<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 SEPTEMBER 30, 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
---------------------------------------------------------
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
(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:
21,738,117 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE,
WERE ISSUED AND OUTSTANDING AT NOVEMBER 6, 1995.
<PAGE> 2
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Assets September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Current assets:
Cash $ 3,161 2,315
Trade accounts receivable, net 50,462 42,671
Inventories 52,721 52,704
Other current assets 5,653 1,893
-------- -------
Total current assets 111,997 99,583
Property, plant, and equipment, net 50,688 45,956
Intangible assets 37,530 39,498
Other assets 4,602 311
Total assets -------- -------
$204,817 185,348
======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,576 13,128
Accounts payable to affiliates,net 32,384 33,361
Accrued expenses 8,815 12,214
Short term borrowings 36,819 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 1,068 1,140
Income taxes payable 440 95
-------- -------
Total current liabilities 103,921 95,004
Long-term payable, less current portion 1,830 1,861
Note payable to Fresenius North America 274 274
Long-term debt, less current portion 17,593 25,963
Capital lease obligations 8,873 1,674
------- -------
Total liabilities 132,491 124,776
Stockholders' equity:
Series F preferred stock,
$1.00 par value 200 200
Common stock, $.01 par value 214 212
Capital in excess of par value 140,699 139,510
Currency translation adjustment (69) (94)
Accumulated deficit (68,718) (79,256)
-------- -------
Total stockholders' equity 72,326 60,572
-------- -------
$204,817 185,348
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net sales $78,933 65,370
Cost of sales 55,602 45,662
------- ------
Gross profit 23,331 19,708
Operating expenses:
Selling, general, administrative,
and research and development 18,709 16,417
------- ------
Operating income 4,622 3,291
Other income (expense):
Interest income 66 76
Interest expense (1,396) (1,194)
Other income (expense) (29) 101
-------- ------
Income before income taxes 3,263 2,274
Income tax benefit (expense) 484 (296)
-------- ------
Net income $ 3,747 1,978
======= ======
Net income per common and common
equivalent share:
Primary $ .14 .08
======= ======
Fully diluted $ .14 .08
======= ======
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
income per common and common
equivalent share:
Primary 26,930 24,243
======= ======
Fully diluted 27,215 24,745
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net sales $223,853 186,198
Cost of sales 156,430 128,716
-------- -------
Gross profit 67,423 57,482
Operating expenses:
Selling, general, administrative,
and research and development 54,533 48,108
-------- -------
Operating income 12,890 9,374
Other income (expense):
Interest income 130 141
Interest expense (3,889) (3,856)
Other income (expense) (101) 128
-------- -------
Income before income taxes 9,030 5,787
Income tax benefit (expense) 1,508 ( 753)
-------- -------
Net income $ 10,538 5,034
======== =======
Net income per common and common
equivalent share:
Primary $ .40 .23
======== =======
Fully diluted $ .39 .22
======== =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
income per common and common
equivalent share:
Primary 26,271 21,937
======== =======
Fully diluted 27,148 22,678
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net cash used in
operating activities $ (3,154) (3,262)
Cash flows from investing activities:
Purchases of property, plant and
equipment (28,537) (13,753)
-------- -------
Net cash provided by (used in)
investing activities (28,537) (13,753)
Cash flows from financing activities:
Principal payments under debt and
capital lease obligations (10,042) (9,065)
Proceeds from sale/leaseback of
property,plant and equipment 19,000 --
Proceeds from capital lease
financing arrangement 8,782 --
Change in accounts payable to
affiliates, net (977) 3,013
Proceeds from short-term borrowings 44,369 12,895
Proceeds from short-term
borrowings-Fresenius AG 70 221
Repayment of short-term borrowings (29,880) (9,680)
Proceeds from issuance of common
stock, net 1,191 16,720
-------- -------
Net cash provided by
financing activities 32,513 14,104
Effect of exchange rates on cash 24 10
-------- -------
Net increase (decrease) in cash
and cash equivalents 846 (2,901)
Cash and cash equivalents at
beginning of period 2,315 5,552
-------- -------
Cash and cash equivalents at
end of period $ 3,161 2,651
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 common share would also
include the effect of converting other outstanding securities 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 has been included
in the determination of fully diluted net income per common share as they have
resulted in dilution of more than three percent.
(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.
6
<PAGE> 7
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 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 September
30, 1995 and December 31, 1994:(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Raw Materials $24,038 23,071
Work in process 7,919 4,237
Finished goods 22,401 27,464
------- ------
54,358 54,772
Reserves (1,637) (2,068)
------- ------
Inventories, net $52,721 52,704
======= ======
</TABLE>
(5) Commitments and Contingencies
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. In June, 1995, the Company completed the construction of
the addition to its manufacturing facility and commenced validation and
production of polysulfone dialyzers at its Ogden, Utah plant. During the period
from March 1994 through September 30, 1995, the Company has expended
approximately $40.9 million for this construction and the expansion of its
solution and device manufacturing capability in Ogden, Utah.
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 renewable lease. As of September 30, 1995, approximately $19.0
million of equipment had been funded under this arrangement and leased back by
the Company. The Company and the same bank are currently in discussions to
provide for additional funding for equipment of approximately $8.0 million under
similar sale leaseback arrangments.
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.
7
<PAGE> 8
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 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 and nine month
periods ended September 30, 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 principles
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.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
RESULTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1995 Compared to Three Months
and Nine Months Ended September 30, 1994
Net Sales. Net sales were $78.9 million for the third quarter 1995, an
increase of $13.5 million or 20.7% compared with net sales of $65.4 million for
the third quarter 1994. Net sales for the first nine months of 1995 were $223.9
million, an increase of $37.7 million or 20.2% compared with $186.2 million for
the first nine months of 1994. The increase in sales for the first nine months
of 1995 is the result of continued higher unit sales volumes for both
hemodialysis and peritoneal dialysis products.
Gross Profit. Gross profit was $23.3 million for the third quarter 1995,
an increase of $3.6 million or 18.4% compared with gross profit of $19.7 million
for the third quarter 1994. Gross profit margin decreased from 30.1% for the
third quarter 1994 to 29.6% for the third quarter 1995. The decrease in gross
profit margin was primarily due to decreased production efficiencies as a result
of commencing the Ogden, Utah manufacture of polysulfone dialyzers.
Selling, General and Administrative Expense and Research and Development
Expense. Selling, general and administrative expense and research and
development expense were $18.7 million for the third quarter 1995, an increase
of $2.3 million or 14.0% compared with the third quarter 1994, and $54.5 million
for the first nine months in 1995, an increase of $6.4 million or 13.4% compared
to the first nine months in 1994. These expenses as a percentage of net sales
were 23.7% for the third quarter 1995 compared to 25.1% for the third quarter of
1994, and 24.4% for the first nine months of 1995 compared with 25.8% for the
first nine months of 1994.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
Interest Expense (Net). Interest expense (net) was $1.3 million for the
third quarter 1995 and $3.8 million for the nine months ended September 30, 1995
compared to $1.1 million and $3.7 million for the same periods of 1994.
Income Tax Benefit (Expense). Income tax benefit in the third quarter of
1995 was $484,000 compared to income tax expense of $296,000 for the same period
in 1994. Income tax benefit for the nine months ended September 30, 1995 was
$1.5 million compared to income tax expense of $753,000 for the same period in
1994. During the third quarter of 1995, and for the nine months ended September
30, 1995, the Company recognized a tax benefit of $875,000, and $2.6 million,
respectively, related to the Company's net operating loss carryforward from
previous years.
Net Income. Net income was $3.7 million for the third quarter 1995, an
increase of $1.7 million or 85.0% compared to net income of $2.0 million for the
third quarter 1994. Net income for the first nine months was $10.5 million, an
increase of $5.5 million or 109.3% compared to net income of $5.0 million for
the first nine months of 1994. Net income for the third quarter 1995 and for
the first nine months of 1995 included the above tax benefit which resulted from
recognition of a portion of the Company's deferred tax asset.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
SEPTEMBER 30, 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.
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.
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. In June, 1995, the Company completed the construction of
the addition to its manufacturing facility and commenced validation and
production of polysulfone dialyzers at its Ogden, Utah plant. During the period
from March 1994 through September 30, 1995, the Company has expended
approximately $40.9 million for this construction and the expansion of its
solution and device manufacturing capability 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 lease. As of September 30, 1995, approximately $19.0 million of
equipment had been acquired by the bank and leased back by the Company. The
Company and the same bank are currently in discussions to provide for additional
funding for equipment of approximately $8.0 million under similar sale leaseback
arrangements
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The present source of liquidity for the Company is its cash balances, which
totalled $3.2 million as of September 30, 1995, and amounts available under
various lines of credit. As of September 30, 1995, the Company had outstanding
short term borrowings under lines of credit of $36.8 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 September 30, 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 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.
12
<PAGE> 13
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.
13
<PAGE> 14
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.
Fresenius USA, Inc.
November 13, 1995 /s/ Heinz Schmidt
-----------------------
Vice President Finance
(Principal Financial
Officer)
/s/ Robert E. Farrell
-----------------------
Vice President
Administration and
General Counsel
14
<PAGE> 15
EXHIBIT EXHIBIT DESCRIPTION
NO.
Ex-11 Statement of Computation of Per
Share Earnings
Ex-27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net income $ 3,747 $ 1,978
======= =======
Primary net income per common
and common equivalent share $ .14 $ .08
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute
primary net income per common
and common equivalent share 26,930 24,243
======= =======
Fully diluted net income per
common and common equivalent
share $ .14 $ .08
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute fully
diluted net income per common
and common equivalent share 27,215 24,745
======= =======
</TABLE>
<PAGE> 2
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net income $10,538 $ 5,034
======= =======
Primary net income per common
and common equivalent share $ .40 $ .23
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute
primary net income per common
and common equivalent share 26,271 21,937
======= =======
Fully diluted net income per
common and common equivalent
share $ .39 $ .22
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute fully
diluted net income per common
and common equivalent share 27,148 22,678
======= =======
</TABLE>
<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 SEPTEMBER 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,161
<SECURITIES> 0
<RECEIVABLES> 51,804
<ALLOWANCES> 1,342
<INVENTORY> 52,721
<CURRENT-ASSETS> 111,997
<PP&E> 82,039
<DEPRECIATION> 31,351
<TOTAL-ASSETS> 204,817
<CURRENT-LIABILITIES> 103,921
<BONDS> 0
<COMMON> 214
0
200
<OTHER-SE> 71,912
<TOTAL-LIABILITY-AND-EQUITY> 204,817
<SALES> 223,853
<TOTAL-REVENUES> 223,853
<CGS> 156,430
<TOTAL-COSTS> 156,430
<OTHER-EXPENSES> 54,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,759
<INCOME-PRETAX> 9,030
<INCOME-TAX> (1,508)
<INCOME-CONTINUING> 10,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,538
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
