<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
---------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-8350
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FRESENIUS USA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2550576
- ---------------------------- ------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
2637 SHADELANDS DRIVE
WALNUT CREEK, CALIFORNIA 94598
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(510) 295-0200
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO .
- -
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the most recent practicable
date:
21,304,344 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE,
WERE ISSUED AND OUTSTANDING AT MAY 8, 1995.
<PAGE> 2
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Assets March 31, December 31,
------ 1995 1994
---------- ------------
<S> <C> <C>
Current assets:
Cash $ 2,941 2,315
Trade accounts receivable, less allowance of
$1,398 in 1995 and $1,744 in 1994 41,975 42,671
Inventories 57,671 52,704
Other current assets 3,019 1,893
---------- -------
Total current assets 105,606 99,583
Property, plant and equipment, at cost 70,030 72,502
Less accumulated depreciation and
amortization (28,062) (26,546)
---------- -------
Property, plant and equipment, net 41,968 45,956
Intangible assets 38,864 39,498
Other assets 404 311
---------- -------
Total assets $ 186,842 185,348
========== =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 11,529 13,128
Accounts payable to affiliates,net 38,885 33,361
Accrued expenses 9,093 12,214
Short term borrowings 23,730 22,330
Short term borrowings-Fresenius AG 4,450 4,380
Current portion long-term debt 8,369 8,356
Current portion of capital lease obligations 1,130 1,140
Income taxes payable 178 95
---------- -------
Total current liabilities 97,364 95,004
Long-term payable, less current portion 1,861 1,861
Note payable to FNA 274 274
Long-term debt, less current portion 17,593 25,963
Capital lease obligations 5,582 1,674
---------- -------
Total liabilities 122,674 124,776
Stockholders' equity:
Series F preferred stock,
$1.00 par value 200 200
Common stock, $.01 par value 213 212
Capital in excess of par value 139,785 139,510
Currency translation adjustment (92) (94)
Accumulated deficit (75,938) (79,256)
---------- -------
Total stockholders' equity 64,168 60,572
---------- -------
$ 186,842 185,348
========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
March 31, March 31,
1995 1994
---------- --------
<S> <C> <C>
Net sales $ 68,176 59,689
Cost of sales 47,040 41,137
---------- ------
Gross profit 21,136 18,552
Operating expenses:
Selling, general, administrative,
and research and development 17,048 15,516
---------- ------
Operating income 4,088 3,036
Other income (expense):
Interest income 7 23
Interest expense (1,281) (1,301)
Other income (expense) (25) 9
---------- ------
Income before income taxes 2,789 1,767
Income tax benefit (expense) 529 (230)
---------- ------
Net income $ 3,318 1,537
========== ======
Net income per common share $ .13 .07
========== ======
Weighted average number of shares of
primary and fully dilutive common
stock and common stock equivalents 25,872 20,953
========== ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1995 1994
----------- ---------
<S> <C> <C>
Net cash used in
operating activities $ (4,659) (6,143)
Cash flows from investing activities:
Purchases of property, plant and
equipment (9,297) (5,517)
Proceeds from sale/leaseback of
property, plant and equipment 11,768 ---
---------- ------
Net cash provided by (used in)
investing activities 2,471 (5,517)
Cash flows from financing activities:
Principal payments under debt and
capital lease obligations ( 8,458) (2,007)
Proceeds from capital lease
financing arrangement 4,000 ---
Change in accounts payable to
affiliates, net 5,524 1,877
Proceeds from short-term borrowings 18,280 7,395
Proceeds from short-term
borrowings-Fresenius AG 70 ---
Repayment of short-term borrowings (16,880) ---
Proceeds from issuance of common
stock, net 276 60
---------- ------
Net cash provided by
financing activities 2,812 7,325
Effect of exchange rates on cash 2 (32)
---------- ------
Net increase (decrease) in cash
and cash equivalents 626 ( 4,367)
Cash and cash equivalents at
beginning of period 2,315 5,552
---------- ------
Cash and cash equivalents at
end of period $ 2,941 1,185
========== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
(UNAUDITED)
(1) Description of Business
Fresenius USA, Inc. manufactures and distributes equipment and disposable
products for the treatment of kidney failure by hemodialysis and by peritoneal
dialysis. The Company is one of only two companies in the United States offering
a full line of both hemodialysis and peritoneal dialysis machines and disposable
products. These machines and products are used to cleanse a patient's blood of
waste products and fluids normally eliminated by properly functioning kidneys.
(2) Net Income Per Common Share
Net income per common share was computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
(when dilutive) outstanding during each year. Stock options, common stock
warrants, and the Series F preferred stock are considered to be common stock
equivalents.
The computation of fully diluted net income per share would also include
the effect of converting other outstanding securities such as convertible debt,
when the effect is dilutive, and the additional dilution related to stock
options when the market price at the end of the period is higher than the
average market price for the period. For the period presented, the effect of
these items was either antidilutive or not materially different from the net
income per common share presented in the financial statements.
(3) Income Taxes
At December 31, 1994, the Company had net operating loss carryforwards of
approximately $50.0 million for federal income tax reporting purposes. The net
operating losses expire in varying amounts beginning in 1998 through 2006. The
ability of the Company to use carryforwards to offset taxes on its future income
is also subject to certain annual cumulative limitations. The Company believes
that it has sufficient net loss carryforwards to offset any 1995 net income for
federal income tax reporting purposes.
5
<PAGE> 6
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(UNAUDITED)
(4) Inventories
Inventories are stated at the lower of cost (determined by using first-in,
first-out method) or market value, and consist of the following as of March 31,
1995 and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Raw Materials $ 23,868 23,071
Work in process 4,053 4,237
Finished goods 31,534 27,464
-------- ------
59,455 54,772
Reserves (1,784) (2,068)
-------- ------
Inventories, net $ 57,671 52,704
======== ======
</TABLE>
(5) Commitments and Contingencies
In 1994, the Company began construction of a 104,000 square foot addition
to its manufacturing facility in Ogden, Utah for the manufacture of polysulfone
dialyzers. The Company has expended approximately $19.2 million for this
construction as of March 31, 1995 and expects to expend additional funds of
approximately $7.0 million during the remaining quarters of 1995 to complete the
facility. Substantially all of the remaining expenditures will be funded under
the operating lease discussed below.
On March 31, 1995 the Company entered into a sale leaseback arrangement
with a bank which covers the sale by the Company of approximately $19.0 million
of certain new equipment to the bank and the leaseback of the equipment under a
four year operating lease. As of March 31, 1995, approximately $11.8 million of
equipment had been funded under this arrangement and leased back by the Company.
In March 1995, the Company replaced a $15.0 million line of credit
supported by Fresenius AG with a $20.0 million line of credit from a commercial
bank independent of support from Fresenius AG. This line of credit is secured by
the Company's accounts receivable.
6
<PAGE> 7
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(UNAUDITED)
(6) Management Representation
The accompanying unaudited consolidated condensed financial statements have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for the
interim periods presented. Operating results for the three month period ended
March 31, 1995 are not necessarily indicative of the results to be expected for
the year.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
has been condensed or omitted pursuant to such rules and regulations. It is
suggested that these consolidated condensed financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
contained in the Company's Form 10-K for the year ended December 31, 1994.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995 AND 1994
(UNAUDITED)
RESULTS OF OPERATIONS
Three Months ended March 31, 1995 Compared to Three Months Ended March 31, 1994
Net Sales. Net sales were $68.2 million for the first quarter 1995, an
increase of $8.5 million or 14.2% compared with net sales of $59.7 million for
the first quarter 1994. The increase in net sales for the first quarter of 1995
compared with the same period in 1994 is a result of continued higher unit sales
volumes for both hemodialysis and peritoneal dialysis products.
Net sales of hemodialysis products were $47.3 million, an increase of
$7.0 million or 17.3% compared to net sales for the first quarter of 1994.
Net sales of peritoneal dialysis products were $19.3 million, an
increase of $1.9 million or 10.9% compared to first quarter 1994 net sales.
Gross Profit. Gross profit was $21.1 million for the first quarter
1995, an increase of $2.5 million or 13.4% compared with gross profit of $18.6
million for the first quarter 1994. Gross profit margin was 31.0% for both the
first quarter 1995 and the first quarter 1994.
Selling, General and Administrative Expense and Research and
Development Expense. Selling, general and administrative expense and research
and development expense were $17.0 million for the first quarter 1995, an
increase of $1.5 million or 9.7% compared with the first quarter 1994. These
expenses as a percentage of net sales were 25.0% for the first quarter 1995
compared to 26.0% for the first quarter of 1994.
Interest Expense (Net). Interest expense (net) was $1.3 million for the
first quarter 1995 substantially unchanged from the same period in 1994.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARCH 31, 1995 AND 1994
(UNAUDITED)
Income Tax Benefit (Expense). During the first quarter of 1995, the
Company recognized a tax benefit of $849,000 related to the Company's net
operating loss carryforward from previous years. Income tax expense for the
first quarter 1995 excluding the benefit referred to above was $320,000, an
increase of $90,000 compared to the first quarter of 1994.
Net Income. Net income was $3.3 million for the first quarter 1995, an
increase of $1.8 million or 115.9% compared to net income for the first quarter
1994. Net income for the first quarter 1995 included the tax benefit described
above which resulted from recognition of a portion of the Company's deferred
tax asset.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
MARCH 31, 1995 AND 1994
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations, working capital
and capital expenditures through bank borrowings obtained with credit support
from Fresenius AG, private placements of preferred stock and common stock to
Fresenius AG and internally generated funds. Since 1990, the Company has
realized $19.5 million in net proceeds from private placements of preferred and
common stock to Fresenius AG, all of which was utilized to reduce outstanding
obligations to Fresenius AG and affiliated companies.
In March 1994, the Company began construction of a 104,000 square foot
addition to its manufacturing facility in Ogden, Utah for the manufacture of
polysulfone dialyzers. The Company has expended approximately $19.2 million for
this construction as of March 31, 1995 and expects to expend additional funds of
approximately $7.0 million during the remaining quarters of 1995. Substantially
all of the remaining expenditures will be funded under the operating lease
described below.
During June 1994, the Company completed an underwritten public offering
of 3,450,000 shares of the Company's Common Stock, including 450,000 shares
issued upon the exercise of the underwriter's over-allotment option. The net
proceeds of approximately $16.3 million were used to repay indebtedness and
short-term credit facilities. These lines of credit were utilized to fund the
expansion of the Company's manufacturing facilities in Ogden, Utah.
During March 1995, the Company replaced an existing $15.0 million line of
credit with a commercial bank supported by Fresenius AG with a $20.0 million
line of credit from a commercial bank independent of support from Fresenius AG,
but secured by the Company's accounts receivable. On March 31, the Company also
entered into an arrangement with a commercial bank, whereby the bank has
committed to purchase $19.0 million of the Company's manufacturing equipment in
Ogden, Utah, and lease the equipment back to the Company under a four year
renewable operating lease. As of March 31, 1995, approximately $11.8 million of
equipment had been acquired by the bank and leased back by the Company.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
MARCH 31, 1995 AND 1994
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
The present source of liquidity for the Company is its cash balances, which
totalled to $2.9 million as of March 31, 1995, and amounts available under
various lines of credit and the operating lease described above. As of March
31, 1995, the Company had outstanding short term borrowings under lines of
credit of $23.7 million with six commercial banks. These lines of credit provide
for total credit availability of $47.0 million. Fresenius AG provided credit
support for $27.0 million to enable the Company to obtain these lines of credit.
In addition, at March 31, 1995, the Company had fully drawn the amount available
under a $4.5 million short-term line of credit with Fresenius AG, the terms of
which are similar to those of the lines of credit with the six commercial banks
described above.
The Company believes that its committed, and possible future bank or
other commercial financing, combined with internally generated funds, will be
sufficient to fund the Ogden, Utah plant expansion, the Company's other capital
expenditures, working capital requirements and other obligations.
11
<PAGE> 12
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the registrant during the
period covered by this report.
12
<PAGE> 13
Exhibit Index
Ex. 11 Computation of Net Income (Loss) per Common Share
Ex. 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
--------------------------------------
March 31, March 31,
1995 1994
--------- ---------
Weighted average number of shares
of primary and fully dilutive
common stock and common stock
equivalents 25,872 20,953
========= ========
Net income $ 3,318 $ 1,537
========= ========
Net income per
common share $ .13 $ .07
========= ========
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY REPORT IN FORM 10-Q
FOR QUARTER ENDED 3/31/95.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,941
<SECURITIES> 0
<RECEIVABLES> 43,373
<ALLOWANCES> 1,398
<INVENTORY> 57,671
<CURRENT-ASSETS> 105,606
<PP&E> 70,030
<DEPRECIATION> 28,062
<TOTAL-ASSETS> 186,842
<CURRENT-LIABILITIES> 97,364
<BONDS> 0
<COMMON> 213
0
200
<OTHER-SE> 63,755
<TOTAL-LIABILITY-AND-EQUITY> 186,842
<SALES> 68,176
<TOTAL-REVENUES> 68,176
<CGS> 47,040
<TOTAL-COSTS> 47,040
<OTHER-EXPENSES> 17,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,274
<INCOME-PRETAX> 2,789
<INCOME-TAX> (529)
<INCOME-CONTINUING> 3,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,318
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
