Annual Report • Mar 28, 2014
Annual Report
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ANNUAL REPORT
Results of operations, financial position, assets and liabilities
Report of the Supervisory Board
fresenius group in figures (U.S. GAAP)
| € in millions | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Sales and Earnings | |||||
| Sales | 20,331 | 19,290 | 16,3611 | 15,972 | 14,164 |
| EBITDA | 3,8882 | 3,8512 | 3,237 | 3,057 | 2,616 |
| EBIT | 3,0452 | 3,0752 | 2,563 | 2,418 | 2,054 |
| Net income (before special items) 3 | 1,051 | 938 | 770 | 660 | 514 |
| Depreciation and amortization | 843 | 776 | 674 | 639 | 562 |
| Earnings per share in € (before special items) 3 | 5.88 | 5.42 | 4.73 | 4.08 | 3.18 |
| Cash flow and Balance sheet | |||||
| Operating cash flow | 2,320 | 2,438 | 1,689 | 1,911 | 1,553 |
| Operating cash flow in % of sales | 11.4% | 12.6% | 10.3% | 12.0% | 11.0% |
| Total assets | 32,758 | 30,664 | 26,321 | 23,577 | 20,882 |
| Non-current assets | 24,786 | 22,551 | 19,170 | 17,142 | 15,519 |
| Equity 4 | 13,260 | 12,758 | 10,577 | 8,844 | 7,491 |
| Equity ratio 4 | 41% | 42% | 40% | 38% | 36% |
| Net debt | 11,940 | 10,143 | 9,164 | 8,015 | 7,879 |
| Net debt/EBITDA | 2.55 | 2.65 | 2.8 | 2.6 | 3.0 |
| Investments 6 | 3,827 | 4,179 | 2,395 | 1,402 | 931 |
| Profitability | |||||
| EBIT margin | 15.0%2 | 15.9%2 | 15.7% | 15.1% | 14.5% |
| Return on equity after taxes (ROE) 3 | 12.8% | 12.3% | 12.9% | 13.3% | 12.1% |
| Return on operating assets (ROOA) | 10.6%7 | 11.0% | 10.9% | 11.6% | 10.5% |
| Return on invested capital (ROIC) | 8.8%7 | 9.0% | 8.8% | 8.9% | 8.2% |
| Dividend per share in € | 1.258 | 1.10 | 0.95 | 0.86 | 0.75 |
| Employees (December 31) | 178,337 | 169,324 | 149,351 | 137,552 | 130,510 |
1 2011 sales were adjusted by -€161 million according to a U.S. GAAP accounting change; this solely relates to Fresenius Medical Care North America. 2 2013 before integration costs for Fenwal (€54 million); 2012 before one-time costs (€6 million) related to the offer to the shareholders of Rhön-Klinikum AG
as well as other one-time costs (€86 million) at Fresenius Medical Care
3 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2013 before integration costs for Fenwal (€40 million); 2012 before a non-taxable investment gain (€34 million) and other one-time costs (€17 million) at Fresenius Medical Care as well as one-time costs (€29 million) related to the offer to the shareholders of Rhön-Klinikum AG; 2009 – 2011 before the effects of the mark-to-market accounting of the MEB and the CVR
4 Including noncontrolling interest
5 2013 excluding advances made in the amount of €2.18 billion under a fiduciary agreement for the acquisition of hospitals and outpatient facilities
of Rhön-Klinikum AG and before integration costs of Fenwal (€54 million); 2012 before special items 6 Investments in property, plant and equipment, and intangible assets, acquisitions
7 Excluding advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG 8 Proposal
You will find a 10-year overview on our website: www.fresenius.com under "Investor Relations."
Dialysis products , Dialysis care
Infusion therapy, IV drugs, clinical nutrition, Medical devices / Transfusion technolog y
| 2013 US\$ in millions |
2012 US\$ in millions |
Change | 2013 € in millions |
2012 € in millions |
Change | |
|---|---|---|---|---|---|---|
| Sales | 14,610 | 13,800 | 6% | 4,996 | 4,539 | 10% |
| EBIT | 2,256 | 2,3291 | -3% | 9261 | 934 | -1% |
| Net income 2 | 1,110 | 1,1181 | -1% | 4871 | 444 | 10% |
| Operating cash flow | 2,035 | 2,039 | 0% | 488 | 596 | -18% |
| Capital expenditure/ acquisitions |
1,311 | 2,561 | -49% | 448 | 1,153 | -61% |
| R & D expenses | 126 | 112 | 13% | 2501 | 194 | 29% |
| Employees (December 31) | 95,637 | 90,866 | 5% | 31,961 | 30,214 | 6% |
Hospital operation
Pro jects and Services for hospitals and other health care facilities
| 2013 € in millions |
2012 € in millions |
Change | 2013 € in millions |
2012 € in millions |
Change | |
|---|---|---|---|---|---|---|
| Sales | 3,393 | 3,200 | 6% | 1,020 | 846 | 21% |
| EBIT | 390 | 322 | 21% | 55 | 51 | 8% |
| Net income 2 | 275 | 203 | 35% | 37 | 35 | 6% |
| Operating cash flow | 258 | 240 | 8% | 31 | 35 | -11% |
| Capital expenditure/ acquisitions |
2,357 | 759 | -- | 27 | 55 | -51% |
| Order intake | n/a | n/a | 744 | 657 | 13% | |
| Employees (December 31) | 42,913 | 42,881 | 0% | 7,010 | 4,432 | 58% |
1 Before special items
Net income attributable to the parent company of the respective business segment
Fresenius is a global health care group providing products and services for dialysis, hospitals, and outpatient medical care. In addition, Fresenius focuses on hospital operations. We also manage projects and provide services for hospitals and other health care facilities. Approximately 178,000 employees have dedicated themselves to the service of health in about 100 countries worldwide.
2013 was another very successful year for Fresenius. We exceeded 20 billion euros in sales and 1 billion euros in net income for the first time ever. On a constant-currency basis, sales increased by 8 percent and net income before special items by 14 percent. We met all of our financial forecasts and strategic objectives.
This was no simple task given the significant obstacles we faced in key markets. Fresenius Medical Care felt the effects of the U.S. budget impasse which led to a 2% reduction in reimbursement rates. Fresenius Kabi weathered above-average price cuts in China, restrictions placed on the use of blood volume substitutes by the E.U. and plant remediation costs in the United States and India to meet FDA requirements. At the same time, Fresenius Helios and Fresenius Vamed continued their excellent performance.
With Fresenius Helios' acquisition of hospitals from Rhön-Klinikum AG we created Europe's largest hospital operator. Following our unsuccessful takeover bid for Rhön-Klinikum in 2012, we took the opportunity to buy 40 of its hospitals and 13 of its medical clinics. The capital
markets reacted positively to the acquisition and our partners in the health care industry have shown great interest in our vision of offering patients innovative care in a comprehensive clinic network.
Everything we accomplished in 2013 was thanks to the strong dedication and extraordinary efforts of our employees. I would like to express my sincerest gratitude for their exceptional commitment.
Let's look ahead to 2014 and beyond. We plan to take advantage of major trends in global healthcare and have established clear priorities for our business segments:
▶ Fresenius Helios will quickly integrate the newly acquired hospitals and take advantage of the synergies created by the expanded hospital network. Further improving our quality standards and metrics will remain a key priority and is a cornerstone of our commitment to patient safety.
▶ Fresenius Vamed will continue its proven strategy of assisting health care facilities throughout their lifespan. As developing and emerging economies upgrade their healthcare infrastructure our project and service management is in high demand.
We have set ambitious goals for 2014. On a constant-currency basis, Group sales are expected to increase by 12 percent to 15 percent, and Group net income before special items by 2 percent to 5 percent. Our forecast reflects reductions in dialysis reimbursements in the U.S. as well as our expectation that our U.S. competitors' supply constraints of intravenous drugs will ease. We will continue to improve productivity, optimize quality and processes, and take advantage of synergies created by the scope of our business.
In addition, we have defined stretch mid-term financial goals. For 2017, we are targeting Group sales of approximately 30 billion euros and Group net income of 1.4 to 1.5 billion euros. All of our business segments are expected to contribute to this growth. Getting there will require continued organic growth and small to mid-sized acquisitions.
I am convinced that our diversified health care group is very well positioned to achieve these goals. We remain optimistic regarding the fundamentals of our markets. Demand for health care products and services continues to grow – in industrial as well as in developing countries. Our growth is based on medical progress, increasing quality and international expansion. While pursuing these opportunities, we honor and respect our social responsibility and our commitment to patients around the world.
We have good reason to look ahead with optimism as we continue to offer our patients the best-possible therapies. We appreciate your trust and support.
Dr. Ulf M. Schneider Chairman of the Management Board
SALES. Consolidated sales increased by 5% to €20,331 million (2012: €19,290 million). Organic sales growth of 4% was achieved, while acquisitions contributed 5%. Divestitures reduced sales by 1%. Currency translation had a negative effect of 3%.
EARNINGS. EBIT 1 was €3,045 million and the EBIT margin 15.0%. Earnings were affected by lower reimbursement for dialysis services in the US and remediation costs to meet FDA requirements for two Fresenius Kabi production sites. Group net income 2 increased by 12% to €1,051 million.
1 2013 before integration costs for Fenwal (€54 million); 2012 before one-time costs (€6 million) related to the offer to the shareholders of Rhön-Klinikum AG as well as other one-time costs (€86 million) at Fresenius Medical Care
Cash flow . Operating cash flow was €2,320 million (2012: €2,438 million). The decrease relates primarily to a payment regarding the adjustment of the supply agreement for an iron product. The cash flow margin was 11.4% and cash flow before acquisitions and dividends €1,273 million.
BALANCE SHEET. Total assets increased by 7% to €32,758 million. Mainly due to the earnings increase, total shareholders' equity, including noncontrolling interest, rose by 4% to €13,260 million. The net debt / EBITDA 3 ratio of 2.5 (December 31, 2012: 2.6) was in the target range of 2.5 to 3.0.
FRESENIUS SHARE. Building on compelling results and an overall strong market, the Fresenius share maintained excellent momentum in 2013. The share price increased steadily and reached a new all-time high of €111.95 in December. At year-end, the share price was up substantially by 28%.
The prospect of a global economic recovery, the slowdown of the European financial and debt crisis, as well as the expansionary monetary policies of the major central banks led to high growth rates on the international stock markets.
The DAX increased by 25%; the Euro Stoxx 50 gained 18% for the year. The European Dow Jones Stoxx 600 index ended the year up by 17%. In this index, the health care sector gained 21%. The leading U.S. indices also performed well: The S & P 500 closed with a gain of 30%, while the Dow Jones Industrial Average gained 27%.
The Fresenius share continued its impressive development in 2013. The closing price for the Fresenius share on December 31, 2013 was €111.60. This represents a gain of 28% over the closing price for 2012.
In a comparison over three years, the Fresenius share outperformed its benchmark DAX by 40%. While the DAX rose by 38% over this period, the Fresenius share gained 78%.
The market capitalization of Fresenius was €20.1 billion as of December 31, 2013, an increase of 29% compared to the previous year. The average daily trading volume in
3-Year RELATIVE SHARE PRICE PERFORMANCE – FRESENIUS Share VS. DAX in %
ABSOLUTE SHARE PRICE PERFORMANCE – Fresenius Share in €
Fresenius shares on Xetra decreased by 12% to 423,064 compared to the previous year (2012: 482,030). DAX trading volume decreased by 29% in the same time period.
In the U.S., Fresenius has a Sponsored Level I American Depositary Receipt (ADR) program. In this program eight Fresenius ADRs correspond to one Fresenius share. They are traded under the symbol FSNUY in the U.S. on the over-thecounter (OTC) market. In December 2013, Fresenius ADRs were admitted to the OTCQX International Premier market segment.
The total number of outstanding ordinary shares of Fresenius SE & Co. KGaA was 179,694,829 by the end of 2013 (December 31, 2012: 178,188,260). The increase is due to the exercise of stock options under the 2003 and 2008 stock option plans over the course of 2013. Further information on the stock option plans can be found on pages 166 to 174 of the Notes of this Annual Report.
In 2013, Fresenius again delivered excellent financial results. For the 21st consecutive year, we are proposing to our shareholders to increase the dividend by 14% per share, to €1.25 (2012: €1.10). The total proposed dividend distribution will
development of dividends in €
be €224.6 million, equivalent to 21% of Group net income before special items. Based on the proposed dividend and the closing price at the end of 2013, the dividend yield would be approximately 1.1%.
| 2013 | 2012 | 2011 | 2010 | 2009 | |
|---|---|---|---|---|---|
| Number of shares | 179,694,829 | 178,188,260 | 163,237,336 | 162,450,090 | 161,315,376 |
| Stock exchange quotation1 in € |
|||||
| High | 111.95 | 96.38 | 75.62 | 67.59 | 43.76 |
| Low | 81.91 | 72.07 | 59.90 | 41.80 | 27.69 |
| Year-end quotation | 111.60 | 87.10 | 71.48 | 62.75 | 43.45 |
| Market capitalization2 in million € |
20,054 | 15,520 | 11,668 | 10,301 | 7,538 |
| Total dividend distribution in million € | 224.63 | 196.0 | 155.1 | 139.7 | 121.8 |
| Dividend per share in € | 1.253 | 1.10 | 0.95 | 0.86 | 0.75 |
| Earnings per share in € | 5.884 | 5.424 | 4.735 | 4.085 | 3.185 |
1 Xetra closing price on the Frankfurt Stock Exchange
2 Total number of ordinary shares multiplied by the respective Xetra year-end quotation on the Frankfurt Stock Exchange (ordinary and preference shares until January 28, 2011)
Proposal 4 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2013 before integration costs for Fenwal (€40 million); 2012 before a non-taxable investment gain (€34 million)
and other one-time costs (€17 million) at Fresenius Medical Care as well as one-time costs (€29 million) related to the offer to the shareholders of Rhön-Klinikum AG
5 Before effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and Contingent Value Rights (CVR)
Fresenius shares are an attractive investment. Anyone who invested about €1,000 five years ago and reinvested the dividends would have increased their capital to €3,194 as of December 31, 2013. That is an average annual return of 27% (before expenses and taxes).
The charts show the shareholder structure by the end of 2013. The Else Kröner-Fresenius-Stiftung was the largest shareholder of Fresenius SE & Co. KGaA, with approximately 26.84% of the shares. In addition, we received notifications pursuant to the German Securities Trading Act (WpHG) from BlackRock. For further information on these notifications, please see page 146 of the Notes.
As of December 31, 2013, a shareholder survey identified the ownership of about 93% of our subscribed capital. The survey performed showed that the shareholder base of Fresenius is solid: a total of 586 institutional investors held about 109.3 million shares or 61% of subscribed capital; 8.3 million shares were identified as retail holdings. The top ten investors held 20% of the share capital. Our shares were mostly held by investors in Germany, the United States, and Great Britain.
The recommendations published by financial analysts are an important guide for institutional as well as private investors when making investment decisions. According to our survey, as of February 24, 2014, we were rated with 19 "buy," 5 "hold," and 0 "sell" recommendations.
The list of banks that provide regular analyst coverage of Fresenius and their latest recommendations can be found on our website www.fresenius.com under Investor Relations – Fresenius Share/ADR – Analysts.
Our Investor Relations activities are in accordance with the transparency rules of the German Corporate Governance Code. We communicate comprehensively, promptly, and openly with private and institutional investors as well as financial analysts. The equal treatment of all market actors is very important to us.
We intensified our dialog with the capital markets in 2013. In addition to its annual analysts' meeting and its quarterly conference calls and webcasts, Fresenius gave presentations in all the major European and U.S. financial markets. We expanded our contacts with institutional investors and analysts at 20 international investor conferences, 9 roadshows, and countless one-on-one meetings. We also organized field trips with banks, giving investors and analysts the opportunity to discuss matters with the Management Board.
We also continued the dialog with our private investors, especially via the Internet. Our private shareholders can follow live webcasts of the quarterly conference calls and annual analysts' meetings on our website at www.fresenius.com. We plan to continuously increase our information offer. We intend to make further improvements in the ways we communicate with private shareholders and would welcome any suggestions you may care to make.
If you would like to contact us or find out about our 2014 financial calendar, please take a look at the last page of this report or visit our website at www.fresenius.com under Investor Relations.
Corporate Governance Declaration and Report . The Supervisory Board and the Management Board are committed to responsible management that is focused on achieving a sustainable increase in the value of the Company. Long-term corporate strategies, solid financial management, strict adherence to legal and ethical business standards, and transparency in corporate communication are key factors.
In this Corporate Governance Declaration, the Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE (Management Board), report, pursuant to Section 289a of the German Commercial Code (HGB), on corporate management and, pursuant to number 3.10 of the German Corporate Governance Code, on the Corporate Governance at the Company (Corporate Governance Report). The Corporate Governance Declaration and the Corporate Governance Report are published on the website at www.fresenius.com, see Who we are − Corporate Governance.
The Company has the legal form of a KGaA (Kommanditgesellschaft auf Aktien – partnership limited by shares). The Annual General Meeting, the Supervisory Board, and the general partner Fresenius Management SE are the legal corporate
bodies. There have been no changes in the Group management and the supervision structure in the reporting period. The chart on the following page provides an overview of the Group structure.
The articles of association of Fresenius SE & Co. KGaA, which, in addition to legal provisions, further define the responsibilities of the individual corporate bodies, can be downloaded from our website www.fresenius.com, see Who we are – Corporate Governance.
The shareholders uphold their rights at the Annual General Meeting, where they exercise their voting rights. Every ordinary share of Fresenius SE & Co. KGaA confers one vote. None of the shares carry multiple or preferential voting rights.
We report in detail on our investor relations activities on page 22 and in the section "Fresenius share" on page 10.
Our Annual General Meeting (AGM) was held on May 17, 2013, in Frankfurt/Main. Approximately 74% of the share capital was represented.
During the AGM, the shareholders voted with a majority of more than 99% of the votes cast for the proposal made by the general partner and the Supervisory Board to increase
the 2012 dividend by 16% to €1.10 per ordinary share. With a majority of approximately 91%, they approved a new Authorized Capital in the amount of up to €40.32 million. The previous Authorized Capital in the amount of up to €26.52 million was cancelled.
The shareholders further approved with a majority of approximately 99% a new stock-option program and a corresponding Conditional Capital.
Further resolutions included approval of changes to the compensation system of the members of the Management Board of the general partner and the approval of the Company's annual financial statements. The resolutions on the approval of the Company's annual financial statements, the creation of a new Authorized Capital, the cancellation of the previous Authorized Capital, and the new stock-option program alongside with the creation of a Conditional Capital required the approval of the general partner, which was duly given.
With regard to certain subject matters, legally required voting right exclusions exist for the general partner and in some instances for its sole shareholder, the Else Kröner--Fresenius-Stiftung. These pertain, for example, to the appointment of the Supervisory Board of Fresenius SE & Co. KGaA, the approval of the actions of the general partner and the
members of the Supervisory Board, and the selection of the auditor. This guarantees that the remaining shareholders retain the sole authority to decide on these matters, especially those that pertain to the supervision of management.
Documents and information on the Annual General Meeting are available on our website at www.fresenius.com, see Investor Relations.
The responsibilities are distributed as follows in Fresenius SE & Co. KGaA: The Management Board of the general partner is responsible for conducting the business of Fresenius SE & Co. KGaA. The Supervisory Board of Fresenius SE & Co. KGaA supervises the management of the Company's business by the general partner.
The general partner Fresenius Management SE, represented by its Management Board, manages Fresenius SE & Co. KGaA at its own responsibility and conducts its business. The Management Board formulates the Company's strategy, discusses it with the Supervisory Boards of Fresenius Management SE
1 For selected items no voting power, e.g., election of Supervisory Board SE & Co. KGaA, discharge of general partner and Supervisory Board of SE & Co. KGaA for the fiscal year, election of auditors
and of Fresenius SE & Co. KGaA, and oversees its implementation. Its actions and decisions are aligned with the best interests of Fresenius SE & Co. KGaA. The Management Board is committed to increasing the value of the Company on a sustainable basis. The rules of procedure for the Management Board were established by the Supervisory Board of Fresenius Management SE. They define the activities within the board more specifically, especially with regard to the individual duties and responsibilities of the members, matters reserved for the full Management Board, and resolutions to be passed by the full Management Board. The meetings of the Management Board are convened as required, but at least once a month, and are chaired by the Chairman of the Management Board or, if he is incapacitated, by the Chief Financial Officer or, if he is also incapacitated, by the Management Board member present who is most senior in age. However, Management Board meetings are usually held twice a month. The person chairing the meeting decides the order in which the items on the agenda are dealt with and the form in which the voting is conducted. The Management Board passes its resolutions by a simple majority of the votes cast or, outside its meetings, by a simple majority of its members, except in cases where mandatory provisions of law impose stricter requirements. The Chairman of the Management Board has the casting vote if a vote is tied. If the Chairman is incapacitated or absent, the motion is deemed rejected if a vote is tied. The rules of procedure for the Management Board also govern the relations between the Management Board and the Supervisory Board of the general partner as well as between the general partner and the Supervisory Board of Fresenius SE & Co. KGaA, and also matters that require approval of the general partner's Supervisory Board.
The Management Board consists of seven members: the Chairman, the Chief Financial Officer, the Chief Legal and Compliance Officer and Labor Relations Director, as well as the chief executive officers of the four business segments. This ensures that the full Management Board is kept constantly informed about important events, plans, developments, and measures within the business segments. There are no Management Board committees owing to Fresenius SE & Co. KGaA's role as an operating holding company. The Management Board is listed on page 188 of the Annual Report.
As a European company (SE – Societas Europaea), Fresenius Management SE has its own Supervisory Board. It consists of six members, and its Chairman is Dr. Gerd Krick. The Supervisory Board appoints the members of the Management Board of Fresenius Management SE and supervises and advises the Management Board by conducting the business. It established its rules of procedure following the recommendation in number 5.1.3 of the Code.
The Supervisory Board members of Fresenius Management SE can be found on page 189 of the Annual Report.
The Supervisory Board of Fresenius SE & Co. KGaA The Supervisory Board of Fresenius SE & Co. KGaA supervises the management of the Company's business by the general partner. It supervises business operations to ensure that corporate decisions are compliant, suitable, and financially sound. The members of the Management Board of the general partner are appointed by the Supervisory Board of Fresenius Management SE, not – as already explained – by the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board of Fresenius SE & Co. KGaA consists of twelve members. Half of its members are elected by the AGM. The proposals for the members of the Supervisory Board primarily take account of the knowledge, ability, and expert experience required to perform the tasks. The election proposal provided by the Supervisory Board will take into account the Company's international activities, potential conflicts of interest, the number of independent members of the Supervisory Board within the meaning of number 5.4.2 of the Code, and diversity. This also includes the aim to establish appropriate female representation on a long-term basis. It is not in the Company's interest to generally limit the selection of qualified candidates. However, in the Company's interest not to limit the selection of qualified candidates in a general way, the Supervisory Board confines itself to a general declaration of intent and particularly refrains from fixed diversity quotas and from an age limit. The statutorily required declaration of conformity concerning the Code accordingly includes a justified limitation. A Nomination Committee has been instituted for election proposals for the shareholders' representatives. Its activities are aligned with the provisions of law and the Code. The European works council elects the employee representatives to the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board includes what it deems to be an appropriate number of independent members who do not have any business or personal relationship with the Company, its corporate bodies, a controlling shareholder, or a party related to the latter that may give grounds for a material and not merely temporary conflict of interest. The articles of association of Fresenius SE & Co. KGaA regulate the details with regard to the Supervisory Board's election, constitution, term of office, meetings and resolutions, and rights and duties. They are published on our website at www.fresenius.com, see Who we are − Corporate Governance.
The Supervisory Board of Fresenius SE & Co. KGaA has established its rules of procedure in accordance with number 5.1.3 of the Code. The Chairman of the Supervisory Board is responsible for coordinating the activities of the Supervisory Board, chairing the meetings, and representing its interests externally. The Supervisory Board should convene once each calendar quarter, and must convene twice each calendar halfyear. The meetings are convened and chaired by the Chairman or, if he is incapacitated, by a chairperson named by the Chairman. The person chairing the meeting decides the order in which the items on the agenda are dealt with and the form in which the voting is conducted. Unless other majorities are mandatory by law, the Supervisory Board passes its resolutions by a simple majority of the votes submitted in the voting. If a vote is tied, the Chairman has the casting vote or, if he does not take part in the voting, the matter is decided by the vote of the Deputy Chairman, who is a shareholder representative.
The Supervisory Board of Fresenius SE & Co. KGaA conducts its business in accordance with the provisions of law, the articles of association of Fresenius SE & Co. KGaA, and its rules of procedure. The Management Board of the general partner Fresenius Management SE continuously informs the Supervisory Board of the corporate development, planning, and strategy. The Supervisory Board supervises the Company's management and, taking into account the auditor's reports, reviews the Group's annual financial statements. Another important part of the Supervisory Board's activities is the work conducted within the committees formed in accordance with the requirements of the German Stock Corporation Act and the recommendations of the Code.
The members of the Supervisory Board keep themselves regularly informed, through internal and external sources, about the latest requirements with regard to their supervisory activities. With the support of the Company, the Supervisory Board at all times ensures that its members are suitably qualified, keep their professional knowledge up to date, and further develop their judgment and expertise to the extent necessary for the proper performance of their duties, including those of the Supervisory Board committees. Information is sourced from various external experts. In addition, experts from the Company provide information about important developments, for example about the strategic orientation of the Company in growth markets, relevant new laws and precedents, or changes in the U.S. GAAP and IFRS accounting and auditing standards.
The members of the Supervisory Board of Fresenius SE & Co. KGaA can be found on pages 186 to 187 of the Annual Report. On pages 180 to 185 of the Annual Report, the Supervisory Board reports on the main focuses of its activities and those of its committees in 2013.
The Supervisory Board of Fresenius SE & Co. KGaA deliberated on the efficiency evaluation in accordance with number 5.6 of the Code at its meeting in March 2013.
It reviewed the efficiency of its activities through an open discussion within the full Supervisory Board. A companyspecific questionnaire covering the salient points for a selfevaluation served as the basis for the discussion. Among other things, this included the organization and structuring of the meetings, the amount of information, and how this information was provided. The self-evaluation showed that the Supervisory Board was efficiently organized, and that the cooperation between the Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA worked very well.
Cooperation between general partner and Supervisory Board of Fresenius SE & Co. KGaA Good corporate governance requires trusting and efficient cooperation between the Management and the Supervisory Board. The Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA closely cooperate for the benefit of the Company. Open communication is essential. The common goal is to sustainably increase the company value in line with the corporate governance and compliance principles. The Management Board of the general
partner and the Supervisory Board of Fresenius SE & Co. KGaA coordinate with each other, especially with regard to the Company's strategic focus. As the monitoring body, the Supervisory Board of Fresenius SE & Co. KGaA also needs to be fully informed about operating performance and corporate planning, as well as the risk situation, risk management, and compliance. The Management Board of the general partner provided this information in full and in compliance with its duties.
The Supervisory Board of Fresenius SE & Co. KGaA forms two permanent committees from among its members: the Audit Committee, consisting of five members, and the Nomination Committee, consisting of three members. The committee members were elected for the duration of their term as a member of the Supervisory Board of Fresenius SE & Co. KGaA. In accordance with the articles of association of Fresenius SE & Co. KGaA, only members of the Audit Committee receive additional compensation (Section 13 (2)). There is no Personnel Committee in the KGaA because the Supervisory Board of Fresenius SE & Co. KGaA is not responsible for appointing members of the Management Board of the general partner or for their contracts. Responsibility for these personnel matters lies with the Supervisory Board of the general partner.
The provisions for the Supervisory Board of Fresenius SE & Co. KGaA apply analogously to the committees. The committees hold meetings as required. The meetings are convened by the committee chairmen. They report during the following Supervisory Board meeting about the work of the respective committee. The rules of procedure for the committees are regulated in the rules of procedure of the Supervisory Board of Fresenius SE & Co. KGaA. The committees do not have their own rules of procedure.
The members of the Supervisory Board's committees are listed on page 187 of the Annual Report.
Prof. Dr. h. c. Roland Berger is the Chairman of the Audit Committee. He has the required expertise in the fields of accounting and auditing stated in Section 100 (5) of the German Stock Corporation Act (AktG). The Committee's function is, among other things, to prepare the Supervisory Board's approval of the financial statements – and the consolidated financial statements – and the Supervisory Board's proposal to the AGM on the appointment of the auditor for the financial statements, and to make a preliminary review of the proposal on the allocation of distributable profits. It also reviews the quarterly reports before they are published and – following discussions with the Management Board – engages the auditor for the financial statements (and concludes the agreement on the auditor's fees), determines the main focuses of the audit, and defines the auditor's reporting duties in relation to the Supervisory Board of Fresenius SE & Co. KGaA. Other matters within its remit are to review the effectiveness of the internal controls system, of the risk management system, of the internal audit system, and of the compliance.
The Audit Committee consists of Prof. Dr. h. c. Roland Berger (Chairman), Konrad Kölbl, Dr. Gerd Krick, Gerhard Roggemann, and Rainer Stein.
The Nomination Committee proposes suitable candidates to the Supervisory Board for the nominations it makes to the AGM for the election of Supervisory Board members on the shareholders' side. It consists solely of shareholder representatives. In making its proposals, the Nomination Committee is guided by the requirements of the Code.
The Nomination Committee consists of Dr. Gerd Krick (Chairman), Prof. Dr. h. c. Roland Berger, and Dr. Gerhard Rupprecht.
Fresenius SE & Co. KGaA does not have a Mediation Committee because the provisions of the German Co-Determination Act that require such a committee do not apply to a partnership limited by shares and because the Code also does not require such a committee.
For some matters, which are defined in further detail in Section 13c (1) of the articles of association of Fresenius SE & Co. KGaA, the general partner requires the approval of the Joint Committee if 40% of the consolidated sales, the consolidated balance sheet total, and the consolidated profit are affected by the matter. These include, for example, the divestiture and acquisition of large investments and business units or the divestiture of large business units from the assets
of Fresenius SE & Co. KGaA or a wholly owned company. The approval of the Joint Committee is also required for certain legal transactions between Fresenius SE & Co. KGaA or its affiliates and the Else Kröner-Fresenius-Stiftung.
Dr. Gerd Krick and Dr. Gerhard Rupprecht are members of the Joint Committee. Other members are Dr. Dieter Schenk (Chairman) and Dr.Karl Schneider, who were appointed by the general partner. The Joint Committee did not meet in 2013.
Information on positions held by committee members on statutorily required supervisory boards and comparable domestic and foreign control bodies of other business enterprises can be found on pages 186 to 189 of the Annual Report.
The general partner, represented by its Management Board, manages the Company's business with the due care and diligence of a prudent and conscientious company director in compliance with the provisions of the law, the articles of association, the rules of procedure for the Management Board, the resolutions passed by the full Management Board, and the Supervisory Board of the general partner. Corporate governance practices extending beyond the requirements of law are defined in the Fresenius Code of Conduct. This Code of Conduct contains the key principles and rules for our conduct within the Company and in our relations with external partners and with the public. We have published the Fresenius Code of Conduct on our website at www.fresenius.com, see Who we are − Corporate Governance. The Code of Conduct is binding for all Company employees and must be complied with regarding any type of business relationship. Our executives regard ensuring compliance with the principles of the Code of Conduct as part of their managerial responsibilities.
Our "Forward Thinking Healthcare" model is the maxim for corporate governance at Fresenius, determines our corporate culture, and is an integral part of our day-to-day work. It is the basis for our corporate values reflected in the Fresenius Code of Conduct. In this Code of Conduct, the Management Board commits itself without limitation to binding principles and rules for conduct within the Company and in its course of the business. These include professionalism, honesty, and integrity in relations with our patients, customers, suppliers, employees, and shareholders. Furthermore, in its Code of Conduct, Fresenius commits itself to fair competition and to dealing honestly with business partners and officials. Fresenius expects all of its employees to comply with all applicable principles, laws, and regulations. Breaches will not be tolerated and will be pursued.
Company guidelines and rules of procedure provide specific details regarding the regulations included in the Fresenius Code of Conduct. Their purpose is to help our employees make the right decisions in their day-to-day work. The Fresenius Code of Conduct is complemented by the codes of conduct and compliance programs of the Company's business segments. The latter comply with the requirements that arise from their specific activities and are generally not interfered with as long as they are not in conflict with the Fresenius Code of Conduct. The Fresenius Code of Conduct accordingly applies to all employees of the Fresenius Group.
Employees are obliged to report any non-compliance with the Code, or if they become aware of a potential non-compliance, to their superiors or a compliance manager. The Code of Conduct explicitly rules that no employee may incur any disadvantage as a result of reporting a potential breach of the Code. That is why breaches of the Code of Conduct may also be reported anonymously to an e-mail address set up for this purpose. In various business segments breaches may also be reported via a whistleblower hotline.
Regular training, for example on the Code of Conduct in general or on specific topics, such as anticorruption and cartel law, helps our employees to comply with the Fresenius Code of Conduct, the Company guidelines, and our rules of procedure. Fresenius gives top priority to this training, which is obligatory for all employees, including management. The aim is to make participants aware of potential breaches of compliance and for them to learn to recognize and avoid risks and conflicts of interest at an early stage. Since 2012, besides participating in person, it has been possible to do the training online. In addition, a quarterly Compliance Newsletter provides information on the latest developments in this field.
The Internal Audit division audits business segments and Group companies also in regard to compliance-relevant issues. It discusses potential areas of risk prior to, and takes account of them in, its audit. If the results of an audit reveal any potential for improvement, this will be implemented jointly with the Corporate Compliance department at Fresenius SE & Co. KGaA.
Monitoring compliance is a central duty of management at all levels. The Corporate Compliance department reports to the Chief Compliance Officer – the member of the Management Board responsible for Legal Affairs, Compliance, and Human Resources. It supports him in developing and implementing guidelines and procedures aimed at ensuring compliance with statutory regulations and the requirements of the Fresenius Compliance Program.
Each business segment has initiated compliance activities and guidelines, and appointed a Chief Compliance Officer. This officer is in charge of introducing, developing, and monitoring compliance. Depending on the organizational and business structures, the Chief Compliance Officer is assisted by additional compliance officers. The employees at the Corporate Compliance department similarly support and advise the compliance officers of the business segments, as well as at the regional and local levels.
The Compliance Steering Committee is the central committee for discussing compliance issues. It comprises the Chief Compliance Officer, the Chief Financial Officer, and the heads of Legal Affairs, Internal Audit, and the Corporate Compliance department. It deals with the status of major projects and discusses procedures concerning recognized risks and the steps to be taken to identify breaches of compliance. It also specifies procedures for dealing with any breach.
The supervisory bodies at Fresenius SE & Co. KGaA as well as the general partner, Fresenius Management SE, are regularly informed – no less than once a year – about compliance within the Group.
In our view, the responsible handling of risks is an element of good corporate governance. Fresenius has a systematic risk management and control system that allows the Management Board to make early identifications of risks and market trends and to react promptly to relevant changes in our risk profile. Our risk management and control system and efficiently designed processes help to enhance the Company's performance. Our risk management is reviewed as part of the annual audit of the financial statements. The control system is regularly reviewed by the Management Board and the Internal Audit division. Further information can be found on pages 85 to 86 of the Management Report.
The Internal Audit division supports the Management Board as an independent function outside the Company's dayto-day operations. The division assesses internal processes from an objective viewpoint and with the necessary distance. Our goal is to create added value for Fresenius, and thus to help achieve organizational goals through improved internal controls, optimized business processes, cost reduction, and efficiency increases, as well as the prevention of corruption.
Fresenius Medical Care AG & Co. KGaA has its own internal risk management and control system.
The German Corporate Governance Code aims to provide more transparency for investors with regard to existing regulations covering the management and monitoring of companies. Our value-enhancing strategies, as well as the majority of the guidelines, recommendations, and suggestions for responsible management contained in the Code, have been basic components of our activities for many years. Corporate governance. Extensive information can be found on our website www.fresenius.com, see Who we are – Corporate Governance. The Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, and the Supervisory Board of Fresenius SE & Co. KGaA have issued the required Declaration of Conformity pursuant to Section 161 of the German Stock Corporate Act (AktG) and have made it available to shareholders on the website of the Company:
"Declaration by the Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, and by the Supervisory Board of Fresenius SE & Co. KGaA on the German Corporate Governance Code pursuant to Section 161 German Stock Corporation Act (Aktiengesetz).
The Management Board of the general partner of Fresenius SE & Co. KGaA, Fresenius Management SE, (hereafter the Management Board) and the Supervisory Board of Fresenius SE & Co. KGaA declare that since issuance of the previous declaration of conformity in December 2012 (amended in May 2013) the recommendations of the 'Government Commission on the German Corporate Governance Code' published by the Federal Ministry of Justice (Justizministerium) in the official section of the Federal Gazette (Bundesanzeiger) (hereafter the Code) in the version of May 15, 2012 as well as in the version of May 13, 2013 since its publication in the Federal Gazette have been met and that the recommendations of the Code in the version of May 13, 2013 will be met in the future. Only the following recommendations of the Code in the versions of May 15, 2012 and of May 13, 2013 have not been and will not be met:
▶ Code number 4.2.3 paragraph 4: Severance payment cap Pursuant to code number 4.2.3 paragraph 4, in concluding Management Board contracts, care shall be taken to ensure that payments made to a Management Board member on premature termination of his/her contract, including fringe benefits, do not exceed the value of two years' compensation (severance payment cap) and compensate no more than the remaining term of the 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 insofar do not contain a limitation of any severance payment amount. Uniform severance payment arrangements of this kind would contradict the concept practiced by Fresenius in accordance with the German Stock Corporation Act (Aktiengesetz) according to which 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 wellbalanced assessment of the individual case.
▶ Code number 5.1.2 paragraph 2 sentence 3: 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 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 5.3.2 sentence 3: Independence of the Chairman of the Audit Committee
Pursuant to code number 5.3.2 sentence 3, the Chairman of the Audit Committee shall be independent. Pursuant to code number 5.4.2 sentence 2, a Supervisory Board member is not to be considered independent in particular if he / she has personal or business relations with the company, its executive bodies, a controlling shareholder, or an enterprise associated with the latter, which may cause a substantial and not merely temporary conflict of interests.
The Chairman of the Audit Committee of Fresenius SE & Co. KGaA, Prof. Dr. h. c. Roland Berger, is at the same time a shareholder of Roland Berger Strategy Consultants Holding GmbH and the honorary chairman of the Supervisory Board of Roland Berger Strategy Consultants Holding GmbH. The Fresenius Group is being advised by Roland Berger Strategy Consultants GmbH (hereafter RBSC), an associated enterprise of the management consulting firm Roland Berger Strategy Consultants Holding GmbH. In the context of a project in the course of the 2013 financial year, the Fresenius Group has been sourcing advisory services from RBSC. The Fresenius Group will pay an estimated fee of approximately EUR8 million
to RBSC in case of successful finalization of the project. The Management Board and Supervisory Board believe that these business relations neither constitute a substantial or long-term conflict of interest, nor do they interfere with the tasks of the Chairman of the Audit Committee. For reasons of precaution, however, a deviation from code number 5.3.2 sentence 3 is being declared against the background of the possible fee volume given the legal views taken with regards to the question of independence.
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 appropriate female representation on a long-term 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. 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.
Pursuant to code number 5.4.6 paragraph 2 sentence 2, a performance-related compensation, if promised to the members of the Supervisory Board, shall be oriented toward sustainable growth of the enterprise. The variable compensation, of the Supervisory Board members of Fresenius SE & Co. KGaA does not have a calculation basis of several years and is, therefore, not oriented, in this sense, toward the sustainable growth of the enterprise. The Supervisory Board rather receives a performance-related compensation, which pursuant to section 13 paragraph 1 of the articles of association of Fresenius SE & Co. KGaA depends on the dividend. This compensation model has been in existence since the year 1995. It continues to bring forth an adequate compensation of the Supervisory Board in line with the law and with the interests of the shareholders.
In addition, the following recommendations of the code in the version of May 13, 2013 have not been, and will not be, met:
▶ Code number 4.2.3 paragraph 2 sentence 6: Caps regarding specific compensation amounts Pursuant to code number 4.2.3 paragraph 2 sentence 6 in the version of May 13, 2013, the amount of compensation shall be capped, both overall and for variable compensation components.
This recommendation is not met. The Management Board contracts do not provide for caps regarding specific amounts for all compensation components and accordingly not for caps regarding specific amounts for the overall compensation. The performance-based short-term compensation (the variable bonus) is capped. As regards stock options and phantom stocks as compensation components with long-term incentives, the Management Board contracts do provide for a possibility of limitation but not for caps regarding specific amounts. Introducing caps regarding specific amounts in relation to such stock-based compensation components would contradict the basic idea of the members of the Management Board participating appropriately in the economic risks and opportunities of the Company. Instead of that, Fresenius pursues a
flexible concept considering each individual case. In situations of extraordinary developments in relation to the stock-based compensation, which are not related to the performance of the Management Board, the Supervisory Board may cap the stock-based compensation.
Pursuant to code number 4.2.5 paragraph 3 in the version of May 13, 2013, the presentation of the compensation for each individual member of the Management Board in the compensation report shall for financial years starting after December 31, 2013 inter alia present the maximum and minimum achievable compensation by using corresponding model tables.
Since Fresenius in deviation from code number 4.2.3 paragraph 2 sentence 6 does not provide for caps regarding specific amounts for all compensation components and, therefore, does not provide for caps regarding specific amounts for the overall compensation, the compensation report cannot meet all recommendations of the code in the future. Irrespective thereof, Fresenius will continue to present its compensation system and the amounts paid to members of the Management Board in its compensation report in a comprehensive and transparent manner in the future. This will also include the maximum and minimum achievable variable bonus.
In accordance with Section 161 para. 2 AktG and number 3.10 sentence 3 of the Code, this declaration and all past declarations are published on our website at www.fresenius.com. To download these documents, see Who we are − Corporate Governance.
The Management Board takes diversity into account when filling executive positions. An appropriate degree of female representation is especially important when selecting equally qualified candidates. The commitment to diversity within the Fresenius Group is underlined by the fact that 30% of our executive officers are women.
Further information on diversity as well as personnel development and personnel management are included in the Group Management Report on pages 49ff.
The general partner and the Supervisory Board of Fresenius SE & Co. KGaA have a duty to act in the best interests of the Company. In performing their activities, they do not pursue personal interests or bestow unjustified benefits on others. Any sideline activities or transactions with the Company by members of the corporate bodies must be reported to, and approved by, the Supervisory Board. The Supervisory Board of Fresenius SE & Co. KGaA reports to the AGM on any conflicts of interest and how they are dealt with.
Fresenius SE & Co. KGaA reports the following relationships existing between Fresenius group companies and companies in which members of the Supervisory Board of Fresenius SE & Co. KGaA or members of the Supervisory or Management Board of Fresenius Management SE held an executive or other function in 2013.
Prof. Dr. med. D. Michael Albrecht is a member of the Supervisory Board of Fresenius SE & Co. KGaA and medical director and spokesman for the management board of the University Hospital Carl Gustav Carus Dresden, as well as a member of the supervisory board of the University Hospital in Aachen and he was a member of the supervisory boards of the University Hospitals in Magdeburg and Rostock. The Fresenius Group maintains business relations with these hospitals in the ordinary course of business under customary conditions. Klaus-Peter Müller is a member of the Supervisory Boards of Fresenius Management SE and of Fresenius SE & Co. KGaA and the Chairman of the Supervisory Board of Commerzbank AG, with which the Fresenius Group maintains business relationships under customary conditions. In 2013, the Fresenius Group paid €1.4 million in total to Commerzbank AG for financing commitments in connection with Senior Notes issuances and the share conversion at Fresenius Medical Care. Dr. Gerhard Rupprecht is a member of the Supervisory Boards of Fresenius Management SE and Fresenius SE & Co. KGaA and of the supervisory board of Allianz France SA. In 2013, the Fresenius Group paid €5.3 million for insurance premiums to Allianz under customary conditions.
Consultancy or other service relationships between members of the Supervisory Board and the Company existed with regard to Dr. Dieter Schenk, Deputy Chairman of the Supervisory Board of Fresenius Management SE. Dr. Schenk is a partner in the law firm Noerr LLP. The entities of the internationally acting law firm Noerr provided legal advice to the Fresenius Group in 2013. In 2013, the Fresenius Group paid or processed for payment in December a total of about €1.5 million to the law firm Noerr (2012: €1.8 million). This corresponds to 1% of the total amount paid by the Fresenius Group for services and legal advice in 2013 (2012: 2%). Not included in the amount paid or processed for payment are such payments made in 2013 that had already been processed for payment in 2012 and have therefore already been reported for the 2012 fiscal year. Thereof, about €0.5 million were attributable to services for Group companies not related to the business segment Fresenius Medical Care. The services rendered for Group companies of the business segment Fresenius Medical Care require a separate approval by the Supervisory Boards of Fresenius Medical Care Management AG and Fresenius Medical Care AG & Co. KGaA. The Supervisory Board of Fresenius Management SE has examined the mandate closely, and has approved this mandate. Dr. Schenk did not take part in the voting. The approval was made on the basis of a written submission to the Supervisory Board, which listed all individual mandates and their corresponding individual
invoices. In 2013, the invoices were paid after the Supervisory Board gave its approval. The Supervisory Board of Fresenius SE & Co. KGaA dealt with the amounts for legal services paid to the law firm Noerr in relation to the amounts paid to other law firms.
Further consulting or service contracts between Supervisory Board members and the Company existed in the case of Prof. Dr. h. c. Roland Berger, who is both a member of the Supervisory Boards of Fresenius Management SE and of Fresenius SE & Co. KGaA, and is at the same time a partner in the management consultancy firm Roland Berger Strategy Consultants Holding GmbH. The Fresenius Group paid €2.9 million to Roland Berger Strategy Consultants GmbH, an affiliated company of Roland Berger Strategy Consultants Holding GmbH, for services rendered in 2013 (2012: €0.6 million). The Supervisory Boards of Fresenius Management SE and Fresenius SE & Co. KGaA examined this mandate closely. Both Supervisory Boards approved this mandate. Prof. Dr. h. c. Berger abstained from each voting. The respective approvals were made on the basis of a written submission to the Supervisory Board and prior to the payment of the invoices for the services.
The payments mentioned in the above section "Legal relationships with members of the corporate bodies" are net amounts. In addition, VAT was paid.
There are no other consulting or service contracts – neither directly nor indirectly – between Supervisory Board members and the Company.
Fresenius has disclosed the information on related parties in its 2013 quarterly reports and on pages 174 to 175 of the Annual Report.
Members of the Management and Supervisory Boards of the general partner, members of the Supervisory Board of Fresenius SE & Co. KGaA, other executive officers, and persons closely related to them are required, pursuant to Section 15a of the German Securities Trading Act (WpHG), to disclose purchases and sales of Fresenius SE & Co. KGaA's shares
| 2013 | Name | Quantity | Price in €1 | Total volume in € |
Type of transaction |
|---|---|---|---|---|---|
| December 2 | Dr. U. M. Schneider | 23,860 | 63.00 | 1,503,151.56 | Stock option exercise 2 |
| November 28 | S. Sturm | 19,660 | 60.68 | 1,192,901.40 | Stock option exercise 2 |
| November 26 | Dr.J. Götz | 28,380 | 49.52 | 1,405,388.55 | Stock option exercise 2 |
| November 26 | Dr. E. Wastler | 36,300 | 66.70 | 2,421,156.50 | Stock option exercise 2 |
| November 25 | Dr. U. M. Schneider | 25,800 | 48.29 | 1,245,856.25 | Stock option exercise 2 |
| November 8 | S. Sturm | 10,000 | 66.59 | 665,940.82 | Stock option exercise 2 |
| November 7 | S. Sturm | 40,000 | 57.84 | 2,313,648.72 | Stock option exercise 2 |
| November 7 | Dr. E. Wastler | 32,400 | 47.13 | 1,526,988.42 | Stock option exercise 2 |
| November 6 | Dr.J. Götz | 58,920 | 50.90 | 2,999,028.36 | Stock option exercise 2 |
| August 2 | M. Henriksson | 13,800 | 63.10 | 870,812.88 | Stock option exercise 2 |
| May 27 | Dr. F. De Meo | 68,122 | 50.46 | 3,437,545.23 | Stock option exercise 2 |
1 Price rounded to two decimals
Exercise of stock options on Fresenius shares of the stock option plan and sale of the shares (cash settlement)
and financial instruments based on them (directors' dealings). Directors' dealings in 2013 are disclosed in the table above.
Pursuant to number 6.3 of the Code, ownership of shares of the Company and financial instruments based on them must be disclosed by Management Board and Supervisory Board members if more than 1% of the shares issued by the Company are held either directly or indirectly. None of the Management or Supervisory Board members of the general partner or of the Supervisory Board of Fresenius SE & Co. KGaA directly or indirectly holds more than 1% of the shares issued by Fresenius or any related financial instruments.
The members of the Management and Supervisory Boards of Fresenius Management SE and the members of the Supervisory Board of Fresenius SE & Co. KGaA together hold 0.95% of the shares of Fresenius SE & Co. KGaA outstanding as of December 31, 2013, in the form of shares or related financial instruments and stock options under the Fresenius SE & Co. KGaA stock option plans. 0.46% are held by members of the Management Board of Fresenius Management SE, 0.49% by members of the Supervisory Board of Fresenius Management SE, and 0.48% by members of the Supervisory Board of Fresenius SE & Co. KGaA. Due to the fact that some persons are members of both Supervisory Boards, the amount of shares or related financial instruments and stock options held by the Boards of Fresenius SE & Co. KGaA and Fresenius Management SE in total is smaller than the cumulative holdings of the three Boards as reported herein.
There were no notifications that the shareholdings of members of the Management and Supervisory Boards had reached, exceeded, or fallen below the reporting thresholds stipulated in the German Securities Trading Act.
Fresenius adheres to all recommendations under number 6 of the Code. Transparency is guaranteed by continuous communication with the public. In that way we are able to validate and deepen the trust given to us. Of particular importance to us is the equal treatment of all recipients. To ensure that all market participants receive the same information at the same time, we post all important publications on our website www.fresenius.com in the "Investor Relations" section and under Who we are − Corporate Governance. We report in detail on investor relations activities on page 10 of the Annual Report.
Fresenius prepares its consolidated financial statements in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP). Fresenius, as a publicly traded company based in a member country of the European Union, is required to prepare and publish its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) pursuant to Section 315a of the German Commercial Code (HGB). Our largest subsidiary, Fresenius Medical Care, prepares its financial statements in accordance with U.S. GAAP. We therefore publish our consolidated financial statements in accordance with U.S. GAAP and our statutory consolidated financial statements in accordance with IFRS. This enables us to disclose our financial results to all our shareholders in a comparable and transparent manner.
The compensation report summarizes the main elements of the compensation system for the members of the Management Board of Fresenius Management SE as the general partner of Fresenius SE & Co. KGaA, and in this regard notably explains the amounts and structure of the compensation paid to the Management Board as well as the principles for determining the compensation of the Supervisory Board and the amounts of the compensation. The compensation report is part of the Management Report of the annual financial statements and the annual consolidated financial statements of Fresenius SE & Co. KGaA. The compensation report is prepared on the basis of the recommendations of the German Corporate Governance Code as well as under consideration of the declaration of conformity of Fresenius SE & Co. KGaA of December 2013, and also includes the disclosures as required pursuant to the applicable statutory regulations, notably in accordance with the German Commercial Code.
The entire Supervisory Board of Fresenius Management SE is responsible for determining the compensation of the Management Board. The Supervisory Board is assisted in this task by a personnel committee. In the fiscal year 2013, the acting personnel committee was composed of Dr. Gerd Krick, Dr. Dieter Schenk, and Dr. Karl Schneider.
In 2012, the Supervisory Board of Fresenius Management SE adopted adjustments to the Management Board compensation system and introduced a combination plan (so-called LTIP 2013), consisting of the 2013 Stock Option Plan and the 2013 Phantom Stock Plan. On May 17, 2013, the Annual General Meeting approved of the changed compensation system with a majority of 96.39% of the votes cast.
The objective of the compensation system is to enable the members of the Management Board to participate reasonably in the sustainable development of the Company's business and to reward them based on their duties and performance as well as their successes in managing the Company's economic and financial position giving due regard to the peer environment.
The compensation of the Management Board is, as a whole, performance-based and was composed of three elements in the fiscal year 2013:
In addition, there are pension commitments for the seven members of the Management Board.
The design of the individual components is based on the following criteria:
The fixed compensation was paid in 12 monthly installments in the fiscal year 2013. Mr. Rice Powell was paid a part of his fixed compensation from Fresenius Medical Care North America in 24 monthly installments. Moreover, the members of the Management Board received additional benefits consisting mainly of insurance premiums, the private use of a company car, special payments such as rent supplements and reimbursement of certain other charges, tuition fees, as well as contributions to pension and health insurance.
The performance-based compensation will also be granted for the fiscal year 2013 as a short-term cash component (oneyear variable compensation) and as a compensation component with long-term incentive effects (stock options, share-based compensation with cash settlement (phantom stocks), and postponed payments of the one-year variable compensation). The amount of the one-year variable compensation in each case is dependent on certain target parameters oriented on the net income attributable to Fresenius SE & Co. KGaA and/or to the relevant business segments being achieved. In the case of the members of the Management Board with functional responsibility for the entire Group – such members being Dr.Schneider, Mr.Sturm, and Dr.Götz – the amount of the oneyear variable compensation is based in its entirety on the respective net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest). For Mr.Henriksson and Dr. De Meo, approximately half of the amount of the one-year variable compensation depends on the development of the net income attributable to Fresenius SE & Co. KGaA and for the remainder on the development of the net income of the business segment (in each case after deduction of
noncontrolling interest) for which the respective member of the Management Board is responsible. Approximately half of the amount of the one-year variable compensation of Dr. Wastler is oriented on the net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest) as well as on the net income before tax and extraordinary income/expenditures of the VAMED group. Mr. Rice Powell receives his
compensation exclusively from Fresenius Medical Care. Furthermore, the Supervisory Board may grant a discretionary bonus for extraordinary performance.
For the fiscal years 2013 and 2012, the amount of cash payment of the Management Board of the general partner of Fresenius SE & Co. KGaA consisted of the following:
| Non-performance-based compensation |
Performance-based compensation |
Cash compensation (without long-term incentive components) |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Salary | Other 2 | Bonus | |||||||
| € in thousands | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |
| Dr. Ulf M. Schneider | 990 | 990 | 64 | 51 | 1,402 | 1,150 | 2,456 | 2,191 | |
| Rainer Baule (up to December 31, 2012) | 0 | 550 | 0 | 26 | 0 | 801 | 0 | 1,377 | |
| Dr. Francesco De Meo | 550 | 550 | 19 | 19 | 998 | 700 | 1,567 | 1,269 | |
| Dr.Jürgen Götz | 415 | 415 | 34 | 34 | 690 | 600 | 1,139 | 1,049 | |
| Mats Henriksson (since January 1, 2013) | 550 | 0 | 217 | 0 | 956 | 0 | 1,723 | 0 | |
| Dr.Ben Lipps 1 (up to December 31, 2012) |
0 | 973 | 0 | 302 | 0 | 1,438 | 0 | 2,713 | |
| Rice Powell 1 (since January 1, 2013) |
941 | 0 | 169 | 0 | 373 | 0 | 1,483 | 0 | |
| Stephan Sturm | 550 | 550 | 40 | 89 | 921 | 751 | 1,511 | 1,390 | |
| Dr. Ernst Wastler | 470 | 470 | 35 | 34 | 660 | 587 | 1,165 | 1,091 | |
| Total | 4,466 | 4,498 | 578 | 555 | 6,000 | 6,027 | 11,044 | 11,080 |
1 Mr. Rice Powell and Dr.Ben Lipps received their compensation only from Fresenius Medical Care, of which Fresenius SE & Co. KGaA held around 31% of the total subscribed capital. As members of the Management Board of Fresenius Management SE, their compensation has to be included in the compensation report of the Fresenius Group.
2 Includes insurance premiums, private use of a company car, contributions to pension and health insurance, as well as other benefits.
In the fiscal year 2013, the one-year variable compensation, excluding the payment to Mr.Rice Powell, amounted to €5,627 thousand. This equals 97% of the total one-year variable compensation of €5,830 thousand. The remaining part in an amount of €203 thousand was converted into a component based on a multi-year assessment and the payment was postponed by two years.
The maximum attainable and the minimum one-year variable compensations are presented as follows:
| 2013 | ||
|---|---|---|
| € in thousands | Minimum | Maximum |
| Dr. Ulf M. Schneider | 1,200 | 1,750 |
| Dr. Francesco De Meo | 750 | 1,250 |
| Dr.Jürgen Götz | 250 | 750 |
| Mats Henriksson | 750 | 1,250 |
| Rice Powell | 212 | 1,864 |
| Stephan Sturm | 850 | 1,150 |
| Dr. Ernst Wastler | 350 | 750 |
To ensure that the overall system of compensation of the members of the Management Board is oriented towards longterm and sustained corporate development, the compensation system provides that the share of long-term variable compensation components is at least equal in its amount to half of the total variable compensation components granted to the respective member of the Management Board. As a means of ensuring this minimum ratio in favor of the compensation components oriented towards the long term, it is expressly provided that the Supervisory Board may determine that the one-year variable compensation to be paid as a rule annually is converted (pro rata) into a variable compensation component based on a multi-year assessment, in order to also take account of any negative developments within the assessment period. This is done in such a way that the maturity of the yearly one-year variable compensation earned on a variable basis is postponed at the discretion of the Supervisory Board, either on a pro rata basis or in its entirety, by two years. At
the same time, it is ensured that any payment is made to the member of the Management Board after expiration of such multi-year period only if (i) no subsequent adjustment of the decisive (i.e., adjusted by extraordinary effects) net income attributable to Fresenius SE & Co. KGaA (after deduction of noncontrolling interest) beyond an amount equal to a tolerance range of 10% is made, and (ii) the amount of net income attributable to Fresenius SE & Co. KGaA (adjusted for extraordinary effects) in the two relevant subsequent years is not substantially less than the net income attributable to Fresenius SE & Co. KGaA (adjusted by extraordinary effects, after deduction of noncontrolling interest) of the respective preceding fiscal years. In the event of the aforementioned conditions for payment being missed only to a minor and/or partial extent, the Supervisory Board may resolve on a corresponding pro rata payment of the converted portion of the one-year variable compensation. No interest is payable on the converted one-year variable compensation claim from the time when it first arises until the time of its effective payment. In this way, the oneyear variable compensation can be converted pro rata or in its entirety into a genuine variable compensation component on a multi-year assessment basis, which also participates in any negative developments during the relevant assessment period.
In the financial year 2013, benefits under LTIP 2013 of Fresenius SE & Co. KGaA, and for Mr. Rice Powell, benefits under LTIP 2011 of Fresenius Medical Care AG & Co. KGaA, were granted as another component with long-term incentive effect. Such benefits consist, on the one hand, of sharebased compensation with cash settlement (phantom stocks) and, on the other hand, of stock options on the basis of the Stock Option Plan 2013 of Fresenius SE & Co. KGaA and, for Mr.Rice Powell, on the basis of the Stock Option Plan 2011 of Fresenius Medical Care AG & Co. KGaA. The LTIP 2013 is available both for members of the Management Board and other executives. In accordance with the division of powers
under stock corporation law, grants to members of the Management Board are made by the Supervisory Board of Fresenius Management SE, and grants to other executives are made by the Management Board. The number of stock options and phantom stocks for Management Board members to be granted is determined by the Supervisory Board at the Supervisory Board's own discretion, provided that generally all Management Board members receive the same amount of stock options and phantom stocks, with the exception of the Chairman of the Management Board who receives double the respective amount of stock options and phantom stocks. At the time of the grant, the participants in LTIP 2013 may elect whether they wish to receive stock options and phantom stocks in a ratio of 75:25, or in a ratio of 50:50.
Exercise of the stock options and the phantom stocks granted under LTIP 2013 of Fresenius SE & Co. KGaA is subject to several conditions, such as expiry of a four-year waiting period, observance of vesting periods, achievement of the specified performance target, and continuance of the service or employment relationship. The vested stock options can be exercised within a period of four years. The vested phantom stocks are settled on March 1 of the year following the end of the waiting period.
The amount of the cash settlement pursuant to the Phantom Stock Plan 2013 is based on the volume-weighted average market price of the share of Fresenius SE & Co. KGaA during the three months preceding the exercise date.
The respective performance target has been reached if the adjusted consolidated net income of the Company (net income attributable to the shareholders of the Company) has increased by a minimum of 8% per year in comparison to the previous year within the waiting period, after adjustment for foreign currency effects. The performance target has also been achieved if the average annual growth rate of the adjusted consolidated net income of the Company during the four-year waiting period is at least 8%, adjusted for foreign-currency effects. If, with respect to one or more of the four reference periods within the waiting period, neither the adjusted consolidated net income of the Company has increased by a minimum of 8% per year in comparison to the previous year, after adjustment for foreign currency effects, nor the average
annual growth rate of the adjusted consolidated net income of the Company during the four-year waiting period is at least 8%, adjusted for foreign-currency effects, the respective granted stock options and phantom stocks are forfeited on a pro-rata basis according to the proportion of the performance target that has not been achieved within the waiting period, i.e., by one fourth, by two fourths, by three fourths, or completely.
The principles of LTIP 2013 of Fresenius SE & Co. KGaA and of LTIP 2011 of Fresenius Medical Care AG & Co. KGaA are described in more detail in note 33 of the notes of the Fresenius Group, Stock options.
The previous share-based compensation component with cash settlement (performance shares) has been combined with the current share-based compensation component with cash settlement (phantom stocks). The members of the Management Board, with the exception of Mr. Rice Powell, were granted an entitlement to further share-based compensation
with cash settlement (further phantom stocks, previously performance shares) in the fiscal year 2013. With regard to the performance target and waiting period, the same conditions that pertain to the phantom stocks granted under LTIP 2013 apply to them.
For the fiscal years 2013 and 2012, the number and value of stock options issued, the value of the share-based compensation with cash settlement (phantom stocks), and the value of the postponed performance-based compensation is shown in the following table.
The stated values of the stock options granted to members of the Management Board in the fiscal year 2013 correspond to their fair value at the time of grant, namely a value of €27.24 (2012: €21.19) per stock option of Fresenius SE & Co. KGaA and €8.92 (2012: €12.68) per stock option of Fresenius Medical Care AG & Co. KGaA. The exercise price of the granted stock options of Fresenius SE & Co. KGaA was €99.29 (2012: €78.33).
| Stock options 1 | Postponed payment of the one-year variable compensation |
Share-based compensation with cash settlement (phantom stocks 2 |
) | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Number | Value, € in thousands | Value, € in thousands | Value, € in thousands | Value, € in thousands | |||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||
| Dr. Ulf M. Schneider | 30,000 | 56,760 | 817 | 1,203 | 0 | 0 | 864 | 100 | 1,681 | 1,303 | |
| Rainer Baule (up to Dec. 31, 2012) | 0 | 28,380 | 0 | 601 | 0 | 99 | 0 | 100 | 0 | 800 | |
| Dr. Francesco De Meo | 15,000 | 28,380 | 409 | 601 | 108 | 0 | 482 | 100 | 999 | 701 | |
| Dr.Jürgen Götz | 15,000 | 28,380 | 409 | 601 | 0 | 0 | 482 | 100 | 891 | 701 | |
| Mats Henriksson (since Jan. 1, 2013) | 15,000 | 0 | 409 | 0 | 65 | 0 | 482 | 0 | 956 | 0 | |
| Dr.Ben Lipps (up to Dec. 31, 2012) | 0 | 74,700 | 0 | 947 | 0 | 0 | 0 | 768 | 0 | 1,715 | |
| Rice Powell (since Jan. 1, 2013) | 74,700 | 0 | 666 | 0 | 0 | 0 | 358 | 0 | 1,024 | 0 | |
| Stephan Sturm | 15,000 | 28,380 | 409 | 601 | 30 | 49 | 482 | 100 | 921 | 750 | |
| Dr. Ernst Wastler | 15,000 | 28,380 | 409 | 601 | 0 | 0 | 482 | 100 | 891 | 701 | |
| Total | 179,700 | 273,360 | 3,528 | 5,155 | 203 | 148 | 3,632 | 1,368 | 7,363 | 6,671 |
1 Stock options that were granted in 2013 and 2012 under the Fresenius SE & Co. KGaA stock option plan. Mr. Rice Powell and Dr.Ben Lipps received stock options
under the Fresenius Medical Care stock option plan.
The value for 2013 includes all phantom stocks including the previous performance shares. The value for 2012 refers to performance shares.
At the end of the fiscal year 2013, the members of the Management Board held a total of 820,158 (2012: 1,072,400) stock options and convertible bonds (together referred to as stock options) of Fresenius SE & Co. KGaA and 361,050 (2012: 348,600) of Fresenius Medical Care AG & Co. KGaA.
The development and the status of the stock options of the Management Board in the fiscal year 2013 are shown in the following table:
| Dr. Ulf M. Schneider |
Dr.Francesco De Meo |
Dr.Jürgen Götz |
Mats Henriksson |
Rice Powell 1 |
Stephan Sturm |
Dr. Ernst Wastler |
Total 2 | |
|---|---|---|---|---|---|---|---|---|
| Options outstanding on January 1, 2013 | ||||||||
| number | 315,400 | 166,740 | 144,060 | 57,400 | 336,150 | 224,460 | 164,340 | 1,072,400 |
| average exercise price in € | 57.61 | 57.08 | 58.78 | 59.96 | 42.80 | 51.19 | 56.41 | 56.28 |
| Options granted during fiscal year | ||||||||
| number | 30,000 | 15,000 | 15,000 | 15,000 | 74,700 | 15,000 | 15,000 | 105,000 |
| average exercise price in € | 99.29 | 99.29 | 99.29 | 99.29 | 49.76 | 99.29 | 99.29 | 99.29 |
| Options exercised during fiscal year | ||||||||
| number | 49,660 | 68,122 | 87,300 | 13,800 | 49,800 | 69,660 | 68,700 | 357,242 |
| average exercise price in € | 47.90 | 43.73 | 48.36 | 33.81 | 33.91 | 38.83 | 42.27 | 43.82 |
| average stock price in € | 103.25 | 94.19 | 98.81 | 96.91 | 51.09 | 98.73 | 99.74 | 98.64 |
| Options outstanding on December 31, 2013 | ||||||||
| number | 295,740 | 113,618 | 71,760 | 58,600 | 361,050 | 169,800 | 110,640 | 820,158 |
| average exercise price in € | 63.47 | 70.65 | 79.92 | 76.18 | 45.47 | 60.51 | 71.01 | 67.21 |
| average remaining life in years | 4.4 | 4.8 | 5.6 | 5.4 | 4.8 | 4.1 | 4.9 | 4.6 |
| range of exercise prices in € |
33.81 to 99.29 |
53.48 to 99.29 |
71.28 to 99.29 |
53.48 to 99.29 |
31.97 to 57.30 |
33.81 to 99.29 |
53.48 to 99.29 |
33.81 to 99.29 |
| Exercisable options on December 31, 2013 | ||||||||
| number | 152,220 | 41,858 | 0 | 13,800 | 174,300 | 98,040 | 38,880 | 344,798 |
| average exercise price in € | 47.95 | 54.75 | 53.48 | 37.57 | 46.30 | 54.55 | 49.27 |
1 Mr. Rice Powell holds stock options under the Fresenius Medical Care stock option plan.
Only stock options of Fresenius SE & Co. KGaA, excluding stock options of Mr. Rice Powell
The following table shows the total compensation of the Management Board of the general partner of Fresenius SE & Co. KGaA for the years 2013 and 2012:
| Cash compensation (without long-term incentive components) |
Long-term incentive components |
Total compensation (including long-term incentive components) |
|||||
|---|---|---|---|---|---|---|---|
| € in thousands | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |
| Dr. Ulf M. Schneider | 2,456 | 2,191 | 1,681 | 1,303 | 4,137 | 3,494 | |
| Rainer Baule (up to December 31, 2012) | 0 | 1,377 | 0 | 800 | 0 | 2,177 | |
| Dr. Francesco De Meo | 1,567 | 1,269 | 999 | 701 | 2,566 | 1,970 | |
| Dr.Jürgen Götz | 1,139 | 1,049 | 891 | 701 | 2,030 | 1,750 | |
| Mats Henriksson (since January 1, 2013) | 1,723 | 0 | 956 | 0 | 2,679 | 0 | |
| Dr.Ben Lipps (up to December 31, 2012) | 0 | 2,713 | 0 | 1,715 | 0 | 4,428 | |
| Rice Powell (since January 1, 2013) | 1,483 | 0 | 1,024 | 0 | 2,507 | 0 | |
| Stephan Sturm | 1,511 | 1,390 | 921 | 750 | 2,432 | 2,140 | |
| Dr. Ernst Wastler | 1,165 | 1,091 | 891 | 701 | 2,056 | 1,792 | |
| Total | 11,044 | 11,080 | 7,363 | 6,671 | 18,407 | 17,751 |
The stock options and the entitlement to a share-based compensation (phantom stocks) can be exercised only after the expiry of the specified vesting period. Their value is
recognized over the vesting period as expense in the respective fiscal year. The expenses attributable to the fiscal years 2013 and 2012 are stated in the following table.
| Stock options | Share-based compensation with cash settlement (phantom stocks 1 |
) | Total expenses for share-based compensation |
|||
|---|---|---|---|---|---|---|
| € in thousands | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 |
| Dr. Ulf M. Schneider | 902 | 877 | 94 | 42 | 996 | 919 |
| Rainer Baule (up to Dec. 31, 2012) | 0 | 439 | 0 | 42 | 0 | 481 |
| Dr. Francesco De Meo | 451 | 439 | 86 | 42 | 537 | 481 |
| Dr.Jürgen Götz | 451 | 439 | 86 | 42 | 537 | 481 |
| Mats Henriksson (since Jan. 1, 2013) | 239 | 0 | 86 | 0 | 325 | 0 |
| Dr.Ben Lipps (up to Dec. 31, 2012) | 0 | 2,136 | 0 | 1,681 | 0 | 3,817 |
| Rice Powell (since Jan. 1, 2013) | 325 | 0 | 441 | 0 | 766 | 0 |
| Stephan Sturm | 451 | 439 | 86 | 42 | 537 | 481 |
| Dr. Ernst Wastler | 451 | 439 | 86 | 42 | 537 | 481 |
| Total | 3,270 | 5,208 | 965 | 1,933 | 4,235 | 7,141 |
The value for 2013 includes all phantom stocks including the previous performance shares. The value for 2012 refers to performance shares.
The short-term performance-based compensation is limited in its amount. As regards stock options and phantom stocks, there are contractually agreed limitation possibilities. This makes it possible to adequately take account in particular of those extraordinary developments that are not in any relevant proportion to the performance of the Management Board.
Under the compensation system, the amount of the fixed and the total compensation of the members of the Management Board was, and will be, assessed giving particular regard to the relevant comparison values of other DAX companies and similar companies of comparable size and performance from the relevant industrial sector.
There are individual contractual pension commitments for the Management Board members Dr. Ulf M. Schneider, Dr.Francesco De Meo, Dr.Jürgen Götz, and Mr.Stephan Sturm based on their service agreements with the general partner of Fresenius SE & Co. KGaA. The Management Board member Dr. Ernst Wastler has a pension commitment of VAMED AG, Vienna. The Management Board member Mr. Rice Powell has received an individual contractual pension commitment from Fresenius Medical Care Management AG. Furthermore, he has acquired non-forfeitable entitlements from participating in pension plans for employees of Fresenius Medical Care North America, and during the financial year 2013, he participated in the U.S.-based 401(k) Savings Plan. This plan generally enables employees in the United States to invest part of their gross income into retirement plans. With regard to these pension commitments, the Fresenius Group had pension obligations of €15,963 thousand as of December 31, 2013 (2012: €12,912 thousand). The additions to pension liability in the fiscal year 2013 amounted to €3,277 thousand (2012: €4,234 thousand).
| € in thousands | As of January 1, 2013 |
Additions | As of December 31, 2013 |
|---|---|---|---|
| Dr. Ulf M. Schneider | 2,199 | 613 | 2,812 |
| Dr. Francesco De Meo | 868 | 327 | 1,195 |
| Dr.Jürgen Götz | 825 | 265 | 1,090 |
| Mats Henriksson | 1,127 | 625 | 1,752 |
| Rice Powell | 3,826 | 667 | 4,493 |
| Stephan Sturm | 1,265 | 375 | 1,640 |
| Dr. Ernst Wastler | 2,576 | 405 | 2,981 |
| Total | 12,686 | 3,277 | 15,963 |
The pension commitments are as follows:
Each of the pension commitments provides for a pension and survivor benefit, depending on the amount of the most recent fixed compensation, from the 63rd year of life (or 65th year for Mr. Rice Powell), or, in the case of termination because of professional or occupational incapacity, from the time of ending active work.
The pension's starting percentage of 30% of the last fixed compensation increase with every full year of service as a Management Board member by 1.5 percentage points, 45% being the attainable maximum.
Current pensions increase according to legal requirements (Section 16 of the German law to improve company pension plans, BetrAVG).
Thirty percent of the gross amount of any post-retirement income from an occupation of the Management Board member is offset against the pension. Furthermore, 100% of any amounts accruing to Management Board members or their surviving dependents from the Management Board member's vested rights in other company pension plans, also from former employment with other companies, is also set off to the extent permissible under BetrAVG.
In the event of the death of one of the Management Board members, the widow receives a pension equivalent to 60% of the pension entitlement accruing at the time of death. In addition, own legitimate children, respectively, in the individual case, own children of the deceased Management Board member's wife who have been adopted by the deceased Management Board member, receive an orphan's pension equivalent to 20% of the pension entitlement accruing at the time of death until completion of their vocational training, but at the most until the age of 25 years. However, all orphans' pensions and the widow's pension are capped at an aggregate 90% of the Management Board member's pension entitlement.
If a Management Board member's service as a member of the Management Board of Fresenius Management SE ends before the age of 63 years (or 65 years for Mr. Rice Powell) for reasons other than professional or occupational incapacity, the rights to the said pension benefits vest but the pension payable upon the occurrence of a pensionable event is reduced pro rata according to the actual length of service as a Management Board member compared to the potential length of service until the age of 63 years (or 65 years for Mr. Rice Powell).
The pension commitment for Dr. Ernst Wastler provides for a normal pension, an early retirement pension, a professional incapacity pension, and a widow's and orphan's pension. The normal pension is payable at the earliest at the age of 60 years and the early retirement pension at the earliest
at the age of 55 years. The pension benefits are equivalent to 1.2% per year of service based on the last fixed compensation, with a cap of 40%. The widow's pension (60%) and the orphan's pension (20% each) are capped in aggregate at not more than Dr. Ernst Wastler's pension entitlement at the time of death. Pensions, retirement, and other benefits from third parties are set off against the pension benefit.
The Management Board member Mr. Mats Henriksson has solely a pension commitment of Fresenius Kabi AG from the period of his previous service. This pension commitment remained unaffected by the service agreement with Fresenius Management SE, beginning on January 1, 2013. It is based on the pension policy of the Fresenius companies from January 1, 1988, and provides for retirement, incapacity, and widow's and orphan's pensions. It does not set forth any deduction of other income or pension benefits. The widow's pension amounts to 60% of the incapacity or retirement pension to be granted at the time of death; the orphan's pension amounts to 10% (half-orphans) or 20% (orphans) of the incapacity or retirement pension to be granted at the time of death. The total entitlements of widows and orphans are limited to 100% of Mr. Mats Henriksson's pension entitlements.
A post-employment non-competition covenant was agreed upon for all Management Board members. If such a covenant becomes applicable, the Management Board members receive a waiting allowance that is generally equivalent to half of the annual basic compensation for each year of respective application of the non-competition covenant, up to a maximum of two years.
The service agreements of the Management Board members do not contain any explicit provision for the event of a change of control.
All members of the Management Board have received individual contractual commitments for the continuation of their compensation in the event of sickness for a maximum period of 12 months, provided that, after six months of sicknessrelated absence, any insurance benefits that may be paid are to be deducted from such continued compensation. In the event of death of a member of the Management Board, the surviving dependents will receive three monthly payments after the month during which the death occurred, at maximum, however, until the expiry of the respective employment agreement.
Furthermore, instead of a pension provision, it was individually contractually agreed with Dr. Ben Lipps, who served as Management Board member until December 31, 2012, that upon termination of the employment relationship entered into by him and Fresenius Medical Care Management AG, he may provide consultancy services to Fresenius Medical Care for a period of ten years. Accordingly, Fresenius Medical Care Management AG entered into a consultancy agreement with Dr. Ben Lipps for the period from January 1, 2013 until December 31, 2022, according to which Dr. Lipps will provide consultancy services in specific areas and within a certain time frame, as well as in compliance with a non-competition clause. The compensation paid by Fresenius Medical Care AG for such services amounts to €550 thousand for the previous financial year (including reimbursement of outlay, temporary reimbursement for an apartment, as well as temporary provision with a company vehicle). The present value of this commitment amounts to €3,533 thousand as at December 31 of the previous financial year.
During the financial year 2013, no loans or advance payment on future compensation components were granted to any member of the Management Board of Fresenius Management SE.
Fresenius SE & Co. KGaA undertook to indemnify the Management Board members, to the legally permitted extent, against any claim that may be asserted against them due to their service for the Company and its affiliated Group companies to the extent that such claims exceed their liability under German law. To cover such obligations, the Company purchased a directors&officers insurance, the deductible complying with the requirements of stock corporation law. The indemnification covers the period during which the respective member of the Management Board holds office as well as any claim in this connection after termination of the service on the Management Board.
Based on pension commitments to former members of the Management Board, €1,064 thousand were paid in the fiscal year 2013 (2012: €778 thousand). The benefit obligation for these persons amounted to €17,389 thousand (2012: €11,310 thousand).
The compensation of the Supervisory Board is determined by the Annual General Meeting and is subject to the provisions contained in Section 13 of the articles of association of Fresenius SE & Co. KGaA. Each member of the Supervisory Board shall receive a fixed compensation of €13 thousand.
The members of the Audit Committee of Fresenius SE & Co. KGaA receive an additional €10 thousand each and the Chairman of the committee a further €10 thousand. For each full fiscal year, the remuneration increases by 10% for each percentage point that the dividend paid on each ordinary share for that year (gross dividend according to the resolution of the Annual General Meeting) exceeds 3.6% of the amount equal to the subscribed capital divided by the number of nonpar value shares; residual amounts are interpolated. The Chairman receives twice this amount and the deputies to the Chairman one and a half times the amount of a Supervisory Board member. All members of the Supervisory Board receive appropriate compensation for costs of travel and accommodation incurred in connection with their duties as members of the Supervisory Board. Fresenius SE & Co. KGaA provides to the members of the Supervisory Board insurance coverage in an adequate amount (relating to their function) with an excess equal to those of the Management Board.
If a member of the Supervisory Board of Fresenius SE & Co. KGaA is, at the same time, a member of the Supervisory Board of the general partner Fresenius Management SE and receives remuneration for his service on the Supervisory Board for Fresenius Management SE, the remuneration shall be reduced by half. The same applies with respect to the additional part of the remuneration for the Chairman or one of his deputies if they are, at the same time, the Chairman or one of his deputies on the Supervisory Board of Fresenius Management SE. If the deputy of the Chairman of the Supervisory Board of Fresenius SE & Co. KGaA is, at the same time, the Chairman of the Supervisory Board of Fresenius Management SE, he shall not receive remuneration for his service as Deputy Chairman of the Supervisory Board of Fresenius SE & Co. KGaA. According to Section 7 of the articles of association of Fresenius SE & Co. KGaA, the remuneration of the Supervisory Board of Fresenius Management SE was charged to Fresenius SE & Co. KGaA.
For the years 2013 and 2012, the compensation for the members of the Supervisory Boards of Fresenius SE & Co. KGaA and Fresenius Management SE, including compensation for committee services, was as follows:
| Fixed compensation | Compensation for committee services |
Variable compensation |
Total compensation |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fresenius SE & Co. KGaA |
Fresenius Management SE |
Fresenius SE & Fresenius Fresenius SE & Fresenius Management SE Management SE Co. KGaA Co. KGaA |
||||||||||||
| € in thousands | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 |
| Dr. Gerd Krick | 13 | 13 | 13 | 13 | 10 | 10 | 20 | 20 | 158 | 138 | 158 | 138 | 372 | 332 |
| Dr. Dieter Schenk | 0 | 0 | 19 | 19 | 0 | 0 | 10 | 10 | 0 | 0 | 237 | 208 | 266 | 237 |
| Niko Stumpfögger | 19 | 19 | 0 | 0 | 0 | 0 | 0 | 0 | 237 | 208 | 0 | 0 | 256 | 227 |
| Prof. Dr. med. D. Michael Albrecht | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 158 | 138 | 0 | 0 | 171 | 151 |
| Prof. Dr. h. c. Roland Berger | 7 | 7 | 6 | 6 | 20 | 20 | 0 | 0 | 79 | 69 | 79 | 69 | 191 | 171 |
| Dario Ilossi | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 158 | 138 | 0 | 0 | 171 | 151 |
| Konrad Kölbl | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 158 | 138 | 0 | 0 | 181 | 161 |
| Klaus-Peter Müller | 7 | 7 | 6 | 6 | 0 | 0 | 0 | 0 | 79 | 69 | 79 | 69 | 171 | 151 |
| Dieter Reuß | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 158 | 138 | 0 | 0 | 171 | 151 |
| Gerhard Roggemann | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 158 | 138 | 0 | 0 | 181 | 161 |
| Dr. Gerhard Rupprecht | 13 | 13 | 6 | 6 | 0 | 0 | 0 | 0 | 158 | 138 | 79 | 69 | 256 | 226 |
| Dr. Karl Schneider | 0 | 0 | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 158 | 138 | 181 | 161 |
| Stefan Schubert | 13 | 13 | 0 | 0 | 0 | 0 | 0 | 0 | 158 | 138 | 0 | 0 | 171 | 151 |
| Rainer Stein | 13 | 13 | 0 | 0 | 10 | 10 | 0 | 0 | 158 | 138 | 0 | 0 | 181 | 161 |
| Total | 150 | 150 | 63 | 63 | 60 | 60 | 40 | 40 | 1,817 | 1,588 | 790 | 691 | 2,920 | 2,592 |
Fresenius SE & Co. KGaA has concluded a consequential loss liability insurance policy (D & O insurance), on an excess amount basis, for the members of the Management Board and the Supervisory Board of the general partner of Fresenius SE & Co. KGaA and for the Supervisory Board of Fresenius SE &
Co. KGaA as well as for all representative bodies of affiliates in Germany and elsewhere. The D & O policy applies throughout the world and runs until the end of June 2014. The policy covers the legal defense costs of a member of a representative body when a claim is made and, where relevant, any damages to be paid that are covered by the policy.
Fresenius medical care. In an economically challenging 2013, Fresenius Medical Care again achieved excellent organic sales growth of 5%. We further expanded our global franchise and reached a new record level of revenue.
Fresenius Medical Care is the world's leading provider of dialysis services and dialysis products for patients with chronic kidney failure. When the kidney function of patients with this disease fails, dialysis takes over the vital task of cleansing the blood from toxins and surplus water. In dialysis, two treatment methods are distinguished: hemodialysis (HD) and peritoneal dialysis (PD). With HD, the patient's blood is cleansed with a dialyzer, or artificial kidney, a process that is controlled by a hemodialysis machine. In the case of PD, the patient's peritoneum is used as a filter to cleanse the blood.
As a vertically integrated company, Fresenius Medical Care offers services and dialysis products along the entire dialysis value chain in over 120 countries. Fresenius Medical Care has a worldwide network of more than 40 production sites. Our largest plants are in the United States, Germany, and Japan. We further expanded our leading market position in
2013: We treated more than 270,000 patients at 3,250 dialysis clinics worldwide and the number of treatments increased by 5% to 40.5 million.
Fresenius Medical Care increased sales by 6% to US\$14,610 million in 2013 (2012: US\$13,800 million). Organic sales growth was 5%. Acquisitions contributed 2%. Divestitures reduced sales growth by 1%.
Sales from dialysis services increased by 6% to US\$11,130 million (2012: US\$10,492 million). With 76%, dialysis services was by far the largest contributor to Fresenius Medical Care's total sales. Sales of dialysis products grew by 5% to US\$3,480 million (2012: US\$3,308 million).
EBIT was US\$2,256 million (2012 1 : US\$2,329 million). The EBIT margin was 15.4%.
| Total | 14,610 | 13,800 | 6% | 0% | 100% |
|---|---|---|---|---|---|
| Corporate | 34 | 29 | 15% | 4% | 0% |
| Latin America | 843 | 804 | 5% | -10% | 6% |
| Asia-Pacific | 1,104 | 1,043 | 6% | -2% | 7% |
| Europe/ Middle East/ Africa | 3,023 | 2,893 | 5% | 2% | 21% |
| North America | 9,606 | 9,031 | 6% | 0% | 66% |
| US\$ in millions | 2013 | 2012 | Change | Currency translation effects |
% of total sales |
Net income 2 attributable to shareholders of Fresenius Medical Care AG & Co. KGaA was US\$1,110 million (2012: US\$1,118 million).
The Company's earnings development was impacted by lower reimbursement rates for Medicare dialysis patients based on budget cuts in the United States (sequestration). For more details please see pages 89f. of this report.
Accounting for 66% of sales, North America remained Fresenius Medical Care's largest business region. In 2013, sales grew by 6% to US\$9,606 million compared to US\$9,031 million in 2012. Organic sales growth was 4%. Acquisitions contributed 3%; divestitures reduced sales growth by 1%.
EBIT was US\$1,624 million compared to US\$1,715 million in 20121 . The EBIT margin was 16.9% (2012: 19%). In 2013, the average revenue per treatment in the United States was US\$359 compared to US\$355 in 2012. The average cost per treatment in the United States increased from US\$283 in 2012 to US\$293 in 2013.
In 2013, the International segment, comprising the business regions Europe/Middle East/Africa, Asia-Pacific, and Latin America, achieved excellent results. About 34% of Fresenius Medical Care's total sales were derived from these regions. Sales in the International segment increased by 5% to US\$4,970 million (2012: US\$4,740 million), 6% in constant currency. Organic sales growth was 5%. Acquisitions contributed 2%, divestitures reduced sales growth by 1%.
| USA | EMEA | Asia-Pacific | ||||
|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |
| Kt/V ≥1.2 | 97% | 97% | 96% | 97% | 96% | 97% |
| Hemoglobin = 10 – 12 g/dl | 75% | 75% | 60% | 58% | 59% | 59% |
| Hemoglobin = 10 – 13 g/dl | 81% | 82% | 78% | 78% | 68% | 67% |
| Albumin ≥3.5 g/dl 2 | 86% | 85% | 88% | 86% | 91% | 89% |
| Phosphate ≤5.5 mg/dl 2 | 66% | 66% | 77% | 79% | 70% | 71% |
| Hospitalization days | 9.4 | 9.8 | 9.4 | 9.3 | 4.2 | - |
1 Data refer to the last quarter.
2 International standard BCR CRM470
2 Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA;
2012 adjusted for a non-taxable investment gain of US\$140 million and other one-time costs of US\$71 million
3 Including sales generated by corporate functions of US\$34 million in 2013 and US\$29 million in 2012
| US\$ in millions | 2013 | 2012 | Change |
|---|---|---|---|
| North America | |||
| Dialysis services | 8,772 | 8,230 | 7% |
| Dialysis products | 834 | 801 | 4% |
| Total | 9,606 | 9,031 | 6% |
| International | |||
| Dialysis services | 2,358 | 2,262 | 4% |
| Dialysis products | 2,612 | 2,478 | 5% |
| Total | 4,970 | 4,740 | 5% |
| Worldwide | |||
| Dialysis services | 11,130 | 10,492 | 6% |
| Dialysis products 3 | 3,480 | 3,308 | 5% |
| Total | 14,610 | 13,800 | 6% |
Currency translation had a negative effect of 1%. EBIT in the International segment was US\$858 million (2012: US\$809 million). The EBIT margin was 17.3% (2012: 17.1%).
In 2013, physicians and dialysis clinical staff again offered our patients the highest-quality treatment based on clinical quality parameters as shown in the table below. Please see page 53 of the Management Report for further details on treatment quality.
Please refer to page 82 of the Management Report for the 2014 financial outlook of Fresenius Medical Care. For further information, please see Fresenius Medical Care's Annual Report 2013 or visit the website at www.fmc-ag.com.
Fresenius Kabi. In 2013, our business grew once again in all regions and product segments. We achieved organic sales growth of 5%. In North America, we benefitted from supply constraints at competitors. The EBIT 1 margin of 18.5% is fully in line with our expectations.
Fresenius Kabi specializes in the therapy and care of chronically and critically ill people. The portfolio includes IV drugs, i.e., intravenously administered generic anesthetics, anti-infectives, analgesics, and drugs for the treatment of oncological and other critical diseases, as well as infusion solutions and blood volume substitutes for infusion therapy.
Another product segment is clinical nutrition. In this segment, we are one of the few companies worldwide that offer both parenteral and enteral nutrition products. In medical technology, we offer infusion and nutrition pumps as well as consumables for the administration of our pharmaceuticals and clinical nutrition products. Lastly, in transfusion technology our portfolio includes products used in the collection and processing of whole blood and blood components as well as in transfusion medicine.
Sales increased by 10% to €4,996 million in 2013. Of this, 5% is attributable to organic sales growth and 10% to acquisitions. Currency translation had a negative effect of 4%. Divestitures reduced sales growth by 1%.
Sales by region were as follows:
| € in millions | 2013 | 2012 | Change |
|---|---|---|---|
| Europe | 2,053 | 1,953 | 5% |
| North America | 1,522 | 1,236 | 23% |
| Asia-Pacific | 927 | 863 | 7% |
| Latin America/ Africa | 494 | 487 | 1% |
| Total | 4,996 | 4,539 | 10% |
In Europe, we achieved organic sales growth of 2%. Sales were affected by restrictions in the use of blood volume substitutes by the European Medicines Agency (EMA). In North America, we achieved organic sales growth of 5%, despite a high sales figure in 2012. Continuing supply constraints at our competitors contributed to our growth. In the Asia-Pacific region, significant price reductions in China had an adverse effect on sales growth.
Sales by product segment were as follows:
| € in millions | 2013 | 2012 | Organic sales growth |
|---|---|---|---|
| Infusion therapy | 980 | 1,010 | 2% |
| IV drugs | 1,733 | 1,701 | 5% |
| Clinical nutrition | 1,332 | 1,314 | 5% |
| Medical devices / Transfusion technology |
951 | 514 | 7% |
| Total | 4,996 | 4,539 | 5% |
EBIT 1 was €926 million, an increase of 1% in constant currency. EBIT includes charges of €31 million (net of Calea book gain) to meet U.S. Food and Drug Administration (FDA) requirements at the Grand Island, United States, and Kalyani, India, facilities.
The regions contributed to EBIT as follows:
| € in millions | 2013 | 2012 | Change |
|---|---|---|---|
| Europe | 357 | 390 | -8% |
| North America | 547 | 500 | 9% |
| Asia-Pacific / Latin America/ Africa |
235 | 286 | -18% |
| Administrative and corporate R & D expenses |
-213 | -242 | 12% |
| EBIT 1 | 926 | 934 | -1% |
| EBIT 1 margin | 18.5% | 20.6% | |
| EBIT margin (excl. Fenwal) | 19.8% | 20.6% |
Net income 2 increased by 10% to €487 million (2012: €444 million).
In Indonesia, we entered into a joint venture with PT Soho Global Health (SGH), one of the leading pharmaceutical companies in the country, purchasing 51% of the shares of its subsidiary PT Ethica Industri Farmasi. The company mainly produces IV generics at its plant in Jakarta. This makes us the market leader in Indonesia and creates an excellent platform for further growth in Southeast Asia.
In China, we acquired Jian Yuan Medical Technology Co., Ltd., a manufacturer of infusion and nutrition pumps. This acquisition expands our product portfolio, particularly for the growing markets of the emerging countries. We can use our existing international organization to distribute the products.
In the infusion therapy segment, we launched the new infusion solution bottle KabiClear, which has a greater transparency than our previous plastic-bottles. We also introduced our non-PVC freeflex+ infusion bags with a needle-free injection port into other European markets. They prevent injuries from needles when preparing treatments.
In the medical devices segment, we recorded a success in the United States. The FDA approved our infusion pump Agilia, which we already introduced.
In the transfusion technology segment, we received approval in Europe for the plasmapheresis system Aurora and have begun marketing it in some countries. We introduced the Amicus cell separator in Taiwan and Vietnam. It is used for, among other things, the collection of platelets and therapeutic plasma exchange.
In the generic IV drugs segment, we expanded our product portfolio in 2013, both to new areas of application as well as to other regional markets. Page 48 of this Annual Report provides an overview of the key product launches.
In the parenteral nutrition product segment, we launched our three-chamber bag SmofKabiven in Brazil and the lipid solution SMOFlipid in China and Canada.
The FDA exercised its regulatory discretion in the second quarter of 2013, by allowing temporary importation to help alleviate a U.S. shortage of selected clinical nutrition products. We supplied trace elements and phosphate solutions for parenteral nutrition from our factory in Norway. The trace element additives Addamel N for adults and Peditrace for children are recommended components of every parenteral nutritional therapy. Glycophos can be added to parenteral nutrition when additional phosphate is required.
In enteral nutrition, we improved the energy density of Fresubin cream to 2 kcal/ml and improved both its texture and taste. The product, which completes our portfolio of highcalorie sip and tube feed products, has been on the market in France since 2013. Fresubin renal, a high-calorie protein and electrolyte-reduced diet for patients with renal failure, was introduced in Germany, as well as in other markets.
For enteral tube feeding, we successfully introduced our new feeding pump Amika into many European countries. Due to its high degree of user-friendliness it significantly contributes to the safe and effective administration of nutritional therapy.
Please refer to page 82 of the Management Report for the 2014 financial outlook of Fresenius Kabi. For further information, please see Fresenius Kabi's website at www.freseniuskabi.com.
Fresenius Helios. 2013 was an excellent year. Fresenius Helios achieved strong EBIT growth of 21%. We increased the EBIT margin of our established clinics to 11.8%. The acquisition of hospitals from Rhön-Klinikum AG is an important milestone for Fresenius Helios.
At the end of 2013, the HELIOS Group operated 74 hospitals. In addition to 51 acute care hospitals, including 6 maximum care clinics in Berlin-Buch, Duisburg, Erfurt, Krefeld, Schwerin, and Wuppertal, the HELIOS Group has 23 post-acute care hospitals. 35 outpatient facilities and 13 nursing homes are also affiliated with HELIOS. The Group has more than 23,000 beds and treats over 2.9 million patients – including more than 780,000 inpatients – each year. HELIOS had about 43,000 employees at the end of 2013.
In 2013, Fresenius Helios increased its sales by 6% to €3,393 million (2012: €3,200 million). Organic sales growth was 3%. Acquisitions contributed 4%. Divestitures reduced sales growth by 1%.
The acute care hospitals accounted for 88% of sales (2012: 88%), while the post-acute care hospitals accounted for 9% (2012: 9%); 3% was attributable to other revenues (2012: 3%).
Fresenius Helios achieved EBIT growth of 21% to €390 million (2012: €322 million). The EBIT margin was 11.5%. Net income 1 increased to €275 million, and surpassed the prioryear figure clearly by 35% (2012: €203 million).
Sales and earnings were much improved:
| € in millions | 2013 | 2012 | Change |
|---|---|---|---|
| Sales | 3,393 | 3,200 | 6% |
| thereof acute care | 2,996 | 2,814 | 6% |
| thereof post-acute care |
293 | 274 | 7% |
| EBIT | 390 | 322 | 21% |
| EBIT margin in % | 11.5 | 10.1 | |
| Net income 1 | 275 | 203 | 35% |
1 Net income attributable to HELIOS Kliniken GmbH
Sales of the established hospitals (consolidation > 1 year) grew by 3% to €3,275 million (2012: €3,193 million). EBIT improved by 19% to €386 million (2012: €324 million). The EBIT margin increased to 11.8% (2012: 10.1%).
We have established a development plan for hospitals acquired, which we converted to the EBIT benchmark and a six-year planning period beginning in 2013. It will apply both
to our acute and post-acute care hospitals. The new development plan provides for the EBIT margin to improve by two percentage points each year. The current status is shown in the table below.
The business of Fresenius Helios generates stable cash flows. The cash flow margin was 7.6% (2012: 7.5%). In 2013, days sales outstanding were 42 days (2012: 43 days). Bad debt as a percentage of sales was again low at 0.2%.
On February 20, 2014, Fresenius Helios has received antitrust approval for the acquisition of 40 hospitals and 13 outpatient facilities from Rhön-Klinikum AG. For two hospitals, HSK Dr. Horst Schmidt Kliniken in Wiesbaden and Klinikum Salzgitter, the approval of municipal shareholders is still pending.
The transaction provides Fresenius Helios with the opportunity to create a nationwide hospital network.
Due to the broad range of services and high treatment quality of HELIOS, we were able to again increase the number of inpatients and outpatients treated:
| 2013 | 2012 | Change | |
|---|---|---|---|
| Inpatient and semi inpatient admissions |
807,178 | 778,817 | 4% |
| Acute care hospitals | 754,703 | 729,673 | 3% |
| Post-acute care hospitals |
52,475 | 49,144 | 7% |
| Outpatient admissions | 2,373,781 | 2,118,112 | 12% |
Moreover, our other structural data and performance indicators also improved:
| 2013 | 2012 | Change | |
|---|---|---|---|
| Acute care hospitals | 51 | 50 | 2% |
| Beds | 18,885 | 18,701 | 1% |
| Length of stay (days) | 6.6 | 6.7 | -1% |
| Post-acute care clinics | 23 | 22 | 5% |
| Beds | 4,617 | 4,585 | 1% |
| Length of stay (days) | 26.5 | 27.0 | -2% |
| Occupancy | 83% | 85% |
Fresenius Helios invested €2,443 million (2012: €836 million). Of this amount, €2,185 million accounted for acquisitions, including advances made in the amount of €2.18 billion for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG. Furthermore, we invested €258 million primarily in the modernization of hospitals. Own investments were €172 million, about 5% of sales.
| € in millions | 2013 | 2012 | Change |
|---|---|---|---|
| Investments | 2,443 | 836 | 192% |
| Own investments (property, plant and equipment) |
172 | 180 | -4% |
| Subsidies 1 (property, plant and equipment) |
86 | 77 | 12% |
| Acquisitions | 2,185 | 579 | -- |
1 Total of purpose-related public investment subsidies according to Section 9 of the Hospital Funding Act (KHG).
Please refer to page 82of the Management Report for the 2014 financial outlook of Fresenius Helios. For further information, please see our website www.helios-kliniken.de.
| Years in portfolio | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| <1 | 1 | 2 | 3 | 4 | 5 | 6 | >6 | Total | |
| Number of clinics | 12 | 3 | 1 | – | 6 | 4 | 48 | 74 | |
| Sales in million € | 390 | 155 | 38 | – | 196 | 312 | 2,198 | 3,289 | |
| Target | |||||||||
| EBIT margin in % | 2.0 | 4.0 | 6.0 | 8.0 | 10.0 | 12.0 | 12.0 – 15.0 | ||
| EBIT in million € | 7.8 | 6.2 | 2.3 | – | 19.6 | 37.4 | 263.8 | 337.1 | |
| Reported | |||||||||
| EBIT margin in % | 11.4 | 0.5 | 3.4 | – | 7.5 | 12.8 | 13.0 | 11.8 | |
| EBIT in million € | 44.6 | 0.8 | 1.3 | – | 14.7 | 39.9 | 285.9 | 387.2 | |
| Number of clinics > target | 9 | 1 | – | – | 2 | 2 | 17 | 31 | |
| Number of clinics < target | 3 | 2 | 1 | – | 4 | 2 | 31 | 43 |
Reported figures according to IFRS
Fresenius vamed. 2013 was a year with record sales and earnings. Sales exceeded the €1 billion mark for the first time. We thus achieved our goal a year ahead of plan. Order intake and order backlog increased to a new all-time high.
Fresenius Vamed manages projects and provides services for hospitals and other health care facilities worldwide. Our portfolio ranges along the entire value chain: from project development, planning, and turnkey construction, via maintenance, and technical management, to total operational management. This entire competency enables us to support complex health care facilities efficiently and successfully at each level of their life cycle. The company is also a pioneer in public-private partnership (PPP) models for hospitals and other health care facilities.
With its comprehensive range of services, and as a worldwide-acting provider of a full line of services for the health care industry, VAMED holds a unique position: We have successfully completed approximately 650 projects in 72 countries.
In 2013, sales increased to €1,020 million (2012: €846 million). Organic sales growth was 13%, acquisitions contributed 8%.
The table shows the sales development by activity:
| € in millions | 2013 | 2012 | Change | % of total sales |
|---|---|---|---|---|
| Project business | 583 | 506 | 15% | 57% |
| Service business | 437 | 340 | 29% | 43% |
Order intake and order backlog for projects developed as follows:
| € in millions | 2013 | 2012 | Change |
|---|---|---|---|
| Order intake | 744 | 657 | 13% |
| Order backlog | |||
| (December 31) | 1,139 | 987 | 15% |
EBIT improved by 8% to €55 million (2012: €51 million). The EBIT margin was 5.4% (2012: 6.0%). In the project business, EBIT increased to €27 million (2012: €25 million) and to €28 million in the service business (2012: €26 million). Net income 1 was €37 million, an increase of 6% (2012: €35 million).
The business model has a low capital intensity. This is reflected in the share of property, plant and equipment in the balance sheet of 19% and the pre-tax return on equity of 19.8% (2012: 20.8%).
The project business comprises the consulting, project development, planning, turnkey construction, and financing management of projects. VAMED responds flexibly to the local needs of clients, providing custom-tailored solutions all from one source. We also carry out projects in cooperation with partners. Among public clients there is growing interest in public-private partnership (PPP) models. Up to the end of 2013, 21 of these models had been or are currently being implemented.
In Europe, the focus was on Austria and Germany. Three new rehabilitation facilities in Austria began operations in 2013. The new building for the Hofheim am Taunus hospital and the turnkey construction of the new examination and treatment center at Cologne's University Hospital (UB West) have been projects in Germany. In Bosnia and Herzegovina, we completed the turnkey construction of the 220-bed Bijeljina General Hospital. In Russia, VAMED continued the renovation and expansion of Sochi's Municipal Hospital.
In Africa, we successfully continued our work on the turnkey construction of five polyclinics in Gabon as well as on projects in Nigeria and Ghana. In Latin America, we completed our first project in Honduras, and in Trinidad and Tobago the company modernized the San Fernando General Hospital. In China, we were able to enter the private hospital sector with the construction of an acute care and rehabilitation hospital in Haikou, in southern China.
VAMED offers a full range of facility management services for health care facilities. Modular in design, our service offering encompasses every aspect of technical, commercial, and infrastructural facility management. This ranges from building and equipment maintenance, medical technology management, and technical management through to the operational management of health care facilities. Our integrated portfolio of services is aimed at the optimal operation of a health care facility.
VAMED was responsible for the total operational management of 43 health care facilities on three continents with approximately 5,000 beds in 2013. Worldwide, VAMED provides technical operation services to more than 380 hospitals with about 110,000 beds.
In Austria, VAMED continued its partnership with Vienna's General Hospital and University Hospital (AKH), one of the largest hospitals in Europe. We have been responsible for its technical management since 1986. We also carried out the further extension of AKH Vienna. We were also successful in the area of rehabilitation: With the start-up of hospitals in Kitzbühel and Vienna-Baumgarten, VAMED is now responsible for ten facilities, making it the largest private rehabilitation provider in Austria.
A consortium led by VAMED in Germany has been responsible for all technical and infrastructural services at Berlin's Charité Hospital since 2006. In the Czech Republic, we acquired three clinics and expanded our portfolio to seven locations with approximately 1,000 beds.
In Gabon, VAMED is responsible for the overall management of seven regional hospitals and for the technical management of three hospitals in Libreville.
Based on our decades of experience in the health care sector, VAMED Vitality World's thermal spa and wellness resorts have succeeded in bridging the gap between preventive medicine and health care tourism. With approximately 2.5 million visitors annually in our eight thermal spas and wellness resorts we are the market leader in Austria.
Please refer to page 82f. of the Management Report for the 2014 financial outlook of Fresenius Vamed. For further information on VAMED, please see Fresenius Vamed's website at www.vamed.com.
MANAGEMENT REPORT. 2013 was a successful year for Fresenius. We fully met our guidance, exceeding €20 billion in sales and €1 billion in earnings for the first time. At 11.4%, our cash flow margin was strong.
Fresenius is a global health care group in the legal form of an SE & Co. KGaA (a partnership limited by shares). We offer products and services for dialysis, hospitals, and outpatient medical care. In addition, Fresenius focuses on hospital operations. We also manage projects and provide services for hospitals and other health care facilities worldwide.
The operating business comprises the business segments, all of which are legally independent entities managed by the operating parent company Fresenius SE & Co. KGaA. This structure has not changed in the reporting period.
▶ Fresenius Medical Care offers products and services for patients with chronic kidney failure. As of December 31, 2013, Fresenius Medical Care treated 270,122 patients at 3,250 dialysis clinics.
The Fresenius Group operates globally and all business segments have a regional and decentralized structure. Responsibilities are clearly defined in line with the Company's "entrepreneur in the enterprise" management principle. Additionally, management accountability is reinforced by an earningsoriented and target-linked compensation system. Fresenius has an international sales network and maintains about 90 production sites. Large production sites are located in the United
States, China, Japan, Germany, and Sweden. Production plants are also located in other European countries and in Latin America, Asia-Pacific, and South Africa.
In the legal form of a KGaA, the Company's corporate bodies are the General Meeting, the Supervisory Board, and the general partner, Fresenius Management SE. Fresenius Management SE is wholly owned by the Else Kröner-Fresenius-Stiftung. The KGaA has a two-tier management system – management and control are strictly separated.
The general partner, represented by its Management Board, conducts the business and represents the Company in dealings with third parties. The Management Board has seven members. According to the Management Board's rules of procedure, each member is accountable for his or her own area of responsibility. However, the members have joint responsibility for the management of the Group. In addition to the Supervisory Board of Fresenius SE & Co. KGaA, Fresenius Management SE has its own Supervisory Board. The Management Board is required to report to the Supervisory Board of Fresenius Management SE regularly, in particular on its corporate policy and strategies, business profitability, current operations, and any other matters that could be of significance for the Company's profitability and liquidity. The Supervisory Board of Fresenius Management SE also advises and supervises the Management Board in its management of the Company. It is prohibited from managing the Company directly. However, the Management Board's rules of procedure require it to obtain the approval of the Supervisory Board of Fresenius Management SE for specific activities.
The members of the Management Board are appointed and dismissed by the Supervisory Board of Fresenius Management SE. Appointment and dismissal is in accordance with Article 39 of the SE Regulation. The articles of association of Fresenius Management SE also provide that deputy members of the Management Board may be appointed.
The Supervisory Board of Fresenius SE & Co. KGaA advises and supervises the management of the Company's business by the general partner, reviews the annual financial statements and the consolidated financial statements, and performs the other functions assigned to it by law and the Company's articles of association. It is involved in corporate planning and strategy, and in all matters of fundamental importance for the Company.
The Supervisory Board of Fresenius SE & Co. KGaA has six shareholder representatives and six employee representatives. A Nomination Committee of the Supervisory Board of Fresenius SE & Co. KGaA has been instituted for election proposals for the shareholder representatives. Its activities are aligned with the provisions of law and the Corporate Governance Code. The shareholder representatives are elected by the Annual General Meeting. The European works council elects the employee representatives to the Supervisory Board of Fresenius SE & Co. KGaA.
The Supervisory Board must meet at least twice per calendar half-year.
The Supervisory Board of Fresenius SE & Co. KGaA has two permanent committees: the Audit Committee, consisting of five members, and the Nomination Committee, consisting of three members. The members of the committees are listed on page 187 of this annual report. The Company's annual corporate governance declaration describes the procedures of the Supervisory Board's committees. The declaration can be found on pages 11 to 31 of the annual report and on our website www.fresenius.com, see Who we are − Corporate Governance.
The description of both the compensation structure and individual amounts paid to the Management Board and Supervisory Board of Fresenius Management SE, and the Supervisory Board of Fresenius SE & Co. KGaA, are included in the Compensation Report on pages 23 to 31 of the annual report. The Compensation Report is part of the Group's Management Report.
Fresenius Medical Care offers a comprehensive range of products for hemodialysis and peritoneal dialysis, and provides dialysis care at its own dialysis clinics in more than 45 countries. Dialyzers, dialysis machines, and renal pharmaceuticals are among the most important product lines. These products are sold to Group clinics as well as to external dialysis care providers in more than 120 countries. In the United States, the company also performs clinical laboratory tests. Fresenius Kabi offers a comprehensive product range for clinical nutrition and infusion therapy as well as an extensive
portfolio of IV drugs, and related medical devices. It also offers a broad spectrum of products for transfusion technology. The product range consists of more than 100 product families. The company sells products in over 160 countries, mainly to hospitals. Fresenius Helios treats more than 2.9 million patients at its hospitals each year, thereof more than 780,000 as inpatients. Fresenius Vamed manages projects and provides services for hospitals and other health care facilities worldwide.
Fresenius operates in about 80 countries through its subsidiaries. The main markets are North America and Europe with 42% and 40% of sales, respectively.
Fresenius Medical Care holds the leading position in dialysis care as it serves about 11% of all dialysis patients, as well as in dialysis products, with a market share of about 34%. Fresenius Kabi holds leading market positions in Europe and has strong positions in the growth markets of Asia-Pacific and Latin America. In the United States, Fresenius Kabi is one of the leading suppliers of generic IV drugs. Fresenius Helios is the largest hospital operator in Germany. Fresenius Vamed is also one of the world's leading companies in its field.
Overall, the legal and economic factors for the Fresenius Group were largely unchanged, meaning the Group's operating business was not materially affected.
The life-saving and life-sustaining products and therapies that the Group offers are of intrinsic importance for people worldwide. Therefore, our markets are fundamentally stable and relatively independent of economic cycles. For detailed information on our markets, please see pages 59ff.
Furthermore, the diversification across four business segments and our global reach provide additional stability for the Group.
The statement of income and the balance sheet can be influenced by currency translation effects as a result of exchange rate fluctuations, especially in the rate between the U.S. dollar and the euro. In 2013, this had a negative effect on the statement of income due to the altered average annual exchange rate between the U.S. dollar and the euro
of 1.28 in 2012 as compared to 1.33 in 2013. The changed spot rate of 1.32 as of December 31, 2012 – compared to 1.38 as of December 31, 2013 – had a significant effect on the balance sheet.
There were no legal aspects that significantly affected business performance in 2013.
The subscribed capital of Fresenius SE & Co. KGaA amounts to 179,694,829 ordinary shares as of December 31, 2013 (December 31, 2012: 178,188,260). The shares of Fresenius SE & Co. KGaA are non-par-value bearer shares. Each share represents €1.00 of the capital stock. Shareholders' rights are regulated by the German Stock Corporation Act (AktG – Aktiengesetz).
The Fresenius Management SE, as general partner, is authorized, subject to the consent of the Supervisory Board of Fresenius SE & Co. KGaA:
▶ to increase the subscribed capital of Fresenius SE & Co. KGaA by a total amount of up to €40.32 million, until May 16, 2018, through a single or multiple issuance of new bearer ordinary shares against cash contributions and/or contributions in kind (Authorized Capital I). Shareholders' pre-emptive rights of subscription can be excluded.
In addition, there are the following Conditional Capitals, of which the Conditional Capitals I and II are adjusted for stock options that have been exercised in the meantime:
capital increase will only be executed to the extent that subscription rights have been issued under the 2008 Stock Option Plan, the holders of these subscription rights exercise their rights, and the Company does not use its own shares to service the subscription rights or does not exercise its right to make payment in cash.
The Company is authorized, until May 10, 2017, to purchase and use its own shares up to a maximum amount of 10% of the subscribed capital. As of December 31, 2013, the Company had not utilized this authorization.
Direct and indirect ownership interests in Fresenius SE & Co. KGaA are listed on page 146 of the Notes. As the largest shareholder, Else Kröner-Fresenius-Stiftung informed the Company, on December 20, 2013, that it held 48,231,698 ordinary shares of Fresenius SE & Co. KGaA. This corresponds to an equity interest of 26.84% as of December 31, 2013.
Amendments to the articles of association are made in accordance with Section 278 (3), Section 179 (2) of the German Stock Corporation Act (AktG) in conjunction with Section 17 (3) of the articles of association of Fresenius SE & Co. KGaA. Unless mandatory legal provisions require otherwise, amendments of the articles of association require a simple majority of the subscribed capital represented in the resolution. If the voting results in a tie, a motion is deemed rejected. Furthermore, in accordance with Section 285 (2) sentence 1 of the German Stock Corporation Act (AktG), amendments to the articles of association require the consent of the general partner, Fresenius Management SE. The Supervisory Board is entitled to make such amendments to the articles of association which only concern their wording without a resolution of the General Meeting.
Under certain circumstances, a change of control as the result of a takeover bid could impact some of our long-term financing agreements which contain customary change of control provisions which grant creditors the right to terminate agreements early or to request early repayments of outstanding amounts in case of a change of control. These termination rights partly become effective if the change of control is followed by a decline of the Company's rating or of the respective financing instruments.
Our goal is to strengthen the position of Fresenius as a leading global provider of products and therapies for critically and chronically ill people. We are concentrating on a limited number of health care areas. Thanks to this clear focus, we have developed unique competencies. We are following our long-term strategies consistently and are seizing our opportunities.
The key elements of Fresenius Group's strategy and goals are to:
▶ expand market position and worldwide presence: Fresenius seeks to ensure and expand its long-term position as a leading international provider of products and services in the health care industry. To this end, and to geographically expand our business, we plan to grow organically as well as through selective small and mediumsized acquisitions. We focus on markets with strong
growth rates. Fresenius Medical Care is the worldwide leader in dialysis, with a strong market position in the United States. Future opportunities in dialysis will arise from further international expansion in dialysis care and products and in renal pharmaceuticals. Fresenius Kabi is the market leader in infusion therapy and clinical nutrition in Europe and in the key markets in Asia-Pacific and Latin America. In the United States, Fresenius Kabi is one of the leading players in the market for generic IV drugs. In addition, Fresenius Kabi is one of the most important providers of transfusion technology. Fresenius Kabi plans to roll out products from its existing portfolio to the growth markets and to launch existing products in the United States. Market share is to be expanded further through the launch of new products in the field of IV drugs and medical devices for infusion therapy and clinical nutrition, as well as in transfusion technology. With the acquired hospitals from Rhön-Klinikum AG, Fresenius Helios is now present across Germany. Building on this, Fresenius Helios is now in the position to offer additional patient care models and take advantage of further growth opportunities arising from the ongoing privatization process in the German hospital market. Fresenius Vamed will further strengthen its position as a global specialist for projects and services for hospitals and other health care facilities.
▶ strengthen innovation: Fresenius' strategy is to continue building on its strength in technology, its competence and quality in patient care, and its ability to manufacture cost-effectively. We want to develop products and systems that provide a high level of safety and user-friendliness and enable tailoring to individual patient needs. We intend to continue to meet the requirements of best-inclass medical standards by developing and offering more effective products and treatment methods for the critically and chronically ill. The goal of Fresenius Helios is to widen brand recognition for its health care services and innovative therapies. Fresenius Vamed's goal is to realize further projects in integrated health care services and to support patient-oriented health care systems more efficiently.
▶ enhance profitability: Last but not least, it is our goal to improve Group profitability. To contain costs, we are concentrating particularly on making our production plants more efficient, exploiting economies of scale, leveraging the existing marketing and distribution infrastructure more intensively, and practicing strict cost control. By focusing on our operating cash flow and employing efficient working capital management, we will increase our investment flexibility and improve our balance sheet ratios. Another goal is to optimize our weighted average cost of capital (WACC) by deliberately employing a balanced mix of equity and debt funding. In present capital market conditions, we optimize our cost of capital if we hold the net debt/EBITDA ratio within a range of 2.5 to 3.0. Please see pages 46 and 76 for more details.
We report on our goals in detail in the Outlook section on pages 77 to 84.
The Management Board controls the business segments by setting strategic and operating targets and through financial ratios. The most important ratios are explained below:
In line with our growth strategy, sales growth (in constant currency) of the Group and, in our business segments, in particular organic sales growth is of central importance. Operating income (EBIT: earnings before interest and taxes) and the EBIT margin, respectively, are useful yardsticks for measuring the profitability of the business segments. At Group level, we primarily use net income to this end.
At Group level, operating cash flow and the cash flow margin are key performance figures. With regard to the operating cash flow contributions of our business segments, we also analyze the key performance indicators days sales outstanding (DSO) and scope of inventory (SOI).
Our investments are controlled using a detailed coordination and evaluation process. As a first step, the Management Board sets the Group's investment targets and the budget based on investment proposals. In a second step, the respective business segments and an internal Acquisition & Investment Council (AIC) determine the proposed projects and measures while taking into account the overall strategy, the total budget, and the required and potential return on investment. The investment projects are evaluated based on commonly used processes, such as internal rate of return (IRR) and net present value (NPV). Graduated according to investment volume, a project is submitted for approval to the executive committees or respective managements of the business segments, or to the Management Board of Fresenius Management SE or its Supervisory Board.
Another key performance indicator at the Group level is the debt ratio, which is the ratio of net debt to EBITDA. This measure indicates how far a company is in a position to meet its payment obligations. Our business segments usually hold leading positions in growing and mostly non-cyclical markets. They generate mainly stable, predictable cash flows since the majority of our customers are of high credit quality. The Group is therefore able to finance its growth with a high proportion of debt compared to companies in other industries.
At Group level, we use return on operating assets (ROOA) and return on invested capital (ROIC) as benchmarks for evaluating our business.
Product and process development as well as the improvement of therapies are at the core of our growth strategy. Fresenius focuses its R & D efforts on its core competencies in the following areas:
Apart from new products, we are concentrating on developing optimized or completely new therapies, treatment methods, and services.
Research and development expenses were €348 million (2012: €305 million), approximately 4.6% of our product sales (2012: 4.4%). Fresenius Medical Care increased its R & D spending by 9% and Fresenius Kabi by 29%. This was mainly driven by the first-time consolidation of Fenwal. Detailed figures are included in the segment reporting on pages 100 to 101.
As of December 31, 2013, there were 1,969 employees in research and development (2012: 1,903). Of that number, 583 were employed at Fresenius Medical Care (2012: 550) and 1,386 at Fresenius Kabi (2012: 1,305).
Our main research sites are in Europe, the United States, and India. Product-related development activities are also carried out in China. Our R & D projects are mainly conducted in-house; external research is commissioned only on a limited scale.
The complex interactions and side effects that lead to kidney failure are better explored today than ever before. Technological advances develop in parallel with medical insights to improve the possibilities for treating patients. Our R & D activities at Fresenius Medical Care aim to translate new insights into novel or improved developments and to bring them to market as quickly as possible, and thus make an important contribution towards rendering the treatment of patients increasingly comfortable, safe, and individualized.
In 2013, we reorganized the R & D department. A new Management Board position for R & D was established and our global research and development activities were pooled. This was done in order to build up a global R & D function that can efficiently develop outstanding products.
We continued the development of our products during 2013, and introduced a number of important innovations in our markets. Our main products in the dialysis area are the Cordiax 5008 therapy system, together with its home hemodialysis variants, and the U.S. 2008K home platform.
With the market launch of our BiBags for the 2008T hemodialysis machine, a dry bicarbonate concentrate which is dissolved in the machine, we made a further contribution to the improvement of dialysis treatment. They make the work flows in hemodialysis more efficient and, at the same time, increase patient safety during treatment because they prevent the wrong concentrate being used.
We are also involved in the relevant areas of clinical research, where we cooperate worldwide with universities and research institutions. In 2013, our clinical trials concerned the automatic control of the electrolyte balance. In healthy people, the kidney manages the complex control of this function; for patients with renal failure, dialysis must take on this task. Hemodialysis, in which the dialysis solution is continuously produced by the dialysis machine, makes it possible to influence these processes positively by adjusting the dialysis solution. We are currently conducting clinical trials for an automated method as a routine support procedure for physicians.
Another focus of our clinical trials is currently on peritoneal dialysis (PD), and in particular on overhydration, which afflicts more than half of all PD patients. In a study published in 2013, we were able to demonstrate that active fluid management increases the survival rate, reduces the number and duration of hospitalizations, and contributes to the improved maintenance of the remaining kidney function.
Fresenius Kabi's research and development activities concentrate on products for the therapy and care of critically and chronically ill patients. Our focus is on areas with high medical needs, such as in the treatment of oncology patients. Our products help to support medical advancements in acute and post-acute care and improve the patients' quality of life. We develop new products in areas such as clinical nutrition. In addition, we develop generic drug formulations ready to launch at the time of market formation as well as new formulations for non-patented drugs. Our medical devices significantly contribute to a safe and effective application of infusion solutions and clinical nutrition. In transfusion technology our R & D focus is on medical devices and disposables to support the secure, user-friendly, and efficient production of blood products.
Our development expertise includes all the related components: the drug raw material, the pharmaceutical formulation, the primary packaging, the medical device needed for application, and the production technology. We cover the entire production chain for IV drugs, from the processing of raw materials and the production of the active ingredient, all the way through to manufacturing the drug. Producing the pharmaceutical active ingredient in our own production facilities secures our competitive advantage in the longterm.
In the area of IV drugs, we are developing an extensive portfolio of active drugs that are expected to come on the market in the next few years. In 2013, we worked on more than 110 development projects for generic drugs.
In an ongoing development effort, we aim to provide readyto-use solutions for IV drugs, which currently exist only in lyophilized or powder form. In 2013, we worked intensively on these solutions and we plan to bring them to market in the coming years.
| 2013 | 2012 | 2011 | 2010 | 2009 | |
|---|---|---|---|---|---|
| R & D expenses, € in millions | 348 | 305 | 267 | 244 | 240 |
| as % of product sales | 4.6 | 4.4 | 4.3 | 4.2 | 4.7 |
| R & D employees | 1,969 | 1,903 | 1,592 | 1,449 | 1,421 |
In addition, we are working hard to find solutions in innovative primary packaging. One example of this is pre-filled syringes. The first of these products is to be launched in 2014.
Worldwide, many of our drugs were approved in 2013 (please see table below).
In 2013, we committed to the European Medicines Agency (EMA) carrying out additional studies with our blood volume substitutes. The clinical trials required by the EMA of all manufacturers of drugs containing HES (hydroxyethyl starch) are being conducted for elective surgery and trauma patients. Based on the restrictions on use that the EMA places on blood volume substitutes containing HES – which affect all manufacturers – we have begun to modify the package leaflet accordingly.
In parenteral nutrition our focuses are:
Among other things, our efforts focused on the early and correct use of parenteral nutrition in order to avoid malnutrition and its consequences. According to the results of a
research collaboration published in 2013, early parenteral nutrition of critically ill patients can shorten the duration of mechanical ventilation and reduce muscle wasting as compared with standard treatment. In turn, this can help to reduce hospital costs. 1
In enteral nutrition, we focus on sip and tube feed products for malnourished – often geriatric – patients and on therapeutic products for dysphagia (difficulties in swallowing), diabetes, oncology, and critical illness.
In addition, in 2013, we supported clinical studies with our products Fresubin 2kcal, Diben, and Supportan. The results of these studies showed that the addition of these products significantly improved the nutritional status for critically ill patients as well as for diabetes and cancer patients. 2
In the development of our medical equipment and consumables, we focus on the application of IV drugs and infusion therapies as well as enteral and parenteral nutrition products.
In 2013, our Agilia infusion pump was approved in the United States. For the market launch, we have adjusted the menu navigation and technical details to the requirements of the U.S. market.
In the area of autotransfusion devices, we are currently working on an updated version of our C.A.T.S. device. In addition, we are planning to introduce a new generation of cell processors in 2014.
| Product | Country/Region | Indication |
|---|---|---|
| Levofloxacin FFX | USA | Anti-infectives |
| Capecitabine | Europe | Oncology |
| Gemcitabine RTU | Europe | Oncology |
| Zoledronic Acid | Europe | Oncology |
| Meropenem | Asia-Pacific | Anti-infectives |
| Ropivacaine | Asia-Pacific | Anesthesia |
| Rocuronium | Latin America | Anesthesia |
| Paracetamol | Latin America | Critical Care |
Our employees' achievements and skills are vitally important to the Company's success. It is thanks to their expertise, experience, and commitment that all our business segments hold leading positions in their markets. We offer a variety of attractive opportunities for personnel development and work to ensure that these are effective. We also actively support international and interdisciplinary collaboration.
The Fresenius Group had 178,337 employees at the end of 2013, an increase of 9,013 or 5% compared to the previous year. Organically, the number of employees increased by 2%, while acquisitions contributed 3% to this growth.
The employee numbers increased in all business segments, as the table below shows. The significant growth at Fresenius Vamed is mainly the result of the transfer of services companies from Fresenius Helios to Fresenius Vamed. At Group level, the reduction in the number of employees is primarily due to the sale of Fresenius Biotech.
At the end of 2013, there were 53,197 employees in Germany, an increase of 3% (2012: 51,791) and 30% of all employees.
Personnel expenses for the Fresenius Group were €7,360 million in 2013 (2012: €6,897 million), equivalent to 36.2% of sales (2012: 35.8%). The increase of 7% was mainly due to the higher overall number of employees and the collectively bargained pay increases. Personnel expenses per employee were unchanged at €42.1 thousand. In constant currency, they were €43.1 thousand and above the previous year's level. In Germany, Fresenius companies have signed tariff agreements with IG Chemie, the Marburger Bund, as well as ver.di (labor union for services). There were no significant structural changes to compensation or employment agreements in 2013.
Fresenius values a culture of diversity. The interplay of a wide range of views, opinions, cultural backgrounds, experiences, and values helps us to achieve our full potential and contributes to our success. Key to this is our internationalism, especially in terms of our management executives.
As of December 31, 2013, the proportion of female employees within the Fresenius Group was 67%. Women held 30% of senior management positions at Fresenius, based on the number of worldwide participants in the stock option plans. Fresenius promotes the long-term, sustainable advancement of women to derive greater benefit from their potential now and in the future. We actively support women at all stages of their careers in order to increase the proportion of female employees at Fresenius. Women should be able to succeed while still maintaining a balance between work and family life. However, we do not set any fixed quotas for management positions. At Fresenius, qualifications are the only thing that matters in the selection of personnel. Consequently, women and men with comparable qualifications will continue to have the same career opportunities at Fresenius.
Highly skilled and motivated employees are vital to our growth. We are constantly adapting our human resources tools to meet new requirements arising from demographics, the transformation to a service economy, skills shortages, and the compatibility of job and family. For example, we offer flexible working hours.
Part of our identity as a health care company includes creating the right conditions to foster the health of the employees.
| Number of employees | Dec. 31, 2013 | Dec. 31, 2012 | Change | % of total |
|---|---|---|---|---|
| Fresenius Medical Care | 95,637 | 90,866 | 5% | 54% |
| Fresenius Kabi | 31,961 | 30,214 | 6% | 18% |
| Fresenius Helios | 42,913 | 42,881 | 0% | 24% |
| Fresenius Vamed | 7,010 | 4,432 | 58% | 4% |
| Corporate/Other | 816 | 931 | -12% | 0% |
| Total | 178,337 | 169,324 | 5% | 100% |
Depending on customer and market structure, our business segments have very different demands with regard to concepts and measures for employee development. Programs to assist trainees and young managers are coordinated, developed, and realized independently for each business segment.
We support the development of our employees' professional and personal skills across the Group through a wideranging offering of internal training measures, as well as through personal career talks. Through the systematic transfer of know-how within the framework of our successor planning, we ensure that valuable expertise is preserved and our well-qualified staff is trained and supported. Our global talent management comprises programs for developing managers in cooperation with Harvard Business School.
As part of our efforts to attract and promote young talent, our trainee programs offer promising university graduates an alternative opportunity to start a successful career with the Fresenius Group alongside the traditional channel of direct job entry.
Our comprehensive range of training sessions and seminars was extended in 2013 to employees at all levels and worldwide.
Fresenius values solid cooperation among people of different nationalities and from diverse cultures. As a global company, we promote mobility among our employees and give them the opportunity to work in a foreign country.
The shortage of qualified employees has significantly increased the competition for top talents. We expanded our personnel marketing activities and took a number of steps to bolster Fresenius's reputation as an attractive employer. We participated in numerous recruiting events and career fairs.
We also successfully expanded our digital personnel marketing. The careers portal for the Fresenius Group can be found on our website www.fresenius.com in the "Career" section or directly at http:// career.fresenius.com.
Fresenius Group devotes a lot of attention to vocational training. We trained more than 2,350 young people in 53 different occupations at our German locations in 2013. We also put more than 70 university students through 12 degree programs in cooperation with dual institutions of higher learning.
Over the past few years, we have set up a number of incentive programs to strengthen employee identification with Fresenius. Depending on country-specific rules or functions, these programs supplement different compensation models. This is done to reward the continuing willingness of our employees to work hard and to let them participate in the growth of Fresenius.
For many years, we have paid a stock-based profit-sharing bonus that is tied to the annual operating profit (EBIT) of Fresenius Group. The table below shows the increase in the profit-sharing bonus over the last several years.
| 2012 | 2011 | 2010 | 2009 | 2008 | |
|---|---|---|---|---|---|
| Profit-sharing bonus 1 in € |
2,164 | 2,036 | 2,000 | 1,749 | 1,586 |
| Eligible employees 2 | 2,313 | 2,220 | 1,790 | 1,710 | 1,630 |
1 The profit-sharing bonus is paid retroactively for the respective fiscal year. It forms part of compensation in some German Group companies.
2 Without eligible employees of Fresenius Medical Care AG & Co. KGaA. With our Long Term Incentive Program 2013, we have a global compensation instrument linking management's entrepreneurial responsibility to future opportunities and risks. It comprises the Stock Option Plan 2013, as well as the Phantom Stock Plan 2013, and combines the granting of stock options with the granting of phantom stock awards.
For further information on stock options, please see pages 166ff. of this annual report.
An efficient value chain is important for our profitability. Global procurement processes are coordinated centrally within the Fresenius Group, enabling us to bundle similar requirements and negotiate global framework agreements. Market and price developments are analyzed on an ongoing basis.
In 2013, the cost of raw materials and supplies and of purchased components and services was €6,385 million (2012: €5,838 million), as the table shows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Cost of raw materials and supplies | 5,566 | 5,097 |
| Cost of purchased components and services | 819 | 741 |
| Total | 6,385 | 5,838 |
The cost of raw materials and supplies were 9% above the previous year's level. The increase was mainly due to higher sales volume.
The Global Manufacturing Operations (GMO) division coordinates the procurement activities across regions. With this centralized approach, we aim to:
COST OF MATERIAL BY BUSINESS SEGMENT 1
Before consolidation
Our strategic purchasing focuses on ensuring the supply, the safety, and the quality of the materials used in production. Our staff in Europe, the United States, and Asia coordinate the procurement strategy and continuously optimize the purchasing processes and the supplier network. It is our objective to expand the existing supplier network to ensure the flexible supply of commodities from different currency areas.
Our strategy is oriented towards procuring high-quality production materials and components at optimal economic terms. We carefully select suppliers on the basis of suitability and performance. In cooperation with important suppliers, we jointly develop innovative products and processes.
For Fresenius Kabi, global procurement management also plays a crucial role, assuring the availability of goods and services as well as the consistent quality of the materials used in production.
In an environment characterized by ongoing cost-containment pressure from health insurers as well as price pressure, security and quality of supply play a crucial role. We are to remain flexible and maintain our strict quality and safety standards.
The procurement activities of Fresenius Kabi are influenced by price developments in the global commodity markets. Plastic granulates, basic agricultural commodities, paper for cardboard packaging, and active ingredients for IV drugs
are the most important procurement items. The prices for these products remained, to a large extent, at the previous year's level.
Prices in the energy markets continued to be very volatile. Overall, energy prices for Fresenius Kabi increased. Reasons for this are fluctuations on the spot markets and higher surcharges for renewable energies. The weaker euro combined with the very high oil price has also increased our gas costs.
At HELIOS, high medical standards go hand in hand with efficient, economically sound management of available resources. The HELIOS purchasing concept defines binding regulations and standards. Important regulations of the concept are:
In supplier management, HELIOS evaluates the quality and efficiency of products and of the entire business relationship. This results in high market transparency. In order to further improve cooperation, we exchange ideas with our business parties via a bilateral evaluation system and an annual trade conference.
In 2013, there were cost increases overall in the supply markets, which we were able to offset to a large extent by further product standardization and range streamlining.
Procurement management at Fresenius Vamed consists of the following activities:
The Fresenius Vamed sourcing platform systematically identifies synergies for customers from project and service activities. Considerable cost-cutting potentials are tapped through bidding competitions and framework agreements for several assignments, e.g., bundling energy supplies. Emphasis is placed on so-called life-cycle cost. In its sourcing decisions, Fresenius Vamed takes account of the total cost of materials and products over the entire life cycle, i.e., acquisition cost, servicing, maintenance, and replacement parts. Our aim is to procure the optimum product for the customer at the best price.
Based on the EFQM (European Foundation for Quality Management) model, we set targets for procurement management, such as customer satisfaction, the percentage of framework agreements, and supplier ratings.
The quality of our products, services, and therapies is the basis for optimal medical care. All processes are subject to the highest quality and safety standards, for the benefit of the patients and to protect our employees. Our quality management has the following three main objectives:
Fresenius Medical Care has implemented comprehensive quality management systems in its regions, which reflect both the specific local conditions and the company's global responsibility. These systems regulate and monitor compliance with quality and safety standards for all products and procedures, from development, production, and regulatory approval, to use in clinics, customer training, and handling complaints.
We have established quality management systems at our production sites and dialysis centers and we commission regular external audits on their use. In Europe, this is performed by the German technical certification organization TÜV. These conformance and certification experts audit our clinical organizations annually to verify their compliance with ISO 9001 for quality management and ISO 14001 for environmental management. In the United States, our clinics are monitored by the Centers for Medicare and Medicaid Services (CMS), a public health care authority. We also regularly review our quality management systems through internal audits.
Our UltraCare brand in North America and our NephroCare brand in the other regions are part of an integrated therapy concept that sets internal quality standards in our clinics as well as for home dialysis. We aim at introducing our quality standards into newly acquired clinics efficiently and systematically, seeking to improve the risk management for applying those standards. In doing this, we intend to continue improving the quality of our services in our clinic network as a whole. The NephroCare Excellence program defines midand long-term operating and quality goals. These goals pertain to medical quality, but also relate to the effective use of staff and staff development, enhancing efficiency, standardizing processes, and the sustainable use of natural resources.
We measure and compare our quality performance in our clinics using certain performance indicators. In addition to industry-specific clinical benchmarks, they include our own quality targets, i. e., linked to the services and advice we provide. Fresenius Medical Care uses quality parameters that are generally recognized in the dialysis industry, e.g., the hemoglobin value.
Constantly measuring these and other parameters helps us to further improve our standards in providing dialysis treatment.
The global quality management system at Fresenius Kabi is based on the internationally recognized ISO 9001 standard, which takes into account many national and international regulations governing product and services development, manufacturing, and marketing. These include, for example, Good Clinical Practice (GCP), Good Manufacturing Practice (GMP), Good Distribution Practice (GDP), the Code of Federal Regulations (CFR) of the U.S. Food and Drug Administration (FDA), as well as the ISO 13485 quality management standard
for medical devices. The global quality management system is certified by TÜV Süd and annually audited on an international basis. Our quality management comprises:
At Fresenius Kabi, inspections by regulatory authorities and audits by independent organizations and customers are performed along the entire value chain. Whenever these inspections reveal any weaknesses or deficiencies, Fresenius Kabi promptly takes corrective and preventive measures.
However, our quality management system does not just extend to internal processes. It also covers the application of our products and services by customers. In order to be able to receive information about their problems in a timely manner and deal with them appropriately, Fresenius Kabi has set up a global monitoring and reporting system (vigilance system). The responsible regulatory authorities monitor this system and keep an increasingly close eye on it in the interests of patient safety. The system has passed a number of inspections by various international health authorities.
The objective of the HELIOS quality management system is to continuously improve the results of medical treatments in the hospitals. To this end, HELIOS has developed a method that combines the use of quality indicators with internal quality management measures.
Indications / standardized mortality ratio
| (SMR 1 ) |
2013 SMR | 2012 SMR 2 |
|---|---|---|
| Chronic obstructive pulmonary disease (COPD) |
0.70 | 0.68 |
| Acute myocardial infarction (AMI) | 0.75 | 0.72 |
| Heart failure | 0.63 | 0.66 |
| Ischemic stroke | 0.89 | 0.87 |
| Pneumonia | 0.71 | 0.68 |
| Hip fracture | 0.81 | 0.99 |
1 SMR 1 corresponds to the German average.
SMR < 1 = means that mortality is below the German average
2 Adjusted for the current reference value of the German Federal Statistics Office
and newly acquired hospitals.
More information can be found at: http://www.helios-kliniken.de/medizin/qualitaetsmanagement
The quality of medical results from the different treatments is measured using key indicators compiled from administrative data. If statistical abnormalities arise, we examine these in a peer review process.
A prerequisite for this is that we make our own quality transparent on the basis of G-IQI quality indicators (German Inpatient Quality Indicators). These indicators are used not only in the HELIOS hospitals, but in many other German hospitals. According to 2011 data from the German Federal Statistical Office, the G-IQI indicators (e.g., heart failure) cover approximately 42% of all hospital cases and approximately 52% of all hospital deaths in Germany.
We have defined specific targets for 46 of the G-IQI quality indicators. These targets are set at a level above the national average for Germany. In 2013, we achieved this target for 42 quality indicators, a success rate of 91% (2012: 91%).
As shown in the table above, HELIOS achieved an SMR of 0.63 for heart failure (2012: 0.66). This indicates that the mortality in the HELIOS hospitals was 37% below the average of all German hospitals (2012: 34%). In the case of four G-IQI indicators, we did not achieve the target value. HELIOS has analyzed the cases in the hospitals concerned in order to identify opportunities for improvement and to implement appropriate measures.
In addition, HELIOS is involved in the Initiative of Quality Medicine (IQM) to which approximately 12% of all German hospitals, hospital operators, and university hospitals now belong. This makes it possible to compare and exchange information with other hospitals.
HELIOS provides full transparency for all quality data. For each acute care hospital, the results for medical treatment quality as well as the occurrence of the 17 most common infectious agents are published on the website www.helioskliniken.de.
In the planning and construction of hospitals, Fresenius Vamed sets high quality standards in its flexible design of parameters across processes and structures. These parameters include:
Internally, the processes are also designed for efficiency and sustainability, using interdisciplinary quality standards. These standards are mostly based on ISO 9001:2008 and ISO 13485:2003 standards, as well as the standards of the European Foundation for Quality Management (EFQM).
In the hospital area, VAMED uses the certification model JCI (Joint Commission International). Four facilities managed by VAMED in the Czech Republic and Austria received this certification in 2013. These hospitals were certified to have the highest level of quality, firstly regarding patient care, secondly regarding hygiene and safety, and thirdly regarding patient and employee satisfaction.
We orient our activities within the Fresenius Group to longterm goals, and thus ensure that our work is aligned to the needs of patients and employees, as well as shareholders and business partners, in a sustainable manner. Our responsibility as a health care group goes beyond our business operations. We are committed to protecting nature as the basis of life and using its resources responsibly. It is our mission to constantly improve our performance in the areas of environmental protection, occupational health and technical safety, and product responsibility and logistics, and to comply with legal requirements. The international ISO Standard 14001 is an important benchmark for environmental management in the corporate sector. Among other things, it stresses the need for continuous assessment of a production site's impact on the environment, for example, with respect to emissions and waste. This international standard is implemented at our various production plants and most of our dialysis clinics. Key environmental performance indicators are, for instance, not only energy and water consumption, but also the volumes of waste and recycling rates at our locations.
In Europe, our production sites are subject to the EU regulation REACH (Registration, Evaluation, and Authorization of CHemicals). The aim of REACH is to protect human health and the environment against hazards and risks from chemical substances.
In 2013, we continuously expanded our environmental activities. In Europe, the Middle East, and Africa, TÜV-certified environmental management is part of the integrated management system. At the end of 2013, eight European production sites (2012: seven) and our medical device development department were certified according to ISO 14001.
We work on designing our products and processes to be as environmentally compatible as possible by employing new materials with improved environmental properties, pushing the development of new technologies that further reduce the resource consumption of our dialysis machines, and, not least, by using energy and raw materials efficiently in production. In 2013, we continued our "Comparative Life Cycle Assessment project", which links together information about product design, production resource efficiency, logistics, and use of the products in dialysis. The project mainly sources its data from internal environmental reporting and product specifications, as well as from external ecological balance sheet databases. The aim of the project is to calculate and compare the ecological performance of different product groups for dialysis concentrates. The assessment will enable us to highlight environmentally friendly products in dialog with our
customers and to provide sound product information concerning the environmental impact of concentrates. The knowledge will also be applied to the development of new products.
We further implemented our environmental program in Europe and Latin America, with the aim of improving environmental awareness and environmentally responsible behavior, enhancing knowledge relating to strategic and operational environmental issues, improving our eco-efficiency, and reinforcing measures to control environmental risks, and ensuring that environmental regulations are complied with. Those goals are measured by a number of environmental objectives for the individual stages of the value chain, e.g., R & D, logistics, or at our dialysis clinics. We set environmental improvement targets for production sites. For example, we aim to recycle or thermally recover at least 85% of production waste by 2015. In 2013, we exceeded our targets for reducing electricity consumption and minimizing waste ahead of schedule.
We developed key performance indicators for energy use and consumption of raw materials in order to demonstrate the eco-efficiency of our production processes. This has allowed us to identify further potential in an already largely optimized production process. We also introduced an energy management system as per ISO 50001 in St. Wendel, which we will expand to all German sites in 2014. We believe that the nationwide introduction of energy evaluation for all processes and systems will help us identify further opportunities to cut costs and develop appropriate implementation measures.
One of our central concerns is to further reduce the environmental effects of dialysis treatments in a resource- and cost-efficient manner. We are succeeding in doing so by using environmentally sound dialysis products and by building eco-friendly dialysis centers. We gather data on our eco-efficiency, such as our water and energy consumption, and on waste disposal in 497 of our European, and 126 of our Latin American, dialysis clinics. Our goal is to establish over time a comprehensive environmental data management system. We are able to compare the ecological efficiency of clinics on a monthly basis, and quickly identify potential for improvement.
An integral component of the quality management of Fresenius Kabi is an environmental management system that complies with the international standard ISO 14001. We are also pursuing the implementation of the occupational health and safety assessment system OHSAS 18001. Our goals are to:
In 2013, we continued the matrix certification for the environmental management system. We use this system to analyze and assess work flows and processes according to sustainability criteria. At the same time, we document the responsible use of energies and natural resources as well as employee safety and environmental protection. This has shown us where improvements can be made, both with regard to the value chain and how we deal with external partners.
In 2013, we continued to implement measures at our German production sites to reduce energy consumption, CO2 emissions, and the consumption of raw materials. For example, we are currently installing a combined heat and power plant at our Friedberg location, which is scheduled to begin operations in the second half of 2014. This plant will allow us to produce energy significantly more efficiently and to reduce CO2 emissions by approximately 30% compared to conventional combustion power plants.
At the site in Graz, in Austria, we were able to keep energy consumption at the previous year's level despite the growth in production area and the increased use of energy-intensive technologies. Additional recycling and the implementation of technical measures, such as the reuse of cooling water, minimizes waste and waste water volumes, and will continue to do so in the future even with rising production volumes. The recycling rate remained stable at approximately 85%.
In Sweden, projects relating to the supply and consumption of resources previously initiated at our production sites in Uppsala and Brunna are bearing fruit:
New production technologies also contributed to consume resources more efficiently.
Fresenius Kabi also integrates standardized requirements for health, safety, and environmental protection into its quality management system. In the manufacturing of pharmaceuticals, the employees of Fresenius Kabi sometimes have to work with toxic substances. Consequently, protecting the environment and ensuring the health and safety of our employees is of utmost importance. New requirements relating to occupational health and safety are integrated into our quality management.
Hospitals require a great deal of energy and water. In order to create awareness for the economical use of resources, we launched an environmental campaign within HELIOS.
The structural condition of a hospital building has an important influence on energy consumption. HELIOS invests in environmental protection through structural measures on an ongoing basis. All new construction projects and modernizations conform to the latest standards of efficient heat insulation pursuant to the currently valid energy savings regulations. In 2013, maintenance costs were €106 million (2012: €110 million).
HELIOS is successively switching the heating for its hospitals over to renewable energies, for instance wood pellets. This form of heating is CO2-neutral and therefore more environmentally friendly than gas or oil heating. A total of 12 hospitals generate a part of the heat needed from renewable energies. Where it makes commercial sense, we are converting our hospitals to wood pellet heating or combined heat and power plants. Thanks to the steps already taken, we generated approximately 13,100 t less CO2 in 2013 than with the old oiland gas-fired heating systems. We assume that there will be a further 10,000 t reduction of CO2 in 2014, virtually doubling the total reduction.
Water consumption in all HELIOS hospitals was 2,805,000 m3 (2012: 1,984,000 m3 ). The majority of all water is consumed for sterilization processes, process cooling, and water recycling plants. To reduce consumption, some hospitals are using well water, for instance for the cooling towers of air-conditioning systems.
Proper waste disposal is of great importance to hospitals. HELIOS views waste disposal management as a process. It starts with avoiding any future waste, and ends with the consistent recycling or environmentally friendly disposal of the same. Requirements pertaining to environmental protection, occupational health and safety, as well as infection protection and hospital hygiene are taken into account. That relates particularly to major waste groups such as clinical waste, i. e., from the diagnosis and treatment of human diseases. In 2013, the total amount of waste generated in all HELIOS hospitals was 12,845 t (2012: 12,593 t).
In the future, health care systems will also have to pay greater attention to sustainability. In project business, we already integrate national environmental standards and regulations into the planning and construction of a hospital or other health care facility as an active contribution toward environmental protection. VAMED's extensive expertise in environmental management is an important success factor, especially in growth markets in Africa and Asia. For instance, VAMED
built and now operates a hospital in Gabon, which features a modern sewage treatment plant and a high-temperature incineration plant designed to European standards.
We also achieved success in the service business in the area of environmental protection. VAMED, for instance, has been responsible for the technical management of the Vienna General Hospital and University Hospital AKH for over 25 years. During the period, energy and water consumption were significantly reduced: energy consumption decreased by 12%, demand for long-distance heat by 22%, and drinking water consumption by an impressive 45%. The volume of waste classified as hazardous medical waste at AKH fell by about 65%.
VAMED is an active member of working groups and committees that formulate E-STANDARDS for hospitals. These are Austrian standards issued by the Austrian Standards Institute.
Long-term, mutually trusting cooperation with our business partners and customers is an essential basis for sustainable growth. We strive to guarantee top quality and outstanding service, together with reliable logistics and product availability. Sales and research and development work closely together in order to integrate concepts and ideas developed by the sales force into new products. Fresenius generally has its own sales organizations with trained employees. However, we also use external distributors in countries where we do not have our own sales team.
At Fresenius Medical Care, Global Manufacturing Operations (GMO) manages the entire supply chain in North America – from allocating the raw materials to delivery of the finished products to the customers. Outside North America, GMO is responsible for delivering the finished products to central distribution centers. The onward distribution to customers and patients is managed locally. The main customers are dialysis clinics and hospitals.
Fresenius Medical Care's most important customers in dialysis care are state-owned or public health insurers, private health insurers, and corporations. In 2013, approximately 32% of the company's consolidated revenues were attributable to U.S. federal health care benefit programs. The company's largest private customer, which is also the world's
second-largest provider of dialysis services after Fresenius Medical Care, is the U.S. company DaVita. Fresenius Medical Care generated approximately 1% of its revenue with DaVita in 2013.
Fresenius Kabi's products are shipped from the production plants to central warehouses, wholesalers, or directly to hospitals or patients. Fresenius Kabi maintains an international hub, e. g., in Friedberg, Germany, for a significant proportion of its range of products. The company's own homecare organization in Germany cares for about 185,000 outpatients every year. In the United States, Fresenius Kabi mainly distributes IV drugs through GPOs (Group Purchasing Organizations). The main customers in the area of transfusion technology are plasma companies and blood centers.
Generally, there is a growing tendency for government entities to award contracts by public tenders, in which Fresenius Kabi usually participates. An increasing concentration on the customer is augmenting, raising the relevance of individual customers. However, Fresenius Kabi has no significant dependency on any one source of revenue.
At Fresenius Helios, patient-related services, such as collection and delivery services within hospitals as well as logistics and related internal processes, are key elements in the care of patients and the proper operation of hospitals. These extend from warehousing to storing medication and supplies in the wards, i. e., providing them with their required materials. Every HELIOS region has at least one logistics center. In addition, the company's own and third-party pharmacies deliver prescription drugs to hospitals. Thanks to these regional supply structures, HELIOS achieves substantial cost synergies within its hospital network. Customers include social security institutions, health insurers, and private patients.
The clients of Fresenius Vamed are mainly public institutions, e.g., ministries and authorities, public and private hospitals, and other health care facilities.
The health care sector is one of the world's largest industries. It is relatively insensitive to economic fluctuations compared to other sectors and has posted above-average growth over the past several years.
The main growth factors are:
In the emerging countries, drivers are:
At the same time, the cost of health care is rising and claiming an ever-increasing share of national income. Health care spending averaged 9.3% of GDP in the OECD countries in 2011, with an average of US\$3,339 spent per capita. As in previous years, the United States had the highest per capita spending (US\$8,508). Germany ranked ninth among the OECD countries with per capita spending of US\$4,495. In contrast
to other European countries, where health spending has been cut in recent years, the trend in Germany was positive, with health care spending increasing by 1.1% in real terms in 2011 compared to 2010.
The public sector is the main source of health funding in all OECD countries, except Chile, the United States, and Mexico, where public spending was below 50% in 2011. In Germany, 76.5% of health spending was funded by public sources, above the average of 72.2% in the OECD countries.
Most of the OECD countries have enjoyed large gains in life expectancy over the past decades, thanks to improved living standards, public health interventions, and progress in medical care. In 2011, average life expectancy in the OECD countries was 80.1 years.
Health care structures are being reviewed and cost-cutting potential identified in order to contain the steadily rising health care expenditures. However, such measures cannot compensate for the cost pressure. Market-based elements are increasingly being introduced into the health care system to create incentives for cost- and quality-conscious behavior. Overall treatment costs shall be reduced through improved quality standards. In addition, ever-greater importance is being placed on disease prevention and innovative reimbursement models linked to treatment quality standards.
Our most important markets developed as follows:
For 2013, the volume of the global dialysis market was approximately US\$75 billion. Thereof, 81% is attributable to dialysis care (including renal pharmaceuticals) and 19% to dialysis products. Due to currency translation effects, the market
| in % | 2011 | 2000 | 1990 | 1980 | 1970 |
|---|---|---|---|---|---|
| USA | 17.7 | 13.7 | 12.4 | 9.0 | 7.1 |
| France | 11.6 | 10.1 | 8.4 | 7.0 | 5.4 |
| Germany | 11.3 | 10.4 | 8.3 | 8.4 | 6.0 |
| Switzerland | 11.0 | 9.9 | 8.0 | 7.2 | 5.3 |
Source: OECD Health Data 2013
volume remained unchanged in U.S. dollar terms compared to the previous year. In constant currency, the global dialysis market grew 4%.
The number of dialysis patients worldwide increased by about 7% to approximately 2.5 million. The pie chart beside shows their regional distribution.
The prevalence rate, which is the number of people with terminal kidney failure treated per million population, differs widely from region to region. In developing countries it can be well below 100. It averages just over 1,100 in the countries of the European Union. Prevalence is very high in countries such as Japan and the United States, being well over 2,000. The significant divergence in prevalence rates is due, on the one hand, to differences in age demographics, distribution of renal risk factors (such as diabetes and hypertension), and genetic pre-disposition and cultural habit, such as nutrition. On the other hand, access to dialysis treatment is still limited in many countries. A great many individuals with terminal kidney failure do not receive treatment and are therefore not included in the prevalence statistics.
The United States, Japan, and Western and Central Europe recorded below-average growth in the number of patients in 2013. In these regions, prevalence is already relatively high and patients generally have reliable access to treatment. In economically weaker regions, growth was above average.
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 aging of the global population due to medical advances.
In January 2011, the United States, our largest sales market, introduced a new bundled reimbursement system for the dialysis treatment of public health care patients. All products and services that used to be reimbursed according to the composite rate, as well as services that were reimbursed separately, such as the administration of certain intravenous drugs and diagnostic laboratory test, are now reimbursed in a flat fee.
Of the approximately 2.5 million patients receiving regular dialysis treatment in 2013, about 89% were treated with hemodialysis, while about 11% chose peritoneal dialysis. The majority of the patients were treated in dialysis clinics. There are about 35,600 dialysis clinics worldwide with an average of 70 patients per clinic.
The organization of the clinics varies significantly, depending on whether the health systems in the individual countries are state-run or private. In the United States, most of the approximately 6,100 dialysis clinics are run privately, and only about 1% are publicly operated. By contrast, about 57% of the approximately 5,500 dialysis clinics in the European Union are publicly owned. In Japan, private nephrologists play a key role, treating about 80% of dialysis patients in their facilities.
Dialysis reimbursement systems differ from country to country and often vary even within individual countries. In the United States, the treatment costs for terminal kidney failure are covered by the public health insurers. The public health care programs, the Centers for Medicare & Medicaid Services (CMS), cover the medical services for the majority of all dialysis patients in the United States.
In the United States, the market for dialysis care is already highly consolidated. Taken together, Fresenius Medical Care and the second-largest provider of dialysis care − DaVita − treat over 70% of all U.S. dialysis patients. In 2013, Fresenius Medical Care maintained its market-leading position of approximately 37%. Outside the United States, the markets for dialysis care are much more fragmented. Here, Fresenius Medical Care competes mainly with independent clinics and with clinics that are affiliated with hospitals.
In 2013, the number of peritoneal dialysis patients worldwide was about 269,000. Fresenius Medical Care has a market share of about 21% according to sales, and is the global No. 2 in this market after Baxter. In the United States, our market share was 42%.
Fresenius Medical Care is the world market leader in dialysis products with a market share of about 34% according to sales, followed by Baxter with 30%. Each of the other competitors, mainly from Japan, has a single-digit percentage market share.
Dialyzers are the largest product group in the dialysis market, with a worldwide sales volume of about 250 million units in 2013. Approximately 106 million were produced by Fresenius Medical Care.
Of the more than 80,000 hemodialysis machines that were sold onto the market in 2013, about 55% were from Fresenius Medical Care. In the United States, more than 94% of the dialysis machines sold there were made by Fresenius Medical Care. In 2013, China was our second-largest market, where we delivered about 6,800 new hemodialysis machines. Almost half of all hemodialysis machines currently in use in China were produced by Fresenius Medical Care.
General cost pressure in Europe has increased the importance of high-quality, cost-effective health care. This especially holds true in the market for infusion therapy and clinical nutrition. Studies show that, in cases of health or age-induced nutritional deficiencies, the administration of food supplements can reduce hospital costs through shorter stays and less nursing care. Estimates to the European Union situation indicate that as many as 20 million individuals are at risk for malnutrition.
In Europe, the total market for infusion therapy is growing by about 1% to 2%. The total market for clinical nutrition is growing by about 3%. In the emerging markets of Asia-Pacific, Latin America, and Africa, growth is up to 10% and more.
Based on its own estimates, Fresenius Kabi considers its potential relevant market for infusion therapy to be about €5 billion, and for clinical nutrition to be over €6 billion.
We also expect the demand for generic IV drugs to continue growing. From a health economic standpoint, generic drugs are more advantageous than original drugs because of their significantly lower price, and they already make a vital contribution to health care today. Judged from today's vantage point, in our view the focus is mainly on the pricing of patented drugs and the prescription drugs segment in the pharmacy market.
The market for IV generics is characterized by moderate volume growth, steady price erosion, and fierce competition. Growth is mainly achieved through new generics that are brought to market when the original drug goes off-patent. In Europe and the United States, the market for IV generics is growing by about 3% to 5%. We expect the U.S. market for IV drugs that go off-patent from 2014 to 2023 to amount to approximately US\$19 billion on a cumulative basis. These figures are based on the sales of the original drugs in 2013 and do not take account of the usual price erosions for generics. We therefore see considerable growth potential for generic drugs.
Based on its own estimates, Fresenius Kabi considers its potential relevant market for IV generics to be about €12 billion.
The market for medical devices for infusion therapy, IV drugs, and clinical nutrition is growing by about 3% worldwide. Here, the main growth drivers are technical innovations that focus on application safety and therapy efficiency. Fresenius Kabi considers its potential relevant market for medical devices to be worth about €3 billion, based on its own estimates.
The worldwide market for transfusion technology is growing by about 2% to 3% on average. The main growth driver is the increasing demand for products and devices that perform blood collection and processing. Based on our own estimates, the potential relevant market for transfusion technology is worth over €2 billion.
In Europe, Fresenius Kabi is the market leader in infusion therapies as well as in parenteral nutrition. Competitors include Baxter and B.Braun. In the market for enteral nutrition, the company competes internationally with, among others, Danone, Nestlé, and Abbott. In the market for IV drugs, our global competitors include generic drug manufacturers like Hospira, Sandoz, and Teva Pharmaceutical Industries. In the medical devices segment, our international competitors include CareFusion, Baxter, B. Braun, and Hospira, and in transfusion technology competitors include Haemonetics and Terumo. In all product segments, we also compete with smaller local providers.
The total volume for hospital treatment in Germany was about €84 billion1 in 2012. Personnel costs account for about 61% of hospital costs, and material costs for 38%. Personnel and material costs rose by approximately 5% and 3%, respectively.
The number of hospitals in 2012 was 2,017 (2011: 2,045). The number of beds fell to 501,475 (2011: 502,029). Nonetheless, with 6.24 beds per 1,000 population, Germany is still well above the OECD average of 4.8 (2011). The average stay of a patient in an acute care hospital in Germany fell slightly over the same period and was 7.6 days in 2012 (2011: 7.7 days). On the other hand, the number of inpatient admissions has increased. This is largely due to changing demographics. In 2012, the number of admissions increased by about 276,000 to about 18.6 million. This is equivalent to 232 admissions per 1,000 population (2011: 229). In the years 2008 to 2012, the number of admissions in Germany rose at an average annual rate of 1.5%. The average costs per admission have increased by 3.0% on average over the five years leading up to 2012.
According to a survey by the German Hospital Institute (DKI), the economic situation at many hospitals in Germany worsened during 2012: 43% of the hospitals earned a surplus (2011: 55%), 7% achieved breakeven (2011: 14%), and 51% made a loss (2011: 31%).
Many hospitals are facing a difficult economic and financial situation as well as significant investment needs. This is due in large part to an investment backlog that has accumulated because, in the past, the federal states failed to meet their statutory obligation to finance necessary investments and major maintenance measures sufficiently due to budget constraints. Moreover, investment needs are mainly driven by technological advances, higher quality requirements, and necessary modernizations. Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) estimates that the investment gap at German hospitals is about €34 billion.
According to the German Federal Statistical Office, the privatization trend in the German hospital market continued in 2012, with the share of private hospital beds rising to 18.0% (2011: 17.3%). However, as the chart shows, with a share of 47.9%, the bulk of the hospital beds continued to be in the public sector (2011: 48.4%).
According to our research, about €318 million in hospital transaction revenues were acquired in 2013.
Quality is increasingly becoming a key competitive factor for the hospital market. Transparency and comparability of the treatments for the patients and their doctors will play an ever-more decisive role. For more information please see page 54 of the Management Report.
In 2012, the post-acute care market in Germany comprised a total of 1,212 clinics, below the previous year's 1,233. The number of beds also declined, to 168,968 (2011: 170,544).
Private clinics accounted for 65.8% of the total number of post-acute care beds (2011: 66.4%). Independent non-profit clinics and public clinics accounted for 16.1% (2011: 15.7%) and 18.1% (2011: 18.0%), respectively. The total number of admissions in Germany increased by about 39,000 admissions to 1.96 million. The average length of stay remained almost unchanged at 25.5 days.
Total costs, gross of the German hospitals less academic research and teaching
Source: German Federal Statistical Office
Fresenius Helios is the largest hospital operator in Germany. Our main competitors are other private hospital operators like Rhön-Klinikum AG, Asklepios, and Sana Kliniken.
The market for projects and services for hospitals and other health care facilities is very country-specific and depends, to a large extent, on factors such as public health care policies, government regulation, levels of privatization, economic conditions, and demographics.
In markets with established health care systems and mounting cost pressure, the challenge for hospitals and other health care facilities is to increase their efficiency. Here,
KEY FIGURES FOR INPATIENT CARE IN GERMANY
demand is especially high for sustainable planning and energy-efficient construction, optimized hospital processes, and the outsourcing of medical-technical support services to external specialists. This enables hospitals to concentrate on their core competency − treating patients. In emerging markets, the focus is on building and developing infrastructure and improving the level of health care.
Fresenius Vamed is one of the world's leading companies in this market. The company has no competitors that cover its comprehensive portfolio of services across the entire life cycle worldwide. Competitors offer only parts of Fresenius Vamed's service portfolio. Depending on the service, the company competes with international companies and with smaller local providers.
The development of the world economy had an only negligible impact on our industry. On the whole, the health care sector, both in mature and growth markets, developed positively in 2013, with a continued increasing demand for health services. Strong demand for our products and services enabled us to grow with its respective markets or even outpace their growth.
| 2012 | 2011 | 2010 | 2009 | 2008 | Change 2012/2011 |
|
|---|---|---|---|---|---|---|
| Hospitals | 2,017 | 2,045 | 2,064 | 2,084 | 2,083 | -1.4% |
| Beds | 501,475 | 502,029 | 502,749 | 503,341 | 503,360 | -0.1% |
| Beds per 1,000 population | 6.24 | 6.26 | 6.15 | 6.15 | 6.13 | -0.3% |
| Length of stay (days) | 7.6 | 7.7 | 7.9 | 8.0 | 8.1 | -1.3% |
| Number of admissions (millions) | 18.62 | 18.34 | 18.03 | 17.82 | 17.52 | 1.5% |
| Average costs per admission in €1 | 4,663 | 4,547 | 4,432 | 4,327 | 4,146 | 2.6% |
Total costs, gross
Source: German Federal Statistical Office
In 2013, the Fresenius Group's positive business development was again driven by the very good sales growth in all business segments. Acquisitions further strengthened organic sales growth. In the United States, budget cuts ("sequestration") had a negative effect on reimbursement rates for dialysis treatments.
The Management Board is of the opinion that the Fresenius Group's performance in 2013 was excellent – with sales growth across all business segments. Fresenius Medical Care achieved organic sales growth of 5%. Net income remained nearly unchanged due to lower reimbursement rates for Medicare dialysis patients based on budget cuts in the United States (sequestration). Fresenius Kabi benefitted from growing global demand. Supply constraints at competitors in the United States again led to a better than expected development in this region. Significant price cuts in China and restrictions in the use of blood volume substitutes had an adverse effect.
Organic sales growth was 5%. EBIT was on previous year's level and includes costs of €31 million (net of Calea book gain) to meet FDA requirements at the Grand Island, USA, and Kalyani, India, plants. Fresenius Helios achieved solid organic sales growth of 3% and clearly improved its earnings. Fresenius Vamed successfully completed the year with sales of more than €1 billion for the first time and increased earnings.
For 2013, we had assumed that strong demand for our products and services would continue despite ongoing costcontainment efforts in the health care sector. This proved to be the case.
The table below shows our initial guidance for 2013 as communicated in February 2013. Due to the excellent operating results, we raised our Group earnings outlook in July and also raised our EBIT outlook for HELIOS.
Group sales growth in constant currency of 8% is fully within the targeted range of 7% to 10% sales growth in constant currency. Net income (before special items) 1 increased
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2013 before integration costs for Fenwal (€40 million);
2012 before a non-taxable investment gain (€34 million) and other one-time costs (€17 million) at Fresenius Medical Care as well as one-time costs (€29 million)
related to the offer to the shareholders of Rhön-Klinkum AG
ACHIEVED GROUP TARGETS 2013
Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA 2013 before integration costs for Fenwal (€54 million)
by 14% in constant currency and was fully within the targeted range of 11% to 14%. We have also achieved the sales and earnings guidance for all business segments. This includes Fresenius Helios, where EBIT guidance was also increased in July.
We increased our R & D expenses as planned. At 5%, they are within the targeted range of approximately 4% to 5% of our product sales.
In 2013, Fresenius invested €1,073 million in property, plant and equipment (2012: €1,007 million). That was well in line with the budgeted level of about 5% as percentage of sales.
Operating cash flow was €2,320 million (2012: €2,438 million). The cash flow margin was 11.4% and within our expectations. We had expected to achieve a double-digit percentage rate.
Sales
In 2013, we increased Group sales by 8% in constant currency and by 5% at actual rates to €20,331 million (2012: €19,290 million).
The chart beside shows the various influences on Fresenius' Group sales.
In 2013, changes in the product mix mainly had an effect at Fresenius Kabi because of restrictions in the use of blood volume substitutes. Price influences had an effect at Fresenius Medical Care due to budget cuts in the United States, and at
SALES BY REGION
Fresenius Kabi due to significant price cuts in China. In 2014, we expect no significant effects from changes in product mix. However, we expect pricing effects for Fresenius Medical Care and Fresenius Kabi.
The most important regions in the Group are North America and Europe, contributing 42% and 40% of total sales, followed by Asia-Pacific with 10%, and Latin America and Africa with 6% and 2%, respectively. Germany contributed 21% to Group sales.
In North America, organic sales growth was 4%. In constant currency, sales increased by 9%. In Europe, organic sales growth was 3% (6% in constant currency). In the Asia-Pacific region, organic sales growth was 4% (7% in constant currency). Excellent organic sales growth was achieved in Latin America with 13% and in Africa with 23%. In these regions, sales growth in constant currency was 16% and 24%, respectively.
| € in millions | 2013 | 2012 | Change | Organic sales growth |
Currency translation effects |
Acquisitions / divestitures |
% of total sales |
|---|---|---|---|---|---|---|---|
| North America | 8,620 | 8,144 | 6% | 4% | -3% | 5% | 42% |
| Europe | 8,216 | 7,797 | 5% | 3% | -1% | 3% | 40% |
| Asia-Pacific | 1,945 | 1,899 | 2% | 4% | -5% | 3% | 10% |
| Latin America | 1,174 | 1,126 | 4% | 13% | -12% | 3% | 6% |
| Africa | 376 | 324 | 16% | 23% | -8% | 1% | 2% |
| Total | 20,331 | 19,290 | 5% | 4% | -3% | 4% | 100% |
Sales growth in the business segments was as follows:
to €437 million, primarily due to acquisitions (2012: €340 million). Order intake in the project business again developed well; it increased by 13% to €744 million (2012: €657 million). Fresenius Vamed increased its order backlog by 15% to €1,139 million (December 31, 2012: €987 million). Fresenius Vamed is the only business segment within the Fresenius Group whose business is significantly determined by order intake and order backlog.
Group net income (before special items) 1 rose by 12% to €1,051 million (2012: €938 million). Growth in constant currency was 14%. Earnings per share (before special items) 1 rose to €5.88 (2012: €5.42 ). This represents an increase of 8% at actual rates and of 11% in constant currency. The weighted average number of shares was 178.7 million.
Including special items, Group net income was €1,011 million (2012: €926 million) and earnings per share were €5.66 (2012: €5.35).
Inflation had no significant effect on results of operations in 2013.
Group EBITDA2 was €3,888 million (2012: €3,851 million). This corresponds to an increase of 3% in constant currency. Group EBIT 2 was €3,045 million (2012: €3,075 million). This corresponds to an increase of 1% in constant currency.
| € in millions | 2013 | 2012 | Change | Organic sales growth |
Currency translation effects |
Acquisitions / divestitures |
% of total sales |
|---|---|---|---|---|---|---|---|
| Fresenius Medical Care | 11,000 | 10,741 | 2% | 5% | -4% | 1% | 54% |
| Fresenius Kabi | 4,996 | 4,539 | 10% | 5% | -4% | 9% | 24% |
| Fresenius Helios | 3,393 | 3,200 | 6% | 3% | 0% | 3% | 17% |
| Fresenius Vamed | 1,020 | 846 | 21% | 13% | 0% | 8% | 5% |
| € in millions | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Order intake | 744 | 657 | 604 | 625 | 539 |
| Order backlog (December 31) | 1,139 | 987 | 845 | 801 | 679 |
and other one-time costs (€17 million) at Fresenius Medical Care as well as one-time costs (€29 million) related to the offer to the shareholders of Rhön-Klinikum AG
2 2013 before integration costs for Fenwal (€54 million); 2012 before one-time costs related to the takeover offer to the shareholders of Rhön-Klinikum AG (€6 million) and other one-time costs at Fresenius Medical Care (€86 million)
1 Net income attributable to the shareholders of Fresenius SE & Co. KGaA. 2013 before integration costs for Fenwal (€40 million). 2012 before a non-taxable investment gain (€34 million)
The EBIT development by business segment was as follows:
The Group's U.S. GAAP financial results as of December 31, 2013 include a special item. Net income attributable to shareholders of Fresenius SE & Co. KGaA in 2013 was adjusted for the integration costs for Fenwal. Group net income in 2012 was adjusted for a non-taxable investment gain and other onetime costs at Fresenius Medical Care, as well as one-time costs related to the public takeover offer (offer) to the shareholders of Rhön-Klinikum AG. The table below shows the special items and the reconciliation from net income (before special items) to earnings according to U.S. GAAP.
Group gross profit rose to €6,383 million, exceeding the previous year's gross profit of €6,288 million by 2% (4% in constant currency). The gross margin was 31.4% (2012: 32.6%). The cost of sales rose by 7% to €13,948 million (2012: €13,002 million). Cost of sales as a percentage of Group sales increased to 68.6% in 2013, compared to 67.4% in 2012. Selling, general, and administrative expenses
| € in millions | Q1 – 4/2013 before special items |
Fenwal integration costs |
Q1 – 4/2013 according to U.S. GAAP (incl. special items) |
Q1 – 4/2012 before special items |
Non-taxable investment gain at Fresenius Medical Care |
One-time costs related to the takeover offer to the shareholders of Rhön Klinikum AG |
Other one-time costs at Fresenius Medical Care |
Q1 – 4/2012 according to U.S. GAAP (incl. special items) |
|---|---|---|---|---|---|---|---|---|
| Sales | 20,331 | 20,331 | 19,290 | 19,290 | ||||
| EBIT | 3,045 | -54 | 2,991 | 3,075 | 0 | -6 | -86 | 2,983 |
| Investment gain | 0 | 0 | 0 | 109 | 109 | |||
| Interest result | -584 | -584 | -666 | -666 | ||||
| Other financial result | 0 | 0 | 0 | -35 | -35 | |||
| Net income before taxes | 2,461 | -54 | 2,407 | 2,409 | 109 | -41 | -86 | 2,391 |
| Income taxes | -683 | 14 | -669 | -702 | 12 | 31 | -659 | |
| Net income | 1,778 | -40 | 1,738 | 1,707 | 109 | -29 | -55 | 1,732 |
| Less noncontrolling interest | -727 | -727 | -769 | -75 | 38 | -806 | ||
| Net income 1 | 1,051 | -40 | 1,011 | 938 | 34 | -29 | -17 | 926 |
consisted primarily of personnel costs, marketing and distribution costs, and depreciation and amortization. These expenses rose by 1% to €3,044 million (2012: €3,000 million). Their ratio as a percentage of Group sales decreased to 15.0% (2012: 15.6%). Depreciation and amortization was €843 million (2012: €776 million). The ratio as a percentage of sales was 4.1% (2012: 4.0%). Group Personnel costs increased to €7,360 million (2012: €6,896 million). The personnel cost ratio was 36.2% (2012: 35.7%). The chart beside shows the earnings structure in 2013.
Group net interest decreased to -€584 million (2012: -€666 million). This includes one-time costs (€14 million) related to the early redemption of Senior Notes due in 2016. Lower average interest rates had a positive effect.
The Group tax rate (before special items) improved to 27.8% (2012: 29.1%).
Noncontrolling interest was €727 million (2012: €806 million). Of this, 94% was attributable to the noncontrolling interest in Fresenius Medical Care.
The table on page 69 shows the profit margin development.
The value added statement shows Fresenius' total output in 2013, less purchased goods and services and less depreciation and amortization. The value added of the Fresenius Group
| € in millions | 2013 | 2012 | Change | Change in constant currency |
|---|---|---|---|---|
| Sales | 20,331 | 19,290 | 5% | 8% |
| Cost of goods sold | -13,948 | -13,002 | -7% | -10% |
| Gross profit | 6,383 | 6,288 | 2% | 4% |
| Selling, general, and administrative expenses | -3,044 | -3,000 | -1% | -4% |
| Research and development expenses | -348 | -305 | -14% | -17% |
| EBIT (operating result) | 2,991 | 2,983 | 0% | 3% |
| Investment gain | 0 | 109 | -100% | -100% |
| Net interest | -584 | -666 | 12% | 10% |
| Other financial result | 0 | -35 | 100% | 100% |
| Income taxes | -669 | -659 | -2% | -5% |
| Noncontrolling interest in profit | -727 | -806 | 10% | 7% |
| Net income (before special items) 1 | 1,051 | 938 | 12% | 14% |
| Net income 2 | 1,011 | 926 | 9% | 11% |
| Earnings per ordinary share in € (before special items) 1 | 5.88 | 5.42 | 8% | 11% |
| Earnings per ordinary share in €2 | 5.66 | 5.35 | 6% | 8% |
| EBITDA | 3,834 | 3,759 | 2% | 5% |
| Depreciation and amortization | 843 | 776 | 9% | 12% |
1 Net income attributable to the shareholders of Fresenius SE & Co. KGaA; 2013 before integration costs for Fenwal (€40 million); 2012 before a non-taxable investment gain (€34 million)
and other one-time costs (€17 million) at Fresenius Medical Care as well as one-time costs (€29 million) related to the offer to the shareholders of Rhön-Klinikum AG
2 Net income attributable to the shareholders of Fresenius SE & Co. KGaA
| € in millions | 2013 | % | 2012 | % |
|---|---|---|---|---|
| Creation | ||||
| Company output | 20,423 | 100 | 19,318 | 100 |
| Materials and services purchased | 9,054 | 44 | 8,482 | 44 |
| Gross value added | 11,369 | 56 | 10,836 | 56 |
| Depreciation and amortization | 843 | 4 | 776 | 4 |
| Net value added | 10,526 | 52 | 10,060 | 52 |
| Distribution | ||||
| Employees | 7,360 | 70 | 6,897 | 69 |
| Governments | 844 | 8 | 839 | 8 |
| Lenders | 584 | 6 | 666 | 7 |
| Shareholders | 225 | 2 | 196 | 2 |
| Company and noncontrolling interest | 1,513 | 14 | 1,462 | 14 |
| Net value added | 10,526 | 100 | 10,060 | 100 |
reached €10,526 million (2012: €10,060 million). This is an increase of 6% over 2012. The distribution statement shows that, at €7,360 million or 70%, the largest portion of our value added went to our employees. Governments came next with €844 million (8%) and lenders with €584 million (6%). Shareholders receive €225 million and noncontrolling interests €727 million. The Company retained €786 million of value added to strengthen its business.
The financing strategy of the Fresenius Group has the following main objectives:
Ensuring financial flexibility is key to the financing strategy of the Fresenius Group. This is achieved through a broad spectrum of financing instruments, taking market capacity, investor diversification, utilization flexibility, credit covenants, and the current maturity profile into consideration. The Group's maturity profile is characterized by a broad spread of maturities with a large proportion of mid- to long-term financing. We also take into account the currency in which our earnings and cash flows are generated when selecting the financing instruments, and match them with appropriate debt structures in the respective currencies. The Group's main financing instruments are illustrated in the chart on page 70.
Sufficient financial cushion is assured for the Fresenius Group by syndicated and bilateral credit lines that are only partially drawn. In addition, Fresenius SE & Co. KGaA has a commercial paper program. The Fresenius Medical Care receivable securitization program offers additional financing options.
| in % | 2013 | 2012 | 20112 | 2010 | 2009 |
|---|---|---|---|---|---|
| EBITDA margin1 | 19.1 | 20.0 | 19.8 | 19.1 | 18.5 |
| EBIT margin1 | 15.0 | 15.9 | 15.7 | 15.1 | 14.5 |
| Return on sales (before taxes and noncontrolling interest) 3 | 12.1 | 12.5 | 12.4 | 11.6 | 10.4 |
1 2013 before integration for Fenwal (€54 million); 2012 before one-time costs (€6 million) related to the offer to the shareholders of Rhön-Klinikum AG as well as other
one-time costs (€86 million) at Fresenius Medical Care
2 2011 sales were adjusted by -€161 million according to a U.S. GAAP accounting change; this solely relates to Fresenius Medical Care North America.
3 2013 before integration costs for Fenwal (€54 million); 2012 before a non-taxable investment gain (€109 million) and other one-time costs (€86 million) at Fresenius Medical Care as well as one-time costs (€41 million)
related to the offer to the shareholders of Rhön-Klinikum AG;
2009 – 2011 before the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds and the Contingent Value Rights
Another main objective of Fresenius Group's financing strategy is to optimize the weighted-average cost of capital by employing a balanced mix of equity and debt. Predictable and sustainable cash flows are generated due to the Company's diversification within the health care sector and the strong market positions of the business segments in global, growing, and non-cyclical markets. These allow for a reasonable proportion of debt, i.e., the use of a comprehensive mix of financial instruments. A capital increase may also be considered in exceptional cases to ensure long-term growth, for example to finance a major acquisition.
In line with the Group's structure, financing for Fresenius Medical Care and the rest of the Fresenius Group is conducted separately. There are no joint financing facilities and no mutual guarantees. The Fresenius Kabi, Fresenius Helios, and Fresenius Vamed business segments are financed primarily through Fresenius SE & Co. KGaA, in order to avoid any structural subordination.
Fresenius meets its financing needs through a combination of operating cash flows generated in the business segments and short-, mid-, and long-term debt. In addition to bank loans, important financing instruments include the issuance of Senior Notes, Euro Notes, a commercial paper program, and a receivable securitization program.
In 2013, the Group's financing activities mainly involved the refinancing of existing and maturing financing instruments and the long-term financing for acquisitions (mainly the acquisition of hospitals and outpatient facilities from Rhön-Klinikum AG) and general corporate purposes. In addition, financing measures were implemented that had previously been initiated in order to reduce future interest expense and to further improve the Company's maturity profile.
▶ In January 2013, Fresenius Finance B.V. placed Senior Notes in the amount of €500 million with a 2.875% coupon. The Senior Notes were issued at par and mature in 2020. Net proceeds were used to refinance the Senior Notes which were due in January 2013.
1 Pro forma incl. Senior Notes issued in January/February 2014
1 As of December 31, 2013, major long-term financing instruments; pro forma incl. Senior Notes issued in January/February 2014
net proceeds of the Senior Notes issued in January and February 2014 were used to largely refinance the drawing under the Bridge Financing Facility. On February 27, 2014, the Bridge Financing Facility was voluntarily cancelled prior to maturity and the remaining amount outstanding was repaid.
▶ In November 2013, the 2013 Senior Credit Agreement was extended to include additional facilities amounting to €1.2 billion. These facilities consist of a revolving credit facility of €300 million and a loan of €600 million – both maturing in 2018 – and a loan of €300 million that matures in 2019. These additional facilities were also used to finance the acquisition of hospitals and outpatient facilities from Rhön-Klinikum AG.
The chart beside shows the maturity profile of the Fresenius Group.
Fresenius SE & Co. KGaA has a commercial paper program under which up to €500 million in short-term notes can be issued. As of December 31, 2013, the commercial paper program was fully utilized.
The Fresenius Group has drawn about €5.9 billion of bilateral and syndicated credit lines. In addition, as of December 31, 2013, the Group had approximately €2.2 billion in unused credit lines available (including committed credit lines of €1.7 billion). These credit facilities are generally used for covering working capital needs and – with the exception of the syndicated credit agreements of Fresenius SE & Co. KGaA and Fresenius Medical Care − are usually unsecured.
As of December 31, 2013, both Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA, including all subsidiaries, complied with the covenants under all the credit agreements.
Detailed information on the Fresenius Group's financing can be found on pages 131 to 139 of the Notes. Further information on financing requirements in 2014 is included in the outlook section on page 83.
Fresenius is not involved in any off-balance-sheet transactions that could have, or will have, a significant impact on its financial position, expenses or income, results of operations, liquidity, investments, assets and liabilities, or capitalization.
Trade accounts receivable and inventories, less trade accounts payable and payments received on accounts
In 2013, key sources of liquidity were operating cash flows and short-, mid-, and long-term debt. Cash flow from operations is influenced by the profitability of the business of Fresenius and by net working capital, especially accounts receivable. Cash flow can be generated from short-term borrowings through the sale of receivables under the Fresenius Medical Care accounts receivable securitization program, by using the commercial paper program, and by drawing on bilateral bank credit agreements. Mid- and long-term funding are mostly provided by the syndicated credit facilities of Fresenius SE & Co. KGaA and Fresenius Medical Care, and by Senior Notes. Fresenius is convinced that its existing credit facilities, inflows from Senior Note issues, as well as the operating cash flows and additional sources of short-term funding, are sufficient to meet the Company's foreseeable liquidity needs.
The general partner and the Supervisory Board will propose a dividend increase to the Annual General Meeting. For 2013, a dividend of €1.25 per share is proposed. This is an increase of about 14%. The total dividend distribution will increase by about 15% to €224.6 million (2012: €196.0 million).
Cash flow was €2,608 million (2012: €2,567 million) and above the previous year's level. The change in working capital was -€288 million (2012: -€129 million), mainly due to business expansion.
Operating cash flow was €2,320 million in 2013 (2012: €2,438 million). The decrease relates primarily to a one-time payment (US\$100 million) by Fresenius Medical Care regarding the amendment of the supply agreement for the iron product Venofer. The cash flow margin was 11.4% (2012: 12.6%). Operating cash flow was more than sufficient to meet all financing needs for investing activities excluding acquisitions, whereby cash used for capital expenditure was €1,071 million, and proceeds from the sale of property, plant and equipment were €24 million (2012: €970 million and €18 million, respectively).
| € in millions | 2013 | 2012 | Change | Margin |
|---|---|---|---|---|
| Earnings after tax | 1,738 | 1,732 | 0% | |
| Depreciation and amortization | 843 | 776 | 9% | |
| Change in pension provisions | 27 | 59 | -54% | |
| Cash flow | 2,608 | 2,567 | 2% | 12.8% |
| Change in working capital | -288 | -129 | -123% | |
| Operating cash flow | 2,320 | 2,438 | -5% | 11.4% |
| Property, plant and equipment | -1,071 | -970 | -10% | |
| Proceeds from the sale of property, plant and equipment | 24 | 18 | 33% | |
| Cash flow before acquisitions and dividends | 1,273 | 1,486 | -14% | 6.3% |
| Cash used for acquisitions /proceeds from disposals | -2,556 | -2,299 | -11% | |
| Dividends | -491 | -446 | -10% | |
| Cash flow after acquisitions and dividends | -1,774 | -1,259 | -41% | |
| Cash provided by/used for financing activities (without dividends paid) | 1,796 | 1,521 | 18% | |
| Effect of exchange rate changes on cash and cash equivalents | -43 | -12 | -- | |
| Change in cash and cash equivalents | -21 | 250 | -108% |
The detailed cash flow statement is shown in the consolidated financial statements.
Cash flow before acquisitions and dividends was €1,273 million (2012: €1,486 million). This was sufficient to finance the Group dividends of €491 million. Group dividends consisted of dividend payments of €196 million to the shareholders of Fresenius SE & Co. KGaA, payments of €230 million by Fresenius Medical Care to its shareholders, and dividends paid to third parties of €136 million (primarily relating to Fresenius Medical Care). These payments were offset by the dividend of €71 million, which Fresenius SE & Co. KGaA received as a shareholder of Fresenius Medical Care. Net acquisition expenditures of €2,556 million were financed by cash flow and by debt.
The cash inflow from financing activities (without dividend payments) was €1,796 million (2012: €1,521 million). In 2013, it was predominantly characterized by refinancing measures, the debt financing of acquisitions, and the share buy-back of Fresenius Medical Care. Cash and cash equivalents as of December 31, 2013 were €864 million (December 31, 2012: €885 million).
In 2013, the Fresenius Group continued its growth path and invested €3,827 million (2012: €4,179 million). Investments in property, plant and equipment increased to €1,073 million (2012: €1,007 million). At 5.3% of sales (2012: 5.2%), that was in line with the targeted level of approximately 5%. This was well above the depreciation level of €843 million and serves as the basis for enabling expansion and preserving the Company's value over the long term. A total of €2,754 million was invested in acquisitions (2012: €3,172 million). Of the total capital expenditure in 2013, 28% was invested in property, plant and equipment, 72% was spent on acquisitions.
The table on page 74 shows the distribution of investments by business segment. The chart on page 74 shows the regional breakdown.
The cash outflows for acquisitions related to all four business segments.
Fresenius Medical Care mainly invested in the acquisition of dialysis clinics and the expansion of the laboratory services business.
Fresenius Kabi acquired production sites in India and China as well as compounding centers in Germany.
Investments Acquisitions Operating cash flow Depreciation and amortization
Fresenius Helios has made advances in the amount of €2.18 billion under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG. In addition, Fresenius Helios acquired a hospital in North Rhine-Westphalia.
Fresenius Vamed purchased three hospitals in the Czech Republic.
The main investments in property, plant and equipment were as follows:
Investments in property, plant and equipment of €309 million will be made in 2014, to continue with major ongoing investment projects on the reporting date. These are investment obligations mainly for hospitals at Fresenius Helios as well as
| € in millions | 2013 | 2012 | Change |
|---|---|---|---|
| Investment in property, plant and equipment |
1,073 | 1,007 | 7% |
| thereof maintenance | 49% | 50% | |
| thereof expansion | 51% | 50% | |
| Investment in property, plant and equipment as % of sales |
5.3 | 5.2 | |
| Acquisitions | 2,754 | 3,172 | -13% |
| Total investments and acquisitions |
3,827 | 4,179 | -8% |
investments to expand and optimize production facilities for Fresenius Medical Care and Fresenius Kabi. These projects will be financed from operating cash flow.
INVESTMENTS by business segment
The total assets of the Group rose by 7% to €32,758 million (Dec. 31, 2012: €30,664 million). In constant currency, this was an increase of 11%. The increase in total assets can be mainly attributed to advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG. The expansion of the existing business accounted for 3%. Inflation had no significant impact on the assets of Fresenius in 2013.
Non-current assets increased by 10% to €24,786 million (Dec. 31, 2012: €22,551 million). The increase was due mainly to advances made mentioned above. The goodwill in the amount of €14,826 million (Dec. 31, 2012: €15,014 million) has proven sustainable. The change compared to the previous year is mainly due to currency effects.
Current assets were €7,972 million (Dec. 31, 2012: €8,113 million). Within current assets, trade accounts receivable decreased by 5% to €3,474 million (Dec. 31, 2012: €3,650 million). At 63 days, average days sales outstanding was below the previous year's level of 67 days. Through strict accounts receivable management, we were able to improve days sales outstanding.
Inventories rose by 9% to €2,014 million (Dec. 31, 2012: €1,840 million). The scope of inventory in 2013 increased to 53 days (Dec. 31, 2012: 50 days). The ratio of inventories to total assets remained at the previous year's level of 6.1% (Dec. 31, 2012: 6.0%).
Shareholders' equity, including noncontrolling interest, rose by 4%, or €502 million, to €13,260 million (Dec. 31, 2012: €12,758 million). Group net income attributable to Fresenius SE & Co. KGaA increased shareholders' equity by €1,011 million. The equity ratio, including noncontrolling interest, was 40.5% as of December 31, 2013 (Dec. 31, 2012: 41.6%).
The liabilities and equity side of the balance sheet shows a solid financing structure. Total shareholders' equity, including noncontrolling interest, covers 53% of non-current assets
| € in millions | 2013 | 2012 | Thereof property, plant and equipment |
Thereof acquisitions |
Change | % of total |
|---|---|---|---|---|---|---|
| Fresenius Medical Care | 987 | 1,934 | 563 | 424 | -49% | 26% |
| Fresenius Kabi | 448 | 1,153 | 317 | 131 | -61% | 12% |
| Fresenius Helios | 2,357 | 759 | 172 | 2,185 | -- | 61% |
| Fresenius Vamed | 27 | 55 | 11 | 16 | -51% | 1% |
| Corporate/Other 1 | 8 | 278 | 10 | -2 | -97% | 0% |
| Total | 3,827 | 4,179 | 1,073 | 2,754 | -8% | 100% |
Including the purchase of Fresenius Medical Care ordinary shares in 2012
(Dec. 31, 2012: 57%). Shareholders' equity, noncontrolling interest, and long-term liabilities cover all non-current assets and 97% of inventories.
Long-term liabilities increased by 6% to €13,003 million as of December 31, 2013 (Dec. 31, 2012: €12,310 million). Short-term liabilities increased by 16% to €6,023 million (Dec. 31, 2012: €5,198 million). The increase was mainly due to the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG.
The Group has no accruals that are of material significance as individual items. The largest single accrual is to cover the settlement of fraudulent conveyance claims and all other legal matters relating to the National Medical Care transaction in 1996 that resulted from the bankruptcy of W.R. Grace. The accrual amounts to US\$115 million (€83 million). Please see page 150 of the Notes for further information.
Group debt rose by 16% to €12,804 million (Dec. 31, 2012: €11,028 million). Of this amount, €2.18 billion are advances made under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG. In constant currency, the increase was 19%. Its relative weight in the balance sheet was 39% (Dec. 31, 2012: 36%). Approximately 46% of the Group's debt is in U.S. dollars.
Liabilities due in less than 1 year were €1,820 million (Dec. 31, 2012: €728 million), while liabilities with a remaining term of 1 to 5 years and over 5 years were €10,984 million (Dec. 31, 2012: €10,300 million).
The net debt to equity ratio including noncontrolling interest 2 (gearing) is 74% (Dec. 31, 2012: 80%). The return on equity after taxes (equity attributable to shareholders of Fresenius SE & Co. KGaA) was 12.8% (Dec. 31, 2012: 12.3%). The return on total assets after taxes and before noncontrolling interest of 5.8% improved slightly (2012: 5.6%). The return on assets for 2013 was calculated before special items. These include the integration costs for Fenwal.
The table below provides a 5-year overview of other key assets and capital ratios.
Group ROIC was 8.8% (2012: 9.0%), and Group ROOA was 10.6% (2012: 11.0%). The strong earnings growth corresponds with an increase in total assets. This increase is a result of the expansion of the existing business and acquisitions. Within the position invested capital, the goodwill of €14.8 billion had a significant effect on the calculation of ROIC. It is important to take into account that approximately 64% of the goodwill is attributable to the strategically significant acquisitions of National Medical Care in 1996, Renal
| € in millions | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Total assets | 32,758 | 30,664 | 26,321 | 23,577 | 20,882 |
| Shareholders' equity 1 | 13,260 | 12,758 | 10,577 | 8,844 | 7,491 |
| as % of total assets 1 | 41 | 42 | 40 | 38 | 36 |
| Shareholders' equity 1 /non-current assets, in % | 53 | 57 | 55 | 52 | 48 |
| Debt | 12,804 | 11,028 | 9,799 | 8,784 | 8,299 |
| as % of total assets | 39 | 36 | 37 | 37 | 40 |
| Gearing in % | 742 | 80 | 87 | 91 | 105 |
1 Including noncontrolling interest
2 Excluding advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition
of hospitals and outpatient facilities of Rhön-Klinikum AG
Care Group and HELIOS Kliniken in 2006, APP Pharmaceuticals in 2008, and Liberty Dialysis Holdings in 2012. Those have significantly strengthened the competitive position of the Fresenius Group.
The summary shows ROIC and ROOA by business segment:
| ROIC | ROOA | |||
|---|---|---|---|---|
| in % | 2013 | 2012 | 2013 | 2012 |
| Fresenius Medical Care | 7.7 | 8.1 | 10.5 | 11.4 |
| Fresenius Kabi | 9.9 | 10.3 | 11.9 | 12.3 |
| Fresenius Helios 2 | 9.0 | 8.4 | 9.3 | 8.2 |
| Fresenius Vamed1 | – | – | 11.6 | 12.8 |
| Group2 | 8.8 | 9.0 | 10.6 | 11.0 |
1 ROIC: Invested capital is insignificant due to prepayments, cash and cash equivalents. 2 2013: Excluding advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG
In 2013, the Fresenius Group delivered a return on invested capital (ROIC) of 8.8%, substantially exceeding our cost of capital. The WACC (weighted average cost of capital) of Fresenius Medical Care was 6.2%, the WACC of the other business segments was 5.3%
The nominal value of all foreign currency hedging contracts was €1,451 million as of December 31, 2013. These contracts had a market value of €18 million. The nominal value of interest rate hedging contracts was €703 million. These contracts had a market value of -€9 million. Please see the Risk Report on pages 91 and 92 and the Notes on pages 156 to 163 for further details.
The credit quality of Fresenius is assessed and regularly reviewed by the leading rating agencies Moody's, Standard& Poor's, and Fitch.
In 2013, all rating agencies have adjusted their outlook on the corporate credit rating. In March 2013, Standard & Poor's raised the outlook from stable to positive. In June 2013, Fitch changed the outlook from stable to positive. In August 2013, Moody's also changed the outlook from stable to positive.
After the announcement of the planned acquisition of hospitals from Rhön-Klinikum AG in September 2013, Fitch put the rating on "watch evolving," stating that the outlook could, at worst, be changed to stable, however that the company's credit rating would remain unchanged. Moody's adjusted the outlook from positive to negative. Standard & Poor's confirmed the positive outlook in October 2013.
| 31.12.2013 | 31.12.2012 | |
|---|---|---|
| Standard&Poor's | ||
| Corporate Credit Rating | BB+ | BB + |
| Outlook | positive | stable |
| Moody's | ||
| Corporate Credit Rating | Ba1 | Ba1 |
| Outlook | negative | stable |
| Fitch | ||
| Corporate Credit Rating | BB+ | BB + |
| Outlook | watch evolving |
stable |
| Dec. 31, 20131 | Dec. 31, 20122 | Dec. 31, 2011 | Dec. 31, 2010 | Dec. 31, 2009 | |
|---|---|---|---|---|---|
| Debt/EBITDA | 2.7 | 2.8 | 3.0 | 2.9 | 3.2 |
| Net debt/EBITDA | 2.5 | 2.6 | 2.8 | 2.6 | 3.0 |
| EBITDA /interest ratio | 6.7 | 5.8 | 6.1 | 5.4 | 4.5 |
1 Excluding advances made in the amount of €2.18 billion under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG
and before integrations costs for Fenwal (€54 million) 2 Before special items
On February 20, 2014, Fresenius Helios has received antitrust approval to acquire 40 hospitals and 13 outpatient facilities from Rhön-Klinikum AG. The majority of the transaction was closed on February 27, 2014. For two hospitals, HSK Dr. Horst Schmidt Kliniken in Wiesbaden and Klinikum Salzgitter, the approval of municipal shareholders is still pending. The transaction provides Fresenius Helios with the opportunity to create a nationwide hospital network.
On January 27, 2014, Fresenius had announced that Fresenius Helios meets the conditions set by the German antitrust authority. The German antitrust authority required that three Rhön-Klinikum hospitals – in Boizenburg, Cuxhaven and Waltershausen-Friedrichroda – be excluded from the acquisition due to their geographical proximity to existing HELIOS facilities. Based on the authority's market assessment for the Leipzig region, HELIOS sold two hospitals in Borna and Zwenkau, which are close to two hospitals in Leipzig that Fresenius Helios is acquiring from Rhön-Klinikum. Annual sales of these five hospitals are approximately €160 million.
In January 2014, Fresenius successfully placed €750 million of Senior Unsecured Notes. The €300 million tranche due 2019 has a coupon of 2.375% and was issued at a price of 99.647%. The €450 million tranche due 2021 has a coupon of 3.00% and was issued at a price of 98.751%. In January 2014, Fresenius also successfully placed €300 million of Senior Unsecured Notes with a maturity of 10 years. The notes have a coupon of 4.00% and were issued at par. In February 2014, the bond was increased by a nominal amount of €150 million at a price of 102%. In February 2014, Fresenius placed US\$300 million of Senior Unsecured Notes with a maturity of 7 years. The notes have a coupon of 4.25% and were issued at par.
The net proceeds of the Senior Notes issued in January and February 2014 were used to refinance the drawing under the Bridge Financing Facility, which was entered into for the acquisition of hospitals of Rhön-Klinikum AG. On February 27, 2014, the Bridge Financing Facility was voluntarily cancelled prior to maturity and the remaining amount outstanding was repaid.
Besides the items mentioned, there were no significant changes in the Fresenius Group's operating environment following the close of fiscal year 2013. No other events of material importance on the assets and liabilities, financial position, and results of operations of the Group have occurred after the close of the year.
At the time this Group Management Report was prepared, the Management Board continued to assess the development of the Fresenius Group as positive. Demand for our products and services continues to grow steadily around the world. Operating performance in the first weeks of 2014 has been in line with our expectations.
This Management Report contains forward-looking statements, including statements on future sales, expenses, and investments, as well as potential changes in the health care sector, our competitive environment, and our financial situation. These statements were made on the basis of the expectations and assessments of the Management Board regarding events that could affect the Company in the future and on the basis of our mid-term planning. Such forward-looking statements are subject, as a matter of course, to risks, uncertainties, assumptions, and other factors, so that the actual results, including the financial position and profitability of Fresenius, could therefore differ materially – positively or negatively – from those expressly or implicitly assumed or described in these statements. For further information, please see our Opportunities and Risk Report on pages 85ff.
The outlook for the Fresenius Group for the coming years continues to be positive. We are continuously striving to optimize our costs, to adjust our capacities to be able to treat patients and supply customers reliably, and to improve our product mix. We expect these efforts to improve our earnings in the coming years. In addition, good growth opportunities for Fresenius are, above all, presented by the following factors:
We plan to further roll out products and therapies from our existing portfolio in countries where we do not yet offer a comprehensive range.
We are also exploiting any opportunities for tapping potential within our operations for cost management and efficiency enhancement measures. These include plans for cost-efficient production and a further optimized procurement process. We are increasingly globalizing our sourcing processes in order to realize further synergies.
The outlook takes account of all events known at the time the annual financial statements were prepared that could influence our operating performance in 2014 and beyond. Significant risks are discussed in the Risk Report. As in the past, we will do our utmost to achieve and – if possible – exceed our targets.
We expect the consolidation process to continue among competitors in our markets in Europe, Asia-Pacific, and Latin America. Consequently, we expect that there will be opportunities for us to penetrate new markets, both by expanding our regional presence and by extending our product portfolio.
New markets will open up as Fresenius Medical Care successively rolls out its product and services portfolio, especially in emerging countries.
Fresenius Kabi plans to introduce products from its program in the United States as well as to further roll out its product portfolio, especially in the fast-growing markets Asia-Pacific and Latin America.
With the extended hospital network in Germany, Fresenius Helios is now able to develop innovative, integrated care offerings. In addition, the company assumes that there will be continued opportunities to acquire hospitals in Germany.
In the developed countries, Fresenius Vamed is expecting to grow in the life cycle and PPP project areas, both with regard to the project and the services business. In the emerging economies, the company intends to further consolidate its position with follow-up orders, as well as to enter new target markets.
The health care sector is considered to be independent of economic cycles to a great extent. The demand, especially for life-saving and life-sustaining products and services, is expected to increase, given that they are medically needed and the population is aging. Moreover, medical advances and the large number of diseases that are still difficult to cure – or are incurable – are expected to remain growth drivers.
In the emerging countries, the availability of basic health care and the growing demand for high-quality medical treatment increases. As per capita income increases, individuals increasingly have to cope with the illnesses associated with lifestyle diseases.
On the other hand, experts estimate that further financial constraints in the public sector could result in more pricing pressure and a slowdown in revenue for companies in the health care industry. Some countries are experiencing significant financing problems in the health care sector due to the strained public finance situation. Especially in the industrialized countries, increased pressure to encourage saving can be expected as health care costs constitute a large portion of the budget.
Basic health insurance is to be compulsory in the United States from 2014 onwards. Larger companies must offer their employees health insurance coverage, while small companies and low-income households will receive government
assistance to take out health insurance. The reform allows for health insurance coverage to be phased in for the approximately 46 million people – about 15% of the population – who are not insured.
Industry observers believe that, despite all challenges, the sector will also see a comparatively solid financial performance in the foreseeable future.
Prevention, treatment quality, and the improvement of patient benefits will play an increasingly greater role in health care.
We expect the worldwide number of dialysis patients to rise by approximately 6% in 2014, although significant regional differences will remain. For the United States, Japan, and the countries of Central and Western Europe, where prevalence is already relatively high, we forecast patient growth in the region of 2% to 4%. In economically weaker regions, the growth rates are even higher with values of up to 10%, and in some countries even more.
In addition, demographic factors such as aging populations and the growing number of people suffering from diabetes and hypertension, which are ailments often preceding terminal kidney failure, are contributing toward continued growth of the dialysis markets. The age expectancy of dialysis patients is also rising thanks to ongoing advances in treatment quality and a rising standard of living, especially in the emerging countries.
We expect patient numbers to continue to rise in the coming years in Asia, Latin America, Eastern Europe, the Middle East, and Africa. This opens up strong potential for the entire spectrum of dialysis services and products, as more than 80% of the world's population lives in these regions.
We estimate that the volume of the global dialysis market could rise by about 4% annually – assuming unchanged currency relations. Accordingly, the total market could amount to approximately US\$78 billion in 2014.
Further information is provided on page 59ff. of the Management Report.
The market for infusion therapies in Europe is expected to grow by about 1% to 2% in the coming years. Growth of about 3% is expected for the clinical nutrition market in Europe. However, given the financial constraints in these countries, the efforts to contain costs in the health care sector are being pursued undiminished. Continued high growth potential is projected in Asia-Pacific, Latin America, and Africa. We expect growth of up to 10% and more in these regions.
In view of the financial challenges in health care, and in order to ensure high-quality care, we believe that the more cost-effective generics drugs will be utilized even more than at present. With generic IV drugs the growth dynamic will continue to be driven by originator drugs going off-patent. A factor working in the opposite direction is the price erosion for products that are already in the market. We expect the market for IV generics in Europe and the United States to grow by about 3% to 5% in 2014.
The worldwide market for medical devices for infusion therapy, IV drugs, and clinical nutrition is expected to grow by about 3% in 2014.
The worldwide market for transfusion technology is projected to grow between 1% and 4%, depending on the segment.
From 2014 onwards, the so-called change in value is the relevant figure in the annual assessment of the reimbursement rates. Reimbursement is determined by the rate of change or, if higher, the cost-orientation figure. The rate of change reflects how the assessable income of all statutorily insured has developed. It is announced by the German Federal Ministry of Health. The orientation figure, which is published by the German Federal Statistical Office, represents the average percentage change in hospital costs per year.
In 2014, the rate of change is applied, since, at 2.81%, it is higher than the cost-orientation figure of 2.02%. The increase in the reimbursement rates is the highest since the DRG system was introduced in 2003.
With regard to the reimbursement of additional admissions, we do not expect significant changes in 2014.
In 2013, the Bundestag and the Bundesrat decided to provide financial support to hospitals in Germany. A total of €1.1 billion has been allocated for 2013 and 2014.
Even considering the revenue increases, it will probably not be possible to cover all the expected cost increases at the hospitals – especially with regard to personnel costs as a result of wage tariff increases. Hospitals will continue to face cost pressure and the need for further savings in their operations.
Given their growing investment needs but declining government support, hospitals are under growing pressure to rigorously tap the potential for rationalization. Financing investments is a challenge especially for public hospitals. The constrained financial situation of local governments reduces their ability to cover the hospitals' operating losses and finance investments. The financial scope for supporting lossmaking hospitals and investing in public health care facilities remains limited.
Therefore, the economic situation at the hospitals continues to be difficult. According to the Krankenhaus-Barometer 2013 survey by the German Hospital Institute (DKI), only 22% of hospitals expect business to improve and almost 40% expect the situation to worsen in 2014.
It is generally expected that the proportion of private hospitals will rise at the expense of public hospitals. Private hospital chains and alliances are likely to be able to respond to the pressure to improve efficiency better than public hospitals. They often have more experience in operating commercially and creating efficient structures. They also have the potential to secure cost advantages in procurement. We therefore anticipate that privatization and consolidation will continue in the German hospital market.
Other crucial factors for a hospital's success are not only cost-efficient processes, a well-structured medical offering, and well-trained staff, but also excellent medical quality. HELIOS is convinced that systematic quality management
and the documentation of medical outcomes should not just serve as marketing instruments, but should be an element of hospital management, and thus part of the reimbursement. In the long run, initiatives could be introduced that provide for quality-based reimbursement (pay for performance) and that allow hospitals the option of concluding selective contracts with health insurers. With its strict focus on quality and transparency, HELIOS would be well prepared for such a future development.
A new flat-rate compensation system (PEPP-Entgeltsystem 2013) was introduced in 2013 for psychiatric and psychosomatic facilities. The new compensation catalogue is broken down into many more categories than the present remuneration system. The aim is to improve transparency concerning the services provided at psychiatric and psychosomatic facilities. The system provides for a 5-year transition phase from 2017 through 2021, and has no effects on the budget of HELIOS through the end of 2016. Psychiatric and psychosomatic services only account for a small share of the services provided by HELIOS.
Experts assume the importance of post-acute care will rise due to demographic trends, longer working lives, and the growing prevalence of chronic diseases. As a result of growth in acute care admissions and continuous improvements in the internal referral management of HELIOS, we expect to be able to leverage potential synergies from the combination of acute care and post-acute care, thereby increasing our number of post-acute care admissions.
Owing to demographic trends, in industrialized countries growing demand for high-quality, efficient medical care – and thus for projects and services for hospitals and other health care facilities – is expected to continue. The focus is on services ranging from the maintenance and repair of medical and hospital equipment, facility management, and technical operation, through to total operational management and infrastructure process optimization – especially within the
framework of public-private partnership (PPP) models. Additional growth opportunities are presented by an increasing number of non-medical services, which are outsourced from public facilities to private service providers.
In the emerging countries, there is growing demand above all for infrastructure development, but also for efficient, needsoriented medical care. The provision of primary health care is now very largely in place. Therefore, in many markets, the focus now is on building up secondary care, developing tertiary health care structures in the form of centers of excellence, and creating training and research structures.
All in all, we expect our market to continue growing in 2014. In markets with established health care systems, we expect solid growth; in emerging markets, we anticipate an overall dynamic development.
With its international production and sales platform and its market-oriented products and services, the Fresenius Group is well positioned for continued growth in the coming years. Specific opportunities for profitable growth are indicated by the developments described in the section Health Care Sector and Markets.
While our traditional markets in Europe and North America are growing at average low- to mid-single-digit rates, we see stronger growth potential in the Asia-Pacific region and in Latin America. Here, the demand for our life-saving and lifesustaining products continues to be high as access to medical care is still limited. This will also be reflected in sales.
In 2014, we expect to increase Group sales by 12% to 15% in constant currency. Besides organic sales growth in all business segments, sales growth is driven by the first-time consolidation of the acquired hospitals from Rhön-Klinikum AG.
We expect to increase Group net income 1 by 2% to 5% in constant currency. The earnings forecast primarily reflects lower reimbursement rates for Medicare dialysis patients and substantial uncertainties regarding the IV drug shortage situation in the U.S. market.
| Targets 2014 | Fiscal year 2013 |
|---|---|
| 12%– 15% | €20,331 m |
| 2%– 5% | €1,051 m |
| ~6% of sales | €1,073 m |
| Profit-driven dividend policy |
Proposal +14% per share |
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2014 before integration costs for Fenwal (€30 million – €40 million) and the hospitals acquired from Rhön-Klinikum AG (~€65 million in total; thereof vast majority in 2014); 2013 before integration costs for Fenwal (€40 million)
In 2014, we expect sales and earnings development in our business segments as shown below:
| Targets 2014 | Fiscal year 2013 | |
|---|---|---|
| Fresenius Medical Care | ||
| Sales | ~US\$15.2 bn | US\$14.610 bn |
| Net income 1 | US\$1.0 bn – US\$1.05 bn | US\$1.110 bn |
| Fresenius Kabi | ||
| Sales growth (organic) |
3%– 7% | €4,996 m |
| EBIT margin | 16%– 18% | 18.5% |
| Fresenius Helios 2 | ||
| Sales growth (organic) |
3%– 5% | €3,393 m |
| EBIT | €390 m – €410 m | €390 m |
| Fresenius Vamed | ||
| Sales growth (organic) | 5%– 10% | €1,020 m |
| EBIT growth | 5%– 10% | €55 m |
Net income attributable to the shareholders of Fresenius Medical Care AG & Co. KGaA Excluding hospitals acquired from Rhön-Klinikum AG
The number of dialysis patients worldwide should rise by about 6% again in 2014, leading to continued growth in demand for dialysis products and a higher number of treatments. For 2014, Fresenius Medical Care expects sales of approximately US\$15.2 billion, EBIT of approximately US\$2.2 billion, and net income attributable to the shareholders of Fresenius Medical Care AG & Co. KGaA of US\$1.0 to US\$1.05 billion. Performance in 2014 will be impacted by lower reimbursement rates for Medicare dialysis patients in the United States. The company initiated a global efficiency program designed to enhance the company's performance over a multiyear period. Potential cost savings before income taxes of up to US\$60 million generated from this program are not included in the outlook for 2014.
Fresenius Kabi expects organic sales growth between 3% and 7% for 2014. In addition, the business segment is forecasting an EBIT margin in a range between 16% and 18%. These ranges primarily reflect substantial uncertainties regarding the IV drug shortage situation in the U.S. market as well as full-year effects from the restrictions on the use of our blood volume substitutes and prior-year price cuts in China. The outlook for Fresenius Kabi does not include integration costs for Fenwal (€40 – €50 million pre-tax and €30 – €40 million after tax). These costs will be reported in the Group Corporate/Other segment.
Fresenius Helios expects to continue its excellent performance. 2014 will be significantly influenced by the firsttime consolidation of the hospitals and outpatient facilities acquired from Rhön-Klinikum AG. For 2014, Fresenius Helios projects organic sales growth of 3% to 5%. EBIT (excluding the acquired hospitals) is expected to increase to €390 to €410 million. The guidance considers the sale of the clinics Borna and Zwenkau. The outlook for Fresenius Helios does not include integration costs for the acquired hospitals. Total integration costs for the newly acquired hospitals are projected to be approximately €80 million pre-tax and €65 million after tax (thereof vast majority in 2014). These costs will be reported in the Group Corporate/Other segment.
Given an excellent order backlog of €1,139 million in its project business and long-term agreements in its service business, Fresenius Vamed has an excellent base for further growth.
In 2014, Fresenius Vamed expects to achieve organic sales growth of 5% to 10% and EBIT growth of 5% to 10%.
For 2014, we expect continued strong cash flow with a cash flow margin between 9% and 11%.
In addition, unused credit lines under syndicated or bilateral credit facilities from banks will generally provide us with a sufficient financial cushion. In 2014, in addition to the conclusion of the financing for the acquisition of hospitals from Rhön-Klinikum AG, a limited number of refinancing measures for existing facilities are also planned. This includes the refinancing of the Euro Notes maturing in April and July 2014 with a total volume of €300 million.
The acquisition of hospitals from Rhön-Klinikum AG led to appreciably higher Group debt. At the end of 2014, we expect Group net debt/EBITDA to be in the range of 3.0 to 3.25 and thus above the target range of 2.5 to 3.0.
In 2014, we expect to invest about 6% of sales in property, plant and equipment. About 50% of the capital expenditure planned will be invested at Fresenius Medical Care, about 25% at Fresenius Kabi, and about 25% at Fresenius Helios. At Fresenius Medical Care, investments will primarily be used for the expansion of production capacity, optimizing production costs, and the establishment of new dialysis clinics. Fresenius Kabi will primarily invest in expanding and maintaining production facilities as well as in introducing new manufacturing technologies. At Fresenius Helios, we will primarily be investing in the modernizing and equipping of existing and newly acquired hospitals.
The regional focus of the Group's investment spending will be on Europe and North America, which will account for about 55% and 30%, respectively. The remainder will be invested in Asia, Latin America, and Africa. About 38% of total funds will be invested in Germany.
We assume that the return on operating assets (ROOA) and the return on invested capital (ROIC) will be below the level of 2013.
We will continue optimizing our procurement management in 2014; prices, terms, and especially quality are key factors for securing further earnings growth.
Based on the developments in the financial and the real markets, we assume that price fluctuations will continue despite tension easing in the commodities markets in the short and medium terms.
Our R & D activities will continue to play a key role in securing the Group's long-term growth through innovations and new therapies.
We plan to increase the Group's R & D spending in 2014. About 4% to 5% of our product sales will be reinvested in research and development.
Market-oriented research and development with strict time-to-market management processes is crucial for the success of new products. We continually review our R & D results using clearly defined milestones. Innovative ideas, product development, and therapies with a high level of quality will continue to be the basis for future market-leading positions. Given the continued cost-containment efforts in the health care sector, cost efficiency combined with a strong quality focus is acquiring ever-greater importance in product development, and in the improvement of treatment concepts.
In 2013, Fresenius Medical Care has reorganized its R & D department. In three steps, we plan to build up a global R & D function that can efficiently develop outstanding products.
The new organization will allow us to concentrate our development pipeline more on growth areas and growing markets.
We want to unify the basic functions of our therapy systems internationally through the global management of product development and the creation of a modular system. We want to shorten development times, use economies of scale in purchasing, and increasingly focus development resources on innovation and new technology.
▶ Global project management and global development processes
The introduction of global project management standards, structures, and development processes will allow us to further increase the efficiency of our project management.
Another focus of our development work is infusion and nutrition therapies and the development of generic IV drugs at Fresenius Kabi. In particular, we are concentrating on being in a position to offer the corresponding generic drug formulation promptly upon the expiration of patents for originator drugs. We are also working to expand our portfolio to include additional ready-to-use IV drugs.
We want our medical devices to make a contribution to the safe and effective application of infusion solutions and clinical nutrition. That is why we will continue to develop new products and improve on existing ones in this segment. In transfusion technology, we are focusing our development work on devices and disposables that enable the safe, user-friendly, and efficient production of blood products and the treatment of specific diseases, in particular autoimmune diseases.
The Fresenius Group is divided into four business segments, each of which is a legally independent entity. The business segments are organized on a regional and decentralized basis to provide the greatest flexibility for meeting the demands of their respective markets. The "entrepreneur in the enterprise" principle, with clearly defined responsibilities, has proven itself over many years. We will continue to follow this principle.
The number of employees in the Group will continue to rise in the future as a result of the expected expansion. We expect that the number of employees will increase to more than 200,000. This is mainly the result of the acquisition of hospitals from Rhön-Klinikum AG. As of December 31, 2013, the Group had 178,337 employees. The number of employees is expected to increase in all business segments. The regional distribution of our employees will change due to the aforementioned acquisition – approximately 55% (2013: 48%) will be located in Europe, approximately 30% (2013: 34%) in North America, and approximately 15% in Asia-Pacific, Latin America, and Africa.
The dividend increases provided by Fresenius in the last 20 years show impressive continuity. Our dividend policy aims to align dividend with earnings per share growth (before special items) and thus broadly maintains a pay-out ratio of 20% to 25%. Based on our positive earnings forecast, we expect to offer our shareholders an earnings-linked dividend.
Through the complexity and the dynamics of its business, the Fresenius Group is exposed to a number of risks. These risks are inevitable consequences of entrepreneurial activities. The willingness to take risks has to be accommodated if opportunities are to be exploited.
As a provider of products and services for the severely and chronically ill, we are relatively independent of economic cycles. The diversification into four business segments, which operate in different segments of the health care market, further minimizes the Group's risk profile. Our experience, as well as our strong market positions, serve as a solid basis for a reliable assessment of risks.
At the same time, we will continue to take advantage of the wide-ranging opportunities for sustainable growth and expansion that the health care market offers to the Fresenius Group.
Managing opportunities is an ongoing, integral part of corporate activity aimed at securing the Company's long-term success. In this way, we can explore new prospects and consolidate and improve on what we have already achieved. The Group's decentralized and regional organizational and management structure enables the early identification and analysis of trends, requirements, and opportunities in our often fragmented markets; and we can respond to them flexibly and in line with local market needs. Furthermore, we maintain regular contact and dialogue with research groups and scientific institutions and keep a close watch on markets and competitors in order to identify opportunities. Within the Group, opportunities and synergies can be exploited through continuous communication involving the exchange of information and know-how between the business segments. Anticipated future opportunities for the Fresenius Group are discussed in the Outlook starting on page 77.
The risk management is a continuous process as well. Identifying, controlling, and managing risks are key tools of solid corporate governance. The Fresenius risk management system is closely linked to the corporate strategy.
Responsibilities for the processes and monitoring risks in the business segments have been assigned as follows:
The risk management system is supported both at Group level and in the business segments by our risk controlling measures and our management information system. Detailed monthly and quarterly reports are used to identify and analyze deviations of the actual compared to the planned business development. In addition, the risk management system comprises a control system that oversees organizational processes and measures, as well as internal controls and audits, with which we can identify significant risks at an early stage and counteract them individually.
The functionality and effectiveness of our risk management system is reviewed regularly by the Management Board and the internal auditing department. Conclusions arising from the audits are taken into account in the ongoing refinement of the system, to allow prompt reaction to changes in our environment. This system has thus far proved effective. The control system is also regularly reviewed by the Management Board and the internal auditing department. The auditor reviews whether the control system set up by the Management Board is suitable for the early identification of risks that would put the continued existence of the Company in danger. The insights gained from the audit regarding the internal financial reporting controls are taken into account in the continued development of the system.
Fresenius has ensured that the scope and focus of the organizational structure and systems for identifying, assessing, and controlling risks, and for developing countermeasures and for the avoidance of risks, are aligned suitably with the Company-specific requirements and that they are properly functional. However, there can be no absolute certainty that this will enable all risks to be fully identified and controlled.
Numerous measures and internal controls assure the correctness and reliability of accounting processes and financial reporting, and thus preparation of annual financial statements, consolidated financial statements, and management reports in compliance with applicable principles. Our four-tier reporting process especially promotes intensive discussion and ensures controls of the financial results. At each reporting level,
financial data and key figures are reported, discussed, and compared on a regular monthly basis with the prior-year figures, budget, and latest forecast. In addition, all parameters, assumptions, and estimates that are of relevance for the externally reported Group and segment results are discussed intensively with the department responsible for preparing the Group's consolidated financial statements. These matters are also reviewed and discussed quarterly in the Supervisory Board's Audit Committee.
Control mechanisms, such as automated and manual reconciliation procedures, are further precautions in place to assure that financial reporting is reliable and that transactions are correctly accounted for. All consolidated entities report according to Group-wide standards determined at the head office. These are regularly adjusted to changes made to the accounting regulations. The consolidation proposals are supported by the IT system. In this context, reference is made to the comprehensive consolidation of internal Group balances. To prevent abuse, we take care to maintain a strict separation of functions. Management control and evaluations also help to ensure that risks having a direct impact on financial reporting are identified and that controls are in place to minimize them. Moreover, changes in accounting principles are monitored and employees involved in financial reporting are instructed regularly and comprehensively. External experts and specialists are engaged if necessary. The Treasury, Tax, Controlling, and Legal departments are involved in supporting the preparation of the financial statements. Finally, the information provided is verified once again by the department responsible for preparing the consolidated financial statements.
Fresenius Medical Care is subject to the controls of Section 404 of the Sarbanes-Oxley Act.
The main risk areas for the operations of the Fresenius Group are as follows:
At present, the development of the global economy exhibits no significant risk to the Fresenius Group. In 2014, we largely expect overall economic growth to continue. Moreover, Fresenius is affected only to a small extent by general economic fluctuations. We expect demand for our life-saving and life-sustaining products and services to continue to grow.
The risk situation for each business segment also depends on the development of its markets. Country-specific political, legal, and financial conditions are therefore monitored and evaluated carefully. This applies especially to countries with budget problems as a result of the sovereign debt crisis, in particular with regard to our accounts receivables.
Risks related to changes in the health care market are of major importance to the Fresenius Group. The main risks are the development of new products and therapies and increased product availability at competitors, the financing of health care systems, and reimbursement in the health care sector.
In our largely regulated business environment, changes in the law – also with respect to reimbursement – can have decisive consequences for our business progress. This applies especially in the United States, where a large portion of our sales are generated, and where changes in the reimbursement system, for example, could have a considerable impact on our business. Furthermore, a portion of our dialysis care business in the United States is currently reimbursed by private insurers or managed care organizations. If these organizations enforce reductions in the reimbursement, it would significantly reduce the revenues and earnings for the products and services of Fresenius Medical Care.
The same applies to the hospital market in Germany, where the DRG system (Diagnosis Related Groups) is intended to increase the efficiency of hospitals while reducing health care spending. The Company constantly monitors legislative developments as well as discussions about ending dual financing in the hospital sector. Patients are largely assigned to hospitals by the public health and pension insurers. It is therefore important for Fresenius Helios that the contracts between its hospitals and the insurers and health care institutions are maintained. We not only continually monitor legislative changes, but also work together with governmental health care institutions.
Reductions in health care spending could also negatively affect the pricing of Fresenius Kabi products.
Generally, our aim is to counter possible regulatory risks through enhanced performance and cost reductions.
In the United States, almost all Fresenius Kabi's injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations (GPOs) and distributors. The majority of hospitals contract with the GPO of their choice for their purchasing needs. Fresenius Kabi currently derives a large percentage of its revenue through a small number of GPOs, and expects to continue to do so in the future. Currently, fewer than ten GPOs control a large majority of sales to hospital customers. Fresenius Kabi has purchasing agreements with the major GPOs. To maintain these business relationships, Fresenius Kabi believes it needs to be a reliable supplier, offer a comprehensive high-quality product line, remain price-competitive, and comply with the regulations of the U.S. Food and Drug Administration (FDA). The GPOs also have purchasing agreements with other manufacturers and the bidding process for products is highly competitive. Most of Fresenius Kabi's GPO agreements can be terminated at short or mid-term notice. The main customers in the area of transfusion technology are plasma companies and blood centers.
Cooperation with medical doctors and scientists allows us to identify and support relevant technological innovations and to keep abreast of developments in alternative treatment methods. These enable us to evaluate and adjust our corporate strategy if necessary.
Our business and operations around the world are exposed to a number of risks and to extensive regulation, which include, inter alia:
If Fresenius fails to comply with laws or regulations, this may give rise to a number of legal consequences, including monetary and administrative penalties, increased compliance costs, complete or partial exclusion from governmental programs, or a complete or partial curtailment of our authorization to conduct business. Any of these consequences could have a material adverse effect on our business, financial condition, or results of operations.
In the following, the main risks for the Fresenius Group are described:
Compliance with product and manufacturing regulations is ensured by our quality management systems in accordance with the internationally recognized quality standard ISO 9001, reflecting a large number of national and international regulations. Application is ensured by internal standards such as quality and work procedure manuals. Regular internal and external audits are carried out at the Group's production sites, distribution companies, and dialysis clinics. These audits test compliance with regulations in all areas – from management and administration to production and clinical services and patient satisfaction. Our production facilities comply with the Good Manufacturing Practice (GMP) of the markets they
supply. Our facilities are audited and approved by the FDA and other public authorities. If deficiencies are detected and complaints are filed, the Company is required to address these issues immediately, as during the inspections of our U.S. production facilities in Grand Island and Maricao or our production facility in Kalyani, India, for example.
Non-compliance with the requirements of these authorities in our production facilities or at our suppliers could lead to regulatory actions such as warnings, product recalls, production interruptions, monetary sanctions, or delay in new product approval. Any of these regulatory actions could adversely affect our ability to generate sales and result in significant expenses.
Potential risks, such as those arising from the start-up of a new production site or the introduction of new technologies, are countered through careful planning, regular analysis, and continual progress reviews. Production capacities at some of our manufacturing plants could be adversely affected by events such as technical failures, natural disasters, regulatory rulings, or supply disruptions, e.g., of raw materials.
We counter the risk of poor-quality purchased raw materials, semifinished products, and components mainly by requiring our suppliers to meet strict quality standards. Besides certification by external institutes and regular supplier audits, this includes an exhaustive evaluation of advance samples and regular quality controls. We only purchase high-quality products with proven safety and suitability from qualified suppliers that conform to our specifications and standards.
Performing medical treatments on patients in our hospitals, rehabilitation clinics, and dialysis clinics presents inherent risks. For example, disruptions to processes involve risks for patients and the clinic. In addition, there are operational risks, for example regarding hygiene and sterile conditions. We counteract these risks with strict operating procedures, continuous personnel training, and patient-oriented working
procedures. Furthermore, through our quality management systems we are constantly striving to improve the standard of patient treatment.
Further risks arise from increasing pressure on our product prices. On the procurement side, we counter risks – which mainly involve possible price increases and the availability of raw materials and goods – by appropriately selecting and working together with our suppliers through long-term framework agreements in certain purchasing segments and by bundling volumes within the Group.
Under the Medicare bundled reimbursement system, payment for Erythropoietin stimulating agents (ESA) is generally included in the bundled rate. An interruption of supply or material increases in the utilization or acquisition costs for ESAs could materially adversely affect sales and profitability.
Growing competition could materially adversely affect the future pricing and sale of our products and services. The introduction of new products and services or the development of new technologies by competitors could render one or more of our products and services less competitive or even obsolete, and thus have a significant negative impact on future sales, the prices of products, and our range of services. This includes the introduction of generic or patented drugs by competitors, which may have an impact on the sale and distribution of drugs by Fresenius Medical Care, because in some cases drugs have minimum annual royalty payments.
Generally, the health care markets are characterized by price pressure, competition, and efforts to contain costs. These could result in lower sales and adversely affect our business, our financial position, and our operational results.
We counter the risks associated with Fresenius Vamed's project business through professional project management and control, and with a proven system tailored to each business activity for identifying, evaluating, and minimizing these risks. This system consists of organizational measures (such as standards for pricing-in risks already when preparing quotations, risk assessment before accepting orders, regular project controlling, and continual risk assessment updates), and financial measures, such as checking creditworthiness, prepayments, letters of credit, and secured credits.
Our operations are subject to strict governmental regulatory demands and controls. We must comply with these rules and regulations, which monitor the safety and effectiveness of our medical products and services. Therefore, it is of special importance to us that our compliance programs and guidelines are adhered to. Through compliance, we aim to meet our own expectations and those of our partners and to orient our business activities to generally accepted standards and local laws and regulations.
The Corporate Compliance department reports to the Chief Compliance Officer, who is the Management Board member for Legal Affairs, Compliance, and Human Resources, and is accountable for establishing and implementing guidelines and procedures. A compliance officer has been appointed in each business segment. He is supported by additional compliance officers appointed based on organizational and business structures. The Corporate Compliance department supports the compliance officers at the business segment, regional, and country levels.
These compliance programs and guidelines set binding rules of conduct for our employees. We believe that we have taken adequate measures to ensure that national and international rules are observed and complied with.
Fresenius is subject to comprehensive government regulation in nearly all countries. This is especially true in the United States and Germany. In addition, Fresenius must comply with general rules of law, which differ from country to country. There could be far-reaching legal repercussions should Fresenius fail to comply with these laws or regulations.
A large part of Group revenue derives from government reimbursement programs. In 2013, approximately 32% of Fresenius Medical Care's sales were attributable to U.S. federal health care benefit programs, such as Medicare and Medicaid.
Effective January 1, 2011, Medicare implemented a new End-stage renal disease (ESRD) prospective payment system ("ESRD PPS") that expanded the scope of the products and services covered by the bundled rate and resulted in lower reimbursement per treatment than under the reimbursement system in place until December 31, 2010. ESRD-related drugs with only an oral form are expected to be reimbursed under the ESRD PPS starting in January 2016, with an adjusted payment amount to be determined by the Secretary of Health and Human Services to reflect the additional cost to dialysis facilities of providing these medications.
The ESRD PPS payment amount is subject to annual adjustment based on increases in the costs of a "market basket" of certain health care items and services less a productivity adjustment. The centers for Medicare and Medicaid Services ("CMS") increased ESRD PPS base rates by 2.8% for 2014.
The ESRD PPS's quality incentive program ("QIP") began affecting payments for dialysis services in 2012. Dialysis facilities that fail to achieve the established quality standards have payments for a particular year reduced by up to 2% based on a year's performance. In the November 2011 final rule, CMS established the quality measures for the payment year 2013, which focus on anemia management and dialysis adequacy for the payment year 2013. For the 2014 payment year, CMS has adopted four additional measures to determine whether dialysis patients are receiving high-quality care. The new measures include (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 the years 2015 and 2106 additional quality measures will be established. A material failure by the Company to achieve the minimum client quality standards under the QIP could materially and adversely affect its business, financial condition, and results of operations.
The American Taxpayer Relief Act of 2012 ("American Taxpayer Relief Act"), which was enacted on January 3, 2013, 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. On November 22, 2013, CMS issued the final rule regarding the 2014 ESRD PPS payment rate. CMS decided to split the settled reduction of the ESRD PPS payment rate (US\$29.93 reduction) over a period between three and four years (2014 – 2017), whereat material deviations between the ESRD PPS payment rates for 2013 and 2014 are not expected.
The Company mitigated the impact of the ESRD PPS and the other legislative initiatives referenced above with two broad measures. First, it worked with medical directors and treating physicians to make clinical protocol changes used in treating patients consistent with the QIP and good clinical practices, and it negotiated pharmaceutical acquisition cost savings. In addition, the Company 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 its 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 health care 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. Applications must be approved by CMS to participate in the program. In August 2013, FME submitted an application for an ESCO.
Changes in the law or the reimbursement method could affect the scope of payments for services as well as for insurance coverage and the product business. This could have a significant adverse impact on the assets and liabilities, financial position, and results of operations.
The development of new products and therapies always carries the risk that the ultimate goal might not be achieved, or might take longer than planned. Regulatory approval of new products requires comprehensive, cost-intensive preclinical and clinical studies. Furthermore, there is a risk that regulatory authorities either do not grant, or delay, product approval. In addition, adverse effects of our products that may be discovered after regulatory approval or registration may lead to a partial or complete withdrawal from the market, due either to regulatory actions or our voluntary decision to stop marketing a product. The Fresenius Group spreads its risk widely by conducting development activities in various product segments. We also counteract risks from research and development projects by regularly analyzing and assessing development trends and examining the progress of research projects. We also strictly comply with the legal regulations for clinical and chemical-pharmaceutical research and development. With IV drugs, it is also crucial that new products are continually brought to the market in a timely manner. The product development process can be controlled on the basis of detailed project roadmaps and a tight focus on the achievement of specific milestones. If the defined targets are not achieved, countermeasures can be initiated.
The acquisition and integration of companies carries risks that can adversely affect assets and liabilities, our financial position, and results of operations of Fresenius. Following an acquisition, the acquired company's structure must be integrated while clarifying legal questions and contractual obligations. Marketing, patient services, and logistics must also be unified. During the integration phase, key managers can leave the company and both the course of ongoing business processes and relationships with customers can be harmed. In addition, change-of-control clauses may be claimed. The integration process may prove to be more difficult and costintensive, or last longer than expected. Risks can arise from the operations of the newly acquired company that Fresenius regarded as insignificant or was unaware of. An acquisition may also prove to be less beneficial than initially expected. Future acquisitions may be a strain on the finances and management of our business. Moreover, as a consequence of an acquisition, Fresenius may become directly or indirectly liable toward third parties, or claims against third parties may turn out to be non-assertable.
We counter risks from acquisitions through detailed integration roadmaps and strict integration and project management, so that countermeasures can be initiated in good time if there are deviations from the expected development.
The Company addresses potential shortages of qualified personnel externally by utilizing personnel marketing measures, and internally by offering comprehensive personnel development programs. We also seek to retain our employees by introducing life-work time accounts in various areas. Furthermore, employees are entitled to attractive fringe benefits and, in part, bonuses. By using target group-specific measures, Fresenius addresses the overall shortage of specialized hospital personnel. We thereby recruit qualified, dedicated, and specialized personnel, thus ensuring our high standard of treatment quality. At the same time, by supporting the training of young employees, we thereby seek their commitment to Fresenius. Risks in personnel marketing are not considered to be significant because of all these measures.
The international operations of the Fresenius Group expose us to a variety of currency risks. In addition, the financing of the business exposes us to certain interest rate risks. We use derivative financial instruments as part of our risk management to avoid possible negative impacts of these risks. However, we limit ourselves to non-exchange-traded, marketable instruments, used exclusively to hedge our operations and not for trading or speculative purposes. All transactions are conducted with banks that have a high rating.
The Fresenius Group's foreign exchange risk management is based on a policy approved by the Management Board that defines the targets, organization, and handling of the risk management processes. In particular, the guidelines assign responsibilities for risk determination, the execution of hedging transactions, and the regular reporting of risk management. These responsibilities are coordinated with the management structures in the residual business processes of the Group. Decisions on the use of derivative financial instruments in interest rate management are taken in close consultation with the Management Board. Hedging transactions using derivatives are carried out by the Corporate Treasury department of the Fresenius Group – apart from a few exceptions in order to adhere to foreign currency regulations – and are subject to stringent internal controls. This policy ensures that the Management Board is fully informed of all significant risks and current hedging activities.
The Fresenius Group is protected, to a large extent, against currency and interest rate risks. As of December 31, 2013, approximately 61% of the Fresenius Group's debt was protected against increases in interest rates either by fixed-rate financing arrangements or by interest rate hedges; 39%, or €4,935 million, was exposed to an interest rate risk. A sensitivity analysis shows that a rise of 0.5% in the reference rates relevant for Fresenius would have a less than 1.5% impact on Group net income. For the determination of the interest rate risk, the Senior Notes issued in January and February 2014 are included.
As a global company, Fresenius is widely exposed to translation effects due to foreign exchange rate fluctuations. The exchange rate of the U.S. dollar to the euro is of particular importance because of our extensive operations in the United States. Translation risks are not hedged. A sensitivity analysis shows that a one cent change in the exchange rate of the U.S. dollar to the euro would have an annualized effect of about €65 million on Group sales and about €3 million on Group net income.
As a globally active company, we have production facilities in all the main currency areas. In the service businesses, our revenue and cost base largely coincide. The Fresenius Group uses a Cash-Flow-at-Risk (CFaR) model in order to estimate and quantify such transaction risks from foreign currencies. The foreign currency cash flows that are reasonably expected to arise within the following twelve months, less any hedges, form the basis for the analysis of the currency risk. As of December 31, 2013, the Fresenius Group's cash flow at risk was €56 million. Hence, with a probability of 95%, a potential loss in relation to the forecasted foreign exchange cash flows of the next twelve months will not be higher than €56 million. Further details on financial risks can be found on pages 157 to 163 in the Notes.
Financial risks that could arise from acquisitions, investments in property, plant and equipment, and in intangible assets are assessed through careful and in-depth reviews of the projects, sometimes assisted by external consultants. Goodwill and other intangible assets with an indefinite useful life carried in the Group's consolidated balance sheet are tested for impairment each year. Further information can be found on pages 127ff. of the Notes.
By normally assessing the creditworthiness of new customers, we limit the risk of late payment and defaults by customers. We also conduct follow-up assessments and review credit lines on an ongoing basis. Receivables outstanding from existing customers are monitored, and the risk of defaults is assessed. This particularly applies to countries with budgetary problems. In 2013, we again worked on our receivables, taking certain measures such as factoring or selling through product distributors.
As a global corporation, Fresenius is subject to numerous tax codes and regulations. The Fresenius Group's companies are subject to regular tax audits. Any changes in tax regulations or resulting from tax audits could lead to higher tax payments. Information on the status of the tax audits can be found on pages 121 to 123 of the Notes.
Fresenius' debt was €12,804 million as of December 31, 2013. The debt could limit the ability to pay dividends, to arrange refinancing, to be in compliance with its credit covenants, or to implement corporate strategy. Other financing risks could arise for Fresenius in case of an ongoing general financial market crisis. We reduce these risks through a high proportion of mid- and long-term funding with a balanced maturity profile. Furthermore, our financing agreements contain covenants requiring us to comply with certain financial figures and additional financial measures. Should we not comply with the covenants, this could lead to an early redemption of the debt.
Additional information on conditions and maturities can be found on pages 131ff. of the Notes as well as on pages 70f. of the Management Report.
Risks that arise from legal disputes are continually identified, analyzed, and communicated within the Company. Companies in the health care industry are regularly exposed to actions for breach of their duties of due care, product liability, breach of warranty obligations, patent infringements, treatment errors, and other claims. This can result in high claims for damages and substantial costs for legal defense, regardless of whether a claim for damages is actually justified. Legal disputes can also result in an inability to insure against risks of this kind at
acceptable terms in future. Products from the health care industry can also be subject to recall actions. This could have a negative effect on the assets and liabilities, financial position, and results of operations of the Group.
Information regarding legal matters and an ongoing internal compliance review at Fresenius Medical Care can be found on pages 150 to 155 of the Notes.
The Fresenius Group is also involved in various legal issues resulting from business operations. Although it is not possible to predict the outcome of these disputes, none is expected to have a significant adverse impact on the assets and liabilities, financial position, and results of operations of the Group.
Other risks, such as environmental risks and risks involving management and control systems, or our IT systems, were not considered to be significant. IT risks are countered through security measures, controls, and monitoring. In addition, we counter these risks with constant investment in hardware and software as well as by improving our system knowhow. Potential risks are covered by a detailed contingency plan, which is continuously improved and tested. Redundant systems are maintained for all key systems, such as IT systems or communications infrastructure. A password system is in place to minimize organizational risks, such as manipulation and unauthorized access. In addition, there are Company guidelines regulating the granting of access authorization, and compliance with these rules is monitored. We also conduct operational and security-related audits.
Risks with effect on the 1-year forecast period The following overview shows the significant risks that could lead to deviations from the expected business performance within the 1-year forecast period.
The basis for evaluating overall risk is the risk management that is regularly audited by management. Potential risks for the Group include factors beyond its control, such as the evolution of economies, which are constantly monitored by Fresenius. Risks also include factors immediately within its control, such as operating risks, which the Company anticipates and reacts to appropriately, as required. There are currently no recognizable risks regarding future performance that appear to present a long-term and material threat to the Group's assets and liabilities, financial position, and results of operations. We have created organizational structures that provide all the conditions needed to rapidly alert us to possible risk situations and to be able to take suitable counteraction.
| 95 Consolidated statement of income | 98 Consolidated statement of changes in equity |
|---|---|
| 95 Consolidated statement of comprehensive income | 100 Consolidated segment reporting |
| 96 Consolidated statement of financial position | 102 Notes |
| 97 Consolidated statement of cash flows |
| € in millions | Note | 2013 | 2012 |
|---|---|---|---|
| Sales | 4 | 20,331 | 19,290 |
| Cost of sales | 5 | -13,948 | -13,002 |
| Gross profit | 6,383 | 6,288 | |
| Selling, general and administrative expenses | 8 | -3,044 | -3,000 |
| Research and development expenses | -348 | -305 | |
| Operating income (EBIT) | 2,991 | 2,983 | |
| Investment gain | 9 | 0 | 109 |
| Interest income | 10 | 50 | 54 |
| Interest expenses | 10 | -634 | -720 |
| Other financial result | 11 | 0 | -35 |
| Financial result | -584 | -592 | |
| Income before income taxes | 2,407 | 2,391 | |
| Income taxes | 12 | -669 | -659 |
| Net income | 1,738 | 1,732 | |
| Less noncontrolling interest | 25 | 727 | 806 |
| Net income attributable to shareholders of Fresenius SE & Co. KGaA | 1,011 | 926 | |
| Earnings per ordinary share in € | 13 | 5.66 | 5.35 |
| Fully diluted earnings per ordinary share in € | 13 | 5.62 | 5.29 |
The following notes are an integral part of the consolidated financial statements.
| € in millions | Note | 2013 | 2012 |
|---|---|---|---|
| Net income | 1,738 | 1,732 | |
| Other comprehensive income (loss) | |||
| Foreign currency translation | 27, 29 | -581 | -164 |
| Cash flow hedges | 27, 29 | 35 | 41 |
| Change of fair value of available for sale financial assets | 27, 29 | 41 | -9 |
| Actuarial gains /losses on defined benefit pension plans | 24, 27 | 37 | -160 |
| Income taxes related to components of other comprehensive income (loss) | 27 | -23 | 31 |
| Other comprehensive loss, net | -491 | -261 | |
| Total comprehensive income | 1,247 | 1,471 | |
| Comprehensive income attributable to noncontrolling interest subject to put provisions |
65 | 66 | |
| Comprehensive income attributable to noncontrolling interest not subject to put provisions |
394 | 621 | |
| Comprehensive income attributable to shareholders of Fresenius SE & Co. KGaA |
788 | 784 |
| as of December 31, € in millions | Note | 2013 | 2012 |
|---|---|---|---|
| Cash and cash equivalents | 14 | 864 | 885 |
| Trade accounts receivable, less allowance for doubtful accounts | 15 | 3,474 | 3,650 |
| Accounts receivable from and loans to related parties | 28 | 18 | |
| Inventories | 16 | 2,014 | 1,840 |
| Other current assets | 17 | 1,261 | 1,349 |
| Deferred taxes | 12 | 331 | 371 |
| I. Total current assets | 7,972 | 8,113 | |
| Property, plant and equipment | 18 | 5,082 | 4,918 |
| Goodwill | 19 | 14,826 | 15,014 |
| Other intangible assets | 19 | 1,241 | 1,284 |
| Other non-current assets | 17 | 3,433 | 1,111 |
| Deferred taxes | 12 | 204 | 224 |
| II. Total non-current assets | 24,786 | 22,551 | |
| Total assets | 32,758 | 30,664 |
| as of December 31, € in millions | Note | 2013 | 2012 |
|---|---|---|---|
| Trade accounts payable | 885 | 961 | |
| Short-term accounts payable to related parties | 2 | 2 | |
| Short-term accrued expenses and other short-term liabilities | 20, 21 | 3,057 | 3,211 |
| Short-term debt | 22 | 959 | 205 |
| Short-term loans from related parties | 6 | 4 | |
| Current portion of long-term debt and capital lease obligations | 22 | 855 | 519 |
| Short-term accruals for income taxes | 211 | 230 | |
| Deferred taxes | 12 | 48 | 66 |
| A. Total short-term liabilities | 6,023 | 5,198 | |
| Long-term debt and capital lease obligations, less current portion | 22 | 5,871 | 4,436 |
| Senior Notes | 23 | 5,113 | 5,864 |
| Long-term accrued expenses and other long-term liabilities | 20, 21 | 434 | 410 |
| Pension liabilities | 24 | 714 | 705 |
| Long-term accruals for income taxes | 180 | 213 | |
| Deferred taxes | 12 | 691 | 682 |
| B. Total long-term liabilities | 13,003 | 12,310 | |
| I. Total liabilities | 19,026 | 17,508 | |
| II. Noncontrolling interest subject to put provisions | 25 | 472 | 398 |
| A. Noncontrolling interest not subject to put provisions | 25 | 5,065 | 5,125 |
| Subscribed capital | 26 | 180 | 178 |
| Capital reserve | 26 | 3,314 | 3,225 |
| Other reserves | 26 | 5,052 | 4,358 |
| Accumulated other comprehensive loss | 27 | -351 | -128 |
| B. Total Fresenius SE & Co. KGaA shareholders' equity | 8,195 | 7,633 | |
| III. Total shareholders' equity | 13,260 | 12,758 | |
| Total liabilities and shareholders' equity | 32,758 | 30,664 |
| January 1 to December 31, € in millions | Note | 2013 | 2012 |
|---|---|---|---|
| Operating activities | |||
| Net income | 1,738 | 1,732 | |
| Adjustments to reconcile net income to cash and cash equivalents provided by operating activities |
|||
| Depreciation and amortization | 17, 18, 19 | 843 | 776 |
| Gain on sale of investments and divestitures | 2 | -55 | 0 |
| Change in deferred taxes | 12 | 2 | -22 |
| Gain/loss on sale of fixed assets | -14 | 11 | |
| Changes in assets and liabilities, net of amounts from businesses acquired or disposed of |
|||
| Trade accounts receivable, net | 15 | 18 | -193 |
| Inventories | 16 | -268 | -37 |
| Other current and non-current assets | 17 | 78 | -68 |
| Accounts receivable from/payable to related parties | -8 | -23 | |
| Trade accounts payable, accrued expenses | |||
| and other short-term and long-term liabilities | 48 | 284 | |
| Accruals for income taxes | -62 | -22 | |
| Net cash provided by operating activities | 2,320 | 2,438 | |
| Investing activities | |||
| Purchase of property, plant and equipment | -1,071 | -970 | |
| Proceeds from sales of property, plant and equipment | 24 | 18 | |
| Acquisitions and investments, net of cash acquired | |||
| and net purchases of intangible assets | 2, 31 | -2,703 | -2,500 |
| Proceeds from sale of investments and divestitures | 147 | 201 | |
| Net cash used in investing activities | -3,603 | -3,251 | |
| Financing activities | |||
| Proceeds from short-term loans | 22 | 1,088 | 161 |
| Repayments of short-term loans | 22 | -319 | -168 |
| Proceeds from short-term loans from related parties | – | – | |
| Repayments of short-term loans from related parties | – | – | |
| Proceeds from long-term debt and capital lease obligations | 22 | 3,810 | 2,937 |
| Repayments of long-term debt and capital lease obligations | 22 | -2,042 | -3,881 |
| Proceeds from the issuance of bearer ordinary shares | 26 | 0 | 1,014 |
| Payments of additional costs of the capital increase | 26 | 0 | -16 |
| Proceeds from the issuance of Senior Notes | 23 | 500 | 1,755 |
| Repayments of liabilities from Senior Notes | 23 | -1,150 | 0 |
| Payments for the share buy-back program of Fresenius Medical Care | 26 | -385 | 0 |
| Changes of accounts receivable securitization program | 22 | 142 | -290 |
| Proceeds from the exercise of stock options | 33 | 152 | 140 |
| Dividends paid | -491 | -446 | |
| Change in noncontrolling interest | 25 | -2 | -131 |
| Exchange rate effect due to corporate financing | 2 | – | |
| Net cash provided by financing activities | 1,305 | 1,075 | |
| Effect of exchange rate changes on cash and cash equivalents | -43 | -12 | |
| Net increase/decrease in cash and cash equivalents | -21 | 250 | |
| Cash and cash equivalents at the beginning of the reporting period | 14 | 885 | 635 |
| Cash and cash equivalents at the end of the reporting period | 14 | 864 | 885 |
| Subscribed Capital | Reserves | |||||
|---|---|---|---|---|---|---|
| Note | Number of ordinary shares in thousand |
Amount € in thousands |
Amount € in millions |
Capital reserve € in millions |
Other reserves € in millions |
|
| As of December 31, 2011 | 163,237 | 163,237 | 163 | 2,136 | 3,658 | |
| Issuance of bearer ordinary shares | 26 | 13,800 | 13,800 | 14 | 989 | |
| Proceeds from the exercise of stock options | 33 | 1,151 | 1,151 | 1 | 74 | |
| Compensation expense related to stock options |
33 | 22 | ||||
| Dividends paid | 26 | -155 | ||||
| Purchase of noncontrolling interest not subject to put provisions |
25 | |||||
| Purchase of ordinary shares of Fresenius Medical Care AG & Co. KGaA |
2 | -71 | ||||
| Change in fair value of noncontrolling interest subject to put provisions |
25 | 4 | ||||
| Comprehensive income (loss) | ||||||
| Net income | 926 | |||||
| Other comprehensive income (loss) | ||||||
| Cash flow hedges | 27, 29 | |||||
| Change of fair value of available for sale financial assets |
27, 29 | |||||
| Foreign currency translation | 27, 29 | |||||
| Actuarial losses on defined benefit pension plans |
24, 27 | |||||
| Comprehensive income (loss) | 926 | |||||
| As of December 31, 2012 | 178,188 | 178,188 | 178 | 3,225 | 4,358 | |
| Proceeds from the exercise of stock options | 33 | 1,507 | 1,507 | 2 | 93 | |
| Compensation expense related to stock options |
33 | 21 | ||||
| Dividends paid | 26 | -196 | ||||
| Purchase of noncontrolling interest not subject to put provisions |
25 | |||||
| Share buy-back program of | ||||||
| Fresenius Medical Care AG & Co. KGaA | 26 | -121 | ||||
| Change in fair value of noncontrolling interest subject to put provisions |
25 | -25 | ||||
| Comprehensive income (loss) | ||||||
| Net income | 1,011 | |||||
| Other comprehensive income (loss) | ||||||
| Cash flow hedges | 27, 29 | |||||
| Change of fair value of | ||||||
| available for sale financial assets | 27, 29 | |||||
| Foreign currency translation | 27, 29 | |||||
| Actuarial gains on defined benefit pension plans |
24, 27 | |||||
| Comprehensive income (loss) | 1,011 | |||||
| As of December 31, 2013 | 179,695 | 179,695 | 180 | 3,314 | 5,052 |
Total Fresenius
Noncontrolling
Accumulated
| Note | other com prehensive income (loss) € in millions |
SE & Co. KGaA shareholders' equity € in millions |
interest not subject to put provisions € in millions |
Total shareholders' equity € in millions |
|
|---|---|---|---|---|---|
| As of December 31, 2011 | 14 | 5,971 | 4,606 | 10,577 | |
| Issuance of bearer ordinary shares | 26 | 1,003 | 0 | 1,003 | |
| Proceeds from the exercise of stock options | 33 | 75 | 65 | 140 | |
| Compensation expense related to | |||||
| stock options | 33 | 22 | 14 | 36 | |
| Dividends paid | 26 | -155 | -204 | -359 | |
| Purchase of noncontrolling interest | |||||
| not subject to put provisions | 25 | 0 | 56 | 56 | |
| Purchase of ordinary shares of | |||||
| Fresenius Medical Care AG & Co. KGaA | 2 | -71 | -43 | -114 | |
| Change in fair value of noncontrolling interest subject to put provisions |
25 | 4 | 10 | 14 | |
| Comprehensive income (loss) | |||||
| Net income | 926 | 734 | 1,660 | ||
| Other comprehensive income (loss) | |||||
| Cash flow hedges | 27, 29 | 23 | 23 | -1 | 22 |
| Change of fair value of available for sale financial assets |
27, 29 | -9 | -9 | – | -9 |
| Foreign currency translation | 27, 29 | -80 | -80 | -76 | -156 |
| Actuarial losses on defined | |||||
| benefit pension plans | 24, 27 | -76 | -76 | -36 | -112 |
| Comprehensive income (loss) | -142 | 784 | 621 | 1,405 | |
| As of December 31, 2012 | -128 | 7,633 | 5,125 | 12,758 | |
| Proceeds from the exercise of stock options | 33 | 95 | 57 | 152 | |
| Compensation expense related to | |||||
| stock options | 33 | 21 | 7 | 28 | |
| Dividends paid | 26 | -196 | -206 | -402 | |
| Purchase of noncontrolling interest not subject to put provisions |
25 | 0 | 6 | 6 | |
| Share buy-back program of Fresenius Medical Care AG & Co. KGaA |
26 | -121 | -264 | -385 | |
| Change in fair value of noncontrolling interest subject to put provisions |
25 | -25 | -54 | -79 | |
| Comprehensive income (loss) | |||||
| Net income | 1,011 | 645 | 1,656 | ||
| Other comprehensive income (loss) | |||||
| Cash flow hedges | 27, 29 | 15 | 15 | 12 | 27 |
| Change of fair value of | |||||
| available for sale financial assets | 27, 29 | 34 | 34 | – | 34 |
| Foreign currency translation | 27, 29 | -267 | -267 | -286 | -553 |
| Actuarial gains on defined | |||||
| benefit pension plans | 24, 27 | -5 | -5 | 23 | 18 |
| Comprehensive income (loss) | -223 | 788 | 394 | 1,182 | |
| As of December 31, 2013 | -351 | 8,195 | 5,065 | 13,260 |
| Fresenius Medical Care | Fresenius Kabi | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | 2013 | 20121 | Change | 20132 | 2012 | Change | |
| Sales | 11,000 | 10,741 | 2% | 4,996 | 4,539 | 10% | |
| thereof contribution to consolidated sales | 10,978 | 10,724 | 2% | 4,956 | 4,489 | 10% | |
| thereof intercompany sales | 22 | 17 | 29% | 40 | 50 | -20% | |
| contribution to consolidated sales | 54% | 56% | 24% | 23% | |||
| EBI TDA |
2,187 | 2,282 | -4% | 1,143 | 1,101 | 4% | |
| Depreciation and amortization | 488 | 469 | 4% | 217 | 167 | 30% | |
| EBI T |
1,699 | 1,813 | -6% | 926 | 934 | -1% | |
| Net interest | -308 | -332 | 7% | -236 | -286 | 17% | |
| Income taxes | -446 | -502 | 11% | -178 | -166 | -7% | |
| Net income attributable to | |||||||
| shareholders of Fresenius SE & Co. KGaA | 836 | 870 | -4% | 487 | 444 | 10% | |
| Operating cash flow | 1,532 | 1,587 | -3% | 488 | 596 | -18% | |
| Cash flow before acquisitions and dividends | 984 | 1,069 | -8% | 177 | 357 | -50% | |
| Total assets | 16,764 | 16,921 | -1% | 8,598 | 8,662 | -1% | |
| Debt | 6,103 | 6,290 | -3% | 4,735 | 4,964 | -5% | |
| Capital expenditure, gross | 563 | 526 | 7% | 317 | 276 | 15% | |
| Acquisitions, gross /investments | 424 | 1,408 | -70% | 131 | 877 | -85% | |
| Research and development expenses | 95 | 87 | 9% | 250 | 194 | 29% | |
| Employees (per capita on balance sheet date) | 95,637 | 90,866 | 5% | 31,961 | 30,214 | 6% | |
| Key figures | |||||||
| TDA margin EBI |
19.9% | 21.2% | 22.9% | 24.3% | |||
| T margin EBI |
15.4% | 16.9% | 18.5% | 20.6% | |||
| Depreciation and amortization in % of sales | 4.4% | 4.4% | 4.3% | 3.7% | |||
| Operating cash flow in % of sales | 13.9% | 14.8% | 9.8% | 13.1% | |||
| ROOA | 10.5% | 11.4% | 11.9% | 12.3% | |||
1 Excluding special items from the acquisition of Liberty Dialysis Holdings, Inc., from the renegotiation of the Venofer contract and the donation to the American Society of Nephrology
2 Excluding one-time integration costs of Fenwal Holdings, Inc. 3 Including one-time integration costs of Fenwal Holdings, Inc.
4 Including one-time costs related to the takeover offer to the shareholders of Rhön-Klinikum AG and special items from the acquisition of Liberty Dialysis Holdings, Inc.,
from the renegotiation of the Venofer contract and the donation to the American Society of Nephrology
5 The underlying pro forma EBIT does not include one-time integration costs of Fenwal Holdings, Inc.
6 Before one-time costs related to the takeover offer to the shareholders of Rhön-Klinikum AG, special items from the renegotiation of the Venofer contract
and the donation to the American Society of Nephrology
7 The underlying pro forma EBIT does not include one-time costs related to the takeover offer to the shareholders of Rhön-Klinikum AG, special items from the renegotiation
of the Venofer contract and the donation to the American Society of Nephrology.
by region
| Europe | North America | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | 2013 | 2012 | Change | 2013 | 2012 | Change | |
| Sales | 8,216 | 7,797 | 5% | 8,620 | 8,144 | 6% | |
| contribution to consolidated sales | 40% | 40% | 42% | 42% | |||
| EBI T |
823 | 746 | 10% | 1,667 | 1,700 | -2% | |
| Depreciation and amortization | 370 | 357 | 4% | 377 | 328 | 15% | |
| Total assets | 13,529 | 11,089 | 22% | 15,833 | 16,424 | -4% | |
| Capital expenditure, gross | 519 | 532 | -2% | 372 | 326 | 14% | |
| Acquisitions, gross /investments | 2,257 | 914 | 147% | 347 | 2,238 | -84% | |
| Employees (per capita on balance sheet date) | 85,706 | 81,777 | 5% | 60,600 | 58,264 | 4% | |
| Fresenius Helios | Fresenius Vamed | Corporate / Other | Fresenius Group | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | Change | 2013 | 2012 | Change | 2013 3 | 2012 4 | Change | 2013 | 2012 | Change |
| 3,393 | 3,200 | 6% | 1,020 | 846 | 21% | - 78 | - 36 | - 117% | 20,331 | 19,290 | 5% |
| 3,393 | 3,200 | 6% | 987 | 846 | 17% | 17 | 31 | - 45% | 20,331 | 19,290 | 5% |
| 0 | 0 | 33 | – | -- | - 95 | - 67 | - 42% | 0 | 0 | ||
| 17% | 17% | 5% | 4% | 0% | 0% | 100% | 100% | ||||
| 508 | 432 | 18% | 65 | 59 | 10% | - 69 | - 115 | 40% | 3,834 | 3,759 | 2% |
| 118 | 110 | 7% | 10 | 8 | 25% | 10 | 22 | - 55% | 843 | 776 | 9% |
| 390 | 322 | 21% | 55 | 51 | 8% | - 79 | - 137 | 42% | 2,991 | 2,983 | 0% |
| - 48 | - 67 | 28% | - 3 | - 1 | - 200% | 11 | 20 | - 45% | - 584 | - 666 | 12% |
| - 60 | - 42 | - 43% | - 14 | - 14 | 0% | 29 | 65 | - 55% | - 669 | - 659 | - 2% |
| 275 | 203 | 35% | 37 | 35 | 6% | - 624 | - 626 | 0% | 1,011 | 926 | 9% |
| 258 | 240 | 8% | 31 | 35 | - 11% | 11 | - 20 | 155% | 2,320 | 2,438 | - 5% |
| 91 | 69 | 32% | 20 | 24 | - 17% | 1 | - 33 | 103% | 1,273 | 1,486 | - 14% |
| 6,597 | 4,408 | 50% | 726 | 676 | 7% | 73 | - 3 | -- | 32,758 | 30,664 | 7% |
| 3,538 | 1,293 | 174% | 117 | 74 | 58% | - 1,689 | - 1,593 | - 6% | 12,804 | 11,028 | 16% |
| 172 | 180 | - 4% | 11 | 11 | 0% | 10 | 14 | - 29% | 1,073 | 1,007 | 7% |
| 2,185 | 579 | -- | 16 | 44 | - 64% | - 2 | 264 | - 101% | 2,754 | 3,172 | - 13% |
| – | – | -- | 0 | 0 | 3 | 24 | - 88% | 348 | 305 | 14% | |
| 42,913 | 42,881 | 0% | 7,010 | 4,432 | 58% | 816 | 931 | - 12% | 178,337 | 169,324 | 5% |
| 15.0% | 13.5% | 6.4% | 7.0% | 19.1% 2 | 20.0% 6 | ||||||
| 11.5% | 10.1% | 5.4% | 6.0% | 15.0% 2 | 15.9% 6 | ||||||
| 3.5% | 3.4% | 1.0% | 0.9% | 4.1% | 4.0% | ||||||
| 7.6% | 7.5% | 3.0% | 4.1% | 11.4% | 12.6% | ||||||
| 9.3% | 8.2% | 11.6% | 12.8% | 10.6% 5 | 11.0% 7 |
The consolidated segment reporting by business segment is an integral part of the notes. The following notes are an integral part of the consolidated fi nancial statements.
| Asia-Pacifi c | Latin America | Africa | Fresenius Group | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | Change | 2013 | 2012 | Change | 2013 | 2012 | Change | 2013 | 2012 | Change | |
| 1,945 | 1,899 | 2% | 1,174 | 1,126 | 4% | 376 | 324 | 16% | 20,331 | 19,290 | 5% | |
| 10% | 10% | 6% | 6% | 2% | 2% | 100% | 100% | |||||
| 296 | 321 | - 8% | 159 | 158 | 1% | 46 | 58 | - 21% | 2,991 | 2,983 | 0% | |
| 56 | 52 | 8% | 35 | 33 | 6% | 5 | 6 | - 17% | 843 | 776 | 9% | |
| 2,305 | 2,085 | 11% | 950 | 929 | 2% | 141 | 137 | 3% | 32,758 | 30,664 | 7% | |
| 111 | 83 | 34% | 62 | 59 | 5% | 9 | 7 | 29% | 1,073 | 1,007 | 7% | |
| 126 | 11 | -- | 21 | 9 | 133% | 3 | – | -- | 2,754 | 3,172 | - 13% | |
| 15,859 | 14,315 | 11% | 14,474 | 13,485 | 7% | 1,698 | 1,483 | 14% | 178,337 | 169,324 | 5% |
Fresenius is a global health care group with products and services for dialysis, hospitals and outpatient medical care. In addition, the Fresenius Group focuses on hospital operations and also manages projects and provides services for hospitals and other health care facilities worldwide. Besides the activities of the parent company Fresenius SE & Co. KGaA, Bad Homburg v. d. H., the operating activities were split into the following legally independent business segments (subgroups) in the fiscal year 2013:
Fresenius Medical Care is the world's leading provider of services and products for patients with chronic kidney failure. As of December 31, 2013, Fresenius Medical Care was treating 270,122 patients in 3,250 dialysis clinics.
Fresenius Kabi offers infusion therapies, intravenously administered generic drugs and clinical nutrition for seriously and chronically ill patients in the hospital and outpatient environments. The company is also a leading supplier of medical devices and transfusion technology products.
Fresenius Helios is Germany's largest hospital operator. At December 31, 2013, Fresenius Helios owned 74 hospitals, thereof 51 acute care clinics including 6 maximum care hospitals in Berlin-Buch, Duisburg, Erfurt, Krefeld, Schwerin and Wuppertal and 23 post-acute care clinics. Fresenius Helios treats more than 2.9 million patients per year, thereof more than 780,000 inpatients, and operates more than 23,000 beds.
Fresenius Vamed manages projects and provides services for hospitals and other health care facilities worldwide.
Fresenius SE & Co. KGaA owned 31.31% of the subscribed capital of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) at the end of the fiscal year 2013. Fresenius Medical Care Management AG, the general partner of FMC-AG & Co. KGaA, is a wholly owned subsidiary of Fresenius SE & Co. KGaA. Therefore, FMC-AG & Co. KGaA is fully consolidated in the consolidated financial statements of the Fresenius Group. Fresenius SE & Co. KGaA continued to hold 100% of the management companies of the business segments Fresenius Kabi (Fresenius Kabi AG) as well as Fresenius Helios and Fresenius Vamed (both held through Fresenius ProServe GmbH) on December 31, 2013. Through Fresenius ProServe GmbH, Fresenius SE & Co. KGaA holds 100% in HELIOS Kliniken GmbH and a 77% stake in VAMED AG. In addition, Fresenius SE & Co. KGaA holds interests in companies with holding functions regarding real estate, financing and insurance, as well as in Fresenius Netcare GmbH which offers services in the field of information technology.
The reporting currency in the Fresenius Group is the euro. In order to make the presentation clearer, amounts are mostly shown in million euros. Amounts under €1 million after rounding are marked with "–".
The accompanying consolidated financial statements have been prepared in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP).
Fresenius SE & Co. KGaA, as a stock exchange listed company with a domicile in a member state of the European Union, fulfills the obligation to prepare and publish the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) applying Section 315a of the German Commercial Code (HGB). Simultaneously, the Fresenius Group voluntarily prepares and publishes the consolidated financial statements in accordance with U.S. GAAP.
In order to improve readability, various items are aggregated in the consolidated statement of financial position and in the consolidated statement of income. These items are shown separately in the notes to provide useful information to the readers of the consolidated financial statements.
The consolidated statement of financial position is classified on the basis of the maturity of assets and liabilities; the consolidated statement of income is classified using the cost-ofsales accounting format.
The financial statements of consolidated entities have been prepared using uniform accounting methods.
Capital consolidation is performed by offsetting investments in subsidiaries against the underlying revaluated equity at the date of acquisition. The identifiable assets and liabilities of subsidiaries as well as the noncontrolling interest are recognized at their fair values. Any remaining debit balance between the investments in subsidiaries plus the noncontrolling interest and the revaluated equity is recognized as goodwill and is tested at least once a year for impairment.
Associated companies (over which Fresenius SE & Co. KGaA has significant exercisable influence, even when it holds 50% or less of the common stock of the company) are consolidated using the equity method. Investments that are not classified as in associated companies are recorded at acquisition costs or at fair value, respectively.
All significant intercompany sales, expenses, income, receivables and payables are eliminated. Profits and losses on items of property, plant and equipment and inventory acquired from other Group entities are also eliminated. Deferred tax assets and liabilities are recognized on temporary differences resulting from consolidation procedures.
Noncontrolling interest subject to put provisions is recognized between liabilities and equity in the consolidated statement of financial position. Noncontrolling interest not subject to put provisions is comprised of the interest of noncontrolling shareholders in the consolidated equity of Group entities. Profits and losses attributable to the noncontrolling shareholders are separately disclosed in the consolidated statement of income. Noncontrolling interest not subject to put provisions of acquired entities is valuated at fair value.
The consolidated financial statements include all material companies in which Fresenius SE & Co. KGaA has legal or effective control. This includes variable interest entities (VIEs) for which the Fresenius Group is deemed the primary beneficiary.
Fresenius Medical Care has entered into various arrangements with certain 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, Fresenius Medical Care has agreed to fund their operations through loans.
The compensation for the funding can carry interest, exclusive product supply agreements or entitle Fresenius Medical Care to a prorata share of profits, if any. Fresenius Medical Care has a right of first refusal in the event the owners sell the business or assets. These clinics and the dialysis product distributor are VIEs, in which Fresenius Medical Care has been determined to be the primary beneficiary and which therefore have been fully consolidated. They generated approximately €153 million (US\$203 million) and €160 million (US\$206 million) in sales in 2013 and 2012, respectively. Fresenius Medical Care provided funding to these VIEs through loans and accounts receivable of €109 million (US\$150 million) and €111 million (US\$147 million) in 2013 and 2012, respectively. Relating to the VIEs, in 2013, Fresenius Medical Care consolidated assets in an amount of €160 million (US\$221 million), liabilities in an amount of €107 million (US\$147 million) and €54 million (US\$74 million) in equity. In 2012, €163 million (US\$215 million) assets, €103 million (US\$136 million) liabilities and €60 million (US\$79 million) equity were consolidated. The interest held by the other shareholders in the consolidated VIEs is reported as noncontrolling interest in the consolidated statement of financial position.
Fresenius Vamed participates in long-term project entities which are set up for long-term defined periods of time and for the specific purpose of constructing and operating thermal centers. Some of these project entities qualify as VIEs, in which Fresenius Vamed is not the primary beneficiary based on the cash flow analysis of the involved parties. The project entities generated approximately €88 million in sales in 2013 (2012: €86 million). The VIEs finance themselves mainly through debt, profit participation rights and investment grants. Assets and liabilities relating to the VIEs are not material. Fresenius Vamed made no payments to the VIEs other than contractually stipulated. From today's perspective and due to the contractual situation, Fresenius Vamed is not exposed to any material risk of loss from these VIEs.
The consolidated financial statements of 2013 included, in addition to Fresenius SE & Co. KGaA, 1,863 companies and 27 companies were accounted for under the equity method. In 2013, there were no material changes in the scope of consolidated entities.
The complete list of the investments of Fresenius SE & Co. KGaA, registered office in 61352 Bad Homburg v. d. H., Else-Kröner-Straße 1, will be submitted to the electronic Federal Gazette and the electronic companies register.
In 2013, the following fully consolidated German subsidiaries of the Fresenius Group applied the exemption provided in Sections 264 (3) and 264b, respectively, of the German Commercial Code (HGB):
| Name of the company | Registered office |
|---|---|
| Corporate/ Other | |
| Fresenius Biotech Beteiligungs GmbH | Bad Homburg v. d. H. |
| Fresenius Immobilien-Verwaltungs GmbH &Co. Objekt Friedberg KG |
Bad Homburg v. d. H. |
| Fresenius Immobilien-Verwaltungs GmbH &Co. Objekt St.Wendel KG |
Bad Homburg v. d. H. |
| Fresenius Immobilien-Verwaltungs GmbH &Co. Objekt Schweinfurt KG |
Bad Homburg v. d. H. |
| Fresenius Netcare GmbH | Bad Homburg v. d. H. |
| Fresenius ProServe GmbH | Bad Homburg v. d. H. |
| FPS Beteiligungs AG | Düsseldorf |
| FPS Immobilien Verwaltungs GmbH &Co. Reichenbach KG |
Bad Homburg v. d. H. |
| ProServe Krankenhaus Beteiligungs gesellschaft mbH &Co. KG |
München |
| ProServe Zweite Krankenhaus Beteiligungsgesellschaft mbH &Co. KG |
München |
| Fresenius Kabi | |
| CFL GmbH | Frankfurt am Main |
| Fresenius Kabi AG | Bad Homburg v. d. H. |
| Fresenius Kabi Deutschland GmbH | Bad Homburg v. d. H. |
| Hosped GmbH | Friedberg |
| Rheinische Compounding GmbH | Bonn |
| V. Krütten Medizinische Einmalgeräte GmbH |
Idstein |
| Name of the company | Registered office |
|---|---|
| Fresenius Helios | |
| Akademie Damp GmbH i. L. | Damp |
| Betriebsführungsgesellschaft | |
| Schloß Schönhagen GmbH | Schönhagen |
| Damp Diagnostik und | |
| Physio Holding GmbH | Hamburg |
| Damp Holding GmbH | Damp |
| Gesundheitszentrum Buch GmbH | Berlin |
| HELIOS Agnes-Karll-Krankenhaus GmbH | Bad Schwartau |
| HELIOS Care GmbH | Berlin |
| HELIOS Gesundheitsmanagement GmbH | Berlin |
| HELIOS Kids in Pflege GmbH | Geesthacht |
| HELIOS Klinik Ahrenshoop GmbH | Ahrenshoop |
| HELIOS Klinik Berching GmbH | Berching |
| HELIOS Klinik Blankenhain GmbH | Blankenhain |
| HELIOS Klinik Bleicherode GmbH | Bleicherode |
| HELIOS Klinik Geesthacht GmbH | Geesthacht |
| HELIOS Klinik Lehmrade GmbH | Lehmrade |
| HELIOS Klinik Leisnig GmbH | Leisnig |
| HELIOS Klinik Lengerich GmbH | Lengerich |
| HELIOS Klinik Schkeuditz GmbH | Schkeuditz |
| HELIOS Klinik Schloss Schönhagen GmbH | Damp |
| HELIOS Klinik Volkach GmbH | Volkach |
| HELIOS Kliniken GmbH | Berlin |
| HELIOS Kliniken | |
| Breisgau-Hochschwarzwald GmbH | Müllheim |
| HELIOS Kliniken Leipziger Land GmbH | Borna |
| HELIOS Kliniken Mansfeld-Südharz GmbH | Sangerhausen |
| HELIOS Klinikum Aue GmbH | Aue |
| HELIOS Klinikum Bad Saarow GmbH | Bad Saarow |
| HELIOS Klinikum Berlin-Buch GmbH | Berlin |
| HELIOS Klinikum Erfurt GmbH | Erfurt |
| HELIOS Klinikum Schwelm GmbH | Schwelm |
| HELIOS Klinikum Wuppertal GmbH | Wuppertal |
| HELIOS Ostseeklinik Damp GmbH | Damp |
| HELIOS Privatkliniken GmbH | Bad Homburg v. d. H. |
| HELIOS Rehaklinik Damp GmbH | Damp |
| HELIOS-SERVICE GmbH | Berlin |
| HELIOS Spital Überlingen GmbH | Überlingen |
| HELIOS St.Josefs-Hospital GmbH | Bochum |
| HELIOS Therapiecentrum Damp GmbH i. L. | Damp |
| HELIOS Versorgungszentren GmbH | Berlin |
| HELIOS Vogtland-Klinikum Plauen GmbH | Plauen |
| HUMAINE Kliniken GmbH | Berlin |
| Medizinisches Versorgungszentrum am | |
| HELIOS Klinikum Bad Saarow GmbH | Bad Saarow |
| ostsee resort damp GmbH | Damp |
| Senioren- und Pflegeheim Erfurt GmbH | Erfurt |
| Verwaltungsgesellschaft ENDO-Klinik mbH |
Hamburg |
| Zentrale Service-Gesellschaft Damp mbH | Damp |
Certain items in the consolidated financial statements of 2012 have been reclassified to conform with the presentation in 2013.
Sales from services are recognized at the amount estimated to be receivable under reimbursement arrangements with third party payors. Sales are recognized on the date services and related products are provided and the customer is obligated to pay.
Product sales are recognized when the title to the product passes to the customers, either at the time of shipment, upon receipt by the customer or upon any other terms that clearly define passage of title. As product returns are not typical, no return allowances are established. In the event that a return is required, the appropriate reductions to sales, cost of sales and accounts receivable are made. Sales are presented net of discounts, allowances and rebates.
In the business segment Fresenius Vamed, sales for long-term production contracts are recognized using the percentage of completion (PoC) method when the accounting conditions are met. The sales to be recognized are calculated as a percentage of the costs already incurred based on the estimated total cost of the contract, milestones laid down in the contract or the percentage of completion. Profits are only recognized when the outcome of a production contract accounted for using the PoC method can be measured reliably. Any expected excess of total contract costs over total contract revenue for a contract is recognized as an expense immediately.
Any tax assessed by a governmental authority that is incurred as a result of a sales transaction (e. g. sales tax) is excluded from sales and the related sale is reported on a net basis.
Public sector grants are not recognized until there is reasonable assurance that the respective conditions are met and the grants will be received. Initially, the grant is recorded as a
liability and as soon as the asset is acquired, the grant is offset against the acquisition costs. Expense-related grants are recognized as income in the periods in which related costs occur.
Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development is the technical and commercial implementation of research findings and occurs before the start of the commercial production or use. Research and development expenses are expensed as incurred.
The Fresenius Group reviews the carrying amounts of its property, plant and equipment, intangible assets and other noncurrent assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of an asset to the future net cash flow directly associated with the asset. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying amount exceeds the fair value of the asset. The Fresenius Group uses a discounted cash flow approach or other methods, if appropriate, to assess fair value. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell and depreciation is ceased.
The Fresenius Group includes capitalized interest as part of the cost of the asset if it is directly attributable to the acquisition, construction or manufacture of qualifying assets. For the fiscal years 2013 and 2012, interest of €5 million and €3 million, based on an average interest rate of 5.92% and 4.53%, respectively, was recognized as a component of the cost of assets.
Current taxes are calculated based on the earnings of the fiscal year and in accordance with local tax rules of the respective tax jurisdictions. Expected and executed additional tax payments and tax refunds for prior years are also taken into account.
Deferred tax assets and liabilities are recognized for the future consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Furthermore, deferred taxes are recognized on certain consolidation procedures affecting net income attributable to shareholders of Fresenius SE & Co. KGaA. Deferred tax assets also include claims to future tax reductions which arise from the more likely than not expected usage of existing tax losses available for carryforward. The recognition of deferred tax assets from net operating losses and their utilization is based on the budget planning of the Fresenius Group and implemented tax strategies.
Deferred taxes are computed using enacted or adopted tax rates in the relevant national jurisdictions when the amounts are recovered. Tax rates which will be valid in the future but are not adopted till the date of the statement of financial position are not considered.
The realizability of the carrying amount of a deferred tax asset is reviewed at each date of the statement of financial position. In assessing the realizability of deferred taxes, the Management considers whether it is more likely than not that some portion or all of a deferred tax asset will be realized or whether deferred tax liabilities will be reversed. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment.
If it is no longer more likely than not that sufficient taxable income will be available to allow the benefit of part or of the entire deferred tax asset to be utilized, the carrying
amount of the deferred tax asset is reduced to that certain extent. The reduction is reversed to the date and extent that it becomes probable that sufficient taxable profit will be available.
It is Fresenius Group's policy that assets on uncertain tax positions are recognized to the extent it is more likely than not the tax will be recovered. It is also Fresenius Group's policy to recognize interest and penalties related to its tax positions as income tax expense.
The recognition and measurement of all tax positions taken or expected to be taken on a tax return requires a two step approach. The Fresenius Group must determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If the threshold is met, the tax position is measured at the largest amount of tax benefit that is more than 50% likely of being realized upon settlement and is recognized in the consolidated financial statements.
Basic earnings per ordinary share are computed by dividing net income attributable to shareholders of Fresenius SE & Co. KGaA by the weighted-average number of ordinary shares outstanding during the year. Diluted earnings per share include the effect of all potentially dilutive instruments on ordinary shares that would have been outstanding during the fiscal year. The equity-settled awards granted under Fresenius' and Fresenius Medical Care's stock option plans can result in a dilutive effect.
Cash and cash equivalents are comprised of cash funds and all short-term, liquid investments with original maturities of up to three months (time deposits and securities).
Trade accounts receivable are stated at their nominal value less an allowance for doubtful accounts. The allowances are estimates comprised of customer-specific evaluations regarding their payment history, current financial stability, and applicable country-specific risks for receivables that are overdue more than one year. From time to time, accounts receivable are reviewed for changes from the historic collection experience to ensure the appropriateness of the allowances.
Inventories are comprised of all assets which are held for sale in the normal course of business (finished goods), in the process of production for such sale (work in process) or consumed in the production process or in the rendering of services (raw materials and purchased components).
Inventories are stated at the lower of acquisition and manufacturing cost (determined by using the average or firstin, first-out method) or market value. Manufacturing costs are comprised of direct costs, production and material overhead, including depreciation charges.
Investments in equity instruments, debt instruments and fund shares are classified as available for sale financial assets and measured at fair value provided that this fair value can be determined reliably. Equity instruments that do not have a quoted price in an active market and a reliably measurable fair value, are recognized at acquisition cost. The Fresenius Group regularly reviews if objective substantial evidence occurs that would indicate an impairment of a financial asset or a portfolio of financial assets. After testing the recoverability of these assets, a possible impairment loss is recorded in the consolidated statement of financial position. Gains and losses of available for sale financial assets are recognized directly in the consolidated statement of equity until the financial asset is disposed of or if it is considered to be impaired. In the case of an impairment, the accumulated net loss is retrieved from the consolidated statement of equity and recognized in the consolidated statement of income.
Property, plant and equipment are stated at acquisition and manufacturing cost less accumulated depreciation. Significant improvements are capitalized; repairs and maintenance costs that do not extend the useful lives of the assets are charged to expense as incurred. Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 50 years for buildings and improvements (with a weighted-average life of 16 years) and 2 to 15 years for machinery and equipment (with a weighted-average life of 11 years).
q) Intangible assets with finite useful lives Intangible assets with finite useful lives, such as patents, product and distribution rights, non-compete agreements, technology as well as licenses to manufacture, distribute and sell pharmaceutical drugs, are amortized using the straight-line method over their respective useful lives to their residual values and reviewed for impairment (see note 1. III. g, Impairment). The useful life of patents, product and distribution rights ranges from 5 to 20 years, the average useful life is 13 years. Non-compete agreements with finite useful lives have useful lives ranging from 2 to 25 years with an average useful life of 8 years. The useful life of management contracts with finite useful lives ranges from 5 to 40 years. Technology has a finite useful live of 15 years. Licenses to manufacture, distribute and sell pharmaceutical drugs are amortized over the contractual license period based upon the annual estimated units of sale of the licensed product. All other intangible assets are amortized over their individual estimated useful lives between 3 and 15 years.
Losses in value of a lasting nature are recorded as an impairment.
The Fresenius Group identified intangible assets with indefinite useful lives because, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which those assets are expected to generate net cash inflows for the Group. The identified intangible assets with indefinite useful lives such as trade names and certain qualified management contracts acquired in a purchase method business combination are recognized and reported apart from goodwill. They are recorded at acquisition costs. Goodwill and intangible assets with indefinite useful lives are not amortized but tested for impairment annually or when an event becomes known that could trigger an impairment (impairment test).
To perform the annual impairment test of goodwill, the Fresenius Group identified several reporting units and determined their carrying amount by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. A reporting unit is usually defined one level below the segment level based on regions or legal entities. Four reporting units were identified in the segments Fresenius Medical Care and Fresenius Kabi, respectively (Europe, Latin America, Asia-Pacific and North America). According to the regional organizational structure, the segment Fresenius Helios consists of eight reporting units, which are managed by a central division. The segment Fresenius Vamed consists of two reporting units (Project business and Service business). At least once a year, the Fresenius Group compares the fair value of each reporting unit to the reporting unit's carrying amount. The fair value of a reporting unit is determined using a discounted cash flow approach based upon the cash flow expected to be generated by the reporting unit. In case that the fair value of the reporting unit is less than its carrying amount, the difference is at first recorded as an impairment of the fair value of the goodwill.
To evaluate the recoverability of separable intangible assets with indefinite useful lives, the Fresenius Group compares the fair values of these intangible assets with their carrying amounts. An intangible asset's fair value is determined using a discounted cash flow approach and other methods, if appropriate.
The recoverability of goodwill and other separable intangible assets with indefinite useful lives recorded in the Group's consolidated statement of financial position was verified. As a result, the Fresenius Group did not record any impairment losses in 2013 and 2012.
Any excess of the net fair value of identifiable assets and liabilities over cost (badwill) still existing after reassessing the purchase price allocation is recognized immediately in profit or loss.
Leased assets assigned to the Fresenius Group based on the risk and rewards approach (finance leases) are recognized as property, plant and equipment and measured on receipt date at the present values of lease payments as long as their fair values are not lower. Leased assets are depreciated in straightline over their useful lives. If there is doubt as to whether title to the asset passes at a later stage and there is no opportune purchase option, the asset is depreciated over the lease term if this is shorter. An impairment loss is recognized if the recoverable amount is lower than the amortized cost of the leased asset.
Finance lease liabilities are measured at the present value of the future lease payments and are recognized as a financial liability.
Property, plant and equipment that is rented by the Fresenius Group is accounted for at its purchase cost. Depreciation is calculated using the straight-line method over the leasing time and its expected residual value.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The following categories (according to International Accounting Standard 39, Financial Instruments: Recognition and Measurement) are relevant for the Fresenius Group: loans and receivables, financial liabilities measured at
amortized cost, available for sale financial assets as well as financial liabilities/assets measured at fair value in the consolidated statement of income. Other categories are immaterial or not existing in the Fresenius Group. According to their character, the Fresenius Group classifies its financial instruments into the following classes: cash and cash equivalents, assets recognized at carrying amount, liabilities recognized at carrying amount, derivatives for hedging purposes as well as assets recognized at fair value, liabilities recognized at fair value and noncontrolling interest subject to put provisions recognized at fair value.
The relationship between classes and categories as well as the reconciliation to the consolidated statement of financial position is shown in tabular form in note 29, Financial instruments.
The Fresenius Group has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Fresenius Group would be required to purchase all or part of the third-party owners' noncontrolling interests at the appraised fair value at the time of exercise. To estimate the fair values of the noncontrolling interest subject to put provisions, the Fresenius Group recognizes the higher of net book value or a multiple of earnings, based on historical earnings, the development stage of the underlying business and other factors. Depending on the market conditions, the estimated fair values of the noncontrolling interest subject to these put provisions can also fluctuate and the implicit multiple of earnings at which the noncontrolling interest subject to put provisions may ultimately be settled could vary significantly from Fresenius Group's current estimates.
Derivative financial instruments, which primarily include foreign currency forward contracts and interest rate swaps, are recognized at fair value as assets or liabilities in the consolidated statement of financial position. Changes in the fair value of derivative financial instruments classified as fair value hedges and in the corresponding underlying assets and liabilities are recognized periodically in earnings. The effective portion of changes in fair value of cash flow hedges is recognized in accumulated other comprehensive income (loss) in shareholders' equity until the secured underlying transaction is realized (see note 29, Financial instruments). The ineffective portion of cash flow hedges is recognized in current earnings. Changes in the fair value of derivatives that are not designated as hedging instruments are recognized periodically in earnings.
Liabilities are generally stated at present value, which normally corresponds to the value of products or services which are delivered. As a general policy, short-term liabilities are measured at their repayment amount.
In the ordinary course of Fresenius Group's operations, the Fresenius Group is involved in litigation, arbitration, administrative procedure and investigations relating to various aspects of its business. The Fresenius Group regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including estimated expenses for legal services, as appropriate. The Fresenius Group utilizes its internal legal department as well as external resources for these assessments. In making the decision regarding the need for a loss accrual, the Fresenius Group considers the degree of probability of an unfavorable outcome and its ability to make a reasonable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim, or the disclosure of any such suit or assertion, does not necessarily indicate that an accrual of a loss is appropriate.
Accruals for taxes and other obligations are recognized when there is a present obligation to a third party arising from past events, it is probable that the obligation will be settled in the future and the amount can be reliably estimated.
Accruals for warranties and complaints are estimated based on historical experience.
Tax accruals include obligations for the current year and for prior years.
The Fresenius Group recognizes the underfunded status of its defined benefit plans, measured as the difference between the fair value of the plan assets and the present value of the benefit obligation, as a liability (funded status).
The Fresenius Group uses December 31 as the measurement date when measuring the funded status of all plans.
Changes in the funded status of a plan resulting from actuarial gains or losses and prior service costs or credits that are not recognized as components of the net periodic benefit cost are recognized through accumulated other comprehensive income (loss), net of tax, in the year in which they occur.
The Fresenius Group uses the corridor method for the recognition of the actuarial gains and losses. Actuarial gains and losses that exceed a corridor of 10% of the present value of the defined benefit obligation are spread over the expected average remaining working lives of the employees participating in the plans, adjusted for fluctuation.
Actuarial gains or losses and prior service costs are subsequently recognized as components of net periodic benefit cost when realized.
Debt issuance costs are capitalized separately from the underlying debt and are amortized over the term of the related obligation.
In line with the standard for share-based payment, the Fresenius Group uses the modified prospective transition method. Under this transition method, in 2012 and 2013, the Fresenius Group recognized compensation cost for all stock-based payments subsequent to January 1, 2009 (based on the grant-date fair value estimated).
The measurement date fair value of cash-settled phantom stocks granted to members of the Management Board and executive employees of the Fresenius Group is calculated using the Monte Carlo simulation. The corresponding liability based on the measurement date fair value is accrued over the vesting period of the phantom stock plans.
Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, the largest subsidiary of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA), located in North America, is partially self-insured for professional liability claims. For all other coverage, FMC-AG & Co. KGaA assumes responsibility for incurred claims up to predetermined amounts, above which third party insurance applies. Reported liabilities for the year represent estimated future payments of the anticipated expense for claims incurred (both reported and incurred but not reported) based on historical experience and existing claim activity. This experience includes both the rate of claims incidence (number) and claim severity (cost) and is combined with individual claim expectations to estimate the reported amounts.
The reporting currency is the euro. Substantially all assets and liabilities of the foreign subsidiaries are translated at the mid-closing rate on the date of the statement of financial position, while income and expense are translated at average exchange rates. Adjustments due to foreign currency translation fluctuations are excluded from net earnings and are reported in accumulated other comprehensive income (loss). In addition, the translation adjustments of certain intercompany borrowings, which are of a long-term nature, are also reported in accumulated other comprehensive income (loss).
Gains and losses arising from the translation of foreign currency positions as well as those arising from the elimination of foreign currency intercompany loans are recorded
as general and administrative expenses, as far as they are not considered foreign equity instruments. In the fiscal year 2013, only immaterial losses resulted out of this translation.
The exchange rates of the main currencies affecting foreign currency translation developed as follows:
| Year-end exchange rate 1 | Average exchange rate | |||
|---|---|---|---|---|
| Dec. 31, 2013 | Dec. 31, 2012 | 2013 | 2012 | |
| U.S. dollar per € | 1.3791 | 1.3194 | 1.3281 | 1.2848 |
| Pound sterling per € | 0.8337 | 0.8161 | 0.8493 | 0.8109 |
| Swedish krona per € | 8.8591 | 8.5820 | 8.6515 | 8.7041 |
| Chinese renminbi per € | 8.3491 | 8.2207 | 8.1646 | 8.1052 |
| Japanese yen per € | 144.72 | 113.61 | 129.66 | 102.49 |
Mid-closing rate on the date of the statement of financial position
The three-tier fair value hierarchy as defined in Financial Accounting Standards Boards Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, classifies assets and liabilities recognized at fair value based on the inputs used in estimating the fair value. Level 1 is defined as observable inputs, such as quoted prices in active markets. Level 2 is defined as inputs other than quoted prices in active markets that are directly or indirectly observable. Level 3 is defined as unobservable inputs for which little or no market data exists, therefore requiring the company to develop its own assumptions. The three-tier fair value hierarchy is used in note 24, Pensions and similar obligations, and in note 29, Financial instruments.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The entities of the Fresenius Group perform ongoing evaluations of the financial situation of their customers and generally do not require a collateral from the customers for the supply of products and provision of services. Approximately 17% and 18% of Fresenius Group's sales were earned and subject to the regulations under governmental health care programs, Medicare and Medicaid, administered by the United States government in 2013 and 2012, respectively.
The Fresenius Group has prepared its consolidated financial statements at December 31, 2013 in conformity with U.S. GAAP that have to be applied for fiscal years beginning on January 1, 2013 or U.S. GAAP that can be applied earlier on a voluntary basis.
The Fresenius Group applied the following standards, as far as they are relevant for Fresenius Group's business, for the first time:
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-11 (ASU 2011-11), FASB Accounting Standards Codification (ASC) Topic 210, Balance Sheet – Disclosures about Offsetting Assets and Liabilities. This amendment requires disclosing and reconciling the gross and net amounts for financial instruments that are offset in the statement of financial position, and the amounts for financial instruments that are subject to master netting arrangements and other similar clearing and
repurchase arrangements. In January 2013, the FASB issued Accounting Standards Update 2013-01 (ASU 2013-01), an update to FASB ASC Topic 210, Balance Sheet – 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 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. These updates are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The Fresenius Group does not utilize balance sheet offsetting for their derivative transactions. For further information see note 29, Financial instruments.
The FASB issued the following for the Fresenius Group relevant new standards, which are mandatory for fiscal years commencing on or after January 1, 2014:
In July 2013, the FASB issued Accounting Standards Update 2013-11 (ASU 2013-11), FASB ASC Topic 740, Income Taxes – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The purpose of ASU 2013-11 is to align the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. In most cases, the unrecognized tax benefit should be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. The update is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. The Fresenius Group will adopt ASU 2013-11 as of January 1, 2014. The Fresenius Group does not expect any material impact on its consolidated financial statements.
In July 2013, the FASB issued Accounting Standards Update 2013-10 (ASU 2013-10), FASB ASC Topic 815, Derivatives and Hedging – Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The purpose of ASU 2013-10 is to provide the inclusion of the Fed Funds Effective Swap Rate as a U.S. benchmark interest rate for hedge accounting purposes. This rate will now be available to use along with the U.S. government interest rates and the London Interbank Offered Rate. This update is effective prospectively for new or designated hedging relationships entered into on or after July 17, 2013. Currently, the Fresenius Group does not intend to utilize the newly available Fed Funds Effective Swap Rate for its hedge accounting.
In March 2013, the FASB issued Accounting Standards Update 2013-05 (ASU 2013-05), FASB ASC Topic 830, Foreign Currency Matters – Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The purpose of ASU 2013-05 is to provide clarification and further refinement regarding the treatment of the release of a cumulative translation adjustment into net income. This occurs in instances where the parent sells either a part or all of its investment in a foreign entity, as well as when a company ceases to hold a controlling interest in a subsidiary or group of assets that is a nonprofit activity or business within a foreign entity. The update is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. The Fresenius Group will adopt ASU 2013-05 as of January 1, 2014. The Fresenius Group does not expect any material impact on its consolidated financial statements.
In February 2013, the FASB issued Accounting Standards Update 2013-04 (ASU 2013-04), FASB ASC Topic 405, Liabilities – Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligations is Fixed at the Reporting Date. ASU 2013-04's objective is to provide guidance and clarification on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements such as debt arrangements, other contractual obligations and settled litigation and judicial rulings. The update is effective for fiscal years, and interim
periods within those years, beginning on or after December 15, 2013. The Fresenius Group will adopt ASU 2013-04 as of January 1, 2014. The Fresenius Group has determined that the impact will be the inclusion of a disclosure within the notes to the consolidated financial statements.
In July 2011, the FASB issued Accounting Standards Update 2011-06 (ASU 2011-06), FASB ASC Topic 720, Other Expenses – Fees Paid to the Federal Government by Health Insurers. The amendments in ASU 2011-06 address how health insurers should recognize and classify their income statement fees mandated by the Health Care and Educational Affordability Reconciliation Act. These amendments require that the liability for the fee be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable. In conjunction, the corresponding deferred cost is amortized to expense using a straight-line allocation method unless another method better allocates the fee over the entire calendar year for which it is payable. In addition, the ASU states that this fee does not meet the definition of an acquisition cost. The disclosures required under ASU 2011-06 are effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. The Fresenius Group will adopt ASU 2011- 06 effective January 1, 2014 and does not expect any material impact on its consolidated financial statements.
In the opinion of the Management of the Fresenius Group, the following accounting policies and topics are critical for the consolidated financial statements in the present economic environment. The influences and judgments as well as the uncertainties which affect them are also important factors to be considered when looking at present and future operating earnings of the Fresenius Group.
The amount of intangible assets, including goodwill, product rights, tradenames and management contracts, represents a considerable part of the total assets of the Fresenius Group. At December 31, 2013 and December 31, 2012, the carrying amount of goodwill and non-amortizable intangible assets with indefinite useful lives was €15,013 million and €15,195 million, respectively. This represented 46 and 50%, respectively, of total assets.
An impairment test of goodwill and non-amortizable intangible assets with indefinite useful lives is performed at least once a year, or if events occur or circumstances change that would indicate the carrying amount might be impaired (Impairment test).
To determine possible impairments of these assets, the fair value of the reporting units is compared to their carrying amount. The fair value of each reporting unit is determined using estimated future cash flows for the unit discounted by a weighted-average cost of capital (WACC) specific to that reporting unit. Estimating the discounted future cash flows involves significant assumptions, especially regarding future reimbursement rates and sales prices, number of treatments, sales volumes and costs. In determining discounted cash flows, the Fresenius Group utilizes for every reporting unit its approved three-year budget, projections for years 4 to 10 and a corresponding growth rate for all remaining years. These growth rates are 0% to 4% for Fresenius Medical Care, 3% for Fresenius Kabi and 1% for Fresenius Helios and Fresenius Vamed. Projections for up to 10 years are possible due to historical experience and the stability of Fresenius Group's business, which is largely independent from the economic cycle. The discount factor is determined by the WACC of the respective reporting unit. Fresenius Medical Care's WACC consisted of a basic rate of 6.17% and the WACC in the business segment Fresenius Kabi consisted of a basic rate of 5.26% for 2013, respectively. This basic rate is then adjusted
by a country-specific risk rate and, if appropriate, by a factor to reflect higher risks associated with the cash flow from recent material acquisitions, until they are appropriately integrated, within each reporting unit. In 2013, WACCs (after tax) for the reporting units of Fresenius Medical Care and Fresenius Kabi ranged from 5.26% to 13.83%. In the business segments Fresenius Helios and Fresenius Vamed, the WACC (after tax) was 5.26%, country-specific adjustments did not occur. If the fair value of the reporting unit is less than its carrying amount, the difference is recorded as an impairment of the fair value of the goodwill at first. An increase of the WACC (after tax) by 0.5% would not have resulted in the recognition of an impairment loss in 2013.
A prolonged downturn in the health care industry with lower than expected increases in reimbursement rates and/or higher than expected costs for providing health care services could adversely affect the estimated future cash flows of certain countries or segments. Future adverse changes in a reporting unit's economic environment could affect the discount rate. A decrease in the estimated future cash flows and/or a decline in the reporting unit's economic environment could result in impairment charges to goodwill and other intangible assets with indefinite useful lives which could materially and adversely affect Fresenius Group's future operating results.
The Fresenius Group is involved in several legal matters arising from the ordinary course of its business. The outcome of these matters may have a material effect on the financial position, results of operations or cash flows of the Fresenius Group. For details, please see note 28, Commitments and contingent liabilities.
The Fresenius Group regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including estimated expenses for legal services, as appropriate. The Fresenius Group utilizes its internal legal department as well as external resources for these assessments. In making the decision regarding the need for a loss accrual, the Fresenius Group considers the degree of probability of an unfavorable outcome and its ability to make a reasonable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim, or the disclosure of any such suit or assertion, does not necessarily indicate that an accrual of a loss is appropriate.
Trade accounts receivable are a significant asset and the allowance for doubtful accounts is a significant estimate made by the Management. Trade accounts receivable were €3,474 million and €3,650 million in 2013 and 2012, respectively, net of allowance. Approximately 63% of receivables derive from the business segment Fresenius Medical Care and mainly relate to the dialysis care business in North America.
The major debtors or debtor groups of trade accounts receivable were U.S. Medicare and Medicaid health care programs with 17% and private insurers in the United States with 10% at December 31, 2013. Other than that, the Fresenius Group has no significant risk concentration, due to its international and heterogeneous customer structure.
The allowance for doubtful accounts was €487 million and €406 million as of December 31, 2013 and December 31, 2012, respectively.
The allowances are estimates comprised of customerspecific evaluations regarding their payment history, current financial stability, and applicable country-specific risks for overdue receivables. The Fresenius Group believes that these analyses result in a well-founded estimate of allowances for doubtful accounts. From time to time, the Fresenius Group reviews changes in collection experience to ensure the appropriateness of the allowances.
A valuation allowance is calculated if specific circumstances indicate that amounts will not be collectible. When all efforts to collect a receivable, including the use of outside sources where required and allowed, have been exhausted, and after appropriate management review, a receivable deemed to be uncollectible is considered a bad debt and written off.
Deterioration in the ageing of receivables and collection difficulties could require that the Fresenius Group increases the estimates of allowances for doubtful accounts. Additional expenses for uncollectible receivables could have a significant negative impact on future operating results.
Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, the largest subsidiary of Fresenius Medical Care AG & Co. KGaA, located in North America, is partially self-insured for professional liability claims. For further details regarding the accounting policies for self-insurance programs, please see note 1. III. aa, Self-insurance programs.
The Fresenius Group made acquisitions and investments of €2,754 million and €3,172 million in 2013 and 2012, respectively. Of this amount, €2,689 million was paid in cash and €65 million was assumed obligations in 2013. Furthermore, in 2013, €14 million was paid in cash for acquisitions made in 2012.
In 2013, Fresenius Medical Care spent €424 million on acquisitions, mainly for the purchase of dialysis clinics and the expansion in the laboratory services business.
In 2012, Fresenius Medical Care spent €1,408 million on acquisitions, mainly for the acquisition of Liberty Dialysis Holdings, Inc., United States.
On February 28, 2012, Fresenius Medical Care acquired 100% of the equity of Liberty Dialysis Holdings, Inc., the owner of Liberty Dialysis and owner of a 51% stake in Renal Advantage Partners, LLC (the Liberty Acquisition). Fresenius Medical Care accounted for this transaction as a business combination and finalized the acquisition accounting on February 28, 2013.
Total consideration for the Liberty Acquisition was US\$2,181 million, consisting of US\$1,696 million cash, net of cash acquired and US\$485 million non-cash consideration. Accounting standards for business combinations require previously held equity interests to be fair valued at the time of the acquisition with the difference to book value to be recognized as a gain or loss in income. Prior to the Liberty Acquisition, Fresenius Medical Care had a 49% equity investment in Renal Advantage Partners, LLC, the fair value of which, US\$202 million, was included as part of the non-cash consideration. The fair value was determined based on the discounted cash flow method, utilizing a discount rate of approximately 13%. In addition to Fresenius Medical Care's investment, it also had a loan receivable from Renal Advantage Partners, LLC of US\$279 million, at a fair value of US\$283 million, which was retired as part of the transaction.
The following table summarizes the final fair values of assets acquired and liabilities assumed at the date of the acquisition. Any adjustments to acquisition accounting from December 31, 2012 until finalization on February 28, 2013, net of related income tax effects, were recorded with a corresponding adjustment to goodwill.
| US\$ in millions | |
|---|---|
| Assets held for sale | 164 |
| Trade accounts receivable | 150 |
| Other current assets | 17 |
| Deferred tax assets | 15 |
| Property, plant and equipment | 168 |
| Intangible assets and other assets | 85 |
| Goodwill | 2,003 |
| Accounts payable, accrued expenses | |
| and other short-term liabilities | -105 |
| Income tax payable and deferred taxes | -34 |
| Short-term borrowings and other financial liabilities and long-term debt and capital lease obligations |
-72 |
| Other liabilities | -40 |
| Noncontrolling interests (subject and not subject to put provisions) |
-170 |
| Total acquisition cost | 2,181 |
| Less, at fair value, non-cash contributions | |
| Investment at acquisition date | -202 |
| Long-term Notes Receivable | -283 |
| Total non-cash items | -485 |
| Net Cash paid | 1,696 |
The amortizable intangible assets acquired in this acquisition have weighted-average useful lives of 6 – 8 years.
Goodwill in the amount of US\$2,003 million was acquired as part of the Liberty Acquisition. Of this goodwill, approximately US\$436 million is deductible for tax purposes and is being amortized over a 15 year period which began on the date of the acquisition.
The noncontrolling interests acquired as part of the acquisition are stated at fair value based upon contractual multiples typically utilized by Fresenius Medical Care for such arrangements as well as Fresenius Medical Care's overall experience.
The fair valuation of Fresenius Medical Care's investment at the time of the Liberty Acquisition resulted in a non-taxable gain of US\$140 million. The retirement of the loan receivable resulted in a benefit of US\$9 million.
In connection with the United States Federal Trade Commission consent order relating to regulatory clearance of the Liberty Acquisition under the Hart-Scott-Rodino Antitrust
Improvements Act, Fresenius Medical Care agreed to divest a total of 62 renal dialysis centers. During 2012, 61 clinics were sold, 24 of which were Fresenius Medical Care AG & Co. KGaA legacy clinics, which generated a gain of US\$33.5 million. During 2013, the remaining clinic required to be sold was sold for a gain of US\$7.7 million. The 38 clinics acquired and subsequently sold were categorized as assets held for sale in the preceding table at the time of the Liberty Acquisition.
In 2013, Fresenius Kabi spent €131 million on acquisitions, mainly for a 51% stake in PT Ethica Industri Farmasi, Indonesia, production plants in India and China as well as for compounding companies in Germany.
In 2012, Fresenius Kabi spent €877 million on acquisitions, mainly for the acquisition of Fenwal Holdings, Inc., United States.
On July 20, 2012, Fresenius Kabi announced the signing of a purchase agreement to acquire 100% of the share capital in Fenwal Holdings, Inc. (Fenwal), a leading U.S.-based provider of transfusion technology products for blood collection, separation and processing.
The transaction could be closed on December 13, 2012 after approval by the antitrust authorities. The Fresenius Group has consolidated Fenwal as of December 2012.
The transaction was accounted for as a business combination. The following table summarizes the final fair values of assets acquired and liabilities assumed at the date of the acquisition. Any adjustments to acquisition accounting from December 31, 2012 until finalization on November 30, 2013, net of related income tax effects, were recorded with a corresponding adjustment to goodwill.
| € in millions | |
|---|---|
| Trade accounts receivable | 61 |
| Working capital and other assets | 224 |
| Assets | 120 |
| Liabilities | -549 |
| Goodwill | 399 |
| Identifiable immaterial assets | 331 |
| Consideration transferred | 586 |
| Net debt acquired | 259 |
| Transaction amount | 845 |
The amortizable intangible assets acquired in this acquisition have weighted-average useful lives of 10 to 15 years. The acquired amortizable intangible assets primarily consist of customer relationships in the amount of €70 million and technology in the amount of €237 million.
The goodwill in the amount of €399 million that was acquired as part of the Fenwal Acquisition is not deductible for tax purposes.
In December 2012, Fresenius Kabi announced that it had signed an agreement to sell its subsidiary Calea France SAS (Calea) to The Linde Group. Calea is active in the French homecare market and focuses on respiratory therapy, which is not a core business of Fresenius Kabi.
The assets and liabilities of Calea were thus shown as held for sale in the consolidated statement of financial position as of December 31, 2012 under other assets and other liabilities.
The transaction was completed in January 2013. The gain on disposal in the amount of €48 million is included in selling, general and administrative expenses in the consolidated statement of income.
In 2013, Fresenius Helios spent €2,185 million on acquisitions, mainly for advances made in the amount of €2,178 million under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG.
On September 13, 2013, Fresenius Helios announced the signing of a binding agreement to purchase 43 hospitals as well as 15 outpatient facilities of Rhön-Klinikum AG, Germany, for a purchase price of €3,070 million.
The acquisition was subject to antitrust approval as well as certain approvals of former municipal owners or current minority shareholders. The majority of the transaction was closed on February 27, 2014 (see note 35, Subsequent events).
In 2012, Fresenius Helios spent €579 million on acquisitions, mainly for the acquisition of Damp Holding AG.
In March 2012, Fresenius Helios closed the acquisition of Damp Holding AG (Damp), Germany. 100% of the share capital was acquired.
The Fresenius Group has consolidated Damp as of March 31, 2012. The transaction was accounted for as a business combination and the acquisition accounting was finalized on March 31, 2013.
The following table summarizes the final fair values of assets acquired and liabilities assumed at the date of the acquisition. Any adjustments to acquisition accounting from December 31, 2012 until finalization, net of related income tax effects, were recorded with a corresponding adjustment to goodwill.
| Trade accounts receivable | 43 |
|---|---|
| Working capital and other assets | 56 |
| Assets | 241 |
| Liabilities | -431 |
| Goodwill | 445 |
| Consideration transferred | 354 |
| Net debt acquired | 207 |
| Transaction amount | 561 |
The goodwill in the amount of €445 million that was acquired as part of the Damp Acquisition is not deductible for tax purposes.
In 2013, Fresenius Vamed spent €16 million on acquisitions, mainly for the purchase of the hospitals Nemocnice sv. Zdislavy a. s. and Mělnická zdravotní a. s., Czech Republic.
In 2012, Fresenius Vamed spent €44 million on acquisitions, mainly for the acquisition of H.C. Hospital Consulting S.p.A., Italy, and the intercompany acquisition of the HELIOS Klinik Zihlschlacht AG, Switzerland, from HELIOS Kliniken GmbH.
In November and December 2011, Fresenius SE & Co. KGaA purchased 1,399,996 ordinary shares of Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA). In January and February 2012, Fresenius SE & Co. KGaA purchased further 2,100,004 ordinary shares of FMC-AG & Co. KGaA. Therefore, the voting rights in FMC-AG & Co. KGaA increased to 31.18% at December 31, 2012. A total of 3.5 million ordinary shares were acquired with a total transaction volume of approximately €184 million, whereof €113 million were spent in the year 2012.
During 2013, German government securities with a carrying amount of €37 million were divested.
On June 28, 2013, the sale of Fresenius Biotech to the Fuhrer family, owners of Neopharm, Israel's second-largest pharmaceutical company, was closed. The transaction includes both the trifunctional antibody Removab as well as the immunosuppressive drug ATG-Fresenius S. The gain on disposal amounted to €0 million.
Already in December 2012, Fresenius has decided to focus on its four established business segments Fresenius Medical Care, Fresenius Kabi, Fresenius Helios and Fresenius Vamed.
As a result of this decision, the assets and liabilities of Fresenius Biotech were shown as held for sale in the consolidated statement of financial position as of December 31, 2012 under other assets and other liabilities.
In the fiscal year 2013, all acquisitions have been accounted for applying the purchase method and accordingly have been consolidated starting with the date of acquisition. The excess of the total acquisition costs over the fair value of the net assets acquired was €510 million and €3,032 million in 2013 and 2012, respectively.
The purchase price allocations are not yet finalized for all acquisitions. Based on preliminary purchase price allocations, the recognized goodwill was €355 million and the other intangible assets were €155 million. Of this goodwill, €195 million is attributable to the acquisitions of Fresenius Medical Care, €138 million to Fresenius Kabi's acquisitions, €14 million to the acquisitions of Fresenius Helios and €8 million to the acquisitions of Fresenius Vamed.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill arises principally due to the fair value placed on an established stream of future cash flows versus building a similar business.
The acquisitions completed in 2013 or included in the consolidated statements for the first time for a full year, contributed the following amounts to the development of sales and earnings:
| € in millions | 2013 |
|---|---|
| Sales | 673 |
| EBITDA | 40 |
| EBIT | -14 |
| Net interest | -23 |
| Net income attributable to | |
| shareholders of Fresenius SE & Co. KGaA | -38 |
The acquisitions increased the total assets of the Fresenius Group by €2,603 million.
Net income attributable to shareholders of Fresenius SE & Co. KGaA for the year 2013 in the amount of €1,011 million includes special items relating to the integration of Fenwal Holdings, Inc.
The special items had the following impact on the consolidated statement of income:
| Earnings 2013 according to U.S. GAAP | 1,011 | |
|---|---|---|
| Integration of Fenwal Holdings, Inc. | -54 | -40 |
| Earnings 2013, adjusted | 1,051 | |
| € in millions | EBIT | Net income attributable to shareholders of Fresenius SE & Co. KGaA |
Net income attributable to shareholders of Fresenius SE & Co. KGaA for the year 2012 in the amount of €926 million included several special items.
An expense in the amount of €17 million resulted from Fresenius Medical Care's renegotiation of the license, distribution, manufacturing and supply agreement for iron products sold under the Venofer brand and from a donation to the American Society of Nephrology.
The special item relating to the acquisition of Liberty Dialysis Holdings, Inc. by Fresenius Medical Care in an amount of €34 million is described in note 9, Investment gain.
Furthermore, net income attributable to shareholders of Fresenius SE & Co. KGaA for the year 2012 included special items in the amount of -€29 million relating to the takeover offer to the shareholders of Rhön-Klinikum AG.
The special items were comprised of the following:
| Earnings 2012 accord ing to U.S. GAAP |
926 | |||
|---|---|---|---|---|
| Total special items | -92 | 109 | -35 | -12 |
| Other costs Rhön-Klinikum AG |
-6 | -4 | ||
| Financing costs Rhön-Klinikum AG |
-35 | -25 | ||
| Investment gain Fresenius Medical Care |
109 | 34 | ||
| Venofer/donation Fresenius Medical Care |
-86 | -17 | ||
| Earnings 2012, adjusted |
938 | |||
| € in millions | EBIT | Investment gain |
Other financial result |
Net income attributable to share holders of Fresenius SE & Co. KGaA |
Sales by activity were as follows:
| Sales | 20,331 | 19,290 |
|---|---|---|
| Other sales | 10 | 1 |
| Sales from long-term production contracts |
587 | 510 |
| Sales of products and related goods | 7,507 | 7,007 |
| less patient service bad debt provision | -214 | -218 |
| Sales of services | 12,441 | 11,990 |
| € in millions | 2013 | 2012 |
A sales analysis by business segment and region is shown in the segment information on pages 100 to 101.
Cost of sales was comprised of the following:
| € in millions | 2013 | 2012 |
|---|---|---|
| Cost of services | 9,455 | 9,003 |
| Manufacturing cost of products and related goods |
3,976 | 3,559 |
| Cost of long-term production contracts | 514 | 440 |
| Other cost of sales | 3 | – |
| Cost of sales | 13,948 | 13,002 |
Cost of materials was comprised of cost of raw materials, supplies and purchased components and cost of purchased services:
| € in millions | 2013 | 2012 |
|---|---|---|
| Cost of raw materials, supplies and purchased components |
5,566 | 5,097 |
| Cost of purchased services | 819 | 741 |
| Cost of materials | 6,385 | 5,838 |
Cost of sales, selling, general and administrative expenses and research and development expenses included personnel expenses of €7,360 million and €6,897 million in 2013 and 2012, respectively.
Personnel expenses were comprised of the following:
| € in millions | 2013 | 2012 |
|---|---|---|
| Wages and salaries | 5,834 | 5,463 |
| Social security contributions, cost of retirement pensions and social assistance |
1,526 | 1,434 |
| thereof retirement pensions | 207 | 183 |
| Personnel expenses | 7,360 | 6,897 |
Fresenius Group's annual average number of employees by function is shown below:
| 2013 | 2012 | |
|---|---|---|
| Production | 34,247 | 29,669 |
| Service | 107,539 | 102,997 |
| Administration | 21,439 | 20,518 |
| Sales and marketing | 9,580 | 8,813 |
| Research and development | 1,928 | 1,749 |
| Total employees (per capita) | 174,733 | 163,746 |
Selling expenses were €801 million (2012: €746 million) and mainly included expenditures for sales personnel of €387 million (2012: €366 million).
General and administrative expenses amounted to €2,243 million (2012: €2,254 million) and were related to expenditures for administrative functions not attributable to research and development, production or selling.
Fresenius Medical Care's acquisition of the remaining 51% stake in Renal Advantage Partners, LLC, in addition to its 49% equity investment held previously, represents a business combination achieved in stages in the course of the acquisition of Liberty Dialysis Holdings, Inc. The previous equity investment was measured at its fair value at the date of the acquisition of Liberty Dialysis Holdings, Inc. by Fresenius Medical Care. In 2012, the resultant non-taxable income of US\$140 million (€109 million) was presented in the separate line item investment gain in the consolidated statement of income.
Net interest of -€584 million included interest expenses of €634 million and interest income of €50 million. The main portion of the interest expenses resulted from Fresenius Group's financial liabilities, which are not recognized at fair value in the consolidated statement of income (see note 29, Financial instruments).
In 2012, the item other financial result in the amount of -€35 million was comprised of financing costs, mainly costs for the financing commitment, related to the takeover offer to the shareholders of Rhön-Klinikum AG.
Income before income taxes was attributable to the following geographic regions:
| € in millions | 2013 | 2012 |
|---|---|---|
| Germany | 515 | 414 |
| International | 1,892 | 1,977 |
| Total | 2,407 | 2,391 |
Income tax expenses (benefits) for 2013 and 2012 consisted of the following:
| € in millions | Current taxes |
Deferred taxes |
Income taxes |
|---|---|---|---|
| 2013 | |||
| Germany | 111 | -23 | 88 |
| International | 557 | 24 | 581 |
| Total | 668 | 1 | 669 |
| 2012 | |||
| Germany | 82 | -17 | 65 |
| International | 599 | -5 | 594 |
| Total | 681 | -22 | 659 |
In 2013 and 2012, Fresenius SE & Co. KGaA was subject to German federal corporation income tax at a base rate of 15% plus a solidarity surcharge of 5.5% on federal corporation taxes payable.
A reconciliation between the expected and actual income tax expense is shown in the following table. The expected corporate income tax expense is computed by applying the
German corporation tax rate (including the solidarity surcharge) and the effective trade tax rate on income before income taxes. The respective combined tax rate was 29.5% for the fiscal years 2013 and 2012, respectively.
€ in millions 2013 2012 Computed "expected" income tax expense 710 705 Increase (reduction) in income taxes resulting from: Items not recognized for tax purposes 28 18 Tax rate differential 42 37 Tax-free income -76 -64 Taxes for prior years -11 21 Changes in valuation allowances on deferred tax assets -14 -20 Noncontrolling interests -41 -38 Other 31 – Income tax 669 659 Effective tax rate 27.8% 27.6%
In the consolidated statement of financial position, the net amounts of deferred tax assets and liabilities are included as follows:
| 2013 | 2012 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Deferred tax assets | 535 | 331 | 595 | 371 |
| Deferred tax | ||||
| liabilities | 739 | 48 | 748 | 66 |
| Net deferred taxes | -204 | 283 | -153 | 305 |
As of December 31, 2013, Fresenius Medical Care has not recognized a deferred tax liability on approximately €4.5 billion of undistributed earnings of its foreign subsidiaries, because those earnings are considered indefinitely reinvested.
The expiration of net operating losses is as follows:
| for the fiscal years | € in millions |
|---|---|
| 2014 | 36 |
| 2015 | 35 |
| 2016 | 44 |
| 2017 | 49 |
| 2018 | 49 |
| 2019 | 35 |
| 2020 | 30 |
| 2021 | 29 |
| 2022 | 29 |
| 2023 and thereafter | 120 |
| Total | 456 |
The total remaining operating losses of €356 million can mainly be carried forward for an unlimited period.
Based upon the level of historical taxable income and projections for future taxable income, the Management of the Fresenius Group believes it is more likely than not that the Fresenius Group will realize the benefits of these deductible differences, net of the existing valuation allowances, at December 31, 2013.
Fresenius SE & Co. KGaA and its subsidiaries are subject to tax audits in Germany and the United States on a regular basis and ongoing tax audits in other jurisdictions.
The tax effects of the temporary differences that gave rise to deferred tax assets and liabilities at December 31 are presented below:
| € in millions | 2013 | 2012 |
|---|---|---|
| Deferred tax assets | ||
| Accounts receivable | 16 | 16 |
| Inventories | 65 | 68 |
| Other current assets | 33 | 74 |
| Other non-current assets | 105 | 117 |
| Accrued expenses | 242 | 243 |
| Other short-term liabilities | 56 | 64 |
| Other liabilities | 32 | 36 |
| Benefit obligations | 124 | 139 |
| Losses carried forward from prior years | 260 | 253 |
| Deferred tax assets, before valuation | ||
| allowance | 933 | 1,010 |
| less valuation allowance | 87 | 101 |
| Deferred tax assets | 846 | 909 |
| Deferred tax liabilities | ||
| Accounts receivable | 32 | 15 |
| Inventories | 26 | 22 |
| Other current assets | 14 | 16 |
| Other non-current assets | 742 | 736 |
| Accrued expenses | 101 | 120 |
| Other short-term liabilities | 33 | 50 |
| Other liabilities | 102 | 103 |
| Deferred tax liabilities | 1,050 | 1,062 |
| Net deferred taxes | -204 | -153 |
In Germany, for Fresenius Medical Care, the tax years 2002 through 2009 are currently under audit by the tax authorities. The other entities of the Fresenius Group are currently subject to tax audits for the tax years 2006 through 2009. The Fresenius Group recognized and recorded the current proposed adjustments of this audit period in the consolidated financial statements. All proposed adjustments are deemed immaterial. Fiscal years 2010 until 2013 are open to audit.
In the United States, the tax years 2009 and 2010 are currently under audit by the tax authorities. Fiscal years 2011 until 2013 are open to audit. Fresenius Medical Care Holdings, Inc. (FMCH) is also subject to audit in various state jurisdictions. A number of these audits are in progress and various years are open to audit in various state jurisdictions. All expected results for both federal and state income tax audits have been recognized in the consolidated financial statements.
Fresenius Medical Care filed claims for refunds contesting the Internal Revenue Service's (IRS) disallowance of FMCH's deductions for civil settlement payments taken by FMCH in prior year tax returns. As a result of a settlement agreement with the IRS, Fresenius Medical Care received a partial refund in September 2008 of US\$37 million, inclusive of interest, and preserved its right to pursue claims in the United States Courts for refunds of all other disallowed deductions, which totaled approximately US\$126 million. On December 22, 2008, Fresenius Medical Care 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 US\$95 million. On May 31, 2013, the District Court entered final judgment for FMCH in the amount of US\$50 million. On September 18, 2013, the IRS appealed the District Court's ruling to the United States Court of Appeals for the First Circuit (Boston).
Subsidiaries of Fresenius SE & Co. KGaA in a number of countries outside of Germany and the United States are also subject to tax audits. The Fresenius Group estimates that the effects of such tax audits are not material to the consolidated financial statements.
The following table shows the changes to unrecognized tax benefits during the year 2013:
| € in millions | 2013 |
|---|---|
| Balance at January 1, 2013 | 284 |
| Increase in unrecognized tax benefits prior periods | 22 |
| Decrease in unrecognized tax benefits prior periods | -9 |
| Increase in unrecognized tax benefits current periods | 14 |
| Changes related to settlements with tax authorities | -54 |
| Reductions as a result of a lapse of the statute of limitations |
-1 |
| Foreign currency translation | -8 |
| Balance at December 31, 2013 | 248 |
Included in the balance at December 31, 2013 are €251 million of unrecognized tax benefits, which would affect the effective tax rate if recognized. The Fresenius Group is currently not in a position to forecast the timing and magnitude of changes in other unrecognized tax benefits.
It is Fresenius Group's policy to recognize interest and penalties related to its tax positions as income tax expense. During the fiscal year 2013, the Fresenius Group recognized €1 million in interest and penalties. The Fresenius Group had a total accrual of €14 million of tax related interest and penalties at December 31, 2013.
The following table shows the earnings per share including and excluding the dilutive effect from stock options issued:
| 2013 | 2012 | |
|---|---|---|
| Numerators, € in millions | ||
| Net income attributable to | ||
| shareholders of | ||
| Fresenius SE & Co. KGaA | 1,011 | 926 |
| less effect from dilution due to | ||
| Fresenius Medical Care shares | 1 | 2 |
| Income available to | ||
| all ordinary shares | 1,010 | 924 |
| Denominators in number of shares | ||
| Weighted-average number of | ||
| ordinary shares outstanding | 178,672,652 | 172,977,633 |
| Potentially dilutive | ||
| ordinary shares | 1,231,688 | 1,547,170 |
| Weighted-average number | ||
| of ordinary shares outstanding | ||
| assuming dilution | 179,904,340 | 174,524,803 |
| Basic earnings per | ||
| ordinary share in € | 5.66 | 5.35 |
| Fully diluted earnings | ||
| per ordinary share in € | 5.62 | 5.29 |
As of December 31, cash and cash equivalents were as follows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Cash | 846 | 865 |
| Time deposits and securities (with a maturity of up to 90 days) |
18 | 20 |
| Total cash and cash equivalents | 864 | 885 |
As of December 31, 2013 and December 31, 2012, earmarked funds of €22 million and €38 million, respectively,
were included in cash and cash equivalents.
As of December 31, trade accounts receivable were as follows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Trade accounts receivable | 3,961 | 4,056 |
| less allowance for doubtful accounts | 487 | 406 |
| Trade accounts receivable, net | 3,474 | 3,650 |
All trade accounts receivable are due within one year.
The following table shows the development of the allowance for doubtful accounts during the fiscal year:
| € in millions | 2013 | 2012 |
|---|---|---|
| Allowance for doubtful accounts at the beginning of the year |
406 | 383 |
| Change in valuation allowances as recorded in the consolidated statement of income |
284 | 251 |
| Write-offs and recoveries of amounts previously written-off |
-185 | -221 |
| Foreign currency translation | -18 | -7 |
| Allowance for doubtful accounts | ||
| at the end of the year | 487 | 406 |
The following table shows the ageing analysis of trade accounts receivable and their allowance for doubtful accounts:
| € in millions | not overdue |
up to 3 months overdue |
3 to 6 months overdue |
6 to 12 months overdue |
more than 12 months overdue |
Total |
|---|---|---|---|---|---|---|
| Trade accounts receivable | 2,277 | 672 | 275 | 334 | 403 | 3,961 |
| less allowance for doubtful accounts | 28 | 78 | 52 | 68 | 261 | 487 |
| Trade accounts receivable, net | 2,249 | 594 | 223 | 266 | 142 | 3,474 |
As of December 31, inventories consisted of the following:
| € in millions | 2013 | 2012 |
|---|---|---|
| Raw materials and purchased components | 445 | 433 |
| Work in process | 323 | 291 |
| Finished goods | 1,314 | 1,216 |
| less reserves | 68 | 100 |
| Inventories, net | 2,014 | 1,840 |
The companies of the Fresenius Group are obliged to purchase approximately €720 million of raw materials and purchased components under fixed terms, of which €453 million was committed at December 31, 2013 for 2014. The terms of these agreements run one to eight years. Advance payments from customers of €248 million (2012: €174 million) have been offset against inventories.
Inventories as of December 31, 2013 and December 31, 2012 included approximately €24 million and approximately €23 million, respectively, of the product Erythropoietin (EPO). On January 1, 2012, Fresenius Medical Care entered into a three-year sourcing and supply agreement with its EPO supplier.
As of December 31, other current and non-current assets were comprised of the following:
| 2013 | |||||
|---|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
|||
| Purchase price deposits | 2,178 | 0 | 0 | 0 | |
| Investments, securities and long-term loans | 791 | 43 | 761 | 54 | |
| Tax receivables | 254 | 233 | 257 | 235 | |
| Accounts receivable resulting from German hospital law | 168 | 153 | 164 | 149 | |
| Prepaid expenses | 129 | 64 | 120 | 55 | |
| Capitalized debt financing costs | 95 | 13 | 106 | 11 | |
| Cost report receivable from Medicare and Medicaid | 94 | 94 | 66 | 66 | |
| Leasing receivables | 78 | 36 | 81 | 36 | |
| Discounts | 78 | 78 | 47 | 47 | |
| Advances made | 60 | 60 | 75 | 74 | |
| Prepaid rent and insurance | 55 | 55 | 61 | 61 | |
| Deposits | 48 | 19 | 52 | 20 | |
| Derivative financial instruments | 32 | 30 | 53 | 52 | |
| Assets held for sale | 0 | 0 | 55 | 55 | |
| Other assets | 634 | 383 | 562 | 434 | |
| Other assets, net | 4,694 | 1,261 | 2,460 | 1,349 | |
| allowances | 11 | 9 | 8 | 7 | |
| Other assets, gross | 4,705 | 1,270 | 2,468 | 1,356 |
The purchase price deposits contain advances made in the amount of €2,178 million under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG.
As of December 31, 2013, investments, securities and long-term loans were comprised of investments of €482 million (2012: €484 million), mainly regarding the joint venture between Fresenius Medical Care and Galenica Ltd., that were accounted for under the equity method. In 2013, income of €20 million (2012: €14 million) resulting from this valuation was included in selling, general and administrative expenses in the consolidated statement of income. Moreover, investments, securities and long-term loans included €197 million financial assets available for sale as of December 2013 (2012:
€182 million). These mainly refer to shares in Rhön-Klinikum AG with acquisition costs of €124 million and a fair value of €147 million. Furthermore, investments and long-term loans included €120 million as of December 31, 2013 that Fresenius Medical Care loaned to a middle-market dialysis provider.
The receivables resulting from the German hospital law primarily contain approved but not yet received earmarked subsidies of the Fresenius Helios operations. The approval is evidenced in a letter written by the granting authorities that Fresenius Helios has already received.
Depreciation on other non-current assets in an immaterial amount was recognized in the fiscal year 2013 (2012: €2 million).
As of December 31, the acquisition and manufacturing costs as well as accumulated depreciation of property, plant and equipment consisted of the following:
| € in millions | As of Jan. 1, 2013 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2013 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 285 | -7 | 4 | 17 | 2 | 7 | 294 |
| Buildings and improvements | 3,672 | -113 | 1 | 93 | 231 | 59 | 3,825 |
| Machinery and equipment | 4,665 | -196 | 4 | 459 | 195 | 166 | 4,961 |
| Machinery, equipment and rental equipment under capital leases |
139 | -1 | – | 10 | – | 3 | 145 |
| Construction in progress | 542 | -25 | 8 | 489 | -422 | 8 | 584 |
| Property, plant and equipment | 9,303 | -342 | 17 | 1,068 | 6 | 243 | 9,809 |
| € in millions | As of Jan. 1, 2013 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2013 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 6 | – | 0 | 1 | – | 1 | 6 |
| Buildings and improvements | 1,598 | -50 | -3 | 226 | 5 | 44 | 1,732 |
| Machinery and equipment | 2,741 | -107 | -9 | 472 | -4 | 149 | 2,944 |
| Machinery, equipment and rental equipment under capital leases |
39 | -1 | – | 9 | -1 | 2 | 44 |
| Construction in progress | 1 | – | 0 | – | – | – | 1 |
| Property, plant and equipment | 4,385 | -158 | -12 | 708 | – | 196 | 4,727 |
| € in millions | As of Jan. 1, 2012 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2012 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 230 | -1 | 55 | 7 | 2 | 8 | 285 |
| Buildings and improvements | 3,270 | -29 | 202 | 86 | 181 | 38 | 3,672 |
| Machinery and equipment | 4,157 | -37 | 147 | 442 | 132 | 176 | 4,665 |
| Machinery, equipment and rental equipment under capital leases |
105 | -1 | 35 | 3 | 1 | 4 | 139 |
| Construction in progress | 430 | -4 | 18 | 438 | -331 | 9 | 542 |
| Property, plant and equipment | 8,192 | -72 | 457 | 976 | -15 | 235 | 9,303 |
| € in millions | As of Jan. 1, 2012 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2012 |
|---|---|---|---|---|---|---|---|
| Land and land facilities | 5 | – | 0 | – | 1 | – | 6 |
| Buildings and improvements | 1,431 | -16 | – | 215 | 2 | 34 | 1,598 |
| Machinery and equipment | 2,503 | -16 | -3 | 422 | -6 | 159 | 2,741 |
| Machinery, equipment and rental equipment under capital leases |
42 | -1 | -8 | 10 | – | 4 | 39 |
| Construction in progress | 1 | – | 0 | 0 | – | – | 1 |
| Property, plant and equipment | 3,982 | -33 | -11 | 647 | -3 | 197 | 4,385 |
| € in millions | Dec. 31, 2013 | Dec. 31, 2012 |
|---|---|---|
| Land and land facilities | 288 | 279 |
| Buildings and improvements | 2,093 | 2,074 |
| Machinery and equipment | 2,017 | 1,924 |
| Machinery, equipment and rental equipment under capital leases | 101 | 100 |
| Construction in progress | 583 | 541 |
| Property, plant and equipment | 5,082 | 4,918 |
Depreciation on property, plant and equipment for the years 2013 and 2012 was €708 million and €647 million, respectively. It is allocated within cost of sales, selling, general and administrative expenses and research and development expenses, depending upon the use of the asset.
To a lesser extent, property, plant and equipment are also leased for the treatment of patients by other business segments.
For details of minimum lease payments see note 22, Debt and capital lease obligations.
Machinery and equipment as of December 31, 2013 and 2012 included peritoneal dialysis cycler machines which Fresenius Medical Care leases to customers with end-stage
As of December 31, the acquisition cost and accumulated amortization of intangible assets consisted of the following:
| € in millions | As of Jan. 1, 2013 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2013 |
|---|---|---|---|---|---|---|---|
| Goodwill | 15,014 | -539 | 326 | 29 | – | 4 | 14,826 |
| Patents, product and distribution rights | 585 | -23 | – | 16 | 1 | 8 | 571 |
| Technology | 321 | -12 | 2 | 1 | -8 | 1 | 303 |
| Tradenames | 175 | -10 | 17 | – | – | – | 182 |
| Non-compete agreements | 242 | -11 | 8 | 1 | 0 | 3 | 237 |
| Management contracts | 6 | – | -1 | 0 | – | 0 | 5 |
| Other | 684 | -33 | 78 | 33 | 31 | 22 | 771 |
| Goodwill and other intangible assets | 17,027 | -628 | 430 | 80 | 24 | 38 | 16,895 |
| € in millions | As of Jan. 1, 2013 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2013 |
|---|---|---|---|---|---|---|---|
| Goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Patents, product and distribution rights | 216 | -8 | – | 35 | – | 8 | 235 |
| Technology | 32 | -2 | 0 | 20 | -2 | – | 48 |
| Tradenames | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Non-compete agreements | 162 | -8 | 0 | 23 | 0 | 3 | 174 |
| Management contracts | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 319 | -14 | -1 | 57 | 17 | 7 | 371 |
| Goodwill and other intangible assets | 729 | -32 | -1 | 135 | 15 | 18 | 828 |
| € in millions | As of Jan. 1, 2012 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2012 |
|---|---|---|---|---|---|---|---|
| Goodwill | 12,669 | -215 | 2,555 | 6 | 0 | 1 | 15,014 |
| Patents, product and distribution rights | 582 | -9 | 13 | 2 | 1 | 4 | 585 |
| Technology | 86 | -2 | 240 | 0 | -3 | 0 | 321 |
| Tradenames | 178 | -3 | 0 | – | – | – | 175 |
| Non-compete agreements | 201 | -5 | 46 | – | 0 | – | 242 |
| Management contracts | 6 | – | 0 | 0 | 0 | – | 6 |
| Other | 596 | -14 | 122 | 48 | -58 | 10 | 684 |
| Goodwill and other intangible assets | 14,318 | -248 | 2,976 | 56 | -60 | 15 | 17,027 |
| € in millions | As of Jan. 1, 2012 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Disposals | As of Dec. 31, 2012 |
|---|---|---|---|---|---|---|---|
| Goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Patents, product and distribution rights | 182 | -3 | 1 | 41 | -1 | 4 | 216 |
| Technology | 25 | -1 | 0 | 8 | – | 0 | 32 |
| Tradenames | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Non-compete agreements | 144 | -3 | -1 | 22 | 0 | – | 162 |
| Management contracts | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 317 | 2 | – | 56 | -47 | 9 | 319 |
| Goodwill and other intangible assets | 668 | -5 | – | 127 | -48 | 13 | 729 |
| € in millions | Dec. 31, 2013 | Dec. 31, 2012 |
|---|---|---|
| Goodwill | 14,826 | 15,014 |
| Patents, product and distribution rights | 336 | 369 |
| Technology | 255 | 289 |
| Tradenames | 182 | 175 |
| Non-compete agreements | 63 | 80 |
| Management contracts | 5 | 6 |
| Other | 400 | 365 |
| Goodwill and other intangible assets | 16,067 | 16,298 |
The split of intangible assets into amortizable and non-amortizable intangible assets is shown in the following tables:
| Dec. 31, 2013 | Dec. 31, 2012 | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | Acquisition cost |
Accumulated amortization |
Carrying amount |
Acquisition cost |
Accumulated amortization |
Carrying amount |
|
| Patents, product and distribution rights | 571 | 235 | 336 | 585 | 216 | 369 | |
| Technology | 303 | 48 | 255 | 321 | 32 | 289 | |
| Non-compete agreements | 237 | 174 | 63 | 242 | 162 | 80 | |
| Other | 771 | 371 | 400 | 684 | 319 | 365 | |
| Total | 1,882 | 828 | 1,054 | 1,832 | 729 | 1,103 |
Estimated regular amortization expenses of intangible assets for the next five years are shown in the following table:
| € in millions | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|
| Estimated amortization expenses | 130 | 122 | 115 | 111 | 109 |
| Dec. 31, 2013 | Dec. 31, 2012 | ||||||
|---|---|---|---|---|---|---|---|
| € in millions | Acquisition cost |
Accumulated amortization |
Carrying amount |
Acquisition cost |
Accumulated amortization |
Carrying amount |
|
| Tradenames | 182 | 0 | 182 | 175 | 0 | 175 | |
| Management contracts | 5 | 0 | 5 | 6 | 0 | 6 | |
| Goodwill | 14,826 | 0 | 14,826 | 15,014 | 0 | 15,014 | |
| Total | 15,013 | 0 | 15,013 | 15,195 | 0 | 15,195 |
Amortization on intangible assets amounted to €135 million and €127 million for the years 2013 and 2012, respectively. It is allocated within cost of sales, selling, general and administrative expenses and research and development expenses, depending upon the use of the asset.
The carrying amount of goodwill has developed as follows:
| € in millions | Fresenius Medical Care |
Fresenius Kabi |
Fresenius Helios |
Fresenius Vamed |
Corporate/ Other |
Fresenius Group |
|---|---|---|---|---|---|---|
| Carrying amount as of January 1, 2012 | 7,100 | 3,793 | 1,722 | 48 | 6 | 12,669 |
| Additions | 1,707 | 396 | 447 | 11 | 0 | 2,561 |
| Disposals | 0 | -1 | – | 0 | 0 | -1 |
| Reclassifications | 0 | 0 | -18 | 18 | 0 | 0 |
| Foreign currency translation | -150 | -65 | 0 | 0 | 0 | -215 |
| Carrying amount as of December 31, 2012 | 8,657 | 4,123 | 2,151 | 77 | 6 | 15,014 |
| Additions | 195 | 138 | 14 | 8 | 0 | 355 |
| Disposals | 0 | -4 | 0 | 0 | 0 | -4 |
| Reclassifications | – | 0 | 0 | 0 | 0 | – |
| Foreign currency translation | -398 | -141 | 0 | 0 | 0 | -539 |
| Carrying amount as of December 31, 2013 | 8,454 | 4,116 | 2,165 | 85 | 6 | 14,826 |
As of December 31, 2013 and December 31, 2012, the carrying amounts of the other non-amortizable intangible assets were €158 million and €165 million, respectively,
for Fresenius Medical Care as well as €29 million and €16 million, respectively, for Fresenius Kabi.
As of December 31, accrued expenses consisted of the following:
| 2013 | 2012 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Personnel expenses | 706 | 604 | 665 | 567 |
| Invoices outstanding | 253 | 253 | 279 | 279 |
| Self-insurance programs | 147 | 147 | 142 | 142 |
| Bonuses and discounts | 115 | 115 | 122 | 122 |
| Special charge for legal matters | 83 | 83 | 87 | 87 |
| Warranties and complaints | 67 | 66 | 59 | 58 |
| Legal matters, advisory and audit fees | 57 | 57 | 56 | 56 |
| Commissions | 30 | 30 | 29 | 29 |
| Other accrued expenses | 547 | 473 | 544 | 508 |
| Accrued expenses | 2,005 | 1,828 | 1,983 | 1,848 |
The following table shows the development of accrued expenses in the fiscal year:
| € in millions | As of Jan. 1, 2013 |
Foreign currency translation |
Changes in entities consolidated |
Additions | Reclassifi cations |
Utilized | Reversed | As of Dec. 31, 2013 |
|---|---|---|---|---|---|---|---|---|
| Personnel expenses | 665 | -17 | 3 | 520 | 11 | -425 | -51 | 706 |
| Invoices outstanding | 279 | -3 | -2 | 209 | 5 | -211 | -24 | 253 |
| Self-insurance programs | 142 | -7 | 0 | 53 | – | -2 | -39 | 147 |
| Bonuses and discounts | 122 | -3 | – | 119 | -1 | -108 | -14 | 115 |
| Special charge for legal matters |
87 | -4 | 0 | 0 | 0 | 0 | 0 | 83 |
| Warranties and complaints | 59 | – | – | 24 | – | -12 | -4 | 67 |
| Legal matters, advisory and audit fees |
56 | -3 | -1 | 43 | -2 | -33 | -3 | 57 |
| Commissions | 29 | -1 | – | 28 | – | -23 | -3 | 30 |
| Other accrued expenses | 544 | -17 | 40 | 430 | -8 | -334 | -108 | 547 |
| Total | 1,983 | -55 | 40 | 1,426 | 5 | -1,148 | -246 | 2,005 |
Accruals for personnel expenses mainly refer to bonus, severance payments, contribution of partial retirement and holiday entitlements. For details regarding accruals for selfinsurance programs, please see note 1. III. aa, Self-insurance programs.
In 2001, Fresenius Medical Care recorded a US\$258 million special charge to address legal matters relating to transactions pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996 by and between W.R. Grace& Co. and Fresenius AG, estimated liabilities and legal expenses arising in connection with the W.R. Grace & Co. Chapter 11 proceedings (Grace Chapter 11 Proceedings) and the cost of resolving pending litigation and other disputes with certain commercial insurers. During the second quarter of 2003, the
court supervising the Grace Chapter 11 Proceedings approved a definitive settlement agreement entered into among Fresenius Medical Care, the committee representing the asbestos creditors and W.R. Grace & Co. Under the settlement agreement, Fresenius Medical Care had agreed to pay US\$115 million (€83 million), without interest, upon plan confirmation. On February 3, 2014, the plan was confirmed and became effective. Fresenius Medical Care paid the US\$115 million at that time. All other matters included in the special charge have now been resolved (see note 28, Commitments and contingent liabilities).
As of December 31, other liabilities consisted of the following:
| 2013 | 2012 | |||
|---|---|---|---|---|
| € in millions | thereof short-term |
thereof short-term |
||
| Debtors with credit balances | 227 | 227 | 158 | 158 |
| Personnel liabilities | 223 | 218 | 193 | 188 |
| Interest liabilities | 145 | 145 | 163 | 163 |
| Tax liabilities | 145 | 144 | 162 | 160 |
| Accounts receivable credit balance | 145 | 51 | 118 | 39 |
| Accounts payable resulting from German hospital law | 130 | 130 | 174 | 168 |
| Leasing liabilities | 72 | 72 | 66 | 66 |
| Advance payments from customers | 32 | 32 | 59 | 58 |
| Derivative financial instruments | 23 | 17 | 96 | 76 |
| Liabilities held for sale | 0 | 0 | 36 | 36 |
| All other liabilities | 344 | 193 | 413 | 251 |
| Other liabilities | 1,486 | 1,229 | 1,638 | 1,363 |
The payables resulting from the German hospital law primarily contain earmarked subsidies received but not yet spent appropriately by Fresenius Helios. The amount not yet spent appropriately is classified as liability.
At December 31, 2013, the total amount of other noncurrent liabilities was €257 million, thereof €100 million was due between one and five years and €157 million was due after five years. The statement of financial position line item long-term accrued expenses and other long-term liabilities of €434 million also included other long-term accrued expenses of €177 million as of December 31, 2013.
The Fresenius Group had short-term debt of €959 million and €205 million at December 31, 2013 and December 31, 2012, respectively. As of December 31, 2013, this debt consisted of borrowings by certain entities of the Fresenius Group under lines of credit with commercial banks. Furthermore, €500 million were outstanding under the commercial paper program of Fresenius SE & Co. KGaA. The average interest rates on these borrowings at December 31, 2013 and 2012 were 1.65% and 5.98%, respectively.
As of December 31, long-term debt and capital lease obligations consisted of the following:
| € in millions | 2013 | 2012 |
|---|---|---|
| Fresenius Medical Care 2012 Credit Agreement | 1,963 | 2,016 |
| 2013 Senior Credit Agreement | 1,709 | 0 |
| 2008 Senior Credit Agreement | 0 | 1,170 |
| Bridge Financing Facility | 1,410 | 0 |
| Euro Notes | 859 | 739 |
| European Investment Bank Agreements | 188 | 498 |
| Accounts receivable facility of Fresenius Medical Care | 255 | 123 |
| Capital lease obligations | 94 | 94 |
| Other | 248 | 315 |
| Subtotal | 6,726 | 4,955 |
| less current portion | 855 | 519 |
| Long-term debt and capital lease obligations, less current portion | 5,871 | 4,436 |
Maturities of long-term debt and capital lease obligations are shown in the following table:
| € in millions | up to 1 year |
1 to 3 years |
3 to 5 years |
more than 5 years |
|---|---|---|---|---|
| Fresenius Medical Care 2012 Credit Agreement | 145 | 290 | 1,528 | 0 |
| 2013 Senior Credit Agreement | 127 | 282 | 956 | 344 |
| Bridge Financing Facility | 0 | 0 | 0 | 1,410 |
| Euro Notes | 334 | 285 | 240 | 0 |
| European Investment Bank Agreements | 148 | 16 | 16 | 8 |
| Accounts receivable facility of Fresenius Medical Care | 0 | 255 | 0 | 0 |
| Capital lease obligations | 7 | 21 | 8 | 58 |
| Other | 94 | 79 | 50 | 25 |
| Long-term debt and capital lease obligations | 855 | 1,228 | 2,798 | 1,845 |
Aggregate annual repayments applicable to the above listed long-term debt and capital lease obligations for the years subsequent to December 31, 2013 are:
| € in millions |
|---|
| 855 |
| 355 |
| 873 |
| 1,826 |
| 972 |
| 1,845 |
| 6,726 |
Fresenius Medical Care 2012 Credit Agreement Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) entered into a syndicated credit facility (Fresenius Medical Care 2012 Credit Agreement) of initially US\$3,850 million with a large group of banks and institutional investors (collectively, the Lenders) on October 30, 2012 which replaced a prior credit agreement.
The following tables show the available and outstanding amounts under the Fresenius Medical Care 2012 Credit Agreement at December 31:
| 2013 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | |||||||
| € in millions | € in millions | |||||||
| Revolving Credit (in US\$) | US\$600 million | 435 | US\$138 million | 100 | ||||
| Revolving Credit (in €) | €500 million | 500 | €50 million | 50 | ||||
| Term Loan A | US\$2,500 million | 1,813 | US\$2,500 million | 1,813 | ||||
| Total | 2,748 | 1,963 |
| 2012 | |||||||
|---|---|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | ||||||
| € in millions | € in millions | ||||||
| Revolving Credit (in US\$) | US\$600 million | 454 | US\$59 million | 45 | |||
| Revolving Credit (in €) | €500 million | 500 | €0 million | 0 | |||
| Term Loan A | US\$2,600 million | 1,971 | US\$2,600 million | 1,971 | |||
| Total | 2,925 | 2,016 |
As of December 31, 2013, the Fresenius Medical Care 2012 Credit Agreement consisted of:
Interest on the credit facilities is, at Fresenius Medical Care's option, at a rate equal to either (i) LIBOR or EURIBOR (as applicable) plus an applicable margin or (ii) the Base Rate as defined in the Fresenius Medical Care 2012 Credit Agreement plus an applicable margin. As of December 31, 2013, the U.S. dollar-denominated tranches outstanding under the Fresenius Medical Care 2012 Credit Agreement had a weighted-average interest rate of 2.00%. The euro-denominated tranche had an interest rate of 1.95%.
The applicable margin is variable and depends on Fresenius Medical Care's consolidated leverage ratio which is a ratio of its consolidated funded debt (less cash and cash equivalents) to consolidated EBITDA (as these terms are defined in the Fresenius Medical Care 2012 Credit Agreement).
In addition to scheduled principal payments, indebtedness outstanding under the Fresenius Medical Care 2012 Credit Agreement 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 Fresenius Medical Care 2012 Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the Lenders.
The Fresenius Medical Care 2012 Credit Agreement contains affirmative and negative covenants with respect to FMC-AG & Co. KGaA and its subsidiaries and other payment restrictions. Certain of the covenants limit indebtedness of Fresenius Medical Care and investments by Fresenius Medical Care, and require Fresenius Medical Care to maintain certain financial ratios defined in the agreement. Additionally, the Fresenius Medical Care 2012 Credit Agreement provides for a limitation on dividends and other restricted payments which is €330 million for dividends to be paid in 2014, and increases in subsequent years. In default, the outstanding balance under the Fresenius Medical Care 2012 Credit Agreement becomes immediately due and payable at the option of the Lenders.
As of December 31, 2013, FMC-AG & Co. KGaA and its subsidiaries were in compliance with all covenants under the Fresenius Medical Care 2012 Credit Agreement.
In addition, at December 31, 2013 and December 31, 2012, Fresenius Medical Care had letters of credit outstanding in the amount of US\$9 million and US\$77 million, respectively, which were not included above as part of the balance outstanding at those dates but which reduce available borrowings under the Revolving Credit Facility.
On December 20, 2012, Fresenius SE & Co. KGaA and various subsidiaries entered into a delayed draw syndicated credit agreement (2013 Senior Credit Agreement) in the original amount of US\$1,300 million and €1,250 million. The 2013 Senior Credit Agreement was funded on June 28, 2013 and replaced the 2008 Senior Credit Agreement. On August 7, 2013, the 2013 Senior Credit Agreement was extended by a term loan B facility in the amount of US\$500 million.
The following tables show the available and outstanding amounts under the 2013 Senior Credit Agreement at December 31, 2013 and under the 2008 Senior Credit Agreement at December 31, 2012:
| Balance outstanding | |||
|---|---|---|---|
| € in millions | € in millions | ||
| €600 million | 600 | €0 million | 0 |
| US\$300 million | 218 | US\$0 million | 0 |
| €637 million | 637 | €637 million | 637 |
| US\$980 million | 710 | US\$980 million | 710 |
| US\$499 million | 362 | US\$499 million | 362 |
| 2,527 | 1,709 | ||
| Maximum amount available | 2013 |
| 2012 | ||||||
|---|---|---|---|---|---|---|
| Maximum amount available | Balance outstanding | |||||
| € in millions | € in millions | |||||
| Revolving Credit Facilities | US\$550 million | 416 | US\$0 million | 0 | ||
| Term Loan A | US\$375 million | 284 | US\$375 million | 284 | ||
| Term Loan D (in US\$) | US\$959 million | 728 | US\$959 million | 728 | ||
| Term Loan D (in €) | €158 million | 158 | €158 million | 158 | ||
| Total | 1,586 | 1,170 |
As of December 31, 2013, the 2013 Senior Credit Agreement consisted of:
The 2013 Senior Credit Agreement allows for establishment of incremental facilities if certain conditions are met. In line with these provisions, the 2013 Senior Credit Agreement has been increased on November 27, 2013 by an incremental term loan facility A of €600 million, an incremental term loan
facility B of €300 million and an incremental revolving facility of €300 million. These incremental facilities were drawn down on February 27, 2014 and used to fund the acquisition of hospitals from Rhön-Klinikum AG.
The interest rate on each borrowing under the 2013 Senior Credit Agreement is a rate equal to either (i) LIBOR or EURIBOR (as applicable) plus an applicable margin or (ii) the Base Rate as defined in the 2013 Senior Credit Agreement plus an applicable margin. The applicable margin is variable and depends on the leverage ratio as defined in the 2013 Senior Credit Agreement.
In addition to scheduled principal payments, indebtedness outstanding under the 2013 Senior Credit Agreement will be reduced by mandatory prepayments in the case of certain sales of assets and the incurrence of certain additional indebtedness, with the amount to be prepaid depending on the proceeds which are generated by the respective transaction.
The 2013 Senior Credit Agreement is guaranteed by Fresenius SE & Co. KGaA, Fresenius ProServe GmbH, Fresenius Kabi AG and certain U.S. subsidiaries of Fresenius Kabi AG. Obligations under the 2013 Senior Credit Agreement are
secured by pledges of capital stock of certain material subsidiaries of Fresenius Kabi AG, and upon funding of the incremental facilities are additionally secured by a pledge of the capital stock of HELIOS Kliniken GmbH, in favor of the lenders.
The 2013 Senior Credit Agreement contains a number of customary affirmative and negative covenants and other payment restrictions. These covenants include limitations on liens, sale of assets, incurrence of debt, investments and acquisitions and restrictions on the payment of dividends, among other items. The 2013 Senior Credit Agreement also includes financial covenants – as defined in the agreement – that require Fresenius SE & Co. KGaA and its subsidiaries (other than Fresenius Medical Care and its subsidiaries) to maintain a maximum leverage ratio and a minimum interest coverage ratio.
As of December 31, 2013, the Fresenius Group was in compliance with all covenants under the 2013 Senior Credit Agreement.
On October 15, 2013, Fresenius SE & Co. KGaA entered into a Bridge Financing Facility in the amount of €1,800 million with a group of banks. The Bridge Financing Facility is guaranteed by Fresenius ProServe GmbH and Fresenius Kabi AG. The Bridge Financing Facility has been drawn in an amount of €1,500 million on December 30, 2013. The proceeds were used for advances made in the amount of €2,178 million under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG. The majority of the transaction was closed on February 27, 2014.
The Bridge Financing Facility initially had a one year tenor and had to be mandatorily reduced by the net proceeds of any capital markets transaction. In line with these provisions, the facility has been reduced by the net proceeds of the €1,200 million Senior Notes issuances as well as the US\$300 million Senior Notes issuance that were made in January and February 2014. For more information, see note 35, Subsequent events. Due to the refinancing, this portion of the Bridge Financing Facility in the amount of €1,410 million is shown under long-term debt in the consolidated statement of financial position at December 31, 2013. On February 27, 2014, the Bridge Financing Facility was voluntarily cancelled before maturity and the remaining outstanding amount of €90 million was prepaid.
The Bridge Financing Facility contained a number of customary affirmative and negative covenants. These covenants included limitations on liens, sale of assets, incurrence of debt, investments and acquisitions, among other items. The Bridge Financing Facility also included a financial covenant.
The interest rate on each borrowing under the Bridge Financing Facility was a rate equal to EURIBOR plus the applicable margin. The applicable margin would have increased after three months and six months from the date of first utilization.
As of December 31, 2013, Fresenius SE & Co. KGaA and its subsidiaries were in compliance with all covenants under the Bridge Financing Facility.
As of December 31, Euro Notes (Schuldscheindarlehen) of the Fresenius Group consisted of the following:
| Book value/nominal value € in millions |
|||||
|---|---|---|---|---|---|
| Maturity | Interest rate | 2013 | 2012 | ||
| Fresenius Finance B.V. 2008/2014 | April 2, 2014 | 5.98% | 112 | 112 | |
| Fresenius Finance B.V. 2008/2014 | April 2, 2014 | variable | 88 | 88 | |
| Fresenius Finance B.V. 2007/2014 | July 2, 2014 | 5.75% | 38 | 38 | |
| Fresenius Finance B.V. 2007/2014 | July 2, 2014 | variable | 62 | 62 | |
| Fresenius SE & Co. KGaA 2012/2016 | April 4, 2016 | 3.36% | 156 | 156 | |
| Fresenius SE & Co. KGaA 2012/2016 | April 4, 2016 | variable | 129 | 129 | |
| Fresenius SE & Co. KGaA 2013/2017 | Aug. 22, 2017 | 2.65% | 51 | 0 | |
| Fresenius SE & Co. KGaA 2013/2017 | Aug. 22, 2017 | variable | 74 | 0 | |
| Fresenius SE & Co. KGaA 2012/2018 | April 4, 2018 | 4.09% | 72 | 72 | |
| Fresenius SE & Co. KGaA 2012/2018 | April 4, 2018 | variable | 43 | 43 | |
| Fresenius Medical Care AG & Co. KGaA 2009/2014 | Oct. 27, 2014 | 8.38% | 11 | 12 | |
| Fresenius Medical Care AG & Co. KGaA 2009/2014 | Oct. 27, 2014 | variable | 23 | 27 | |
| Euro Notes | 859 | 739 |
On February 22, 2013, Fresenius SE & Co. KGaA issued Euro Notes in an amount of €125 million. Proceeds were used for general corporate purposes. The new Euro Notes are guaranteed by Fresenius Kabi AG and Fresenius ProServe GmbH.
On April 2, 2012, Fresenius SE & Co. KGaA issued Euro Notes in an amount of €400 million. Proceeds were used to refinance the tranches of the Euro Notes of Fresenius Finance B.V. which were due in April and July 2012 and for general corporate purposes. These Euro Notes are guaranteed by Fresenius Kabi AG and Fresenius ProServe GmbH.
The Euro Notes issued by Fresenius Finance B.V. in the amount of €200 million and €100 million, which are due on April 2, 2014 and on July 2, 2014, respectively, as well as the Euro Notes of FMC-AG &Co.KGaA due on October 27, 2014 of €34 million are shown as current portion of long-term debt and capital lease obligations in the consolidated statement of financial position.
The Euro Notes of Fresenius Finance B.V. are guaranteed by Fresenius SE & Co. KGaA. The Euro Notes of FMC-AG & Co. KGaA are guaranteed by Fresenius Medical Care Holdings, Inc. (FMCH) and Fresenius Medical Care Deutschland GmbH (FMC D-GmbH).
As of December 31, 2013, the Fresenius Group was in compliance with all of its covenants under the Euro Notes.
Various subsidiaries of the Fresenius Group maintain credit facilities with the European Investment Bank (EIB). The following table shows the amounts outstanding under the EIB facilities as of December 31:
| Book value € in millions |
|||
|---|---|---|---|
| Maturity | 2013 | 2012 | |
| Fresenius SE & Co. KGaA | 2013 | 0 | 196 |
| Fresenius Medical Care AG & Co. KGaA | 2013/2014 | 140 | 246 |
| HELIOS Kliniken GmbH | 2019 | 48 | 56 |
| Loans from EIB | 188 | 498 |
The EIB is the not-for-profit long-term lending institution of the European Union and loans funds at favorable rates for the purpose of specific capital investment and research and development projects. The facilities were granted to finance certain research and development projects, to invest in the expansion and optimization of existing production facilities in Germany and for the construction of a hospital.
Repayment of the loan of HELIOS Kliniken GmbH already started in December 2007 and will continue through December 2019 with constant half-yearly payments.
At June 14, 2013, €96 million borrowings of Fresenius SE & Co. KGaA and US\$91 million borrowings of FMC-AG & Co. KGaA were due. The loans were repaid as scheduled. In addition, loans borrowed by Fresenius SE & Co. KGaA of €100 million and FMC-AG & Co. KGaA of US\$49 million, which were due at September 10 and 13, 2013, respectively, were repaid as scheduled.
The loans borrowed by FMC-AG & Co. KGaA, which were due at February 3 and 17, 2014, respectively, are shown as current portion of long-term debt and capital lease obligations in the consolidated statement of financial position. They were repaid as scheduled.
The above mentioned loans had variable interest rates which were based on EURIBOR or LIBOR plus applicable margin. These interest rates changed quarterly. The loans under the EIB Agreements entered before 2009 were secured by bank guarantees. The 2009 loan of Fresenius SE & Co. KGaA was guaranteed by Fresenius Kabi AG and Fresenius ProServe GmbH. The 2009 loan of FMC-AG & Co. KGaA was guaranteed by FMCH and FMC D-GmbH. All credit agreements with the EIB had customary covenants. As of December 31, 2013, the Fresenius Group was in compliance with the respective covenants.
On January 17, 2013, the asset securitization facility (accounts receivable facility) of Fresenius Medical Care was refinanced for a term expiring on January 15, 2016 with available borrowings of US\$800 million.
At December 31, 2013, there were outstanding borrowings under the accounts receivable facility of US\$351 million (€255 million) (2012: US\$162 million (€123 million)). Fresenius Medical Care also had letters of credit outstanding in the amount of US\$66 million (€48 million) at December 31, 2013. These letters of credit were not included above as part of the balance outstanding at December 31, 2013, however, they reduce available borrowings under the accounts receivable facility.
Under the accounts receivable facility, certain receivables are sold to NMC Funding Corp. (NMC Funding), a wholly owned subsidiary of Fresenius Medical Care. NMC Funding then assigns percentage ownership interests in the accounts receivable to certain bank investors. Under the terms of the accounts receivable facility, NMC Funding retains the right, at any time, to recall all the then outstanding transferred interests in the accounts receivable. Consequently, the receivables remain on the consolidated statement of financial position and the proceeds from the transfer of percentage ownership interests are recorded as long-term debt.
NMC Funding pays interest to the bank investors, calculated based on the commercial paper rates for the particular tranches selected. The average interest rate during 2013 was 1.04%. Refinancing fees, which include legal costs and bank fees, are amortized over the term of the facility.
In addition to the financial liabilities described before, the Fresenius Group maintains additional credit facilities which have not been utilized, or have only been utilized in part, as of the reporting date. At December 31, 2013, the additional financial cushion resulting from unutilized credit facilities was approximately €2.2 billion.
Syndicated credit facilities accounted for €1.6 billion. This portion is comprised of the Fresenius Medical Care 2012 Credit Agreement in the amount of US\$1,073 million (€778 million) and the 2013 Senior Credit Agreement in the amount of US\$1,128 million (€818 million). Furthermore, bilateral facilities of approximately €650 million were available. They include credit facilities which certain entities of the Fresenius Group have arranged with commercial banks. These credit facilities are used for general corporate purposes and are usually unsecured.
In addition, Fresenius SE & Co. KGaA has a commercial paper program under which up to €500 million in short-term notes can be issued. As of December 31, 2013, the commercial paper program was completely utilized.
Additional financing of up to US\$800 million can be provided using the Fresenius Medical Care accounts receivable facility which had been utilized in the amount of US\$417 million as of December 31, 2013.
As of December 31, Senior Notes of the Fresenius Group consisted of the following:
| Notional amount | Book value € in millions |
||||
|---|---|---|---|---|---|
| Maturity | Interest rate | 2013 | 2012 | ||
| Fresenius Finance B.V. 2006/2013 | €500 million | Jan. 31, 2013 | 5.00% | 0 | 500 |
| Fresenius Finance B.V. 2006/2016 | €650 million | Jan. 31, 2016 | 5.50% | 0 | 645 |
| Fresenius Finance B.V. 2012/2019 | €500 million | Apr. 15, 2019 | 4.25% | 500 | 500 |
| Fresenius Finance B.V. 2013/2020 | €500 million | July 15, 2020 | 2.875% | 500 | 0 |
| Fresenius US Finance II, Inc. 2009/2015 | €275 million | July 15, 2015 | 8.75% | 270 | 267 |
| Fresenius US Finance II, Inc. 2009/2015 | US\$500 million | July 15, 2015 | 9.00% | 357 | 369 |
| FMC Finance VI S.A. 2010/2016 | €250 million | July 15, 2016 | 5.50% | 249 | 248 |
| FMC Finance VII S.A. 2011/2021 | €300 million | Feb. 15, 2021 | 5.25% | 295 | 294 |
| FMC Finance VIII S.A. 2011/2016 | €100 million | Oct. 15, 2016 | variable | 100 | 100 |
| FMC Finance VIII S.A. 2011/2018 | €400 million | Sept. 15, 2018 | 6.50% | 396 | 396 |
| FMC Finance VIII S.A. 2012/2019 | €250 million | July 31, 2019 | 5.25% | 243 | 243 |
| Fresenius Medical Care US Finance, Inc. 2007/2017 | US\$500 million | July 15, 2017 | 6.875% | 360 | 376 |
| Fresenius Medical Care US Finance, Inc. 2011/2021 | US\$650 million | Feb. 15, 2021 | 5.75% | 468 | 489 |
| Fresenius Medical Care US Finance II, Inc. 2011/2018 | US\$400 million | Sept. 15, 2018 | 6.50% | 287 | 300 |
| Fresenius Medical Care US Finance II, Inc. 2012/2019 | US\$800 million | July 31, 2019 | 5.625% | 580 | 606 |
| Fresenius Medical Care US Finance II, Inc. 2012/2022 | US\$700 million | Jan. 31, 2022 | 5.875% | 508 | 531 |
| Senior Notes | 5,113 | 5,864 |
On January 7, 2013, Fresenius announced the early redemption of the 5.5% Senior Notes due in 2016 that were issued in 2006. The aggregate principal amount of €650 million was completely repaid on February 7, 2013 at a price of 100.916% plus accrued and unpaid interest. Initially, the redemption was financed by utilizing existing credit lines. Starting end of June 2013, the 2013 Senior Credit Agreement was used for the refinancing.
On January 24, 2013, Fresenius Finance B.V. issued unsecured Senior Notes of €500 million at par which are due in 2020. Net proceeds were used to refinance the Senior Notes which were due in January 2013.
On March 28, 2012, Fresenius Finance B.V. issued unsecured Senior Notes of €500 million at par which are due in 2019. Net proceeds were used for acquisitions, including the acquisition of the Damp Group, to refinance short-term debt and for general corporate purposes.
The Senior Notes issued by Fresenius Finance B.V. which were due on January 31, 2013 were shown as long-term debt in the consolidated statement of financial position as of December 31, 2012.
All Senior Notes of Fresenius Finance B.V. and of Fresenius US Finance II, Inc. are guaranteed by Fresenius SE & Co. KGaA, Fresenius Kabi AG and Fresenius ProServe GmbH. The holders have the right to request that the issuers repurchase the Senior Notes at 101% of principal plus accrued interest upon the occurrence of a change of control followed by a decline in the rating of the respective Senior Notes. All Senior Notes of Fresenius Finance B.V. and of Fresenius US Finance II, Inc. may be redeemed prior to their maturity at the option of the issuers at a price of 100% plus accrued interest and a premium calculated pursuant to the terms of the indentures under observance of certain notice periods.
Fresenius SE & Co. KGaA has agreed to a number of covenants to provide protection to the bondholders, which, under certain circumstances, partly restrict the scope of action of Fresenius SE & Co. KGaA and its subsidiaries (excluding Fresenius Medical Care AG & Co. KGaA (FMC-AG & Co. KGaA) and its subsidiaries). These covenants include restrictions on further debt that can be raised, the payment of dividends, investments, the redemption of subordinated liabilities and the mortgaging or sale of assets, among other items. Some of these restrictions are lifted automatically when the rating of the respective Notes reaches investment grade. In the event of non-compliance with certain terms of the Senior Notes, the bondholders (owning in aggregate more than 25% of the outstanding Senior Notes) are entitled to call the Senior Notes and demand immediate repayment plus interest. As of December 31, 2013, the Fresenius Group was in compliance with all of its covenants.
On January 26, 2012, Fresenius Medical Care US Finance II, Inc. issued unsecured Senior Notes of US\$800 million with a coupon of 5.625% at par and unsecured Senior Notes of US\$700 million with a coupon of 5.875% at par. In addition, FMC Finance VIII S.A. issued unsecured Senior Notes of €250 million with a coupon of 5.25% at par. The Senior Notes issued by Fresenius Medical Care US Finance II, Inc. in the amount of US\$800 million are due on July 31, 2019 and the US\$700 million Senior Notes are due on January 31, 2022. The Senior Notes issued by FMC Finance VIII S.A. are due on July 31, 2019. Net proceeds were used for acquisitions and for general corporate purposes.
The Senior Notes of Fresenius Medical Care US Finance, Inc., Fresenius Medical Care US Finance II, Inc., FMC Finance VI S.A., FMC Finance VII S.A. and FMC Finance VIII S.A. (wholly owned subsidiaries of FMC-AG & Co. KGaA) are guaranteed on a senior basis jointly and severally by FMC-AG & Co. KGaA, Fresenius Medical Care Holdings, Inc. and Fresenius Medical Care Deutschland GmbH. The holders have the right to request that the respective issuers repurchase the respective Senior Notes at 101% of principal plus accrued interest upon the occurrence of a change of control of the company followed by a decline in the rating of the respective Senior Notes. The issuers may redeem the Senior Notes (except for the floating-rate Senior Notes of FMC Finance VIII S.A.) at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the indentures.
FMC-AG & Co. KGaA has agreed to a number of covenants to provide protection to the holders which, under certain circumstances, limit the ability of FMC-AG & Co. KGaA and its subsidiaries to, among other things, incur debt, incur liens,
engage in sale and leaseback transactions and merge or consolidate with other companies or sell assets. As of December 31, 2013, FMC-AG & Co. KGaA and its subsidiaries were in compliance with all of their covenants under the Senior Notes.
The Fresenius Group recognizes pension costs and related pension liabilities for current and future benefits to qualified current and former employees of the Fresenius Group. Fresenius Group's pension plans are structured in accordance with the differing legal, economic and fiscal circumstances in each country. The Fresenius Group currently has two types of plans, defined benefit and defined contribution plans. In general, plan benefits in defined benefit plans are based on all or a portion of the employees' years of services and final salary. Plan benefits in defined contribution plans are determined by the amount of contribution by the employee and the employer, both of which may be limited by legislation, and the returns earned on the investment of those contributions.
Upon retirement under defined benefit plans, the Fresenius Group is required to pay defined benefits to former employees when the defined benefits become due. Defined benefit plans may be funded or unfunded. The Fresenius Group has funded defined benefit plans in particular in the United States, Norway, the United Kingdom, the Netherlands and Austria. Unfunded defined benefit plans are located in Germany and France.
Actuarial assumptions generally determine benefit obligations under defined benefit plans. The actuarial calculations require the use of estimates. The main factors used in the actuarial calculations affecting the level of the benefit obligations are: assumptions on life expectancy, the discount rate and future salary and benefit levels. Under Fresenius Group's funded plans, assets are set aside to meet future payment obligations. An estimated return on the plan assets is recognized as income in the respective period. Actuarial gains and losses are generated when there are variations in the actuarial assumptions and by differences between the actual and
the estimated projected benefit obligations and the return on plan assets for that year. A company's pension liability is impacted by these actuarial gains or losses.
Related to defined benefit plans, the Fresenius Group is exposed to certain risks. Besides general actuarial risks, e.g. the longevity risk and the interest rate risk, the Fresenius Group is exposed to market risk as well as to investment risk.
In the case of Fresenius Group's funded plans, the defined benefit obligation is offset against the fair value of plan assets (funded status). A pension liability is recognized in the consolidated statement of financial position if the defined benefit obligation exceeds the fair value of plan assets. An asset is recognized and reported under other assets in the consolidated statement of financial position if the fair value of plan assets exceeds the defined benefit obligation and if the Fresenius Group has a right of reimbursement against the fund or a right to reduce future payments to the fund.
Under defined contribution plans, the Fresenius Group pays defined contributions to an independent third party as directed by the employee during the employee's service life which satisfies all obligations of the Fresenius Group to the employee. The employee retains all rights to the contributions made by the employee and to the vested portion of the Fresenius Group paid contributions upon leaving the Fresenius Group. The Fresenius Group has a main defined contribution plan in the United States.
At December 31, 2013, the projected benefit obligation (PBO) of the Fresenius Group of €1,020 million (2012: €986 million) included €312 million (2012: €294 million) funded by plan assets and €708 million (2012: €692 million) covered by pension provisions. Furthermore, the pension liability contains benefit obligations offered by other subsidiaries of Fresenius Medical Care in an amount of €21 million (2012: €27 million). The current portion of the pension liability in an amount of
€15 million is recognized in the consolidated statement of financial position within short-term accrued expenses and other short-term liabilities. The non-current portion of €714 million is recorded as pension liability.
The major part of pension liabilities relates to Germany. At December 31, 2013, 72% of the pension liabilities were recognized in Germany and 28% predominantly in the rest of Europe and North America. 57% of the beneficiaries were located in North America, 31% in Germany and the remainder throughout the rest of Europe and other continents.
62% of the pension liabilities in an amount of €729 million relate to the "Versorgungsordnung der Fresenius-Unternehmen" established in 1988 (Pension plan 1988), which applies for most of the German entities of the Fresenius Group except Fresenius Helios. The rest of the pension liabilities relates to individual plans from Fresenius Helios entities in Germany and non-German Group entities.
Plan benefits are generally based on an employee's years of service and final salary. Consistent with predominant practice in Germany, the benefit obligations of the German entities of the Fresenius Group are unfunded. The German Pension Plan 1988 does not have a separate pension fund.
Fresenius Medical Care Holdings, Inc. (FMCH), a subsidiary of Fresenius Medical Care AG & Co. KGaA, has a defined benefit pension plan for its employees in the United States and supplemental executive retirement plans. During the first quarter of 2002, FMCH curtailed these pension plans. Under the curtailment amendment for substantially all employees eligible to participate in the plan, benefits have been frozen as of the curtailment date and no additional defined benefits for future services will be earned. FMCH has retained all employee benefit obligations as of the curtailment date. Each year, FMCH contributes at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In 2013, FMCH's minimum funding requirement was US\$6 million (€5 million). In addition to the compulsory contributions, FMCH voluntarily provided US\$5 million (€4 million) to the defined benefit plan. Expected funding for 2014 is US\$43 million (€31 million).
Benefit plans offered by other subsidiaries of Fresenius Medical Care outside of the United States and Germany contain separate benefit obligations. The total pension liability for these other plans was €21 million and €27 million at December 31, 2013 and 2012, respectively, and consists of a pension asset of €56 thousand (2012: €56 thousand) recognized as other non-current assets and a current pension liability of €1 million (2012: €1 million), which is recognized as a current liability in the line item short-term accrued expenses and other shortterm liabilities. The non-current pension liability of €20 million (2012: €26 million) for these plans is recorded as pension liability in the consolidated statement of financial position.
Fresenius Group's benefit obligations relating to fully or partly funded pension plans were €437 million. Benefit obligations relating to unfunded pension plans were €583 million.
The following table shows the changes in benefit obligations, the changes in plan assets, the funded status of the pension plans and the pension liability. Benefits paid as shown in the changes in benefit obligations represent payments made from both the funded and unfunded plans while the benefits paid as shown in the changes in plan assets include only benefit payments from Fresenius Group's funded benefit plans.
The pension liability has developed as follows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Benefit obligations at the beginning | ||
| of the year | 986 | 753 |
| Changes in entities consolidated | 6 | 18 |
| Foreign currency translation | -15 | -5 |
| Service cost | 30 | 20 |
| Prior service cost | 1 | 8 |
| Interest cost | 39 | 39 |
| Contributions by plan participants | 2 | 2 |
| Transfer of plan participants | 3 | – |
| Curtailments / settlements | -5 | -3 |
| Actuarial gains /losses | – | 188 |
| Benefits paid | -27 | -31 |
| Divestitures | 0 | -2 |
| Amendments | 0 | -1 |
| Benefit obligations at the end of the year | 1,020 | 986 |
| thereof vested | 868 | 849 |
| Fair value of plan assets at the beginning | ||
| of the year | 294 | 260 |
| Changes in entities consolidated | – | 15 |
| Foreign currency translation | -9 | -3 |
| Actual return on plan assets | 25 | 26 |
| Contributions by the employer | 15 | 14 |
| Contributions by plan participants | 2 | 1 |
| Settlements | -4 | -1 |
| Transfer of plan participants | 3 | 0 |
| Benefits paid | -14 | -18 |
| Fair value of plan assets at the end | ||
| of the year | 312 | 294 |
| Funded status as of December 31 | 708 | 692 |
| Benefit plans offered by other subsidiaries | 21 | 27 |
| Pension liability as of December 31 | 729 | 719 |
As of December 31, 2013 and December 31, 2012, the fair value of plan assets did not exceed the benefit obligations in any pension plan.
The discount rates for all plans are based upon yields of portfolios of equity and highly rated debt instruments with maturities that mirror the plan's benefit obligation. Fresenius Group's discount rate is the weighted average of these plans based upon their benefit obligations.
The following weighted-average assumptions were utilized in determining benefit obligations as of December 31:
| in % | 2013 | 2012 |
|---|---|---|
| Discount rate | 4.09 | 4.04 |
| Rate of compensation increase | 3.09 | 3.11 |
| Rate of pension increase | 1.67 | 1.67 |
Changes in the discount factor, inflation and mortality assumptions used for the actuarial computation resulted in actuarial losses in 2013 which increased the fair value of the defined benefit obligation. Unrecognized actuarial losses were €293 million (2012: €329 million).
Increases and decreases in principal actuarial assumptions by 0.5 percentage points would affect the pension liability as of December 31, 2013 as follows:
| Development of pension liability € in millions | 0.5 pp increase |
0.5 pp decrease |
|---|---|---|
| Discount rate | -94 | 108 |
| Rate of compensation increase | 29 | -28 |
| Rate of pension increase | 59 | -53 |
The sensitivity analysis was calculated based on the average duration of the pension obligations determined at December 31, 2013. The calculations were performed isolated for each significant actuarial parameter, in order to show the effect on the fair value of the pension liability separately. The sensitivity analysis for compensation increases and for pension increases excludes the U.S. pension plan, because it is frozen and therefore is not affected by changes from these two actuarial assumptions.
At December 31, 2013, the accumulated benefit obligations for all defined benefit pension plans were €935 million (2012: €913 million).
The following table relates to pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
| € in millions | 2013 | 2012 |
|---|---|---|
| Projected benefit obligation (PBO) | 1,020 | 986 |
| Accumulated benefit obligation (ABO) | 935 | 913 |
| Fair value of plan assets | 312 | 294 |
The pre-tax changes of other comprehensive income (loss) relating to pension liabilities during the years 2013 and 2012 are shown in the following tables:
| € in millions | As of Jan. 1, 2013 |
Reclassifications 1 | Additions | Foreign currency translation |
As of Dec. 31, 2013 |
|---|---|---|---|---|---|
| Actuarial gains and losses | -329 | 23 | 8 | 5 | -293 |
| Prior service cost | -1 | 1 | -1 | – | -1 |
| Transition obligation | -1 | 1 | – | – | – |
| Adjustments related to pension liabilities | -331 | 25 | 7 | 5 | -294 |
1 Effects recognized in the consolidated statement of income
| € in millions | As of Jan. 1, 2012 |
Reclassifications 1 | Additions | Foreign currency translation |
As of Dec. 31, 2012 |
|---|---|---|---|---|---|
| Actuarial gains and losses | -173 | 15 | -171 | – | -329 |
| Prior service cost | 3 | 5 | -9 | – | -1 |
| Transition obligation | -1 | – | – | – | -1 |
| Adjustments related to pension liabilities | -171 | 20 | -180 | – | -331 |
1 Effects recognized in the consolidated statement of income For the tax effects on other comprehensive income at December 31, 2013 see note 27, Other comprehensive income (loss).
The Fresenius Group expects the following amounts to be amortized from other comprehensive income into net periodic pension cost in the year 2014:
| Actuarial gains and losses | 15 |
|---|---|
| Prior service cost | 2 |
| Transition obligation | – |
Defined benefit pension plans' net periodic benefit costs of €78 million (2012: €62 million) were comprised of the following components:
| Net periodic benefit cost | 78 | 62 |
|---|---|---|
| Settlement loss | – | -1 |
| Amortization of transition obligations | 1 | – |
| Amortization of prior service costs | 1 | 5 |
| Amortization of unrealized actuarial losses, net | 23 | 15 |
| Expected return on plan assets | -16 | -16 |
| Interest cost | 39 | 39 |
| Service cost | 30 | 20 |
| € in millions | 2013 | 2012 |
Net periodic benefit cost is allocated as personnel expense within cost of sales or selling, general and administrative expenses as well as research and development expenses. The allocation depends upon the area in which the beneficiary is employed.
The following weighted-average assumptions were used in determining net periodic benefit cost for the year ended December 31:
| in % | 2013 | 2012 |
|---|---|---|
| Discount rate | 4.10 | 5.07 |
| Expected return of plan assets | 4.99 | 5.21 |
| Rate of compensation increase | 3.13 | 3.29 |
| Rate of pension increase | 1.68 | 1.74 |
The following table shows the expected benefit payments for the next 10 years:
| for the fiscal years | € in millions |
|---|---|
| 2014 | 28 |
| 2015 | 30 |
| 2016 | 32 |
| 2017 | 36 |
| 2018 | 36 |
| 2019 to 2023 | 225 |
| Total expected benefit payments | 387 |
At December 31, 2013 and December 31, 2012, the weightedaverage duration of the defined benefit obligation was 20 years, respectively.
The fair values of plan assets by categories were as follows:
| December 31, 2013 | December 31, 2012 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| € in millions | Quoted prices in active markets for identical assets Level 1 |
Significant observable inputs Level 2 |
Total | Quoted prices in active markets for identical assets Level 1 |
Significant observable inputs Level 2 |
Total | |||
| Categories of plan assets | |||||||||
| Equity investments | 45 | 45 | 90 | 38 | 44 | 82 | |||
| Index funds 1 | 37 | 45 | 82 | 32 | 44 | 76 | |||
| Other equity investments | 8 | 0 | 8 | 6 | 0 | 6 | |||
| Fixed income investments | 69 | 115 | 184 | 63 | 117 | 180 | |||
| Government securities 2 | 28 | 1 | 29 | 29 | 1 | 30 | |||
| Corporate bonds 3 | 19 | 113 | 132 | 21 | 116 | 137 | |||
| Other fixed income investments 4 | 22 | 1 | 23 | 13 | – | 13 | |||
| Other 5 | 33 | 5 | 38 | 30 | 2 | 32 | |||
| Total | 147 | 165 | 312 | 131 | 163 | 294 |
1 This category is mainly comprised of low-cost equity index funds not actively managed that track the S & P 500, S & P 400,
Russell 2000, the MSCI Emerging Markets Index and the Morgan Stanley International EAFE Index.
This category is primarily comprised of fixed income investments by the U.S. government and government sponsored entities.
This category primarily represents investment grade bonds of U.S. issuers from diverse industries.
4 This category is mainly comprised of private placement bonds as well as collateralized mortgage obligations and funds that invest
in treasury obligations directly or in treasury backed obligations. 5 This category mainly represents cash, money market funds as well as mutual funds comprised of high grade corporate bonds. The methods and inputs used to measure the fair value of plan assets are as follows:
Index funds are valued based on market quotes.
Other equity investments are valued at their market prices as of the date of the statement of financial position.
Government bonds are valued based on both market prices (Level 1) and market quotes (Level 2).
Corporate bonds and other bonds are valued based on market quotes as of the date of the statement of financial position.
Cash is stated at nominal value which equals the fair value.
U.S. Treasury money market funds as well as other money market and mutual funds are valued at their market prices.
For the U.S. funded plan, the Fresenius Group periodically reviews the assumptions for long-term expected return on pension plan assets. As part of the assumptions review, a range of reasonable expected investment returns for the pension plan as a whole was determined based on an analysis of expected future returns for each asset class weighted by the allocation of the assets. The range of returns developed relies both on forecasts, which include the actuarial firm's expected long-term rates of return for each significant asset class or economic indicator, and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class. As a result, the expected rate of return on pension plan assets of the U.S. pension plan was 6% for the year 2013.
The overall investment strategy for the U.S. pension plan is to achieve a mix of approximately 96% of investments for long-term growth and 4% for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers.
The target allocations for plan assets in the United States are 30% equity securities and 70% long-term U.S. bonds. The investment policy considers that there will be a time horizon for invested funds of more than five years. The total portfolio will be measured against a policy index that reflects the asset class benchmarks and the target asset allocation. The plan policy does not allow investments in securities of Fresenius Medical Care AG & Co. KGaA or other related party securities. The performance benchmarks for the separate asset classes include: S & P 500 Index, S & P 400 Index, Russell 2000 Growth Index, MSCI EAFE Index, MSCI Emerging Markets Index, Barclays Capital Long Term Government Index and Barclays Capital U.S. Strips 20+ Year Index.
The following schedule describes Fresenius Group's allocation for its funded plans.
| in % | Allocation 2013 |
Allocation 2012 |
Target allocation |
|---|---|---|---|
| Equity investments | 28.83 | 27.99 | 32.84 |
| Fixed income investments | 58.98 | 61.24 | 60.44 |
| Other incl. real estate | 12.19 | 10.77 | 6.72 |
| Total | 100.00 | 100.00 | 100.00 |
The overall expected long-term rate of return on assets of the Fresenius Group amounts to 5.47% compounded annually. Contributions to plan assets for the fiscal year 2014 are expected to amount to €37 million.
Fresenius Group's total expense under defined contribution plans for 2013 was €86 million (2012: €84 million). Of this amount, €47 million related to contributions by the Fresenius Group to the Rheinische Zusatzversorgungskasse (a supplementary pension fund) and to other public supplementary pension funds for employees of Fresenius Helios. Further €29 million related to contributions to the U.S. savings plan, which employees of Fresenius Medical Care Holdings, Inc. (FMCH) can join.
Following applicable collective bargaining agreements, the Fresenius Group pays contributions for a given number of employees of Fresenius Helios to the Rheinische Zusatzversorgungskasse (a supplementary pension fund) and to other public supplementary pension funds (together referred to as ZVK ÖD) to complement statutory retirement pensions. Given that employees from multiple participating entities are insured by these ZVK ÖDs, these plans are Multi-Employer plans. Employees are entitled to the benefits defined in the statutes regardless of the contributed amounts.
The plan operates on a pay-as-you-earn system based on applying a collection rate to given parts of gross remuneration.
Paid contributions are accounted for as personnel expenses within cost of sales and selling, general and administrative expenses and amounted to €47 million in 2013 (2012: €45 million). Thereof €15 million were payments to the Rheinische Zusatzversorgungskasse (2012: €13 million).
Further disclosures are either irrelevant or immaterial for plans in supplementary pension funds or the necessary information cannot be obtained from the ZVK ÖDs without undue cost and effort.
Under the U.S. savings plan, employees can deposit up to 75% of their pay up to an annual maximum of US\$17,500 if under 50 years old (US\$23,000 if 50 or over). Fresenius Medical Care will match 50% of the employee deposit up to a maximum Company contribution of 3% of the employee's pay. Fresenius Medical Care's total expense under this defined contribution plan for the years ended December 31, 2013 and 2012 was €29 million and €30 million, respectively.
The Fresenius Group has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Fresenius Group would be required to purchase all or part of third-party owners' noncontrolling interests at the appraised fair value at the time of exercise.
Noncontrolling interest subject to put provisions changed as follows:
| € in millions | 2013 |
|---|---|
| Noncontrolling interest subject to put provisions as of January 1, 2013 |
398 |
| Noncontrolling interest subject to put provisions in profit |
82 |
| Purchase of noncontrolling interest subject to put provisions |
19 |
| Dividend payments | -89 |
| Currency effects, first-time consolidations and other changes |
62 |
| Noncontrolling interest subject to put provisions as of December 31, 2013 |
472 |
As of December 31, 2013 and 2012, put options with an aggregate purchase obligation of €200 million and €173 million, respectively, were exercisable. Two put options were exercised for a total consideration of €3 million in 2013 (2012: €2 million).
As of December 31, noncontrolling interest not subject to put provisions in the Fresenius Group was as follows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Noncontrolling interest | ||
| not subject to put provisions | ||
| in Fresenius Medical Care AG & Co. KGaA | 4,599 | 4,692 |
| Noncontrolling interest | ||
| not subject to put provisions | ||
| in VAMED AG | 38 | 33 |
| Noncontrolling interest | ||
| not subject to put provisions | ||
| in the business segments | ||
| Fresenius Medical Care | 182 | 201 |
| Fresenius Kabi | 126 | 86 |
| Fresenius Helios | 117 | 111 |
| Fresenius Vamed | 3 | 2 |
| Total noncontrolling interest | ||
| not subject to put provisions | 5,065 | 5,125 |
Noncontrolling interest not subject to put provisions changed as follows:
| € in millions | 2013 |
|---|---|
| Noncontrolling interest not subject to put provisions as of January 1, 2013 |
5,125 |
| Noncontrolling interest not subject to put provisions in profit |
645 |
| Stock options | 64 |
| Purchase of noncontrolling interest not subject to put provisions |
6 |
| Dividend payments | -206 |
| Share buy-back program of Fresenius Medical Care AG & Co. KGaA |
-264 |
| Currency effects, first-time consolidations and other changes |
-305 |
| Noncontrolling interest not subject to put provisions as of December 31, 2013 |
5,065 |
Development of subscribed capital During the fiscal year 2013, 1,506,569 stock options were exercised. Consequently, as of December 31, 2013, the subscribed capital of Fresenius SE & Co. KGaA consisted of 179,694,829 bearer ordinary shares. The shares are issued as non-par value shares. The proportionate amount of the subscribed capital is €1.00 per share.
On May 15, 2012, Fresenius SE & Co. KGaA successfully completed a capital increase upon registration with the commercial register. In connection with the capital increase, 13.8 million new ordinary shares were issued at a price of €73.50. The transaction generated gross proceeds of €1,014.3 million and increased the subscribed capital by €13.8 million. The new shares had full dividend entitlement for the fiscal year 2012.
The following table shows the notifications disclosed in 2013 in accordance with Section 26 (1) of the German Securities Trading Act (WpHG).
| Notifying party | Date of reaching, exceeding or falling below |
Reporting threshold | Attribution pursuant to WpHG | Percentage of voting rights |
Number of voting rights |
|---|---|---|---|---|---|
| BlackRock International Holdings, Inc., New York, United States 1 |
January 31, 2013 | Falling below 3% | Section 22 (1) sentence 1 No. 6 in connection with section 22 (1) sentence 2 |
2.93 | 5,222,607 |
| BR Jersey International Holdings, L. P. St.Helier, Jersey, Channel Islands 1 |
January 31, 2013 | Falling below 3% | Section 22 (1) sentence 1 No. 6 in connection with section 22 (1) sentence 2 |
2.93 | 5,222,607 |
| BlackRock Advisors Holdings, Inc., New York, United States 1 |
November 27, 2013 |
Falling below 3% | Section 22 (1) sentence 1 No. 6 in connection with section 22 (1) sentence 2 |
2.997 | 5,361,078 |
1 Attributed to the controlling company BlackRock, Inc., New York, United States, holding 5.36% in Fresenius SE & Co. KGaA (last notification dated May 2012)
The Else Kröner-Fresenius-Stiftung as major shareholder informed Fresenius SE & Co. KGaA on December 20, 2013, that it holds 48,231,698 ordinary shares of Fresenius SE & Co. KGaA representing 26.84% of the subscribed capital on December 31, 2013.
All WpHG-notifications by shareholders are published on the website of the Company www.fresenius.com under Investor Relations – Fresenius Share/ADR – Shareholder Structure.
By resolution of the Annual General Meeting on May 17, 2013, the previous Authorized Capital I was revoked and a new Authorized Capital I was created.
In accordance with the new provision in the articles of association of Fresenius SE & Co. KGaA, the general partner, Fresenius Management SE, is authorized, with the approval of the Supervisory Board, until May 16, 2018, to increase Fresenius SE & Co. KGaA's subscribed capital by a total amount of up to €40,320,000 through a single issue or multiple issues of new bearer ordinary shares against cash contributions and/or contributions in kind (Authorized Capital I). A subscription right must be granted to the shareholders in principle. In defined cases, the general partner is authorized, with the consent of the Supervisory Board, to decide on the exclusion of the shareholders' subscription right (e.g. to eliminate
fractional amounts). For cash contributions, the authorization can only be exercised if the issue price is not significantly below the stock exchange price of the already listed shares at the time the issue price is fixed with final effect by the general partner. Furthermore, the proportionate amount of the shares issued with exclusion of subscription rights may not exceed 10% of the subscribed capital neither at the time of the resolution on the authorization nor at the time of the utilization of the authorization. In the case of a contribution in kind, the subscription right can be excluded only in order to acquire a company, parts of a company or a participation in a company. The authorizations granted concerning the exclusion of subscription rights can be used by the general partner only to such extent that the proportional amount of the total number of shares issued with exclusion of the subscription rights does not exceed 20% of the subscribed capital, neither at the time of the resolution on the authorization nor at the time of the utilization of the authorization.
The changes to the Authorized Capital became effective upon registration of the amendments to the articles of association with the commercial register on June 3, 2013.
Due to the capital increase, the Authorized Capital I decreased by €13.8 million to €26,520,000 at December 31, 2012.
Corresponding to the stock option plans, the Conditional Capital of Fresenius SE & Co. KGaA is divided into Conditional Capital I, Conditional Capital II, Conditional Capital III and Conditional Capital IV. These are used to satisfy the subscription rights in connection with previously issued stock options or convertible bonds, as the case may be, for bearer ordinary shares under the stock option plans of 2003, 2008 and 2013 (see note 33, Stock options).
By resolution of the Annual General Meeting on May 17, 2013, the previous Conditional Capital I was revoked. Additionally, the change of the previous Conditional Capital II in Conditional Capital I, the change of the previous Conditional Capital III in Conditional Capital II as well as the change of the previous Conditional Capital IV in Conditional Capital III were resolved.
By resolution on May 17, 2013, the Annual General Meeting of Fresenius SE & Co. KGaA authorized the general partner until May 16, 2018, to issue up to 8,400,000 subscription rights for up to 8,400,000 non-par value bearer ordinary shares of Fresenius SE & Co. KGaA in the framework of the 2013 Stock Option Plan. The authorization shall fall to the Supervisory Board alone, if members of the Management Board of the general partner are concerned. To fulfill the granted subscription rights, the subscribed capital of Fresenius SE & Co. KGaA was increased conditionally by up to €8,400,000 through issuing of up to 8,400,000 new bearer ordinary shares (Conditional Capital IV). The change of Fresenius SE & Co. KGaA's articles of association with regard to the Conditional Capital I, II, III and IV became effective upon registration with the commercial register on June 3, 2013. The conditional capital increase shall only be implemented to the extent that subscription rights were or are issued according to the 2013 Stock Option Plan, the holders of subscription rights exercise their option rights and as long as no other forms of settlement are used. The new bearer ordinary shares shall participate in the profits from the start of the fiscal year in which they are issued.
The following table shows the development of the Conditional Capital:
| in € | Ordinary shares |
|---|---|
| Conditional Capital I Fresenius AG Stock Option Plan 1998 (until June 3, 2013) | 857,970 |
| Conditional Capital I Fresenius AG Stock Option Plan 2003 (until June 3, 2013: Conditional Capital II) | 2,497,254 |
| Conditional Capital II Fresenius SE Stock Option Plan 2008 (until June 3, 2013: Conditional Capital III) | 5,383,434 |
| Conditional Capital III, approved on May 11, 2012 (until June 3, 2013: Conditional Capital IV) | 16,323,734 |
| Total Conditional Capital as of January 1, 2013 | 25,062,392 |
| Cancellation of the previous Conditional Capital I Fresenius AG Stock Option Plan 1998 | -857,970 |
| Fresenius AG Stock Option Plan 2003 – options exercised | -385,737 |
| Fresenius SE Stock Option Plan 2008 – options exercised | -1,120,832 |
| Creation of Conditional Capital IV Fresenius SE & Co. KGaA Stock Option Plan 2013 | 8,400,000 |
| Total Conditional Capital as of December 31, 2013 | 31,097,853 |
Capital reserves are comprised of the premium paid on the issue of shares and the exercise of stock options (additional paid-in capital).
In the second quarter of 2012, the capital reserves increased by €989 million in connection with Fresenius SE & Co. KGaA's capital increase. The accrued expenses less applicable tax benefit were charged in an amount of €11 million against the capital reserves.
Other reserves are comprised of earnings generated by Group entities in prior years to the extent that they have not been distributed.
Under the German Stock Corporation Act (AktG), the amount of dividends available for distribution to shareholders is based upon the unconsolidated retained earnings of Fresenius SE & Co. KGaA as reported in its statement of financial position determined in accordance with the German Commercial Code (HGB).
In May 2013, a dividend of €1.10 per bearer ordinary share was approved by Fresenius SE & Co. KGaA's shareholders at the Annual General Meeting and paid. The total dividend payment was €196 million.
Fresenius Medical Care completed a share buy-back program during the third quarter of 2013. When the program ended on August 14, 2013, 7,548,951 ordinary shares had been repurchased in the intended amount of €385 million (US\$505 million).
At December 31, 2013, Fresenius SE & Co. KGaA owned 31.31% of the ordinary voting shares of Fresenius Medical Care AG & Co. KGaA (December 31, 2012: 31.18%).
Changes in the components of other comprehensive income (loss) in 2013 and 2012 were as follows:
| € in millions | Amount before taxes |
Tax effect | Total before noncontrolling interest after taxes |
Noncontrolling interest |
Total after noncontrolling interest after taxes |
|---|---|---|---|---|---|
| Cash flow hedges | 28 | -5 | 23 | -1 | 22 |
| Change in unrealized gains /losses | 15 | -4 | 11 | -8 | 3 |
| Realized gains /losses due to reclassifications | 13 | -1 | 12 | 7 | 19 |
| Change of fair value of available for sale financial assets | -9 | – | -9 | – | -9 |
| Foreign currency translation | -82 | 2 | -80 | -82 | -162 |
| Actuarial losses on defined benefit pension plans | -106 | 30 | -76 | -36 | -112 |
| Total changes 2012 | -169 | 27 | -142 | -119 | -261 |
| Cash flow hedges | 20 | -5 | 15 | 12 | 27 |
| Change in unrealized gains /losses | 2 | – | 2 | 3 | 5 |
| Realized gains /losses due to reclassifications | 18 | -5 | 13 | 9 | 22 |
| Change of fair value of available for sale financial assets | 41 | -7 | 34 | – | 34 |
| Foreign currency translation | -278 | 11 | -267 | -303 | -570 |
| Actuarial gains /losses on defined benefit pension plans | -2 | -3 | -5 | 23 | 18 |
| Total changes 2013 | -219 | -4 | -223 | -268 | -491 |
Changes in accumulated other comprehensive income (loss) net of tax by component in 2013 and 2012 were as follows:
| € in millions | Cash flow hedges |
Change of fair value of available for sale financial assets |
Foreign currency translation |
Actuarial gains /losses on defined benefit pension plans |
Total, before non controlling interest |
Non controlling interest |
Total, after non controlling interest |
|---|---|---|---|---|---|---|---|
| Balance as of December 31, 2011 | -145 | -8 | 248 | -81 | 14 | 132 | 146 |
| Other comprehensive income (loss) before reclassifications | 11 | -9 | -80 | -83 | -161 | -132 | -293 |
| Amounts reclassified from accumulated other comprehensive income (loss) |
12 | 0 | – | 7 | 19 | 13 | 32 |
| Other comprehensive income (loss), net | 23 | -9 | -80 | -76 | -142 | -119 | -261 |
| Balance as of December 31, 2012 | -122 | -17 | 168 | -157 | -128 | 13 | -115 |
| Other comprehensive income (loss) before reclassifications | 2 | 34 | -267 | -14 | -245 | -285 | -530 |
| Amounts reclassified from accumulated other comprehensive income (loss) |
13 | 0 | – | 9 | 22 | 17 | 39 |
| Other comprehensive income (loss), net | 15 | 34 | -267 | -5 | -223 | -268 | -491 |
| Balance as of December 31, 2013 | -107 | 17 | -99 | -162 | -351 | -255 | -606 |
Reclassifications out of accumulated other comprehensive income (loss) in 2013 and 2012 were as follows:
| Amount of gain or loss reclassified from accumulated other comprehensive (income) loss |
|||
|---|---|---|---|
| € in millions | 2013 | 2012 | Affected line item in the consolidated statement of income |
| Details about accumulated other comprehensive (income) loss components | |||
| Cash flow hedges | |||
| Interest rate contracts | 32 | 29 | Interest income/expense |
| Foreign exchange contracts | -2 | -4 | Cost of sales |
| Foreign exchange contracts | – | -3 | Selling, general and administrative expenses |
| Foreign exchange contracts | – | – | Interest income/expense |
| Other comprehensive income (loss) | 30 | 22 | |
| Tax expense or benefit | -8 | -3 | |
| Other comprehensive income (loss), net | 22 | 19 | |
| Amortization of defined benefit pension items | |||
| Prior service costs | 1 | 5 | 1 |
| Transition obligations | 1 | – | 1 |
| Actuarial gains /losses on defined benefit pension plans | 23 | 15 | 1 |
| Other comprehensive income (loss) | 25 | 20 | |
| Tax expense or benefit | -8 | -7 | |
| Other comprehensive income (loss), net | 17 | 13 | |
| Total reclassifications for the period | 39 | 32 |
1 Net periodic benefit cost is allocated as personnel expense within cost of sales or selling, general and administrative expenses as well as research and development expenses.
Fresenius Group's subsidiaries lease office and manufacturing buildings as well as machinery and equipment under various lease agreements expiring on dates through 2101. Rental expense recorded for operating leases for the years ended December 31, 2013 and 2012 was €621 million and €565 million, respectively.
Future minimum rental payments under non-cancellable operating leases for the years subsequent to December 31, 2013 are:
| 2014 2015 2016 2017 2018 Thereafter |
€ in millions |
|---|---|
| 500 | |
| 419 | |
| 360 | |
| 289 | |
| 229 | |
| 942 | |
| Total | 2,739 |
As of December 31, 2013, future investment commitments existed up to the year 2017 from the acquisition contracts for hospitals at projected costs of up to €260 million. Thereof €121 million relates to the year 2014.
Besides the above mentioned contingent liabilities, the amount of other commitments is immaterial.
The Fresenius Group is routinely involved in numerous claims, lawsuits, regulatory and tax audits, investigations and other legal matters arising, for the most part, in the ordinary course of its business of providing health care services and products. Legal matters that the Fresenius Group currently deems to be material are described below. For the matters described below in which the Fresenius Group believes a loss is both reasonably possible and estimable, an estimate of the loss or range of loss exposure is provided. For the other matters described below, the Fresenius Group believes that the loss probability is remote and/ or the loss or range of possible losses cannot be reasonably estimated at this time. The outcome of litigation and other legal matters is always difficult to predict accurately and outcomes that are not consistent with Fresenius Group's view of the merits can occur. The Fresenius Group believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that the resolution of one or more of the legal matters currently pending or threatened could have a material adverse effect on its business, results of operations and financial condition.
Fresenius Medical Care was originally formed as a result of a series of transactions it completed pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996, by and between W.R. Grace & Co. and Fresenius SE (the Merger). At the time of the Merger, a W.R. Grace&Co. subsidiary known as W.R. Grace & Co.-Conn. had significant liabilities arising out of product-liability related litigation (including asbestos-related actions), pre-Merger tax claims and other claims unrelated to National Medical Care, Inc. (NMC), which was W.R. Grace&Co.'s dialysis business prior to the Merger. In connection with the Merger, W.R. Grace&Co.-Conn. agreed to indemnify Fresenius Medical Care, Fresenius Medical Care Holdings, Inc. (FMCH), and NMC against all liabilities of W.R. Grace&Co., whether relating to events occurring before or after the Merger, other than liabilities arising from or relating to NMC's operations. W.R. Grace&Co. and certain of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the Grace Chapter 11 Proceedings) on April 2, 2001.
Prior to and after the commencement of the Grace Chapter 11 Proceedings, class action complaints were filed against W.R. Grace&Co. and FMCH by plaintiffs claiming to be creditors of W.R. Grace&Co.-Conn., and by the asbestos creditors' committees on behalf of the W.R. Grace & Co. bankruptcy estate in the Grace Chapter 11 Proceedings, alleging, among other things that the Merger was a fraudulent conveyance, violated the uniform fraudulent transfer act and constituted a conspiracy. All such cases have been dismissed as part of the Grace Chapter 11 Proceedings.
In 2003, Fresenius Medical Care reached agreement with the asbestos creditors' committees on behalf of the W.R. Grace&Co. bankruptcy estate and W.R. Grace&Co. in the matters pending in the Grace Chapter 11 Proceedings for the settlement of all fraudulent conveyance and tax claims against it and other claims related to Fresenius Medical Care that arise out of the bankruptcy of W.R. Grace & Co. The District Court approved the terms of the settlement agreement as amended (Settlement Agreement) in 2003, and included the terms of the Settlement Agreement within the First Amended Plan of reorganization (Grace Bankruptcy Plan) that was ultimately approved and confirmed by the District Court. On February 3, 2014, the Court of Appeals dismissed the last of the appeals of the District Court order confirming the plan of reorganization, and the Grace Bankruptcy Plan went effective on that date. Pursuant to the terms of the Settlement Agreement and the Grace Bankruptcy Plan, all actions asserting fraudulent conveyance and other claims raised on behalf of asbestos claimants were dismissed with prejudice and Fresenius Medical Care received protection against existing and potential future W.R. Grace & Co. related claims,
including fraudulent conveyance and asbestos claims by operation of injunctions and releases and Fresenius Medical Care also received indemnification against income tax claims related to the non-NMC members of the W.R. Grace & Co. consolidated tax group. Also, pursuant to the Settlement Agreement on February 3, 2014, Fresenius Medical Care paid a total of US\$115 million, which had previously been accrued and is included on Fresenius Group's consolidated statement of financial position, to the asbestos personal injury and property damage trusts created under the Grace Bankruptcy Plan. No admission of liability was made.
On April 4, 2003, Fresenius Medical Care Holdings, Inc. (FMCH) filed a suit in the U.S. District Court for the Northern District of California, styled Fresenius USA, Inc., et al., v. Baxter International, Inc., et al., Case No. C 03-1431, seeking a declaratory judgment that FMCH does not infringe patents held by Baxter International, Inc. and its subsidiaries and affiliates (Baxter), that the patents are invalid, and that Baxter is without right or authority to threaten or maintain suit against FMCH for alleged infringement of Baxter's patents. In general, the asserted patents concern the use of touch screen interfaces for hemodialysis machines. Baxter filed counterclaims against FMCH seeking more than US\$140 million in monetary damages and injunctive relief, and alleging that FMCH willfully infringed on Baxter's patents. On July 17, 2006, the court entered judgment on a jury verdict in favor of FMCH finding 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 US\$14.3 million. On April 4, 2008, the court denied Baxter's motion for a new trial, established a royalty payable to Baxter of 10% of the sales price for continuing sales of FMCH's 2008K hemodialysis machines and 7% of the sales price of related disposables, parts and service beginning November 7, 2007, and enjoined sales of the touchscreen-equipped 2008K machine effective January 1, 2009. Fresenius Medical Care appealed the court's rulings to the United States Court of Appeals for the Federal Circuit (Federal Circuit). 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. Upon remand, the district court reduced the post-verdict damages award to US\$10 million. Separately, 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 appealed to the Federal Circuit claiming that approximately US\$20 million of damages awarded to it by the District Court before the Federal Circuit affirmed the USPTO ruling constituted a final judgment that may be collected. On July 2, 2013, the Federal Circuit denied Baxter's appeal and ordered the District Court to dismiss the case. The courtapproved escrow account has been terminated and the escrow funds have been returned to FMCH.
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 Fresenius Medical Care Holdings, Inc.'s LibertyTM cycler infringes certain U.S. patents that were issued to Baxter between October 2010 and June 2012. Fresenius Medical Care believes it has valid defenses to these claims, and will defend this litigation vigorously.
On April 5, 2013, the U.S. Judicial Panel on Multidistrict Litigation ordered that the numerous lawsuits filed and anticipated to be filed in various federal courts alleging wrongful death and personal injury claims against Fresenius Medical Care Holdings, Inc.'s (FMCH) and certain of its affiliates relating to FMCH's acid concentrate products NaturaLyte ® and Granuflo ® be transferred and consolidated for pretrial management purposes into a consolidated multidistrict litigation in the United States District Court for the District of Massachusetts, styled In Re: Fresenius Granuflo/Naturalyte Dialysate Products Liability Litigation, Case No. 2013-md-02428. The Massachusetts state courts subsequently established a similar consolidated litigation for such cases filed in Massachusetts county courts, styled In Re: Consolidated Fresenius Cases, Case No. MICV-2013-03400-O (Massachusetts Superior Court, Middlesex County). These lawsuits allege generally that inadequate labeling and warnings for these products caused harm to patients. In addition, similar cases have been filed in
several state courts that may or may not eventually be formally consolidated with the federal multidistrict litigation. FMCH believes that these lawsuits are without merit, and will defend them vigorously.
In several cases with the same subject matter in dispute, complaints were formally served on Fresenius SE & Co. KGaA and Fresenius Management SE causing both companies to become formally involved in the litigation. Also for these cases, both companies believe the lawsuits to be without merit and intend to defend them vigorously.
On February 15, 2011, a qui tam relator's complaint under the False Claims Act against Fresenius Medical Care Holdings, Inc. (FMCH) was unsealed by order of the United States District Court for the District of Massachusetts and served by the relator. The United States has not intervened in the case United States ex rel. Chris Drennen v. Fresenius Medical Care Holdings, Inc., 2009 Civ. 10179 (D. Mass.). The relator's complaint, which was first filed under seal in February 2009, alleges that FMCH seeks and receives reimbursement from government payors for serum ferritin and hepatitis B laboratory tests that are medically unnecessary or not properly ordered by a physician. On March 6, 2011, the United States Attorney for the District of Massachusetts issued a subpoena 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 subpoena, and will vigorously contest the relator's complaint.
Subpoenas, or search warrants have been issued by federal and state law enforcement authorities under the supervision of the United States Attorneys for the Districts of Connecticut, Southern Florida, Southern New York, Eastern Virginia and Rhode Island to American Access Care, LLC (AAC), which Fresenius Medical Care acquired in October 2011, and to Fresenius Medical Care's Fresenius Vascular Access subsidiary which now operates former AAC centers as well as its own original facilities. Subpoenas have also been issued to certain of Fresenius Medical Care's outpatient hemodialysis facilities for records relating to vascular access treatment and monitoring. Fresenius Medical Care is cooperating fully in these investigations. Communications with certain of the investigating United States Attorney Offices indicate that the inquiry encompasses invoicing and coding for procedures commonly performed in vascular access centers and the documentary support for the medical necessity of such procedures. The AAC acquisition agreement contains customary indemnification obligations with respect to breaches of representations, warranties or covenants and certain other specified matters. As of October 18, 2013, a group of the prior owners of AAC exercised their right pursuant to the terms of the acquisition agreement to assume responsibility for responding to certain of the subpoenas. Pursuant to the AAC acquisition agreement, the prior owners are obligated to indemnify Fresenius Medical Care for certain liabilities that might arise from those subpoenas.
Fresenius Medical Care has received communications alleging certain conduct in certain countries outside the United States and Germany that may violate the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-bribery laws. The Audit and Corporate Governance Committee of Fresenius Medical Care's Supervisory Board is conducting an internal review with the assistance of independent counsel retained for such purpose. Fresenius Medical Care voluntarily advised the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) that allegations have been made and of Fresenius Medical Care's internal review. Fresenius Medical Care's review and dialogue with the SEC and DOJ are ongoing.
The review has identified conduct that raises concerns under the FCPA or other anti-bribery laws that may result in monetary penalties or other sanctions. In addition, Fresenius Medical Care's ability to conduct business in certain jurisdictions could be negatively impacted. Given the current status of the internal review, Fresenius Medical Care cannot reasonably estimate the possible loss or range of possible loss that may result from the identified matters or from the final outcome of the continuing internal review. Accordingly, no provision with respect to these matters has been made in the accompanying consolidated financial statements.
Fresenius Medical Care's independent counsel, in conjunction with Fresenius Medical Care's Compliance Department, have reviewed Fresenius Medical Care's anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws, and appropriate enhancements are being implemented. Fresenius Medical Care is fully committed to FCPA compliance.
In December 2012 and January 2013, Fresenius Medical Care Holdings, Inc. (FMCH) received subpoenas from the United States Attorneys for the District of Massachusetts and the Western District of Louisiana requesting production of a broad range of documents. Communications with the investigating United States Attorney Offices indicate that the inquiry relates to products manufactured by FMCH, which encompasses
the Granuflo ® and Naturalyte ® acid concentrate products that are also the subject of personal injury litigation described above, as well as electron-beam sterilization of dialyzers, the Liberty peritoneal dialysis cycler, and 2008 series hemodialysis machines as related to the use of Granuflo ® and Naturalyte ®. FMCH is cooperating fully in the government's investigation.
In the ordinary course of Fresenius Group's operations, the Fresenius Group is subject to litigation, arbitration and investigations relating to various aspects of its business. The Fresenius Group regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including estimated expenses for legal services, as appropriate.
The Fresenius Group, like other health care providers, conducts its operations under intense government regulation and scrutiny. It must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the marketing and distribution of such products, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. With respect to its development, manufacture, marketing and distribution of medical products, if such compliance is not maintained, the Fresenius Group could be subject to significant adverse regulatory actions by the U.S. Food and Drug Administration (FDA) and comparable regulatory authorities outside the United States. These regulatory actions could include warning letters or other enforcement notices from the FDA and/or comparable foreign regulatory authority, which may require the Fresenius Group to expend significant time and resources in order to implement appropriate corrective actions. If the Fresenius Group does not address matters raised in warning letters or other enforcement notices to the satisfaction of the FDA and/or comparable regulatory authorities outside the United States, these regulatory authorities could take additional actions, including product recalls injunctions against the distribution of products or operation of manufacturing plants, civil penalties, seizures of Fresenius Group's products and/or criminal prosecution. The Fresenius
Group must also comply with the laws of the United States, including the federal Anti-Kickback Statute, the federal False Claims Act, the federal Stark Law and the federal Foreign Corrupt Practices Act as well as other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from Fresenius Group's interpretations or the manner in which it conducts its business. Enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence "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, Fresenius Group's business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, subpoenas, other inquiries, claims and litigation relating to Fresenius Group's compliance with applicable laws and regulations. The Fresenius Group may not always be aware that an inquiry or action has begun, particularly in the case of "whistle blower" actions, which are initially filed under court seal.
The Fresenius Group operates many facilities throughout the United States and other parts of the world. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliated companies. The Fresenius Group relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of these employees. On occasion, the Fresenius Group may
identify instances where employees or other agents deliberately, recklessly or inadvertently contravene Fresenius Group's policies or violate applicable law. The actions of such persons may subject the Fresenius Group and its subsidiaries to liability under the Anti-Kickback Statute, the Stark Law, the False Claims Act and the Foreign Corrupt Practices Act, among other laws and comparable laws of other countries.
Physicians, hospitals and other participants in the health care industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Fresenius Group has been and is currently subject to these suits due to the nature of its business and expects that those types of lawsuits may continue. Although the Fresenius Group maintains insurance at a level which it believes to be prudent, it cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Fresenius Group or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon it and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on Fresenius Group's reputation and business.
The Fresenius Group has also had claims asserted against it and has had lawsuits filed against it relating to alleged patent infringements or businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Fresenius Group has, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Fresenius Group or any of its subsidiaries could have a material adverse effect upon its business, financial condition, and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on Fresenius Group's reputation and business.
The relationship between classes and categories as well as the reconciliation to the statement of financial position line items is shown in the following table:
| Categories | ||||||
|---|---|---|---|---|---|---|
| Loans and receivables | Financial liabilities measured at amortized cost |
Financial liabilities /assets measured at fair value in the consolidated statement of income |
Available for sale financial assets |
Relating to no category | ||
| Cash and cash equivalents |
▶ Cash and cash equivalents |
|||||
| Assets recognized at carrying amount |
▶ Trade accounts receiv able (incl. receivables from and loans to related parties) ▶ Other non-current assets (loan to a dialysis provider) |
|||||
| Assets recognized at fair value |
▶ European government bonds ▶ Shares ▶ Shares in funds |
|||||
| Classes | Liabilities recognized at carrying amount |
▶ Trade accounts payable ▶ Short-term accounts pay able to related parties ▶ Short-term debt (incl. short-term loans from related parties) ▶ Long-term debt excluding capital lease obligations ▶ Senior Notes |
▶ Long-term capital lease obligations |
|||
| Liabilities recognized at fair value |
▶ Other long-term liabilities |
|||||
| Noncontrolling interest subject to put provisions recognized at fair value |
▶ Noncontrolling interest subject to put provisions |
|||||
| Derivatives for hedging purposes |
▶ Other current assets ▶ Other non-current assets ▶ Other short-term liabilities ▶ Other long-term liabilities |
▶ Other current assets ▶ Other non-current assets ▶ Other short-term liabilities ▶ Other long-term liabilities |
The carrying amounts of financial instruments at December 31, classified into categories, were as follows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Loans and receivables | 3,622 | 3,668 |
| Financial liabilities measured at amortized cost | 13,597 | 11,897 |
| Assets measured at fair value in the consolidated statement of income 1 | 16 | 37 |
| Liabilities measured at fair value in the consolidated statement of income 1 | 25 | 32 |
| Available for sale financial assets | 197 | 182 |
| Relating to no category | 301 | 330 |
1 There are no financial instruments designated as at fair value through profit or loss upon initial recognition.
The following table presents the carrying amounts and fair values as well as the fair value hierarchy levels of Fresenius Group's financial instruments as of December 31, classified into classes:
| 2013 | 2012 | ||||
|---|---|---|---|---|---|
| € in millions | Fair value hierarchy level |
Carrying amount |
Fair value | Carrying amount |
Fair value |
| Cash and cash equivalents | 1 | 864 | 864 | 885 | 885 |
| Assets recognized at carrying amount | 3 | 3,622 | 3,629 | 3,668 | 3,668 |
| Assets recognized at fair value | 1 | 197 | 197 | 182 | 182 |
| Liabilities recognized at carrying amount | 2 | 13,691 | 14,225 | 11,991 | 12,593 |
| Liabilities recognized at fair value | 2 | 16 | 16 | 23 | 23 |
| Noncontrolling interest subject to put provisions recognized at fair value |
3 | 472 | 472 | 398 | 398 |
| Derivatives for hedging purposes | 2 | 10 | 10 | -35 | -35 |
The significant methods and assumptions used to estimate the fair values of financial instruments as well as classification of fair value measurements according to the three-tier fair value hierarchy are as follows:
Cash and cash equivalents are stated at nominal value, which equals the fair value.
The nominal value of short-term financial instruments such as accounts receivable and payable and short-term debt represents its carrying amount, which is a reasonable estimate of the fair value due to the relatively short period to maturity for these instruments.
The fair values of major long-term financial instruments are calculated on the basis of market information. Financial instruments for which market quotes are available are measured with the market quotes at the reporting date. The fair values of the other long-term financial liabilities are calculated at the present value of respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Fresenius Group as of the date of the statement of financial position are used.
The class assets recognized at carrying amount consists of trade accounts receivable and a loan which Fresenius Medical Care granted to a middle-market dialysis provider. The fair value of the loan is based on significant unobservable inputs of comparable instruments and thus the class is classified as fair value hierarchy Level 3.
The class assets recognized at fair value is comprised of European government bonds and shares as well as shares in funds. The fair values of these assets are calculated on the basis of market information. Therefore, this class is classified as Level 1.
The class liabilities recognized at carrying amount is classified as hierarchy Level 2.
The class liabilities recognized at fair value is classified as hierarchy Level 2.
The valuation of the class noncontrolling interest subject to put provisions recognized at fair value is determined using significant unobservable inputs. It is therefore classified as Level 3.
Derivatives, mainly consisting of interest rate swaps and foreign exchange forward contracts, are valued as follows: The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract as of the date of the statement of financial position. To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract as of the date of the statement of financial position. The result is then discounted on the basis of the market interest rates prevailing at the date of the statement of financial position for the respective currency.
Fresenius Group's own credit risk is incorporated in the fair value estimation of derivatives that are liabilities. Counterparty credit risk adjustments are factored into the valuation of derivatives that are assets. The Fresenius Group monitors
and analyses the credit risk from derivative financial instruments on a regular basis. For the valuation of derivative financial instruments, the credit risk is considered in the fair value of every individual instrument. The basis for the default probability are Credit Default Swap Spreads of each counterparty appropriate for the duration. The calculation of the credit risk considered in the valuation is done by multiplying the default probability appropriate for the duration with the expected discounted cash flows of the derivative financial instrument.
For the fair value measurement of the class derivatives for hedging purposes, significant other observable inputs are used. Therefore, they are classified as Level 2 in accordance with the defined fair value hierarchy levels.
Currently, there is no indication that a decrease in the value of Fresenius Group's financing receivables is probable. Therefore, the allowances on credit losses of financing receivables are immaterial.
| € in millions | Assets | Liabilities | Assets | Liabilities | |
|---|---|---|---|---|---|
| Interest rate contracts (current) | 0 | 4 | 0 | 50 | |
| Interest rate contracts (non-current) | 0 | 4 | 0 | 18 | |
| Foreign exchange contracts (current) | 15 | 5 | 15 | 11 | |
| Foreign exchange contracts (non-current) | 1 | – | 1 | – | |
| Derivatives designated as hedging instruments 1 | 16 | 13 | 16 | 79 | |
| Interest rate contracts (current) | 0 | – | 0 | 6 | |
| Interest rate contracts (non-current) | 0 | 1 | 0 | 2 | |
| Foreign exchange contracts (current) 1 | 15 | 8 | 37 | 9 | |
| Foreign exchange contracts (non-current) 1 | 1 | 1 | – | – | |
| Derivatives not designated as hedging instruments | 16 | 10 | 37 | 17 |
| Dec. 31, 2013 | Dec. 31, 2012 | |||
|---|---|---|---|---|
| € in millions | Assets | Liabilities | Assets | Liabilities |
| Interest rate contracts (current) | 0 | 4 | 0 | 50 |
| Interest rate contracts (non-current) | 0 | 4 | 0 | 18 |
| Foreign exchange contracts (current) | 15 | 5 | 15 | 11 |
| Foreign exchange contracts (non-current) | 1 | – | 1 | – |
| Derivatives designated as hedging instruments 1 | 16 | 13 | 16 | 79 |
| Interest rate contracts (current) | 0 | – | 0 | 6 |
| Interest rate contracts (non-current) | 0 | 1 | 0 | 2 |
| Foreign exchange contracts (current) 1 | 15 | 8 | 37 | 9 |
| Foreign exchange contracts (non-current) 1 | 1 | 1 | – | – |
| Derivatives not designated as hedging instruments | 16 | 10 | 37 | 17 |
1 Derivatives designated as hedging instruments and foreign exchange contracts not designated as hedging instruments are classified as derivatives for hedging purposes.
Derivative financial instruments are marked to market each reporting period, resulting in carrying amounts equal to fair values at the reporting date.
Derivatives not designated as hedging instruments, which are derivatives that do not qualify for hedge accounting, are also solely entered into to hedge economic business transactions and not for speculative purposes.
Derivatives for hedging purposes were recognized at gross value within other assets in an amount of €32 million and other liabilities in an amount of €22 million.
The current portion of interest rate contracts and foreign exchange contracts indicated as assets in the preceding table is recognized within other current assets in the consolidated statement of financial position, while the current portion of those indicated as liabilities is included in short-term accrued expenses and other short-term liabilities. The non-current portions indicated as assets or liabilities are recognized in other non-current assets or in long-term accrued expenses and other long-term liabilities, respectively.
The net gains and losses from financial instruments consisted of allowances for doubtful accounts in an amount of €284 million and foreign currency transactions of -€29 million. Interest income of €50 million resulted mainly from trade accounts receivable and loans to related parties. Interest expense of €634 million resulted mainly from financial liabilities, which are not recognized at fair value in the consolidated statement of income.
| 2013 | ||||
|---|---|---|---|---|
| € in millions | Gain or loss recognized in other comprehensive income (loss) (effective portion) |
Gain or loss reclassified from accumulated other comprehensive income (loss) (effective portion) |
Gain or loss recognized in the consolidated statement of income |
|
| Interest rate contracts | 21 | 32 | 3 | |
| Foreign exchange contracts | -16 | -2 | – | |
| Derivatives in cash flow hedging relationships 1 | 5 | 30 | 3 | |
| Foreign exchange contracts | – | |||
| Derivatives in fair value hedging relationships | – | |||
| Derivatives designated as hedging instruments | 5 | 30 | 3 | |
1 The amount of gain or loss recognized in the consolidated statement of income solely relates to the ineffective portion.
| 2012 | ||||
|---|---|---|---|---|
| € in millions | Gain or loss recognized in other comprehensive income (loss) (effective portion) |
Gain or loss reclassified from accumulated other comprehensive income (loss) (effective portion) |
Gain or loss recognized in the consolidated statement of income |
|
| Interest rate contracts | -20 | 29 | 2 | |
| Foreign exchange contracts | 39 | -7 | 0 | |
| Derivatives in cash flow hedging relationships 1 | 19 | 22 | 2 | |
| Foreign exchange contracts | 4 | |||
| Derivatives in fair value hedging relationships | 4 | |||
| Derivatives designated as hedging instruments | 19 | 22 | 6 |
1 The amount of gain or loss recognized in the consolidated statement
of income solely relates to the ineffective portion.
| Gain or loss recognized in the consolidated statement of income |
||
|---|---|---|
| € in millions | 2013 | 2012 |
| Interest rate contracts | 7 | – |
| Foreign exchange contracts | 31 | -23 |
| Derivatives not designated as hedging instruments | 38 | -23 |
Gains from derivatives in fair value hedging relationships and from foreign exchange contracts not designated as hedging instruments recognized in the consolidated statement of income are faced by losses from the underlying transactions in the corresponding amount.
The Fresenius Group expects to recognize a net amount of €1 million of the existing losses for foreign exchange contracts deferred in accumulated other comprehensive income (loss) in the consolidated statement of income within the next 12 months. For interest rate contracts, the Fresenius Group expects to recognize €34 million of losses in the course of normal business during the next 12 months in interest expense.
Gains and losses from foreign exchange contracts and the corresponding underlying transactions are accounted for as cost of sales, selling, general and administrative expenses and net interest. Gains and losses resulting from interest rate contracts are recognized as net interest in the consolidated statement of income.
In 2013, gains of €34 million (2012: losses of €9 million) for available for sale financial assets were recognized in other comprehensive income (loss).
The Fresenius Group is exposed to effects related to foreign exchange fluctuations in connection with its international business activities that are denominated in various currencies. In order to finance its business operations, the Fresenius Group issues senior notes and commercial papers and enters into mainly long-term credit agreements and euro notes (Schuldscheindarlehen) with banks. Due to these financing activities, the Fresenius Group is exposed to interest risk caused by changes in variable interest rates and the risk of changes in the fair value of statement of financial position items bearing fixed interest rates.
In order to manage the risk of interest rate and foreign exchange rate fluctuations, the Fresenius Group enters into certain hedging transactions with highly rated financial institutions as authorized by the Management Board. Derivative financial instruments are not entered into for trading purposes.
In general, the Fresenius Group conducts its derivative financial instrument activities under the control of a single centralized department. The Fresenius Group has established guidelines derived from best practice standards in the banking industry for risk assessment procedures and supervision concerning the use of financial derivatives. These guidelines require amongst other things a clear segregation of duties in the areas of execution, administration, accounting and controlling. Risk limits are continuously monitored and, where appropriate, the use of hedging instruments is adjusted to that extent.
The Fresenius Group defines benchmarks for individual exposures in order to quantify interest and foreign exchange risks. The benchmarks are derived from achievable and sustainable market rates. Depending on the individual benchmarks, hedging strategies are determined and generally implemented by means of micro hedges.
Earnings of the Fresenius Group were not materially affected by hedge ineffectiveness in the reporting period since the critical terms of the interest and foreign exchange derivatives mainly matched the critical terms of the underlying exposures.
Securities, which are predominantly held as European government bonds, shares and shares in funds, are generally subject to the risk of changing stock exchange prices. Therefore, the stock exchange prices of these securities are continuously monitored to identify possible price risks on time.
To reduce the credit risk arising from derivatives, the Fresenius Group concluded master netting agreements with banks. Through such agreements, positive and negative fair values of the derivative contracts could be offset against one another if a partner becomes insolvent. This offsetting is valid for transactions where the aggregate amount of obligations owed to and receivable from are not equal. If insolvency occurs, the party which owes the larger amount is obliged to pay the other party the difference between the amounts owed in the form of one net payment.
Fresenius elects not to offset the fair values of derivative financial instruments subject to master netting agreements in the consolidated statement of financial position.
At December 31, 2013 and December 31, 2012, the Fresenius Group had €29 million and €51 million of derivative financial assets subject to netting arrangements and €22 million and €92 million of derivative financial liabilities subject to netting arrangements. Offsetting these derivative financial instruments would have resulted in net assets of €22 million and €34 million as well as net liabilities of €15 million and €75 million at December 31, 2013 and December 31, 2012, respectively.
The Fresenius Group has determined the euro as its financial reporting currency. Therefore, foreign exchange translation risks resulting from the fluctuation of exchange rates between the euro and the local currencies, in which the financial statements of the foreign subsidiaries are prepared, have an impact on results of operations and financial positions reported in the consolidated financial statements.
Besides translation risks, foreign exchange transaction risks exist, which mainly relate to transactions such as purchases and sales as well as projects and services provided by the Fresenius Group which are denominated in foreign currencies. A major part of transaction risks arise from products manufactured in Fresenius Group's worldwide production sites which are usually denominated in the local currency of the respective manufacturer and are delivered worldwide to various Fresenius Group entities. These intragroup sales are mainly denominated in euros, U.S. dollars and yens. Therefore, Group companies are exposed to changes of the foreign exchange rates between the invoicing currencies and the local currencies in which they conduct their businesses. Solely for the purpose of hedging existing and foreseeable foreign exchange transaction exposures, the Fresenius Group enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. To ensure that no foreign exchange risks result from loans in foreign currencies, the Fresenius Group enters into foreign exchange swap contracts.
As of December 31, 2013, the notional amounts of foreign exchange contracts totaled €1,451 million. These foreign exchange contracts have been entered into to hedge risks from operational business and in connection with loans in foreign currency. The predominant part of the foreign exchange forward contracts to hedge risks from operational business was recognized as cash flow hedge, while foreign exchange contracts in connection with loans in foreign currencies are partly recognized as fair value hedges. The fair value of cash flow hedges was €11 million. As of December 31, 2013, no fair value hedges were recognized in the Fresenius Group.
The hedge-effective portion of changes in the fair value of foreign exchange forward contracts that are designated and qualified as cash flow hedges of forecasted product purchases and sales is reported in accumulated other comprehensive income (loss). These amounts are subsequently reclassified into earnings as a component of cost of sales or as selling, general and administrative expenses in the same period in which the hedged transaction affects earnings.
As of December 31, 2013, the Fresenius Group was party to foreign exchange contracts with a maximum maturity of 23 months.
The Fresenius Group uses a Cash-Flow-at-Risk (CFaR) model in order to estimate and quantify such transaction risks from foreign currencies. The basis for the analysis of the currency risks are the foreign currency cash flows that are reasonably expected to arise within the following 12 months, less any hedges. Under the CFaR approach, the potential currency fluctuations of these net exposures are shown as probability distributions based on historical volatilities and correlations of the preceding 250 business days. The calculation is made assuming a confidence level of 95% and a holding period of up to one year. The aggregation of currency risks has risk-mitigating effects due to correlations between the transactions concerned, i. e. the overall portfolio's risk exposure is generally less than the sum total of the underlying individual risks. As of December 31, 2013, the Fresenius Group's cash flow at risk amounts to €56 million, this means, with a probability of 95%, a potential loss in relation to the forecasted foreign exchange cash flows of the next 12 months will be not higher than €56 million.
The following table shows the net positions in foreign currencies at December 31, 2013 which have a significant influence on Fresenius Group's foreign currency risk.
| Nominal € in millions | 2013 |
|---|---|
| Chinese renminbi | 265.2 |
| U.S. dollar | 169.0 |
| Swedish krona | -120.8 |
| Hong Kong dollar | -77.5 |
| Russian ruble | 62.7 |
Fresenius Group's interest rate risks mainly arise from money market and capital market transactions of the Group for financing its business activities.
The Fresenius Group enters into interest rate swaps and, on a small scale, into interest rate options in order to protect against the risk of rising interest rates. These interest rate derivatives are mainly designated as cash flow hedges and have been entered into in order to convert payments based on variable interest rates into payments at a fixed interest rate. The U.S. dollar interest rate swaps with a notional volume of US\$600 million (€435 million) and a fair value of -US\$3 million (-€2 million) expire in 2014. The euro interest rate swaps with a notional volume of €268 million and a fair value of -€7 million expire in the years 2014 to 2022. The U.S. dollar interest rate swaps bear an average interest rate of 2.16% and the euro interest rate swaps bear an average interest rate of 3.37%.
In addition, the Fresenius Group also enters into interest rate hedges (pre-hedges) in anticipation of future debt issuance to effectively convert the variable interest rate related to the future debt to a fixed interest rate. These pre-hedges are settled at the issuance date of the corresponding debt with the settlement amount recorded in accumulated other comprehensive income (loss) amortized to interest expense over the life of the pre-hedges. At December 31, 2013 and December 31, 2012, the Fresenius Group had €113 million and €138 million, respectively, related to such settlements of pre-hedges deferred in accumulated other comprehensive income (loss), net of tax.
Interest payables and interest receivables in connection with the swap agreements are accrued and recorded as an adjustment to the interest expense at each reporting date.
Concerning interest rate contracts, unscheduled repayments or the renegotiation of hedged items may in some cases lead to the de-designation of the hedging instrument, which existed up to that point. From that date, the respective hedging transactions are recognized in the consolidated statement of income.
For purposes of analyzing the impact of changes in the relevant reference interest rates on Fresenius Group's results of operations, the Group calculates the portion of financial debt which bears variable interest rates and which has not been hedged by means of interest rate swaps or options against rising interest rates. For this particular part of its liabilities, the Fresenius Group assumes an increase in the reference rates of 0.5% compared to the actual rates as of the date of the statement of financial position. The corresponding additional annual interest expense is then compared to the net income attributable to shareholders of Fresenius SE & Co. KGaA. This analysis shows that an increase of 0.5% in the relevant reference rates would have an effect of less than 1.5% on the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA and Fresenius SE & Co. KGaA shareholders' equity. The Senior Notes issued in January and February 2014 were included in this analysis.
Price risks arise from changing stock prices of available for sale financial assets. Gains and losses arising from available for sale financial assets are recognized directly in the consolidated statement of equity until the asset is disposed of or if it is considered to be impaired. A decline of 10% in prices of the recognized assets would have an effect of less than 0.2% on Fresenius SE & Co. KGaA shareholders' equity.
The Fresenius Group is exposed to potential losses regarding financial instruments in the event of non-performance by counterparties. With respect to derivative financial instruments, it is not expected that any counterparty fails to meet its obligations as the counterparties are highly rated financial institutions. The maximum credit exposure of derivatives is represented by the fair value of those contracts with a positive fair value amounting to €32 million for foreign exchange derivatives at December 31, 2013. No credit exposure existed from interest rate derivatives. The maximum credit risk resulting from the use of non-derivative financial instruments is defined as the total amount of all receivables. In order to control this
credit risk, the Management of the Fresenius Group performs an ageing analysis of trade accounts receivable. For details on the ageing analysis and on the allowance for doubtful accounts, please see note 15, Trade accounts receivable.
acquisition.
The liquidity risk is defined as the risk that a company is potentially unable to meet its financial obligations. The Management of the Fresenius Group manages the liquidity of the Group by means of effective working capital and cash
management as well as an anticipatory evaluation of refinancing alternatives. The Management of the Fresenius Group believes that existing credit facilities as well as the cash generated by operating activities and additional short-term borrowings are sufficient to meet the Company's foreseeable demand for liquidity (see note 22, Debt and capital lease obligations).
The following table shows the future undiscounted contractual cash flows (including interests) resulting from recognized financial liabilities as well as the fair value of noncontrolling interest subject to put provisions and the fair value of derivative financial instruments:
| € in millions | up to 1 year | 1 to 3 years | 3 to 5 years | more than 5 years |
|---|---|---|---|---|
| Long-term debt and capital lease obligations (including accounts receivable securitization program) 1 |
993 | 1,501 | 2,980 | 2,032 |
| Short-term debt | 975 | 0 | 0 | 0 |
| Senior Notes | 298 | 1,527 | 1,475 | 3,406 |
| Trade accounts payable | 885 | 0 | 0 | 0 |
| Noncontrolling interest subject to put provisions | 197 | 67 | 128 | 80 |
| Derivative financial instruments – designated as cash flow hedge | 9 | 4 | 0 | 0 |
| Derivative financial instruments – not designated as hedging instruments | 8 | 1 | – | 1 |
| Total | 3,365 | 3,100 | 4,583 | 5,519 |
1 Future interest payments for financial liabilities with variable interest rates were calculated using the latest interest rates fixed prior to December 31, 2013.
The Fresenius Group has a solid financial profile. Capital management includes both equity and debt. A principal objective of Fresenius Group's capital management is to optimize the weighted-average cost of capital. Further, it is sought to achieve a balanced mix of equity and debt. To secure growth on a long-term basis, a capital increase may also be considered in exceptional cases, for instance to finance a major
Due to the Company's diversification within the health care sector and the strong market positions of the business segments in global, growing and non-cyclical markets, predictable and sustainable cash flows are generated. They allow a reasonable proportion of debt, i.e. the employment of an extensive mix of financial instruments. Moreover, Fresenius Group's customers are generally of high credit quality.
Shareholders' equity and debt have developed as follows:
| € in millions | Dec. 31, 2013 | Dec. 31, 2012 |
|---|---|---|
| Shareholders' equity | 13,260 | 12,758 |
| Total assets | 32,758 | 30,664 |
| Equity ratio | 40.5% | 41.6% |
Fresenius SE & Co. KGaA is not subject to any capital requirements provided for in its articles of association. Fresenius SE & Co. KGaA has obligations to issue shares out of the Conditional Capital relating to the exercise of stock options and convertible bonds on the basis of the existing 1998 (until June 30, 2012), 2003, 2008 and 2013 stock option plans (see note 33, Stock options).
Debt
| € in millions | Dec. 31, 2013 | Dec. 31, 2012 |
|---|---|---|
| Debt | 12,804 | 11,028 |
| Total assets | 32,758 | 30,664 |
| Debt ratio | 39.1% | 36.0% |
Financial Statements
Assuring financial flexibility is the top priority in the Group's financing strategy. This flexibility is achieved through a wide range of financing instruments and a high degree of diversification of the investors. Fresenius Group's maturity profile displays a broad spread of maturities with a high proportion of medium- and long-term financing. In the choice of financing instruments, market capacity, investor diversification, flexibility, credit conditions and the existing maturity profile are taken into account.
The net debt/ EBITDA ratio is a key financial figure for the Fresenius Group. As of December 31, 2013, the net debt/ EBITDA ratio excluding advances made in the amount of €2,178 million under a fiduciary arrangement for the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG and before integration costs of Fenwal (€54 million) was 2.5.
Fresenius Group's financing strategy is reflected in its credit ratings. The Fresenius Group is covered by the rating agencies Moody's, Standard&Poor's and Fitch.
The following table shows the company rating of Fresenius SE & Co. KGaA:
| Standard&Poor's | Moody's | Fitch | |
|---|---|---|---|
| Company rating | BB + | Ba1 | BB + |
| Outlook | positive | negative | watch evolving |
In 2013, all rating agencies have adjusted their outlook on the corporate credit rating. In March 2013, Standard & Poor's raised the outlook from stable to positive. In June 2013, Fitch changed the outlook from stable to positive. In August 2013, Moody's also changed the outlook from stable to positive.
After the announcement of the planned acquisition of hospitals from Rhön-Klinikum AG in September 2013, Fitch put the rating on "watch evolving", stating that the outlook could at worst be changed to stable, however that the Company's corporate credit rating would remain unchanged. Moody's adjusted the outlook from positive to negative. Standard & Poor's has confirmed the positive outlook in October 2013.
Cash funds reported in the consolidated statement of cash flows and in the consolidated statement of financial position are comprised of cash on hand, checks, securities and cash at bank which are readily convertible within three months and are subject to insignificant risk of changes in value.
The following table provides additional information with regard to the consolidated statement of cash flows:
| € in millions | 2013 | 2012 |
|---|---|---|
| Interest paid | 563 | 580 |
| Income taxes paid | 648 | 659 |
Cash paid for acquisitions (without investments in licenses) consisted of the following:
| € in millions | 2013 | 2012 |
|---|---|---|
| Assets acquired | 2,781 | 3,980 |
| Liabilities assumed | -67 | -444 |
| Noncontrolling interest | -73 | -178 |
| Notes assumed in connection with acquisitions | -60 | -551 |
| Cash paid | 2,581 | 2,807 |
| Cash acquired | -34 | -184 |
| Cash paid for acquisitions, net | 2,547 | 2,623 |
| Cash paid for investments, net of cash acquired |
147 | – |
| Cash paid for intangible assets, net | 9 | 7 |
| Total cash paid for acquisitions and investments, net of cash acquired, |
||
| and net purchases of intangible assets | 2,703 | 2,630 |
The consolidated segment reporting tables shown on pages 100 to 101 of this annual report are an integral part of the notes.
The Fresenius Group has identified the business segments Fresenius Medical Care, Fresenius Kabi, Fresenius Helios and Fresenius Vamed, which corresponds to the internal organizational and reporting structures (Management Approach) at December 31, 2013.
The key data disclosed in conjunction with the consolidated segment reporting correspond to the key data of the internal reporting system of the Fresenius Group. Internal and external reporting and accounting correspond to each other; the same key data and definitions are used.
Sales and proceeds between the segments are indicative of the actual sales and proceeds agreed with third parties. Administrative services are billed in accordance with service level agreements.
The business segments were identified in accordance with FASB ASC Topic 280, Segment Reporting, which defines the segment reporting requirements in the annual financial statements and interim reports with regard to the operating business, product and service businesses and regions. The business segments of the Fresenius Group are as follows:
The segment Corporate/Other is mainly comprised of the holding functions of Fresenius SE & Co. KGaA as well as Fresenius Netcare GmbH, which provides services in the field of information technology and, until June 28, 2013, Fresenius Biotech, which did not fulfill the characteristics of a reportable segment. In addition, the segment Corporate/Other includes intersegment consolidation adjustments as well as special items (see note 3, Special items).
Details on the business segments are shown on page 103 of the notes.
Segment reporting by region takes account of geographical factors and the similarity of markets in terms of opportunities and risks. The allocation to a particular region is based on the domicile of the customers.
The key figures used by the Management Board to assess segment performance, have been selected in such a way that they include all items of income and expenses which fall under the area of responsibility of the business segments. The Management Board is convinced that the most suitable performance indicator is the operating income (EBIT). The Management Board believes that, in addition to the operating income, the figure for earnings before interest, taxes and depreciation/amortization (EBITDA) can also help investors to assess the ability of the Fresenius Group to generate cash flows and to meet its financial obligations. The EBITDA figure is also the basis for assessing Fresenius Group's compliance with the terms of its credit agreements (e.g. the Fresenius Medical Care 2012 Credit Agreement, the 2008 Senior Credit Agreement or the 2013 Senior Credit Agreement).
Depreciation and amortization is presented for property, plant and equipment and intangible assets with definite useful lives of the respective business segment.
Net interest is comprised of interest expenses and interest income.
Net income attributable to shareholders of Fresenius SE & Co. KGaA is defined as earnings after income taxes and noncontrolling interest.
The operating cash flow is the cash provided by / used in operating activities.
The cash flow before acquisitions and dividends is the operating cash flow less net capital expenditure.
Debt is comprised of bank loans, senior notes, capital lease obligations, liabilities relating to outstanding acquisitions as well as intercompany liabilities.
Capital expenditure mainly includes additions to property, plant and equipment.
Acquisitions refer to the purchase of shares in legally independent companies and the acquisition of business divisions and intangible assets (e.g. licenses). The key figures shown with regard to acquisitions present the contractual purchase prices comprising amounts paid in cash (less cash acquired), debts assumed and the issuance of shares, whereas for the purposes of the statement of cash flows, only cash purchase price components less acquired cash and cash equivalents are reported.
The EBITDA margin is calculated as a ratio of EBITDA to sales.
The EBIT margin is calculated as a ratio of EBIT to sales.
The return on operating assets (ROOA) is defined as the ratio of EBIT to average operating assets. Operating assets are defined as total assets less deferred tax assets, trade accounts payable and advance payments from customers as well as guaranteed subsidies.
In addition, the key indicators "Depreciation and amortization in % of sales" and "Operating cash flow in % of sales" are also disclosed.
| € in millions | 2013 | 2012 |
|---|---|---|
| Total EBIT of reporting segments | 3,070 | 3,120 |
| General corporate expenses | ||
| Corporate/Other (EBIT) | -79 | -137 |
| Group EBIT | 2,991 | 2,983 |
| Investment gain | 0 | 109 |
| Interest expenses | -634 | -720 |
| Interest income | 50 | 54 |
| Other financial result | 0 | -35 |
| Income before income taxes | 2,407 | 2,391 |
| € in millions | Dec. 31, 2013 | Dec. 31, 2012 |
|---|---|---|
| Short-term debt | 959 | 205 |
| Short-term loans from related parties | 6 | 4 |
| Current portion of long-term debt and capital lease obligations |
855 | 519 |
| Long-term debt and capital lease obligations, less current portion |
5,871 | 4,436 |
| Senior Notes | 5,113 | 5,864 |
| Debt | 12,804 | 11,028 |
| less cash and cash equivalents | 864 | 885 |
| Net debt | 11,940 | 10,143 |
The following table shows the non-current assets by geographical region:
| € in millions | Dec. 31, 2013 | Dec. 31, 2012 |
|---|---|---|
| Germany | 6,893 | 4,509 |
| Europe (excluding Germany) | 2,879 | 2,756 |
| North America | 13,174 | 13,507 |
| Asia-Pacific | 1,220 | 1,069 |
| Latin America | 372 | 404 |
| Africa | 42 | 47 |
| Total non-current assets 1 | 24,580 | 22,292 |
1 The aggregate amount of net non-current assets is the sum of non-current assets less deferred tax assets and derivative
financial instruments.
In 2013, the Fresenius Group generated sales of €4,403 million (2012: €4,191 million) in Germany. Sales in the United States were €8,414 million at actual rates and €8,697 million in constant currency in 2013 (2012: €7,931 million).
In 2013, the Fresenius Group recognized compensation cost in an amount of €28 million for stock options granted since 2010. For stock incentive plans which are performance-based, the Fresenius Group recognizes compensation cost over the vesting periods, based on the market values of the underlying stock at the grant date.
The Fresenius Group elected to adopt FAS 123(R), Share-Based Payment, prospectively.
The Fresenius Group uses a binomial option pricing model in determining the fair value of stock options granted under the stock option plans of Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA. Option valuation models require the input of highly subjective assumptions including expected stock price volatility. Fresenius Group's assumptions are based upon its past experiences, market trends and the experiences of other entities of the same size and in similar industries. To incorporate the effects of expected early exercise in the model, an early exercise of
vested options was assumed as soon as the share price exceeds 150% of the exercise price. Fresenius Group's stock options have characteristics that vary significantly from traded options and changes in subjective assumptions can materially affect the fair value of the option.
The weighted-average assumptions for the calculation of the fair value of grants of the Fresenius SE & Co. KGaA Stock Option Plan 2013 made during 2013 and grants of the Fresenius SE Stock Option Plan 2008 made during 2012 are as follows:
| 2013 | 2012 | |||
|---|---|---|---|---|
| € in millions | December Grant |
July Grant |
December Grant |
July Grant |
| Expected dividend yield |
1.50% | 1.47% | 1.40% | 1.52% |
| Risk-free interest rate | 1.41% | 1.33% | 0.90% | 1.00% |
| Expected volatility | 27.43% | 27.75% | 28.55% | 28.93% |
| Life of options | 8 years | 8 years | 7 years | 7 years |
| Exercise price per option in € |
99.29 | 96.35 | 87.36 | 78.40 |
The expected volatility results from the historical volatility calculated over the expected life of options. The volatility was determined when the fair value of stock options was calculated for the first time and since then has been controlled every year upon issuance of a new tranche.
Description of the Fresenius SE & Co. KGaA stock option plans in place
As of December 31, 2013, Fresenius SE & Co. KGaA had three stock option plans in place: the Fresenius AG Stock Option Plan 2003 (2003 Plan) which is based on convertible bonds, the stock option based Fresenius SE Stock Option Plan 2008 (2008 Plan) and the Fresenius SE & Co. KGaA Long Term Incentive Program 2013 (2013 LTIP) which is based on stock options and phantom stocks. On June 30, 2012, the term of the options granted under the Fresenius AG Stock Option Plan 1998 expired. In 2013, stock options were solely granted under the 2013 LTIP.
The 2013 LTIP is comprised of the Fresenius SE & Co. KGaA Stock Option Plan 2013 (2013 SOP) and the Fresenius SE & Co. KGaA Phantom Stock Plan 2013 (2013 PSP). It combines the granting of stock options with the granting of phantom stock awards which entitle the holder to receive cash payments upon exercising the phantom stock. Each of the 2013 SOP and 2013 PSP making up the 2013 LTIP have been established under a stand-alone legal documentation.
Under the 2013 SOP, which was approved by the Annual General Meeting of Fresenius SE & Co. KGaA on May 17, 2013, Fresenius Management SE is authorized to issue up to 8.4 million subscription rights for an amount of 8.4 million non-par value ordinary bearer shares of Fresenius SE & Co. KGaA until May 16, 2018.
Of the up to 8.4 million options, up to 1.6 million options are designated for members of the Management Board of Fresenius Management SE; up to 4.4 million options are designated for members of the management of directly or indirectly affiliated companies (except for Fresenius Medical Care) and up to 2.4 million options are designated for executive employees of Fresenius SE & Co. KGaA and its affiliated companies (except for Fresenius Medical Care).
The granting of the options shall occur in five annual tranches, each to the last Monday in July or the first Monday in December. With respect to new options, the Supervisory Board of Fresenius Management SE determines the stock options granted to members of Fresenius Management SE's Management Board, whereas the Management Board of Fresenius Management SE determines the other participants in the 2013 Stock Option Plan and the stock options granted to them.
The exercise price of an option shall equal the volumeweighted average stock market price (closing price) of the nonpar value ordinary bearer share of Fresenius SE & Co. KGaA in the electronic XETRA trading of Deutsche Börse AG in Frankfurt am Main, or a comparable successor system, on the last 30 calendar days prior to the respective grant date.
Options granted have an eight-year term but can be exercised only after a four-year vesting period. The exercise of options is subject to the condition precedent, in each case, that the annual success target within a four-year waiting period is achieved. The success target is achieved in each case if,
after the granting of the options to the respective entitled person, either (i) the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA, adjusted for extraordinary effects and on a constant currency basis, has increased by at least 8% per annum in comparison to the previous year in each case within the waiting period, or (ii) – if this is not the case – the compounded annual growth rate of the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA, adjusted for extraordinary effects and on a constant currency basis, during the four years of the waiting period amounts to at least 8%. In the event that the success target within the four-year waiting period is not achieved for the individual years or for the compounded annual growth rate, the options issued in each case are forfeited in proportion to the non-achievement of the success target within the waiting period, i. e. by one quarter, two quarters, three quarters, or completely.
The adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA (currency adjusted) and changes thereto compared to the adjusted net income (without currency adjustment) of the relevant comparison year shall be verified with binding effect in each case by the auditors of Fresenius SE & Co. KGaA on the basis of the audited consolidated financial statements. Upon exercise of vested options, Fresenius SE & Co. KGaA has the right to grant treasury shares in lieu of increasing capital by the issuance of new shares.
After the expiration of the waiting period, all options in respect of which the success target has been achieved may be exercised at any time outside the designated black-out periods.
Fresenius SE & Co. KGaA's 2013 PSP was established in May 2013, together with the 2013 SOP. Awards of phantom stock can be granted on each stock option grant date. Phantom stock awarded under the 2013 PSP may be granted to the members of Fresenius Management SE's Management Board, the members of the management of directly or indirectly affiliated companies (except for Fresenius Medical Care) and for executive employees of Fresenius SE & Co. KGaA and its affiliated companies (except for Fresenius Medical Care).
As under the 2013 Stock Option Plan, the Supervisory Board of Fresenius Management SE determines the phantom stock granted to members of Fresenius Management SE's Management Board, whereas the Management Board of Fresenius Management SE determines the other participants in the 2013 PSP and the phantom stock granted to them.
Phantom stock awards under the 2013 PSP entitle the holder to receive a cash payment. Each phantom stock award shall entitle the holder to receive the volume-weighted average stock market price (closing price) of the non-par value ordinary bearer share of Fresenius SE & Co. KGaA in the electronic XETRA trading of Deutsche Börse AG in Frankfurt am Main, or a comparable successor system, during the last three months prior to the date the phantom stock is exercised.
The exercise of phantom stock is subject to the condition precedent, in each case, that the annual success target within a four-year waiting period is achieved. The success target is achieved in each case if, after the granting of the subscription rights to the respective entitled person, either (i) the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA, adjusted for extraordinary effects and on a constant currency basis, has increased by at least 8% per annum in comparison to the previous year in each case within the waiting period, or (ii) – if this is not the case – the compounded annual growth rate of the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA, adjusted for extraordinary effects and on a constant currency basis, during the four years of the waiting period amounts to at least 8%. In the event that the success target within the four-year waiting period is not achieved for the individual years or for the compounded annual growth rate, the phantom stock awards issued in each case are forfeited in proportion to the non-achievement of the success target within the waiting-period, i.e. by one quarter, two quarters, three quarters, or completely.
The adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA (currency adjusted) and changes thereto compared to the adjusted net income (without currency adjustment) of the relevant comparison year shall be verified with binding effect in each case by the auditors of Fresenius SE & Co. KGaA on the basis of the audited consolidated financial statements.
After the expiration of the waiting period, all exercisable phantom stock will be deemed to be exercised and cashed out on March 1 following the end of the waiting period (or the following banking day).
During 2008, Fresenius SE adopted the 2008 Plan to grant subscription rights to members of the Management Board and executive employees of the Company and affiliated companies. Due to the change of legal form of Fresenius SE into Fresenius SE & Co. KGaA and the conversion of all preference shares into ordinary shares, this plan was amended and completely adapted to ordinary shares. Under the 2008 Plan, up to 6.2 million options can be issued, which carry entitlement to exclusively obtain 6.2 million ordinary shares (originally 3.1 million ordinary shares and 3.1 million preference shares). Up to 1.2 million options are designated for members of the Management Board of Fresenius Management SE (originally Management Board of Fresenius SE), up to 3.2 million options are designated for members of the management of directly or indirectly affiliated companies (except for Fresenius Medical Care) and up to 1.8 million options are designated for executive employees of Fresenius SE & Co. KGaA (originally of Fresenius SE) and its affiliated companies (except for Fresenius Medical Care). With respect to the members of Fresenius Management SE's Management Board, the Supervisory Board of Fresenius Management SE now holds the sole authority to grant stock options and administer the 2008 Plan. The Management Board of Fresenius Management SE now has such authority with respect to all other participants in the 2008 Plan. The options can be granted in five tranches with effect as of the first bank working day in July and/ or the first bank working day in December. The exercise price of options shall be the average closing price of Fresenius SE & Co. KGaA's (originally Fresenius SE's) ordinary shares (originally ordinary and preference shares) on the Frankfurt Stock Exchange during the 30 trading days immediately prior to each grant date. For participants in the United States, the exercise price may be the average closing price during the 30 calendar days immediately prior to the grant date, if this is higher. Options granted have a seven-year term but can be exercised only after a three-year vesting period. The vesting of options granted is mandatorily subject to the condition, in each case, that the annual success target within the three-year vesting period is achieved. For each such year, the success target is achieved if the consolidated net income attributable to shareholders of Fresenius SE & Co. KGaA,
adjusted for extraordinary effects, has increased by at least 8% compared to the respective adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA of the previous fiscal year. For each year in which the success target has not been met, one-third of the options granted shall forfeit. The adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA shall be calculated on the basis of the calculation method of the accounting principles according to U.S. GAAP. For the purposes of the 2008 Plan, the adjusted net income attributable to shareholders of Fresenius SE & Co. KGaA is determined and will be verified with binding effect by Fresenius SE & Co. KGaA's auditor during the audit of the consolidated financial statements. The performance targets for 2008 to 2013 were met. Upon exercise of vested options, Fresenius SE & Co. KGaA has the right to grant treasury shares or a cash payment in lieu of increasing capital by the issuance of new shares. If all conditions are fulfilled, stock options may be exercised throughout the year with the exception of certain pre-determined black-out periods. Former options for preference shares are now exclusively options for ordinary shares.
This stock incentive plan was replaced by the 2013 SOP and no options have been granted since 2013.
During 2003, Fresenius AG adopted the 2003 Plan for members of the Management Board and executive employees. This incentive plan which is based on convertible bonds was replaced by the 2008 Plan and no options have been granted since 2008. Due to the change of legal form of Fresenius SE into Fresenius SE & Co. KGaA and the conversion of all preference shares into ordinary shares, this plan was also amended and completely adapted to ordinary shares. Under the 2003 Plan, eligible employees have the right to acquire ordinary shares (originally ordinary and preference shares) of Fresenius SE & Co. KGaA (originally of Fresenius AG or of Fresenius SE, respectively). The bonds expire in 10 years and one third of them can be exercised beginning after two, three and four years after the grant date, respectively. Upon issuance of the option, the employees had the right to choose options with or without a stock price target. The conversion price of options subject to a stock price target corresponds to the stock exchange quoted price of the ordinary shares (originally ordinary or preference shares, respectively) upon the first time
the stock exchange quoted price exceeds the initial value (after the share split in 2007: 1 �3 of the initial value) by at least 25%. If converted after the share split, the conversion price which entitles to three ordinary shares (originally three ordinary shares or three preference shares, respectively) is equal to the triple of one third of the initial value. The initial value is the joint average stock exchange price of the ordinary shares (originally ordinary shares or preference shares, respectively) during the last 30 trading days prior to the date of grant. The conversion price of options without a stock price target is the initial value. In the case of options not subject to a stock price target, the number of convertible bonds awarded to the eligible employee was 15% less than if the employee elected options subject to the stock price target. Each convertible bond granted after the share split in 2007 entitles to subscribe one ordinary share (originally one ordinary or one preference share, respectively), subject to payment of the conversion price. Bonds granted and converted prior to the share split were entitled to subscribe one ordinary share (originally one ordinary or one preference share, respectively), conversion after the share split entitles to three ordinary shares (originally three ordinary or three preference shares, respectively). In addition, due to the elimination of the preference shares, after the change of legal form, the success target of the 2003 Plan had to be adjusted to the effect that it is deemed to be achieved if and when the aggregate of the following price increases amounts to at least 25%: (1) increase of the joint average stock exchange price of ordinary and preference shares from the day of the issuance until the day when the change of legal form took effect and (2) increase of the stock exchange price of ordinary shares since the change of legal form took effect.
During 1998, Fresenius AG adopted the 1998 Plan for members of the Management Board and executive employees. This stock incentive plan was replaced by the 2003 Plan and no options have been granted since 2003. Under the 1998 Plan, eligible employees had the right to acquire ordinary and preference shares of Fresenius SE. After the change of legal form and the conversion of all preference shares into ordinary shares, the options exclusively granted the right to acquire ordinary shares of Fresenius SE & Co. KGaA. Options granted under this plan had a 10-year term which expired on June 30, 2012.
In 2013, Fresenius SE & Co. KGaA awarded 720,206 stock options under the 2013 LTIP, including 105,000 options to members of the Management Board of Fresenius Management SE, at a weighted-average exercise price of €96.78, a weighted-average fair value of €25.98 each and a total fair value of €19 million, which will be amortized over the fouryear vesting period. Fresenius SE & Co. KGaA also awarded 111,294 phantom stocks, including 27,272 phantom stocks granted to members of the Management Board of Fresenius Management SE, at a measurement date (December 31, 2013) fair value of €106.14 each and a total fair value of €12 million, which will be revalued if the fair value changes, and amortized over the four-year vesting period.
During the fiscal year 2013, Fresenius SE & Co. KGaA received cash of €69 million from the exercise of 1,506,569 stock options. The average stock price of the ordinary share at the exercise date was €97.81. The intrinsic value of convertible bonds and stock options exercised in 2013 was €74 million.
541,822 convertible bonds were outstanding and exercisable under the 2003 Plan at December 31, 2013. The members of the Fresenius Management SE Management Board held 111,698 convertible bonds. At December 31, 2013, out
of 3,237,098 outstanding stock options issued under the 2008 Plan, 1,010,638 were exercisable and 603,460 were held by the members of the Fresenius Management SE Management Board. 717,581 stock options issued under the 2013 LTIP were outstanding at December 31, 2013. The members of the Fresenius Management SE Management Board held 105,000 stock options. 111,059 phantom stocks issued under the 2013 LTIP were outstanding at December 31, 2013. The members of the Fresenius Management SE Management Board held 27,272 stock options.
Stock option transactions are summarized as follows:
| Ordinary shares Dec. 31 |
Number of options |
Weighted average exercise price in € |
Number of options exercisable |
|---|---|---|---|
| Balance 2011 | 5,494,127 | 50.25 | 2,248,083 |
| Granted | 1,206,145 | 78.54 | |
| Exercised | 1,150,924 | 39.83 | |
| Forfeited | 164,596 | 55.90 | |
| Balance 2012 | 5,384,752 | 58.72 | 2,061,329 |
| Granted | 720,206 | 96.78 | |
| Exercised | 1,506,569 | 45.49 | |
| Forfeited | 101,888 | 65.73 | |
| Balance 2013 | 4,496,501 | 69.17 | 1,552,460 |
The following table provides a summary of fully vested options outstanding and exercisable for ordinary shares at December 31, 2013:
| Options outstanding | Options exercisable | |||||
|---|---|---|---|---|---|---|
| Range of exercise price in € |
Number of options | Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
Number of options | Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
| 20.01 – 25.00 | 21,818 | 0.50 | 21.96 | 21,818 | 0.50 | 21.96 |
| 25.01 – 30.00 | 64,392 | 1.44 | 28.54 | 64,392 | 1.44 | 28.54 |
| 30.01 – 35.00 | 269,990 | 2.50 | 33.81 | 269,990 | 2.50 | 33.81 |
| 35.01 – 40.00 | 155,262 | 2.39 | 39.23 | 155,262 | 2.39 | 39.23 |
| 40.01 – 45.00 | 5,072 | 1.92 | 41.62 | 5,072 | 1.92 | 41.62 |
| 45.01 – 50.00 | 10,248 | 2.50 | 48.81 | 10,248 | 2.50 | 48.81 |
| 50.01 – 55.00 | 726,576 | 3.07 | 53.76 | 726,576 | 3.07 | 53.76 |
| 55.01 – 60.00 | 280,060 | 3.50 | 56.43 | 280,060 | 3.50 | 56.43 |
| 60.01 – 65.00 | 9,000 | 3.92 | 63.53 | 9,000 | 3.92 | 63.53 |
| 70.01 – 75.00 | 1,070,907 | 4.49 | 71.28 | 10,042 | 3.50 | 70.79 |
| 75.01 – 80.00 | 1,146,835 | 5.50 | 78.39 | 0 | ||
| 85.01 – 90.00 | 18,760 | 5.92 | 87.36 | 0 | ||
| 95.01 – 100.00 | 717,581 | 7.63 | 96.78 | 0 | ||
| 4,496,501 | 4.70 | 69.17 | 1,552,460 | 2.88 | 47.92 |
At December 31, 2013, the aggregate intrinsic value of exercisable options for ordinary shares was €99 million.
At December 31, 2013, total unrecognized compensation cost related to non-vested options granted under the 2008 Plan and the 2013 LTIP was €30 million. This cost is expected to be recognized over a weighted-average period of 2.5 years.
On May 12, 2011, the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2011 (2011 SOP) was established by resolution of Fresenius Medical Care AG & Co. KGaA's (FMC-AG & Co. KGaA) Annual General Meeting (AGM). The 2011 SOP, together with the Phantom Stock Plan 2011, which was established by resolution of Fresenius Medical Care Management AG's (FMC Management AG) Management and Supervisory Boards, forms FMC-AG & Co. KGaA's Long Term Incentive Program 2011 (2011 Incentive Program). Under the 2011 Incentive Program, participants may be granted awards, which will consist of a combination of stock options and phantom stock. Awards under the 2011 Incentive Program will be granted over a five-year period and can be granted on the last Monday in July and/or the first Monday in December each year. Prior to the respective grant, the participants will be able to choose how much of the granted value is granted in the form of stock options and phantom stock in a predefined range of 75:25 to 50:50, stock options vs. phantom stock. The number of phantom shares that plan participants may choose to receive instead of stock options within the aforementioned predefined range is determined on the basis of a fair value assessment pursuant to a binomial model. With respect to grants made in July, this fair value assessment will be conducted on the day following FMC-AG & Co. KGaA's AGM and with respect to the grants made in December, on the first Monday in October. The awards under the 2011 Incentive Program are subject to a four-year vesting period. The vesting of the awards granted is subject to achievement of performance targets. The 2011 Incentive Program was established with a conditional capital increase up to €12 million subject to the issue of up to 12 million non-par value bearer ordinary shares with a nominal value of €1.00, each of which can be exercised to obtain one ordinary share.
Members of the Management Board of FMC Management AG, members of the management boards of FMC-AG & Co. KGaA's affiliated companies and the managerial staff members of FMC-AG & Co. KGaA and of certain affiliated companies are entitled to participate in the 2011 Incentive Program. With respect to participants who are members of FMC Management AG's Management Board, FMC Management AG's Supervisory Board has sole authority to grant awards and exercise other decision making powers under the 2011 Incentive Program (including decisions regarding certain adjustments and forfeitures). FMC Management AG has such authority with respect to all other participants in the 2011 Incentive Program.
The exercise price of stock options granted under the 2011 Incentive Program shall be the average stock exchange price on the Frankfurt Stock Exchange of FMC-AG & Co. KGaA's ordinary shares during the 30 calendar days immediately prior to each grant date. Stock options granted under the 2011 Incentive Program have an eight-year term and can be exercised only after a four-year vesting period. Stock options granted under the 2011 Incentive Program to U.S. participants are non-qualified stock options under the United States Internal Revenue Code of 1986, as amended. Options under the 2011 Incentive Program are not transferable by a participant or a participant's heirs, and may not be pledged, assigned, or disposed of otherwise.
Phantom stock under the 2011 Incentive Program entitles the holders to receive payment in euro from FMC-AG & Co. KGaA upon exercise of the phantom stock. The payment per phantom share in lieu of the issuance of such stock shall be based upon the closing stock exchange price on the Frankfurt Stock Exchange of one of FMC-AG & Co. KGaA's ordinary shares on the exercise date. Phantom stock will have a fiveyear term and can be exercised only after a four-year vesting period, beginning with the grant date, except when otherwise expressly stipulated in the plan. For participants who are U.S. tax payers, the phantom stock is deemed to be exercised in any event in the month of March following the end of the vesting period.
The Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 (Amended 2006 Plan) was established with a conditional capital increase up to €12.8 million subject to the issue of up to 5 million non-par value bearer ordinary shares with a nominal value of €1.00, each of which can be exercised to obtain one ordinary share. In connection with the share split affected in 2007, the principal amount was adjusted to the same proportion as the share capital out of the capital increase up to €15 million by the issue of up to 15 million new nonpar value bearer ordinary shares.
After December 2010, no further grants were issued under the Amended 2006 Plan. Options granted under this plan are exercisable through December 2017.
Options granted under the Amended 2006 Plan to U.S. participants are non-qualified stock options under the United States Internal Revenue Code of 1986, as amended. Options under the Amended 2006 Plan are not transferable by a participant or a participant's heirs, and may not be pledged, assigned, or otherwise disposed of.
Under the Fresenius Medical Care 2001 International Stock Incentive Plan (2001 Plan), options in the form of convertible bonds with a principal of up to €10.24 million were issued to the members of the Management Board and other employees of FMC-AG & Co. KGaA representing grants for up to 4 million non-voting preference shares. The convertible bonds originally had a par value of €2.56 and bear interest at a rate of 5.5%. In connection with the share split affected in 2007, the principal amount was adjusted in the same proportion as the share capital out of the capital increase and the par value of the convertible bonds was adjusted to €0.85 without affecting the interest rate.
Based on the resolution of the Annual General Meeting and the separate Meeting of the Preference Shareholders on May 16, 2013 regarding the conversion of all bearer preference shares into bearer ordinary shares, the 2001 Plan was amended accordingly. The partial amount of the capital increase which was formerly referred to as the issuance of bearer preference shares will now be referred exclusively to the issuance of bearer ordinary shares.
Effective May 2006, no further grants can be issued under the 2001 Plan and no options were granted under this plan after 2005. The outstanding options will expire before 2016.
During 2013, FMC-AG & Co. KGaA awarded 2,141,076 options under the 2011 Incentive Program, including 328,680 stock options granted to members of the Management Board of FMC Management AG, at a weighted-average exercise price of €49.75, a weighted-average fair value of €8.95 each and a total fair value of €19 million, which will be amortized over the four-year vesting period. FMC-AG & Co. KGaA awarded 186,392 shares of phantom stock, including 25,006 shares of phantom stock granted to members of the Management Board of FMC Management AG, at a measurement date (December 31, 2013) weighted-average fair value of €48.22 each and a total fair value of €9 million, which will be revalued if the fair value changes, and amortized over the four-year vesting period.
During 2013, FMC-AG & Co. KGaA received cash of €77 million from the exercise of stock options. The intrinsic value of convertible bonds and stock options exercised in 2013 was €39 million. FMC-AG & Co. KGaA recorded a related tax benefit of €7 million for 2013. In connection with cash-settled share-based payment transactions under the 2011 Incentive Plan, FMC-AG & Co. KGaA recognized expenses of €3 million and €4 million for the years ending December 31, 2013 and 2012, respectively.
At December 31, 2013, the Management Board members of FMC Management AG held 1,993,305 stock options and employees of FMC-AG & Co. KGaA held 8,797,450 stock options under the various stock-based compensation plans of Fresenius Medical Care.
At December 31, 2013, the Management Board members of FMC Management AG held 77,886 shares of phantom stock and employees of FMC-AG & Co. KGaA held 474,901 shares of phantom stock under the 2011 Incentive Program.
The table below provides reconciliations for options outstanding at December 31, 2013 as compared to December 31, 2012:
| Number of options in thousands |
Weighted-average exercise price in € |
|
|---|---|---|
| Balance at December 31, 2012 (options for ordinary shares) | 11,147 | 42.66 |
| Granted | 2,141 | 49.75 |
| Exercised | 2,280 | 33.76 |
| Converted from preference shares | 32 | 18.86 |
| Forfeited | 249 | 44.75 |
| Balance at December 31, 2013 (options for ordinary shares) | 10,791 | 45.83 |
| Balance at December 31, 2012 (options for preference shares) | 38 | 19.26 |
| Exercised | 2 | 18.35 |
| Forfeited | 4 | 23.56 |
| Converted into ordinary shares | 32 | 18.86 |
| Balance at December 31, 2013 (options for preference shares) | 0 |
The following table provides a summary of fully vested options for ordinary shares outstanding and exercisable at December 31, 2013:
| Number of options in thousands |
Weighted-average remaining contractual life in years |
Weighted-average exercise price in € |
Aggregate intrinsic value € in millions |
|
|---|---|---|---|---|
| Options for ordinary shares | 4,711 | 2.51 | 36.41 | 72 |
At December 31, 2013, total unrecognized compensation cost related to non-vested options granted under all plans was €36 million. This cost is expected to be recognized over a weighted-average period of 2 years.
Prof. Dr. med. D. Michael Albrecht, a member of the Supervisory Board of Fresenius SE & Co. KGaA, is medical director and spokesman of the management board of the University Hospital Carl Gustav Carus Dresden and a member of the supervisory board of the University Hospital Aachen. Furthermore, he was a member of the supervisory board of the University Hospital Magdeburg until October 3, 2013 and a member of the supervisory board of the University Hospital Rostock until February 28, 2013. The Fresenius Group maintains business relations with these hospitals in the ordinary course and under customary conditions.
Prof. Dr. h. c. Roland Berger, a member of the Supervisory Board of Fresenius Management SE and of Fresenius SE & Co. KGaA, is a partner of Roland Berger Strategy Consultants Holding GmbH. In 2013, after discussion and approval by the Supervisory Board of Fresenius Management SE and Fresenius SE & Co. KGaA, the Fresenius Group paid €2.9 million to affiliated companies of the Roland Berger group for consulting services rendered (2012: €0.6 million).
Klaus-Peter Müller, a member of the Supervisory Board of Fresenius Management SE and of Fresenius SE & Co. KGaA, is the chairman of the supervisory board of Commerzbank AG. The Fresenius Group maintains business relations with Commerzbank under customary conditions. In 2013, the Fresenius Group paid in aggregate €1.4 million to Commerzbank for financing commitments, in connection with the issuance of Senior Notes and the share conversion of Fresenius Medical Care AG & Co. KGaA (2012: €1.9 million).
Dr. Gerhard Rupprecht, a member of the Supervisory Board of Fresenius Management SE and of Fresenius SE & Co. KGaA, is a member of the supervisory board of Allianz France SA. In 2013, the Fresenius Group paid €5.3 million (2012: €4.7 million) for insurance premiums to the Allianz group under customary conditions.
Dr. Dieter Schenk, deputy chairman of the Supervisory Board of Fresenius Management SE, is a partner in the international law firm Noerr LLP, which provides legal services to the Fresenius Group. In 2013, after discussion and approval of each mandate by the Supervisory Board of Fresenius Management SE, the Fresenius Group paid or processed for payment in December 2013 about €1.5 million to this law firm for legal services rendered (2012: €1.8 million). Not included in the amount paid or processed for payment are such payments made in the fiscal year 2013 that had already been processed for payment in 2012 and have therefore already been reported for the fiscal year 2012.
In 2013, €9 million (2012: €8 million) were paid to Fresenius Management SE as compensation for the Management Board and the Supervisory Board, general partners' fees and other reimbursements of out-of pocket expenses. At December 31, 2013, there were outstanding liabilities payable to Fresenius Management SE in the amount of €21 million (December 31, 2012: €16 million).
The payments mentioned in this note are net amounts. In addition, VAT and insurance tax were paid.
On January 23, 2014, Fresenius Finance B.V. issued unsecured Senior Notes of €750 million. The €300 million tranche due 2019 has a coupon of 2.375% and was issued at a price of 99.647%. The €450 million tranche which has a coupon of 3.00% was issued at a price of 98.751% and is due in 2021.
In a further step to fund the acquisition of hospitals and outpatient facilities of Rhön-Klinikum AG, Fresenius Finance B.V. placed €300 million of unsecured Senior Notes with a maturity of 10 years on January 28, 2014. The Senior Notes have a coupon of 4.00% and were placed at par. On February 6, 2014, the Senior Notes were increased by an amount of €150 million at a price of 102%. The Senior Notes in the nominal amount of €450 million were issued on February 11, 2014.
Furthermore, on February 14, 2014, Fresenius US Finance II, Inc. issued US\$300 million of unsecured Senior Notes with a maturity of seven years. The Senior Notes have a coupon of 4.25% and were issued at par.
Net proceeds of the Senior Notes issued in January and February 2014 were used to partially refinance the drawing under the Bridge Financing Facility. On February 27, 2014, the Bridge Financing Facility was voluntarily cancelled before maturity and the remaining outstanding amount of €90 million was repaid.
On February 20, 2014, Fresenius Helios has received antitrust approval to acquire 40 hospitals and 13 outpatient facilities from Rhön-Klinikum AG. The majority of the transaction was closed on February 27, 2014. For two hospitals (Dr. Horst Schmidt Kliniken in Wiesbaden and Klinikum Salzgitter), the approval of municipal owners or current minority shareholders is still pending. The transaction provides Fresenius Helios with the opportunity to create a nationwide hospital network in Germany.
There have been no significant changes in the Fresenius Group's operating environment following the end of the fiscal year 2013 until February 27, 2014. No other events of material importance on the assets and liabilities, financial position, and results of operations of the Group have occurred following the end of the fiscal year.
Individualized information regarding the compensation of the members of the Management Board and of the Supervisory Board is disclosed in the audited Compensation Report (see page 23ff.), which is part of the Management Report.
The compensation of the Management Board is, as a whole, performance-based and was composed of three elements in the fiscal year 2013:
The cash compensation paid to the Management Board for the performance of its responsibilities was €11,044 thousand (2012: €11,080 thousand). Thereof, €5,044 thousand (2012: €5,053 thousand) is not performance-based and €6,000 thousand (2012: €6,027 thousand) is performance-based. The amount of the performance-based compensation depends on the achievement of targets relating to the net income of the Fresenius Group and business segments. As a long-term incentive component, the members of the Management Board
received 105,000 stock options under the Fresenius SE & Co. KGaA Stock Option Plan 2013 and 74,700 stock options under the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2011 and a share-based compensation with cash settlement in an amount of €3,632 thousand.
The payment of a part of the performance-based compensation in an amount of €203 thousand was postponed by two years as a long-term incentive component. The payment depends on the achievement of targets relating to the net income attributable to shareholders of Fresenius SE & Co. KGaA of the years 2014 and 2015. The total compensation of the Management Board was €18,407 thousand (2012: €17,751 thousand).
The total compensation paid to the Supervisory Boards of Fresenius SE & Co. KGaA and Fresenius Management SE and their committees was €2,920 thousand in 2013 (2012: €2,592 thousand). Of this amount, €213 thousand was fixed compensation (2012: €213 thousand), €100 thousand was compensation for committees services (2012: €100 thousand), and €2,607 thousand was variable compensation (2012: €2,279 thousand).
In 2013, based on pension commitments to former members of the Management Board, €1,064 thousand (2012: €778 thousand) was paid. The pension obligation for these persons amounted to €17,389 thousand in 2013 (2012: €11,310 thousand).
In the fiscal years 2013 and 2012, no loans or advance payments of future compensation components were made to members of the Management Board of Fresenius Management SE.
In 2013 and 2012, fees for the auditor KPMG AG Wirtschaftsprüfungsgesellschaft were expensed as follows:
| 2013 | 2012 | ||||
|---|---|---|---|---|---|
| € in millions | Total | Germany | Total | Germany | |
| Audit fees | 15 | 5 | 17 | 6 | |
| Audit-related fees | 2 | 1 | 3 | 3 | |
| Tax consulting fees | 1 | – | 1 | – | |
| Other fees | 4 | 4 | 2 | 1 | |
| Total auditor's fees | 22 | 10 | 23 | 10 |
For each consolidated stock exchange listed entity, the declaration pursuant to Section 161 of the German Stock Corporation Act (Aktiengesetz) has been issued and made available to shareholders on the website of Fresenius SE & Co. KGaA www.fresenius.com under Who we are – Corporate Governance – Declaration of Conformity and of Fresenius Medical Care AG & Co. KGaA www.fmc-ag.com under Investor Relations – Corporate Governance – Declaration of Compliance, respectively.
The general partner and the Supervisory Board of Fresenius SE & Co. KGaA propose to the Annual General Meeting that the earnings for 2013 of Fresenius SE & Co. KGaA are distributed as follows:
| Payment of a dividend of €1.25 per bearer | |
|---|---|
| ordinary share on the 179,694,829 ordinary | |
| shares entitled to dividend | 224,618,536.25 |
| Balance to be carried forward | 31,207.40 |
| Retained earnings | 224,649,743.65 |
"To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the
Bad Homburg v. d. H., February 27, 2014
Fresenius SE & Co. KGaA, represented by: Fresenius Management SE, its general partner
The Management Board
Dr. U. M. Schneider Dr. F. De Meo Dr.J. Götz
M. Henriksson R. Powell S. Sturm Dr. E. Wastler
Group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group."
To the Fresenius SE & Co. KGaA
We have audited the consolidated financial statements prepared by the Fresenius SE & Co. KGaA, Bad Homburg v. d. Höhe, comprising the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and the notes to the consolidated financial statements for the business year from January 1 to December 31, 2013. The preparation of the consolidated financial statements in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP) is the responsibility of the legal representative of the Company. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. In addition, we have been engaged to express an opinion as to whether the voluntarily prepared group management report is in agreement with the group management report of Fresenius SE & Co. KGaA, Bad Homburg v. d. Höhe, prepared in accordance with § 290 and § 315 HGB [Handelsgesetzbuch "German Commercial Code"] apart from appropriate incorporation of U.S. GAAP financial data.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the
applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accountingrelated internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the legal representative, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with U.S. GAAP and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The voluntarily prepared group management report is consistent with the consolidated financial statements prepared in accordance with U.S. GAAP and is, apart from appropriate incorporation of U.S. GAAP financial data, in agreement with the group management report of Fresenius SE & Co. KGaA prepared in accordance with § 290 and § 315 HGB, on which we issued an unqualified statutory audit opinion. Based on this, the group management report as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Frankfurt am Main, February 27, 2014
KPMG AG Wirtschaftsprüfungsgesellschaft
Rohrbach Walter German Public Auditor German Public Auditor
In 2013, the Supervisory Board of Fresenius SE & Co. KGaA fulfilled its obligations in its respective terms in accordance with the provisions of the law, the articles of association, and the rules of procedure. It regularly advised the Management Board of the general partner, Fresenius Management SE, regarding the management of the Company, and has supervised the management in accordance with its Supervisory Board responsibilities.
Carrying out its monitoring and advisory activities, the Management Board regularly kept the Supervisory Board informed − in a timely and comprehensive oral and written manner − about all important matters relating to business policy, business development, profitability, the economic and financial position of the Company and the Group, the corporate strategy and planning, risk situation, risk management, and compliance, as well as important business events. Based on the reports submitted from the Management Board of the general partner, the Supervisory Board discussed all business transactions that were important for the Company in its committees and at its meetings. The Management Board of the general partner discussed the Company's strategic direction with the Supervisory Board. The Supervisory Board passed resolutions within the framework of its legal and Company statutory authority.
The Supervisory Board of Fresenius SE & Co. KGaA convened for four regular meetings in 2013 – in March, May, October, and December. In addition, the Supervisory Board had an extraordinary meeting in September in which the members of the Supervisory Board were informed about the planned acquisition of hospitals from Rhön-Klinikum Aktiengesellschaft. Before the meetings, the Management Board of the general partner
sent detailed reports and comprehensive approval documents to the members of the Supervisory Board. At the meetings, the Supervisory Board discussed in detail the business development and any important corporate decisions based on the reports from the general partner's Management Board.
All matters requiring Supervisory Board approval were submitted with sufficient time for proper scrutiny. After reviewing the related approval documents and detailed consultation with the Management Board of the general partner, the Supervisory Board approved all matters submitted to it.
The Supervisory Board was also informed about any important business events occurring between meetings. In a few cases, it passed resolutions by written proceeding in lieu of a meeting. In addition, the Chairman of the general partner's Management Board regularly informed the Chairman of the Supervisory Board in separate meetings about the latest development of the business and forthcoming decisions and discussed them with him.
Every member of the Supervisory Board of Fresenius SE & Co. KGaA attended at least half of the regular Supervisory Board Meetings in 2013.
In 2013, the Supervisory Board mostly focused its monitoring and consulting activities on business operations and investments by the business segments. Furthermore, the Supervisory Board thoroughly reviewed and discussed all other significant business activities with the Management Board. One main consulting focus was on acquisitions, especially the acquisition of hospitals from Rhön-Klinikum Aktiengesellschaft. The Supervisory Board discussed in detail the 2014 budget and the mid-term planning of the Fresenius Group. It also focused on the strategies of the business segments, especially on the business perspectives for Fresenius Medical Care in the U.S. market. At its meetings and within the Audit Committee, the Supervisory Board also kept itself regularly informed about the Group's risk situation and risk management activities as well as compliance.
The Supervisory Board and the Management Board of the general partner jointly issued a Declaration of Conformity in accordance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG) on December 20, 2013.
The Management Board of the general partner and the Supervisory Board of Fresenius SE & Co. KGaA have a duty to act in the best interests of the Company. In performing their activities, they do not pursue personal interests or bestow unjustified benefits on others. Any sideline activities or transactions with the Company by members of the corporate bodies must be reported to, and approved by, the Supervisory Board.
Prof. Dr. med. D. Michael Albrecht is a member of the Supervisory Board of our Company and is medical director and spokesman for the management board of the University Hospital Carl Gustav Carus Dresden as well as a member of the supervisory board of the University Hospital in Aachen. He was also a member of the supervisory boards of the University Hospitals in Magdeburg and Rostock. The Fresenius Group maintains regular business relationships with these hospitals in the ordinary course under customary conditions. Klaus-Peter Müller is a member of the Supervisory Boards of our Company and of Fresenius Management SE, as well as Chairman of the supervisory board of Commerzbank AG, with which the Fresenius Group maintains business relationships under customary conditions. In 2013, the Fresenius Group paid €1.4 million to Commerzbank AG for financing commitments, in connection with Senior Notes issuances and the share conversion at Fresenius Medical Care. Dr. Gerhard Rupprecht is a member of the Supervisory Board of our Company and of Fresenius Management SE, as well as a member of the supervisory board of Allianz France SA. In 2013, the Fresenius Group paid €5.3 million for insurance premiums to Allianz under customary conditions.
There are no direct consultancy or other service relationships between the Company and any given member of the Supervisory Board. In 2013, the Fresenius Group had consultancy contracts with the management consultancy firm Roland Berger Strategy Consultants GmbH, an affiliated company of the management consultancy firm Roland Berger Strategy Consultants Holding GmbH. Prof. Dr. h. c.Roland Berger is a member of the Supervisory Board of Fresenius Management SE and a member of the Supervisory Board of our Company. Prof. Dr. h. c.Berger is at the same time a partner in Roland Berger Strategy Consultants Holding GmbH. The Fresenius Group paid approximately €2.9 million (2012: €0.6 million) to Roland Berger Strategy Consultants GmbH for services rendered in 2013. The Supervisory Board closely examined this mandate and approved it. Prof. Dr. h. c. Berger abstained from voting. The respective approval was made on the basis of a written submission to the Supervisory Board and prior to the payment of the invoices for the services.
Furthermore, various companies of the Fresenius Group were advised by affiliated companies of the internationally acting law firm Noerr. Dr. Dieter Schenk, member of the Supervisory Board of Fresenius Management SE and Deputy Chairman of the same, is also a partner of the law firm Noerr LLP. In 2013, the Fresenius Group paid or processed for payment in December about €1.5 million to the law firm Noerr (2012: €1.8 million). This corresponds to 1% of the total amount paid by the Fresenius Group for services and legal advice in 2013 (2012: 2%). Not included in the amount paid or processed for payment are such payments made in 2013 that had already been processed for payment in 2012, and have therefore already been reported for the
2012 fiscal year. Thereof, about €0.5 million were attributable to services for Group companies not related to the business segment Fresenius Medical Care. The services rendered for Group companies of the business segment Fresenius Medical Care require a separate approval by the Supervisory Boards of Fresenius Medical Care Management AG and Fresenius Medical Care AG & Co. KGaA. The Supervisory Board of Fresenius Management SE, of which Dr. Schenk is a member, closely examined this mandate and approved it. Dr. Schenk abstained from voting. The Supervisory Board of Fresenius SE & Co. KGaA, of which Dr. Schenk is not a member, dealt with the amounts for legal services paid to the law firm Noerr in relation to the amounts paid to other law firms.
The payments mentioned in this section are net amounts in Euro. VAT was paid also.
For more information on corporate governance at Fresenius, please refer to the Corporate Governance Declaration and Report on pages 11 to 31 of the Annual Report. Fresenius has disclosed the information on related parties in its quarterly reports and on pages 174 and 175 of the Annual Report.
The Audit Committee held three meetings and four conference calls in 2013. The main focus of its monitoring activities was on the preliminary audit of the annual financial statements of Fresenius SE & Co. KGaA and the Group for 2012 and discussions with the auditors about their reports and the terms of reference of the audit. Another matter dealt with by the Audit Committee was its recommendation to the Supervisory Board on which auditing firm to propose to the Annual General Meeting for election as auditor for the annual financial statements of Fresenius SE & Co. KGaA and the Group for 2013. The Supervisory Board's proposal to the Annual General Meeting in 2013 to elect KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, as auditor was based on a recommendation to this effect by the Audit Committee. The Audit Committee also reviewed the 2013 quarterly reports, the controlling reports on the development of the acquisitions, the compliance, the risk management system, the internal control system, and the internal auditing system. The chairman of the Audit Committee reported regularly in the following Supervisory Board meetings on the work of the committee.
The Company's Nomination Committee did not meet in 2013.
The Joint Committee, whose approval is necessary for certain important transactions of Fresenius SE & Co. KGaA and for certain legal acts between the Company and the Else Kröner-Fresenius Foundation, did not meet in 2013 because no transactions were effected that required the Joint Committee's approval.
There is no Mediation Committee because the Supervisory Board of Fresenius SE & Co. KGaA does not appoint the Management Board members of Fresenius Management SE.
For more information about the committees, their composition, and their work methods, please refer to the Corporate Governance Declaration and Report on pages 15, 16, and 187 of the Annual Report.
In 2012, there were no changes in the composition of the Supervisory Board of Fresenius SE & Co. KGaA and the Management Board of the general partner Fresenius Management SE.
The accounting records, the financial statements prepared according to the German Commercial Code (HGB), and the 2013 Management Report of the Company were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin. The firm was elected as auditor in accordance with the resolution passed at the Annual General Meeting of Fresenius SE & Co. KGaA on May 17, 2013, and was subsequently commissioned by the Supervisory Board. The auditors of KPMG issued their unqualified audit opinion for these statements. The same applies to the Company's consolidated financial statements, prepared according to IFRS accounting principles, and to the regulations that govern these statements pursuant to Section 315a of the German Commercial Code (HGB). It also applies to the Company's consolidated financial statements, which are prepared voluntarily according to U.S. GAAP.
The financial statements, the consolidated financial statements, the Management Reports, and the auditor's reports were submitted to each member of the Company's Supervisory Board within the required time. At their meetings on March 13 and 14, 2014, the Audit Committee and then the Supervisory Board discussed all the documents in detail.
The auditors delivered a detailed report on the results of the audit at each of these meetings. They found no weaknesses in the risk management system and the internal control system with regard to the accounting process. The auditors attended all meetings of the Supervisory Board and all meetings and conference calls of the Audit Committee.
The Audit Committee and the Supervisory Board approved the auditor's findings. Also the Audit Committee's and the Supervisory Board's own review found no objections to the Company's financial statements and Management Report or the consolidated financial statements and the Group Management Reports. At its meeting on March 14, 2014, the Supervisory Board approved the financial statements and Management Reports presented by the general partner and the statements contained therein with respect to future development.
The Supervisory Board concurs with the general partner's proposal on the allocation of the 2013 distributable profit.
The Supervisory Board would like to thank the members of the Management Board of the general partner and all employees for their outstanding achievements.
Bad Homburg v. d. H., March 14, 2014
The Supervisory Board
Dr. Gerd Krick Chairman
Former Chairman of Fresenius AG
Offices Supervisory Board Fresenius Management SE (Chairman) Fresenius Medical Care AG & Co. KGaA (Chairman) Fresenius Medical Care Management AG VAMED AG, Austria (Chairman)
Prof. Dr. med. D. Michael Albrecht Dresden
Medical Director and Spokesman of the
Management Board of the Universitäts-
klinikum Carl Gustav Carus Dresden
Offices Supervisory Board GÖK Consulting AG Universitätsklinikum Aachen Universitätsklinikum Magdeburg (until Oct. 3, 2013) Universitätsklinikum Rostock (until Feb. 28, 2013)
Offices Supervisory Board Fresenius Management SE Prime Office REIT-AG (Chairman) Schuler AG Wilhelm von Finck AG (Deputy Chairman) WMP EuroCom AG (Chairman)
Administrative Board Wittelsbacher Ausgleichsfonds
Board of Directors Geox S.p.A., Italy RCS Mediagroup S.p.A., Italy (Vice President)
Rome, Italy Trade Union Officer FEMCA Cisl – Energy, Fashion, and Chemicals
Hof am Laithagebirge, Austria Full-time Works Council Member
Member of the Manual Workers' Works Council of VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H.
Chairman of the Group Works Council of VAMED AG
Deputy Chairman of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H., Austria
Bad Homburg v. d. H. Chairman of the Supervisory Board of Commerzbank AG
Offices Supervisory Board Commerzbank AG (Chairman) Fresenius Management SE Linde AG
Administrative Board Landwirtschaftliche Rentenbank
Board of Directors Parker Hannifin Corporation, USA
Weilrod Full-time Works Council Member
Chairman of the Joint Works Council of Fresenius SE & Co. KGaA/ Bad Homburg site
Member of the General Works Council of Fresenius SE & Co. KGaA
Canaccord Genuity Ltd., London (formerly: Hawkpoint Partners Ltd., London) Vice Chairman Investment Banking
Offices Supervisory Board Deutsche Beteiligungs AG Deutsche Börse AG (Deputy Chairman) GP Günter Papenburg AG (Chairman) WAVE Management AG (since Nov. 19, 2013)
Board of Directors Friends Life Group plc, Great Britain (until Mar. 28, 2013) Resolution Ltd., Guernsey (until Mar. 28, 2013)
Dr. Gerhard Rupprecht
Gerlingen
Former member of the Management Board of Allianz SE
Deputy Chairman
Offices Supervisory Board Allianz France SA Euler Hermes Deutschland AG Fresenius Management SE Heidelberger Druckmaschinen AG (until Jul. 23, 2013)
Limburg-Staffel Hospital nurse and full-time Works Council Member
Chairman of the Works Council of HELIOS Klinik Bad Schwalbach and of HELIOS Klinik Idstein
Chairman of the Group Works Council of Wittgensteiner Kliniken GmbH
Member of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board Wittgensteiner Kliniken GmbH
Berlin Full-time Works Council Member
Chairman of the Group Works Council of HELIOS Kliniken GmbH
Chairman of the European Works Council of Fresenius SE & Co. KGaA
Corporate Offices Supervisory Board HELIOS Kliniken GmbH
Zeuthen Secretary of the Trade Union ver.di, Head of Company and Industry Politics in Health Care and Social Affairs Deputy Chairman
Offices Supervisory Board HELIOS Kliniken GmbH (Deputy Chairman)
Audit Committee Prof. Dr. h. c. Roland Berger (Chairman) Konrad Kölbl Dr. Gerd Krick Gerhard Roggemann Rainer Stein
Nomination Committee Dr. Gerd Krick (Chairman) Prof. Dr. h. c. Roland Berger Dr. Gerhard Rupprecht
Joint Committee 1 Dr. Dieter Schenk (Chairman) Dr. Gerd Krick Dr. Gerhard Rupprecht Dr. Karl Schneider
(General partner of Fresenius SE & Co. KGaA)
Corporate Offices Supervisory Board FPS Beteiligungs AG (Chairman) Fresenius Kabi AG (Chairman) Fresenius Kabi España S.A.U., Spain Fresenius Medical Care Groupe France S.A.S., France (Chairman) Fresenius Medical Care Management AG (Chairman) HELIOS Kliniken GmbH (Chairman)
Board of Directors Fresenius Kabi USA, Inc., USA FHC (Holdings) Ltd., Great Britain
Dr. Francesco De Meo
Corporate Offices Supervisory Board Damp Holding GmbH (until Feb. 3, 2013; Chairman) HELIOS Beteiligungs AG (Chairman) HELIOS Kliniken Mansfeld-Südharz GmbH (until 04.09.2013; Chairman) HELIOS Kliniken Schwerin GmbH (Chairman)
Bad Soden am Taunus
and Labor Relations Director
Corporate Offices Supervisory Board FPS Beteiligungs AG (Deputy Chairman) HELIOS Kliniken GmbH Wittgensteiner Kliniken GmbH (Chairman) Mats Henriksson (since Jan. 1, 2013)
Corporate Offices Supervisory Board Fresenius Kabi Austria GmbH, Austria (since Jan. 1, 2013; Chairman) Fresenius Kabi España S.A.U., Spain Fresenius Kabi Japan K.K., Japan Labesfal – Laboratórios Almiro, S.A., Portugal (since Jan. 1, 2013)
Fresenius Kabi Groupe France S.A., France (since Jan. 1, 2013; Chairman) Fresenius Kabi Italia S.p.A., Italy (Chairman)
Beijing Fresenius Kabi Pharmaceutical Co., Ltd., China Fenwal, Inc., USA Fenwal Holdings, Inc., USA FHC (Holdings) Ltd., Great Britain (since Jan. 1, 2013) Fresenius Kabi Asia Pacific Ltd., Hong Kong Fresenius Kabi Oncology Ltd., India Fresenius Kabi Pharmaceuticals Holding, Inc., USA (since Jan. 1, 2013) Fresenius Kabi (Singapore) Pte Ltd., Singapore Fresenius Kabi USA, Inc., USA (since Jan. 1, 2013) Sino-Swed Pharmaceutical Corp, Ltd., China
Corporate Offices Management Board Fresenius Medical Care Management AG (Chairman since Jan. 1, 2013)
Administrative Board Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland (Deputy Chairman)
Fresenius Medical Care Holdings, Inc., USA (Chairman since Jan. 1, 2013)
Corporate Offices Supervisory Board FPS Beteiligungs AG Fresenius Kabi AG (Deputy Chairman) Fresenius Kabi España S.A.U., Spain HELIOS Kliniken GmbH Labesfal – Laboratórios Almiro, S.A., Portugal VAMED AG, Austria (Deputy Chairman) Wittgensteiner Kliniken GmbH
Administrative Board Fresenius Kabi Groupe France S.A., France
Board of Directors FHC (Holdings) Ltd., Great Britain
Corporate Offices Supervisory Board Charité CFM Facility Management GmbH (Deputy Chairman) VAMED-KMB Krankenhausmanagement und Betriebsführungsges. m.b.H., Austria (Chairman)
(General partner of Fresenius SE & Co. KGaA)
| Dr. Gerd Krick | Dr. Dieter Schenk | Dr. Karl Schneider |
|---|---|---|
| Königstein | Munich | Mannheim |
| Chairman | Lawyer and Tax Consultant | Former Spokesman of Südzucker AG |
| Prof. Dr. h. c.Roland Berger Munich |
Deputy Chairman Offices Supervisory Board Fresenius Medical Care AG & Co. KGaA (Deputy Chairman) Fresenius Medical Care Management AG (Deputy Chairman) |
Offices Administrative Board Else Kröner-Fresenius-Stiftung (Deputy Chairman) |
| Klaus-Peter Müller Bad Homburg v. d. H. |
Gabor Shoes AG (Chairman) Greiffenberger AG (Deputy Chairman) TOPTICA Photonics AG (Chairman) Administrative Board |
|
| Dr. Gerhard Rupprecht | Else Kröner-Fresenius-Stiftung (Chairman) | |
Gerlingen
Data transmitted to sickness funds as part of the billing process or to federal agencies like the German Federal Statistics Office due to legal requirements. In Germany, this includes information about coded diagnoses and procedures.
Protein that is indicative of a patient's general nutritional status.
They are used for the temporary stabilization and/or maintenance of blood volume, for example, in the event of major blood loss.
Patient-individual preparation of IV drug solutions or mixtures for parenteral nutrition therapy.
Form of renal replacement therapy where a semipermeable membrane – in peritoneal dialysis the peritoneum of the patient, in hemodialysis the membrane of the dialyzer – is used to clean a patient's blood.
The hemodialysis process is controlled by a dialysis machine, which pumps blood, adds anticoagulants, regulates the cleansing process, and controls the mixture of dialysate and its flow rate through the system.
Fluid used in the process of dialysis in order to remove the filtered out substances and excess water from the blood.
Special filter used in hemodialysis for removing toxic substances, waste products of metabolic processes, and excess water from the blood. The dialyzer is sometimes referred to as the "artificial kidney."
Application of liquid nutrition as a tube or sip feed via the gastrointestinal tract.
Hormone that stimulates red blood cell production. Recombinant (i. e., artificially produced) human EPO is commonly prescribed to patients on dialysis who suffer from anemia.
Official authority for food observation and drug registration in the United States.
(primary, secondary, tertiary)
Primary health care refers to markets, in which basic infrastructure, health posts, and rural hospitals are available.
Secondary health care refers to markets, in which general hospitals, specialist's clinics, and rehabilitation are available.
Tertiary health care refers to markets, in which maximum care, teaching hospitals, university clinics, and centers of excellence are available.
A treatment method for dialysis patients where the blood of the patient is cleansed by a dialyzer. The solute exchange between blood and dialysate is dominated by diffusive processes.
Component of red blood cells that transports oxygen around the body. An insufficient level of hemoglobin is indicative of anemia, which typically occurs in patients with chronic kidney failure. Besides dialysis, anemia is treated with iron supplements and the hormone compound erythropoietin (EPO).
Provides information on urea content in the blood. Urea is mostly excreted by healthy kidneys, but for dialysis patients it must be filtered from the blood through renal replacement therapy. The Kt/V value shows whether a patient was detoxified effectively during dialysis.
A program developed by the federal U.S. Social Security Administration that reimburses health insurance companies and providers of medical services for medical care to individuals over 65, people with chronic kidney failure, or the disabled.
Interdisciplinary facility for outpatient care, managed by a physician. Potential shareholders of the medical care center include all service providers (such as physicians, pharmacists, health care facilities), which are authorized to treat patients with statutory health insurance.
Application of nutrients directly into the bloodstream of the patient (intravenously). This is necessary if the condition of a patient does not allow to absorb and metabolize essential nutrients orally or as sip and tube feed in a sufficient quantity.
Dialysis treatment method using the patient's peritoneum as a filter to cleanse his blood.
Phosphate concentrations show whether treating the patient with dialysis and medication is sufficient for the body to absorb phosphate ingested with food. Healthy people excrete excess phosphate via the kidney, but a diseased kidney is unable to do this. If the phosphate concentrations in the blood are too high, this can lead to severe conditions.
Number of all patients who suffer from a specific disease within a defined period. The prevalence rate indicates the number of people with this specific disease (e.g., terminal kidney failure) treated per million population.
Public-private partnership (PPP) describes a government service or private business venture that is funded and operated through a partnership of government and one or more private sector companies. PPP accompanies in most cases with a part-privatization of governmental services.
The three-chamber bag contains all the macronutrients like amino acids, glucose, and lipids, as well as electrolytes in three separate chambers. Immediately before infusion all nutrients are mixed thoroughly within the bag simply by opening individual chambers. This reduces the risk of contamination and saves time when preparing the infusions.
Financial terms
Certificate that represents indirect ownership of shares in a non-U.S. company and enables trading in the United States.
Financial key figure that shows the net balance of incoming and outgoing payments during a reporting period.
Short-term unsecured promissory notes issued by corporations in need of short-term loans. Typically, commercial paper maturities range from a few days up to under two years.
Measures for adherence to laws and company policies.
Designation in international parlance for company management and company controlling focused on responsible, long-term value creation.
Indicates the average number of days it takes for a receivable to be paid. A shorter DSO results in less interest for the creditor and a lower risk of default.
Earnings before interest and income taxes.
Earnings before interest, income taxes, depreciation, and amortization.
A German legal form meaning partnership limited by shares. An entity with its own legal identity in which at least one general partner has full liability (personally liable shareholder, or Komplementäraktionär), while the other shareholders have an interest in the capital stock divided into shares without being personally liable for the debts of the company.
Growth that is generated by a company's existing businesses and not by acquisitions, divestitures, or foreign exchange impact.
Trading of securities that are not listed on a stock exchange in the respective country. Fresenius' sponsored Level 1 ADRs are traded on the OTC market in the United States.
A classification of the creditworthiness of a company accepted on the international capital market. It is published by independent rating agencies such as Standard&Poor's, Moody's, or Fitch based on a company analysis.
Measure of a corporation's profitability revealing how much profit a company generates with the money shareholders have invested.
ROE = fiscal year's net income/total equity x 100.
Calculated by: (EBIT – taxes) : Invested capital Invested capital = total assets + amortization of goodwill (accumulated) – deferred tax assets – cash and cash equivalents – trade accounts payable – accruals (without pension accruals) – other liabilities not bearing interest.
This key figure can be found on pages 75 and 76 in the Management Report.
Calculated by: EBIT x 100 : operating assets (average)
Operating assets = total assets – deferred tax assets – trade accounts payable –payments received on account – approved subsidies.
This key figure can be found on pages 75 and 76 in the Management Report.
Legal form of a European stock corporation. The supranational legal entity is based on European Community law. Subject to European regulations, the SE is treated in all member states of the European Union as a stock corporation according to the national law of the member state in which the SE is incorporated.
Indicates the average number of days between receiving goods as inventory and the sale of the finished product.
Calculated by: (Inventories : Costs of goods sold) x 365 days.
Current assets (including deferred assets) – accruals – trade accounts payable – other liabilities – deferred charges.
Electronic trading system of Deutsche Börse AG to buy or sell stocks, foreign currencies, or other financial instruments.
| Accounting policies | 104ff. |
|---|---|
| Acquisitions | 35, 37, 73f., 116ff. |
| ADR | Inside cover, 9f., 146, 192 |
| Analyst recommendation | 10 |
| Annual General Meeting | 11f. |
| Articles of association | 11ff., 43f. |
| Assets and liabilities | 74ff. |
| Authorized capital | 43f., 146 |
Boards 186ff. Business development 63ff.
| Capital | 43f. |
|---|---|
| Cash and cash equivalents | 97, 107, 124 |
| Cash flow | 7, 72f., 97, 164, 192 |
| Cash flow statement | 72f., 97, 164 |
| Clinical nutrition | 34, 48, 61f., 80 |
| Compensation of | |
| Management Board | |
| and Supervisory Board | 23ff., 30f., 176 |
| Compliance | 16f., 89, 192 |
| Composition of the Group | 104f. |
| Conditional capital | 43f., 147 |
| Corporate governance | 11ff., 177, 181ff., 192 |
| Corporate governance | |
| declaration | 11ff. |
| Corporate performance | |
| criteria | 45f. |
| Currency and | |
| interest risk management | 76, 91, 157ff. |
| Currency translation | 43, 91f., 111f. |
| Current assets | 74, 96 |
| Declaration of conformity | 17ff. |
|---|---|
| Dialysis care | 32f., 59ff., 79 |
| Dialysis products | 32f., 59ff., 79 |
| Distribution of earnings | 177 |
| Diversity | 20 |
| Dividend | 9f., 72, 84, 147 |
| E | |
|---|---|
| Earnings per share | 66ff., 107, 123 |
| Employees | 49ff., 84 |
| Employee participation | 50f. |
| Enteral nutrition Environment |
34f., 48, 190 55ff. |
| Equity ratio | 74f., 163 |
| F | |
| Financial position | 69ff. |
| Financing | 70f., 83, 163f. |
| G | |
| Group structure | 41, 103 |
| H | |
| Health care industry | 59ff. |
| Hemodialysis | 32, 60f., 190 |
| I | |
| Infusion therapy | 34f., 47f., 61f., 80 |
| Inventories Investments |
108, 124 73f., 83 |
| Investor Relations | 10 |
| IV drugs | 34f., 47f., 61f., 80 |
| M | |
| Management Board | 12ff., 188 |
| Market capitalization | 8f. |
| N | |
| Net income | 6, 66ff., 81f., 123 |
| Net interest | 68, 121 |
| Noncontrolling interests | 96, 145 |
| Non-current assets | 74, 96 |
| O | |
| Operating cash flow | 7, 72f. |
|---|---|
| Opportunities management | 85 |
| Outlook | 77ff., 82 |
| Parenteral nutrition Pensions Peritoneal dialysis Personnel expenses Procurement |
34f., 48, 191 96, 111, 139ff. 32, 60f., 191 49, 120f. 51f., 83 |
|---|---|
| Q Quality management |
53ff. |
| R Rating |
76, 164, 192 |
| Renal pharmaceuticals | 59ff., 79 |
| Research and development | 46ff., 83f. |
| Results of operations | 65ff. |
| Risk management/risk areas | 17, 85ff. |
| ROE | Inside cover, 192 |
| ROIC | Inside cover, 46, 75f., 192 |
| ROOA | Inside cover, 46, 75f., 166, 192 |
| S Sales Segment reporting Share Shareholder structure Share price development Stock option plan Strategy Subsequent events Supervisory Board Supervisory Board Committees Sustainability |
6, 65f., 81ff., 120 100f., 164ff. Inside cover, 8ff. 10, 146 8f. 22ff., 50f., 166ff. 44f. 77 12ff., 42, 180ff. 15f., 187 55ff. |
| T Transfusion technology |
34f., 61f., 80 |
| V | |
| Value added Vocational training |
68f. 50 |
| W | |
| Working capital | 71f., 192 |
Commercial Register: Bad Homburg v. d. H.; HRB 11852 Chairman of the Supervisory Board: Dr. Gerd Krick
General Partner: Fresenius Management SE Registered Office and Commercial Register: Bad Homburg v. d. H.; HRB 11673 Management Board: Dr. Ulf M. Schneider (President and CEO), Dr. Francesco De Meo, Dr.Jürgen Götz, Mats Henriksson, Rice Powell, Stephan Sturm, Dr. Ernst Wastler Chairman of the Supervisory Board: Dr. Gerd Krick
The German version of this Annual Report is legally binding. The editorial closing date of this annual report was on March 19, 2014, and it was published on March 20, 2014.
The Annual Report, the financial statements of Fresenius SE & Co. KGaA, and the consolidated statements in accordance with IFRS accounting principles are available on our website and may be obtained upon request under Investor Relations.
You will find further information and current news about our company on our website at: http://www.fresenius.com.
Forward-looking statements:
This Annual Report contains forward-looking statements. These statements represent assessments that we have made on the basis of the information available to us at the time. Should the assumptions on which the statements are based on not occur, or if risks should arise – as mentioned in the risk report and the SEC filings of Fresenius Medical Care AG & Co. KGaA – the actual results could differ materially from the results currently expected.
Design concept/Realization: Hilger & Boie Design, Wiesbaden Print: Ziegler GmbH & Co. KG, Neckarbischofsheim, Germany
| Report on 1st quarter 2014 | |
|---|---|
| Conference call, Live webcast | May 6, 2014 |
| Annual General Meeting, Frankfurt am Main, Germany | May 16, 2014 |
| Payment of dividend1 | May 19, 2014 |
| Report on 1st half 2014 | |
| Conference call, Live webcast | August 5, 2014 |
| Report on 1st – 3rd quarters 2014 | |
| Conference call, Live webcast | November 4, 2014 |
1 Subject to prior approval by the Annual General Meeting
| Ordinary share | ADR | ||
|---|---|---|---|
| Securities identification no. | 578 560 | CUSIP | 35804M105 |
| Ticker symbol | FRE | Ticker symbol | FSNUY |
| ISIN | DE0005785604 | ISIN | US35804M1053 |
| Bloomberg symbol | FRE GR | Structure | Sponsored Level 1 ADR |
| Reuters symbol | FREG.de | Ratio | 8 ADR = 1 Share |
| Main trading location | Frankfurt/Xetra | Trading platform | OTCQX |
Corporate Headquarters Else-Kröner-Straße 1 Bad Homburg v. d. H. Germany
61346 Bad Homburg v. d. H. Germany
Investor Relations Telephone: ++49 61 72 6 08-26 37 Telefax: ++49 61 72 6 08-24 88 E-mail: [email protected]
Corporate Communications Telephone: ++49 61 72 6 08-23 02 Telefax: ++49 61 72 6 08-22 94 E-mail: [email protected]
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