<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of November 2000
FRESENIUS MEDICAL CARE CORPORATION
(Translation of registrant's name into English)
Else-Kroner Strasse 1
61346 Bad Homburg
Germany
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
<TABLE>
<S> <C>
Form 20-F [X] Form 40-F [ ]
</TABLE>
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
<TABLE>
<S> <C>
Yes [ ] No [X]
</TABLE>
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82
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<PAGE> 2
FRESENIUS MEDICAL CARE AG
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations........... 1
Condensed Consolidated Balance Sheets..................... 3
Condensed Consolidated Statements of Cash Flows........... 4
Condensed Consolidated Statements of Shareholders'
Equity................................................. 5
Notes to Condensed Consolidated Financial Statements...... 6
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 24
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK................................................... 37
PART II
OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS......................................... 38
ITEM 5
OTHER INFORMATION......................................... 41
ITEM 6
EXHIBITS AND REPORTS ON FORMS 8-K/6-K
(a) Exhibits............................................. 41
(b) Reports on Form 8-K/6-K.............................. 41
SIGNATURES................................................ 42
</TABLE>
<PAGE> 3
FRESENIUS MEDICAL CARE AG
PART I
FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Net revenue:
Dialysis Care............................................. $ 761,090 $ 653,876
Dialysis Products......................................... 320,083 314,824
---------- ---------
1,081,173 968,700
Cost of revenue:
Dialysis Care............................................. 529,894 449,065
Dialysis Products......................................... 175,367 179,879
---------- ---------
705,261 628,944
Gross profit................................................ 375,912 339,756
Operating expenses:
Selling, general and administrative....................... 201,227 187,760
Research and development.................................. 7,503 8,022
---------- ---------
Special charge for settlement of investigations and
related costs.......................................... -- 590,000
---------- ---------
Operating income (loss)..................................... 167,182 (446,026)
Other (income) expense:
Interest income........................................... (2,253) (1,055)
Interest expense.......................................... 46,007 54,125
Interest expense on obligation related to settlement...... 7,951 --
---------- ---------
Income (loss) before income taxes and minority interest..... 115,477 (499,096)
Income tax expense (benefit)................................ 56,373 (133,119)
---------- ---------
Income (loss) before minority interest...................... 59,104 (365,977)
Minority interest........................................... 712 486
---------- ---------
Net income (loss)........................................... $ 58,392 $(366,463)
========== =========
Basic income (loss) per Ordinary share...................... $ 0.63 $ (4.64)
========== =========
Fully diluted income (loss) per Ordinary share.............. $ 0.63 $ (4.64)
========== =========
Basic income (loss) per Preference share.................... $ 0.64 $ (4.64)
========== =========
Fully diluted income (loss) per Preference share............ $ 0.64 $ (4.64)
========== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
1
<PAGE> 4
FRESENIUS MEDICAL CARE AG
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net revenue:
Dialysis Care............................................. $2,183,595 $1,920,571
Dialysis Products......................................... 935,598 911,437
---------- ----------
3,119,193 2,832,008
Cost of revenue:
Dialysis Care............................................. 1,506,575 1,320,598
Dialysis Products......................................... 519,253 510,274
---------- ----------
2,025,828 1,830,872
Gross profit................................................ 1,093,365 1,001,136
Operating expenses:
Selling, general and administrative....................... 602,491 561,772
Research and development.................................. 23,153 25,983
Special charge for settlement of investigations and
related costs.......................................... -- 590,000
---------- ----------
Operating income (loss)..................................... 467,721 (176,619)
Other (income) expense:
Interest income........................................... (7,315) (5,055)
Interest expense.......................................... 149,366 168,309
Interest expense on obligation related to settlement...... 21,802 --
---------- ----------
Income (loss) before income taxes and minority interest..... 303,868 (339,873)
Income tax expense (benefit)................................ 148,256 (54,595)
---------- ----------
Income (loss) before minority interest...................... 155,612 (285,278)
Minority interest........................................... 2,225 1,823
---------- ----------
Net income (loss)........................................... $ 153,387 $ (287,101)
========== ==========
Basic income (loss) per Ordinary share...................... $ 1.74 $ (3.64)
========== ==========
Fully diluted income (loss) per Ordinary share.............. $ 1.74 $ (3.64)
========== ==========
Basic income (loss) per Preference share.................... $ 1.79 $ (3.64)
========== ==========
Fully diluted income (loss) per Preference share............ $ 1.78 $ (3.64)
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
2
<PAGE> 5
FRESENIUS MEDICAL CARE AG
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ 47,011 $ 34,760
Trade accounts receivable, less allowance for doubtful
accounts of $120,319 in 2000 and $101,262 in 1999...... 797,323 667,739
Accounts receivable from related parties.................. 49,930 49,129
Inventories............................................... 308,015 301,302
Prepaid expenses and other current assets................. 236,312 179,392
IDPN accounts receivable.................................. 10,378 53,962
Deferred taxes............................................ 190,376 254,925
---------- ----------
Total current assets...................................... 1,639,345 1,541,209
Property, plant and equipment, net.......................... 680,036 642,121
Intangible assets, including goodwill, net.................. 3,478,485 3,438,756
Deferred taxes.............................................. 26,401 25,121
Non-current IDPN accounts receivable........................ -- 5,189
Other assets................................................ 111,604 99,987
---------- ----------
Total assets.............................................. $5,935,871 $5,752,383
========== ==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable.......................................... $ 173,049 $ 193,120
Accounts payable to related parties....................... 64,792 89,453
Accrued expenses and other current liabilities............ 415,934 415,061
Accrued settlement........................................ -- 386,815
Note payable related to settlement........................ 120,014 --
Short-term borrowings..................................... 103,148 96,383
Short-term borrowings from related parties................ 213,030 330,000
Current portion of long-term debt and capital lease
obligations............................................ 155,363 147,484
Income tax payable........................................ 109,561 78,438
Deferred taxes............................................ 31,346 33,438
---------- ----------
Total current liabilities................................. 1,386,237 1,770,192
Long-term debt and capital lease obligations, less current
portion................................................... 727,827 653,776
Accrued settlement.......................................... -- 85,920
Other liabilities........................................... 32,490 24,686
Pension liabilities......................................... 65,888 61,578
Deferred taxes.............................................. 165,107 168,037
Company-obligated mandatorily redeemable preferred
securities of subsidiary Fresenius Medical Care Capital
Trusts holding solely Company-guaranteed debentures of
subsidiary................................................ 944,444 964,103
Minority interest........................................... 20,948 21,774
---------- ----------
Total liabilities......................................... 3,342,941 3,750,066
Shareholders' equity:
Preference shares, no par, E 2.56 nominal value, 45,497,700
shares authorized, 23,760,664 issued and outstanding at
September 30, 2000; 9,023,341 issued and outstanding at
December 31, 1999......................................... 63,634 27,623
Ordinary shares, no par, E 2.56 nominal value, 70,000,000
shares authorized, issued and outstanding at September 30,
2000 and December 31, 1999................................ 229,494 229,494
Additional paid-in capital.................................. 2,634,251 2,097,480
Retained deficit............................................ (114,712) (216,870)
Accumulated other comprehensive loss........................ (219,737) (135,410)
---------- ----------
Total shareholders' equity.................................. 2,592,930 2,002,317
---------- ----------
Total liabilities and shareholders' equity.................. $5,935,871 $5,752,383
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
3
<PAGE> 6
FRESENIUS MEDICAL CARE AG
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Operating Activities:
Net income (loss)......................................... $ 153,387 $ (287,101)
Adjustments to reconcile net income to cash and cash
equivalents provided by (used in) operating activities:
Depreciation and amortization.......................... 217,174 209,161
Change in deferred taxes, net.......................... 68,214 (150,482)
(Gain) loss on sale of fixed assets.................... (786) 500
Compensation expense related to stock options.......... 3,538 --
Changes in assets and liabilities, net of amounts from
businesses acquired or disposed of:
Trade accounts receivable, net......................... (134,415) (123,151)
Inventories............................................ (18,041) (17,086)
Prepaid expenses, other current and non-current
assets................................................ (40,149) (39,720)
Accounts receivable from/payable to related parties.... (46,584) 6,656
Accounts payable, accrued expenses and other current
and non-current liabilities........................... (15,635) 600,330
Income taxes payable................................... 49,186 60,890
---------- ----------
Net cash provided by operating activities of
continuing operations............................... 235,889 259,997
---------- ----------
Net cash used in operating activities of discontinued
operations.......................................... -- (4,486)
---------- ----------
Net cash provided by operating activities............ 235,889 255,511
---------- ----------
Investing Activities:
Purchases of property, plant and equipment................ (143,617) (103,160)
Proceeds from sale of property, plant and equipment....... 18,146 5,034
Acquisitions, net of cash acquired........................ (244,881) (92,240)
---------- ----------
Net cash used in investing activities.................. (370,352) (190,366)
---------- ----------
Financing Activities:
Proceeds from short-term borrowings....................... 32,698 59,123
Repayments of short-term borrowings....................... (20,695) (53,568)
Proceeds of short-term borrowings from related parties.... 22,928 212,214
Repayments of short-term borrowings from related
parties................................................ (141,000) --
Payments on obligation related to settlement.............. (352,721) --
Proceeds from long-term debt.............................. 228,601 21,078
Principal payments of long-term debt and capital lease
obligations............................................ (138,024) (211,718)
Retirement of convertible investment securities........... -- (27,518)
Proceeds from issuance of preference shares............... 556,958 --
Proceeds from increase of accounts receivable
securitization program................................. 17,839 29,400
Proceeds from exercise of options......................... 478 1,295
Dividends paid............................................ (51,229) (48,404)
Change in minority interest............................... (379) 297
---------- ----------
Net cash provided by (used in) financing activities.... 155,454 (17,801)
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents............................................... (8,740) (21,188)
---------- ----------
Cash and Cash Equivalents:
Net increase in cash and cash equivalents................. 12,251 26,156
Cash and cash equivalents at beginning of period.......... 34,760 31,867
---------- ----------
Cash and cash equivalents at end of period................ $ 47,011 $ 58,023
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
<PAGE> 7
FRESENIUS MEDICAL CARE AG
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERENCE SHARES ORDINARY SHARES
-------------------- ---------------------
NO PAR, NO PAR,
E 2,56 E 2,56 ACCUMULATED
NOMINAL NOMINAL ADDITIONAL OTHER
NUMBER OF VALUE NUMBER OF VALUE PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS TOTAL
---------- ------- ---------- -------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999
(audited).................. 9,023,341 $27,623 70,000,000 $229,494 $2,097,480 $(216,870) $(135,410) $2,002,317
Issuance of preference
shares..................... 14,724,359 35,980 -- -- 532,302 -- -- 568,282
Proceeds from exercise of
options.................... 12,964 31 -- -- 447 -- -- 478
Compensation expense related
to stock options........... 4,022 4,022
Dividends paid............... -- -- -- -- -- (51,229) -- (51,229)
Comprehensive income:
Net income................. -- -- -- -- -- 153,387 -- 153,387
Foreign currency
translation adjustment... -- -- -- -- -- -- (84,327) (84,327)
Comprehensive income......... -- -- -- -- -- -- -- 69,060
---------- ------- ---------- -------- ---------- --------- --------- ----------
Balance at September 30,
2000....................... 23,760,664 $63,634 70,000,000 $229,494 $2,634,251 $(114,712) $(219,737) $2,592,930
========== ======= ========== ======== ========== ========= ========= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
5
<PAGE> 8
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND BASIS OF PRESENTATION
THE COMPANY
Fresenius Medical Care AG ("FMC" or the "Company") is a German stock
corporation (Aktiengesellschaft). The Company is primarily engaged in (i)
providing kidney dialysis services, clinical laboratory testing and renal
diagnostic services and (ii) manufacturing and distributing products and
equipment for dialysis treatment.
BASIS OF PRESENTATION
A) BASIS OF CONSOLIDATION
The condensed consolidated financial statements at September 30, 2000 and
for the three and nine month periods ended September 30, 2000 and 1999 in this
report are unaudited and should be read in conjunction with the consolidated
financial statements in the Company's 1999 annual report on Form 20-F. Such
financial statements reflect all adjustments that, in the opinion of management,
are necessary for a fair presentation of the results of the periods presented.
All such adjustments are of a normal recurring nature.
The results of operations for the nine month period ended September 30,
2000 are not necessarily indicative of the results of operations for the fiscal
year ending December 31, 2000.
B) CLASSIFICATIONS
Certain items in prior years' unaudited condensed consolidated financial
statements have been reclassified to conform with the current year's
presentation.
2. SETTLEMENT OF INVESTIGATIONS AND RELATED COSTS
On January 18, 2000, Fresenius Medical Care Holdings, Inc. ("FMCH"),
National Medical Care, Inc. and certain other affiliated companies executed
definitive agreements with the United States Government to settle (i) matters
concerning violations of federal laws then under investigation and (ii) National
Medical Care, Inc.'s claims with respect to outstanding Medicare receivables for
intradialytic parenteral nutrition therapy (collectively, the "Settlement").
Under the Settlement with the U.S. government, FMCH made initial cash
payments of approximately $286 million and entered into a note payable for the
remainder of the payment obligations. Interest on installment payments to the
U.S. government will accrue at 6.3% on approximately $51 million of the
obligation and at 7.5% annually on the balance, until paid in full. The note
payable to the U.S. government and the amounts due to the Company for the
outstanding Medicare receivables have been classified in the balance sheet based
on their expected settlement dates.
Under the terms of the note payable, the remaining obligation will be paid
in six quarterly installments that began in April 2000 and end in July 2001. The
first four quarterly installments will be paid in the amount of approximately
$35 million each, including interest at 7.5%. The final two installments of
approximately $28 million each, including interest at 6.3%, will be paid in
April and July 2001, respectively. In March, 2000, the Company received an
initial payment of approximately $38 million on its outstanding Medicare
receivables. The U.S. government will remit the balance in four quarterly
payments of approximately $5 million each, plus interest at 7.5%, the first of
which was received in May 2000. At September 30, 2000, the remaining note
payable was approximately $120 million and the remaining amount receivable was
approximately $10 million.
6
<PAGE> 9
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The Company amended the letter of credit that was given to the U.S.
government in 1996 from $150 million to $190 million and, under the Settlement,
the letter of credit will be reduced as installment payments are made to the
Government. At September 30, 2000, the face amount of the letter of credit was
$123 million.
3. ACQUISITIONS
During the second quarter, the Company purchased substantially all of the
international and non-continental U.S. operations of Total Renal Care Holdings,
Inc. for $142 million in cash. The excess of the purchase price over the fair
value of net tangible assets is approximately $70 million. The actual amount of
goodwill and other intangible assets ultimately recorded may vary from the above
estimate as a result of the completion of an evaluation of all assets acquired
and the liabilities assumed as part of the acquisition. Additionally, the
Company made a deposit, not included in the purchase price noted above, towards
the purchase of the Puerto Rican operations. The purchase of the Puerto Rican
operations is pending subject to regulatory approval and third party consents.
Through September 30, 2000, the Company had paid approximately $245
million, including Total Renal Care, for acquisitions consisting primarily of
dialysis clinics.
4. INVENTORIES
As of September 30, 2000 and December 31, 1999, inventories consisted of
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials and purchased components...................... $ 73,661 $ 62,595
Work in process............................................. 20,212 22,704
Finished goods.............................................. 169,633 178,330
-------- --------
263,506 263,629
Health care supplies........................................ 54,986 49,652
Reserves.................................................... (10,477) (11,979)
-------- --------
Inventories............................................... $308,015 $301,302
======== ========
</TABLE>
5. SHAREHOLDERS' EQUITY
On March 2, 2000, the Company issued 8,974,359 non-voting Preference shares
to a limited number of institutional and other accredited investors in exchange
for the investors' interests in Franconia Acquisition LLC, an entity formed to
acquire dialysis clinics and other related businesses. For financial reporting
purposes, the transaction, which generated net proceeds of approximately $344
million, has been accounted for as a financing at fair value. The investors have
agreed not to effect sales or transfers of the Preference shares for a period of
24 months after issuance except as permitted by the contribution agreement.
After this period, the investors will have rights to require, under specific
conditions, that the Company register these Preference shares for sale under the
Securities Act of 1933, as amended, and that the Company provide assistance to
them in connection with public offerings of their Preference shares outside the
United States.
Cash dividends of $51 million for 1999 in the amount of E 0.75 on each
Preference share, excluding the Preference shares issued on March 2, 2000, and
E 0.69 on each Ordinary share, were paid on May 31, 2000.
7
<PAGE> 10
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
On May 30, 2000, the Company's shareholders approved a change to the 1998
FMC Plan 2 stock option plan whereby the impact of the special charge for
settlement of investigations and related costs (see Note 2) was excluded from
the Company's performance criteria relative to the EBIT growth requirements in
the plan. This resulted in the Company recording an additional $797,000
compensation charge during the nine month period ending September 30, 2000. The
total charge attributable to this stock option plan was $3,538,000.
On July 26, 2000, the Company completed a public offering of 5,000,000
Preference shares for net proceeds of approximately $185 million. In addition,
on July 28, 2000, the underwriters of the public offering exercised options to
purchase an additional 750,000 Preference shares, resulting in total net
proceeds from the public offering of approximately $213 million. These funds are
expected to be used for acquisitions and capital expenditures.
During the nine months ended September 30, 2000 and 1999, 18,905 and
102,283 FMC rollover Plan options, respectively, were exercised by employees. In
connection therewith, Fresenius AG transferred 6,302 and 34,094 ordinary shares
to employees and remitted approximately $18,000 and $1,295,000 to the Company,
respectively. During the same period, 2,224 options were canceled. These funds
have been accounted for as a capital contribution within additional paid-in
capital for their respective periods. In addition, 10,060 stock options from the
1998 FMC Plan 1 stock options plan were exercised with 10,060 Preference shares
being issued. The $338,000 proceeds were accounted for as an increase in
capital. Under the 1998 FMC Plan 2, 2,904 stock options were exercised with
2,904 Preference Shares being issued. The $122,000 proceeds were accounted for
as an increase in capital.
8
<PAGE> 11
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following table is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations for each of the three
and nine month periods ending September 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
Numerators:
Net income (Loss)........................................... $ 58,392 $ (366,463)
less:
Preference on Preference shares........................... 304 --
----------- -----------
Income (loss) available to Preference shares only........... 304 --
Income (loss) available to all classes of shares............ $ 58,088 $ (366,463)
=========== ===========
Denominators:
Weighted average number of:
Ordinary shares outstanding................................. 70,000,000 70,000,000
Preference shares outstanding............................... 22,177,452 9,023,341
----------- -----------
Total weighted average shares outstanding................... 92,177,452 79,023,341
Potentially dilutive Preference shares...................... 370,734 --
----------- -----------
Total weighted average shares outstanding assuming
dilution.................................................. 92,548,186 79,023,341
Total weighted average Preference shares outstanding
assuming dilution......................................... 22,548,186 9,023,341
Basic income (loss) per Ordinary share...................... $ 0.63 $ (4.64)
Plus preference per Preference shares....................... 0.01 --
----------- -----------
Basic income (loss) per Preference share.................... $ 0.64 $ (4.64)
=========== ===========
Basic income (loss) per Ordinary share...................... $ 0.63 $ (4.64)
Plus preference per Preference share assuming dilution...... 0.01 --
----------- -----------
Fully diluted income (loss) per Preference share............ $ 0.64 $ (4.64)
=========== ===========
</TABLE>
9
<PAGE> 12
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
2000 1999
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE)
<S> <C> <C>
Numerators:
Net income (loss)........................................... $ 153,387 $ (287,101)
less:
Preference on Preference shares........................... 738
----------- -----------
Income (loss) available to Preference shares only........... 738 --
Income (loss) available to all classes of shares............ $ 152,649 $ (287,101)
=========== ===========
Denominators:
Weighted average number of:
Ordinary shares outstanding................................. 70,000,000 70,000,000
Preference shares outstanding............................... 17,403,517 9,023,341
----------- -----------
Total weighted average shares outstanding................... 87,403,517 79,023,341
Potentially dilutive Preference shares...................... 309,323 --
----------- -----------
Total weighted average shares outstanding assuming
dilution.................................................. 87,712,840 79,023,341
Total weighted average Preference shares outstanding
assuming dilution......................................... 17,712,840 9,023,341
Basic income (loss) per Ordinary share...................... $ 1.74 $ (3.64)
Plus preference per Preference shares....................... 0.05 --
----------- -----------
Basic income (loss) per Preference share.................... $ 1.79 $ (3.64)
=========== ===========
Basic income (loss) per Ordinary share...................... $ 1.74 $ (3.64)
Plus preference per Preference share assuming dilution...... 0.04 --
----------- -----------
Fully diluted income (loss) per Preference share............ $ 1.78 $ (3.64)
=========== ===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
COMMERCIAL INSURER LITIGATION
In 1997, FMCH, NMC, and certain named NMC subsidiaries were served with a
civil complaint filed by Aetna Life Insurance Company in the U.S. District Court
for the Southern District of New York. Based in large part on information
contained in prior reports filed by the Company and FMCH with the Securities and
Exchange Commission, the lawsuit alleges inappropriate billing practices for
nutritional therapy, diagnostic and clinical laboratory tests and
misrepresentations. In April 1999, Aetna amended its complaint to include its
affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make
certain other limited changes in its pleading. The amended complaint seeks
unspecified damages and costs. In February 2000, FMCH was served with a similar
complaint filed by Connecticut General Life Insurance Company, Equitable Life
Assurance Society for the United States, Cigna Employee Benefits Services, Inc.
and Guardian Life Insurance Company of America, Inc. (Connecticut General Life
Insurance Company et al v. National Medical Care et al, 00-Civ-0932) seeking
unspecified damages and costs. However, the Company, FMCH, NMC and its
subsidiaries believe that there are substantial defenses to the claims asserted,
and intend to vigorously defend both lawsuits. Other private payors have
contacted FMCH and may assert that NMC received excess payment and, similarly,
may join either lawsuit or file their own lawsuit seeking reimbursement and
other damages.
10
<PAGE> 13
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
FMCH has filed counterclaims against the plaintiffs in these matters based
on inappropriate claim denials and delays in claim payments.
Although the ultimate outcome on the Company of these proceedings cannot be
predicted at this time, an adverse result could have a material adverse effect
on the Company's business, financial condition and result of operations.
OBRA 93
The Omnibus Budget Reconciliation Act of 1993 affected the payment of
benefits under Medicare and employer health plans for dual-eligible ESRD
patients. In July 1994, the Health Care Financing Administration issued an
instruction to Medicare claims processors to the effect that Medicare benefits
for the patients affected by that act would be subject to a new 18-month
"coordination of benefits" period. This instruction had a positive impact on
NMC's dialysis revenues because, during the 18-month coordination of benefits
period, patients' employer health plans were responsible for payment, which was
generally at rates higher than those provided under Medicare.
In April 1995, the Health Care Financing Administration issued a new
instruction, reversing its original instruction in a manner that would
substantially diminish the positive effect of the original instruction on NMC's
dialysis business. The Health Care Financing Administration further proposed
that its new instruction be effective retroactive to August 1993, the effective
date of the Omnibus Budget Reconciliation Act of 1993.
NMC ceased to recognize the incremental revenue realized under the original
instruction as of July 1, 1995, but it continued to bill employer health plans
as primary payors for patients affected by the Omnibus Budget Reconciliation Act
of 1993 through December 31, 1995. As of January 1, 1996, NMC commenced billing
Medicare as primary payor for dual eligible ESRD patients affected by the act,
and then began to re-bill in compliance with the revised policy for services
rendered between April 24 and December 31, 1995.
On May 5, 1995, NMC filed a complaint in the U.S. District Court for the
District of Columbia (National Medical Care, Inc. and Bio-Medical Applications
of Colorado, Inc. d/b/a Northern Colorado Kidney Center v. Shalala, C.A.
No.95-0860 (WBB) seeking to preclude the Health Care Financing Administration
from retroactively enforcing its April 24, 1995 implementation of the Omnibus
Budget Reconciliation Act of 1993 provision relating to the coordination of
benefits for dual eligible ESRD patients. On May 9, 1995, NMC moved for a
preliminary injunction to preclude the Health Care Financing Administration from
enforcing its new policy retroactively, that is, to billing for services
provided between August 10, 1993 and April 23, 1995. On June 6, 1995, the court
granted NMC's request for a preliminary injunction and in December of 1996, NMC
moved for partial summary judgment seeking a declaration from the Court that the
Health Care Financing Administration's retroactive application of the April 1995
rule was legally invalid. The Health Care Financing Administration cross-moved
for summary judgment on the grounds that April 1995 rule was validly applied
prospectively. In January 1998, the court granted NMC's motion for partial
summary judgment and entered a declaratory judgment in favor of NMC, holding the
Health Care Financing Administration's retroactive application of the April 1995
rule legally invalid. Based on its finding, the Court also permanently enjoined
the Health Care Financing Administration from enforcing and applying the April
1995 rule retroactively against NMC. The Court took no action on the Health Care
Financing Administration's motion for summary judgment pending completion of the
outstanding discovery. On October 5, 1998, NMC filed its own motion for summary
judgment requesting that the Court declare the Health Care Financing
Administration's prospective application of the April 1995 rule invalid and
permanently enjoin Health Care Financing Administration from prospectively
enforcing and applying the April 1995 rule. The Court has not yet ruled on the
parties' motions. The Health Care Financing Administration elected not to appeal
the Court's June 1995 and January 1998 orders. The Health Care
11
<PAGE> 14
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Financing Administration may, however, appeal all rulings at the conclusion of
the litigation. If the Health Care Financing Administration should successfully
appeal so that the revised interpretation would be applied retroactively, NMC
may be required to refund the payment received from employer health plans for
services provided after August 10, 1993 under the Health Care Financing
Administration's original implementation, and to re-bill Medicare for the same
services, which would result in a loss to NMC of approximately $120 million
attributable to all periods prior to December 31, 1995. Also, in this event, the
Company's business, financial condition and results of operations would be
materially adversely affected.
OTHER LITIGATION AND POTENTIAL EXPOSURES
From time to time, the Company is a party to or may be threatened with
other litigation arising in the ordinary course of its business. Management
regularly analyzes current information including, as applicable, the Company's
defenses and insurance coverage and, as necessary, provides accruals for
probable liabilities for the eventual disposition of these matters. The ultimate
outcome of these matters is not expected to materially affect the Company's
financial position, results of operations or cash flows.
The Company, like other health care providers, conducts its operations
under intense government regulation and scrutiny. The Company must comply with
regulations which relate to or govern the safety and efficacy of medical
products and supplies, the operation of manufacturing facilities, laboratories
and dialysis clinics, and environmental and occupational health and safety. The
Company must also comply with the U.S. anti-kickback statute, the False Claims
Act, the Stark Law, and other federal and state fraud and abuse laws. Applicable
laws or regulations may be amended, or enforcement agencies or courts may make
interpretations that differ from the Company's or the manner in which the
Company conduct its business. In the U.S., 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 "whistle
blower" actions. By virtue of this regulatory environment, as well as our
corporate integrity agreement with the government, the Company expects that its
business activities and practices will continue to be subject to extensive
review by regulatory authorities and private parties and continuing inquiries,
claims and litigation relating to its compliance with applicable laws and
regulations. The Company may not always be aware that an inquiry or action has
begun, particularly in the case of "whistle blower" actions, which are initially
filed under court seal.
The Company operates a large number of facilities throughout the U.S. 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
affiliate companies. The Company relies upon its management structure,
regulatory and legal resources, and the effective operation of its compliance
program to direct, manage and monitor the activities of these employees. On
occasion, the Company may identify instances where employees, deliberately or
inadvertently, have submitted inadequate or false billings. The actions of such
persons may subject the Company and its subsidiaries to liability under the
False Claims Act, among other laws, and the Company cannot predict whether law
enforcement authorities may use such information to initiate further
investigations of the business practices disclosed or any of its other business
activities.
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 Company has been
subject to these suits due to the nature of its business and the Company expects
that those types of lawsuits may continue. Although the Company maintains
insurance at a level which it believes to be prudent, the Company cannot assure
that the coverage limits will be adequate or that insurance will cover all
asserted claims. A successful claim against the Company or any of its
subsidiaries in excess of insurance coverage could have a material adverse
effect upon the Company and the results of its operations. Any claims,
regardless of their
12
<PAGE> 15
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
merit or eventual outcome, also may have a material adverse effect on the
Company's reputation and business. The Company has also had claims asserted
against it and has had lawsuits filed against it relating to businesses that it
has acquired or divested. These claims and suits relate both to operation of the
businesses and to the acquisition and divestiture transactions. The Company has
asserted its own claims, and claims for indemnification. Although the ultimate
outcome on the Company cannot be predicted at this time, an adverse result could
have a material adverse effect upon the Company's business, financial condition,
and results of operations.
CONTINGENT NON-NMC LIABILITIES OF W. R. GRACE & CO. (NOW KNOWN AS FRESENIUS
MEDICAL CARE HOLDINGS, INC.)
The Company was formed as a result of a series of transactions pursuant to
the Agreement and Plan of Reorganization (the "Merger") dated as of February 4,
1996 by and between W.R. Grace & Co. ("Grace") and Fresenius AG. In connection
with the Merger, W.R. Grace & Co. -- Conn. ("Grace Chemicals") agreed to
indemnify the Company and NMC against all liabilities of the Company and its
successors, whether relating to events occurring before or after the Merger,
other than liabilities arising from or relating to NMC operations. The Company
remains contingently liable for certain liabilities with respect to pre-Merger
matters that are not related to NMC operations. The Company believes that in
view of the nature of the non-NMC liabilities and Grace Chemicals' current
financial position, the risk of significant loss from non-NMC liabilities is
remote.
On September 28, 2000, Mesquita, et al v. W. R. Grace & Company, et al.
(Sup. Court of Calif., S.F. County, #315465) was filed as class action against
Grace Chemicals, certain U.S. affiliates of the Company, and other defendants,
alleging that the Merger was a fraudulent conveyance, violated the uniform
fraudulent transfer act, denuded the assets of Grace, and constituted a
conspiracy to denude the assets of Grace from plaintiffs in asbestos litigation.
The Company believes that the Merger did not violate any of these provisions.
The Company has requested indemnification from Grace Chemicals pursuant to the
Merger agreement. If the Company were to be found liable, and if the Company was
not able to collect on the indemnity, it would have a material adverse effect on
the Company's business, financial condition and results of operations.
Were events to violate the tax-free nature of the Merger, the resulting tax
liability would be the obligation of the Company. Subject to representations by
Grace Chemicals, the Company and Fresenius AG, Grace Chemicals has agreed to
indemnify the Company for such a tax liability. If the Company was not able to
collect on the indemnity, the tax liability would have a material adverse effect
on the Company's business, the financial condition of the Company and the
results of operations.
7. FINANCIAL INSTRUMENTS
MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign exchange rates. In order to manage the risk of interest rate and
currency exchange rate fluctuations, the Company enters into various hedging
transactions with investment grade financial institutions as authorized by the
Company's Management Board. The Company does not use financial instruments for
trading purposes.
During January 2000, $850 million notional amount of interest rate swap
agreements expired. The overall reduction was possible due to reduced variable
rate debt. At September 30, the company had $600 million of interest rate swap
agreements and a $150 million interest rate collar in place. The Company is
required to maintain at least $500 million of interest rate protection under its
senior credit agreement.
13
<PAGE> 16
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. BUSINESS SEGMENT INFORMATION
The Company has identified three segments, North America, International,
and Asia Pacific, which were determined based upon how the Company manages its
businesses. All segments are primarily engaged in a) providing kidney dialysis
and related services and performing related clinical laboratory testing and
renal diagnostic services and b) manufacturing and distributing products and
equipment for the treatment of end-stage renal disease. The Company has
aggregated the International and Asia Pacific operating segments as
"International". The segments are aggregated due to their similar economic
characteristics. These characteristics include the same products sold, the same
type patient population, similar methods of distribution of products and
services and similar economic environments.
Management evaluates each segment using a measure that reflects all of the
segment's controllable revenues and expenses. Management believes that the most
appropriate measure in this regard is earnings before interest and taxes (EBIT).
In addition to EBIT, management believes that earnings before interest, taxes,
depreciation and amortization (EBITDA) is helpful for investors as a measurement
of the segment's and the Company's ability to generate cash and to service its
financing obligations. EBITDA is also the basis for determining compliance with
certain covenants contained in the Company's senior bank credit agreement and
indentures relating to the Company's trust preferred securities.
EBITDA should not be construed as an alternative to net earnings determined
in accordance with generally accepted accounting principles or to cash flow from
operations, investing activities or financing activities or as a measure of cash
flows. The Company believes its EBIT calculation is the functional equivalent of
operating income. Because EBITDA and EBIT are not calculated consistently by all
companies, the presentation herein may not be comparable to other similarly
titled measures of other companies.
Approximately 40% of the Company's worldwide revenue is derived from
sources subject to regulations under U.S. governmental programs. The Company
maintains reserves for losses related to these programs, including uncollectable
accounts receivable, and operating losses from such programs have been within
management's expectations.
14
<PAGE> 17
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Information pertaining to the Company's business segments for the
nine-month and three-month periods ended September 30, 2000 and 1999 is set
forth below:
<TABLE>
<CAPTION>
NORTH AMERICA INTERNATIONAL CORPORATE TOTAL
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 2000
Net revenue external customers......... $2,295,437 $ 823,756 $ -- $3,119,193
Inter-segment revenue.................. 1,994 27,985 (29,979) --
---------- ---------- ---------- ----------
Total net revenue...................... 2,297,431 851,741 (29,979) 3,119,193
---------- ---------- ---------- ----------
EBITDA................................. 481,167 200,130 3,598 684,895
Depreciation and amortization.......... (165,457) (50,476) (1,241) (217,174)
---------- ---------- ---------- ----------
EBIT................................... 315,710 149,654 2,357 467,721
---------- ---------- ---------- ----------
Segment assets......................... 4,652,318 1,243,631 39,922 5,935,871
Capital expenditures and
acquisitions(1)...................... 178,179 210,227 92 388,498
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net revenue external customers......... $2,076,630 $ 755,378 $ -- $2,832,008
Inter-segment revenue.................. 3,095 30,845 (33,940) --
---------- ---------- ---------- ----------
Total net revenue...................... 2,079,725 786,223 (33,940) 2,832,008
---------- ---------- ---------- ----------
EBITDA................................. 449,517 178,888 (5,863) 622,542
Depreciation and amortization.......... (161,751) (46,009) (1,401) (209,161)
---------- ---------- ---------- ----------
EBIT................................... 287,766 132,879 (7,264) 413,381
---------- ---------- ---------- ----------
Segment assets(2)...................... 4,653,058 1,064,108 35,217 5,752,383
Capital expenditures and
acquisitions(3)...................... 119,653 76,516 231 195,400
THREE MONTHS ENDED SEPTEMBER 30, 2000
Net revenue external customers......... $ 793,348 $ 287,825 $ -- $1,081,173
Inter-segment revenue.................. 333 8,577 (8,910) --
---------- ---------- ---------- ----------
Total net revenue...................... 793,681 296,402 (8,910) 1,081,173
---------- ---------- ---------- ----------
EBITDA................................. 166,301 67,573 6,878 240,752
Depreciation and amortization.......... (55,490) (17,682) (398) (73,570)
---------- ---------- ---------- ----------
EBIT................................... 110,811 49,891 6,480 167,182
---------- ---------- ---------- ----------
Capital expenditures and
acquisitions(1)...................... 50,356 30,880 56 81,292
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net revenue external customers......... $ 707,782 $ 260,918 $ -- $ 968,700
Inter-segment revenue.................. 564 8,091 (8,655) --
---------- ---------- ---------- ----------
Total net revenue...................... 708,346 269,009 (8,655) 968,700
---------- ---------- ---------- ----------
EBITDA................................. 155,786 62,134 (3,223) 214,697
Depreciation and amortization.......... (53,857) (16,577) (289) (70,723)
---------- ---------- ---------- ----------
EBIT................................... 101,929 45,557 (3,512) 143,974
---------- ---------- ---------- ----------
Capital expenditures and
acquisitions......................... 49,068 32,764 (69) 81,763
</TABLE>
---------------
(1) International acquisitions exclude $7,329 of non-cash acquisitions for 2000
(2) Segment assets are as of December 31, 1999
(3) International acquisitions exclude $6,639 of non-cash acquisitions for 1999
15
<PAGE> 18
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2000 1999 2000 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Reconciliation of measures to consolidated
totals.
Total EBITDA of reporting segments........ $233,874 $ 217,920 $ 681,297 $ 628,405
Total depreciation and amortization....... (73,570) (70,723) (217,174) (209,161)
Special charge for settlement of
investigation and related costs........ -- (590,000) -- (590,000)
Corporate income (expenses)............... 6,878 (3,223) 3,598 (5,863)
Interest expense.......................... (46,007) (54,125) (149,366) (168,309)
Interest expense on obligation related to
settlement............................. (7,951) -- (21,802) --
Interest income........................... 2,253 1,055 7,315 5,055
-------- --------- --------- ---------
Total income (loss) before income taxes
and minority interest.................. $115,477 $(499,096) $ 303,868 $(339,873)
======== ========= ========= =========
Total EBIT of reporting segments.......... 160,702 147,486 465,364 420,645
Special charge for settlement of
investigation and related costs........ -- (590,000) -- (590,000)
Corporate income (expenses)............... 6,480 (3,512) 2,357 (7,264)
Interest expense.......................... (46,007) (54,125) (149,366) (168,309)
Interest expense on obligation related to
settlement............................. (7,951) -- (21,802) --
Interest income........................... 2,253 1,055 7,315 5,055
-------- --------- --------- ---------
Total income (loss) before income taxes
and minority interest.................. $115,477 $(499,096) $ 303,868 $(339,873)
======== ========= ========= =========
Depreciation and amortization
Total depreciation and amortization of
reporting segments..................... 73,172 70,434 215,933 207,760
Corporate depreciation and amortization... 398 289 1,241 1,401
-------- --------- --------- ---------
Total depreciation and amortization....... $ 73,570 $ 70,723 $ 217,174 $ 209,161
======== ========= ========= =========
</TABLE>
16
<PAGE> 19
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(UNAUDITED)
9. SUPPLEMENTARY CASH FLOW INFORMATION
The following additional information is provided with respect to the
condensed consolidated statements of cash flows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Supplementary cash flow information:
Cash paid for interest.................................... $151,855 $155,439
-------- --------
Cash paid for income taxes, net........................... $ 27,980 $ 20,325
-------- --------
Supplemental disclosures of cash flow information:
Details for acquisitions:
Assets acquired........................................... $296,229 $109,721
Liabilities assumed....................................... 38,397 10,238
Notes issued in connection with acquisition............... 7,329 6,639
-------- --------
Cash paid................................................. 250,503 92,844
Less cash acquired........................................ 5,622 604
-------- --------
Net cash paid for acquisitions............................ $244,881 $ 92,240
======== ========
</TABLE>
10. SUBSEQUENT EVENTS
GERMAN TAX LAW CHANGE
On July 7, 2000, the German Federal Parliament (Bundestag) adopted a bill
for the reform of corporate taxation and the reduction of tax rates. On July 14,
2000, the German Federal Council (Bundesrat) approved the bill. On October 23,
2000, the German tax reform legislation was signed by the German Federal
President (Bundesprasident) and became law upon its publication in the German
Federal Law Gazette (Bundesgesetzblatt) on October 26, 2000. Most of the
amendments will become effective as of January 1, 2001. The following describes
the material amendments made by the reform bill:
- Retained and distributed profits of a corporation will be taxed at a
standard corporation tax rate of 25% instead of 40% for undistributed
profits and 30% for distributed profits.
- The withholding tax rate on dividends will be reduced to 20% from
the current 25% rate.
- As a consequence of the introduction of the 50% exemption system, the
imputation system (corporation tax credit system) will be abolished
after January 1, 2001. As a result, at the shareholder level, a credit
of the corporation tax paid by the corporation and the 5% refund of
corporate taxes to U.S. holders under the U.S.-German Income Tax Treaty
will no longer be allowed.
- Effective January 1, 2002, capital gains of corporations upon a sale of
shares will not be subject to corporation taxation to the extent that
the selling corporation owned the shares for at least one year prior to
the sale.
- Profits from the sale of shares by a private investor will be subject to
tax even after the expiration of a one-year holding period, if such
private investor or, in the case of a gratuitous acquisition, any of his
or her predecessors held one percent or more of the corporation's
nominal share capital at any time during the last five years.
17
<PAGE> 20
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The Company anticipates that the application of the German tax law change
will result in a reduction of the effective tax rate of approximately one
percent.
MERGER AGREEMENT
On November 1, 2000, the Company signed a definitive agreement to acquire
Everest Healthcare Services Corporation ("Everest"), Oak Park, Illinois through
a merger of Everest into a subsidiary of the Company for approximately $343
million, including Everest's outstanding debt. The Company will pay a portion of
the merger consideration by the issuance of approximately 2,250,000 Preference
shares. The purchase price is subject to adjustments for changes in Everest's
net equity and other customary closing adjustments. The acquisition is still
subject to anti-trust and other regulatory approvals.
11. SUPPLEMENTAL CONDENSED COMBINING INFORMATION
FMC Trust Finance S.a.r.l. Luxembourg, a wholly-owned subsidiary of FMC,
has assumed or issued senior subordinated debt securities which were fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by FMC and by Fresenius Medical Care Deutschland GmbH ("D-GmbH"), a
wholly-owned subsidiary of FMC, and by FMCH, a substantially wholly-owned
subsidiary of FMC (D-GmbH and FMCH being "Guarantor Subsidiaries"). The
following combining financial information for the Company is as of September 30,
2000 and December 31, 1999 and for the nine months ended September 30, 2000 and
1999, segregated between FMC, D-GmbH, FMCH and each of the Company's other
businesses (the "Non-Guarantor Subsidiaries"). For purposes of the condensed
combining information, FMC and the Guarantor Subsidiaries carry their
investments under the equity method. Other (income) expense includes income
(loss) related to investments in consolidated subsidiaries recorded under the
equity method for purposes of the condensed combining information. In addition,
other (income) expense includes income and losses from profit and loss transfer
agreements as well as dividends received. Separate financial statements and
other disclosures concerning D-GmbH are not presented herein because management
believes that they are not material to investors. FMCH is currently subject to
the periodic reporting requirements of the United States Securities Exchange Act
of 1934, as amended, and in accordance therewith files consolidated financial
statements with the United States Securities and Exchange Commission.
Additionally dividends from FMCH, a wholly-owned subsidiary, are limited as
a result of a restriction on dividends from its subsidiary, National Medical
Care, Inc., and its subsidiaries. As a result of this restriction, parent
company only financial information is presented under the column FMC.
18
<PAGE> 21
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR COMBINING COMBINED
FMC D-GMBH FMCH SUBSIDIARIES ADJUSTMENT TOTAL
--------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................. $ -- $ 413,009 $ -- $3,068,045 $(361,861) $3,119,193
Cost of revenue.............. -- 240,769 -- 2,139,928 (354,869) 2,025,828
--------- --------- --------- ---------- --------- ----------
Gross profit............... -- 172,240 -- 928,117 (6,992) 1,093,365
--------- --------- --------- ---------- --------- ----------
Operating expenses:
Selling, general and
administrative.......... 12,716 71,398 -- 520,557 (2,180) 602,491
Research and development... -- 18,337 -- 4,816 -- 23,153
--------- --------- --------- ---------- --------- ----------
Operating income............. (12,716) 82,504 -- 402,745 (4,812) 467,721
--------- --------- --------- ---------- --------- ----------
Other (income) expense:
Interest, net.............. (2,801) 4,939 44,014 117,701 -- 163,852
Other, net................. (276,990) 43,832 (102,341) -- 335,499 --
--------- --------- --------- ---------- --------- ----------
Income before income taxes
and
minority interest.......... 267,075 33,733 58,327 285,044 (340,311) 303,868
Income tax expense
(benefit)............... 31,949 33,445 (17,606) 130,682 (30,214) 148,256
--------- --------- --------- ---------- --------- ----------
Income before minority
interest................... 235,126 288 75,933 154,362 (310,097) 155,612
Minority interest............ -- -- -- -- 2,225 2,225
--------- --------- --------- ---------- --------- ----------
Net income................... $ 235,126 $ 288 $ 75,933 $ 154,362 $(312,322) $ 153,387
========= ========= ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR COMBINING COMBINED
FMC D-GMBH FMCH SUBSIDIARIES ADJUSTMENT TOTAL
--------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................. $ -- $ 402,945 $ -- $2,749,304 $(320,241) $2,832,008
Cost of revenue.............. -- 238,779 -- 1,901,227 (309,134) 1,830,872
--------- --------- --------- ---------- --------- ----------
Gross profit............... -- 164,166 -- 848,077 (11,107) 1,001,136
--------- --------- --------- ---------- --------- ----------
Operating expenses:
Selling, general and
administrative.......... 6,316 61,363 -- 496,042 (1,950) 561,772
Research and development... -- 19,633 -- 6,350 -- 25,983
Special charge for
settlement of
investigations and
related costs........... -- -- 590,000 -- -- 590,000
--------- --------- --------- ---------- --------- ----------
Operating (loss) income...... (6,316) 83,170 (590,000) 345,685 (9,157) (176,619)
--------- --------- --------- ---------- --------- ----------
Other (income) expense:
Interest, net.............. (192) 4,673 43,809 114,964 -- 163,254
Other, net................. 249,337 44,773 (90,111) -- (203,999) --
--------- --------- --------- ---------- --------- ----------
Income (loss) before income
taxes and
minority interest.......... (255,461) 33,724 (543,698) 230,721 194,841 (339,873)
Income tax expense
(benefit)............... 17,540 33,086 (195,524) 107,339 (17,037) (54,595)
--------- --------- --------- ---------- --------- ----------
Income (loss) before minority
interest................... (273,001) 638 (348,174) 123,381 211,878 (285,278)
Minority interest............ -- -- -- -- 1,823 1,823
--------- --------- --------- ---------- --------- ----------
Net income (loss)............ $(273,001) $ 638 $(348,174) $ 123,381 $ 210,055 $ (287,101)
========= ========= ========= ========== ========= ==========
</TABLE>
19
<PAGE> 22
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000
-------------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR COMBINING COMBINED
FMC D-GMBH FMCH SUBSIDIARIES ADJUSTMENT TOTAL
---------- --------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 76 $ 54 $ -- $ 46,881 $ -- $ 47,011
Trade accounts receivable, less
allowance for doubtful accounts....... -- 68,467 -- 728,856 -- 797,323
Accounts receivable from related
parties............................... 302,278 183,515 46,740 492,962 (975,565) 49,930
Inventories............................. -- 64,287 -- 274,253 (30,525) 308,015
Prepaid expenses and other current
assets................................ 12,675 18,997 -- 204,640 -- 236,312
IDPN accounts receivable................ -- -- -- 10,378 -- 10,378
Deferred taxes.......................... 2,331 1,598 -- 170,159 16,288 190,376
---------- -------- ---------- ---------- ----------- ----------
Total current assets.................. 317,360 336,917 46,740 1,928,130 (989,802) 1,639,345
Property, plant and equipment, net........ 212 43,078 -- 647,521 (10,775) 680,036
Intangible assets, including goodwill,
net..................................... 801 5,709 -- 3,471,975 -- 3,478,485
Loans to related parties.................. 104,967 -- 185,529 827,099 (1,117,595) --
Deferred taxes............................ 28 3,771 -- 14,746 7,856 26,401
Other assets.............................. 2,373,171 9,910 2,078,290 76,694 (4,426,461) 111,604
---------- -------- ---------- ---------- ----------- ----------
Total assets.......................... $2,796,539 $399,385 $2,310,559 $6,966,165 $(6,536,777) $5,935,871
========== ======== ========== ========== =========== ==========
Current liabilities:
Accounts payable........................ $ 93 $ 10,135 $ -- $ 162,821 $ -- $ 173,049
Accounts payable to related parties..... 97,121 170,306 238,395 518,312 (959,342) 64,792
Accrued expenses and other current
liabilities........................... 11,223 57,472 -- 345,207 2,032 415,934
Note payable related to settlement...... -- -- -- 120,014 -- 120,014
Short-term borrowings................... 33 438 -- 102,677 -- 103,148
Short-term borrowings from related
parties............................... -- -- -- 213,030 -- 213,030
Current portion of long-term debt and
capital lease obligations............. -- 744 -- 154,619 -- 155,363
Income tax payable...................... 65,891 (761) -- 44,431 -- 109,561
Deferred taxes.......................... 686 7,912 -- 21,561 1,187 31,346
---------- -------- ---------- ---------- ----------- ----------
Total current liabilities............. 175,047 246,246 238,395 1,682,672 (956,123) 1,386,237
Long term debt and capital lease
obligations, less current portion....... 3,962 192 843,322 1,014,169 (1,133,818) 727,827
Other liabilities......................... -- 3,097 -- 24,457 4,936 32,490
Pension liabilities....................... 289 22,875 -- 42,724 -- 65,888
Deferred taxes............................ 9,480 5,312 -- 150,314 -- 165,107
Company obligated mandatorily redeemable
preferred securities of subsidiary
Fresenius Medical Care Capital Trusts
holding solely Company guaranteed
debentures of subsidiary................ -- -- -- 944,444 -- 944,444
Minority interest......................... -- -- 16,318 0 4,630 20,948
---------- -------- ---------- ---------- ----------- ----------
Total liabilities..................... 188,779 277,722 1,098,035 3,858,780 (2,080,375) 3,342,942
Shareholders' equity:..................... 2,607,760 121,662 1,212,524 3,107,386 (4,456,402) 2,592,930
---------- -------- ---------- ---------- ----------- ----------
Total liabilities and shareholders'
equity.............................. $2,796,539 $399,384 $2,310,559 $6,966,166 $(6,536,777) $5,935,872
========== ======== ========== ========== =========== ==========
</TABLE>
20
<PAGE> 23
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
-------------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR COMBINING COMBINED
FMC D-GMBH FMCH SUBSIDIARIES ADJUSTMENT TOTAL
---------- --------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 155 $ 37 $ -- $ 34,568 $ -- $ 34,760
Trade accounts receivable, less
allowance for doubtful accounts..... -- 81,686 -- 586,053 -- 667,739
Accounts receivable from related
parties............................. 135,878 226,351 32,586 351,445 (697,131) 49,129
Inventories........................... -- 61,951 -- 270,379 (31,028) 301,302
Prepaid expenses and other current
assets.............................. 8,691 11,094 -- 159,607 -- 179,392
IDPN accounts receivable.............. -- -- -- 53,962 -- 53,962
Deferred taxes........................ 703 4,079 -- 233,832 16,311 254,925
---------- -------- ---------- ---------- ----------- ----------
Total current assets................ 145,427 385,198 32,586 1,689,846 (711,848) 1,541,209
Property, plant and equipment, net...... 236 51,473 -- 600,084 (9,672) 642,121
Intangible assets, including goodwill,
net................................... 1,124 2,894 -- 3,434,738 -- 3,438,756
Loans to related parties................ 127,155 -- 185,529 987,963 (1,300,647) --
Deferred taxes.......................... 11 3,667 -- 14,471 6,972 25,121
Non-current IDPN accounts receivable.... -- -- -- 5,189 -- 5,189
Other assets............................ 1,947,133 10,460 2,428,224 66,320 (4,352,150) 99,987
---------- -------- ---------- ---------- ----------- ----------
Total assets.......................... $2,221,086 $453,692 $2,646,339 $6,798,611 $(6,367,345) $5,752,383
========== ======== ========== ========== =========== ==========
Current liabilities:
Accounts payable...................... $ 30 $ 16,923 $ -- $ 176,167 $ -- $ 193,120
Accounts payable to related parties... 151,914 205,213 181,857 393,142 (842,673) 89,453
Accrued expenses and other current
liabilities......................... 4,879 45,343 -- 363,265 1,574 415,061
Accrued settlement.................... -- -- -- 386,815 -- 386,815
Short-term borrowings................... 960 26 -- 95,397 -- 96,383
Short-term borrowings from related
parties............................. -- -- -- 330,000 -- 330,000
Current portion of long-term debt and
capital lease obligations........... -- 2,754 -- 144,730 -- 147,484
Income taxes payable.................. 49,064 -- -- 29,374 -- 78,438
Deferred taxes........................ 13,898 9,188 -- 9,165 1,187 33,438
---------- -------- ---------- ---------- ----------- ----------
Total current liabilities........... 220,745 279,447 181,857 1,928,055 (839,912) 1,770,192
Long term debt and capital lease
obligations, less current portion..... 4,541 635 842,421 961,284 (1,155,105) 653,776
Accrued settlement...................... -- -- -- 85,920 -- 85,920
Other liabilities....................... 290 3,794 -- 16,331 4,271 24,686
Pension liabilities..................... -- 23,819 -- 37,759 -- 61,578
Deferred taxes.......................... 1,182 6,862 -- 159,993 -- 168,037
Company obligated mandatorily redeemable
preferred securities of subsidiary
Fresenius Medical Care Capital Trusts
holding solely Company guaranteed
debentures of subsidiary.............. -- -- -- 964,103 -- 964,103
Minority interest....................... -- -- 16,318 -- 5,456 21,774
---------- -------- ---------- ---------- ----------- ----------
Total liabilities................... 226,758 314,557 1,040,596 4,153,445 (1,985,290) 3,750,066
Shareholders' equity:................... 1,994,328 139,135 1,605,743 2,645,166 (4,382,055) 2,002,317
---------- -------- ---------- ---------- ----------- ----------
Total liabilities and shareholders'
equity.............................. $2,221,086 $453,692 $2,646,339 $6,798,611 $(6,367,345) $5,752,383
========== ======== ========== ========== =========== ==========
</TABLE>
21
<PAGE> 24
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
------------------------ NON-GUARANTOR COMBINING COMBINED
FMC D-GMBH FMCH SUBSIDIARIES ADJUSTMENT TOTAL
----------- ---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)........................ $ 235,126 $ 288 $ 75,933 $ 154,362 $ (312,322) $ 153,387
Adjustments to reconcile net income
(loss) to net cash and cash equivalents
provided by (used in) operating
activities:
Equity affiliate income.................. (116,246) -- (102,341) -- 218,587 --
Depreciation and amortization............ 1,242 14,717 -- 203,395 (2,180) 217,174
Change in deferred taxes, net............ (5,078) 653 -- 69,245 3,394 68,214
Gain (loss) on sale of fixed assets...... -- (1,122) -- 336 -- (786)
Gain (loss) on disposal of investments... (67,489) -- -- -- 67,489 --
Compensation expense related to stock
options................................ 3,538 -- -- -- -- 3,538
Changes in assets and liabilities, net of
amounts from businesses acquired or
disposed of:
Trade accounts receivable, net........... -- 3,012 -- (137,427) -- (134,415)
Inventories.............................. -- (10,998) -- (9,500) 2,457 (18,041)
Prepaid expenses and other current and
non-current assets..................... (5,672) (9,890) 1,118 (28,525) 2,820 (40,149)
Accounts receivable from/ payable to
related parties........................ (44,306) 5,626 42,385 (59,837) 9,548 (46,584)
Accounts payable, accrued expenses and
other current and non-current
liabilities............................ 4,058 16,289 -- (37,190) 1,208 (15,635)
Income taxes payable..................... 36,125 (817) (17,606) 31,484 -- 49,186
----------- ---------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities................. 41,298 17,758 (511) 186,343 (8,999) 235,889
----------- ---------- ----------- ----------- ----------- -----------
Investing Activities:
Purchases of property, plant and
equipment.............................. (92) (15,516) -- (131,336) 3,327 (143,617)
Proceeds from sale of property, plant and
equipment.............................. 9 2,193 -- 15,944 -- 18,146
Acquisitions and investments, net of cash
acquired............................... (5,031) (2,694) -- (241,590) 4,434 (244,881)
Repayment of loans by related parties.... 8,358 -- -- (8,358) -- --
----------- ---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities........................... 3,244 (16,017) -- (365,340) 7,761 (370,352)
----------- ---------- ----------- ----------- ----------- -----------
Financing activities:
Short-term borrowings, net............... (550,288) 446 -- 436,012 7,761 (106,069)
Payments on obligation related to
settlement............................. -- -- -- (352,721) -- (352,721)
Long-term debt and capital lease
obligations, net....................... -- (2,169) 901 93,280 (1,435) 90,577
Proceeds from issuance of preference
shares................................. 556,958 -- -- -- -- 556,958
Proceeds from increase of accounts
receivable securitization program...... -- -- -- 17,839 -- 17,839
Proceeds from exercise of options........ 478 -- -- -- -- 478
Capital Increase of
Non-Guarantor-Subsidiaries............. -- -- -- 2,994 (2,994) --
Dividends paid........................... (51,229) -- -- (5,656) 5,656 (51,229)
Change in minority interest.............. -- -- (390) -- 11 (379)
----------- ---------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities................. (44,081) (1,723) 511 191,748 8,999 155,454
----------- ---------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and
cash equivalents......................... (540) -- -- (439) (7,761) (8,740)
Cash and Cash Equivalents:
Net increase in cash and cash
equivalents.............................. (79) 17 -- 12,313 -- 12,251
Cash and cash equivalents at beginning of
period................................... 155 37 -- 34,568 -- 34,760
----------- ---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................... $ 76 $ 54 $ -- $ 46,881 $ -- $ 47,011
=========== ========== =========== =========== =========== ===========
</TABLE>
22
<PAGE> 25
FRESENIUS MEDICAL CARE AG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------
GUARANTOR
SUBSIDIARIES
-------------------- NON-GUARANTOR COMBINING COMBINED
FMC D-GMBH FMCH SUBSIDIARIES ADJUSTMENT TOTAL
--------- -------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)........................... $(273,001) $ 638 $(348,174) $ 123,381 $ 210,055 $(287,101)
Adjustments to reconcile net (loss) income
to net cash and cash equivalents provided
by (used in) operating activities:
Equity affiliate loss....................... 322,123 -- (90,111) -- (232,012) --
Depreciation and amortization............. 292 15,372 -- 195,447 (1,950) 209,161
Change in deferred tax.................... (2,789) 316 (178,000) 34,572 (4,581) (150,482)
Loss on sale of fixed assets.............. 132 -- -- 368 -- 500
Changes in assets and liabilities, net of
amounts from businesses acquired or disposed
of:
Trade accounts receivable, net.............. -- (15,293) -- (107,858) -- (123,151)
Inventories................................. -- (9,850) -- (13,931) 6,695 (17,086)
Prepaid expenses and other current and
non-current assets........................ (5,614) (2,006) 1,118 (40,601) 7,383 (39,720)
Accounts receivable from/ payable to related
parties................................... (1,778) (1,214) 42,230 (32,582) -- 6,656
Accounts payable, accrued expenses and other
current and non-current liabilities....... (1,685) 29,266 590,000 (19,373) 2,122 600,330
Income taxes payable........................ 20,769 (1,106) (17,524) 58,751 -- 60,890
--------- -------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities of continuing operations..... 58,449 16,123 (461) 198,174 (12,288) 259,997
--------- -------- --------- --------- --------- ---------
Net cash used in operating activities of
discontinued operations................. -- -- -- (4,486) -- (4,486)
--------- -------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.............................. 58,449 16,123 (461) 193,688 (12,288) 255,511
--------- -------- --------- --------- --------- ---------
Investing Activities:
Purchases of property, plant and
equipment................................. (231) (15,061) -- (90,163) 2,295 (103,160)
Proceeds from sale of property, plant and
equipment................................. 27 664 -- 4,343 -- 5,034
Acquisitions and investments, net of cash
acquired.................................. (10,180) -- -- (91,160) 9,100 (92,240)
--------- -------- --------- --------- --------- ---------
Net cash used in investing activities..... (10,384) (14,397) -- (176,980) 11,395 (190,366)
--------- -------- --------- --------- --------- ---------
Financing activities:
Short-term borrowings, net.................. (4,340) (443) -- 222,552 -- 217,769
Long-term debt and capital lease
obligations, net.......................... 4,859 (1,219) 851 (194,662) (469) (190,640)
Retirement of convertible investment
securities................................ -- -- -- (27,518) -- (27,518)
Proceeds from increase of accounts
receivable securitization program......... -- -- -- 29,400 -- 29,400
Proceeds from exercise of FMC Rollover
options................................... 1,295 -- -- -- -- 1,295
Capital Increase of
Non-Guarantor-Subsidiaries................ -- -- -- 8,631 (8,631) --
Dividends paid.............................. (48,404) -- -- (9,306) 9,306 (48,404)
Changes in minority interest................ -- -- (390) -- 687 297
--------- -------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities.............................. (46,590) (1,662) 461 29,097 893 (17,801)
--------- -------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and
cash equivalents............................ (2,029) -- -- (19,159) -- (21,188)
Cash and Cash Equivalents:
Net (decrease) increase in cash and cash
equivalents................................. (554) 64 -- 26,646 -- 26,156
Cash and cash equivalents at beginning of
period...................................... 938 20 -- 30,909 -- 31,867
--------- -------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.... $ 384 $ 84 $ -- $ 57,555 $ -- $ 58,023
========= ======== ========= ========= ========= =========
</TABLE>
23
<PAGE> 26
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
THE COMPANY
Fresenius Medical Care AG was formed effective September 30, 1996 through a
series of transactions constituting the merger of the global dialysis businesses
of Fresenius AG and W.R. Grace & Co. ("W.R. Grace").
The merger represented the consummation of the transactions contemplated by
the Agreement and Plan of Reorganization entered into on February 4, 1996 by
Fresenius AG and W.R. Grace. In the merger, Fresenius AG contributed Fresenius
Worldwide Dialysis, representing its global dialysis business (including its
controlling interests in Fresenius USA, Inc.) to us in exchange for 35,210,000
of our ordinary shares. Thereafter, we acquired (i) all of the outstanding
common shares of W.R. Grace, whose sole business at the time of the transaction
consisted of National Medical Care, Inc., the global dialysis business of W.R.
Grace (now called Fresenius Medical Care Holdings, Inc.), and (ii) the minority
interest of Fresenius USA, Inc., not otherwise held by Fresenius AG, in exchange
for 31,360,000 ordinary shares and 3,430,000 ordinary shares, respectively.
Effective October 1, 1996, Fresenius Medical Care Holdings, Inc. acquired 100%
of Fresenius USA, Inc. from us.
Additionally, in conjunction with this merger, each holder of W.R. Grace
common shares received one share of Class D Preferred stock of Fresenius Medical
Care Holdings, Inc. for each share of W.R. Grace common stock previously held.
The Class D Preferred stock entitles the holder to receive, if and when declared
by the board of directors of Fresenius Medical Care Holdings, Inc., a special
dividend, payable in cash in annual installments beginning in October, 2002 (and
in each subsequent year until the dividend is fully paid), in an amount based on
the adjusted cash flow, as defined in the terms of the Class D Preferred stock,
of Fresenius Medical Care AG for the period from January 1, 1997 to December 31,
2001.
You should read the following discussion and analysis of the results of
operations of Fresenius Medical Care AG in conjunction with our historical
condensed consolidated financial statements and related notes contained
elsewhere in this report. Some of the statements contained below, including
those concerning future revenue, costs and capital expenditures and possible
changes in our industry and competitive and financial conditions include
forward-looking statements. Because such statements involve risks and
uncertainties, actual results may differ materially from the results which the
forward looking statements express or imply.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The tables below present disaggregated information for our Company. We
prepared the information using a management approach, consistent with the basis
and manner in which our management internally disaggregates financial
information to assist in making internal operating decisions and evaluating
management performance.
This section contains forward-looking statements. We made these
forward-looking statements based on our management's expectations and beliefs
concerning future events which may affect us, but we cannot assure that such
events will occur or that the results will be as anticipated. Such statements
include the matters referred to in the first paragraph, "Item 1 -- Description
of Business", in our 1999 Annual Report on Form 20-F.
Our businesses operate in highly competitive markets and are subject to
changes in business, economic and competitive conditions. Our business is
subject to:
- intense competition;
- foreign exchange rate fluctuations;
24
<PAGE> 27
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
- varying degrees of acceptance of new product introductions;
- changes in reimbursement rates;
- technological developments in our industry;
- uncertainties in litigation or investigative proceedings and regulatory
developments in the health care sector; and
- the availability of financing.
Our business is also subject to other risks and uncertainties that we
describe from time to time in our public filings. Developments in any of these
areas could cause our results to differ materially from the results that we or
others have projected or may project.
Developments in any of these areas, which are more fully described
elsewhere in Part I, Item 2, Part II, Item 1 and in Management's Discussion and
Analysis of Financial Condition and Results of Operations in our 1999 Annual
Report on Form 20-F, each of which is incorporated into this section by
reference, could cause our results to differ materially from the results that
have been or may be projected by or on our behalf.
OVERVIEW
Each segment for which information is presented below engages primarily in
providing kidney dialysis services and performing related clinical laboratory
testing and renal diagnostic services as well as manufacturing and distributing
products and equipment for the treatment of end-stage renal disease. Our
management board member responsible for the profitability and cash flow of each
segment's various businesses supervises the management of each operating
segment. The accounting policies of the operating segments are the same as those
we apply in preparing our consolidated financial statements under U.S. generally
accepted accounting principles.
Our management evaluates each segment using a measure that reflects all of
the segment's controllable revenues and expenses. Our management believes the
most appropriate measure in this regard is earnings before interest and taxes,
or EBIT, which measures our source of earnings. Financing is a corporate
function which segments do not control. Therefore, we do not include interest
cost relating to financing as a segment measurement. We also regard income taxes
to be outside the segment's control. In addition to EBIT, our management also
believes that earnings before interest, taxes, depreciation and amortization, or
EBITDA, is helpful for investors as a measurement of the segment's and our
company's ability to generate cash and to service our financing obligations.
EBITDA is also the basis for determining compliance with certain covenants
contained in our senior credit agreement and the indentures relating to our
outstanding trust preferred securities.
You should not consider EBITDA to be an alternative to net earnings
determined in accordance with generally accepted accounting principles or to
cash flow from operations, investing activities or financing activities or as a
measure of cash flows. We believe our EBIT calculation is the functional
equivalent of operating income. Because all companies do not calculate EBITDA
and EBIT consistently, the presentation herein may not be comparable to other
similarly titled measures of other companies.
We generated approximately 40% of our worldwide revenue for 2000 from
sources subject to regulations under U.S. government health care programs. In
the past, U.S. budget deficit reduction and health care reform measures have
changed the reimbursement rates under these programs, including the Medicare
composite rate,
25
<PAGE> 28
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
the reimbursement rate for EPO, and the reimbursement rates for other dialysis
and non-dialysis related services and products, as well as other material
aspects of these programs, and they may change in the future.
We also derive a significant portion of our net revenues from reimbursement
by non-government payors. Historically, these payors' reimbursement rates
generally have been higher than government program rates in their respective
countries. However, non-governmental payors are imposing cost containment
measures that are creating significant downward pressure on reimbursement levels
that we receive for our services and products.
Our business, financial position and results of operations could also be
materially adversely affected by whistleblower actions or by an adverse outcome
in the pending litigation concerning the implementation of certain provisions of
OBRA 93 relating to the coordination of benefits between Medicare and employer
health plans in the case of certain dual eligible ESRD patients. See Part II
Item 1 -- "Legal Proceedings."
RESULTS OF OPERATIONS
The following tables summarize our financial performance and certain
operating results by principal business segment for the periods indicated.
Inter-segment sales primarily reflect sales of medical equipment and supplies
from the International segment to the North America segment.
26
<PAGE> 29
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
-------- -------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Total revenue
North America............................................. $ 793 $ 709
International............................................. 297 269
------ -----
Totals................................................. 1,090 978
------ -----
Inter-segment revenue
North America............................................. 0 1
International............................................. 9 8
------ -----
Totals................................................. 9 9
------ -----
Total net revenue
North America............................................. 793 708
International............................................. 288 261
------ -----
Totals................................................. 1,081 969
------ -----
EBITDA
North America............................................. 166 156
International............................................. 68 62
Special charge for settlement of investigations and
related costs.......................................... -- (590)
Corporate................................................. 7 (3)
------ -----
Totals................................................. 241 (375)
------ -----
Amortization and depreciation
North America............................................. 55 54
International............................................. 18 16
Corporate................................................. 1 1
------ -----
Totals................................................. 74 71
------ -----
EBIT
North America............................................. 111 102
International............................................. 50 46
Special charge for settlement of investigations and
related costs.......................................... -- (590)
Corporate................................................. 6 (4)
------ -----
Totals................................................. 167 (446)
------ -----
Interest income............................................. 2 1
Interest expense............................................ (46) (54)
Interest expense on obligation related to settlement........ (8) --
Income tax (expense) benefit................................ (56) 134
Minority interest........................................... (1) (1)
------ -----
Net income (loss)........................................... $ 58 $(366)
====== =====
</TABLE>
27
<PAGE> 30
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
-------- --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Total revenue
North America............................................. $2,297 $2,080
International............................................. 852 786
------ ------
Totals................................................. 3,149 2,866
------ ------
Inter-segment revenue
North America............................................. 2 3
International............................................. 28 31
------ ------
Totals................................................. 30 34
------ ------
Total net revenue
North America............................................. 2,295 2,077
International............................................. 824 755
------ ------
Totals................................................. 3,119 2,832
------ ------
EBITDA
North America............................................. 481 450
International............................................. 200 179
Special charge for settlement of investigations and
related costs.......................................... -- (590)
Corporate................................................. 4 (6)
------ ------
Totals................................................. 685 33
------ ------
Amortization and depreciation
North America............................................. 165 162
International............................................. 50 46
Corporate................................................. 2 1
------ ------
Totals................................................. 217 209
------ ------
EBIT
North America............................................. 316 288
International............................................. 150 133
Special charge for settlement of investigations and
related costs.......................................... -- (590)
Corporate................................................. 2 (7)
------ ------
Totals................................................. 468 (177)
------ ------
Interest income............................................. 7 5
Interest expense............................................ (149) (168)
Interest expense on obligation related to settlement........ (22) --
Income tax (expense) benefit................................ (148) 55
Minority interest........................................... (2) (2)
------ ------
Net income (loss)........................................... $ 153 $ (287)
====== ======
</TABLE>
28
<PAGE> 31
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net revenues for the three months ended September 30, 2000 increased by 12%
(14% at constant exchange rates) to $1,081 million from $969 million for the
comparable period in 1999. Net income for the third quarter of 2000 was $58
million as compared to a net loss of $366 million in 1999. The net loss of $366
in 1999 was a result of a special charge of $590 million ($412 million after
tax) (hereafter "special charge") relating to the Settlement (See Part I, Item 1
-- "Notes to Condensed Consolidated Financial Statements"). Excluding the
effects of the special charge during 1999, net income for the third quarter 2000
increased by 28% or $12 million.
Earnings per ordinary share were $0.63 compared to a loss per ordinary
share of $4.64 for the same period in the prior year. Excluding the effects of
the special charge, earnings per ordinary share increased by 11% from $0.57.
The following discussions pertain to our business segments and the measures
we use to manage these segments. The North American segment discussion excludes
the effects of the special charge.
NORTH AMERICA SEGMENT
Revenue. Net revenue for the North America segment for the three months
ended September 30, 2000 grew by 12% from $708 million to $793 million. Dialysis
care revenue increased by 14% to $669 million, 11% attributable to base business
revenue growth and 3% to acquisitions. Dialysis products revenues increased 3%
to $124 million. The increase in dialysis care revenue resulted primarily from a
$48 million (8%) increase in the number of treatments and an increase in revenue
per treatment of approximately $34 million (6%) as a result of the impact of
increased Medicare reimbursement rates and improved anemia management (EPO
utilization) as compared to 1999. Laboratory testing revenues increased as a
result of higher patient volume. Dialysis product revenue increased
approximately $5 million (4%) as a result of increased sales of machines
partially offset by decreased sales of bloodlines, peritoneal products and other
products. Product revenue growth was slightly (1%) affected by decreasing
prices.
EBITDA. EBITDA for the North America segment grew by 7% due to increased
treatment volume, improved treatment rates, increased ancillary services, and
increased earnings from laboratory testing. These increases were partially
offset by higher personnel costs and increased provisions for doubtful accounts.
Amortization and Depreciation. Amortization and depreciation decreased
slightly as a percentage of revenue in 2000. This is mainly due to the impact of
internal revenue growth while amortization and depreciation has remained fairly
constant at $55 million.
EBIT. EBIT for the North America segment increased by 9% due to the
increase in EBITDA and the positive impact of the decreased percentage of
amortization and depreciation to revenue as previously mentioned.
INTERNATIONAL SEGMENT
Revenue. Net revenue for the International segment during the three months
ended September 30, 2000 grew by 10% (21% at constant exchange rates) from $261
million in 1999 to $288 million in 2000. Acquisitions, primarily Total Renal
Care, contributed $29 million, approximately $10 million in the European region,
$17 million in the Latin America region and $2 million in Asia Pacific. Base
business growth during the period was 9% at constant exchange rates. Including
the effects of acquisitions, Asia Pacific region revenue grew $14 million or 40%
(36% at constant exchange rates), and Latin America region revenue grew $22
million or 59% (63% at constant exchange rates). The European region,
unfavorably impacted by the
29
<PAGE> 32
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
appreciation of the U.S. Dollar versus the euro, decreased by 5% from $189
million in 1999 to $180 million in 2000 (10% increase at constant exchange
rates).
Total dialysis care revenue increased by 37% (50% at constant exchange
rates) to $92 million in 2000 from $67 million in the prior year. This increase
is a result of base business growth, consisting of an approximately $7 million
(11%) increase in the number of dialysis care treatments, offset by
approximately $8 million (13%) due to exchange rate fluctuations. The average
price per treatment remained fairly stable. Acquisitions, primarily Total Renal
Care, contributed approximately $26 million (39%) to total dialysis care
revenue.
Total dialysis product revenue for 2000 increased by 1% (11% at constant
exchange rates) to $196 million. Product volume increased by approximately $35
million (18%) which was offset by lower average pricing of approximately $17
million (9%) due to the competitive nature of the market. Product revenue
increase was further offset by approximately $19 million (10%) due to exchange
rate fluctuations. Acquisitions contributed approximately $3 million (2%) to
total product revenue.
EBITDA. EBITDA for the International segment for 2000 grew by 9% (20% at
constant exchange rates) from $62 million to $68 million primarily due to the
increased revenue noted above. Excluding the effects of acquisitions the
majority of the EBITDA growth was a result of increased business in the Latin
America region as well as continued growth in the Asia Pacific region.
EBIT. EBIT for the International segment for 2000 increased by 10% (21% at
constant exchange rates) from $46 million to $50 million due to the increased
EBITDA mentioned above and stable depreciation and amortization.
THE FOLLOWING DISCUSSIONS PERTAIN TO OUR TOTAL COMPANY COSTS, EXCLUDING THE
EFFECTS OF THE SPECIAL CHARGE.
Interest. Interest expense for 2000 remained relatively constant compared
to the same period in 1999. Interest expense related to the note payable
associated with the settlement of the U.S. government investigation amounted to
approximately $8 million. This additional interest expense was offset by the
reduced interest expense related to lower other borrowings, due to the use of
the $557 million net proceeds received in the preference share offerings in the
preceding nine months.
Income Taxes. The effective tax rate for the third quarter of 2000 was
slightly below the 1999 rate as non-deductible amortization of goodwill relating
to acquisitions was lower, as a percentage of taxable income, for 2000 compared
to the same period in 1999.
Other Items -- Primarily Foreign Currency Gains and Losses. Total company
EBIT was favorably impacted by $4 million due to net foreign currency
transaction gains of $16 million offset by $4 million related to compensation
under the FMC Plan 2 stock option plan, $2 million in incremental professional
services and $6 million related to the strengthening of the dollar. Net income
was positively impacted $1 million by these items.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Net revenues for the nine months ended September 30, 2000 increased by 10%
(13% at constant exchange rates) to $3,119 million from $2,832 million for the
comparable period in 1999. Net income for the first nine months of 2000 amounted
to $153 million as compared to a net loss of $287 million in 1999. Excluding the
effects of the special charge during 1999, net income for the first nine months
of 2000 increased by 23% or $28 million.
30
<PAGE> 33
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
Earnings per ordinary share were $1.74 compared to a loss per ordinary
share of $3.64 for the same period in the prior year. Excluding the effects of
the special charge, earnings per ordinary share increased by 11% from $1.57.
The following discussions pertain to our business segments and the measures
we use to manage these segments. The North American segment discussion excludes
the effects of the special charge.
NORTH AMERICA SEGMENT
Revenue. Net revenue for the North America segment for the nine months
ended September 30, 2000 grew by 11% from $2,077 million to $2,295 million.
Dialysis care revenue increased by 12% from $1,725 million to $1,940 million, of
which 10% resulted from base business growth and 2% resulted from acquisitions.
Dialysis products revenue increased 1% from $352 million to $356 million. The
increase in dialysis care revenue resulted primarily from a $137 million (8%)
increase in the number of treatments and an increase in revenue per treatment of
approximately $78 million (4%) as a result of the impact of increased Medicare
reimbursement rates and improved anemia management (EPO utilization) as compared
to 1999. Laboratory testing revenues increased as a result of higher patient
volume. Dialysis product revenue remained fairly constant as increases in sales
of dialyzers and machines were offset by decreased sales of peritoneal products.
EBITDA. EBITDA for the North America segment grew by 7%, due to increased
treatment volume, improved treatment rates, increased ancillary services, and
increased earnings from laboratory testing. These increases were partially
offset by higher personnel costs and increased provisions for doubtful accounts.
Amortization and Depreciation. Amortization and depreciation decreased
slightly as a percentage of revenue in 2000. This is mainly due to the impact of
internal revenue growth while amortization and depreciation has remained fairly
constant at $165 million compared to $162 million for the prior year.
EBIT. EBIT for the North America segment increased by 10% due to the
increase in EBITDA and the positive impact of the decreased percentage of
amortization and depreciation to revenue as previously mentioned.
INTERNATIONAL SEGMENT
Revenue. Net revenue for the International segment during the nine months
ended September 30, 2000 grew by 9% (19% at constant exchange rates) from $755
million in 1999 to $824 million in 2000. Acquisitions, primarily Total Renal
Care, contributed $58 million, approximately $19 million in the European region,
$29 million in the Latin America region and $10 million in Asia Pacific. Base
business growth during the period was 11% at constant exchange rates. Including
the effects of acquisitions, Asia Pacific region revenue increased $35 million
or 39% (33% at constant exchange rates), Latin America region revenue grew $48
million or 45% (52% at constant exchange rates) while European region revenue
decreased $15 million, a 3% decrease (10% increase at constant exchange rates)
mainly due to the appreciation of the U.S. Dollar versus the euro.
Total dialysis care revenue increased during 2000 by 25% (37% at constant
exchange rates) to $244 million in 2000 from $196 million in the prior period.
This increase is a result of base business growth, consisting of an
approximately $20 million (10%) increase in the number of dialysis care
treatments and an approximately $6 million (3%) increase in average price per
treatment, offset by approximately $24 million (12%) due to exchange rate
fluctuations. Acquisitions, mainly Total Renal Care, contributed approximately
$46 million (24%) to total dialysis care revenue.
31
<PAGE> 34
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
Total dialysis product revenue for 2000 increased by 4% (13% at constant
exchange rates) to $580 million. Product volume increased by approximately $107
million (19%) which was offset by lower average pricing of approximately $48
million (8%) due to the competitive nature of the market. Product revenue was
further offset by approximately $51 million (9%) due to exchange rate
fluctuations. Acquisitions contributed approximately $12 million (2%) to total
dialysis product revenue.
EBITDA. EBITDA for the International segment for 2000 grew by 12% (24% at
constant exchange rates) from $179 million to $200 million primarily due to the
increased revenue noted above. Excluding the effect of acquisitions the majority
of the EBITDA growth was a result of increased business in the Asia Pacific
region as well as increased shipments to eastern European countries, which have
higher EBITDA margins, due to an improvement in the economic situation in those
countries as compared with 1999.
EBIT. EBIT for the International segment for 2000 increased by 13% (25% at
constant exchange rates) from $133 million to $150 million due to the increased
EBITDA mentioned above and stable depreciation and amortization.
THE FOLLOWING DISCUSSIONS PERTAIN TO OUR TOTAL COMPANY COSTS, EXCLUDING THE
EFFECTS OF THE SPECIAL CHARGE.
Interest. Interest expense for 2000 remained relatively constant compared
to the same period in 1999. Interest expense related to the note payable
associated with the settlement of the U.S. government investigation amounted to
approximately $22 million. This additional interest expense was offset by the
reduced interest expense related to lower other borrowings due to the use of the
$557 million net proceeds received in the preference share offerings in the
preceding nine months.
Income Taxes. The effective tax rate for the nine month period ending
September 30, 2000 was slightly below the 1999 rate as non-deductible
amortization of goodwill relating to acquisitions was lower, as a percentage of
taxable income, for 2000 compared to the same period in 1999.
Other Items -- Primarily Foreign Currency Gains and Losses. Total Company
EBIT was adversely impacted by $6 million due to net foreign currency
transaction gains of $16 million offset by $4 million related to compensation
under the FMC Plan 2 stock option plan, $2 million in incremental professional
services and $16 million related to the strengthening of the dollar. Net income
was negatively impacted $5 million by these items.
LIQUIDITY AND CAPITAL RESOURCES
We generated cash from operating activities of $236 million in the nine
month period ended September 30, 2000 and $260 million from continuing
operations in the comparable period in 1999. Net cash provided by operating
activities was unfavorably affected by an increase in accounts receivable
balance. The primary reason is an increase in days sales outstanding resulting
from slower payment patterns from third parties, specifically from managed care
plans. Cash on hand was $47 million at September 30, 2000 compared to $35
million, at December 30, 1999.
On January 18, 2000, we executed definitive agreements with respect to the
U.S. government investigation. The agreements require net settlement payments
totaling approximately $427 million, of which $14 million had been paid prior to
January 1, 2000. This net amount includes payments to us of approximately $59
million for Medicare receivables from the U.S. government. During the
nine-months period ending September 30, 2000 after court approval of the
settlement we made payments of $353 million, including initial cash payments of
$286 million and we received $49 million from the U.S. government for our
outstanding Medicare receivable claims for intradialytic parenteral nutrition
therapy rendered on or before
32
<PAGE> 35
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
December 31, 1999. We wrote off $94 million of these receivables at December 31,
1999 in anticipation of a final settlement.
Under the definitive agreements with the U.S. government, we entered into a
note payable for the remainder of the settlement obligation. Installment
payments under the note will accrue interest at 6.3% on approximately $51
million of the obligation and at 7.5% annually on the balance, until paid in
full.
The note payable will be paid in six quarterly installments which began in
April 2000 and end in July 2001. The first four quarterly installments will be
made in the amount of approximately $35 million each, including interest at
7.5%. The final two installments of approximately $28 million each, including
interest at 6.3%, will be paid in April and July 2001, respectively. The U.S.
government will remit the balance of our outstanding Medicare receivables in
four quarterly payments of approximately $5 million each, plus interest at 7.5%.
The first payment was received in May 2000. At September 30, 2000, the remaining
note payable was approximately $120 million and the remaining amount receivable
was approximately $10 million.
We amended the letter of credit that was given to the U.S. government in
1996 from $150 million to $190 million and, under the agreement, the letter of
credit will be reduced as we continue to make installment payments to the
government. At September 30, 2000, the face amount of the letter of credit was
$123 million.
In December 1999, we and the lenders under our senior credit facility
amended the financial ratios in the senior credit facility to accommodate our
obligations under the settlement agreements and to enable us to continue in
compliance with our senior credit facility as we fulfill the settlement
obligations.
On March 2, 2000, we issued 8,974,359 non-voting Preference shares to a
limited number of institutional and other accredited investors in exchange for
the investors' interests in Franconia Acquisition LLC, an entity formed to
acquire dialysis clinics and other related businesses. Franconia's principal
asset at the time of this transaction was $350 million in cash. For financial
reporting purposes, the transaction, which generated net proceeds of $344
million, has been accounted for as a financing at fair value. The investors have
agreed not to effect sales or transfers of the Preference shares for a period of
24 months after issuance, except as permitted by the contribution agreement.
After this time, the investors will have the right to require, under specified
conditions, that we register the Preference shares for sale under the Securities
Act of 1933, as amended, and provide them with assistance in connection with
public offerings of their Preference shares outside the United States.
On June 19, 2000, we purchased substantially all of the international and
non-continental U.S. operations business of Total Renal Care Holdings, Inc. for
$142 million in cash. Additionally, we made a deposit, not included in the
purchase price noted above, towards the purchase of the Puerto Rican operations.
This purchase is pending subject to regulatory approval and third party
consents.
On July 26, 2000, we completed a public offering of 5,000,000 preference
shares for net proceeds of approximately $185 million. In addition, on July 28,
2000, the underwriters of the public offering exercised options to purchase an
additional 750,000 preference shares resulting in total net proceeds from the
public offering of approximately $213 million.
On November 1, 2000, we signed a definitive agreement to acquire Everest
Healthcare Services Corporation ("Everest"), Oak Park, Illinois through a merger
of Everest into a subsidiary of the company for approximately $343 million
including Everest's outstanding debt. The purchase price is subject to
adjustments for changes in Everest's net equity and other customary closing
adjustments. The purchase price is a combination of a cash payment to the
sellers of roughly one-third of the purchase price and approximately
33
<PAGE> 36
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
one-third of the purchase price represents Everest's outstanding debt assumed.
On November 15, 2000, we initiated a tender offer for Everest's outstanding
subordinated debt. The cash payment and any payments of Everest's assumed debt,
including the tender offer purchase price will be financed out of the proceeds
from the capital offerings completed earlier in the year. The remaining
approximately one-third of the purchase price will be paid by the issuance of up
to 2.25 million of our preference shares. The acquisition is still subject to
anti-trust and other regulatory approvals.
Acquisitions during the first nine months of 2000 totaled $245 million,
including the Total Renal Care acquisition, $105 million in the North America
segment and $140 million in the International segment. Acquisitions for the
comparable period in 1999 were $92 million, $65 million for the North American
segment and $27 million for the International segment. In addition, capital
expenditures for property, plant and equipment were $144 million for the nine
months ended September 30, 2000 and $103 million for the comparable period in
1999. In 2000, capital expenditures in the North America segment were $73
million and $71 million for the International segment. In 1999, capital
expenditures in the North America segment were $54 million and $49 million in
the International segment. The majority of our capital expenditures were used
for improvements to existing clinics, equipment for new clinics and expansion of
production facilities. We believe that an increasing percentage of our dialysis
care growth will be derived from worldwide markets and we envision making
acquisitions in selected international markets. In the U.S., we generally intend
to continue to enhance our presence in the market by focusing our expansion on
the acquisition of individual or small groups of clinics, expansion of existing
clinics, and opening of new clinics. Nevertheless, we will consider large
acquisitions in the U.S. if suitable opportunities, such as Everest, become
available to us.
Total long-term debt, excluding the note payable related to the settlement
of the U.S. government investigation, net of current portion at September 30,
2000, increased to $728 million from $654 million at year-end 1999. We reduced
our short-term borrowings from $426 million to $316 million at September 30,
2000.
In January, 2000, $850 million notional amount of interest rate swap
agreements expired. This reduced our interest rate swap agreements with various
commercial banks to a total notional amount of $600 million. These agreements
effectively fix our variable interest rate exposure on the majority of our
revolving loans and accounts receivable securitization program to fixed rates of
interest between 6.05% and 6.6025%. These swap agreements expire at various
dates between December 2003 and January 2004. We also have an interest rate
collar agreement for a notional amount of $150 million that fixes our interest
rate exposure to rates between 5.55% and 6.76%, during the period January 2000
to January 2005. Under our senior credit agreement, we have agreed to maintain
at least $500 million of interest rate protection.
On May 31, 2000, we paid a cash dividend of $51 million for 1999 in the
amount of E 0.75 on each preference share, excluding the preference shares
issued on March 2, 2000, and E 0.69 on each ordinary share.
We believe that our existing credit facilities, cash generated from
operations and other current sources of financing are sufficient to meet our
foreseeable needs. If cash flows from operations or availability under existing
banking arrangements fall below expectations, we may have to consider other
alternatives to maintain sufficient liquidity. We cannot assure that we will be
able to do so on satisfactory terms, if at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting
34
<PAGE> 37
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
standards for financial derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The statement also provides the criteria for determining whether a derivative
may be specifically designated as a hedge of a particular exposure with the
intent of measuring the effectiveness of that hedge in the statement of
operations. In June 1999, the Financial Accounting Standards Board issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities, which
amended the effective date of SFAS No. 133. The amended SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
We are currently analyzing the complexities of SFAS 133 and its effect on our
consolidated financial statements.
In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 provides the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues,
as well as examples of how the SEC staff applies revenue recognition guidance to
specific circumstances. In June 2000, SAB 101B was issued by the SEC further
delaying the implementation date for SAB 101 until the fourth quarter of the
fiscal year beginning after December 15, 1999. The Company believes that SAB 101
will not have a material impact on the Company's financial position and results
of operations.
In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-014,
Accounting for Certain Sales Incentives, which establishes accounting for point
of sales coupons, rebates, and free merchandise. This EITF requires that an
entity report these sales incentives that reduce the price paid to be netted
directly against revenues. EITF 00-014 is effective no later than the fourth
quarter of the fiscal year beginning after December 15, 1999. The Company is
currently reviewing the impact of EITF 00-014 on its results of operations.
In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25.
The effects of applying this interpretation are required to be recognized on a
prospective basis from July 1, 2000. The application of this interpretation did
not have a material effect on the company's financial position or results of
operations.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125. SFAS No. 140
provides the accounting and reporting standards for securitizations and other
transfers of financial assets and collateral. These standards are based on
consistent application of a financial-components approach that focuses on
control. This Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral for fiscal years
ending after December 15, 2000. The Company is currently reviewing the impact of
SFAS No. 140 on its results of operations.
EURO CONVERSION
Germany, our country of domicile, is one of the eleven members of the
European Union who have adopted the euro as their currency. We have changed our
functional currency to euro effective January 1, 1999, but will continue using
the U.S. dollar as our reporting currency. In addition, at our general meeting
on June 2, 1999, our shareholders approved the currency conversion of our share
capital to euro from Deutsche Mark. All internal reporting entities situated in
the eleven member states are submitting their reports in euro. The euro
conversion may affect cross-border competition by creating cross-border price
transparency. In our
35
<PAGE> 38
PART I
FINANCIAL INFORMATION
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -- (CONTINUED)
business, patients may not have the luxury to "shop" cross-border due to the
nature of their illness, the type of reimbursement program they are enrolled in
and the fact that they maintain a medical relationship with their supplier, a
doctor or clinic.
CONTINGENCIES
We are a plaintiff in litigation against the U.S. federal government with
respect to the implementation of the Omnibus Budget Reconciliation Act of 1993.
We are also a defendant in significant commercial insurance litigation relating
to the same alleged practices that were the subject of the recently settled
government investigations. An adverse outcome in any of these matters could have
a material adverse effect on our business, financial condition and results of
operations. Because of the significant complexities and uncertainties associated
with these proceedings, we cannot provide either an estimate of the possible
loss or range of loss we may incur in respect of such matters, and a reserve
based on any such estimate cannot be reasonably made.
INFLATION
The effects of inflation during the periods covered by the consolidated
financial statements have not been significant to our results of operations.
However, most of our net revenues from dialysis care are subject to
reimbursement rates regulated by governmental authorities, and a significant
portion of other revenues, especially revenues from the U.S., is received from
customers whose revenues are subject to these regulated reimbursement rates.
Non-governmental payors are also exerting downward pressure on reimbursement
rates. Increased operation costs that are subject to inflation, such as labor
and supply costs, may not be recoverable through price increases in the absence
of a compensating increase in reimbursement rates payable to us and our
customers, and could materially adversely affect our business, financial
condition and results of operations.
36
<PAGE> 39
PART I
FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MANAGEMENT OF CURRENCY AND INTEREST RATE RISKS
We are primarily exposed to market risk from changes in foreign currency
exchange rates and changes in interest rates. In order to manage the risks from
these foreign currency exchange rate and interest rate fluctuations, we enter
into various hedging transactions with investment grade financial institutions
as authorized by the management board. We do not contract for financial
instruments for trading or other speculative purposes.
We conduct our financial instrument activity under the control of a single
centralized department. We have established guidelines for risk assessment
procedures and controls for the use of financial instruments. They include a
clear segregation of duties with regard to execution on one side and
administration, accounting and controlling on the other.
INTEREST RATE RISKS
At September 30, 2000, we had in place interest rate swap agreements for a
notional amount of $600 million and an interest rate collar for a notional
amount of $150 million which we believe to be adequate to cover our interest
rate exposure into the immediate future.
FOREIGN CURRENCY EXPOSURE
We conduct our business on a global basis in several major international
currencies, although our operations are located principally in Germany and the
United States. For financial reporting purposes, we have chosen the U.S. dollar
as our reporting currency. Therefore, changes in the rate of exchange between
the U.S. dollar, the euro and the local currencies in which the financial
statements of our international operations are maintained, affect our results of
operations and financial position as reported in our consolidated financial
statements. We have consolidated the balance sheets of our non-U.S. dollar
denominated operations into U.S. dollars at the exchange rates prevailing at the
balance sheet date. Revenues and expenses are translated at the average exchange
rates for the period.
Our exposure to market risk for changes in foreign exchange rates relates
to transactions such as sales and purchases, lendings and borrowings, including
intercompany borrowings. We sell significant amounts of products from our
manufacturing facilities in Germany to our other international operations. In
general, our German sales are denominated in euro. This exposes our subsidiaries
to fluctuations in the rate of exchange between the euro and the currency in
which their local operations are conducted. We employ, to a limited extent,
forward contracts and options to hedge our currency exposure. Our policy, which
has been consistently followed, is that forward currency contracts and options
be used only for purposes of hedging foreign currency exposures. We have not
used such instruments for purposes other than hedging.
During the period ended September 30, 2000, no material changes occurred to
the information presented in Item 9A of the Form 20-F or the Company's hedging
strategy described above. For additional information, see Item 9A, "Quantitative
and Qualitative Disclosures About Market Risk," "Notes to Consolidated Financial
Statements -- Note 1(g). Summary of Significant Accounting Policies --
Derivative Financial Instruments," and "Notes to Consolidated Financial
Statements -- Note 21. Financial Instruments" in the Company's 1999 Annual
Report on Form 20-F.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
COMMERCIAL INSURER LITIGATION
In 1997, FMCH, NMC, and certain named NMC subsidiaries were served with a
civil complaint filed by Aetna Life Insurance Company in the U.S. District Court
for the Southern District of New York. Based in large part on information
contained in prior reports filed by the Company and FMCH with the Securities and
Exchange Commission, the lawsuit alleges inappropriate billing practices for
nutritional therapy, diagnostic and clinical laboratory tests and
misrepresentations. In April 1999, Aetna amended its complaint to include its
affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make
certain other limited changes in its pleading. The amended complaint seeks
unspecified damages and costs. In February 2000, FMCH was served with a similar
complaint filed by Connecticut General Life Insurance Company, Equitable Life
Assurance Society for the United States, Cigna Employee Benefits Services, Inc.
and Guardian Life Insurance Company of America, Inc. (Connecticut General Life
Insurance Company et al v. National Medical Care et al, 00-Civ-0932) seeking
unspecified damages and costs. However, the Company, FMCH, NMC and its
subsidiaries believe that there are substantial defenses to the claims asserted,
and intend to vigorously defend both lawsuits. Other private payors have
contacted FMCH and may assert that NMC received excess payment and, similarly,
may join either lawsuit or file their own lawsuit seeking reimbursement and
other damages.
FMCH has filed counterclaims against the plaintiffs in these matters based
on inappropriate claim denials and delays in claim payments.
Although the ultimate outcome on the Company of these proceedings cannot be
predicted at this time, an adverse result could have a material adverse effect
on the Company's business, financial condition and result of operations.
OBRA 93
The Omnibus Budget Reconciliation Act of 1993 affected the payment of
benefits under Medicare and employer health plans for dual-eligible ESRD
patients. In July 1994, the Health Care Financing Administration issued an
instruction to Medicare claims processors to the effect that Medicare benefits
for the patients affected by that act would be subject to a new 18-month
"coordination of benefits" period. This instruction had a positive impact on
NMC's dialysis revenues because, during the 18-month coordination of benefits
period, patients' employer health plans were responsible for payment, which was
generally at rates higher than those provided under Medicare.
In April 1995, the Health Care Financing Administration issued a new
instruction, reversing its original instruction in a manner that would
substantially diminish the positive effect of the original instruction on NMC's
dialysis business. The Health Care Financing Administration further proposed
that its new instruction be effective retroactive to August 1993, the effective
date of the Omnibus Budget Reconciliation Act of 1993.
NMC ceased to recognize the incremental revenue realized under the original
instruction as of July 1, 1995, but it continued to bill employer health plans
as primary payors for patients affected by the Omnibus Budget Reconciliation Act
of 1993 through December 31, 1995. As of January 1, 1996, NMC commenced billing
Medicare as primary payor for dual eligible ESRD patients affected by the act,
and then began to re-bill in compliance with the revised policy for services
rendered between April 24 and December 31, 1995.
On May 5, 1995, NMC filed a complaint in the U.S. District Court for the
District of Columbia (National Medical Care, Inc. and Bio-Medical Applications
of Colorado, Inc. d/b/a Northern Colorado Kidney Center v. Shalala, C.A.
No. 95-0860 (WBB) seeking to preclude the Health Care Financing Administration
from retroactively enforcing its April 24, 1995 implementation of the Omnibus
Budget Reconciliation Act of 1993 provision relating to the coordination of
benefits for dual eligible ESRD patients. On May 9, 1995, NMC moved for a
preliminary injunction to preclude the Health Care Financing Administration from
enforcing its new policy retroactively, that is, to billing for services
provided between
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PART II
OTHER INFORMATION -- (CONTINUED)
August 10, 1993 and April 23, 1995. On June 6, 1995, the court granted NMC's
request for a preliminary injunction and in December of 1996, NMC moved for
partial summary judgment seeking a declaration from the Court that the Health
Care Financing Administration's retroactive application of the April 1995 rule
was legally invalid. The Health Care Financing Administration cross-moved for
summary judgment on the grounds that April 1995 rule was validly applied
prospectively. In January 1998, the court granted NMC's motion for partial
summary judgment and entered a declaratory judgment in favor of NMC, holding the
Health Care Financing Administration's retroactive application of the April 1995
rule legally invalid. Based on its finding, the Court also permanently enjoined
the Health Care Financing Administration from enforcing and applying the April
1995 rule retroactively against NMC. The Court took no action on the Health Care
Financing Administration's motion for summary judgment pending completion of the
outstanding discovery. On October 5, 1998, NMC filed its own motion for summary
judgment requesting that the Court declare the Health Care Financing
Administration's prospective application of the April 1995 rule invalid and
permanently enjoin Health Care Financing Administration from prospectively
enforcing and applying the April 1995 rule. The Court has not yet ruled on the
parties' motions. The Health Care Financing Administration elected not to appeal
the Court's June 1995 and January 1998 orders. The Health Care Financing
Administration may, however, appeal all rulings at the conclusion of the
litigation. If the Health Care Financing Administration should successfully
appeal so that the revised interpretation would be applied retroactively, NMC
may be required to refund the payment received from employer health plans for
services provided after August 10, 1993 under the Health Care Financing
Administration's original implementation, and to re-bill Medicare for the same
services, which would result in a loss to NMC of approximately $120 million
attributable to all periods prior to December 31, 1995. Also, in this event, the
Company's business, financial condition and results of operations would be
materially adversely affected.
OTHER LITIGATION AND POTENTIAL EXPOSURES
From time to time, the Company is a party to or may be threatened with
other litigation arising in the ordinary course of its business. Management
regularly analyzes current information including, as applicable, the Company's
defenses and insurance coverage and, as necessary, provides accruals for
probable liabilities for the eventual disposition of these matters. The ultimate
outcome of these matters is not expected to materially affect the Company's
financial position, results of operations or cash flows.
The Company, like other health care providers, conducts its operations
under intense government regulation and scrutiny. The Company must comply with
regulations which relate to or govern the safety and efficacy of medical
products and supplies, the operation of manufacturing facilities, laboratories
and dialysis clinics, and environmental and occupational health and safety. The
Company must also comply with the U.S. anti-kickback statute, the False Claims
Act, the Stark Law, and other federal and state fraud and abuse laws. Applicable
laws or regulations may be amended, or enforcement agencies or courts may make
interpretations that differ from the Company's or the manner in which the
Company conduct its business. In the U.S., 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 "whistle
blower" actions. By virtue of this regulatory environment, as well as our
corporate integrity agreement with the government, the Company expects that its
business activities and practices will continue to be subject to extensive
review by regulatory authorities and private parties and continuing inquiries,
claims and litigation relating to its compliance with applicable laws and
regulations. The Company may not always be aware that an inquiry or action has
begun, particularly in the case of "whistle blower" actions, which are initially
filed under court seal.
The Company operates a large number of facilities throughout the U.S. 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
affiliate companies. The Company relies upon its management structure,
regulatory and legal resources, and the effective operation of its compliance
program to direct, manage and monitor the
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PART II
OTHER INFORMATION -- (CONTINUED)
activities of these employees. On occasion, the Company may identify instances
where employees, deliberately or inadvertently, have submitted inadequate or
false billings. The actions of such persons may subject the Company and its
subsidiaries to liability under the False Claims Act, among other laws, and the
Company cannot predict whether law enforcement authorities may use such
information to initiate further investigations of the business practices
disclosed or any of its other business activities.
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 Company has been
subject to these suits due to the nature of its business and the Company expects
that those types of lawsuits may continue. Although the Company maintains
insurance at a level which it believes to be prudent, the Company cannot assure
that the coverage limits will be adequate or that insurance will cover all
asserted claims. A successful claim against the Company or any of its
subsidiaries in excess of insurance coverage could have a material adverse
effect upon the Company and the results of its operations. Any claims,
regardless of their merit or eventual outcome, also may have a material adverse
effect on the Company's reputation and business. The Company has also had claims
asserted against it and has had lawsuits filed against it relating to businesses
that it has acquired or divested. These claims and suits relate both to
operation of the businesses and to the acquisition and divestiture transactions.
The Company has asserted its own claims, and claims for indemnification.
Although the ultimate outcome on the Company cannot be predicted at this time,
an adverse result could have a material adverse effect upon the Company's
business, financial condition, and results of operations.
CONTINGENT NON-NMC LIABILITIES OF W. R. GRACE & CO. (NOW KNOWN AS FRESENIUS
MEDICAL CARE HOLDINGS, INC.)
The Company was formed as a result of a series of transactions pursuant to
the Agreement and Plan of Reorganization (the "Merger") dated as of February 4,
1996 by and between W.R. Grace & Co. ("Grace") and Fresenius AG. In connection
with the Merger, W.R. Grace & Co.-Conn. ("Grace Chemicals") agreed to indemnify
the Company and NMC against all liabilities of the Company and its successors,
whether relating to events occurring before or after the Merger, other than
liabilities arising from or relating to NMC operations. The Company remains
contingently liable for certain liabilities with respect to pre-Merger matters
that are not related to NMC operations. The Company believes that in view of the
nature of the non-NMC liabilities and Grace Chemicals' current financial
position, the risk of significant loss from non-NMC liabilities is remote.
On September 28, 2000, Mesquita, et al v. W. R. Grace & Company, et al.
(Sup. Court of Calif., S.F. County, #315465) was filed as class action against
Grace Chemicals, certain U.S. affiliates of the Company, and other defendants,
alleging that the Merger was a fraudulent conveyance, violated the uniform
fraudulent transfer act, denuded the assets of Grace, and constituted a
conspiracy to denude the assets of Grace from plaintiffs in asbestos litigation.
The Company believes that the Merger did not violate any of these provisions.
The Company has requested indemnification from Grace Chemicals pursuant to the
Merger agreement. If the Company were to be found liable, and if the Company was
not able to collect on the indemnity, it would have a material adverse effect on
the Company's business, financial condition and results of operations.
Were events to violate the tax-free nature of the Merger, the resulting tax
liability would be the obligation of the Company. Subject to representations by
Grace Chemicals, the Company and Fresenius AG, Grace Chemicals has agreed to
indemnify the Company for such a tax liability. If the Company was not able to
collect on the indemnity, the tax liability would have a material adverse effect
on the Company's business, the financial condition of the Company and the
results of operations.
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Were events to violate the tax-free nature of the Merger, the resulting tax
liability would be the obligation of the Company. Subject to representations by
Grace Chemicals, the Company and Fresenius AG, Grace Chemicals has agreed to
indemnify the Company for such a tax liability. If the Company was not able to
collect on the indemnity, the tax liability would have a material adverse effect
on the Company's business, the financial condition of the Company and the
results of operations.
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PART II
OTHER INFORMATION -- (CONTINUED)
ITEM 5. OTHER INFORMATION
On November 1, 2000, the Company signed a definitive agreement to acquire
Everest Healthcare Services Corporation ("Everest"), Oak Park, Illinois through
a merger of Everest into a subsidiary of the company. The operations consist of
Everest's interest in approximately 70 clinic facilities, providing therapy to
approximately 6,800 patients in the eastern and central United States, as well
as Everest's extracorporal blood services and acute dialysis businesses which
provide acute dialysis, apheresis and hemoperfusion services to approximately
100 hospitals. The purchase price is approximately $343 million including
Everest's outstanding debt. The purchase price is subject to adjustments for
changes in Everest's net equity and other customary closing adjustments. The
purchase price is a combination of a cash payment to the sellers of roughly
one-third of the purchase price, and approximately one-third of the purchase
price represents Everest's outstanding debt assumed. On November 15, 2000, we
initiated a tender offer for Everest's outstanding subordinated debt. The cash
payments and any payments of Everest's assumed debt, including the tender offer
purchase price will be financed out of the proceeds from the capital offerings
completed earlier in the year. The remaining approximately one-third of the
purchase price will be paid by the issuance of up to 2.25 million of our
preference shares. The acquisition is still subject to anti-trust and other
regulatory approvals. A copy of the Company's press release announcing the
signing of the merger agreement with Everest is being filed as Exhibit 99.1 to
this report and a copy of the Company's press release announcing the tender
offer is being filed as Exhibit 99.2 to this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K/6-K
(a) Exhibits
(10.1) Amendment No. 10 dated as of September 21, 2000 to the Credit
Agreement dated as of September 27, 1996 among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and
Affiliates Guarantors, the Lenders named therein, NationsBank, N.A. as paying
agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A.G.
and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing
Agent (incorporated herein by reference to the Form 10-Q of FMCH filed with
Commission on November 13, 2000).
(99.1) Press release dated November 2, 2000 (filed herewith)
(99.2) Press release dated November 16, 2000 (filed herewith)
(b) Reports on Form 8-K/6-K
During the period for which this report is filed, the Company filed one
Report on Form 6-K, dated August 14, 2000. The report contained the Company's
unaudited interim financial statements as of and for the six-months ended June
30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: November 20, 2000
FRESENIUS MEDICAL CARE
AKTIENGESELLSCHAFT
By: /s/ DR. BEN LIPPS
------------------------------------
Name: Dr. Ben Lipps
Title: Chairman of the Management
Board
By: /s/ DR. WERNER BRANDT
------------------------------------
Name: Dr. Werner Brandt
Title: Chief Financial Officer
43
