<PAGE> 1
FORM 10-Q A
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 JUNE 30, 1996
---------------------------
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:
26,374,218 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE, WERE ISSUED
AND OUTSTANDING AT AUGUST 9, 1996.
<PAGE> 2
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Assets June 30, December 31,
------ 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 5,133 2,330
Trade accounts receivable, net 56,699 57,052
Inventories 70,644 65,706
Prepaid expenses and other
current assets 9,544 3,258
Deferred income taxes 6,628 4,594
------------ ------------
Total current assets 148,648 132,940
Property, plant, and equipment, net 49,471 48,492
Intangible assets 35,587 36,863
Other assets 10,442 6,626
------------ ------------
Total assets $ 244,148 224,921
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,219 16,276
Accounts payable to affiliates, net 39,249 41,229
Accrued expenses 18,072 13,577
Short term borrowings 41,148 33,149
Short term borrowings-Fresenius AG 3,116 3,650
Current portion long-term debt
and capital lease obligations 15,323 11,703
Income taxes payable (589) 365
------------ ------------
Total current liabilities 128,538 119,949
Long-term payable, less current portion 1,275 1,275
Note payable to Fresenius North America 274 274
Long-term debt and capital lease
obligations, less current portion 20,660 24,821
------------ ------------
Total liabilities 150,747 146,319
Stockholders' equity:
Series F preferred stock,
$1.00 par value --- 200
Common stock, $.01 par value 262 215
Capital in excess of par value 153,476 141,136
Currency translation adjustment (87) (80)
Accumulated deficit (60,250) (62,869)
------------ ------------
Total stockholders' equity 93,401 78,602
------------ ------------
$ 244,148 224,921
============ =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 87,564 76,744
Cost of sales 59,364 53,788
------------ ------------
Gross profit 28,200 22,956
Operating expenses:
Selling, general and
administrative 19,922 17,897
Research and development 684 879
Other compensation expense 9,758 ---
------------ ------------
Operating (loss) income (2,164) 4,180
Other expense (income):
Interest income (10) (57)
Interest expense 1,508 1,212
Other, net 83 48
------------ ------------
(Loss) income before income taxes (3,745) 2,977
Income tax benefit (1,017) (496)
------------ ------------
Net (loss) income $ (2,728) 3,473
============ ============
Net (loss) income per common and common
equivalent share:
Primary $ (.11) .13
============ ============
Fully diluted $ (.11) .13
============ ============
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
(loss) income per common and common
equivalent share:
Primary 25,941 25,773
============ ============
Fully diluted 25,957 26,694
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 168,626 144,920
Cost of sales 114,930 100,828
------------ ------------
Gross profit 53,696 44,092
Operating expenses:
Selling, general and
administrative 38,289 34,459
Research and development 1,266 1,365
Other compensation expense 9,758 ---
------------ ------------
Operating income 4,383 8,268
Other expense (income):
Interest income (28) (64)
Interest expense 2,925 2,493
Other, net 146 72
------------ ------------
Income before income taxes 1,340 5,767
Income tax benefit (1,279) (1,024)
------------ ------------
Net income $ 2,619 6,791
============ ============
Net income per common and common
equivalent share:
Primary $ .10 .26
============ ============
Fully diluted $ .10 .26
============ ============
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
income per common and common
equivalent share:
Primary 25,831 25,712
============ ============
Fully diluted 25,884 26,658
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Net cash used in operating
activities $ (8,355) (6,119)
Cash flows from investing activities:
Purchases of property, plant and
equipment (5,966) (23,617)
------------ ------------
Net cash used in investing
activities (5,966) (23,617)
Cash flows from financing activities:
Principal payments under debt and
capital lease obligations (11,021) (8,705)
Proceeds from sale/leaseback of
property,plant and equipment ---- 18,393
Proceeds from capital lease
financing arrangement 10,480 5,000
Change in accounts payable to
affiliates, net (1,980) 11,368
Proceeds from short-term borrowings 27,699 33,818
Change in short-term borrowings
- Fresenius AG (534) 70
Repayment of short-term borrowings (19,700) (29,880)
Proceeds from issuance of common
stock, net 12,187 498
------------ ------------
Net cash provided by
financing activities 17,131 30,562
Effect of exchange rates on cash (7) 20
------------ ------------
Net increase in cash
and cash equivalents 2,803 846
Cash and cash equivalents at
beginning of period 2,330 2,315
------------ ------------
Cash and cash equivalents at
end of period $ 5,133 3,161
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
(1) Description of Business
Fresenius USA, Inc. and subsidiaries (the Company) is a manufacturer
and distributor of medical products and systems for sale primarily in the United
States and Canada 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. The Company also sells cell separation products
designed for the therapeutic removal of diseased blood components as well as
collection of donor blood components for transfusion.
(2) 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
June 30, 1996 and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw Materials $ 34,803 32,192
Work in process 8,902 10,504
Finished goods 30,104 25,707
------------ ------------
73,809 68,403
Reserves (3,165) (2,697)
------------ ------------
Inventories, net $ 70,644 65,706
============ ============
</TABLE>
6
<PAGE> 7
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 AND 1995
(UNAUDITED)
(3) Other Assets
In 1995, the Company completed construction of a dialyzer plant
addition to its manufacturing facility in Ogden, Utah. At June 30, 1996,
included in other assets are $7,989 of validation costs, less accumulated
amortization of $968, incurred to qualify the products and the associated
manufacturing processes for approval by the U.S. Food and Drug Administration.
Such costs are being amortized on a straight-line basis over an estimated useful
life of 3 years upon commencement of manufacturing.
(4) Income taxes
At December 31, 1995, the Company had net operating loss carryforwards
of approximately $38.4 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 1996 net
income for federal income tax reporting purposes.
(5) Recent Development
On February 4, 1996, W. R. Grace & Co. ("Grace") and Fresenius AG
entered into a definitive agreement ("Agreement") to combine Grace's National
Medical Care, Inc. ("NMC") with Fresenius AG's worldwide dialysis business,
including the Company. The agreement provides that an aggregate of 55.2% of the
shares of the combined company, to be called Fresenius Medical Care, will be
issued to Fresenius AG and the Company's public shareholders provided that
Fresenius AG must retain at least 51% of the shares of the combined company and
that Grace shareholders will acquire the remaining 44.8%. Fresenius AG agreed
with Grace that the Company would become a wholly-owned subsidiary of Fresenius
Medical Care and that, when the economic terms of the participation of the
Company's minority shareholders in the transaction have been established,
Fresenius AG will vote its shares of the Company in favor of the transaction.
7
<PAGE> 8
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 AND 1995
(UNAUDITED)
(5) Recent Development (Continued)
On May 8, 1996, Fresenius AG and the Company jointly announced that an
agreement had been reached between Fresenius AG and a committee of independent
directors of the Company (the "Independent Committee") on the terms on which the
public stockholders of the Company will participate in the Reorganization and
the Company Merger. The Reorganization and the Company Merger were approved by
the Board of Directors of the Company on May 8, 1996.
Under the terms of the agreement with the Independent Committee, the
public shareholders of the Company were to receive the equivalent of 1.15
ordinary Shares of Fresenius Medical Care AG, based on the assumption that
Fresenius Medical Care AG would have 217,170,000 shares outstanding. It is
currently intended that Fresenius Medical Care AG will have an aggregate of
70,000,000 ordinary shares outstanding (instead of 217,170,000 as originally
proposed) and that U.S. stockholders will receive American Depository Shares
(ADSs) each evidencing one-third of an ordinary share of Fresenius Medical Care
AG. Thus, the public shareholders of the Company will receive, on a fully
diluted basis, approximately 1.112 ADSs of Fresenius Medical Care AG for each
share of Company Common Stock. The agreement with the Independent Committee also
assumes that the Company will reacquire outstanding stock options or other
equity securities, such that Fresenius AG's fully diluted interest in Fresenius
Medical Care AG is not reduced below 50.3%. Accordingly, the public stockholders
of the Company, on a fully diluted basis, will receive 4.9% of Fresenius Medical
Care AG's shares outstanding after the closing.
During the quarter ended June 30, 1996, Fresenius USA recorded
approximately $9.8 million in additional compensation expense in connection with
the repurchase from certain employees of shares of Fresenius USA Common Stock
and options to purchase Fresenius USA Common Stock. As described above, the
Company had agreed to reacquire such outstanding shares and options and other
equity securities in order to ensure that Fresenius AG's fully diluted interest
in Fresenius Medical Care AG was not reduced below 50.3%.
8
<PAGE> 9
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 AND 1995
(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, consist only of normal and recurring adjustments that are
necessary for a fair statement of the results for the interim periods presented.
Operating results for the six month period ended June 30, 1996 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, 1995.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996 AND 1995
(UNAUDITED)
RESULTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1996 Compared to Three Months and Six
Months Ended June 30, 1995
NET SALES. Net sales were $87.6 million for the second quarter 1996, an
increase of $10.9 million or 14.1% compared with net sales of $76.7 million for
the second quarter 1995. Net sales for the first six months of 1996 were $168.6
million, an increase of $23.7 million or 16.4% compared with $144.9 million for
the first six months of 1995. The increase in sales for the first six months
of 1996 is the result of continued higher unit sales volumes for both
hemodialysis and peritoneal dialysis products.
GROSS PROFIT. Gross profit was $28.2 million for the second quarter
1996, an increase of $5.2 million or 22.8% compared with gross profit of $23.0
million for the second quarter 1995. Gross profit margin increased from 30.0%
for the second quarter 1995 to 32.2% for the second quarter 1996. Gross profit
was $53.7 million for the first six months of 1996, an increase of $9.6 million
or 21.8% compared with gross profit of $44.1 million for the first six months of
1995. Gross profit margin increased from 30.4% for the first six months of 1995
to 31.8% for the first six months of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense were $19.9 million for the second quarter 1996, an
increase of $2.0 million or 11.3% compared with $17.9 million for the second
quarter 1995, and $38.3 million for the first six months of 1996, an increase of
$3.8 million or 11.1% compared to the first six months of 1995. These expenses
as a percentage of net sales were 22.8% for the second quarter 1996 compared to
23.3% for the second quarter of 1995, and 22.7% for the first six months of 1996
compared with 23.8% for the first six months of 1995.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
JUNE 30, 1996 AND 1995
(UNAUDITED)
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense were
$684,000 for the second quarter 1996 compared with $879,000 for the same period
in 1995. Research and development expense were $1.3 million for the first six
months of 1996 compared with $1.4 million for the same period in 1995. Research
and development expenses as a percentage of sales were approximately 1.0% for
the second quarter 1996 and for the first six months of 1996, virtually
unchanged compared for the same periods in 1995. Fresenius USA relies primarily
on the research and development efforts of Fresenius AG, negotiating
distribution arrangements for new products from Fresenius AG when Fresenius AG
and Fresenius USA believe that there is market potential for these products in
the U.S. and when the products fit Fresenius USA's business strategy. Fresenius
USA believes that, in the absence of its access to the research and development
efforts of Fresenius AG, Fresenius USA would have had to spend significantly
more on research and development to develop its own line of dialysis products.
OTHER COMPENSATION EXPENSE. Other compensation expense was $9.8
million for the second quarter 1996, which the Company incurred in connection
with the repurchase from certain employees of shares of Fresenius USA Common
Stock and options to purchase Fresenius USA Common Stock. The Company had
agreed to reacquire such outstanding shares and options and other equity
securities in order to ensure that Fresenius AG's fully diluted interest in
Fresenius Medical Care AG was not reduced below 50.3%. The Company incurred no
such expense during the same period of 1995. (See Notes to the Consolidated
Condensed Financial Statements).
INTEREST EXPENSE (NET). Interest expense (net) was $1.5 million for the
second quarter 1996 and $2.9 million for the first six months ended June 30,
1996 compared to $1.2 million and $2.4 million for the same periods of 1995.
The increase is primarily related to the Company's increased short-term
borrowings.
INCOME TAX EXPENSE (BENEFIT). Income tax benefit in the second quarter
of 1996 was $1.0 million, compared to an income tax benefit of $496,000 for the
same period in 1995. Income tax benefit for the first six months of 1996 was
$1.3 million, compared to income tax benefit of $1.0 in 1995. During the second
quarter of 1996, the Company recognized a tax benefit of approximately $1.0
million, compared with $850,000 during the same period in 1995. For the first
six months of 1996, the Company recognized a tax benefit of approximately $2.0
million, compared with $1.7 million during the same period in 1995. The
recognition of such tax benefit by the Company is related to the Company's net
operating loss carryforwards from previous years.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
JUNE 30, 1996 AND 1995
(UNAUDITED)
NET INCOME (LOSS). Net (loss) for the second quarter of 1996 was $(2.7)
million, compared with net income of $3.5 million for the second quarter 1995, a
decrease of $6.2 million or 178.5%, compared to net income of $3.5 million for
the second quarter 1995. Included in the net (loss) for the second quarter of
1996 was additional compensation expense of approximately $9.8 million which the
Company recorded in connection with the repurchase from certain employees of
shares of Fresenius USA Common Stock and options to purchase shares of Fresenius
USA Common Stock. Net income was $2.6 million for the first six months of 1996,
a decrease of $4.2 million or 61.4%, compared to net income of $6.8 million for
the first six months of 1995. Net income for the first six months of 1996
included the additional other compensation expense described above. The Company
incurred no such other compensation expense during the same period of 1995. Net
income for the second quarter of 1996 and 1995 and for the first six months of
1996 and 1995 included a tax benefit described above which resulted from
recognition of a portion of the Company's deferred tax asset.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
JUNE 30, 1996 AND 1995
(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. During 1995, the Company entered
into a sale leaseback arrangement with a bank without support from Fresenius AG.
In addition, during 1994, the Company successfully completed a public offering
of 3,450,000 shares of its Common Stock, realizing proceeds, after payment of
expenses, of approximately $16.2 million. 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 1995, the Company completed construction of a 104,000 square foot
addition to its manufacturing facility in Ogden, Utah for the manufacture of
polysulfone dialyzers. The Company expended $39.5 million for the construction
and equipping of the expanded facility as of June 30, 1996. During 1995, the
Company entered into a sale leaseback arrangement with a bank which covers the
sale by the Company of approximately $27.0 million of certain new equipment of
the Company's dialyzer facility at its Ogden, Utah plant to the bank and the
leaseback of the equipment under a four year operating lease that has renewal
options and a purchase option at fair market value. Although the rent payments
on the lease are variable based on the three-month London Interbank Offered Rate
(LIBOR), the Company has effectively fixed its rent expense through the use of
interest rate swap agreements. If the Company elects not to purchase the
equipment or renew the lease at the end of the lease term, the Company will be
obligated to pay a termination fee of up to $20,250 to be offset by the sales
proceeds from the Company remarketing the equipment.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
JUNE 30, 1996 AND 1995
(UNAUDITED)
As of June 30, 1996, the Company had outstanding short-term borrowings
of $41.1 million under lines of credit with six commercial banks. Fresenius AG
has provided credit support to enable the Company to obtain various term loans
and short-term lines of credit. In June 1996, the Company increased one of its
lines of credit from $20.0 million to $30.0 million. As of June 30, 1996, the
Company had borrowed $14.3 million under this $30.0 million line of credit. The
Company's lines of credit provide for a total credit availability of $57.0
million. In addition, at June 30, 1996, the Company had fully drawn the amount
available under a $3.1 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.
At June 30, 1996, the Company had outstanding two interest rate swap
agreements with a commercial bank for an aggregate of $25.0 million. These
agreements effectively change the Company's rent expense on its variable payment
operating lease to fixed rates based on 8.02% and 5.60%, respectively.
During June 1996, Fresenius AG exercised warrants to purchase 1,515,221
shares of the Company's common stock for which the Company received
approximately $12.1 million. During June 1996, the Company repurchased from
certain employees shares of Fresenius USA Common Stock and options to purchase
shares of Fresenius USA Common Stock of approximately $11.2 million. As
previously announced, the Company had agreed to reacquire such outstanding
shares and options and other equity securities in order to ensure that Fresenius
AG's fully diluted interest in Fresenius Medical Care AG was not reduced below
50.3%.
The Company believes that its committed and possible future bank or
other commercial financing, combined with internally generated funds and the
sale of additional debt or equity securities, will be sufficient to fund the
Company's working capital requirements and other obligations.
On May 8, 1996, the Company entered into a letter agreement among the
Company, Fresenius AG and with W.R. Grace & Co. to which the Company will merge
with Fresenius Medical Care AG, a German corporation. (See Notes to the
Consolidated Condensed Financial Statements).
14
<PAGE> 15
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Exhibit 11 Statement of Computation of Net (Loss)
Income Per Common Share.
Exhibit 99.1 Interim Combined Financial Statements for
Fresenius Worldwide Dialysis as of June 30,
1996.
Exhibit 99.2 Fresenius Medical Care AG Proforma Condensed
Combined Information.
(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.
15
<PAGE> 16
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.
August 22, 1996 /s/ Heinz Schmidt
-----------------------
Corporate Croup
Vice President Finance
(Principal Financial
Officer)
/s/ Robert E. Farrell
-----------------------
Corporate Group
Vice President
Administration and
General Counsel
16
<PAGE> 17
Exhibit Index
<TABLE>
<CAPTION>
<S> <C>
Exhibit 11 Statement of Computation of Net (Loss)
Income Per Common Share.
Exhibit 27 Financial Data Schedule.
Exhibit 99.1 Interim Combined Financial Statements for
Fresenius Worldwide Dialysis as of June 30,
1996.
Exhibit 99.2 Fresenius Medical Care AG Proforma Condensed
Combined Information.
</TABLE>
<PAGE> 1
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET (LOSS) INCOME PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Net (loss) income $ (2,728) $ 3,473
============ ============
Primary net (loss) income per common
and common equivalent share $ (.11) $ .13
============ ============
Weighted average number of shares
of common stock and common stock
equivalents used to compute
primary net (loss) income per common
and common equivalent share 25,941 25,773
============ ============
Fully diluted net (loss) income per
common and common equivalent
share $ (.11) $ .13
============ ============
Weighted average number of shares
of common stock and common stock
equivalents used to compute fully
diluted net (loss) income per
common and common equivalent share 25,957 26,694
============ ============
</TABLE>
17
<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>
Six Months Ended
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Net income $ 2,619 $ 6,791
============ ============
Primary net income per common
and common equivalent share $ .10 $ .26
============ ============
Weighted average number of shares
of common stock and common stock
equivalents used to compute
primary net income per common
and common equivalent share 25,831 25,712
============ ============
Fully diluted net income per
common and common equivalent
share $ .10 $ .26
============ ============
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 25,884 26,658
============ ============
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSDOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY
REPORT IN FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5133
<SECURITIES> 0
<RECEIVABLES> 58023
<ALLOWANCES> 1324
<INVENTORY> 70644
<CURRENT-ASSETS> 148648
<PP&E> 84672
<DEPRECIATION> 35201
<TOTAL-ASSETS> 244148
<CURRENT-LIABILITIES> 128538
<BONDS> 0
0
0
<COMMON> 262
<OTHER-SE> 93139
<TOTAL-LIABILITY-AND-EQUITY> 244148
<SALES> 168626
<TOTAL-REVENUES> 168626
<CGS> 114930
<TOTAL-COSTS> 114930
<OTHER-EXPENSES> 49459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2897
<INCOME-PRETAX> 1340
<INCOME-TAX> (1279)
<INCOME-CONTINUING> 2619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2619
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
<PAGE> 1
Exhibit 99.1
FRESENIUS WORLDWIDE DIALYSIS
INTERIM COMBINED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS US $)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,035 12,091
Trade accounts receivables, less
allowance for doubtful accounts
of $11,270 in 1996 and $12,718
in 1995 194,094 183,878
Inventories, net 190,264 182,738
Prepaid expenses and other current assets 22,903 15,048
Deferred taxes 14,273 2,019
------------ ------------
Total current assets 461,569 395,774
Property, plant and equipment, net 138,541 134,767
Intangible assets, net 63,675 67,260
Investment in affiliates 18,108 19,121
Deferred taxes 399 2,710
Other assets 38,493 24,386
------------ ------------
$ 720,785 644,018
============ ============
LIABILITIES AND NET ASSETS (EQUITY)
Current liabilities:
Accounts payable $ 34,576 38,360
Accrued expenses 70,566 63,194
Short-term borrowings 118,756 109,444
Current portion of long-term debt
and capital lease obligations 21,924 20,195
Income tax payable 1,611 922
Deferred taxes 123 ---
Other current liabilities 13,392 21,312
------------ ------------
Total current labilities 260,948 253,427
Long-term payable, less current portion 1,275 1,275
Long-term debt and capital lease obligations,
less current portion 27,771 38,812
Non-current borrowing from affiliate 274 274
Other liabilities 5,493 3,322
Pension liability 17,022 16,767
Deferred taxes 5,442 ---
Minority interest 27,441 24,516
------------ ------------
Total labilities 345,666 338,393
------------ ------------
Net assets 375,119 305,625
------------ ------------
$ 720,785 644,018
============ ============
</TABLE>
See accompanying note to interim combined financial statements
1
<PAGE> 2
FRESENIUS WORLDWIDE DIALYSIS
INTERIM COMBINED STATEMENTS OF OPERATIONS AND NET ASSETS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS US $)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 471,224 431,672
Cost of sales 271,487 243,060
------------ ------------
Gross profit 199,737 188,612
Operating expenses:
Selling, general and administrative 124,583 118,262
Research and development 7,186 8,247
------------ ------------
Operating income 67,968 62,103
Other (income) expense:
Interest income (2,277) (912)
Interest expense 7,665 6,584
Other, net (4,139) (4,473)
------------ ------------
Income before income taxes 66,719 60,904
Income tax expense 22,685 23,413
------------ ------------
Income before minority interest 44,034 37,491
Minority interest 769 2,211
------------ ------------
Net income 43,265 35,280
Net assets at beginning of the period 305,625 261,337
Foreign currency translation adjustments (12,690) 21,270
Net activity with Fresenius 38,919 13,678
------------ ------------
Net assets at end of period $ 375,119 331,565
============ ============
</TABLE>
See accompanying note to interim combined financial statements
2
<PAGE> 3
FRESENIUS WORLDWIDE DIALYSIS
INTERIM COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS US $)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 43,265 35,280
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 20,628 19,093
Change in deferred tax (5,026) (1,686)
Gain on sale of fixed assets (405) (750)
Changes in assets and liabilities:
Trade accounts receivable, net (15,504) (25,434)
Inventories, net (13,028) (13,179)
Prepaid expenses and other current
assets (5,409) (1,137)
Other assets (5,319) (1,849)
Accounts payable and accrued expenses 8,320 4,234
Other current and non-current liabilities (4,782) (4,745)
Income taxes payable 761 565
------------ ------------
Net cash provided by operating activities 23,501 10,392
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (30,909) (46,068)
Proceeds from sale of property, plant and
equipment 4,562 22,837
Acquisitions and investments in affiliates (61) (953)
Cash paid for pending acquisitions (9,758) ---
------------ ------------
Net cash used in investing activities (36,166) (24,184)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 61,052 61,550
Repayments of short-term borrowings (51,081) (54,721)
Proceeds from long-term debt and
capital lease obligations 8,308 10,717
Principal payments of long-term debt
and capital lease obligations (15,792) (14,333)
Proceeds from issuance of common stock 65 498
Net activity with Fresenius 37,983 13,508
Changes in minority interest 769 2,211
------------ ------------
Net cash used in financing activities 41,304 19,430
------------ ------------
Net increase(decrease) in cash and
cash equivalents 28,639 5,638
Effect of exchange rates on cash and
cash equivalents (695) 1,079
Cash and cash equivalents at beginning
of year 12,091 11,973
------------ ------------
Cash and cash equivalents at end of year $ 40,035 18,690
============ ============
</TABLE>
See accompanying note to interim combined financial statements
3
<PAGE> 4
FRESENIUS WORLDWIDE DIALYSIS
Notes to Interim Combined Financial Statements
(UNAUDITED)
(IN THOUSANDS US $)
1. BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared in
accordance with United States generally accepted accounting principles
("U.S. GAAP") on a basis which reflects the combined historical
financial statements of Fresenius Worldwide Dialysis business ("FWD" or
the "Company"), including Sterilpharma GmbH, assuming that the Company,
currently a business unit of Fresenius AG, was organized for all
periods presented as follows as a separate legal entity, owning certain
net assets and certain subsidiaries and associated companies of
Fresenius. The accompanying interim combined financial statements as of
June 30, 1996 and for the six-month period ended June 30, 1996 and 1995
should be read in conjunction with the Company's combined financial
statements for the years ended December 31, 1995 and 1994 and the notes
thereto.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
The business of the Company is the development, manufacture and
distribution of equipment and related products for all forms of kidney
dialysis treatment and the providing of kidney dialysis treatment and
related service.
(b) Inventories
Inventories are stated at the lower of cost (determined by using the
average or first-in, first-out method) or market value.
The inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1996
------------ ------------
<S> <C> <C>
Raw materials and
purchased components $ 64,060 69,102
Work in process 22,592 33,667
Finished goods 108,824 84,546
------------ ------------
195,476 187,315
Reserves (5,212) (4,577)
------------ ------------
Inventories, Net $ 190,264 182,738
============ ============
</TABLE>
4
<PAGE> 5
FRESENIUS WORLDWIDE DIALYSIS
Notes to Interim Combined Financial Statements
(UNAUDITED)
(IN THOUSANDS US $)
(c) Other Assets
In 1995, FUSA completed construction of a dialyzer plant addition to
its manufacturing facility in Ogden, Utah. At June 30, 1996, included
in other assets are $7,989 of validation costs less accumulated
amortization of $968, incurred to qualify the products and the
associated manufacturing processes for approval by the U.S. Food and
Drug Administration. Such costs are being amortized on a straight-line
basis over an estimated useful life of 3 years upon commencement of
manufacturing.
(d) Management Representation
The accompanying interim combined financial statements which are
unaudited have been prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments (consisting only of normal recurring 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
six month period ended June 30, 1996 are not necessarily indicative of
the results to be expected for the year.
3. Pending Acquisition
On February 4, 1996, Fresenius AG and W.R. Grace & Co. ("Grace")
entered into an Agreement of Reorganization (the "Reorganization
Agreement") under which they agreed to combine FWD, including Fresenius
USA, Inc. ("FUSA"), with the health care business of Grace conducted by
its subsidiary National Medical Care, Inc. ("NMC"). Pursuant to the
Reorganization Agreement, Fresenius will retain an aggregate 50.3% of
the shares of the combined entity, to be called "Fresenius Medical
Care AG" ("FMC") and FMC will, in consideration of Ordinary Shares
equal to 49.7% of FMC's total Ordinary Shares, acquire NMC and the
minority shareholders' interest in FUSA.
In connection with the transactions contemplated by the Reorganization
Agreement, during the six-month period ended June 30, 1996 FUSA
repurchased from certain employees shares of FUSA common stock and
options to purchase shares of FUSA common stock. As a result of the
foregoing FWD capitalized $9,758 representing the excess of the cost of
the shares and options repurchased over the book value of the share of
minority interest reacquired.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1996 and 1995
(Unaudited)
Results of Operations
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
Net Sales. Net sales for the first six months of 1996 were $471.2 million,
an increase of 9.2% compared with net sales of $431.7 million for the first six
months of 1995. In local currency terms, Fresenius Worldwide Dialysis' sales
increased by 11.0%.
In the first six months of 1996, Fresenius Worldwide Dialysis'
operations in Germany experienced sales growth, including export sales, of
5.5%, or 9.5% in local currency, compared to the first six months of 1995. In
the U.S. sales growth was substantial, totaling 17.1%. Sales by Fresenius
Worldwide Dialysis' operations in the rest of the world increased by 4.6%, or
5.3% in local currency, compared to the first six months of 1995. The increase
in sales resulted primarily from higher unit volumes. Fresenius Worldwide
Dialysis' selling prices in local currencies were virtually unchanged. The sales
increase was also attributable to growth in the number of dialysis patients in
each of Fresenius Worldwide Dialysis principal markets.
Sales growth in Germany and the U.S. was mainly attributable to increased
sales of hemodialysis machines due to a high replacement rate by dialysis
centers in those markets and increased sales of dialyzers due to increased
production capacity. In addition, Fresenius Worldwide Dialysis' net sales
benefitted from strong demand in the growing markets of Eastern Europe.
In the first six months of 1996, net sales of hemodialysis machines and
related disposable products, including dialyzers, grew 13.1% to $341.3 million
from $301.7 million in the first six months of 1995. The increase resulted from
higher machine replacement rates and increased sales of dialyzers as a result
of the availability of additional manufacturing capacity.
Sales of peritoneal dialysis products and machines increased 10.8% to
$94.3 million in the first six months of 1996 compared to $85.1 million in the
first six months of 1995. The increase in sales of peritoneal dialysis products
resulted in part from the introduction of PD-NIGHT(TM). In the last quarter of
1995 and from higher sales volumes of existing products.
Sales of technical and other services decreased by 20.7% to $35.6 million
in the first six months ended 1996 compared to $44.9 million in the first six
months of 1995. The decrease resulted from one-time revenues in 1995 associated
with a construction project completed with a Fresenius Worldwide Dialysis
customer and another subsidiary of Fresenius AG.
Gross Profit. Gross profit for the first six months of 1996 was $199.7
million, an increase of 5.9% from gross profit for the first six months of
1995. Gross profit margin decreased from 43.7% for the first six months of 1995
to 42.4% for the first six months of 1996. The decrease in gross profit margin
was caused primarily by dialyzer production in the U.S. where production has
not yet reached its full capacity.
6
<PAGE> 7
Selling, General and Administrative Expenses. SG&A expenses were $124.6
Million in the first six months of 1996, an increase of 5.3% from the first six
months of 1995 of $118.3 million. As a percentage of net sales, SG&A expenses
decreased slightly from 27.4% in the first six months of 1995 to 26.4% in the
first six months of 1996.
Research and Development Expenses. Research and development expenses in
the first six months of 1996 decreased from $8.2 million to $7.2 million in the
first six months of 1995. The lower research and development expenses resulted
from the completion of the development of a new production line for non-PVC bags
in late 1995.
Operating Income. Operating income was $68.0 million for the first six
months of 1996, an increase of 9.4% from the first six months of 1995 of $62.1
million.
Interest Expense. Interest expense increased from $6.6 million in the
first six months of 1995 to $7.7 million in the first six months of 1996, due to
a higher level of borrowings in 1996 compared to 1995.
Income Tax Expense. Expenses for income taxes were $22.7 million in the
first six months of 1996 compared to $23.4 million in the first six months of
1995. Fresenius Worldwide Dialysis' effective tax rate decreased from 38.4% in
the first six months of 1995 to 34.0% in the first six months of 1996. Included
in the effective tax rate is the recognition of a tax benefit of approximately
$2.0 million for the first six months of 1996, compared with $1.7 million
during the same period in 1995 from Fresenius Worldwide Dialysis' U.S.
subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
During the first six months of 1996 and 1995, Fresenius Worldwide
Dialysis utilized cash flow from operations and bank borrowings to fund
investments in property, plant and equipment. During the first six months of
1996 and 1995 cash provided by operating activities was $23.5 million and $10.4
million respectively, and was generated principally from net income plus
non-cash depreciation charges of $20.6 million in the first six months of 1996
and $19.1 million in the same period of 1995 and less increase in working
capital requirements of $40.4 million and $44.0 million, respectively. At June
30, 1996, Fresenius Worldwide Dialysis had cash of $40.0 million.
Fresenius Worldwide Dialysis had capital expenditures in the first six
months of 1996 and 1995 of $30.9 Million and $46.1 million, respectively. The
expenditures in each year were principally in Germany and the U.S. Expenditures
in Germany were incurred to further automate the production processes and
increase the production capacity at the St. Wendel and the Schweinfurt facility.
7
<PAGE> 8
Further capital expenditures in Germany included $2.4 million for rental
equipment, of which $1.4 million were additions to capital leases. The rental
equipment consisted of hemodialysis machines leased to hospitals and dialysis
centers. To finance the rental equipment Fresenius Worldwide Dialysis enters
into sale/leaseback agreements with a leasing company which cover the sale and
leaseback of rental equipment under three-year capital leases.
In addition in 1995, Fresenius Worldwide Dialysis' U.S. subsidiary
completed construction of a 104,000 square foot addition to its manufacturing
facility for the manufacture of polysulfone dialyzers. Fresenius USA had
expended $39.5 million for the construction and equipping of the expanded
facility as of June 31, 1996. During 1995, Fresenius USA entered into a
sale/leaseback arrangement with a bank which covers the sale of approximately
$27.0 million of certain new equipment of its dialyzer manufacturing facility to
the bank and leaseback of the equipment under a four-year operating lease that
has renewal options and purchase options at fair value. Although the rent
payments on the lease are variable based on the three-month LIBOR, Fresenius USA
has effectively fixed its rent expense through the use of interest rate swap
arrangements. If Fresenius USA elects not to purchase the equipment or renew the
lease at the end of the lease term, it will be obligated to pay a termination
fee of up to $20.25 million, to be offset by sales proceeds from Fresenius USA
remarketing the equipment.
On February 4, 1996, W.R. Grace & Co. ("Grace") and Fresenius AG entered into a
definitive agreement (the "Reorganization Agreement") to combine Grace's
National Medical Care Inc. (NMC) with Fresenius Worldwide Dialysis. In
connection with the Reorganization Agreement and pursuant to a separate
agreement between Fresenius USA and Fresenius AG (the "Supplemental Agreement"),
Fresenius USA among other things, declared its intention to repurchase
sufficient vested and unvested stock purchase options held by Fresenius USA
employees and other equity securities of Fresenius USA to satisfy the condition
that, immediately prior to the Company Merger, as described in the
Reorganization Agreement, there shall be no more than 9,253,331 Fresenius USA
Common Share Equivalents. Pursuant to the Supplemental Agreement Fresenius USA
repurchased shares of Fresenius USA Common Stock and options from certain
employees of approximately $11.2 million during June 1996. As the combination of
Fresenius Worldwide Dialysis and NMC, for accounting purposes, will be treated
as a purchase of NMC by Fresenius Worldwide Dialysis, the cash paid for
repurchase of Fresenius USA Common Stock and options has been capitalized as a
cost of the acquisition.
At June 30, 1996 and December 31, 1995, Fresenius Worldwide Dialysis had
short-term borrowings of $118.8 million and $109.4 million, respectively. The
borrowings were principally under lines of credit with commercial banks.
8
<PAGE> 1
EXHIBIT 99.2
FRESENIUS MEDICAL CARE AG
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined statement of earnings
and unaudited pro forma condensed combined balance sheet for Fresenius Medical
Care (collectively, the "Pro Forma Condensed Combined Financial Information")
have been prepared to illustrate the pro forma effects of the proposed
transactions in accordance with US GAAP and are based on the assumptions set
forth below and in the notes to the Fresenius Worldwide Dialysis Combined
Financial Statements and the W. R. Grace & Co. Special-Purpose, Consolidated
Financial Statements included in the Joint Proxy Statement-Prospectus
dated August 2, 1996 of Grace and Fresenius USA. The Fresenius Medical Care
unaudited pro forma condensed combined statement of earnings is based on the
statements of earnings of Fresenius Worldwide Dialysis and Grace for the six
months ending June 30, 1996 and is prepared as if the Reorganization had
occurred as of January 1, 1996. The Fresenius Medical Care unaudited pro forma
condensed combined balance sheet is based on the June 30, 1996 balance sheets of
Fresenius Worldwide Dialysis and Grace and is prepared as if the Reorganization
had occurred as of June 30, 1996. The financial statements of Grace on which
the Pro Forma Condensed Combined Financial Information is based represent the
National Medical Care, Inc. business of Grace only after completing the spin
off of New Grace.
The financial statements of Fresenius Worldwide Dialysis and Grace were
prepared as if each entity operated as an independent, stand-alone entity for
the period presented. Neither entity exists in the form presented and, as such,
the net assets (equity) for each entity represent the excess of its assets over
its liabilities and not the capital structure of its parent and reporting
entity. The accompanying unaudited pro forma condensed combined financial
information does not present historical earnings per share data since the
weighted average number of shares associated with each of these combining
segments to support such a calculation does not exist. The capital structure of
Fresenius Medical Care will consist of 70,000,000 FMC Ordinary Shares issued to
Fresenius AG and the shareholders of Fresenius USA and Grace in consideration
for the contribution of Fresenius Worldwide Dialysis and Grace to Fresenius
Medical Care. Fresenius AG, the public shareholders of Fresenius USA, and the
holders of common stock (and options) of Grace will receive 50.3%, 4.9% and
44.8% of the outstanding FMC Ordinary Shares, respectively, on a fully diluted
basis.
The Pro Forma Condensed Combined Financial Information does not give effect
to certain restructuring and rationalization costs expected to be incurred
following the Reorganization. In addition, although Fresenius Medical Care plans
to realize cost reductions from the Reorganization and such restructuring and
rationalization, no effect has been given in the Pro Forma Financial Statements
to any such benefits. However, such cost reduction will be a function of
numerous factors, and no assurance can be given that any such cost reduction
will be realized over time.
For accounting purposes, the Reorganization will be treated as a purchase
of Grace by Fresenius Medical Care. Accordingly, for the purpose of these Pro
Forma Condensed Combined Financial Statements, the excess of the purchase price
of Grace over the historical costs of Grace's assets is reflected in the pro
forma condensed combined balance sheet as "excess purchase price over cost" and
has been amortized over an estimated composite life in the unaudited pro forma
condensed combined statement of earnings. Fresenius Medical Care intends to
obtain a valuation study to value existing assets and liabilities and to
appropriately allocate the excess purchase price over the cost of the business
acquired. Fresenius Medical Care management believes that the composite life
used in the pro forma condensed combined statement of earnings will not vary
materially from the amounts charged to operations once a valuation study has
been completed and existing assets and liabilities have been recorded at their
fair values.
The pro forma adjustments recognize the increase in debt that is incurred
immediately prior to the Reorganization and the resultant increase in financing
costs in the unaudited pro forma condensed combined statement of earnings. In
accordance with the Reorganization Agreement, Grace will borrow an amount
sufficient to finance the payment to, and assumption of indebtedness of, Grace
Chemicals, such that the Debt of Grace on a consolidated basis at the Effective
Time, will not exceed $2.273 billion, subject to adjustment as provided therein.
See "THE REORGANIZATION -- The Distribution Agreement" in the Joint Proxy
Statement-Prospectus.
1
<PAGE> 2
For purposes of the Pro Forma Condensed Combined Financial Statements, the
Debt of $2,273,000 is comprised at June 30, 1996 of an off-balance sheet working
capital facility of $200,000; historical capital lease obligations of $8,847;
$18,800 related to certain accrued expenses; and new debt of $2,045,353.
Interest on the new borrowings ranges from LIBOR plus 1.375% to LIBOR plus 1.75%
while interest on the off-balance sheet facility is LIBOR plus .50%. (The
average LIBOR was 5.668% for the six-month period ended June 30, 1996.)
Interest also includes commitment fees related to letters of credit. See
"FINANCING -- NMC Credit Agreement" in the Joint Proxy Statement-Prospectus.
In addition, the acquisition of the minority interest of Fresenius USA has
been recorded in the Pro Forma Condensed Combined Financial Statements and the
resultant goodwill has been amortized over 40 years. The pro forma adjustments
include the elimination of the intercompany activity between Fresenius Worldwide
Dialysis and Grace during the six-month period ended June 30, 1996 and the
reclassification of the assets and liabilities as of June 30, 1996. The assets
and liabilities of Rena-Med are reclassified to assets held for disposal. The
Schiwa net assets and any gains on the disposition of those assets will be
retained by Fresenius AG. Certain pro forma adjustments have been made to
reflect the results of operations on a stand-alone basis, including the
elimination of Grace Chemicals' overhead allocations and the costs of the Grace
Chemicals long-term and other incentive plans, that will not be applicable
following the Reorganization. Fresenius Medical Care management believes that
the estimated added costs for Fresenius Medical Care to operate on a stand-alone
basis are reasonable and has made an adjustment to reflect the estimated
expenses for Fresenius Medical Care to operate as an independent entity.
THE PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION IS PROVIDED FOR
ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO REPRESENT WHAT THE FINANCIAL
POSITION OR RESULTS OF OPERATIONS OF FRESENIUS MEDICAL CARE WOULD ACTUALLY HAVE
BEEN IF THE REORGANIZATION HAD IN FACT OCCURRED AS OF THE DATES INDICATED OR TO
PROJECT THE COMBINED FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE
DATE OR PERIOD. THE PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE NOTES THERETO AND THE FINANCIAL STATEMENTS AND
RELATED NOTES THERETO CONTAINED IN THE JOINT PROXY STATEMENT-PROSPECTUS AND IN
THE RESPECTIVE QUARTERLY REPORTS ON FORM 10-Q FILED WITH THE COMMISSION BY
GRACE AND BY FRESENIUS USA FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
2
<PAGE> 3
FRESENIUS MEDICAL CARE AG
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA NOTE
FWD GRACE ADJUSTMENTS REFERENCES ADJUSTED
-------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues...................... $471,224 $1,080,410 $ (24,912) 5 $1,506,236
(14,725) 9
(5,761) 10
Cost of revenues.................. 271,487 638,286 4,376 7 876,341
(21,647) 5
(12,426) 9
(3,735) 10
-------- ---------- ----------
Gross profit.................... 199,737 442,124 629,895
Operating expenses:
Selling, general and
administrative............... 124,583 205,138 (4,022) 9 332,023
(2,205) 10
1,000 6
1,459 7
6,070 6
Provision for doubtful
accounts..................... -- 42,928 42,928
Depreciation and amortization... -- 62,161 32,049 3 96,512
(excluding $20,628 for 2,500 8
Fresenius Worldwide Dialysis) (160) 5
(38) 10
Research and development........ 7,186 1,308 (12) 9 8,482
Allocation of Grace Chemicals
expenses..................... -- 3,786 (3,786) 6 --
-------- ---------- ----------
Operating income................ 67,968 126,803 149,950
Interest, net................... 5,388 14,463 80,265 2 87,018
(14,202) 2
1,785 4
(681) 10
Other, net...................... (4,139) -- 2,784 9 (1,355)
-------- --------- ----------
Earnings before income taxes...... 66,719 112,340 64,287
Provision for income taxes........ 22,685 51,977 (38,585) 15 35,263
(814) 9
-------- ---------- ----------
Earnings before minority
interest........................ 44,034 60,363 29,024
Minority interest................. 769 -- (769) 8 261
261 11
-------- ---------- --------- ----------
Net earnings...................... $ 43,265 $ 60,363 $ (74,865) $ 28,763
======== ========== ========= ==========
Earnings per ordinary share....... 16 $ 0.41
==========
Earnings per ADS.................. 16 $ 0.14
==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information.
3
<PAGE> 4
FRESENIUS MEDICAL CARE AG
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA NOTE
FWD GRACE ADJUSTMENTS REFERENCES ADJUSTED
-------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..... $ 40,035 $ 40,039 $ (80,074) 1 $ --
Trade accounts receivable,
net........................ 194,094 437,079 (6,600) 5 601,933
(1,238) 9
(1,195) 10
(20,207) 2
Inventories, net.............. 190,264 73,485 (3,475) 9 257,172
(3,102) 10
Prepaid expenses and other
current assets............. 22,903 65,345 (5,076) 9 81,001
(2,171) 10
Deferred income taxes......... 14,273 92,812 (27) 9 107,058
-------- --------- ----------
Total current assets.. 461,569 708,760 1,047,164
Property, plant and equipment,
net........................... 138,541 396,828 (826) 9 532,043
(2,500) 10
Intangible assets, net.......... 63,675 949,732 199,502 8 1,212,903
(6) 9
Excess purchase price over
cost.......................... -- -- 1,776,328 3 1,776,328
Investments in affiliates....... 18,108 -- 18,108
Deferred taxes.................. 399 -- 399
Other assets.................... 38,493 19,201 25,000 4 82,694
Assets held for disposal........ 456 10 456
-------- ---------- ----------- ----------
Total Assets.................... $720,785 $2,074,521 $ 1,874,789 $4,670,095
======== ========== =========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information.
(Continued)
4
<PAGE> 5
FRESENIUS MEDICAL CARE AG
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA NOTE
FWD GRACE ADJUSTMENTS REFERENCES ADJUSTED
--------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................ $34,576 $ 99,332 $ (34,783) 1 $ 85,769
(6,600) 5
(739) 9
(6,017) 10
Accrued expenses........................ 70,566 210,980 310,241
10,000 14
25,000 4
(3,884) 9
(2,421) 10
Short-term borrowings................... 118,756 -- 118,756
Current portion of long-term debt and
capital lease obligations............. 21,924 155,222 (151,118) 2 26,028
Income taxes payable.................... 1,611 13,194 (430) 9 14,301
(74) 10
Deferred taxes.......................... 123 -- -- 123
Other current liabilities............... 13,392 -- -- 13,392
-------- ---------- ----------
Total current liabilities........ 260,948 478,728 568,610
Long-term debt and capital lease
obligations, less current portion....... 29,320 26,320 (21,577) 2 34,063
New debt.................................. -- -- 2,045,353 2 2,045,353
Other liabilities......................... 5,493 22,286 (846) 9 26,933
Pension liabilities....................... 17,022 -- (951) 9 16,071
Deferred taxes............................ 5,442 64,778 171,177 3 241,397
Minority interest......................... 27,441 -- (27,441) 8 17,177
7,439 11
9,738 12
-------- ---------- ----------
Total Liabilities....................... 345,666 592,112 2,949,604
Stockholders' Equity:
Capital stock........................... 252,945 13 252,945
Additional paid in capital.............. 1,467,546 13 1,467,546
Retained earnings....................... --
Net assets.............................. 375,119 1,482,409 (5,256) 1 --
(171,177) 3
1,776,328 3
226,943 8
(7,439) 11
(9,738) 12
(10,000) 14
(1,892,865) 2
(3,798) 9
(40,035) 1
(1,720,491) 13 --
-------- ---------- ----------
Total Stockholders' Equity....... 375,119 1,482,409 1,720,491
-------- ---------- ----------- ----------
Total Liabilities and
Stockholders' Equity........... $720,785 $2,074,521 $ 1,874,789 $4,670,095
======== ========== =========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information.
5
<PAGE> 6
FRESENIUS MEDICAL CARE AG
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS)
(1) Pursuant to the Reorganization Agreement, all cash and cash equivalents of
Grace and Fresenius Worldwide Dialysis shall be retained by Grace Chemicals
and Fresenius AG, respectively. See "THE REORGANIZATION" in the Joint Proxy
Statement-Prospectus. Accordingly, an adjustment has been recorded to
return the cash balance of $40,035 to Fresenius AG with an offsetting
decrease in the net assets of Fresenius Worldwide Dialysis. At June 30,
1996, Grace recorded an adjustment for $34,783 to reclassify its
outstanding checks to accounts payable. An adjustment has therefore been
recorded to eliminate the Grace financial statement cash balance of
$40,039; reverse the $34,783 reclassification entry to accounts payable,
and decrease net assets for the remaining balance of $5,256.
(2) For purposes of the Pro Forma Condensed Combined Financial Statements,
Grace will incur new debt of $2,045,353 prior to the Reorganization to be
used for payment of the Grace dividend of $1,892,865. Grace's Debt is
subject to adjustment in accordance with the Reorganization Agreement. See
"THE REORGANIZATION -- The Distribution Agreement" in the Joint Proxy
Statement-Prospectus.
Grace's Debt of $2,273,000 is comprised of an off-balance sheet working
capital facility of $200,000; historical capital lease obligations of
$8,847; $18,800 related to certain accrued expenses, and new debt of
$2,045,353. See "FINANCING -- NMC Credit Agreement" in the Joint Proxy
Statement-Prospectus. Interest on the new borrowings ranges from LIBOR plus
1.375% to LIBOR plus 1.75% while interest on the off-balance sheet facility
is LIBOR plus .50% (the average LIBOR was 5.668% for the six-month period
ended June 30, 1996). Interest also includes commitment fees related to
letters of credit. See "FINANCING -- NMC Credit Agreement" in the Joint
Proxy Statement-Prospectus.
Based upon the above, adjustments to record the new debt of $2,045,353,
eliminate existing Grace debt (except for capital lease obligations and
cash overdrafts) of $172,695, and to reduce the equity of Grace by
$1,892,865 for the payment of the Grace dividend have been recorded. In
addition, an adjustment has been recorded for $20,207 to reduce accounts
receivable for the difference between the off-balance sheet working capital
facility of $179,793 at June 30, 1996 and the facility of $200,000 to be
established prior to the Reorganization.
An adjustment has also been recorded to eliminate Grace interest expense
(less the interest on capital lease obligations retained) of $14,202 for
the six-month period ended June 30, 1996. Correspondingly, interest expense
on the total new debt (including the working capital facility) was recorded
at the above noted rates for $80,265 for the six-month period ended June
30, 1996.
(3) Adjustments have been made to record the excess purchase price over the
carrying value of the Grace assets and liabilities acquired of $1,776,328
and to establish a deferred tax liability of $171,177, representing the
estimated tax effect of specifically identified assets to be increased to
fair value. The excess purchase price over the historical cost has not been
allocated to specifically identified assets nor has the unidentified
portion been treated as goodwill. Fresenius Medical Care management intends
to undertake a valuation study to record the assets and liabilities
acquired at their fair market value.
Amortization of the excess purchase price in the amount of $32,049 for the
six-month period ended June 30, 1996, approximating a composite life of
27.7 years has been recorded in the unaudited pro forma condensed combined
income statement. This amount was determined by using a recently completed
Grace valuation study as an estimate of the amounts that will be recorded
upon the completion of the Fresenius Medical Care valuation. Fresenius
Medical Care management believes that the amortization recorded in the pro
forma financial statements will not vary materially from the amounts that
will be recorded once its valuation study is completed.
6
<PAGE> 7
An adjustment was made for $6,077 for the six-month period ended June 30,
1996, to reduce income tax expense for the estimated tax effect for
amortization of the estimated specifically identified assets that will be
recorded at fair value.
(4) Adjustments have been made to record estimated net financing costs of
$25,000 for new debt under the NMC Credit Agreement and to amortize such
debt over the seven year life of the financing.
(5) Adjustments have been made to eliminate intercompany balances and activity
between Grace and Fresenius Worldwide Dialysis at June 30, 1996 and for
the six-month period then ended.
(6) An adjustment has been made for the six-month period ended June 30, 1996 to
eliminate historical overhead allocations from Grace of $3,786 and to
establish an estimate of new replacement incentive compensation
arrangements of $3,750 and to record the estimated expenses to operate
on a stand-alone basis of $2,320. An adjustment has also been made to
record incremental overhead expenses related to Fresenius Medical Care
corporate of $1,000 for the six-month period ended June 30, 1996.
(7) An adjustment has been made to record expenses under the proposed operating
lease for land and buildings in Germany of $5,835 for the six-month period
ended June 30, 1996. See "THE REORGANIZATION -- Continuing Arrangements
between Fresenius Medical Care and Fresenius AG" in the Joint Proxy
Statement-Prospectus.
(8) An adjustment has been made to record the acquisition of the Fresenius USA
minority interest and option holders for $226,943. An adjustment has been
made to amortize the resultant goodwill of $199,502 over a 40 year life.
(9) An adjustment has been made to eliminate the assets, liabilities and net
assets of Schiwa at June 30, 1996 and to reverse all income statement
activity for the period then ended. Any proceeds on the disposition of
those proceeds will be retained by Fresenius AG. Accordingly, the net
assets of Schiwa have been removed from Fresenius Medical Care. See "THE
REORGANIZATION -- Conditions" in the Joint Proxy Statement-Prospectus.
(10) An adjustment has been made to reclassify the assets and liabilities of
Rena-Med as net assets held for sale at June 30, 1996 and to reverse all
activity for the six-month period then ended. See "THE REORGANIZATION --
Conditions" in the Joint Proxy Statement-Prospectus.
(11) Adjustments have been made to record the Grace Preferred Stock existing
prior to the Reorganization of $7,439 as a minority interest and to record
the related dividends of $261 for the period then ended, as minority
interest expense.
(12) An adjustment has been made to record the New Preferred Stock to be issued
in the Reorganization at its par value of $.10 per share for 97,375 shares
outstanding of FNMC in minority interest.
(13) An adjustment has been made to establish the capital structure of Fresenius
Medical Care at 70 million shares with a par value per share of $3.61 (DM
5), with the remaining net asset balance recorded as additional paid in
capital.
(14) An adjustment has been recorded to accrue $10,000 for transition related
expenses, including retention distributions to be paid to employees
subsequent to closing.
(15) Adjustments have been made to reflect the tax effects of the pro forma
adjustments described in notes 2, 3, 4, 5, 6 and 7 above. The adjustments
to record the costs of incremental Fresenius Medical Care corporate expense
and the lease of German land and buildings were given a German tax
adjustment of 47%; all other adjustments received tax adjustments of 40%.
(16) Earnings per FMC Ordinary Share and earnings per ADS have been calculated
as if all shares of Fresenius Medical Care stock were outstanding as of
January 1, 1996.
7
