments by the U.S. government and government sponsored entities.
4 This Category comprises privat placement bonds as well as collateralized mortgage obligations.
5 This Category represents funds that invest in treasury obligations directly or in treasury backed obligations.
6 This Category represents cash, money market funds as well as mutual funds comprised of high grade corporate bonds.
3 This Category primarily represents investment grade bonds of U.S. issuers from diverse industries.
The methods and inputs used to measure the fair value of plan assets are as follows:
For the North America funded plan, the Company periodically reviews the assumption 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 Company's expected rate of return on pension plan assets was 7.00% for 2012.
The Company´s overall investment strategy is to achieve a mix of approximately 96% of investments for longterm growth and 4% for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers.
The investment policy, utilizing a revised target investment allocation of 35% equity and 65% long-term U.S. bonds, considers that there will be a time horizon for invested funds of more than 5 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 the Company 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 US Treasury Strip Index.
Most FMCH employees are eligible to join a 401(k) savings plan. Employees can deposit up to 75% of their pay up to a maximum of \$16.5 if under 50 years old (\$22 if 50 or over) under this savings plan. The Company will match 50% of the employee deposit up to a maximum Company contribution of 3% of the employee's pay. The Company's total expense under this defined contribution plan for the years ended December 31, 2012 and 2011, was \$38,582 and \$33,741, respectively.
The Company 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 Company would be required to purchase all or part of third-party owners' noncontrolling interests at the appraised fair value at the time of exercise. The methodology the Company 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 our current estimates depending upon market conditions.
As of December 31, 2012 and December 31, 2011 the Company's potential obligations under these put options were \$523,260 and \$410,491, respectively, of which, at December 31, 2012, \$228,408 were exercisable. In the last three fiscal years ending December 31, 2012, two such put provisions have been exercised for a total consideration of \$3,185.
Following is a roll forward of noncontrolling interests subject to put provisions for the years ended December 31, 2012 and 2011:
| Noncontrolling interests subject to put provisions T. 2.6.28 in \$ THOUS |
||||
|---|---|---|---|---|
| 2012 | 2011 | |||
| Beginning balance as of January 1 | 410,491 | 279,709 | ||
| Contributions to noncontrolling interests | (114,536) | (43,104) | ||
| Purchase/sale of noncontrolling interests | 134,643 | 37,786 | ||
| Contributions from noncontrolling interests | 16,565 | 7,222 | ||
| Changes in fair value of noncontrolling interests | (18,880) | 86,233 | ||
| Net income | 94,718 | 42,857 | ||
| Other comprehensive income (loss) | 259 | (212) | ||
| Ending balance as of December 31 | 523,260 | 410,491 |
The General Partner has no equity interest in the Company and, therefore, does not participate in either the assets or the profits and losses of the Company. However, the General Partner is compensated for all outlays in connection with conducting the Company's business, including the remuneration of members of the management board and the supervisory board see note 3.
The general meeting of a partnership limited by shares may approve Authorized Capital (genehmigtes Kapital). The resolution creating Authorized Capital requires the affirmative vote of a majority of three quarters of the capital represented at the vote and may authorize the management board to issue shares up to a stated amount for a period of up to five years. The nominal value of the Authorized Capital may not exceed half of the issued capital stock at the time of the authorization.
In addition, the general meeting of a partnership limited by shares may create Conditional Capital (bedingtes Kapital) for the purpose of issuing (i) shares to holders of convertible bonds or other securities which grant a right to shares, (ii) shares as the consideration in a merger with another company, or (iii) shares offered to management or employees. In each case, the authorizing resolution requires the affirmative vote of a majority of three quarters of the capital represented at the vote. The nominal value of the Conditional Capital may not exceed half or, in the case of Conditional Capital created for the purpose of issuing shares to management and employees, 10% of the Company's issued capital at the time of the resolution.
All resolutions increasing the capital of a partnership limited by shares also require the consent of the General Partner for their effectiveness.
By resolution of the Annual General Meeting (AGM) of shareholders on May 11, 2010, the General Partner was authorized, with the approval of the supervisory board, to increase, on one or more occasions, the Company's share capital until May 10, 2015 up to a total of €35,000 through issue of new bearer ordinary shares for cash contributions, "Authorized Capital 2010/I". Additionally, the newly issued shares may be taken up by financial institutions nominated by the General Partner with the obligation to offer them to the shareholders of the Company (indirect pre-emption rights). The General Partner is entitled, subject to the approval of the supervisory board, to exclude the pre-emption rights of the shareholders. However, such an exclusion of pre-emption rights will be permissible for fractional amounts. No Authorized Capital 2010/I has been issued as of December 31, 2012.
In addition, by resolution of the AGM of shareholders on May 11, 2010, the General Partner was authorized, with the approval of the supervisory board, to increase, on one or more occasions, the share capital of the Company until May 10, 2015 up to a total of €25,000 through the issue of new bearer ordinary shares for cash contributions or contributions in kind, "Authorized Capital 2010/II". The General Partner is entitled, subject to the approval of the supervisory board, to exclude the pre-emption rights of the shareholders. However, such exclusion of pre-emption rights will be permissible only if (i) in case of a capital increase against cash contributions, the nominal value of the issued shares does not exceed 10% of the nominal share value of the Company's share capital and the issue price for the new shares is at the time of the determination by the General Partner not significantly lower than the stock price in Germany of the existing listed shares of the same class and with the same rights or, (ii) in case of a capital increase against contributions in kind, the purpose of such increase is to acquire an enterprise, parts of an enterprise or an interest in an enterprise. No Authorized Capital 2010/II has been issued as of December 31, 2012.
Authorized Capital 2010/I and Authorized Capital 2010/II became effective upon registration with the commercial register of the local court in Hof an der Saale on May 25, 2010.
84
By resolution of the Company's AGM on May 12, 2011, the Company's share capital was conditionally increased with regards to the 2011 Stock Option Plan (2011 SOP) by up to €12,000 subject to the issue of up to 12 M non-par value bearer ordinary shares with a nominal value of €1.00 each. For further information, see note 16.
By resolution of the Company's AGM on May 9, 2006, as amended by the AGM on May 15, 2007, resolving a three-for-one share split, the Company's share capital was conditionally increased by up to €15,000 corresponding to 15 M ordinary shares with no par value and a nominal value of €1.00. This Conditional Capital increase can only be effected by the exercise of stock options under the Company's Stock Option Plan 2006 with each stock option awarded exercisable for one ordinary share see note 16. The Company has the right to deliver ordinary shares that it owns or purchases in the market in place of increasing capital by issuing new shares.
Through the Company's other employee participation programs, the Company has issued convertible bonds and stock option/subscription rights (Bezugsrechte) to employees and the members of the Management Board of the General Partner and employees and members of management of affiliated companies that entitle these persons to receive preference shares or, following the conversion offer in 2005, ordinary shares. At December 31, 2012, 37,656 convertible bonds or options for preference shares remained outstanding with a remaining average term of 1.89 years and 11,146,766 convertible bonds or options for ordinary shares remained outstanding with a remaining average term of 4.65 years under these programs. For the year ending December 31, 2012, 7,642 options for preference shares and 2,574,836 options for ordinary shares had been exercised under these employee participation plans see note 16.
As the result of the Company's three-for-one stock split for both preference and ordinary shares on June 15, 2007, and with the approval of the shareholders at the AGM on May 15, 2007, the Company's Conditional Capital was increased by \$6,557 (€4,454). Conditional Capital available for all programs at December 31, 2012 is \$33,974 (€25,750) which includes \$15,833 (€12,000) for the 2011 SOP, \$12,568 (€9,525) for the 2006 Plan and \$5,574 (€4,225) for the 2001 Plan.
Under German law, the amount of dividends available for distribution to shareholders is based upon the unconsolidated retained earnings of Fresenius Medical Care AG& Co. KGaA as reported in its balance sheet determined in accordance with the German Commercial Code (Handelsgesetzbuch).
If no dividends on the Company's preference shares are declared for two consecutive years after the year for which the preference shares are entitled to dividends, then the holders of such preference shares would be entitled to the same voting rights as holders of ordinary shares until all arrearages are paid. In addition, the payment of dividends by FMC AG & CO. KGAA is subject to limitations under the 2012 Credit Agreement see note 10.
Cash dividends of \$271,733 for 2011 in the amount of €0.71 per preference share and €0.69 per ordinary share were paid on May 11, 2012.
Cash dividends of \$280,649 for 2010 in the amount of €0.67 per preference share and €0.65 per ordinary share were paid on May 13, 2011.
Below is a table showing the sources of our U.S. patient service revenue (net of contractual allowance and discounts but before patient service bad debt provision), included in the Company's dialysis care revenue, for the years ended December 31, 2012 and 2011. Outside of the U.S., the Company does not recognize patient service revenue at the time the services are rendered without assessing the patient's ability to pay. Accordingly, the additional disclosure requirements introduced with ASU 2011-07 only apply to the U.S. patient service revenue.
| U.S. patient service revenue T. 2.6.29 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Medicare ESRD program | 4,029,773 | 3,391,339 |
| Private/alternative payors | 3,605,081 | 3,139,468 |
| Medicaid and other government sources | 474,520 | 429,010 |
| Hospitals | 400,791 | 377,316 |
| Total patient service revenue | 8,510,165 | 7,337,133 |
The following table contains reconciliations of the numerators and denominators of the basic and diluted earnings per ordinary share computations for 2012 and 2011:
| Reconciliation of basic and diluted earnings per share T. 2.6.30 in \$ THOUS, except per share data |
||
|---|---|---|
| 2012 | 2011 | |
| Numerators | ||
| Net income attributable to shareholders of FMC AG & Co. KGaA | 1,186,809 | 1,071,154 |
| Less: dividend preference on preference shares | 102 | 110 |
| Income available to all classes of shares | 1,186,707 | 1,071,044 |
| Denominators Weighted average number of: |
||
| Ordinary shares outstanding | 301,139,652 | 299,012,744 |
| Preference shares outstanding | 3,969,307 | 3,961,617 |
| Total weighted average shares outstanding | 305,108,959 | 302,974,361 |
| Potentially dilutive ordinary shares | 1,761,064 | 1,795,743 |
| Potentially dilutive preference shares | 16,851 | 20,184 |
| Total weighted average ordinary shares outstanding assuming dilution | 302,900,716 | 300,808,487 |
| Total weighted average preference shares outstanding assuming dilution | 3,986,158 | 3,981,801 |
| Basic income per ordinary share | 3.89 | 3.54 |
| Fully diluted income per ordinary share | 3.87 | 3.51 |
86
In connection with its equity-settled stock option programs, the Company incurred compensation expense of \$26,476 and \$29,071 for the years ending December 31, 2012 and 2011, respectively. There were no capitalized compensation costs in any of the two years presented. The Company also recorded a related deferred income tax of \$6,854 and \$8,195 for the years ending December 31, 2012 and 2011, respectively.
At December 31, 2012, the Company has awards outstanding under various stock-based compensation plans.
On May 12, 2011, the Fresenius Medical Care AG& Co. KGaA Stock Option Plan 2011 (2011 SOP) was established by resolution of the Company's AGM. The 2011 SOP, together with the Phantom Stock Plan 2011, which was established by resolution of the General Partner's Management and Supervisory Boards, forms the Company'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 the Company's AGM and with respect to the grants made in December, on the first Monday in October. The awards under the 2011 Incentive Program are subject to a four-year vesting period. The vesting of the awards granted is subject to achievement of performance targets. The 2011 Incentive Program was established with a conditional capital increase up to €12,000 subject to the issue of up to 12 M non-par value bearer ordinary shares with a nominal value of €1.00, each of which can be exercised to obtain one ordinary share.
Members of the Management Board of the General Partner, members of the management boards of the Company's affiliated companies and the managerial staff members of the Company and of certain affiliated companies are entitled to participate in the 2011 Incentive Program. With respect to participants who are members of the General Partner's Management Board, the General Partner'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). The General Partner has such authority with respect to all other participants in the 2011 Incentive Program.
The exercise price of stock options granted under the 2011 Incentive Program shall be the average stock exchange price on the Frankfurt Stock Exchange of the Company'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 US 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 the Company 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 the Company's ordinary shares on the exercise date. Phantom stock have a five-year 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.
During 2012, under the Long Term Incentive Program 2011, the Company awarded 2,166,035 stock options, including 310,005 stock options granted to members of the Management Board of Fresenius Medical Care Management AG (Management Board), the Company's general partner, at an average exercise price of \$75.41 (€57.15), an average fair value of \$15.48 each and a total fair value of \$33,538 which will be amortized over the four-year vesting period. The Company also awarded 178,729 shares of phantom stock, including 23,407 shares of phantom stock granted to members of the Management Board at a measurement date average fair value of \$64.58 (€48.95) each and a total fair value of \$11,543, which will be revalued if the fair value changes, and amortized over the four-year vesting period.
During 2011, the Company awarded 1,947,231 stock options under the 2011 Incentive Program, including 307,515 stock options granted to members of the Management Board of FMC Management AG, the Company's general partner, at an average exercise price of \$67.87 (€52.45), an average fair value of \$19.27 each and a total fair value of \$37,525, which will be amortized over the four-year vesting period. The Company awarded 215,638 phantom shares, including 29,313 phantom shares granted to members of the Management Board of FMC Management AG, the Company's general partner, at a measurement date average fair value of \$63.71 (€49.24) each and a total fair value of \$13,739 which will be revalued if the fair value changes, and amortized over the four year vesting period.
In 2012, Management Board members were eligible for performance-related compensation that depended upon achievement of targets. The targets are measured by reference to operating profit margin, growth of group-wide after-tax earnings (EAT growth) as well as the development of free cash flow (cash flow before acquisitions), and are derived from the comparison of targeted and actually achieved current year figures. Targets are divided into Group level targets and those to be achieved in individual regions.
The bonus for fiscal year 2012 will consist proportionately of a cash component and a share-based component which will be paid in cash. Upon meeting the annual targets, the cash component will be paid after the end of 2012. The share-based component is subject to a three-year vesting period, although a shorter period may apply in special cases. The amount of cash payment relating to the share-based component shall be based on the closing share price of Fresenius Medical Care AG & Co. KGaA ordinary shares upon exercise after the three-year vesting period. The amount of the achievable bonus for each of the members of the Management Board is capped.
Share-based compensation incurred under this plan for years 2012 and 2011 was \$2,751 and \$2,306, respectively.
During 2010, the Company awarded 2,817,879 options under the Amended 2006 Plan, including 423,300 options granted to members of the Management Board of FMC Management AG, the Company's general partner, at a weighted average exercise price of \$57.07 (€42.71), a weighted average fair value of \$10.47 each and a total fair value of \$29,515 which will be amortized over the three year vesting period. After December 2010, no further grants were issued under the Amended 2006 Plan.
Options granted under the Amended 2006 Plan to US participants are non-qualified stock options under the United States Internal Revenue Code of 1986, as amended. Options under the Amended 2006 Plan are not transferable by a participant or a participant's heirs, and may not be pledged, assigned, or otherwise disposed of.
Under the Fresenius Medical Care 2001 International Stock Incentive Plan (the 2001 Plan), options in the form of convertible bonds with a principal of up to €10,240 were issued to the members of the Management Board and other employees of the Company representing grants for up to 4 M non-voting preference shares. The convertible bonds originally had a par value of €2.56 and bear interest at a rate of 5.5%. In connection with the share split affected in 2007, the principal amount was adjusted in the same proportion as the share capital out of the capital increase and the par value of the convertible bonds was adjusted to €0.85 without affecting the interest rate. Effective May 2006, no further grants can be issued under the 2001 Plan and no options were granted under the 2001 Plan after 2005 and the outstanding options will expire before 2016.
At December 31, 2012, the Management Board members of the General Partner held 2,201,205 stock options for ordinary shares and employees of the Company held 8,945,561 stock options for ordinary shares and 37,656 stock options for preference shares, under the various stock-based compensation plans of the Company.
At December 31, 2012, the Management Board members of the General Partner held 52,720 phantom shares and employees of the Company held 334,265 phantom shares under the 2011 Incentive Plan.
The table below provides reconciliations for stock options outstanding at December 31, 2012, as compared to December 31, 2011:
| T. 2.6.31 | Reconciliation of options outstanding | ||
|---|---|---|---|
| Options | Weighted average exercise | ||
| in THOUS | in € | in \$ | |
| Stock options for ordinary shares | |||
| Balance at December 31, 2011 | 12,025 | 37.24 | 49.13 |
| Granted | 2,166 | 57.15 | 75.41 |
| Exercised | 2,575 | 30.62 | 40.40 |
| Forfeited | 469 | 36.66 | 48.37 |
| Balance at December 31, 2012 | 11,147 | 42.66 | 56.29 |
| Stock options for preference shares | |||
| Balance at December 31, 2011 | 49 | 18.64 | 24.59 |
| Exercised | 8 | 15.57 | 20.54 |
| Forfeited | 3 | 18.64 | 24.59 |
| Balance at December 31, 2012 | 38 | 19.26 | 25.41 |
The following table provides a summary of fully vested options outstanding and exercisable for both preference and ordinary shares at December 31, 2012:
| Fully vested outstanding and exercisable options T. 2.6.32 |
||||||
|---|---|---|---|---|---|---|
| Number of options |
Weighted average remaining contractual life |
Weighted average exercise price |
Aggregate intrinsic value |
|||
| in THOUS | in years | in € | in \$ | in € | in \$ | |
| Options | ||||||
| for preference shares | 38 | 1.89 | 19.26 | 25.41 | 865 | 1,141 |
| for ordinary shares | 4,389 | 2.42 | 31.26 | 41.25 | 92,368 | 121,870 |
At December 31, 2012, there was \$52,744 of total unrecognized compensation costs related to non-vested options granted under all plans. These costs are expected to be recognized over a weighted-average period of 2.0 years.
During the years ended December 31, 2012 and 2011, the Company received cash of \$100,118 and \$81,883, respectively, from the exercise of stock options see note 13. The intrinsic value of options exercised for the twelvemonth periods ending December 31, 2012 and 2011 was \$83,690 and \$50,687, respectively. The Company recorded a related tax benefit of \$21,008 and \$13,010 for the years ending December 31, 2012 and 2011, respectively.
90
In connection with cash-settled share based payment transactions under the 2011 Incentive Program the Company recognized expense of \$5,144 and \$1,859 for the years ending December 31, 2012 and 2011, respectively.
The Company used a binomial option-pricing model in determining the fair value of the awards under the 2011 SOP and the 2006 Plan. Option valuation models require the input of subjective assumptions including expected stock price volatility. The Company's assumptions are based upon its past experiences, market trends and the experiences of other entities of the same size and in similar industries. Expected volatility is based on historical volatility of the Company's shares. 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 155% of the exercise price. The Company'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 assumptions used to determine the fair value of the 2012 and 2011 grants are as follows:
| Assumptions T. 2.6.33 |
||
|---|---|---|
| 2012 | 2011 | |
| Expected dividend yield in % | 1.61 | 1.62 |
| Risk-free interest rate in % | 1.09 | 2.55 |
| Expected volatility in % | 22.20 | 22.22 |
| Expected life of options in years | 8 | 8 |
| Weighted average exercise price in € | 57.15 | 52.45 |
| Weighted average exercise price in \$ | 75.41 | 67.87 |
Income before income taxes is attributable to the following geographic locations:
| 2012 | 2011 |
|---|---|
| 263,651 | 344,267 |
| 1,356,094 | 1,122,800 |
| 312,368 | 311,292 |
| 1,932,113 | 1,778,359 |
| Expense (benefit) for income taxes T. 2.6.35 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Current | ||
| Germany | 52,862 | 67,484 |
| United States | 342,250 | 278,634 |
| Other | 139,136 | 106,087 |
| Total current | 534,248 | 452,205 |
| Deferred | ||
| Germany | 10,478 | 14,565 |
| United States | 98,200 | 139,282 |
| Other | (37,790) | (4,955) |
| Total deferred | 70,888 | 148,892 |
| Total | 605,136 | 601,097 |
Income tax expense (benefit) for the years ended December 31, 2012 and 2011, consisted of the following:
In 2012 and 2011, the Company is 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 and a trade tax rate of 12.88% and 12.64% for the fiscal years ended December 31, 2012 and 2011, respectively.
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 rates are 28.71% and 28.46% for the fiscal years ended December 31, 2012 and 2011, respectively.
| Reconciliation of income taxes T. 2.6.36 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Expected corporate income tax expense | 554,613 | 506,121 |
| Tax free income | (90,943) | (38,926) |
| Income from at equity investments | (2,133) | (6,883) |
| Tax rate differentials | 137,527 | 140,079 |
| Non-deductible expenses | 19,961 | 4,536 |
| Taxes for prior years | 22,420 | 144 |
| Change in valuation allowance | (19,680) | 5,544 |
| Noncontrolling partnership interests | (49,081) | (31,300) |
| Other | 32,452 | 21,782 |
| Actual income tax expense | 605,136 | 601,097 |
| Effective tax rate | 31.3% | 33.8% |
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The tax effects of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 2012 and 2011, are presented below:
| Deferred income tax assets and liabilities T. 2.6.37 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Deferred tax assets | ||
| Accounts receivable | 5,847 | 5,943 |
| Inventory | 45,771 | 42,824 |
| Property, plant and equipment, intangible and other non current assets | 65,370 | 70,652 |
| Accrued expenses and other liabilities | 329,967 | 265,624 |
| Pensions | 123,363 | 87,248 |
| Net operating loss carryforwards, tax credit carryforwards and interest carryforwards | 107,595 | 91,402 |
| Derivatives | 4,856 | 60,056 |
| Stock-based compensation | 24,758 | 24,191 |
| Other | 13,136 | 12,586 |
| Total deferred tax assets | 720,663 | 660,526 |
| Less: valuation allowance | (44,191) | (80,418) |
| Net deferred tax assets | 676,472 | 580,108 |
| Deferred tax liabilities | ||
| Accounts receivable | 17,036 | 25,937 |
| Inventory | 11,847 | 10,899 |
| Property, plant and equipment, intangible and other non current assets | 748,271 | 616,430 |
| Accrued expenses and other liabilities | 21,651 | 24,582 |
| Derivatives | 2,202 | – |
| Other | 128,403 | 103,107 |
| Total deferred tax liabilities | 929,410 | 780,955 |
| Net deferred tax assets (liabilities) | (252,938) | (200,847) |
The valuation allowance decreased by \$36,227 in 2012 and increased by \$8,619 in 2011.
The expiration of net operating losses is as follows:
| Net operating loss carryforwards T. 2.6.38 in \$ THOUS |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 and | Without expiration |
||||||||||
| 2013 18,821 |
2014 20,649 |
2015 13,540 |
2016 23,794 |
2017 43,723 |
2018 16,754 |
2019 18,313 |
2020 14,061 |
2021 8,052 |
thereafter 3,128 |
date 96,446 |
Total 277,281 |
In assessing the realizability of deferred taxes, management considers whether it is more-likely-than-not that some portion or all of a deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2012.
The Company provides for income taxes and foreign withholding taxes on the cumulative earnings of foreign subsidiaries that will not be reinvested. At December 31, 2012, the Company provided for \$15,562 of deferred tax liabilities associated with earnings that are likely to be distributed in 2013 and the following years. Provision has not been made for additional taxes on \$5,354,484 undistributed earnings of foreign subsidiaries as these earnings are considered permanently reinvested. The earnings could become subject to additional tax if remitted or deemed remitted as dividends; however calculation of such additional tax is not practical. These taxes would predominantly comprise foreign withholding tax on dividends of foreign subsidiaries, and German income tax of approx 1.4% on all dividends and capital gains.
FMC AG & CO. KGAA companies are subject to tax audits in Germany and the U.S. on a regular basis and ongoing tax audits in other jurisdictions.
In Germany, the tax years 2002 until 2009 are currently under audit by the tax authorities. The Company recognized and recorded the current proposed adjustments of this audit period in the financial statements. All proposed adjustments are deemed immaterial. Fiscal years 2010, 2011 and 2012 are open to audit.
In the U.S., the Company filed claims for refunds contesting the Internal Revenue Service's (IRS) disallowance of FMCH's civil settlement payment deductions taken by FMCH in prior year tax returns. As a result of a settlement agreement with the IRS, the Company received a partial refund in September 2008 of \$37,000, inclusive of interest and preserved the right to pursue claims in the United States Courts for refunds of all other disallowed deductions, which totaled approximately \$126,000. On December 22, 2008, the Company filed a complaint for complete refund in the United States District Court for the District of Massachusetts, styled as Fresenius Medical Care Holdings, Inc. v. United States. On August 15, 2012, a jury entered a verdict for FMCH granting additional deductions of \$95,000. The District Court is now considering post trial motions by the IRS to set aside the verdict and the terms of the judgment to be entered against the United States to reflect the amount of the tax refund due to FMCH.
In the U.S., the tax years 2009 and 2010 are currently under audit by the tax authorities. Fiscal years 2011 and 2012 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 financial statements.
94
Subsidiaries of FMC AG & CO. KGAA in a number of countries outside of Germany and the U.S. are also subject to tax audits. The Company estimates that the effects of such tax audits are not material to these consolidated financial statements.
The following table shows the reconciliation of the beginning and ending amounts of unrecognized tax benefits:
| Reconciliation of unrecognized tax benefits (net of interest) T. 2.6.39 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Balance at January 1 | 184,829 | 375,900 |
| Increases in unrecognized tax benefits prior periods | 13,232 | 24,046 |
| Decreases in unrecognized tax benefits prior periods | (5,913) | (24,897) |
| Increases in unrecognized tax benefits current period | 17,903 | 16,157 |
| Changes related to settlements with tax authorities | (16,763) | (217,484) |
| Reductions as a result of a lapse of the statute of limitations | – | (3,100) |
| Foreign currency translation | (9,090) | 14,207 |
| Balance at December 31 | 184,198 | 184,829 |
Included in the balance at December 31, 2012 are \$160,780 of unrecognized tax benefits which would affect the effective tax rate if recognized. The Company is currently not in a position to forecast the timing and magnitude of changes in other unrecognized tax benefits.
During the year ended December 31, 2012 the Company recognized a benefit of \$24,718 in interest and penalties. The Company had a total accrual of \$33,749 of tax related interest and penalties at December 31, 2012.
The Company leases buildings and machinery and equipment under various lease agreements expiring on dates through 2039. Rental expense recorded for operating leases for the years ended December 31, 2012 and 2011 was \$617,195 and \$601,070, respectively. For information regarding intercompany operating leases, see note 3 a.
Future minimum rental payments under noncancelable operating leases for the five years succeeding December 31, 2012 and thereafter are:
| Future minimum rental payments T. 2.6.40 |
|||||||
|---|---|---|---|---|---|---|---|
| in \$ THOUS | |||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | |
| Future minimum rental payments | 566,320 | 506,512 | 443,472 | 375,843 | 351,646 | 1,044,570 3,288,363 |
The Company 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 Company currently deems to be material are described below. For the matters described below in which the Company 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 Company believes that the loss probability is remote and/or the loss or range of possible losses cannot be reasonably estimated at this time. The outcome of litigation and other legal matters is always difficult to predict accurately and outcomes that are not consistent with the Company's view of the merits can occur. The Company believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that the resolution of one or more of the legal matters currently pending or threatened could have a material adverse effect on its business, results of operations and financial condition.
The Company 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 the Company, 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, the Company 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 the Company that arise out of the bankruptcy of W.R.Grace & Co. Under the terms of the settlement agreement as amended (the Settlement Agreement), fraudulent conveyance and other claims raised on behalf of asbestos claimants will be dismissed with prejudice and the Company 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, the Company will pay a total of \$115,000 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 plan of
96
reorganization and the confirmation orders were affirmed by the U.S. District Court on January 31, 2012. Multiple parties have appealed to the Third Circuit Court of Appeals and the plan of reorganization will not be implemented until the appeals are finally resolved.
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.). The Company is engaged in litigation with Sealed Air to confirm its entitlement to indemnification from Sealed Air for all losses and expenses incurred by the Company 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 the Company'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 \$140,000 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 all asserted claims of Baxter patents 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 \$14,300. 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. The Company appealed the court's rulings to the United States Court of Appeals for the Federal Circuit (Federal Circuit). In October 2008, the Company completed design modifications to the 2008K machine that eliminate any incremental hemodialysis machine royalty payment exposure under the 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 \$70,000 were contributed to the escrow fund. Upon remand, the district court reduced the post verdict damages award to \$10,000 and
\$61,000 of the escrowed funds was returned to FMCH. 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. On May 17, 2012 the Federal Circuit affirmed the USPTO's ruling and invalidated the final remaining Baxter patent. Baxter's request to the Federal Circuit for a rehearing has been denied, and the Federal Circuit has issued a mandate to the USPTO to cancel the claims of the last remaining asserted Baxter HD patent. Baxter has appealed to the Federal Circuit claiming that approximately \$20,000 of damages awarded to it by the District Court before the Federal Circuit affirmed the USPTO ruling constitutes a final judgment that may be collected. The Company is opposing this appeal.
On August 27, 2012, Baxter filed suit in the U.S. District Court for the Northern District of Illinois, styled Baxter International Inc., et al., v. Fresenius Medical Care Holdings, Inc., Case No. 12-cv-06890, alleging that the Company's Liberty™ cycler infringes certain U.S. patents that were issued to Baxter between October 2010 and June 2012. The Company believes it has valid defenses to these claims, and will defend this litigation vigorously.
On December 12, 2012, a group of plaintiffs' counsel filed a petition to form a federal multidistrict litigation and thereby consolidate certain lawsuits alleging wrongful death and personal injury claims against FMCH and its affiliates. The complaints to be consolidated for pre-trial management allege generally that inadequate labeling and warnings for FMCH's dialysate concentrate products NaturaLyte and Granuflo caused harm to patients. In addition, a substantial number of similar state court cases have been filed that cannot be formally consolidated with the federal cases. FMCH believes that these lawsuits are without merit, and will defend them vigorously.
Renal Care Group, Inc. (RCG), which the Company 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 had claims for indemnification and reimbursement of expenses against the Company. Subject to the approval of the Nashville Chancery Court, the plaintiff has agreed to dismiss the Complaint with prejudice against the plaintiff and all other class members in exchange for a payment that is not material to the Company.
98
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 the Company 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. 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 has cooperated 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 Office of the Inspector General of the Department of Health and Human Services 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 ESRD. 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. The Company has cooperated in the investigation.
Civil investigative demands were issued under the supervision of the United States Attorneys for Rhode Island and Connecticut to American Access Care LLC (AAC) and certain affiliated entities prior to the Company's acquisition of AAC in October 2011. In March 2012, a third subpoena was issued under the supervision of the United States Attorney for the Southern District of Florida (Miami). The subpoenas cover a wide range of documents and activities of AAC, but appear to focus on coding and billing practices and procedures. The Company has assumed responsibility for responding to the subpoenas and is cooperating fully with the United States Attorneys.
The Company has received communications alleging certain conduct in certain countries outside the U.S. and Germany that may violate the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-bribery laws. In response to the allegations, the Audit and Corporate Governance Committee of the Company's Supervisory Board is conducting an internal review with the assistance of independent counsel retained for such purpose. The Company voluntarily advised the U.S. Securities and Exchange Commission and the U.S. Department of Justice that allegations have been made and of the Company's internal review. The Company has also directed its independent counsel, in conjunction with the Company's Compliance Department, to review the Company's compliance program including internal controls related to compliance with international anti-bribery laws and implement appropriate enhancements. The Company is fully committed to FCPA compliance. It cannot predict the final outcome of its review.
In December 2012 and January 2013, FMCH received subpoenas from the United States Attorneys for the District of Massachusetts and the Western District of Louisiana requesting production of a range of documents relating to products manufactured by FMCH, including the Granuflo and Naturalyte dialysate concentrate products. FMCH intends to cooperate fully in these matters.
The Company filed claims for refunds contesting the Internal Revenue Service's (IRS) disallowance of FMCH's civil settlement payment deductions taken by FMCH in prior year tax returns. As a result of a settlement agreement with the IRS, the Company received a partial refund in September 2008 of \$37,000, inclusive of interest and preserved its right to pursue claims in the United States Courts for refunds of all other disallowed deductions, which totaled approximately \$126,000. On December 22, 2008, the Company filed a complaint for complete refund in the United States District Court for the District of Massachusetts, styled as Fresenius Medical Care Holdings, Inc. v. United States. On August 15, 2012, a jury entered a verdict for FMCH granting additional deductions of \$95,000. The District Court is now considering post trial motions by the IRS to set aside the verdict and the terms of the judgment to be entered against the United States to reflect the amount of the tax refund due to FMCH.
From time to time, the Company is a party to or may be threatened with other litigation or arbitration, claims or assessments arising in the ordinary course of its business. Management regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable liabilities for the eventual disposition of these matters.
The Company, like other healthcare providers, conducts its operations under intense government regulation and scrutiny. It must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. The Company must also comply with the laws of the United States, including the federal Anti-Kickback Statute, the federal False Claims Act, the federal Stark Law, and other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company's interpretations or the manner in which it conducts its business. Enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence "qui tam" or "whistle blower" actions. In May 2009, the scope of the False Claims Act was expanded and additional protections for whistle blowers and procedural provisions to aid whistle blowers' ability to proceed in a False Claims Act case were added. By virtue of this regulatory environment, the Company's business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, investigative demands, subpoenas, other inquiries, claims and litigation relating to the Company's compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of "whistle blower" actions, which are initially filed under court seal.
100
The Company operates many facilities throughout the United States and other parts of the world. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliated companies. The Company relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of these employees. On occasion, the Company may identify instances where employees or other agents deliberately, recklessly or inadvertently contravene the Company's policies or violate applicable law. The actions of such persons may subject the Company and its subsidiaries to liability under the Anti-Kickback Statute, the Stark Law, the False Claims Act and the Foreign Corrupt Practices Act, among other laws and comparable laws of other countries.
Physicians, hospitals and other participants in the healthcare industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Company has been and is currently subject to these suits due to the nature of its business and expects that those types of lawsuits may continue. Although the Company maintains insurance at a level which it believes to be prudent, it cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Company or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon it and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.
The Company has also had claims asserted against it and has had lawsuits filed against it relating to alleged patent infringements or businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Company has, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition, and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.
At December 31, 2001, the Company recorded a pre-tax special charge of \$258,159 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 \$115,000 payment under the Settlement Agreement in the Grace Chapter 11 Proceedings, all other matters included in the special charge have been resolved. While the Company 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.
As a global supplier of dialysis services and products in more than 120 countries throughout the world, the Company is faced with a concentration of credit risks due to the nature of the reimbursement systems which are often provided by the governments of the countries in which the Company operates. Changes in reimbursement rates or the scope of coverage could have a material adverse effect on the Company's business, financial condition and results of operations and thus on its capacity to generate cash flow.
The following table presents the carrying amounts and fair values of the Company's non-derivative financial instruments at December 31, 2012, and December 31, 2011.
| T. 2.6.41 | Carrying amount and fair value of non-derivative financial instruments in \$ THOUS |
||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | ||||||
| Fair value hierarchy |
Carrying amount |
Fair value | Carrying amount |
Fair value | |||
| Assets | |||||||
| Cash and cash equivalents | 1 | 688,040 | 688,040 | 457,292 | 457,292 | ||
| Accounts receivable | 2 | 3,157,233 | 3,157,233 | 2,909,326 | 2,909,326 | ||
| Long-term notes receivable1 | 3 | – | – | 234,490 | 233,514 | ||
| Liabilities Accounts payable |
2 | 745,644 | 745,644 | 652,649 | 652,649 | ||
| Short-term borrowings | 2 | 117,850 | 117,850 | 98,801 | 98,801 | ||
| Short-term borrowings from related parties Long-term debt, excluding 2012 Credit Agreement and Amended 2006 Senior Credit Agreement, Euro Notes and Senior Notes2 |
2 2 |
3,973 721,928 |
3,973 721,928 |
28,013 1,147,208 |
28,013 1,147,208 |
||
| 2012 Credit Agreement and Amended 2006 Senior Credit Agreement |
2 | 2,659,340 | 2,652,840 | 2,795,589 | 2,774,951 | ||
| Senior Notes | 2 | 4,743,442 | 5,296,325 | 2,883,009 | 2,989,307 | ||
| Euro Notes | 2 | 51,951 | 54,574 | 258,780 | 265,655 | ||
| Noncontrolling interests subject to put provisions | 3 | 523,260 | 523,260 | 410,491 | 410,491 | ||
1 As of February 28, 2012, the loan to Renal Advantage Partners LLC and Liberty Dialysis, Inc. has been retired.
2 This amount includes the non-current portion of a loan from a Fresenius SE subsidiary of \$56,174 which is due on May 23, 2014 (see note 3c).
The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions or in the case of long-term debt, in the captions shown in note 10.
The significant methods and assumptions used in estimating the fair values of non-derivative financial instruments are as follows:
Cash and cash equivalents are stated at nominal value which equals the fair value.
Short-term financial instruments such as accounts receivable, accounts payable and short-term borrowings are valued at their carrying amounts, which are reasonable estimates of the fair value due to the relatively short period to maturity of these instruments.
The valuation of long-term notes receivable was determined using significant unobservable inputs. They were valued using a constructed index based upon similar instruments with comparable credit ratings, terms, tenor, interest rates and that are within the Company's industry. The Company tracked the prices of the constructed index from the note issuance date to the reporting date to determine fair value.
The fair values of major long-term financial liabilities are calculated on the basis of market information. Instruments for which market quotes are available are measured using these quotes. The fair values of the other long-term financial liabilities are calculated at the present value of the respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Company as of the balance sheet date are used.
The valuation of noncontrolling interests subject to put provisions is determined using significant unobservable inputs. See note 12 for a discussion of the Company's methodology for estimating the fair value of these noncontrolling interests subject to put obligations.
Currently, there is no indication that a decrease in the value of the Company's financing receivables is probable. Therefore, the allowances on credit losses of financing receivables are immaterial.
The Company is exposed to market risk from changes in foreign exchange rates and interest rates. In order to manage the risk of currency exchange rate and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions as authorized by the Company's General Partner. On a quarterly basis, the Company performs an assessment of its counterparty credit risk. The Company currently considers this risk to be low. The Company's policy, which has been consistently followed, is that financial derivatives be used only for the purpose of hedging foreign currency and interest rate exposure.
In certain instances, the Company enters into derivative contracts that do not qualify for hedge accounting but are utilized for economic purposes (economic hedges). The Company does not use financial instruments for trading purposes.
The Company established guidelines for risk assessment procedures and controls for the use of financial instruments. They include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.
The Company conducts business on a global basis in various currencies, though a majority of its operations are in Germany and the United States. For financial reporting purposes, the Company has chosen the U.S. dollar as its reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar and the local currencies in which the financial statements of the Company's international operations are maintained affect its results of operations and financial position as reported in its consolidated financial statements.
The Company's exposure to market risk for changes in foreign exchange rates relates to transactions such as sales and purchases. The Company has significant amounts of sales of products invoiced in euro from its European manufacturing facilities to its other international operations and, to a lesser extent, sales of products invoiced in other non-functional currencies. This exposes the subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures the Company enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. As of December 31, 2012 the Company had no foreign exchange options.
Changes in the fair value of the effective portion of foreign exchange forward contracts designated and qualifying as cash flow hedges of forecasted product purchases and sales are reported in accumulated other comprehensive income (loss) (AOCI). Additionally, in connection with intercompany loans in foreign currency, the Company uses foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans, which, if they qualify for cash flow hedge accounting, are also reported in AOCI. These amounts recorded in AOCI are subsequently reclassified into earnings as a component of cost of revenues for those contracts that hedge product purchases or as an adjustment of interest income/expense for those contracts that hedge loans, in the same period in which the hedged transaction affects earnings. The notional amounts of foreign exchange contracts in place that are designated and qualify as cash flow hedges totaled \$611,488 and \$1,278,764 at December 31, 2012 and December 31, 2011, respectively.
The Company also enters into derivative contracts for forecasted product purchases and sales and for intercompany loans in foreign currency that do not qualify for hedge accounting but are utilized for economic hedges as defined above. In these cases, the change in value of the economic hedge is recorded in the income statement and usually offsets the change in value recorded in the income statement for the underlying asset or liability. The notional amounts of economic hedges that do not qualify for hedge accounting totaled \$1,574,667 and \$2,149,440 at December 31, 2012 and December 31, 2011, respectively.
The Company enters into derivatives, particularly interest rate swaps and to a certain extent, interest rate options, to protect against the risk of rising interest rates. These interest rate derivatives are designated as cash flow hedges and have been entered into in order to effectively convert payments based on variable interest rates into payments at a fixed interest rate. The euro-denominated interest rate swaps expire in 2016 and have an interest rate of 1.73%. Interest payable and receivable under the swap agreements is accrued and recorded as an adjustment to interest expense.
As of December 31, 2012 and December 31, 2011, the notional amount of the euro-denominated interest rate swaps in place was €100,000 and €200,000 (\$131,940 and \$258,780 as of December 31, 2012 and December 31, 2011, respectively). As of December 31, 2012 the Company had no U.S. dollar-denominated interest rate swaps and at December 31, 2011 the notional amount was \$2,650,000.
The following table shows the carrying amounts of the Company's derivatives at December 31, 2012 and December 31, 2011:
| T. 2.6.42 | Derivative financial instruments valuation in \$ THOUS, December 31 |
|||
|---|---|---|---|---|
| 2012 | 2011 | |||
| Assets 2 | Liabilities 2 | Assets 2 | Liabilities 2 | |
| Derivatives in cash flow hedging relationships1 | ||||
| Current | ||||
| Foreign exchange contracts | 7,839 | (7,510) | 4,117 | (24,908) |
| Interest rate contracts | – | – | – | (130,579) |
| Non-current | ||||
| Foreign exchange contracts | 942 | (187) | 742 | (3,706) |
| Interest rate contracts | – | (6,221) | – | (1,076) |
| Total | 8,781 | (13,918) | 4,859 | (160,269) |
| Derivatives not designated as hedging instruments1 | ||||
| Current | ||||
| Foreign exchange contracts | 23,396 | (19,068) | 56,760 | (37,242) |
| Non-current | ||||
| Foreign exchange contracts | 132 | (292) | 1,382 | (1,459) |
| Total | 23,528 | (19,360) | 58,142 | (38,701) |
1 As of December 31, 2012 and December 31, 2011, the valuation of the Company's derivatives was determined using Significant Other Observable Inputs (Level 2) in accordance with the fair value hierarchy levels established in U.S. GAAP.
2 Derivative instruments are marked to market each reporting period resulting in carrying amounts being equal to fair values at the reporting date.
The carrying amounts for the current portion of derivatives indicated as assets in the table above are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets while the current portion of those indicated as liabilities are included in Accrued expenses and other current liabilities. The non-current portions indicated as assets or liabilities are included in the Consolidated Balance Sheets in Other assets or Other liabilities, respectively.
The significant methods and assumptions used in estimating the fair values of derivative financial instruments are as follows:
The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract as of the balance sheet date. To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract as of the balance sheet date. The result is then discounted on the basis of the market interest rates prevailing at the balance sheet date for the applicable currency.
The Company includes its own credit risk for financial instruments deemed liabilities and counterparty-credit risks for financial instruments deemed assets when measuring the fair value of derivative financial instruments.
| T. 2.6.43 | in \$ THOUS | The effect of derivatives on the consolidated financial statements | |||
|---|---|---|---|---|---|
| Amount of gain or (loss) recognized in OCI on derivatives (effective portion) for the year ended Dec. 31, |
Location of (gain) or loss reclassified from AOCI in income (effective portion) |
Amount of (gain) or loss reclassified from AOCI in income (effective portion) for the year ended Dec. 31, |
|||
| 2012 | 2011 | 2012 | 2011 | ||
| Derivatives in cash flow hedging relationships | |||||
| Interest rate contracts | (16,762) | (80,678) | Interest income/expense | 23,779 | 5,946 |
| Foreign exchange contracts | 21,834 | (23,452) | Costs of revenue | (5,414) | (4,262) |
| Foreign exchange contracts | Interest income/expense | 582 | – | ||
| Total | 5,072 | (104,130) | 18,947 | 1,684 |
| The effect of derivatives on the consolidated financial statements T. 2.6.44 in \$ THOUS |
|||
|---|---|---|---|
| Location of (gain) or loss recognized in income on derivatives |
Amount of (gain) or loss recognized in income on derivatives for the year ended Dec. 31, |
||
| 2012 | 2011 | ||
| Derivatives not designated as hedging instruments | |||
| Selling, general and | |||
| Foreign exchange contracts | administrative expense | (8,804) | (76,496) |
| Foreign exchange contracts | Interest income/expense | 8,033 | 6,598 |
| Total | (771) | (69,898) |
For foreign exchange derivatives, the Company expects to recognize \$2,971 of losses deferred in accumulated other comprehensive income at December 31, 2012, in earnings during the next twelve months.
The Company expects to incur additional interest expense of \$20,640 over the next twelve months which is currently deferred in accumulated other comprehensive income. This amount reflects the projected amortization of the settlement amount of the terminated swaps and the current fair value of the additional interest payments resulting from the remaining interest rate swap maturing in 2016 at December 31, 2012.
As of December 31, 2012, the Company had foreign exchange derivatives with maturities of up to 35 months and interest rate swaps with maturities of up to 46 months.
106
The changes in the components of other comprehensive income (loss) for the years ended December 31, 2012 and 2011 are as follows:
| Other comprehensive income (loss) T. 2.6.45 |
in \$ THOUS | ||||
|---|---|---|---|---|---|
| Pretax | Tax effect | Net, before non controlling interests |
Non controlling interests |
Other comprehen sive income (loss), net of tax |
|
| 2012 | |||||
| Other comprehensive income (loss) relating to cash flow hedges: |
|||||
| Changes in fair value of cash flow hedges during the period | 5,072 | (21,171) | (16,099) | – | (16,099) |
| Reclassification adjustments | 18,947 | (4,968) | 13,979 | – | 13,979 |
| Total other comprehensive income (loss) relating to cash flow hedges |
24,019 | (26,139) | (2,120) | – | (2,120) |
| Foreign-currency translation adjustment | 63,982 | – | 63,982 | (179) | 63,803 |
| Defined benefit pension plans: | |||||
| Actuarial (loss) gain on defined benefit pension plans | (121,512) | 42,159 | (79,353) | – | (79,353) |
| Reclassification adjustments | 18,334 | (7,189) | 11,145 | – | 11,145 |
| Total other comprehensive income (loss) relating to defined benefit pension plans |
(103,178) | 34,970 | (68,208) | – | (68,208) |
| Other comprehensive income (loss) | (15,177) | 8,831 | (6,346) | (179) | (6,525) |
| 2011 | |||||
| Other comprehensive income (loss) relating to cash flow hedges: |
|||||
| Changes in fair value of cash flow hedges during the period | (104,130) | 41,825 | (62,305) | – | (62,305) |
| Reclassification adjustments | 1,684 | (796) | 888 | – | 888 |
| Total other comprehensive income (loss) relating to cash flow hedges |
(102,446) | 41,029 | (61,417) | – | (61,417) |
| Foreign-currency translation adjustment | (179,987) | – | (179,987) | (1,247) | (181,234) |
| Defined benefit pension plans: | |||||
| Actuarial (loss) gain on defined benefit pension plans | (90,643) | 34,930 | (55,713) | – | (55,713) |
| Reclassification adjustments | 8,737 | (3,342) | 5,395 | – | 5,395 |
| Total other comprehensive income (loss) relating to defined benefit pension plans |
(81,906) | 31,588 | (50,318) | – | (50,318) |
| Other comprehensive income (loss) | (364,339) | 72,617 | (291,722) | (1,247) | (292,969) |
Changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2012 and 2011 are as follows:
| Changes in accumulated other comprehensive income (loss) by component T. 2.6.46 |
||||||
|---|---|---|---|---|---|---|
| in \$ THOUS | ||||||
| Gains and (losses) on cash flow hedges |
Pension obligations |
Foreign- currency translation adjustment |
Total, before non- controlling interests |
Non controlling interests |
Total | |
| Balance December 31, 2010 | (74,804) | (60,897) | (58,344) | (194,045) | 4,295 | (189,750) |
| Other comprehensive income before reclassifications |
(62,305) | (55,713) | (179,987) | (298,005) | (1,247) | (299,252) |
| Amounts reclassified from accumulated other comprehensive income |
888 | 5,395 | – | 6,283 | – | 6,283 |
| Net current-period other comprehensive income | (61,417) | (50,318) | (179,987) | (291,722) | (1,247) | (292,969) |
| Balance December 31, 2011 | (136,221) | (111,215) | (238,331) | (485,767) | 3,048 | (482,719) |
| Other comprehensive income before reclassifications |
(16,099) | (79,353) | 63,982 | (31,470) | (179) | (31,649) |
| Amounts reclassified from accumulated other comprehensive income |
13,979 | 11,145 | – | 25,124 | – | 25,124 |
| Net current-period other comprehensive income | (2,120) | (68,208) | 63,982 | (6,346) | (179) | (6,525) |
| Balance December 31, 2012 | (138,341) | (179,423) | (174,349) | (492,113) | 2,869 | (489,244) |
Reclassifications out of accumulated other comprehensive income for the years ended December 31, 2012 and 2011 are as follows:
| Affected line item in the statement where net income is presented |
||
|---|---|---|
| 2012 | 2011 | |
| 23,779 | 5,946 | Interest income/expense |
| (5,414) | (4,262) | Costs of revenue |
| 582 | – | Interest income/expense |
| 18,947 | 1,684 | Total before tax |
| (4,968) | (796) | Tax expense or benefit |
| 13,979 | 888 | Net of tax |
| 18,334 | 8,737 | 1 |
| 18,334 | 8,737 | Total before tax |
| (7,189) | (3,342) | Tax expense or benefit |
| 11,145 | 5,395 | Net of tax |
| Net of tax | ||
| 25,124 | Reclassifications out of accumulated other comprehensive income Amount of (gain) or loss reclassified from accumulated other comprehensive income 6,283 |
1 These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see note 11).
108
The following additional information is provided with respect to the consolidated statements of cash flows:
| Supplementary cash flow information T. 2.6.48 in \$ THOUS |
||
|---|---|---|
| 2012 | 2011 | |
| Supplementary cash flow information | ||
| Cash paid for interest | 349,415 | 259,835 |
| Cash paid for income taxes1 | 552,711 | 455,805 |
| Cash inflow for income taxes from stock option exercises | 21,008 | 13,010 |
| Supplemental disclosures of cash flow information Details for acquisitions: Assets acquired |
(2,519,189) | (1,684,630) |
| Liabilities assumed | 241,342 | 215,253 |
| Noncontrolling interest subject to put provisions | 123,210 | 26,684 |
| Noncontrolling interest | 104,947 | 20,983 |
| Obligations assumed in connection with acquisition | 6,624 | 20,016 |
| Cash paid | (2,043,066) | (1,401,694) |
| Less cash acquired | 173,278 | 47,461 |
| Net cash paid for acquisitions | (1,869,788) | (1,354,233) |
1 Net of tax refund.
The Company has identified three operating segments, the North America Segment, the International operating segment, and the Asia-Pacific operating segment, which were determined based upon how the Company manages its businesses. All segments are primarily engaged in providing dialysis care services and the distribution of products and equipment for the treatment of ESRD. The Company has aggregated the International and Asia-Pacific operating segments as the "International Segment". The segments are aggregated due to their similar economic characteristics. These characteristics include same services provided and same products sold, the same type patient population, similar methods of distribution of products and services and similar economic environments. The General Partner's management board member responsible for the profitability and cash flow of each segment's various businesses supervises the management of each operating segment. The accounting policies of the segments are the same as those the Company applies in preparing the consolidated financial statements under accounting principles generally accepted in the U.S.
Management evaluates each segment using a measure that reflects all of the segment's controllable revenues and expenses. With respect to the performance of business operations, management believes that the most appropriate measure in this regard is operating income which measures the Company's source of earnings. The Company does not include the investment gain resulting from the Liberty Acquisition nor income taxes
as it believes these items to be outside the segments' control. Financing is a corporate function, which the Company's segments do not control. Therefore, the Company does not include interest expense relating to financing as a segment measurement. Similarly, the Company does not allocate "corporate costs," which relate primarily to certain headquarters overhead charges, including accounting and finance, professional services, etc., because the Company believes that these costs are also not within the control of the individual segments. As of January 1, 2011, production of products, production asset management, quality management and procurement are centrally managed in Corporate by Global Manufacturing Operations. These corporate activities do not fulfill the definition of a segment. Products are transferred to the segments at cost; therefore no internal profit is generated. The associated internal revenues for the product transfers and their elimination are recorded as corporate activities. Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but are accounted for as "Corporate".
Information pertaining to the Company's segments for the twelve-month periods ended December 31, 2012 and 2011 is set forth below.
| T. 2.6.49 | Segment information | ||||
|---|---|---|---|---|---|
| in \$ THOUS | |||||
| North America |
International | Segment Total | Corporate | Total | |
| 2012 | |||||
| Net revenue external customers | 9,031,108 | 4,740,132 | 13,771,240 | 29,042 | 13,800,282 |
| Inter-segment revenue | 10,072 | – | 10,072 | (10,072) | – |
| Net revenue | 9,041,180 | 4,740,132 | 13,781,312 | 18,970 | 13,800,282 |
| Depreciation and amortization | (310,216) | (175,504) | (485,720) | (117,176) | (602,896) |
| Operating Income | 1,615,348 | 809,269 | 2,424,617 | (206,044) | 2,218,573 |
| Income (loss) from equity method investees | 23,408 | 919 | 24,327 | (6,885) | 17,442 |
| Segment assets | 14,170,453 | 5,892,477 | 20,062,930 | 2,263,068 | 22,325,998 |
| thereof investments in equity method investees | 266,521 | 378,626 | 645,147 | (7,774) | 637,373 |
| Capital expenditures, acquisitions and investments1 | 2,147,522 | 230,888 | 2,378,410 | 175,808 | 2,554,218 |
| 2011 | |||||
| Net revenue external customers | 7,925,472 | 4,627,950 | 12,553,422 | 17,093 | 12,570,515 |
| Inter-segment revenue | 9,196 | – | 9,196 | (9,196) | – |
| Revenue | 7,934,668 | 4,627,950 | 12,562,618 | 7,897 | 12,570,515 |
| Depreciation and amortization | (269,055) | (173,600) | (442,655) | (114,628) | (557,283) |
| Operating Income | 1,435,450 | 807,437 | 2,242,887 | (167,995) | 2,074,892 |
| Income (loss) from equity method investees | 32,387 | 69 | 32,456 | (1,497) | 30,959 |
| Segment assets | 11,761,777 | 5,589,421 | 17,351,198 | 2,181,652 | 19,532,850 |
| thereof investments in equity method investees | 322,990 | 370,447 | 693,437 | (1,412) | 692,025 |
| Capital expenditures, acquisitions and investments2 | 1,055,183 | 1,161,825 | 2,217,008 | 166,176 | 2,383,184 |
1 North America and International acquisitions exclude \$484,699 and \$6,624, respectively, of non-cash acquisitions and investments for 2012.
2 North America and International acquisitions exclude \$6,000 and \$225,034, respectively, of non-cash acquisitions and investments for 2011.
110
For the geographic presentation, revenues are attributed to specific countries based on the end user's location for products and the country in which the service is provided. Information with respect to the Company's geographic operations is set forth in the table below:
| T. 2.6.50 | Geographic division in \$ THOUS |
|||
|---|---|---|---|---|
| 2012 | 2011 | |||
| Net revenue | Long-lived assets | Net revenue | Long-lived assets | |
| Germany | 424,885 | 490,493 | 425,507 | 417,805 |
| North America | 9,031,108 | 12,421,822 | 7,925,472 | 10,318,964 |
| Rest of the world | 4,344,289 | 3,151,401 | 4,219,536 | 3,010,780 |
| Total | 13,800,282 | 16,063,716 | 12,570,515 | 13,747,549 |
Chapter 2.7
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is a process designed by or under the supervision of the Company's chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
As of December 31, 2012, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management's assessment follows the guidance for management of the evaluation of internal controls over financial reporting released by the Securities and Exchange Commission on May 23, 2007. Based on this assessment, management has determined that the Company's internal control over financial reporting is effective as of December 31, 2012.
The Company's internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that the Company's transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's financial statements.
Fresenius Medical Care acquired Liberty Dialysis Holdings, Inc. during 2012. Management excluded the business of Liberty Dialysis from the scope of its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2012. Liberty Dialysis is associated with total identifiable assets of approximately \$600 M and total revenues of approximately \$713 M included in the consolidated financial statements of the Company as of and for the year ended December 31, 2012.
Because of its inherent limitation, internal control over financial reporting, no matter how well designed, cannot provide absolute assurance of achieving financial reporting objectives and may not prevent or detect misstatements. Therefore, even if the internal control over financial reporting is determined to be effective it can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's internal control over financial reporting as of December 31, 2012 has been audited by KPMG AG Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, as stated in their report included on page 114.
February 26, 2013
Fresenius Medical Care AG& Co. KGaA, a partnership limited by shares, represented by Fresenius Medical Care Management AG, its General Partner
Chief Executive Officer and Chairman of the Management Board of the General Partner
Chief Financial Officer and Member of the Management Board of the General Partner
In connection with the Company's annual report on Form 20-F, filed with the U.S. Securities and Exchange Commission on February 26, 2013, KPMG AG Wirtschaftsprüfungsgesellschaft issued the following report of the independent registered public accounting firm on internal control over financial reporting and the report of the independent registered public accounting firm.
We have audited the internal control over financial reporting of Fresenius Medical Care AG& Co. KGaA and subsidiaries ("Fresenius Medical Care" or the "Company") as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Fresenius Medical Care's management is responsible for maintaining effective internal control over financial reporting and its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Fresenius Medical Care maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Fresenius Medical Care acquired Liberty Dialysis Holdings, Inc. during 2012. Management excluded the business of Liberty Dialysis from the scope of its assessment of the effectiveness of Fresenius Medical Care's internal control over financial reporting as of December 31, 2012. Liberty Dialysis Holding is associated with total identifiable assets of approximately \$600 M and total revenues of approximately \$713 M included in the consolidated financial statements of Fresenius Medical Care and subsidiaries as of and for the year ended December 31, 2012. Our audit of internal control over financial reporting of Fresenius Medical Care also excluded an evaluation of the internal control over financial reporting of Liberty Dialysis Holdings, Inc.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Fresenius Medical Care as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 26, 2013 expressed an unqualified opinion on those consolidated financial statements.
February 26, 2013 Frankfurt am Main, Germany
KPMG AG Wirtschaftsprüfungsgesellschaft
Chapter 2.9
We have audited the accompanying consolidated balance sheets of Fresenius Medical Care AG& Co. KGaA and subsidiaries ("Fresenius Medical Care" or the "Company") as of December 31, 2012 and 2011 and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fresenius Medical Care as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Fresenius Medical Care's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2013 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
February 26, 2013 Frankfurt am Main, Germany
KPMG AG
Wirtschaftsprüfungsgesellschaft
page 117 – 128
3.4 F i v e -y e a r suMMary page 122 – 123
3.7 ContaCts page 127
3.2 r e g i o n a l organization page 119
3.3 M a j o r
subsidiaries page 120 – 121
3.5 i n d e x oF tables page 124 – 125
3.8 iMprint page 128
3.6 s u b j e C t index page 126
Chapter 3.1
Physical certificate proving ownership in one or several American Depositary Shares (ADS). Fresenius Medical Care's ordinary and preference shares are listed on the New York Stock Exchange (NYSE) in the form of ADR.
D Days Sales Outstanding (DSO) 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.
Acronym for "German stock index" – calculated on the basis of the weighted prices of the 30 largest (by market capitalization and trading volume) German stock corporations.
Important indicator in corporate management. It compares a company's debt to earnings before interest, tax, depreciation and amortization and other non-cash charges.
Portion of a company's profits. The profit to be distributed divided by the number of outstanding shares shows the dividend per share. The dividend is paid to shareholders usually once a year in the form of cash, stock or tangible assets.
This is used to assess the company's porfitability. More precisely, it is the operating result before earnings from financial activities and investments.
Corresponds to operative cash flow before taxes.
(Earnings Before Taxes) It is an indicator of a company's earning power.
The proportion of a company's listed shares that is freely available for trading. According to the definition of Deutsche Börse, block ownership (as opposed to free float) is considered to be shares held by a shareholder which, cumulatively, make up at least five percent of the registered share capital in one class of share.
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.
Total value of all outstanding shares of a company calculated by the number of shares multiplied by the share price.
Operating margin Earnings before interest and taxes (EBIT) divided by revenues.
The capital stock of the Company consists of ordinary and preference shares, both of which are bearer shares. Preference shares are non-voting, but are entitled to a dividend exceeding that of ordinary shares. The distribution of the minimum dividend on preference shares takes precedence over the distribution of a dividend on ordinary shares.
The rating is 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.
The Return on Equity is an indicator of company profitability related to the shareholders' financing.
The return on a Company's invested capital divided by average invested capital. Invested capital consists of current and noncurrent assets plus accumulated goodwill amortization less cash and cash equivalents, deferred tax assets, accounts payable (including those due to related parties), accrued expenses and other liabilities (including income tax accruals).
EBIT divided by average operating assets. Operating assets consist of cash and cash equivalents, accounts receivable (including those due from related parties), inventories, prepaid expenses and other current assets, noncurrent assets, less noncurrent deferred tax assets and accounts payable (including those due to related parties).
A law aimed at corporations and their auditors designed to improve financial accounting. The intention of SOX is to strengthen the confidence of shareholders and other stakeholders by extending regulations which relate to financial reporting and internal monitoring systems. SOX requirements include strict obligations for a company's management regarding the provision of complete and correct information. The new and expanded rules apply for all U.S. exchange-listed companies.
A federal agency that regulates and monitors the U. S. financial markets.
Indicates the development of the stock market as a whole and/or of individual groups of shares (e.g. DAX, DOW JONES, STOXX). Share indices act as a guide for investors to help them identify trends in the stock market. The index calculation is based on a weighted value for the average development of the stock corporations that make up the index. Share indices can be calculated as price indices or performance indices.
U.S. GAAP United States Generally Accepted Accounting Principles.
Current assets less current liabilities. The higher the working capital, the more secure a company's liquidity position.
Chapter 3.2
| T. 3.2.1 | Europe/Middle East/Africa | ||
|---|---|---|---|
| Germany | Fresenius Medical Care Deutschland GmbH | Bad Homburg v.d.H. | 100 % |
| France | Fresenius Medical Care France S.A.S. | Fresnes | 100 % |
| Great Britain | Fresenius Medical Care (U.K.) Ltd. | Nottinghamshire | 100 % |
| Serbia | Fresenius Medical Care Srbija d.o.o. | Vrsac | 100 % |
| Italy | Fresenius Medical Care Italia S.p.A. | Cremona | 100 % |
| Spain | National Medical Care of Spain, S.A. | Madrid | 100 % |
| South Africa | Fresenius Medical Care South Africa (PTY) Ltd. | Gauteng | 100 % |
| Turkey | Fresenius Medikal Hizmetler A.S. | Istanbul | 100 % |
| Belgium | Fresenius Medical Care Belgium N.V. | Antwerp | 100 % |
| Morocco | Fresenius Medical Care Maroc S.A. | Casablanca | 100 % |
| Ireland | Fresenius Medical Care (Ireland) Limited | Dublin | 100 % |
| Poland | Fresenius Medical Care Polska S.A. | Poznan | 100 % |
| Portugal | NephroCare Portugal S.A. | Lisbon | 100 % |
| Romania | Fresenius Medical Care Romania S.r.l. | Bucharest | 100 % |
| Saudi Arabia | Fresenius Medical Care Saudi Arabia Ltd. | Jeddah | 100 % |
| Croatia | Euromedical d.o.o. | Zagreb | 100 % |
| Russia | ZAO Fresenius SP | Moscow | 100 % |
| Slovakia | Fresenius Medical Care – dialyzacne sluzby, s.r.o. | Pieštany | 100 % |
| Slovenia | Fresenius Medical Care Slovenija d.o.o. | Zrece | 100 % |
| Czech Republic | Fresenius Medical Care DS, s.r.o. | Prague | 100 % |
| Hungary | FMC Dializis Center Kft | Budapest | 100 % |
| Sweden | Fresenius Medical Care Sverige AB | Stockholm | 100 % |
| Ukraine | Fresenius Medical Care Ukraine TOV | Kiev | 100 % |
| Finland | Fresenius Medical Care Suomi Oy | Helsinki | 100 % |
| Lebanon | Fresenius Medical Care Lebanon s.a.r.L. | Beirut | 99 % |
| The Netherlands | Fresenius Medical Care Nederland B.V. | Nieuwkuijk | 100 % |
| Austria | Fresenius Medical Care Austria GmbH | Vienna | 100 % |
| Denmark | Fresenius Medical Care Danmark A/S | Albertslund | 100 % |
| Switzerland | Fresenius Medical Care (Schweiz) AG | Oberdorf | 100 % |
| Bosnia&Herzegovina | Fresenius Medical Care BH d.o.o. | Sarajevo | 100 % |
| Estonia | Fresenius Medical Care Estonia OÜ | Tartu | 100 % |
| U.S. | Fresenius Medical Care Holdings Inc. | New York | 100 % |
|---|---|---|---|
| National Medical Care Inc. | Delaware | 100 % | |
| Fresenius U.S.Inc. | Massachusetts | 100 % | |
| Renal Care Group Inc. | Delaware | 100 % | |
| Mexico | Fresenius Medical Care Mexico S.A. | Guadalajara | 100 % |
| Argentina | Fresenius Medical Care Argentina S.A. | Buenos Aires | 100 % |
|---|---|---|---|
| Colombia | Fresenius Medical Care Colombia S.A. | Bogotá | 100 % |
| Brazil | Fresenius Medical Care Ltda.1 | São Paulo | 100 % |
| Chile | Fresenius Medical Care Chile S.A. | Santiago de Chile | 100 % |
| Venezuela | Fresenius Medical Care de Venezuela C.A. | Caracas | 100 % |
| Peru | Fresenius Medical Care del Peru S.A. | Lima | 100 % |
| Ecuador | Manadialisis S.A. | Quito | 100 % |
| Asia-Pacific | |||
|---|---|---|---|
| Australia | Fresenius Medical Care Australia PTY Ltd. | Sydney | 100 % |
| Japan | Fresenius-Kawasumi Co. Ltd. | Tokyo | 70 % |
| China | Fresenius Medical Care (Shanghai) Co., Ltd. | Shanghai | 100 % |
| Fresenius Medical Care Hong Kong Limited | Hong Kong | 100 % | |
| Singapore | Fresenius Medical Care Singapore Pte. Ltd. | Singapore | 100 % |
| Taiwan | Fresenius Medical Care Taiwan Co., Ltd. | Taipei | 100 % |
| India | Fresenius Medical Care India Private Limited | New Delhi | 100 % |
| Indonesia | PT Fresenius Medical Care Indonesia | Jakarta | 100 % |
| Malaysia | Fresenius Medical Care Malaysia Sdn. Bhd. | Kuala Lumpur | 100 % |
| Philippines | Fresenius Medical Care Philippines, Inc. | Makati City | 100 % |
| South Korea | Fresenius Medical Care Korea Ltd. | Seoul | 100 % |
| Thailand | Fresenius Medical Care (Thailand) Ltd. | Bangkok | 100 % |
| Pakistan | Fresenius Medical Care Pakistan (Private) Ltd. | Lahore | 100 % |
| Vietnam | Fresenius Medical Care Vietnam LLC. | Ho Chi Minh City | 100 % |
Production Selling Dialysis services
1 Via franchise centers.
Simplified chart of Fresenius Medical Care's regional organization. Line of Business in 2012 in respective country. Some percentage of subsidiaries represent direct and indirect shareholdings.
120
Chapter 3.3
| T. 3.3.1 | Major Subsidiaries 2012 | |||||
|---|---|---|---|---|---|---|
| in \$ M, except employees | ||||||
| Ownership1 in % |
Revenue2 | Net income/ (-loss)2 |
Equity Dec. 312 |
Employees Dec. 313 |
||
| Name and location | ||||||
| Europe/ Middle | ||||||
| East/ Africa | ||||||
| Germany | FMC Deutschland GmbH, Bad Homburg v.d.H. | 100 | 1,895.1 | 0.0 | 1,354.3 | 3,246 |
| FMC GmbH, Bad Homburg v.d.H. | 100 | 337.4 | 0.0 | 59.7 | 309 | |
| France | FMC France S.A.S., Fresnes | 100 | 136.9 | 4.3 | 23.5 | 198 |
| FMC SMAD S.A.S., Savigny | 100 | 132.3 | 7.7 | 58.4 | 408 | |
| Great Britain | FMC (U.K.) Ltd., Nottinghamshire | 100 | 96.0 | 4.7 | 36.9 | 189 |
| Italy | FMC Italia S.p.A., Cremona | 100 | 140.9 | 7.3 | 69.4 | 212 |
| SIS-TER S.p.A., Cremona | 100 | 85.9 | 3.6 | 25.9 | 304 | |
| Spain | FMC España, S.A., Madrid | 100 | 123.2 | 4.9 | 52.5 | 190 |
| National Medical Care of Spain, S.A., Madrid | 100 | 0.6 | (0.1) | 74.6 | 1,456 | |
| South Africa | FMC South Africa (PTY) Ltd., Gauteng | 100 | 46.6 | 2.3 | 18.1 | 479 |
| Turkey | Fresenius Medikal Hizmetler A.S., Istanbul | 100 | 75.5 | 1.9 | 40.7 | 209 |
| Belgium | FMC Belgium N.V., Antwerp | 100 | 43.2 | 3.7 | 13.1 | 38 |
| Marocco | FMC Maroc S.A., Casablanca | 100 | 15.6 | 1.1 | 10.8 | 64 |
| Serbia | FMC Srbija d.o.o., Vrsac | 100 | 65.8 | 7.7 | 49.8 | 622 |
| Poland | FMC Polska S.A., Poznan | 100 | 60.2 | 5.4 | 22.9 | 74 |
| Fresenius Nephrocare Polska Sp.z.o.o., Poznan | 100 | 76.4 | 0.7 | 19.7 | 1,111 | |
| Portugal | FMC Portugal, S.A., Maia | 100 | 0.0 | 3.3 | 17.5 | 47 |
| NephroCare Portugal, S.A., Lisbon | 100 | 136.0 | 8.8 | 89.4 | 1,017 | |
| Romania | FMC Romania Srl, Bucharest | 100 | 39.2 | 4.0 | 18.6 | 71 |
| Slovakia | FMC Slovensko, spol. s.r.o., Pieštany | 100 | 21.7 | 2.2 | 12.6 | 22 |
| Slovenia | FMC Slovenija d.o.o., Zrece | 100 | 9.5 | 1.0 | 1.8 | 11 |
| NEFRODIAL d.o.o., Zrece | 100 | 13.0 | (0.7) | 2.8 | 89 | |
| Czech Republic | FMC CR, s.r.o., Prague | 100 | 52.1 | 4.8 | 15.9 | 64 |
| Hungary | FMC Magyarország Egészségügyi Korlátolt Felelösségü Társaság, Budapest |
100 | 26.1 | 0.2 | 23.9 | 41 |
| FMC Dializis Center Egészségügyi Kft., Budapest |
100 | 42.2 | 0.1 | 0.4 | 627 | |
| Denmark | FMC Danmark A/S, Albertslund | 100 | 15.1 | 0.6 | 2.7 | 24 |
| Finland | FMC Suomi OY, Helsinki | 100 | 18.9 | 1.4 | 5.6 | 25 |
| Lebanon | FMC Lebanon s.a.r.l., Beirut | 99 | 4.5 | 0.1 | 1.0 | 13 |
| The | ||||||
| Netherlands | FMC Nederland B.V., Nieuwkuijk | 100 | 27.5 | 1.4 | 6.4 | 43 |
| Austria | FMC Austria GmbH, Vienna | 100 | 31.1 | 1.4 | 4.2 | 30 |
| Russia | ZAO Fresenius SP, Moscow | 100 | 118.0 | 12.2 | 33.7 | 137 |
| Sweden | FMC Sverige AB, Stockholm | 100 | 34.5 | 3.3 | 9.5 | 35 |
| Switzerland | FMC (Schweiz) AG, Oberdorf | 100 | 36.6 | 3.2 | 12.2 | 44 |
| Estonia | OÜ FMC Estonia, Tartu | 100 | 2.8 | 0.2 | 0.7 | 22 |
| Ukraine | FMC Ukraine TOV, Kiev | 100 | 5.2 | (0.6) | 3.1 | 82 |
| T. 3.3.1 | Major Subsidiaries 2012 in \$ M, except employees |
|||||
|---|---|---|---|---|---|---|
| Ownership1 in % |
Revenue2 | Net income/ (-loss)2 |
Equity Dec. 312 |
Employees Dec. 313 |
||
| Name and location North America |
||||||
| U.S. | FMC Holdings Inc., New York | 100 | 8,850.9 | 786.6 | 6,051.8 | 49,637 |
| Mexico | FMC de Mexico, S.A., de C.V. Guadalajara, Jalisco4 |
100 | 162.2 | 15.6 | 35.5 | 1,646 |
| Latin America | ||||||
| Argentina | FMC Argentina S.A., Buenos Aires | 100 | 226.1 | 18.2 | 90.5 | 2,735 |
| Colombia | FMC Colombia S.A., Bogotá | 100 | 155.7 | 15.8 | 146.1 | 1,303 |
| Brazil | FMC Ltda., São Paulo | 100 | 158.9 | 10.4 | 94.5 | 632 |
| Chile | Pentafarma S.A., Santiago | 100 | 20.5 | 2.9 | 12.3 | 67 |
| Venezuela | FMC de Venezuela, C.A., Caracas | 100 | 41.7 | 0.5 | 17.3 | 631 |
| Peru | FMC del Peru S.A., Lima | 100 | 6.9 | 0.4 | 2.0 | 22 |
| Ecuador | Manadialisis S.A., Quito | 100 | 14.4 | 0.9 | 1.8 | 323 |
| Asia-Pacific | ||||||
| Australia | FMC Australia PTY Ltd., Sydney | 100 | 143.2 | 13.0 | 71.6 | 364 |
| Japan | FMC Japan K.K., Tokyo | 100 | 81.4 | (4.6) | (36.9) | 630 |
| Fresenius-Kawasumi Co., Ltd., Tokyo | 70 | 19.0 | 0.2 | 22.9 | 61 | |
| China | FMC (Shanghai) Co., Ltd., Shanghai | 100 | 207.7 | 10.0 | 81.3 | 276 |
| FMC (Jiangsu) Co. Ltd., Changshu | 100 | 24.6 | (1.3) | 23.8 | 526 | |
| Hong Kong | FMC Hong Kong Limited, Hong Kong | 100 | 29.4 | 1.7 | 46.8 | 41 |
| Biocare Technology Company Limited, Hong Kong |
100 | 33.9 | (1.6) | 15.4 | 15 | |
| Excelsior Renal Service Co., Limited, Hong Kong |
51 | 31.7 | 1.5 | 21.5 | 870 | |
| Singapore | FMC Singapore Pte. Ltd., Singapore | 100 | 7.5 | 0.6 | 4.0 | 60 |
| Taiwan | FMC Taiwan Co., Ltd., Taipei | 100 | 63.2 | 4.0 | 30.9 | 103 |
| Jiate Excelsior Co., Ltd. , Taipei | 51 | 4.6 | (0.1) | 7.5 | 48 | |
| India | FMC India Private Limited, New Delhi | 100 | 23.9 | 0.3 | 5.4 | 131 |
| Indonesia | PT FMC Indonesia, Jakarta | 100 | 16.5 | 3.0 | 12.6 | 40 |
| Malaysia | FMC Malaysia Sdn. Bhd., Kuala Lumpur | 100 | 24.1 | 2.0 | 18.6 | 195 |
| Philippines | FMC Philippines, Inc., Makati City | 100 | 19.6 | 2.9 | 16.8 | 48 |
| FMC Renalcare Corp., Makati City | 100 | 1.0 | 0.7 | 0.3 | 37 | |
| South Korea | FMC Korea Ltd., Seoul | 100 | 123.1 | 6.6 | 64.5 | 200 |
| NephroCare Korea Inc., Seoul | 100 | 7.1 | 1.3 | 4.0 | 13 | |
| Thailand | FMC (Thailand) Ltd., Bangkok | 100 | 22.4 | 2.6 | 11.8 | 46 |
| NephroCare (Thailand) Co., Ltd., Bangkok | 100 | 15.3 | 0.7 | 2.4 | 35 | |
| Pakistan | FMC Pakistan (Private) Ltd., Lahore | 100 | 6.7 | 0.7 | 2.7 | 34 |
| Vietnam | FMC Vietnam LLC., Ho Chi Minh City | 100 | 1.0 | (0.1) | 0.4 | 15 |
1 Direct and indirect interest
2 These figures comply with the financial statements prepared in accordance with the specific generally accepted accounting principles of each country and do not reflect the amounts included in the Consolidated Financial Statements. Shareholders` equity and earnings are translated at the year-end current rate, and sales are translated at the average rate of the year.
3 Full-time equivalents
4 Included in U.S.-GAAP-closing of FMC Holdings Inc.
Chapter 3.4
| T. 3.4.1 | Five-Year Summary | ||||
|---|---|---|---|---|---|
| \$ in THOUS, except share data | |||||
| Statements of Income | 2012 | 2011 | 2010 | 2009 | 2008 |
| Net revenue1 | 13,800,282 | 12,570,515 | 11,844,194 | 11,047,489 | 10,403,182 |
| Costs of revenue2 | 9,199,029 | 8,418,474 | 8,009,132 | 7,504,498 | 7,068,566 |
| Gross profit1, 2 |
4,601,253 | 4,152,041 | 3,835,062 | 3,542,991 | 3,334,616 |
| Selling, general and administrative expenses1, 2 |
2,224,715 | 2,001,825 | 1,823,674 | 1,698,119 | 1,581,945 |
| Gain on sale of dialysis clinics | 36,224 | 4,551 | – | – | – |
| Research and development expenses | 111,631 | 110,834 | 96,532 | 93,810 | 80,239 |
| Income from equity method investees | 17,442 | 30,959 | 8,949 | 4,534 | – |
| Other operating expenses | 100,000 | – | – | – | – |
| Operating income (EBIT) | 2,218,573 | 2,074,892 | 1,923,805 | 1,755,596 | 1,672,432 |
| Investment gain | 139,600 | – | – | – | – |
| Interest expenses, net | 426,060 | 296,533 | 280,064 | 299,963 | 336,742 |
| Income before income taxes | 1,932,113 | 1,778,359 | 1,643,741 | 1,455,633 | 1,335,690 |
| Income tax expense | 605,136 | 601,097 | 578,345 | 490,413 | 475,702 |
| Net income attributable to noncontrolling interests | 140,168 | 106,108 | 86,879 | 74,082 | 42,381 |
| Net income attributable to shareholders of | |||||
| FMC AG & Co. KGaA | 1,186,809 | 1,071,154 | 978,517 | 891,138 | 817,607 |
| Income per ordinary share | 3.89 | 3.54 | 3.25 | 2.99 | 2.75 |
| Income per preference share | 3.92 | 3.56 | 3.28 | 3.02 | 2.78 |
| Earnings before interest and taxes, depreciation | |||||
| and amortization (EBITDA) | 2,821,469 | 2,632,175 | 2,427,029 | 2,212,681 | 2,088,103 |
| Personnel expenses | 4,871,606 | 4,362,315 | 3,967,732 | 3,708,951 | 3,506,423 |
| Depreciation | 515,455 | 479,438 | 432,930 | 396,860 | 368,304 |
| Amortization | 87,441 | 77,845 | 70,294 | 60,225 | 47,367 |
| Excluding special items EBITDA3 |
2,931,469 | 2,632,175 | 2,427,029 | 2,212,681 | 2,088,103 |
| EBIT3 | 2,328,573 | 2,074,892 | 1,923,805 | 1,755,596 | 1,672,432 |
| Net income attributable to shareholders of | |||||
| FMC AG & Co. KGaA4 | 1,117,525 | 1,071,154 | 978,517 | 891,138 | 817,607 |
| Earnings per ordinary share4 | 3.66 | 3.54 | 3.25 | 2.99 | 2.75 |
| Balance Sheet | |||||
| Current assets | 6,127,456 | 5,695,019 | 5,152,594 | 4,727,800 | 4,211,997 |
| Non-current assets | 16,198,542 | 13,837,831 | 11,942,067 | 11,093,515 | 10,707,679 |
| Total assets | 22,325,998 | 19,532,850 | 17,094,661 | 15,821,315 | 14,919,676 |
| Short-term debt | 456,570 | 1,716,590 | 1,569,885 | 484,418 | 1,139,599 |
| Other current liabilities | 2,713,421 | 2,546,021 | 2,219,838 | 2,125,297 | 2,004,813 |
| Current liabilities | 3,169,991 | 4,262,611 | 3,789,723 | 2,609,715 | 3,144,412 |
| Long-term debt | 7,841,914 | 5,494,810 | 4,309,676 | 5,084,017 | 4,598,075 |
| Other non-current liabilities | 1,583,573 | 1,303,921 | 1,191,642 | 1,097,890 | 1,054,403 |
| Non-current liabilities | 9,425,487 | 6,798,731 | 5,501,318 | 6,181,907 | 5,652,478 |
| Total liabilities | 12,595,478 | 11,061,342 | 9,291,041 | 8,791,622 | 8,796,890 |
| Noncontrolling interest subject to put provisions5 | 523,260 | 410,491 | 279,709 | 231,303 | 162,166 |
| Equity5 | 9,207,260 | 8,061,017 | 7,523,911 | 6,798,390 | 5,960,620 |
| Total liabilities and equity | 22,325,998 | 19,532,850 | 17,094,661 | 15,821,315 | 14,919,676 |
| Total debt | 8,298,484 | 7,211,400 | 5,879,561 | 5,568,435 | 5,737,674 |
| Working capital6 | 3,529,035 | 3,263,998 | 3,047,756 | 2,717,503 | 2,322,184 |
1 Revenues have been restated to reflect the retrospective adoption of Accounting Standards Update 2011-07, Health Care Entities. Bad debt expense was reclassified from selling, general and administrative expenses as a reduction of revenue (2011: \$225 M; 2010: \$209 M; 2009: \$200 M; 2008: \$209 M). 2 Freight expense was reclassified from selling, general and administrative expenses to costs of revenue to harmonize the presentation for all segments (2011: \$144 M; 2010: \$100 M; 2009: \$89 M; 2008: \$85 M).
3 2012: Excluding charges of \$110 M related to the amendment of the Venofer agreement and a donation to the American Society of Nephrology.
4 2012: Excluding the investment gain of \$140 M and charges of \$71 M after tax (\$110 M before tax), related to the amendment to the Venofer agreement and a donation to the American Society of Nephrology.
5 The Company has reclassified noncontrolling interests, which are subject to put provisions from equity into a mezzanine positon in the Consolidated Balance Sheets in 2010. The Consolidated Statement of Shareholders' Equity has been adjusted till 2008 retrospectively.
6 Current assets less current liabilities (excluding short-term debt and accruals for special charge recorded in accrued expenses and other current liabilities).
| T. 3.4.1 | Five-Year Summary | ||||
|---|---|---|---|---|---|
| \$ in THOUS, except share data | |||||
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Credit Rating | |||||
| Standard & Poor's | |||||
| Corporate credit rating | BB+ | BB | BB | BB | BB |
| Subordinated debt Moody's |
BBB– | BBB– | BB | BB | BB |
| Corporate credit rating | Ba1 | Ba1 | Ba1 | Ba1 | Ba1 |
| Subordinated debt | Baa3 | Baa3 | Ba3 | Ba3 | Ba3 |
| Fitch | |||||
| Corporate credit rating | BB+ | BB+ | BB | BB | BB |
| Subordinated debt | BBB | BBB | B+ | B+ | B+ |
| Cash Flow | |||||
| Net cash provided by operating activities Capital expenditures, net |
2,039,063 (665,643) |
1,446,482 (570,530) |
1,368,125 (507,521) |
1,338,617 (561,876) |
1,016,398 (673,510) |
| Free cash flow | 1,373,420 | 875,952 | 860,604 | 776,741 | 342,888 |
| Acquisitions and investments, net of cash acquired | |||||
| and purchases of intangible assets | (1,878,908) (1,785,329) | (764,338) | (188,113) | (276,473) | |
| Proceeds from divestitures | 263,306 | 9,990 | 146,835 | 51,965 | 58,582 |
| Share data | |||||
| Year-end share price Frankfurt, XETRA in € | |||||
| Ordinary shares | 52.31 | 52.50 | 43.23 | 36.94 | 33.31 |
| Preference shares | 42.24 | 42.95 | 35.21 | 33.31 | 33.50 |
| Year-end (ADR) share price New York in \$ | |||||
| Ordinary shares | 34.30 | 33.99 | 28.85 | 26.51 | 23.59 |
| Preference shares | 27.60 | 27.50 | 24.00 | 22.80 | 21.50 |
| Weighted average number of ordinary shares Weighted average number of preference shares |
301,139,652 3,969,307 |
299,012,744 3,961,617 |
296,808,978 3,912,348 |
294,418,795 3,842,586 |
293,233,477 3,795,248 |
| Total dividend amount in € THOUS | 230,114 | 209,929 | 196,533 | 182,853 | 172,767 |
| Dividend per ordinary share7 in € | 0.75 | 0.69 | 0.65 | 0.61 | 0.58 |
| Dividend per preference share7 in € | 0.77 | 0.71 | 0.67 | 0.63 | 0.60 |
| Employees | |||||
| Full-time equivalents | 86,153 | 79,159 | 73,452 | 67,988 | 64,666 |
| Operational ratios in % | |||||
| EBITDA margin8 | 20.4 | 20.9 | 20.5 | 20.0 | 20.1 |
| EBIT margin8 | 16.1 | 16.5 | 16.2 | 15.9 | 16.1 |
| EPS growth | 10.0 | 8.7 | 8.9 | 8.5 | 13.5 |
| Organic revenue growth (currency-adjusted) Return on invested capital (ROIC)3, 9 |
4.9 8.1 |
2.2 8.7 |
5.6 8.8 |
8.1 8.5 |
7.3 8.6 |
| Return on operating assets (ROOA)3, 9 |
11.4 | 12.0 | 12.5 | 12.2 | 12.3 |
| Return on equity before taxes4, 5, 10 |
21.3 | 22.5 | 22.3 | 21.8 | 22.8 |
| Return on equity after taxes4, 5, 10 |
12.5 | 13.6 | 13.3 | 13.3 | 14.0 |
| Cash flow return on invested capital (CFROIC)3, 9 |
14.2 | 14.3 | 14.5 | 14.4 | 14.5 |
| Leverage ratio (total debt/EBITDA)9, 11 |
2.8 | 2.7 | 2.4 | 2.5 | 2.7 |
| Gearing ((total debt – cash)/equity)5 | 0.8 | 0.8 | 0.7 | 0.8 | 0.9 |
| EBITDA/Interest expenses, net3 | 6.9 | 8.9 | 8.7 | 7.4 | 6.2 |
| Cash from operating activities in percent of revenue1 | 14.8 | 11.5 | 11.6 | 12.1 | 9.8 |
| Equity ratio (equity/total assets)5 | 41.2 | 41.3 | 44.0 | 43.0 | 40.0 |
| Dialysis care data | |||||
| Treatments in M | 38.6 | 34.4 | 31.7 | 29.4 | 27.9 |
| Patients | 257,916 | 233,156 | 214,648 | 195,651 | 184,086 |
| Clinics | 3,160 | 2,898 | 2,744 | 2,553 | 2,388 |
7 2012: Proposal to be approved by the Annual General Meeting on May 16, 2013.
8 2012: EBITDA margin of 21.2% and EBIT margin of 16.9% excluding the charges related to the amendment of the Venofer agreement
and a donation to the American Society of Nephrology.
9 2012: Pro forma numbers including Liberty Dialysis Holdings, Inc., after FTC mandated divestitures.
10 Return on equity has been calculated based on net income attributable to shareholders of FMC AG & Co. KGaA and the total FMC AG & Co. KGaA shareholders' equity.
11Correction of non-cash charges (2012: \$64 M; 2011: \$54 M; 2010: \$45 M; 2009: \$50 M; 2008: \$44 M).
Operating data page 4 – 5
Aging of net trade accounts receivable by major payor groups 2012 T. 1.1.1 page 13
Aging of net trade accounts receivable by major payor groups 2011 T. 1.1.2 page 14
Segment data T. 1.3.1 page 19
Key indicators for Consolidated Financial Statements T. 1.3.2 page 20
Key indicators for North America Segment T. 1.3.3 page 22
Key indicators for International Segment T. 1.3.4 page 23
Development of days sales outstanding T. 1.4.1 page 26
Available sources of liquidity T. 1.4.2 page 30
Contractual cash obligations and commitments T. 1.4.3
page 30
Reconciliation of measures for consolidated totals T. 1.4.4 page 33
Foreign currency risk management T. 1.5.1 page 36
Exchange rates T. 1.5.2 page 36
Interest rate exposure T. 1.5.3 page 38
Statements
124
Chapter 3.5
Index of Tables
Consolidated Statements of Income T. 2.1.1 page 41
Consolidated Statements of Comprehensive Income T. 2.2.1 page 42
Consolidated Balance Sheets T. 2.3.1 page 42 –43
Consolidated Statements of Cash Flows T. 2.4.1 page 44 – 45
Consolidated Statement of Shareholders' Equity T. 2.5.1 page 46 – 47
Carrying amounts VIEs T. 2.6.1 page 49
Estimated fair values of assets acquired and liabilities assumed – preliminary T. 2.6.2 page 58
Pro forma financial information T. 2.6.3 page 59
Inventories T. 2.6.4 page 62
Prepaid expenses and other current assets T. 2.6.5 page 63
Acquisition or manufacturing costs T. 2.6.6 page 63
Depreciation T. 2.6.7 page 64
Net book value T. 2.6.8 page 64
Acquisition costs T. 2.6.9 page 65
Amortization T. 2.6.10 page 66
Net book value T. 2.6.11 page 67
Estimated amortization expense T. 2.6.12 page 67
Goodwill T. 2.6.13 page 68
Accrued expenses and other current liablilities T. 2.6.14 page 68
Short-term borrowings T. 2.6.15 page 69
Long-term debt and capital lease obligations T. 2.6.16 page 70
2012 Credit Agreement and Amended 2006 Senior Credit Agreement T. 2.6.17 page 72
Senior Notes T. 2.6.18 page 72
EIB credit facilities T. 2.6.19 page 74
Annual payments T. 2.6.20 page 75
Funded status of employee benefit plans T. 2.6.21 page 77
Other comprehensive income (loss) related to pension liabilities T. 2.6.22 page 78
Weighted-average assumptions for benefit obligations T. 2.6.23 page 78
Components of net periodic benefit cost T. 2.6.24 page 79
Weighted-average assumptions for net periodic benefit costs T. 2.6.25 page 79
Expected benefit payments T. 2.6.26 page 79
Plan assets T. 2.6.27 page 80
Noncontrolling interests subject to put provisions T. 2.6.28 page 82
U.S. patient service revenue T. 2.6.29 page 85
Reconciliation of basic and diluted earnings per share T. 2.6.30 page 85
Reconciliation of options outstanding T. 2.6.31 page 89
Fully vested outstanding and exercisable options T. 2.6.32 page 89
Assumptions T. 2.6.33 page 90
Income before income taxes T. 2.6.34 page 90
Expense (benefit) for income taxes T. 2.6.35 page 91
Reconciliation of income taxes T. 2.6.36 page 91
Deferred income tax assets and liabilities T. 2.6.37 page 92
Net operating loss carryforwards T. 2.6.38 page 92
Reconciliation of unrecognized tax benefits (net of interest) T. 2.6.39 page 94
Future minimum rental payments T. 2.6.40 page 94
Carrying amount and fair value of non-derivative financial instruments T. 2.6.41 page 101
Derivative financial instruments valuation T. 2.6.42 page 104
The effect of derivatives on the consolidated financial statements T. 2.6.43 page 105
The effect of derivatives on the consolidated financial statements T. 2.6.44 page 105
Other comprehensive income (loss) T. 2.6.45 page 106
Changes in accumulated other comprehensive income (loss) by component T. 2.6.46 page 107
Reclassifications out of accumulated other comprehensive income T. 2.6.47 page 107
Supplementary cash flow information T. 2.6.48 page 108
Segment information T. 2.6.49 page 109
Geographic division T. 2.6.50 page 110
Regional organization T. 3.2.1 page 119
Major subsidiaries T. 3.3.1 page 120 – 121
Five-year summary T. 3.4.1 page 122 – 123
126
Chapter 3.6
Acquisition page 27, 75
Auditor's report page 114
Assets page 65
Balance sheet page 42
Business segment information page 19, 108
Cash flow page 25, 44, 108
Consolidated financial statements page 19, 41
Debt and liabilities page 68
Derivative financial instruments page 51, 101
Dividend page 84
Earnings per ordinary share page 55, 85
EBIT (Earnings before interest and taxes) page 19
EBITDA (Earnings before interest, taxes and depreciation) page 33
Financial condition and results of operations page 15
Financial instruments page 51, 101
Goodwill page 9, 50, 65
Income taxes page 90
Inventories page 49, 62
Investment page 27
Leases page 49, 63, 70, 94
Liquidity and capital resources page 25
Market risk page 34
Net income page 19, 41
Operating developments page 19
Other comprehensive income (loss) page 106
Pension page 55, 76
Property, plant and equipment page 63
Revenue page 19, 52
Shareholders' equity page 46, 82
Statement of income page 41
Stock option page 84, 86
127 Chapter 3.7
61346 Bad Homburg v.d.H. Germany Tel. + 49 6172 609 0 www.fmc-ag.com
Head of Investor Relations & Corporate Communications Tel. + 49 6172 609 25 25 Fax + 49 6172 609 23 01 E-Mail: [email protected]
Tel. + 49 6172 609 52 16 Fax + 49 6172 609 23 01 E-Mail: [email protected]
Terry L. Morris Tel. + 1 800 948 25 38 Fax + 1 615 345 56 05 E-Mail: [email protected]
The Bank of New York Mellon P.O. Box 358516 Pittsburgh, PA 15252-8516, U.S. Tel. + 1 866 246 7190 (toll-free number in the U.S.) Tel. + 1 201 680 6825 (international) E-Mail: [email protected] www.bnymellon.com/shareowner
Subject to change.
This annual report is also available in German and may be obtained from the Company upon request.
Annual reports, interim reports, and further information on the Company are also available on our website: www.fmc-ag.com
Printed reports can be ordered online, by phone or in writing from Investor Relations.
Published by: Fresenius Medical Care AG & Co. KGaA
Editorial office: Investor Relations
Editorial deadline: March 13, 2013
Concept and design: hw.design gmbh
Copy editing: Textpertise, Heike Virchow
Produced by: Eberl Print GmbH, Immenstadt i. Allgäu This report contains forward-looking statements that are based on plans, projections and estimates and subject to various risks and uncertainties. Actual results could differ materially from those described in these forward-looking statements due to certain factors. The risks and uncertainties are detailed in Fresenius Medical Care AG & Co. KGaA's reports filed with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements in this report.
The title, text, and illustrations are subject to copyright. Reproduction in whole or in part requires the prior written authorization of Fresenius Medical Care AG & Co. KGaA.
Fresenius Medical Care AG & Co. KGaA Registered seat and commercial register: Hof an der Saale (Germany), HRB 4019
Chairman of the Supervisory Board: Dr. Gerd Krick
General partner: Fresenius Medical Care Management AG
Registered seat and commercial register: Hof an der Saale (Germany), HRB 3894
Management Board: Rice Powell (Chairman), Michael Brosnan, Roberto Fusté, Dr. Emanuele Gatti, Ronald Kuerbitz, Dr. Rainer Runte, Dr. Olaf Schermeier, Kent Wanzek
Chairman of the Supervisory Board: Dr. Ulf M. Schneider
The production of and the paper used for the Fresenius Medical Care Annual Report 2012 are certified in accordance with the criteria of the Programme for the Endorsement of Forest Certification (PEFC). Furthermore, the Annual Report 2012 has been produced in a carbon-neutral manner. The CO2 emissions caused by its production were compensated for by certified climate protection projects.
April 30, 2013 Report on the First Quarter 2013
May 16, 2013 Annual General Meeting Frankfurt am Main, Germany
May 17, 2013 Payment of Dividend subject to the approval of the Annual General Meeting
July 30, 2013 Report on the Second Quarter 2013
November 5, 2013 Report on the Third Quarter 2013
May 18 – 21, 2013 50th Congress of the European Renal and the European Dialysis and Transplantation Association (ERA-EDTA) Istanbul, Turkey
August 30 – September 3, 2013 16th Congress of the Pediatric Nephrology Association (IPNA) Shanghai, China
August 31 – September 3, 2013 42nd International Conference of the European Dialysis & Transplant Nurses Association and European Renal Care Association (EDTNA / ERCA) Malmö, Sweden
September 11 – 14, 2013 6th Congress of the International Society for Hemodialysis (ISHD) Buenos Aires, Argentina
October 11 – 14, 2013 11th European Peritoneal Dialysis Meeting (EuroPD) Maastricht, Netherlands
November 5 – 10, 2013 ASN Kidney Week 2013 The American Society of Nephrology Atlanta, U.S.
Else-Kröner-Str. 1 61352 Bad Homburg v.d.H., Germany www.fmc-ag.com
10 C o n t i n u i t y
22 t R e at y o u R kiDneys Right!
26 w h e n y o u R kiDneys fail
30 D i a ly s i s at home
38 fooD & Dialysis
44 500,000th Dialysis maChine
52 g R o w i n g togetheR
56 f a C t s anD figuRes
62 Review 2012
in an interview about the CEO transition and the meaning of "continuity" at Fresenius Medical Care
On January 1, 2013, Rice Powell succeeded Dr. Ben J. Lipps as Chief Executive Officer (CEO) and Chairman of the Management Board of Fresenius Medical Care. Rice Powell previously served as Vice Chairman of the Management Board and Member of the Management Board responsible for the region North America. In an interview, they both describe their personal view of ongoing developments at Fresenius Medical Care as well as the challenges and opportunities arising from these, and why the Company is well positioned for long-term success in the future.
Con tinuity
4
2012 was a very successful year for Fresenius Medical Care. We achieved record results yet again – for the 16th year in a row. We continued to expand our strategic growth initiatives, specifically our global clinic network. But more importantly, we are very proud of the continued progress we are making to promote the best possible patient care and the highest product quality, while growing the business profitably and in line with our values.
It has also been a rewarding year for North America. We successfully grew our core business and achieved our key quality goals. We made significant progress with the integration of the acquired Liberty Dialysis business and worked through the new U.S. reimbursement system for dialysis that was introduced in 2011. We also provided support for our dialysis patients and fellow employees who were affected by Hurricane Sandy. Nevertheless, we can never be complacent about what we have achieved in the past since we know that the overall environment will not get any easier. I think we are very well positioned to meet potential future challenges and opportunities on the product as well as on the therapy side of our business.
Since Fresenius Medical Care was founded back in 1996, we have been able to build our business organically as well as through acquisitions from about \$1 billion in revenues to very close to \$14 billion in 2012. At the same time, our net income has grown from less than \$100 million to \$1.2 billion. But more than that, we have treated countless patients in our clinics over the years. Today, we provide more than 38 million dialysis treatments a year to nearly 260,000 patients worldwide in our clinics; that's about six times as many as in 1996.
I remember most clearly when – after a number setbacks – we built the first artificial kidney and were
able to treat the first patients. You have to consider that up to the early 1970s, kidney failure was a death sentence. Soon, we were able to increase the life expectancy of patients with the help of dialysis and the artificial kidney by a month. One month became two, then years. And of course today, we have thousands of patients living on dialysis for decades. In the U.S., for example, we have been able to reduce the mortality rates in our clinics by 35% in the last ten years. So it has been a real pleasure for me to see all the efforts in the industry to improve the quality of life of patients. Today, products that are used for dialysis really differ in quality compared with those available when I started. I am proud to be part of the company that has spearheaded these advancements for patients.
For me, it is the scope of our business and how it is grown. Throughout its history, Fresenius Medical Care has been the market leader in an industry that is expected to carry on growing steadily in the future. One key reason for this is our vertically integrated company structure. This means, for instance, that we can introduce and study new products, therapies and additional services in our Fresenius Medical Care clinics. Our own staff there are encouraged to look critically at new products and give us feedback immediately. On the one hand, this guarantees very high success rates for Fresenius Medical Care, while improving effi-
ciency in delivering health care on the other.
First of all, I have to say that I am really proud that Rice joined Fresenius Medical Care back in 1997. He has done an excellent job of running our business in North America. I think Rice and myself, we both share the same dedication to the quality of care that we provide to patients, and that has paid off over the years. So it was a real pleasure for me to pass over the baton to Rice at the beginning of 2013. I have total confidence in him and in the whole management
team. But we have been working together for over a decade. So there is no advice I can give him from a business perspective that he does not already know. Maybe one personal tip: I have realized over the years that the quietest time of the day in any office around the globe is 4:30 am in the morning.
Absolutely, I still remember the interview. We had some interesting discussions and, after a short time, we decided that it would work for both of us and the Company. I literally locked the door so that he couldn't get away, got a contract and Rice signed it before he left.
Obviously, running global operations means that a lot of responsibilities are being added to my daily schedule. We are a decentralized vertically integrated company with a global footprint and a very international
management team. I think that sounds like a challenge in itself. Creating trust is a major task – internally as well as externally – with any kind of CEO transition. I am very thankful to have such deep support from my colleague and predecessor Ben Lipps. And being in the office at 4:30 am certainly sounds like a
challenge for me as a father with two daughters.
Let me give you a couple of examples relating to our service and our product business. On the service side of our business, we are, of course, keeping an eye on how reimbursements develop globally. In the U.S. we have already successfully transitioned to the bundled reimbursement system. With our main focus on quality and our vertically integrated company structure, we have built a solid base to deal with any further developments in reimbursement schemes. On the product side, we are paranoid about product quality – you have to be in the health care industry. We regularly review our global production management systems and try to identify any irregularities in the production process that could cause harm to patients. Obviously no one can guarantee that there will be no issues, but I think our strength is that we do everything we can to eliminate any problem as soon as possible. Additionally, Fresenius Medical Care is in a strong position with a long-standing and proven management team that has extensive and unique experience in the global renal industry.
I feel blessed to have been part of this industry for 46 years, 13 years of which I served as the CEO of Fresenius Medical Care. The tremendous support and dedication of all our employees in providing the best care in our more than 3,000 dialysis clinics, along with the best dialysis products, has allowed our Company to be highly successful and become a unique global company. I am so proud of Fresenius Medical Care's many achievements over the past years. More than 1.5 million dialysis patients around the world depend
Con tinuity
7 I n t e r v i
e w
on our life-saving products. Every 0.8 seconds we provide a dialysis treatment somewhere on the globe, and over four million people rely on Fresenius Medical Care to some degree.
As we have tried to show with the guiding theme of this year's report, we will be focusing on continuity. That also means we cannot stand still since our environment is not static. There are so many opportunities but also challenges to meet in the future and my goal is to make sure that we are in a position to deal with them as well as we have in the past, or even better. Of course, we give top priority to providing the best-quality products and services. You cannot be in the health care business without putting quality first. Lots of people count on us delivering on our promises: patients, employees, shareholders. So that
will be a focus of mine, as it has been Ben's.
I derive my strength from the dedication of our employees. Some of them have been working with us for over two decades now and lots of strong relationships have evolved during that time. Also, as CEO of a company that is committed to taking care of patients, you have the opportunity to meet patients who have managed to survive on dialysis for many years. That is really satisfying to see. One example I remember very well was meeting a patient who had been on dialysis for more than 30 years. I handed over an award created for patients who are on dialysis that long. The patient's reaction and his feedback showed me that all the energy and time we invest as a management team and as a company is worthwhile.
It is very impressive to see how Fresenius Medical Care has expanded and in particular to see how many employees have grown in their work and in their teams. I am really looking forward to promoting further growth – for Fresenius Medical Care and for our employees. I want to be a builder, not a renovator, and look forward to building or adding new businesses. Moreover, in the last 15 years and especially during my time as a Management Board member, I have had the opportunity to meet many people, mainly in North America. Now, I am really looking forward to meeting people from all the divisions worldwide and spending more time understanding the cultural differences in our businesses.
Mr . Powell, D r . L i pp s , thank you fo r the inte r v i e w .
Con tinuity
9
I n t e r v e w
10
Con tinuity
S T A E M E N
The treatment of chronic kidney disease is a medical success story that Fresenius Medical Care has contributed to substantially in the past few decades through new and improved treatment methods, innovative technologies, and a global network of dialysis centers. But new challenges are always around the corner. Continuously enhancing therapies, technical possibilities and the infrastructure remains a huge task.
Two long-serving employees and a clinician and scientist from Fresenius Medical Care, a nurse, and a dialysis patient share their personal experience and tell us what they see as the greatest advances in the past and the main goals for the future.
P r of. B e r n a rd Canau d Nephrologist, Chairman of the EMEALA Medical Board, Fresenius Medical Care
"Dialysis" immediately implies to me the most successful life-sustaining therapy in the field of medicine. Today, more than 2.2 million patients owe their survival to well-established dialysis treatment modalities.
G unthe r K lotz Executive Vice President Central Europe, Fresenius Medical Care
At Fresenius Medical Care, we have always made every effort to put the patient first. That's why the first thing that comes into my head is the large and ever-growing number of dialysis patients who need constant intensive medical care in order to survive. But it also makes me think about the 19 years I have spent working for the Company. In this time, we have launched numerous proj-
ects to improve the care of dialysis patients.
J ü r gen F. M a r tin Nursing manager, Bensheim & Bürstadt Center for Kidney and Hypertension Disorders
Dialysis is an effective treatment for prolonging the lives of our patients. For younger patients, it can bridge the gap until they get a transplant, whereas for older patients, dialysis usually means treatment for the rest of their lives.
What first comes to my mind is being dependent on a machine. And then, of course, the restrictions on my lifestyle. It is a big change in life that requires a lot of support, also on a personal level. It is especially important to have your partner behind you.
Senior Vice President International Marketing & Medicine, Fresenius Medical Care
We can't cure with dialysis. All we can do is preserve life. That is a big difference compared to many other areas of medicine. Once patients lose their kidney function, it cannot be restored. Unless we dialyze, the patients will die within a few days. That is a pretty big psychological strain for patients. They generally regard time on a dialysis machine as lost time. The more strain dialysis puts on them, the more important the time between therapy sessions is. Quality of life moves into focus. We have to ask ourselves, what can we at Fresenius Medical Care do to help here?
W olfgang W ehmeye r Senior Vice President International Marketing & Medicine, Fresenius Medical Care
The most important change for me is that international quality standards have been introduced. As a result, the quality of dialysis has increased worldwide on a broad basis. In addition, innovative therapy methods such as hemodiafiltration (HDF) have been introduced that have been a key factor in reducing the strain of dialysis on patients.
Nephrologist, Chairman of the EMEALA Medical Board, Fresenius Medical Care
Dialysis has continuously evolved and is now standard in the field of renal replacement therapy. Looking back on my work in the 1960s, dialysis was largely experimental, but the treatment has progressed towards now being very much part of routine clinical practice. Dialysis has not only become more efficient but also significantly more reliable and much better tolerated due to decisive advances in technology. Importantly, the life expectancy of patients has also increased substantially. Furthermore, a major breakthrough around 20 years ago was the use of drugs to treat anemia, which afflicts many dialysis patients.
I first started dialysis in 1983. Back then, we were instructed on how to help set up and dismantle the machine, and afterwards we had to wash everything and clear away the bed. It was very strict and impersonal. There was no conversation at all. We were not allowed to go into the treatment room in street clothes, so I always had to get changed first. It was a very difficult time for me. I had major problems with my circulation. When I got home after treatment, I couldn't manage the stairs to the first floor without stopping. Things are different now. I feel less stressed, I've got more energy and suffer fewer side-effects. Also, everything is much friendlier these days. I can talk to the doctors, which matters a lot to me.
I started working in the dialysis sector 22 years ago. I'm now experiencing the fourth generation of dialysis machines. There have been huge advances in their development over the years. The treatment methods have improved, such as automatic blood-pressure measurement and blood-volume measurement. The latest dialysis machines now automatically detect dangers and warn users, which was rarely the case before. This is a big improvement in the safety and effectiveness of dialysis treatment to the benefit of our patients, who can be treated more individually.
Executive Vice President Central Europe, Fresenius Medical Care
The most important thing is that the quality of treatment has improved. In hemodialysis, for example, open-pore high-flux membranes are now the standard. Their filtration characteristics are similar to those of a kidney. The membranes used are more biocompatible, especially those made of polysulfone. Fresenius Medical Care was one of the driving forces behind the use of these membranes. The major technical advances in the last two decades have led to the availability of peritoneal dialysis, an alternative, effective and safe renal replacement method that has significantly increased the range of dialysis treatment options. Our Company has steadily evolved, too. For example, there always have been – and still are – new challenges that make it exciting and interesting to work here. This is certainly one reason for the low staff turnover rate. For instance, there are still lots of employees here who I have known
since I started working here 19 years ago.
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Con tinuity
13
S T A T E M E N T S
Executive Vice President Central Europe, responsible for the operations of Fresenius Medical Care in Germany, Austria, Switzerland, Belgium, Luxembourg, and the Netherlands.
Nursing manager, Bensheim & Bürstadt Center for Kidney and Hypertension Disorders
Con tinuity
14 S E
A nurse who has been working in dialysis for 22 years. As nursing manager at the Bensheim &Bürstadt Center for Kidney and Hypertension Disorders, he is now responsible for the care of around 60 dialysis patients.
Executive Vice President Central Europe, Fresenius Medical Care
The actual dialysis technology is very sophisticated nowadays. If I were a patient, I would wish for easy, safe, and pain-free vascular access. That still has not been solved yet. Usually, to obtain vascular access in patients, we have to use thick dialysis needles that enable a blood flow of up to 400 ml per minute. This is extremely unpleasant for patients. And it also puts a psychological strain on them, as problems with the access can be life-threatening.
Over the years, you learn to be content with what you have. After all, dialysis means living. I can grow old on it if I follow the rules. That makes it different to other severe illnesses. But sometimes, I do wish I could have a slightly better quality of life. For example, I would love to go swimming again. And of course, I hope that research continues making improvements for patients.
Nursing manager, Bensheim & Bürstadt Center for Kidney and Hypertension Disorders
Vascular access is a major topic for dialysis patients. We are treating increasingly older patients whose blood vessels are in poor condition. I would hope for progress to be made here. Everything else has already steadily improved.
I would welcome every extra hour that patients get to themselves. We cannot reduce the actual dialysis time any further, but we can cut down the time before and after dialysis. To do this, we need to move the treatment closer to the patient. All aspects of renal replacement therapy have been created for a hospital environment. The technology is designed for use by specialist staff. Although there are dialysis machines with simplified operating functions, the entire system still needs to be easier for patients to use themselves. That is a technical challenge. It is a matter of incorporating dialysis staff's specialist knowledge into the development of the machine, also with regard to emergency situations.
P r of. B e r n a rd Canau d Nephrologist, Chairman of the EMEALA Medical Board, Fresenius Medical Care
Ever since my early days of treating patients with endstage renal failure, I realized that these patients had a clear need to thrive, and not just to survive. As a doctor, I dream of changing the fortunes of renal patients suffering from a devastating and life-long disease. Therefore my particular wish would be: firstly, to detect signs of kidney disease even earlier to prevent kidney deterioration; secondly, to develop new therapy approaches for combatting uremic toxicity; and finally, to enhance immunotolerance of kidney transplants and make advances towards finding a cure with methods such as regenerative medicine.
We are only at the beginning in terms of research and development. The kidney is our role model. So far, we have only invented individual components and tried to minimize their side-effects. However, a real artificial organ only works if there is a connection between these elements. The next major step would be to close this loop so that it works without any external assistance, as is the case with the kidney. That is still some way off, but we are making progress in all areas and are learning to bundle this knowledge. This is the future: How can we link all information to ultimately create an artificial organ? Information technology is a particularly important factor in this process, especially in terms of assessing individual patient data and linking it up with the
reference data documented in the scientific field.
State-of-the-art, highly efficient and patient-friendly technology is still used all too rarely. Take hemodiafiltration, for example. Worldwide, there are still many suitable patients who are not being treated with this very effective method. Many people still have the impression that the necessary technology is expensive and cumbersome. This has not been the case for a long time.
We need to communicate this even more clearly.
Currently, dialysis therapies cannot mimic the natural kidney. In future, innovative technologies will facilitate the implementation of applications including integrated monitoring and feedback systems particularly for the treatment of sicker and more fragile patients. Simultaneously, advances are required in drug and concomitant therapies.
J ü r gen F. M a r tin Nursing manager, Bensheim & Bürstadt Center for Kidney and Hypertension Disorders
Our patients who are increasingly older and extremely ill are a major challenge for the nursing staff. These patients often suffer from many secondary diseases such as diabetes and all the associated complications. This has to be taken into account when fitting out a dialysis center. The requirements have been fulfilled extremely well at our new center in Bürstadt. The patients
are aware of this and feel very much at ease.
Senior Vice President International Marketing & Medicine, Fresenius Medical Care
Con tinuity
17
T A T
S
The manager has been involved in the field of dialysis technology for 26 years. As Senior Vice President, he has been responsible for International Marketing&Medicine at Fresenius Medical Care for the past nine years.
Nephrologist, Chairman of the EMEALA Medical Board, Fresenius Medical Care
Con -
tinuity
18
A E M E N T
Nephrologist and Chairman of the Medical Board of Fresenius Medical Care for Europe, Middle East, Africa and Latin America (EMEALA) since 2012 and Professor of Nephrology at Montpellier University School of Medicine since 1990.
Executive Vice President Central Europe, Fresenius Medical Care
One of the biggest challenges of our aging society is to ensure that the growing demand for healthcare services remains affordable overall. With greater public awareness, kidney disease could be detected at an earlier stage, thus delaying the use of renal replacement methods. At the same time, renal replacement therapy ought to be structured in such a way that all patients in the world in need can have access to suitable treatment.
Senior Vice President International Marketing & Medicine, Fresenius Medical Care
The biggest challenge are the patients who are not yet on dialysis. By no means all patients with end-stage renal disease around the world are being treated. Many people die because the right care is not available to them. The best quality is worthless if it doesn't reach the patients. The aim must be complete care for everyone worldwide. With our innovative strength, we should be able to provide this from an economic and organizational viewpoint.
I find that early detection of diabetes and precautionary monitoring of kidney levels are important. People should think about adopting a healthier lifestyle, as kidney failure is often also a lifestyle illness.
The greatest challenges are of a social and economic nature. Social, because kidney disease is constantly increasing in an aging society. In fact, kidney failure is a widespread and exponentially growing disease that is putting a strain on healthcare systems – and not just in economic terms. Different approaches should be developed to ensure access to dialysis treatments despite this. These should include integrated services and nursing approaches as well as more effective self-treatment options.
Nursing manager, Bensheim & Bürstadt Center for Kidney and Hypertension Disorders
When treating a large number of elderly and very ill patients, we must ensure that the equipment and care they receive are appropriate. These days, employees need to be trained in aspects that were not an issue ten years ago because there were not so many very old, in some cases even demented, patients. Another point is that more and more patients come from hospitals with multi-resistant bacteria and have to be isolated. This must be taken into account when planning new centers, primarily in the form of special isolation areas. Conservation of resources is another challenge: Waste prevention is a big issue in dialysis. The latest generation of machines already uses less electricity and water. These are savings that don't impact the treatment quality, yet
help to lower costs.
G unthe r K lotz Executive Vice President Central Europe, Fresenius Medical Care
In dialysis, as in many areas of medicine, high treatment quality helps to avoid unnecessary costs. High-quality dialysis prevents complications during and after dialysis and leads to fewer concomitant diseases. Dialysis providers should not be paid solely for performing dialysis, but also for the outcomes. This is best done with flat-rate reimbursement, where dialysis providers have to pay all costs associated with dialysis. We must work harder to convey this message to health insurance companies.
Nephrologist, Chairman of the EMEALA Medical Board, Fresenius Medical Care
Dialysis in the next decade will see an ongoing increase in the age and sickness levels of patients treated. Patients for whom a transplant is not an option need high-quality technologies and particularly intensive care in conjunction with their therapy. By offering dialysis products and services from a single experienced source, guided by a holistic philosophy, we at Fresenius Medical Care can play a key part in covering the complete lifecycle of kidney failure patients.
Nursing manager, Bensheim & Bürstadt Center for Kidney and Hypertension Disorders
I hope that dialysis will become even more individual because the machines can gather and evaluate even more information on the patient. This would make it possible to identify the best treatment method and correct settings for every single patient and translate them into suggestions for individual treatment.
Senior Vice President International Marketing & Medicine, Fresenius Medical Care
In future, dialysis will increasingly come to the patient rather than the other way round. This does not mean that the therapy will necessarily move into the living room, but it will be carried out more locally, for example where elderly people live.
Perhaps it will be possible to reduce the dialysis time after all. For younger patients, there should be more services like peritoneal dialysis or overnight dialysis. However, patients also need to look into this themselves.
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T E M E N T S
A patient who first went on dialysis in 1983. In 1996, she received a donor kidney, which she lived with for nine years. Since 2005, she has been undergoing dialysis again at the Bensheim&Bürstadt Center for Kidney and Hypertension Disorders.
Water balance The kidneys regulate the body's fluid and mineral balance.
Acid-base balance The kidneys maintain the acid-base balance – the pH level of the blood should fluctuate only to a very small extent.
Formation of red blood cells The kidneys produce the hormone erythropoietin, which stimulates the formation of red blood cells, and therefore regulates the oxygen levels in the blood.
Bone stability The kidneys influence calcium levels and play a key part in the formation of vitamin D, which helps to ensure the structural stability of bones.
Blood pressure regulation Renin, an enzyme that is important for regulating blood pressure, is formed in the kidneys.
Removal of toxins The kidneys excrete waste products (such as urea, uric acid and creatine ), toxins and pharmaceutical residues.
Tr e at y o u r k i d n e y s r ight!
w
liters of blood pass through the kidneys every day.
Exercising
obesity
Keeping your in check
24
r ight!
Tr e at y o u r
G o o d T o K n o w
What is a human kidney roughly equivalent to in size?
A golf ball
Your own fist
A football
Where are the kidneys situated in the human body?
How many liters of blood do the kidneys filter each day?
3 liters
What functions do the kidneys perform?
Approximately how many liters of urine do healthy kidneys produce each day?
0.2 liters
1.5 liters
What are the most common causes of chronic kidney disease?
Diabetes and high blood pressure
What are the treatment options for chronic kidney failure?
How many people worldwide regularly undergo dialysis treatment?
850,000
What risks should be avoided to preserve the kidneys' function?
High blood pressure
Eat a healthy diet and exercise regularly
How many dialysis patients are there likely to be worldwide in 2020?
Fewer than 500,000
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W hen y o u r k i d n e y s fail
w
During HD, the patient's blood flows outside the body through disposable bloodlines into a special filter, the dialyzer, also called artificial kidney. In the dialyzer, a special solution absorbs the waste products and excess water filtered out of the blood and transports them out of the body via a separate cycle. The cleaned blood is then returned to the patient. The process is controlled by the hemodialysis machine that pumps blood, adds anticoagulants, regulates the purification process, and controls the mixing of the dialysis solution and its flow rate through the system.
PD is performed in the patient's body by flushing sterile dialysate through the abdominal cavity. In this case, the peritoneum acts as a dialysis membrane. PD is usually carried out by patients themselves in their home or workplace several times a day or during the night.
During a kidney transplantation, a healthy kidney from a donor is transferred to the kidney patient.
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W hen y o u r k i d n e y s fail
G o o d T o K n o w
C a rd i ac a rr hythmia Renal osteo pat h y E levate d b loo d fats
Mineral metabolims disorders
Renal Ac i d osis Disorders of the acid-base balance
C a r nitine d efi c ien c y Impairment of the lipometabolism
G ast r o - i n t e s t i n a l d iso rd e r s
H y p e r tension Dia b etes mellitus
V itamin d efi c ien c y Pain r elief
I nsomnia
H y p e r k a l e m i a Increased blood concentration of potassium
G out O v e r h y dr ation Disorders of the water and electrolyte balance
D i a ly s i s
Paula L o u r e n ç o Thanks to home hemodialysis, she can manage even long working days without any problem.
Modern therapies offer patients many opportunities to carry on their daily life as usual, despite being diagnosed with chronic kidney disease. An alternative to a clinic based dialysis treatment is being treated in a familiar environment at home. Different types of home dialysis allow patients to adapt their treatment to their everyday routine. However, every type of treatment has its own challenges.
Three portraits of home dialysis patients in Portugal show how it is possible to lead an active and independent life combining work, family and leisure time despite being diagnosed with kidney disease, thanks to home hemodialysis and peritoneal dialysis.
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P e dr o M ontei r o With peritoneal dialysis, he is still fit for sport and work.
L i b e r ta B r a n d ã o Thanks to automated peritoneal dialysis, the pensioner still has enough time for her grandchildren.
Paula Lourenço's partner João Glória helps her with home hemodialysis.
D i a ly s i s at home
32 R e p o
r t
Fresenius Medical Care 2012
Sometimes, when Paula Lourenço strolls along the seaside with her partner, her thoughts drift to the distant shores of Africa. She pictures lions, wildebeests and giraffes running free through the open savannah. Her biggest dream is to go on safari in Kenya. But at the moment that is out of the question, because the 42-year-old has been back on dialysis for the past three years. Under such circumstances, Africa is simply too far away.
Yet Paula Lourenço has managed to create an exceptional degree of freedom for herself. For example, she continues to work full-time as an assistant at the IST School of Engineering in Lisbon despite dialysis. Her job involves placing orders with suppliers and overseeing contracts. It carries a lot of responsibility, and after 18 years her knowledge is hard to replace. That also means that her working days can be long.
But Paula Lourenço is also flexible in her spare time and makes sure that she has time for things she enjoys doing, such as cooking, jigsaw puzzles or swimming. On the weekends, she even drives all the way out to the Alentejo region with her partner, where she owns a farm and tends the garden. And soon she would like to spend time learning the difficult art of Arraiolos rug-making, a tradition brought over by the Moors, which is highly valued in Portugal.
Paula Lourenço can only do these things because she has opted for home hemodialysis. She does not have to go to a clinic during the day at fixed times three times a week, but can incorporate the dialysis treatment more flexibly into her daily life. "Instead of watching television in the living room in the evenings, I just do it in my dialysis room,"
she says. Since her four-month training program on home hemodialysis, Paula Lourenço has already completed around 500 home dialysis sessions. Her partner assists her in this. "Without him, I wouldn't be able to do dialysis treatment at home," she concedes. Fortunately, they have enough space to set up a dedicated sterile room that is large enough for the dialysis machine.
"You have to be very responsible and sensible to do this type of treatment," admits Paula Lourenço. But the solution is ideally suited to her private and professional life. It's easy for her to muster the necessary discipline for her diet, weight and fluid control because she has done it all her life. She was diagnosed with kidney disease when she was just seven years old. From the age of twelve, she underwent various forms of dialysis until receiving a donor kidney when she was 18. She was able to live with it for 21 years. Now she is back on the transplant list. If you ask Paula Lourenço what she dreams of, she doesn't have to think twice: "A
safari in Africa would be great."
"You have to be very responsible and sensible to do this kind of treatment."
Paula L o u r e n ç o
It was a shock, even though Pedro Monteiro had known for a long time that the day would eventually come: In February 2011, his kidney function deteriorated to the extent that he could no longer live without dialysis treatment. For the active 42-year-old, this was a frightening concept. Would he be able to carry on with his previous life? Going out with friends, traveling, sport?
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Meanwhile, the engineer's trade union employee from Porto leads a life that does not differ significantly from before undergoing dialysis. He still goes to work every day, and regularly works out at the gym or jogs along the banks of the Douro river in his spare time.
Pedro Monteiro is a peritoneal dialysis patient. With this form of dialysis, the peritoneum is used to rid the blood of toxins and remove water from the body. The peritoneum is a natural filter membrane. When a dialysis solution remains in the abdominal cavity for several hours, it collects urea, creatine, and other metabolic products that would otherwise be excreted by the kidney. Pedro Monteiro still has a slight residual renal function. "Fortunately," he says, "otherwise peritoneal dialysis would not be a treatment option for me."
Three times a day, Pedro Monteiro has to drain the old fluid and introduce new dialysis fluid via a catheter in his abdomen. He begins the first of these 30-minute treatments before breakfast. Then he gets his son, who is now six years old, ready for school. "In total, dialysis only takes up 90 minutes of my day," reports Pedro Monteiro. That can
be incorporated into his daily routine without any problem. "And I can still lead an independent life, which is very important to me," he adds.
The biggest danger with peritoneal dialysis is the risk of infection. Although new bag systems and improved solutions have significantly reduced the number of complications, the catheter remains a potential gateway for bacteria. "Therefore, patients first have to learn how to carry out the treatment correctly and carefully," says Susana Rios who supports dialysis patients for Fresenius Medical Care in Porto. Pedro Monteiro was also trained by her. "But for an independent person like him, that wasn't a problem," she praises him.
One of the few real disadvantages of peritoneal dialysis for Pedro Monteiro is that he can no longer play in the pool with his son. He is not allowed to go swimming any more because of the catheter. On the other hand, he is much more mobile than he would be with other treatment options. At the end of 2013, he wants to fly to Rio de Janeiro with his wife and son to celebrate his wife's 40th birthday. Thanks to peritoneal dialysis, that wish can come true.
Three times a day, Pedro Monteiro has to connect the bags for the dialysis solution to his abdominal catheter.
"I chose peritoneal dialysis because I want to be free and independent."
P e dr o M ontei r o
Home dialysis patient Pedro Monteiro together with his nurse Susana Rios (left) and Susana Gomes, Communication Department from Fresenius Medical Care Portugal.
D i a ly s i s at home
35 R e p o r
t
D i a ly s i s at home
"I can continue to support my family and cook for my grandchildren."
L i b e r ta B r a n d ã o
The cycler for automated peritoneal dialysis is monitored by Liberta Brandão's husband Henrique.
Liberta Brandão is happiest when surrounded by her family.
Long before Liberta Brandão needed renal replacement therapy, she already associated the word dialysis with dread and a particular burden. Her sister had been a dialysis patient for a long time, before receiving a kidney transplant. "After treatment in the clinic, she felt unwell and was always frustrated at the time," recalls the 74-year-old. When Liberta Brandão found out six years ago that she, too, was in need of such treatment, she was devastated. When presented with her options, she chose peritoneal dialysis – partly to avoid having to go to a clinic for treatment.
"I am always busy, always doing something," Liberta Brandão describes herself. She mostly enjoys looking after her family. At the weekend, she often has both her sons with their wives and children over to visit. Then she cooks for everyone and indulges her three grandchildren in particular. "The only thing I want out of life is to stay healthy enough so that I can keep looking after my family," she says, because without having them around her, she would feel lonely.
But Liberta Brandão is not quite so alone, because she has the support of her husband, to whom she has been married for 47 years. Even though he himself is ill and has been through chemotherapy, he helps her as best he can. Above all, he is her right-hand man for dialysis.
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After being treated for a year with manual peritoneal dialysis, Liberta Brandão changed to automated peritoneal dialysis. With this form of treatment, a special machine called a cycler changes the dialysis solution. It means that patients no longer need to deal with different bags. In addition to lowering the risk of infection, automated peritoneal dialysis has an extremely practical advantage: Patients can undergo treatment during
the night while they sleep.
Although Liberta Brandão has to dialyze twice during the day in addition to this nighttime session, it is still a distinct advantage compared to manual peritoneal dialysis, which she had to carry out every four hours. "I was only able to choose this type of dialysis because my husband is always by my side," she concedes. He has found out all about the technology, learned how to operate the cycler, and now monitors it.
For Liberta Brandão, the longer breaks between treatments are important. They give her the freedom she needs to do her household chores and pursue her hobbies. "Today, I can do everything I used to do before, just a little slower," she says, summing up her life with dialysis.
Aaron McCargo, Jr. is bringing his trademark, the "Flavor of Bold", into dialysis patients' kitchens. The winner of the TV casting show "The Next Food Network Star" in 2008 has his own TV show called "Big Daddy's House". He has been developing recipes for and cooking with dialysis patients ever since he joined Fresenius Medical Care's Healthy Lifestyles initiative in North America in January, 2011. Aaron started his career early on working in hospital kitchens, where he learned that "eating is an essential part of patients' lifestyles and helps them in their fight for their lives". He also knows a major problem faced by people on dialysis: Because they have to follow a strict diet, many lose their appetite. Aaron's mission is to create dialysis-friendly recipes that are so easy, affordable and mouthwatering that patients and their families just have to try them.
1 pound fresh jumbo chicken wings cut in pieces, 1½ tablespoons diced chipotle peppers in adobo sauce, ¼ cup honey, ¼ cup unsalted butter (slightly melted), 1 teaspoon black pepper, 1 tablespoon chopped chives
Nutrients per serving
31 grams protein mg potassium mg phosphorus mg sodium
499 calories
Pre-heat oven to 400°F. Place pre-cut wings on a greased non-stick sheet tray. Bake for 18–20 minutes, turning half-way through the cooking time, or until crisp on the outside and reaching an internal temperature of 160°F. In a large bowl, mix remaining ingredients and stir until well mixed. Toss wings in sauce until evenly coated, then remove from bowl and serve.
1 pound (16/20 ) peeled shrimp, 2 tablespoons chopped fresh garlic, 1 teaspoon crushed red pepper flakes, ½ teaspoon black pepper, ¼ cup fresh-squeezed lemon juice, 2 tablespoons white wine (or 2 tbsp low-sodium chicken stock), 2 tablespoons unsalted cold butter (cubed small), 1 tablespoon chopped parsley, ¼ cup flour,
24 grams protein mg potassium mg phosphorus mg sodium
328 calories
Heat half of the canola oil in large nonstick sauté pan on medium high heat. In a large bowl, mix flour, black pepper, and red pepper flakes. Toss shrimp in flour mixture and coat evenly. Sauté shrimp for approximately 3 – 5 minutes on each side in batches (use leftover oil as needed). Remove from pan and place on a plate or sheet tray to rest. Add to the same pan the garlic, wine, and lemon juice; stir and cook until hot. Turn off heat, stir in cold butter in small amounts until incorporated. Add shrimp back to pan with any drippings along with parsley and toss or stir until coated.
1½ pound ground turkey, 1 jalapeño or 2 tablespoons finely diced jalapeño, Juice of 2 limes and zest of 1, 1 tablespoon black pepper, 1 tablespoon reduced-sodium Worcestershire sauce, 4 tablespoons extra virgin olive oil, ¾ cup shredded smoked mozzarella cheese, 6 hamburger buns
E S
28 grams protein mg potassium mg phosphorus mg sodium
421 calories
Pre-heat oven. In a medium size bowl, mix the first 5 ingredients plus 2 tbsp. of olive oil. Make equal size burger patties and lightly brush with remainder 2 tbsp. of oil. Cook for 5 – 7 minutes, flipping once, or waiting until an internal temperature of 165°F is reached. Top each with an equal amount of cheese and melt in a toaster oven or in oven on broil. Serve on a toasted bun.
Dos and Don'ts
Good nutrition is a challenge for many of us. Eating well on dialysis is even more difficult. There is no general recommended diet for kidney patients, ingredients and meal planning have to meet individual needs. However, most patients also have to take care with the following:
The body needs protein for various vital processes such as building muscles, repairing tissues and producing hormones and enzymes. As protein gets lost during dialysis, patients need more protein than people with healthy kidneys. They should therefore choose foods that are rich in high-quality protein such as beef, pork, poultry, lamb, eggs, fish, soy, and dairy products.
Phosphorus and calcium are vital for healthy bones, but are often unbalanced in dialysis patients. Therefore patients take phosphate binders whenever necessary to strengthen their bones and consume foods or drinks that are rich in phosphorus, such as roast beef, plain yogurt, cola drinks, nuts, and cheddar cheese, only in moderation.
To function perfectly, the nerves and muscles need potassium, a mineral found in many fruits and vegetables. But while there are no limits to the amount of potassium a healthy person can consume, dialysis patients have to make sure they don't eat too much as it can have an adverse effect on their hearts. Patients should therefore omit or limit foods that are rich in potassium such as tomatoes, bananas, white beans, potatoes and avocados.
Sodium is a mineral that plays a key role in controlling blood pressure and water balance within the body. Healthy kidneys rid the body of excess sodium, but in dialysis patients, sodium and fluid can build up, resulting in high blood pressure, cardiac arrests or strokes. To avoid complications, dialysis patients should be aware of hidden salt, e.g. in camembert cheese, ready-made sauces, canned soup, smoked salmon, salami, and frozen pizza.
Since dialysis cannot remove fluids from the body as effectively as healthy kidneys do, most patients have to limit their fluid intake. Fortunately, there are some tricks that can help: avoiding food that is too salty or too sweet, for example, sucking on a grape or ice cube whenever thirsty, rinsing your mouth with cold water, or chewing sugar-free chewing gum.
phosphorus and potassium
No added salt No tomatoes, no
beans
fruits and
can be dangerous
vegetables
Aaron's eyes light up at the sight of a chunk of chicken turning golden brown. The sizzling of the panada is music to his ears, and he loves to inhale the scent of fresh herbs. "I often wake up in the middle of the night with some recipe in my head, so I get up and write down all the ingredients," he explains. Cooking and enjoying good food mean the world to him. "Many dialysis patients tell me they used to feel he same," Aaron says. But because they are obliged to avoid some ingredients and to limit others, to use little or no salt and to reduce their fluid intake, they are discouraged from cooking and enjoying meals.
F o rb i dd en f r uits
Aaron consulted Fresenius Medical Care's dietitians and found out which foods patients can eat, and which are a no-go. "I was shocked when I found out that people on dialysis can't eat bananas, broccoli, oranges, tomatoes, nuts or beans," the celebrity chef admits. "Things that are generally considered healthy." Unlike healthy kidneys, dialysis does not filter patients' blood around the clock. Nutrients like phosphorus, which together with calcium keeps the bones strong, and potassium, which enables nerves to communicate with muscles, can accumulate within patients' bodies, resulting in complications such as strokes or heart attacks. To make things even more confusing, foods that are high in phosphorus are often also high in protein. And dialysis patients need about a third more protein than people with healthy kidneys, as they lose some of this vital nutrient during treatment. One of the worst foods for dialysis patients is star fruit (carambola): It contains neurotoxins that are harmless for healthy people, but life-threatening if your kidneys have failed.
When he creates his dialysis-friendly recipes, Aaron McCargo, Jr. leaves out these dangerous ingredients, replacing salt with fresh herbs, lemon zest or pepper, for example. People on dialysis should not ingest more sodium per day than contained in one teaspoon of salt, whereas healthy people usually consume the equivalent of 2.5 teaspoons or more. And while the recommended fluid intake for people with functioning kidneys is about two liters a day, many dialysis patients are advised not to drink more than a quarter the amount. This is because excess fluid is not removed during dialysis and fluid retention can lead to edemas, high blood pressure and other complications. Knowing this, Aaron's dishes include as little fluid as possible. Whenever a patient tells Aaron what he misses most, the chef feels challenged to create an alternative, "with a distinctive flavor, but following the rules". Since treatment eats up enough of patients' time, Aaron makes sure that his meals don't take long to prepare – some can be pre-made and frozen. Aaron is happy whenever "a patient gets back in the kitchen because of one of my recipes and when it puts a smile on their faces. This makes me want to work even harder." No wonder he dreams of dialysis-friendly meals at night.
FOO D & D IALYSIS
S
500,000 t h Dialysis m a c hine
In 2012, the 500,000th dialysis machine rolled off the production line at Fresenius Medical Care's factory in Schweinfurt. What was once a vision is now a successful series-produced model. Today, more than half of all dialysis machines used worldwide are made by Fresenius Medical Care. The Company is constantly working on improving the quality of dialysis while making treatment more affordable for the growing number of patients worldwide.
Complex inner workings: A dialysis machine has up to 1.4 million different configuration possibilities depending on how the machine is equipped. The technology can already be adapted to the customers' requirements before distribution.
The history of the modern dialysis machine started in the 1970s with a question: How to turn a highly specialized treatment, available to only a few people at the time, into a series-produced lifesaver? The question became a vision. And the vision became a success story that today has 8,000 parts. That's how many components are inside a modern Fresenius Medical Care dialysis machine.
The very first model became the world's leading and bestselling dialysis machine of its time. Since then, the Company has expanded its lead with its follow-up models: In recent years, Fresenius Medical Care has sold around five times more dialysis machines worldwide than its nearest competitor. In November 2012, the 500,000th dialysis machine rolled off the production line.
From the very beginning, the prime objective in developing dialysis machines was to make therapy safe, gentle and affordable for as many patients as possible. When Fresenius Medical Care started serial production of the first devices in 1979, the treatment was available to fewer than 10,000 patients worldwide. New dialysis machines have made dialysis even more effective and can be manufactured in larger quantities. More than two million people in the world now undergo dialysis treatment; approximately one in two are treated with a product developed and produced by Fresenius Medical Care.
The dialysis machine pumps the blood from the patient's body through a bloodline system to the dialyzer, also called the artificial kidney. In the course of a treatment session lasting some four to five hours, up to 120 liters of blood are pumped through the tubes – that's several times a patient's total blood volume. In the dialyzer, a dialysis fluid absorbs the toxins and excess water filtered out of the blood and removes them via a separate cycle. At the same time, the machine dispenses and administers drugs to prevent blood coagulation and collects data during treatment, from blood pressure to the temperature of the dialysate. It can modify the treatment process automatically and adapt it individually to the patient's needs as required. The machine's safety features have also been continuously enhanced and automated: The machine now recognizes changes in the patient's bodily functions during dialysis. The same applies to technical problems: If a tube leaks or if the hydraulics no longer function smoothly in a particular area, the fault is immediately displayed on the monitor and treatment is automatically interrupted.
Thanks to their touchscreen monitor and digital data management, modern dialysis machines are easy to operate. Stateof-the-art software controls the fine-tuning of all components, including a total of 180 hydraulic parts. Fresenius Medical Care dialysis machines are now used in more than 120 countries and are pre-programmed in up to 30 operating languages.
Fresenius Medical Care's production sites have also progressed steadily. Whereas the Schweinfurt factory produced precisely 36 machines in 1979, it now makes several tens of thousands. This is thanks to a large number of fully automated production steps, for example in the manufacture of highly sensitive solenoid valves, a key component of the hydraulic circuit. Fresenius Medical Care now not only produces dialysis machines in Schweinfurt, but also specifically for the North American market at its sister factory in Walnut Creek, California.
The overriding objective is still to make sure that one day, every person who needs dialysis treatment will get it. There are already signs that treatment is becoming more compact and mobile. Fresenius Medical Care is working on completely new solutions. The PAK – short for "Portable Artificial Kidney" – could be available soon. This machine, the size of a shopping basket, will redefine the possibilities of dialysis: Patients can transport it in their own car whenever they need to, and it only requires six liters of tap water for a hemodialysis session. Conventional, permanently installed machines need up to 200 liters of specially prepared water per treatment.
What started off as a vision is now a series-produced success, an incentive for Fresenius Medical Care to keep on improving the quality of dialysis therapy and continuously enhancing it in every way. And the next milestone is already in sight: Whereas it took us just over three decades to build the first 500,000 dialysis machines, the latest forecasts suggest that the 1,000,000th machine will be delivered as soon as 2020.
500,000th Dialysis m a c hine
R e p
o
r t
500,000th Dialysis m a c hine
48
R
What started off as the vision to offer lifesaving help for patients with chronic kidney disease became a series-produced success: In 2012 Fresenius Medical Care produced its 500,000th dialysis maschine.
Demanding task: A modern dialysis machine from Fresenius Medical Care consists of 8,000 components. In spite of a large number of fully automated production steps, up to 50 employees are involved in the production of one dialysis machine.
500,000th Dialysis m a c hine
50
R e p o r t - Launch of a portable dialysis machine - Reduction in water used during dialysis treatment from max. 200 liters to six liters
complications for dialysis patients
More than half of all dialysis machines used worldwide are made by Fresenius Medical Care. Our machines which we produce in Schweinfurt, Germany, as well as in Walnut Creek, California are used in more than 120 countries.
The qualifications and performance of our employees are key factors for Fresenius Medical Care's success. To identify managers with outstanding capabilities within the Company and enhance their professional and personal skills, we launched the Global Executive Challenge in 2012. By fostering talent with targeted measures, we aim to secure our future as the market leader.
Borries von Mueller "We need leaders who act as role models for their employees, who embrace and share our understanding of collaborative, innovative and successful growth."
Jim Freedman "The program is called 'Global Executive Challenge' because it challenges participants to put the knowledge they gain from it into practice in their day-to-day work, thus strengthening their skills as managers."
Finding the right location for a new production facility is a difficult task for any company, including Fresenius Medical Care. Countless factors must be taken into account before a decision can be made. This costs above all time. Is it possible to develop a procedure to automate and thus accelerate the decision-making process? This was one of the tasks put to the participants at the first Global Executive Challenge. Talented executives from all levels of the Global Manufacturing Operations division were selected for the 2012 pilot project. One group of participants developed a method of this kind in conjunction with internal and external instructors. They presented the results to a committee comprising top managers and members of the Management Board at Fresenius Medical Care. Following the success of the pilot project,
the Global Executive Challenge will be held annually in future.
The Global Executive Challenge was developed by Jim Freedman, Vice President Leadership Development at Fresenius Medical Care, and Borries von Mueller, Global Head of Human Resources. "We need leaders who act as role models for employees and who embrace and share our understanding of collaborative, innovative and successful growth," says von Mueller. Fresenius Medical Care owes its success to people with just these skills. Sometimes, staying at the top is harder than getting there in the first place. That is why in an international and globalized working environment where the pace has accelerated due to the rapid consolidation of virtual networks, the Company will continue to rely on employees who remain focused and can make the right decisions at the right time, highly flexible people who can be assigned
to other locations and other functions on very short notice.
The most productive way for a company to find managers with these qualities is to promote suitable candidates from within the organization. The Global Executive Challenge does just that. Each year, 15 to 20 selected candidates will be invited to take part in the program. Participants come together for one week at three workshops in three different locations. Accompanied by external and internal instructors, they develop solutions to real problems in the group and then present them. Each group is supported by a mentor from the Company's management. Participants in the pilot project were particularly impressed by the constructive idea behind the program, as Gerhard Breith, Plant Manager in Changshu (China), confirms: "The atmosphere was incredibly intensive, fueled by ambition as well as mutual respect. I was amazed above all by how open-minded the participants and instructors were to differ-
ent approaches and the creative solutions that came out of it."
Other companies often take programs developed by external providers for training executives and then adapt them to their own requirements. Fresenius Medical Care prefers to do things a different way and developed the Global Executive Challenge entirely in-house. "Some buy an off-the-peg suit and then adjust it until it fits, but we tailor the suit ourselves, exactly the way we want it," explains Freedman. "Our aim with the Global Executive Challenge is to establish something like an overarching leadership culture at Fresenius Medical Care."
Growin g T o g e t her
Providing impetus from outside by external instructors
Heike Strobel "Our workshops made the world a little smaller. I can now rely on an extended international network in my day-to-day work."
Troy McGhee
"Decision-making is about moving the Company forward, and often means changes that can be quite inconvenient initially."
Gerhard Breith "Mastering the great challenging tasks of the program together with colleagues from all over the world – that really boosts the motivation."
Establishing a platform for the international teamwork
The idea of this common culture is to strengthen collaboration between managers, regardless of their country of origin or functional area, and overcome obstacles. Freedman compares it to an orchestra: Here, too, people with different skills pool their specialist knowledge to obtain the best possible result in step with other specialists. And each individual knows automatically what he or she has to do.
To keep up the motivation during the seminars, external instructors provide the necessary impetus from outside. They are selected just as carefully as the participants. "We're not looking for theorists, but for people who can show us possible approaches in a practical context. This allows us to see what we are doing right and what we can still achieve," says Freedman.
The overriding aim of the Global Executive Challenge is for participants to learn from each other and further strengthen Fresenius Medical Care's global network across regional and functional borders. The time spent working together intensively in the workshops helps to build deep mutual trust and gain a better understanding of what other executives and the Company are capable of. The program developers deliberately set difficult challenges for the participants. The groups comprise managers from all areas of the Company who have to deal with problems outside their own field, a situation that can occur in practice, too. "For example, a Chinese manager might have to take on responsibility in a different business area in the U.S. from one day to the next," explains von Mueller.
The program is not called "challenge" for nothing. The participants are deliberately taken to their limits in terms of what they can achieve. But that is also what makes it so appealing to them, emphasizes Heike Strobel, Director Controlling Global Manufacturing Operations and a participant in the pilot project: "The opportunity of working together away from the daily routine and developing solutions for problems other divisions have to face, really broadened my horizon. Presenting our proposals to the Management Board turned the program into a particular challenge, from which I'm sure we all benefited." For Troy McGhee, Vice President Manufacturing North America, the seminar was an important confirmation of what in his view should distinguish a manager at Fresenius Medical Care: "Each of us needs a clear understanding of where we stand within the Company and where we want to go. The workshop verified this for me."
The initiators' expectations were also exceeded. "The results presented by the groups were of the same high quality as those of the best consultancy firms, and are already being implemented within the Company," says von Mueller. "This shows us that our leaders want to contribute their experience, master new challenges and work with others from different business areas. There just wasn't a platform for this before." Now there is. And that is not all: The method developed in the Global Executive Challenge pilot project to automate and accelerate the search for new production sites has now been implemented at Fresenius Medical Care.
Reinforcing the global company network and the common management culture
Successful pilot project – Taking participants to their limits
Creating particular challenges for executives
Fresenius Medical Care 2012
P r o f i l E
F acts and figur e s
| Op | erations | |
|---|---|---|
| (in \$M) |
2003 2012
| 5,528 | +150% Net revenue |
57 13,800 |
|---|---|---|
| 974 | +190% | 2,822 |
| Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) |
||
| 757 | +193% Earnings Before Interest and Taxes (EBIT) |
2,219 |
| 546 | +254% Earnings Before Taxes (EBT) |
1,932 |
| 331 | +259% Net income attributable to shareholders of Fresenius Medical Care AG & Co. KG aA |
1,187 |
| 754 | +170% Operating cash flow |
2,039 |
| 478 | +187% Free cash flow |
1,373 |
58
Revenue in \$M
North America Dialysis products: 9% Dialysis services: 91%
02 04
07
08
09
03
>40
Production sites
01 Waltham, U.S., Regional headquarters North America 02 Ogden, U.S., Dialyzers 03 Walnut Creek, U.S., Dialysis machines 04 Toledo, U.S., Hemodialysis concentrates 05 Livingston, U.S., Hemodialysis concentrates 06 Montreal, CA, Hemodialysis concentrates 07 Irving, U.S., Hemodialysis concentrates 08 Reynosa, MX, Tubing systems 09 Guadalajara, MX, Dialysis solutions 10 Santafé de Bogotà, CO, Dialysis solutions 11 Jaguariúna, BR, Dialysis solutions 12 Pilar, AR, Hemodialysis concentrates & dialysis solutions
86,153 Employees
Latin America Dialysis products: 31% Dialysis services: 69%
06
Waltham, U.S.01
05
10
12 3,160 Clinics
11
Fresenius Medical Care 2012
I taly In May, a severe earthquake strikes the Italian province of Emilia Romagna. As the facilities of Fresenius Medical Care are not disrupted, we are able to help affected companies. With the support of our well-established crisis management team, we deliver more than 200 dialysis machines to Italy at short notice and install them, thus enabling immediate and sustained treatment for dialysis patients in the region.
U. S . In October, Hurricane Sandy wreaks havoc on the east coast of the United States, posing a major challenge for patients and employees of Fresenius Medical Care North America. Around 230 clinics are affected. Fresenius Medical Care once again demonstrates how well it responds in crisis situations. We ensure that our own patients receive care, as well as treating dialysis patients in other clinics. We supply generators, gasoline, diesel, drinking water, medicine, and hot meals to
facilities, patients, and employees in need.
Aust r alia International World Kidney Day is held on March 8, 2012. Fresenius Medical Care Australia marks this occasion with its own "World Kidney Day" in Sydney. In addition, from May 27 to June 2, Fresenius Medical Care Australia runs a national campaign at various locations around the continent to highlight the importance of the kidney as a vital organ. The theme of World Kidney Day in 2012 is "Donate – kidneys for life – receive", emphasizing patients' quality of life after a successful kidney transplant and the life-saving aspect of organ donations. The aim of World Kidney Day is to raise awareness of the functions healthy kidneys perform, what factors put renal function at risk and what everyone can do to keep their kidneys healthy and prevent kidney disease. Fresenius Medical Care sets up information stands in well-frequented public places, drawing people's attention to the message of the international World Kidney Day with presentations on renal function and treatment options for kidney disease. Postcards and promotional gifts also drive home the theme. In the course of the campaign, 500 people take the opportunity to have their blood pressure checked by dialysis nurses; high blood pressure is one of the risk factors for kidney disease.
G e r many In November, the 500,000th dialysis machine from the multi-award-winning 5008 series rolls off the production line at the Schweinfurt plant. Fresenius Medical Care began developing its own dialysis machines back in the mid-1970s, and series production started in 1979. The very first model, the A2008, went on to become the world's best-selling dialysis machine of its time, a leading position that the Company has maintained to this day with its follow-up models. Fresenius Medical Care donates the dialysis machine to the German Kidney Foundation in recognition of its outstanding work. Further information can be found starting
O u r Y e a r
U. S . Fresenius Medical Care North America receives the Spirit of Excellence Award from "Modern Healthcare" (independent U.S. business magazine in the healthcare industry) in 2012 for work performed by social workers from Fresenius Medical Care responsible for Western U.S. The award recognizes outstanding achievements by companies and individuals that exceed expectations in caring for patients. The social workers have developed and implemented a new intervention model for patients who have difficulties meeting medical requirements themselves, in particular regarding the frequency and duration of treatment. They help these patients to avoid health risks and thus to minimize additional stays in hospital and the associated increase in healthcare costs. From September 2011 until March 2012, this successful intervention model is successfully rolled out to more than 400 clinics with 732 patients. As a result, 76% of patients improve their behavior. In October, we introduce the initiative in more than 2,000 clinics in North America.
U. S . In 2012, Fresenius Medical Care donates \$10M to help set up the Ben.J. Lipps Research Fellowship Program, a sponsorship scheme for research and development in the field of nephrology. The program is named for Dr.Ben J. Lipps, CEO of Fresenius Medical Care until December 31, 2012. Ben Lipps' achievements are a prime example of how scientific findings can be creatively put into practice for the benefit of patients. (Each year, ten new fellowships are awarded and ten from the
previous year are continued.)
G e r many The first Fresenius Medical Care "Nephro Summit" is held in Berlin from March 30 to April 1.Participants come to find out about the latest developments in renal therapy. Experts give presentations and engage in lively discussions with some 330 visitors from more than 20 countries. The nephrologists are delighted – the event is a great success. This shows how important it is for specialists to meet customers directly. It also proves that Fresenius Medical Care Renal Pharma is on the
right course with this event.
Aust r alia With more and more patients wanting to travel the world, the South Asia-Pacific region is becoming increasingly important. Fresenius Medical Care has a strong network of clinics in Australia, New Zealand, Singapore and Malaysia that provide dialysis in holiday resorts. To give patients the opportunity to discover Australia as a travel destination, the local Holiday Dialysis team runs a global campaign in 2012 with a prize draw for a one-week trip for two to Sydney, including return flights and with all dialysis requirements provided for.
Aust r i a In November, Fresenius Medical Care in Krems is named the state winner of the "Jobs Through Innovation" competition. The award is a joint government and business initiative. At the Krems location, we develop and produce innovative blood-cleaning therapies. The award recognizes our products and people development.
We would like to thank ourpatients, part- ners and share- holders for their confidence in our Company and our employees for their dedication and commitment in the past year.
Your Fresenius Medical Care Investor-Relations-Team
eDitoRial offiCe Investor Relations
eDitoRial DeaDline March 13, 2013
ConCePt anD Design hw.design gmbh
PhotogRaPhy Ellen Callaway page 38 – 43
Matthias Haslauer page 30 – 37 and cover
Christian Lietzmann page 63
Matthias Ziegler page 2 – 21, 44 – 51 and cover
The production of and the paper used for the Fresenius Medical Care Annual report 2012 are certified in accordance with the criteria of the Programme for the Endorsement of Forest Certification (PEFC). Furthermore, the Annual report 2012 has been produced in a carbon-neutral manner. The CO₂ emissions caused by its production were compensated for by certified climate protection projects.
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