SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of July 2014
FRESENIUS MEDICAL CARE AG & Co. KGaA
(Translation of registrant's name into English)
Else-Kröner Strasse 1
61346 Bad Homburg
Germany
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of
Form 20-F or Form 40-F.
Form 20-F ý Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also
thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o No ý
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 .
FRESENIUS MEDICAL CARE AG & Co. KGaA
i
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and
six months ended June 30, 2014 and 2013
Management's Discussion and Analysis
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the words "outlook", "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated, and future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements contained elsewhere in this report. We have based these forward-looking statements on current estimates and assumptions made to the best of our knowledge. By their nature, such forward-looking statements involve risks, uncertainties, assumptions and other factors which could cause actual results, including our financial condition and profitability, to differ materially and be more negative than the results expressly or implicitly described in or suggested by these statements. Moreover, forward-looking estimates or predictions derived from third parties' studies or information may prove to be inaccurate. Consequently, we cannot give any assurance regarding the future accuracy of the opinions set forth in this report or the actual occurrence of the developments described herein. In addition, even if our future results meet the expectations expressed here, those results may not be indicative of our performance in future periods.
These risks, uncertainties, assumptions, and other factors that could cause actual results to differ from our projected results include, among others, the following:
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FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Important factors that could contribute to such differences are noted in the "Overview" section below, in Note 11 of the Notes to Consolidated Financial Statements (unaudited), "Commitments and Contingencies" included in this report, in Note 20 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies" included in our Annual Report on Form 20-F for the year ended December 31, 2013, and under "Risk Factors" and elsewhere in that report.
Our business is also subject to other risks and uncertainties that we describe from time to time in our public filings. Developments in any of these areas could cause our results to differ materially from the results that we or others have projected or may project.
Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that are the basis of our financial statements. The actual accounting policies, the judgments made in the selection and application of these policies and the sensitivities of reported results to changes in accounting policies, assumptions and estimates, are factors to be considered along with our financial statements and the discussion under "Results of Operations" below. There have been no significant changes during the six months ended June 30, 2014 to the items disclosed within the critical accounting policies and estimates in Item 5, "Operating and Financial Review and Prospects Critical Accounting Policies" in our Annual Report on Form 20-F for the year ended December 31, 2013.
Financial Condition and Results of Operations
You should read the following discussion and analysis of the results of operations of Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA," or the "Company") and its subsidiaries in conjunction with our unaudited consolidated financial statements and related notes contained elsewhere in this report and our disclosures and discussions in our Annual Report on Form 20-F for the year ended December 31, 2013. The results within this discussion and analysis are unaudited. In this report, "FMC-AG & Co. KGaA," or the "Company," "we," "us" or "our" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. The term "North America Segment" refers to our North America operating segment and the term "International Segment" refers to the combination of our "EMEALA" (Europe, Middle East, Africa, and Latin America) operating segment and our Asia-Pacific operating segment. The term "Constant Currency" or at "Constant Exchange Rates" means that we have translated local currency revenues for the current reporting period into U.S. dollars using the same average foreign currency exchange rates for the conversion of revenues into U.S. dollars that we used to translate local currency revenues for the comparable reporting period of the prior year.
We operate in both the field of dialysis care and the field of dialysis products for the treatment of end-stage renal disease ("ESRD"). Our dialysis care business, in addition to providing dialysis treatments to patients with ESRD, includes pharmacy services, vascular access surgery services, laboratory testing services, physician services, health plan services and urgent care services (together, "Care Coordination"). Our dialysis products business includes manufacturing and distributing products for the treatment of ESRD. In the U.S., the Company also provides inpatient dialysis services as well as other services under contract to hospitals. We estimate that providing dialysis and distributing dialysis products represents a worldwide market of approximately $75 billion with expected annual worldwide market growth of
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FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
approximately 4 percent, adjusted for currency. Patient growth results from factors such as the aging population and increased life expectancies; shortage of donor organs for kidney transplants; increasing incidence of kidney disease and better treatment of and survival of patients with diabetes and hypertension, which frequently precede the onset of chronic kidney disease; improvements in treatment quality, which prolong patient life; and improving standards of living in developing countries, which make life-saving dialysis treatment available. Key to continued growth in revenue is our ability to attract new patients in order to increase the number of treatments performed each year. For that reason, we believe the number of treatments performed each year is a strong indicator of continued revenue growth and success.
In addition, the reimbursement and ancillary services utilization environment significantly influences our business. The majority of treatments are paid for by governmental institutions such as the Centers for Medicare & Medicaid Services ("CMS") in the United States. As a consequence of the pressure to decrease health care costs, government reimbursement rate increases have been historically and are expected in the future to be limited. While we have generally experienced stable reimbursement globally, including the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries, the stability of reimbursement in the U.S. has been affected by (i) the implementation of the ESRD prospective payment system ("ESRD PPS") in the U.S. in January 2011, (ii) the U.S. federal government across the board spending cuts in payments to Medicare providers commonly referred to as U.S. Sequestration (as defined below), (iii) commencing on January 1, 2014, the reduction to the ESRD PPS rate to account for the decline in utilization of certain drugs and biologicals associated with dialysis (see discussion of the American Taxpayer Relief Act of 2012 ("ATRA") below) and (iv) the enactment of the Protecting Access to Medicare Act of 2014 ("PAMA") (see discussion of PAMA below). In the future we expect to experience generally stable reimbursements for dialysis services globally.
With the enactment in the U.S. of the Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA"), Congress created the ESRD PPS pursuant to which CMS reimburses dialysis facilities with a single payment for each dialysis treatment, inclusive of (i) all items and services included in the pre-2011 ESRD composite rate, (ii) oral vitamin D analogues, oral levocarnitine (an amino acid derivative) and all erythropoietin stimulating agents ("ESAs") and other pharmaceuticals (other than vaccines and certain other oral drugs) furnished to ESRD patients that were previously reimbursed separately under Part B of the Medicare program, (iii) most diagnostic laboratory tests and (iv) certain other items and services furnished to individuals for the treatment of ESRD. The base ESRD PPS payment is subject to case mix adjustments that take into account individual patient characteristics (e.g., age, body surface area, body mass, time on dialysis) and certain co-morbidities. The base payment is also adjusted for (i) certain high cost patient outliers due to unusual variations in medically necessary care, (ii) disparately high costs incurred by low volume facilities relative to other facilities, (iii) provision of home dialysis training and (iv) wage-related costs in the geographic area in which the provider is located.
The ESRD PPS payment amount is also subject to annual adjustment based on increases in the costs of a "market basket" of certain healthcare items and services less a productivity adjustment.
In addition to creating the ESRD PPS, MIPPA also created the ESRD quality incentive program ("QIP") which began affecting payments starting January 1, 2012. Dialysis facilities that fail to achieve quality standards established by CMS could have payments reduced by up to 2 percent. Performance on specified measures in a fiscal year affects payments two fiscal years later. For instance, the payments we receive during 2014 will be affected by our performance measures from 2012. Based on our performance from 2010 through 2012, the QIP's impact on our results through 2014 is immaterial. The initial QIP measures for 2010 and 2011 focused on anemia management (measured by hemoglobin level) and dialysis adequacy (measured by Urea Reduction Ratio or URR). For payment year 2014, CMS adopted four
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FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
additional measures: prevalence of catheter and A/V fistula use, reporting of infections to the Centers for Disease Control and Prevention, administration of patient satisfaction surveys and monthly monitoring of phosphorus and calcium levels. For payment year 2015, CMS will continue all of the 2014 QIP measures except URR dialysis adequacy, expand the scope of infection reporting and mineral metabolism reporting, and add four new measures. Payment year 2015 added measures consist of three new clinical measures (hemodialysis adequacy for adult patients, hemodialysis adequacy for pediatric patients and peritoneal dialysis adequacy for adult patients), and one new reporting measure (anemia management reporting). For payment year 2016, CMS will continue all of the 2015 QIP measures and add two new clinical measures (proportion of patients with hypercalcemia and dialysis-related infections reported to the Center for Disease Control and Prevention's National Health Safety Network by ESRD facilities treating patients on an in-center basis). For payment year 2017, CMS proposes to continue ten of the eleven 2016 QIP measures (a total of 7 clinical measures and 3 reporting measures), remove the anemia management clinical measure (hemoglobin greater than 12 g/dL), revise the patient satisfaction survey reporting measure, and adopt one new clinical measure that addresses care coordination (measured by Standardized Readmission Ratio or SRR). For payment year 2018, CMS proposes to continue all of the measures proposed for payment year 2017 (with the exception of changing the patient satisfaction survey to a clinical measure), and to add five new measures consisting of two clinical measures (evaluating transfusions in the ESRD population and pediatric peritoneal dialysis adequacy) and three reporting measures (pain assessment, clinical depression screening, and healthcare personnel influenza vaccinations).
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, "ACA") implements broad healthcare system reforms, including (i) provisions to facilitate access to affordable health insurance for all Americans, (ii) expansion of the Medicaid program, (iii) an industry fee on pharmaceutical companies that began in 2011 based on sales of brand name pharmaceuticals to government healthcare programs, (iv) a 2.3 percent excise tax on manufacturers' medical device sales starting in 2013, (v) increases in Medicaid prescription drug rebates effective January 1, 2010, (vi) commercial insurance market reforms that protect consumers, such as bans on lifetime and annual limits, coverage of pre-existing conditions, limits on administrative costs, and limits on waiting periods, (vii) provisions encouraging integrated care, efficiency and coordination among providers and (viii) provisions for reduction of healthcare program waste and fraud. ACA does not modify the dialysis reimbursement provisions of MIPPA, except to change the annual update provision by substituting a productivity adjustment to the market basket rate of increase for a MIPPA provision that specified a one percentage point reduction in the market basket rate of increase.
On August 2, 2011, the Budget Control Act ("BCA") was enacted, raising the U.S. debt ceiling and putting into effect a series of actions for deficit reduction. Pursuant to the BCA, automatic across-the-board spending cuts over nine fiscal years (2013-2021), projected to total $1.2 trillion for all U.S. Federal government programs required under the BCA became effective as of March 1, 2013 and were implemented on April 1, 2013 for CMS reimbursement to providers. The Bipartisan Budget Act of 2013 extended the cuts to mandatory spending programs such as Medicare for an additional two years. The reduction in Medicare payments to providers and suppliers is limited to one adjustment of no more than 2 percent through 2022 (the "U.S. Sequestration"), rising to 2.9 percent for the first half of FY 2023 and dropping to 1.11 percent for the second half of FY 2023. Pursuant to PAMA, the reductions pursuant to U.S. Sequestration for the first six months of 2024 will be 4 percent, and there will be no reductions for the second six months of 2024. The Medicare sequestration reimbursement reduction is independent of annual inflation update mechanisms, such as the market basket update pursuant to the ESRD PPS.
The impact of the U.S. Sequestration on our dialysis care revenues from Medicare resulted in a decrease of approximately $18 million in operating income for the six months ended June 30, 2014 compared to the year to date operating income in the second quarter of our prior year. The impact of the
4
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
U.S. Sequestration for the last twelve months has resulted in an aggregate reduction to our operating income of $74 million.
ATRA directed CMS to reduce the ESRD PPS payment rate, effective January 1, 2014, to account for changes in the utilization of certain drugs and biologicals that are included in the ESRD PPS. In making such reduction, the law requires CMS to use the most recently available pricing data for such drugs and biologicals. On November 22, 2013, CMS issued the final rule regarding the 2014 ESRD PPS rate. The base rate per treatment was reduced from $240.36 to $239.02 for 2014. This change reflected (a) a bundled market basket increase of 3.2 percent, reduced by an estimated multifactor productivity adjustment of 0.4 percent; (b) the application of a wage index budget neutrality factor and a home dialysis training add-on budget neutrality factor; and (c) the application of a portion of an overall reduction in the base rate ($8.16 per treatment) to account for a decrease in the historical utilization of certain ESRD-related drugs and biologicals from 2007 to 2012. As set forth in the November 2013 final rule, CMS will phase in the drug utilization adjustment mandated by ATRA, which CMS estimates will total $29.93 per treatment, over three to four years. CMS intended that the portion of the reduction that will be applied in 2014 and 2015 will largely offset the net market basket increases in average payments to ESRD facilities as a whole resulting in essentially unchanged reimbursement rates from 2013 to 2015. CMS stated that it would consider in 2015 whether to apply the remainder of the $29.93 reduction in 2016 alone or spread it out over 2016 and 2017.
On April 1, 2014, PAMA was signed into law. This law modifies ATRA such that dialysis reimbursement for 2015 is intended to equal that for 2014. In addition, the reimbursement reductions mandated by ATRA for 2016 and 2017 have been eliminated. Instead, the market basket updates net of the productivity adjustment for each of 2016 and 2017 have been reinstated, though they will be reduced by 1.25 percent each year. For 2018, the market basket update net of the productivity adjustment will be reduced by 1 percent. In addition, the law mandates that ESRD-related drugs with only an oral form, including our phosphate binder PhosLo®, are excluded from the ESRD PPS and separately reimbursed until 2024. Finally, under the law, the reductions pursuant to U.S. Sequestration for the first six months of 2024 will be 4 percent, and there will be no reductions for the second six months of 2024.
On July 2, 2014, CMS issued a proposed rule that would update Medicare payment policies and rates under the ESRD PPS for dialysis services provided on or after January 1, 2015. For calendar year 2015, CMS proposes an ESRD PPS base rate of $239.33. Following the requirements of PAMA, this amount reflects elimination of the drug utilization adjustment, the application of a 0.0 percent market basket update net of the productivity adjustment, and the application of the proposed wage index budget-neutrality adjustment factor.
Any significant decreases in Medicare reimbursement rates could have material adverse effects on our provider business and, because the demand for dialysis products is affected by Medicare reimbursement, on our products business. To the extent that increases in operating costs that are affected by inflation, such as labor and supply costs, are not fully reflected in a compensating increase in reimbursement rates, our business and results of operations may be adversely affected.
On February 4, 2013, CMS announced plans to test a new Comprehensive ESRD Care Program and issued a solicitation for applications. CMS stated that it sought to work with up to 15 healthcare provider groups comprised of dialysis clinics and nephrologists, also known as ESRD Seamless Care Organizations ("ESCOs"), to test a new system of payment and care delivery that seeks to deliver better health outcomes for ESRD patients while potentially lowering CMS's costs. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS's cost of care above certain thresholds for the ESRD
5
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
patients covered by the ESCO will receive a share of the cost savings. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and reimburse CMS a share of any such increases. Organizations must apply and be approved by CMS to participate in the program. In August 2013, we submitted an application to participate in the program as an ESCO. Following submission of our application, CMS announced that it would suspend review of all applications and reopen its request for application in the winter of 2014 to solicit additional participation.
Following receipt of stakeholder feedback, CMS issued revised specifications for the Comprehensive ESRD Care Program in March of 2014. Under the revised specifications, large dialysis organizations were required to submit non-binding applications on or before June 23, 2014, while small dialysis organizations have until September 2014 to apply. We submitted non-binding applications for several different markets across the United States which CMS is currently reviewing. CMS is expected to make a determination on applications from large dialysis organizations in the coming months. Once an ESCO application is approved, CMS and the prospective ESCO will share data and enter into negotiations on the final terms of the shared savings arrangement. Should an agreement be executed, CMS intends that the ESCO will go into effect in January 2015.
We have identified three operating segments, North America Segment, EMEALA, and Asia-Pacific, which were determined based upon how we manage our businesses. All segments are primarily engaged in providing dialysis care services and distributing products and equipment for the treatment of ESRD. For reporting purposes, we have aggregated the EMEALA and Asia-Pacific operating segments as the "International Segment." We aggregated these operating segments due to their similar economic characteristics. These characteristics include same services provided and same products sold, the same type of patient population, similar methods of distribution of products and services and similar economic environments. Our General Partner's management board member responsible for the profitability and cash flow of each segment's various businesses supervises the management of each operating segment. The accounting policies of the segments are the same as those we apply in preparing our consolidated financial statements using accounting principles generally accepted in the United States of America ("U.S. GAAP").
Our management evaluates each segment using measures that reflect all of the segment's controllable revenues and expenses. With respect to the performance of business operations, our management believes that the most appropriate U.S. GAAP measures are revenue, operating income and operating income margin. We do not include income taxes as we believe this is outside the segments' control. Financing is a corporate function which our segments do not control. Therefore, we do not include interest expense relating to financing as a segment measurement. Similarly, we do not allocate certain costs which relate primarily to certain headquarters overhead charges, including accounting and finance, etc. ("Corporate"), because we believe that these costs are also not within the control of the individual segments. Production of products, production asset management, quality management and procurement are centrally managed at Corporate by Global Manufacturing Operations. The Company's global research and development is also centrally managed at Corporate. These Corporate activities do not fulfill the definition of a segment. Products are transferred to the segments at cost; therefore no internal profit is generated. The associated internal revenues for the product transfers and their elimination are recorded as Corporate activities (See Note 14 of the Notes to Consolidated Financial Statements (unaudited) "Segment and Corporate Information" found elsewhere in this report). Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but accounted for as Corporate. Accordingly, all of these items are excluded from our analysis of segment results and are discussed below in our consolidated results of operations.
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FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
The following tables summarize our financial performance and certain operating results by principal reporting segment and Corporate for the periods indicated. Inter-segment revenue primarily reflect sales of medical equipment and supplies. We prepared the information using a management approach, consistent with the basis and manner in which our management internally disaggregates financial information to assist in making internal operating decisions and evaluating management performance.
|
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
|
(in millions) |
(in millions) |
|||||||||||
Total revenue |
|||||||||||||
North America |
$ | 2,523 | $ | 2,377 | $ | 4,918 | $ | 4,665 | |||||
International |
1,297 | 1,228 | 2,458 | 2,397 | |||||||||
Corporate |
17 | 10 | 26 | 17 | |||||||||
| | | | | | | | | | | | | |
Totals |
3,837 | 3,615 | 7,402 | 7,079 | |||||||||
| | | | | | | | | | | | | |
Inter-segment revenue |
|||||||||||||
North America |
2 | 2 | 4 | 3 | |||||||||
International |
- | - | - | - | |||||||||
| | | | | | | | | | | | | |
Totals |
2 | 2 | 4 | 3 | |||||||||
| | | | | | | | | | | | | |
Total net revenue |
|||||||||||||
North America |
2,521 | 2,375 | 4,914 | 4,662 | |||||||||
International |
1,297 | 1,228 | 2,458 | 2,397 | |||||||||
Corporate |
17 | 10 | 26 | 17 | |||||||||
| | | | | | | | | | | | | |
Totals |
3,835 | 3,613 | 7,398 | 7,076 | |||||||||
| | | | | | | | | | | | | |
Operating income |
|||||||||||||
North America |
401 | 391 | 736 | 757 | |||||||||
International |
243 | 218 | 423 | 410 | |||||||||
Corporate |
(88 | ) | (65 | ) | (158 | ) | (129 | ) | |||||
| | | | | | | | | | | | | |
Totals |
556 | 544 | 1,001 | 1,038 | |||||||||
| | | | | | | | | | | | | |
Interest income |
13 | 7 | 28 | 17 | |||||||||
Interest expense |
(111 | ) | (110 | ) | (223 | ) | (224 | ) | |||||
Income tax expense |
(177 | ) | (144 | ) | (278 | ) | (273 | ) | |||||
| | | | | | | | | | | | | |
Net Income |
281 | 297 | 528 | 558 | |||||||||
Less: Net Income attributable to Noncontrolling interests |
(47 | ) | (34 | ) | (89 | ) | (70 | ) | |||||
| | | | | | | | | | | | | |
Net Income attributable to shareholders of FMC-AG & Co. KGaA |
$ | 234 | $ | 263 | $ | 439 | $ | 488 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
7
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Three months ended June 30, 2014 compared to three months ended June 30, 2013
Key Indicators for Consolidated Financial Statements | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the three months ended June 30, |
Change in % | |||||||||||
|
as reported |
at Constant Exchange Rates(1) |
|||||||||||
|
2014 | 2013 | |||||||||||
Revenue in $ million |
3,835 |
3,613 |
6% |
7% |
|||||||||
Number of treatments |
10,527,719 |
10,066,397 |
5% |
||||||||||
Same market treatment growth in % |
3.7% |
3.9% |
|||||||||||
Gross profit as a % of revenue |
31.6% |
32.1% |
|||||||||||
Selling, general and administrative costs as a % of revenue |
16.4% |
16.5% |
|||||||||||
Operating income in $ million |
556 |
544 |
2% |
||||||||||
Operating income margin in % |
14.5% |
15.1% |
|||||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA in $ million |
234 |
263 |
(11% |
) |
|||||||||
Basic earnings per share in $ |
0.77 |
0.86 |
(10% |
) |
(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation Constant Currency" below.
Net dialysis care revenue increased by 7% to $2,949 million (8% increase at Constant Exchange Rates) for the three months ended June 30, 2014 from $2,743 million in the same period of 2013, mainly due to growth in same market treatments (4%), contributions from acquisitions (2%) and increases in organic revenue per treatment (2%), partially offset by the negative impact of exchange rate fluctuations (1%). Included in our net dialysis care revenue is Care Coordination revenue in the U.S. of $208 million and $138 million for the three months ended June 30, 2014 and 2013, respectively.
Treatments increased by 5% for the three months ended June 30, 2014 as compared to the same period in 2013. The increase is due to same market treatment growth (4%) and acquisitions (2%), partially offset by the effect of closed or sold clinics (1%).
At June 30, 2014, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 3,335 clinics compared to 3,212 clinics at June 30, 2013. During the three months ended June 30, 2014, we acquired 71 clinics, opened 16 clinics and combined or closed 15 clinics. The number of patients treated in clinics that we own, operate or manage (excluding patients of clinics managed but not consolidated in the U.S.) increased by 6% to 280,942 at June 30, 2014 from 264,290 at June 30, 2013.
Dialysis product revenue increased by 2% (1% increase at Constant Exchange Rates) to $886 million as compared to $870 million in the same period of 2013. The increase at Constant Exchange Rates was driven by increased sales of dialyzers, bloodlines, products for acute care treatments and devices
8
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
manufactured under a five-year contract with a Fresenius SE company, partially offset by lower sales of machines.
The decrease in gross profit margin to 31.6% from 32.1% reflects decreases in the North America Segment and the International Segment. The decrease in the North America Segment was due to the impact from ATRA reductions on the ESRD PPS payment rate, higher personnel expense, growth in the lower margin pharmacy services business and higher costs as a result of FDA remediation, partially offset by a favorable impact from the ESRD PPS market basket update and a favorable impact from commercial payors. The decrease in the International Segment was due to unfavorable foreign currency exchange effects and price pressure on products, partially offset by favorable business growth in Asia-Pacific.
SG&A expenses increased to $631 million in the three months ended June 30, 2014 from $595 million in the same period of 2013. SG&A expenses as a percentage of sales decreased to 16.4% for the three months of 2014 in comparison with 16.5% in the same period of 2013 due to decreases in the North America Segment and the International Segment and an increase in Corporate. The decrease in the International Segment was mainly driven by favorable foreign currency exchange effects and business growth in Asia-Pacific. The decrease in the North America Segment was due to a favorable impact from commercial payors and growth in the lower margin pharmacy services business, partially offset by higher personnel expense. The increase at Corporate was mainly driven by higher legal and consulting expenses.
Research and development ("R&D") expenses remained flat at $31 million as compared to the same period of 2013.
For the three months ended June 30, 2014, we had slight gains from the sale of dialysis clinics as compared to an $8 million gain from the sale of FMC-AG & Co. KGaA dialysis clinics for the three months ended June 30, 2013.
Income from equity method investees increased to $7 million for the three months ended June 30, 2014 from $4 million for the same period of 2013 due to increased income from the Vifor Fresenius Medical Care Renal Pharma Ltd. ("VFMCRP") renal pharmaceuticals joint venture.
Operating income increased to $556 million for the three months ended June 30, 2014 from $544 million for the same period in 2013. Operating income margin decreased to 14.5% for the three months ended June 30, 2014 as compared to 15.1% for the same period in 2013 as a result of a decrease in gross profit margin and absence of a substantial gain from the sale of dialysis clinics, partially offset by slightly lower SG&A as a percentage of revenue, as discussed above.
Interest expense increased by 1% to $111 million for the three months ended June 30, 2014 from $110 million for the same period in 2013 due to an increase in the average debt level during the year, partially offset by a higher portion of debt with lower interest rates. Interest income increased to $13 million for the three months ended June 30, 2014 from $7 million for the same period in 2013 mainly as a result of interest income from high interest-bearing notes receivables.
Income tax expense increased to $177 million for the three months ended June 30, 2014 from $144 million for the same period in 2013. The effective tax rate increased to 38.7% from 32.6% for the same period of 2013. The tax rate in the second quarter of 2014 was influenced by a tax court decision against another company on a similar transaction for a tax position we took on a prior year's transaction.
9
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Based on this decision we reversed our former tax position which resulted in $18 million of additional expense in the current period.
Net income attributable to noncontrolling interests for the three months ended June 30, 2014 increased to $47 million from $34 million for the same period of 2013 primarily driven by the creation of new joint ventures in the North America Segment in the second half of 2013.
Net income attributable to shareholders of FMC-AG & Co. KGaA for the three months ended June 30, 2014 decreased by 11% to $234 million from $263 million for the same period in 2013 as a result of the combined effects of the items discussed above.
Basic earnings per share decreased by 10% for the three months ended June 30, 2014 to $0.77 as compared with $0.86 in 2013 due to the decrease in net income attributable to shareholders of FMC-AG & Co. KGaA above. The average weighted number of shares outstanding for the period was approximately 301.8 million in 2014 (306.3 million in 2013). The decrease in the number of shares outstanding was the result of the share buyback program completed during the second quarter of 2013, partially offset by stock options exercised.
We employed 94,401 people (full-time equivalents) as of June 30, 2014 compared to 87,944 as of June 30, 2013, an increase of 7%, primarily due to overall growth in our business and acquisitions.
The following discussions pertain to the North America Segment and the International Segment and the measures we use to manage these segments.
Key Indicators for North America Segment | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
For the three months ended June 30, |
|
||||||||
|
Change in % | |||||||||
|
2014 | 2013 | ||||||||
Revenue in $ million |
2,521 |
2,375 |
6% |
|||||||
Number of treatments |
6,617,339 |
6,383,556 |
4% |
|||||||
Same market treatment growth in % |
3.3% |
3.8% |
||||||||
Operating income in $ million |
401 |
391 |
3% |
|||||||
Operating income margin in % |
15.9% |
16.4% |
Revenue
Net dialysis care revenue increased for the three months ended June 30, 2014 by 7% to $2,316 million from $2,157 million in the same period of 2013. This increase was driven by same market treatment growth (3%), contributions from acquisitions (2%) and increases in organic revenue per treatment (2%).
10
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Treatments increased by 4% for the three months ended June 30, 2014 as compared to the same period in 2013 mostly due to same market treatment growth (3%) and acquisitions (1%). At June 30, 2014, 173,557 patients (a 3% increase over June 30, 2013) were being treated in the 2,159 clinics that we own or operate in the North America Segment, compared to 168,160 patients treated in 2,104 clinics at June 30, 2013. Average North America Segment revenue per treatment, which includes Canada and Mexico, before bad debt expense, was $357 for the three months ended June 30, 2014 and $347 in the same period in 2013. In the U.S., the average revenue per treatment was $365 for the three months ended June 30, 2014 and $355 for the same period in 2013. The increase in the U.S. was mainly attributable to increased revenue related to Care Coordination, a favorable impact from the ESRD PPS market basket update and a favorable impact from commercial payors, partially offset by impact from ATRA reductions on the ESRD PPS payment rate and decreased revenue for renal pharmaceuticals.
Dialysis product revenue decreased for the three months ended June 30, 2014 by (6%) to $205 million from $218 million in the first three months of 2013. This decrease was driven by lower sales of machines, renal pharmaceuticals and peritoneal dialysis products, partially offset by higher sales of dialyzers.
Operating Income
Operating income increased to $401 million for the three months ended June 30, 2014 from $391 million for the same period in 2013. Operating income margin decreased to 15.9% for the three months ended June 30, 2014 from 16.4% for the same period in 2013, due to the impact from ATRA reductions on the ESRD PPS payment rate, higher personnel expense, the impact of the 2013 gain on the sale of the last clinic in connection with the Liberty Acquisition, higher consulting expense, growth in the lower margin pharmacy service business and higher costs as a result of FDA remediation, partially offset by favorable impact from the ESRD PPS market basket update and a favorable impact from commercial payors. Cost per treatment for the North America Segment increased to $294 for the three months ended June 30, 2014 as compared to $286 for the same period of 2013. Cost per treatment in the U.S. increased to $300 for the three months ended June 30, 2014 from $291 in the same period of 2013.
Key Indicators for International Segment | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the three months ended June 30, | Change in % | |||||||||||
|
as reported |
at Constant Exchange Rates(1) |
|||||||||||
|
2014 | 2013 | |||||||||||
Revenue in $ million |
1,297 |
1,228 |
6% |
7% |
|||||||||
Number of treatments |
3,910,380 |
3,682,841 |
6% |
||||||||||
Same market treatment growth in % |
4.3% |
4.0% |
|||||||||||
Operating income in $ million |
243 |
218 |
11% |
||||||||||
Operating income margin in % |
18.7% |
17.8% |
(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation Constant Currency" below.
11
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Revenue
Including the effects of acquisitions, European region revenue increased 5% (2% increase at Constant Exchange Rates) to $790 million, Latin America region revenue decreased 6% (10% increase at Constant Exchange Rates) to $198 million, and Asia-Pacific region revenue increased 18% (20% increase at Constant Exchange Rates due to acquisitions of approximately 11%, net of divested clinics, and organic growth of approximately 9%) to $309 million.
Net dialysis care revenue for the International Segment increased during the three months ended June 30, 2014 by 8% (12% at Constant Exchange Rates) to $633 million from $586 million in the same period of 2013. This increase is a result of contributions from acquisitions (6%), same market treatment growth (4%), increases in organic revenue per treatment (4%), partially offset by the negative effect of exchange rate fluctuations (4%) and the effect of closed or sold clinics (2%).
Treatments increased by 6% for the three months ended June 30, 2014 over the same period in 2013 mainly due to same market treatment growth (4%) and contributions from acquisitions (3%), partially offset by the effect of closed or sold clinics (1%). As of June 30, 2014, we had 107,385 patients (a 12% increase over June 30, 2013) being treated at the 1,176 clinics that we own, operate or manage in the International Segment compared to 96,130 patients treated at 1,108 clinics at June 30, 2013. Average revenue per treatment for the three months ended June 30, 2014 increased to $162 from $159 in comparison with the same period of 2013 due to increased reimbursement rates and changes in country mix ($10), partially offset by the weakening of local currencies against the U.S. dollar ($7).
Dialysis product revenue for the three months ended June 30, 2014 increased by 3% (3% increase at Constant Exchange Rates) to $664 million compared to $642 million in the same period of 2013. The increase was driven by increased sales of dialyzers, bloodlines, products for acute care treatments as well as hemodialysis solutions and concentrates, partially offset by lower sales of machines.
Operating Income
Operating income increased to $243 million for the three months ended June 30, 2014 as compared to $218 million for the same period in 2013. Operating income margin increased to 18.7% for the three months ended June 30, 2014 from 17.8% for the same period in 2013 mainly due to a favorable impact from business growth in Asia-Pacific and favorable foreign currency exchange effects, partially offset by price pressure on products.
12
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Six months ended June 30, 2014 compared to six months ended June 30, 2013
Key Indicators for Consolidated Financial Statements | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the six months ended June 30, |
Change in % | |||||||||||
|
as reported |
at Constant Exchange Rates(1) |
|||||||||||
|
2014 | 2013 | |||||||||||
Revenue in $ million |
7,398 |
7,076 |
5% |
6% |
|||||||||
Number of treatments |
20,632,860 |
19,747,907 |
4% |
||||||||||
Same market treatment growth in % |
3.7% |
3.6% |
|||||||||||
Gross profit as a % of revenue |
31.0% |
32.0% |
|||||||||||
Selling, general and administrative costs as a % of revenue |
16.9% |
16.8% |
|||||||||||
Operating income in $ million |
1,001 |
1,038 |
(4% |
) |
|||||||||
Operating income margin in % |
13.5% |
14.7% |
|||||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA in $ million |
439 |
488 |
(10% |
) |
|||||||||
Basic earnings per share in $ |
1.46 |
1.59 |
(9% |
) |
(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation Constant Currency" above.
Net dialysis care revenue increased by 6% to $5,731 million (7% increase at Constant Exchange Rates) for the six months ended June 30, 2014 from $5,422 million in the same period of 2013, mainly due to growth in same market treatments (4%),contributions from acquisitions (2%) and increases in organic revenue per treatment (1%), partially offset by the negative impact of exchange rate fluctuations (1%). Included in our net dialysis care revenue is Care Coordination revenue in the U.S. of $373 million and $266 million for the six months ended June 30, 2014 and 2013, respectively.
Treatments increased by 4% for the six months ended June 30, 2014 as compared to the same period in 2013. The increase is due to same market treatment growth (4%) and acquisitions (1%), partially offset by the effect of closed or sold clinics (1%).
Dialysis product revenue increased by 1% (1% increase at Constant Exchange Rates) to $1,667 million as compared to $1,654 million in the same period of 2013. The increase was driven by increased sales of bloodlines, dialyzers, products for acute care treatments and devices manufactured under a five-year contract with a Fresenius SE company, partially offset by lower sales of machines.
The decrease in gross profit margin to 31.0% from 32.0% reflects a decrease in the North America Segment, partially offset by an increase in the International Segment. The decrease in the North America Segment was due to higher personnel expense, the impact from ATRA reductions on the ESRD PPS payment rate, an unfavorable impact from the U.S. Sequestration, higher costs as a result of FDA
13
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
remediation and higher costs for freight and distribution, partially offset by a favorable impact from the ESRD PPS market basket update and a favorable impact from commercial payors. The increase in the International Segment was due to business growth in Asia-Pacific and a favorable impact from manufacturing driven by higher volumes, partially offset by unfavorable foreign currency exchange effects.
SG&A expenses increased to $1,250 million in the six months ended June 30, 2014 from $1,187 million in the same period of 2013. SG&A expenses as a percentage of sales increased to 16.9% for the six months of 2014 in comparison with 16.8% in the same period of 2013 due to an increase in the International Segment and in Corporate and a decrease in the North America Segment. The increase in the International Segment was mainly driven by an accrual related to the compliance investigation we are conducting (see Note 11 of the Notes to Consolidated Financial Statements (unaudited), "Commitments and Contingencies," included in this report) and cost increases such as personnel expense, partially offset by favorable foreign currency exchange effects, including the 2013 impact from the devaluation of the Venezuelan Bolivar. The increase at Corporate was mainly driven by higher costs related to the changes in the Management Board, higher legal and consulting expense and higher acquisition related costs. The decrease in the North America Segment was due to impacts on the revenue rate discussed above and a favorable impact from growth in the lower margin pharmacy services business.
Research and development ("R&D") expenses remained flat at $61 million as compared to the same period of 2013.
Income from equity method investees increased to $18 million for the six months ended June 30, 2014 from $9 million for the same period of 2013 due to increased income from the VFMCRP renal pharmaceuticals joint venture.
Operating income decreased to $1,001 million for the six months ended June 30, 2014 from $1,038 million for the same period in 2013. Operating income margin decreased to 13.5% for the six months ended June 30, 2014 as compared to 14.7% for the same period in 2013 as a result of a decrease in gross profit margin and higher SG&A as a percentage of revenue, as discussed above.
Interest expense was virtually flat with $223 million for the six months ended June 30, 2014 as compared to $224 million for the same period in 2013 due to a higher portion of debt with lower interest rates, partially offset by an increase in the average debt level during the year. Interest income increased to $28 million for the six months ended June 30, 2014 from $17 million for the same period in 2013 mainly as a result of interest income from high interest-bearing notes receivables.
Income tax expense increased to $278 million for the six months ended June 30, 2014 from $273 million for the same period in 2013. The effective tax rate increased to 34.5% from 32.8% for the same period of 2013. The tax rate for the six months ended June 30, 2014 was influenced by a tax court decision against another company on a similar transaction for a tax position we took on a prior year's transaction. Based on this decision we reversed our former tax position which resulted in $18 million of additional expense in the current period.
Net income attributable to noncontrolling interests for the six months ended June 30, 2014 increased to $89 million from $70 million for the same period of 2013 primarily driven by the creation of new joint ventures in the North America Segment in the second half of 2013.
14
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Net income attributable to shareholders of FMC-AG & Co. KGaA for the six months ended June 30, 2014 decreased by 10% to $439 million from $488 million for the same period in 2013 as a result of the combined effects of the items discussed above.
Basic earnings per share decreased by 9% for the six months ended June 30, 2014 to $1.46 as compared with $1.59 in 2013 due to the decrease in net income attributable to shareholders of FMC-AG & Co. KGaA above. The average weighted number of shares outstanding for the period was approximately 301.6 million in 2014 (306.5 million in 2013). The decrease in the number of shares outstanding was the result of the share buyback program completed during the second quarter of 2013, partially offset by stock options exercised.
The following discussions pertain to the North America Segment and the International Segment and the measures we use to manage these segments.
Key Indicators for North America Segment | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
For the six months ended June 30, |
|
||||||||
|
Change in % | |||||||||
|
2014 | 2013 | ||||||||
Revenue in $ million |
4,914 |
4,662 |
5% |
|||||||
Number of treatments |
12,992,537 |
12,532,406 |
4% |
|||||||
Same market treatment growth in % |
3.3% |
3.7% |
||||||||
Operating income in $ million |
736 |
757 |
(3% |
) |
||||||
Operating income margin in % |
15.0% |
16.2% |
Revenue
Net dialysis care revenue increased for the six months ended June 30, 2014 by 6% to $4,517 million from $4,261 million in the same period of 2013. This increase was driven by same market treatment growth (3%), contributions from acquisitions (2%) and increases in organic revenue per treatment (1%).
Treatments increased by 4% for the six months ended June 30, 2014 as compared to the same period in 2013 mostly due to same market treatment growth (3%) and acquisitions (1%). Average North America Segment revenue per treatment, which includes Canada and Mexico, before bad debt expense, was $356 for the six months ended June 30, 2014 and $349 in the same period in 2013. In the U.S., the average revenue per treatment was $364 for the six months ended June 30, 2014 and $357 for the same period in 2013. The increase in the U.S. was mainly attributable to increased revenue related to Care Coordination, a favorable impact from the ESRD PPS market basket update and a favorable impact from commercial payors, partially offset by impact from ATRA reductions on the ESRD PPS payment rate, the impact from the U.S. Sequestration and decreased revenue for renal pharmaceuticals.
15
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Dialysis product revenue decreased for the six months ended June 30, 2014 by (1%) to $397 million from $401 million in the same period of 2013. This decrease was driven by lower sales of machines and peritoneal dialysis products, partially offset by higher sales of dialyzers and renal pharmaceuticals.
Operating Income
Operating income decreased to $736 million for the six months ended June 30, 2014 from $757 million for the same period in 2013. Operating income margin decreased to 15.0% for the six months ended June 30, 2014 from 16.2% for the same period in 2013, due to higher personnel expense, the impact from ATRA reductions on the ESRD PPS payment rate, an unfavorable impact from the U.S. Sequestration, higher costs as a result of FDA remediation, higher costs for freight and distribution and a lower gain on the sale of legacy dialysis clinics, partially offset by a favorable impact from the ESRD PPS market basket update and higher income from equity method investees. Cost per treatment for the North America Segment increased to $297 for the six months ended June 30, 2014 as compared to $287 for the same period of 2013. Cost per treatment in the U.S. increased to $303 for the six months ended June 30, 2014 from $293 in the same period of 2013.
Key Indicators for International Segment | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the six months ended June 30, |
Change in % | |||||||||||
|
as reported |
at Constant Exchange Rates(1) |
|||||||||||
|
2014 | 2013 | |||||||||||
Revenue in $ million | 2,458 | 2,397 | 3% | 5% | |||||||||
Number of treatments |
7,640,323 |
7,215,501 |
6% |
||||||||||
Same market treatment growth in % |
4.4% |
3.5% |
|||||||||||
Operating income in $ million |
423 |
410 |
3% |
||||||||||
Operating income margin in % |
17.2% |
17.1% |
(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation Constant Currency" above.
Revenue
Including the effects of acquisitions, European region revenue increased 3% (2% increase at Constant Exchange Rates) to $1,522 million, Latin America region revenue decreased 7% (12% increase at Constant Exchange Rates) to $384 million, and Asia-Pacific region revenue increased 7% (11% increase at Constant Exchange Rates) to $552 million.
Net dialysis care revenue for the International Segment increased during the six months ended June 30, 2014 by 5% (10% at Constant Exchange Rates) to $1,214 million from $1,161 million in the same period of 2013. This increase is a result of same market treatment growth (4%), contributions from acquisitions (4%) and increases in organic revenue per treatment (3%), partially offset by the negative effect of exchange rate fluctuations (5%) and the effect of closed or sold clinics (1%).
16
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Treatments increased by 6% for the six months ended June 30, 2014 over the same period in 2013 mainly due to same market treatment growth (4%) and contributions from acquisitions (3%), partially offset by the effect of closed or sold clinics (1%). Average revenue per treatment for the six months ended June 30, 2014 decreased to $159 from $161 in comparison with the same period of 2013 due to weakening of local currencies against the U.S. dollar ($9) partially offset by increased reimbursement rates and changes in country mix ($7).
Dialysis product revenue for the six months ended June 30, 2014 increased by 1% (1% increase at Constant Exchange Rates) to $1,244 million compared to $1,236 million in the same period of 2013. The increase at Constant Exchange Rates was driven by increased sales of bloodlines, products for acute care treatments, peritoneal dialysis products and hemodialysis solutions and concentrates, partially offset by decreased sales of machines.
Operating Income
Operating income increased to $423 million for the six months ended June 30, 2014 as compared to $410 million for the same period in 2013. Operating income margin increased slightly to 17.2% for the six months ended June 30, 2014 from 17.1% for the same period in 2013 mainly due to business growth in Asia-Pacific and a favorable impact from manufacturing which was driven by higher volume production. This was nearly offset by an accrued provision related to the compliance investigation (see Note 11 of the Notes to the Consolidated Financial Statements (unaudited), "Commitments and Contingencies," included in this report), we are conducting.
Liquidity and Capital Resources
Six months ended June 30, 2014 compared to six months ended June 30, 2013
Our primary sources of liquidity are typically cash provided by operating activities, cash provided by short-term borrowings from third parties and related parties, as well as proceeds from the issuance of long-term debt and equity securities. We require this capital primarily to finance working capital needs, fund acquisitions and joint ventures, develop free-standing renal dialysis centers, purchase equipment for existing or new renal dialysis centers and production sites, repay debt, pay dividends and repurchase shares (see 'Net Cash Provided By (Used In) Investing Activities" and "Net Cash Provided By (Used In) Financing Activities" below).
At June 30, 2014, we had cash and cash equivalents of $645 million. For information regarding utilization and availability of cash under our principal credit facility (the "2012 Credit Agreement"), see Note 6 of the Notes to Consolidated Financial Statements (unaudited), "Long-term Debt and Capital Lease Obligations 2012 Credit Agreement," included in this report.
Net Cash Provided By (Used In) Operating Activities
In the first six months of 2014 and 2013, we generated net cash provided by operating activities of $562 million and $841 million, respectively. Cash provided by operating activities is impacted by the profitability of our business, the development of our working capital, principally inventories, receivables and cash outflows that occur due to a number of specific items as discussed below. The decrease in 2014 versus 2013 was mainly a result of the payment for the W.R. Grace bankruptcy settlement (see Note 20 of
17
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
the Notes to the Consolidated Financial Statements, "Commitments and Contingencies Commercial Litigation" in our Annual Report on Form 20-F for the year ended December 31, 2013), increased inventory and higher tax payments.
The profitability of our business depends significantly on reimbursement rates. Approximately 77% of our revenues are generated by providing dialysis services, a major portion of which is reimbursed by either public health care organizations or private insurers. For the six months ended June 30, 2014, approximately 32% of our consolidated revenues were attributable to U.S. federal health care benefit programs, such as Medicare and Medicaid reimbursement. Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide, as well as the scope of Medicare coverage. A decrease in reimbursement rates or the scope of coverage could have a material adverse effect on our business, financial condition and results of operations and thus on our capacity to generate cash flow. With the exception of (i) the implementation of the ESRD PPS in the U.S. in January 2011, (ii) the U.S. federal government Sequestration cuts and (iii) the reductions to the ESRD PPS rate to account for the decline in utilization of certain drugs and biologicals associated with dialysis, we have experienced and also expect in the future to experience generally stable reimbursements worldwide for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries.
Our working capital, which is defined as current assets less current liabilities, was $3,118 million at June 30, 2014 which increased from $2,733 million at December 31, 2013. The change is primarily the result of the repayment of the European Investment Bank ("EIB") Agreements in February of 2014, payment for the W.R. Grace bankruptcy settlement; an increase in prepaid and other current assets as a result of investments in available for sale securities; an increase in our finished goods inventories due to pharmaceuticals we ordered and paid for in 2013 arriving in 2014, delayed sales, and growth in our business; and an increase in our trade accounts receivable as a result of an acquisition and growth in our business, partially offset by an increase in short-term borrowings and short-term borrowings from related parties and an increase in our accrued expenses. Our ratio of current assets to current liabilities was 1.85 at June 30, 2014.
We intend to continue to address our current cash and financing requirements using cash provided by operating activities, our existing and future credit agreements, and the issuance of debt securities. In addition, when funds are required for acquisitions or to meet other needs, we expect to successfully complete long-term financing arrangements, such as the issuance of senior notes, see "Net Cash Provided By (Used In) Financing Activities" below. We aim to preserve financial resources with a minimum of $300 to $500 million of committed and unutilized credit facilities.
Cash provided by operating activities depends on the collection of accounts receivable. Commercial customers and governments generally have different payment cycles. A lengthening of their payment cycles could have a material adverse effect on our capacity to generate cash flow. In addition, we could face difficulties in enforcing and collecting accounts receivable under some countries' legal systems and due to the economic conditions in some countries. Accounts receivable balances, net of valuation allowances, represented days sales outstanding ("DSO") remained constant at approximately 73 at June 30, 2014 as compared to December 31, 2013.
DSO by segment is calculated by dividing the segment's accounts receivable, as converted to U.S. dollars using the average exchange rate for the period presented, less any value added tax included in the receivables, by the average daily sales for the last twelve months of that segment, as converted to U.S. dollars using the average exchange rate for the period. Receivables and sales are adjusted for amounts
18
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
related to significant acquisitions made during the periods presented. The development of DSO by reporting segment is shown in the table below:
|
June 30, 2014 |
December 31, 2013 |
||
---|---|---|---|---|
North America days sales outstanding | 54 | 53 | ||
| | | | |
| | | | |
International days sales outstanding |
107 |
110 |
||
| | | | |
| | | | |
FMC-AG & Co. KGaA average days sales outstanding |
73 |
73 |
||
| | | | |
| | | | |
DSO remained constant. The increase in North America to a large extent was driven by payment delays due to changes in ownership of certain U.S. clinics resulting from the creation of joint ventures in 2013 and payment delays in Mexico. The International Segment's DSO decrease reflects cash collections in Spain as well as an Asia-Pacific acquisition contributing much lower DSO than the average for the region. Due to the fact that a large portion of our reimbursement is provided by public health care organizations and private insurers, we expect that most of our accounts receivable will be collectible, albeit slightly more slowly in the International Segment in the immediate future.
As a result of a tax audit in Germany for fiscal years 2002 through 2005, we expect tax payments in the amount of approximately $120 million in the second half of 2014. We previously had established a provision for this tax payment.
We are subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions. As a result of a tax audit in the U.S. we identified a tax item relating to civil settlement payment deductions taken by FMCH in prior year tax returns that will or could impact our financial results in the future (see Note 11 of the Notes to the Consolidated Financial Statements (unaudited), "Commitments and Contingencies - Other Litigation and Potential Exposures" for further details on this tax matter). We have also received notices of unfavorable adjustments and disallowances in connection with certain of the audits, including those described above. We are contesting, including appealing, certain of these unfavorable determinations. If our objections and any final audit appeals are unsuccessful, we could be required to make additional tax payments, including payments to state tax authorities reflecting the adjustments made in our federal tax returns in the U.S. With respect to other potential adjustments and disallowances of tax matters currently under review, we do not anticipate that an unfavorable ruling could have a material impact on our results of operations. We are not currently able to determine the timing of these potential additional tax payments.
Net Cash Provided By (Used In) Investing Activities
We used net cash of $846 million and $403 million in investing activities in the six months ended June 30, 2014 and 2013, respectively.
Capital expenditures for property, plant and equipment, net of proceeds from sales of property, plant and equipment were $415 million and $319 million in the first six months of 2014 and 2013, respectively. In the first six months of 2014, capital expenditures were $199 million in the North America Segment, $119 million at Corporate, $97 million for the International Segment. Capital expenditures in the first six months of 2013 were $174 million in the North America Segment, $80 million for the International
19
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Segment and $65 million at Corporate. The majority of our capital expenditures was used for maintaining existing clinics, equipping new clinics, maintenance and expansion of production facilities, primarily in Germany, the North America Segment, France and Serbia and capitalization of machines provided to our customers, primarily in the International Segment. Capital expenditures were approximately 6% of total revenue in the first six months of 2014 as compared to 5% for the same period in 2013.
In addition to the capital expenditures discussed above, we invested approximately $435 million cash in the first six months of 2014, $289 million in the North America Segment, $145 million in the International Segment and $1 million at Corporate. The investment in the North American Segment was mainly for available-for-sale securities, deferred acquisition payments related to an equity method investee, notes receivables related to an equity method investee and other acquisitions. The investment in the International Segment largely relates to acquisitions of clinics and deferred acquisition payments related to an equity method investee. In the first six months of 2013, we invested approximately $102 million cash, $45 million in the North America Segment and $57 million in the International Segment.
In July 2014, in the North America Segment, we invested approximately $550 million net in a physician services organization. See Note 16 of the Notes to the Consolidated Financial Statements (unaudited), "Subsequent events," included in this report.
Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities was $247 million in the first six months of 2014 compared to net cash used in financing activities of $524 million in the first six months of 2013, respectively.
In the six-month period ended June 30, 2014, cash was mainly provided by proceeds from long-term and short-term borrowings including drawing under the revolving credit facility as well as the Accounts Receivable facility, partially offset by the repayment for the EIB Agreements, repayment of portions of long-term debt and short term borrowings, payment of dividends as well as distributions to noncontrolling interests. In the first six months of 2013, cash was used in the payment of dividends, the purchase of our shares through the share buyback program, distributions to noncontrolling interests as well as the repayment of portions of long-term debt and short-term borrowings, partially offset by proceeds from long-term and short-term borrowings as well as drawings on the accounts receivable facility.
On May 15, 2014, we paid a dividend with respect to 2013 of €.77 per ordinary share (for 2012 paid in 2013 €.75). The total dividend payment was €232 million ($318 million) as compared with €230 million ($296 million) in the prior year.
Non-U.S. GAAP Measures for Presentation
Constant Currency
Changes in revenue include the impact of changes in foreign currency exchange rates. We use the non-GAAP financial measure at Constant Exchange Rates or Constant Currency in our filings to show changes in our revenue without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, revenues received in local (non-U.S. dollar) currency are translated into U.S. dollars at the average exchange rate for the period presented. Once we translate the local currency revenues for the Constant Currency, we then calculate the change, as a percentage, of the current period revenues using the prior
20
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
period exchange rates versus the prior period revenues. This resulting percentage is a non-GAAP measure referring to a change as a percentage at Constant Currency.
We believe that revenue growth is a key indication of how a company is progressing from period to period and that the non-GAAP financial measure Constant Currency is useful to investors, lenders, and other creditors because such information enables them to gauge the impact of currency fluctuations on a company's revenue from period to period. However, we also believe that the usefulness of data on Constant Currency period-over-period changes is subject to limitations, particularly if the currency effects that are eliminated constitute a significant element of our revenue and significantly impact our performance. We therefore limit our use of Constant Currency period-over-period changes to a measure for the impact of currency fluctuations on the translation of local currency revenue into U.S. dollars. We do not evaluate our results and performance without considering both Constant Currency period-over-period changes in non-U.S. GAAP revenue on the one hand and changes in revenue prepared in accordance with U.S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering data on Constant Currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenue prepared in accordance with U.S. GAAP. We present the fluctuation derived from U.S. GAAP revenue next to the fluctuation derived from non-GAAP revenue. Because the reconciliation is inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.
EBITDA
EBITDA (earnings before interest, tax, depreciation and amortization expenses) was approximately $1,337 million, 18.1% of revenues for the six-month period ended June 30, 2014, and $1,353 million, 19.1% of revenues for the same period of 2013. EBITDA is the basis for determining compliance with certain covenants contained in our 2012 Credit Agreement, euro-denominated notes and the indentures relating to our senior notes. You should not consider EBITDA to be an alternative to net earnings determined in accordance with U.S. GAAP or to cash flow from operations, investing activities or financing activities. In addition, not all funds depicted by EBITDA are available for management's discretionary use. For example, a substantial portion of such funds are subject to contractual restrictions and functional requirements for debt service, to fund necessary capital expenditures and to meet other commitments from time to time as described in more detail elsewhere in this report. EBITDA, as calculated, may not be comparable to similarly titled measures reported by other companies. A reconciliation of EBITDA to cash
21
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
flow provided by (used in) operating activities, which we believe to be the most directly comparable U.S. GAAP financial measure, is calculated as follows:
|
For the six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
|
($ in millions) |
||||||
Total EBITDA | $ | 1,337 | $ | 1,353 | |||
Interest expense (net of interest income) | (195 | ) | (207 | ) | |||
Income tax expense, net | (278 | ) | (273 | ) | |||
Change in deferred taxes, net | 1 | (1 | ) | ||||
Changes in operating assets and liabilities | (333 | ) | (49 | ) | |||
Stock compensation expense | (1 | ) | 13 | ||||
Other items, net | 31 | 5 | |||||
| | | | | | | |
Net cash provided by (used in) operating activities | $ | 562 | $ | 841 | |||
| | | | | | | |
| | | | | | | |
Cash flow measures
Our consolidated statement of cash flows indicates how we generated and used cash and cash equivalents. When used in conjunction with the other primary financial statements, it provides information that helps us evaluate the changes in our net assets and our financial structure (including our liquidity and solvency). The net cash provided by (used in) operating activities is used to assess whether our business can generate the cash required to make replacement and expansion investments. Net cash provided by (used in) operating activities is impacted by the profitability of our business and development of working capital, principally receivables. The financial key performance indicator of net cash provided by (used in) operating activities in percentage of revenue shows the percentage of our revenue that is available in terms of financial resources.
Free cash flow is the cash flow provided by (used in) operating activities after capital expenditures for property, plant and equipment but before acquisitions and investments. The key performance indicator used by management is free cash flow in percentage of revenue. This represents the percentage of revenue that is available for acquisitions, dividends to shareholders, or the reduction of debt financing.
The following table shows the significant cash flow key performance indicators for the six months ended June 30, 2014 and 2013:
|
For the six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
|
(in millions) |
||||||
Revenue | $ | 7,398 | $ | 7,076 | |||
Net cash provided by (used in) operating activities | 562 | 841 | |||||
Capital expenditures | (419 | ) | (334 | ) | |||
Proceeds from sale of property, plant and equipment | 4 | 15 | |||||
Capital expenditures, net | (415 | ) | (319 | ) | |||
Free cash flow | 147 | 522 | |||||
Net cash provided by (used in) operating activities in % of revenue | 7.6% | 11.9% | |||||
Free cash flow in % of revenue | 2.0% | 7.4% |
22
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Total assets as of June 30, 2014 increased to $24.1 billion from $23.1 billion as compared to December 31, 2013. Current assets as a percent of total assets increased to 28% at June 30, 2014 as compared to 27% at December 31, 2013. The equity ratio, the ratio of our equity divided by total liabilities and shareholders' equity, decreased to 40% at June 30, 2014 as compared to 41% at December 31, 2013.
Below is a table showing our growth outlook for 2014:
|
2014 | |
---|---|---|
Revenue (1) | ~ $15.2 billion | |
Operating income |
~ $2.2 billion |
|
Operating income margin |
~ 14,5% |
|
Net income (2) |
$1.0 $1.05 billion |
|
Net income growth (2) |
decrease 5 10% |
|
Basic earnings per share growth (2) |
based on development of net income |
|
Capital Expenditures |
~ $0.9 billion |
|
Acquisitions and investments |
~ $1.0 billion |
|
Net cash provided by (used in) operating activities |
> $1.5 billion |
|
Net cash provided by (used in) operating activities in % of revenue |
> 10% |
|
Free cash flow in % of revenue |
> 4% |
|
Debt/EBITDA Ratio |
~ 3.0 |
|
Employees (3) |
~ 97,000 |
|
Research and development expenses |
~ $140 million |
(1) This outlook excludes revenue of about $500 million from acquisitions.
(2) Net income attributable to shareholders of FMC AG & Co. KGaA
(3) Full-time equivalents.
The Company initiated a global efficiency program designed to enhance the Company's performance over a multi-year period which should lead to sustainable savings. Potential cost savings before income taxes of up to $60 million generated from this program are not included in the Outlook for 2014.
23
FRESENIUS MEDICAL CARE AG & Co. KGaA
Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2014 and 2013
Recently Issued Accounting Pronouncements
On May 28, 2014, the FASB issued Accounting Standards Update 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers, Topic 606. Simultaneously, the IASB published its equivalent revenue standard, "IFRS 15," Revenue from Contracts with Customers. The standards are the result of a convergence project between FASB and the IASB. This update specifies how and when companies reporting under U.S. GAAP will recognize revenue as well as providing users of financial statements with more informative and relevant disclosures. ASU 2014-09 supersedes some guidance included in topic 605, Revenue Recognition, some guidance within the scope of Topic 360, Property, Plant, and Equipment, and some guidance within the scope of Topic 350, Intangibles Goodwill and Other. This ASU applies to nearly all contracts with customers, unless those contracts are within the scope of other standards (for example, lease contracts or insurance contracts). This update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2016. Earlier adoption is not permitted. We are currently evaluating the impact of 2014-09 on our Consolidated Financial Statements.
On June 12, 2014, FASB issued Accounting Standards Update 2014-11 ("ASU 2014-11"), Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which aligns the accounting for repurchase-to-maturity transactions and repurchase financing arrangements with the accounting for other typical repurchase agreements, i.e these transactions will be accounted for as secured borrowings. ASU 2014-11 also requires additional disclosures about repurchase agreements and other similar transactions. The update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2014. We are currently evaluating the impact of ASU 2014-11 on our Consolidated Financial Statements.
On June 19, 2014, FASB issued Accounting Standards Update 2014-12 ("ASU 2014-12"), Compensation Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. The update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2015. Early adoption is permitted. We utilized and will continue to utilize the guidance updated by this ASU and as such there is no expected impact on our Consolidated Financial Statements.
24
FRESENIUS MEDICAL CARE AG & Co. KGaA
Financial Statements
Consolidated Statements of Income
(unaudited)
(in thousands, except share data)
|
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Revenue: | |||||||||||||
Dialysis Care |
$ | 3,013,544 | $ | 2,811,244 | $ | 5,858,968 | $ | 5,553,179 | |||||
Less: Patient service bad debt provision |
64,715 | 67,798 | 127,952 | 131,547 | |||||||||
| | | | | | | | | | | | | |
Net Dialysis Care |
2,948,829 | 2,743,446 | 5,731,016 | 5,421,632 | |||||||||
Dialysis Products |
885,973 | 869,069 | 1,667,378 | 1,654,804 | |||||||||
| | | | | | | | | | | | | |
3,834,802 | 3,612,515 | 7,398,394 | 7,076,436 | ||||||||||
Costs of revenue: |
|||||||||||||
Dialysis Care |
2,201,418 | 2,057,342 | 4,319,022 | 4,041,566 | |||||||||
Dialysis Products |
421,966 | 396,800 | 785,822 | 766,979 | |||||||||
| | | | | | | | | | | | | |
2,623,384 | 2,454,142 | 5,104,844 | 4,808,545 | ||||||||||
Gross profit |
1,211,418 |
1,158,373 |
2,293,550 |
2,267,891 |
|||||||||
Operating (income) expenses: |
|||||||||||||
Selling, general and administrative |
630,641 | 595,356 | 1,250,374 | 1,187,070 | |||||||||
Gain on sale of dialysis clinics |
(228 | ) | (7,727 | ) | (230 | ) | (8,800 | ) | |||||
Research and development |
30,701 | 30,921 | 60,729 | 61,293 | |||||||||
Income from equity method investees |
(5,969 | ) | (4,416 | ) | (18,491 | ) | (9,224 | ) | |||||
| | | | | | | | | | | | | |
Operating income | 556,273 | 544,239 | 1,001,168 | 1,037,552 | |||||||||
Other (income) expense: |
|||||||||||||
Interest income |
(12,899 | ) | (6,653 | ) | (28,314 | ) | (17,242 | ) | |||||
Interest expense |
111,305 | 109,704 | 222,981 | 224,522 | |||||||||
| | | | | | | | | | | | | |
Income before income taxes | 457,867 | 441,188 | 806,501 | 830,272 | |||||||||
Income tax expense |
177,291 |
143,613 |
278,575 |
272,614 |
|||||||||
| | | | | | | | | | | | | |
Net income | 280,576 | 297,575 | 527,926 | 557,658 | |||||||||
Less: Net income attributable to noncontrolling interests |
46,934 | 35,051 | 88,822 | 69,635 | |||||||||
| | | | | | | | | | | | | |
Net income attributable to shareholders of FMC-AG & Co. KGaA | $ | 233,642 | $ | 262,524 | $ | 439,104 | $ | 488,023 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic earnings per share | $ | 0.77 | $ | 0.86 | $ | 1.46 | $ | 1.59 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Fully diluted earnings per share | $ | 0.77 | $ | 0.85 | $ | 1.45 | $ | 1.59 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
25
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands, except share data)
|
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Net Income | $ | 280,576 | $ | 297,575 | $ | 527,926 | $ | 557,658 | |||||
| | | | | | | | | | | | | |
Gain (loss) related to cash flow hedges |
7,071 | 3,993 | 14,030 | 19,890 | |||||||||
Actuarial gain (loss) on defined benefit pension plans |
4,355 | 6,390 | 8,709 | 12,788 | |||||||||
Gain (loss) related to foreign currency translation |
37,770 | (59,178 | ) | (9,286 | ) | (127,370 | ) | ||||||
Income tax (expense) benefit related to components of other comprehensive income |
(3,611 | ) | (3,233 | ) | (7,161 | ) | (9,917 | ) | |||||
| | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | 45,585 | (52,028 | ) | 6,292 | (104,609 | ) | |||||||
| | | | | | | | | | | | | |
Total comprehensive income | $ | 326,161 | $ | 245,547 | $ | 534,218 | $ | 453,049 | |||||
Comprehensive income attributable to noncontrolling interests |
47,216 | 34,715 | 89,071 | 67,317 | |||||||||
| | | | | | | | | | | | | |
Comprehensive income attributable to shareholders of FMC-AG & Co. KGaA | $ | 278,945 | $ | 210,832 | $ | 445,147 | $ | 385,732 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
26
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated Balance Sheets
At June 30, 2014 and
December 31, 2013
(in thousands, except share data)
|
June 30, 2014 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
|
(unaudited) |
(audited) |
|||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents |
$ | 644,538 | $ | 682,777 | |||
Trade accounts receivable less allowance for doubtful accounts of $402,900 in 2014 and $413,165 in 2013 |
3,176,410 | 3,037,274 | |||||
Accounts receivable from related parties |
201,784 | 153,118 | |||||
Inventories |
1,279,427 | 1,097,104 | |||||
Prepaid expenses and other current assets |
1,248,233 | 1,037,391 | |||||
Deferred taxes |
254,768 | 279,052 | |||||
| | | | | | | |
Total current assets |
6,805,160 | 6,286,716 | |||||
Property, plant and equipment, net |
3,299,880 |
3,091,954 |
|||||
Intangible assets | 728,093 | 757,876 | |||||
Goodwill | 11,873,989 | 11,658,187 | |||||
Deferred taxes | 117,461 | 104,167 | |||||
Investment in equity method investees | 737,916 | 664,446 | |||||
Other assets and notes receivables | 582,758 | 556,560 | |||||
| | | | | | | |
Total assets |
$ | 24,145,257 | $ | 23,119,906 | |||
| | | | | | | |
| | | | | | | |
Liabilities and shareholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable |
$ | 559,031 | $ | 542,597 | |||
Accounts payable to related parties |
164,499 | 123,929 | |||||
Accrued expenses and other current liabilities |
2,054,683 | 2,012,533 | |||||
Short-term borrowings and other financial liabilities |
197,804 | 96,648 | |||||
Short-term borrowings from related parties |
161,984 | 62,342 | |||||
Current portion of long-term debt and capital lease obligations |
335,416 | 511,370 | |||||
Income tax payable |
178,032 | 170,360 | |||||
Deferred taxes |
35,472 | 34,194 | |||||
| | | | | | | |
Total current liabilities |
3,686,921 | 3,553,973 | |||||
Long-term debt and capital lease obligations, less current portion |
8,444,284 |
7,746,920 |
|||||
Other liabilities | 337,147 | 329,561 | |||||
Pension liabilities | 436,711 | 435,858 | |||||
Income tax payable | 185,476 | 176,933 | |||||
Deferred taxes | 732,330 | 743,390 | |||||
| | | | | | | |
Total liabilities |
13,822,869 | 12,986,635 | |||||
Noncontrolling interests subject to put provisions |
672,234 |
648,251 |
|||||
Shareholders' equity: |
|||||||
Ordinary shares, no par value, €1.00 nominal value, 392,462,972 shares authorized, 309,852,756 issued and 302,303,805 outstanding | 383,586 | 382,411 | |||||
Treasury stock, at cost | (505,014 | ) | (505,014 | ) | |||
Additional paid-in capital | 3,549,022 | 3,530,337 | |||||
Retained earnings | 6,498,618 | 6,377,417 | |||||
Accumulated other comprehensive (loss) income | (544,544 | ) | (550,587 | ) | |||
| | | | | | | |
Total FMC-AG & Co. KGaA shareholders' equity |
9,381,668 | 9,234,564 | |||||
Noncontrolling interests not subject to put provisions | 268,486 | 250,456 | |||||
Total equity |
9,650,154 | 9,485,020 | |||||
| | | | | | | |
Total liabilities and equity |
$ | 24,145,257 | $ | 23,119,906 | |||
| | | | | | | |
| | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
27
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated Statements of Cash Flows
For the six months ended
June 30, 2014 and 2013
(unaudited, in thousands)
|
For the six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Operating Activities: | |||||||
Net income |
$ | 527,926 | $ | 557,658 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
336,126 | 315,154 | |||||
Change in deferred taxes, net |
692 | (529 | ) | ||||
(Gain) loss on sale of investments |
(230 | ) | (8,800 | ) | |||
(Gain) loss on sale of fixed assets |
1,774 | 2,546 | |||||
Compensation expense related to stock options |
(1,403 | ) | 12,777 | ||||
Cash inflow (outflow) from hedging |
- | (4,028 | ) | ||||
Investments in equity method investees, net |
28,737 | 14,751 | |||||
Changes in assets and liabilities, net of amounts from businesses acquired: |
|||||||
Trade accounts receivable, net |
(93,529 | ) | (62,574 | ) | |||
Inventories |
(180,098 | ) | (34,265 | ) | |||
Prepaid expenses, other current and non-current assets |
(66,742 | ) | 22,735 | ||||
Accounts receivable from related parties |
(27,465 | ) | (56,774 | ) | |||
Accounts payable to related parties |
41,652 | 78,094 | |||||
Accounts payable, accrued expenses and other current and non-current liabilities |
(7,651 | ) | (9,009 | ) | |||
Income tax payable |
1,818 | 12,801 | |||||
| | | | | | | |
Net cash provided by (used in) operating activities |
561,607 | 840,537 | |||||
| | | | | | | |
Investing Activities: | |||||||
Purchases of property, plant and equipment |
(419,259 | ) | (333,642 | ) | |||
Proceeds from sale of property, plant and equipment |
4,291 | 14,796 | |||||
Acquisitions and investments, net of cash acquired, and purchases of intangible assets |
(434,697 | ) | (101,809 | ) | |||
Proceeds from divestitures |
3,310 | 17,824 | |||||
| | | | | | | |
Net cash provided by (used in) investing activities |
(846,355 | ) | (402,831 | ) | |||
| | | | | | | |
Financing Activities: | |||||||
Proceeds from short-term borrowings |
137,213 | 64,703 | |||||
Repayments of short-term borrowings |
(50,583 | ) | (62,148 | ) | |||
Proceeds from short-term borrowings from related parties |
158,407 | 4,203 | |||||
Repayments of short-term borrowings from related parties |
(56,758 | ) | (5,819 | ) | |||
Proceeds from long-term debt and capital lease obligations |
786,242 | 203,080 | |||||
Repayments of long-term debt and capital lease obligations |
(450,277 | ) | (169,796 | ) | |||
Increase (decrease) of accounts receivable securitization program |
72,000 | 23,000 | |||||
Proceeds from exercise of stock options |
40,753 | 36,142 | |||||
Purchase of treasury stock |
- | (230,654 | ) | ||||
Dividends paid |
(317,903 | ) | (296,134 | ) | |||
Distributions to noncontrolling interests |
(97,047 | ) | (117,855 | ) | |||
Contributions from noncontrolling interests |
25,323 | 27,157 | |||||
| | | | | | | |
Net cash provided by (used in) financing activities |
247,370 | (524,121 | ) | ||||
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | (861 | ) | (15,768 | ) | |||
| | | | | | | |
Cash and Cash Equivalents: | |||||||
Net increase (decrease) in cash and cash equivalents |
(38,239 | ) | (102,183 | ) | |||
Cash and cash equivalents at beginning of period |
682,777 | 688,040 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 644,538 | $ | 585,857 | |||
| | | | | | | |
| | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
28
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated Statement of Shareholders' Equity
For the six months ended
June 30, 2014 (unaudited) and
year ended December 31, 2013 (audited)
(in thousands, except share data)
|
Preference Shares | Ordinary Shares | Treasury Stock | |
|
|
Total FMC-AG & Co. KGaA shareholders' equity |
|
|
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Accumulated Other comprehensive income (loss) |
Noncontrolling interests not subject to put provisions |
|
||||||||||||||||||||||||||||||||
|
Number of shares |
No par value |
Number of shares |
No par value |
Number of shares |
Amount | Additional paid in capital |
Retained earnings |
Total Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2012 | 3,973,333 | $ | 4,462 | 302,739,758 | $ | 374,915 | - | $ | - | $ | 3,491,581 | $ | 5,563,661 | $ | (492,113 | ) | $ | 8,942,506 | $ | 264,754 | $ | 9,207,260 | |||||||||||||||
Proceeds from exercise of options and related tax effects | 2,200 | 3 | 2,280,439 | 3,031 | - | - | 102,520 | - | - | 105,554 | - | 105,554 | |||||||||||||||||||||||||
Proceeds from conversion of preference shares into ordinary shares | (3,975,533 | ) | (4,465 | ) | 3,975,533 | 4,465 | - | - | 34,784 | - | - | 34,784 | - | 34,784 | |||||||||||||||||||||||
Compensation expense related to stock options | - | - | - | - | - | - | 13,593 | - | - | 13,593 | - | 13,593 | |||||||||||||||||||||||||
Purchase of treasury stock | - | - | - | - | (7,548,951 | ) | (505,014 | ) | - | - | - | (505,014 | ) | - | (505,014 | ) | |||||||||||||||||||||
Dividends paid | - | - | - | - | - | - | - | (296,134 | ) | - | (296,134 | ) | - | (296,134 | ) | ||||||||||||||||||||||
Purchase/ sale of noncontrolling interests | - | - | - | - | - | - | (3,566 | ) | - | - | (3,566 | ) | (11,607 | ) | (15,173 | ) | |||||||||||||||||||||
Contributions from/ to noncontrolling interests | - | - | - | - | - | - | - | - | - | - | (32,275 | ) | (32,275 | ) | |||||||||||||||||||||||
Changes in fair value of noncontrolling interests subject to put provisions | - | - | - | - | - | - | (108,575 | ) | - | - | (108,575 | ) | - | (108,575 | ) | ||||||||||||||||||||||
Net income |
- | - | - | - | - | - | - | 1,109,890 | - | 1,109,890 | 32,577 | 1,142,467 | |||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | - | - | - | - | - | - | (58,474 | ) | (58,474 | ) | (2,993 | ) | (61,467 | ) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | - | - | - | - | - | - | - | - | - | 1,051,416 | 29,584 | 1,081,000 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 | - | $ | - | 308,995,730 | $ | 382,411 | (7,548,951 | ) | $ | (505,014 | ) | $ | 3,530,337 | $ | 6,377,417 | $ | (550,587 | ) | $ | 9,234,564 | $ | 250,456 | $ | 9,485,020 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of options and related tax effects | - | - | 857,026 | 1,175 | - | - | 39,550 | - | - | 40,725 | - | 40,725 | |||||||||||||||||||||||||
Compensation expense related to stock options | - | - | - | - | - | - | (1,403 | ) | - | - | (1,403 | ) | - | (1,403 | ) | ||||||||||||||||||||||
Dividends paid | - | - | - | - | - | - | - | (317,903 | ) | - | (317,903 | ) | - | (317,903 | ) | ||||||||||||||||||||||
Purchase/ sale of noncontrolling interests | - | - | - | - | - | - | (3,053 | ) | - | - | (3,053 | ) | 6,945 | 3,892 | |||||||||||||||||||||||
Contributions from/ to noncontrolling interests | - | - | - | - | - | - | - | - | - | - | (19,660 | ) | (19,660 | ) | |||||||||||||||||||||||
Changes in fair value of noncontrolling interests subject to put provisions | - | - | - | - | - | - | (16,409 | ) | - | - | (16,409 | ) | - | (16,409 | ) | ||||||||||||||||||||||
Net income |
- | - | - | - | - | - | - | 439,104 | - | 439,104 | 30,326 | 469,430 | |||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | - | - | - | - | - | - | 6,043 | 6,043 | 419 | 6,462 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | - | - | - | - | - | - | - | - | - | 445,147 | 30,745 | 475,892 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2014 | - | $ | - | 309,852,756 | $ | 383,586 | (7,548,951 | ) | $ | (505,014 | ) | $ | 3,549,022 | $ | 6,498,618 | $ | (544,544 | ) | $ | 9,381,668 | $ | 268,486 | $ | 9,650,154 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
29
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
1. The Company and Basis of Presentation
The Company
Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA" or the "Company"), a German partnership limited by shares (Kommanditgesellschaft auf Aktien), is the world's largest kidney dialysis company, operating in both the field of dialysis care and the field of dialysis products for the treatment of end-stage renal disease ("ESRD"). The Company's dialysis care business, in addition to providing dialysis treatments to patients with ESRD, includes pharmacy services, vascular access surgery services, laboratory testing services, physician services, health plan services and urgent care services (together, "Care Coordination"). The Company's dialysis products business includes manufacturing and distributing products for the treatment of ESRD. The Company's dialysis business is vertically integrated, providing dialysis treatment at dialysis clinics it owns or operates and supplying these clinics with a broad range of products. In addition, the Company sells dialysis products to other dialysis service providers. In the United States ("U.S."), the Company also provides inpatient dialysis services as well as other services under contract to hospitals.
In these unaudited consolidated financial statements, "FMC-AG & Co. KGaA," or the "Company," "we," "us" or "our" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. The term "North America Segment" refers to the Company's North America operating segment and the term "International Segment" refers to the combination of the Europe, Middle East, Africa, and Latin America ("EMEALA") operating segment and the Asia-Pacific operating segment. For further discussion of our operating segments, see Note 14 "Segment and Corporate Information."
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The consolidated financial statements at June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 contained in this report are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company's 2013 Annual Report on Form 20-F. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Such financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are of a normal recurring nature.
The accounting policies applied in the accompanying consolidated financial statements are the same as those applied in the consolidated financial statements at and for the year ended December 31, 2013, contained in the Company's 2013 Annual Report on Form 20-F.
Certain items, in the net aggregate amount of $6,364 and $11,370 for the three- and six-month periods ending June 30, 2013, respectively, relating to research and development, compensation expense, and
30
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
income from equity method investees have been reclassified in the prior year's comparative consolidated financial statements between the North America Segment, the International Segment and Corporate, as applicable, to conform to the current year's presentation.
The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results of operations for the year ending December 31, 2014.
2. Related Party Transactions
The Company's parent, Fresenius SE & Co. KGaA ("Fresenius SE"), a German partnership limited by shares, owns 100% of the share capital of Fresenius Medical Care Management AG, the Company's general partner ("General Partner"). Fresenius SE is also the Company's largest shareholder and owns approximately 31.2% of the Company's outstanding shares at June 30, 2014. The Company has entered into certain arrangements for services, leases and products with Fresenius SE or its subsidiaries and with certain of the Company's equity method investees as described in item a) below. The Company's terms related to the receivables or payables for these services, leases and products are generally consistent with the normal terms of the Company's ordinary course of business transactions with unrelated parties. Financing arrangements as described in item b) below have agreed upon terms which are determined at the time such financing transactions occur and reflect market rates at the time of the transaction. The relationship between the Company and its related parties that assume the role of key management personnel is described in item c) below. Our related party transactions are settled through Fresenius SE's cash management system where appropriate.
a) Service Agreements, Lease Agreements and Products
The Company is party to service agreements with Fresenius SE and certain of its affiliates (collectively the "Fresenius SE Companies") to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, information technology services, tax services and treasury management services. The Company also provides certain services to the Fresenius SE Companies, including research and development, central purchasing and warehousing. The Company also performs clinical studies and marketing and distribution services for certain of its equity method investees.
The Company entered into real estate operating lease agreements with the Fresenius SE Companies, which include leases for the corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany. The majority of the leases expire in 2016 and contain renewal options.
In addition to the above mentioned service and lease agreements, the Company sold products to the Fresenius SE Companies and made purchases from the Fresenius SE Companies. In addition, Fresenius Medical Care Holdings, Inc. ("FMCH") purchases heparin supplied by Fresenius Kabi USA, Inc. ("Kabi USA"), through an independent group purchasing organization ("GPO"). Kabi USA is wholly-owned by Fresenius Kabi AG, a wholly-owned subsidiary of Fresenius SE. The Company has no direct supply agreement with Kabi USA and does not submit purchase orders directly to Kabi USA. FMCH acquires heparin from Kabi USA, through the GPO contract, which was negotiated by the GPO at arm's length on behalf of all members of the GPO.
31
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
The Company entered into an agreement with a Fresenius SE company for the manufacturing of plasma collection devices. The Company agreed to produce 3,500 units, with an option to produce a total of 4,550 units, over the length of the five year contract.
Below is a summary, including the Company's receivables from and payables to the indicated parties resulting from the above described transactions with related parties.
Service Agreements, Lease Agreements and Products | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the six months ended June 30, 2014 |
For the six months ended June 30, 2013 |
June 30, 2014 | December 31, 2013 | |||||||||||||||||||||
|
Sales of goods and services |
Purchases of goods and services |
Sales of goods and services |
Purchases of goods and services |
Accounts Receivables |
Accounts Payables |
Accounts Receivables |
Accounts Payables |
|||||||||||||||||
Service Agreements | |||||||||||||||||||||||||
Fresenius SE |
184 | 11,757 | 208 | 11,406 | 1 | 4,253 | 245 | 2,365 | |||||||||||||||||
Fresenius SE affiliates |
4,346 | 28,025 | 3,179 | 45,847 | 664 | 2,465 | 975 | 1,900 | |||||||||||||||||
Equity method investees |
9,782 | 10,547 | 3,999 | 20,336 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
14,312 | 39,782 | 13,934 | 57,253 | 4,664 | 6,718 | 21,556 | 4,265 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Lease Agreements | |||||||||||||||||||||||||
Fresenius SE |
5,299 | 4,871 | |||||||||||||||||||||||
Fresenius SE affiliates |
8,957 | 8,446 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
14,256 | 13,317 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Products | |||||||||||||||||||||||||
Fresenius SE |
17 | ||||||||||||||||||||||||
Fresenius SE affiliates |
24,710 | 23,153 | 15,581 | 30,930 | 20,705 | 4,546 | 18,587 | 7,231 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
24,710 | 23,153 | 15,598 | 30,930 | 20,705 | 4,546 | 18,587 | 7,231 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
b) Financing
The Company receives short-term financing from and provides short-term financing to Fresenius SE. The Company also utilizes Fresenius SE's cash management system for the settlement of certain intercompany receivables and payables with its subsidiaries and other related parties. As of June 30, 2014 and December 31, 2013, the Company had accounts receivables from Fresenius SE related to short-term financing in the amount of $152,851 and $112,568, respectively. As of June 30, 2014 and December 31, 2013, the Company had accounts payables to Fresenius SE related to short-term financing in the amount of $136,095 and $102,731, respectively. The interest rates for these cash management arrangements are set on a daily basis and are based on the then-prevailing overnight reference rate for the respective currencies.
On June 12, 2014, the Company provided a one year unsecured term loan to one of its equity method investees in the amount of $22,500 with an interest rate of 2.5366%. The loan agreement contains automatic one year renewals and requires a six month termination notice.
At June 30, 2014, the Company borrowed from Fresenius SE €115,600 ($157,886 at June 30, 2014) on an unsecured basis at an interest rate of 1.474%. Subsequent to June 30, 2014, the Company received additional advances from Fresenius SE increasing the amount borrowed to €288,900 ($394,580) and is due on July 31, 2014. For further information on this loan agreement, see Note 5. "Short-Term Borrowings, Other Financial Liabilities and Short-Term Borrowings from Related Parties Short-Term Borrowings from Related Parties."
On August 19, 2009, the Company borrowed €1,500 ($2,049 at June 30, 2014) from the General Partner on an unsecured basis at 1.335%. The loan repayment has been extended periodically and is currently due August 20, 2014 with an interest rate of 1.796%. On November 28, 2013, the Company
32
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
borrowed an additional €1,500 ($2,049 at June 30, 2014) from the General Partner at 1.875%. This loan is due on November 28, 2014.
At June 30, 2014 and December 31, 2013, a subsidiary of Fresenius SE held unsecured Senior Notes issued by the Company in the amount of €11,800 and €11,800 ($16,116 and $16,273), respectively. The Senior Notes were issued in 2011 and 2012, mature on 2021 and 2019, respectively, and have a coupon rate of 5.25% with interest payable semiannually.
On May 23, 2014, the maturity date, the Company repaid a Chinese Yuan Renminbi ("CNY") loan, with interest, of 360,794 ($57,854) to a subsidiary of Fresenius SE.
c) Key Management Personnel
Due to the legal form of a German partnership limited by shares, the General Partner holds a key management position within the Company. In addition members of the Management Board and the Supervisory Board as key management personnel, as well as their close relatives, are considered related parties.
The Company's Articles of Association provide that the General Partner shall be reimbursed for any and all expenses in connection with management of the Company's business, including remuneration of the members of the General Partner's supervisory board and the members of the General Partner's management board. The aggregate amount reimbursed to the General Partner was $12,491 and $9,136, respectively, for its management services during the six months ended June 30, 2014 and 2013. As of June 30, 2014 and December 31, 2013, the Company had accounts receivables from the General Partner in the amount of $1,064 and $407, respectively. As of June 30, 2014 and December 31, 2013, the Company had accounts payables to the General Partner in the amount of $17,140 and $9,702, respectively.
3. Inventories
At June 30, 2014 and December 31, 2013, inventories consisted of the following:
|
June 30, 2014 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Finished goods |
$ | 807,525 | $ | 640,355 | |||
Health care supplies |
197,596 | 195,519 | |||||
Raw materials and purchased components |
195,780 | 185,146 | |||||
Work in process |
78,526 | 76,084 | |||||
| | | | | | | |
Inventories |
$ | 1,279,427 | $ | 1,097,104 | |||
| | | | | | | |
| | | | | | | |
4. Other Assets and Notes Receivables
On August 12, 2013, FMCH made an investment-type transaction by providing a credit facility to a middle-market dialysis provider (the "Payee") in the amount of up to $200,000 to fund general corporate
33
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
purposes. The transaction is in the form of subordinated notes with a maturity date of July 4, 2020 (unless prepaid) and a payment-in-kind ("PIK") feature that will allow interest payments in the form of cash (at 10.75%) or PIK (at 11.75%). The PIK feature, if used, allows for the addition of the accrued interest to the then outstanding principal. The collateral for this loan is 100% of the equity interest in this middle-market dialysis provider. The availability period for drawdowns on this loan is 18 months ending on February 12, 2015 and amounts drawn whether repaid or prepaid cannot be re-borrowed. The Company assesses the recoverability of this investment based on quarterly financial statements and other information obtained, used for an assessment of profitability and business plan objectives, as well as by analyzing general economic and market conditions in which the provider operates. On April 30, 2014, the Payee exercised the PIK feature and converted $10,137 of accrued interest then due to outstanding principal. Consequently, at June 30, 2014, $180,137 is effectively drawn down with $3,679 of interest income accrued. Interest is payable on a semi-annual basis for the length of the loan.
5. Short-Term Borrowings, Other Financial Liabilities and Short-Term Borrowings from Related Parties
At June 30, 2014 and December 31, 2013, short-term borrowings, other financial liabilities and short-term borrowings from related parties consisted of the following:
|
June 30, 2014 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Borrowings under lines of credit |
$ | 197,567 | $ | 95,690 | |||
Other financial liabilities |
237 | 958 | |||||
| | | | | | | |
Short-term borrowings and other financial liabilities |
197,804 | 96,648 | |||||
Short-term borrowings from related parties (see Note 2.b) |
161,984 | 62,342 | |||||
| | | | | | | |
Short-term borrowings, other financial liabilities and short-term borrowings from related parties |
$ | 359,788 | $ | 158,990 | |||
| | | | | | | |
| | | | | | | |
Short-term Borrowings from related parties
The Company is party to an unsecured loan agreement with Fresenius SE under which the Company or its subsidiaries may request and receive one or more short-term advances up to an aggregate amount of $400,000 until maturity on October 30, 2017. The interest on the advance(s) will be at a fluctuating rate per annum equal to LIBOR or EURIBOR as applicable plus applicable margin. Advances can be repaid and reborrowed. On June 30, 2014, the Company received an advance of €115,600 at an interest rate of 1.474%. For further information on short-term borrowings from related party outstanding at June 30, 2014, see Note 2 b.
34
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
6. Long-Term Debt and Capital Lease Obligations
At June 30, 2014 and December 31, 2013, long-term debt and capital lease obligations consisted of the following:
|
June 30, 2014 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
2012 Credit Agreement |
$ | 3,267,812 | $ | 2,707,145 | |||
Senior Notes |
4,809,561 | 4,824,753 | |||||
Euro Notes |
38,413 | 46,545 | |||||
European Investment Bank Agreements(1) |
- | 193,074 | |||||
Accounts receivable facility |
423,250 | 351,250 | |||||
Capital lease obligations |
46,861 | 24,264 | |||||
Other |
193,803 | 111,259 | |||||
| | | | | | | |
Long-term debt and capital lease obligations |
8,779,700 | 8,258,290 | |||||
Less current maturities |
(335,416 | ) | (511,370 | ) | |||
| | | | | | | |
Long-term debt and capital lease obligations, less current portion |
$ | 8,444,284 | $ | 7,746,920 | |||
| | | | | | | |
| | | | | | | |
(1) The remaining two loans under the European Investment Bank Agreements were repaid on their maturity in February 2014.
2012 Credit Agreement
The following table shows the available and outstanding amounts under the 2012 Credit Agreement at June 30, 2014 and at December 31, 2013:
|
Maximum Amount Available June 30, 2014 |
Balance Outstanding June 30, 2014 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revolving Credit USD | $ | 600,000 | $ | 600,000 | $ | 235,447 | $ | 235,447 | |||||
Revolving Credit EUR | € | 500,000 | $ | 682,900 | € | 463,000 | $ | 632,365 | |||||
Term Loan A | $ | 2,400,000 | $ | 2,400,000 | $ | 2,400,000 | $ | 2,400,000 | |||||
| | | | | | | | | | | | | |
$ | 3,682,900 | $ | 3,267,812 | ||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
Maximum Amount Available December 31, 2013 |
Balance Outstanding December 31, 2013 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revolving Credit USD | $ | 600,000 | $ | 600,000 | $ | 138,190 | $ | 138,190 | |||||
Revolving Credit EUR | € | 500,000 | $ | 689,550 | € | 50,000 | $ | 68,955 | |||||
Term Loan A | $ | 2,500,000 | $ | 2,500,000 | $ | 2,500,000 | $ | 2,500,000 | |||||
| | | | | | | | | | | | | |
$ | 3,789,550 | $ | 2,707,145 | ||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
At June 30, 2014 and December 31, 2013, the Company had letters of credit outstanding in the amount of $7,143 and $9,444, respectively, under the revolving credit facility, which are not included above as part of the balance outstanding, but reduce the available borrowings under the revolving credit facility.
On July 1, 2014, the Company increased the 2012 Credit Agreement by establishing an incremental term loan tranche of $600,000. See Note 16, "Subsequent Events."
35
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
Accounts Receivable Facility
The following table shows the available and outstanding amounts under the account receivable facility at June 30, 2014 and at December 31, 2013:
|
Maximum Amount Available(1) |
Balance Outstanding | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
June 30, 2014 |
December 31, 2013 |
June 30, 2014 |
December 31, 2013 |
|||||||||
Accounts Receivable Facility | $ | 800,000 | $ | 800,000 | $ | 423,250 | $ | 351,250 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(1) Subject to availability of sufficient accounts receivable meeting funding criteria.
The Company also had letters of credit outstanding under the accounts receivable facility in the amount of $66,622 as of June 30, 2014 and $65,622 at December 31, 2013. These letters of credit are not included above as part of the balance outstanding at June 30, 2014 and December 31, 2013; however, they reduce available borrowings under the accounts receivable facility.
7. Earnings Per Ordinary Share
The following table contains reconciliations of the numerators and denominators of the basic and diluted earnings per ordinary share computations for the three and six months ended June 30, 2014 and 2013:
|
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Numerators: | |||||||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA | $ | 233,642 | $ | 262,524 | $ | 439,104 | $ | 488,023 | |||||
Denominators: |
|||||||||||||
Weighted average number of: | |||||||||||||
Ordinary shares outstanding | 301,781,895 | 302,409,369 | 301,637,274 | 302,590,288 | |||||||||
Preference shares outstanding(1) | - | 3,842,900 | - | 3,907,756 | |||||||||
| | | | | | | | | | | | | |
Total weighted average shares outstanding | 301,781,895 | 306,252,269 | 301,637,274 | 306,498,044 | |||||||||
Potentially dilutive Ordinary shares | 615,485 | 1,362,863 | 673,158 | 1,247,741 | |||||||||
| | | | | | | | | | | | | |
Total weighted average Ordinary shares outstanding assuming dilution | 302,397,380 | 303,772,232 | 302,310,432 | 303,838,029 | |||||||||
Basic earnings per share |
$ |
0.77 |
$ |
0.86 |
$ |
1.46 |
$ |
1.59 |
|||||
Fully diluted earnings per share | 0.77 | 0.85 | 1.45 | 1.59 |
(1) As of the preference share conversion on June 28th, 2013, the Company no longer has two classes of shares outstanding.
36
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
8. Employee Benefit Plans
The Company currently has two principal pension plans, one for German employees, the other covering employees in the United States, the latter of which was curtailed in 2002. Plan benefits are generally based on years of service and final salary. As there is no legal requirement in Germany to fund defined benefit plans, the Company's pension obligations in Germany are unfunded. Each year FMCH contributes to the plan covering United States employees at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended.
The following table provides the calculations of net periodic benefit cost for the three and six months ended June 30, 2014 and 2013, respectively.
|
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Components of net periodic benefit cost: | |||||||||||||
Service cost | $ | 4,743 | $ | 3,879 | $ | 9,482 | $ | 7,792 | |||||
Interest cost | 7,408 | 6,758 | 14,812 | 13,542 | |||||||||
Expected return on plan assets | (3,925 | ) | (3,400 | ) | (7,850 | ) | (6,800 | ) | |||||
Amortization of unrealized losses | 4,355 | 6,390 | 8,709 | 12,788 | |||||||||
| | | | | | | | | | | | | |
Net periodic benefit costs | $ | 12,581 | $ | 13,627 | $ | 25,153 | $ | 27,322 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
9. Noncontrolling Interests Subject to Put Provisions
The Company has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Company would be required to purchase all or part of third-party owners' noncontrolling interests at the appraised fair value at the time of exercise. The methodology the Company uses to estimate the fair values of the noncontrolling interest subject to put provisions assumes the greater of net book value or a multiple of earnings, based on historical earnings, development stage of the underlying business and other factors. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate and the implicit multiple of earnings at which these noncontrolling interest obligations may ultimately be settled could vary significantly from our current estimates depending upon market conditions.
At June 30, 2014 and December 31, 2013, the Company's potential obligations under these put options were $672,234 and $648,251, respectively, of which, at June 30, 2014, put options with an aggregate purchase obligation of $272,417 were exercisable. No put options were exercised during the first six months of 2014.
37
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
The following is a roll forward of noncontrolling interests subject to put provisions for the six months ended June 30, 2014 and the year ended December 31, 2013:
|
June 30, 2014 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Beginning balance as of January 1, | $ | 648,251 | $ | 523,260 | |||
Contributions to noncontrolling interests | (60,761 | ) | (122,179 | ) | |||
Purchase/ sale of noncontrolling interests | (945 | ) | 6,723 | ||||
Contributions from noncontrolling interests | 10,954 | 17,767 | |||||
Changes in fair value of noncontrolling interests | 16,409 | 108,575 | |||||
Net income | 58,496 | 113,156 | |||||
Other comprehensive income (loss) | (170 | ) | 949 | ||||
| | | | | | | |
Ending balance as of June 30, 2014 and December 31, 2013 | $ | 672,234 | $ | 648,251 | |||
| | | | | | | |
| | | | | | | |
10. Sources of Revenue
Below is a table showing the sources of our U.S. patient service revenue (net of contractual allowance and discounts but before patient service bad debt provision), included in the Company's dialysis care revenue, for the six months ended June 30, 2014 and 2013. Outside of the U.S., the Company does not recognize patient service revenue at the time the services are rendered without assessing the patient's ability to pay. Accordingly, the additional disclosure requirements introduced with ASU 2011-07 only apply to the U.S. patient service revenue.
|
For the six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Medicare ESRD program | $ | 2,208,586 | $ | 2,131,095 | |||
Private/alternative payors | 2,013,357 | 1,865,556 | |||||
Medicaid and other government sources | 202,892 | 186,059 | |||||
Hospitals | 220,201 | 209,517 | |||||
| | | | | | | |
Total patient service revenue | $ | 4,645,036 | $ | 4,392,227 | |||
| | | | | | | |
| | | | | | | |
11. Commitments and Contingencies
The Company is routinely involved in numerous claims, lawsuits, regulatory and tax audits, investigations and other legal matters arising, for the most part, in the ordinary course of its business of providing healthcare services and products. Legal matters that the Company currently deems to be material are described below. For the matters described below in which the Company believes a loss is both reasonably possible and estimable, an estimate of the loss or range of loss exposure is provided. For the other matters described below, the Company believes that the loss probability is remote and/or the loss or range of possible losses cannot be reasonably estimated at this time. The outcome of litigation and other
38
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
legal matters is always difficult to predict accurately and outcomes that are not consistent with the Company's view of the merits can occur. The Company believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that the resolution of one or more of the legal matters currently pending or threatened could have a material adverse effect on its business, results of operations and financial condition.
Commercial Litigation
On April 4, 2003, FMCH filed a suit in the U. S. District Court for the Northern District of California, styled Fresenius USA, Inc., et al., v. Baxter International Inc., et al., Case No. C 03-1431, seeking a declaratory judgment that FMCH does not infringe patents held by Baxter International Inc. and its subsidiaries and affiliates ("Baxter"), that the patents are invalid, and that Baxter is without right or authority to threaten or maintain suit against FMCH for alleged infringement of Baxter's patents. In general, the asserted patents concern the use of touch screen interfaces for hemodialysis machines. Baxter filed counterclaims against FMCH seeking more than $140,000 in monetary damages and injunctive relief, and alleging that FMCH willfully infringed on Baxter's patents. On July 17, 2006, the court entered judgment on a jury verdict in favor of FMCH finding all asserted claims of Baxter patents invalid as obvious and/or anticipated in light of prior art.
On February 13, 2007, the court granted Baxter's motion to set aside the jury's verdict in favor of FMCH and reinstated the patents and entered judgment of infringement. Following a trial on damages, the court entered judgment on November 6, 2007 in favor of Baxter on a jury award of $14,300. On April 4, 2008, the court denied Baxter's motion for a new trial, established a royalty payable to Baxter of 10% of the sales price for continuing sales of FMCH's 2008K hemodialysis machines and 7% of the sales price of related disposables, parts and service beginning November 7, 2007, and enjoined sales of the touchscreen-equipped 2008K machine effective January 1, 2009. The Company appealed the court's rulings to the United States Court of Appeals for the Federal Circuit ("Federal Circuit"). On September 10, 2009, the Federal Circuit reversed the district court's decision and determined that the asserted claims in two of the three patents at issue are invalid. As to the third patent, the Federal Circuit affirmed the district court's decision; however, the Court also vacated the injunction and award of damages. These issues were remanded to the District Court for reconsideration in light of the invalidity ruling on most of the claims. Upon remand, the district court reduced the post-verdict damages award to $10,000. Separately, the U.S. Patent and Trademark Office ("USPTO") and the Board of Patent Appeals and Interferences ruled that the remaining Baxter patent is invalid. On May 17, 2012 the Federal Circuit affirmed the USPTO's ruling and invalidated the final remaining Baxter patent. Baxter appealed to the Federal Circuit claiming that approximately $20,000 of damages awarded to it by the District Court before the Federal Circuit affirmed the USPTO ruling constituted a final judgment that may be collected. On July 2, 2013, the Federal Circuit denied Baxter's appeal and ordered the District Court to dismiss the case. The court-approved escrow account has been terminated and the escrow funds have been returned to FMCH. On March 5, 2014, Baxter petitioned the United States Supreme Court to review the decisions of the Federal Circuit. On May 19, 2014, the U.S. Supreme Court denied Baxter's petition and let stand the Federal Circuit's order dismissing the case.
On August 27, 2012, Baxter filed suit in the U.S. District Court for the Northern District of Illinois, styled Baxter International Inc., et al., v. Fresenius Medical Care Holdings, Inc., Case No. 12-cv-06890, alleging that the Company's LibertyTM cycler infringes certain U.S. patents that were issued to Baxter
39
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
between October 2010 and June 2012. The Company believes it has valid defenses to these claims, and will defend this litigation vigorously.
On April 5, 2013, the U.S. Judicial Panel on Multidistrict Litigation ordered that the numerous lawsuits filed and anticipated to be filed in various federal courts alleging wrongful death and personal injury claims against FMCH and certain of its affiliates relating to FMCH's acid concentrate products NaturaLyte® and Granuflo® be transferred and consolidated for pretrial management purposes into a consolidated multidistrict litigation in the United States District Court for the District of Massachusetts, styled In Re: Fresenius Granuflo/Naturalyte Dialysate Products Liability Litigation, Case No. 2013-md-02428. The Massachusetts state courts subsequently established a similar consolidated litigation for such cases filed in Massachusetts county courts, styled In Re: Consolidated Fresenius Cases, Case No. MICV 2013-03400-O (Massachusetts Superior Court, Middlesex County). These lawsuits allege generally that inadequate labeling and warnings for these products caused harm to patients. In addition, similar cases have been filed in state courts outside Massachusetts, in some of which the judicial authorities have established consolidated proceedings for their disposition. FMCH believes that these lawsuits are without merit, and will defend them vigorously.
Other Litigation and Potential Exposures
On February 15, 2011, a qui tam relator's complaint under the False Claims Act against FMCH was unsealed by order of the United States District Court for the District of Massachusetts and served by the relator. The United States has not intervened in the case United States ex rel. Chris Drennen v. Fresenius Medical Care Holdings, Inc., 2009 Civ. 10179 (D. Mass.). The relator's complaint, which was first filed under seal in February 2009, alleges that the Company seeks and receives reimbursement from government payors for serum ferritin and hepatitis B laboratory tests that are medically unnecessary or not properly ordered by a physician. On March 6, 2011, the United States Attorney for the District of Massachusetts issued a subpoena seeking the production of documents related to the same laboratory tests that are the subject of the relator's complaint. FMCH has cooperated fully in responding to the subpoena, and will vigorously contest the relator's complaint.
Subpoenas or search warrants have been issued by federal and state law enforcement authorities under the supervision of the United States Attorneys for the Districts of Connecticut, Southern Florida, Eastern Virginia and Rhode Island to American Access Care LLC (AAC), which the Company acquired in October 2011, and to the Company's Fresenius Vascular Access subsidiary which now operates former AAC centers as well as its own original facilities. Subpoenas have also been issued to certain of the Company's outpatient hemodialysis facilities for records relating to vascular access treatment and monitoring. The Company is cooperating fully in these investigations. Communications with certain of the investigating United States Attorney Offices indicate that the inquiry encompasses invoicing and coding for procedures commonly performed in vascular access centers and the documentary support for the medical necessity of such procedures. The AAC acquisition agreement contains customary indemnification obligations with respect to breaches of representations, warranties or covenants and certain other specified matters. As of October 18, 2013, a group of the prior owners of AAC exercised their right pursuant to the terms of the acquisition agreement to assume responsibility for responding to certain of the subpoenas. Pursuant to the AAC acquisition agreement the prior owners are obligated to indemnify the Company for certain liabilities that might arise from those subpoenas.
40
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
The Company has received communications alleging conduct in countries outside the U.S. and Germany that may violate the U.S. Foreign Corrupt Practices Act ("FCPA") or other anti-bribery laws. The Audit and Corporate Governance Committee of the Company's Supervisory Board is conducting an investigation with the assistance of independent counsel. The Company voluntarily advised the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ"). The Company's investigation and dialogue with the SEC and DOJ are ongoing. The Company has received a subpoena from the SEC requesting additional documents and a request from the DOJ for copies of the documents provided to the SEC. The Company is cooperating with the requests.
Conduct has been identified that may result in monetary penalties or other sanctions under the FCPA or other anti-bribery laws. In addition, the Company's ability to conduct business in certain jurisdictions could be negatively impacted. The Company has previously recorded a non-material accrual for an identified matter. Given the current status of the investigations and remediation activities, the Company cannot reasonably estimate the range of possible loss that may result from identified matters or from the final outcome of the investigations or remediation activities.
The Company's independent counsel, in conjunction with the Company's Compliance Department, have reviewed the Company's anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws, and appropriate enhancements are being implemented. The Company is fully committed to FCPA compliance.
In December 2012 and January 2013, FMCH received subpoenas from the United States Attorneys for the District of Massachusetts and the Western District of Louisiana requesting production of a broad range of documents. Communications with the investigating United States Attorney Offices indicate that the inquiry relates to products manufactured by FMCH, which encompasses the Granuflo® and Naturalyte® acid concentrate products that are also the subject of personal injury litigation described above, as well as electron-beam sterilization of dialyzers, the Liberty peritoneal dialysis cycler, and 2008 series hemodialysis machines as related to the use of Granuflo® and Naturalyte®. FMCH is cooperating fully in the government's investigation.
On June 13, 2014, the Ministry of Commerce of the People's Republic of China, (MOFCOM) launched an anti-dumping investigation into producers of hemodialysis equipment in the European Union and Japan, which includes certain of the Company's subsidiaries. The Company intends to cooperate in this investigation.
The Company filed claims for refunds contesting the Internal Revenue Service's ("IRS") disallowance of FMCH's deductions for civil settlement payments taken by FMCH in prior year tax returns. As a result of a settlement agreement with the IRS, the Company received a partial refund in September 2008 of $37,000, inclusive of interest and preserved its right to pursue claims in the United States Courts for refunds of all other disallowed deductions, which totaled approximately $126,000. On December 22, 2008, the Company filed a complaint for complete refund in the United States District Court for the District of Massachusetts, styled as Fresenius Medical Care Holdings, Inc. v. United States. On August 15, 2012, a jury entered a verdict for FMCH granting additional deductions of $95,000. On May 31, 2013, the District Court entered final judgment for FMCH in the refund amount of $50,400. On September 18, 2013, the IRS appealed the District Court's ruling to the United States Court of Appeals for the First Circuit (Boston).
41
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
From time to time, the Company is a party to or may be threatened with other litigation or arbitration, claims or assessments arising in the ordinary course of its business. Management regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable liabilities for the eventual disposition of these matters.
The Company, like other healthcare providers, conducts its operations under intense government regulation and scrutiny. It must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the marketing and distribution of such products, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. With respect to its development, manufacture, marketing and distribution of medical products, if such compliance is not maintained, the Company could be subject to significant adverse regulatory actions by the FDA and comparable regulatory authorities outside the U.S. These regulatory actions could include warning letters or other enforcement notices from the FDA, and/or comparable foreign regulatory authority which may require the Company to expend significant time and resources in order to implement appropriate corrective actions. If the Company does not address matters raised in warning letters or other enforcement notices to the satisfaction of the FDA and/or comparable regulatory authorities outside the U.S., these regulatory authorities could take additional actions, including product recalls, injunctions against the distribution of products or operation of manufacturing plants, civil penalties, seizures of the Company's products and/or criminal prosecution. FMCH is currently engaged in remediation efforts with respect to three pending FDA warning letters. See "Regulatory and Legal Matters Product Regulation" section of the 2013 Annual Report on Form 20-F for additional information. The Company must also comply with the laws of the United States, including the federal Anti-Kickback Statute, the federal False Claims Act, the federal Stark Law and the federal Foreign Corrupt Practices Act as well as other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company's interpretations or the manner in which it conducts its business. Enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence "qui tam" or "whistle blower" actions. By virtue of this regulatory environment, the Company's business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, subpoenas, other inquiries, claims and litigation relating to the Company's compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of "whistle blower" actions, which are initially filed under court seal.
The Company operates many facilities throughout the United States and other parts of the world. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliated companies. The Company relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of these employees. On occasion, the Company may identify instances where employees or other agents deliberately, recklessly or inadvertently contravene the Company's policies or violate applicable law. The actions of such persons may subject the Company and its subsidiaries to liability under the Anti-Kickback Statute, the Stark Law, the False Claims Act and the Foreign Corrupt Practices Act, among other laws and comparable laws of other countries.
Physicians, hospitals and other participants in the healthcare industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Company has been and is currently subject to these suits due to the nature of its business and expects that those types of lawsuits may continue. Although the Company maintains insurance at a level which it believes to be
42
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
prudent, it cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Company or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon it and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.
The Company has also had claims asserted against it and has had lawsuits filed against it relating to alleged patent infringements or businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Company has, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition, and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.
12. Financial Instruments
Non-derivative Financial Instruments
The following table presents the carrying amounts and fair values of the Company's non-derivative financial instruments at June 30, 2014, and December 31, 2013.
|
|
June 30, 2014 |
December 31, 2013 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fair Value Hierarchy |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||
Assets | |||||||||||||||
Cash and cash equivalents |
1 | $ | 644,538 | 644,538 | $ | 682,777 | 682,777 | ||||||||
Accounts Receivable(1) |
2 | 3,378,194 | 3,378,194 | 3,190,392 | 3,190,392 | ||||||||||
Notes Receivable |
3 | 177,018 | 192,672 | 165,807 | 175,768 | ||||||||||
Liabilities |
|||||||||||||||
Accounts payable(1) |
2 | 723,530 | 723,530 | 666,526 | 666,526 | ||||||||||
Short-term borrowings(1) |
2 | 359,788 | 359,788 | 158,990 | 158,990 | ||||||||||
Long term debt, excluding 2012 Credit Agreement, Euro Notes and Senior Notes |
2 | 663,914 | 663,914 | 679,847 | 679,847 | ||||||||||
2012 Credit Agreement |
2 | 3,267,812 | 3,264,812 | 2,707,145 | 2,710,270 | ||||||||||
Senior Notes |
2 | 4,809,561 | 5,396,239 | 4,824,753 | 5,348,679 | ||||||||||
Euro Notes |
2 | 38,413 | 39,041 | 46,545 | 47,423 | ||||||||||
Noncontrolling interests subject to put provisions | 3 | 672,234 | 672,234 | 648,251 | 648,251 |
(1) Also includes amounts receivable from or payable to related parties.
The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions or in the case of long-term debt, in the captions shown in Note 6.
43
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
The significant methods and assumptions used in estimating the fair values of non-derivative financial instruments are as follows:
Cash and cash equivalents are stated at nominal value which equals the fair value.
Short-term financial instruments such as accounts receivable, accounts payable and short-term borrowings are valued at their carrying amounts, which are reasonable estimates of the fair value due to the relatively short period to maturity of these instruments.
The valuation of notes receivable was determined using significant unobservable inputs. They were valued using a constructed index based upon similar instruments with comparable credit ratings, terms, tenor, interest rates and that are within the Company's industry. The Company tracked the prices of the constructed index from the note issuance date to the reporting date to determine fair value.
The fair values of major long-term financial liabilities are calculated on the basis of market information. Instruments for which market quotes are available are measured using these quotes. The fair values of the other long-term financial liabilities are calculated at the present value of the respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Company as of the balance sheet date are used.
The valuation of noncontrolling interests subject to put provisions is determined using significant unobservable inputs. See Note 9 for a discussion of the Company's methodology for estimating the fair value of these noncontrolling interests subject to put obligations.
Currently, there is no indication that a decrease in the value of the Company's financing receivables is probable. Therefore, the allowances on credit losses of financing receivables are immaterial.
Derivative Financial Instruments
The Company is exposed to market risk from changes in foreign exchange rates and interest rates. In order to manage the risk of currency exchange rate and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions as authorized by the Company's General Partner. On a quarterly basis the Company performs an assessment of its counterparty credit risk. The Company currently considers this risk to be low. The Company's policy, which has been consistently followed, is that financial derivatives be used only for the purpose of hedging foreign currency and interest rate exposure.
In certain instances, the Company enters into derivative contracts that do not qualify for hedge accounting but are utilized for economic purposes ("economic hedges"). The Company does not use financial instruments for trading purposes.
The Company established guidelines for risk assessment procedures and controls for the use of financial instruments. They include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.
44
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
To reduce the credit risk arising from derivatives the Company concluded Master Netting Agreements with banks. Through such agreements, positive and negative fair values of the derivative contracts could be offset against one another if a partner becomes insolvent. This offsetting is valid for transactions where the aggregate amount of obligations owed to and receivable from are not equal. If insolvency occurs, the party which owes the larger amount is obliged to pay the other party the difference between the amounts owed in the form of one net payment.
The Company elects not to offset the fair values of derivative financial instruments subject to master netting agreements in its Consolidated Balance Sheets.
At June 30, 2014 and December 31, 2013, the Company had $7,122 and $18,334 of derivative financial assets subject to netting arrangements and $19,456 and $16,371 of derivative financial liabilities subject to netting arrangements. Offsetting these derivative financial instruments would have resulted in net assets of $2,060 and $12,169 as well as net liabilities of $14,394 and $10,207 at June 30, 2014 and December 31, 2013, respectively.
Foreign Exchange Risk Management
The Company conducts business on a global basis in various currencies, though a majority of its operations are in Germany and the United States. For financial reporting purposes, the Company has chosen the U.S. dollar as its reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar and the local currencies in which the financial statements of the Company's international operations are maintained affect its results of operations and financial position as reported in its consolidated financial statements.
The Company's exposure to market risk for changes in foreign exchange rates relates to transactions such as sales and purchases. The Company has significant amounts of sales of products invoiced in euro from its European manufacturing facilities to its other international operations and, to a lesser extent, sales of products invoiced in other non-functional currencies. This exposes the subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures the Company enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. At June 30, 2014 and December 31, 2013, the Company had no foreign exchange options.
Changes in the fair value of the effective portion of foreign exchange forward contracts designated and qualifying as cash flow hedges of forecasted product purchases and sales are reported in Accumulated Other Comprehensive Income ("AOCI"). Additionally, in connection with intercompany loans in foreign currency, the Company uses foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans, which, if they qualify for cash flow hedge accounting, are also reported in AOCI. These amounts recorded in AOCI are subsequently reclassified into earnings as a component of cost of revenues for those contracts that hedge product purchases or as an adjustment of interest income/expense for those contracts that hedge loans, in the same period in which the hedged transaction affects earnings. The notional amounts of foreign exchange contracts in place that are designated and qualify as cash flow hedges totaled $144,173 and $238,983 at June 30, 2014 and December 31, 2013, respectively.
The Company also enters into derivative contracts for forecasted product purchases and sales and for intercompany loans in foreign currency that do not qualify for hedge accounting but are utilized for
45
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
economic hedges as defined above. In these two cases, the change in value of the economic hedge is recorded in the income statement and usually offsets the change in value recorded in the income statement for the underlying asset or liability. The notional amounts of economic hedges that do not qualify for hedge accounting totaled $1,562,841 and $1,512,559 at June 30, 2014 and December 31, 2013, respectively.
Interest Rate Risk Management
The Company enters into derivatives, particularly interest rate swaps and to a certain extent, interest rate options, to protect against the risk of rising interest rates. These interest rate derivatives are designated as cash flow hedges and have been entered into in order to effectively convert payments based on variable interest rates into payments at a fixed interest rate. The euro-denominated interest rate swaps expire in 2016 and have an interest rate of 1.73%. Interest payable and receivable under the swap agreements is accrued and recorded as an adjustment to interest expense.
At June 30, 2014 and December 31, 2013, the notional amount of the euro-denominated interest rate swaps in place was €100,000 and €100,000 ($136,580 and $137,910 at June 30, 2014 and December 31, 2013, respectively).
In addition, the Company also enters into interest rate hedges ("pre-hedges") in anticipation of future debt issuance to effectively convert the variable interest rate related to the future debt to a fixed interest rate. These pre-hedges are settled at the issuance date of the corresponding debt with the settlement amount recorded in AOCI amortized to interest expense over the life of the pre-hedges. At June 30, 2014 and December 31, 2013, the Company had $107,229 and $118,844, respectively, related to such settlements of pre-hedges deferred in AOCI, net of tax.
46
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
Derivative Financial Instruments Valuation
The following table shows the carrying amounts of the Company's derivatives at June 30, 2014 and December 31, 2013.
|
June 30, 2014 | December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Assets(2) | Liabilities(2) | Assets(2) | Liabilities(2) | |||||||||
Derivatives in cash flow hedging relationships(1) | |||||||||||||
Current |
|||||||||||||
Foreign exchange contracts |
2,235 | (3,936 | ) | 4,985 | (2,719 | ) | |||||||
Non-current |
|||||||||||||
Foreign exchange contracts |
- | - | 759 | (374 | ) | ||||||||
Interest rate contracts |
- | (4,720 | ) | - | (4,392 | ) | |||||||
| | | | | | | | | | | | | |
Total | $ | 2,235 | $ | (8,656 | ) | $ | 5,744 | $ | (7,485 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Derivatives not designated as hedging instruments(1) |
|||||||||||||
Current |
|||||||||||||
Foreign exchange contracts |
4,579 | (12,714 | ) | 11,679 | (22,982 | ) | |||||||
Non-current |
|||||||||||||
Foreign exchange contracts |
308 | (744 | ) | 1,060 | (820 | ) | |||||||
| | | | | | | | | | | | | |
Total | $ | 4,887 | $ | (13,458 | ) | $ | 12,739 | $ | (23,802 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(1) At June 30, 2014 and December 31, 2013, the valuation of the Company's derivatives was determined using Significant Other Observable Inputs (Level 2) in accordance with the fair value hierarchy levels established in U.S. GAAP.
(2) Derivative instruments are marked to market each reporting period resulting in carrying amounts being equal to fair values at the reporting date.
The carrying amounts for the current portion of derivatives indicated as assets in the table above are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets while the current portion of those indicated as liabilities are included in Accrued expenses and other current liabilities. The non-current portions indicated as assets or liabilities are included in the Consolidated Balance Sheets in Other assets or Other liabilities, respectively.
The significant methods and assumptions used in estimating the fair values of derivative financial instruments are as follows:
The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract as of the balance sheet date. To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract as of the balance sheet date. The result is then discounted on the basis of the market interest rates prevailing at the balance sheet date for the applicable currency.
47
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
The Company includes its own credit risk for financial instruments deemed liabilities and counterparty-credit risks for financial instruments deemed assets when measuring the fair value of derivative financial instruments.
The Effect of Derivatives on the Consolidated Financial Statements
|
|
|
|
Amount of (Gain) or Loss Reclassified from AOCI in Income (Effective Portion) for the six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) for the six months ended June 30, |
|
|||||||||||||
|
Location of (Gain) or Loss Reclassified from AOCI in Income (Effective Portion) |
||||||||||||||
Derivatives in Cash Flow Hedging Relationships |
2014 | 2013 | 2014 | 2013 | |||||||||||
Interest rate contracts | $ | 1,279 | $ | 3,585 | Interest income/expense | $ | 14,680 | $ | 13,094 | ||||||
Foreign exchange contracts | (4,224 | ) | 1,962 | Costs of Revenue | 2,295 | 514 | |||||||||
Foreign exchange contracts | Interest income/expense | - | 735 | ||||||||||||
| | | | | | | | | | | | | | | |
$ | (2,945 | ) | $ | 5,547 | $ | 16,975 | $ | 14,343 | |||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
|
Amount of (Gain) or Loss Recognized in Income on Derivatives for the six months ended June 30, |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
Location of (Gain) or Loss Recognized in Income on Derivative |
||||||||
Derivatives not Designated as Hedging Instruments |
2014 | 2013 | |||||||
Foreign exchange contracts | Selling, general and administrative expense | $ | 5,410 | $ | (42,134 | ) | |||
Foreign exchange contracts | Interest income/expense | 4,219 | 3,397 | ||||||
| | | | | | | | | |
$ | 9,629 | $ | (38,737 | ) | |||||
| | | | | | | | | |
| | | | | | | | | |
For foreign exchange derivatives, the Company expects to recognize $867 of losses deferred in AOCI at June 30, 2014, in earnings during the next twelve months.
The Company expects to incur additional interest expense of $23,589 over the next twelve months which is currently deferred in AOCI. At June 30, 2014, this amount reflects the projected amortization of the settlement amount of the terminated swaps and the current fair value of the additional interest payments resulting from the remaining interest rate swap maturing in 2016.
At June 30, 2014, the Company had foreign exchange derivatives with maturities of up to 18 months and interest rate swaps with maturities of up to 28 months.
48
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
13. Other Comprehensive Income (Loss), net of tax
Changes in AOCI, net of tax, by component for the six months ended June 30, 2014 and 2013 are as follows:
|
Gain (Loss) related to cash flow hedges |
Actuarial gain (loss) on defined benefit pension plans |
Gain (Loss) related to foreign- currency translation |
Total, before non- controlling interests |
Non- controlling interests |
Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2012 | $ | (138,341 | ) | $ | (179,423 | ) | $ | (174,349 | ) | $ | (492,113 | ) | $ | 2,869 | $ | (489,244 | ) | ||
Other comprehensive income (loss) before reclassifications |
4,902 | - | (125,052 | ) | (120,150 | ) | (2,318 | ) | (122,468 | ) | |||||||||
Amounts reclassified from AOCI |
9,974 | 7,885 | - | 17,859 | - | 17,859 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) after reclassifications | 14,876 | 7,885 | (125,052 | ) | (102,291 | ) | (2,318 | ) | (104,609 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2013 | $ | (123,465 | ) | $ | (171,538 | ) | $ | (299,401 | ) | $ | (594,404 | ) | $ | 551 | $ | (593,853 | ) | ||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 | $ | (121,856 | ) | $ | (141,987 | ) | $ | (286,744 | ) | $ | (550,587 | ) | $ | 825 | $ | (549,762 | ) | ||
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications |
(2,057 | ) | - | (9,535 | ) | (11,592 | ) | 249 | (11,343 | ) | |||||||||
Amounts reclassified from AOCI |
12,146 | 5,489 | - | 17,635 | - | 17,635 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) after reclassifications | 10,089 | 5,489 | (9,535 | ) | 6,043 | 249 | 6,292 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2014 | $ | (111,767 | ) | $ | (136,498 | ) | $ | (296,279 | ) | $ | (544,544 | ) | $ | 1,074 | $ | (543,470 | ) | ||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Reclassifications out of AOCI for the six months ended June 30, 2014 and 2013 are as follows:
Details about AOCI Components |
Amount of (Gain) Loss reclassified from AOCI in Income |
Location of (Gain) Loss reclassified from AOCI in Income |
||||||
---|---|---|---|---|---|---|---|---|
|
For the six months ended June 30, |
|
||||||
|
2014 | 2013 | |
|||||
(Gain) Loss related to cash flow hedges | ||||||||
Interest rate contracts |
$ | 14,680 | $ | 13,094 | Interest income/expense | |||
Foreign exchange contracts |
2,295 | 514 | Costs of Revenue | |||||
Foreign exchange contracts |
- | 735 | Interest income/expense | |||||
| | | | | | | | |
16,975 | 14,343 | Total before tax | ||||||
| | | | | | | | |
(4,829 | ) | (4,369 | ) | Tax expense or benefit | ||||
| | | | | | | | |
$ | 12,146 | $ | 9,974 | Net of tax | ||||
| | | | | | | | |
Actuarial (Gain) Loss on defined benefit pension plans | ||||||||
Amortization of unrealized (gain) loss |
8,709 | 12,788 | (1) | |||||
| | | | | | | | |
8,709 | 12,788 | Total before tax | ||||||
| | | | | | | | |
(3,220 | ) | (4,903 | ) | Tax expense or benefit | ||||
| | | | | | | | |
$ | 5,489 | $ | 7,885 | Net of tax | ||||
| | | | | | | | |
Total reclassifications for the period | $ | 17,635 | $ | 17,859 | Net of tax | |||
| | | | | | | | |
| | | | | | | | |
(1) Included in the computation of net periodic pension cost (see Note 8 for additional details).
49
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
14. Segment and Corporate Information
The Company has identified three operating segments, North America Segment, EMEALA and Asia-Pacific, which were determined based upon how the Company manages its businesses. All segments are primarily engaged in providing dialysis care services and the distribution of products and equipment for the treatment of ESRD. For reporting purposes, the Company has aggregated the EMEALA and Asia-Pacific operating segments as the "International Segment." The segments are aggregated due to their similar economic characteristics. These characteristics include same services provided and same products sold, the same type of patient population, similar methods of distribution of products and services and similar economic environments. The General Partner's management board member responsible for the profitability and cash flow of each segment's various businesses supervises the management of each operating segment. The accounting policies of the segments are the same as those the Company applies in preparing the consolidated financial statements under U.S. GAAP.
Management evaluates each segment using measures that reflect all of the segment's controllable revenues and expenses. With respect to the performance of business operations, management believes that the most appropriate U.S. GAAP measures are revenue, operating income and operating income margin. The Company does not include income taxes as it believes this is outside the segments' control. Financing is a corporate function, which the Company's segments do not control. Therefore, the Company does not include interest expense relating to financing as a segment measurement. Similarly, the Company does not allocate certain costs, which relate primarily to certain headquarters overhead charges, including accounting and finance, etc. ("Corporate"), because the Company believes that these costs are also not within the control of the individual segments. Production of products, production asset management, quality management and procurement are centrally managed at Corporate by Global Manufacturing Operations. The Company's global research and development is also centrally managed at Corporate. These Corporate activities do not fulfill the definition of a segment. Products are transferred to the segments at cost; therefore no internal profit is generated. The associated internal revenues for the product transfers and their elimination are recorded as Corporate activities. Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but accounted for as Corporate.
50
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
Information pertaining to the Company's segment and Corporate activities for the three- and six-month periods ended June 30, 2014 and 2013 is set forth below.
|
North America Segment |
International Segment |
Segment Totals |
Corporate | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended June 30, 2014 | ||||||||||||||||
Net revenue external customers |
$ |
2,520,988 |
$ |
1,296,620 |
$ |
3,817,608 |
$ |
17,194 |
$ |
3,834,802 |
||||||
Inter - segment revenue |
2,269 | - | 2,269 | (2,269 | ) | - | ||||||||||
| | | | | | | | | | | | | | | | |
Revenue |
2,523,257 | 1,296,620 | 3,819,877 | 14,925 | 3,834,802 | |||||||||||
| | | | | | | | | | | | | | | | |
Depreciation and amortization |
(87,173 | ) | (46,312 | ) | (133,485 | ) | (35,474 | ) | (168,959 | ) | ||||||
| | | | | | | | | | | | | | | | |
Operating income |
400,714 | 243,009 | 643,723 | (87,450 | ) | 556,273 | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from equity method investees |
3,818 | 2,151 | 5,969 | - | 5,969 | |||||||||||
Capital expenditures, acquisitions and investments |
283,350 | 180,734 | 464,084 | 53,084 | 517,168 | |||||||||||
Three months ended June 30, 2013 |
||||||||||||||||
Net revenue external customers |
$ |
2,375,247 |
$ |
1,228,322 |
$ |
3,603,569 |
$ |
8,946 |
$ |
3,612,515 |
||||||
Inter - segment revenue |
1,771 | - | 1,771 | (1,771 | ) | - | ||||||||||
| | | | | | | | | | | | | | | | |
Revenue |
2,377,018 | 1,228,322 | 3,605,340 | 7,175 | 3,612,515 | |||||||||||
| | | | | | | | | | | | | | | | |
Depreciation and amortization(1) |
(81,466 | ) | (46,432 | ) | (127,898 | ) | (30,903 | ) | (158,801 | ) | ||||||
| | | | | | | | | | | | | | | | |
Operating income(2) |
390,655 | 218,479 | 609,134 | (64,895 | ) | 544,239 | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from equity method investees(3) |
2,871 | 1,545 | 4,416 | - | 4,416 | |||||||||||
Capital expenditures, acquisitions and investments |
107,948 | 66,175 | 174,123 | 41,757 | 215,880 | |||||||||||
Six months ended June 30, 2014 |
||||||||||||||||
Net revenue external customers |
$ |
4,913,894 |
$ |
2,457,517 |
$ |
7,371,411 |
$ |
26,983 |
$ |
7,398,394 |
||||||
Inter - segment revenue |
3,549 | - | 3,549 | (3,549 | ) | - | ||||||||||
| | | | | | | | | | | | | | | | |
Revenue |
4,917,443 | 2,457,517 | 7,374,960 | 23,434 | 7,398,394 | |||||||||||
| | | | | | | | | | | | | | | | |
Depreciation and amortization |
(174,822 | ) | (91,333 | ) | (266,155 | ) | (69,971 | ) | (336,126 | ) | ||||||
| | | | | | | | | | | | | | | | |
Operating Income |
736,276 | 423,455 | 1,159,731 | (158,563 | ) | 1,001,168 | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from equity method investees |
14,368 | 4,123 | 18,491 | - | 18,491 | |||||||||||
Segment assets |
15,060,591 | 6,761,277 | 21,821,868 | 2,323,389 | 24,145,257 | |||||||||||
thereof investments in equity method investees |
306,313 | 431,603 | 737,916 | - | 737,916 | |||||||||||
Capital expenditures, acquisitions and investments(4) |
488,249 | 245,371 | 733,620 | 120,336 | 853,956 | |||||||||||
Six months ended June 30, 2013 |
||||||||||||||||
Net revenue external customers |
$ |
4,662,497 |
$ |
2,396,974 |
$ |
7,059,471 |
$ |
16,965 |
$ |
7,076,436 |
||||||
Inter - segment revenue |
2,846 | - | 2,846 | (2,846 | ) | - | ||||||||||
| | | | | | | | | | | | | | | | |
Revenue |
4,665,343 | 2,396,974 | 7,062,317 | 14,119 | 7,076,436 | |||||||||||
| | | | | | | | | | | | | | | | |
Depreciation and amortization(1) |
(161,873 | ) | (92,332 | ) | (254,205 | ) | (60,949 | ) | (315,154 | ) | ||||||
| | | | | | | | | | | | | | | | |
Operating Income(2) |
756,703 | 410,096 | 1,166,799 | (129,247 | ) | 1,037,552 | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from equity method investees(3) |
5,989 | 3,235 | 9,224 | - | 9,224 | |||||||||||
Segment assets |
14,094,573 | 5,971,984 | 20,066,557 | 2,261,790 | 22,328,347 | |||||||||||
thereof investments in equity method investees |
247,277 | 370,153 | 617,430 | - | 617,430 | |||||||||||
Capital expenditures, acquisitions and investments(4) |
220,280 | 148,877 | 369,157 | 66,294 | 435,451 |
(1) Depreciation in the amount of $988 and $1,884 for the three and six months ended June 30, 2013, respectively, relating to research and development has been reclassified between the North America Segment, the International Segment and Corporate to conform to the current year's presentation.
(2) Certain items, in the net aggregate amount of $6,364 and $11,370 for the three and six months ended June 30, 2013, respectively, relating to research and development, compensation expense and income from equity method investees have been reclassified between the North America Segment, the International Segment and Corporate to conform to the current year's presentation as applicable.
(3) Income (loss) from equity method investees in the amount of $717 and $321 for the three and six months ended June 30, 2013, respectively, has been reclassified between the North America Segment, the International Segment and Corporate to conform to the current year's presentation.
(4) International acquisitions exclude $167,905 and $11,684 of non-cash acquisitions for 2014 and 2013, respectively.
51
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
15. Supplementary Cash Flow Information
The following additional information is provided with respect to the consolidated statements of cash flows:
|
For the six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Supplementary cash flow information: | |||||||
Cash paid for interest |
$ | 189,038 | $ | 191,259 | |||
| | | | | | | |
Cash paid for income taxes(1) |
$ | 304,785 | $ | 225,740 | |||
| | | | | | | |
Cash inflow for income taxes from stock option exercises |
$ | 3,153 | $ | 3,933 | |||
| | | | | | | |
Supplemental disclosures of cash flow information: | |||||||
Details for acquisitions: |
|||||||
Assets acquired |
$ | (523,912 | ) | $ | (130,864 | ) | |
Liabilities assumed |
241,132 | 17,173 | |||||
Noncontrolling interest subject to put provisions |
3,110 | 15,320 | |||||
Noncontrolling interest |
6,191 | 5,570 | |||||
Pending payments for purchase considerations |
9,156 | 11,683 | |||||
| | | | | | | |
Cash paid |
(264,323 | ) | (81,118 | ) | |||
Less cash acquired |
84,694 | 5,139 | |||||
| | | | | | | |
Net cash paid for acquisitions |
(179,629 | ) | (75,979 | ) | |||
Cash paid for investments |
(249,156 | ) | (22,894 | ) | |||
Cash paid for intangible assets |
(5,912 | ) | (2,936 | ) | |||
| | | | | | | |
Total cash paid for acquisitions and investments, net of cash acquired, and purchases of intangible assets |
$ | (434,697 | ) | $ | (101,809 | ) | |
| | | | | | | |
| | | | | | | |
(1) Net of tax refund.
16. Subsequent Events
On July 1, 2014 the Company increased the 2012 Credit Agreement by establishing an incremental term loan tranche of $600,000 ("Term Loan A-2") to finance an investment in the U.S. into Sound Inpatient Physicians, Inc., which closed in July of 2014, and for general corporate purposes. This investment of approximately $550,000 net in Sound Inpatient Physicians, Inc., a physician services organization focused on hospitalist and post-acute care services, furthers the Company's strategic investments in Care Coordination.
Term Loan A-2 has a one year maturity and must be mandatorily prepaid with 100% of the net cash proceeds of US$-denominated bonds or syndicated term loans, to the extent that these proceeds exceed a certain threshold. The interest rate under the Term Loan A-2 is a rate equal to either (i) Libor plus an applicable margin or (ii) the Base Rate as defined in the 2012 Credit Agreement plus an applicable margin. The applicable margin increases after 90 days and 180 days following disbursement.
52
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
17. Supplemental Condensed Combining Information
FMC Finance III, a former wholly-owned subsidiary of the Company, issued 67/8% Senior Notes due 2017 in July 2007. On June 20, 2011, Fresenius Medical Care US Finance, Inc. ("US Finance") acquired substantially all of the assets of FMC Finance III and assumed its obligations, including the 67/8% Senior Notes and the related indenture. The 67/8% Senior Notes are fully and unconditionally guaranteed, jointly and severally on a senior basis, by the Company and by FMCH and Fresenius Medical Care Deutschland GmbH ("D-GmbH"), together the ("Guarantor Subsidiaries"). The 67/8% Senior Notes and related guarantees were issued in an exchange offer registered under the Securities Act of 1933. The financial statements in this report present the financial condition, results of operations and cash flows of the Company, on a consolidated basis at June 30, 2014 and December 31, 2013 and for the six-month periods ended June 30, 2014 and 2013. The following combining financial information for the Company is at June 30, 2014 and December 31, 2013 and for the six-month periods ended June 30, 2014 and 2013, segregated between FMC US Finance as issuer, the Company, D-GmbH and FMCH as guarantors, and the Company's other businesses (the "Non-Guarantor Subsidiaries"). For purposes of the condensed combining information, the Company and the Guarantor Subsidiaries carry their investments under the equity method. Other (income) expense includes income (loss) related to investments in consolidated subsidiaries recorded under the equity method for purposes of the condensed combining information. In addition, other (income) expense includes income and losses from profit and loss transfer agreements as well as dividends received.
53
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
|
For the six months ended June 30, 2014 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non-Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Net revenue | $ | - | $ | - | $ | 1,092,279 | $ | - | $ | 8,085,343 | $ | (1,779,228 | ) | $ | 7,398,394 | |||||||
Cost of revenue | - | - | 691,930 | - | 6,160,749 | (1,747,835 | ) | 5,104,844 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Gross profit |
- | - | 400,349 | - | 1,924,594 | (31,393 | ) | 2,293,550 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating expenses (income): | ||||||||||||||||||||||
Selling, general and administrative(1) |
- | 83,548 | 84,853 | (24,234 | ) | 1,074,154 | 13,332 | 1,231,653 | ||||||||||||||
Research and development |
- | - | 38,761 | - | 21,968 | - | 60,729 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating (loss) income | - | (83,548 | ) | 276,735 | 24,234 | 828,472 | (44,725 | ) | 1,001,168 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Other (income) expense: | ||||||||||||||||||||||
Interest, net |
(3,461 | ) | 122,940 | (2,928 | ) | 90,665 | (12,549 | ) | - | 194,667 | ||||||||||||
Other, net |
- | (671,761 | ) | 202,485 | (374,253 | ) | - | 843,529 | - | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | 3,461 | 465,273 | 77,178 | 307,822 | 841,021 | (888,254 | ) | 806,501 | ||||||||||||||
Income tax expense (benefit) |
1,273 | 26,169 | 74,033 | (26,207 | ) | 345,468 | (142,161 | ) | 278,575 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net Income (loss) | 2,188 | 439,104 | 3,145 | 334,029 | 495,553 | (746,093 | ) | 527,926 | ||||||||||||||
Net Income attributable to noncontrolling interests | - | - | - | - | - | 88,822 | 88,822 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to shareholders of FMC-AG & Co. KGaA | $ | 2,188 | $ | 439,104 | $ | 3,145 | $ | 334,029 | $ | 495,553 | $ | (834,915 | ) | $ | 439,104 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(1) Selling, general and administrative is presented net of Gain on Sale of dialysis clinics and net of income from equity method investees.
|
For the six months ended June 30, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non-Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Net revenue | $ | - | $ | - | $ | 1,006,662 | $ | - | $ | 7,664,410 | $ | (1,594,636 | ) | $ | 7,076,436 | |||||||
Cost of revenue | - | - | 663,055 | - | 5,719,837 | (1,574,347 | ) | 4,808,545 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Gross profit |
- | - | 343,607 | - | 1,944,573 | (20,289 | ) | 2,267,891 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating expenses (income): | ||||||||||||||||||||||
Selling, general and administrative(1) |
- | 40,547 | 106,983 | 37,920 | 964,028 | 19,568 | 1,169,046 | |||||||||||||||
Research and development |
- | - | 36,549 | - | 24,912 | (168 | ) | 61,293 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating (loss) income | - | (40,547 | ) | 200,075 | (37,920 | ) | 955,633 | (39,689 | ) | 1,037,552 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Other (income) expense: | ||||||||||||||||||||||
Interest, net |
(3,417 | ) | 95,049 | 3,804 | 87,078 | 24,349 | 417 | 207,280 | ||||||||||||||
Other, net |
- | (615,001 | ) | 164,333 | (432,819 | ) | - | 883,487 | - | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | 3,417 | 479,405 | 31,938 | 307,821 | 931,284 | (923,593 | ) | 830,272 | ||||||||||||||
Income tax expense (benefit) |
1,240 | (8,618 | ) | 37,248 | (49,312 | ) | 322,357 | (30,301 | ) | 272,614 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net Income (loss) | 2,177 | 488,023 | (5,310 | ) | 357,133 | 608,927 | (893,292 | ) | 557,658 | |||||||||||||
Net Income attributable to noncontrolling interests | - | - | - | - | - | 69,635 | 69,635 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to shareholders of FMC-AG & Co. KGaA | $ | 2,177 | $ | 488,023 | $ | (5,310 | ) | $ | 357,133 | $ | 608,927 | $ | (962,927 | ) | $ | 488,023 | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(1) Selling, general and administrative is presented net of Gain on Sale of dialysis clinics and net of income from equity method investees.
54
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
|
For the six months ended June 30, 2014 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non-Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Net Income | $ | 2,188 | $ | 439,104 | $ | 3,145 | $ | 334,029 | $ | 495,553 | $ | (746,093 | ) | $ | 527,926 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
Gain (loss) related to cash flow hedges |
- | 16,076 | - | - | (2,046 | ) | - | 14,030 | ||||||||||||||
Actuarial gain (loss) on defined benefit pension plans |
- | 99 | 1,894 | 6,524 | 192 | - | 8,709 | |||||||||||||||
Gain (loss) related to foreign currency translation |
- | 36,765 | (7,260 | ) | - | (38,509 | ) | (282 | ) | (9,286 | ) | |||||||||||
Income tax (expense) benefit related to components of other comprehensive income |
- | (4,646 | ) | (553 | ) | (2,574 | ) | 612 | - | (7,161 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | - | 48,294 | (5,919 | ) | 3,950 | (39,751 | ) | (282 | ) | 6,292 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | $ | 2,188 | $ | 487,398 | $ | (2,774 | ) | $ | 337,979 | $ | 455,802 | $ | (746,375 | ) | $ | 534,218 | ||||||
Comprehensive income attributable to noncontrolling interests |
- | - | - | - | - | 89,071 | 89,071 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to shareholders of FMC-AG & Co. KGaA | $ | 2,188 | $ | 487,398 | $ | (2,774 | ) | $ | 337,979 | $ | 455,802 | $ | (835,446 | ) | $ | 445,147 | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
For the six months ended June 30, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non-Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Net Income | $ | 2,177 | $ | 488,023 | $ | (5,310 | ) | $ | 357,133 | $ | 608,927 | $ | (893,292 | ) | $ | 557,658 | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Gain (loss) related to cash flow hedges |
- | 14,431 | - | - | 5,459 | - | 19,890 | |||||||||||||||
Actuarial gain (loss) on defined benefit pension plans |
- | 65 | 1,267 | 11,335 | 121 | - | 12,788 | |||||||||||||||
Gain (loss) related to foreign currency translation |
- | 27,707 | (6,535 | ) | - | (154,575 | ) | 6,033 | (127,370 | ) | ||||||||||||
Income tax (expense) benefit related to components of other comprehensive income |
- | (4,162 | ) | (369 | ) | (4,472 | ) | (914 | ) | - | (9,917 | ) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | - | 38,041 | (5,637 | ) | 6,863 | (149,909 | ) | 6,033 | (104,609 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | $ | 2,177 | $ | 526,064 | $ | (10,947 | ) | $ | 363,996 | $ | 459,018 | $ | (887,259 | ) | $ | 453,049 | ||||||
Comprehensive income attributable to noncontrolling interests |
- | - | - | - | - | 67,317 | 67,317 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to shareholders of FMC-AG & Co. KGaA | $ | 2,177 | $ | 526,064 | $ | (10,947 | ) | $ | 363,996 | $ | 459,018 | $ | (954,576 | ) | $ | 385,732 | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
55
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
|
At June 30, 2014 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non- Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents |
$ | 0 | $ | 2,611 | $ | 8,033 | $ | - | $ | 632,579 | $ | 1,315 | $ | 644,538 | ||||||||
Trade accounts receivable, less allowance for doubtful accounts |
- | - | 154,243 | - | 3,020,417 | 1,750 | 3,176,410 | |||||||||||||||
Accounts receivable from related parties |
1,267,108 | 1,351,662 | 1,040,410 | 1,654,545 | 4,297,558 | (9,409,499 | ) | 201,784 | ||||||||||||||
Inventories |
- | - | 314,662 | - | 1,129,355 | (164,590 | ) | 1,279,427 | ||||||||||||||
Prepaid expenses and other current assets |
- | 49,754 | 56,457 | 67 | 1,090,101 | 51,854 | 1,248,233 | |||||||||||||||
Deferred taxes |
- | - | - | - | 299,458 | (44,690 | ) | 254,768 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total current assets |
1,267,108 | 1,404,027 | 1,573,805 | 1,654,612 | 10,469,468 | (9,563,860 | ) | 6,805,160 | ||||||||||||||
Property, plant and equipment, net |
- |
651 |
257,430 |
- |
3,168,807 |
(127,008 |
) |
3,299,880 |
||||||||||||||
Intangible assets | - | 270 | 68,318 | - | 659,594 | (89 | ) | 728,093 | ||||||||||||||
Goodwill | - | - | 62,223 | - | 11,811,766 | - | 11,873,989 | |||||||||||||||
Deferred taxes | - | 85,060 | 14,829 | - | 128,624 | (111,052 | ) | 117,461 | ||||||||||||||
Other assets and notes receivables(1) | - | 14,258,249 | 57,611 | 12,894,961 | 5,068,002 | (30,958,149 | ) | 1,320,674 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total assets |
$ | 1,267,108 | $ | 15,748,257 | $ | 2,034,216 | $ | 14,549,573 | $ | 31,306,261 | $ | (40,760,158 | ) | $ | 24,145,257 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | ||||||||||||||||||||||
Accounts payable |
$ | - | $ | 651 | $ | 32,873 | $ | - | $ | 525,507 | $ | - | $ | 559,031 | ||||||||
Accounts payable to related parties |
- | 2,032,970 | 785,342 | 1,602,668 | 5,394,855 | (9,651,336 | ) | 164,499 | ||||||||||||||
Accrued expenses and other current liabilities |
29,771 | 54,308 | 154,350 | 9,346 | 1,802,668 | 4,240 | 2,054,683 | |||||||||||||||
Short-term borrowings |
- | 68,290 | - | - | 129,514 | - | 197,804 | |||||||||||||||
Short-term borrowings from related parties |
- | - | - | - | 161,984 | - | 161,984 | |||||||||||||||
Current portion of long-term debt and capital lease obligations |
- | 68,749 | - | 200,000 | 66,667 | - | 335,416 | |||||||||||||||
Income tax payable |
- | 117,578 | - | - | 58,684 | 1,770 | 178,032 | |||||||||||||||
Deferred taxes |
- | 1,259 | 10,598 | - | 66,651 | (43,036 | ) | 35,472 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities |
29,771 | 2,343,805 | 983,163 | 1,812,014 | 8,206,530 | (9,688,362 | ) | 3,686,921 | ||||||||||||||
Long term debt and capital lease obligations, less current portion |
1,165,000 |
646,406 |
- |
2,435,447 |
7,390,784 |
(3,193,353 |
) |
8,444,284 |
||||||||||||||
Long term borrowings from related parties | - | 3,328,094 | - | 2,076,579 | 5,985 | (5,410,658 | ) | - | ||||||||||||||
Other liabilities | - | 5,340 | 5,644 | - | 302,918 | 23,245 | 337,147 | |||||||||||||||
Pension liabilities | - | 12,395 | 261,351 | - | 162,965 | - | 436,711 | |||||||||||||||
Income tax payable | 580 | 30,549 | - | - | 24,791 | 129,556 | 185,476 | |||||||||||||||
Deferred taxes | - | - | - | - | 757,995 | (25,665 | ) | 732,330 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities |
1,195,351 | 6,366,589 | 1,250,158 | 6,324,040 | 16,851,968 | (18,165,237 | ) | 13,822,869 | ||||||||||||||
Noncontrolling interests subject to put provisions |
- |
- |
0 |
- |
672,234 |
- |
672,234 |
|||||||||||||||
Redeemable Preferred Stock | - | - | - | 235,141 | (235,141 | ) | - | - | ||||||||||||||
Total FMC-AG & Co. KGaA shareholders' equity |
71,757 |
9,381,668 |
784,058 |
7,990,392 |
13,748,714 |
(22,594,921 |
) |
9,381,668 |
||||||||||||||
Noncontrolling interests not subject to put provisions | - | - | - | - | 268,486 | - | 268,486 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total equity | 71,757 | 9,381,668 | 784,058 | 7,990,392 | 14,017,200 | (22,594,921 | ) | 9,650,154 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity |
$ | 1,267,108 | $ | 15,748,257 | $ | 2,034,216 | $ | 14,549,573 | $ | 31,306,261 | $ | (40,760,158 | ) | $ | 24,145,257 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(1) Other Assets and notes receivables are presented net of investment in equity method investees.
56
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
|
At December 31, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non- Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents |
$ | 0 | $ | 13 | $ | 4,490 | $ | - | $ | 672,206 | $ | 6,068 | $ | 682,777 | ||||||||
Trade accounts receivable, less allowance for doubtful accounts |
- | - | 152,480 | - | 2,882,736 | 2,058 | 3,037,274 | |||||||||||||||
Accounts receivable from related parties |
1,269,092 | 960,137 | 815,748 | 1,643,394 | 4,073,975 | (8,609,228 | ) | 153,118 | ||||||||||||||
Inventories |
- | - | 287,625 | - | 946,790 | (137,311 | ) | 1,097,104 | ||||||||||||||
Prepaid expenses and other current assets |
- | 71,939 | 41,240 | 167 | 879,085 | 44,960 | 1,037,391 | |||||||||||||||
Deferred taxes |
- | - | - | - | 322,337 | (43,285 | ) | 279,052 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total current assets |
1,269,092 | 1,032,089 | 1,301,583 | 1,643,561 | 9,777,129 | (8,736,738 | ) | 6,286,716 | ||||||||||||||
Property, plant and equipment, net |
- |
734 |
238,469 |
- |
2,980,268 |
(127,517 |
) |
3,091,954 |
||||||||||||||
Intangible assets | - | 501 | 73,166 | - | 684,290 | (81 | ) | 757,876 | ||||||||||||||
Goodwill | - | - | 62,829 | - | 11,595,358 | - | 11,658,187 | |||||||||||||||
Deferred taxes | - | 80,931 | 14,209 | - | 118,306 | (109,279 | ) | 104,167 | ||||||||||||||
Other assets and notes receivables(1) | - | 13,955,933 | 47,661 | 12,583,487 | 5,234,132 | (30,600,207 | ) | 1,221,006 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total assets |
$ | 1,269,092 | $ | 15,070,188 | $ | 1,737,917 | $ | 14,227,048 | $ | 30,389,483 | $ | (39,573,822 | ) | $ | 23,119,906 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | ||||||||||||||||||||||
Accounts payable |
$ | - | $ | 2,193 | $ | 28,689 | $ | - | $ | 511,715 | $ | - | $ | 542,597 | ||||||||
Accounts payable to related parties |
- | 1,896,712 | 522,719 | 1,600,480 | 4,931,344 | (8,827,326 | ) | 123,929 | ||||||||||||||
Accrued expenses and other current liabilities |
29,770 | 45,897 | 129,727 | 9,403 | 1,786,709 | 11,027 | 2,012,533 | |||||||||||||||
Short-term borrowings |
- | 60 | - | - | 96,588 | - | 96,648 | |||||||||||||||
Short-term borrowings from related parties |
- | - | - | - | 62,342 | - | 62,342 | |||||||||||||||
Current portion of long-term debt and capital lease obligations |
- | 271,090 | - | 200,000 | 40,280 | - | 511,370 | |||||||||||||||
Income tax payable |
- | 114,197 | - | - | 56,163 | - | 170,360 | |||||||||||||||
Deferred taxes |
- | 2,331 | 9,002 | - | 64,539 | (41,678 | ) | 34,194 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities |
29,770 | 2,332,480 | 690,137 | 1,809,883 | 7,549,680 | (8,857,977 | ) | 3,553,973 | ||||||||||||||
Long term debt and capital lease obligations, less current portion |
1,167,466 |
96,699 |
- |
2,438,189 |
7,478,944 |
(3,434,378 |
) |
7,746,920 |
||||||||||||||
Long term borrowings from related parties | - | 3,359,606 | - | 2,092,818 | 6,940 | (5,459,364 | ) | - | ||||||||||||||
Other liabilities | - | 5,616 | 6,028 | - | 298,313 | 19,604 | 329,561 | |||||||||||||||
Pension liabilities | - | 10,377 | 254,233 | - | 171,248 | - | 435,858 | |||||||||||||||
Income tax payable | 2,287 | 30,846 | - | - | 20,262 | 123,538 | 176,933 | |||||||||||||||
Deferred taxes | - | - | - | - | 768,156 | (24,766 | ) | 743,390 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities |
1,199,523 | 5,835,624 | 950,398 | 6,340,890 | 16,293,543 | (17,633,343 | ) | 12,986,635 | ||||||||||||||
Noncontrolling interests subject to put provisions |
- |
- |
0 |
- |
648,251 |
- |
648,251 |
|||||||||||||||
Redeemable Preferred Stock | - | - | - | 235,141 | (235,141 | ) | - | - | ||||||||||||||
Total FMC-AG & Co. KGaA shareholders' equity |
69,569 |
9,234,564 |
787,519 |
7,651,017 |
13,432,374 |
(21,940,479 |
) |
9,234,564 |
||||||||||||||
Noncontrolling interests not subject to put provisions | - | - | - | - | 250,456 | - | 250,456 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total equity | 69,569 | 9,234,564 | 787,519 | 7,651,017 | 13,682,830 | (21,940,479 | ) | 9,485,020 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity |
$ | 1,269,092 | $ | 15,070,188 | $ | 1,737,917 | $ | 14,227,048 | $ | 30,389,483 | $ | (39,573,822 | ) | $ | 23,119,906 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(1) Other Assets and notes receivables are presented net of investment in equity method investees.
57
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
|
For the six months ended June 30, 2014 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non- Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Operating Activities: | ||||||||||||||||||||||
Net income (loss) |
$ | 2,188 | $ | 439,104 | $ | 3,145 | $ | 334,029 | $ | 495,553 | $ | (746,093 | ) | $ | 527,926 | |||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||||||||||||||||
Equity affiliate income |
- | (315,283 | ) | - | (374,253 | ) | - | 689,536 | - | |||||||||||||
Depreciation and amortization |
- | 340 | 26,497 | - | 327,154 | (17,865 | ) | 336,126 | ||||||||||||||
Change in deferred taxes, net |
- | (10,662 | ) | 411 | - | 19,178 | (8,235 | ) | 692 | |||||||||||||
(Gain) loss on sale of fixed assets and investments |
- | - | (107 | ) | - | 1,651 | - | 1,544 | ||||||||||||||
(Write Up) write-off loans from related parties |
- | 54,541 | - | - | - | (54,541 | ) | - | ||||||||||||||
Compensation expense related to stock options |
- | (1,403 | ) | - | - | - | - | (1,403 | ) | |||||||||||||
Investments in equity method investees, net |
- | 43,411 | - | - | (14,674 | ) | - | 28,737 | ||||||||||||||
Changes in assets and liabilities, net of amounts from businesses acquired: |
||||||||||||||||||||||
Trade accounts receivable, net |
- | - | (3,245 | ) | - | (90,574 | ) | 290 | (93,529 | ) | ||||||||||||
Inventories |
- | - | (29,910 | ) | - | (181,345 | ) | 31,157 | (180,098 | ) | ||||||||||||
Prepaid expenses and other current and non-current assets |
- | 34,643 | (14,866 | ) | (21,933 | ) | (59,782 | ) | (4,804 | ) | (66,742 | ) | ||||||||||
Accounts receivable from / payable to related parties |
(406 | ) | (169,605 | ) | 218,846 | 28,110 | (75,880 | ) | 13,122 | 14,187 | ||||||||||||
Accounts payable, accrued expenses and other current and non-current liabilities |
- | 17,335 | 41,603 | (57 | ) | (65,393 | ) | (1,139 | ) | (7,651 | ) | |||||||||||
Income tax payable |
(1,707 | ) | 4,497 | - | (26,207 | ) | 16,137 | 9,098 | 1,818 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities |
75 | 96,918 | 242,374 | (60,311 | ) | 372,025 | (89,474 | ) | 561,607 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Investing Activities: | ||||||||||||||||||||||
Purchases of property, plant and equipment |
- | (37 | ) | (43,687 | ) | - | (394,161 | ) | 18,626 | (419,259 | ) | |||||||||||
Proceeds from sale of property, plant and equipment |
- | - | 188 | - | 4,103 | - | 4,291 | |||||||||||||||
Disbursement of loans to related parties |
- | (194,357 | ) | - | 101,745 | - | 92,612 | - | ||||||||||||||
Acquisitions and investments, net of cash acquired, and purchases of intangible assets |
- | (197,807 | ) | (11,372 | ) | - | (434,570 | ) | 209,052 | (434,697 | ) | |||||||||||
Proceeds from divestitures |
- | - | - | - | 3,310 | - | 3,310 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
- | (392,201 | ) | (54,871 | ) | 101,745 | (821,318 | ) | 320,290 | (846,355 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Financing Activities: | ||||||||||||||||||||||
Short-term borrowings, net |
- | 226,862 | (183,906 | ) | - | 145,323 | - | 188,279 | ||||||||||||||
Long-term debt and capital lease obligations, net |
(75 | ) | 351,059 | - | (41,434 | ) | 119,027 | (92,612 | ) | 335,965 | ||||||||||||
Increase (decrease) of accounts receivable securitization program |
- | - | - | - | 72,000 | - | 72,000 | |||||||||||||||
Proceeds from exercise of stock options |
- | 37,604 | - | - | 3,149 | - | 40,753 | |||||||||||||||
Dividends paid |
- | (317,903 | ) | - | - | - | - | (317,903 | ) | |||||||||||||
Capital increase (decrease) |
- | - | - | - | 142,957 | (142,957 | ) | - | ||||||||||||||
Distributions to noncontrolling interest |
- | - | - | - | (97,047 | ) | - | (97,047 | ) | |||||||||||||
Contributions from noncontrolling interest |
- | - | - | - | 25,323 | - | 25,323 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
(75 | ) | 297,622 | (183,906 | ) | (41,434 | ) | 410,732 | (235,569 | ) | 247,370 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | - | 259 | (54 | ) | - | (1,066 | ) | - | (861 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents: | ||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 0 | 2,598 | 3,543 | - | (39,627 | ) | (4,753 | ) | (38,239 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 0 | 13 | 4,490 | - | 672,206 | 6,068 | 682,777 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | $ | 0 | $ | 2,611 | $ | 8,033 | $ | - | $ | 632,579 | $ | 1,315 | $ | 644,538 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
58
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
|
For the six months ended June 30, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Issuer | Guarantors | |
|
|
|||||||||||||||||
|
FMC US Finance |
FMC - AG & Co. KGaA |
D-GmbH | FMCH | Non- Guarantor Subsidiaries |
Combining Adjustment |
Combined Total |
|||||||||||||||
Operating Activities: | ||||||||||||||||||||||
Net income (loss) |
$ | 2,177 | $ | 488,023 | $ | (5,310 | ) | $ | 357,133 | $ | 559,265 | $ | (843,630 | ) | $ | 557,658 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||||||||||||||||
Equity affiliate income |
- | (331,592 | ) | - | (432,819 | ) | 49,662 | 714,749 | - | |||||||||||||
Depreciation and amortization |
- | 330 | 24,691 | - | 305,236 | (15,103 | ) | 315,154 | ||||||||||||||
Change in deferred taxes, net |
- | (19,248 | ) | 3,651 | - | 24,404 | (9,336 | ) | (529 | ) | ||||||||||||
(Gain) loss on sale of fixed assets and investments |
- | (12 | ) | (153 | ) | - | (6,089 | ) | - | (6,254 | ) | |||||||||||
Compensation expense related to stock options |
- | 12,777 | - | - | - | - | 12,777 | |||||||||||||||
Cash inflow (outflow) from hedging |
- | (4,028 | ) | - | - | - | - | (4,028 | ) | |||||||||||||
Investments in equity method investees, net |
- | 22,691 | - | - | (7,940 | ) | - | 14,751 | ||||||||||||||
Changes in assets and liabilities, net of amounts from businesses acquired: |
||||||||||||||||||||||
Trade accounts receivable, net |
- | - | (11,574 | ) | - | (51,000 | ) | - | (62,574 | ) | ||||||||||||
Inventories |
- | - | (24,736 | ) | - | (29,542 | ) | 20,013 | (34,265 | ) | ||||||||||||
Prepaid expenses and other current and non-current assets |
- | 10,768 | (17,389 | ) | 40,202 | (39,431 | ) | 28,585 | 22,735 | |||||||||||||
Accounts receivable from / payable to related parties |
(410 | ) | 286,966 | 68,660 | 57,847 | (462,322 | ) | 70,579 | 21,320 | |||||||||||||
Accounts payable, accrued expenses and other current and non-current liabilities |
- | 10,171 | 38,199 | 106 | (53,631 | ) | (3,854 | ) | (9,009 | ) | ||||||||||||
Income tax payable |
520 | 729 | - | (49,312 | ) | 35,551 | 25,313 | 12,801 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities |
2,287 | 477,575 | 76,039 | (26,843 | ) | 324,163 | (12,684 | ) | 840,537 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Investing Activities: | ||||||||||||||||||||||
Purchases of property, plant and equipment |
- | (45 | ) | (39,394 | ) | - | (311,089 | ) | 16,886 | (333,642 | ) | |||||||||||
Proceeds from sale of property, plant and equipment |
- | 17 | 271 | - | 14,508 | - | 14,796 | |||||||||||||||
Disbursement of loans to related parties |
- | 45,738 | - | 28,419 | - | (74,157 | ) | - | ||||||||||||||
Acquisitions and investments, net of cash acquired, and net purchases of intangible assets |
- | (23,076 | ) | (1,943 | ) | - | (100,883 | ) | 24,093 | (101,809 | ) | |||||||||||
Proceeds from divestitures |
- | - | - | - | 17,824 | - | 17,824 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
- | 22,634 | (41,066 | ) | 28,419 | (379,640 | ) | (33,178 | ) | (402,831 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Financing Activities: | ||||||||||||||||||||||
Short-term borrowings, net |
- | 4 | (34,873 | ) | - | 35,808 | - | 939 | ||||||||||||||
Long-term debt and capital lease obligations, net |
(2,287 | ) | 354 | - | 1,697,512 | (1,736,452 | ) | 74,157 | 33,284 | |||||||||||||
Increase (decrease) of accounts receivable securitization program |
- | - | - | - | 23,000 | - | 23,000 | |||||||||||||||
Proceeds from exercise of stock options |
- | 32,210 | - | - | 3,932 | - | 36,142 | |||||||||||||||
Purchase of treasury stock |
- | (230,654 | ) | - | - | - | - | (230,654 | ) | |||||||||||||
Dividends paid |
- | (296,134 | ) | - | (684,229 | ) | 682,564 | 1,665 | (296,134 | ) | ||||||||||||
Capital increase (decrease) |
- | - | - | (1,014,859 | ) | 1,016,261 | (1,402 | ) | - | |||||||||||||
Distributions to noncontrolling interest |
- | - | - | - | (117,855 | ) | - | (117,855 | ) | |||||||||||||
Contributions from noncontrolling interest |
- | - | - | - | 27,157 | - | 27,157 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
(2,287 | ) | (494,220 | ) | (34,873 | ) | (1,576 | ) | (65,585 | ) | 74,420 | (524,121 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | - | (1,135 | ) | (6 | ) | - | (14,627 | ) | - | (15,768 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents: | ||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 0 | 4,854 | 94 | - | (135,689 | ) | 28,558 | (102,183 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 1 | 78 | 501 | - | 686,457 | 1,003 | 688,040 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | $ | 1 | $ | 4,932 | $ | 595 | $ | - | $ | 550,768 | $ | 29,561 | $ | 585,857 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
59
Quantitative and Qualitative Disclosures About Market Risk
During the period ended June 30, 2014, no material changes occurred to the information presented in Item 11 of the Company's Annual Report on Form 20-F for the year ended December 31, 2013, as amended.
60
The Company is a "foreign private issuer" within the meaning of Rule 3b-4(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, the Company is not required to file quarterly reports with the Securities and Exchange Commission and is required to provide an evaluation of the effectiveness of its disclosure controls and procedures, to disclose significant changes in its internal control over financial reporting, and to provide certifications of its Chief Executive Officer and Chief Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 only in its Annual Report on Form 20-F. The Company furnishes quarterly financial information to the Securities and Exchange Commission (the "Commission") and such certifications under cover of Form 6-K on a voluntary basis and pursuant to the provisions of the Company's pooling agreement entered into for the benefit of the public holders of our shares. In connection with such voluntary reporting, the Company's management, including the Chief Executive Officer and the Chief Financial Officer of the Company's general partner, has conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report, of the type contemplated by Securities Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded in connection with the furnishing of this report, that the Company's disclosure controls and procedures are designed to ensure that the information the Company is required to disclose in the reports filed or furnished under the Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and are effective to ensure that the information the Company is required to disclose in its reports is accumulated and communicated to the General Partner's Management Board, including the General Partner's Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. During the first six months of 2014, there have been no significant changes in internal controls, or in factors that could significantly affect internal controls.
During the three-month period ended June 30, 2014, our Audit and Corporate Governance Committee continued its investigation, with the assistance of independent counsel, into allegations of conduct in our International segment that may violate the U.S. Foreign Corrupt Practices Act or other anti-bribery laws. For information with respect to that investigation, see Note 11 of the Notes to the Consolidated Financial Statements (unaudited), "Commitments and Contingencies Legal and Regulatory Matters Other Litigation and Potential Exposures," presented elsewhere in this Report. The Company's independent counsel, in conjunction with the Company's Compliance Department, have reviewed the Company's anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws, and appropriate enhancements are being implemented.
61
The information in Note 11 of the Notes to Consolidated Financial Statements (Unaudited), "Commitments and Contingencies" presented elsewhere in this report is incorporated by this reference.
Submission of Matters to a Vote of Security Holders
The Company held its Annual General Meeting ("AGM") in Frankfurt, Germany on May 15, 2014. Prior to the presentation of resolutions to the shareholders for vote, representation was as follows:
Out of the capital stock of EUR 309,137,900, 229,617,455 shares were represented, which accounted for 74.28% of the share capital.
The six resolutions proposed for actions by the ordinary shareholders at the AGM and the voting results thereon are set forth as follows:
|
|
Votes (in percentage of shares actually voting) |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
Resolution | In Favor | Opposed | ||||||
TOPIC 1 | Resolution on the approval of the annual financial statements of Fresenius Medical Care AG & Co. KGaA for the fiscal year 2013 | 99.97 | % | 0.03 | % | ||||
TOPIC 2 |
Resolution on the allocation of distributable profit |
99.85 |
% |
0.15 |
% |
||||
TOPIC 3 |
Resolution on the approval of the actions of the General Partner |
99.80 |
% |
0.20 |
% |
||||
TOPIC 4 |
Resolution on the approval of the actions of the members of the Supervisory Board |
99.76 |
% |
0.24 |
% |
||||
TOPIC 5 |
Election of the auditors and consolidated group auditors for the fiscal year 2014 |
95.87 |
% |
4.13 |
% |
||||
TOPIC 6 |
Resolution on the approval of the amendment of an existing profit and loss transfer agreement |
99.98 |
% |
0.02 |
% |
62
Exhibit No.
|
|
|
---|---|---|
2.28 | Incremental Term Loan Joinder Agreement Relating to the Tranche A-2 Term Loan Facility dated as of July 1, 2014 by and among the Registrant, Fresenius Medical Care Holdings, Inc. and the other borrowers and guarantors identified therein, the lenders identified therein, and Bank of America, N.A., as administrative agent. | |
4.27 |
Loan Note dated June 30, 2014, among the Registrant and certain of its U.S. subsidiaries as borrowers and Fresenius SE & Co. KGaA as lenders(1). |
|
4.28 |
Stock Purchase and Contribution Agreement dated as of June 13, 2014 by and among Sound Inpatient Physicians, Inc., of Sound Inpatient Holdings, LLC, Sound Inpatient Physicians Holdings, LLC and the Registrant.(1)(*) |
|
31.1 |
Certification of Chief Executive Officer and Chairman of the Management Board of the Company's General Partner Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
Certification of Chief Financial Officer and member of the Management Board of the Company's General Partner Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
Certification of Chief Executive Officer and Chairman of the Management Board of the Company's General Partner and Chief Financial Officer and member of the Management Board of the Company's General Partner Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (this exhibit accompanies this report as required by the Sarbanes-Oxley Act of 2002 and is not to be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended). |
|
101 |
The following financial statements as of and for the six-month period ended June 30, 2014 from FMC-AG & Co. KGaA's Report on Form 6-K for the month of July 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Shareholders' Equity and (vi) Notes to Consolidated Financial Statements. |
63
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: July 31, 2014 |
||||
|
FRESENIUS MEDICAL CARE AG & Co. KGaA |
|||
|
FRESENIUS MEDICAL CARE MANAGEMENT AG, |
|||
|
By: /s/ RICE POWELL |
|||
|
Name: |
Rice Powell |
||
|
Title: | Chief Executive Officer and Chairman of the Management Board of the General Partner |
||
|
By: /s/ MICHAEL BROSNAN |
|||
|
Name: |
Michael Brosnan |
||
|
Title: | Chief Financial Officer and member of the Management Board of the General Partner |
64
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Rice Powell, certify that:
Date: July 31, 2014 | By: /s/ RICE POWELL Rice Powell Chief Executive Officer and Chairman of the Management Board of the General Partner |
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Brosnan, certify that:
Date: July 31, 2014 | By: /s/ MICHAEL BROSNAN Michael Brosnan Chief Financial Officer and member of the Management Board of the General Partner |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the report of Fresenius Medical Care AG & Co. KGaA (the "Company") on Form 6-K furnished for the month of July 2014 containing its unaudited financial statements as of June 30, 2014 and for the six-month periods ending June 30, 2014 & 2013, as submitted to the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Rice Powell, Chief Executive Officer and Michael Brosnan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
By: /s/ RICE POWELL Rice Powell Chief Executive Officer and Chairman of the Management Board of the General Partner |
||
July 31, 2014 |
||
By: /s/ MICHAEL BROSNAN Michael Brosnan Chief Financial Officer and member of the Management Board of the General Partner |
||
July 31, 2014 |
Exhibit 2.28
INCREMENTAL TERM LOAN JOINDER AGREEMENT
Relating to the Tranche A-2 Term Loan Facility
THIS INCREMENTAL TERM LOAN AGREEMENT dated as of July 1, 2014 (this Agreement) by and among FRESENIUS MEDICAL CARE AG & Co. KGaA, a German partnership limited by shares, FRESENIUS MEDICAL CARE HOLDINGS, INC., a New York corporation, and the other Borrowers and Guarantors identified herein, the Incremental Term Loan Lenders identified on the signature pages, and BANK OF AMERICA, N.A., as Administrative Agent.
W I T N E S S E T H
WHEREAS, a revolving credit and term loan credit facility was established pursuant to that Credit Agreement dated as of October 30, 2012 (as amended and modified, the Credit Agreement) among FME, FMCH and certain subsidiaries and affiliates identified therein, as Borrowers, the subsidiaries and affiliates identified therein, as Guarantors, the Lenders identified therein and Bank of America, N.A., as Administrative Agent;
WHEREAS, FME and FMCH have requested the establishment of a new term loan as an Incremental Loan Facility pursuant to the accordion provisions of Section 2.01(f) therein;
WHEREAS, the Lenders party to this Agreement have agreed to provide such an Incremental Loan Facility on the terms and conditions provided herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Section references are to sections and subsections in the Credit Agreement.
Section 2. Establishment of Incremental Loan Facility. Subject to the terms and conditions provided herein, a new term loan is hereby established as an Incremental Loan Facility under Section 2.01(f) of the Credit Agreement:
2.1 New Tranche A-2 Term Loan. A new Tranche A-2 Term Loan in an original principal amount of $600 million (the Tranche A-2 Term Loan) will be established as an Incremental Loan Facility under Section 2.01(f) of the Credit Agreement with FMCH and the Co-Borrowers as the Borrowers, a maturity date of June 30, 2015, mandatory prepayment on terms contemplated in Section 3.7 hereof, and other terms as contemplated in Section 3 hereof and otherwise as provided in the Credit Agreement, and advanced to the applicable Borrowers on the Incremental Term Loan Closing Date.
2.2 On the Incremental Term Loan Closing Date, each of the lenders hereunder (the Tranche A-2 Term Lenders) severally agrees to make its portion of the Tranche A-2 Term Loan (in the amount of its respective commitment as set forth on Schedule 2.01 hereto) in a single advance in Dollars, in an aggregate principal amount of SIX HUNDRED MILLION DOLLARS ($600,000,000), to the applicable Borrowers, jointly and severally, as borrowers therefor. The Tranche A-2 Term Loan may consist of Base Rate Loans, Fixed LIBOR Rate Loans or a combination thereof, as such Borrower may request. Amounts repaid on the Tranche A-2 Term Loan may not be reborrowed.
2.3 Except as otherwise agreed in writing by the Borrowers hereunder and the Tranche A-2Term Lenders, the Applicable Percentage in respect of the Tranche A-2 Term Loan shall be as set forth below:
APPLICABLE PERCENTAGE FOR TRANCHE A-2 TERM LOAN
Date |
|
Fixed LIBOR Rate |
|
Base Rate Loans |
|
July 1, 2014 through September 28, 2014 |
|
0.500 |
% |
0.000 |
% |
September 29, 2014 through December 27, 2014 |
|
1.000 |
% |
0.000 |
% |
December 28, 2014 through the Tranche A-2 Term Loan Maturity Date |
|
1.500 |
% |
0.500 |
% |
Section 3. In connection with the establishment of the Tranche A-2 Term Loan facility under this Agreement, the Credit Agreement is modified in the following respects:
3.1 All references to Tranche A are hereby replaced with Tranche A-1.
3.2 In Section 1.01 (Defined Terms) the following terms are added or amended and modified as follows:
Applicable Required Lenders means the Required USD Revolving Lenders, Required Euro Revolving Lenders, Required Multi-Currency Revolving Lenders, Required Tranche A-1 Term Lenders and/or the Required Tranche A-2 Term Lenders, as applicable.
Borrowers means:
(i) for Credit Extensions under the USD Revolving Commitments (other than USD Swingline Loans), (a) FME, (b) FMCH and the Co-Borrowers and (c) the other Designated Borrowers in respect thereof;
(ii) for Credit Extensions under the Euro Revolving Commitments, (a) FME, (b) FMCH and the Co-Borrowers and (c) the other Designated Borrowers in respect thereof;
(iii) for Credit Extensions under the Multi-Currency Revolving Commitments (other than Multi-Currency Swingline Loans), (a) FME, (b) FMCH and the Co-Borrowers and (c) the other Designated Borrowers in respect thereof;
(iv) for USD Swingline Loans, (a) FME and (b) FMCH and the Co-Borrowers;
(v) for Multi-Currency Swingline Loans, (a) FME and (b) FMCH and the Co-Borrowers;
(vi) for the Tranche A-1 Term Loan, FMCH and the Co-Borrowers; and
(vii) for the Tranche A-2 Term Loan, FMCH and the Co-Borrowers;
and, in each case, including their successors and permitted assigns, subject to the provisions for designation and removal of Borrowers in Section 2.14.
Commitment Percentages means the Revolving Commitment Percentage, the Tranche A-1 Term Loan Commitment Percentage and/or the Tranche A-2 Term Loan Commitment Percentage, as context requires.
Incremental Term Loan Closing Date means July 1, 2014.
Lenders means the Multi-Currency Revolving Lenders, the USD Revolving Lenders, the Euro Revolving Lenders, the Tranche A-1 Term Lenders and/or the Tranche A-2 Term Lenders, as appropriate.
Outstanding Amount means, on any day,
(a) with respect to USD Revolving Loan Obligations, Multi-Currency Revolving Loan Obligations and Competitive Revolving Loans, with respect to Revolving Loans and Swingline Loans thereunder, the Dollar Equivalent amount of the aggregate outstanding principal amount thereof after giving effect to any Borrowings, prepayments and repayments on such date, and with respect to L/C Obligations thereunder, the Dollar Equivalent amount thereof after giving effect to any L/C Credit Extension, reimbursements and reductions in amounts available to be drawn under Letters of Credit thereunder;
(b) with respect to Euro Revolving Loan Obligations, with respect to Revolving Loans thereunder, the Euro Equivalent amount of the aggregate outstanding principal amount thereof after giving effect to any Borrowings, prepayments and repayments on such date; and
(c) with respect to any Term Loan, the Dollar Equivalent amount of the aggregate principal amount thereof after giving effect to any prepayments or repayments on such date.
Primary Borrowers means:
(i) for Credit Extensions under the USD Revolving Commitments (other than USD Swingline Loans), (a) FME, (b) FMCH and the Co-Borrowers and (c) the other Designated Borrowers identified as Primary Borrowers in respect thereof;
(ii) for Credit Extensions under the Euro Revolving Commitments, (a) FME, (b) FMCH and the Co-Borrowers and (c) the other Designated Borrowers identified as Primary Borrowers in respect thereof;
(iii) for Credit Extensions under the Multi-Currency Revolving Commitments, (a) FME, (b) FMCH and the Co-Borrowers and (c) the other Designated Borrowers identified as Primary Borrowers in respect thereof;
(iv) for USD Swingline Loans, (a) FME and (b) FMCH and the Co-Borrowers;
(v) for Multi-Currency Swingline Loans, (a) FME and (b) FMCH and the Co-Borrowers;
(vi) for the Tranche A-1 Term Loan, FMCH and the Co-Borrowers; and
(vii) for the Tranche A-2 Term Loan, FMCH and the Co-Borrowers.
Required Tranche A-2 Term Lenders means, as of any date of determination, Lenders holding in the aggregate more than fifty percent (50%) of the Tranche A-2 Term Loan; provided that the portion of the Tranche A-2 Term Loan held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Tranche A-2 Term Lenders.
Term Loan means the Tranche A-1 Term Loan, the Tranche A-2 Term Loan and any other term loan established under the Incremental Loan Facilities.
Term Loan Commitments means the Tranche A-1 Term Loan Commitments, the Tranche A-2 Term Loan Commitments and any term loan commitments established under the Incremental Loan Facilities; provided that, in any such case, after funding of the term loan determinations of Required Lenders shall be based on the outstanding principal amount thereof.
Term Notes means the Tranche A-1 Term Notes, the Tranche A-2 Term Notes and Notes evidencing any other term loan that may be established under the Incremental Loan Facilities.
Tranche A-2 Term Lenders means, prior to the funding of the initial Tranche A-2 Term Loan, those Lenders with Tranche A-2 Term Loan Commitments, and after funding of the Tranche A-2 Term Loan, those Lenders holding a portion of the Tranche A-2 Term Loan, together with their successors and permitted assigns. The initial Tranche A-2 Term Lenders are set forth on Schedule 2.01, as amended.
Tranche A-2 Term Loan means the term loan made pursuant to Section 2.01(e-2), including any increase thereto pursuant to any Incremental Loan Facility.
Tranche A-2 Term Loan Commitment means, for each Tranche A-2 Term Lender, the commitment of such Lender to make a portion of the Tranche A-2 Term Loan hereunder; provided that, at any time after funding of the Tranche A-2 Term Loan, determinations of Required Lenders and Required Tranche A-2 Term Lenders shall be based on the outstanding principal amount of the Tranche A-2 Term Loan.
Tranche A-2 Term Loan Commitment Percentage means, for each Tranche A-2 Term Lender, a fraction (expressed as a percentage carried to the ninth decimal place), the numerator of which is, prior to funding, such Lenders Tranche A-2 Term Loan Committed Amount, and after funding, the principal amount of such Lenders Tranche A-2 Term Loan, and the denominator of which is, prior to funding, the aggregate principal amount of the Tranche A-2 Term Loan Commitments, and after funding, is the Outstanding Amount of the Tranche A-2 Term Loan. The initial Tranche A-2 Term Loan Commitment Percentages are set forth on Schedule 2.01.
Tranche A-2 Term Loan Committed Amount means, for each Tranche A-2 Term Lender, the amount of such Lenders Tranche A-2 Term Loan Commitment. The initial Tranche A-2 Term Loan Committed Amounts are set forth on Schedule 2.01.
Tranche A-2 Term Loan Maturity Date shall have the meaning provided in Section 2.05(d-2).
Tranche A-2 Term Note means the promissory notes substantially in the form of Exhibit 2.13-7, if any, given to evidence the Tranche A-2 Term Loans, as amended, restated, modified, supplemented, extended, renewed or replaced.
3.3 A new Section 2.01(e-2) is added to read as follows:
(e-2) Tranche A-2 Term Loan. On the Incremental Term Loan Closing Date, each of the Tranche A-2 Term Lenders severally agrees to make its portion of a term loan (in the amount of its respective Tranche A-2 Term Loan Committed Amount) in a single advance in Dollars, in an aggregate principal amount of SIX HUNDRED MILLION DOLLARS ($600,000,000) (the Tranche A-2 Term Loan), to the applicable Borrowers, jointly and severally, as borrowers therefor. The Tranche A-2 Term Loan may consist of Base Rate Loans, Fixed LIBOR Rate Loans or a combination thereof, as such Borrower may request. Amounts repaid on the Tranche A-2 Term Loan may not be reborrowed.
3.4 The instance of or Tranche A Term Loan in Section 2.02(b) is hereby replaced with , Tranche A-1 Term Loan or Tranche A-2 Term Loan.
3.5 Section 2.02(f) is hereby amended to read as follows:
(f) After giving effect to all Borrowings, all conversions of Revolving Loans from one Type to the other, and all continuations of Revolving Loans as the same Type, at any time there shall not be more than (i) ten (10) Interest Periods in effect, in the case of USD Revolving Loans, (ii) ten (10) Interest Periods in effect, in the case of Euro Revolving Loans, (iii) ten (10) Interest Periods in effect, in the case of Multi-Currency Revolving Loans, (iv) ten (10) Interest Periods in effect, in the case of the Tranche A-1 Term Loan, (v) ten (10) Interest Periods in effect, in the case of the Tranche A-2 Term Loan and (vi) the number of Interest Periods for any Incremental Loan Facility provided in the joinder agreement therefor, or if not provided, five Interest Periods.
3.6 A new subsection (d-2) is added to Section 2.05 to read as follows:
(d-2) Tranche A-2 Term Loan. The principal amount of the Tranche A-2 Term Loan shall be due and payable in full on June 30, 2015 (the Tranche A-2 Term Loan Maturity Date).
3.7 A new Section 2.06(b)(iv) is hereby added to read as follows:
(iv) Bond Issuances and Certain Additional Term Loans. Except to the extent otherwise agreed in writing by the Required Tranche A-2 Term Lenders, prepayment will be made on the Tranche A-2 Term Loan in an amount equal to one-hundred percent (100%) of the Net Cash Proceeds from the issuance after the Incremental Term Loan Closing Date by a wholly-owned Domestic Subsidiary of FME in a transaction in the United States that does not otherwise constitute a Debt Transaction under the Credit Agreement of (i) U.S. Dollar bonds or (ii) syndicated term loans, including additional term loans under the Credit Agreement, to the extent that the Net Cash Proceeds thereof exceed $300 million.
3.8 A new Section 2.06(c)(ii)(C) is hereby added to read as follows:
(C) Mandatory prepayments under subsection (b)(iv) and subsection (b)(v), shall be applied to the Tranche A-2 Term Loan, until paid in full, then to the Borrowers.
3.9 Section 2.14(a) is hereby amended by replacing the instances of or the Required Tranche A Term Lenders therein with , the Required Tranche A-1 Term Lenders or the Required Tranche A-2 Term Lenders.
3.10 Section 11.01(a)(v) is hereby amended to read as follows:
(v) change any provision of this Section 11.01(a) or the definitions of Required Lenders, Required USD Revolving Lenders, Required Euro Revolving Lenders, Required Multi-Currency Revolving Lenders, Required Tranche A-1 Term Lenders or Required Tranche A-2 Term Lenders or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender directly affected thereby;
3.11 A new Section 11.01(l) is added to read as follows:
(l) unless also signed by the Required Tranche A-2 Term Lenders, no such amendment, waiver or consent shall:
(i) amend or waive any mandatory prepayment on the Tranche A-2 Term Loan under Section 2.06(b) or the manner of application thereof to the Tranche A-2 Term Loan under Section 2.06(c), or
(ii) amend or waive the provisions of this Section 11.01(l) or the definition of Required Tranche A-2 Term Lenders;
3.12 The first paragraph of Section 11.13 is hereby amended by replacing the instance of or the Required Tranche A Term Lenders therein with , the Required Tranche A-1 Term Lenders or the Required Tranche A-2 Term Lenders.
3.13 Schedule 2.01 (Lenders and Commitments) is supplemented by the addition of a new schedule in the form of Schedule 2.01 (Incremental Term Loan Commitments) attached hereto to reflect establishment of the incremental commitments .
3.14 A new Exhibit 2.13-7 is added in the form attached hereto as Exhibit 2.13-7.
Section 4. Representations and Warranties. Each of the Credit Parties hereby represents and warrants that:
4.1 It has full power and authority, and has taken all action necessary, to execute and deliver this Agreement and to consummate the transactions contemplated hereby;
4.2 It has executed and delivered this Agreement and this Agreement constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except to the extent that enforceability may be limited by Debtor Relief Laws and subject to equitable principles.
4.3 As of the date hereof, the representations and warranties in Article VI of the Credit Agreement are true and correct in all material respects, except (i) to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true and correct in all material respects as of such earlier date, and (ii) that for purposes hereof, the representations and warranties in subsections (A) and (B) of Section 6.05 shall be deemed to refer to the most recent annual audited and company-prepared quarterly financial statements furnished pursuant to Section 7.01(a) and (b); and
4.4 No Default or Event of Default exists immediately before, or will exist immediately after, giving effect to this Agreement and the establishment and funding of the incremental loans hereunder on a Pro Forma Basis.
Section 5. Acknowledgment, Reaffirmation and Confirmation.
5.1 Each of the Guarantors acknowledges and consents to the terms and conditions of this Agreement, affirms its guaranty obligations under the Credit Agreement and other Credit Documents (including separate guaranty and indemnity agreements given), as amended and modified hereby, including the incremental loans established hereby. Nothing contained herein or in any related documents will operate to reduce or discharge any of the obligations of the Guarantors under the Credit Agreement and other Credit Documents (including separate guaranty and indemnity agreements given).
5.2 Each of the Credit Parties (i) reaffirms the Liens and security interests under the Collateral Documents and other Credit Documents; (ii) agrees that nothing contained herein or in any related documents will operate to impair or adversely affect the Liens and security interests thereunder as security for the Obligations under the Credit Agreement and the other Credit Documents (including separate guaranty and indemnity agreements given), as amended and modified hereby; and (iii) confirms that the establishment and provision of the Incremental Loan Facilities was expressly contemplated by and within the general purview of the Credit Agreement and the other Credit Documents.
5.3 Each Borrower and Guarantor affirms all of its obligations under the parallel debt agreement dated 30 October, 2012.
Section 6. Establishment of Incremental Commitments by the Lenders. The Lenders providing incremental commitments hereunder (the Incremental Term Loan Lenders) acknowledge and agree that (i) their respective commitments as shown on Schedule 2.01 attached hereto supplement Schedule 2.01 to the Credit Agreement and (ii) they shall be bound by the terms of the Credit Agreement as a Lender with all of the rights and benefits and all of the obligations of a Lender thereunder with the loans and commitments shown.
Section 7. Conditions Precedent. The effectiveness of this Agreement is subject to satisfaction of all of the following conditions precedent, each in form and substance satisfactory to the Administrative Agent and the Incremental Term Loan Lenders:
7.1 Receipt by the Administrative Agent of fully executed copies of this Agreement and promissory notes for the Incremental Term Loan Lenders.
7.2 Receipt of opinions of counsel for the Borrowers and for the Guarantors party hereto, including, among other things, organization and existence, due authorization, execution, delivery and enforceability of this Agreement.
7.3 Receipt of certificates of responsible officers or directors (as appropriate based on the applicable jurisdiction of organization) of the Borrowers and Guarantors hereunder (i) attaching copies of the Organization Documents certified by a secretary or assistant secretary or a Responsible Officer, as applicable, to be true and correct as of the date hereof (or, if such Organization Documents have not been amended, modified or supplemented since such Organization Documents were delivered to the Administrative Agent in connection with the closing of the Credit Agreement, certifying that such Organization Documents have not been amended, modified or
supplemented since such delivery and remain true, correct and complete and in full force and effect as of the date hereof), (ii) attaching copies of the resolutions of its board of directors or managers (or analogous governing body) approving and adopting the transactions contemplated by this Agreement, and authorizing the execution and delivery thereof (which in each case may be included in the resolutions approving the Credit Agreement and the transactions contemplated thereby), certified by a secretary or assistant secretary or a Responsible Officer, as applicable, to be true and correct as of the date hereof; (iii) attaching an incumbency certification identifying the responsible officers that are authorized to execute this Agreement and related documents and to act on their behalf in connection with this Agreement and the Credit Documents (or confirming that the incumbency certificate delivered in connection with the closing of the Credit Agreement has not been amended, modified or supplemented since such delivery and remains true, correct and complete and in full force and effect as of the date hereof) , and (iv) in the certificate given by FMCH confirming that no Default or Event of Default shall exist immediately before or immediately after giving effect to this Agreement and the establishment of the incremental commitment hereunder and demonstrating compliance with the financial covenants after giving effect to this Agreement and the establishment of the incremental commitments hereunder on a Pro Forma Basis (assuming for purposes hereof that the entire amount of the commitments, including the incremental commitments established hereby, are fully drawn and funded).
7.4 Confirmation of consummation of the acquisition by a subsidiary of FMCH of a majority of the outstanding voting stock of Sound Inpatient Physicians, Inc. , or consummation substantially contemporaneously with the funding of the Tranche A-2 Term Loan.
7.5 Payment of fees owing in connection with this Agreement, including upfront fees payable to the Incremental Term Loan Lenders and fees and documented expenses of counsel for the Administrative Agent and the initial Incremental Term Loan Lenders.
For purposes of determining compliance with the conditions provided herein, each Incremental Term Loan Lender shall be deemed to have consented to, approved or accepted, and to have been satisfied with, each document, delivery and other requirement hereunder, unless the Administrative Agent shall have received notice to the contrary prior to the effective date of this Agreement.
Section 8. Amendment. This Agreement constitutes an Incremental Loan Facility Joinder Agreement under the Credit Agreement. The terms of the Tranche A-2 Term Loan may be amended or modified solely with the prior written consent of the applicable Borrowers and the Tranche A-2 Term Lenders, and this Agreement may amended or modified by the parties hereto.
Section 9. Break-Funding Indemnity. (a) The Borrowers acknowledge and agree that in the event the Borrowers should submit a Borrowing notice for Fixed LIBOR Rate Loans in the credit facilities as to which the incremental commitments established hereby shall relate prior to the effective date of this Agreement and in anticipation of closing and funding on or after the effective date of this Agreement, if this Agreement shall not have become effective by the date for the Borrowing in the notice, then the Incremental Term Loan Lenders may be entitled to compensation under Section 3.05 of the Credit Agreement depending on circumstances for the entire amount of the requested Fixed LIBOR Rate Loans (including the portion, if any, that was to be made under the incremental loans established hereby).
(b) The Incremental Term Loan Lenders agree not to demand compensation under Section 3.05 of the Credit Agreement to the extent any breakage costs or losses are incurred in connection with the syndication of the Incremental Term Loan following the Incremental Term Loan Closing Date.
Section 10. Full Force and Effect. Except as modified hereby, all of the terms and provisions of the Credit Agreement and the other Credit Documents (including schedules and exhibits thereto) shall remain in full force and effect.
Section 11. Expenses. The Borrower agrees to pay all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Agreement, including the reasonable fees and expenses of Moore & Van Allen, PLLC, and local counsel to the Administrative Agent in the various jurisdictions where the Credit Parties are located.
Section 12. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Delivery by any party hereto of an executed counterpart of this Agreement by facsimile shall be effective as such partys original executed counterpart.
Section 13. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York applicable to agreements made and to be performed entirely within such state; provided that the Administrative Agent and the Lenders shall retain all rights arising under federal law.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
BORROWERS AND GUARANTORS: |
FRESENIUS MEDICAL CARE HOLDINGS, | |
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INC., a New York corporation | |
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By: |
/s/ Mark Fawcett |
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Name: |
Mark Fawcett |
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Title: |
Vice President and Treasurer |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
NATIONAL MEDICAL CARE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF ALABAMA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF CALIFORNIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF GEORGIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF KENTUCKY, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF LOUISIANA, LLC, a Delaware limited liability company
BIO-MEDICAL APPLICATIONS OF MINNESOTA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF MISSISSIPPI, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NEW HAMPSHIRE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NEW JERSEY, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NEW MEXICO, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF OHIO, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF TENNESSEE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF TEXAS, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF WEST VIRGINIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC., a Delaware corporation
FRESENIUS USA MANUFACTURING, INC., a Delaware corporation
FRESENIUS USA MARKETING, INC., a Delaware corporation
FRESENIUS USA, INC., a Massachusetts corporation
SPECTRA LABORATORIES, INC., a Nevada corporation
WSKC DIALYSIS SERVICES, INC., an Illinois corporation
FRESENIUS MANAGEMENT SERVICES, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF MARYLAND, INC., a Delaware corporation
RENAL CARE GROUP, INC., a Delaware corporation
DIALYSIS CENTERS OF AMERICA ILLINOIS, INC., an Illinois corporation
RENAL CARE GROUP OF THE MIDWEST, INC., a Kansas corporation
RENAL ADVANTAGE HOLDINGS, INC., a Delaware corporation
RENAL ADVANTAGE INC., a Delaware corporation
LIBERTY DIALYSIS, LLC, a Delaware limited liability company
AMERICAN ACCESS CARE HOLDINGS, LLC, a Delaware limited liability company
BIO-MEDICAL APPLICATIONS OF MISSOURI, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF WISCONSIN, INC., a Delaware corporation
DIALYSIS MANAGEMENT CORPORATION, a Texas corporation
FRESENIUS MEDICAL CARE VENTURES HOLDING COMPANY, INC., a Delaware corporation
NNA OF ALABAMA, INC., an Alabama corporation
BIO-MEDICAL APPLICATIONS OF DELAWARE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF FAYETTEVILLE, INC., a Delaware corporation
RENAL CARE GROUP OF THE SOUTH, INC., a Delaware corporation
RENAL CARE GROUP OF THE SOUTHEAST, INC., a Florida corporation
RENAL CARE GROUP ALASKA, INC., an Alaska corporation
RENAL CARE GROUP EAST, INC., a Pennsylvania corporation
RCG MISSISSIPPI, INC., a Delaware corporation
RENAL CARE GROUP NORTHWEST, INC., a Delaware corporation
RENAL CARE GROUP TEXAS, INC., a Texas corporation
RCG UNIVERSITY DIVISION, INC., a Tennessee corporation
RENAL CARE GROUP SOUTHWEST HOLDINGS, INC., a Delaware corporation
RENAL RESEARCH INSTITUTE, LLC, a New York limited liability company
RENEX DIALYSIS CLINIC OF WOODBURY, INC., a New Jersey corporation
SPECTRA EAST, INC., a Delaware corporation
By: |
/s/ Mark Fawcett |
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Name: |
Mark Fawcett |
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Title: |
Vice President and Treasurer for each of the foregoing |
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FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
GUARANTORS: |
FRESENIUS MEDICAL CARE AG & Co. | |||
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KGaA, a German partnership limited by shares, | |||
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Represented by FRESENIUS MEDICAL CARE MANAGEMENT AG, a German corporation, its general partner | |||
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By: |
/s/ Ronald J. Kuerbitz | ||
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Name: |
Ronald J. Kuerbitz | ||
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Title: |
Member of the Management Board | ||
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By: |
/s/ Kent Wanzek | ||
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Name: |
Kent Wanzek | ||
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Title: |
Member of the Management Board | ||
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FRESENIUS MEDICAL CARE | |||
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DEUTSCHLAND GmbH, a German limited | |||
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liability company | |||
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By: |
/s/ Roberto Fusté | ||
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Name: |
Roberto Fusté | ||
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Title: |
Managing Director | ||
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By: |
/s/ Dr. Olaf Scheimeir | ||
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Name: |
Dr. Olaf Scheimeir | ||
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Title: |
Managing Director | ||
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FRESENIUS MEDICAL CARE | |||
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BETEILIGUNGSGESELLSCHAFT mbH, | |||
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a German limited liability company | |||
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By: |
/s/ Michael Brosnen | ||
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Name: |
Michael Brosnen | ||
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Title: |
Managing Director | ||
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By: |
/s/ Rice Powell | ||
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Name: |
Rice Powell | ||
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Title: |
Managing Director | ||
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
GUARANTORS: |
FRESENIUS MEDICAL CARE US | |||
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BETEILIGUNGSGESELLSCHAFT mbH, a German limited liability company | |||
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By: |
/s/ Josef Dinger | ||
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Name: |
Josef Dinger | ||
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Title: |
Managing Director | ||
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FRESENIUS MEDICAL CARE US ZWEI | |||
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VERMÖGENSVERWALTUNGS GmbH & Co. KG, a German limited partnership | |||
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By: |
Fresenius Medical Care Vermögens- verwaltungs GmbH, a German limited liability company, its General Partner | ||
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By: |
/s/ Josef Dinger | ||
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Name: |
Josef Dinger | ||
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Title: |
Managing Director | ||
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FRESENIUS MEDICAL CARE GmbH, | |||
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a German limited liability company | |||
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By: |
/s/ Gunther Klotz | ||
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Name: |
Gunther Klotz | ||
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Title: |
Managing Director | ||
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By: |
/s/ Michael Mareth | ||
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Name: |
Michael Mareth | ||
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Title: |
Managing Director | ||
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
GUARANTORS: |
FMC FINANCE II S.à r.l., a private limited | ||
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company (société à responsabilité limitée) | ||
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organized under the laws of Luxembourg | ||
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By: |
/s/ Khaled Bahi | |
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Name: |
Khaled Bahi | |
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Title: |
Manager | |
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By: |
/s/ Gabriele Dux | |
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Name: |
Gabriele Dux | |
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Title: |
Manager | |
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FMC FINANCE VI S.A., a société anonyme | ||
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organized under the laws of Luxembourg | ||
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By: |
/s/ Khaled Bahi | |
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Name: |
Khaled Bahi | |
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Title: |
Director | |
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By: |
/s/ Gabriele Dux | |
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Name: |
Gabriele Dux | |
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Title: |
Director | |
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FMC FINANCE VII S.A, a société anonyme | ||
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organized under the laws of Luxembourg | ||
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By: |
/s/ Khaled Bahi | |
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Name: |
Khaled Bahi | |
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Title: |
Director | |
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By: |
/s/ Gabriele Dux | |
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Name: |
Gabriele Dux | |
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Title: |
Director | |
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FMC FINANCE VIII S.A, a société anonyme | ||
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organized under the laws of Luxembourg | ||
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By: |
/s/ Khaled Bahi | |
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Name: |
Khaled Bahi | |
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Title: |
Director | |
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By: |
/s/ Gabriele Dux | |
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Name: |
Gabriele Dux | |
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Title: |
Director | |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
GUARANTOR: |
FRESENIUS MEDICAL CARE NORTH | |||
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AMERICA HOLDINGS LIMITED | |||
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PARTNERSHIP, a Delaware limited partnership | |||
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By: |
Fresenius Medical Care US Vermögensver- | ||
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waltungs GmbH and Co. KG, a German limited partnership, its General Partner | ||
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By: |
Fresenius Medical Care Vermögensverwaltungs | |
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GmbH, a German limited liability company, its General Partner | |
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By: |
/s/ Josef Dinger | |
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Name: |
Josef Dinger | |
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Title: |
Managing Director | |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
GUARANTORS: |
BIO-MEDICAL APPLICATIONS MANAGEMENT COMPANY, INC., a Delaware corporation | |
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BIO-MEDICAL APPLICATIONS OF MAINE, INC., a Delaware corporation | |
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EVEREST HEALTHCARE HOLDINGS, INC., a Delaware corporation | |
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FRESENIUS SECURITIES, INC., a California corporation | |
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SRC HOLDING COMPANY, INC., a Delaware corporation | |
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FRESENIUS MEDICAL CARE US FINANCE, INC., a Delaware corporation | |
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FRESENIUS MEDICAL CARE US FINANCE II, INC., a Delaware corporation | |
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FRESENIUS MEDICAL CARE B, LLC, a Delaware limited liability company | |
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STAT DIALYSIS CORPORATION, a Delaware corporation | |
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LIBERTY DIALYSIS HOLDINGS, INC., a Delaware corporation | |
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RENAL ADVANTAGE PARTNERS, LLC, a Delaware limited liability company | |
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RA ACQUISITION CO., LLC, a Delaware limited liability company | |
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RAI II, LLC, a Delaware limited liability company | |
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RAI CARE CENTERS HOLDINGS I, LLC, a Delaware limited liability company | |
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RAI CARE CENTERS HOLDINGS II, LLC, a Delaware limited liability company | |
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LIBERTY DIALYSIS, INC., a Delaware corporation | |
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AMERICAN ACCESS CARE INVESTMENT HOLDINGS, LLC, a Delaware limited liability company | |
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FRESENIUS VASCULAR CARE, INC., a Delaware corporation | |
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RENEX CORP., a Florida corporation | |
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By: |
/s/ Mark Fawcett |
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Name: |
Mark Fawcett |
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Title: |
Vice President and Treasurer for each of the foregoing |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
GUARANTOR: |
NEW YORK DIALYSIS SERVICES, INC., a | ||
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New York corporation | ||
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By: |
/s/ Mark Fawcett | |
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Name: |
Mark Fawcett | |
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Title: |
Treasurer | |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
ADMINISTRATIVE AGENT: |
BANK OF AMERICA, N.A., | |
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as Administrative Agent and Collateral Agent | |
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By: |
/s/ Joseph Corah |
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Name: |
Joseph Corah |
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Title: |
Director |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
INCREMENTAL TERM LOAN |
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LENDERS: |
WELLS FARGO BANK, N.A., as an Incremental Term Loan Lender | |
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By: |
/s/ Kirk Tesch |
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Name: |
Kirk Tesch |
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Title: |
Director |
FRESENIUS MEDICAL CARE
INCREMENTAL TERM LOAN AGREEMENT
Schedule 2.01
Incremental Term Loan Commitments
Lender Name |
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Tranche A-2 |
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Tranche A-2 Term |
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Wells Fargo Bank, N.A. |
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$ |
600,000,000.00 |
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100.000000000 |
% |
Exhibit 2.13-7
See attached.
EXHIBIT 4.27
CONFIDENTIAL TREATMENT REQUESTED
[*] indicates confidential portions omitted pursuant to a
request for confidential treatment filed separately with
the Securities and Exchange Commission
LOAN NOTE
$400,000,000 As of June 30, 2014
FOR VALUE RECEIVED, Fresenius Medical Care AG & Co. KGaA, a German partnership limited by shares; Fresenius Medical Care Holdings, Inc., a New York corporation; National Medical Care, Inc., a Delaware corporation; Bio-Medical Applications of Alabama, Inc., a Delaware Corporation; Bio-Medical Applications of California, Inc., a Delaware corporation; Bio-Medical Applications of Delaware, Inc., a Delaware corporation; Bio-Medical Applications of Georgia, Inc., a Delaware corporation; Bio-Medical Applications of Kentucky, Inc., a Delaware corporation; Bio-Medical Applications of Louisiana, LLC, a Delaware limited liability company; Bio-Medical Applications of Minnesota, Inc., a Delaware corporation; Bio-Medical Applications of Mississippi, Inc., a Delaware corporation; Bio-Medical Applications of New Hampshire, Inc., a Delaware corporation; Bio-Medical Applications of New Jersey, Inc., a Delaware corporation; Bio-Medical Applications of New Mexico, Inc., a Delaware corporation; Bio-Medical Applications of North Carolina, Inc., a Delaware corporation; Bio-Medical Applications of Ohio, Inc., a Delaware corporation; Bio-Medical Applications of Pennsylvania, Inc., a Delaware corporation; Bio-Medical Applications of Tennessee, Inc., a Delaware corporation; Bio-Medical Applications of Texas, Inc., a Delaware corporation ; Bio-Medical Applications of West Virginia, Inc., a Delaware corporation; Bio-Medical Applications of Virginia, Inc., a Delaware corporation; Fresenius USA Manufacturing, Inc., a Delaware corporation; Fresenius USA Marketing, Inc., a Delaware corporation; Fresenius USA, Inc., a Massachusetts corporation; NNA of Nevada, Inc., a Nevada corporation; Spectra Laboratories, Inc., a Nevada corporation; WSKC Dialysis Services, Inc., an Illinois corporation; Fresenius Management Services, Inc., a Delaware corporation; Bio-Medical Applications of Maryland, Inc., a Delaware corporation; Renal Care Group, Inc., a Delaware corporation; Dialysis Centers of America Illinois, Inc., an Illinois corporation; Renal Care Group of the Midwest, Inc., a Kansas corporation; Renal Advantage Holdings, Inc., a Delaware corporation; Renal Advantage Inc., a Delaware corporation; Liberty Dialysis, LLC, a Delaware limited liability company; American Access Care Holdings, LLC, a Delaware limited liability company; Bio-Medical Applications of Missouri, Inc., a Delaware corporation; Bio-Medical Applications of Wisconsin, Inc., a Delaware corporation; Dialysis Management Corporation, a Texas corporation; Fresenius Medical Care Ventures Holding Company, Inc., a Delaware corporation; NNA of Alabama, Inc., an Alabama corporation; Bio-Medical Applications of Fayetteville, Inc., a Delaware corporation; Renal Care Group of the South, Inc., a Delaware corporation; Renal Care Group of the Southeast, Inc., a Florida corporation; Renal Care Group Alaska, Inc., an Alaska corporation; Renal Care Group East, Inc., a Pennsylvania corporation; RCG Mississippi, Inc., a Delaware corporation; Renal Care Group Northwest, Inc., a Delaware corporation; Renal Care Group Texas, Inc., a Texas corporation; RCG University Division, Inc., a Tennessee corporation; Renal Care Group Southwest Holdings, Inc., a Delaware corporation; Renal Research Institute, LLC, a New York limited liability
company; Renex Dialysis Clinic of Woodbury, Inc., a New Jersey corporation; Spectra East, Inc., a Delaware corporation; Bio-Medical Applications of Florida, Inc., a Delaware corporation; Bio-Medical Applications of South Carolina, Inc., a Delaware corporation; Bio-Medical Applications of Indiana, Inc., a Delaware corporation; QualiCenters Eugene-Springfield, Ltd, a Colorado limited liability company; QualiCenters Inland Northwest, LLC, a Colorado limited liability company; QualiCenters Pueblo, LLC, a Colorado limited liability company; QualiCenters Sioux City, LLC, a Colorado limited liability company (collectively, the Borrowers), jointly and severally promise to pay to the order of Fresenius SE & Co. KGaA, a German partnership limited by shares, or its specified subsidiary (the Lender) the lesser of (i) the principal amount of $400,000,000 (Four Hundred Million Dollars), or (ii) the unpaid principal amount of all Advances (as defined in Section 2) made by the Lender to the Borrowers hereunder, together with interest accrued thereon at the rate set forth below, on the date specified for repayment of such Advance pursuant to Clause 3 hereof or such earlier date as such amounts may become payable pursuant to the terms hereof.
1. The following terms used in this Note shall have the following meanings:
FMC Credit Agreement means the Credit Agreement dated as of October 30, 2012 among FMC and FMCH, as borrowers and guarantors, the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as Administrative Agent, as amended, restated, supplemented, or otherwise modified, or renewed, refunded, replaced, or refinanced from time to time.
FMC means Fresenius Medical Care AG & Co. KGaA, a German partnership limited by shares, and its successors and permitted assigns.
FMCH means Fresenius Medical Care Holdings, Inc., a New York corporation, and its successors and permitted assigns.
All other capitalized terms used but not otherwise defined herein shall bear the meanings assigned thereto in the FMC Credit Agreement.
2. The Lender may lend (but shall not have any commitment to lend) one or more advances (each an Advance) to the Borrowers jointly and severally from time to time upon request during the period from the date hereof to but excluding October 30, 2017 in an aggregate amount which shall not exceed $400,000,000. Amounts borrowed hereunder may be repaid and reborrowed. The Lender shall have no obligation to make any Advance requested hereunder.
3. Each Advance shall be repaid in full on the date that is one, two or three months after the date on which it is made, as agreed by the Borrowers and the Lender on the date such Advance is made, or any other period agreed between the Borrowers and the Lender; provided, that if no maturity date is so agreed, such Advance shall have a term of one month.
4. The unpaid principal amount of each Advance made hereunder shall bear interest at a fluctuating rate per annum equal to the Fixed LIBOR Rate (as defined in and calculated
pursuant to the FMC Credit Agreement) for an Interest Period equivalent to the term of such Advance plus a margin, determined pursuant to the pricing matrix set forth below, that is based on the Consolidated Leverage Ratio (as defined in and calculated pursuant to the FMC Credit Agreement), and shall change as and when the Applicable Percentage (as defined in and calculated pursuant to the FMC Credit Agreement) changes:
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Pricing Level |
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Consolidated |
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Margin |
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I |
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> 3.0:1.0 |
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1.500 |
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II |
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> 2.5:1.0 but < 3.0:1.0 |
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1.375 |
% |
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III |
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< 2.5:1.0 |
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1.125 |
% |
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Interest shall be payable in arrears upon maturity, on any prepayment and on any acceleration of the principal amount hereof and shall be computed on the basis of a 360-day year for the actual number of days elapsed (including the first day and excluding the last day).
5. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day or is a day on which commercial banks are authorized or required by law to close in the Federal Republic of Germany, such payment shall be made on the next succeeding Business Day on which commercial banks are not authorized or required by law to close in the Federal Republic of Germany, and such extension of time shall be included in the computation of the payment of interest on this Note.
6. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States in same day funds to the Lenders Dollar account no: [ * ] with Commerzbank AG or such other account as provided by the Lender.
7. If any proceeding under any Debtor Relief Law shall be commenced by or against the Borrowers, all amounts of principal and accrued interest outstanding under this Note shall become immediately due and payable.
8. The Lender agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all Advances, the maturity date of each such Advance and principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any Advance or any payment made on this Note shall not limit or otherwise affect the obligation of the Borrowers hereunder with respect to payments of principal or interest on this Note.
9. Any Borrower may cease to be a Borrower hereunder by delivering a written notice to the Lender, effective on the later to occur of (i) the date the Lender receives such written notice and (ii) the date such Borrower has paid all of its obligations and all accrued and unpaid interest, fees and other obligations hereunder or in connection herewith.
10. Upon the formation, acquisition (other receipt of interests) or existence of any Material Domestic Subsidiary of FMCH that is not a Borrower hereunder, such Material Domestic Subsidiary may become a Borrower hereunder by executing an amendment to
this Note.
11. THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS ARISING HEREUNDER AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
12. The obligations of the Borrowers arising under this Note may be prepaid in whole or in part, together with all accrued interest thereon, without penalty or premium.
13. The terms of this Note are subject to amendment only by a writing signed by the Borrowers and the Lender.
14. In no event shall any interest be payable under this Note to the extent that the payment thereof would be prohibited by applicable law.
15. The Borrowers hereby waives diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.
16. No delay on the part of the Lender in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Lender, of any right or remedy shall preclude any other or further exercise of any other right or remedy.
17. In case any provision in or obligation under this Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
IN WITNESS WHEREOF, this Note has been executed as of the day and year and at the place first written above.
BORROWERS:
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FRESENIUS MEDICAL CARE AG & Co. KGaA, a German partnership limited by shares, represented by FRESENIUS MEDICAL CARE MANAGEMENT AG, a German corporation, its general partner | |
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By: |
/s/ Rice Powell |
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Name: |
Rice Powell |
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Title: |
Member of the Management Board |
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By: |
/s/ Dominik Wehner |
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Name: |
Dominik Wehner |
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Title: |
Member of the Management Board |
[Signature Page Loan Note]
NATIONAL MEDICAL CARE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF ALABAMA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF CALIFORNIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF DELAWARE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF GEORGIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF KENTUCKY, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF LOUISIANA, LLC, a Delaware limited liability company
BIO-MEDICAL APPLICATIONS OF MINNESOTA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF MISSISSIPPI, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NEW HAMPSHIRE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NEW JERSEY, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NEW MEXICO, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF OHIO, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF TENNESSEE, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF TEXAS, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF WEST VIRGINIA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC., a Delaware corporation
FRESENIUS USA MANUFACTURING, INC., a Delaware corporation
FRESENIUS USA MARKETING, INC., a Delaware corporation
FRESENIUS USA, INC., a Massachusetts corporation
NNA OF NEVADA, INC., a Nevada corporation
SPECTRA LABORATORIES, INC., a Nevada corporation
WSKC DIALYSIS SERVICES, INC., an Illinois corporation
FRESENIUS MANAGEMENT SERVICES, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF MARYLAND, INC., a Delaware corporation
RENAL CARE GROUP, INC., a Delaware corporation
DIALYSIS CENTERS OF AMERICA ILLINOIS, INC., an Illinois corporation
RENAL CARE GROUP OF THE MIDWEST, INC., a Kansas corporation
RENAL ADVANTAGE HOLDINGS, INC., a Delaware corporation
RENAL ADVANTAGE INC., a Delaware corporation
LIBERTY DIALYSIS, LLC, a Delaware limited liability company
AMERICAN ACCESS CARE HOLDINGS, LLC, a Delaware limited liability company
BIO-MEDICAL APPLICATIONS OF MISSOURI, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF WISCONSIN, INC., a Delaware corporation
DIALYSIS MANAGEMENT CORPORATION, a Texas corporation
FRESENIUS MEDICAL CARE VENTURES HOLDING COMPANY, INC., a Delaware corporation
NNA OF ALABAMA, INC., an Alabama corporation
BIO-MEDICAL APPLICATIONS OF FAYETTEVILLE, INC., a Delaware corporation
RENAL CARE GROUP OF THE SOUTH, INC., a Delaware corporation
RENAL CARE GROUP OF THE SOUTHEAST, INC., a Florida corporation
RENAL CARE GROUP ALASKA, INC., an Alaska corporation
RENAL CARE GROUP EAST, INC., a Pennsylvania corporation
RCG MISSISSIPPI, INC., a Delaware corporation
RENAL CARE GROUP NORTHWEST, INC., a Delaware corporation
RENAL CARE GROUP TEXAS, INC., a Texas corporation
RCG UNIVERSITY DIVISION, INC., a Tennessee corporation
RENAL CARE GROUP SOUTHWEST HOLDINGS, INC., a Delaware corporation
RENAL RESEARCH INSTITUTE, LLC, a New York limited liability company
RENEX DIALYSIS CLINIC OF WOODBURY, INC., a New Jersey corporation
SPECTRA EAST, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF FLORIDA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF SOUTH CAROLINA, INC., a Delaware corporation
BIO-MEDICAL APPLICATIONS OF INDIANA, INC., a Delaware corporation
QUALICENTERS EUGENE-SPRINGFIELD, LTD., a Colorado limited liability company
QUALICENTERS INLAND NORTHWEST, LLC, a Colorado limited liability company
QUALICENTERS PUEBLO, LLC, a Colorado limited liability company
QUALICENTERS SIOUX CITY, LLC, a Colorado limited liability company
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By: |
/s/ Mark Fawcett |
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Name: |
Mark Fawcett |
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Title: |
Vice President and Treasurer for each of the foregoing |
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[Signature Page Loan Note]
FRESENIUS MEDICAL CARE HOLDINGS, INC., a New York corporation
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By: |
/s/ Mark Fawcett |
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Name: |
Mark Fawcett |
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Title: |
Vice President and Assistant Treasurer |
[Signature Page Loan Note]
CONFIDENTIAL TREATMENT REQUESTED
[*] indicates confidential portions omitted pursuant to a
request for confidential treatment filed separately with
the Securities and Exchange Commission
ACKNOWLEDGED AND AGREED:
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FRESENIUS SE & Co. KGaA, represented by FRESENIUS MANAGEMENT SE, its general partner, as Lender | |
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By: |
/s/ Stephan Sturm |
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Name: |
Stephan Sturm |
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Title: |
Member of the Management Board |
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By: |
/s/ Dr. Karl-Dieter Schwab |
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Name: |
ppa. Dr. Karl-Dieter Schwab |
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Title: |
Authorized Signatory (Prokurist) |
[Signature Page Loan Note]
TRANSACTIONS ON PROMISSORY NOTE
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Amount of |
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Maturity Date |
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Amount of |
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Amount of |
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Outstanding |
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Notation Made |
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EXHIBIT 4.28
CONFIDENTIAL TREATMENT REQUESTED
[*] indicates confidential portions omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission
EXECUTION VERSION
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STOCK PURCHASE AND CONTRIBUTION AGREEMENT
BY AND AMONG
SOUND INPATIENT HOLDINGS, LLC
SOUND INPATIENT PHYSICIANS, INC.
SOUND INPATIENT PHYSICIANS HOLDINGS, LLC
AND
FRESENIUS MEDICAL CARE AG & CO. KGAA
DATED AS OF JUNE 13, 2014
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TABLE OF CONTENTS
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PAGE | |
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ARTICLE I CERTAIN DEFINITIONS |
2 | |
Section 1.1 |
Certain Definitions |
2 |
Section 1.2 |
Interpretation |
13 |
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ARTICLE II PURCHASE AND SALE |
13 | |
Section 2.1 |
Purchase and Sale of the Purchased Shares; Contribution of Contributed Shares |
13 |
Section 2.2 |
Closing of the Transactions Contemplated by this Agreement |
13 |
Section 2.3 |
Deliveries at the Closing |
14 |
Section 2.4 |
Purchase Price |
14 |
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
18 | |
Section 3.1 |
Organization and Qualification; Subsidiaries |
18 |
Section 3.2 |
Capitalization of the Group Companies |
18 |
Section 3.3 |
Authority |
19 |
Section 3.4 |
Financial Statements |
19 |
Section 3.5 |
Consents and Approvals; No Violations |
20 |
Section 3.6 |
Material Contracts |
21 |
Section 3.7 |
Absence of Changes |
23 |
Section 3.8 |
Litigation |
25 |
Section 3.9 |
Compliance with Applicable Law |
25 |
Section 3.10 |
Employee Plans |
26 |
Section 3.11 |
Environmental Matters |
27 |
Section 3.12 |
Intellectual Property |
28 |
Section 3.13 |
Labor Matters |
28 |
Section 3.14 |
Insurance |
28 |
Section 3.15 |
Tax Matters |
29 |
Section 3.16 |
Brokers |
30 |
Section 3.17 |
Property |
30 |
Section 3.18 |
Transactions with Affiliates |
31 |
Section 3.19 |
No Undisclosed Liabilities |
31 |
Section 3.20 |
Hospital Clients |
32 |
Section 3.21 |
Healthcare Representations and Warranties |
32 |
Section 3.22 |
EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES |
36 |
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER |
36 | |
Section 4.1 |
Authority |
36 |
Section 4.2 |
Consents and Approvals; No Violations |
37 |
Section 4.3 |
Title to the Shares; Ownership of Seller |
37 |
Section 4.4 |
Litigation |
37 |
Section 4.5 |
Brokers |
37 |
Section 4.6 |
EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES |
38 |
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER |
38 | |
Section 5.1 |
Organization |
38 |
Section 5.2 |
Authority |
39 |
Section 5.3 |
Consents and Approvals; No Violations |
39 |
Section 5.4 |
Brokers |
39 |
Section 5.5 |
Financing |
40 |
Section 5.6 |
Acquisition of Equity For Investment |
40 |
Section 5.7 |
Solvency |
40 |
Section 5.8 |
Interests in Competitors |
40 |
Section 5.9 |
Acknowledgment and Representations by Buyer |
41 |
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ARTICLE VI COVENANTS |
41 | |
Section 6.1 |
Conduct of Business of the Company |
41 |
Section 6.2 |
Access to Information |
43 |
Section 6.3 |
Efforts to Consummate |
44 |
Section 6.4 |
Public Announcements |
45 |
Section 6.5 |
Indemnification; Directors and Officers Insurance |
46 |
Section 6.6 |
Exclusive Dealing |
47 |
Section 6.7 |
Documents and Information |
48 |
Section 6.8 |
Contact with Customers, Suppliers and Other Business Relations |
48 |
Section 6.9 |
Employee Benefit Matters |
48 |
Section 6.10 |
Transfer Taxes Paid By Buyer |
49 |
Section 6.11 |
Disclosure Schedule Updates |
49 |
Section 6.12 |
Debt Payoff Letters |
50 |
Section 6.13 |
Change of Name |
50 |
Section 6.14 |
Rollover |
50 |
Section 6.15 |
280G Shareholder Vote |
50 |
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ARTICLE VII CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT |
51 | |
Section 7.1 |
Conditions to the Obligations of the Company, Buyer and Seller |
51 |
Section 7.2 |
Other Conditions to the Obligations of Buyer |
51 |
Section 7.3 |
Other Conditions to the Obligations of the Company and Seller |
52 |
Section 7.4 |
Frustration of Closing Conditions |
53 |
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ARTICLE VIII TERMINATION |
53 | |
Section 8.1 |
Termination |
53 |
Section 8.2 |
Effect of Termination |
54 |
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ARTICLE IX INTENTIONALLY RESERVED |
54 | |
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ARTICLE X MISCELLANEOUS |
54 | |
Section 10.1 |
Entire Agreement; Assignment; Amendment |
54 |
Section 10.2 |
Notices |
55 |
Section 10.3 |
Governing Law |
57 |
Section 10.4 |
Fees and Expenses |
57 |
Section 10.5 |
Construction |
57 |
Section 10.6 |
Exhibits and Schedules |
57 |
Section 10.7 |
Parties in Interest |
58 |
Section 10.8 |
Extension; Waiver |
58 |
Section 10.9 |
Severability |
58 |
Section 10.10 |
Counterparts; Facsimile Signatures |
58 |
Section 10.11 |
Limitation on Damages; Survival |
58 |
Section 10.12 |
WAIVER OF JURY TRIAL |
59 |
Section 10.13 |
Jurisdiction and Venue |
59 |
Section 10.14 |
Remedies |
59 |
Section 10.15 |
Waiver of Conflicts |
60 |
Section 10.16 |
Parent Guarantee |
60 |
EXHIBITS
A |
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Example Statement of Net Working Capital |
B |
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Form of Escrow Agreement |
C |
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Form of TowerBrook Restrictive Agreement |
D |
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Employee Restrictive Agreements |
E |
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Employment Agreement Amendments |
F |
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Forms of Rollover Equity Agreements |
STOCK PURCHASE AND CONTRIBUTION AGREEMENT
This STOCK PURCHASE AND CONTRIBUTION AGREEMENT (this Agreement), dated as of June 13, 2014, is made by and among Sound Inpatient Physicians, Inc., a Delaware corporation (the Company), Sound Inpatient Holdings, LLC, a Delaware limited liability company (Seller), Sound Inpatient Physicians Holdings, LLC, a Delaware limited liability company (Buyer), and Fresenius Medical Care AG & Co. KGaA, a German partnership limited by shares (Parent Guarantor). The Company, Seller and Buyer shall be referred to herein from time to time collectively as the Parties.
RECITALS:
WHEREAS, as of the date hereof, Seller owns 100% of the issued and outstanding capital stock of the Company, consisting of 100 shares of common stock, par value $0.01 per share, of the Company (the Shares);
WHEREAS, on the day prior to the Closing Date, Seller shall consummate the Distribution (as defined below) pursuant to and in accordance with Section 6.14;
WHEREAS, immediately prior to the Closing, each Rollover Equityholder (as defined below) shall contribute the Rollover Shares (as defined below) held by such Rollover Equityholder to Buyer in exchange for certain Buyer Units (as defined below), in each case, pursuant to and in accordance with the applicable Rollover Agreement (as defined below) (collectively, such contributions, the Rollover);
WHEREAS, contemporaneously with the Rollover, Seller shall contribute to Buyer, and Buyer shall accept from Seller, the Contributed Shares (as defined below) in exchange for the Contributed Share Consideration (as defined below) (the Contribution);
WHEREAS, contemporaneously with the Rollover and the Contribution, the Parties desire that, upon the terms and subject to the conditions hereof, Buyer will purchase from Seller, and Seller will sell to Buyer, all of the Purchased Shares (as defined below); and
WHEREAS, in connection with the transactions contemplated by this Agreement and concurrently with the execution and delivery of this Agreement, certain employees of the Company have entered into Employee Restrictive Agreements and Employment Agreement Amendments with the Company, which agreements will become effective automatically upon the consummation of the Closing.
NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby intending to be legally bound agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Certain Definitions. As used in this Agreement, the following terms have the respective meanings set forth below.
280G Shareholder Vote has the meaning set forth in Section 6.15.
Accounting Firm has the meaning set forth in Section 2.4(b)(ii).
Accounting Principles means the principles, practices, methodologies and procedures used by the Company in the preparation of the Financial Statements.
Acquisition Transaction has the meaning set forth in Section 6.6.
Actual Adjustment means an amount, which may be a negative number, equal to (x) the Purchase Price as finally determined pursuant to Section 2.4(b), minus (y) the Estimated Purchase Price.
Affiliate means, with respect to any Person, any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms controlled and controlling have meanings correlative thereto.
Agreement has the meaning set forth in the preamble to this Agreement.
Business Day means a day, other than a Saturday or Sunday, on which commercial banks in New York City are open for the general transaction of business.
Buyer has the meaning set forth in the preamble to this Agreement.
Buyer Units means Class A Units of Buyer.
Caregiver Personnel has the meaning set forth in Section 3.21(m).
Cash and Cash Equivalents means the sum of the fair market value (expressed in United States dollars) of all cash and cash equivalents (including marketable securities, checks payable to any Group Company, bank deposits and short term investments) of the Group Companies as of the close of business on the Business Day immediately preceding the Closing Date, in each case, calculated in accordance with GAAP using the Accounting Principles.
Closing has the meaning set forth in Section 2.2.
Closing Date has the meaning set forth in Section 2.2.
Closing Date Indebtedness means the Indebtedness as of the close of business on the Business Day immediately preceding the Closing Date.
Closing Date Tax-Adjusted Settlement Agreement Obligations means an amount equal to (i) all amounts payable under the Settlement Agreement as of the Closing Date, less (ii) [*].
COBRA means Part 6 of Subtitle B of Title I of ERISA, Section 4980B of the Code and any similar state law.
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning set forth in the preamble to this Agreement.
Company Intellectual Property Rights has he meaning set forth in Section 3.12.
Company Material Adverse Effect means a material adverse effect upon the financial condition, business, or results of operations of the Group Companies, taken as a whole; provided, however, that none of the following (or the results thereof) shall be taken into account, either alone or in combination in determining whether a Company Material Adverse Effect has occurred: (i) conditions generally affecting the United States economy or credit, securities, currency, financial, banking or capital markets (including any disruption thereof and any decline in the price of any security or any market index) in the United States or elsewhere in the world, (ii) any national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (iii) changes in GAAP, (iv) changes in any laws, rules, regulations, orders, or other binding directives issued by any Governmental Entity or any action required to be taken under any law, rule, regulation, order or existing contract by which any Group Company (or any of their respective assets or properties) is bound, (v) any change that is generally applicable to the industries or markets in which the Group Companies operate, (vi) the public announcement of the transactions contemplated by this Agreement (including by reason of the identity of Buyer or any communication by Buyer or any of its Affiliates regarding its plans or intentions with respect to the business of any Group Company, and including the impact thereof on relationships with customers, suppliers, distributors, partners or employees or others having relationships with any Group Company) or litigation arising from or relating to this Agreement or the transactions contemplated hereby, (vii) any failure by any Group Company to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of this Agreement (provided that any effect, event, development, occurrence or change underlying such failure may be considered in determining if a Company Material Adverse Effect otherwise occurred), (viii) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby, including the completion of the transactions contemplated hereby and thereby (except to the extent that such action relates to a breach by the Company or Seller of the terms of this Agreement, including, without limitation, any failure by any Group Company or Seller to obtain any necessary consents or to provide notices required under this Agreement) or (ix) any adverse change in or effect on the business of the Group Companies that is cured prior to the Closing; provided, however, that any facts, changes, developments, events, occurrences, actions, omissions or effects referred to in clauses (i) through (v) above shall be taken into account in determining whether a Company
Material Adverse Effect has or is reasonably likely to have occurred to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Group Companies taken as a whole as compared to other participants in the industries in which the Group Companies conduct their businesses.
Companys Knowledge means, as it relates to Seller, the Company or any other Group Company, as of the applicable date, the actual knowledge without independent investigation (and shall in no event encompass constructive, imputed or similar concepts of knowledge) of [*], none of whom, for the sake of clarity and avoidance of doubt, shall have any personal liability or obligations regarding such knowledge.
Confidentiality Agreement means the confidentiality agreement, dated as of [*], by and between the Company and Fresenius Medical Care AG & Co. KGaA.
Contributed Share Consideration means that number of Buyer Units having a value (based on the amount for which Parent Guarantor purchased such Buyer Units) equal to the Contributed Share Value.
Contributed Share Value means [*].
Contributed Shares means that number of Shares equal to the Contributed Share Value divided by the Per Share Price.
Contribution has the meaning set forth in the recitals to this agreement.
Corporate Integrity Agreement means that certain Corporate Integrity Agreement, effective as of June 27, 2013, by and between the Company and the Office of the Inspector General of the Department of Health and Human Services.
Credit Facilities means that certain Credit Agreement, dated as of December 20, 2013, by and among the Company, as the borrower, Bank of America, N.A., as the lender, Seller and the other Persons set forth on the signature pages thereto.
Cut-Off Time has the meaning set forth in Section 8.1(g).
Debt Payoff Letters has the meaning set forth in Section 6.12.
Distribution has the meaning set forth in Section 6.14.
Employee Benefit Plan means each employee benefit plan (as such term is defined in Section 3(3) of ERISA) and each other material employee benefit plan, program or arrangement maintained, sponsored or contributed to by any Group Company.
Employee Restrictive Agreement means each employee restrictive agreement, entered into as of the date hereof, by and between the Company and each other party thereto, in each case, as attached hereto as Exhibit D.
Employment Agreement Amendment means each employee agreement amendment, entered into as of the date hereof, by and between the Company and each other party thereto, in each case, as attached hereto as Exhibit E.
Enterprise Value means [*].
Environmental Laws means all applicable federal, state, local and foreign statutes, regulations, and ordinances concerning pollution or protection of human health and safety (regarding exposure to Hazardous Materials) or protection of the environment, including all those relating to the presence of, exposure to, management, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, discharge, release, control, or cleanup of any Hazardous Materials, substances or wastes, as such of the foregoing are enacted and in effect on or prior to the Closing Date.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Escrow Account has the meaning set forth in Section 2.4(a)(i).
Escrow Agent has the meaning set forth in 0.
Escrow Agreement has the meaning set forth in Section 2.4(a)(i)0.
Escrow Amount has the meaning set forth in 0.
Escrow Funds means, at any time, the portion of the Escrow Amount then remaining in the Escrow Account.
Estimated Purchase Price means a good faith estimate of the Purchase Price, as determined by the Company. For the avoidance of doubt, Estimated Purchase Price shall be calculated as (i) the Enterprise Value, plus (ii) a good faith estimate of the Net Working Capital Adjustment (which may be a negative number), plus (iii) a good faith estimate of the amount of Cash and Cash Equivalents, minus (iv) a good faith estimate of the amount of Closing Date Indebtedness, minus (v) a good faith estimate of the amount of Unpaid Seller Expenses.
Estimated Purchase Price Calculation has the meaning set forth in Section 2.4(a).
Example Statement of Net Working Capital means the statement of Net Working Capital as of the close of business on March 31, 2014 and attached hereto as Exhibit A.
Family Member means, with respect to any Person that is an individual, any parent, brother or sister of a parent, spouse, child, grandchild, spouse of a child, brother or sister of such Person, and each trust created for the benefit of one or more of such Persons and/or the estates of any such Person.
Federal Anti-kickback Statute means the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b(b)) and any rules and regulations promulgated thereunder.
Federal Rules of Evidence means the Federal Rules of Evidence of the United States as in effect on the date of this Agreement.
Federal Stark Law means the Stark Anti-Self-Referral Law (42 U.S.C. §§ 1395nn) and any rules and regulations promulgated thereunder.
Financial Statements has the meaning set forth in Section 3.4.
FMCH has the meaning set forth in Section 5.2.
Funded Indebtedness means, as of any time, without duplication, the outstanding principal amount of, accrued and unpaid interest on, and other payment obligations (including any prepayment premiums payable as a result of the consummation of the transactions contemplated by this Agreement) arising under, any obligations of any Group Company consisting of (i) indebtedness for borrowed money or indebtedness issued in substitution or exchange for borrowed money, or (ii) indebtedness evidenced by any note, bond, debenture or other debt security, in each case, as of such time. Notwithstanding the foregoing, Funded Indebtedness shall not include any (w) obligations under operating leases or capitalized leases, (x) undrawn letters of credit (including any that are outstanding under the Credit Facilities), (y) obligations under any interest rate, currency or other hedging agreements (other than breakage costs payable upon termination thereof on the Closing Date) or (z) amounts included as Seller Expenses.
GAAP means United States generally accepted accounting principles.
Governing Documents means the legal document(s) by which any Person (other than an individual) establishes its legal existence or which govern its internal affairs. For example, the Governing Documents of a corporation are its certificate of incorporation and by-laws, the Governing Documents of a limited partnership are its limited partnership agreement and certificate of limited partnership and the Governing Documents of a limited liability company are its operating agreement and certificate of formation.
Governmental Entity means any (i) nation, state, county, city, district or other similar jurisdiction of any nature, (ii) federal, state, local or foreign government, (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, commission, bureau, instrumentality, department, official, entity, court, tribunal or judicial or arbitral body), or (iv) body or other Person (including, without limitation, accreditation agencies or licensure boards) entitled by applicable law to exercise any arbitrative, administrative, executive, judicial, legislative, police, regulatory or taxing authority or power.
Group Companies means, collectively, the Company and each of its Subsidiaries.
Hazardous Materials shall mean (i) those substances, materials or wastes defined as toxic, hazardous, acutely hazardous, pollutants or contaminants, in, or regulated (due to their dangerous or deleterious characteristics) under the following federal statutes and any analogous
state statutes, and all regulations thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Clean Air Act, (ii) petroleum or any derivative or by-product thereof, (iii) natural gas, synthetic gas, and any mixtures thereof, (iv) asbestos and asbestos-containing materials, radioactive materials, urea formaldehyde foam insulation, and polychlorinated biphenyls and (v) any other substance, material or waste regulated as toxic, hazardous, acutely hazardous, a pollutant, or a contaminant pursuant to Environmental Law, including, for the avoidance of doubt, medical waste, as such a term is defined in the Medical Waste Tracking Act of 1988, which includes any solid waste that is generated in the diagnosis, treatment, or immunization of human beings or animals, in research pertaining thereto, or in the production or testing of biologicals.
Healthcare Law(s) means (i) all laws and regulations applicable to Medicare and applicable State Medicaid Programs, (ii) the Federal Anti-kickback Statute, (iii) the Federal Stark Law, (iv) the Civil False Claims Act (31 U.S.C. §§ 3729 et seq.), (v) the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), (vi) the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), (vii) the Medicare and Medicaid Patient and Program Protection Act of 1987 (42 U.S.C. Section 1320a 7b), (viii) HIPAA, (ix) the Program Fraud Civil Remedies Act of 1986 (31 U.S.C. § 3801 et seq.), (x) TRICARE Laws (10 U.S.C. § 1071 et seq.), (xi) any comparable self-referral, false claims or fraud and abuse laws, directives and regulations promulgated by any state agency, (xii) any regulations thereunder promulgated by the U.S. Department of Health and Human Services or any applicable state agency relating to the foregoing, (xiii) any other federal or state law or regulation of general applicability to health care fraud and kickback/fee-splitting prohibitions governing or regulating the delivery of health care services and management of health care providers, or regulating medical billing or reimbursement, including but not limited to all applicable Medicare and Medicaid statutes and regulations and (xiv) the regulations promulgated pursuant to such laws, all to the extent applicable to any Group Company.
HIPAA means the Administrative Simplification provisions of the U.S. Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. Section 1320d et seq.), as amended by the Health Information Technology for Economic and Clinical Health Act (42 U.S.C. Section 17921 et seq.), and the regulations promulgated thereunder and any state or local counterpart thereof or other law or regulation the purpose of which is to protect the privacy of individually-identifiable or prescriber-identifiable information.
HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
Indebtedness means, as of any time, without duplication, (i) Funded Indebtedness, (ii) all obligations of the type referred to in the definition of Funded Indebtedness of any Person other than any Group Company the payment of which any Group Company is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including any guarantee of such obligations (other than obligations of the Company in respect of any of its Subsidiaries and obligations of any Subsidiary in respect of any other Subsidiary), (iii) any capitalized lease obligations of any Group Company as determined in accordance with GAAP using the Accounting Principles, (iv) breakage costs payable upon termination on the Closing Date of any
obligations of any Group Company under interest rate swap, currency swap, forward currency or interest rate contracts or other interest rate or currency hedging arrangements, (v) the deferred purchase price of property or services (including any earn-out obligations whether or not contingent and regardless of when due, but excluding any trade payables and accrued expenses arising in the ordinary course of business) of any Group Company, (vi) all outstanding reimbursement obligations in respect of drawn letters of credit issued for the account of any Group Company (but for the avoidance of doubt excluding any obligations in respect of undrawn letters of credit), (vii) any unfunded liability under any Employee Benefit Plan (or related trust) and (viii) the Closing Date Tax-Adjusted Settlement Agreement Obligations, in each case, outstanding as of such time. For the avoidance of doubt Indebtedness shall not include any item that would otherwise constitute Indebtedness that is an obligation between the Company and any Subsidiary of the Company or between any two Subsidiaries of the Company.
Intellectual Property Rights means all (i) patents and patent applications, together with all reissuances, continuations, continuations-in-part, revisions, extensions, reexaminations and improvements thereof, (ii) trademarks, service marks, trade dress, trade names, logos, slogans and corporate names, Internet domain names, and all registrations and applications for registration of the foregoing, together with all of the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software (including, but not limited to, source code, object code, data, databases and documentation) and (vi) technology, inventions, know-how, proprietary methods and processes and trade secrets.
Latest Balance Sheet has the meaning set forth in Section 3.4(b).
Latest Balance Sheet Date means March 31, 2014.
Lien means any mortgage, pledge, security interest, encumbrance, lien or charge. For the avoidance of doubt, the term Lien shall not be deemed to include any license of Intellectual Property Rights.
Loss means any damages, losses, liabilities, obligations, claims of any kind, interest or expenses (including reasonable attorneys fees and expenses).
Made Available means posted to the Project Sigma data room on Intralinks.com and made accessible to Buyer and its representatives at least two Business Days prior to the Closing Date or otherwise delivered to Buyer in person, by facsimile or E-mail in accordance with Section 10.2.
Material Contracts has the meaning set forth in Section 3.6(a).
Material Hospital Client has the meaning set forth in Section 3.19.
Material Lease has the meaning set forth in Section 3.17(a).
Material Permit has the meaning set forth in Section 3.9.
Multiemployer Plan has the meaning set forth in Section 3(37) of ERISA.
Net Working Capital means, with respect to the Group Companies, the aggregate value of the current assets of the Group Companies less the aggregate value of the current liabilities of the Group Companies, in each case, determined on a consolidated basis without duplication, as of the close of business on the Business Day immediately preceding the Closing Date and calculated in accordance with GAAP using the Accounting Principles and (i) including only current assets and current liabilities of the type and kind included in the Example Statement of Net Working Capital, and (ii) establishing levels of reserves and materiality using the same principles, practices, methodologies and procedures and in the same manner as such levels were established in preparing the Example Statement of Net Working Capital). Notwithstanding anything to the contrary contained herein, Net Working Capital shall (A) include Tax assets and liabilities (other than any deferred Tax assets or liabilities) and (B) exclude any amounts with respect to (x) Cash and Cash Equivalents, Seller Expenses or Indebtedness and (y) the tail policy pursuant to and in accordance with Section 6.5(c).
Net Working Capital Adjustment means (i) the amount by which Net Working Capital exceeds the Target Net Working Capital or (ii) the amount by which Net Working Capital is less than the Target Net Working Capital, in each case, if applicable; provided that any amount which is calculated pursuant to clause (ii) above shall be deemed to be and expressed as a negative number.
New Plans has the meaning set forth in Section 6.9.
Parent Guarantor has the meaning set forth in the preamble to this Agreement.
Parties has the meaning set forth in the preamble to this Agreement.
Permitted Liens means (a) mechanics, materialmens, carriers, repairers and other Liens arising or incurred in the ordinary course of business for amounts that are not yet delinquent or are being contested in good faith, (b) Liens for Taxes, assessments or other governmental charges not yet due and payable as of the Closing Date or which are being contested in good faith, (c) encumbrances and restrictions on real property (including easements, covenants, rights of way and similar restrictions of record) that do not materially interfere with the Group Companies present uses or occupancy of such real property, (d) Liens securing the obligations of the Group Companies under the Credit Facilities, (e) Liens which would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole, (f) Liens granted to any lender at the Closing in connection with any financing by Buyer of the transactions contemplated hereby, (g) zoning, building codes and other land use laws regulating the use or occupancy of real property or the activities conducted thereon which are imposed by any Governmental Entity having jurisdiction over such real property and which are not violated by the current use or occupancy of such real property or the operation of the businesses of the Group Companies or any violation of which would not, individually or in the aggregate, have a Company Material Adverse Effect, (h) matters that would be disclosed by an accurate survey or inspection of the real property and (i) Liens described on Schedule 1.1(i).
Permitted Share Liens means the Permitted Liens described in clauses (b), (d) and (f) of the definition thereof and any Liens arising under applicable securities laws; provided, however, the Permitted Liens described in clause (d) of the definition thereof shall only constitute Permitted Share Liens prior to Closing.
Person means an individual, partnership, corporation, limited liability company, joint stock company, unincorporated organization or association, trust, joint venture, association or other similar entity, whether or not a legal entity.
Per Share Price means (i) the difference of the Estimated Purchase Price less the Escrow Amount divided by (ii) the number of issued and outstanding Shares as of immediately prior to the Distribution.
Proceeding has the meaning set forth in Section 3.8.
Programs has the meaning set forth in Section 3.21(c).
Proposed Closing Date Calculations has the meaning set forth in Section 2.4(b)(i).
Purchase Price means (i) the Enterprise Value, plus (ii) the Net Working Capital Adjustment (which may be a negative number), plus (iii) the amount of Cash and Cash Equivalents, minus (iv) the amount of Closing Date Indebtedness, minus (v) the amount of Unpaid Seller Expenses.
Purchase Price Dispute Notice has the meaning set forth in Section 2.4(b)(ii).
Purchased Shares means (i) 100 Shares less (ii) the aggregate number of Rollover Shares less (iii) the aggregate number of Contributed Shares.
Review Period has the meaning set forth in Section 2.4(b)(ii).
Rolled Value has the meaning, with respect to each Rollover Equityholder, set forth in such Rollover Equityholders Rollover Agreement.
Rollover has the meaning set forth in the recitals to this Agreement.
Rollover Agreement means, for each Rollover Equityholder, that certain Rollover Agreement, by and between such Rollover Equityholder and Buyer, pursuant to which such Rollover Equityholder and Buyer shall consummate the Rollover.
Rollover Certificate has the meaning set forth in Section 2.4(a).
Rollover Equity Agreements means, collectively, a securityholders agreement and amended and restated limited liability company agreement of Buyer in substantially the forms attached hereto as Exhibit F.
Rollover Equityholders collectively, means all of the equityholders of Seller that have executed a Rollover Agreement with Buyer prior to the Closing (and as shall be set forth in the
Rollover Certificate), including those set forth on Schedule 1.1(ii), each of whom has entered into a Rollover Agreement as of the date hereof.
Rollover Shares means, with respect to each Rollover Equityholder, the Shares such Rollover Equityholder is contributing to Buyer pursuant to such Rollover Equityholders Rollover Agreement.
Schedules has the meaning set forth in Section 6.11.
Seller has the meaning set forth in the preamble to this Agreement.
Seller Expenses means, without duplication, the aggregate amount due and payable by the Group Companies as of immediately prior to the Closing (or which becomes due and payable as a result of the Closing other than as a result of any action taken by Buyer or any Group Company from and after the Closing) for all out-of-pocket costs and expenses incurred by any of the Group Companies or by or on behalf of Seller (to the extent such amounts are a liability of any Group Company) in the preparation, negotiation and/or consummation of the transactions contemplated by this Agreement; provided, however, that Seller Expenses shall exclude any amounts payable by any of the Group Companies in connection with the tail policy pursuant to and in accordance with Section 6.5(c).
Seller Operating Agreement means that certain limited liability company agreement of Sound Inpatient Holdings, LLC (f/k/a Excelsis Holdings, LLC and f/k/a Hospitalist Holdings, LLC), dated as of July 12, 2005, as amended by that certain First Amendment, dated as of February 15, 2006, as amended by that certain Second Amendment, dated as of February 15, 2007, as amended by that certain Third Amendment, dated as of November 16, 2011, as amended by that certain Fourth Amendment, dated as of May 9, 2012, as amended by that certain Fifth Amendment, dated as of October 17, 2013, as amended by that certain Sixth Amendment, dated as of June 12, 2014 (as the same may be amended, restated, supplemented or otherwise modified from time to time in a manner that would not have an adverse effect on any Persons ability to consummate the transactions contemplated hereby).
Settlement Agreement means that certain Settlement Agreement, dated [*], by and among the Company, [*].
Shares has the meaning set forth in the recitals to this Agreement.
Solvent when used with respect to any Person or group of Persons on a combined basis, means that, as of any date of determination, (A) the amount of the fair saleable value of the assets of such Person (or group of Persons on a combined basis) will, as of such date, exceed (1) the value of all liabilities of such Person, including contingent and other liabilities, as of such date, as such quoted terms are generally determined in accordance with applicable laws governing determinations of the insolvency of debtors, and (2) the amount that will be required to pay the probable liabilities of such Person (or group of Persons on a combined basis) on its existing debts (including contingent liabilities) as such debts become absolute and matured, (B) such Person (or group of Persons on a combined basis) will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged following such date and (C) such Person (or group of Persons on a
combined basis) will be able to pay its liabilities, including contingent and other liabilities, as they mature.
Subsidiary means, with respect to any Person, any corporation, company, limited liability company, partnership, association, or other business entity of which (i) if a corporation or a company, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation or a company), a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person or a combination thereof and for this purpose, a Person or Persons own a majority ownership interest in such a business entity (other than a corporation or a company) if such Person or Persons shall be allocated a majority of such business entitys gains or losses or shall be a, or control any, managing director, member or general partner of such business entity (other than a corporation or a company). The term Subsidiary shall include all Subsidiaries of such Subsidiary. Notwithstanding anything in this definition or this Agreement to the contrary, (i) each of the entities listed on Schedule 3.2(b) is a Subsidiary of the Company for all purposes of this Agreement, and (ii) no Group Company has any direct or indirect Subsidiaries other than the entities listed on Schedule 3.2(b).
Target Net Working Capital means [*].
Tax means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, real property gains, registration, value added, excise, natural resources, severance, stamp, occupation, windfall profits, environmental (under Section 59A of the Code), customs, duties, real property, personal property, capital stock, social security (or similar), employment, unemployment, disability, payroll, license, employee or other withholding, abandoned property or escheat payment, or other tax, of any kind whatsoever and any interest, penalties or additions to tax in respect of the foregoing (whether disputed or not).
Tax Return has the meaning set forth in Section 3.15(a).
Termination Date has the meaning set forth in Section 8.1(d).
TowerBrook Restrictive Agreement means an agreement to be entered into by and between Buyer and certain Affiliates of Seller, substantially in the form attached hereto as Exhibit C.
Transaction Documents means, collectively, this Agreement, the Escrow Agreement, the TowerBrook Restrictive Agreement, each Employee Restrictive Agreement and each Employment Agreement Amendment.
Unaudited Financial Statements has the meaning set forth in Section 3.4(b).
Unpaid Seller Expenses means the aggregate amount of Seller Expenses incurred and unpaid as of immediately prior to the Closing.
Update has the meaning set forth in Section 6.11.
Section 1.2 Interpretation. Unless otherwise indicated to the contrary herein by the context or use thereof: (i) the words, herein, hereto, hereof and words of similar import refer to this Agreement as a whole, including the Schedules and Exhibits, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement; (ii) masculine gender shall also include the feminine and neutral genders, and vice versa; (iii) words importing the singular shall also include the plural, and vice versa; (iv) the words include, includes or including shall be deemed to be followed by the words without limitation; (v) the words party or parties shall refer to parties to this Agreement; (vi) all references to Articles, Sections, Exhibits or Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement; (vii) the word or is disjunctive but not necessarily exclusive; (viii) terms used herein that are not defined herein but are defined in GAAP have the meanings ascribed to them therein; (ix) the words writing, written and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form; (x) references to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; (xi) references to any Person include the successors and permitted assigns of that Person; (xii) references from or through any date mean, unless otherwise specified, from and including or through and including, respectively; (xiii) the words dollar or $ shall mean U.S. dollars; and (ix) the word day means calendar day unless Business Day is expressly specified. If any action under this Agreement is required to be done or taken on a day that is not a Business Day, then such action shall be required to be done or taken not on such day but on the first succeeding Business Day thereafter.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale of the Purchased Shares; Contribution of Contributed Shares. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Buyer will purchase, acquire and accept from Seller, and Seller will sell, assign, transfer, convey and deliver to Buyer, the Purchased Shares free and clear of all Liens (other than Permitted Share Liens). Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and contemporaneously with the acquisition of the Purchased Shares, Seller will assign, transfer, convey and deliver to Buyer, and Buyer will accept from Seller, the Contributed Shares free and clear of all Liens (other than Permitted Share Liens).
Section 2.2 Closing of the Transactions Contemplated by this Agreement. The closing of the transactions contemplated by this Agreement (the Closing) shall take place at 10:00 a.m., New York time, on a date to be specified by the Parties, which shall be no later than the second Business Day after the later to occur of (x) satisfaction (or waiver) of the conditions set forth in ARTICLE VII (other than those conditions which are to be satisfied by the delivery of documents or taking of any other action at the Closing by any Party) and (y) the Cut-
Off Time (such date, as applicable, the Closing Date), at the offices of Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, unless another time, date or place is agreed to in writing by Buyer and Seller.
Section 2.3 Deliveries at the Closing.
(a) Deliveries by Seller. At the Closing, Seller shall deliver to Buyer all certificate(s) representing the Contributed Shares and the Purchased Shares, duly endorsed in blank or accompanied by any other proper instrument of assignment endorsed in blank in proper form for transfer.
(b) Deliveries by Buyer. At the Closing, Buyer shall (a) pay (i) the Estimated Purchase Price, (ii) the portion of the Closing Date Indebtedness that is Funded Indebtedness and (iii) the Unpaid Seller Expenses that were deducted in the calculation of the Estimated Purchase Price, in each case, in accordance with the provisions set forth in Section 2.4 and (b) transfer, convey and deliver to Seller certificates representing the Contributed Share Consideration, duly endorsed in blank or accompanied by any other proper instrument of assignment endorsed in blank in proper form for transfer, which Contributed Share Consideration shall be delivered free and clear of all Liens (other than Liens arising under the Rollover Equity Agreements).
(c) Other Deliveries. The closing certificates and other documents required to be delivered pursuant to this Agreement with respect to the Closing pursuant to ARTICLE VII will be exchanged.
Section 2.4 Purchase Price.
(a) Estimated Purchase Price and Closing Date Payments. No later than two Business Days prior to the Closing, Seller shall deliver to Buyer a calculation with reasonable detail of the Estimated Purchase Price (the Estimated Purchase Price Calculation), which Estimated Purchase Price Calculation shall include (x) the Per Share Price and (y), with respect to each equityholder of Seller, the portion of the Estimated Purchase Price (less the Escrow Amount) that each such equityholder of Seller would be entitled to receive at the Closing pursuant to the Seller Operating Agreement absent the consummation of the Distribution and the Rollover and assuming for such purposes that Seller were to distribute the full amount of such Estimated Purchase Price. Within one Business Day after Buyers receipt of the Estimated Purchase Price Calculation, Buyer shall deliver to Seller a certificate, setting forth (i) the name of each Rollover Equityholder, (ii) the number of Rollover Shares with respect to each Rollover Equityholder (and the aggregate number of Rollover Shares with respect to all Rollover Equityholders) and (iii) the Rolled Value with respect to each Rollover Equityholder (and the aggregate Rolled Value with respect to all Rollover Equityholders), in the case of clauses (ii) and (iii), based on the Estimated Purchase Price Calculations (the Rollover Certificate).
(i) At the Closing, Buyer shall pay, or shall cause the Company to pay, in cash by wire transfer of immediately available funds, the Estimated Purchase Price as follows:
(A) [*] of cash (such amount, the Escrow Amount) shall be deposited into an escrow account (the Escrow Account), which shall be established pursuant to an escrow agreement (the Escrow Agreement), which Escrow Agreement shall be (x) entered into on the Closing Date by and among Seller, the Company, Buyer and Continental Stock Transfer & Trust Company (the Escrow Agent) as security for the Sellers obligations pursuant to Section 2.4(c) and (y) substantially in the form of Exhibit B attached hereto;
(B) to Seller, an amount equal to (w) the Estimated Purchase Price, minus (x) the Escrow Amount, minus (y) the aggregate Rolled Value of all of the Rollover Equityholders, minus (z) the Contributed Share Value.
(ii) At the Closing, Buyer shall pay, or cause the Company to pay, in cash by wire transfer of immediately available funds, on behalf of Seller and the Group Companies, (x) the portion of the Closing Date Indebtedness that is Funded Indebtedness and (y) the Unpaid Seller Expenses that were deducted in the calculation of the Estimated Purchase Price, each in accordance with the Debt Payoff Letters, invoices or other documents evidencing such amounts delivered to Buyer at least two Business Days prior to the Closing Date.
(b) Determination of the Final Purchase Price.
(i) As soon as practicable, but no later than 60 days after the Closing Date, Buyer shall prepare and deliver to Seller, Buyers good faith (A) calculation of the Net Working Capital (and the related Net Working Capital Adjustment, if any), (B) calculation of the amount of Cash and Cash Equivalents, (C) calculation of the amount of Closing Date Indebtedness, (D) calculation of the amount of Unpaid Seller Expenses, and (E) calculation of the Purchase Price, and, in each case, the components thereof and in a manner consistent with the definitions thereof. The calculations described in the previous sentence shall collectively be referred to herein from time to time as the Proposed Closing Date Calculations. Buyer agrees to prepare the Proposed Closing Date Calculations in accordance with GAAP using the Accounting Principles, and, except with respect to any changes required by an underlying material change in facts or circumstances, Buyer shall not make any changes to the assumptions underlying the Accounting Principles (including levels of reserves used by the Group Companies with respect thereto).
(ii) Seller shall have 30 days following receipt of the Proposed Closing Date Calculations to review such calculations (the Review Period). Seller may, on or prior to the last day of the Review Period, give to Buyer written notice of dispute, which sets forth in reasonable detail its objections to Buyers calculation of the Proposed Closing Date Calculations (a Purchase Price Dispute Notice). Unless Seller delivers a Purchase Price Dispute Notice to Buyer on or before the last day of the Review Period, Seller and the other Parties agree that the Proposed Closing Date Calculations shall be deemed to set forth the final Net Working Capital (and the related Net Working Capital Adjustment, if any), Cash and Cash Equivalents, Closing Date Indebtedness, Unpaid Seller
Expenses and the Purchase Price, in each case, for all purposes hereunder (including the determination of the Actual Adjustment). Prior to the end of the Review Period, Seller may accept the Proposed Closing Date Calculations by delivering written notice to that effect to Buyer, in which case the Purchase Price will be finally determined when such notice is given. If Seller gives a Purchase Price Dispute Notice to Buyer on or prior to the last day of the Review Period, Buyer and Seller shall use commercially reasonable efforts to resolve any disputes set forth in the Purchase Price Dispute Notice in good faith during the 30-day period commencing on the date Buyer receives the applicable Purchase Price Dispute Notice from Seller. The parties hereto acknowledge and agree that the Federal Rules of Evidence Rule 408 shall apply to Buyer and Seller during such 30-day period of negotiations and any subsequent dispute arising therefrom. If Seller and Buyer do not agree upon a final resolution with respect to any disputed items set forth in the Purchase Price Dispute Notice within such 30-day period, then the remaining items in dispute shall be submitted promptly by Buyer and Seller to an independent accounting firm of national reputation mutually acceptable to Buyer and Seller (the Accounting Firm). The Accounting Firm shall be requested to render a written determination of the applicable dispute (acting as an expert and not as an arbitrator) within 45 days after referral of the matter to such Accounting Firm, which determination must be in writing and must set forth, in reasonable detail, the basis therefor and must be based solely on (i) the definitions and other applicable provisions of this Agreement, (ii) a single presentation (which presentations shall be limited to the remaining items in dispute set forth in the Proposed Closing Date Calculations and Purchase Price Dispute Notice) submitted by each of Buyer and Seller to the Accounting Firm within 15 days after the engagement thereof (which the Accounting Firm shall forward to the other Party) and (iii) one written response submitted to the Accounting Firm within 5 Business Days after receipt of each such presentation (which the Accounting Firm shall forward to the other Party), and not on independent review, which such determination shall be conclusive and binding on Buyer and Seller. The terms of appointment and engagement of the Accounting Firm shall be as reasonably agreed upon between Seller and Buyer, and any associated engagement fees shall initially be borne 50% by Seller and 50% by Buyer; provided that such fees shall ultimately be borne by Seller and Buyer in the same proportion as the aggregate amount of the disputed items that is unsuccessfully disputed by each such party (as determined by the Accounting Firm) bears to the total amount of the disputed items submitted to the Accounting Firm. Except as provided in the preceding sentence, all other costs and expenses incurred by the Parties in connection with resolving any dispute hereunder before the Accounting Firm shall be borne by the Party incurring such cost and expense. The Accounting Firm shall resolve each disputed item by choosing a value not in excess of, nor less than, the greatest or lowest value, respectively, set forth in the presentations (and, if applicable, the responses) delivered to the Accounting Firm pursuant to this Section 2.4(b)(ii). Such determination of the Accounting Firm shall be conclusive and binding upon the Parties absent fraud or manifest error. The Proposed Closing Date Calculations shall be revised as appropriate to reflect the resolution of any objections thereto pursuant to this Section 2.4(b)(ii), and, as so revised, such Proposed Closing Date Calculations shall be deemed to set forth the final Net Working Capital, Cash and Cash Equivalents, Closing Date Indebtedness, Unpaid Seller Expenses and Purchase Price, in each case, for all purposes hereunder (including the determination of the Actual Adjustment).
(iii) Buyer shall, and shall cause each Group Company to, promptly make such Group Companys financial records, supporting documents and work papers and personnel available to Seller and its accountants and other representatives (including the Accounting Firm) at reasonable times during the review by Seller of, and the resolution of any objections with respect to, the Proposed Closing Date Calculations.
(iv) Buyer and Seller agree that the procedures set forth in this Section 2.4 for resolving disputes with respect to the Proposed Closing Date Calculations shall be the sole and exclusive method for resolving any such disputes; provided, that this provision shall not prohibit either Party from instituting litigation to enforce any final determination of the Purchase Price by the Accounting Firm pursuant to Section 2.4(b)(ii) in any court of competent jurisdiction in accordance with Section 10.13. The substance of the Accounting Firms determination shall not be subject to review or appeal, absent a showing of fraud or manifest error. It is the intent of the Parties to have any final determination of the Purchase Price by the Accounting Firm proceed in an expeditious manner; however, any deadline or time period contained herein may be extended or modified by the written agreement of the Parties and the Parties agree that the failure of the Accounting Firm to strictly conform to any deadline or time period contained herein shall not be a basis for seeking to overturn any determination rendered by the Accounting Firm which otherwise conforms to the terms of this Section 2.4.
(c) Adjustment to Estimated Purchase Price.
(i) If the Actual Adjustment is a positive amount, Buyer shall pay, or shall cause the Company to pay, to Seller an amount equal to such positive amount by wire transfer of immediately available funds, in each case, within three (3) Business Days after the date on which the Purchase Price is finally determined pursuant to Section 2.4(b) above, and the Parties shall deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to deliver to Seller the Escrow Funds.
(ii) If the Actual Adjustment is a negative amount, then within three (3) Business Days after the date on which the Purchase Price is finally determined pursuant to Section 2.4(b), the Parties shall deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to deliver to the Company an amount equal to the absolute value of such negative amount from the Escrow Funds; provided that (A) if the Actual Adjustment is a negative amount the absolute value of which is less than the amount of the Escrow Funds, then simultaneously with the delivery of such joint written instructions, the Parties shall deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to release any of the remaining Escrow Funds to Seller, and (B) if the Actual Adjustment is a negative amount the absolute value of which is greater than the amount of Escrow Funds, in addition to the release of Escrowed Funds described in clause (A) of this Section 2.4(c)(ii), Seller shall pay to Buyer an amount equal to such excess.
(iii) Any amounts which become payable pursuant to this Section 2.4(c) will constitute an adjustment to the Purchase Price for all purposes hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Subsidiary of the Company is a corporation, partnership, limited liability company or other business entity, as the case may be, duly organized, validly existing and in good standing (or the equivalent thereof) under the laws of its respective jurisdiction of formation, except where the failure to be so organized, validly existing and in good standing (or the equivalent thereof) would not have a Company Material Adverse Effect. Each Group Company has the requisite corporate, partnership, limited liability company or other applicable power and authority to own, lease and operate its material assets and properties and to carry on its businesses as presently conducted, except where the failure to have such power or authority would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole.
(b) Schedule 3.1(i) sets forth the jurisdictions in which each Group Company is qualified or licensed to transact business. Except as set forth on Schedule 3.1(ii), each Group Company is duly qualified or licensed to transact business and is in good standing (or the equivalent thereof) in each jurisdiction in which the property owned, leased or operated by it, or the nature of the business conducted by it, makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not have a Company Material Adverse Effect.
Section 3.2 Capitalization of the Group Companies.
(a) The Shares comprise all of the Companys authorized equity interests that are issued and outstanding. As of the date hereof and as of immediately prior to the Distribution, the Shares are held beneficially and of record by Seller free and clear of any Liens (other than Permitted Share Liens). Immediately following the consummation of the Distribution through and until immediately prior to the Closing, Seller will hold beneficially and of record all of the issued and outstanding Purchased Shares and the Contributed Shares free and clear of any Liens (other than Permitted Share Liens). As a result of the Distribution, Seller will deliver to each Rollover Equityholder good and valid title to all of the issued and outstanding Rollover Shares distributed to such Rollover Equityholder in the Distribution free and clear of any Liens (other than Permitted Share Liens). The Shares have been duly authorized and validly issued and are fully paid and non-assessable. Except for the Shares, there are no outstanding (i) equity securities of the Company, (ii) securities of the Company convertible into or exchangeable for, at any time, equity securities of the Company and (iii) rights to acquire from the Company and no obligations of the Company to issue, any equity securities or securities convertible into or exchangeable for equity securities of the Company.
(b) Except as set forth on Schedule 3.2(b), no Group Company directly or indirectly owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, at any time, any equity or similar interest in, any corporation, partnership, limited liability company, joint venture or other business association or entity. Except as set forth on Schedule 3.2(b), all outstanding equity securities of each Subsidiary of the Company (i) (except to the extent such concepts are not applicable under the applicable law of such Subsidiarys jurisdiction of formation or other applicable law) have been duly authorized and validly issued, are, to the extent applicable, fully paid and non-assessable, are free and clear of any Liens (other than Permitted Liens) and (ii) are owned, beneficially and of record, by the Group Companies listed on Schedule 3.2(b). Except as set forth on Schedule 3.2(b), there are no outstanding (i) equity securities of any Subsidiary of the Company, (ii) securities of any Subsidiary of the Company convertible into or exchangeable for, at any time, equity securities of any Subsidiary of the Company, and (iii) rights to acquire from any Subsidiary of the Company, and no obligation of any Subsidiary of the Company to issue, any equity securities or securities convertible into or exchangeable for, at any time, equity securities of any Subsidiary of the Company.
Section 3.3 Authority. The Company has the requisite corporate power and authority to execute and deliver each Transaction Document to which it is a party and to consummate the transactions contemplated thereby. The execution and delivery of each Transaction Document to which it is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company. Each Transaction Document to which it is a party has been duly executed and delivered by the Company and constitutes a valid, legal and binding agreement of the Company (assuming that each such Transaction Document has been duly and validly authorized, executed and delivered by the other parties thereto), enforceable against the Company in accordance with its terms, except (i) to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors rights generally and (ii) that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding thereof may be brought. Each Transaction Document to be executed and delivered at Closing by each other Group Company will, at Closing, constitute a valid, legal and binding agreement of such Group Company (assuming that each such Transaction Document has been duly and validly authorized, executed and delivered by the other parties thereto), enforceable against such Group Company in accordance with its terms, except (i) to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors rights generally and (ii) that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding thereof may be brought.
Section 3.4 Financial Statements. Attached hereto as Schedule 3.4 are true and complete copies of the following financial statements (such financial statements, collectively, the Financial Statements):
(a) the audited consolidated balance sheet of Seller as of December 31, 2012 and December 31, 2013 and the related audited consolidated statements of income and cash flows for the respective periods then ended; and
(b) the unaudited consolidated balance sheet of Seller as of the Latest Balance Sheet Date (the Latest Balance Sheet) and the related unaudited consolidated statements of income and cash flows for the 3-month period then ended (collectively, the Unaudited Financial Statements).
(c) Except as set forth on Schedule 3.4, the Financial Statements (x) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, except as may be indicated in the notes thereto and except, in the case of Unaudited Financial Statements, for the absence of footnotes and subject to year-end adjustments, and (y) fairly present, in all material respects, the consolidated financial position of the Group Companies as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of the Unaudited Financial Statements, to the absence of customary footnotes and to normal year-end adjustments).
(d) The minutes and stock records of the Group Companies from the past two years have been Made Available to Buyer, are true and correct in all material respects and have been maintained in accordance with customary business practices. Such minutes contain accurate and complete records of all meetings, and actions taken by written consent of, the equityholders, the board of directors and any committees of the board of directors (or analogous governing body) of the Group Companies for the periods covered thereby. At the Closing, all of those books and records will be in the possession of the Group Companies.
Section 3.5 Consents and Approvals; No Violations. Except as set forth on Schedule 3.5, assuming the truth and accuracy of the representations and warranties of Buyer set forth in Section 5.4, no notice to, filing with, or authorization, consent or approval of any Governmental Entity is necessary for the execution, delivery or performance of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except for (i) compliance with and filings under the HSR Act, (ii) those the failure of which to obtain or make would not, individually or in the aggregate, have a Company Material Adverse Effect, and (iii) those that may be required solely by reason of Buyers (as opposed to any other third partys) participation in the transactions contemplated hereby. Neither the execution, delivery and performance by the Company of any Transaction Document to which it is a party nor the consummation by the Company of the transactions contemplated thereby will (a) conflict with or result in any breach of any provision of the Governing Documents of any Group Company (true and correct copies of which have been Made Available to Buyer), (b) except as set forth on Schedule 3.5, result in a violation or breach of, or cause acceleration, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any Material Contract, Material Permit, Material Lease or Employee Benefits Plans (and related trust documents) to which any Group Company is a party, (c) violate any order, writ, injunction, decree, law, statute, rule or regulation of any Governmental Entity having jurisdiction over any Group Company or any of their respective material properties or assets, (d) except as contemplated by this Agreement or with respect to Permitted Liens, result in the creation of any Lien upon any of the material assets of any Group Company, or (e) give rise to any payment or compensation to any employee or other service provider to the Group Companies, which in the case of any of clauses (b) and (d) above, would, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise
materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole.
Section 3.6 Material Contracts.
(a) Except as set forth on Schedule 3.6(a) (collectively, the Material Contracts) and except for this Agreement and any Material Lease, as of the date of this Agreement, no Group Company is a party to or bound by any:
(i) contract for the employment or engagement of any individual on a full-time, part-time, consulting or other basis providing annual base salary in excess of [*] (other than any at will contract that may be terminated by any Group Company upon 30 days or less advance notice or any contract with a physician serving primarily in the role of a clinician or any regional medical officer, regional medical director or chief hospitalist);
(ii) contract for the employment or engagement of any of regional CMO;
(iii) agreement or indenture relating to Indebtedness for an amount in excess of [*];
(iv) lease or agreement under which any Group Company is lessee of or holds or operates, in each case, any tangible property (other than real property), owned by any other Person, except for any lease or agreement under which the aggregate annual rental payments do not exceed [*];
(v) lease or agreement under which any Group Company is lessor of or permits any third party to hold or operate, in each case, any tangible property (other than real property), owned or controlled by any Group Company, except for any lease or agreement under which the aggregate annual rental payments do not exceed [*];
(vi) partnership agreements, management services agreements, joint venture agreements or other similar agreements relating to any of the Group Companies or to which any of the Group Companies is a party;
(vii) agreement, contract or commitment prohibiting any Group Company from freely engaging in any material line of business (including, without limitation, the hospitalist, locum tenens, accountable care organization services and post-acute care businesses) or competing anywhere in the world to the extent such restriction would materially and adversely affect the operations of the business of such Group Company;
(viii) contract that relates to the future disposition or acquisition of material assets or properties by any Group Company, or any merger or business combination with respect to any Group Company;
(ix) contract with any Material Hospital Client;
(x) contract with any of the [*] largest third-party payors (based on consolidated net sales) of the Group Companies on a consolidated basis for the 12-month period ended December 31, 2013;
(xi) agreements providing for registration rights with respect to the equity or debt securities of any Group Company;
(xii) material inbound or outbound software license agreements (other than agreements for commercially available software);
(xiii) any other agreements (other than those of the types of agreements generally specified in clauses (i) through (xii) above (without regard to the materiality or other qualifications contained therein)) involving payments by or to any Group Company in excess of [*] during the 2014 calendar year or any subsequent calendar year;
(xiv) contracts that are Governing Documents of any Group Company and any material agreements between the Company and any other Group Company;
(xv) agreements between or among owners of any Group Company, on the one hand, and such Group Company, on the other hand; or
(xvi) agreements other than those disclosed pursuant to clauses (i) through (xv) above, the breach or termination of which would cause a Company Material Adverse Effect.
(b) Each Material Contract is valid and binding on the applicable Group Company and enforceable in accordance with its terms against such Group Company (subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors rights and subject to general principles of equity) and, to the Companys Knowledge, the other parties thereto. During the period beginning on January 1, 2014 and ending on the date of this Agreement, no Group Company has received written notice of any default under any Material Contract, except for defaults that would not, individually or in the aggregate, have a Company Material Adverse Effect. To the Companys Knowledge, as of the date hereof, none of the other parties to any Material Contract are in material breach thereof, except for defaults that would not, individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.7 Absence of Changes. Except as set forth on Schedule 3.7, during the period beginning on the date of the Latest Balance Sheet and ending on the date of this Agreement, there has not been any Company Material Adverse Effect and each Group Company has conducted its business in the ordinary course and in substantially the same manner heretofore conducted (including any conduct that is reasonably related, complementary or incidental thereto) and no Group Company has:
(a) issued any notes, bonds or other debt securities or any capital stock or other equity securities or any securities convertible, exchangeable or exercisable into any capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject to any material liabilities except current liabilities which have a maturity of less than one year and which have been incurred in the ordinary course of business and liabilities under contracts entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any material obligation or current liability, other than liabilities paid in the ordinary course of business consistent with past practice;
(d) declared, set aside or made any payment or distribution of cash or other property to its stockholders or equityholders (other than to any Group Company) with respect to its capital stock or other equity securities or purchased or redeemed any shares of its capital stock or other equity securities (including, without limitation, any warrants, options or other rights to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets (tangible or intangible) or subjected them to any Lien, except to the extent such mortgage or pledge results in a Permitted Lien;
(f) sold, assigned, transferred, leased, licensed or otherwise encumbered any of its tangible or intangible assets, except in the ordinary course of business, or canceled any material debts or claims other than write-offs of accounts receivable in the ordinary course of business;
(g) other than in the ordinary course of business consistent with past practices, sold, assigned, transferred, leased or licensed any material Company Intellectual Property Rights owned by any Group Company;
(h) made any unbudgeted expenditure or commitment (other than capital expenditures or commitments therefor) in excess of [*] or made any capital expenditures or commitments therefor that aggregate in excess of [*];
(i) made any loans or advances to, guarantees for the benefit of, or any investments in, any Persons in excess of [*] in the aggregate;
(j) suffered any damage, destruction or casualty loss exceeding in the aggregate [*], whether or not covered by insurance;
(k) except as made in the ordinary course of business consistent with past practices or in order to comply with applicable law or an Employee Benefit Plan, Material Contract or other written employment arrangement in existence as of the date hereof (i) made or granted any bonus or any material wage, salary or compensation increase to any director, officer or employee, (ii) made or granted any increase in any Employee Benefit Plan or arrangement, (iii) amended or terminated any existing Employee Benefit Plan or arrangement or (iv) adopted any new Employee Benefit Plan or arrangement;
(l) amended or authorized any amendment to the Governing Documents of any Group Company;
(m) materially changed or authorized any material change in its accounting practices or method of accounting for any items in the preparation of the financial statements of any Group Company;
(n) entered into any settlement, conciliation or similar agreement involving claims not fully covered by insurance in excess of [*] or waived any rights having a value in excess of [*];
(o) entered into, amended or terminated any lease, contract, agreement, commitment or any other transaction with any Person, in each case providing for payments by or to any Group Company in excess of [*] in the aggregate;
(p) materially increased its long term liabilities from those reflected in the Latest Balance Sheet;
(q) suffered any extraordinary losses or waived any rights of material value (whether or not in the ordinary course of business) in excess of [*] in the aggregate or [*] in any one instance;
(r) wrote- off or otherwise reduced the amount of any receivables, except in the ordinary course of business and at levels which are consistent with reserves for uncollectible amounts included in the Latest Balance Sheet;
(s) received any written notice from a Governmental Entity, or otherwise became aware of any information which any Group Company believes may require a recoupment or repayment of amounts collected by a Group Company in excess of [*] in the aggregate or [*] in any one instance, whether or not such recoupment or repayment amount is accrued; or
(t) entered into or approved any contract, arrangement or understanding to do, engage in or cause or having the effects of, any of the foregoing.
Buyer acknowledges that the announcement by the Seller of its intention to sell the Company (as well as the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby) might affect one or more of the Group Companies customer relationships, and that such effects do not and will not constitute a breach of this Section 3.7.
Section 3.8 Litigation. Except as set forth on Schedule 3.8(i), as of the date hereof, there are no suits, litigations, arbitrations, actions or proceedings (each a Proceeding) pending before any Governmental Entity or, to the Companys Knowledge, threatened in writing against any Group Company (or, to the Companys Knowledge, any officer, director, manager, shareholder or member of any Group Company in their respective capacities as such). Since January 1, 2012 through the date of this Agreement, there is and has not been any Proceeding pending before any Governmental Entity or, to the Companys Knowledge, threatened in writing against any Group Company (or, to the Companys Knowledge, any officer, director, manager, shareholder or member of any Group Company in their respective capacities as such) which, individually or in the aggregate, has or would reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole. Except as set forth on Schedule 3.8(ii), as of the date hereof, no Group Company (or, to the Companys Knowledge, any officer, director, manager, shareholder or member of any Group Company in their respective capacities as such) is subject to any outstanding order, writ, injunction or decree. Since January 1, 2012 through the date of this Agreement, no Group Company (or, to the Companys Knowledge, any officer, director, manager, shareholder or member of any Group Company in their respective capacities as such) is or has been subject to any outstanding order, writ, injunction or decree which, individually or in the aggregate, has or would reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole.
Section 3.9 Compliance with Applicable Law.
(a) Except as set forth on Schedule 3.9(i), the Group Companies hold all permits, licenses, approvals, certificates and other authorizations of and from all, and have made all declarations and filings with, Governmental Entities necessary for the lawful conduct of their respective businesses as presently conducted, except for failures to hold such permits, licenses, approvals, certificates and authorizations which would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole (each, a Material Permit). A list of the Material Permits is set forth on Schedule 3.9(ii). As of the date of this Agreement, the business of the Group Companies is operated in compliance with all applicable laws, rules, regulations, codes, ordinances, and applicable orders of all Governmental Entities, except for instances of noncompliance which would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole. This Section 3.9 does not relate to Tax matters (which is the subject of Section 3.15), environmental matters (which is the subject of Section 3.11), employee benefit matters (which is the subject of Section 3.10), intellectual property matters (which is the subject of Section 3.12) or healthcare matters (which is the subject of Section 3.21).
(b) Neither any Group Company nor, to the Companys Knowledge, any employees or agents of any other Person acting for or on the behalf of any Group Company, has
directly or indirectly, (i) offered, made or received any contribution of any kind, gift or gratuity, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, regardless of form, whether in money, property, or services, in material violation of any applicable laws, rules, regulations, codes, ordinances, and applicable orders of any Governmental Entity (including, without limitation, the Foreign Corrupt Practices Act of 1977, as amended) including (1) to obtain favorable treatment in securing business, (2) to pay for favorable treatment for business secured, or (3) to obtain special concessions or for special concessions already obtained, for or in respect of any Group Company or any Affiliate thereof, or (ii) established or maintained any fund or asset that has not been recorded in the consolidated books and records of the Group Companies. The Group Companies maintain a system of internal accounting controls designed to reasonably ensure that, in all material respects, no Group Company maintains any off-the-books accounts and that the Group Companies assets are used only in accordance with directives from the Companys management.
(c) The Group Companies are, and have at all times been, in compliance with, and are not in violation of, HIPAA and such compliance includes, but is not limited to having disclosed any material breach or security incident (as those terms are defined by HIPAA) with respect to any protected health information or electronic protected health information or personal information that any such entity is obligated to protect under HIPAA or for which a business associate has an obligation to any such entity to protect, whether resulting from such other entitys actions, inactions, errors, omissions, misconduct or breach of HIPAA, except such incidents which, individually or in the aggregate, could not reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole.
Section 3.10 Employee Plans.
(a) Schedule 3.10(a) lists all material Employee Benefit Plans.
(b) No Employee Benefit Plan is a Multiemployer Plan or a plan that is subject to Title IV of ERISA, and no Employee Benefit Plan provides health or other welfare benefits to former employees of any Group Company other than health continuation coverage pursuant to COBRA.
(c) Each material Employee Benefit Plan has been maintained and administered in compliance with the applicable requirements of ERISA, the Code and any other applicable laws, except for instances of noncompliance that would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service or is the subject of a favorable opinion letter from the Internal Revenue Service on the form of such Employee Benefit Plan and, to the Companys Knowledge, there are no facts or circumstances that would be reasonably likely to adversely affect the qualified status of any such Employee Benefit Plan.
(d) No material liability under Title IV of ERISA for contributions or for termination liability has been or, to the Companys Knowledge, is reasonably expected to be incurred by any Group Company.
(e) To the Companys Knowledge, no Group Company has engaged in any transaction with respect to any Employee Benefit Plan that would be reasonably likely to subject any Group Company to any material Tax or penalty (civil or otherwise) imposed by ERISA, the Code or other applicable law.
(f) No Proceeding, hearing, audit, investigation or other claim with respect to any Employee Benefit Plan (other than routine claims for benefits) is ongoing, pending or, to the Companys Knowledge, threatened.
(g) Except as set forth on Schedule 3.10(g), the transactions contemplated by the Agreement will not cause acceleration of vesting in, or payment of, any material benefits under any Employee Benefit Plan and will not otherwise materially accelerate or increase any obligation under any Employee Benefit Plan.
(h) To the Companys Knowledge, each Employee Benefit Plan that constitutes in any part a nonqualified deferred compensation plan (within the meaning of Section 409A of the Code) has been operated and maintained in all respects in operational and documentary compliance with Section 409A of the Code and applicable guidance thereunder.
(i) No employer securities, employer real property or other employer property is included in the assets of any Employee Benefit Plan.
(j) This Section 3.10 contains the sole and exclusive representations and warranties of the Company with respect to the Group Companies Employee Benefit Plans.
Section 3.11 Environmental Matters.
(a) To the Companys Knowledge:
(i) The Group Companies are in compliance with all applicable Environmental Laws, except for noncompliance which would not, individually or in the aggregate, have a Company Material Adverse Effect.
(ii) The Group Companies hold all permits, licenses and other authorizations that are required pursuant to Environmental Laws for the lawful conduct of their respective businesses as presently conducted, except for failures to hold such permits, licenses and authorizations which would not, individually or in the aggregate, have a Company Material Adverse Effect.
(iii) No Group Company has received in the past three years any currently unresolved written notice of any violation of, or liability or investigatory, corrective or remedial obligation under, any Environmental Laws, except for such notice the subject matter of which, if determined adversely to any Group Company, would not, individually or in the aggregate, have a Company Material Adverse Effect
(b) This Section 3.11 contains the sole and exclusive representations and warranties of the Company with respect to environmental matters, including any matters arising under Environmental Laws.
Section 3.12 Intellectual Property. To the Companys Knowledge, the Group Companies own, license or otherwise have a right to all Intellectual Property Rights that are material to the conduct of the business of the Group Companies as currently conducted (the Company Intellectual Property Rights). Schedule 3.12 sets forth a list of (a) patents, trademark registrations and copyright registrations owned by any Group Company, (b) patent applications, trademark applications and copyright applications owned by any Group Company, (c) all technology and software material to the Group Companies businesses taken as a whole, and (d) all other Company Intellectual Property Rights material to the Group Companies businesses taken as a whole. Except as set forth on Schedule 3.12, (i) there is not pending before any Governmental Entity or, to the Companys Knowledge, threatened in writing against any Group Company any claim by any Person contesting the use or ownership of any Company Intellectual Property Rights owned by such Group Company, or alleging that any Group Company is infringing any Intellectual Property Rights of any Person in any material respect, and (ii) there are no claims pending before any Governmental Entity that have been brought, or, to the Companys Knowledge, threatened in writing to be brought, by any Group Company against any Person alleging infringement of any Company Intellectual Property Rights owned by or confidential information of such Group Company. The Group Companies rights in the Intellectual Property Rights set forth on Schedule 3.12 are subsisting and, to the Companys Knowledge, valid and enforceable. Notwithstanding any other provisions of this Agreement, other than under this Section 3.12, the Group Companies make no representations or warranties with respect to Intellectual Property Rights. No Person other than the Group Companies has, or to the Companys Knowledge has claimed in writing to have, any ownership in or rights to use or exploit the [*] or any component or module thereof.
Section 3.13 Labor Matters. No Group Company is bound by any collective bargaining agreement or collective bargaining relationship with respect to its employees. There is no labor strike or work stoppage or walkout pending or, to the Companys Knowledge, threatened in writing against or affecting any Group Company. To the Companys Knowledge, no union organization campaign is in progress with respect to any employees of any Group Company. No Group Company has engaged in any plant closing or employee mass layoff activities since the date of the Latest Balance Sheet without complying in all material respects with the Worker Adjustment Retraining and Notification Act of 1988, as amended, or any similar state or local plant closing or mass layoff statute, rule or regulation. To the Companys Knowledge, no executive or key employee of the Group Companies has notified, as of the date hereof, any Group Company in writing of his or her intention to terminate employment with any Group Company. The Group Companies are in compliance, and have complied, in all material respects with all laws relating to the employment of labor (including, without limitation, provisions thereof relating to wages, hours, equal opportunity, classification and the payment of social security and other taxes).
Section 3.14 Insurance. Schedule 3.14 contains a list of all material policies of fire, liability, workers compensation, property, casualty and other forms of insurance owned or held by the Group Companies as of the date of this Agreement. All such policies are, as of the
date of this Agreement, in full force and effect, all premiums with respect thereto covering all periods up to and including the Closing Date will have been paid, and no notice of cancellation or termination has been received by any Group Company with respect to any such policy. Such policies are in amounts and have coverages as required by any Material Contract to which any Group Company is a party.
Section 3.15 Tax Matters. Except as set forth on Schedule 3.15:
(a) each Group Company has prepared and duly filed with the appropriate domestic, federal, state, local and foreign taxing authorities all material tax returns, information returns, statements, forms, filings and reports (each a Tax Return and, collectively, the Tax Returns) required to be filed with respect to each Group Company and has timely paid all material Taxes owed or payable by it, whether or not shown on any Tax Return, including Taxes which any Group Company is obligated to withhold;
(b) all Tax Returns filed with respect to each of the Group Companies are true and correct in all material respects;
(c) no Group Company is currently the subject of a Tax audit or examination;
(d) no Group Company has consented to extend the time, or is the beneficiary of any extension of time, in which any Tax may be assessed or collected by any taxing authority;
(e) no Group Company has received from any taxing authority any written notice of proposed adjustment, deficiency, underpayment of Taxes or any other such written notice which has not been satisfied by payment or been withdrawn;
(f) within the last two years, no written claim has been made by any taxing authority in a jurisdiction where any Group Company does not file Tax Returns that any such Group Company is or may be subject to taxation by that jurisdiction;
(g) no amount that could be received as a result of the consummation of the transactions contemplated by this Agreement by any employee or other service provider to the Group Companies would not be deductible by reason of Section 280G of the Code or result in a requirement to pay any gross-up or similar make-whole payments to any employee, director or consultant of any Group Company;
(h) there are no Liens for Taxes other than Taxes not yet due and payable upon the assets of any Group Company;
(i) no Group Company (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than the group the common parent of which is the Company) or (ii) has any liability for the Taxes of any Person (other than any Group Company, under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or non-U.S. law)), as a transferee or successor, by contract or otherwise;
(j) no Group Company will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:
(i) change in method of accounting for a taxable period ending on or prior to the Closing Date;
(ii) use of an improper method of accounting for a taxable period ending on or prior to the Closing Date;
(iii) closing agreement as described in Section 7121 of the Code (or any corresponding or similar provision of state, local, or non-U.S. income Tax law) executed on or prior to the Closing Date;
(iv) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local, or non-U.S. income Tax law);
(v) installment sale or open transaction disposition made on or prior to the Closing Date;
(vi) prepaid amount received on or prior to the Closing Date; or
(vii) election under Section 108(i) of the Code;
(k) within the past three (3) years, no Group Company has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code; and
(l) no Group Company is or has been a party to any listed transaction, as defined in Section 6707A(c)(2) of the Code and Treasury Regulation Section 1.6011-4(b)(2).
Section 3.16 Brokers. No broker, finder, financial advisor or investment banker, other than J.P. Morgan Securities LLC (whose fees shall be included as Seller Expenses), is entitled to any brokers, finders, financial advisors or investment bankers fee or commission in connection with the transactions contemplated by this Agreement that will not be included as Seller Expenses based upon arrangements made by or on behalf of any of the Group Companies.
Section 3.17 Property.
(a) No Group Company owns any real property. Schedule 3.17 sets forth (whether as lessee or lessor) a list of all leases (each a Material Lease) of real property to which any Group Company is a party or by which any of them is bound, in each case, as of the date of this Agreement involving annual rent in excess of [*]. Except as set forth on Schedule 3.17, each Material Lease is valid and binding on the Group Company party thereto, enforceable in accordance with its terms (subject to proper authorization and execution of such Material Lease by the other party thereto and subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting generally the enforcement of creditors rights and subject to general principles of equity) and, to the Companys Knowledge, the other parties thereto. Except as set forth on Schedule 3.17, during the period beginning on January 1, 2014 and ending on the date of this Agreement, no Group Company has received written notice of any default under any Material Lease, except for defaults that would not, individually or in the aggregate, have a Company Material Adverse Effect. To the Companys Knowledge none of the other parties to any Material Lease are in material breach thereof, except for defaults that would not, individually or in the aggregate, have a Company Material Adverse Effect.
(b) Except as would not, individually or in the aggregate, have a Company Material Adverse Effect (i) the Group Companies have good, valid and marketable title to, or a valid leasehold interest, license in or right to use pursuant to a valid lease or license, all assets used in the operation of the Group Companies businesses, free and clear of all Liens, except for properties and assets disposed of in the ordinary course of business since the date of the Latest Balance Sheet and except for Permitted Liens, (ii) all material, tangible personal property owed, leased, licensed or otherwise used in the businesses of the Group Companies are in good operating condition and repair (other than ordinary wear and tear), and are adequate for the uses to which they are being put and (iii) all material, tangible personal property owed, leased, licensed or otherwise used in the businesses of the Group Companies are sufficient for the continued conduct of the Group Companies businesses after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the rights, property and assets necessary to conduct the business of the Group Companies in substantially the same manner as currently conducted.
Section 3.18 Transactions with Affiliates. Schedule 3.18 sets forth all contracts or arrangements (other than employment agreements and Governing Documents) between any Group Company, on the one hand, and Affiliates of the Group Companies (other than any Group Company or any employee of any Group Company who is not an officer of any Group Company) or, as applicable, to the Companys Knowledge, the Family Members of any such Affiliates, on the other hand, that will not be terminated effective as of the Closing Date. To the Companys Knowledge, except as disclosed on Schedule 3.18, none of the Group Companies and their respective Affiliates, directors, officers or employees, or, as applicable, to the Companys Knowledge, the Family Members of any such Affiliates, possesses, directly or indirectly, any financial interest in, or is a director, officer or employee of, any Person (other than any Group Company) which is a client, payor, hospital or other healthcare provider, supplier, customer, lessor, lessee, or competitor of any Group Company; provided, that ownership of five percent (5%) or less of any class of securities of a company whose securities are registered under the Securities and Exchange Act of 1934, as amended, shall not be deemed to be a financial interest for purposes of this Section 3.18.
Section 3.19 No Undisclosed Liabilities. No Group Company has any liabilities of any kind, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (a) liabilities disclosed or provided for in the Financial Statements (including the notes thereto), (b) liabilities existing as of the Latest Balance Sheet Date but that are not required under GAAP to be reserved against or reflected in the Latest Balance Sheet, (c) liabilities disclosed in the Disclosure Schedules, (d) liabilities incurred in the ordinary course of business since the Latest Balance Sheet Date, (e) liabilities that would not, individually or in the
aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole or (f) liabilities incurred in connection with the transactions contemplated by this Agreement or any other Transaction Document.
Section 3.20 Hospital Clients. Schedule 3.20 lists the [*] largest hospital clients (based on consolidated net sales) of the Group Companies on a consolidated basis (collectively, the Material Hospital Clients) for the 12-month period ended December 31, 2013. Except as set forth on Schedule 3.20, the Company has not received written notice of any termination or cancellation or threatened termination or cancellation by any Material Hospital Client of its business relationship with the Company, except where such termination or cancellation would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole.
Section 3.21 Healthcare Representations and Warranties.
(a) Except as set forth on Schedule 3.21(a), each Group Company is in compliance in all material respects with all Healthcare Laws except where non-compliance would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole.
(b) Each Group Company holds or possesses each of the permits, licenses, approvals, certificates and authorizations issued by any Governmental Entity necessary under any Healthcare Law to conduct business substantially as currently conducted, except for such permits, licenses, approvals, certificates and authorizations the absence of which would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole. There are no Proceedings pending or to the Companys Knowledge, threatened in writing that seek the revocation, cancellation, or termination of any such permits, licenses, approvals, certificates and authorizations.
(c) Each Group Company meets all of the applicable requirements of any Federal Health Care Programs (as defined in 42 U.S.C. § 1320a-7(b)) (Programs) in which it participates except where the failure to meet any such requirement would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in any material respect with the conduct of the business of, the Group Companies taken as a whole, and each is a party to participation agreements for payment by such Programs to the extent that it bills a particular Program for services or procedures. There is no Proceeding pending or to the Companys Knowledge, threatened in writing against any Group Company which relates to failure to comply with the applicable requirements of any Program.
(d) The Company has Made Available to Buyer true and complete copies of all material surveys, reviews, or audits of any Group Company conducted by or in connection with any of the Programs or any licensing or accrediting bodies during the past three (3) years, including any written statements of deficiencies and plans of correction. Except as set forth on Schedule 3.21(d), no Group Company has, during the past three (3) years, been the subject of any inspection, investigation, survey, audit, monitoring, or other form of review by any Governmental Entity, trade association, professional review organization, accrediting organization or certifying agency based upon any alleged improper activity on the part of such Group Company, nor has any Group Company received any notice or other communication of deficiency from any Governmental Entity in connection with the business of such Group Company. Except as set forth on Schedule 3.21(d), there are not presently any outstanding deficiencies or plans of correction claimed or imposed by any Governmental Entity having jurisdiction over the business of any Group Company or requiring conformity to any applicable agreement, governing document, or applicable laws, rules, regulations, codes, ordinances, and applicable orders of any Governmental Entity. Schedule 3.21(d) sets forth a true and complete list of all deficiencies or plans of correction related to any Governmental Entity having jurisdiction over the business of any Group Company that have been imposed during the past three (3) years.
(e) To the Companys Knowledge, no Group Company nor any of their respective directors, officers, employees or independent contractors at the time of becoming a director, officer, employee or independent contractors or while they were serving as a director, officer, employee or independent contractors was listed on HHS/OIG List of Excluded Individuals/Entities (LEIE) database (http://exclusions.oig.hhs.gov) or the General Services Administrations Excluded Parties List System (http://www.epls.gov) as being excluded or debarred from participation in any Program.
(f) Except as set forth on Schedule 3.21(f), no Group Company has received any written notice of overpayments from any Program or any other third-party payor amounting to more than [*], individually or in the aggregate, or that is otherwise outside of the ordinary course of business, within the past six (6) years. No Group Company has any outstanding overpayment or refund due to any Program or third-party payor in excess, individually or in the aggregate, of [*].
(g) No Group Company has entered into any impermissible financial relationship in violation of the Federal Stark Law and, to the Companys Knowledge, no Group Company has accepted referrals from physicians that do not otherwise comply with the the Federal Anti-kickback Statute. For purposes of this Section 3.21(g), the term financial relationship has the meaning given in 42 U.S.C. §1395nn(a)(2) of the Federal Stark Law.
(h) To the Knowledge of the Company, each Group Company is in compliance, in all material respects, with the rules and policies required to be complied with in regards to each third-party payor contracts including all material certification, billing, reimbursement and documentation requirements except for such non-compliance which would not, individually or in the aggregate, reasonably be expected to result in material liability to the Group Companies, taken as a whole, or otherwise materially impair the value of, or interfere in
any material respect with the conduct of the business of, the Group Companies taken as a whole.
(i) Except as would not individually or in the aggregate be material to Group Companies taken as a whole, the Group Companies have (i) verified the required credentials of employees and independent contractors providing clinical services as required by any applicable laws, rules, regulations, codes, ordinances, and applicable orders of any Governmental Entity and (ii) conducted criminal background checks on all such employees and independent contractors.
(j) No referral source of any Group Company maintains an ownership interest in, or compensation arrangement with, any Group Company in violation of the Federal Stark Law.
(k) To the Companys Knowledge, the Group Companies have Made Available to Buyer a true and complete copy of the Group Companies current compliance program materials, including all program descriptions, compliance officer and committee descriptions, ethics and risk area policy materials, training and education materials, auditing and monitoring protocols, reporting mechanisms and disciplinary policies. To the Companys Knowledge, each Group Company has conducted its operations in accordance in all material respects with its respective compliance programs during the applicable period for which such compliance program was in effect. Except as set forth on Schedule 3.21(k), none of the Group Companies (i) is a party to a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services, (ii) has reporting obligations pursuant to any settlement agreement entered into with any Governmental Entity, (iii) to the Companys Knowledge, has been the subject of any Government Program investigation conducted by any federal or state enforcement agency, (iv) has been a defendant in any qui tam/False Claims Act litigation (other than by reason of a sealed complaint of which the Company may have no Knowledge), (v) has been served with or received any search warrant, subpoena, civil investigation demand, contact letter, or, to the Companys Knowledge, telephone or personal contact by or from any federal or state enforcement agency (except in connection with medical services provided to third parties who may be defendants or the subject of investigation into conduct unrelated to the Group Companies business) and (vi) to the Companys Knowledge has received any complaints through any Group Company compliance hotline from employees, independent contractors, vendors, physicians, patients, or any other Persons that could reasonably be considered to indicate that Company has violated, or is currently in violation of, any applicable laws, rules, regulations, codes, ordinances, and applicable orders of any Governmental Entity. For purposes of this Agreement, the term compliance program refers to provider programs of the type described in the compliance guidance published by the Office of Inspector General of the Department of Health and Human Services.
(l) Each Group Company has complied in all material respects with its respective obligations and reporting requirements under the Corporate Integrity Agreement.
(m) For the three (3) years immediately preceding the Closing Date, through and including the Closing Date, to the Companys Knowledge, each physician, physician assistant, registered nurse or similar person who is or was employed (with respect to the time of
such employment) by, or who renders or has rendered services as an independent contractor (with respect to the time of the rendering of services) on behalf of, any Group Company (collectively, Caregiver Personnel) has been and continues to be in compliance with the following:
(i) each such Caregiver Personnel has been duly licensed or certified pursuant to the applicable laws, rules, regulations, codes, ordinances, and applicable orders of any Governmental Entity of the applicable state, and said license or certification has not been suspended, revoked or restricted in any manner;
(ii) no Caregiver Personnel (1) is currently, or has ever been, found to have, either civilly or criminally, violated any laws and regulations governing the Medicare or Medicaid programs, or any other federal or state healthcare program, (2) has been excluded or suspended from participation in the Medicare and Medicaid programs, or any other federal or state healthcare program, or (3) has been found to have, either civilly or criminally, violated any laws and regulations governing the Medicare or Medicaid programs, or any other federal or state healthcare program; and
(iii) except as set forth in Schedule 3.21(m)(iii), to the Companys Knowledge, no Caregiver Personnel, while he or she has been an employee of any Group Company, has:
(1) been a party to any disciplinary investigation or Proceeding instituted by any licensure board, hospital, medical school, health care facility or entity, professional society or association, payor, peer review or professional review committee or body, or Governmental Entity;
(2) been a party to any criminal complaint, indictment or criminal Proceeding;
(3) been a party to any investigation or Proceeding, whether administrative, civil or criminal, relating to any allegations of filing false health care claims, violating state or federal anti-kickback or self-referral laws, or engaging in any other billing or health care services related improprieties;
(4) had any dependency on, habitual use or episodic abuse of, controlled substances or any dependency on alcohol, or any participation in any alcohol or controlled substance detoxification, treatment, recovery, rehabilitation, counseling, screening or monitoring program; or
(5) been a party to any allegation, or any investigation or Proceeding based on any allegation, of violating professional ethics or standards, or engaging in illegal, immoral or other misconduct (of any nature or degree), relating to the provision of medical care; or
(6) failed to comply in any material respects with the requirements, if any, set forth in all applicable third-party payor contracts.
Section 3.22 EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE III, THE GROUP COMPANIES EXPRESSLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO THE CONDITION, VALUE OR QUALITY OF THEIR BUSINESSES OR THEIR ASSETS, AND THE GROUP COMPANIES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THEIR ASSETS, ANY PART THEREOF, THE WORKMANSHIP THEREOF, AND THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH SUBJECT ASSETS ARE BEING ACQUIRED AS IS, WHERE IS ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, AND BUYER HAS RELIED SOLELY ON ITS OWN EXAMINATION AND INVESTIGATION THEREOF. FURTHER, THE GROUP COMPANIES HEREBY EXPRESSLY DISCLAIM ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, LEGAL OR CONTRACTUAL, EXPRESS OR IMPLIED, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO BUYER OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY FINANCIAL PROJECTIONS OR OTHER SUPPLEMENTAL DATA).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
Section 4.1 Authority. Seller has the requisite limited liability company power and authority to execute and deliver each Transaction Document to which it is a party and to consummate the transactions contemplated thereby. The execution and delivery of each Transaction Document to which Seller is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary limited liability company action on the part of Seller. Each Transaction Document to which Seller is a party has been duly executed and delivered by Seller and constitutes a valid, legal and binding agreement of Seller (assuming that each such Transaction Document to which Seller is a party has been duly and validly authorized, executed and delivered by the other parties thereto), enforceable against Seller in accordance with its terms, except (a) to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors rights generally and (b) that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding thereof may be brought. Seller was formed for the sole purpose of holding the Shares and, other than serving as a holding company for the Company (including the taking of actions related and ancillary thereto), does not and has not ever carried on any other trade or
business or had any other assets or any other liabilities or obligations of any kind (whether accrued, absolute, contingent or otherwise).
Section 4.2 Consents and Approvals; No Violations. Except as set forth on Schedule 4.2, assuming the truth and accuracy of the representations and warranties of Buyer set forth in Section 5.4, no notice to, filing with, or authorization, consent or approval of any Governmental Entity is necessary for the execution, delivery or performance of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby, except for (i) compliance with and filings under the HSR Act, (ii) those the failure of which to obtain or make would not, individually or in the aggregate, interfere in any material respect with Sellers ownership of the Shares, or otherwise prevent or materially delay the Closing and (iii) those that may be required solely by reason of Buyers (as opposed to any other third partys) participation in the transactions contemplated hereby. Neither the execution, delivery and performance of each Transaction Document to which Seller is a party nor the consummation by Seller of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of Sellers Governing Documents, (b) result in a violation or breach of, or cause acceleration, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any material agreement to which Seller is a party or (c) violate any order, writ, injunction, decree, law, statute, rule or regulation of any Governmental Entity having jurisdiction over Seller, which in the case of any of clauses (b) and (c) above, would not, individually or in the aggregate, have a material adverse effect on Sellers ownership of the Shares, or otherwise prevent or materially delay the Closing.
Section 4.3 Title to the Shares; Ownership of Seller. As of the date hereof and as of immediately prior to the Distribution, the Shares are held beneficially and of record by Seller free and clear of any Liens (other than the Permitted Share Liens) and Seller has good and marketable title to the Shares. Immediately following the consummation of the Distribution through and until immediately prior to the Closing, Seller will hold beneficially and of record all of the issued and outstanding Purchased Shares and the Contributed Shares free and clear of any Liens (other than the Permitted Share Liens). As a result of the Distribution, Seller will deliver to each Rollover Equityholder good and valid title to all of the issued and outstanding Rollover Shares distributed to such Rollover Equityholder in the Distribution free and clear of any Liens (other than Permitted Share Liens).
Section 4.4 Litigation. As of the date of this Agreement, there is no Proceeding pending before any Governmental Entity or, to Sellers actual knowledge, threatened in writing against Seller which would have a material adverse effect on Sellers ownership of the Shares, or otherwise prevent or materially delay the Closing. Seller is not subject to any outstanding order, writ, injunction or decree that would have a material adverse effect on Sellers ownership of the Shares, or otherwise prevent or materially delay the Closing.
Section 4.5 Brokers. No broker, finder, financial advisor or investment banker, other than J.P. Morgan Securities LLC (whose fees shall be included as Seller Expenses), is entitled to any brokers, finders, financial advisors or investment bankers fee or commission in connection with the transactions contemplated by this Agreement that will not be included as
Seller Expenses based upon arrangements made by or on behalf of Seller or the member of Seller.
Section 4.6 EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES. THE REPRESENTATIONS AND WARRANTIES MADE BY SELLER IN THIS ARTICLE IV ARE IN LIEU OF AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES. SELLER HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, LEGAL OR CONTRACTUAL, EXPRESS OR IMPLIED, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO BUYER OR ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY FINANCIAL PROJECTIONS OR OTHER SUPPLEMENTAL DATA).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 5.1 Organization; Formation. Buyer is a Delaware limited liability company, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all requisite power and authority to carry on its business as now being conducted, except where the failure to have such power or authority would not prevent or materially delay the consummation of the transactions contemplated hereby. Buyer is a newly formed entity, formed for the sole purpose of acquiring and holding the Shares from and after the Closing (including the taking of actions related and ancillary thereto) and does not and has not ever carried on any other trade or business or had any other assets or any other liabilities or obligations of any kind (whether accrued, absolute, contingent or otherwise).
Section 5.2 Capitalization. As of the date of this Agreement, Fresenius Medical Care Holdings, Inc., a New York corporation (FMCH), is the sole member of Buyer and all of the limited liability company interests of Buyer are held beneficially and of record by FMCH free and clear of any Liens (other than Permitted Share Liens). As of immediately prior to the Rollover, the limited liability company interests of Buyer shall be as set forth in Article III of the amended and restated limited liability company agreement of Buyer substantially in the form attached hereto as Exhibit F. After giving effect to the Contribution, the Rollover and the other transactions contemplated by this Agreement and the Rollover Equity Agreements and Rollover Agreements (assuming the truth and accuracy of the representations and warranties of the Rollover Equityholders in the Rollover Agreements), all of the Buyer Units will be held beneficially and of record free and clear of any Liens (other than Liens arising under the Rollover Equity Agreements) by the Persons contemplated by this Agreement, the Rollover Equity Agreements and Rollover Agreements. The Buyer Units have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights except as set forth in the Rollover Equity Agreements. Except for the Buyer Units, there are no outstanding (i) equity securities of Buyer, (ii) securities of Buyer convertible into or exchangeable for, at any time, equity securities of Buyer and (iii) rights to acquire from Buyer and no obligations of
Buyer to issue, any equity securities or securities convertible into or exchangeable for equity securities of Buyer. Buyer does not own, and has never owned, directly or indirectly, any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, at any time, any equity or similar interest in, any corporation, partnership, limited liability company, joint venture or other business association or entity.
Section 5.3 Authority. Buyer has all necessary power and authority to execute and deliver each Transaction Document to which it is a party and to consummate the transactions contemplated thereby. The execution and delivery of each Transaction Document to which Buyer is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary action on the part of Buyer and no other proceeding (including by its equityholders) on the part of Buyer is necessary to authorize each Transaction Document to which Buyer is a party or to consummate the transactions contemplated thereby. No vote of Buyers equityholders is required to approve this Agreement or for Buyer to consummate the transactions contemplated hereby. Each Transaction Document to which Buyer is a party has been duly and validly executed and delivered by Buyer and constitutes a valid, legal and binding agreement of Buyer (assuming that each such Transaction Document has been duly and validly authorized, executed and delivered by the other parties thereto), enforceable against Buyer in accordance with its terms, except (a) to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors rights generally and (b) that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding thereof may be brought.
Section 5.4 Consents and Approvals; No Violations. No notices to, filings with, or authorizations, consents or approvals of any Governmental Entity is necessary for the execution, delivery or performance of any of the Transaction Documents to which Buyer is a party or the consummation by Buyer of the transactions contemplated thereby, except for (i) compliance with and filings under the HSR Act and (ii) those set forth on Schedule 5.4. Neither the execution, delivery and performance of any of the Transaction Documents to which Buyer is a party nor the consummation by Buyer of the transactions contemplated thereby will (a) conflict with or result in any breach of any provision of Buyers Governing Documents, (b) except as set forth on Schedule 5.4, result in a violation or breach of, or cause acceleration, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Buyer is or will be a party or by which any of them or any of their respective properties or assets may be bound, or (c) violate any order, writ, injunction, decree, law, statute, rule or regulation of any Governmental Entity applicable to Buyer or any of Buyers Subsidiaries or any of their respective material properties or assets, except in the case of clauses (b) and (c) above, for violations which would not prevent or materially delay the consummation of the transactions contemplated thereby.
Section 5.5 Brokers. No broker, finder, financial advisor or investment banker is entitled to any brokerage, finders, financial advisors or investment bankers fee or commission in connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Buyer or any of its respective Affiliates for which Seller or any Group Company may become liable.
Section 5.6 Financing. (a) Parent Guarantor directly or through immediately available capacity under credit facilities has and at all times during the period beginning on the date hereof and ending on the Closing Date will have, (b) Parent Guarantor will directly have on the Closing Date and (c) Buyer will directly have on the Closing Date, in each case, sufficient cash in hand that is available to consummate the transactions contemplated hereby, including to pay (without duplication) the Purchase Price, any Funded Indebtedness, the Unpaid Seller Expenses and the fees and expenses of Buyer related to the transactions contemplated hereby. There is no circumstance or condition that, individually or in the aggregate with all other circumstances or conditions, could reasonably be expected to prevent or substantially delay the availability of such funds at the Closing.
Section 5.7 Acquisition of Equity For Investment. Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its purchase of the Shares. Buyer confirms that it can bear the economic risk of its investment in the Shares and can afford to lose its entire investment in the Shares, has been furnished the materials relating to the purchase of the Shares which Buyer has requested, and the Company has provided Buyer and its representatives the opportunity to ask questions of the officers and management employees of the business and to acquire additional information about the business and financial condition of the Group Companies. Buyer is acquiring the Shares for investment and not with a view toward or for sale in connection with any distribution thereof, or with any present intention of distributing or selling such Shares. Buyer agrees that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without compliance with applicable United States prospectus and registration requirements, except pursuant to an exemption therefrom under applicable United States securities laws.
Section 5.8 Solvency. Buyer is not entering into the transactions contemplated by this Agreement with the actual intent to hinder, delay or defraud either present or future creditors of the Group Companies. Buyer is Solvent as of the date of this Agreement and, assuming the satisfaction of the condition to Sellers and the Companys obligation to consummate the transactions contemplated hereby and the accuracy of the representations and warranties of the Company in ARTICLE III and the representations and warranties of Seller in ARTICLE IV, Buyer and each of the Group Companies (on both a stand-alone and on a combined basis) will, after giving effect to all of the transactions contemplated by this Agreement, including the payment of the Purchase Price, Funded Indebtedness, Unpaid Seller Expenses, all other amounts required to be paid, borrowed or refinanced in connection with the consummation of the transactions contemplated by this Agreement and all related fees and expenses, be Solvent at and after the Closing Date.
Section 5.9 Interests in Competitors. Buyer does not own any interest(s), nor do its Affiliates insofar as such Affiliate-owned interest would be attributed to Buyer under the HSR Act, in any Person that derives a substantial portion of its revenues from any line of business similar to those of the Group Companies.
Section 5.10 Acknowledgment and Representations by Buyer. Buyer acknowledges and agrees that it (i) has conducted its own independent review and analysis of, and, based thereon, has formed an independent judgment concerning, the business, assets, condition, operations and prospects of the Group Companies and (ii) has been furnished with or given sufficient access to information about the Group Companies and their respective businesses and operations. In entering into this Agreement, Buyer has relied solely upon its own investigation and analysis and the representations and warranties of the Company and Seller set forth in this Agreement, and Buyer acknowledges that, other than as set forth in this Agreement and in the certificates or other instruments delivered pursuant hereto, none of the Group Companies or any of their respective directors, officers, employees, Affiliates, equityholders, agents or representatives makes or has made any representation or warranty, either express or implied, (a) as to the accuracy or completeness of any of the information provided or Made Available to Buyer or any of its respective agents, representatives, lenders or Affiliates prior to the execution of this Agreement and (b) with respect to any projections, forecasts, estimates, plans or budgets of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows (or any component thereof) or future financial condition (or any component thereof) of any Group Company heretofore or hereafter delivered to or Made Available to Buyer or any of its respective agents, representatives, lenders or Affiliates.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business of the Company. Except as contemplated by this Agreement or in Schedule 6.1, from and after the date hereof until the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, the Company shall and shall cause each other Group Company to, except as consented to in writing by Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), (i) conduct its business in the ordinary course in substantially the same manner heretofore conducted (including any conduct that is reasonably related, complementary or incidental thereto), (ii) not take or omit to take any action which would have a Company Material Adverse Effect and (iii) use commercially reasonable efforts to preserve substantially intact its business organization and to preserve in all material respects the present commercial relationships with key Persons with whom it does business. Without limiting the generality of the immediately preceding sentence and except as set forth on Schedule 6.1, from and after the date hereof until the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, the Company shall not and shall cause each other Group Company not to, except as consented to in writing by Buyer (which consent shall not be unreasonably withheld, conditioned or delayed):
(a) enter into, amend, extend or voluntarily terminate any agreement that is or would be a Material Contract or Material Lease (other than entering into, extending or amending any Material Contract or Material Lease in the ordinary course of business consistent with past practice);
(b) amend the Group Companies Governing Documents, or adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any Group Companies;
(c) acquire (other than as a result of a capital expenditure), dispose of or transfer any asset with a value in excess of [*] individually or [*] in the aggregate;
(d) declare, set aside, make or pay any contribution or other payment (in each case, other than in cash) in respect of any interests of any Group Company or purchase or redeem, directly or indirectly, any interests of any Group Company;
(e) (i) incur any Indebtedness for borrowed money or guarantee such Indebtedness of another Person, (ii) make any loans or advances of borrowed money or capital contributions to, or equity investments in, any other Person or group of related loans, advances or contributions other than in the ordinary course of business, or (iii) issue or sell any debt securities;
(f) pay, discharge or satisfy any claims or liabilities in excess of [*] or forgive, cancel, compromise, waive or release any debts, claims or rights in excess of [*], other than in the ordinary course of business consistent with past practices;
(g) issue, sell, grant, confer, award, pledge or otherwise encumber, any equity interests of any Group Company;
(h) acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any Person or enterprise or make any material investment, either by purchase of any interests, or contribution to capital, in or of any other Person;
(i) except in the ordinary course of business and consistent with past practice or as required by applicable law (i) enter into, amend, extend or terminate any individual employment, termination, retention, change of control, severance or other compensation agreement; or (ii) provide (except in accordance with the terms of employee agreements, as they exist immediately prior to the execution of this Agreement) or promise or agree to provide, any severance pay or benefits, change in control benefits, or advance notice of termination of employment to any employee;
(j) except as required by applicable law, adopt any new Employee Benefit Plan, program or arrangement, including, without limitation, any bonus, profit sharing, compensation, equity option, profits interest, pension, retirement, deferred compensation, for the benefit or welfare of any director or employee or (ii) amend any existing Employee Benefit Plan to provide additional benefits or vesting, except as required by applicable law;
(k) promise, grant or agree to grant any bonus or increase the compensation or benefits of any employee, other than bonuses and increases in the ordinary course of business consistent with past practice not to exceed [*] individually or [*] in the aggregate;
(l) make any material changes in any accounting or financial reporting principles, practices, methods or policies or method of calculating any bad debt contingency or other reserve for accounting or financial reporting purposes, except, in each case, as may be required by changes in applicable law or GAAP;
(m) except in the ordinary course of business consistent with past practice, dispose of or permit to lapse any rights to any Company Intellectual Property Rights owned by any Group Company;
(n) make or authorize any capital expenditures in excess of [*] individually or [*] in the aggregate;
(o) permit or suffer any new Liens other than Permitted Liens;
(p) terminate or fail to use commercially reasonable efforts not to let to expire any insurance coverage, except to the extent that such insurance policies are replaced with policies that offer substantially similar coverage;
(q) make or change any Tax election, settle or compromise any Tax liability, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, or agree to an extension or a waiver of a statutory period of limitations for the assessment of Tax, in each case if such action would have the effect of increasing the Tax liability of any Group Company for any period (or portion thereof) ending after the Closing Date; or
(r) agree in writing or otherwise to take any of the actions described above in clauses (a) through (q) of this Section 6.1.
Section 6.2 Access to Information. From and after the date hereof until the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, upon reasonable notice, and subject to restrictions contained in any confidentiality agreement to which any Group Company is subject, each Group Company shall provide to Buyer and its authorized representatives during normal business hours reasonable access to all books and records of the Group Companies (in a manner so as to not interfere with the normal business operations of any Group Company); provided, that the Group Companies and their respective representatives shall have no obligation to provide Buyer and its representatives access to any books or records to the extent such books and records pertain solely to the Seller and/or its equityholders and, to such extent, any Group Company and its representatives are entitled to withhold access to or redact any portion of such books and records. All of such information shall be treated as confidential information pursuant to the terms of the Confidentiality Agreement, the provisions of which are by this reference hereby incorporated herein and Buyer agrees that it shall be bound by the Confidentiality Agreement to the same extent as Fresenius Medical Care AG & Co. KGaA. Notwithstanding anything to the contrary set forth in this Agreement, during the period from the date hereof until the Closing, neither Seller nor any of its Affiliates (including the Group Companies) shall be required to disclose to Buyer or any of its representatives any (a) information (i) to the extent related to the sale or divestiture process conducted by Seller or its Affiliates for the Group Companies vis-à-vis any Person other than Buyer and its Affiliates, or Sellers or its Affiliates (or their representatives) evaluation of the business of the Group Companies in connection therewith, including projections, financial and other information relating thereto, (ii) if doing so would violate any contract or law to which Seller or any of its Affiliates (including the Group Companies) is a party or is subject or which it reasonably determined upon the advice of counsel could result in the loss of the ability to
successfully assert attorney-client and work product privileges, (iii) if Seller or any of its Affiliates, on the one hand, and Buyer or any of its Affiliates, on the other hand, are adverse parties in a litigation and such information is reasonably pertinent thereto, or (iv) if Seller reasonably determines upon the advice of counsel that such information should not be so disclosed due to its competitively sensitive nature, or (b) any information relating to Taxes or Tax Returns other than information relating to the Group Companies.
Section 6.3 Efforts to Consummate.
(a) Subject to the terms and conditions herein provided, each of Seller, Buyer, Parent Guarantor and each of their respective Affiliates shall use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective as promptly as practicable the transactions contemplated hereby (including the satisfaction, but not waiver, of the closing conditions set forth in ARTICLE VII and obtaining consents of all Governmental Entities necessary to consummate the transactions contemplated hereby). The HSR Act filing fee will be split equally between Buyer and Seller. Each Party shall make an appropriate filing pursuant to the HSR Act (which filing shall specifically request early termination of the waiting period prescribed by the HSR Act) with respect to the transactions contemplated by this Agreement promptly (and in any event, within two (2) Business Days) after the date of this Agreement and shall supply as promptly as practicable to the appropriate Governmental Entities any additional information and documentary material that may be requested pursuant to the HSR Act. Without limiting the foregoing, (i) Buyer, Seller, Parent Guarantor and each of their respective Affiliates shall not take any action that has or may have the effect of extending any waiting period or comparable period under the HSR Act or enter into any agreement with any Governmental Entity not to consummate the transactions contemplated hereby, except with the prior written consent of Seller, and (ii) Buyer and Parent Guarantor agree to take (and Buyers and Parent Guarantors reasonable best efforts shall expressly including the taking of) all actions that are necessary or advisable or as may be required by any Governmental Entity to expeditiously (and in no event later than the Termination Date) consummate the transactions contemplated by this Agreement, including, (A) selling, licensing or otherwise disposing of, or holding separate and agreeing to sell, license or otherwise dispose of (i) any entities, assets or facilities of any Group Company after the Closing or (ii) any entity, facility or asset of Buyer, Parent Guarantor or any of their respective Affiliates before or after the Closing, (B) terminating, amending or assigning existing relationships and contractual rights and obligations (other than terminations that would result in a breach of a contractual obligation to a third party) and (C) amending, assigning or terminating existing licenses or other agreements (other than terminations that would result in a breach of a license or such other agreement with a third party) and entering into such new licenses or other agreements.
(b) In the event any Proceeding by a Governmental Entity or other Person is commenced which questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, Buyer, Seller and Parent Guarantor agree to cooperate and use all reasonable efforts to defend against such Proceeding and, if an injunction or other order is issued in any such action, suit or other proceeding, to use all reasonable efforts to have such injunction or other order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated hereby.
(c) Seller and Buyer shall permit counsel for the other Party reasonable opportunity to review in advance, and consider in good faith the views of the other Party in connection with, any proposed written communication to any Governmental Entity relating to the transactions contemplated by this Agreement. Each of Seller and Buyer agrees not to participate in any substantive meeting or discussion, either in person or by telephone with any Governmental Entity in connection with the transactions contemplated by this Agreement unless it consults with the other Party in advance and, to the extent not prohibited by such Governmental Entity, gives the other Party the opportunity to attend and participate in such meeting or discussion.
(d) During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, except as required by this Agreement, Buyer, Parent Guarantor and each of their respective Affiliates shall not engage in any action or enter into any transaction or permit any action to be taken or transaction to be entered into, that would materially impair or delay Buyers ability to consummate the transactions contemplated by this Agreement or perform its obligations hereunder. Without limiting the generality of the foregoing, none of Buyer, Parent Guarantor, the Subsidiaries of Buyer or Parent Guarantor or any of their respective Affiliates shall acquire (whether by merger, consolidation, stock or asset purchase or otherwise), or agree to so acquire, any amounts of assets of or any equity in any other Person or any business or division thereof, unless that acquisition or agreement would not reasonably be expected to (i) increase the risk of not obtaining any authorizations, consents, orders, declarations or approvals of any Governmental Entity necessary to consummate the transactions contemplated by this Agreement or the expiration or termination of any waiting period under the HSR Act, or (ii) increase the risk of any Governmental Entity entering an order prohibiting the consummation of the transactions contemplated by this Agreement, or increase the risk of not being able to remove any such order on appeal or otherwise.
(e) From the Cut-Off Time through the Closing Date, Seller and the Company shall use commercially reasonable efforts to give all notices to, and obtain all consents from, all third parties to the agreements set forth on Schedule 3.5. Within two (2) Business Days following the date on which the Cut-Off Time occurs, the Company shall deliver written notice (including by e-mail) of the transactions contemplated by this Agreement to the Office of the Inspector General of the Department of Health and Human Services. Notwithstanding the foregoing, neither Seller nor the Company shall be required to incur any liabilities or provide any financial accommodation in order to obtain any such third party consents. For the avoidance of doubt, it shall not be a condition to the closing of the transactions contemplated by this Agreement that any such notices (other than the notice contemplated by the second sentence of this Section 6.3(e) and the expiration or termination of any waiting period under the HSR Act) be sent to, or any such consents be received from, such third parties.
Section 6.4 Public Announcements. Prior to the Closing Date, Buyer, on the one hand, and the Company and Seller, on the other hand, shall consult with one another and seek one anothers approval (not to be unreasonably withheld, conditioned or delayed) before issuing any press release, or otherwise making any public statements, with respect to the transactions contemplated by this Agreement and shall not issue any such press release or make any such public statement prior to such consultation and approval; provided that each Party may
make any such announcement which it in good faith believes, based on advice of counsel, is necessary or advisable in connection with any requirement of law or regulation (or the rules and regulations promulgated by any stock exchange that are applicable to Buyer or its Affiliates), it being understood and agreed that each Party shall provide the other Parties with copies of and a reasonable opportunity to comment on any such announcement in advance of such issuance.
Section 6.5 Indemnification; Directors and Officers Insurance.
(a) Buyer agrees that all rights to indemnification, exculpation and advancement of expenses now existing in favor of the directors, officers, employees, fiduciaries, trustees and agents of each Group Company, as provided in the Group Companies Governing Documents or otherwise in effect as of the date hereof with respect to any matters occurring prior to the Closing Date, shall survive the transactions contemplated by this Agreement and shall continue in full force and effect and that Buyer shall cause the Group Companies (on their own or on Sellers behalf) to perform and discharge the Group Companies obligations to provide indemnification, exculpation and advancement of expenses as set forth in the Group Companies Governing Documents. Buyer shall cause the Group Companies to advance expenses in connection with such indemnification as provided in the applicable Group Companys Governing Documents or other applicable agreements. For a period of [*], the indemnification, liability limitation, exculpation or advancement of expenses provisions of the Group Companies Governing Documents shall not be amended, repealed or otherwise modified after the Closing Date in any manner that would adversely affect the rights thereunder of individuals who, as of the Closing Date or at any time prior to the Closing Date, were directors, officers, employees, fiduciaries, trustees or agents of Seller or any Group Company, unless such modification is required by applicable law.
(b) Without limiting any additional rights that any director, officer, employee, fiduciary, trustee or agent may have under any agreement, arrangement, Employee Benefit Plan or under any Group Companys Governing Documents, from and after the Closing Date, Buyer shall, and shall cause the applicable Group Company, to the fullest extent permitted under applicable Law as in effect from time to time, to indemnify and hold harmless each present and former director, officer, employee, fiduciary, trustee or agent of any Group Company against any and all Losses in connection with any Proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such Person is or was a director, officer, employee, fiduciary, trustee or agent of any Group Company or arising out of actions taken (or failed to be taken) by such Person at the request of any Group Company, including any and all such Losses arising out of or relating to this Agreement or the transactions contemplated hereby, for a period of [*] after the Closing Date. The Buyer or the Group Companies shall promptly advance expenses to any such director, officer, employee, fiduciary, trustee or agent of any Group Company, as incurred, to the fullest extent permitted under applicable Law as in effect from time to time. Neither the Buyer nor any Group Company shall settle, compromise or consent to the entry of any judgment in any actual or threatened Proceeding or investigation in respect of which indemnification has been or could be sought by a Person hereunder unless such settlement, compromise or judgment includes an unconditional release of such Person from all liability arising out of such Proceeding or investigation. Neither Buyer nor any Group Company shall have any obligation hereunder to any Person when and if a court of competent jurisdiction shall ultimately determine (and such
determination shall have become final and non-appealable) that the indemnification of such Person in the manner contemplated hereby is prohibited by applicable Law.
(c) The Group Companies may purchase, prior to the Closing, at Buyers cost and expense if there is a Closing, a tail policy providing employees, fiduciaries, trustees, directors and officers liability insurance coverage for a period of [*] after the Closing Date for the benefit of those Persons who are covered by any Group Companys employees, fiduciaries, trustees, directors and officers liability insurance policies as of the date hereof or at the Closing, with respect to matters occurring prior to the Closing; provided, that if the Group Companies do not purchase any such policy on or prior to the Closing Date, the Buyer shall cause the Group Companies to purchase and maintain in effect, beginning on the Closing and for a period of [*] thereafter, without any lapses in coverage, a policy providing employees, fiduciaries, trustees, directors and officers liability insurance coverage for the benefit of those Persons who are covered by any Group Companys employees, fiduciaries, trustees, directors and officers liability insurance policies as of the date hereof or at the Closing. Such a policy shall provide coverage that is at least equal to the coverage provided under Sellers or the Group Companies current employees, fiduciaries, trustees, directors and officers liability insurance policies; provided that the Group Companies may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous to the beneficiaries thereof so long as such substitution does not result in gaps or lapses in coverage with respect to matters occurring prior to the Closing Date.
(d) Buyer agrees, and will cause the Group Companies, not to take any action that would have the effect of limiting the aggregate amount of insurance coverage required to be maintained for the individuals referred to in this Section 6.5. If Buyer, any Group Company or any of their respective successors or assigns (i) shall merge or consolidate with or merge into any other corporation or entity and shall not be the surviving or continuing corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of their respective properties and assets as an entity in one or a series of related transactions to any individual, corporation or other entity, then in each such case, proper provisions shall be made so that the successors or assigns of Buyer or such Group Company shall assume all of the obligations set forth in this Section 6.5; provided that neither Buyer nor such Group Company shall be relieved from such obligation. In addition, neither Buyer nor any Group Company shall distribute, sell, transfer or otherwise dispose of any of its assets in a manner that would reasonably be expected to render Buyer or such Group Company unable to satisfy its obligations under this Section 6.5.
(e) The directors, officers, employees, fiduciaries, trustees and agents of Seller and each Group Company entitled to the indemnification, liability limitation, exculpation and insurance set forth in this Section 6.5 are intended to be third party beneficiaries of this Section 6.5. This Section 6.5 shall survive the consummation of the transactions contemplated by this Agreement and shall be binding on all successors and assigns of Buyer.
Section 6.6 Exclusive Dealing. Neither the Company nor Seller shall take, nor shall they permit any of their respective Affiliates, officers, directors, employees, representatives, consultants, financial advisors, attorneys, accountants or other agents to: (a) during the period from the Cut-Off Time until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms: (i) solicit, initiate discussions or engage in negotiations with any
Person (whether such negotiations are initiated by the Company, an Affiliate, a third party or otherwise), other than Buyer or its Affiliates, relating to the possible acquisition of any material portion of the equity or assets of Seller or the Company (whether by way of merger, purchase of equity, purchase of assets, loan or otherwise) or a refinancing or recapitalization of the Company (an Acquisition Transaction); or (ii) provide non-public information or documentation with respect to the Company to any Person, other than Buyer or its Affiliates or its or their representatives, relating to an Acquisition Transaction; provided, however, that Buyer hereby acknowledges that prior to the date of this Agreement, the Company has provided information relating to the Group Companies and has afforded access to, and engaged in discussions with, other Persons in connection with a proposed Acquisition Transaction and (b) during the period from the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, enter into any definitive agreement with any Person, other than Buyer or its Affiliates effecting an Acquisition Transaction.
Section 6.7 Documents and Information. After the Closing Date, Buyer and the Company shall, and shall cause the Companys Subsidiaries to, until the seventh anniversary of the Closing Date, retain all books, records and other documents pertaining to the business of the Group Companies in existence on the Closing Date and to make the same available for inspection and copying by Seller (at Sellers expense) during normal business hours of the Company or any of its Subsidiaries, as applicable, upon reasonable request and upon reasonable notice. All of such information shall be treated as confidential information pursuant to the terms of the Confidentiality Agreement, the provisions of which are by this reference hereby incorporated herein. No such books, records or documents shall be destroyed after the seventh anniversary of the Closing Date by Buyer, the Company or any of its Subsidiaries, without first advising Seller in writing and giving Seller a reasonable opportunity to obtain possession thereof.
Section 6.8 Contact with Customers, Suppliers and Other Business Relations. During the period from the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, Buyer hereby agrees that it is not authorized to and shall not (and shall not permit any of its employees, agents, representatives or Affiliates to) contact any employee, client or other material business relation of any Group Company regarding any Group Company, its business or the transactions contemplated by this Agreement without the prior consent of the Company (which consent shall not be unreasonably withheld).
Section 6.9 Employee Benefit Matters. During the period beginning on the Closing Date and ending on the [*] of the Closing Date, Buyer shall provide employees of the Group Companies who are employed by any Group Company from and after the Closing with compensation that is, in the aggregate, no less favorable in any material respect than the compensation provided to such employees immediately prior to the Closing Date (including with respect to opportunities for cash-based bonus compensation and post-termination severance pay) and with employee benefits that are at least substantially similar in the aggregate to the Employee Benefit Plans and other benefit plans, programs or arrangements maintained by Seller and the Group Companies as of the date of this Agreement (other than with respect to equity compensation). Buyer further agrees that, from and after the Closing Date, Buyer shall and shall cause each Group Company to grant all of its employees credit for any service with any Group Company earned prior to the Closing Date (i) for eligibility and vesting purposes and (ii) for
purposes of vacation accrual and severance benefit determinations under any benefit or compensation plan, program, agreement or arrangement that may be established or maintained by Buyer or a Group Company or any of its or their Subsidiaries on or after the Closing Date (the New Plans). In addition, Buyer hereby agrees that Buyer shall (A) cause to be waived all pre-existing condition exclusion and actively-at-work requirements and similar limitations, eligibility waiting periods and evidence of insurability requirements under any New Plans to the extent waived or satisfied by an employee under any Employee Benefit Plan as of the Closing Date and (B) cause any deductible, co-insurance and out-of-pocket covered expenses paid on or before the Closing Date by any employee (or covered dependent thereof) of any Group Company to be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Closing Date under any applicable New Plan in the year of initial participation. Nothing contained herein, express or implied, is intended to confer upon any employee of any Group Company any right to continued employment for any period or continued receipt of any specific employee benefit, or shall constitute an amendment to or any other modification of any New Plan or Employee Benefit Plan. Nothing in this Section 6.9 is intended to create any third-party beneficiary rights in any current or former employee or director of any Group Company with respect to any Employee Benefit Plan, New Plan or any plans or agreements which provide for executive compensation. Buyer agrees that Buyer and the Group Companies shall be solely responsible for satisfying the continuation coverage requirements of Section 4980B of the Code for all individuals who are M&A qualified beneficiaries as such term is defined in Treasury Regulation Section 54.4980B-9. Nothing in this Section 6.9 shall be deemed to limit the right of Buyer, the Company or any of their respective Affiliates to terminate the employment of any employee at any time.
Section 6.10 Transfer Taxes Paid By Buyer. All transfer Taxes, recording fees and other similar Taxes that are imposed on any of the parties hereto by any Governmental Entity in connection with the transactions contemplated by this Agreement shall be borne by Buyer.
Section 6.11 Disclosure Schedule Updates. Concurrently with the execution and delivery of this Agreement, the Company and Seller have delivered to Buyer the disclosure schedules to this Agreement (the Schedules). From and after the date of this Agreement until the Closing Date, the Company and/or Seller shall promptly prepare and deliver to Buyer supplements and/or amendments to the Schedules (which may contain additional Schedules that are not in existence as of the date hereof relating to any of the provisions contained in ARTICLE III and/or ARTICLE IV (other than the representations and warranties set forth in Section 3.1(a) (Organization and Qualification; Subsidiaries), Section 3.2 (Capitalization of the Group Companies), Section 3.3 (Authority), Section 3.16 (Brokers), Section 4.1 (Authority), Section 4.3 (Title to the Shares; Ownership of Seller) and Section 4.5 (Brokers)), in each case, such supplement, amendment or new Schedule being referred to as an Update) with respect to matters first arising after the date hereof, which, if existing at the date of this Agreement would have been required to be set forth or described in the Schedules, in each case, to the extent such matters, individually or in the aggregate, would give rise to a failure of the condition set forth in Section 7.2(a). Each such Update shall be deemed to be an amendment to this Agreement for all purposes hereof other than for purposes of the conditions set forth in Section 7.2(a); provided that, in the event that the disclosure of the facts, circumstances and events included in such Update would give Buyer the right to elect to terminate this Agreement pursuant to Section 8.1(b)
if the 30-day cure period described therein had lapsed and Buyer does not make such election within five Business Days of its receipt of such Update, such Update shall be deemed to be an amendment to this Agreement for all purposes hereof, including with respect to the conditions set forth in Section 7.2(a).
Section 6.12 Debt Payoff Letters. The Company shall, and shall cause each other Group Company to, use commercially reasonable efforts to (a) obtain from each holder of Closing Date Indebtedness that is Funded Indebtedness a payoff letter in a customary form and which provides for the release of all Liens securing such Funded Indebtedness upon the payoff thereof, all in customary form (collectively, the Debt Payoff Letters) and (b) provide Buyer with a copy of such Debt Payoff Letters at least two Business Days prior to the Closing Date.
Section 6.13 Change of Name. No later than five (5) Business Days following the Closing Date, Seller shall cause its name to be changed to a name that does not include the words Sound Inpatient Physicians, SIP or any derivation thereof, and Seller agrees to take any and all actions and make such filings with the Secretary of State of the State of Delaware and any other Governmental Entities as may be necessary to comply with its obligations under this Section 6.13.
Section 6.14 Rollover. On the day prior to the Closing Date, Seller shall distribute to each Rollover Equityholder a number of Shares in an amount equal to such Rollover Equityholders Rollover Shares in accordance with the amounts set forth in the Rollover Certificate (the Distribution). The Distribution made by Seller to each Rollover Equityholder shall be deemed a distribution of assets to such Rollover Equityholder pursuant to Section 7.2 of the Seller Operating Agreement, and shall appropriately reduce the cash distributions otherwise payable to such Rollover Equityholder in respect of the Estimated Purchase Price under Section 7.2 of the Seller Operating Agreement, when and as paid by Seller. For purposes of determining the value of the Distribution made by Seller to each Rollover Equityholder, each Rollover Share shall be deemed to have a Fair Market Value (as such term is defined in the Seller Operating Agreement) as of the time of such Distribution equal to the Per Share Price.
Section 6.15 280G Shareholder Vote. The Company shall use reasonable best efforts to submit to Seller promptly after the date hereof, for approval (in a manner and with a disclosure document reasonably satisfactory to Buyer) by a vote of Seller as is required pursuant to Section 280G(b)(5)(B) of the Code and the Treasury Regulations thereunder (the 280G Shareholder Vote), any such payments or other benefits that may, separately or in the aggregate, constitute excess parachute payments (within the meaning of Section 280G of the Code and the Treasury Regulations thereunder), such that, if the 280G Shareholder Vote is received approving such payments and benefits, such payments and benefits shall not be deemed to be excess parachute payments under Section 280G of the Code and the Treasury Regulations thereunder. Prior to such 280G Shareholder Vote, the Company shall use reasonable best efforts to obtain, from each person whom the Company reasonably believes to be with respect to the Company a Disqualified Individual and who might otherwise have, receive or have the right or entitlement to receive a parachute payment under Section 280G of the Code, a written waiver (in form and substance reasonably satisfactory to Buyer) pursuant to which such person agrees to waive any and all right or entitlement to such parachute payment, to the extent such payment would not be deductible pursuant to Section 280G of the Code. Such waivers shall cease to have
any force or effect with respect to any item covered thereby to the extent the 280G Shareholder Vote for such item is obtained.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
Section 7.1 Conditions to the Obligations of the Company, Buyer and Seller. The obligations of the Company, Buyer and Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or, if permitted by applicable law, waiver by the Party for whose benefit such condition exists) of the following conditions:
(a) any applicable waiting period under the HSR Act relating to the transactions contemplated by this Agreement shall have expired or been terminated; and
(b) no order, decree or ruling (including by temporary restraining order or preliminary or permanent injunction) issued by any court of competent jurisdiction or other Governmental Entity or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect.
Section 7.2 Other Conditions to the Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver by Buyer of the following further conditions:
(a) (i) the representations and warranties set forth in Section 3.1(a) (Organization and Qualification; Subsidiaries), Section 3.2 (Capitalization of the Group Companies), Section 3.3 (Authority), Section 3.16 (Brokers), Section 4.1 (Authority), Section 4.3 (Title to the Shares; Ownership of Seller) and Section 4.5 (Brokers) shall be true and correct as of the date of this Agreement and as of the Closing in all respects as if made at and as of such time (in each case, other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need to be true and correct only as of such date or with respect to such period); and (ii) all other representations and warranties of the Company set forth in ARTICLE III hereof and Seller set forth in ARTICLE IV hereof (A) shall be true and correct in all material respects (provided that any of such representations and warranties that are qualified as to materiality or Company Material Adverse Effect shall be true and correct in all respects) as of the date of this Agreement (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need to be true and correct only as of such date or with respect to such period) except, in the case of this clause (A), where such failure of such representations and warranties to be so true and correct (y) was not within the Companys Knowledge as of the date of this Agreement, and (z) has not had and could not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect; and (B) shall be true and correct as of the Closing in all respects (without giving effect to any qualifications as to materiality and Company Material Adverse Effect set forth in such representations and warranties) as if made at and as of such time (in each case, other than those
representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need to be true and correct only as of such date or with respect to such period), except, in the case of this clause (B), where the failure of such representations and warranties to be so true and correct has not had and could not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect;
(b) Seller and the Company shall have performed and complied in all material respects with all covenants required to be performed or complied with by Seller and the Company under this Agreement on or prior to the Closing Date;
(c) prior to or at the Closing, the Company shall have delivered the following closing documents:
(i) a certificate of an authorized officer of the Company, dated as of the Closing Date, to the effect that the conditions specified in Section 7.2(a) and Section 7.2(b) have been satisfied;
(ii) written resignations of (A) each of the directors of the Company and (B) those officers of the Company designated in writing by Buyer at least ten (10) Business Days prior to the Closing Date;
(iii) a duly executed non-foreign affidavit from Seller dated as of the Closing Date and in form and substance required under Section 1445 of the Code stating that Seller is not a foreign person as defined in Section 1445 of the Code; and
(iv) a duly executed TowerBrook Restrictive Agreement substantially in the form of Exhibit C attached hereto; and
(d) the Escrow Agreement shall have been executed by Seller and the Escrow Agent.
Section 7.3 Other Conditions to the Obligations of the Company and Seller. The obligations of the Company and Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver by the Company and Seller of the following further conditions:
(a) the representations and warranties of Buyer set forth in ARTICLE V hereof shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties are made on and as of a specified date, in which case the same shall continue on the Closing Date to be true and correct as of the specified date;
(b) Buyer shall have performed and complied in all material respects with all covenants required to be performed or complied with by it under this Agreement on or prior to the Closing Date;
(c) prior to or at the Closing, Buyer shall have delivered a certificate of an authorized officer of Buyer, dated as of the Closing Date, to the effect that the conditions specified in Section 7.3(a) and Section 7.3(b) have been satisfied; and
(d) the Escrow Agreement shall have been executed by Buyer and the Escrow Agent.
Section 7.4 Frustration of Closing Conditions. No Party may rely on the failure of any condition set forth in this ARTICLE VII to be satisfied if such failure was caused by such Partys failure to use commercially reasonable efforts to cause the Closing to occur, as required by Section 6.3.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the Closing:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer, if any of the representations and warranties of the Company set forth in ARTICLE III or Seller set forth in ARTICLE IV shall not be true and correct such that the condition to Closing set forth in Section 7.2(a) would not be satisfied and the breach or breaches causing such representations or warranties not to be so true and correct is not cured within 30 days after written notice thereof is delivered to Seller by Buyer;
(c) by Seller, if any of the representations and warranties of Buyer set forth in ARTICLE V shall not be true and correct such that the condition to Closing set forth in Section 7.3(a) would not be satisfied and the breach or breaches causing such representations or warranties not to be so true and correct is not cured within 30 days after written notice thereof is delivered to Buyer by Seller;
(d) by Buyer, if the transactions contemplated by this Agreement shall not have been consummated by September 12, 2014 (the Termination Date), unless the failure to consummate the transactions contemplated by this Agreement is solely the result of a breach by Buyer of its representations, warranties, obligations or covenants under this Agreement;
(e) by Seller, if the transactions contemplated by this Agreement shall not have been consummated by the Termination Date, unless the failure to consummate the transactions contemplated by this Agreement is solely the result of a breach by either Seller or the Company of their respective representations, warranties, obligations or covenants under this Agreement;
(f) by either Buyer or Seller, if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree or ruling or other action shall have become final and nonappealable; provided that the Party seeking to
terminate this Agreement pursuant to this Section 8.1(f) shall have used commercially reasonable efforts to remove such order, decree, ruling, judgment or injunction and shall have complied in all respects and taken all actions required by Section 6.3 hereof; or
(g) automatically (and without any further action on the part of any Party) at 5:00 pm (New York time) on June 20, 2014 (the Cut-Off Time), if Buyer has not provided Seller with written notice that the supervisory board of Fresenius Medical Care AG & Co. KGaA, the ultimate parent entity of Parent Guarantor, has approved this Agreement, the transactions contemplated hereby and the performance by Parent Guarantor and Buyer of their obligations hereunder by the Cut-Off Time.
Section 8.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, this entire Agreement shall forthwith become void (and there shall be no liability or obligation on the part of Buyer, Seller or the Company or their respective officers, directors or equityholders) with the exception of (a) the provisions of this Section 8.2, Section 6.4 and ARTICLE X, and (b) any liability of any Party for any willful breach of this Agreement (which, for the avoidance of doubt, shall be deemed to include any failure by Buyer to consummate the transactions contemplated by this Agreement if it is obligated to do so hereunder) prior to such termination. For the avoidance of doubt, there shall be no liability or obligation on the part of Buyer, Seller or the Company or their respective officers, directors or equityholders as a result of the failure of the transactions contemplated hereby to close as a result of the termination of this Agreement pursuant to Section 8.1(g).
ARTICLE IX
INTENTIONALLY RESERVED
ARTICLE X
MISCELLANEOUS
Section 10.1 Entire Agreement; Assignment; Amendment. This Agreement, together with all Exhibits and Schedules hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof, and together with the Confidentiality Agreement, the other Transaction Documents and the Rollover Agreements, (a) constitute the entire agreement among the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof and (b) shall not be assigned by any Party other than by Buyer to an Affiliate and/or to its lenders for collateral security purposes (whether by operation of law or otherwise) without the prior written consent of Buyer and Seller. Any attempted assignment of this Agreement not in accordance with the terms of this Section 10.1 shall be void. This Agreement may be amended or modified only by a written agreement executed and delivered by duly authorized officers of Buyer and Seller (on behalf of itself and the Company). This Agreement may not be modified or amended except as provided in the immediately preceding sentence and any amendment by any Party or Parties effected in a manner which does not comply with this Section 10.1 shall be void.
Section 10.2 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile or E-mail (having obtained electronic delivery confirmation thereof), or by registered or certified mail (postage prepaid, return receipt requested) to the other Parties as follows:
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To Buyer or Parent Guarantor: | ||
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Fresenius Medical Care North America | |
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920 Winter Street | |
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Waltham, MA 02451 | |
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Attention: |
Law Department |
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Facsimile: |
(781) 699-9698 |
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with a copy (which shall not constitute notice to Buyer) to: | |
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Dentons US LLP | |
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233 South Wacker Drive | |
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Suite 7800 | |
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Chicago, IL 60606 | |
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Attention: |
Michael M. Froy |
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Facsimile: |
(312) 876-7934 |
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E-mail: |
michael.froy@dentons.com |
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To Seller: | ||
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Sound Inpatient Holdings, LLC | |
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c/o TowerBrook Capital Partners L.P. | |
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Park Avenue Tower | |
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65 East 55th Street, 27th Floor | |
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New York, NY 10022 | |
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Attention: |
Evan Goldman |
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Glenn F. Miller, Esq. |
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Facsimile: |
(917) 591-4789 |
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E-mail: |
Evan.Goldman@towerbrook.com |
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Glenn.Miller@towerbrook.com |
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with a copy (which shall not constitute notice to Seller) to: | |
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Kirkland & Ellis LLP | |
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601 Lexington Avenue | |
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New York, NY 10022 | |
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Attention: |
Brian Raftery |
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Leo Greenberg |
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Dvir Oren |
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Facsimile: |
(212) 446-6460 |
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E-mail: |
brian.raftery@kirkland.com |
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leo.greenberg@kirkland.com |
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dvir.oren@kirkland.com |
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To the Company (prior to the Closing): | ||
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Sound Inpatient Physicians, Inc. | |
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1123 Pacific Avenue | |
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Tacoma, WA 98402 | |
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Attention: |
Robert A Bessler, MD |
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Steven M McCarty, Esq. |
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Facsimile: |
(253) 682-6128 |
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E-mail: |
rbessler@soundphysicians.com |
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smccarty@soundphysicians.com |
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with a copy (which shall not constitute notice to the Company) to: | |
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Kirkland & Ellis LLP | |
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601 Lexington Avenue | |
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New York, NY 10022 | |
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Attention: |
Brian Raftery |
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Leo Greenberg |
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Dvir Oren |
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Facsimile: |
(212) 446-6460 |
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E-mail: |
brian.raftery@kirkland.com |
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leo.greenberg@kirkland.com |
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dvir.oren@kirkland.com |
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To the Company (after the Closing): | ||
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Fresenius Medical Care North America | |
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920 Winter Street | |
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Waltham, MA 02451 | |
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Attention: |
Law Department |
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Facsimile: |
(781) 699-9698 |
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with a copy (which shall not constitute notice to the Company) to: | |
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Dentons US LLP | |
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233 South Wacker Drive | |
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Suite 7800 | |
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Chicago, IL 60606 | |
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Attention: |
Michael M. Froy |
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Facsimile: |
(312) 876-7934 |
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E-mail: |
michael.froy@dentons.com |
or to such other address as the Party to whom notice is given may have previously furnished to the others in writing in the manner set forth above.
Section 10.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware.
Section 10.4 Fees and Expenses. Except as otherwise set forth in this Agreement (including, for the avoidance of doubt, the fees and expenses to be borne by Buyer in accordance with Section 6.3 and Section 6.5), all fees and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement, including the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the Party incurring such fees or expenses; provided, that in the event that the transactions contemplated by this Agreement are consummated, Buyer shall, or shall cause the Company to, pay all Unpaid Seller Expenses in accordance with Section 2.4(a)(ii).
Section 10.5 Construction. The headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. No Party, nor its respective counsel, shall be deemed the drafter of this Agreement for purposes of construing the provisions hereof, and all provisions of this Agreement shall be construed according to their fair meaning and not strictly for or against any Party and no presumption or burden of proof will arise favoring or disfavoring any Person by virtue of its authorship of any provision of this Agreement.
Section 10.6 Exhibits and Schedules. All Exhibits and Schedules, or documents expressly incorporated into this Agreement, are hereby incorporated into this Agreement and are hereby made a part hereof as if set out in full in this Agreement. Any item disclosed in any Schedule referenced by a particular Section in this Agreement shall be deemed to have been disclosed with respect to every other Section in this Agreement if the relevance of such disclosure to such other sections is reasonably apparent. The specification of any dollar amount in the representations or warranties contained in this Agreement or the inclusion of any specific item in any Schedule is not intended to imply that such amounts, or higher or lower amounts or the items so included or other items, are or are not material, and no Party shall use the fact of the setting of such amounts or the inclusion of any such item in any dispute or controversy as to whether any obligation, items or matter not described herein or included in a Schedule is or is not material for purposes of this Agreement. Any capitalized term used in any
Exhibit or Schedule but not otherwise defined therein shall have the meaning given to such term in this Agreement.
Section 10.7 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party and its successors and permitted assigns and, except as provided in Section 6.5, nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.8 Extension; Waiver. At any time prior to the Closing, Seller may, on behalf of itself and the Company, (a) extend the time for the performance of any of the obligations or other acts of Buyer contained herein, (b) waive any inaccuracies in the representations and warranties of Buyer contained herein or in any document, certificate or writing delivered by Buyer pursuant hereto, or (c) waive compliance by Buyer with any of the agreements or conditions contained herein. At any time prior to the Closing, Buyer may (i) extend the time for the performance of any of the obligations or other acts of the Company or Seller contained herein, (ii) waive any inaccuracies in the representations and warranties of the Company and the Seller contained herein or in any document, certificate or writing delivered by the Company or Seller pursuant hereto, or (iii) waive compliance by the Company and Seller with any of the agreements or conditions contained herein. Any agreement on the part of any Party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such Party. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of such rights.
Section 10.9 Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any term or other provision of this Agreement is held to be invalid, illegal or unenforceable under applicable law, all other provisions of this Agreement shall remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party hereto. Upon such determination that any term or other provision of this Agreement is invalid, illegal or unenforceable under applicable law, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 10.10 Counterparts; Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or scanned pages shall be effective as delivery of a manually executed counterpart to this Agreement.
Section 10.11 Limitation on Damages; Survival. Notwithstanding anything to the contrary set forth herein, no Party shall be liable for any consequential damages, including loss of revenue, income or profits, loss in value of assets or securities, punitive, special or indirect damages relating to any breach of this Agreement. None of the representations and warranties contained in this Agreement or in any certificate delivered pursuant to this Agreement
shall survive the Closing. This Section 10.11 shall not limit any covenant or agreement of the Parties set forth in this Agreement, which by its express terms requires performance after the Closing. This ARTICLE X and the agreements of the Parties contained in Section 8.2 (Effect of Termination) and the Confidentiality Agreement shall survive the termination of this Agreement.
Section 10.12 WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. EACH PARTY HEREBY FURTHER AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 10.13 Jurisdiction and Venue. Each of the Parties (i) submits to the exclusive jurisdiction of the Chancery Court of the State of Delaware (or, if the Chancery Court of the State of Delaware declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware) in any action or proceeding arising out of or relating to this Agreement, (ii) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court and (iii) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other Party with respect thereto. Each Party agrees that service of summons and complaint or any other process that might be served in any action or proceeding may be made on such Party by sending or delivering a copy of the process to the Party to be served at the address of the Party and in the manner provided for the giving of notices in Section 10.2. Nothing in this Section 10.13, however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final, non-appealable judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law.
Section 10.14 Remedies. The Parties acknowledge and agree that irreparable harm for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that it does not fully and timely perform its obligations under or in connection with this Agreement (including failing to take such actions as are required of it hereunder to consummate this Agreement and the Closing) in accordance with its terms. The Parties acknowledge and agree that (i) the other Parties shall be entitled to an injunction, specific performance, or other equitable relief, to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, without proof of damages and without posting a bond, prior to the valid termination of this Agreement in accordance with Section 8.1, this being in addition to any other remedy to which such other parties are entitled under this Agreement, (ii) the provisions set forth in Section 8.2 (A) are not intended to and do not adequately compensate
for the harm that would result from a breach of this Agreement prior to its valid termination and (B) shall not be construed to diminish or otherwise impair in any respect any partys right to an injunction, specific performance, or other equitable relief and (iii) the right to obtain an injunction, specific performance, or other equitable relief is an integral part of the transactions contemplated by this Agreement and without that right, none of the parties would have entered into this Agreement. Each Party agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that the other Parties have an adequate remedy at Law.
Section 10.15 Waiver of Conflicts. Recognizing that Kirkland & Ellis LLP has acted as legal counsel to Seller and its Affiliates and the Group Companies prior to the Closing, and that Kirkland & Ellis LLP intends to act as legal counsel to Seller and its Affiliates (which will no longer include the Group Companies) after the Closing, each of Buyer, Parent Guarantor and the Company hereby waives, on its own behalf and agrees to cause its Affiliates to waive, any conflicts that may arise in connection with Kirkland & Ellis LLP representing Seller and/or its Affiliates after the Closing as such representation may relate to Buyer, any Group Company or the transactions contemplated herein. In addition, all communications involving attorney-client confidences between the Seller, its Affiliates or any Group Company and Kirkland & Ellis LLP in the course of the negotiation, documentation and consummation of the transactions contemplated hereby shall be deemed to be attorney-client confidences that belong solely to Seller and its Affiliates (and not the Group Companies). Accordingly, the Group Companies shall not, without Sellers consent, have access to any such communications, or to the files of Kirkland & Ellis LLP relating to its engagement, whether or not the Closing shall have occurred. Without limiting the generality of the foregoing, upon and after the Closing, (a) Seller and its Affiliates (and not the Group Companies) shall be the sole holders of the attorney-client privilege with respect to such engagement, and none of the Group Companies shall be a holder thereof, (b) to the extent that files of Kirkland & Ellis LLP in respect of such engagement constitute property of the client, only Seller and its Affiliates (and not the Group Companies) shall hold such property rights and (c) Kirkland & Ellis LLP shall have no duty whatsoever to reveal or disclose any such attorney-client communications or files to any of the Group Companies by reason of any attorney-client relationship between Kirkland & Ellis LLP and any of the Group Companies or otherwise.
Section 10.16 Parent Guarantee.
(a) Parent Guarantor absolutely, unconditionally and irrevocably guarantees the full and prompt payment and performance of all covenants, obligations, liabilities and agreements of Buyer set forth in this Agreement. The foregoing obligation of Parent Guarantor constitutes a continuing guarantee of payment and performance, and is and shall be absolute and unconditional under any and all circumstances, including circumstances which might otherwise constitute a legal or equitable discharge of a guarantor. The guarantee set forth in this Section 10.16 is a primary guarantee of performance and not just of collection. Neither Seller nor the Company shall be required to attempt to collect any obligation guaranteed hereunder from Buyer prior to enforcing its rights against Parent Guarantor. Parent Guarantor hereby waives (to the fullest extent permitted by applicable law) notice of acceptance of this guaranty and notice of any liability to which it may apply, and waives promptness, diligence, presentment, demand or payment, protest, notice of dishonor or nonpayment, suit or taking of other action by
Seller or the Company against, any other notice to, any party liable thereon. The Parties entered into this Agreement in reliance upon this Section 10.16. Parent Guarantor acknowledges that it will receive substantial direct and indirect benefits from the transactions contemplated hereby and that the waivers and agreements by Parent Guarantor set forth in this Section 10.16 are knowingly made in contemplation of such benefits.
(b) Parent Guarantor represents and warrants to Buyer and the Company that:
(i) the execution, delivery and performance of this Agreement by Parent Guarantor have been duly authorized by all necessary action and do not contravene any provision of Parent Guarantors charter or similar organizational documents;
(ii) all consents, approvals, authorizations, permits of, filings with and notifications to, any Governmental Entity necessary for the due execution, delivery and performance of this Agreement by Parent Guarantor have been obtained or made and all conditions thereof have been duly complied with and no other action by, and no notice to or filing with, any Governmental Entity is required in connection with the execution, delivery or performance of this Agreement;
(iii) this Agreement constitutes a legal, valid and binding obligation of Parent Guarantor enforceable against Parent Guarantor in accordance with its terms, except (i) to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors rights generally and (ii) that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding thereof may be brought; and
(iv) Parent Guarantor has, and will cause Buyer to have at the Closing, sufficient funds to consummate the transactions contemplated by this Agreement, including to pay all amounts required to be paid hereunder and the fees and expenses of Buyer related to the transactions contemplated hereby.
(c) Parent Guarantor consents to the renewal, compromise, extension, acceleration or other changes in the time of payment of, or other changes in the obligations subject to, the guarantee set forth in Section 10.16 or any part thereof, in each case, to the extent Buyer has agreed to such change in writing in accordance with this Agreement.
(d) Notwithstanding any other provision to the contrary contained herein, Parent Guarantor agrees to be bound by the terms and conditions of this ARTICLE X as if Parent Guarantor was a Party.
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IN WITNESS WHEREOF, each of the Parties has caused this Stock Purchase and Contribution Agreement to be duly executed on its behalf as of the day and year first above written.
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SOUND INPATIENT HOLDINGS, LLC | |
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By: |
/s/ Robert A. Bessler, M.D. |
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Name: |
Robert A. Bessler, M.D. |
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Title: |
Chief Executive Officer |
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SOUND INPATIENT PHYSICIANS, INC. | |
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By: |
/s/ Robert A. Bessler, M.D. |
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Name: |
Robert A. Bessler, M.D. |
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Title: |
Chief Executive Officer |
SIGNATURE PAGE TO STOCK PURCHASE AND CONTRIBUTION AGREEMENT
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SOUND INPATIENT PHYSICIANS HOLDINGS, LLC | |
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By: |
/s/ Mark Caputo |
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Name: |
Mark Caputo |
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Title: |
Executive Vice President, and |
SIGNATURE PAGE TO STOCK PURCHASE AND CONTRIBUTION AGREEMENT
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FRESENIUS MEDICAL CARE AG & CO. KGAA | |
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By: |
/s/ Mark Caputo |
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Name: |
Mark Caputo |
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Title: |
Executive Vice President, and Managing Partner, Joint Ventures |
SIGNATURE PAGE TO STOCK PURCHASE AND CONTRIBUTION AGREEMENT