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 October 2020
Commission file number: 001-32749
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
Interim Report of Financial Condition and Results of Operations for the three and nine months ended September 30, 2020 and 2019
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FINANCIAL INFORMATION
Management's discussion and analysis
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. You should read the following discussion and analysis of the results of operations of 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 consolidated financial statements for the year ended December 31, 2019 prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), using the euro as our reporting currency.
The term "North America Segment" refers to our North America operating segment, the term "EMEA Segment" refers to the Europe, Middle East and Africa operating segment, the term "Asia-Pacific Segment" refers to our Asia-Pacific operating segment, and the term "Latin America Segment" refers to our Latin America operating segment. The term "Corporate" includes certain headquarters' overhead charges, including accounting and finance, centrally managed production, asset management, quality and supply chain management, procurement as well as research and development and our Global Medical Office function (as of January 1, 2020), which seeks to standardize medical treatments and clinical processes within the Company. The abbreviation "M" is used to denote the presentation of amounts in millions. The term "Constant Currency" or at "Constant Exchange Rates" means that we have translated local currency revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items for the current reporting period into euro using the prior year exchange rates to provide a comparable analysis without effect from exchange rate fluctuations on translation, as described below under "Financial condition and results of operations—II. Discussion of measures—Non-IFRS measures."
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 (the "Exchange Act"). 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, positively or negatively, relative to 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 projected 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, including associated costs, could cause actual results to differ from our projected results and include, among others, the following:
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Important factors that could contribute to such differences are noted in the "Supplemental Risk Factors" set forth below, "Financial condition and results of operations—I. Overview" below, in note 8 of the notes to consolidated financial statements (unaudited) included in this report, in note 22 of the notes to consolidated financial statements included in our Annual Report on Form 20-F for the year ended December 31, 2019 (our "2019 Form 20-F"), as well as under "Risk Factors," "Business overview," "Operating and financial review and prospects," 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 which can be accessed at the United States Securities and Exchange Commission's internet website at www.sec.gov. 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, as well as 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, financial position and net assets" below.
Rounding adjustments applied to individual numbers and percentages shown in this and other reports may result in these figures differing immaterially from their absolute values.
As a result of the current global economic climate, specifically as it relates to COVID-19, as well as attacks on our IT environment, we are subject to additional risks, and we have updated previously disclosed risks, related to the on-going worldwide crisis and cybersecurity described below. We are, and will continue to be, subject to the risks described in our 2019 Form 20-F, specifically under "Risk Factors," and the supplemental risk factors described below should be read in conjunction with those risk factors.
We are subject to risks associated with public health crises and epidemics/pandemics, such as the global spread of the COVID-19 pandemic.
Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the rapid global spread of the COVID-19 pandemic. COVID-19 has resulted in a material deterioration of the conditions for the global economy and financial markets have been materially affected which may, as a result, adversely affect our business, results of operations and financial condition. While the financial impact of COVID-19 on us has not been material to date (see note 2d) of the notes to the consolidated financial statements (unaudited) included in this report), it is currently impossible to estimate or quantify the extent of its prospective negative effects on our business, results of operations and financial condition. Going forward, the COVID-19 pandemic may have an adverse impact on our operations, manufacturing, supply chains and distribution channels and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, our suppliers, customers and other businesses or governments impose on a local, regional, national or international level. Due to these impacts and measures, we are incurring incremental expenses to provide care to our patients and we are experiencing both reductions and increases in demand for certain of our products as health care customers re-prioritize the treatment of patients. We expect to continue to experience significant and unpredictable expenses, reductions and increases in demand for our services and products in the immediately foreseeable future. In addition to existing travel restrictions, countries may continue to close borders, restrict certain product flows, impose prolonged quarantines and further restrict travel, which may significantly impact the ability of our employees to produce products or provide services, or may significantly hamper our products from moving through the supply chain.
In addition to the effects on our health care products business, given the already compromised health condition of our typical dialysis patients, our patients represent a heightened at-risk population, particularly during a public health crisis, such as the COVID-19 outbreak. Our in-center and home patients must receive their life-saving dialysis treatment several days a week for three to four hours at a time, which presents a unique challenge for patients and their care teams. We must ensure that there are enough clinical staff, including nurses, social workers, dietitians, care technicians and available space to treat all of our patients, including those who are or may be infected with COVID-19, in a manner that does
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not unnecessarily expose our care teams or other patients for whom we provide dialysis services. We have incurred, and expect to continue to incur, extra costs in establishing isolated treatment areas for COVID-positive and suspected patients and implementing other precautions as well as incur costs to identify, contain and remedy the impact in the event that a staff member or patient is determined to have developed COVID-19. It appears that COVID-19 has resulted in a significant increase in persons experiencing temporary renal failure, and we could incur additional staffing costs required to meet the resulting increased demand for dialysis treatment and/or to provide equipment and medical staff needed for emergency treatments, for example in hospitals. To the extent that the COVID-19 pandemic increases the historical normal mortality rate in either the pre-end-stage renal disease patient population or in our end-stage renal disease ("ESRD") patient population, our near-term operating results may be materially and adversely affected. The COVID-19 pandemic has resulted, and may continue to result, in more of our dialysis patients requiring hospitalization, which could also materially and adversely affect our financial results, including those of our value-based and shared risk products and services.
In the U.S., the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") has been enacted to mitigate certain adverse financial impacts of the pandemic, including impacts in the health care sector. Additional funding provided under the CARES Act and other COVID-19 relief provides some financial support to our business in the U.S. through suspension of the 2% Medicare payment sequestration reduction from May to December 2020, accelerated and advance payments of Medicare reimbursement and grants to defray expenses and mitigate the loss of revenues related to the COVID-19 pandemic (see note 2d) of the notes to the consolidated financial statements (unaudited) included in this report). However, these measures may not fully offset potential lost revenues and increased costs. We currently estimate that all funds received from grants comply with the terms and conditions associated with the funding received. Additional guidance is expected to be released from the U.S. Department of Health and Human Services with regards to the application of CARES Act relief funds which may affect the Company's estimate as of September 30, 2020. Additionally, these costs may become more pronounced should the COVID-19 pandemic and its associated effects on our business, financial condition and results of operations persist without relief extensions or additional government programs being provided. Further legislation and amendments to existing legislation intended to fight the COVID-19 pandemic and its adverse economic consequences may be enacted in the markets in which we operate. As the COVID-19 pandemic is prolonged, the risk of further government intervention or measures to counteract the pandemic could impact our business globally. It is currently not possible to estimate or to quantify any effects of such legislative measures on our business.
Furthermore, the outbreak of COVID-19 could disrupt our operations due to absenteeism among our workforce. As a result of these and potentially other factors, and given the rapid and evolving nature of the virus, COVID-19 could negatively affect our results, and it is uncertain how COVID-19 will affect our global operations generally if these impacts persist or are exacerbated over an extended period of time. Any of these impacts could have a material adverse effect on our business, financial condition and results of operations.
In addition, to the extent that the COVID-19 pandemic adversely affects our business, net assets, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this report and under "Risk Factors" in our 2019 Form 20-F.
Global economic conditions as well as disruptions in financial markets may have an adverse effect on our businesses.
We are dependent on the conditions of the financial markets and the global economy. In order to pursue our business, we are reliant on capital markets, as are our renal product customers and commercial health care insurers. Limited or more expensive access to capital in the financial markets could adversely affect our business and profitability. Among other things, the potential decline in federal and state revenues in a prolonged economic slowdown or recession may create additional pressures to contain or reduce reimbursements for our services from public payors around the world, including Medicare, Medicaid in the United States and other government sponsored programs in the United States and other countries around the world.
Devaluation of currencies and worsening economic conditions, including inflationary cost increases in various markets in connection with deteriorating country credit ratings also increase the risk of a goodwill impairment, which could lead to a partial or total goodwill write-off in the affected cash generating units, or have a negative impact on our investments and external partnerships. In addition, uncertainty in the financial markets could adversely affect the valuations of certain of our investments or variable interest
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rates payable under our credit facilities or could make it more difficult to obtain or renew such facilities or to obtain other forms of financing in the future should access to these capital markets become restricted. Most recently, the rapid global spread of the COVID-19 pandemic has resulted in a material deterioration of the conditions for the global economy and financial markets have been materially and adversely affected which could have adverse effects on our financial condition and our liquidity.
Job losses or increases in the unemployment rate in the United States may result in a smaller percentage of our patients being covered by employer group health plans and a larger percentage being covered by lower paying Medicare and Medicaid programs. Unemployment rates globally have been negatively impacted by the COVID-19 outbreak, which adversely affected the global economy and could adversely impact our operating results. The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. To the extent that our commercial payors are negatively impacted by a decline in the economy, including the projected decline resulting from the COVID-19 pandemic, we may experience further pressure on commercial rates, a further slowdown in collections and a reduction in the amounts we are able to collect.
Any or all of these factors, or other consequences of the continuation, or worsening, of domestic and global economic conditions which cannot currently be predicted, could continue to have a material adverse effect on our businesses and results of operations.
We could be adversely affected if we experience shortages of goods or material price increases from our suppliers, or an inability to access new and improved products and technology.
Our business is dependent on the reliable supply of several raw materials for production and service purposes. If we are unable to obtain sufficient quantities of these raw materials at times of limited availability of such materials, this could result in delays in production or loss of sales and hence have an adverse effect on our results of operations. Similarly, price increases by suppliers and the inability to access new products or technology could also adversely affect our results of operations.
Our procurement risk mitigation efforts include (i) the development of partnerships with strategic suppliers through framework contracts, (ii) where reasonably practicable, at least two sources for all supply and price-critical primary products (dual sourcing, multiple sourcing), and (iii) measures to prevent loss of suppliers, such as risk analyses as well as continuous supply chain monitoring. Any failure of these measures to mitigate disruptive goods shortages and potential price increases or to allow access to favorable new product and technology developments could have an adverse impact on our business and financial condition.
Measures taken by governmental authorities and private actors to limit the spread of the COVID-19 virus have interfered, and may continue to interfere, with the ability of our employees, suppliers, and other business providers to carry out their assigned tasks or supply materials at ordinary levels of performance. While the financial impact of these actions on us has not been material to date, given the rapid spread and evolving nature of the virus, it is uncertain how COVID-19 will affect our global operations generally if these actions persist or are expanded over an extended period of time. Additionally, decreases in the availability and related increases in the cost of personal protective equipment as well as the insufficiency of grants under governmental COVID-19 relief programs to offset some of those expenses could adversely affect our results of operations.
Cyber-attacks or other privacy and data security incidents could disrupt our business and expose us to significant losses, liability and reputational damage.
We and our third-party service providers routinely process, store and transmit large amounts of data in our operations, including sensitive personal information as well as proprietary or confidential information relating to our business or third parties. We may be subject to breaches of the information technology security systems we use both internally and externally with third-party service providers.
Cyber-attacks may penetrate our and our third-party service providers' security controls and result in the misappropriation or compromise of sensitive personal information or proprietary or confidential information, including such information which is stored or transmitted on the systems used by certain of our or their products, to create system disruptions, cause shutdowns, or deploy viruses, worms, and other malicious software programs that attack our systems. We and our third-party service providers handle the personal information of our patients and beneficiaries, Patient Personal Data ("PPD"), throughout the United States and other parts of the world. We or our business associates may experience a breach under
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the U.S. Health Insurance Portability and Accountability Act Privacy and Security Rules, the EU's General Data Protection Regulation and or other similar laws ("Data Protection Laws"), including the following events:
In May 2020, our IT environment was attacked which resulted in certain patient data being illegally published in Serbia. We immediately filed a complaint against the unknown attackers with the public prosecutor in Germany and we have contacted the patients who were affected by the illegal data publication. While there was no material impact to our financial condition and results of operations as a result of this attack, future cyber-attacks against our IT systems may result in a loss of financial data or other sensitive information as well as interruptions of our operations that could have a material adverse impact on our business, financial condition and results of operations in the future.
As we increase the amount of sensitive personal information or financial data that we store and share digitally, our exposure to these privacy and data breaches and cyber-attack risks increases, including the risk of undetected attacks, damage, loss or unauthorized disclosure or access, and the cost of attempting to protect against these risks also increases. There are no assurances that our security technologies, processes and procedures that we or our outside service providers have implemented to protect sensitive personal information and proprietary or confidential information and to build security into the design of our products will be effective. Any failure to keep our information technology systems, financial data and our patients' and customers' sensitive information secure from attack, damage, loss or unauthorized disclosure or access, whether as a result of our action or inaction or that of our third-party business associates or vendors that utilize and store such personal information on our behalf, could materially adversely affect our reputation and ability to continue normal operations, expose us to mandatory public disclosure requirements, litigation and governmental enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders and other adverse actions, any of which could have a material adverse impact on our business, financial condition and results of operations.
Financial condition and results of operations
We are the world's largest kidney dialysis company, based on publicly reported revenue and number of patients treated. We provide dialysis care and related services to persons who suffer from ESRD as well as other health care services. We also develop, manufacture and distribute a wide variety of health care products, which includes dialysis and non-dialysis products. Our dialysis products include hemodialysis machines, peritoneal cyclers, dialyzers, peritoneal solutions, hemodialysis concentrates, solutions and granulates, bloodlines, renal pharmaceuticals and systems for water treatment. Our non-dialysis products include acute cardiopulmonary and apheresis products. We supply dialysis clinics we own, operate or manage with a broad range of products and also sell dialysis products to other dialysis service providers. We sell our health care products to customers in around 150 countries and we also use them in our own health care service operations. Our dialysis business is therefore vertically integrated. We describe certain of our other health care services as "Care Coordination." Care Coordination currently includes, but is not limited to, value and risk-based arrangements, pharmacy services, vascular, cardiovascular and endovascular specialty services as well as ambulatory surgery center services, physician nephrology and cardiology services, urgent care services (until the first quarter of 2020) and ambulant treatment services. All of these Care Coordination services together with dialysis care and related services represent our health care services. We estimated the volume of the global dialysis market was approximately €80 billion in 2019. Due to the complexity and evolving nature of Care Coordination services, we are currently unable to estimate the global volume of this market. Dialysis 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, hypertension and other illnesses, which frequently lead to the onset of chronic kidney disease; improvements in treatment quality, new pharmaceuticals and product technologies, which prolong patient life; and
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improving standards of living in developing countries, which make life-saving dialysis treatment available. We are also engaged in different areas of health care product therapy research.
As a global company delivering health care services and products, we face the challenge of addressing the needs of a wide variety of stakeholders, such as patients, customers, payors, regulators and legislators in many different economic environments and health care systems. In general, government-funded programs (in some countries in coordination with private insurers) pay for certain health care items and services provided to their citizens. Not all health care systems provide payment for dialysis treatment. Therefore, the reimbursement systems and ancillary services utilization environment in various countries significantly influence our business.
Significant U.S. reimbursement developments
The majority of health care services we provide are paid for by governmental institutions. For the nine months ended September 30, 2020, approximately 32% of our consolidated revenue is attributable to U.S. federally-funded health care benefit programs, such as Medicare and Medicaid reimbursement, under which reimbursement rates are set by the Centers for Medicare and Medicaid ("CMS"). Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide. In recent years, the stability of reimbursement in the U.S. has been affected by (i) the implementation of the ESRD prospective payment system ("ESRD PPS") 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 well as the current moratorium on such cuts, (iii) the reduction to the ESRD PPS rate to account for the decline in utilization of certain drugs and biologicals associated with dialysis pursuant to the American Taxpayer Relief Act of 2012 ("ATRA") as subsequently modified under the Protecting Access to Medicare Act of 2014 ("PAMA") and (iv) CMS's 2017 final rule on the Physician Fee Schedule, which partially corrected reimbursement for certain procedures that were materially undervalued in 2016. Please see the detailed discussions on these and further legislative developments below:
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an add-on payment for either applicant. Finally, CMS proposed to expand its TPNIES policy for CY 2021 to allow eligible home dialysis machines to apply for an add-on payment.
Non-oral ESRD-related drugs are generally reimbursed as part of the ESRD PPS bundled payment. Oral only ESRD-related drugs are generally reimbursed outside the ESRD PPS bundled payment. In a final rule published on November 6, 2015, CMS provided for implementation of the PAMA oral-only provision. CMS clarified that once any non-oral ESRD-related drug in a category previously considered oral only is approved by the U.S. Food and Drug Administration ("FDA"), such category of drugs will cease to be considered oral only. However, for at least two years, CMS will pay for both oral and non-oral versions of the drug using a TDAPA. During this transition period, CMS will not pay outlier payments for these drugs, but the agency will collect data reflecting utilization of both the oral and injectable or intravenous forms of the drugs, as well as payment patterns, to help determine how to appropriately adjust the ESRD PPS payment rate as these drugs are included in the payment bundle. At the end of this transition period, CMS will incorporate payment for the oral and non-oral versions of the drug in the ESRD PPS payment rates, utilizing a public rulemaking process.
The introduction of Parsabiv™, an intravenous calcimimetic, has resulted in changes in how some payors, other than Medicare, arrange for the provision of calcimimetics for their patients. While some patients continue to receive calcimimetics from their pharmacies as a pharmacy benefit, other patients receive calcimimetics from their dialysis providers, as a medical benefit. While we receive additional reimbursement from some payors when these drugs are provided by our clinics, this type of transition from an oral-only drug has not occurred previously and the reimbursement landscape for non-Medicare payors continues to evolve.
Presently, there is uncertainty regarding possible future changes in health care regulation, including the regulation of reimbursement for dialysis services, and the status of the ACA. On March 2, 2020 the U.S. Supreme Court agreed to review the Fifth Circuit Court of Appeals decision affirming a decision by a Texas federal district court that declared the individual mandate under the ACA to be an improper exercise of Congress' taxing power. On August 19, 2020, the U.S. Supreme Court scheduled oral arguments in the consolidated cases, California, et al., v. Texas, et al., No. 19-840 and Texas, et al., v. California, et al., No. 19-1019 for November 10, 2020, with a decision expected to be issued in 2021. For additional information regarding these proceedings, see Item 4B, "Information on the Company—Regulatory and Legal Matters—Health Care Reform" in our 2019 Form 20-F. Changes to the ACA (including a determination that the measure is unconstitutional) could adversely affect us.
For additional information, see "Risk Factors" included in our 2019 Form 20-F.
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On May 22, 2020, CMS issued a final rule that, effective January 1, 2021, removes outpatient dialysis facilities from the time-and-distance standards applicable under the network adequacy rules for Medicare Advantage plans (see note 8 of the notes to the consolidated financial statements (unaudited) included in this report for further information).
On August 18, 2016, the CMS issued a request for information ("RFI") seeking public comment about providers' alleged steering of patients inappropriately to individual plans offered on the Patient Protection and Affordable Care Act individual health insurance market. The holding company for our U.S. operations, Fresenius Medical Care Holdings, Inc. ("FMCH"), and other dialysis providers, commercial insurers and other industry participants responded to the RFI, and in that response, we reported that we do not engage in such steering. On December 14, 2016, CMS published an Interim Final Rule ("IFR") titled "Medicare Program; Conditions for Coverage for End-Stage Renal Disease Facilities-Third Party Payment" that would amend the Conditions for Coverage for dialysis providers, like FMCH. The IFR would have effectively enabled insurers to reject premium payments made by patients who received grants for individual market coverage from the American Kidney Fund ("AKF") and, therefore, could have resulted in those patients losing their individual market health insurance coverage. The loss of individual market coverage for these patients would have had a material and adverse impact on our operating results. See "Risk Factors" in our 2019 Form 20-F. On January 25, 2017, a federal district court in Texas, responsible for litigation initiated by a patient advocacy group and dialysis providers including FMCH, preliminarily enjoined CMS from implementing the IFR (Dialysis Patient Citizens v. Burwell (E.D. Texas, Sherman Div.)). The preliminary injunction was based on CMS's failure to follow appropriate notice-and-comment procedures in adopting the IFR. The injunction remains in place and the court retains jurisdiction over the dispute. On June 22, 2017, CMS requested a stay of proceedings in the litigation pending further rulemaking concerning the IFR. CMS stated, in support of its request that it expected to publish a Notice of Proposed Rulemaking in the Federal Register and otherwise pursue a notice-and-comment process in the fall of 2017 which it ultimately did not publish. Plaintiffs in the litigation, including FMCH, consented to the stay, which was granted by the court.
Separately, the United States Department of Health and Human Services ("HHS") has drafted a new proposed rule entitled "Conditions for Coverage for End-Stage Renal Disease Facilities—Third Party Payments" (CMS-3337-P). While the proposed rule has been under review by the Office of Management and Budget since June 2019, and the HHS identified a target date of November 2019 for publication, the proposed rule has not yet been published for comment.
The operation of charitable assistance programs like that of the AKF is also receiving increased attention by state insurance regulators and legislators. The result may be a regulatory framework that differs from state to state. Even in the absence of the IFR or similar state actions, insurers are likely to continue efforts to thwart charitable premium assistance to our patients for individual market plans and other insurance coverages. If successful in a material area or scope of our U.S. operations, these efforts would have a material adverse impact on our business and operating results.
On January 3, 2017, FMCH received a subpoena from the United States Attorney for the District of Massachusetts inquiring into its interactions and relationships with AKF, including its charitable contributions to the Fund and the Fund's financial assistance to patients for insurance premiums. FMCH cooperated with the investigation, which was part of a broader investigation into charitable contributions in the medical industry. On August 1, 2019, the United States District Court for the District of Massachusetts entered an order announcing that the United States had declined to intervene on a qui tam complaint underlying the Boston United States Attorney's Office ("USAO") investigation and unsealing the relator's complaint so as to permit the relator to serve the complaint and proceed on his own. The relator did not serve the complaint within the time allowed. On July 17, 2020, the relator filed a notice of dismissal and the court thereafter closed the case.
For further information on these and other legal proceedings, please see note 8 of the notes to the consolidated financial statements (unaudited) included in this report.
U.S. ballot initiatives and other legislation
Further federal or state legislation or regulations may be enacted in the future through legislative and public referendum processes that could substantially modify or reduce the amounts paid for services and products offered by us and our subsidiaries and/or mandate new or alternative operating models and
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payment models that could present more risk to our health care service operations. Ballot initiatives that are successfully introduced at the state level in the United States require the vote of state citizens to directly adopt or reject proposed new legislation. These ballot initiatives require a material expenditure of resources by us to participate in public discourse regarding the proposed new legislation underlying the initiatives which, if passed, could further regulate multiple aspects of our operations including, for instance, clinic staffing requirements, state inspection requirements and profit margins on commercial business. Efforts to enact new state laws regarding our operations are continuing. State regulation at this level would introduce an unprecedented level of additional regulatory oversight and expense at the clinic level which could have a material adverse effect on our business in the impacted states. It is also possible that statutes may be adopted or regulations may be promulgated in the future that impose additional eligibility requirements for participation in the federal and state health care programs. Such new legislation or regulations could, depending upon the detail of the provisions, have positive or adverse effects, possibly material, on our businesses and results of operations.
Participation in new Medicare payment arrangements
Under CMS's Comprehensive ESRD Care Model (the "Model"), dialysis providers and physicians have formed entities known as ESRD Seamless Care Organizations ("ESCOs") as part of a payment and care delivery pilot program that seeks to deliver better health outcomes for Medicare ESRD patients while lowering CMS's costs. Following our initial participation in six ESCOs, we are presently participating in the Model through 23 ESCOs formed at our dialysis facilities. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS's cost of care above certain thresholds for the ESRD patients covered by the ESCO will receive a share of the cost savings, which is adjusted based on the ESCO's performance on certain quality metrics. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and to reimburse CMS a share of any such increases if actual costs rise above set thresholds. As of September 2020, approximately 41,000 patients were participating in our ESCOs.
In November 2017, we announced the results from the first performance year ("PY") from our ESCOs. The results, which cover the period from October 2015 through December 2016, show improved health outcomes for patients receiving coordinated care through the ESCOs. This success was validated by an independent report, which showed a nearly 9% decrease in hospitalization rates for these patients during the same time. In the second performance year (calendar year ("CY") 2017) the Company's ESCOs together generated more than $66.7 M in gross savings, an average 3.4% reduction in expenditures per patient. For the third performance year (CY 2018), CMS published the final settlement reports on August 14, 2020. In total the Company's ESCO produced more than $66.1 M in gross savings, an average 1.9% reduction in expenditures per patient. CMS has not finalized results for the fourth performance year (CY 2019). For the fifth performance year (CY 2020), CMS has stated it will give each ESCO the options to (a) extend participation in the program through March 31, 2021, and/or to (b) accept the following financial changes: (i) reduce 2020 downside risk by reducing shared losses by proportion of months during the COVID-19 Public Health Emergency as promulgated under the Public Health Services Act, (ii) cap gross savings upside potential at 5% gross savings, (iii) remove COVID-19 inpatient episodes, and (iv) remove the 2020 financial guarantee requirement. Our ESCOs have not yet selected among these options.
We have also entered into sub-capitation and other risk-based and value-based arrangements with certain payors to provide care to commercial and Medicare Advantage, ESRD and CKD patients. Under these arrangements, a baseline per patient per month amount is established. If we provide complete care for less than the baseline, we retain the difference. If the cost of complete care exceeds the baseline, we may owe the payor the difference.
Executive order-based models
On July 10, 2019, an Executive Order on advancing kidney health was signed in the United States. Among other things, the order instructed the Secretary of HHS to develop new Medicare payment models to encourage identification and earlier treatment of kidney disease as well as increased home dialysis and transplants. One of those models, for which the rule was finalized on September 29, 2020, the ESRD Treatment Choices ("ETC") model, is a mandatory model that creates financial incentives for home treatment and kidney transplant with a start date in January 2021 and ending in June 2026. This model applies both upside and downside payment adjustments to claims submitted by physicians and dialysis facilities for certain Medicare home dialysis patients over the span of six and one-half years. Participants in
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this model are based on a random selection of thirty percent of the Hospital Referral Regions. As of September 2020, 967 U.S. dialysis clinics, representing approximately 35% of our U.S. dialysis clinics, are within the random selection of Hospital Referral Regions and therefore are in areas selected for participation in the model. An initial upside-only payment, Home Dialysis Payment Adjustment ("HDPA"), will be applied for the first three years of the model, beginning in January 2021, in decreasing payment adjustments ranging from 3% in the first payment year, to 2% in the second payment year, and to 1% in the final payment year. This model also includes a Performance Payment Adjustment ("PPA") beginning in July 2022. PPA payments will be a combined calculation of home dialysis and transplant rates based upon historic and/or benchmark data from comparison geographic areas. Possible PPA payment adjustments increase in time and will range from (5%) to 4% in the first payment year (beginning July 2022) for both physicians and facilities and rise to (9%) and 8% for physicians and (10%) and 8% percent for facilities in the final payment year (ending in June 2026).
Pursuant to the Executive Order, the Secretary also announced voluntary payment models, Kidney Care First ("KCF") and Comprehensive Kidney Care Contracting ("CKCC") model (graduated, professional and global), which aim to build on the existing Comprehensive End Stage Renal Disease Care model. The voluntary models create financial incentives for health care providers to manage care for Medicare beneficiaries with chronic kidney disease stages 4 and 5 and with ESRD, to delay the start of dialysis, and to incentivize kidney transplant. The voluntary models allow health care providers to take on various amounts of financial risk by forming an entity known as a Kidney Care Entity ("KCE"). Two options, the CKCC global and professional models, allow renal health care providers to assume upside and downside financial risk. A third option, the CKCC graduated model, is limited to upside risk, but is unavailable to KCEs that include large dialysis organizations. Under the global model, the KCE is responsible for 100 percent of the total cost of care for all Medicare Part A and B services for aligned beneficiaries, and under the professional model, the KCE is responsible for 50 percent of such costs. Applications for the voluntary models were submitted in January 2020. We submitted 25 CKCC applications to participate in the professional model and were also included in four other CKCC applications submitted by nephrologists. All 29 of these KCE applications were accepted in June 2020. Of the 29 accepted applications, 28 KCEs have elected to participate in the implementation period, which started on October 15, 2020, and provides a start-up period during which the KCE is not at financial risk. Each KCE will elect, by December 21, 2020, whether to remain in the professional model or switch to the global model. Further, prior to April 1, 2021, each KCE will elect whether to continue its participation at-risk beginning in the first Performance Year which starts on April 1, 2021 and ends December 31, 2021. Once implemented, the CKCC model is expected to run through 2025. We are presently unable to predict the effects on our business of the ETC payment model and the voluntary payment models.
Our operating segments are the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment. The operating segments are determined based upon how we manage our businesses with geographical responsibilities. All segments are primarily engaged in providing health care services and the distribution of products and equipment for the treatment of ESRD and other extracorporeal therapies. 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 IFRS measures are revenue, operating income and operating income margin. We do not include income taxes as we believe taxes are 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, because we believe that these costs are also not within the control of the individual segments. Production of products, production asset management, quality and supply chain management as well as procurement related to production are centrally managed. Products transferred to the segments are transferred at cost; therefore, no internal profit is generated. The associated internal revenue 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. The Company's global research and development as well as its Global Medical Office are also centrally managed. These corporate activities do not fulfill the definition of a segment according to IFRS 8. 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, these items are excluded from our analysis of segment results and are discussed below in the discussion of our consolidated results of operations. See note 10 of the notes to consolidated financial statements (unaudited) found elsewhere in this report for a further discussion on our operating segments.
11
II. Discussion of measures
Non-IFRS measures
Certain of the following key performance indicators and other financial information as well as discussions and analyses set out in this report include measures that are not defined by IFRS ("Non-IFRS Measure"). We believe this information, along with comparable IFRS financial measurements, is useful to our investors as it provides a basis for assessing our performance, payment obligations related to performance-based compensation and our compliance with financial covenants. Non-IFRS financial measures should not be viewed or interpreted as a substitute for financial information presented in accordance with IFRS.
Some key performance indicators and other financial measures used in this report such as changes in revenue, operating income and net income attributable to shareholders of FMC-AG & Co. KGaA include the impact of translating local currencies to our reporting currency for financial reporting purposes. We calculate these Non-IFRS financial measures at constant exchange rates in our publications to show changes in our revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items without giving effect to period-to-period currency fluctuations. Under IFRS, amounts received in local (non-euro) currency are translated into euro at the average exchange rate for the period presented. Once we translate the local currency for the constant currency, we then calculate the change, as a percentage, of the current period calculated using the prior period exchange rates versus the prior period. This resulting percentage is a Non-IFRS Measure referring to a change as a percentage at constant currency. These currency-adjusted financial measures are identifiable by the designated terms "Constant Exchange Rates" or "Constant Currency."
We believe that the measures at Constant Currency are useful to investors, lenders and other creditors because such information enables them to gauge the impact of currency fluctuations on our revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items from period to period. In addition, under our long-term incentive plans, we measure the attainment of certain pre-determined financial targets for revenue growth and net income growth in Constant Currency. However, we 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 into euro. We do not evaluate our results and performance without considering both:
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, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items prepared in accordance with IFRS. We present the growth rate derived from non-IFRS measures next to the growth rate derived from IFRS measures such as revenue, operating income, net income attributable to shareholders of FMC-AG & Co. KGaA and other items. As the reconciliation is inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.
Delivered operating income (Non-IFRS Measure)
As a result of the significance of noncontrolling interest holders in our operations, we believe a measure that is meaningful to investors is operating income less noncontrolling interests ("Delivered Operating Income"). Delivered Operating Income approximates the operating income attributable to the shareholders of FMC-AG & Co. KGaA. As such, we believe that operating income is the closest comparable IFRS measure. Delivered Operating Income is also benchmarked based on movement at Constant Exchange Rates.
12
Below is a table showing the reconciliation of operating income to Delivered Operating Income on a consolidated basis and for our reporting segments:
Delivered Operating Income reconciliation
in € M
| |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | 2020 | 2019 | |||||||||
Total |
|||||||||||||
Operating income |
632 | 595 | 1,843 | 1,653 | |||||||||
less noncontrolling interests |
(66 | ) | (59 | ) | (210 | ) | (177 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
566 | 536 | 1,633 | 1,476 | |||||||||
North America Segment |
|||||||||||||
Operating income |
514 | 477 | 1,587 | 1,279 | |||||||||
less noncontrolling interests |
(62 | ) | (55 | ) | (202 | ) | (167 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
452 | 422 | 1,385 | 1,112 | |||||||||
Dialysis |
|||||||||||||
Operating income |
490 | 500 | 1,474 | 1,261 | |||||||||
less noncontrolling interests |
(54 | ) | (50 | ) | (176 | ) | (154 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
436 | 450 | 1,298 | 1,107 | |||||||||
Care Coordination |
|||||||||||||
Operating income |
24 | (23 | ) | 113 | 18 | ||||||||
less noncontrolling interests |
(8 | ) | (5 | ) | (26 | ) | (13 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
16 | (28 | ) | 87 | 5 | ||||||||
EMEA Segment |
|||||||||||||
Operating income |
99 | 100 | 278 | 334 | |||||||||
less noncontrolling interests |
(1 | ) | (2 | ) | (2 | ) | (4 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
98 | 98 | 276 | 330 | |||||||||
Asia-Pacific Segment |
|||||||||||||
Operating income |
97 | 90 | 237 | 254 | |||||||||
less noncontrolling interests |
(2 | ) | (2 | ) | (5 | ) | (6 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
95 | 88 | 232 | 248 | |||||||||
Dialysis |
|||||||||||||
Operating income |
82 | 81 | 227 | 235 | |||||||||
less noncontrolling interests |
(3 | ) | (2 | ) | (7 | ) | (5 | ) | |||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
79 | 79 | 220 | 230 | |||||||||
Care Coordination |
|||||||||||||
Operating income |
15 | 9 | 10 | 19 | |||||||||
less noncontrolling interests |
1 | 0 | 2 | (1 | ) | ||||||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
16 | 9 | 12 | 18 | |||||||||
Latin America Segment |
|||||||||||||
Operating income |
11 | 11 | 29 | 28 | |||||||||
less noncontrolling interests |
0 | 0 | 0 | 0 | |||||||||
| | | | | | | | | | | | | | |
Delivered Operating Income |
11 | 11 | 29 | 28 | |||||||||
Net cash provided by (used in) operating activities in % of revenue
Our consolidated statement of cash flows indicates how we generated and used cash and cash equivalents. In conjunction with our other primary financial statements, it provides information that helps us evaluate changes to our net assets and our financial structure (including liquidity and solvency). Net cash provided by (used in) operating activities is applied to assess whether a business can generate the cash required to
13
make the necessary replacement and expansion of investments. This indicator is impacted by the profitability of our business and the development of working capital, mainly receivables. Net cash provided by (used in) operating activities in percent of revenue shows the percentage of our revenue that is available in terms of financial resources. It is an indicator of our operating financial strength.
Free cash flow in % of revenue (Non-IFRS Measure)
Free cash flow (which we define as net cash provided by (used in) operating activities after capital expenditures, before acquisitions and investments) refers to the cash flow we have at our disposal, including cash flows that may be restricted for other uses. This indicator shows the percentage of revenue available for acquisitions and investments, dividends to shareholders, reducing debt financing or for repurchasing shares.
The following table shows the cash flow key performance indicators for the nine months ended September 30, 2020 and 2019 and reconciles free cash flow and free cash flow in percent of revenue to Net cash provided by (used in) operating activities and Net cash provided by (used in) operating activities in percent of revenue, respectively:
Cash flow measures
in € M, except where otherwise specified
| |
For the nine months ended September 30, |
||||||
|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | |||||
Revenue |
13,459 | 12,897 | |||||
| | | | | | | | |
Net cash provided by (used in) operating activities |
3,649 | 1,796 | |||||
Capital expenditures |
(746 | ) | (788 | ) | |||
Proceeds from sale of property, plant and equipment |
10 | 11 | |||||
| | | | | | | | |
Capital expenditures, net |
(736 | ) | (777 | ) | |||
| | | | | | | | |
Free cash flow |
2,913 | 1,019 | |||||
Net cash provided by (used in) operating activities in % of revenue |
27.1 | % | 13.9 | % | |||
Free cash flow in % of revenue |
21.6 | % | 7.9 | % | |||
Net leverage ratio (Non-IFRS Measure)
The net leverage ratio is a key performance indicator used for internal management. To determine the net leverage ratio, debt and lease liabilities less cash and cash equivalents (net debt) is compared to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (adjusted for acquisitions and divestitures made during the last twelve months with a purchase price above a €50 M threshold as defined in the Amended 2012 Credit Agreement, non-cash charges and impairment loss). The ratio is an indicator of the length of time the Company needs to service the net debt out of its own resources. We believe that the net leverage ratio provides alternative information that management believes to be useful in assessing our ability to meet our payment obligations in addition to considering the absolute amount of our debt. We have a strong market position in a growing, global and mainly non-cyclical market. Furthermore, most of our customers have a high credit rating as the dialysis industry is characterized by stable and sustained cash flows. We believe this enables us to work with a reasonable proportion of debt, through the employment of an extensive mix of debt.
Adjusted EBITDA, a non-IFRS Measure, is also the basis for determining compliance with certain other covenants contained in our Amended 2012 Credit Agreement and is also relevant in certain of our other major financing arrangements. You should not consider adjusted EBITDA to be an alternative to net earnings determined in accordance with IFRS or to cash flow from operations, investing activities or financing activities. In addition, not all funds depicted by adjusted EBITDA are available for management's discretionary use. For example, a substantial portion of such funds are subject to contractual restrictions and functional requirements to fund debt service, capital expenditures and other commitments from time to time as described in more detail elsewhere in this report.
The following table shows the reconciliation of adjusted EBITDA and net leverage ratio as of September 30, 2020 and December 31, 2019.
14
Reconciliation of adjusted EBITDA and net leverage ratio to the most directly comparable IFRS financial measure
in € M, except for net leverage ratio
| |
September 30, 2020 |
December 31, 2019 |
|||||
|---|---|---|---|---|---|---|---|
Debt and lease liabilities(1) |
13,053 | 13,782 | |||||
Minus: Cash and cash equivalents(2) |
(1,599 | ) | (1,008 | ) | |||
| | | | | | | | |
Net debt |
11,454 | 12,774 | |||||
Net income(3) |
1,602 |
1,439 |
|||||
Income tax expense(3) |
471 | 402 | |||||
Interest income(3) |
(42 | ) | (62 | ) | |||
Interest expense(3) |
428 | 491 | |||||
Depreciation and amortization(3) |
1,614 | 1,553 | |||||
Adjustments(3),(4) |
76 | 110 | |||||
| | | | | | | | |
Adjusted EBITDA |
4,149 | 3,933 | |||||
Net leverage ratio |
2.8 |
3.2 |
|||||
Return on invested capital ("ROIC") (Non-IFRS Measure)
ROIC is the ratio of operating income, for the last twelve months, after tax ("net operating profit after tax" or "NOPAT") to the average invested capital of the last five quarter closing dates, including adjustments for acquisitions and divestitures made during the last twelve months with a purchase price above a €50 M threshold as defined in the Amended 2012 Credit Agreement, and expresses how efficiently we allocate the capital under our control or how well we employ our capital with regard to a specific investment project. An adjustment to exclude amounts related to the implementation of IFRS 16, Leases, which replaced the straight-line operating lease expense for former leases under International Accounting Standard 17, Leases, with a depreciation charge for the lease asset and an interest expense on the lease liability as well as the classification of certain IAS 17 leases (such effects being, collectively "IFRS 16 Implementation") is included for the purpose of increasing the comparability of previously reported information in accordance with our long-term incentive plans in 2019. The following table shows the reconciliation of average invested capital to total assets, which we believe to be the most directly comparable IFRS financial measure, and how ROIC is calculated:
15
Reconciliation of average invested capital and ROIC (unadjusted)
in € M, except where otherwise specified
2020
|
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019 |
September 30, 2019 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
33,049 | 34,200 | 34,072 | 32,935 | 33,169 | |||||||||||
Plus: Cumulative goodwill amortization |
405 | 421 | 430 | 420 | 432 | |||||||||||
Minus: Cash and cash equivalents |
(1,599 | ) | (1,890 | ) | (1,405 | ) | (1,008 | ) | (965 | ) | ||||||
Minus: Loans to related parties |
(51 | ) | (49 | ) | (40 | ) | (72 | ) | (65 | ) | ||||||
Minus: Deferred tax assets |
(429 | ) | (401 | ) | (382 | ) | (361 | ) | (348 | ) | ||||||
Minus: Accounts payable |
(729 | ) | (678 | ) | (762 | ) | (717 | ) | (655 | ) | ||||||
Minus: Accounts payable to related parties |
(132 | ) | (135 | ) | (134 | ) | (119 | ) | (255 | ) | ||||||
Minus: Provisions and other current liabilities(1) |
(3,641 | ) | (3,799 | ) | (2,577 | ) | (2,452 | ) | (2,546 | ) | ||||||
Minus: Income tax payable |
(269 | ) | (212 | ) | (200 | ) | (180 | ) | (181 | ) | ||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
26,604 | 27,457 | 29,002 | 28,446 | 28,586 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Average invested capital as of September 30, 2020 |
28,019 | |||||||||||||||
Operating income |
2,459 |
|||||||||||||||
Income tax expense(2) |
(656 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
NOPAT |
1,803 | |||||||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Adjustments to average invested capital and ROIC
in € M, except where otherwise specified
2020
|
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019- |
September 30, 2019(3) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
— | — | — | — | 155 | |||||||||||
Plus: Cumulative goodwill amortization |
— | — | — | — | — | |||||||||||
Minus: Cash and cash equivalents |
— | — | — | — | (4 | ) | ||||||||||
Minus: Loans to related parties |
— | — | — | — | — | |||||||||||
Minus: Deferred tax assets |
— | — | — | — | — | |||||||||||
Minus: Accounts payable |
— | — | — | — | — | |||||||||||
Minus: Accounts payable to related parties |
— | — | — | — | — | |||||||||||
Minus: Provisions and other current liabilities(1) |
— | — | — | — | (4 | ) | ||||||||||
Minus: Income tax payable |
— | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
— | — | — | — | 147 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Adjustment to average invested capital as of September 30, 2020 |
29 | |||||||||||||||
Adjustment to operating income(3) |
2 |
|||||||||||||||
Adjustment to income tax expense(3) |
0 | |||||||||||||||
| | | | | | | | | | | | | | | | | |
Adjustment to NOPAT |
1 | |||||||||||||||
16
Reconciliation of average invested capital and ROIC (Non-IFRS Measure)
in € M, except where otherwise specified
2020
|
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019- |
September 30, 2019(3) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
33,049 | 34,200 | 34,072 | 32,935 | 33,324 | |||||||||||
Plus: Cumulative goodwill amortization |
405 | 421 | 430 | 420 | 432 | |||||||||||
Minus: Cash and cash equivalents |
(1,599 | ) | (1,890 | ) | (1,405 | ) | (1,008 | ) | (969 | ) | ||||||
Minus: Loans to related parties |
(51 | ) | (49 | ) | (40 | ) | (72 | ) | (65 | ) | ||||||
Minus: Deferred tax assets |
(429 | ) | (401 | ) | (382 | ) | (361 | ) | (348 | ) | ||||||
Minus: Accounts payable |
(729 | ) | (678 | ) | (762 | ) | (717 | ) | (655 | ) | ||||||
Minus: Accounts payable to related parties |
(132 | ) | (135 | ) | (134 | ) | (119 | ) | (255 | ) | ||||||
Minus: Provisions and other current liabilities(1) |
(3,641 | ) | (3,799 | ) | (2,577 | ) | (2,452 | ) | (2,550 | ) | ||||||
Minus: Income tax payable |
(269 | ) | (212 | ) | (200 | ) | (180 | ) | (181 | ) | ||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
26,604 | 27,457 | 29,002 | 28,446 | 28,733 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Average invested capital as of September 30, 2020 |
28,048 | |||||||||||||||
Operating income(3) |
2,461 |
|||||||||||||||
Income tax expense(2),(3) |
(656 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
NOPAT |
1,805 | |||||||||||||||
ROIC in % |
6.4 | % | ||||||||||||||
Adjustments to average invested capital and ROIC for the effect from IFRS 16
in € M, except where otherwise specified
2020
|
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019 |
September 30, 2019 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
(4,261 | ) | (4,421 | ) | (4,388 | ) | (4,356 | ) | (4,319 | ) | ||||||
Plus: Cumulative goodwill amortization |
— | — | — | — | — | |||||||||||
Minus: Cash and cash equivalents |
— | — | — | — | — | |||||||||||
Minus: Loans to related parties |
— | — | — | — | — | |||||||||||
Minus: Deferred tax assets |
4 | 3 | 3 | 2 | 4 | |||||||||||
Minus: Accounts payable |
— | — | — | — | — | |||||||||||
Minus: Accounts payable to related parties |
— | — | — | — | — | |||||||||||
Minus: Provisions and other current liabilities(1) |
(134 | ) | (140 | ) | (143 | ) | (140 | ) | (144 | ) | ||||||
Minus: Income tax payable |
— | — | — | — | (4 | ) | ||||||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
(4,392 | ) | (4,558 | ) | (4,529 | ) | (4,494 | ) | (4,463 | ) | ||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Adjustment to average invested capital as of September 30, 2020 |
(4,487 | ) | ||||||||||||||
Adjustment to operating income |
(113 |
) |
||||||||||||||
Adjustment to income tax expense |
29 | |||||||||||||||
| | | | | | | | | | | | | | | | | |
Adjustment to NOPAT |
(84 | ) | ||||||||||||||
17
Reconciliation of average invested capital and ROIC (Non-IFRS Measure, adjusted for the effect from
IFRS 16)
in € M, except where otherwise specified
2020
|
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019- |
September 30, 2019(3) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
28,788 | 29,779 | 29,684 | 28,579 | 29,005 | |||||||||||
Plus: Cumulative goodwill amortization |
405 | 421 | 430 | 420 | 432 | |||||||||||
Minus: Cash and cash equivalents |
(1,599 | ) | (1,890 | ) | (1,405 | ) | (1,008 | ) | (969 | ) | ||||||
Minus: Loans to related parties |
(51 | ) | (49 | ) | (40 | ) | (72 | ) | (65 | ) | ||||||
Minus: Deferred tax assets |
(426 | ) | (398 | ) | (380 | ) | (359 | ) | (344 | ) | ||||||
Minus: Accounts payable |
(729 | ) | (678 | ) | (762 | ) | (717 | ) | (655 | ) | ||||||
Minus: Accounts payable to related parties |
(132 | ) | (135 | ) | (134 | ) | (119 | ) | (255 | ) | ||||||
Minus: Provisions and other current liabilities(1) |
(3,775 | ) | (3,940 | ) | (2,720 | ) | (2,592 | ) | (2,694 | ) | ||||||
Minus: Income tax payable |
(269 | ) | (212 | ) | (200 | ) | (180 | ) | (185 | ) | ||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
22,212 | 22,899 | 24,473 | 23,952 | 24,270 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Average invested capital as of September 30, 2020 |
23,561 | |||||||||||||||
Operating income(3) |
2,348 |
|||||||||||||||
Income tax expense(2),(3) |
(628 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
NOPAT |
1,720 | |||||||||||||||
ROIC in % (adjusted for IFRS 16) |
7.3 |
% |
||||||||||||||
Reconciliation of average invested capital and ROIC (unadjusted)
in € M, except where otherwise specified
2019
|
December 31, 2019 |
September 30, 2019 |
June 30, 2019 |
March 31, 2019 |
December 31, 2018 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
32,935 | 33,169 | 31,956 | 32,353 | 26,242 | |||||||||||
Plus: Cumulative goodwill amortization |
420 | 432 | 416 | 419 | 413 | |||||||||||
Minus: Cash and cash equivalents |
(1,008 | ) | (965 | ) | (922 | ) | (959 | ) | (2,146 | ) | ||||||
Minus: Loans to related parties |
(72 | ) | (65 | ) | (62 | ) | (81 | ) | (80 | ) | ||||||
Minus: Deferred tax assets |
(361 | ) | (348 | ) | (329 | ) | (309 | ) | (346 | ) | ||||||
Minus: Accounts payable |
(717 | ) | (655 | ) | (680 | ) | (708 | ) | (641 | ) | ||||||
Minus: Accounts payable to related parties |
(119 | ) | (255 | ) | (156 | ) | (210 | ) | (154 | ) | ||||||
Minus: Provisions and other current liabilities(1) |
(2,452 | ) | (2,546 | ) | (2,524 | ) | (2,604 | ) | (2,727 | ) | ||||||
Minus: Income tax payable |
(180 | ) | (181 | ) | (171 | ) | (161 | ) | (166 | ) | ||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
28,446 | 28,586 | 27,528 | 27,740 | 20,395 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Average invested capital as of December 31, 2019 |
26,539 | |||||||||||||||
Operating income |
2,270 |
|||||||||||||||
Income tax expense(2) |
(565 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
NOPAT |
1,705 | |||||||||||||||
18
Adjustments to average invested capital and ROIC
in € M, except where otherwise specified
2019
|
December 31, 2019 |
September 30, 2019(3) |
June 30, 2019(3) |
March 31, 2019(3) |
December 31, 2018(3) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
— | 156 | 149 | 151 | 2,092 | |||||||||||
Plus: Cumulative goodwill amortization |
— | — | — | — | — | |||||||||||
Minus: Cash and cash equivalents |
— | (4 | ) | (4 | ) | (4 | ) | (45 | ) | |||||||
Minus: Loans to related parties |
— | — | — | — | — | |||||||||||
Minus: Deferred tax assets |
— | — | — | — | (1 | ) | ||||||||||
Minus: Accounts payable |
— | — | — | — | (17 | ) | ||||||||||
Minus: Accounts payable to related parties |
— | — | — | — | — | |||||||||||
Minus: Provisions and other current liabilities(1) |
— | (4 | ) | (3 | ) | (3 | ) | (48 | ) | |||||||
Minus: Income tax payable |
— | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
— | 148 | 142 | 144 | 1,981 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Adjustment to average invested capital as of December 31, 2019 |
483 | |||||||||||||||
Adjustment to operating income(3) |
(79 |
) |
||||||||||||||
Adjustment to income tax expense(3) |
20 | |||||||||||||||
| | | | | | | | | | | | | | | | | |
Adjustment to NOPAT |
(59 | ) | ||||||||||||||
Reconciliation of average invested capital and ROIC (Non-IFRS Measure)
in € M, except where otherwise specified
2019
|
December 31, 2019 |
September 30, 2019(3) |
June 30, 2019(3) |
March 31, 2019(3) |
December 31, 2018(3) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
32,935 | 33,325 | 32,105 | 32,504 | 28,334 | |||||||||||
Plus: Cumulative goodwill amortization |
420 | 432 | 416 | 419 | 413 | |||||||||||
Minus: Cash and cash equivalents |
(1,008 | ) | (969 | ) | (926 | ) | (963 | ) | (2,191 | ) | ||||||
Minus: Loans to related parties |
(72 | ) | (65 | ) | (62 | ) | (81 | ) | (80 | ) | ||||||
Minus: Deferred tax assets |
(361 | ) | (348 | ) | (329 | ) | (309 | ) | (347 | ) | ||||||
Minus: Accounts payable |
(717 | ) | (655 | ) | (680 | ) | (708 | ) | (658 | ) | ||||||
Minus: Accounts payable to related parties |
(119 | ) | (255 | ) | (156 | ) | (210 | ) | (154 | ) | ||||||
Minus: Provisions and other current liabilities(1) |
(2,452 | ) | (2,550 | ) | (2,527 | ) | (2,607 | ) | (2,775 | ) | ||||||
Minus: Income tax payable |
(180 | ) | (181 | ) | (171 | ) | (161 | ) | (166 | ) | ||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
28,446 | 28,734 | 27,670 | 27,884 | 22,376 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Average invested capital as of December 31, 2019 |
27,022 | |||||||||||||||
Operating income(3) |
2,191 |
|||||||||||||||
Income tax expense(2),(3) |
(545 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
NOPAT |
1,646 | |||||||||||||||
ROIC in % |
6.1 |
% |
||||||||||||||
19
Adjustments to average invested capital and ROIC for the effect from the IFRS 16
Implementation
in € M, except where otherwise specified
2019
|
December 31, 2019 |
September 30, 2019 |
June 30, 2019 |
March 31, 2019 |
December 31, 2018 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
(4,356 | ) | (4,319 | ) | (4,172 | ) | (4,229 | ) | — | |||||||
Plus: Cumulative goodwill amortization |
— | — | — | — | — | |||||||||||
Minus: Cash and cash equivalents |
— | — | — | — | — | |||||||||||
Minus: Loans to related parties |
— | — | — | — | — | |||||||||||
Minus: Deferred tax assets |
2 | 4 | 4 | 5 | — | |||||||||||
Minus: Accounts payable |
— | — | — | — | — | |||||||||||
Minus: Accounts payable to related parties |
— | — | — | — | — | |||||||||||
Minus: Provisions and other current liabilities(1) |
(140 | ) | (144 | ) | (138 | ) | (143 | ) | — | |||||||
Minus: Income tax payable |
— | (4 | ) | (4 | ) | (1 | ) | — | ||||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
(4,494 | ) | (4,463 | ) | (4,310 | ) | (4,368 | ) | — | |||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Adjustment to average invested capital as of December 31, 2019 |
(3,527 | ) | ||||||||||||||
Adjustment to operating income |
(75 |
) |
||||||||||||||
Adjustment to income tax expense |
18 | |||||||||||||||
| | | | | | | | | | | | | | | | | |
Adjustment to NOPAT |
(57 | ) | ||||||||||||||
Reconciliation of average invested capital and ROIC (Non-IFRS Measure, adjusted for the effect from the
IFRS 16 Implementation)
in € M, except where otherwise specified
2019
|
December 31, 2019 |
September 30, 2019(3) |
June 30, 2019(3) |
March 31, 2019(3) |
December 31, 2018(3) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets |
28,579 | 29,006 | 27,933 | 28,275 | 28,334 | |||||||||||
Plus: Cumulative goodwill amortization |
420 | 432 | 416 | 419 | 413 | |||||||||||
Minus: Cash and cash equivalents |
(1,008 | ) | (969 | ) | (926 | ) | (963 | ) | (2,191 | ) | ||||||
Minus: Loans to related parties |
(72 | ) | (65 | ) | (62 | ) | (81 | ) | (80 | ) | ||||||
Minus: Deferred tax assets |
(359 | ) | (344 | ) | (325 | ) | (304 | ) | (347 | ) | ||||||
Minus: Accounts payable |
(717 | ) | (655 | ) | (680 | ) | (708 | ) | (658 | ) | ||||||
Minus: Accounts payable to related parties |
(119 | ) | (255 | ) | (156 | ) | (210 | ) | (154 | ) | ||||||
Minus: Provisions and other current liabilities(1) |
(2,592 | ) | (2,694 | ) | (2,665 | ) | (2,750 | ) | (2,775 | ) | ||||||
Minus: Income tax payable |
(180 | ) | (185 | ) | (175 | ) | (162 | ) | (166 | ) | ||||||
| | | | | | | | | | | | | | | | | |
Invested capital |
23,952 | 24,271 | 23,360 | 23,516 | 22,376 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Average invested capital as of December 31, 2019 |
23,495 | |||||||||||||||
Operating income(3) |
2,116 |
|||||||||||||||
Income tax expense(2),(3) |
(527 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
NOPAT |
1,589 | |||||||||||||||
ROIC in % (adjusted for IFRS 16) |
6.8 |
% |
||||||||||||||
20
Business metrics for Care Coordination
The measures for the North America Segment and the Asia-Pacific Segment discussed below include prior programs in which we participated and current and future programs that we will be participating in and will be reflected in the discussion of our business. Currently, in our North America Segment, sub-capitation, ESCO programs and other shared savings programs are included within the Member Months and Medical Cost Under Management calculations below. In the future, other programs may be included in the metrics below. Note that due to the timing required by CMS to review ESCO program data that we provide, estimates have been used to report these metrics in a timely manner. The Asia-Pacific Segment Care Coordination metric currently used for discussion purposes is patient encounters. In light of our renal care continuum strategy, these metrics may be adjusted or developed further in future periods. These metrics are neither IFRS measures nor non-IFRS measures and are therefore not accompanied by, or reconciled to, IFRS measures.
Member months under medical cost management
In our North America Segment, member months under medical cost management is calculated by multiplying the number of members included in value-based reimbursement programs by the corresponding number of months these members participate in those programs ("Member Months"). In the aforementioned programs, we assume the risk associated with generating savings. The value-based programs within Care Coordination include sub-capitation arrangements, the ESCO program and various other shared savings programs. Additionally, we provide coordinated and holistic care for eligible CKD and ESRD members through a value-based payment model in which reimbursement is based on meeting agreed quality improvement, patient outcome goals and cost efficiencies ("Coordinated Care Program"). An increase in patient membership may indicate future earnings or losses as our performance is determined through these managed care programs.
Medical cost under management
In our North America Segment, medical cost under management represents the management of medical costs associated with our patient membership in value-based programs. For ESCOs and other shared savings programs, this is calculated by multiplying the Member Months in each program by the benchmark of expected medical costs per member per month. The sub-capitation calculation multiplies the premium per member of the program per month by the number of Member Months associated with the plan, as noted above.
Care Coordination patient encounters
In the North America Segment and the Asia-Pacific Segment, Care Coordination patient encounters represents the total patient encounters and procedures conducted by certain of our Care Coordination activities and, we believe, is an indicator of the revenue generated. Care Coordination patient encounters in the North America Segment is the sum of all encounters and procedures completed during the period by MedSpring Urgent Care Centers (in 2019), Azura Vascular Care, and National Cardiovascular Partners, as well as patients in our Fresenius Medical Care Rx Bone Mineral Metabolism program. Care Coordination patient encounters in the Asia-Pacific Segment is the sum of all encounters for the following services: ambulant treatment services in day care hospitals, comprehensive and specialized health check-ups, inpatient and outpatient services, vascular access and other chronic treatment services.
III. Results of operations, financial position and net assets
The following sections summarize our results of operations, financial position and net assets as well as key performance indicators by reporting segment, as well as Corporate, for the periods indicated. We prepared the information consistent with the manner in which management internally disaggregates financial information to assist in making operating decisions and evaluating management performance.
21
Results of operations
Segment data (including Corporate)
in € M
| |
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | 2020 | 2019 | |||||||||
Total revenue |
|||||||||||||
North America Segment |
3,069 | 3,073 | 9,495 | 9,021 | |||||||||
EMEA Segment |
682 | 683 | 2,048 | 1,984 | |||||||||
Asia-Pacific Segment |
484 | 475 | 1,377 | 1,360 | |||||||||
Latin America Segment |
170 | 182 | 508 | 516 | |||||||||
Corporate |
9 | 6 | 31 | 16 | |||||||||
| | | | | | | | | | | | | | |
Total |
4,414 | 4,419 | 13,459 | 12,897 | |||||||||
| | | | | | | | | | | | | | |
Operating income |
|||||||||||||
North America Segment |
514 | 477 | 1,587 | 1,279 | |||||||||
EMEA Segment |
99 | 100 | 278 | 334 | |||||||||
Asia-Pacific Segment |
97 | 90 | 237 | 254 | |||||||||
Latin America Segment |
11 | 11 | 29 | 28 | |||||||||
Corporate |
(89 | ) | (83 | ) | (288 | ) | (242 | ) | |||||
| | | | | | | | | | | | | | |
Total |
632 | 595 | 1,843 | 1,653 | |||||||||
| | | | | | | | | | | | | | |
Interest income |
8 | 21 | 27 | 47 | |||||||||
Interest expense |
(96 | ) | (126 | ) | (311 | ) | (374 | ) | |||||
Income tax expense |
(124 | ) | (98 | ) | (362 | ) | (292 | ) | |||||
| | | | | | | | | | | | | | |
Net income |
420 | 392 | 1,197 | 1,034 | |||||||||
Net income attributable to noncontrolling interests |
(66 |
) |
(59 |
) |
(210 |
) |
(177 |
) |
|||||
| | | | | | | | | | | | | | |
Net income attributable to shareholders of FMC-AG & Co. KGaA |
354 | 333 | 987 | 857 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Revenue and operating income generated in countries outside the eurozone are subject to currency fluctuations. The three months ended September 30, 2020 were negatively impacted by the development of the euro against the U.S. dollar, whereas the nine months ended September 30, 2020 were relatively unaffected. The three and nine months ended September 30, 2019 were positively impacted by the development of the euro against the U.S. dollar. For the three and nine months ended September 30, 2020, approximately 70% and 71% of revenue and approximately 81% and 86% of operating income were generated in U.S. dollars, respectively.
22
Three months ended September 30, 2020 compared to three months ended September 30, 2019
Consolidated financials
Key indicators for the consolidated financial statements
in € M, except where otherwise specified
| |
For the three months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Revenue |
4,414 | 4,419 | (0 | )% | (6 | )% | 6 | % | ||||||||
Health care services |
3,499 | 3,492 | 0 | % | (6 | )% | 6 | % | ||||||||
Health care products |
915 | 927 | (1 | )% | (5 | )% | 4 | % | ||||||||
Number of dialysis treatments |
13,572,506 | 13,237,546 | 3 | % | ||||||||||||
Same market treatment growth in % |
1.8 | % | 3.7 | % | ||||||||||||
Gross profit as a % of revenue |
31.0 | % | 30.5 | % | ||||||||||||
Selling, general and administrative costs as a % of revenue |
16.3 | % | 16.6 | % | ||||||||||||
Operating income |
632 | 595 | 6 | % | (5 | )% | 11 | % | ||||||||
Operating income margin in % |
14.3 | % | 13.5 | % | ||||||||||||
Delivered Operating Income(2) |
566 | 536 | 5 | % | (5 | )% | 10 | % | ||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA |
354 | 333 | 6 | % | (5 | )% | 11 | % | ||||||||
Basic earnings per share in € |
1.21 | 1.10 | 9 | % | (5 | )% | 14 | % | ||||||||
Health care services revenue remained stable as compared to the three months ended September 30, 2019. In addition to a 6% negative impact from foreign currency translation, health care services revenue increased by 6% driven by organic growth despite lower reimbursement for calcimimetics (3%), a revenue recognition adjustment for accounts receivable in legal dispute in the prior year (3%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (1%).
Dialysis treatments increased by 3% as a result of growth in same market treatments (2%) and contributions from acquisitions (2%), partially offset by the effect of closed or sold clinics (1%).
At September 30, 2020, we owned, operated or managed 4,073 dialysis clinics compared to 4,003 dialysis clinics at September 30, 2019. During the three months ended September 30, 2020, we acquired 25 dialysis clinics, opened 18 dialysis clinics and combined or closed 6 clinics. The number of patients treated in dialysis clinics that we own, operate or manage increased by 2% to 349,167 at September 30, 2020 (September 30, 2019: 342,488).
Health care product revenue decreased by 1%, including a 5% negative impact from foreign currency translation. At Constant Exchange Rates, health care product revenue increased by 4%. Dialysis product revenue decreased by 2%. In addition to a 6% negative impact from foreign currency translation, dialysis product revenue increased by 4% driven by higher sales of products for acute care treatments, machines for chronic treatment, peritoneal dialysis products and renal pharmaceuticals, partially offset by lower sales of in-center disposables. Non-dialysis product revenue increased by 20% to €24 M from €20 M with virtually no foreign currency translation effects. The non-dialysis product revenue increase was due to higher sales of acute cardiopulmonary products.
The increase period over period in the gross profit margin of 31.0% (2019: 30.5%) was 0.5 percentage points. Foreign currency translation effects represented a 0.4 percentage point increase in the current period. The increase was primarily driven by a favorable impact related to a revenue recognition adjustment for accounts receivable in legal dispute in the prior year and the prior year effect of a reduction in patient attribution and a decreasing savings rate for ESCOs ("Prior Year ESCO effect") in the North America Segment, partially offset by higher personnel expense and higher costs for supplies in the North America Segment as well as unfavorable business growth in certain business lines in the Asia-Pacific Segment.
23
The decrease period over period in selling, general and administrative ("SG&A") expense as a percentage of revenue of 16.3% (2019: 16.6%) was 0.3 percentage points. Foreign currency translation effects represented a 0.1 percentage point increase in the current period. The decrease was primarily driven by the prior year effects of (a) costs associated with the sustained improvement of our cost base ("Costs Optimization costs") (North America Segment and EMEA Segment), (b) a revenue recognition adjustment for accounts receivable in legal dispute and (c) the Prior Year ESCO Effect as well as the current year effects of COVID-19-related meeting and travel savings and higher income attributable to a consent agreement on certain renal pharmaceuticals within the North America Segment. Additionally, the decrease was driven by lower bad debt expense (Asia-Pacific Segment), favorable foreign currency transaction effects in the Latin America Segment and at Corporate and business growth, including acquisitions combined with a favorable impact from cost management initiatives (mainly in the Asia-Pacific Segment and the EMEA Segment). The decrease was mostly offset by the remeasurement effect on the fair value of investments in the prior year and contributions to the opposition of U.S state ballot initiatives in the North America Segment, unfavorable foreign currency transaction effects in the EMEA Segment and higher costs related to the compliance monitor engaged in accordance with the DOJ and SEC non-prosecution agreement (see note 8 of the notes to the consolidated financial statements included in this report) at Corporate.
The increase period over period in the operating income margin was 0.8 percentage points. Foreign currency translation effects represented a 0.2 percentage point increase in the current period. The increase in the current period was largely driven by the increase in the gross profit margin coupled with the decrease in SG&A expenses, as discussed above.
Delivered Operating Income increased by 5%. In addition to a 5% negative impact from foreign currency translation, Delivered Operating Income increased by 10% largely driven by increased operating income.
Net interest expense decreased by 16% to €88 M from €105 M. Including a 5% positive impact from foreign currency translation, net interest expense decreased by 11% primarily due to the replacement of high interest-bearing bonds by debt instruments at lower interest rates, lower variable Libor-based interest rates and a lower debt level.
Income tax expense increased to €124 M from €98 M. The effective tax rate increased to 22.9% from 20.2% for the same period of 2019 largely driven by the prior year tax benefit related to the divestiture of Sound Inpatient Physicians, Inc., and the increase of non-tax deductible expenses in the U.S. in the current year, partially offset by the prior year impact related to the release of a tax liability and the increase of tax-free income related to equity method investees.
Net income attributable to noncontrolling interests increased by 12% to €66 M from €59 M. In addition to a 7% positive impact from foreign currency translation, net income attributable to noncontrolling interests increased by 19% due to higher earnings in entities in which we have less than 100% ownership.
Net income attributable to shareholders of FMC-AG & Co. KGaA increased by 6% to €354 M from €333 M. In addition to a 5% negative impact from foreign currency translation, net income attributable to shareholders of FMC-AG & Co. KGaA increased by 11% as a result of the combined effects of the items discussed above. COVID-19 resulted in a negative impact to net income attributable to shareholders of FMC-AG & Co. KGaA in the amount of €8 M for the three months ended September 30, 2020.
Basic earnings per share increased by 9%. In addition to a 5% negative impact from foreign currency translation, basic earnings per share increased by 14% primarily due to the increase in net income attributable to shareholders of FMC-AG & Co. KGaA described above coupled with a decrease in the average weighted number of shares outstanding for the period. The average weighted number of shares outstanding for the period decreased to approximately 292.8 M on September 30, 2020 (September 30, 2019: 301.4 M), primarily as a result of our share buy-back program (see note 2 of the notes to the consolidated financial statements (unaudited) included in this report).
We employed 126,463 people (full-time equivalents) as of September 30, 2020 (September 30, 2019: 120,734). This 5% increase was primarily due to acquisitions and organic growth in our business.
Consolidated operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the three
24
months ended September 30, 2020 and 2019, we identified the following transactions which, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the consolidated financial statements in accordance with IFRS to the key indicators adjusted for the items described above. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
Consolidated operating performance on an adjusted basis
in € M, except where otherwise specified
| |
|
|
|
|
(Gain) loss related to divestitures of Care Coordination activities |
|
Change in % as adjusted |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Results 2020 |
Results 2019 |
NxStage costs |
Cost optimization costs |
Results 2019 adjusted |
Current rate |
Constant Currency(1) |
||||||||||||||||||
Three months ended September 30 |
|||||||||||||||||||||||||
EBITDA |
1,025 | 1,005 | 2 | 7 | (2 | ) | 1,012 | 1 | % | 6 | % | ||||||||||||||
Operating income |
632 | 595 | 2 | 25 | (2 | ) | 620 | 2 | % | 7 | % | ||||||||||||||
Operating income margin in % |
14.3 | % | 13.5 | % | 14.0 | % | |||||||||||||||||||
Income tax expense |
124 | 98 | 1 | 7 | 18 | 124 | 0 | % | 5 | % | |||||||||||||||
Net income(2) |
354 | 333 | 1 | 18 | (20 | ) | 332 | 7 | % | 11 | % | ||||||||||||||
Basic earnings per share in € |
1.21 | 1.10 | 0.01 | 0.06 | (0.07 | ) | 1.10 | 10 | % | 14 | % | ||||||||||||||
25
The following discussions pertain to the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment and the measures we use to manage these segments.
North America Segment
Key indicators and business metrics for the North America Segment
in € M, except where otherwise specified
| |
For the three months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Total North America Segment |
||||||||||||||||
Revenue |
3,069 | 3,073 | (0 | )% | (5 | )% | 5 | % | ||||||||
Health care services |
2,801 | 2,795 | 0 | % | (6 | )% | 6 | % | ||||||||
Health care products |
268 | 278 | (4 | )% | (6 | )% | 2 | % | ||||||||
Operating income |
514 | 477 | 8 | % | (5 | )% | 13 | % | ||||||||
Operating income margin in % |
16.8 | % | 15.5 | % | ||||||||||||
Delivered Operating Income(2) |
452 | 422 | 7 | % | (5 | )% | 12 | % | ||||||||
Dialysis |
||||||||||||||||
Revenue |
2,740 | 2,800 | (2 | )% | (5 | )% | 3 | % | ||||||||
Number of dialysis treatments |
8,296,384 | 8,174,088 | 1 | % | ||||||||||||
Same market treatment growth in % |
1.0 | % | 3.4 | % | ||||||||||||
Operating income |
490 | 500 | (2 | )% | (5 | )% | 3 | % | ||||||||
Operating income margin in % |
17.9 | % | 17.9 | % | ||||||||||||
Delivered Operating Income(2) |
436 | 450 | (3 | )% | (5 | )% | 2 | % | ||||||||
Care Coordination |
||||||||||||||||
Revenue |
329 | 273 | 20 | % | (7 | )% | 27 | % | ||||||||
Operating income |
24 | (23 | ) | n.a. | n.a. | |||||||||||
Operating income margin in % |
7.2 | % | (8.3 | )% | ||||||||||||
Delivered Operating Income(2) |
16 | (28 | ) | n.a. | n.a. | |||||||||||
Member months under medical cost management(3),(4) |
162,442 | 146,714 | 11 | % | ||||||||||||
Medical cost under management(3),(4) |
936 | 975 | (4 | )% | (6 | )% | 2 | % | ||||||||
Care Coordination patient encounters(3) |
179,792 | 224,531 | (20 | )% | ||||||||||||
Revenue
Dialysis revenue decreased by 2%. In addition to a 5% negative impact resulting from foreign currency translation, dialysis revenue increased by 3%. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care revenue decreased by 2% to €2,472 M from €2,522 M. In addition to a 5% negative impact from foreign currency translation, dialysis care revenue increased by 3% mainly due to a revenue recognition adjustment for accounts receivable in legal dispute in the prior year (3%) and contributions from acquisitions (1%), partially offset by a decrease in organic growth as a result of lower reimbursement for calcimimetics and COVID-19-related reduced growth in treatments (1%).
Dialysis treatments increased by 1% largely due to growth in same market treatments (1%). At September 30, 2020, 211,766 patients, an increase of 1% (September 30, 2019: 209,633), were treated in
26
the 2,620 dialysis clinics (September 30, 2019: 2,585) that we own or operate in the North America Segment.
Health care product revenue decreased by 4%. In addition to a 6% negative impact from foreign currency translation, health care product revenue increased by 2% driven by higher sales of products for acute care treatments, renal pharmaceuticals and peritoneal dialysis products, partially offset by lower external sales of home hemodialysis products and in-center disposables.
Operating income margin
Operating income margin remained stable period over period. Foreign currency translation effects represented a 0.1 percentage point increase in the dialysis operating income margin. The increase was primarily due to a favorable impact related to a revenue recognition adjustment for accounts receivable in legal dispute in the prior year, Cost Optimization costs in the prior year, favorable cost management of pharmaceuticals, as well as COVID-19-related meeting and travel savings and the effect of the suspended Medicare sequestration, an increase in commercial revenue mainly offset by the remeasurement effect on the fair value of investments in the prior year, higher personnel expense, contributions to the opposition of U.S. state ballot initiatives and lower reimbursement for calcimimetics.
Delivered Operating Income
Dialysis Delivered Operating Income decreased by 3%. In addition to a 5% negative impact from foreign currency translation, Delivered Operating Income increased by 2% mainly as a result of increased operating income at Constant Exchange Rates.
Revenue
Care Coordination revenue increased by 20%. In addition to a 7% negative impact from foreign currency translation, Care Coordination revenue increased by 27% largely driven by an increase in organic growth impacted by the Prior Year ESCO Effect (32%), partially offset by the effect of closed or sold centers (3%) and lower contributions from acquisitions (2%).
Operating income margin
The increase period over period in the Care Coordination operating income margin was 15.5 percentage points. Foreign currency translation effects represented a 0.3 percentage point decrease in the operating income margin. The increase was mainly due to the Prior Year ESCO Effect.
Delivered Operating Income
Care Coordination Delivered Operating Income increased to €16 M for the three months ended September 30, 2020 as compared to a loss of € 28 M in the comparative period of 2019 mainly as the result of increased operating income.
Care Coordination business metrics
Member months under medical cost management increased by 11% due to increases in member months related to the Coordinated Care Program as well as our payor programs, partially offset by a decrease in member months related to our existing ESCOs. See note 4 to the table "Key indicators and business metrics for the North America Segment," above.
Care Coordination's medical cost under management decreased by 4%. Including a 6% negative impact from foreign currency translation, Care Coordination's medical cost under management increased by 2% due to the increase in member months related to payor programs, partially offset by a decrease in member months related to our existing ESCOs as described above. See note 4 to the table "Key indicators and business metrics for the North America Segment" above.
The decrease in patient encounters was primarily driven by decreased encounters for urgent care services as a result of the divestiture of the Medspring Urgent Care Center business in the second quarter of 2019.
27
North America Segment operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the three months ended September 30, 2020 and 2019, we identified the following transactions that, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the North America Segment in accordance with IFRS to the key indicators adjusted for the items described above. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
North America Segment operating performance on an adjusted basis
in € M, except where otherwise specified
| |
|
|
|
|
|
|
Change in % as adjusted |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
|
|
|
(Gain) loss related to divestitures of Care Coordination activities |
|
|||||||||||||||||||
| |
Results 2020 |
Results 2019 |
NxStage costs |
Cost optimization costs |
Results 2019 adjusted |
Current rate |
Constant Currency(1) |
||||||||||||||||||
Three months ended September 30 |
|||||||||||||||||||||||||
Operating income |
514 | 477 | 2 | 22 | (2 | ) | 499 | 3 | % | 8 | % | ||||||||||||||
Operating income margin in % |
16.8 | % | 15.5 | % | 16.2 | % | |||||||||||||||||||
Dialysis |
490 | 500 | 2 | 22 | — | 524 | (6 | )% | (2 | )% | |||||||||||||||
Dialysis operating income margin in % |
17.9 | % | 17.9 | % | 18.7 | % | |||||||||||||||||||
Care Coordination |
24 | (23 | ) | — | — | (2 | ) | (25 | ) | n.a. | n.a. | ||||||||||||||
Care Coordination operating income margin in % |
7.2 | % | (8.3 | )% | (9.2 | )% | |||||||||||||||||||
EMEA Segment
Key indicators for the EMEA Segment
in € M, except where otherwise specified
| |
For the three months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Revenue |
682 | 683 | (0 | )% | (3 | )% | 3 | % | ||||||||
Health care services |
346 | 343 | 1 | % | (4 | )% | 5 | % | ||||||||
Health care products |
336 | 340 | (1 | )% | (2 | )% | 1 | % | ||||||||
Number of dialysis treatments |
2,602,850 | 2,527,666 | 3 | % | ||||||||||||
Same market treatment growth in % |
1.7 | % | 3.6 | % | ||||||||||||
Operating income |
99 | 100 | (0 | )% | 0 | % | 0 | % | ||||||||
Operating income margin in % |
14.6 | % | 14.6 | % | ||||||||||||
Delivered Operating Income(2) |
98 | 98 | 0 | % | (1 | )% | 1 | % | ||||||||
28
Revenue
Health care service revenue increased by 1%. Including a 4% negative impact resulting from foreign currency translation, health care service revenue increased by 5% largely as a result of contributions from acquisitions (3%) and organic growth (3%), partially offset by the effect of closed or sold clinics (1%).
Dialysis treatments increased by 3% mainly due to growth in same market treatments (2%) and contributions from acquisitions (2%), partially offset by the effect of closed or sold clinics (1%). As of September 30, 2020, 67,623 patients, an increase of 2% (September 30, 2019: 66,259), were treated at the 805 dialysis clinics (September 30, 2019: 784) that we own, operate or manage in the EMEA Segment.
Health care product revenue decreased by 1% including a 2% negative impact from foreign currency translation. Dialysis product revenue decreased by 2% primarily due to a 2% negative impact resulting from foreign currency translation. Non-Dialysis product revenue increased by 16% to €23 M from €20 M with virtually no impact from foreign currency translation, largely due to higher sales of acute cardiopulmonary products.
Operating income margin
The operating income margin remained relatively stable period over period. Foreign currency translation effects represented a 0.4 percentage point increase in the operating income margin. The resulting slight decrease in operating income margin was mainly due to an unfavorable impact from foreign currency transaction effects, partially offset by the release of bad debt expense.
Delivered Operating Income
Delivered Operating Income remained relatively stable period over period. Including a 1% negative impact from foreign currency translation, Delivered Operating Income increased by 1%.
EMEA Segment operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the three months ended September 30, 2020, we adjusted the 2020 presentation to remove the 2019 Cost Optimization Costs in the amount of €3 M resulting in an adjusted operating income amount of €103 M and an adjusted operating income margin of 15.0%. When excluded from the results disclosed above, we believe the adjusted amount may provide a reader with further useful information in assessing our performance. While we believe the adjustment provided additional clarity to the discussion of our operating results, adjusted operating income and adjusted operating income margin for the EMEA Segment should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
29
Asia-Pacific Segment
Key indicators and business metrics for the Asia-Pacific Segment
in € M, except where otherwise specified
| |
For the three months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Total Asia-Pacific Segment |
||||||||||||||||
Revenue |
484 | 475 | 2 | % | (4 | )% | 6 | % | ||||||||
Health care services |
227 | 223 | 2 | % | (3 | )% | 5 | % | ||||||||
Health care products |
257 | 252 | 2 | % | (4 | )% | 6 | % | ||||||||
Operating income |
97 | 90 | 7 | % | (2 | )% | 9 | % | ||||||||
Operating income margin in % |
20.0 | % | 19.0 | % | ||||||||||||
Delivered Operating Income(2) |
95 | 88 | 7 | % | (1 | )% | 8 | % | ||||||||
Dialysis |
||||||||||||||||
Revenue |
413 | 411 | 1 | % | (4 | )% | 5 | % | ||||||||
Number of dialysis treatments |
1,181,179 | 1,160,964 | 2 | % | ||||||||||||
Same market treatment growth in % |
8.4 | % | 6.6 | % | ||||||||||||
Operating income |
82 | 81 | 0 | % | (2 | )% | 2 | % | ||||||||
Operating income margin in % |
19.9 | % | 19.9 | % | ||||||||||||
Delivered Operating Income(2) |
79 | 79 | (1 | )% | (2 | )% | 1 | % | ||||||||
Care Coordination |
||||||||||||||||
Revenue |
71 | 64 | 10 | % | (2 | )% | 12 | % | ||||||||
Operating income |
15 | 9 | 71 | % | 2 | % | 69 | % | ||||||||
Operating income margin in % |
21.0 | % | 13.6 | % | ||||||||||||
Delivered Operating Income(2) |
16 | 9 | 79 | % | 1 | % | 78 | % | ||||||||
Care Coordination Patient Encounters(3) |
318,935 | 295,146 | 8 | % | ||||||||||||
Revenue
Dialysis revenue increased by 1%. Including a 4% negative impact from foreign currency translation, dialysis revenue increased by 5%. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care service revenue decreased by 1% to €156 M from €159 M. Including a 3% negative impact resulting from foreign currency translation, dialysis care service revenue increased by 2% as a result of an increase in organic growth (6%) and contributions from acquisitions (3%), partially offset by the effect of closed or sold clinics (7%).
Dialysis treatments increased by 2% mainly due to growth in same market treatments (8%) and contributions from acquisitions (3%), partially offset by the effect of closed or sold clinics (9%). As of September 30, 2020, 32,689 patients (September 30, 2019: 32,239) were treated at the 397 dialysis clinics (September 30, 2019: 401) that we own, operate or manage in the Asia-Pacific Segment.
Health care product revenue increased by 2%, including a 4% negative impact resulting from foreign currency translation. Dialysis product revenue increased by 2% to €257 M from €252 M. Including a 4% negative impact resulting from foreign currency translation, dialysis product revenue increased by 6% mainly a result of higher sales of in-center disposables and products for acute care treatments, partially offset by lower sales of machines for chronic treatment.
30
Operating income margin
Operating income margin remained stable period over period. Foreign currency translation effects represented a 0.5 percentage point increase in the operating income margin. The decrease at Constant Exchange Rates was primarily due to an unfavorable impact from foreign currency transaction effects.
Delivered Operating Income
Delivered Operating Income decreased by 1%. Including a 2% negative impact resulting from foreign currency translation, Delivered Operating Income increased by 1% mainly due to increased operating income.
Revenue
Care Coordination revenue increased by 10%. Including a 2% negative impact resulting from foreign currency translation, Care Coordination revenue increased by 12% mainly driven by contributions from acquisitions (7%) and organic growth (5%).
Operating income margin
The increase period over period in the Care Coordination operating income margin was 7.4 percentage points. Foreign currency translation effects represented a 0.6 percentage point increase in the operating income margin. The increase was driven by a favorable impact from COVID-19 due to government relief related to costs incurred during the first nine months of 2020.
Delivered Operating Income
Care Coordination Delivered Operating Income increased by 79%. Including a 1% positive impact resulting from foreign currency translation, Care Coordination Delivered Operating Income increased by 78% mainly as a result of increased operating income.
Care Coordination business metrics
The number of patient encounters increased primarily due to increased encounters for inpatient and outpatient services as a result of acquisitions in the region.
Latin America Segment
Key indicators for the Latin America Segment
in € M, except where otherwise specified
| |
For the three months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Revenue |
170 | 182 | (7 | )% | (29 | )% | 22 | % | ||||||||
Health care services |
120 | 131 | (9 | )% | (28 | )% | 19 | % | ||||||||
Health care products |
50 | 51 | (1 | )% | (28 | )% | 27 | % | ||||||||
Number of dialysis treatments |
1,492,093 | 1,374,828 | 9 | % | ||||||||||||
Same market treatment growth in % |
1.8 | % | 2.7 | % | ||||||||||||
Operating income |
11 | 11 | 6 | % | (22 | )% | 28 | % | ||||||||
Operating income margin in % |
6.6 | % | 5.8 | % | ||||||||||||
Delivered Operating Income(2) |
11 | 11 | 4 | % | (21 | )% | 25 | % | ||||||||
31
Revenue
Health care service revenue decreased by 9%. Including a 28% negative impact resulting from foreign currency translation, health care service revenue increased by 19% as a result of an increase in organic growth (13%) and contributions from acquisitions (6%).
Dialysis treatments increased by 9% mainly due to contributions from acquisitions (7%) and growth in same market treatments (2%). As of September 30, 2020, 37,089 patients, an increase of 8% (September 30, 2019: 34,357), were treated at the 251 dialysis clinics (September 30, 2019: 233) that we own, operate or manage in the Latin America Segment.
Health care product revenue decreased by 1%. Including a 28% negative impact resulting from foreign currency translation, health care product revenue increased by 27% due to higher sales of machines for chronic treatment.
Operating income margin
The increase period over period in the operating income margin was 0.8 percentage points primarily driven by foreign currency translation effects of 0.5 percentage points.
Delivered Operating Income
Delivered Operating Income increased by 4%. Including a 21% negative impact resulting from foreign currency translation, Delivered Operating Income increased by 25% due to increased operating income.
Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Consolidated financials
Key indicators for the consolidated financial statements
in € M, except where otherwise specified
| |
For the nine months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Revenue |
13,459 | 12,897 | 4 | % | (2 | )% | 6 | % | ||||||||
Health care services |
10,708 | 10,265 | 4 | % | (2 | )% | 6 | % | ||||||||
Health care products |
2,751 | 2,632 | 5 | % | (2 | )% | 7 | % | ||||||||
Number of dialysis treatments |
40,098,653 | 38,757,809 | 3 | % | ||||||||||||
Same market treatment growth in % |
2.7 | % | 3.6 | % | ||||||||||||
Gross profit as a % of revenue |
31.1 | % | 30.6 | % | ||||||||||||
Selling, general and administrative costs as a % of revenue |
17.0 | % | 17.4 | % | ||||||||||||
Operating income |
1,843 | 1,653 | 11 | % | (1 | )% | 12 | % | ||||||||
Operating income margin in % |
13.7 | % | 12.8 | % | ||||||||||||
Delivered Operating Income(2) |
1,633 | 1,476 | 11 | % | 0 | % | 11 | % | ||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA |
987 | 857 | 15 | % | 0 | % | 15 | % | ||||||||
Basic earnings per share in € |
3.35 | 2.82 | 19 | % | 0 | % | 19 | % | ||||||||
Health care services revenue increased by 4% compared to the nine months ended September 30, 2019. In addition to a 2% negative impact from foreign currency translation, health care services revenue increased by 6% driven by organic growth despite lower reimbursement for calcimimetics (4%), contributions from acquisitions (2%) and a revenue recognition adjustment for accounts receivable in legal dispute in the prior year (1%), partially offset by the effect of closed or sold clinics (1%).
Dialysis treatments increased by 3% as a result of growth in same market treatments (3%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (1%).
32
Health care product revenue increased by 5%. Including a 2% negative impact from foreign currency translation, health care product revenue increased by 7% Dialysis product revenue increased by 4%. In addition to a 2% negative impact from foreign currency translation, dialysis product revenue increased by 6% driven by higher sales of products for acute care treatments, in-center disposables, renal pharmaceuticals and home hemodialysis products, partially offset by lower sales of machines for chronic treatment. Non-dialysis product revenue increased by 36% to €76 M from €56 M, with virtually no impact from foreign currency translation. The increase in non-dialysis product revenue was due to higher sales of acute cardiopulmonary products.
The increase period over period in the gross profit margin of 31.1% (2019: 30.6%) was 0.5 percentage points. Foreign currency translation effects represented a 0.2 percentage point increase in the current period. The increase was primarily driven by lower costs for renal pharmaceuticals and a revenue recognition adjustment for accounts receivable in legal dispute in the prior year within the North America Segment, partially offset by higher personnel expense in the North America Segment and the EMEA Segment as well as unfavorable business growth in certain business lines and unfavorable foreign currency transaction effects in the Asia-Pacific Segment.
The decrease period over period in SG&A expense as a percentage of revenue of 17.0% (2019: 17.4%) was 0.4 percentage points. Foreign currency translation effects represented a 0.1 percentage point increase in the current period. The decrease was primarily driven by the prior year impacts from (a) legal settlements, (b) integration costs associated with NxStage, (c) the Prior Year ESCO Effect and (d) Cost Optimization costs, as well as the current year impacts from COVID-19-related meeting and travel savings and lower health insurance expense in the North America Segment. The decrease was partially offset by the prior year remeasurement effect on the fair value of investments (North America Segment), the reduction of a contingent consideration liability related to Xenios AG ("Xenios") in 2019 (EMEA Segment) and higher costs related to the compliance monitor engaged in accordance with the DOJ and SEC non-prosecution agreement (see note 8 of the notes the consolidated financial statements included in this report) (Corporate).
The gain related to divestitures of Care Coordination activities was €32 M in the nine months ended September 30, 2020, as compared to €14 M in the comparable period of 2019 primarily due to the divestiture of cardiovascular clinics in the North America Segment in the current year.
Research and development expenses increased by 19% to €141 M from €119 M. The period over period increase, as a percentage of revenue, was 0.2 percentage points, largely driven by research and development activities at NxStage as well as in-center and home program development and research activities in the fields of digital connectivity and regenerative medicine.
Income from equity method investees decreased by 23% to €48 M from €63 M. The decrease was primarily driven by an impairment of a license held by Vifor Fresenius Medical Care Renal Pharma Ltd. ("VFMCRP") based on an unfavorable clinical trial.
The increase period over period in the operating income margin was 0.9 percentage points. Foreign currency translation effects represented a 0.1 percentage point increase in the current period. The increase in the current period was largely driven by the increase in the gross profit margin coupled with the decrease in SG&A expenses, as discussed above.
Delivered Operating Income increased by 11%, with virtually no impact from foreign currency translation. The increase was largely driven by increased operating income.
Net interest expense decreased by 13% to €284 M from €327 M. In addition to a 1% positive impact from foreign currency translation, net interest expense decreased by 12% primarily due to lower interest rates driven by the replacement of high interest-bearing bonds by debt instruments at lower interest rates and lower variable Libor-based interest rates, partially offset by a higher debt level.
Income tax expense increased by 24% to €362 M from €292 M. The effective tax rate increased to 23.2% from 22.0% for the same period of 2019 largely driven by the prior year tax benefit related to the divestiture of Sound Inpatient Physicians, Inc., the tax-free contingent consideration liability gain from Xenios in 2019 and the increase of non-tax deductible expenses in the U.S. in the current year, partially offset by the prior year impact related to the release of a tax liability and the increase of tax-free income related to equity method investees.
33
Net income attributable to noncontrolling interests increased by 19% to €210 M from €177 M, with virtually no impact from foreign currency translation. The increase was due to higher earnings in entities in which we have less than 100% ownership.
Net income attributable to shareholders of FMC-AG & Co. KGaA increased by 15% to €987 M from €857 M, with virtually no impact from foreign currency translation. The increase was as a result of the combined effects of the items discussed above. COVID-19 resulted in a negative impact to net income attributable to shareholders of FMC-AG & Co. KGaA in the amount of €7 M for the nine months ended September 30, 2020.
Basic earnings per share increased by 19%, with virtually no impact from foreign currency translation. The increase was primarily due to the increase in net income attributable to shareholders of FMC-AG & Co. KGaA described above, coupled with a decrease in the average weighted number of shares outstanding for the period. The average weighted number of shares outstanding for the period decreased to approximately 294.5 M on September 30, 2020 (September 30, 2019: 303.8 M), primarily as a result of our share buy-back program (see note 2 of the notes to the consolidated financial statements (unaudited) included in this report).
Consolidated operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the nine months ended September 30, 2020 and 2019, we identified the following transactions which, when excluded from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the consolidated financial statements in accordance with IFRS to the key indicators adjusted for the items described above. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
Consolidated operating performance on an adjusted basis
in € M, except where otherwise specified
| |
|
|
|
|
(Gain) loss related to divestitures of Care Coordination activities |
|
|
|
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
|
|
|
|
Change in % as adjusted | |||||||||||||||||||
| |
Results 2020 |
Results 2019 |
NxStage costs |
Cost optimization costs |
Results 2019 adjusted |
Current rate |
Constant Currency(1) |
||||||||||||||||||
Nine months ended September 30 |
|||||||||||||||||||||||||
EBITDA |
3,047 | 2,812 | 22 | 14 | (14 | ) | 2,834 | 8 | % | 8 | % | ||||||||||||||
Operating income |
1,843 | 1,653 | 22 | 32 | (14 | ) | 1,693 | 9 | % | 9 | % | ||||||||||||||
Operating income margin in % |
13.7 | % | 12.8 | % | 13.1 | % | |||||||||||||||||||
Income tax expense |
362 | 292 | 6 | 8 | 15 | 321 | 13 | % | 13 | % | |||||||||||||||
Net income(2) |
987 | 857 | 16 | 24 | (29 | ) | 868 | 14 | % | 14 | % | ||||||||||||||
Basic earnings per share in € |
3.35 | 2.82 | 0.05 | 0.08 | (0.09 | ) | 2.86 | 17 | % | 18 | % | ||||||||||||||
34
The following discussions pertain to the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment and the measures we use to manage these segments.
North America Segment
Key indicators and business metrics for the North America Segment
in € M, except where otherwise specified
| |
For the nine months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | As reported | Currency translation effects | Constant Currency(1) | |||||||||||
Total North America Segment |
||||||||||||||||
Revenue |
9,495 | 9,021 | 5 | % | 0 | % | 5 | % | ||||||||
Health care services |
8,660 | 8,264 | 5 | % | 0 | % | 5 | % | ||||||||
Health care products |
835 | 757 | 10 | % | 0 | % | 10 | % | ||||||||
Operating income |
1,587 | 1,279 | 24 | % | 0 | % | 24 | % | ||||||||
Operating income margin in % |
16.7 | % | 14.2 | % | ||||||||||||
Delivered Operating Income(2) |
1,385 | 1,112 | 25 | % | 0 | % | 25 | % | ||||||||
Dialysis |
||||||||||||||||
Revenue |
8,480 | 8,162 | 4 | % | 0 | % | 4 | % | ||||||||
Number of dialysis treatments |
24,600,114 | 23,872,968 | 3 | % | ||||||||||||
Same market treatment growth in % |
2.1 | % | 3.4 | % | ||||||||||||
Operating income |
1,474 | 1,261 | 17 | % | 0 | % | 17 | % | ||||||||
Operating income margin in % |
17.4 | % | 15.4 | % | ||||||||||||
Delivered Operating Income(2) |
1,298 | 1,107 | 17 | % | 0 | % | 17 | % | ||||||||
Care Coordination |
||||||||||||||||
Revenue |
1,015 | 859 | 18 | % | 0 | % | 18 | % | ||||||||
Operating income |
113 | 18 | 529 | % | 0 | % | 529 | % | ||||||||
Operating income margin in % |
11.1 | % | 2.1 | % | ||||||||||||
Delivered Operating Income(2) |
87 | 5 | 1,610 | % | (3 | )% | 1,613 | % | ||||||||
Member months under medical cost management(3),(4) |
508,117 | 482,970 | 5 | % | ||||||||||||
Medical cost under management(3),(4) |
3,196 | 3,149 | 1 | % | (1 | )% | 2 | % | ||||||||
Care Coordination patient encounters(3) |
563,809 | 774,764 | (27 | )% | ||||||||||||
Revenue
Dialysis revenue increased by 4%, with virtually no impact from foreign currency translation. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care revenue increased by 3% to €7,645 M from €7,405 M, with virtually no impact from foreign currency translation. The increase was mainly due to a revenue recognition adjustment for accounts receivable in legal dispute in the prior year (1%) contributions from acquisitions (1%) and organic growth despite lower reimbursement for calcimimetics (1%).
Dialysis treatments increased by 3% largely due to growth in same market treatments (2%) and contributions from acquisitions (1%).
Health care product revenue increased by 10%, with virtually no impact from foreign currency translation. The increase driven by higher sales of products for acute care treatments, renal pharmaceuticals and in-center disposables, partially offset by lower sales of machines for chronic treatment and home hemodialysis products.
35
Operating income margin
The increase period over period in the dialysis operating income margin was 2.0 percentage points, with virtually no impact from foreign currency translation. The increase was primarily due to a favorable impact related to a revenue recognition adjustment for accounts receivable in legal dispute in the prior year, favorable cost management of pharmaceuticals, an increase in commercial revenue, Cost Optimization costs in the prior year as well as COVID-19-related meeting and travel savings and the effect of the suspended Medicare sequestration, partly offset by the remeasurement effect on the fair value of investments in the prior year, higher personnel expense and contributions to the opposition of U.S. state ballot initiatives.
Delivered Operating Income
Dialysis Delivered Operating Income increased by 17%, with virtually no impact from foreign currency translation. The increase was mainly as a result of increased operating income, partially offset by an increase in income attributable to noncontrolling interests.
Revenue
Care Coordination revenue increased by 18%, with virtually no impact from foreign currency translation. The increase was largely driven by an increase in organic growth impacted by the Prior Year ESCO Effect (23%), partially offset by the effect of closed or sold centers (5%).
Operating income margin
The increase period over period in the Care Coordination operating income margin was 9.0 percentage points with virtually no impact from foreign currency translation in the current period. The increase was mainly due to the Prior Year ESCO Effect, increased gains related to the divestiture of Care Coordination activities, a favorable impact from vascular access services driven by lower operating costs and higher volumes of procedures as well as a favorable impact from urgent care services, partially offset by an unfavorable impact from pharmacy services.
Delivered Operating Income
Care Coordination Delivered Operating Income increased by 1,610%. In addition to a 3% negative impact from foreign currency translation, Delivered Operating Income increased by 1,613% mainly as a result of increased operating income.
Care Coordination business metrics
Member months under medical cost management increased by 5% due to increases in member months related to payor programs and the Coordinated Care Program, partially offset by a decrease in member months related to our existing ESCOs. See note 4 to the table "Key indicators and business metrics for the North America Segment," above.
Care Coordination's medical cost under management increased by 1%. Including a 1% negative impact from foreign currency translation, Care Coordination's medical cost under management increased by 2% due to the increase in member months related to payor programs, partially offset by a decrease in member months related to our existing ESCOs as described above. See note 4 to the table "Key indicators and business metrics for the North America Segment" above.
The decrease in patient encounters was primarily driven by decreased encounters for urgent care services as a result of the divestiture of the Medspring Urgent Care Center business in the second quarter of 2019.
North America Segment operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the nine months ended September 30, 2020 and 2019, we identified the following transactions that, when excluded
36
from the results disclosed above, may provide a reader with further useful information in assessing our performance:
The following table reconciles the key indicators for the North America Segment in accordance with IFRS to the key indicators adjusted for the items described above. While we believe these adjustments provide additional clarity to the discussion of our operating results, the following table should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
North America Segment operating performance on an adjusted basis
in € M, except where otherwise specified
| |
|
|
|
|
(Gain) loss related to divestitures of Care Coordination activities |
|
|
|
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
|
|
|
|
Change in % as adjusted | |||||||||||||||||||
| |
Results 2020 |
Results 2019 |
NxStage costs |
Cost optimization costs |
Results 2019 adjusted |
Current rate |
Constant Currency(1) |
||||||||||||||||||
Nine months ended September 30 |
|||||||||||||||||||||||||
Operating income |
1,587 | 1,279 | 22 | 29 | (14 | ) | 1,316 | 21 | % | 21 | % | ||||||||||||||
Operating income margin in % |
16.7 | % | 14.2 | % | 14.6 | % | |||||||||||||||||||
Dialysis |
1,474 | 1,261 | 22 | 29 | — | 1,312 | 12 | % | 13 | % | |||||||||||||||
Dialysis operating income margin in % |
17.4 | % | 15.4 | % | 16.1 | % | |||||||||||||||||||
Care Coordination |
113 | 18 | — | — | (14 | ) | 4 | 2,662 | % | 2,665 | % | ||||||||||||||
Care Coordination operating income margin in % |
11.1 | % | 2.1 | % | 0.5 | % | |||||||||||||||||||
EMEA Segment
Key indicators for the EMEA Segment
in € M, except where otherwise specified
| |
For the nine months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||
Revenue |
2,048 | 1,984 | 3 | % | (2 | )% | 5 | % | ||||||||
Health care services |
1,028 | 1,002 | 3 | % | (2 | )% | 5 | % | ||||||||
Health care products |
1,020 | 982 | 4 | % | (1 | )% | 5 | % | ||||||||
Number of dialysis treatments |
7,659,111 | 7,503,691 | 2 | % | ||||||||||||
Same market treatment growth in % |
2.3 | % | 3.6 | % | ||||||||||||
Operating income |
278 | 334 | (17 | )% | (1 | )% | (16 | )% | ||||||||
Operating income margin in % |
13.6 | % | 16.8 | % | ||||||||||||
Delivered Operating Income(2) |
276 | 330 | (16 | )% | 0 | % | (16 | )% | ||||||||
Revenue
Health care service revenue increased by 3%. Including a 2% negative impact resulting from foreign currency translation, health care service revenue increased by 5% largely as a result of an increase in organic growth (4%) and contributions from acquisitions (2%), partially offset by the effect of closed or sold clinics (1%).
Dialysis treatments increased by 2% mainly due to growth in same market treatments (2%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (1%).
37
Health care product revenue increased by 4%. Including a 1% negative impact from foreign currency translation, health care product revenue increased by 5%. Dialysis product revenue increased by 3%. Including a 1% negative impact from foreign currency translation, dialysis product revenue increased by 4% due to higher sales of products for acute care treatments and home hemodialysis products, partially offset by lower sales of in-center disposables and machines for chronic treatment. Non-Dialysis product revenue increased by 24% to €70 M from €56 M. Including a 1% negative impact from foreign currency translation, non-dialysis product revenue increased by 25% largely due to higher sales of acute cardiopulmonary products.
Operating income margin
The decrease period over period in the operating income margin was 3.2 percentage points. Foreign currency translation effects represented a 0.2 percentage point increase in the operating income margin. The decrease was mainly due to the reduction of a contingent consideration liability related to Xenios in the prior year period, an impairment of a license held by VFMCRP based on an unfavorable clinical trial for CCX140, higher personnel expense in certain countries, unfavorable foreign currency transaction effects and increased expenses driven by COVID-19, partially offset by lower bad debt expense.
Delivered Operating Income
Delivered Operating Income decreased by 16%, with virtually no impact from foreign currency translation, primarily due to decreased operating income.
EMEA Segment operating performance on an adjusted basis
Management believes that there are certain distinct transactions or events for which the operating results should be adjusted to enhance transparency and comparability. We believe the following results (adjusted to exclude these items) should be analyzed in connection with the results presented above. For the nine months ended September 30, 2020, we adjusted the 2020 presentation to remove the 2019 Cost Optimization Costs in the amount of €3 M resulting in an adjusted operating income amount of €337 M and an adjusted operating income margin of 17.0%. When excluded from the results disclosed above, we believe the adjusted amount may provide a reader with further useful information in assessing our performance. While we believe the adjustment provided additional clarity to the discussion of our operating results, adjusted operating income and adjusted operating income margin for the EMEA Segment should only be viewed as a supplement to our results disclosed in accordance with IFRS above.
38
Asia-Pacific Segment
Key indicators and business metrics for the Asia-Pacific Segment
in € M, except where otherwise specified
| |
For the nine months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||
Total Asia-Pacific Segment |
||||||||||||||||
Revenue |
1,377 | 1,360 | 1 | % | (1 | )% | 2 | % | ||||||||
Health care services |
641 | 632 | 1 | % | 0 | % | 1 | % | ||||||||
Health care products |
736 | 728 | 1 | % | (2 | )% | 3 | % | ||||||||
Operating income |
237 | 254 | (7 | )% | 0 | % | (7 | )% | ||||||||
Operating income margin in % |
17.2 | % | 18.7 | % | ||||||||||||
Delivered Operating Income(2) |
232 | 248 | (7 | )% | 0 | % | (7 | )% | ||||||||
Dialysis |
||||||||||||||||
Revenue |
1,206 | 1,187 | 2 | % | 0 | % | 2 | % | ||||||||
Number of dialysis treatments |
3,465,604 | 3,398,594 | 2 | % | ||||||||||||
Same market treatment growth in % |
8.1 | % | 7.0 | % | ||||||||||||
Operating income |
227 | 235 | (4 | )% | 0 | % | (4 | )% | ||||||||
Operating income margin in % |
18.8 | % | 19.8 | % | ||||||||||||
Delivered Operating Income(2) |
220 | 230 | (4 | )% | 0 | % | (4 | )% | ||||||||
Care Coordination |
||||||||||||||||
Revenue |
171 | 173 | (1 | )% | (1 | )% | 0 | % | ||||||||
Operating income |
10 | 19 | (46 | )% | (3 | )% | (43 | )% | ||||||||
Operating income margin in % |
6.1 | % | 11.1 | % | ||||||||||||
Delivered Operating Income(2) |
12 | 18 | (36 | )% | (3 | )% | (33 | )% | ||||||||
Care Coordination Patient Encounters(3) |
706,946 | 759,726 | (7 | )% | ||||||||||||
Revenue
Dialysis revenue increased by 2%, with virtually no impact resulting from foreign currency translation. Dialysis revenue is comprised of dialysis care revenue and health care product revenue.
Dialysis care service revenue increased by 2% to €470 M from €459 M, with virtually no impact resulting from foreign currency translation. The increase was as a result of an increase in organic growth (5%), contributions from acquisitions (1%) and an increase in dialysis days (1%), partially offset by the effect of closed or sold clinics (5%).
Dialysis treatments increased by 2% mainly due to growth in same market treatments (8%), an increase in dialysis days (1%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (8%).
Health care product revenue increased by 1%. Including a 2% negative impact from foreign currency translation, health care product revenue increased by 3%. Dialysis product revenue remained relatively stable. Including a 2% negative impact from foreign currency translation, dialysis product revenue increased by 2% due to a result of higher sales of products for acute care treatments and in-center disposables, partially offset by lower sales of machines for chronic treatment. Non-Dialysis product revenue increased to €5 M (2019: €0 M) due to higher sales of acute cardiopulmonary products.
Operating income margin
The decrease period over period in the operating income margin was 1.0 percentage points. Foreign currency translation effects represented a 0.2 percentage point increase in the operating income margin.
39
The decrease was primarily due to impacts from unfavorable foreign currency transaction effects and lower income from equity method investees, partially offset by COVID-19-related travel savings and a gain from the deconsolidation of clinics.
Delivered Operating Income
Delivered Operating Income decreased by 4%, with virtually no impact from foreign currency translation. The decrease was mainly due to decreased operating income.
Revenue
Care Coordination revenue decreased by 1%. Including a 1% negative impact resulting from foreign currency translation, Care Coordination revenue remained stable.
Operating income margin
The decrease period over period in the Care Coordination operating income margin was 5.0 percentage points. Foreign currency translation effects represented a 0.2 percentage point decrease in the operating income margin. The decrease was driven by unfavorable effects related to COVID-19 and an unfavorable mix effect from acquisitions with lower margins.
Delivered Operating Income
Care Coordination Delivered Operating Income decreased by 36%. In addition to a 3% negative impact resulting from foreign currency translation, Care Coordination Delivered Operating Income decreased by 33% mainly as a result of decreased operating income.
Care Coordination business metrics
The number of patient encounters decreased primarily due to the impacts of COVID-19.
40
Latin America Segment
Key indicators for the Latin America Segment
in € M, except where otherwise specified
| |
For the nine months ended September 30 |
Change in % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
As reported |
Currency translation effects |
Constant Currency(1) |
|||||||||||||
| |
2020 | 2019 | ||||||||||||||
Revenue |
508 | 516 | (2 | )% | (25 | )% | 23 | % | ||||||||
Health care services |
360 | 367 | (2 | )% | (26 | )% | 24 | % | ||||||||
Health care products |
148 | 149 | (1 | )% | (21 | )% | 20 | % | ||||||||
Number of dialysis treatments |
4,373,824 | 3,982,556 | 10 | % | ||||||||||||
Same market treatment growth in % |
3.4 | % | 1.9 | % | ||||||||||||
Operating income |
29 | 28 | 4 | % | (14 | )% | 18 | % | ||||||||
Operating income margin in % |
5.7 | % | 5.4 | % | ||||||||||||
Delivered Operating Income(2) |
29 | 28 | 4 | % | (13 | )% | 17 | % | ||||||||
Revenue
Health care service revenue decreased by 2%. Including a 26% negative impact resulting from foreign currency translation, health care service revenue increased by 24% as a result of an increase in organic growth (17%) and contributions from acquisitions (7%).
Dialysis treatments increased by 10% mainly due to contributions from acquisitions (6%), growth in same market treatments (3%) and an increase in dialysis days (1%).
Health care product revenue decreased by 1%. Including a 21% negative impact resulting from foreign currency translation, health care product revenue increased by 20% due to higher sales of in-center disposables, machines for chronic treatment and products for acute care treatments.
Operating income margin
The increase period over period in the operating income margin was 0.3 percentage points. Foreign currency translation effects represented a 0.5 percentage point increase in the operating income margin in the current period. The decrease in margin, at constant exchange rates, was mainly driven by a cost increases driven by inflation not fully offset by reimbursement increases, partially offset by favorable foreign currency transaction effects.
Delivered Operating Income
Delivered Operating Income increased by 4%. Including a 13% negative impact resulting from foreign currency translation, Delivered Operating Income increased by 17% due to increased operating income.
Financial position
Sources of liquidity
Our primary sources of liquidity are typically cash provided by operating activities, cash provided by short-term debt from third parties and related parties, proceeds from the issuance of long-term debt and divestitures. We require this capital primarily to finance working capital needs, fund acquisitions, operate clinics, develop free-standing renal dialysis clinics and other health care facilities, purchase equipment for existing or new renal dialysis clinics 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).
As of September 30, 2020, our available borrowing capacity resulting from unutilized credit facilities amounted to approximately €2.5 billion. The Amended 2012 Credit Agreement accounted for approximately €1.4 billion in unutilized available borrowing capacity.
41
In our long-term financial planning, we focus primarily on the net leverage ratio, a Non-IFRS measure, see "II. Discussion of measures—Non—IFRS measures—Net leverage ratio (Non-IFRS Measure)" above. At September 30, 2020 and December 31, 2019, the net leverage ratio was 2.8 and 3.2, respectively.
At September 30, 2020, we had cash and cash equivalents of €1,599 M (December 31, 2019: €1,008 M).
Free cash flow (Net cash provided by (used in) operating activities, after capital expenditures, before acquisitions and investments) amounted to €2,913 M and €1,019 M for the nine months ended September 30, 2020 and September 30, 2019, respectively. Free cash flow is a Non-IFRS Measure and is reconciled to net cash provided by (used in) operating activities, the most directly comparable IFRS measure, see "II. Discussion of measures—Non—IFRS measures—Cash flow measures" above. Free cash flow in percent of revenue was 21.6% and 7.9% for the nine months ended September 30, 2020 and 2019, respectively.
Net cash provided by (used in) operating activities
In the first nine months of 2020, net cash provided by operating activities was €3,649 M as compared to net cash provided by operating activities of €1,796 M in the first nine months of 2019. Net cash provided by operating activities in percent of revenue increased to 27% for the first nine months of 2020 as compared to 14% for 2019. Cash provided by (used in) 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 increase in net cash provided by operating activities was largely driven by U.S. federal relief funding and advanced payments under the CARES Act and other COVID-19 relief (see note 2 of the notes to the consolidated financial statements included in this report), including lower tax payments in the U.S., as well as working capital improvement driven by a positive effect from cash collections.
The profitability of our business depends significantly on reimbursement rates for our services. Approximately 80% of our revenue is generated by providing health care services, a major portion of which is reimbursed by either public health care organizations or private insurers. For the nine months ended September 30, 2020, approximately 32% of our consolidated revenue was attributable to reimbursements from U.S. federal health care benefit programs, such as Medicare and Medicaid. 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 position and results of operations and thus on our capacity to generate cash flow. See "I. Overview," above.
We intend to continue to address our current cash and financing requirements using cash provided by operating activities, our existing and future credit agreements, issuances under our commercial paper program (see note 5 of the notes to the consolidated financial statements (unaudited) included in this report) as well as from the use of our Accounts Receivable Facility. In addition, to finance acquisitions or meet other needs, we expect to successfully complete long-term financing arrangements, such as the issuance of bonds. We aim to preserve financial resources with a minimum of €500 M of committed and unutilized credit facilities.
Net cash provided by (used in) operating activities depends on the collection of accounts receivable. Commercial customers and government institutions generally have different payment cycles. Lengthening 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 the legal systems of, and due to the economic conditions in, some countries. Accounts receivable balances, net of valuation allowances, represented Days Sales Outstanding ("DSO") of 51 days at September 30, 2020, a decrease as compared to 73 days at December 31, 2019.
DSO by segment is calculated by dividing the segment's accounts and other receivables and contract liabilities, converted to euro using the average exchange rate for the period presented, less any sales or value added tax included in the receivables, by the average daily sales for the last twelve months of that segment, converted to euro using the average exchange rate for the period. Receivables and revenues are adjusted for amounts related to acquisitions and divestitures made within the reporting period with a
42
purchase price above a €50 M threshold as defined in the Amended 2012 Credit Agreement. The development of DSO by reporting segment is shown in the table below:
Development of days sales outstanding
in days
| |
September 30, 2020 |
December 31, 2019 |
Increase/decrease primarily driven by: | |||||
|---|---|---|---|---|---|---|---|---|
North America Segment |
26 | 58 | Federal relief funding and advanced payments under the CARES Act and other COVID-19 relief | |||||
EMEA Segment |
91 |
96 |
Improvement of payment collections in the region |
|||||
Asia-Pacific Segment |
114 |
113 |
Remained relatively stable |
|||||
Latin America Segment |
138 |
127 |
Periodic delays in payment of public health care organizations in certain countries |
|||||
FMC-AG & Co. KGaA average days sales outstanding |
51 |
73 |
||||||
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.
Net cash provided by (used in) investing activities
In the first nine months of 2020, net cash used in investing activities was €881 M as compared to net cash used in investing activities of €2,745 M in the comparable period of 2019. The following table shows our capital expenditures for property, plant and equipment, net of proceeds from sales of property, plant and equipment as well as acquisitions, investments and purchases of intangible assets for the first nine months of 2020 and 2019:
Capital expenditures (net), acquisitions, investments and purchases of intangible assets
in € M
| |
Capital expenditures, net | Acquisitions, investments and purchases of intangible assets | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
For the nine months ended September 30, | ||||||||||||
| |
2020 | 2019 | 2020 | 2019 | |||||||||
North America Segment |
396 | 412 | 92 | 1,926 | |||||||||
thereof investments in debt securities |
— | — | 30 | 10 | |||||||||
EMEA Segment |
86 | 85 | 35 | 30 | |||||||||
Asia-Pacific Segment |
56 | 40 | 18 | 9 | |||||||||
Latin America Segment |
19 | 19 | 30 | 44 | |||||||||
Corporate |
179 | 221 | 10 | 15 | |||||||||
| | | | | | | | | | | | | | |
Total |
736 | 777 | 185 | 2,024 | |||||||||
The majority of our capital expenditures in the first nine months of 2020 was used for maintaining existing clinics, equipping new clinics, maintaining and expanding production facilities, capitalization of machines provided to our customers and for Care Coordination as well as capitalization of certain development costs. Capital expenditures decreased to approximately 5% of total revenue in the first nine months of 2020 as compared to approximately 6% of total revenue during the same period in 2019.
Acquisitions in the first nine months of 2019 were primarily driven by the acquisition of NxStage on February 21, 2019 as well as dialysis clinics.
43
Investments in the first nine months of 2020 were primarily comprised of the debt securities. In the first nine months of 2020, we received €40 M from divestitures. These divestitures were mainly related to the divestment of debt securities and certain research & development investments.
Investments in the first nine months of 2019 were primarily comprised of debt securities. In the first nine months of 2019, we received €56 M from divestitures. These divestitures were mainly related to the divestment of MedSpring Urgent Care Centers in Texas, a California based cardiovascular business, sales of debt securities as well as B.Braun Medical Inc.'s purchase of NxStage's bloodlines business in connection with our acquisition of NxStage.
In 2020, we anticipate capital expenditures of €1.1 to €1.3 billion and expect to make acquisitions and investments, excluding investments in debt securities, of approximately €500 to €700 M.
Net cash provided by (used in) financing activities
In the first nine months of 2020, net cash used in financing activities was €2,095 M as compared to net cash used in financing activities of €302 M in the first nine months of 2019.
In the first nine months of 2020, cash was mainly used in the repayment of short-term debt (including repayments under our commercial paper program and short-term debt from related parties) and long-term debt (including the repayment of Convertible Bonds at maturity in January 2020, the early repayment of the EUR term loan 2017 / 2020 under the Amended 2012 Credit Agreement (originally due on July 30, 2020) on May 29, 2020 and the early repayment of bonds (originally due on October 15, 2020) on July 17, 2020), the repayment of lease liabilities, repayments of the Accounts Receivable Facility, shares repurchased as part of a share buy-back program, payments of dividends as well as distributions to noncontrolling interests, partially offset by proceeds from long-term debt (including proceeds from the issuance of bonds in an aggregate principal amount of €1,250 M on May 29, 2020 and the issuance of bonds in an aggregate principal amount of $1,000 M on September 16, 2020) and short-term debt (including short-term debt from related parties).
In the first nine months of 2019, cash was mainly used in the repayments of long-term debt (including the current portion of long-term debt primarily driven by the repayment of bonds due in July 2019), repayment of lease liabilities, shares repurchased as part of a share buy-back program, payment of dividends, repayments of short-term debt and distributions to noncontrolling interests, partially offset by proceeds from long-term debt (including additional drawings under the revolving credit facilities of the Amended 2012 Credit Agreement and the issuance of bonds with a volume of $500 M), the utilization of the accounts receivable facility, as well as proceeds from and short-term debt and short-term debt from related parties.
On September 1, 2020, we paid a dividend with respect to 2019 of €1.20 per share (for 2018 paid in 2019 €1.17 per share). The total dividend payment was €351 M as compared to €355 M in the prior year.
Balance sheet structure
Total assets as of September 30, 2020 remained relatively stable at €33.0 billion as compared to €32.9 billion at December 31, 2019. In addition to a 5% negative impact resulting from foreign currency translation, total assets increased by 5% to €34.6 billion from €32.9 billion primarily driven by increases in cash and cash equivalents, inventories, property, plant and equipment as well as goodwill.
Current assets as a percent of total assets increased to 24% at September 30, 2020 as compared to 22% at December 31, 2019, primarily driven by an increase in cash and cash equivalents as well as inventories, partially offset by a decrease in trade accounts receivable. The equity ratio, the ratio of our equity divided by total liabilities and shareholders' equity, decreased to 38% at September 30, 2020 as compared to 40% at December 31, 2019, primarily driven by an increase in long-term debt as well as an increase in accrued expenses and other current liabilities related to U.S. federal relief funding and advanced payments under the CARES Act and other COVID-19 relief, partially offset by a decrease in short-term debt and the current portion of long-term debt. ROIC increased to 6.4% at September 30, 2020 as compared to 6.1% at December 31, 2019. Adjusted for IFRS 16, ROIC was 7.3% at September 30, 2020. For further information on ROIC, see "II. Discussion of measures—Non—IFRS measures—Return on invested capital (ROIC) (Non-IFRS Measure)" above.
Report on post-balance sheet date events
Refer to note 11 in the notes to the consolidated financial statements (unaudited) included in this report.
Recently issued accounting standards
Refer to note 1 of the notes to the consolidated financial statements (unaudited) included in this report for information regarding recently issued accounting standards.
44
FRESENIUS MEDICAL CARE AG & Co. KGaA
Financial statements
Consolidated statements of income
(unaudited)
Consolidated statements of income
in € thousands ("THOUS"), except per share data
| |
|
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Note | 2020 | 2019 | 2020 | 2019 | ||||||||||
Revenue: |
|||||||||||||||
Health care services |
2a | 3,499,437 | 3,492,316 | 10,707,969 | 10,264,821 | ||||||||||
Health care products |
2a | 914,331 | 926,687 | 2,750,940 | 2,631,771 | ||||||||||
| | | | | | | | | | | | | | | | |
|
4,413,768 | 4,419,003 | 13,458,909 | 12,896,592 | |||||||||||
Costs of revenue: |
|
||||||||||||||
Health care services |
2,596,271 | 2,666,246 | 7,988,471 | 7,777,401 | |||||||||||
Health care products |
450,453 | 406,768 | 1,281,713 | 1,176,992 | |||||||||||
| | | | | | | | | | | | | | | | |
|
3,046,724 | 3,073,014 | 9,270,184 | 8,954,393 | |||||||||||
Gross profit |
1,367,044 |
1,345,989 |
4,188,725 |
3,942,199 |
|||||||||||
Operating (income) expenses: |
|
||||||||||||||
Selling, general and administrative |
717,750 | 731,410 | 2,285,192 | 2,246,746 | |||||||||||
(Gain) loss related to divestitures of Care Coordination activities |
(3,236 | ) | (2,462 | ) | (32,160 | ) | (13,862 | ) | |||||||
Research and development |
2b | 44,923 | 42,197 | 141,346 | 119,178 | ||||||||||
Income from equity method investees |
10 | (24,173 | ) | (20,544 | ) | (48,487 | ) | (63,058 | ) | ||||||
| | | | | | | | | | | | | | | | |
Operating income |
631,780 | 595,388 | 1,842,834 | 1,653,195 | |||||||||||
Other (income) expense: |
|||||||||||||||
Interest income |
(7,531 | ) | (20,761 | ) | (27,469 | ) | (46,659 | ) | |||||||
Interest expense |
95,223 | 125,485 | 311,320 | 373,586 | |||||||||||
| | | | | | | | | | | | | | | | |
Income before income taxes |
544,088 | 490,664 | 1,558,983 | 1,326,268 | |||||||||||
Income tax expense |
124,342 | 99,103 | 361,952 | 292,312 | |||||||||||
Net income |
419,746 | 391,561 | 1,197,031 | 1,033,956 | |||||||||||
Net income attributable to noncontrolling interests |
66,244 | 58,977 | 209,838 | 176,843 | |||||||||||
| | | | | | | | | | | | | | | | |
Net income attributable to shareholders of FMC-AG & Co. KGaA |
2d | 353,502 | 332,584 | 987,193 | 857,113 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Basic earnings per share |
2c | 1.21 | 1.10 | 3.35 | 2.82 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Diluted earnings per share |
2c | 1.21 | 1.10 | 3.35 | 2.82 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
45
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated statements of comprehensive income
(unaudited)
Consolidated statements of comprehensive income
in € THOUS
| |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | 2020 | 2019 | |||||||||
Net income |
419,746 | 391,561 | 1,197,031 | 1,033,956 | |||||||||
| | | | | | | | | | | | | | |
Other comprehensive income (loss): |
|||||||||||||
Components that will not be reclassified to profit or loss: |
|||||||||||||
Equity method investees—share of OCI |
2,107 | — | 53,411 | — | |||||||||
FVOCI equity investments |
500 | — | 19,329 | — | |||||||||
Actuarial gain (loss) on defined benefit pension plans |
(24,617 | ) | — | (19,417 | ) | — | |||||||
Income tax (expense) benefit related to components of other comprehensive income not reclassified |
7,505 | — | 2,793 | — | |||||||||
| | | | | | | | | | | | | | |
|
(14,505 | ) | — | 56,116 | — | ||||||||
Components that may be reclassified subsequently to profit or loss: |
|||||||||||||
Gain (loss) related to foreign currency translation |
(637,272 | ) | 524,334 | (809,871 | ) | 654,764 | |||||||
FVOCI debt securities |
(595 | ) | — | 30,810 | — | ||||||||
Gain (loss) related to cash flow hedges |
(3,435 | ) | 409 | 3,183 | (12,316 | ) | |||||||
Cost of hedging |
2,203 | (302 | ) | 2,416 | (1,064 | ) | |||||||
Income tax (expense) benefit related to components of other comprehensive income that may be reclassified |
341 | (55 | ) | (6,962 | ) | 3,114 | |||||||
| | | | | | | | | | | | | | |
|
(638,758 | ) | 524,386 | (780,424 | ) | 644,498 | |||||||
Other comprehensive income (loss), net of tax |
(653,263 |
) |
524,386 |
(724,308 |
) |
644,498 |
|||||||
| | | | | | | | | | | | | | |
Total comprehensive income |
(233,517 | ) | 915,947 | 472,723 | 1,678,454 | ||||||||
Comprehensive income attributable to noncontrolling interests |
14,526 |
107,830 |
159,144 |
231,404 |
|||||||||
| | | | | | | | | | | | | | |
Comprehensive income (loss) attributable to shareholders of FMC-AG & Co. KGaA |
(248,043 | ) | 808,117 | 313,579 | 1,447,050 | ||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
46
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated balance sheets
(unaudited)
Consolidated balance sheets
in € THOUS, except share data
| |
Note | September 30, 2020 |
December 31, 2019 |
||||||
|---|---|---|---|---|---|---|---|---|---|
Assets |
|||||||||
Cash and cash equivalents |
1,598,659 | 1,007,723 | |||||||
Trade accounts and other receivables |
3,251,856 | 3,421,346 | |||||||
Accounts receivable from related parties |
3 | 138,232 | 159,196 | ||||||
Inventories |
4 | 1,897,017 | 1,663,278 | ||||||
Other current assets |
938,304 | 913,603 | |||||||
| | | | | | | | | | |
Total current assets |
7,824,068 | 7,165,146 | |||||||
Property, plant and equipment |
4,079,751 | 4,190,281 | |||||||
Right-of-use assets |
4,264,007 | 4,325,115 | |||||||
Intangible assets |
1,419,384 | 1,426,330 | |||||||
Goodwill |
13,589,294 | 14,017,255 | |||||||
Deferred taxes |
429,150 | 361,196 | |||||||
Investment in equity method investees |
10 | 706,994 | 696,872 | ||||||
Other non-current assets |
736,487 | 752,540 | |||||||
| | | | | | | | | | |
Total non-current assets |
25,225,067 | 25,769,589 | |||||||
| | | | | | | | | | |
Total assets |
33,049,135 | 32,934,735 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Liabilities |
|||||||||
Accounts payable |
728,592 | 716,526 | |||||||
Accounts payable to related parties |
3 | 132,300 | 118,663 | ||||||
Current provisions and other current liabilities |
2d | 3,924,577 | 2,864,250 | ||||||
Short-term debt |
5 | 307,011 | 1,149,988 | ||||||
Short-term debt from related parties |
5 | 85,900 | 21,865 | ||||||
Current portion of long-term debt |
6 | 1,046,030 | 1,447,239 | ||||||
Current portion of long-term lease liabilities |
605,234 | 622,227 | |||||||
Current portion of long-term lease liabilities from related parties |
3 | 20,795 | 16,514 | ||||||
Income tax payable |
192,715 | 101,793 | |||||||
| | | | | | | | | | |
Total current liabilities |
7,043,154 | 7,059,065 | |||||||
Long-term debt, less current portion |
6 | 6,979,668 | 6,458,318 | ||||||
Long-term lease liabilities, less current portion |
3,882,843 | 3,959,865 | |||||||
Long-term lease liabilities from related parties, less current portion |
3 | 125,236 | 106,432 | ||||||
Non-current provisions and other non-current liabilities |
750,625 | 616,916 | |||||||
Pension liabilities |
741,288 | 689,195 | |||||||
Income tax payable |
75,999 | 78,005 | |||||||
Deferred taxes |
794,560 | 739,702 | |||||||
| | | | | | | | | | |
Total non-current liabilities |
13,350,219 | 12,648,433 | |||||||
| | | | | | | | | | |
Total liabilities |
20,393,373 | 19,707,498 | |||||||
Shareholders' equity: |
|||||||||
Ordinary shares, no par value, €1.00 nominal value, 374,165,226 shares authorized, 304,628,925 issued and 292,833,823 outstanding as of September 30, 2020 and 374,165,226 shares authorized, 304,436,876 issued and 298,329,247 outstanding as of December 31, 2019 |
304,629 | 304,437 | |||||||
Treasury stock, at cost |
2c | (736,490 | ) | (370,502 | ) | ||||
Additional paid-in capital |
3,593,311 | 3,607,662 | |||||||
Retained earnings |
10,054,892 | 9,454,861 | |||||||
Accumulated other comprehensive income (loss) |
(1,723,231 | ) | (1,038,545 | ) | |||||
| | | | | | | | | | |
Total FMC-AG & Co. KGaA shareholders' equity |
11,493,111 | 11,957,913 | |||||||
Noncontrolling interests |
1,162,651 | 1,269,324 | |||||||
| | | | | | | | | | |
Total equity |
12,655,762 | 13,227,237 | |||||||
| | | | | | | | | | |
Total liabilities and equity |
33,049,135 | 32,934,735 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
47
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated statements of cash flows
(unaudited)
Consolidated statements of cash flows
in € THOUS
| |
|
For the nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|---|
| |
Note | 2020 | 2019 | ||||||
Operating activities |
|||||||||
Net income |
1,197,031 | 1,033,956 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
||||||||
Depreciation, amortization and impairment loss |
10 | 1,203,993 | 1,158,662 | ||||||
Change in deferred taxes, net |
14,420 | 30,240 | |||||||
(Gain) loss from the sale of fixed assets, right-of-use assets, investments and divestitures |
(45,542 | ) | (101,109 | ) | |||||
Compensation expense related to share-based plans |
— | 2,203 | |||||||
Income from equity method investees |
10 | (48,487 | ) | (63,058 | ) | ||||
Interest expense, net |
283,851 | 326,927 | |||||||
Changes in assets and liabilities, net of amounts from businesses acquired: |
|||||||||
Trade accounts and other receivables |
1,703 | (85,162 | ) | ||||||
Inventories |
(313,517 | ) | (168,963 | ) | |||||
Other current and non-current assets |
(49,603 | ) | (73,579 | ) | |||||
Accounts receivable from related parties |
16,870 | 67,236 | |||||||
Accounts payable to related parties |
17,371 | 95,040 | |||||||
Accounts payable, provisions and other current and non-current liabilities |
2d | 1,469,513 | (128,730 | ) | |||||
Income tax payable |
223,852 | 353,058 | |||||||
Cash inflow (outflow) from hedging |
— | (12,697 | ) | ||||||
Received dividends from investments in equity method investees |
89,204 | 43,472 | |||||||
Paid interest |
(308,906 | ) | (370,921 | ) | |||||
Received interest |
27,469 | 35,291 | |||||||
Paid income taxes |
(130,251 | ) | (345,624 | ) | |||||
| | | | | | | | | | |
Net cash provided by (used in) operating activities |
3,648,971 | 1,796,242 | |||||||
| | | | | | | | | | |
Investing activities |
|||||||||
Purchases of property, plant and equipment |
(745,609 | ) | (787,778 | ) | |||||
Acquisitions and investments, net of cash acquired, and purchases of intangible assets |
(155,181 | ) | (2,014,264 | ) | |||||
Investments in debt securities |
(30,146 | ) | (9,874 | ) | |||||
Proceeds from sale of property, plant and equipment |
10,125 | 10,896 | |||||||
Proceeds from divestitures |
12,735 | 43,488 | |||||||
Proceeds from sale of debt securities |
27,482 | 12,337 | |||||||
| | | | | | | | | | |
Net cash provided by (used in) investing activities |
(880,594 | ) | (2,745,195 | ) | |||||
| | | | | | | | | | |
Financing activities |
|||||||||
Proceeds from short-term debt |
211,411 | 611,089 | |||||||
Repayments of short-term debt |
(1,058,160 | ) | (255,604 | ) | |||||
Proceeds from short-term debt from related parties |
581,711 | 281,200 | |||||||
Repayments of short-term debt from related parties |
(517,600 | ) | (112,200 | ) | |||||
Proceeds from long-term debt |
2,109,272 | 1,589,844 | |||||||
Repayments of long-term debt |
(1,540,548 | ) | (1,588,516 | ) | |||||
Repayments of lease liabilities |
(513,000 | ) | (494,284 | ) | |||||
Repayments of lease liabilities from related parties |
(15,023 | ) | (12,309 | ) | |||||
Increase (decrease) of accounts receivable facility |
(379,545 | ) | 649,018 | ||||||
Proceeds from exercise of stock options |
10,466 | 11,629 | |||||||
Purchase of treasury stock |
(365,988 | ) | (464,457 | ) | |||||
Dividends paid |
(351,170 | ) | (354,636 | ) | |||||
Distributions to noncontrolling interests |
(288,256 | ) | (203,869 | ) | |||||
Contributions from noncontrolling interests |
20,991 | 40,805 | |||||||
| | | | | | | | | | |
Net cash provided by (used in) financing activities |
(2,095,439 | ) | (302,290 | ) | |||||
| | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents |
(82,002 | ) | 70,665 | ||||||
Cash and cash equivalents: |
|||||||||
Net increase (decrease) in cash and cash equivalents |
590,936 | (1,180,578 | ) | ||||||
Cash and cash equivalents at beginning of period |
1,007,723 | 2,145,632 | |||||||
| | | | | | | | | | |
Cash and cash equivalents at end of period |
1,598,659 | 965,054 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
48
FRESENIUS MEDICAL CARE AG & Co. KGaA
Consolidated statements of shareholders´ equity
For the nine months ended September 30, 2020 and 2019 (unaudited)
Consolidated statements of shareholders´ equity
in € THOUS, except share data
| |
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) | |
|
|
|||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
Ordinary shares | Treasury stock | |
|
|
|
|
||||||||||||||||||||||||||||||||||
| |
|
Additional paid in capital | Retained earnings | Foreign currency translation | Cash flow hedges | |
Fair value changes | Total FMC- AG & Co. KGaA shareholders' equity |
Noncontrolling interests | |
||||||||||||||||||||||||||||||||
| |
Note | Number of shares | No par value | Number of shares | Amount | Pensions | Total equity | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 |
307,878,652 | 307,879 | (999,951 | ) | (50,993 | ) | 3,873,345 | 8,831,930 | (911,473 | ) | (1,528 | ) | (290,749 | ) | — | 11,758,411 | 1,143,547 | 12,901,958 | ||||||||||||||||||||||||
Adjustment due to initial application of IFRS 16 |
— | — | — | — | — | (120,809 | ) | — | — | — | — | (120,809 | ) | (15,526 | ) | (136,335 | ) | |||||||||||||||||||||||||
Adjusted balance at December 31, 2018 |
307,878,652 | 307,879 | (999,951 | ) | (50,993 | ) | 3,873,345 | 8,711,121 | (911,473 | ) | (1,528 | ) | (290,749 | ) | — | 11,637,602 | 1,128,021 | 12,765,623 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of options and related tax effects |
248,665 | 249 | — | — | 11,928 | — | — | — | — | — | 12,177 | — | 12,177 | |||||||||||||||||||||||||||||
Compensation expense related to stock options |
— | — | — | — | 2,203 | — | — | — | — | — | 2,203 | — | 2,203 | |||||||||||||||||||||||||||||
Purchase of treasury stock |
2c | — | — | (6,767,773 | ) | (457,908 | ) | — | — | — | — | — | — | (457,908 | ) | — | (457,908 | ) | ||||||||||||||||||||||||
Withdrawal of treasury stock |
2c | (3,770,772 | ) | (3,771 | ) | 3,770,772 | 269,796 | (266,025 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Dividends paid |
— | — | — | — | — | (354,636 | ) | — | — | — | — | (354,636 | ) | — | (354,636 | ) | ||||||||||||||||||||||||||
Purchase/ sale of noncontrolling interests |
— | — | — | — | (6,872 | ) | — | — | — | — | — | (6,872 | ) | 72,232 | 65,360 | |||||||||||||||||||||||||||
Contributions from/ to noncontrolling interests |
— | — | — | — | — | — | — | — | — | — | — | (165,149 | ) | (165,149 | ) | |||||||||||||||||||||||||||
Noncontrolling interests subject to put provisions |
9 | — | — | — | — | — | (2,704 | ) | — | — | — | — | (2,704 | ) | — | (2,704 | ) | |||||||||||||||||||||||||
Net Income |
— | — | — | — | — | 857,113 | — | — | — | — | 857,113 | 176,843 | 1,033,956 | |||||||||||||||||||||||||||||
Other comprehensive income (loss) related to: |
||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
— | — | — | — | — | — | 608,582 | (350 | ) | (8,029 | ) | — | 600,203 | 54,561 | 654,764 | |||||||||||||||||||||||||||
Cash flow hedges, net of related tax effects |
— | — | — | — | — | — | — | (10,266 | ) | — | — | (10,266 | ) | — | (10,266 | ) | ||||||||||||||||||||||||||
Comprehensive income |
— | — | — | — | — | — | — | — | — | — | 1,447,050 | 231,404 | 1,678,454 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2019 |
304,356,545 | 304,357 | (3,996,952 | ) | (239,105 | ) | 3,614,579 | 9,210,894 | (302,891 | ) | (12,144 | ) | (298,778 | ) | — | 12,276,912 | 1,266,508 | 13,543,420 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 |
304,436,876 | 304,437 | (6,107,629 | ) | (370,502 | ) | 3,607,662 | 9,454,861 | (664,987 | ) | (10,460 | ) | (363,098 | ) | — | 11,957,913 | 1,269,324 | 13,227,237 | ||||||||||||||||||||||||
Proceeds from exercise of options and related tax effects |
192,049 | 192 | — | — | 9,874 | — | — | — | — | — | 10,066 | — | 10,066 | |||||||||||||||||||||||||||||
Purchase of treasury stock |
2c | — | — | (5,687,473 | ) | (365,988 | ) | — | — | — | — | — | — | (365,988 | ) | — | (365,988 | ) | ||||||||||||||||||||||||
Dividends paid |
— | — | — | — | — | (351,170 | ) | — | — | — | — | (351,170 | ) | — | (351,170 | ) | ||||||||||||||||||||||||||
Purchase/ sale of noncontrolling interests |
— | — | — | — | (24,225 | ) | — | — | — | — | — | (24,225 | ) | (72,643 | ) | (96,868 | ) | |||||||||||||||||||||||||
Contributions from/ to noncontrolling interests |
— | — | — | — | — | — | — | — | — | — | (193,174 | ) | (193,174 | ) | ||||||||||||||||||||||||||||
Noncontrolling interests subject to put provisions |
9 | — | — | — | — | — | (47,064 | ) | — | — | — | — | (47,064 | ) | — | (47,064 | ) | |||||||||||||||||||||||||
Net Income |
— | — | — | — | — | 987,193 | — | — | — | — | 987,193 | 209,838 | 1,197,031 | |||||||||||||||||||||||||||||
Other comprehensive income (loss) related to: |
||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
— | — | — | — | — | — | (764,864 | ) | 344 | 7,184 | (1,841 | ) | (759,177 | ) | (50,694 | ) | (809,871 | ) | ||||||||||||||||||||||||
Cash flow hedges, net of related tax effects |
— | — | — | — | — | — | — | 3,990 | — | — | 3,990 | — | 3,990 | |||||||||||||||||||||||||||||
Pensions, net of related tax effects |
— | — | — | — | — | — | — | — | (14,328 | ) | — | (14,328 | ) | — | (14,328 | ) | ||||||||||||||||||||||||||
Fair value changes |
— | — | — | — | — | 11,072 | — | — | — | 84,829 | 95,901 | — | 95,901 | |||||||||||||||||||||||||||||
Comprehensive income |
— | — | — | — | — | — | — | — | — | — | 313,579 | 159,144 | 472,723 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2020 |
304,628,925 | 304,629 | (11,795,102 | ) | (736,490 | ) | 3,593,311 | 10,054,892 | (1,429,851 | ) | (6,126 | ) | (370,242 | ) | 82,988 | 11,493,111 | 1,162,651 | 12,655,762 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
49
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements
(unaudited)
(in THOUS, 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) registered in the commercial registry of Hof an der Saale under HRB 4019, with its business address at Else-Kröner-Str. 1, 61352 Bad Homburg v. d. Höhe, is the world's largest kidney dialysis company, based on publicly reported revenue and number of patients treated. The Company provides dialysis care and related dialysis care services to persons who suffer from end-stage renal disease ("ESRD"), as well as other health care services. The Company also develops, manufactures and distributes a wide variety of health care products, which includes dialysis and non-dialysis products. The Company's dialysis products include hemodialysis machines, peritoneal cyclers, dialyzers, peritoneal solutions, hemodialysis concentrates, solutions and granulates, bloodlines, renal pharmaceuticals and systems for water treatment. The Company's non-dialysis products include acute cardiopulmonary and apheresis products. The Company supplies dialysis clinics it owns, operates or manages with a broad range of products and also sells dialysis products to other dialysis service providers. The Company describes certain of its other health care services as "Care Coordination." Care Coordination currently includes, but is not limited to, value and risk-based arrangements, pharmacy services, vascular, cardiovascular and endovascular specialty services as well as ambulatory surgery center services, physician nephrology and cardiology services, urgent care services and ambulant treatment services. All of these Care Coordination services together with dialysis care and related services represent the Company's health care services.
In these unaudited consolidated financial statements, "FMC-AG & Co. KGaA," or the "Company" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. "Fresenius SE" and "Fresenius SE & Co. KGaA" refer to Fresenius SE & Co. KGaA. "Management AG" and the "General Partner" refer to Fresenius Medical Care Management AG which is FMC-AG & Co. KGaA's general partner and is wholly owned by Fresenius SE. "Management Board" refers to the members of the management board of Management AG and, except as otherwise specified, "Supervisory Board" refers to the supervisory board of FMC-AG & Co. KGaA. The term "North America Segment" refers to the North America operating segment, the term "EMEA Segment" refers to the Europe, Middle East and Africa operating segment, the term "Asia-Pacific Segment" refers to the Asia-Pacific operating segment, and the term "Latin America Segment" refers to the Latin America operating segment. For further discussion of the Company's operating segments, see note 10.
Basis of presentation
The consolidated financial statements and other financial information included in the Company's quarterly reports furnished under cover of Form 6-K and its Annual Report on Form 20-F are prepared solely in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), using the euro as the Company's reporting currency. The quarterly financial report is prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, and contains condensed financial statements, in that it does not include all of the notes that would be required in a complete set of financial statements, but rather selected explanatory notes. However, the primary financial statements are presented in the format consistent with the consolidated financial statements as presented in the Company's Annual Report on Form 20-F for the year ended December 31, 2019 (the "2019 Form 20-F") in accordance with IAS 1, Presentation of Financial Statements.
The consolidated financial statements at September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 contained in this report are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company's 2019 Form 20-F. The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
50
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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.
Starting on July 1, 2018, the Company's subsidiaries in Argentina applied IAS 29, Financial Reporting in Hyperinflationary Economies, due to the inflation in Argentina. Pursuant to IAS 29, the Company recorded a loss on its net monetary position of €12,439 for the nine months ended September 30, 2020. The Company calculated the loss with the use of the Consumer Price Index (Índice de precios al consumidor) as published by the Argentine Statistics and Census Institute for the nine months ended September 30, 2020, which lists the level at 346.6 index points, a 22% increase since January 1, 2020.
In the consolidated statements of income, "Selling, general and administrative" expense in the amount of €6,977 for the three months ended September 30, 2019 and €17,413 for the nine months ended September 30, 2019 have been reclassified from "Research and development" expense to conform to the current year's presentation. The 2020 presentation of amortization related to acquired technology previously recorded in "Selling, general and administrative" expense has been adjusted to present the expense in the amount of €36,881 for the nine months ended September 30, 2020 within "Costs of Revenue."
In the consolidated statements of cash flows, a decrease in receivables from equity-method investees in the amount of €53,149 for the nine months ended September 30, 2019 has been reclassified from line item "Trade accounts and other receivables" to line item "Accounts receivable from related parties" to conform to the current year's presentation.
In the consolidated balance sheets, "Non-current provisions and other non-current liabilities" in the amount of €51,831 as of December 31, 2019 have been reclassified to line item "current provisions and other current liabilities" to conform to the current year's presentation.
The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations for the year ending December 31, 2020.
At October 29, 2020, the Management Board authorized the consolidated financial statements to be issued.
New accounting pronouncements
Recently implemented accounting pronouncements
The Company has prepared its consolidated financial statements at and for the nine months ended September 30, 2020 in conformity with IFRS that must be applied for the interim periods starting on or after January 1, 2020. In the nine months ended September 30, 2020, there were no recently implemented accounting pronouncements that had a material effect on the Company's consolidated financial statements.
Recent accounting pronouncements not yet adopted
The IASB issued the following new standards which are relevant for the Company:
IFRS 17, Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure related to the issuance of insurance contracts. IFRS 17 replaces IFRS 4, Insurance Contracts, which was brought in as an interim standard in 2004. IFRS 4 permitted the use of national accounting standards for the accounting of insurance contracts under
51
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
1. The Company and basis of presentation (Continued)
IFRS. As a result of the varied application for insurance contracts there was a lack of comparability among peer groups. IFRS 17 eliminates this diversity in practice by requiring all insurance contracts to be accounted for using current values. The frequent updates to the insurance values are expected to provide more useful information to users of financial statements. On June 25, 2020, the IASB issued amendments to IFRS 17, which among others, defer the effective date to fiscal years beginning on or after January 1, 2023. Earlier adoption is permitted for entities that have also adopted IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers. The Company is evaluating the impact of IFRS 17 on the consolidated financial statements.
Amendments to IAS 1, Classification of Liabilities as Current and Non-current
In January 2020, the IASB issued Amendments to IAS 1, Classification of Liabilities as Current and Non-current. The amendments clarify under which circumstances debt and other liabilities with an uncertain settlement date should be classified as current or non-current. Among others, the amendments state that liabilities shall be classified depending on rights that exist at the end of the reporting period and define under which conditions liabilities might be settled by cash, other economic resources or equity.
On July 15th, the IASB deferred the effective date by one year to provide companies with more time to implement any classification changes resulting from the amendments. The Amendments to IAS 1 are now effective for annual reporting periods beginning on or after January 1, 2023. Earlier adoption is permitted. The Company is currently evaluating the impact of the amendments to IAS 1 on the consolidated financial statements.
In the Company's view, no other pronouncements issued by the IASB are expected to have a material impact on the consolidated financial statements.
2. Notes to the consolidated statements of income
The Company has recognized the following revenue in the consolidated statement of income for the three and nine months ended September 30, 2020 and 2019:
Revenue
in € THOUS
| |
For the three months ended September 30, |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | |||||||||||||||||
| |
Revenue from contracts with customers |
Other revenue |
Total | Revenue from contracts with customers |
Other revenue |
Total | |||||||||||||
Health care services |
|||||||||||||||||||
Dialysis services |
3,099,844 | — | 3,099,844 | 3,155,050 | — | 3,155,050 | |||||||||||||
Care Coordination |
327,560 | 72,033 | 399,593 | 271,307 | 65,959 | 337,266 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
3,427,404 | 72,033 | 3,499,437 | 3,426,357 | 65,959 | 3,492,316 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Health care products |
|||||||||||||||||||
Dialysis products |
866,144 | 24,459 | 890,603 | 877,008 | 29,869 | 906,877 | |||||||||||||
Non-dialysis products |
23,728 | — | 23,728 | 19,810 | — | 19,810 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
889,872 | 24,459 | 914,331 | 896,818 | 29,869 | 926,687 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total |
4,317,276 | 96,492 | 4,413,768 | 4,323,175 | 95,828 | 4,419,003 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
52
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
| |
For the nine months ended September 30, |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | |||||||||||||||||
| |
Revenue from contracts with customers |
Other revenue |
Total | Revenue from contracts with customers |
Other revenue |
Total | |||||||||||||
Health care services |
|||||||||||||||||||
Dialysis services |
9,522,094 | — | 9,522,094 | 9,232,698 | — | 9,232,698 | |||||||||||||
Care Coordination |
955,851 | 230,024 | 1,185,875 | 849,788 | 182,335 | 1,032,123 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
10,477,945 | 230,024 | 10,707,969 | 10,082,486 | 182,335 | 10,264,821 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Health care products |
|||||||||||||||||||
Dialysis products |
2,599,606 | 75,720 | 2,675,326 | 2,479,262 | 96,756 | 2,576,018 | |||||||||||||
Non-dialysis products |
75,614 | — | 75,614 | 55,753 | — | 55,753 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
2,675,220 | 75,720 | 2,750,940 | 2,535,015 | 96,756 | 2,631,771 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total |
13,153,165 | 305,744 | 13,458,909 | 12,617,501 | 279,091 | 12,896,592 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Research and development expenses of €141,346 for the nine months ended September 30, 2020 (for the nine months ended September 30, 2019: €119,178) included research and non-capitalizable development costs as well as depreciation and amortization expenses related to capitalized development costs of €3,777 (for the nine months ended September 30, 2019: €1,795).
The following table contains reconciliations of the numerators and denominators of the basic and fully diluted earnings per share computations for 2020 and 2019:
Reconciliation of basic and diluted earnings per share
in € THOUS, except share and per share data
| |
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | 2020 | 2019 | |||||||||
Numerator: |
|||||||||||||
Net income attributable to shareholders of FMC-AG & Co. KGaA |
353,502 | 332,584 | 987,193 | 857,113 | |||||||||
| | | | | | | | | | | | | | |
Denominators: |
|||||||||||||
Weighted average number of shares outstanding |
292,817,296 | 301,440,412 | 294,458,296 | 303,832,868 | |||||||||
Potentially dilutive shares |
251,979 | — | 230,751 | 83,518 | |||||||||
| | | | | | | | | | | | | | |
Basic earnings per share |
1.21 | 1.10 | 3.35 | 2.82 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Diluted earnings per share |
1.21 | 1.10 | 3.35 | 2.82 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Share buy-back program
In 2020, the Company continued to utilize the authorization granted by the Company's Annual General Meeting on May 12, 2016 to conduct a share buy-back program. The current share buy-back program, announced on June 14, 2019 allowed for repurchase of a maximum of 12,000,000 shares at a total purchase
53
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
price, excluding ancillary transaction costs, of up to €660,000 between June 17, 2019 and June 17, 2020. On April 1, 2020, the Company concluded the current buy-back program. The prior buy-back program expired on May 10, 2019 and the repurchased shares were retired. The following tabular disclosure provides the number of shares acquired in the context of the share buy-back programs as well as the retired treasury stock:
Treasury Stock
Period
|
Average price per share |
Total number of shares purchased and retired as part of publicly announced plans or programs |
Total value of shares(1) |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
in € |
|
in € THOUS |
|||||||
December 31, 2018 |
51.00 | 999,951 | 50,993 | |||||||
| | | | | | | | | | | |
Purchase of Treasury Stock |
||||||||||
March 2019 |
69.86 | 1,629,240 | 113,816 | |||||||
April 2019 |
72.83 | 1,993,974 | 145,214 | |||||||
May 2019 |
72.97 | 147,558 | 10,766 | |||||||
| | | | | | | | | | | |
Repurchased Treasury Stock |
71.55 | 3,770,772 | 269,796 | |||||||
| | | | | | | | | | | |
Retirement of repurchased Treasury Stock |
||||||||||
June 2019 |
71.55 | 3,770,772 | 269,796 | |||||||
| | | | | | | | | | | |
Purchase of Treasury Stock |
||||||||||
June 2019 |
67.11 | 504,672 | 33,870 | |||||||
July 2019 |
66.77 | 1,029,655 | 68,748 | |||||||
August 2019 |
57.53 | 835,208 | 48,050 | |||||||
September 2019 |
59.67 | 627,466 | 37,445 | |||||||
October 2019 |
57.85 | 692,910 | 40,084 | |||||||
November 2019 |
64.78 | 852,859 | 55,245 | |||||||
December 2019 |
63.85 | 564,908 | 36,067 | |||||||
| | | | | | | | | | | |
Repurchased Treasury Stock |
62.55 | 5,107,678 | 319,509 | |||||||
| | | | | | | | | | | |
December 31, 2019 |
60.66 | 6,107,629 | 370,502 | |||||||
| | | | | | | | | | | |
Purchase of Treasury Stock |
||||||||||
January 2020 |
84.37 | 124,398 | 10,495 | |||||||
February 2020(2) |
249.10 | 25,319 | 6,307 | |||||||
March 2020 |
63.05 | 4,842,943 | 305,362 | |||||||
April 2020 |
63.07 | 694,813 | 43,824 | |||||||
| | | | | | | | | | | |
Repurchased Treasury Stock |
64.35 | 5,687,473 | 365,988 | |||||||
| | | | | | | | | | | |
TOTAL |
62.44 | 11,795,102 | 736,490 | |||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
As of September 30, 2020, the Company holds 11,795,102 treasury shares. These shares will be used solely to reduce the registered share capital of the Company by cancellation of the acquired shares.
54
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
The Company and its patient population have been impacted by the severe acute respiratory syndrome coronavirus 2 ("COVID-19"). The Company provides life-sustaining dialysis treatments and other critical healthcare services and products to patients. Its patients need regular and frequent dialysis treatments, or else they face significant health consequences that would result in either hospitalization or death. To be able to continue care for its patients, the Company determined that it needed to implement a number of measures, both operational and financial, to maintain an adequate workforce, protect its patients and employees through expanded personal protective equipment protocols and to develop surge capacity for patients suspected or confirmed to have COVID-19. Additionally, the Company experienced a loss of revenue due to the pandemic in certain parts of its business, offset by increased demand for its services and products in other parts. Various governments in regions in which the Company operates have provided economic assistance programs to address the consequences of the pandemic on companies and support healthcare providers and patients. The Company has recorded €224,449 of related reimbursement payments and funding reflecting the specific terms and regulations set forth in the local laws and regulations, primarily directly against the respective cost of revenue line item, and the rest against the selling, general and administrative expense line item in the statement of profit and loss in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In addition to the costs incurred which are eligible for government funding in various countries, the Company has been affected by impacts that COVID-19 had on the global economy and financial markets as well as effects related to lockdowns. At the same time the Company incurred lower costs in certain areas, for example for travel. Overall, including COVID-19 reimbursements, the Company concluded that COVID-19 resulted in an immaterial impact to net income attributable to shareholders of FMC-AG & Co. KGaA in the nine months ended September 30, 2020.
On March 27, 2020, the U.S. administration signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which provides relief funds to hospitals and other healthcare providers in connection with the impact of the on-going COVID-19 pandemic. The Company received U.S. federal relief funding under the CARES Act in the amount of $284,900 (€253,238 for the nine months ended September 30, 2020). The part of this funding that is not yet offset with qualifying costs incurred in relation to COVID-19 for the three-and-nine months ended September 30, 2020 is recorded as a liability on the Company's consolidated balance sheet within current provisions and other current liabilities as of September 30, 2020 and will be offset against all qualifying costs that are incurred in the fourth quarter of 2020.
The Company currently estimates that all funds received from grants comply with the terms and conditions associated with the funding received. Additional guidance is expected to be released from the U.S. Department of Health and Human Services with regards to the application of CARES Act relief funds which may affect the Company's estimate as of September 30, 2020. All funding received under the CARES Act in the U.S. is to be applied solely to the Company's U.S. operations. In accordance with the conditions of the funding received under the grants, the Company is obliged and committed to fulfilling all the requirements of the grant funding arrangements in the respective jurisdictions in which funding was received. The Company has determined that there is reasonable assurance that it will continue to be entitled to the amounts received and comply with the requirements related to the grants.
Additionally, the Company received advance payments under the Centers for Medicare and Medicaid ("CMS") Accelerated and Advance Payment program which are recorded as a contract liability upon receipt and recognized as revenue when the respective services are provided. The Company recorded a contract liability within current provisions and other current liabilities in the amount of €896,642 as of September 30, 2020.
55
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
2. Notes to the consolidated statements of income (Continued)
In the second quarter of 2020, the Company performed an impairment test of goodwill and non-amortizable intangible assets due to adverse changes in the Latin America Segment's economic environment, in part exacerbated by COVID-19, specifically in relation to a negative impact from country-specific risk rates increasing the weighted average cost of capital in the Latin America Segment which the Company determined to be a triggering event in accordance with IAS 36, Impairment of Assets. At that time, the Company determined that the recoverable amount of the Latin America Segment exceeded the carrying amount by €23,096. At September 30, 2020, the Company did not identify any further triggering event which would result in an additional impairment test of goodwill for the Latin America Segment. Any adverse developments in future periods would likely lead to impairment charges on this cash-generating unit. The following table shows the key assumptions and amounts by which the key assumptions would need to change that the recoverable amount equals the carrying amount:
Key assumptions |
Sensitivity analysis |
|||||||||
in % |
Change in percentage points |
|||||||||
| |
Latin America | |
Latin America | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
2020 | 2019 | |
2020 | 2019 | |||||
Pre-tax WACC |
11.90 - 25.57 | 10.45 - 20.02 | Pre-tax WACC |
0.22 | 1.87 | |||||
After-tax WACC |
8.83 - 22.50 | 8.06 - 17.63 | After-tax WACC |
0.15 | 1.24 | |||||
3. Related party transactions
Fresenius SE is the Company's largest shareholder and owns 32.23% of the Company's outstanding shares, excluding treasury shares held by the Company, at September 30, 2020. The Company has entered into certain arrangements for services 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 arrangements for leases with Fresenius SE or its subsidiaries are described in item b) 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 and the Company believes that these arrangements reflect fair market terms. The Company utilizes various methods to verify the commercial reasonableness of its related party arrangements. Financing arrangements as described in item c) 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 key management personnel who are considered to be related parties is described in item d) below. Our related party transactions are settled through Fresenius SE's cash management system where appropriate.
a) Service 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 central purchasing services to Fresenius SE Companies. These related party agreements generally have a duration of 1 to 5 years and are renegotiated on an as needed basis when the agreement comes due. The Company provides administrative services to one of its equity method investees.
The Company sells products to Fresenius SE Companies and purchases products from Fresenius SE Companies and equity method investees. 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 an indirect, wholly-owned subsidiary of Fresenius SE. The
56
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
3. Related party transactions (Continued)
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.
The Company entered into a ten-year agreement with a Fresenius SE Company for the manufacturing of infusion bags. In order to establish the new production line, the Company purchased machinery from the Fresenius SE company in the amount of €108 during the nine months ended September 30, 2020 and €3,853 during the nine months ended September 30, 2019.
In December 2010, the Company and Galenica Ltd. (now known as Vifor Pharma Ltd.) formed the renal pharmaceutical company Vifor Fresenius Medical Care Renal Pharma Ltd., an equity method investee of which the Company owns 45%. The Company has entered into exclusive supply agreements to purchase certain pharmaceuticals from, as well as certain exclusive distribution agreements with, Vifor Fresenius Medical Care Renal Pharma Ltd.
Under the CMS Comprehensive ESRD Care Model, the Company and participating physicians formed entities known as ESRD Seamless Care Organizations ("ESCOs") as part of a payment and care delivery model that seeks to deliver better health outcomes for Medicare ESRD patients while lowering CMS's costs. The Company has entered into participation/service agreements with these ESCOs, which are accounted for as equity method investees.
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 and products with related parties
in € THOUS
| |
For the nine months ended September 30, 2020 |
For the nine months ended September 30, 2019 |
September 30, 2020 |
December 31, 2019 |
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Sales of goods and services |
Purchases of goods and services |
Sales of goods and services |
Purchases of goods and services |
Accounts receivable |
Accounts payable |
Accounts receivable |
Accounts payable |
|||||||||||||||||
Service agreements(1) |
|||||||||||||||||||||||||
Fresenius SE |
182 | 19,965 | 106 | 19,929 | 54 | 3,989 | 35 | 360 | |||||||||||||||||
Fresenius SE affiliates |
2,997 | 77,560 | 2,947 | 76,802 | 1,010 | 7,340 | 2,003 | 6,416 | |||||||||||||||||
Equity method investees |
13,793 | — | (50,992 | ) | — | 72,200 | — | 68,300 | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
16,972 | 97,525 | (47,939 | ) | 96,731 | 73,264 | 11,329 | 70,338 | 6,776 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Products |
|||||||||||||||||||||||||
Fresenius SE |
— | — | 3 | — | — | — | — | — | |||||||||||||||||
Fresenius SE affiliates |
31,883 | 34,040 | 33,374 | 26,739 | 11,506 | 3,581 | 16,803 | 3,405 | |||||||||||||||||
Equity method investees |
— | 365,682 | — | 353,843 | — | 66,123 | — | 36,262 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
31,883 | 399,722 | 33,377 | 380,582 | 11,506 | 69,704 | 16,803 | 39,667 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) In addition to the above shown accounts payable, accrued expenses for service agreements with related parties amounted to €4,414 and €8,352 at September 30, 2020 and December 31, 2019, respectively.
b) Lease agreements
In addition to the above-mentioned product and service agreements, the Company is a party to real estate lease agreements with the Fresenius SE Companies, which mainly include leases for the Company's corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany. The leases have maturities up to the end of 2029.
Below is a summary resulting from the above described lease agreements with related parties.
57
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
3. Related party transactions (Continued)
Lease agreements with related parties
in € THOUS
| |
For the nine months ended September 30, 2020 |
For the nine months ended September 30, 2019 |
September 30, 2020 |
December 31, 2019 |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Depreciation | Interest expense |
Lease expense(1) |
Depreciation | Interest expense |
Lease expense(1) |
Right-of- use asset |
Lease liability |
Right-of- use asset |
Lease liability |
|||||||||||||||||||||
Fresenius SE |
6,033 | 556 | 627 | 3,620 | 342 | 2,815 | 60,932 | 61,397 | 30,336 | 30,820 | |||||||||||||||||||||
Fresenius SE affiliates |
9,946 | 972 | 263 | 9,384 | 1,055 | 392 | 83,483 | 84,634 | 91,879 | 92,126 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
15,979 | 1,528 | 890 | 13,004 | 1,397 | 3,207 | 144,415 | 146,031 | 122,215 | 122,946 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
c) 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 September 30, 2020 and December 31, 2019, the Company had accounts receivable from Fresenius SE related to short-term financing in the amount of €51,332 and €71,078, respectively. As of September 30, 2020, the Company did not have accounts payable to Fresenius SE related to short-term financing. As of December 31, 2019, the Company had accounts payable to Fresenius SE related to short-term financing in the amount of €38,050. The interest rates for these cash management arrangements are set on a daily basis and are based on the then-prevailing overnight reference rate, with a floor of zero, for the respective currencies.
On August 19, 2009, the Company borrowed €1,500 from the General Partner on an unsecured basis at 1.335%. The loan repayment has been extended periodically and is currently due August 21, 2021 with an interest rate of 0.825%. On November 28, 2013, the Company borrowed an additional €1,500 with an interest rate of 1.875% from the General Partner. The loan repayment has been extended periodically and is currently due on November 23, 2020 with an interest rate of 0.930%.
At September 30, 2020 and December 31, 2019, a subsidiary of Fresenius SE held unsecured bonds issued by the Company in the amount of €1,000 and €1,000, respectively. These bonds were issued in 2011 with a coupon of 5.25% and interest payable semiannually until maturity in 2021.
At September 30, 2020, the Company borrowed from Fresenius SE €82,900 on an unsecured basis at an interest rate of 0.825%. At December 31, 2019, the Company borrowed from Fresenius SE in the amount of €18,865 on an unsecured basis at an interest rate of 0.930%. For further information on this loan agreement, see note 5.
d) Key management personnel
Due to the Company's legal form of a German partnership limited by shares, the General Partner holds a key management position within the Company. In addition, as key management personnel, members of the Management Board and the Supervisory Board, 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 Management Board. The aggregate amount reimbursed to the General Partner was €21,282 and €19,532 for its management services during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020 and December 31, 2019, the Company had accounts receivable from the General Partner in the amount of €
58
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
3. Related party transactions (Continued)
2,130 and €977, respectively. As of September 30, 2020 and December 31, 2019, the Company had accounts payable to the General Partner in the amount of €51,267 and €34,170, respectively.
4. Inventories
At September 30, 2020 and December 31, 2019, inventories consisted of the following:
Inventories
in € THOUS
| |
September 30, 2020 |
December 31, 2019 |
|||||
|---|---|---|---|---|---|---|---|
Finished goods |
1,097,886 | 940,407 | |||||
Health care supplies |
443,026 | 399,585 | |||||
Raw materials and purchased components |
236,381 | 227,654 | |||||
Work in process |
119,724 | 95,632 | |||||
| | | | | | | | |
Inventories |
1,897,017 | 1,663,278 | |||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
5. Short-term debt and short-term debt from related parties
At September 30, 2020 and December 31, 2019, short-term debt and short-term debt from related parties consisted of the following:
Short-term debt and short-term debt from related parties
in € THOUS
| |
September 30, 2020 |
December 31, 2019 |
|||||
|---|---|---|---|---|---|---|---|
Commercial paper program |
260,961 | 999,732 | |||||
Borrowings under lines of credit |
46,010 | 143,875 | |||||
Other |
40 | 6,381 | |||||
| | | | | | | | |
Short-term debt |
307,011 | 1,149,988 | |||||
Short-term debt from related parties (see note 3 c) |
85,900 | 21,865 | |||||
| | | | | | | | |
Short-term debt and short-term debt from related parties |
392,911 | 1,171,853 | |||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Company and certain consolidated entities operate a multi-currency notional pooling cash management system. The Company met the conditions to offset balances within this cash pool for reporting purposes. At September 30, 2020 and December 31, 2019, cash and borrowings under lines of credit in the amount of €1,195,698 and €152,598 were offset under this cash management system.
Commercial paper program
The Company maintains a commercial paper program under which short-term notes of up to €1,000,000 can be issued. At September 30, 2020, the outstanding commercial paper amounted to €261,000 (December 31, 2019: €1,000,000).
Other
At September 30, 2020, the Company had €40 (December 31, 2019: €6,381) of other debt outstanding related to fixed payments outstanding for acquisitions.
59
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements
(unaudited)
(in THOUS, except share and
per share data)
5. Short-term debt and short-term debt from related parties (Continued)
Short-term debt from related parties
On July 31, 2019, the Company and one of its subsidiaries, as borrowers, and Fresenius SE, as lender, amended and restated an unsecured loan agreement to increase the aggregate amount from $400,000 to €600,000. The Company and one of its subsidiaries may request and receive one or more short-term advances until maturity on July 31, 2022. For further information on short-term debt from related parties, see note 3 c).
6. Long-term debt
As of September 30, 2020 and December 31, 2019, long-term debt consisted of the following:
Long-term debt
in € THOUS
| |
September 30, 2020 | December 31, 2019 | |||||
|---|---|---|---|---|---|---|---|
Amended 2012 Credit Agreement |
1,237,781 | 1,901,372 | |||||
Bonds |
6,535,304 | 4,966,619 | |||||
Convertible Bonds |
— | 399,939 | |||||
Accounts Receivable Facility |
— | 379,570 | |||||
Other |
252,613 | 258,057 | |||||
| | | | | | | | |
Long-term debt |
8,025,698 | 7,905,557 | |||||
Less current portion |
(1,046,030 | ) | (1,447,239 | ) | |||
| | | | | | | | |
Long-term debt, less current portion |
6,979,668 | 6,458,318 | |||||
| | | | | | | | |
On May 29, 2020, the Company issued bonds in two tranches with an aggregate principal amount of €1,250,000 under the European Medium-Term Notes Program:
On September 16, 2020, Fresenius Medical Care US Finance III, Inc. issued bonds with a volume of $1,000,000. The bonds have a maturity of 10 years and 5 months and a coupon of 2.375%. The bonds were issued at a price of 99.699%.
The proceeds will be used for general corporate purposes, including the refinancing of outstanding indebtedness.
The bonds issued by Fresenius Medical Care US Finance II, Inc. in the amount of $500,000 which were due on October 15, 2020, were redeemed prior to maturity on July 17, 2020.
60
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
6. Long-term debt (Continued)
Amended 2012 Credit Agreement
The following table shows the available and outstanding amounts under the Amended 2012 Credit Agreement at September 30, 2020 and December 31, 2019:
Amended 2012 Credit Agreement—Maximum amount available and balance outstanding
in THOUS
| |
Maximum amount available September 30, 2020 |
Balance outstanding September 30, 2020(1) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revolving credit USD 2017 / 2022 |
$ | 900,000 | € | 768,705 | $ | — | € | — | |||||
Revolving credit EUR 2017 / 2022 |
€ | 600,000 | € | 600,000 | € | — | € | — | |||||
USD term loan 2017 / 2022 |
$ | 1,140,000 | € | 973,693 | $ | 1,140,000 | € | 973,693 | |||||
EUR term loan 2017 / 2022 |
€ | 266,000 | € | 266,000 | € | 266,000 | € | 266,000 | |||||
EUR term loan 2017 / 2020(2) |
€ | — | € | — | € | — | € | — | |||||
| | | | | | | | | | | | | | |
|
€ | 2,608,398 | € | 1,239,693 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| |
Maximum amount available December 31, 2019 |
Balance outstanding December 31, 2019(1) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revolving credit USD 2017 / 2022 |
$ | 900,000 | € | 801,139 | $ | 138,700 | € | 123,464 | |||||
Revolving credit EUR 2017 / 2022 |
€ | 600,000 | € | 600,000 | € | — | € | — | |||||
USD term loan 2017 / 2022 |
$ | 1,230,000 | € | 1,094,891 | $ | 1,230,000 | € | 1,094,891 | |||||
EUR term loan 2017 / 2022 |
€ | 287,000 | € | 287,000 | € | 287,000 | € | 287,000 | |||||
EUR term loan 2017 / 2020 |
€ | 400,000 | € | 400,000 | € | 400,000 | € | 400,000 | |||||
| | | | | | | | | | | | | | |
|
€ | 3,183,030 | € | 1,905,355 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Accounts Receivable Facility
The following table shows the available and outstanding amounts under the Accounts Receivable Facility at September 30, 2020 and at December 31, 2019:
Accounts Receivable Facility—Maximum amount available and balance outstanding
in THOUS
| |
Maximum amount available September 30, 2020(1) |
Balance outstanding September 30, 2020(2) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts Receivable Facility |
$ | 900,000 | € | 768,705 | $ | — | € | — | |||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| |
Maximum amount available December 31, 2019(1) |
Balance outstanding December 31, 2019(2) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts Receivable Facility |
$ | 900,000 | € | 801,139 | $ | 427,000 | € | 380,096 | |||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The Company also had letters of credit outstanding under the Accounts Receivable Facility in the amount of $12,522 and $23,460 (€10,695 and €20,883) at September 30, 2020 and December 31, 2019, respectively.
61
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
6. Long-term debt (Continued)
These letters of credit are not included above as part of the balance outstanding at September 30, 2020 and December 31, 2019; however, they reduce available borrowings under the Accounts Receivable Facility.
7. Capital management
As of September 30, 2020 and December 31, 2019 total equity in percent of total assets was 38.3% and 40.2%, respectively, and debt and lease liabilities in percent of total assets was 39.5% and 41.8%, respectively.
The Company's financing structure and business model are reflected in the investment grade ratings. The Company is covered and rated investment grade by the three leading rating agencies, Moody's, Standard & Poor's and Fitch.
Rating(1)
| |
Standard & Poor´s | Moody´s | Fitch | |||
|---|---|---|---|---|---|---|
Corporate Credit Rating |
BBB | Baa3 | BBB– | |||
Outlook |
stable | stable | stable |
8. Commitments and contingencies
Legal and regulatory matters
The Company is routinely involved in 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 health care services and products. Legal matters that the Company currently deems to be material or noteworthy are described below. The Company records its litigation reserves for certain legal proceedings and regulatory matters to the extent that the Company determines an unfavorable outcome is probable and the amount of loss can be reasonably estimated. 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 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.
Beginning in 2012, the Company received certain communications alleging conduct in countries outside the United States that might violate the Foreign Corrupt Practices Act or other anti-bribery laws. The Company conducted investigations with the assistance of outside counsel and, in a continuing dialogue, advised the Securities and Exchange Commission ("SEC") and the United States Department of Justice ("DOJ") about these investigations. The DOJ and the SEC also conducted their own investigations, in which the Company cooperated.
In the course of this dialogue, the Company identified and reported to the DOJ and the SEC, and took remedial actions with respect to, conduct that resulted in the DOJ and the SEC seeking monetary penalties including disgorgement of profits and other remedies. This conduct revolved principally around the Company's products business in countries outside the United States.
62
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Commitments and contingencies (Continued)
The Company recorded charges of €200,000 in 2017 and €77,200 in 2018 encompassing estimates for the claims from the DOJ and the SEC for profit disgorgement, penalties, certain legal expenses, and other related costs or asset impairments believed likely to be necessary for full and final resolution, by litigation or settlement, of the claims and issues arising from the investigation. The increase recorded in 2018 took into consideration preliminary understandings with the DOJ and the SEC on the financial terms of a potential settlement. Following this increase, which takes into account incurred and anticipated legal expenses, impairments and other costs, the provision totaled €223,980 as of December 31, 2018.
On March 29, 2019, the Company entered into a non-prosecution agreement with the DOJ and a separate agreement with the SEC intended to resolve fully and finally the claims against the Company arising from the investigations. The Company paid a combined total in penalties and disgorgement of approximately $231,700 to the DOJ and the SEC in connection with these agreements. The entire amount paid to the DOJ and the SEC was reserved for in charges that the Company recorded in 2017 and 2018 and announced in 2018. As part of the settlement, the Company agreed to retain an independent compliance monitor for a period of at least two years and to an additional year of self-reporting. As of July 26, 2019, the monitor was appointed and the monitorship period commenced.
In 2015, the Company self-reported to the German prosecutor conduct with a potential nexus to Germany and continues to cooperate with government authorities in Germany in their review of the conduct that prompted the Company's and United States government investigations.
Since 2012, the Company has made and continues to make further significant investments in its compliance and financial controls and in its compliance, legal and financial organizations. The Company's remedial actions included separation from those employees responsible for the above-mentioned conduct. The Company is dealing with post-FCPA review matters on various levels. The Company continues to be fully committed to compliance with the FCPA and other applicable anti-bribery laws.
Personal injury and related litigation, including litigation by certain state government agencies, involving FMCH's acid concentrate product, labeled as Granuflo® or Naturalyte®, first arose in 2012. The matters remaining after judicial decisions favorable to FMCH and settlements, including most significantly the settlement in the federal multi-district personal injury litigation consummated in November 2017, do not present material risk. Accordingly, specific reporting on these matters has been discontinued.
FMCH's insurers agreed to the settlement of the acid concentrate personal injury litigation and funded $220,000 of the settlement fund under a reciprocal reservation of rights. FMCH accrued a net expense of $60,000 in connection with the settlement, including legal fees and other anticipated costs. Following the settlement, FMCH's insurers in the AIG group initiated litigation against FMCH seeking to be indemnified by FMCH for their $220,000 outlay and FMCH initiated litigation against the AIG group to recover defense and indemnification costs FMCH had borne. National Union Fire Insurance v. Fresenius Medical Care, 2016 Index No. 653108 (Supreme Court of New York for New York County)).
Discovery in the litigation is largely complete. The AIG group abandoned certain of its coverage claims and submitted expert reports on damages asserting that, if AIG prevails on all its remaining claims, it should recover $60,000. FMCH contests all of AIG's claims and submitted expert reports supporting rights to recover $108,000 from AIG, in addition to the $220,000 already funded. A trial date has not been set in the matter.
In August 2014, FMCH received a subpoena from the United States Attorney's Office ("USAO") for the District of Maryland inquiring into FMCH's contractual arrangements with hospitals and physicians involving contracts relating to the management of in-patient acute dialysis services. On August 27, 2020, after the USAO declined to pursue the matter by intervening, the United States District Court for Maryland unsealed a 2014 relator's qui tam complaint that gave rise to the investigation. United States ex rel. Martin Flanagan v. Fresenius Medical Care Holdings, Inc., 2014 Civ. 00665 (D. Maryland). The relator
63
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Commitments and contingencies (Continued)
may serve the complaint and proceed with litigation at his own expense, but to date has not done so. The time period allowed for service has not expired.
In July 2015, the Attorney General for Hawaii issued a civil complaint under the Hawaii False Claims Act alleging a conspiracy pursuant to which certain Liberty Dialysis subsidiaries of FMCH overbilled Hawaii Medicaid for Liberty's Epogen® administrations to Hawaii Medicaid patients during the period from 2006 through 2010, prior to the time of FMCH's acquisition of Liberty. Hawaii v. Liberty Dialysis—Hawaii, LLC et al., Case No. 15-1-1357-07 (Hawaii 1st Circuit). The State alleges that Liberty acted unlawfully by relying on incorrect and unauthorized billing guidance provided to Liberty by Xerox State Healthcare LLC, which acted as Hawaii's contracted administrator for its Medicaid program reimbursement operations during the relevant period. With discovery concluded, the State has specified that its demands for relief relate to $7,700 in overpayments on approximately twenty thousand "claims" submitted by Liberty. After prevailing on motions by Xerox to preclude it from doing so, FMCH is pursuing third-party claims for contribution and indemnification against Xerox. The State's False Claims Act complaint was filed after Liberty initiated an administrative action challenging the State's recoupment of alleged overpayments from sums currently owed to Liberty. The civil litigation and administrative action are proceeding in parallel. Trial in the civil litigation is scheduled for March 8, 2021.
On August 31, 2015, FMCH received a subpoena under the False Claims Act from the United States Attorney for the District of Colorado (Denver) inquiring into FMCH's participation in and management of dialysis facility joint ventures in which physicians are partners. FMCH continues to cooperate in the Denver USAO investigation, which has come to focus on purchases and sales of minority interests in ongoing outpatient facilities between FMCH and physician groups.
On November 25, 2015, FMCH received a subpoena under the False Claims Act from the United States Attorney for the Eastern District of New York (Brooklyn) also inquiring into FMCH's involvement in certain dialysis facility joint ventures in New York. On September 26, 2018, the Brooklyn USAO declined to intervene on the qui tam complaint filed under seal in 2014 that gave rise to this investigation. CKD Project LLC v. Fresenius Medical Care, 2014 Civ. 06646 (E.D.N.Y. November 12, 2014). The court unsealed the complaint, allowing the relator to serve and proceed on its own. The relator—a special-purpose entity formed by law firms to pursue qui tam proceedings—has served its complaint and litigation is proceeding.
Beginning October 6, 2015, the United States Attorney for the Eastern District of New York (Brooklyn) has led an investigation, through subpoenas issued under the False Claims Act, of utilization and invoicing by FMCH's subsidiary Azura Vascular Care for a period beginning after FMCH's acquisition of American Access Care LLC ("AAC") in October 2011. FMCH is cooperating in the Brooklyn USAO investigation. The Brooklyn USAO has indicated that its investigation is nationwide in scope and is focused on whether certain access procedures performed at Azura facilities were medically unnecessary and whether certain physician assistants employed by Azura exceeded their permissible scope of practice. Allegations against AAC arising in districts in Connecticut, Florida and Rhode Island relating to utilization and invoicing were settled in 2015.
On June 30, 2016, FMCH received a subpoena from the United States Attorney for the Northern District of Texas (Dallas) seeking information under the False Claims Act about the use and management of pharmaceuticals including Velphoro®. The investigation encompasses DaVita, Amgen, Sanofi, and other pharmaceutical manufacturers and includes inquiries into whether certain compensation transfers between manufacturers and pharmacy vendors constituted unlawful kickbacks. FMCH understands that this investigation is substantively independent of the $63,700 settlement by DaVita Rx announced on December 14, 2017 in the matter styled United States ex rel. Gallian v. DaVita Rx, 2016 Civ. 0943 (N.D. Tex.). FMCH has cooperated in the investigation.
On November 18, 2016, FMCH received a subpoena under the False Claims Act from the United States Attorney for the Eastern District of New York (Brooklyn) seeking documents and information relating to
64
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Commitments and contingencies (Continued)
the operations of Shiel Medical Laboratory, Inc. ("Shiel"), which FMCH acquired in October 2013. In the course of cooperating in the investigation and preparing to respond to the subpoena, FMCH identified falsifications and misrepresentations in documents submitted by a Shiel salesperson that relate to the integrity of certain invoices submitted by Shiel for laboratory testing for patients in long term care facilities. On February 21, 2017, FMCH terminated the employee and notified the United States Attorney of the termination and its circumstances. The terminated employee's conduct is expected to result in demands for FMCH to refund overpayments and to pay related penalties under applicable laws, but the monetary value of such payment demands cannot yet be reasonably estimated. FMCH contends that, under the asset sale provisions of its 2013 Shiel acquisition, it is not responsible for misconduct by the terminated employee or other Shiel employees prior to the date of the acquisition. The Brooklyn USAO continues to investigate a range of issues involving Shiel, including allegations of improper compensation (kickbacks) to physicians, and has disclosed that multiple sealed qui tam complaints underlie the investigation.
On December 12, 2017, FMCH sold to Quest Diagnostics certain Shiel operations that are the subject of this Brooklyn subpoena, including the misconduct reported to the United States Attorney. Under the Quest Diagnostics sale agreement, FMCH retains responsibility for responding to the Brooklyn investigation and for liabilities arising from conduct occurring after its 2013 acquisition of Shiel and prior to its sale of Shiel to Quest Diagnostics. FMCH is cooperating in the investigation.
On December 14, 2016, CMS, which administers the federal Medicare program, published an Interim Final Rule ("IFR") titled "Medicare Program; Conditions for Coverage for End-Stage Renal Disease Facilities-Third Party Payment." The IFR would have amended the Conditions for Coverage for dialysis providers, like FMCH and would have effectively enabled insurers to reject premium payments made by or on behalf of patients who received grants for individual market coverage from the American Kidney Fund ("AKF" or "the Fund"). The IFR could thus have resulted in those patients losing individual insurance market coverage. The loss of coverage for these patients would have had a material and adverse impact on the operating results of FMCH.
On January 25, 2017, a federal district court in Texas responsible for litigation initiated by a patient advocacy group and dialysis providers including FMCH preliminarily enjoined CMS from implementing the IFR. Dialysis Patient Citizens v. Burwell, 2017 Civ. 0016 (E.D. Texas, Sherman Div.). The preliminary injunction was based on CMS's failure to follow appropriate notice-and-comment procedures in adopting the IFR. The injunction remains in place and the court retains jurisdiction over the dispute.
On June 22, 2017, CMS requested a stay of proceedings in the litigation pending further rulemaking concerning the IFR. CMS stated, in support of its request, that it expects to publish a Notice of Proposed Rulemaking in the Federal Register and otherwise pursue a notice-and-comment process. Plaintiffs in the litigation, including FMCH, consented to the stay, which was granted by the court on June 27, 2017.
On January 3, 2017, FMCH received a subpoena from the United States Attorney for the District of Massachusetts under the False Claims Act inquiring into FMCH's interactions and relationships with the AKF, including FMCH's charitable contributions to the Fund and the Fund's financial assistance to patients for insurance premiums. Thereafter, FMCH cooperated in the investigation, the USAO declined to intervene in the relator's qui tam complaint that gave rise to the subpoena. On July 17, 2020, the relator filed a notice of dismissal without serving his complaint or otherwise pursuing his allegations and the court thereafter closed the case.
On April 8, 2019, United Healthcare initiated arbitration against FMCH alleging that FMCH unlawfully "steered" patients by waiving co-payments and other means away from coverage under government-funded insurance plans including Medicare into United Healthcare's commercial plans, including Affordable Care Act exchange plans. FMCH denied and contested United's claims. On September 16, 2020, FMCH and United entered a settlement agreement requiring (1) certain amendments to contracts
65
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Commitments and contingencies (Continued)
between United and FMCH governing terms and conditions for dialysis treatments to be performed by FMCH for United beneficiaries and (2) dismissal of the arbitrations with each party to bear its own costs and expenses.
In early May 2017, the United States Attorney for the Middle District of Tennessee (Nashville) issued identical subpoenas to FMCH and two subsidiaries under the False Claims Act concerning FMCH's retail pharmaceutical business. The investigation is exploring allegations related to improper inducements to dialysis patients to fill oral prescriptions through FMCH's pharmacy service, improper billing for returned pharmacy products and other allegations similar to those underlying the $63,700 settlement by DaVita Rx in Texas announced on December 14, 2017. United States ex rel. Gallian, 2016 Civ. 00943 (N.D. Tex.). FMCH is cooperating in the investigation.
On March 12, 2018, Vifor Fresenius Medical Care Renal Pharma Ltd. and Vifor Fresenius Medical Care Renal Pharma France S.A.S. (collectively, "VFMCRP") (the joint venture between Vifor Pharma and FMC-AG & Co. KGaA), filed a complaint for patent infringement against Lupin Atlantis Holdings SA and Lupin Pharmaceuticals Inc. (collectively, "Lupin"), and Teva Pharmaceuticals USA, Inc. ("Teva") in the U.S. District Court for the District of Delaware (Case 1:18-cv-00390-MN). The patent infringement action is in response to Lupin and Teva's filings of Abbreviated New Drug Applications ("ANDA") with the U.S. Food and Drug Administration ("FDA") for generic versions of Velphoro®. Velphoro® is protected by patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. The complaint was filed within the 45-day period provided for under the Hatch-Waxman legislation, and triggered a stay of FDA approval of the ANDAs for 30 months (specifically, up to July 29, 2020 for Lupin's ANDA; and August 6, 2020 for Teva's ANDA. In response to another ANDA being filed for a generic Velphoro®, VFMCRP filed a complaint for patent infringement against Annora Pharma Private Ltd., and Hetero Labs Ltd. (collectively, "Annora"), in the U.S. District Court for the District of Delaware on December 17, 2018. The case was settled among the parties, thus terminating the court action on August 4, 2020. On May 26, 2020, VFMCRP filed a further complaint for patent infringement against Lupin in the U.S. District Court for the District of Delaware (Case No. 1:20-cv-00697-MN) in response to Lupin's ANDA for a generic version of Velphoro® and on the basis of a newly listed patent in the Orange Book. On July 6, 2020, VFMCRP filed an additional complaint for patent infringement against Lupin and Teva in the U.S. District Court for the District of Delaware (Case No. 1:20-cv-00911-MN) in response to the companies' ANDA for generic versions of Velphoro® and on the basis of two newly listed patents in the Orange Book.
On December 17, 2018, FMCH was served with a subpoena under the False Claims Act from the United States Attorney for the District of Colorado (Denver) as part of an investigation of allegations against DaVita, Inc. involving transactions between FMCH and DaVita. The subject transactions include sales and purchases of dialysis facilities, dialysis-related products and pharmaceuticals, including dialysis machines and dialyzers, and contracts for certain administrative services. FMCH is cooperating in the investigation.
On June 28, 2019, certain FMCH subsidiaries filed a complaint against the United States seeking to recover monies owed to them by the United States Department of Defense under the Tricare program, and to preclude Tricare from recouping monies previously paid. Bio-Medical Applications of Georgia, Inc., et al. v. United States, CA 19-947, United States Court of Federal Claims. Tricare provides reimbursement for dialysis treatments and other medical care provided to members of the military services, their dependents and retirees. The litigation challenges unpublished administrative actions by Tricare administrators reducing the rate of compensation paid for dialysis treatments provided to Tricare beneficiaries based on a recasting or "crosswalking" of codes used and followed in invoicing without objection for many years. Tricare administrators have acknowledged the unpublished administrative action and declined to change or abandon it. On July 8, 2020, the U.S. government filed its answer (and confirmed their position). The parties will proceed to discovery. The court has not yet set a date for trial in
66
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Commitments and contingencies (Continued)
this matter. FMCH has imposed a constraint on revenue otherwise recognized from the Tricare program that it believes, in consideration of facts currently known, sufficient to account for the risk of this litigation.
On May 22, 2020, CMS issued a final rule that, effective January 1, 2021, removes outpatient dialysis facilities from the time-and-distance standards applicable under the network adequacy rules for Medicare Advantage plans. On June 22, 2020, Dialysis Patient Citizens, a charitable patient advocacy organization, filed a lawsuit on behalf of all dialysis patients to challenge that rule, and on July 13, 2020, FMCH along with two other dialysis providers joined the lawsuit. Dialysis Patient Citizens, et al. v. Alex Azar, et al., U.S.D.C. D.C, 1:20-cv-01664. The plaintiffs' request for relief is that the provisions in this final rule regarding outpatient dialysis facilities be vacated and that CMS be enjoined from enforcing or administering those provisions.
On August 21, 2020, FMCH was served with a subpoena from the United States Attorney for the District of Massachusetts requesting information and documents related to urgent care centers that FMCH owned, operated, or controlled as part of its ChoiceOne and Medspring urgent care operations prior to its divestiture of and exit from that line of business in 2018. The subpoena appears to be related to an ongoing investigation of alleged upcoding in the urgent care industry, which has resulted in certain published settlements under the federal False Claims Act. FMCH is cooperating in the investigation.
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 health care providers, insurance plans and suppliers, 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, dialysis clinics and other health care facilities, 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 one pending FDA warning letter. 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, the federal Civil Monetary Penalties 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 whistleblower 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 whistleblower actions, which are initially filed under court seal.
67
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
8. Commitments and contingencies (Continued)
The Company operates many facilities and handles the personal data ("PD") of its patients and beneficiaries throughout the United States and other parts of the world and engages with other business associates to help it carry out its health care activities. 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 and its business associates. On occasion, the Company or its business associates may experience a breach under the Health Insurance Portability and Accountability Act Privacy Rule and Security Rules, the EU's General Data Protection Regulation and or other similar laws ("Data Protection Laws") when there has been impermissible use, access, or disclosure of unsecured PD or when the Company or its business associates neglect to implement the required administrative, technical and physical safeguards of its electronic systems and devices, or a data breach that results in impermissible use, access or disclosure of personal identifying information of its employees, patients and beneficiaries. On those occasions, the Company must comply with applicable breach notification requirements.
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 its 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, Data Protection Laws, the Health Information Technology for Economic and Clinical Health Act and the Foreign Corrupt Practices Act, among other laws and comparable state laws or laws of other countries.
Physicians, hospitals and other participants in the health care industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Company has been 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 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.
In Germany, the tax audits for the years 2006 through 2009 have been substantially completed. The German tax authorities have indicated a re-qualification of dividends received in connection with intercompany mandatorily redeemable preferred shares into fully taxable interest payments for these and subsequent years until 2013. The Company has defended its position and will avail itself of appropriate remedies. The Company is also subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions in the ordinary course of business. Tax authorities routinely pursue adjustments to the Company's tax returns and disallowances of claimed tax deductions. When appropriate, the Company defends these adjustments and disallowances and asserts its own claims. A successful tax related claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition and results of operations.
Other than those individual contingent liabilities mentioned above, the current estimated amount of the Company's other known individual contingent liabilities is immaterial.
68
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements
(unaudited)
(in THOUS, except share and
per share data)
9. Financial instruments
The following tables show the carrying amounts and fair values of the Company's financial instruments at September 30, 2020 and December 31, 2019:
Carrying amount and fair value of financial instruments
in € THOUS
| |
Carrying amount | |
|
|
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Fair value | ||||||||||||||||||||||||
| |
|
|
|
Not classified |
|
||||||||||||||||||||
September 30, 2020
|
Amortized cost | FVPL | FVOCI | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Cash and cash equivalents(1) |
911,762 | 686,897 | — | — | 1,598,659 | 686,748 | 149 | — | |||||||||||||||||
Trade accounts and other receivables |
3,177,401 | — | — | 74,455 | 3,251,856 | — | — | — | |||||||||||||||||
Accounts receivable from related parties |
138,232 | — | — | — | 138,232 | — | — | — | |||||||||||||||||
Derivatives—cash flow hedging instruments |
— |
— |
— |
4,524 |
4,524 |
— |
4,524 |
— |
|||||||||||||||||
Derivatives—not designated as hedging instruments |
— | 20,450 | — | — | 20,450 | — | 20,450 | — | |||||||||||||||||
Equity investments |
— | 197,426 | 51,634 | — | 249,060 | 12,258 | 42,635 | 194,167 | |||||||||||||||||
Debt securities |
— | 97,387 | 262,798 | — | 360,185 | 354,711 | 5,474 | — | |||||||||||||||||
Other financial assets |
182,241 | — | — | 99,684 | 281,925 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current assets |
182,241 | 315,263 | 314,432 | 104,208 | 916,144 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets |
4,409,636 | 1,002,160 | 314,432 | 178,663 | 5,904,891 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable |
728,592 | — | — | — | 728,592 | — | — | — | |||||||||||||||||
Accounts payable to related parties |
132,300 |
— |
— |
— |
132,300 |
— |
— |
— |
|||||||||||||||||
Short-term debt and short-term debt from related parties |
392,911 |
— |
— |
— |
392,911 |
— |
— |
— |
|||||||||||||||||
Long-term debt |
8,025,698 | — | — | — | 8,025,698 | 6,823,964 | 1,481,122 | — | |||||||||||||||||
Long-term lease liabilities and long-term lease liabilities from related parties |
— |
— |
— |
4,634,108 |
4,634,108 |
— |
— |
— |
|||||||||||||||||
Derivatives—cash flow hedging instruments |
— | — | — | 433 | 433 | — | 433 | — | |||||||||||||||||
Derivatives—not designated as hedging instruments |
— | 5,680 | — | — | 5,680 | — | 5,680 | — | |||||||||||||||||
Variable payments outstanding for acquisitions |
— | 74,210 | — | — | 74,210 | — | — | 74,210 | |||||||||||||||||
Noncontrolling interest subject to put provisions |
— | — | — | 942,145 | 942,145 | — | — | 942,145 | |||||||||||||||||
Other financial liabilities |
1,604,610 | — | — | — | 1,604,610 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current liabilities |
1,604,610 | 79,890 | — | 942,578 | 2,627,078 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities |
10,884,111 | 79,890 | — | 5,576,686 | 16,540,687 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
69
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
9. Financial instruments (Continued)
Carrying amount and fair value of financial instruments
in € THOUS
| |
Carrying amount | |
|
|
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Fair value | ||||||||||||||||||||||||
| |
|
|
|
Not classified |
|
||||||||||||||||||||
December 31, 2019
|
Amortized cost | FVPL | FVOCI | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Cash and cash equivalents(1) |
841,046 | 166,677 | — | — | 1,007,723 | 166,677 | — | — | |||||||||||||||||
Trade accounts and other receivables |
3,343,873 | — | — | 77,473 | 3,421,346 | — | — | — | |||||||||||||||||
Accounts receivable from related parties |
159,196 | — | — | — | 159,196 | — | — | — | |||||||||||||||||
Derivatives—cash flow hedging instruments |
— | — | — | 107 | 107 | — | 107 | — | |||||||||||||||||
Derivatives—not designated as hedging instruments |
— |
2,406 |
— |
— |
2,406 |
— |
2,406 |
— |
|||||||||||||||||
Equity investments |
— | 186,273 | 50,975 | — | 237,248 | 13,110 | 41,084 | 183,054 | |||||||||||||||||
Debt securities |
— | 107,988 | 261,833 | — | 369,821 | 365,170 | 4,651 | — | |||||||||||||||||
Other financial assets |
141,355 | — | — | 111,649 | 253,004 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current assets |
141,355 | 296,667 | 312,808 | 111,756 | 862,586 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets |
4,485,470 | 463,344 | 312,808 | 189,229 | 5,450,851 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable |
716,526 | — | — | — | 716,526 | — | — | — | |||||||||||||||||
Accounts payable to related parties |
118,663 | — | — | — | 118,663 | — | — | — | |||||||||||||||||
Short-term debt and short-term debt from related parties |
1,171,853 | — | — | — | 1,171,853 | — | — | — | |||||||||||||||||
Long-term debt |
7,905,557 | — | — | — | 7,905,557 | 5,555,475 | 2,537,932 | — | |||||||||||||||||
Long-term lease liabilities and long-term lease liabilities from related parties |
— | — | — | 4,705,038 | 4,705,038 | — | — | — | |||||||||||||||||
Derivatives—cash flow hedging instruments |
— | — | — | 2,534 | 2,534 | — | 2,534 | — | |||||||||||||||||
Derivatives—not designated as hedging instruments |
— | 10,762 | — | — | 10,762 | — | 10,762 | — | |||||||||||||||||
Variable payments outstanding for acquisitions |
— | 89,677 | — | — | 89,677 | — | — | 89,677 | |||||||||||||||||
Noncontrolling interest subject to put provisions |
— | — | — | 934,425 | 934,425 | — | — | 934,425 | |||||||||||||||||
Other financial liabilities |
1,414,464 | — | — | — | 1,414,464 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other current and non-current liabilities |
1,414,464 | 100,439 | — | 936,959 | 2,451,862 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities |
11,327,063 | 100,439 | — | 5,641,997 | 17,069,499 | — | — | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative and non-derivative financial instruments are categorised in the following three-tier fair value hierarchy that reflects the significance of the inputs in making the measurements. Level 1 is defined as observable inputs, such as quoted prices in active markets. Level 2 is defined as inputs other than quoted prices in active markets that are directly or indirectly observable. Level 3 is defined as unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions. Fair value information is not provided for financial instruments, if the carrying amount is a reasonable estimate of fair value due to the relatively short period of maturity of these instruments. Transfers between levels of the fair value hierarchy have not occurred as of September 30, 2020 and December 31, 2019. The Company accounts for transfers at the end of the reporting period.
70
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
9. Financial instruments (Continued)
Derivative financial instruments
In order to manage the risk of currency exchange rate fluctuations and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions. The Company primarily enters into foreign exchange forward contracts and interest rate swaps. Derivative contracts that do not qualify for hedge accounting are utilized for economic purposes. The Company does not use financial instruments for trading purposes.
Non-derivative financial instruments
The significant methods and assumptions used for the classification and measurement of non-derivative financial instruments are as follows:
The Company assessed its business models and the cash flow characteristics of its financial assets. The vast majority of the non-derivative financial assets are held in order to collect the contractual cash flows. The contractual terms of the financial assets allow the conclusion that the cash flows represent payment of principle and interest only. Trade accounts and other receivables, Accounts receivable from related parties and Other financial assets are consequently measured at amortized cost.
Cash and cash equivalents are comprised of cash funds and other short-term investments. Cash funds are measured at amortized cost. Short-term investments are highly liquid and readily convertible to known amounts of cash. Short-term investments are measured at fair value through profit or loss ("FVPL"). The risk of changes in fair value is insignificant.
Equity investments are not held for trading. At initial recognition the Company elected, on an instrument-by-instrument basis, to represent subsequent changes in the fair value of individual strategic investments in OCI. If equity instruments are quoted in an active market, the fair value is based on price quotations at the period-end-date. From time to time the Company engages external valuation firms to determine the fair value of Level 3 equity investments. The external valuation uses a discounted cash flow model, which includes significant unobservable inputs such as investment specific forecasted financial statements, weighted average cost of capital, that reflects current market assessments as well as a terminal growth rate.
The majority of the debt securities are held within a business model whose objective is achieving both contractual cash flows and sell the securities. The standard coupon bonds give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding principal amount. Subsequently these financial assets have been classified as fair value through other comprehensive income ("FVOCI"). The smaller part of debt securities does not give rise to cash flows that are solely payments of principle and interest. Consequently, these securities are measured at FVPL. In general, most of the debt securities are quoted in an active market.
Long-term debt is recognized at its carrying amount. The fair values of major long-term debt are calculated on the basis of market information. Liabilities for which market quotes are available are measured using these quotes. The fair values of the other long-term debt 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.
Variable payments outstanding for acquisitions are recognized at their fair value. The estimation of the individual fair values is based on the key inputs of the arrangement that determine the future contingent payment as well as the Company's expectation of these factors. The Company assesses the likelihood and timing of achieving the relevant objectives. The underlying assumptions are reviewed regularly.
Noncontrolling interests subject to put provisions are recognized at the present value of the exercise price of the option. The exercise price of the option is generally based on fair value. The methodology the Company uses to estimate the fair values assumes the greater of net book value or a multiple of earnings,
71
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
9. Financial instruments (Continued)
based on historical earnings, development stage of the underlying business and other factors. From time to time the Company engages external valuation firms for the valuation of the put provisions. The external valuation estimates the fair values using a combination of discounted cash flows and a multiple of earnings and/or revenue. When applicable, the obligations are discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate, and the discounted cash flows as well as the implicit multiple of earnings and/or revenue at which these noncontrolling interest obligations may ultimately be settled could vary significantly from the Company's current estimates depending upon market conditions. For the purpose of analyzing the impact of changes in unobservable inputs on the fair value measurement of noncontrolling interest subject to put provisions, the Company assumes an increase on earnings of 10% compared to the actual estimation as of the balance sheet date. The corresponding increase in fair value of €66,795 is then compared to the total liabilities and the shareholder's equity of the Company. This analysis shows that an increase of 10% in the relevant earnings would have an effect of less than 1% on the total liabilities and less than 1% on the shareholder's equity of the Company.
Following is a roll forward of Level 3 financial instruments at September 30, 2020 and December 31, 2019:
Reconciliation from beginning to ending balance of level 3 financial instruments
in € THOUS
| |
2020 | 2019 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Equity investments | Variable payments outstanding for acquisitions |
Noncontrolling interests subject to put provisions |
Equity investments |
Variable payments outstanding for acquisitions |
Noncontrolling interests subject to put provisions |
|||||||||||||
Beginning balance at January 1, |
183,054 | 89,677 | 934,425 | — | 172,278 | 818,871 | |||||||||||||
Transfer from Level 2 |
— | — | — | 186,427 | — | — | |||||||||||||
Increase |
— | 17,293 | 26,568 | 2,233 | 4,828 | 109,109 | |||||||||||||
Decrease |
— | (30,359 | ) | (87,881 | ) | — | (43,941 | ) | (20,269 | ) | |||||||||
(Gain) loss recognized in profit or loss |
19,277 | 285 | — | 128 | (41,537 | ) | — | ||||||||||||
(Gain) loss recognized in equity |
— | — | 109,129 | — | — | 14,523 | |||||||||||||
Foreign currency translation and other changes |
(8,164 | ) | (2,686 | ) | (40,096 | ) | (5,734 | ) | (1,951 | ) | 12,191 | ||||||||
| | | | | | | | | | | | | | | | | | | | |
Ending balance at September 30, and December 31, |
194,167 | 74,210 | 942,145 | 183,054 | 89,677 | 934,425 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
10. Segment and corporate information
The Company's operating segments are the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment. The operating segments are determined based upon how the Company manages its businesses with geographical responsibilities. All segments are primarily engaged in providing health care services and the distribution of products and equipment for the treatment of ESRD and other extracorporeal therapies.
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 measures are revenue, operating income and operating income margin. The Company does not include income taxes as it believes taxes are 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,
72
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
10. Segment and corporate information (Continued)
because the Company believes that these costs are also not within the control of the individual segments. Production of products, production asset management, quality and supply chain management as well as procurement related to production are centrally managed. Products transferred to the segments are transferred at cost; therefore, no internal profit is generated. The associated internal revenue 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. The Company's global research and development as well as its Global Medical Office (as of January 1, 2020), which seeks to standardize medical treatments and clinical processes within the Company, are also centrally managed. These corporate activities ("Corporate") do not fulfill the definition of a segment according to IFRS 8, Operating Segments. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but are accounted for as Corporate.
73
FRESENIUS MEDICAL CARE AG & Co. KGaA
Notes to consolidated financial statements (Continued)
(unaudited)
(in THOUS, except share and per share data)
10. Segment and corporate information (Continued)
Information pertaining to the Company's segment and Corporate activities for the nine months ended September 30, 2020 and 2019 is set forth below:
Segment and corporate information
in € THOUS
| |
North America Segment | EMEA Segment | Asia- Pacific Segment |
Latin America Segment | Segment Total | Corporate | Total | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30, 2020 |
||||||||||||||||||||||
Revenue from contracts with customers |
2,991,408 | 674,704 | 473,387 | 169,361 | 4,308,860 | 8,416 | 4,317,276 | |||||||||||||||
Other revenue external customers |
77,830 | 7,449 | 10,510 | 703 | 96,492 | — | 96,492 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
3,069,238 | 682,153 | 483,897 | 170,064 | 4,405,352 | 8,416 | 4,413,768 | |||||||||||||||
Inter-segment revenue |
8,217 | 1,831 | 184 | 58 | 10,290 | (10,290 | ) | — | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
3,077,455 | 683,984 | 484,081 | 170,122 | 4,415,642 | (1,874 | ) | 4,413,768 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating income |
514,226 | 99,464 | 96,892 | 11,181 | 721,763 | (89,983 | ) | 631,780 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Interest |
(87,692 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
544,088 | |||||||||||||||||||||
Depreciation and amortization |
(244,800 | ) | (47,073 | ) | (33,430 | ) | (8,301 | ) | (333,604 | ) | (62,575 | ) | (396,179 | ) | ||||||||
Impairment loss |
(389 | ) | 3,542 | — | — | 3,153 | 1 | 3,154 | ||||||||||||||
Income (loss) from equity method investees |
22,934 | 1,114 | 162 | (36 | ) | 24,174 | (1 | ) | 24,173 | |||||||||||||
Additions of property, plant and equipment, intangible assets and right of use assets |
285,348 | 55,336 | 32,528 | 13,735 | 386,947 | 73,693 | 460,640 | |||||||||||||||
Three months ended September 30, 2019 |
||||||||||||||||||||||
Revenue from contracts with customers |
3,002,068 | 676,340 | 457,715 | 181,280 | 4,317,403 | 5,772 | 4,323,175 | |||||||||||||||
Other revenue external customers |
71,271 | 6,943 | 16,836 | 778 | 95,828 | — | 95,828 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
3,073,339 | 683,283 | 474,551 | 182,058 | 4,413,231 | 5,772 | 4,419,003 | |||||||||||||||
Inter-segment revenue |
719 | 21 | 35 | 94 | 869 | (869 | ) | — | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
3,074,058 | 683,304 | 474,586 | 182,152 | 4,414,100 | 4,903 | 4,419,003 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating income |
477,432 | 99,878 | 90,382 | 10,576 | 678,268 | (82,880 | ) | 595,388 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Interest |
(104,724 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
490,664 | |||||||||||||||||||||
Depreciation and amortization |
(269,219 | ) | (45,518 | ) | (24,709 | ) | (9,030 | ) | (348,476 | ) | (60,809 | ) | (409,285 | ) | ||||||||
Income (loss) from equity method investees |
20,124 | (831 | ) | 1,039 | 212 | 20,544 | — | 20,544 | ||||||||||||||
Additions of property, plant and equipment, intangible assets and right of use assets |
286,472 | 46,154 | 37,789 | 12,112 | 382,527 | 89,864 | 472,391 | |||||||||||||||
Nine months ended September 30, 2020 |
||||||||||||||||||||||
Revenue from contracts with customers |
9,249,609 | 2,026,561 | 1,340,674 | 505,225 | 13,122,069 | 31,096 | 13,153,165 | |||||||||||||||
Other revenue external customers |
245,641 | 21,414 | 36,329 | 2,360 | 305,744 | — | 305,744 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
9,495,250 | 2,047,975 | 1,377,003 | 507,585 | 13,427,813 | 31,096 | 13,458,909 | |||||||||||||||
Inter-segment revenue |
22,240 | 4,408 | 212 | 248 | 27,108 | (27,108 | ) | — | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
9,517,490 | 2,052,383 | 1,377,215 | 507,833 | 13,454,921 | 3,988 | 13,458,909 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating income |
1,587,051 | 278,140 | 237,012 | 28,959 | 2,131,162 | (288,328 | ) | 1,842,834 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Interest |
(283,851 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
1,558,983 | |||||||||||||||||||||
Depreciation and amortization |
(758,967 | ) | (141,824 | ) | (86,417 | ) | (25,547 | ) | (1,012,755 | ) | (187,971 | ) | (1,200,726 | ) | ||||||||
Impairment loss |
(993 | ) | (2,241 | ) | — | — | (3,234 | ) | (33 | ) | (3,267 | ) | ||||||||||
Income (loss) from equity method investees |
73,448 | (23,441 | ) | (1,273 | ) | (67 | ) | 48,667 | (180 | ) | 48,487 | |||||||||||
Total assets |
22,680,229 | 3,855,469 | 2,781,200 | 906,905 | 30,223,803 | 2,825,332 | 33,049,135 | |||||||||||||||
thereof investments in equity method investees |
394,756 | 185,696 | 100,466 | 26,075 | 706,994 | — | 706,994 | |||||||||||||||
Additions of property, plant and equipment, intangible assets and right of use assets |
891,954 | 174,912 | 104,801 | 44,434 | 1,216,101 | 297,917 | 1,514,018 | |||||||||||||||
Nine months ended September 30, 2019 |
||||||||||||||||||||||
Revenue from contracts with customers |
8,828,904 | 1,951,464 | 1,308,409 | 513,392 | 12,602,169 | 15,332 | 12,617,501 | |||||||||||||||
Other revenue external customers |
192,305 | 32,612 | 51,714 | 2,460 | 279,091 | — | 279,091 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue external customers |
9,021,209 | 1,984,076 | 1,360,123 | 515,852 | 12,881,260 | 15,332 | 12,896,592 | |||||||||||||||
Inter-segment revenue |
1,694 | 21 | 491 | 176 | 2,382 | (2,382 | ) | — | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
9,022,903 | 1,984,097 | 1,360,614 | 516,028 | 12,883,642 | 12,950 | 12,896,592 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating income |
1,278,706 | 334,043 | 254,441 | 27,858 | 1,895,048 | (241,853 | ) | 1,653,195 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Interest |
(326,927 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes |
1,326,268 | |||||||||||||||||||||
Depreciation and amortization |
(747,405 | ) | (139,863 | ) | (70,139 | ) | (25,061 | ) | (982,468 | ) | (176,194 | ) | (1,158,662 | ) | ||||||||
Income (loss) from equity method investees |
65,953 | (5,352 | ) | 1,601 | 856 | 63,058 | — | 63,058 | ||||||||||||||
Total assets |
22,353,520 | 4,056,993 | 2,746,848 | 899,511 | 30,056,872 | 3,112,531 | 33,169,403 | |||||||||||||||
thereof investments in equity method investees |
385,604 | 173,610 | 98,863 | 24,540 | 682,617 | — | 682,617 | |||||||||||||||
Additions of property, plant and equipment, intangible assets and right of use assets |
777,523 | 131,298 | 83,707 | 40,918 | 1,033,446 | 243,429 | 1,276,875 | |||||||||||||||
11. Events occurring after the balance sheet date
No significant activities have taken place subsequent to the balance sheet date September 30, 2020 that have a material impact on the key figures and earnings presented. Currently, there are no significant changes in the Company's structure, management, legal form or personnel.
74
Quantitative and qualitative disclosures about market risk
The information in note 9 of the notes to consolidated financial statements (unaudited), presented elsewhere in this report is incorporated by this reference.
75
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. During the third quarter of fiscal 2019, we identified a material weakness in internal control relating to revenue recognition, specifically for estimating the transaction price and constraining the variable consideration of the transaction price for certain fee-for-service revenue arrangements under legal consideration and timely adjusting the constraint of variable consideration when new information arises and determined that this material weakness existed as of December 31, 2018. This material weakness continues to exist as of September 30, 2020 (for further detail regarding this material weakness, see Item 15D. "Changes in internal control over financial reporting" included within our Annual Report on Form 20-F for the year ended December 31, 2019). As a result, 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 were not effective as of September 30, 2020.
We have advised our audit committee of this deficiency in our internal control over financial reporting, and the fact that this deficiency constitutes a material weakness. A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
Because a material weakness was determined to exist, we performed additional procedures to ensure our consolidated financial statements included in this report on Form 6-K are presented fairly, in all material respects, and that our financial condition, results of operations and cash flows for the periods are presented in conformity with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). This control deficiency did not result in errors to accounts receivable and revenue from specific fee-for-service arrangements in the Company's consolidated financial statements for the nine months ended September 30, 2020.
We are undertaking steps to strengthen the Company's controls relating to revenue recognition, specifically for estimating the transaction price and constraining the variable consideration of the transaction price for certain fee-for-service revenue arrangements under legal consideration and its related accounts receivable, including:
We are committed to maintaining a strong internal control environment and believe the above noted remediation efforts will represent significant improvements to the internal control environment. The identified material weakness in internal control will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
76
On March 29, 2019, the Company entered into a non-prosecution agreement with the DOJ and a separate agreement with the SEC intended to resolve fully and finally the government's claims against the Company arising from the investigations, described in note 8 of the notes to the consolidated financial statements (unaudited) presented elsewhere in this Report. The Company continues to implement enhancements to its anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws. The Company continues to be fully committed to compliance with the Foreign Corrupt Practices Act and other applicable anti-bribery laws.
In 2015, the Company self-reported to the German prosecutor conduct with a potential nexus to Germany and continues to cooperate with government authorities in Germany in their review of the conduct that prompted the Company's and United States government investigations.
Since 2012, the Company has made and continues to make further significant investments in its compliance and financial controls and in its compliance, legal and financial organizations. The Company's remedial actions included separation from those employees responsible for the above-mentioned conduct. The Company is dealing with post-FCPA review matters on various levels. The Company continues to be fully committed to compliance with the FCPA and other applicable anti-bribery laws.
Except as noted in the preceding paragraphs, there has not been any change in our system of internal control over financial reporting during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
77
The information in note 8 of the notes to consolidated financial statements (unaudited), 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 Bad Homburg v.d. Höhe, Germany (as a virtual meeting) on August 27, 2020. Shareholder representation at the AGM was as follows:
At the time of voting 239,542,177 shares with the same amount of votes were represented. This corresponds to 78.68% of the registered capital.
The nine resolutions proposed for action by the ordinary shareholders at the AGM and the voting results thereon are as follows:
| |
|
Votes (in percentage of shares actually voting) | |||||||
|---|---|---|---|---|---|---|---|---|---|
Resolution
|
In Favor | Opposed | |||||||
Item 1 |
Resolution on the approval of the annual financial statements of Fresenius Medical Care AG & Co. KGaA for fiscal year 2019 |
99.95 | % | 0.05 | % | ||||
Item 2 |
Resolution on the allocation of distributable profit |
99.89 |
% |
0.11 |
% |
||||
Item 3 |
Resolution on the approval of the actions of the General Partner for fiscal year 2019 |
96.60 |
% |
3.40 |
% |
||||
Item 4 |
Resolution on the approval of the actions of the Supervisory Board for fiscal year 2019 |
94.58 |
% |
5.42 |
% |
||||
Item 5 |
Election of the auditor and consolidated group auditor for fiscal year 2020 as well as the auditor for the potential review of interim financial information |
98.82 |
% |
1.18 |
% |
||||
Item 6 |
Resolution on the approval of the compensation system for the members of the Management Board of the General Partner |
95.05 |
% |
4.95 |
% |
||||
Item 7 |
Resolution on the remuneration of the members of the Supervisory Board and on the amendment of Article 13 and Article 13e (3) of the Articles of Association |
98.52 |
% |
1.48 |
% |
||||
Item 8 |
Resolution on the cancellation of the existing authorized capitals, on the creation of new authorized capitals incl. the possibility of the exclusion of subscription rights and on corresponding amendments to Art. 4 (3) and (4) of the Articles |
94.08 |
% |
5.92 |
% |
||||
Item 9 |
Resolution on the amendment of Article 15 (1) sentence 2 of the Company's Articles of Association (Alignment with the German Stock Corporation Act as amended by the ARUG II) |
99.99 |
% |
0.01 |
% |
||||
78
Exhibit No.
|
|
||
|---|---|---|---|
| 10.3 | Indenture dated as of September 16, 2020 among Fresenius Medical Care US Finance III, Inc., as Issuer, U.S. Bank National Association, as Trustee, and Fresenius Medical Care AG & Co. KGaA and Fresenius Medical Care Holdings, Inc., as Guarantors, relating to the USD 1,000,000,000 2.375% Notes due 2031 of Fresenius Medical Care US Finance III, Inc. (filed herewith). | ||
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 three- and nine-months periods ended September 30, 2020 from FMC-AG & Co. KGaA's Report on Form 6-K for the month of October 2020, 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. |
||
79
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: October 29, 2020
|
FRESENIUS MEDICAL CARE AG & Co. KGaA a partnership limited by shares, represented by: | |||||
|
FRESENIUS MEDICAL CARE MANAGEMENT AG, its General Partner |
|||||
|
By: |
/s/ RICE POWELL |
||||
|
Name: | Rice Powell | ||||
|
Title: | Chief Executive Officer and Chairman of the Management Board of the General Partner | ||||
|
By: |
/s/ HELEN GIZA |
||||
|
Name: | Helen Giza | ||||
|
Title: | Chief Financial Officer and member of the Management Board of the General Partner | ||||
80
|
|
|
|
FRESENIUS MEDICAL CARE US FINANCE III, INC.
as Issuer
U.S. BANK NATIONAL ASSOCIATION
as Trustee
FRESENIUS MEDICAL CARE AG & Co. KGaA,
FRESENIUS MEDICAL CARE HOLDINGS, INC. and
as Guarantors
INDENTURE
DATED AS OF SEPTEMBER 16, 2020
with respect to the issuance of
$1,000,000,000 2.375% NOTES DUE 2031
|
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TABLE OF CONTENTS
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Page |
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ARTICLE I | ||
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DEFINITIONS AND INCORPORATION BY REFERENCE | ||
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|
|
SECTION 1.1 |
Definitions |
1 |
|
SECTION 1.2 |
Rules of Construction |
10 |
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ARTICLE II | ||
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| ||
|
THE NOTES | ||
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|
SECTION 2.1 |
Form and Dating |
11 |
|
SECTION 2.2 |
Execution and Authentication |
12 |
|
SECTION 2.3 |
Registrar and Paying Agent |
13 |
|
SECTION 2.4 |
Paying Agent To Hold Assets in Trust |
14 |
|
SECTION 2.5 |
List of Holders |
14 |
|
SECTION 2.6 |
Book-Entry Provisions for Global Notes |
14 |
|
SECTION 2.7 |
Registration of Transfer and Exchange |
15 |
|
SECTION 2.8 |
Replacement Notes |
20 |
|
SECTION 2.9 |
Outstanding Notes |
21 |
|
SECTION 2.10 |
Treasury Notes |
21 |
|
SECTION 2.11 |
Temporary Notes |
21 |
|
SECTION 2.12 |
Cancellation |
22 |
|
SECTION 2.13 |
Defaulted Interest |
22 |
|
SECTION 2.14 |
CUSIP Numbers |
22 |
|
SECTION 2.15 |
Deposit of Moneys |
23 |
|
SECTION 2.16 |
Certain Matters Relating to Global Notes |
23 |
|
SECTION 2.17 |
Record Date |
23 |
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|
ARTICLE III | ||
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| ||
|
REDEMPTION | ||
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|
SECTION 3.1 |
Optional Redemption |
24 |
|
SECTION 3.2 |
Notices to Trustee |
24 |
|
SECTION 3.3 |
Selection of Notes To Be Redeemed |
24 |
|
SECTION 3.4 |
Notice of Redemption |
24 |
|
SECTION 3.5 |
Effect of Notice of Redemption |
26 |
|
SECTION 3.6 |
Deposit of Redemption Price |
26 |
|
SECTION 3.7 |
Notes Redeemed in Part |
27 |
|
SECTION 3.8 |
Special Tax Redemption |
27 |
|
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Page |
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|
ARTICLE IV | ||
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| ||
|
COVENANTS | ||
|
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|
|
SECTION 4.1 |
Payment of Notes |
28 |
|
SECTION 4.2 |
Maintenance of Office or Agency |
28 |
|
SECTION 4.3 |
Negative Pledge of the Issuer |
28 |
|
SECTION 4.4 |
Negative Pledge of the Company |
29 |
|
SECTION 4.5 |
Ownership of the Issuer |
30 |
|
SECTION 4.6 |
Existence |
30 |
|
SECTION 4.7 |
Maintenance of Properties |
30 |
|
SECTION 4.8 |
Payment of Taxes and Other Claims |
31 |
|
SECTION 4.9 |
Maintenance of Insurance |
31 |
|
SECTION 4.10 |
Reports |
31 |
|
SECTION 4.11 |
Change of Control |
32 |
|
SECTION 4.12 |
Additional Amounts |
34 |
|
SECTION 4.13 |
Compliance Certificate; Notice of Default |
35 |
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|
ARTICLE V | ||
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| ||
|
SUCCESSOR ISSUER OR GUARANTOR | ||
|
|
|
|
|
SECTION 5.1 |
Limitation on Mergers and Sales of Assets |
36 |
|
SECTION 5.2 |
Successor Entity Substituted |
36 |
|
SECTION 5.3 |
Substitution of the Issuer |
37 |
|
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|
ARTICLE VI | ||
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| ||
|
DEFAULT AND REMEDIES | ||
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|
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|
SECTION 6.1 |
Events of Default |
37 |
|
SECTION 6.2 |
Acceleration |
39 |
|
SECTION 6.3 |
Other Remedies |
39 |
|
SECTION 6.4 |
The Trustee May Enforce Claims Without Possession of Notes |
39 |
|
SECTION 6.5 |
Rights and Remedies Cumulative |
39 |
|
SECTION 6.6 |
Delay or Omission Not Waiver |
39 |
|
SECTION 6.7 |
Waiver of Past Defaults |
40 |
|
SECTION 6.8 |
Control by Majority |
40 |
|
SECTION 6.9 |
Limitation on Suits |
40 |
|
SECTION 6.10 |
Rights of Holders To Receive Payment |
41 |
|
SECTION 6.11 |
Collection Suit by Trustee |
41 |
|
SECTION 6.12 |
Trustee May File Proofs of Claim |
41 |
|
SECTION 6.13 |
Priorities |
41 |
|
SECTION 6.14 |
Restoration of Rights and Remedies |
42 |
|
SECTION 6.15 |
Undertaking for Costs |
42 |
|
SECTION 6.16 |
Notices of Default |
42 |
|
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|
Page |
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|
ARTICLE VII | ||
|
| ||
|
TRUSTEE | ||
|
|
|
|
|
SECTION 7.1 |
Duties of Trustee |
43 |
|
SECTION 7.2 |
Rights of Trustee |
44 |
|
SECTION 7.3 |
Individual Rights of Trustee |
45 |
|
SECTION 7.4 |
Trustee’s Disclaimer |
45 |
|
SECTION 7.5 |
Notice of Default |
46 |
|
SECTION 7.6 |
Compensation and Indemnity |
46 |
|
SECTION 7.7 |
Replacement of Trustee |
47 |
|
SECTION 7.8 |
Successor Trustee by Merger, Etc |
48 |
|
SECTION 7.9 |
Eligibility; Disqualification |
48 |
|
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|
ARTICLE VIII | ||
|
| ||
|
SATISFACTION AND DISCHARGE OF INDENTURE | ||
|
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|
|
SECTION 8.1 |
Option To Effect Legal Defeasance or Covenant Defeasance |
49 |
|
SECTION 8.2 |
Legal Defeasance and Discharge |
49 |
|
SECTION 8.3 |
Covenant Defeasance |
49 |
|
SECTION 8.4 |
Conditions to Legal or Covenant Defeasance |
50 |
|
SECTION 8.5 |
Satisfaction and Discharge of Indenture |
51 |
|
SECTION 8.6 |
Survival of Certain Obligations |
51 |
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SECTION 8.7 |
Acknowledgment of Discharge by Trustee |
51 |
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SECTION 8.8 |
Application of Trust Moneys |
51 |
|
SECTION 8.9 |
Repayment to the Issuer; Unclaimed Money |
52 |
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SECTION 8.10 |
Reinstatement |
52 |
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ARTICLE IX | ||
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AMENDMENTS, SUPPLEMENTS AND WAIVERS | ||
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SECTION 9.1 |
Without Consent of Holders of Notes |
53 |
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SECTION 9.2 |
With Consent of Holders of Notes |
54 |
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SECTION 9.3 |
Notice of Amendment, Supplement or Waiver |
55 |
|
SECTION 9.4 |
Revocation and Effect of Consents |
55 |
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SECTION 9.5 |
Notation on or Exchange of Notes |
55 |
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SECTION 9.6 |
Trustee To Sign Amendments, Etc |
55 |
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ARTICLE X | ||
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NOTE GUARANTEE | ||
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SECTION 10.1 |
Note Guarantee |
56 |
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SECTION 10.2 |
Guarantors May Consolidate, Etc., on Certain Terms |
57 |
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SECTION 10.3 |
Release of Guarantors |
57 |
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Page |
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ARTICLE XI | ||
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MISCELLANEOUS | ||
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SECTION 11.1 |
Notices |
58 |
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SECTION 11.2 |
Certificate and Opinion as to Conditions Precedent |
60 |
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SECTION 11.3 |
Statements Required in Certificate or Opinion |
61 |
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SECTION 11.4 |
Rules by Trustee, Paying Agent, Registrar |
61 |
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SECTION 11.5 |
Legal Holidays |
61 |
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SECTION 11.6 |
Governing Law |
61 |
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SECTION 11.7 |
Submission to Jurisdiction |
61 |
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SECTION 11.8 |
No Personal Liability of Directors, Officers, Employees and Stockholders |
62 |
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SECTION 11.9 |
Successors |
62 |
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SECTION 11.10 |
Counterpart Originals |
62 |
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SECTION 11.11 |
Severability |
62 |
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SECTION 11.12 |
Table of Contents, Headings, Etc |
63 |
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SECTION 11.13 |
Currency Indemnity |
63 |
EXHIBITS
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Exhibit A |
— |
Form of Note |
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Exhibit B |
— |
Form of Transfer Certificate for Transfer from Rule 144A Global Note to Regulation S Global Note |
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Exhibit C |
— |
Form of Transfer Certificate for Transfer from Regulation S Global Note to Rule 144A Global Note |
NOTE: This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture.
INDENTURE dated as of September 16, 2020, among FRESENIUS MEDICAL CARE US FINANCE III, INC., a Delaware corporation (the “Issuer”), as Issuer, FRESENIUS MEDICAL CARE AG & Co. KGaA, a partnership limited by shares (Kommanditgesellschaft auf Aktien) organized under the laws of the Federal Republic of Germany (the “Company”) and FRESENIUS MEDICAL CARE HOLDINGS, INC., a New York corporation (“FMCH” and, together with the Company, the “Guarantors”) and U.S. BANK NATIONAL ASSOCIATION, a national banking association, in its capacity as trustee (the “Trustee”).
The Issuer has duly authorized the creation and issuance of its 2.375% Notes due 2031. The Notes consist of (i) $1,000,000,000 aggregate principal amount of notes issued on the date hereof (the “Initial Notes”) and (ii) Additional Notes (as defined herein) that may be issued on any Issue Date (all such notes referred to in clauses (i) and (ii) being referred to as the “Notes”); and, to provide therefor, the Issuer has duly authorized the execution and delivery of this Indenture. The Notes will be guaranteed (the “Note Guarantee”) on a senior unsecured basis by each Guarantor. Each of the Issuer and the Guarantors has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when duly issued and executed by the Issuer and authenticated and delivered by the Trustee hereunder, the valid obligations of the Issuer and the valid obligation of each Guarantor and to make this Indenture a valid agreement of the Issuer and each Guarantor, have been done.
Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. As used in this Indenture, the following terms shall have the following meanings:
“Accounting Principles” means IFRS or any other accounting standards which are generally acceptable in the jurisdiction of organization of the Company, approved by the relevant regulatory or other accounting bodies in that jurisdiction and internationally generally acceptable and as in effect from time to time.
“Additional Amounts” shall have the meaning set forth in Section 4.12.
“Additional Notes” means additional 2.375% Notes due 2031.
“Additional Taxing Jurisdiction” shall have the meaning set forth in Section 4.12.
“Affiliate” of any specified Person means:
(1) any other Person, directly or indirectly, controlling or controlled by, or
(2) under direct or indirect common control with such specified Person.
For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Agent” means the Paying Agent, any Registrar, the transfer agent, the Authenticating Agent or any co-Registrar.
“Agent Members” shall have the meaning set forth in Section 2.16.
“Authenticating Agent” shall have the meaning set forth in Section 2.2.
“Bankruptcy Law” means (i) for purposes of the Company or any Material Subsidiary organized under the laws of the Federal Republic of Germany, any bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application (including, without limitation, the German Insolvency Code (“Insolvenzordnung”) and (ii) for purposes of the Issuer and FMCH, or the Trustee, Title 11, United States Code or any similar federal, state or foreign law for the relief of debtors.
“Board of Directors” means, with respect to the Issuer or any Guarantor, as the case may be, the Board of Directors (or other body performing functions similar to any of those performed by a Board of Directors including those performed, in the case of a German stock corporation, by the management board or, in the case of a KGaA, by the General Partner) of such Person or any committee thereof duly authorized to act on behalf of such Board (or other body).
“Board Resolution” means, with respect to the Issuer or a Guarantor, a copy of a resolution certified by the Secretary or an Assistant Secretary or a member of the Board of Directors or Management Board of the Issuer or such Guarantor to have been duly adopted by the Board of Directors or the Management Board, or such committee of the Board of Directors or the Management Board or officers of the Issuer or such Guarantor to which authority to act on behalf of the Board of Directors or the Management Board has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee by the Issuer or the Guarantor, as the case may be, and the Trustee shall be entitled to rely on such certification as conclusive evidence thereof.
“Business Day” means any day other than:
(1) a Saturday or Sunday,
(2) a day on which banking institutions in New York City, Frankfurt am Main or the jurisdiction of organization of the Issuer or of the office of a Paying Agent (other than the Trustee) are authorized or required by law or executive order to remain closed, or
(3) a day on which the corporate trust office of the Trustee is closed for business.
“Capital Market Indebtedness” means any obligation for the payment of borrowed money which is evidenced by a certificate of indebtedness (Schuldscheindarlehen) or which is represented by any bond or debt security with an original maturity of more than one year which is, or is intended to be, or is capable of being listed or traded on a stock exchange or other recognized securities market.
“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.
“Change of Control” means the occurrence of one or more of the following events:
(1) so long as the Company is organized as a KGaA, if the General Partner of the Company charged with the management of the Company shall at any time fail to be Fresenius SE or a Subsidiary of Fresenius SE, or if Fresenius SE shall fail at any time to own or control, directly or indirectly, more than 25% of the capital stock with ordinary voting power in the Company;
(2) if the Company is no longer organized as a KGaA, any event the result of which is that (A) any person or group (a “Relevant Person” or “Relevant Persons”) acting in concert (as defined in § 30 (2) of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz)) or any person or group acting on behalf of any such Relevant Person or Relevant Persons, other than a Permitted Holder, is or becomes the direct or indirect legal or beneficial owner of, or of any legal or beneficial entitlement (as defined in § 34 of the German Securities Trading Act (Wertpapierhandelsgesetz)) to, in the aggregate, more than 50% of the voting shares of the Company; or
(3) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company (held directly or indirectly) to any Relevant Person other than a Permitted Holder, or any person or group acting on behalf of any such Relevant Person or Relevant Persons.
“Change of Control Triggering Event” means the occurrence of a Change of Control and a Ratings Decline.
“Closing Date” means the date of this Indenture.
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Company” means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor.
“Corporate Trust Office” means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof for purposes of Section 4.2 only is located at 111 Fillmore Avenue, St. Paul, MN 55107, Attention: Fresenius Medical Care US Finance III, Inc., and for all other purposes is located at 225 Asylum
Street, Hartford, Connecticut 06103, United States of America, Attention : Fresenius Medical Care US Finance III, Inc., or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company).
“Covenant Defeasance” shall have the meaning set forth in Section 8.3.
“Credit Facility” means the credit agreement entered into as of October 30, 2012 among, inter alia, the Company and Fresenius Medical Care Holdings, Inc., as borrowers and guarantors, the lenders party thereto, Bank of America, N.A., as administrative agent, and the other agents named therein, as amended, modified, extended, renewed, supplemented, refunded, replaced, restated or refinanced from time to time.
“Custodian” means any receiver, trustee, assignee, liquidator, sequestration or similar official under any Bankruptcy Law.
“Default” means any event that is, or after notice or passage of time or both would be, an Event of Default (as defined herein).
“Default Interest Payment Date” shall have the meaning set forth in Section 2.13.
“Defeasance Trust” shall have the meaning set forth in Section 8.4.
“Definitive Notes” means Notes in definitive registered form substantially in the form of Exhibit A.
“Depositary” or “DTC” means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depositary by the Company, which Person must be a depositary registered under the Exchange Act.
“Designated Government Obligations” means direct non-callable and non-redeemable U.S. Dollar-denominated obligations (in each case, with respect to the issuer thereof) issued by any state that is, as of the Issue Date, a member of the European Union, or by the United States of America (including, in each case, any agency or instrumentality thereof), as the case may be, the payment of which is secured by the full faith and credit of the applicable member state or of the United States of America, as the case may be.
“EBITDA” means operating income plus depreciation, amortization and impairment losses and is derived from the operating income determined in accordance with IFRS for the most recently ended four full fiscal quarters for which internal financial statements are available.
“Event of Default” shall have the meaning set forth in Section 6.1.
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
“FATCA” means any United States federal tax imposed pursuant to (i) sections 1471 to 1474 of the Code, as of the Issue Date (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), or any regulations promulgated thereunder or official interpretations thereof, (ii) any agreement entered into pursuant to Section 1471(b) of the Code, as of the Issue Date (or any amended or successor version described above), or (iii) any treaty, law or regulation of any other jurisdiction relating to an intergovernmental agreement between the United States and such other jurisdiction, in either case implementing any law or regulation referred to in the preceding clause (i).
“Finance Subsidiary” means any Wholly Owned Subsidiary of the Company created for the purpose of issuing evidences of indebtedness or guaranteeing indebtedness and which is subject to similar restrictions on its activities as the Issuer.
“Fitch” means Fitch Ratings, Inc. and its subsidiaries and successors.
“FMCH” means Fresenius Medical Care Holdings, Inc.
“Fresenius Medical Care Group” means the Company and its Subsidiaries on a consolidated basis.
“Fresenius SE” means Fresenius SE & Co. KGaA, a partnership limited by shares (Kommanditgesellschaft auf Aktien).
“General Partner” means Fresenius Medical Care Management AG, a German stock corporation, including its successors and assigns and other Persons, in each case who serve as the general partner (persönlich haftender Gesellschafter) of the Company from time to time.
“Global Legend” shall have the meaning set forth in Section 2.6.
“Global Notes” shall mean Notes in registered global form substantially in the form of Exhibit A.
“Guarantor” means each of the Company and FMCH and any successor or additional Guarantor, unless released from its obligations under its Note Guarantee in accordance with the terms of this Indenture.
“Holder” means a Person in whose name a Note is registered on the Registrar’s books.
“IFRS” means international financial reporting standards and interpretations issued by the International Accounting Standards Board and adopted by the European Union, as in effect from time to time.
“Indenture” means this Indenture, as amended, modified or supplemented from time to time in accordance with the terms hereof.
“Initial Notes” shall have the meaning set forth in the preamble to this Indenture.
“Investment Grade” means a rating of (i) BBB- or higher by S&P, (ii) Baa3 or higher by Moody’s and (iii) BBB- or higher by Fitch, or the equivalent of such ratings by S&P, Moody’s or Fitch and the equivalent in respect of rating categories of any Rating Agencies substituted for S&P, Moody’s or Fitch.
“Issue Date” means September 16, 2020.
“Issuer” means Fresenius Medical Care US Finance III, Inc. until a successor replaces it pursuant to this Indenture and thereafter means such successor.
“Issuer Order” means a written order or request signed in the name of the Issuer by a Responsible Officer of the Issuer and delivered to the Trustee by the Issuer.
“KGaA” means a German partnership limited by shares (Kommanditgesellschaft auf Aktien).
“Legal Defeasance” shall have the meaning set forth in Section 8.2.
“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).
“Material Subsidiary” means any Subsidiary of Fresenius Medical Care AG & Co. KGaA which:
(1) has unconsolidated EBITDA representing 5% or more of the EBITDA of the Fresenius Medical Care Group on a consolidated basis; or
(2) has unconsolidated gross assets representing 5% or more of the gross assets of the Fresenius Medical Care Group on a consolidated basis,
in each case as determined by reference to the latest audited annual financial statements prepared in accordance with IFRS.
“Maturity Date” means February 16, 2031.
“Moody’s” means Moody’s Investors Service, Inc. and its subsidiaries and successors.
“Note Guarantee” means the guarantee by a Guarantor of the Issuer’s obligations under the Notes.
“Notes” shall have the meaning set forth in the preamble of this Indenture.
“Offering Memorandum” means that certain Offering Memorandum dated September 9, 2020 relating to the Initial Notes.
“Officers’ Certificate” means a certificate signed by two Responsible Officers of the Issuer or of any Guarantor.
“Opinion of Counsel” means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer, a Guarantor or the Trustee.
“Paying Agent” shall have the meaning set forth in Section 2.3.
“Permitted Holders” means Fresenius SE and any of its Affiliates, as long as and to the extent Fresenius SE or the relevant Affiliate(s) is or are not acting in concert with, or on behalf of, a Relevant Person or Relevant Persons.
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other entity.
“Preferred Stock,” as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.
“Private Placement Legend” means the legend set forth in Section 2.7(f).
“Rating Agencies” means:
(1) S&P,
(2) Moody’s, and
(3) Fitch, or
(4) if S&P, Moody’s or Fitch or all three shall not make a rating of the Notes publicly available, despite the Company using its commercially reasonable efforts to obtain such a rating, another reputable securities rating agency or agencies, as the case may be, having equivalent international standing selected by the Company, which shall be substituted for S&P, Moody’s, Fitch or all three, as the case may be.
“Rating Category” means:
(1) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories),
(2) with respect to Moody’s, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories),
(3) with respect to Fitch, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); and
(4) the equivalent of any such category of S&P, Moody’s or Fitch used by another rating agency. In determining whether the rating of the Notes has decreased by one or more gradations, gradations within rating categories (+ and - for S&P, 1, 2 and 3 for Moody’s, + and - for Fitch; or the equivalent gradations for another rating agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB to BB-, which constitute a decrease of one gradation).
“Ratings Decline” means that if (a), at the time of the occurrence of a Change of Control, the Notes (i) have been rated Investment Grade by at least two Rating Agencies and such rating is, within 120 days from such time, either downgraded to a non-Investment Grade rating or withdrawn by at least two Rating Agencies and is not within such 120-day period subsequently (in the case of a downgrade) upgraded to Investment Grade by two of the three Rating Agencies, or (in the case of withdrawal) replaced by an Investment Grade rating from any other Rating Agency or Rating Agencies; or (ii) rated below Investment Grade and such rating from any Rating Agency is, within 120 days from such time, downgraded by one or more gradations (including gradations within Rating Categories as well as between Rating Categories) and is not within such 120-day period subsequently upgraded to its earlier credit rating or better by such Rating Agency; provided that if at the time of the occurrence of a Change of Control the Notes carry an Investment Grade rating of only one Rating Agency, it shall be sufficient if the requirements under clause (i) are met with respect to such Rating Agency; and (b) in making any of the decisions referred to above, the relevant Rating Agency announces publicly or confirms in writing to the Company that its decision resulted, in whole or in part, from the occurrence of the Change of Control; provided, however, that, no Ratings Decline will occur if at the end of the 120-day period the Notes have been rated by at least two Rating Agencies it has solicited, Investment Grade.
“Record Date” means the Record Dates specified in the Notes.
“Redemption Date” when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and Paragraph 8 of the Notes.
“Redemption Price” when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture and Paragraphs 8 and 9 of the Notes.
“Registrar” shall have the meaning set forth in Section 2.3.
“Regulation S” means Regulation S (including any successor regulation thereto) under the Securities Act, as it may be amended from time to time.
“Regulation S Global Note” shall have the meaning set forth in Section 2.1.
“Regulation S Notes” shall have the meaning set forth in Section 2.1.
“Relevant Taxing Jurisdiction” shall have the meaning set forth in Paragraph 2 of the Notes.
“Responsible Officer” means the chief executive officer, president, chief financial officer, senior vice president—finance, treasurer, assistant treasurer, managing director, management board member or director of a company (or in the case of the Company, a Responsible Officer of its General Partner, other managing entity or other Person authorized to act on its behalf, and if such Person is also a partnership, limited liability company or similarly organized entity, a Responsible Officer of the entity that may be authorized to act on behalf of such Person).
“Restricted Period” shall have the meaning set forth in Section 2.7(b) hereof.
“Rule 144” means Rule 144 (including any successor regulation thereto) under the Securities Act, as it may be amended from time to time.
“Rule 144A” means Rule 144A (including any successor regulation thereto) under the Securities Act, as it may be amended from time to time.
“Rule 144A Global Note” shall have the meaning set forth in Section 2.1 hereof.
“Rule 144A Notes” shall have the meaning set forth in Section 2.1 hereof.
“SEC” means the U.S. Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Securities Act and the Exchange Act, then the body performing such duties at such time.
“Security Interest” means any mortgage, land charge, lien or any other security right in rem (dingliches Sicherungsrecht).
“Securities Act” means the U.S. Securities Act of 1933 or any successor statute thereto, in each case as amended from time to time.
“S&P” means S&P Global Ratings and its subsidiaries and successors.
“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred).
“Subsidiary” means, with respect to any Person, any corporation, limited liability company, association, partnership or other business entity whose results of operations are consolidated in accordance with the Accounting Principles with those of:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
Unless otherwise provided, all references to a Subsidiary shall be a Subsidiary of the Company.
“Successor” shall have the meaning set forth in Section 5.3.
“Surviving Person” means, with respect to any Person involved in any merger, consolidation or other business combination or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person’s assets, the Person formed by or surviving such transaction or the Person to which such disposition is made.
“Tax Redemption Date” when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and Paragraph 9 of the Notes.
“Taxes” shall have the meaning set forth in Paragraph 2 of the Notes.
“Treasury Rate” means, with respect to a Redemption Date, the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.15” or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” at least two Business Days prior to such Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such Redemption Date to the Stated Maturity date of the Notes; provided, however, that if the period from the Redemption Date to such date is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.
“Trust Officer” means any officer of the Trustee (or any successor of the Trustee), including any director, managing director, vice president, assistant vice president, corporate trust officer, assistant corporate trust officer, associate or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such trust matter is referred because of his or her knowledge of and familiarity with the particular subject and who has direct responsibility for the administration of this Indenture.
“Trustee” means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor.
“Wholly Owned Subsidiary” means a Subsidiary all the Capital Stock of which (other than directors’ qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than its parent or a Subsidiary of its parent) is owned by the Company or by one or more Wholly Owned Subsidiaries, or by the Company and one or more Wholly Owned Subsidiaries.
SECTION 1.2 Rules of Construction. Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with Accounting Principles;
(c) “or” is not exclusive;
(d) words in the singular include the plural, and words in the plural include the singular;
(e) provisions apply to successive events and transactions; and
(f) “herein,” “hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
ARTICLE II
THE NOTES
SECTION 2.1 Form and Dating. The Notes and the Trustee’s certificate of authentication thereof, shall be substantially in the form of Exhibit A. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage. The Issuer and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them not inconsistent with the terms of this Indenture. Each Note shall be dated the date of its issuance and shall show the date of its authentication.
The terms and provisions contained in the Notes, annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Issuer, the Guarantors, the Trustee, the Registrar and the Paying Agent, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The Notes will initially be represented by the Global Notes. Definitive Notes will be issued in exchange for Global Notes only in accordance with Section 2.6(a).
As long as the Notes are in global form, the Paying Agent (in lieu of the Trustee) shall be responsible for:
(1) paying sums due on the Global Notes; and
(2) arranging on behalf of and at the expense of the Issuer for notices to be communicated to Holders in accordance with the terms of this Indenture.
Each reference in this Indenture to the performance of duties set forth in clauses (1) and (2) above by the Trustee includes performance of such duties by the Paying Agent.
Notes offered and sold in their initial distribution in reliance on Regulation S shall be initially issued as one or more global notes, in registered, global form without interest coupons, substantially in the form of Exhibit A hereto, with the Global Legend and such other applicable legends as are provided in Section 2.7(f)(ii), except as otherwise permitted herein, and shall be referred to collectively herein as the “Regulation S Global Note.” The aggregate principal amount of the Regulation S Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee (following receipt by the Trustee of all the information required hereunder), as hereinafter provided (or by the issue of a further Regulation S Global Note), in connection with a corresponding decrease or increase in the aggregate principal amount of the Rule 144A Global Note or in consequence of the issue of Definitive Notes or Additional Notes in the form of Regulation S Global Notes, as hereinafter provided. The Regulation S Global Note and all other Notes that are not Rule 144A Notes shall collectively be referred to herein as the “Regulation S Notes.”
Notes offered and sold in their initial distribution in reliance on Rule 144A shall be initially issued as one or more global notes in registered, global form without interest coupons, substantially in the form of Exhibit A hereto, with the Global Legend and such other applicable legends as are provided in Section 2.7(f)(ii), except as otherwise permitted herein, and shall be referred to collectively herein as the “Rule 144A Global Note.” The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee (following receipt by the Trustee of all information required hereunder), as hereinafter provided (or by the issue of a further Rule 144A Global Note), in connection with a corresponding decrease or increase in the aggregate principal amount of the Regulation S Global Note, or in consequence of the issue of Definitive Notes or Additional Rule 144A Global Notes, as hereinafter provided. The Rule 144A Global Note and all other Notes (excluding interests in Rule 144A Global Notes which are transferred in accordance with Section 2.7(a) hereunder), if any, evidencing the debt, or any portion of the debt, initially evidenced by such Rule 144A Global Note, shall collectively be referred to herein as the “Rule 144A Notes.”
SECTION 2.2 Execution and Authentication. One Responsible Officer of or one Person duly authorized by all requisite corporate actions by the Issuer shall sign the Notes for the Issuer by manual or facsimile signature.
If a Responsible Officer whose signature is on a Note was a Responsible Officer at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. The Trustee shall be entitled to rely on such signature as authentic and shall be under no obligation to make any investigation in relation thereto.
A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
Except as otherwise provided herein, the aggregate principal amount of Notes which may be outstanding at any time under this Indenture is not limited in amount. Upon receipt
of an Issuer Order, the Trustee shall authenticate such Notes, which shall consist of (i) Initial Notes for original issue on the Closing Date in an aggregate principal amount not to exceed $1,000,000,000 and (ii) Additional Notes from time to time for issuance after the Issue Date to the extent otherwise permitted hereunder, in each case upon receipt of an Issuer Order. Additional Notes will be treated as a single class for all purposes under this Indenture, including, without limitation, for purposes of waivers, amendments, redemptions and offers to purchase (provided that, if any Additional Notes are not fungible with existing Notes for U.S. federal income tax purposes, such Additional Notes shall have a separate CUSIP number and other identifying numbers, if any). Such Issuer Order shall specify the aggregate principal amount of Notes to be authenticated, the type of Notes, the date on which the Notes are to be authenticated, the issue price and the date from which interest on such Notes shall accrue, whether the Notes are to be Initial Notes or Additional Notes and whether or not the Notes shall bear the Private Placement Legend, or such other information as the Trustee may reasonably request. In authenticating the Notes and accepting the responsibilities under this Indenture in relation to the Notes, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel in a form reasonably satisfactory to the Trustee stating that the form and terms thereof have been established in conformity with the provisions of this Indenture, do not give rise to a Default and that the issuance of such Notes has been duly authorized by the Issuer. Upon receipt of an Issuer Order, the Trustee shall authenticate Notes in substitution for Notes originally issued to reflect any name change of the Issuer.
The Trustee may appoint an authenticating agent (“Authenticating Agent”) reasonably acceptable to the Issuer to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Issuer and Affiliates of the Issuer.
The Notes shall be issuable only in denominations of $150,000 and integral multiples of $1,000 in excess thereof.
SECTION 2.3 Registrar and Paying Agent. The Issuer shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (“Registrar”), (ii) an office or agency where Notes may be presented for payment (“Paying Agent”) and (iii) upon issuance of Definitive Notes, an office or agency where Definitive Notes may be presented for payment to the Paying Agent. The Registrar shall keep a register of the Notes and of their transfer and exchange. At the option of the Issuer, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. The Issuer may appoint one or more co-registrars and one or more additional paying agents. The term “Registrar” includes any co-registrar and the term “Paying Agent” includes any additional paying agent. The Issuer may change any Paying Agent or Registrar without notice to any Holder. The Issuer shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuer fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Issuer, the Company or any of its Subsidiaries may act as Paying Agent or Registrar to the extent permitted under applicable laws or regulations.
The Issuer shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. The Issuer shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture and the Notes that relate to such Agent. The Issuer shall notify the Trustee of the name and address of any such Agent. If the Issuer fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.6 hereof.
The Issuer initially appoints the Trustee to act as the Registrar and Paying Agent. In acting under this Indenture and in connection with the Notes, the Paying Agent and the Registrar shall act solely as an agent of the Issuer, and will not thereby assume any obligations towards or relationship of agency or trust for or with any Holder except as expressly provided in this Indenture.
SECTION 2.4 Paying Agent To Hold Assets in Trust. The Issuer shall require the Paying Agent to agree in writing that such Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, Additional Amounts, if any, premium, if any, or interest on, the Notes, and shall promptly notify the Trustee of any Default by the Issuer in making any such payment. The Issuer at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets distributed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Issuer to the Paying Agent pursuant to this Section 2.4, the Paying Agent shall have no further liability for such assets.
SECTION 2.5 List of Holders. The Registrar shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee within two Business Days after each Record Date as of such Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee.
SECTION 2.6 Book-Entry Provisions for Global Notes. The Global Notes initially shall (i) be deposited with and registered in the name of DTC or its nominee, (ii) be delivered to DTC or its custodian and (iii) bear the following legend (the “Global Legend”):
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY OR A NOMINEE OF THE DEPOSITORY TRUST COMPANY. THIS NOTE IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE TO THE DEPOSITORY TRUST COMPANY OR A NOMINEE OF THE DEPOSITORY TRUST
COMPANY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
(a) Notwithstanding any other provisions of this Indenture, a Global Note may not be transferred as a whole except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another successor of DTC or a nominee of such successor. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Definitive Notes in accordance with the rules and procedures of DTC and the provisions of Section 2.7. All Global Notes shall be exchanged by the Issuer (and upon receipt of an Issuer Order, with authentication by the Trustee) for one or more Definitive Notes, if (a) if DTC notifies the Issuer that it is unwilling or unable to continue as depositary for the Global Note, or DTC ceases to be a clearing agency registered under the Exchange Act and, in either case, a qualified successor depositary is not appointed by the Issuer within 120 days, (b) DTC so requests following an Event of Default hereunder or (c) if the beneficial owner of an interest in the Global Note requests such exchange in writing delivered through DTC following an Event of Default. If an Event of Default occurs and is continuing, the Issuer shall, at the written request delivered through DTC, exchange all or part of a Global Note for one or more Definitive Notes (and upon receipt of an Issuer Order, with authentication by the Trustee); provided, however, that the principal amount of such Definitive Notes and such Global Note after such exchange shall be $150,000 or integral multiples of $1,000 in excess thereof. Whenever all of a Global Note is exchanged for one or more Definitive Notes, it shall be surrendered by the Holder thereof to the Registrar for cancellation. Whenever a part of a Global Note is exchanged for one or more Definitive Notes, the Global Note shall be surrendered by the Holder thereof to the Paying Agent who together with the Trustee, following such surrender, shall cause an adjustment to be made to Schedule A of such Global Note such that the principal amount of such Global Note will be equal to the portion of such Global Note not exchanged and shall thereafter return such Global Note to such Holder. A Global Note may not be exchanged for a Definitive Note other than as provided in this Section 2.6(a).
(b) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to Section 2.6(a), the Global Notes shall be deemed to be surrendered to the Paying Agent for cancellation, and the Issuer shall execute, and the Trustee shall upon written instructions from the Issuer authenticate and make available for delivery, to each beneficial owner in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Definitive Notes of authorized denominations.
(c) Any Definitive Note delivered in exchange for an interest in a Global Note pursuant to Section 2.6(a) shall, except as otherwise provided by Section 2.7, bear the Private Placement Legend together with the following legend (the “Definitive Note Legend”):
“THIS NOTE IS A DEFINITIVE NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO”.
SECTION 2.7 Registration of Transfer and Exchange. Notwithstanding any provision to the contrary herein, so long as a Note remains outstanding, transfers of beneficial interests in Global Notes or transfers of Definitive Notes, in whole or in part, shall be made only in accordance with this Section 2.7.
(a) If a holder of a beneficial interest in the Rule 144A Global Note wishes at any time to exchange its interest in such Rule 144A Global Note for an interest in the Regulation S Global Note, or to transfer its interest in such Rule 144A Global Note to a Person who wishes to take delivery thereof in the form of an interest in such Regulation S Global Note, such holder may, subject to the rules and procedures of the DTC, to the extent applicable, and to the requirements set forth in this Section 2.7(a), exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in such Regulation S Global Note. Such exchange or transfer shall only be made upon receipt by the Paying Agent, as transfer agent, at its Corporate Trust Office of (1) written instructions given in accordance with the procedures of the DTC, to the extent applicable, from or on behalf of a holder of a beneficial interest in the Rule 144A Global Note directing the Paying Agent, as transfer agent, to credit or cause to be credited a beneficial interest in the Regulation S Global Note in an amount equal to the beneficial interest in the Rule 144A Global Note to be exchanged or transferred, (2) a written order given in accordance with the procedures of the DTC, to the extent applicable, containing information regarding the account to be credited with such increase and the name of such account, and (3) a certificate in the form of Exhibit B given by the holder of such beneficial interest stating that the exchange or transfer of such interest has been made pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S or Rule 144 under the Securities Act. Upon such receipt, the Paying Agent, as transfer agent, shall promptly deliver instructions to the DTC, to reduce or reflect on its records a reduction of the Rule 144A Global Note by the aggregate principal amount of the beneficial interest in such Rule 144A Global Note to be so exchanged or transferred from the relevant participant, and the Paying Agent, as transfer agent, shall promptly deliver instructions to the DTC concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Rule 144A Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions of a beneficial interest in such Regulation S Global Note equal to the reduction in the principal amount of such Rule 144A Global Note.
(b) If a holder of a beneficial interest in the Regulation S Global Note wishes at any time to exchange its interest in such Regulation S Global Note for an interest in the Rule 144A Global Note, or to transfer its interest in such Regulation S Global Note to a Person who wishes to take delivery thereof in the form of an interest in such Rule 144A Global Note, such holder may, subject to the rules and procedures of the DTC, to the extent applicable, and to the requirements set forth in this Section 2.7(b), exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in such Rule 144A Global Note. Such exchange or transfer shall only be made upon receipt by the Paying Agent, as transfer agent, at its Corporate Trust Office of (l) instructions given in accordance with the procedures of the DTC, to the extent applicable, from or on behalf of a beneficial owner of an interest in the Regulation S Global Note directing the Paying Agent, as transfer agent, to credit or cause to be credited a beneficial interest in the Rule 144A Global Note in an amount equal to the beneficial interest in the Regulation S Global Note to be exchanged or transferred, (2) a written order given in accordance with the procedures of the DTC, to the extent applicable, containing information regarding the account to be credited with such increase and the name of such account, and (3) prior to or on the 40th day after the later of the commencement of the offering of the Notes and the relevant date of issuance of the Notes (the “Restricted Period”), a certificate in the form of Exhibit C given by the holder of such beneficial interest and stating that the Person transferring
such interest in such Regulation S Note reasonably believes that the Person acquiring such interest in such Rule 144A Note is a Qualified Institutional Buyer (as defined in Rule 144A) and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction. Upon such receipt, the Paying Agent, as transfer agent, shall promptly deliver instructions to the DTC to reduce or reflect on its records a reduction of the Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Regulation S Global Note to be exchanged or transferred, and the Paying Agent, as transfer agent, shall promptly deliver instructions to the DTC concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Rule 144A Global Note by the aggregate principal amount of the beneficial interest in such Regulation S Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in such Rule 144A Global Note equal to the reduction in the principal amount of such Regulation S Global Note. After the expiration of the Restricted Period, the certification requirement set forth in clause (3) of the second sentence of this Section 2.7(b) will no longer apply to such transfers.
(c) Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest.
(d) In the event that a Global Note is exchanged for Definitive Notes in registered form without interest coupons, pursuant to Section 2.6(a), or a Definitive Note in registered form without interest coupons is exchanged for another such Definitive Note in registered form without interest coupons, or a Definitive Note is exchanged for a beneficial interest in a Global Note, such Notes may be exchanged or transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of Sections 2.7(b) and (c) above (including the certification requirements intended to ensure that such exchanges or transfers comply with Rule 144, Rule 144A or Regulation S, as the case may be) and as may be from time to time adopted by the Issuer and the Trustee.
(e) Prior to the expiration of the Restricted Period, beneficial interests in the Regulation S Global Note may only be exchanged or transferred in accordance with the certification requirements hereof.
(f) (i) Other than in the case of Notes issued pursuant to a registration statement which has been declared effective under the Securities Act, each Note issued hereunder shall, upon issuance, bear the legend set forth in clause (ii) below (the “Private Placement Legend”) and such legend shall not be removed from such Note except as provided in the next sentence. The legend on a Note may be removed from a Note if there is delivered to the Issuer and the Trustee such satisfactory evidence, which may include an opinion of independent counsel licensed to practice law in the State of New York, as may be reasonably required by the Issuer and the Trustee, that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Note will not violate the registration requirements of the Securities
Act, and the Issuer and the Trustee consent to such removal. Upon provision of such satisfactory evidence, the Trustee, at the written direction of the Issuer, shall authenticate and deliver in exchange for such Note another Note or Notes having an equal aggregate principal amount that does not bear such legend. If such a legend required for a Note has been removed from a Note as provided above, no other Note issued in exchange for all or any part of such Note shall bear such legend, unless the Issuer has reasonable cause to believe that such other Note is a “restricted security” within the meaning of Rule 144 and instructs the Trustee to cause a legend to appear thereon.
(ii) To the extent required by paragraph (f)(i) above, the Notes shall bear the following legend on the face thereof:
“THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.”
(g) By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture.
Neither the Trustee nor any Agent shall have any responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in, DTC or other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption or purchase) or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Notes. All notices and communications to be given to the Holders in respect of the Notes shall be given only to or upon the order of, and all payments to be made to the Holders in respect of the Notes shall be made to, the registered Holders (which shall be DTC or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee and any Agent may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.
None of the Trustee, the Paying Agent or the Registrar shall have any obligation or duty to monitor, and shall not be liable for any failure to, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Agent Members or beneficial owners of interest in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Neither the Trustee, the Paying Agent nor any of their respective agents shall have any responsibility for any actions taken or not taken by DTC.
The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.6 or this Section 2.7. The Issuer shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar.
(h) Definitive Notes shall be transferable only upon the surrender of a Definitive Note for registration of transfer. When a Definitive Note is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if its requirements for such transfers are met. When Definitive Notes are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Definitive Notes of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. When a Definitive Note is presented to the Registrar with a request to transfer in part, the transferor shall be entitled to receive without charge a Definitive Note representing the balance of such Definitive Note not transferred. To permit registration of transfers and exchanges, the Issuer shall execute and upon receipt of an Issuer Order, the Trustee shall authenticate Definitive Notes at the Registrar’s or co-registrar’s request.
(i) The Issuer shall not be required to make, and the Registrar need not register transfers or exchanges of, Definitive Notes (i) for a period of 15 calendar days prior to any date fixed for the redemption of the Notes, (ii) for a period of 15 calendar days immediately prior to the date fixed for selection of Notes to be redeemed in part, (iii) for a payment period of 15 calendar days prior to any Record Date, or (iv) that the registered Holder of Notes has tendered (and not withdrawn) for repurchase in connection with a Change of Control Triggering Event.
(j) Prior to the due presentation for registration of transfer of any Definitive Note, the Issuer, the Guarantors, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the Person in whose name a Definitive Note is registered as the absolute owner of such Definitive Note for the purpose of receiving payment of principal, interest or Additional Amounts, if any, on such Definitive Note and for all other purposes whatsoever, whether or not such Definitive Note is overdue, and none of the Issuer, the Guarantors, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary.
(k) No service charge will be made for any registration or exchange of the Notes, but the Issuer may require payment of a sum sufficient to pay all transfer taxes or other similar governmental charges payable in connection with any transfer or exchange pursuant to this Section 2.7.
(l) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.
(m) Holders of Notes (or holders of interests therein) initially offered or sold in the United States to “Qualified Institutional Buyers” as defined in Rule 144A under the Securities Act pursuant to such rule and prospective purchasers designated by such Holders (or holders of interests therein) will have the right to obtain from the Issuer upon request by such Holders (or holders of interests therein) or prospective purchasers, during any period in which the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, or not exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, the information required by paragraph d(4)(i) of Rule 144A in connection with any transfer or proposed transfer of such Notes.
SECTION 2.8 Replacement Notes. If a mutilated Definitive Note is surrendered to the Registrar, if a mutilated Global Note is surrendered to the Issuer or if the Holder of a Note claims that such Note has been lost, destroyed or wrongfully taken, the Issuer shall issue and upon receipt of an Issuer Order, the Trustee shall authenticate a replacement Note in such form as the Note being replaced in the manner specified in this Section 2.8. If required by the Trustee, the Registrar or the Issuer, such Holder must provide an indemnity bond, security and/ or other indemnity and/or security, sufficient in the judgment of the Issuer, the Registrar or the Trustee, to protect the Issuer, the Registrar, the Trustee and any Agent from any loss which any of them may suffer if a Note is replaced, including, without limitation, any tax or other governmental charge that may be imposed with relation thereto and any other reasonable expenses (including the fees and expenses of the Trustee, the Registrar, and any Agent and their respective counsels). The Issuer may charge such Holder for its reasonable out of-pocket expenses in replacing a Note, including reasonable fees and expenses of counsel. Every replacement Note is an additional obligation of the Issuer. The provisions of this Section 2.8 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to the replacement of mutilated, destroyed, lost, stolen or taken Notes.
SECTION 2.9 Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation, those reductions in the Global Note effected in accordance with the provisions hereof and those described in this Section 2.9 as not outstanding. Subject to Section 2.10, a Note does not cease to be outstanding because the Issuer or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.8 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it, and upon which it shall be entitled to rely in accordance with Section 7.1(a), that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.8.
If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest and Additional Amounts, if any, on it cease to accrue.
If on a Redemption Date or the Maturity Date the Paying Agent holds cash in U.S. Dollars sufficient to pay all of the principal and interest due on the Notes payable on that date, then on and after that date such Notes cease to be outstanding and interest and Additional Amounts, if any, on such Notes cease to accrue.
SECTION 2.10 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, the Guarantors, any of their Subsidiaries or, to the knowledge of the Company, any of their Affiliates (other than their Subsidiaries), shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trust Officer actually knows are so owned shall be disregarded and the Trustee assumes no liability in relation to any other Notes.
The Issuer shall notify the Trustee, in writing, when it or any Guarantor, any of their Subsidiaries or, to the knowledge of the Company, any of their Affiliates (other than their Subsidiaries), repurchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. The Trustee may require an Officers’ Certificate, which shall promptly be provided upon receipt by the appropriate Responsible Officers of the requisite information, listing Notes owned by the Issuer, the Guarantors or a Subsidiary of the Issuer or the Guarantors or, to the knowledge of the Company, an Affiliate (other than a Subsidiary) of the Issuer or the Guarantors.
SECTION 2.11 Temporary Notes. Until permanent Definitive Notes are ready for delivery, the Issuer may prepare and upon receipt of an Issuer Order, the Trustee shall authenticate temporary Definitive Notes upon receipt of an Issuer Order pursuant to Section 2.2. The Officers’ Certificate shall specify the amount of temporary Definitive Notes to be authenticated and the date on which the temporary Definitive Notes are to be authenticated. Temporary Definitive Notes shall be substantially in the form of permanent Definitive Notes but may have
variations that the Issuer considers appropriate for temporary Definitive Notes. Without unreasonable delay, the Issuer shall prepare and upon receipt of an Issuer Order, the Trustee shall authenticate upon receipt of an Issuer Order pursuant to Section 2.2 permanent Definitive Notes in exchange for temporary Definitive Notes.
SECTION 2.12 Cancellation. The Issuer at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall promptly forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Issuer, shall dispose of (subject to the record retention requirements of the Exchange Act) all Notes surrendered for transfer, exchange, payment or cancellation. Upon completion of any disposal, the Trustee shall deliver a certificate of such disposal to the Issuer, unless the Issuer directs the Trustee in writing to deliver the cancelled Notes to the Issuer or the Company. Subject to Section 2.8, the Issuer may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If the Issuer shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.12.
SECTION 2.13 Defaulted Interest. If the Issuer defaults in a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Holder thereof on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Issuer for the payment of defaulted interest. The Issuer shall promptly notify the Trustee and Paying Agent in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment (a “Default Interest Payment Date”), and at the same time the Issuer shall deposit with the Trustee or Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee or Paying Agent for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as in this Section 2.13; provided, however, that in no event shall the Issuer deposit monies proposed to be paid in respect of defaulted interest later than 11:30 a.m. New York City time on the proposed Default Interest Payment Date with respect to defaulted interest to be paid on the Note; provided, further, however, and to the extent any such funds are received by the Trustee or the Paying Agent from the Issuer after 11:30 am, New York City time, on the due date, the Trustee shall use commercially reasonable efforts to make payment on the date of receipt but if payment cannot be made, such funds will be deemed deposited within one Business Day of receipt thereof and the Trustee shall proceed to make payment on such date from those funds. At least 15 days before the subsequent special record date, the Issuer shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid.
SECTION 2.14 CUSIP Numbers. The Issuer in issuing the Notes may use “CUSIP” numbers, and if it does so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers
printed on the Notes. The Issuer shall promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.15 Deposit of Moneys. Prior to 11:30 a.m. New York City time on each interest payment date and Maturity Date, the Issuer shall have deposited with the Trustee or its designated Paying Agent (which shall be the Paying Agent or its successor unless otherwise notified to the Issuer by the Trustee) in immediately available funds money sufficient to make cash payments, if any, due on such interest payment date or Maturity Date, as the case may be, on all Notes then outstanding; provided, however, to the extent any such funds are received by the Trustee or the Paying Agent from the Issuer after 11:30 a.m., New York City time, on the due date, the Trustee shall use commercially reasonable efforts to make payment on the date of receipt but if payment cannot be made, such funds will be deemed deposited within one Business Day of receipt thereof and the Trustee shall proceed to make payment on such date from those funds. Such payments shall be made by the Issuer in a timely manner which permits the Paying Agent to remit payment to the Holders on such interest payment date or Maturity Date, as the case may be. Promptly upon receipt of such payment, the Paying Agent shall confirm by the medium chosen by the Paying Agent to the Issuer the receipt of such payment.
SECTION 2.16 Certain Matters Relating to Global Notes. Members of or participants in the DTC (“Agent Members”) shall have no rights under this Indenture or any Global Note with respect to any Global Note held on their behalf by DTC or its nominee, and DTC or its nominee may be treated by the Issuer, the Guarantors, the Trustee, the Paying Agent, the Registrar and any agent of the Issuer or the Guarantors as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Guarantors, the Trustee or any agent of the Issuer or the Guarantors from giving effect to any written certification, proxy or other authorization furnished by DTC or its nominee or impair, as between
DTC and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note.
(a) The Holder of any Global Note may grant proxies and otherwise authorize any Person, including DTC and its Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.
SECTION 2.17 Record Date. Unless otherwise set forth in this Indenture, the record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined by the Issuer; provided that such record date shall be the later of 30 days prior to the first solicitation of such vote or consent or the date of the most recent list of Holders furnished to the Trustee.
ARTICLE III
REDEMPTION
SECTION 3.1 Optional Redemption. Prior to November 16, 2030 (the “Par Call Date”) the Issuer may redeem all or, from time to time, a part of the Notes, at its option, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued interest, if any, to (but excluding) the redemption date, plus the excess of:
(a) as determined by the calculation agent (which shall initially be the Trustee), the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed that would have been due if the Notes matured on the Par Call Date, excluding accrued and unpaid interest to, but not including, the date of redemption, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 30 basis points; over
(b) 100% of the principal amount of the Notes being redeemed.
The Company shall certify to the Trustee the applicable Treasury Rate at the time of any such redemption.
In addition, on or after the Par Call Date, the Notes may be redeemed, in whole or in part, by the Issuer, upon not less than 10 nor more than 60 days’ prior notice, at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption.
SECTION 3.2 Notices to Trustee. If the Issuer elects to redeem Notes pursuant to Paragraphs 8 or 9 of such Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of Notes to be redeemed at least 15 days prior to the giving of the notice contemplated by Section 3.4 (or such shorter period as the Trustee in its sole discretion shall determine). The Issuer shall give notice of redemption as required under the relevant paragraph of the Notes pursuant to which such Notes are being redeemed.
SECTION 3.3 Selection of Notes To Be Redeemed. In the case of any partial redemption, the Trustee will select the Notes for redemption in compliance with the requirements of the principal securities exchange, if any, on which such Notes are listed, and/or in compliance with the requirements of the DTC, or if such Notes are not listed, on a pro rata basis or by lot (and, in the case of Global Notes, in accordance with the applicable procedures of DTC), although no Note of $150,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to that Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued and delivered to the Trustee, or in the case of Definitive Notes, issued in the name of the Holder thereof upon cancellation of the original Note.
SECTION 3.4 Notice of Redemption. At least 10 days but not more than 60 days before a Redemption Date or a Tax Redemption Date, as applicable, the Issuer shall, so long as the Notes are in global form, deliver a redemption notice to DTC and, in the case of
Definitive Notes, in addition to such delivery, mail such notice to Holders (with a copy to the Trustee) by first-class mail, postage prepaid, at their respective addresses as they appear on the registration books of the Registrar. At the Issuer’s request made at least 45 days before the Redemption Date or a Tax Redemption Date, as applicable (or such shorter period as the Trustee in its sole discretion shall determine), the Paying Agent shall give the notice of redemption in the Issuer’s name and at the Issuer’s expense; provided, however, that the Issuer shall deliver to the Trustee (in advance) an Officers’ Certificate requesting that the Trustee give such notice and setting forth in full the information to be stated in such notice as provided in the following items. Each notice for redemption shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date or the Tax Redemption Date, as applicable;
(b) the Redemption Prices and the amount of accrued and unpaid interest, if any, and Additional Amounts, if any, to be paid (subject to the right of Holders of record on the relevant Record Date to receive interest and Additional Amounts, if any, due on the relevant interest payment date);
(c) the name and address of the designated Paying Agent;
(d) that Notes called for redemption must be surrendered to the designated Paying Agent to collect the Redemption Price plus accrued and unpaid interest, if any, and Additional Amounts, if any;
(e) that, unless the Issuer defaults in making the redemption payment pursuant to the terms of this Indenture, interest and Additional Amounts, if any, on Notes called for redemption cease to accrue on and after the Redemption Date or the Tax Redemption Date, as applicable, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Notes redeemed;
(f) (i) if any Global Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, interest and Additional Amounts, if any, shall cease to accrue on the portion called for redemption, and upon surrender of such Global Note (if applicable), the Global Note with a notation on Schedule A thereof adjusting the principal amount thereof to be equal to the unredeemed portion, will be returned and (ii) if any Definitive Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed, and that, after the Redemption Date, upon surrender of such Definitive Note, a new Definitive Note or Notes in aggregate principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof, upon cancellation of the original Note;
(g) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption;
(h) the paragraph of the Notes pursuant to which the Notes are to be redeemed; and
(i) the CUSIP numbers, and that no representation is made as to the correctness or accuracy of the CUSIP numbers, if any, listed in such notice or printed on the Notes.
Prior to the giving of any notice of redemption pursuant to Paragraph 9 of the Notes, the Issuer will deliver to the Trustee (a) an Officers’ Certificate of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and (b) an opinion of independent legal counsel of recognized standing qualified under the laws of the relevant jurisdiction and reasonably acceptable to the Trustee to the effect that the Issuer has or will become obligated to pay such Additional Amounts as a result of a change in tax law, and that the Issuer cannot avoid such obligation by taking reasonable measures available to it.
SECTION 3.5 Effect of Notice of Redemption. Once notice of redemption is given in accordance with Section 3.4, Notes called for redemption become due and payable on the Redemption Date or the Tax Redemption Date, as applicable, and at the Redemption Price plus accrued and unpaid interest, if any, and Additional Amounts, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price (which shall include accrued and unpaid interest thereon, if any, and Additional Amounts, if any, to the Redemption Date or Tax Redemption Date, as applicable), but installments of interest, the maturity of which is on or prior to the Redemption Date or the Tax Redemption Date, as applicable, shall be payable to Holders of record at the close of business on the relevant Record Dates.
SECTION 3.6 Deposit of Redemption Price. Prior to 11:30 a.m. New York City time on the Redemption Date or the Tax Redemption Date, as applicable, the Issuer shall deposit with the Trustee or its designated Paying Agent (which shall be the Paying Agent or its successor unless otherwise notified to the Issuer by the Trustee) cash in U.S. Dollars in same-day funds sufficient to pay the Redemption Price plus accrued and unpaid interest (subject to, as provided in the Notes, the right of Holders to receive interest on the relevant interest payment date), if any, and Additional Amounts, if any, of all Notes to be redeemed on that date other than Notes or portion of Notes called for redemption that have been delivered by the Issuer to the Trustee for cancellation. To the extent any such funds are received by the Trustee or its designated Paying Agent from the Issuer after 11:30 a.m., New York City time, on the due date, the Trustee shall use commercially reasonable efforts to make payment on the date of receipt but if payment cannot be made, such funds will be deemed deposited within one Business Day of receipt thereof and the Trustee shall proceed to make payment on such date from those funds. The designated Paying Agent shall promptly return to the Issuer any cash so deposited which is not required for that purpose upon the written request of the Issuer. Promptly upon receipt of such payment the Paying Agent shall confirm by the medium chosen by the Paying Agent to the Issuer the receipt of such payment.
If the Issuer complies with the preceding paragraph, then, unless the Issuer defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, and Additional Amounts, if any, interest and Additional Amounts on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date or Tax Redemption Date, whether or not such Notes are presented for payment. With respect to Definitive Notes, if a Definitive Note is redeemed on or after an interest Record Date but on or prior to the related interest payment date, then any accrued and unpaid interest, if any, and Additional Amounts, if any, shall be
paid to the Person in whose name such Note was registered at the close of business on such Record Date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Issuer to comply with the preceding paragraph, interest, and Additional Amounts, if any, shall be paid on the unpaid principal, from the Redemption Date or the Tax Redemption Date, as applicable, until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1.
SECTION 3.7 Notes Redeemed in Part. Upon surrender and cancellation of a Definitive Note that is redeemed in part, the Issuer shall execute and upon receipt of an Issuer Order, the Trustee shall authenticate for the Holder (at the Issuer’s expense) a new Definitive Note equal in principal amount to the unredeemed portion of the Definitive Note surrendered and canceled; provided, however, that each such Definitive Note shall be in a principal amount at maturity of $150,000 or integral multiples of $1,000 in excess thereof. Upon surrender of a Global Note that is redeemed in part, the Paying Agent shall promptly forward such Global Note to the Trustee who shall make a notation on Schedule A thereof to reduce the principal amount of such Global Note to an amount equal to the unredeemed portion of the Global Note surrendered; provided, however, that each such Global Note shall be in a principal amount at maturity of $150,000 or integral multiples of $1,000 in excess thereof.
SECTION 3.8 Special Tax Redemption. The Issuer will be entitled to redeem the Notes, at its option, in whole but not in part, upon not less than 10 nor more than 60 days’ notice, at 100% of the principal amount of the Notes, plus accrued and unpaid interest (if any) to (but excluding) the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event the Issuer has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Notes, any Additional Amounts as a result of:
(a) any change in or amendment to the laws or regulations of any Relevant Taxing Jurisdiction; or
(b) any change in or amendment to any official position regarding the application, administration or interpretation of such laws or regulations (including by virtue of a holding, judgment or order by a court of competent jurisdiction);
which change or amendment to such laws, regulations or official position is announced and becomes effective after the issuance of the Notes (or, if the applicable Relevant Taxing Jurisdiction did not become a Relevant Taxing Jurisdiction until a later date, after such later date); provided, that the Issuer determines, in its reasonable judgment, that the obligation to pay such Additional Amounts cannot be avoided by the use of reasonable measures available to it; provided, further, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such Additional Amounts were a payment in respect of the Notes then due.
Before the publication of any such notice, the Issuer shall deliver to the Trustee an Officers’ Certificate stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem
have occurred, and an opinion of independent legal counsel of recognized standing to the effect that the Issuer has or will become obliged to pay such Additional Amounts as a result of such change or amendment.
ARTICLE IV
COVENANTS
SECTION 4.1 Payment of Notes.
(a) The Issuer shall pay the principal of, premium, if any, interest and Additional Amounts, if any, on the Notes in the manner provided in such Notes and this Indenture. An installment of principal of or interest, premium or Additional Amounts on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent holds prior to 11:30 a.m., New York City time on that date money deposited by the Issuer in immediately available funds and designated for, and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. To the extent any such funds are received by the Trustee or the Paying Agent from the Issuer after 11:30 a.m., New York City time, on the due date, the Trustee shall use commercially reasonable efforts to make payment on the date of receipt but if payment cannot be made, such funds will be deemed deposited within one Business Day of receipt thereof and the Trustee shall proceed to make payment on such date from those funds.
(b) The Issuer shall pay, to the extent such payments are lawful, interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and on overdue installments of interest (without regard to any applicable grace periods), on any Additional Amounts, from time to time on demand at the rate borne by the Notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.2 Maintenance of Office or Agency. The Issuer shall maintain the office or agency (which office may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-Registrar) required under Section 2.3 where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.1. The Issuer hereby initially designates the office of the Trustee, acting through its Corporate Trust Office, as its office or agency as required under Section 2.3.
SECTION 4.3 Negative Pledge of the Issuer.
(a) So long as any of the Notes remain outstanding, but only up to the time all amounts of principal and interest have been deposited with the Paying Agent, the Issuer undertakes not to grant or permit to subsist any Security Interest over any or all of its present or future
assets, as security for any present or future Capital Market Indebtedness without at the same time having the holders share equally and ratably in such Security Interest.
(b) This undertaking shall not apply with respect to any Security Interest which (1) is provided by the Issuer over any of the Issuer’s claims against the Company or any Subsidiary of the Company, as the case may be, or any third party, which claims exist now or arise at any time in the future, as a result of the passing on of the proceeds from the sale by the Issuer of any securities, provided that any such security serves to secure obligations under such securities issued by the Issuer, (2) is existing on assets at the time of the acquisition thereof by the Issuer or is existing over assets of a newly acquired company which becomes a member of the Fresenius Medical Care Group; provided that such Security Interest was not created in contemplation of such acquisition, (3) is existing on the Issue Date, (4) secures Capital Market Indebtedness existing at the time of an acquisition that becomes an obligation of the Issuer or of any company within the Fresenius Medical Care Group as a consequence of such acquisition; provided that such Capital Market Indebtedness was not created in contemplation of such acquisition, (5) is mandatory pursuant to applicable laws or required as a prerequisite for obtaining any governmental approvals, (6) is provided in connection with any issuance of asset backed securities by the Issuer, (7) is provided in respect of any issuance of asset backed securities made by a special purpose vehicle where the Issuer is the originator of the underlying assets, (8) is provided in connection with the renewal, extension or replacement of any security pursuant to foregoing (1) through (7) and, (9) secures Capital Market Indebtedness the principal amount of which (when aggregated with the principal amount of any other Capital Market Indebtedness which has the benefit of a security other than any permitted under the sub-paragraphs (1) to (8) above) does not exceed €100,000,000 (or its equivalent in other currencies at any time).
SECTION 4.4 Negative Pledge of the Company.
(a) So long as any of the Notes remain outstanding, but only up to the time all amounts of principal and interest have deposited with the Paying Agent, the Company undertakes not to grant or permit to subsist any Security Interest over any or all of its present or future assets, as security for any present or future Capital Market Indebtedness and to procure, to the extent legally possible, that none of its Subsidiaries will grant or permit to subsist any Security Interest over any or all of its present or future assets as security for any present or future Capital Market Indebtedness without at the same time having the holders share equally and ratably in such Security Interest.
This undertaking shall not apply with respect to any Security Interest which (1) is provided by the Company or by any of its Subsidiaries over any of the Company’s claims or claims of any of its Subsidiaries against the Company, or any Subsidiary, as the case may be, or any third party, which claims exist now or arise at any time in the future, as a result of the passing on of the proceeds from the sale by the issuer of any securities, provided that any such security serves to secure obligations under such securities issued by the Company or any of its Subsidiaries, (2) is existing on assets at the time of the acquisition thereof by the Company or by any of its Subsidiaries or is existing over assets of a newly acquired company which becomes a member of the Fresenius Medical Care Group; provided that such Security Interest was not created in contemplation of such acquisition, (3) is existing on the Issue Date, (4) secures Capital Market Indebtedness
existing at the time of an acquisition that becomes an obligation of the Issuer or of any company within the Fresenius Medical Care Group as a consequence of such acquisition; provided that such Capital Market Indebtedness was not created in contemplation of such acquisition, (5) is mandatory pursuant to applicable laws or required as a prerequisite for obtaining any governmental approvals, (6) is provided in connection with any issuance of asset backed securities by the Company or by any of its Subsidiaries, (7) is provided in respect of any issuance of asset backed securities made by a special purpose vehicle where the Company or any of its Subsidiaries is the originator of the underlying assets, (8) is provided in connection with the renewal, extension or replacement of any security pursuant to foregoing (1) through (7) and, (9) secures Capital Market Indebtedness the principal amount of which (when aggregated with the principal amount of any other Capital Market Indebtedness which has the benefit of a security other than any permitted under the sub-paragraphs (1) to (8) above) does not exceed €100,000,000 (or its equivalent in other currencies at any time).
SECTION 4.5 Ownership of the Issuer. The Company will continue to directly or indirectly maintain 100% ownership of the Capital Stock of the Issuer or any permitted successor of the Issuer; provided, that any permitted successor of the Company under this Indenture may succeed to the Company’s ownership of such Capital Stock.
The Company will cause the Issuer or its successor to engage only in those activities that are necessary, convenient or incidental to issuing and selling the Notes and any additional indebtedness permitted by this Indenture (including any Additional Notes), and advancing or distributing the proceeds thereof to the Company and its Subsidiaries and performing its obligations relating to the Notes and any such additional indebtedness, pursuant to the terms thereof and of this Indenture and any other applicable indenture and/or engaging in any lawful act or activity and exercising any lawful power necessary, incidental or convenient to enable the Issuer to carry out these purposes stated that may be taken or exercised by corporations organized under the General Corporation Law of the State of Delaware, as amended from time to time.
SECTION 4.6 Existence. Except as permitted by Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the existence, rights (charter and statutory) and franchises of the Issuer and the Guarantors; provided, however, that the Company shall not be required to preserve any such existence, right or franchise if the Board of Directors of the Company in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof at the time of such loss is not disadvantageous in any material respect to the Holders.
SECTION 4.7 Maintenance of Properties. Except as permitted by Article V, the Company shall cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Company, or its Responsible Officers, or any Subsidiary, or its Responsible Officers, having managerial responsibility for any such
property, in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 4.8 Payment of Taxes and Other Claims. The Guarantors will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries (including satisfying any withholding tax obligations), and (b) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Guarantors or any of their Subsidiaries; provided, however, that the Guarantors shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves are maintained in accordance with Accounting Principles.
SECTION 4.9 Maintenance of Insurance. The Company shall, and shall cause its Subsidiaries to, keep at all times all of their material properties which are of an insurable nature insured against loss or damage pursuant to self-insurance arrangements with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. The Company shall, and shall cause its Subsidiaries to, use the proceeds from any such insurance policy to repair, replace or otherwise restore the property to which such proceeds relate, except to the extent that a different use of such proceeds is, as determined by the Company, or any Subsidiary having managerial responsibility for any such property, in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 4.10 Reports. For so long as any Notes are outstanding, the Company will provide the Trustee with:
(1) At any time that the Company’s shares are listed on a U.S. stock exchange or otherwise registered under the Exchange Act, or the Company is otherwise subject to periodic reporting requirements under Section 13 or Section 15(d) of the Exchange Act;
(a) within 120 days after the end of each fiscal year of the Company, a copy of its Annual Report on Form 20-F (or any successor form) under the Exchange Act as filed with the SEC for such fiscal year, containing its annual financial statements and related notes for the two most recent fiscal years prepared in accordance with IFRS, and including operating segment data, together with an audit report thereon and together with an “Operating and Financial Review and Prospects” required by such form; and
(b) within 45 days after the end of each fiscal quarter (other than the fourth quarter) a copy of each report on Form 6-K (or any successor form) under the Exchange Act filed with or furnished to the SEC containing unaudited quarterly financial statements as of and for the period
from the beginning of each fiscal year to the close of each quarterly period (other than the fourth quarter), together with a “Management’s Discussion and Analysis” in substantially the form filed or furnished by the Company to the SEC as of the Issue Date and as the same may be revised to comply with the rules of the SEC applicable to such reports as in effect from time to time; or
(2) At any time that the Company’s shares are not listed on a U.S. stock exchange or otherwise registered under the Exchange Act, or the Company is not otherwise subject to periodic reporting requirements under Section 13 or Section 15(d) of the Exchange Act, promptly after the posting thereof, an English-language version of its annual report, including or accompanied by annual financial statements, and interim reports that include financial statements, that the Company is then required to post on its website pursuant to Rule 12g3-2(b) under the Exchange Act, or any successor rule;
provided, that in lieu of providing any such document or information, the Company may notify the Trustee in accordance with this Indenture that such document or information has been filed with or furnished to the SEC and/or posted on the Company’s website, which notice shall include a URL reference to the location of the document or information on the website of the SEC (www.sec.gov) and/or the website of the Company.
In addition, for so long as any of the Notes remain outstanding and during any period when the Issuer or the Company is not subject to Section 13 or 15(d) of the Exchange Act other than by virtue of the exemption therefrom pursuant to Rule 12g3-2(b), the Company will furnish to any holder or beneficial owner of Notes initially offered and sold in the United States to “qualified institutional buyers” as defined in Rule 144A under the U.S. Securities Act of 1933 pursuant to such rule and any prospective purchaser in the United States designated by such holder or beneficial owner, upon request, any information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act of 1933.
Deliveries of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer’s or any Guarantor’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates). The Trustee shall have no obligation to review such reports to determine if the information required by this Section 4.10 is contained therein.
SECTION 4.11 Change of Control. Each Holder of the Notes, upon the occurrence of a Change of Control Triggering Event, will have the right to require that the Issuer repurchase such Holder’s Notes, at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Within 30 days following a Change of Control Triggering Event, the Issuer will mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control Triggering Event has occurred and that such Holder has the right to require the Issuer to purchase such Holder’s Notes, at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control Triggering Event;
(3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed);
(4) that each Note will be subject to repurchase only in integral multiples of $1,000; and
(5) the instructions determined by the Issuer, consistent with this Section 4.11, that a Holder must follow in order to have its Notes purchased.
(6) that any Note not tendered will continue to accrue interest;
(7) that, unless the Issuer defaults in the payment of the Change of Control purchase price, any Notes accepted for payment shall cease to accrue interest after the repurchase date;
(8) that Holders accepting the offer to have their Notes repurchased pursuant to a change of control offer will be required to surrender the Notes to the Paying Agent or any other Agent specified in the notice at the address specified in the notice prior to the close of business on the Business Day preceding the repurchase date;
(9) in the case of Definitive Notes, that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered;
(10) any other procedures that a holder must follow to accept a change of control offer or effect withdrawal of such acceptance; and
(11) the name and address of the Paying Agent.
On the repurchase date, the Issuer shall, to the extent lawful:
(1) accept for payment Notes or portions thereof validly tendered pursuant to the change of control offer;
(2) deposit with the Paying Agent money sufficient to pay the Change of Control purchase price in respect of all Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers’ Certificate stating the Notes or portions thereof tendered to the Issuer.
The Paying Agent shall promptly send to each Holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Issuer shall execute and issue, and upon receipt of an Issuer Order, the Trustee shall, in the case of Definitive Notes, promptly authenticate and mail to such Holder, a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each such new Note shall be issued in an original principal amount in denominations of $150,000 and integral multiples of $1,000 in excess thereof.
The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Section 4.11. To the extent that the provisions of any securities laws or regulations or applicable listing requirements conflict with the provisions of this Section 4.11, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.11 by virtue thereof.
SECTION 4.12 Additional Amounts. At least 30 days prior to each date on which payment of principal, premium, if any, or interest or other amounts on the Notes is to be made (unless such obligation to pay Additional Amounts arises shortly before or after the 30th day prior to such date, in which case it shall be promptly thereafter), if the Issuer or a Guarantor will be obligated to pay Additional Amounts pursuant to Paragraph 2 of the Notes (the “Additional Amounts”) with respect to any such payment, the Issuer will promptly furnish the Trustee and the Paying Agent, if other than the Trustee, with an Officers’ Certificate stating that such Additional Amounts will be payable and the amounts so payable, and will set forth such other information necessary to enable the Trustee or the Paying Agent to pay such Additional Amounts to the Holders on the payment date. The Issuer or a Guarantor (as applicable) will pay to the Trustee or the Paying Agent such Additional Amounts and, if paid to a Paying Agent other than the Trustee, shall promptly provide the Trustee with documentation evidencing the payment of such Additional Amounts. Copies of such documentation shall be made available to the Holders upon request. The Issuer and the Guarantors, jointly and severally, shall indemnify the Trustee and the Paying Agent for, and hold them harmless against, any loss, liability or expense incurred without negligence or willful misconduct on their part (in each case as adjudicated by a court of competent jurisdiction in a final, non-appealable judgment) arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers’ Certificate furnished to them pursuant to this Section 4.12.
The Issuer and each Guarantor (as applicable) will (i) make any required withholding or deduction and (ii) remit the full amount deducted or withheld to the Relevant Taxing Jurisdiction in accordance with applicable law. The Issuer and each Guarantor (as applicable) will use all reasonable efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Relevant Taxing Jurisdiction imposing such Taxes and will provide such certified copy to the Trustee.
If the Issuer or the Guarantors conduct business in any jurisdiction (an “Additional Taxing Jurisdiction”) other than a Relevant Taxing Jurisdiction and, as a result, are required by the law of such Additional Taxing Jurisdiction to deduct or withhold any amount on account of taxes imposed by such Additional Taxing Jurisdiction from payments under the Notes
which would not have been required to be so deducted or withheld but for such conduct of business in such Additional Taxing Jurisdiction, the Additional Amounts provision described above shall be considered to apply to such Holders as if references in such provision to “Taxes” included taxes imposed by way of deduction or withholding by any such Additional Taxing Jurisdiction (or any political subdivision thereof or taxing authority therein).
The Issuer will pay any stamp, court or documentary taxes, or any other excise, property or similar taxes, charges or levies (including any penalties, interest or other liabilities related thereto) which arise in any Relevant Taxing Jurisdiction from the execution, delivery and registration of Notes upon original issuance and initial resale of the Notes or any other document or instrument referred to therein, or in connection with any payment with respect to, or enforcement of, the Notes or any Note Guarantee or any other document or instrument referred to therein. If at any time the Issuer changes its place of organization to outside of the United States or there is a new issuer organized outside of the United States, the Issuer or new issuer, as applicable, will pay any stamp, court or documentary taxes, or any other excise, property or similar taxes, charges or levies (including any penalties, interest or other liabilities related thereto) which arise in the jurisdiction in which the Issuer or new issuer is organized (or any political subdivision thereof or therein) and are payable by the Holders of the Notes in respect of the Notes or any Note Guarantee or any other document or instrument referred to therein under any law, rule or regulation in effect at the time of such change or thereafter.
The foregoing obligations of this Section 4.12 and Paragraph 2 of the Notes will survive any termination, defeasance or discharge of this Indenture and will apply mutatis mutandis to any successor Person to the Issuer or the Guarantors.
Wherever in this Indenture or the Notes or any Note Guarantee there are mentioned, in any context, (1) the payment of principal, (2) purchase prices in connection with a purchase of Notes under this Indenture or the Notes, (3) interest or (4) any other amount payable on or with respect to any of the Notes or any Note Guarantee, such reference shall be deemed to include payment of Additional Amounts as described in this Section 4.12 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.
SECTION 4.13 Compliance Certificate; Notice of Default. The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year an Officers’ Certificate stating whether or not to the best knowledge of the signor thereof, the Issuer and the Guarantors, as the case may be, have complied with all conditions and covenants under this Indenture, whether a Default or an Event of Default has occurred during such period, and, if a Default or an Event of Default has occurred during such period, specifying all such Events of Default and the nature thereof of which such Responsible Officer has knowledge. Upon becoming aware of, and as of such time that the Issuer should reasonably have become aware of, a Default, the Company also shall deliver to the Trustee, within 30 days thereafter, written notice of any events which would constitute a Default, their status and what action the Issuer is taking or proposes to take in respect thereof, and, in the case of a Default in the payment of interest, principal, redemption payments or any other amount due on the Notes or the Guarantees, such same notice to the Paying Agent.
ARTICLE V
SUCCESSOR ISSUER OR GUARANTOR
SECTION 5.1 Limitation on Mergers and Sales of Assets. The Issuer and the Company may not, and may not permit any Guarantor to consolidate or merge with or into (whether or not the Issuer or such Guarantor is the Surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties and assets in one or more related transactions, to another Person unless:
(1) the Surviving Person is an entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, or any other member country of the Organisation for Economic Co-operation and Development (“OECD”) or of the European Union;
(2) the Surviving Person (if other than the Issuer or a Guarantor) shall expressly assume, (A) in a transaction or series of transactions involving the Issuer, by a supplemental indenture in a form satisfactory to the Trustee, all of the obligations of the Issuer under this Indenture or (B) in a transaction or series of transactions not involving the Issuer, by a Guarantee Agreement, in a form satisfactory to the Trustee, all of the obligations of such Guarantor under its Note Guarantee;
(3) at the time of and immediately after such transaction, no Default or Event of Default shall have occurred and be continuing; and
(4) the Issuer or such Guarantor delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer, assignment, sale, lease, conveyance or other disposition and such supplemental indenture and Guarantee Agreement, if any, comply with this Indenture.
SECTION 5.2 Successor Entity Substituted. Upon any consolidation or merger by the Issuer, the Company or any other Guarantor with or into any other Person, or any conveyance, transfer, sale, assignment, lease or other disposition by the Issuer, the Company or any other Guarantor in one or more transactions, of substantially all of its properties and assets as an entirety to any Person in accordance with Section 5.1, then if such transaction involves the Company, the Surviving Person shall expressly assume in a supplemental indenture in a form satisfactory to the Trustee, all of the obligations of the Company under this Indenture and in any such case the Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer or such Guarantor under this Indenture with the same effect as if such Surviving Person had been named as the Issuer or had been a Guarantor herein, and thereafter the Issuer or such Guarantor shall be discharged from all obligations and covenants hereunder and under the Notes.
Such Surviving Person (if the successor of the Issuer) may cause to be signed, and may issue either in its own name or in the name of the Issuer, any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Issuer and delivered to the Trustee; and, upon the written order of such Surviving Person instead of the Issuer and subject to all
the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes which previously shall have been signed and delivered by the Responsible Officers of the Issuer to the Trustee for authentication pursuant to such provisions and any Notes which such Surviving Person thereafter shall cause to be signed and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, assignment, transfer, conveyance, lease, or other disposition such changes in phraseology and form may be made in the Notes thereafter to be issued as may be appropriate.
SECTION 5.3 Substitution of the Issuer. The Company, any other Guarantor or a Finance Subsidiary (a “Successor”) may assume the obligations of the Issuer under the Notes by executing and delivering to the Trustee (a) a supplemental indenture which subjects such person to all of the provisions of this Indenture and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such Person, and constitutes the legal, valid, binding and enforceable obligation of such Person, subject to customary exceptions; provided, that (i) the Successor is formed under the laws of the United States of America, or any State thereof or the District of Columbia, or any other member country of the OECD or of the European Union, and (ii) no Additional Amounts would be or become payable with respect to the Notes at the time of such assumption, or as result of any change in the laws of the jurisdiction of formation of such Successor that was reasonably foreseeable at such time. The Successor shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if it were the Issuer thereunder, and the former Issuer shall be discharged from all obligations and covenants under this Indenture and the Notes.
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.1 Events of Default. Whenever used herein with respect to the Notes, “Event of Default” means any one of the following events which shall have occurred and be continuing:
(1) failure for 30 days to pay interest on any of the Notes, including any Additional Amounts in respect thereof, when due; or
(2) failure for 15 days to pay principal of or premium, if any, on any of the Notes when due, whether at maturity, upon redemption, by declaration or otherwise, or of any Guarantor to pay any amount payable under its Guarantee when due; or
(3) failure to observe or perform any other material covenant contained in this Indenture for 60 days after notice as provided in this Indenture; or
(4) any Capital Market Indebtedness of the Company, the Issuer, FMCH (unless the Guarantee of FMCH has been released) or any Material Subsidiary becomes prematurely repayable as a result of a default in respect of the terms thereof, or the Company, the Issuer, FMCH (unless the Guarantee of FMCH has been released) or any Material Subsidiary fails to fulfill any payment obligation in excess of €75,000,000 or the equivalent thereof under any Capital Market Indebtedness or under any guarantees or suretyships given for any Capital Market Indebtedness of others within 30 days from its due date or, in the case of such guarantee or suretyship, within 30 days of such guarantee or suretyship being invoked, unless the Company, the Issuer, FMCH or the relevant Material Subsidiary contests in good faith that such payment obligation exists or is due or that such guarantee or suretyship has been validly invoked or if a security granted therefor is enforced on behalf of or by the creditor(s) entitled thereto; or
(5) any Note Guarantee shall cease to be in full force and effect in accordance with its terms for any reason except pursuant to the terms of this Indenture governing the release of Note Guarantees or the satisfaction in full of all the obligations thereunder or shall be declared invalid or unenforceable other than as contemplated by its terms, or any Guarantor shall repudiate, deny or disaffirm any of its obligations thereunder; or
(6) the Company, FMCH, the Issuer or any of the Company’s Material Subsidiaries pursuant to or within the meaning of any Bankruptcy Law:
(a) commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of or a composition with its creditors or, for any of the reasons set out in Sections 17-19 of the German Insolvency Code (Insolvenzordnung), files for insolvency (Antrag auf Eröffnung eines Insolvenzverfahrens) or the board of directors (Geschäftsführer) is required by law to file for insolvency, a creditor files for the opening of insolvency proceedings and such filing is not frivolous and not dismissed within a period of one month by the competent insolvency court, or the competent court takes any of the actions set out in Section 21 of the German Insolvenzordnung or a competent court institutes insolvency proceedings (Eröffnung des Insolvenzverfahrens) or denies a petition for commencement of insolvency proceeding by reason of insufficient assets,
(b) commences a voluntary case,
(c) consents to the entry of an order for relief against it in an involuntary case,
(d) consents to the appointment of a custodian of it or for all or substantially all of its property,
(e) makes a general assignment for the benefit of its creditors, or
(f) takes any corporate action to authorize or effect any of the foregoing.
A default under clause (3) of this Section 6.1 will not constitute an Event of Default unless the Trustee or Holders of 25% in principal amount of the outstanding Notes notify the Issuer and the Company of such default and such default is not cured within the time specified in clause (3). A default under clause (4) of this Section 6.1 will not constitute an Event of Default under this Indenture unless the Trustee, subject to the limitations set forth in Section 7.2(a), or holders of 25% in principal amount of the outstanding Notes shall have notified the Issuer of such default.
SECTION 6.2 Acceleration. If an Event of Default (other than an Event of Default described in clause (6) of Section 6.1) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the outstanding Notes by notice to the Issuer, the Company and the Trustee, may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued and unpaid interest, if any, and Additional Amounts, if any, on all the Notes to be due and payable immediately. Upon such a declaration, such principal, premium, accrued and unpaid interest, and Additional Amounts, if any, will be due and payable immediately. If an Event of Default described in clause (6) of Section 6.1 above occurs and is continuing, the principal of, premium, if any, and accrued and unpaid interest on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders.
SECTION 6.3 Other Remedies. If an Event of Default of which the Trustee is aware occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or, premium, if any, interest, and Additional Amounts, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
SECTION 6.4 The Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee (without liability) without the possession of any of the Notes or the production thereof in any proceeding relating thereto.
SECTION 6.5 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in Section 2.8, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Notes is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other appropriate right or remedy.
SECTION 6.6 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Indenture or by law to the Trustee or
to the Holders of Notes may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Notes, in each case in accordance with the terms of this Indenture.
SECTION 6.7 Waiver of Past Defaults. Subject to Sections 2.10, 6.10 and 9.2, at any time after a declaration of acceleration with respect to the Notes as described in Section 6.2, the Holders of at least a majority in principal amount of the outstanding Notes by written notice to the Issuer and to the Trustee, may waive all past defaults (except with respect to nonpayment of accelerated principal, premium or interest) and rescind and annul any such declaration of acceleration with respect to the Notes and its consequences if (i) all sums paid or advanced by the Trustee or the Agents hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee and the Agents, and their respective agents and counsel have been paid and/or reimbursed to the Trustee and/or the Agents, as applicable, (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iii) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived. Such waiver shall not excuse a continuing Event of Default in the payment of interest, premium, if any, principal or Additional Amounts, if any, on such Note held by a non-consenting Holder, or in respect of a covenant or a provision which cannot be amended or modified without the consent of each Holder affected thereby. The Issuer shall promptly deliver to the Trustee an Officers’ Certificate stating that the requisite percentage of Holders has consented to such waiver and attaching copies of such consents. When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.8 Control by Majority. Subject to Section 2.10, the Holders of not less than a majority in principal amount of the outstanding Notes may, by written notice to the Trustee, direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.1, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture or that the Trustee determines is unduly prejudicial to the rights of another Holder of Notes, or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Prior to taking any action under this Indenture, the Trustee will be entitled to indemnification and/or security satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action in accordance with Section 7.6.
SECTION 6.9 Limitation on Suits. Subject to Section 6.10, no Holder of Notes may pursue any remedy with respect to this Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy;
(3) such Holders have offered the Trustee reasonable indemnity and/or security against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of satisfactory indemnity and/or security; and
(5) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period.
SECTION 6.10 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture (including, without limitation, Section 8.9), the right of any Holder to receive payment of principal of, premium, if any, interest, and Additional Amounts, if any, on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.11 Collection Suit by Trustee. If an Event of Default in payment of principal, premium, if any, interest and Additional Amounts, if any, specified in clause (1) or clause (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Notes for the whole amount of principal, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Notes and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.6.
SECTION 6.12 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amount due to the Trustee under Section 7.6, accountants and experts) and the Holders allowed in any judicial proceedings relating to the Company, its creditors or its property or other obligor on the Notes, its creditors and its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.6. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.6 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders of the Notes may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise.
SECTION 6.13 Priorities. If the Trustee collects any money or property pursuant to this Article VI, it shall pay out the money or property in the following order:
First: to the Trustee and the Agents for amounts due under Section 7.6, including (but not limited to) payment of all compensation, fees, expense and liabilities incurred, and all advances made, by the Trustee and the Agents and the costs and expenses of collection;
Second: to Holders for amounts due and unpaid on the Notes for principal, premium, if any, interest and Additional Amounts, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, interest and Additional Amounts, if any, respectively; and
Third: to the Issuer, the Guarantors or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Issuer, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.13; provided that the failure to give any such notice shall not affect the establishment of such record date or payment date for Holders pursuant to this Section 6.13.
SECTION 6.14 Restoration of Rights and Remedies. If the Trustee or any Holder of any Note has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Issuer, the Trustee and the Holders of Notes shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders of Notes shall continue as though no such proceeding had been instituted.
SECTION 6.15 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it in its capacity as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.15 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.10, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Notes.
SECTION 6.16 Notices of Default. If a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder of Notes notice of the Default within 90 days after it has become known to the Trustee. Except in the case of a Default in the payment of principal of, premium, if any, interest and Additional Amounts, if any, on any Note, the Trustee may withhold notice if and so long as a committee of Trust Officers determines that withholding notice is in the interests of such Holders of Notes.
ARTICLE VII
TRUSTEE
SECTION 7.1 Duties of Trustee. If an Event of Default actually known to a Trust Officer of the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of his or her own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under this Indenture at the request of any of the Holders of Notes, unless they shall have offered to the Trustee reasonable security and/or indemnity satisfactory to the Trustee against any loss, liability or expense in accordance with the sixth paragraph of Section 7.6.
(a) Except during the continuance of an Event of Default actually known to the Trustee:
(1) The Trustee and the Agents will perform only those duties as are specifically set forth herein and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee or the Agents.
(2) In the absence of willful misconduct on their part, the Trustee and the Agents may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions and such other documents delivered to them pursuant to Section 11.2 and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture.
(b) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, in each case as adjudicated by a court of competent jurisdiction in a final, non-appealable judgment, except that:
(1) This paragraph does not limit the effect of subsection (a) of this Section 7.1.
(2) Neither the Trustee nor Agent shall be liable for any error of judgment made in good faith by a Trust Officer of such Trustee or Agent, unless it is determined by a court of competent jurisdiction in a final, non-appealable judgment that the Trustee or such Agent was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.2, 6.7 or 6.8.
(c) No provision of this Indenture shall require the Trustee or any Agent to expend or risk its own funds, give any bond or surety in respect of the performance of its powers
and duties hereunder, or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or take any action at the request or direction of Holders if it shall have reasonable grounds for believing that repayment of such funds is not assured to it or it does not receive an indemnity and/or security satisfactory to it in its sole discretion against such risk, liability, loss, fee or expense which might be incurred by it in the performance of any of its duties hereunder.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to the first paragraph and subsections (a), (b) and (c) of this Section 7.1.
(e) Neither the Trustee nor the Agents shall be liable for interest on any money received by it except as the Trustee and any Agent may agree in writing with the Issuer. Money held in trust by the Trustee or any Agent need not be segregated from other funds except to the extent required by law.
(f) Any provision hereof relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 7.1.
SECTION 7.2 Rights of Trustee. Subject to Section 7.1:
(a) The Trustee and each Agent may rely conclusively on and shall be protected from acting or refraining from acting based upon any document believed by them to be genuine and to have been signed or presented by the proper Person. Neither the Trustee nor any Agent shall be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent order, approval, appraisal, bond, debenture, note, coupon, security or other paper or document. The Trustee shall not be deemed to have notice or any knowledge of any matter (including without limitation Defaults or Events of Default) unless a Trust Officer assigned to and working in the Trustee’s Corporate Trust Office which is administering this Indenture has actual knowledge thereof or unless written notice thereof is received by the Trustee at its Corporate Trust Office and such notice clearly references the Notes, the Issuer or this Indenture.
(b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers’ Certificate, Issuer Order (as applicable) or an Opinion of Counsel or both. Neither the Trustee nor any Agent shall be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion.
(c) The Trustee and any Agent may act through their attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than an agent who is an employee of the Trustee or such Agent) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture; provided, however, that the Trustee’s conduct does not constitute willful misconduct or negligence, in each case as adjudicated by a court of competent jurisdiction in a final, non-appealable judgment.
(e) The Trustee or any Agent may consult with counsel of its selection and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder and in accordance with the advice or opinion of such counsel.
(f) Except to the extent provided for in Section 9.1 and subject to Section 9.2 hereof, the Trustee may (but shall not be obligated to), without the consent of the Holders, give any consent, waiver or approval required by the terms hereof, but shall not without the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding (i) give any consent, waiver or approval or (ii) agree to any amendment or modification of this Indenture, in each case, that shall have a material adverse effect on the interests of any Holder. The Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any consent, waiver, approval, amendment or modification shall have a material adverse effect on the interests of any Holder.
(g) The permissive rights of the Trustee enumerated herein shall not be construed as duties.
(h) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person retained to act hereunder.
(i) Anything in this Indenture notwithstanding, in no event shall the Trustee be liable for special, indirect, punitive or consequential loss or damage of any kind (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(j) The Trustee shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fire; flood; terrorism; wars and other military disturbances; sabotage; epidemics; riots; interruptions; loss or malfunctions of utilities, computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authorities and governmental action.
SECTION 7.3 Individual Rights of Trustee. The Trustee or any Agent in its respective individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer, the Guarantors, their Subsidiaries, or their respective Affiliates with the same rights it would have if it were not the Trustee or an Agent. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days or resign. Any Agent may do the same with like rights.
SECTION 7.4 Trustee’s Disclaimer. The Trustee and the Agents shall not be responsible for and make no representation as to the validity, effectiveness or adequacy of this Indenture, the offering materials related to the Notes or the Notes; they shall not be accountable for the Issuer’s use of the proceeds from the Notes or any money paid to the Issuer or upon the
Issuer’s direction under any provision hereof; and they shall not be responsible for any statement or recital herein of the Issuer or the Guarantors or any document issued in connection with the sale of Notes or any statement in the Notes other than the Trustee’s certificate of authentication.
SECTION 7.5 Notice of Default. If an Event of Default occurs and is continuing and a Trust Officer of the Trustee receives actual notice of such event, the Trustee shall mail to each Holder, as their names and addresses appear on the list of Holders described in Section 2.5, notice of the uncured Default or Event of Default within 90 days after the Trustee receives such notice. Except in the case of a Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Trust Officers determines that withholding the notice is in the interest of the Holders.
SECTION 7.6 Compensation and Indemnity. The Issuer shall pay to the Trustee and Agents from time to time such compensation as the Issuer and the Trustee or Agent, as applicable, shall from time to time agree in writing for its acceptance of this Indenture and services hereunder. The Trustee’s and the Agents’ compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee and Agents upon request for all reasonable and duly documented and invoiced disbursements, expenses and advances (including reasonable fees and expenses of counsel) incurred or made by it in addition to the compensation for their services, except any such disbursements, expenses and advances as may be attributable to the Trustee’s or any Agent’s negligence, willful misconduct or bad faith, in each case, as adjudicated by a court of competent jurisdiction in a final, non-appealable judgment. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee’s and Agents’ accountants, experts and counsel and any taxes or other expenses incurred by a trust created pursuant to Section 8.4 hereof.
The Issuer agrees to pay the fees and expenses of the Trustee’s legal counsel in connection with its review, preparation and delivery of this Indenture and related documentation.
The Issuer shall indemnify each of the Trustee, any predecessor Trustee and the Agents (which, for purposes of this paragraph, include such Trustee’s and Agents’ officers, directors, employees, agents, successors and assigns) for, and hold them harmless against, any and all loss, damage, claim, proceedings, demands, costs, expense or liability including taxes (other than taxes based on the income of the Trustee) incurred by the Trustee or an Agent without negligence or willful misconduct on its part (in each case as adjudicated by a court of competent jurisdiction in a final, non-appealable judgment) in connection with acceptance of administration of this trust and performance of any provisions under this Indenture, including the reasonable expenses and attorneys’ fees and expenses of defending itself against any claim of liability arising hereunder. The Trustee and the Agents shall notify the Issuer promptly of any claim asserted against the Trustee or such Agent for which it may seek indemnity. However, the failure by the Trustee or the Agent to so notify the Issuer shall not relieve the Issuer of its obligations hereunder. Subject to Section 7.1(b), the Issuer need not reimburse or indemnify against any loss liability or expense incurred by the Trustee through its own willful misconduct or negligence, in each case as adjudicated by a court of competent jurisdiction in a final, non-appealable judgment. The Issuer shall defend the claim and the Trustee or such Agent shall cooperate in the defense (and may employ its own counsel reasonably satisfactory to the Trustee) at the Issuer’s expense. The Trustee or such Agent may have separate counsel and the Issuer shall pay the reasonable fees and
expenses of such counsel. The Issuer need not pay for any settlement made without its written consent, which consent shall not be unreasonably withheld. Any settlement which affects the Trustee or an Agent may not be entered into without the written consent of the Trustee or such Agent, unless the Trustee or such Agent is given a full and unconditional release from liability with respect to the claims covered thereby and such settlement does not include a statement or admission of fault, culpability or failure to act by or on behalf of the Trustee or such Agent, as applicable.
To secure the Issuer’s payment obligations in this Section 7.6, the Trustee and the Agents shall have a senior Lien prior to the Notes against all money or property held or collected by the Trustee and the Agents, in its capacity as Trustee or Agent, except money or property held in trust to pay principal or premium, if any, and Additional Amounts, if any, or interest on particular Notes.
When the Trustee or an Agent incurs expenses or renders services after the occurrence of an Event of Default specified in clause (7) of Section 6.1, the expenses (including the reasonable fees and expenses of its agents and counsel) and the compensation for the services shall be preferred over the status of the Holders in a proceeding under any Bankruptcy Law and are intended to constitute expenses of administration under any Bankruptcy Law. The Issuer’s obligations under this Section 7.6 and any claim or Lien arising hereunder shall survive the termination of this Indenture, the resignation or removal of any Trustee or Agent, the discharge of the Issuer’s obligations pursuant to Article VIII and any rejection or termination under any Bankruptcy Law.
Whenever the Trustee is bound to act under this Indenture at the request or direction of the Holders of Notes, the Trustee shall nevertheless not be so bound unless first indemnified and/or provided with security to its satisfaction against all proceedings, claims and demands to which it may render itself liable and all costs, charges, expenses and liabilities which it may incur by so doing.
Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee, is subject to this Section 7.6.
The Guarantors shall be jointly and severally liable with the Issuer for all of the Issuer’s obligations pursuant to this Section 7.6.
SECTION 7.7 Replacement of Trustee. The Trustee and any Agent may resign at any time by so notifying the Issuer in writing. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Issuer and the Trustee in writing and may appoint a successor trustee with the Issuer’s consent. A resignation or removal of the Trustee or any Agent and appointment of a successor Trustee or Agent, as the case may be, shall become effective only upon the acceptance by the successor Trustee or the successor Agent, as the case may be, of appointment as provided in this section. The Issuer may remove the Trustee if:
(1) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(2) a receiver or other public officer takes charge of the Trustee or its property; or
(3) the Trustee becomes incapable of acting with respect to its duties hereunder.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuer shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may, with the Issuer’s consent, appoint a successor Trustee to replace the successor Trustee appointed by the Issuer. If the Issuer does not reasonably promptly appoint a successor Trustee, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee.
A successor Trustee or successor Agent, as applicable, shall deliver a written acceptance of its appointment to the retiring Trustee or Agent, as applicable, and to the Issuer. Thereupon, the resignation or removal of the retiring Trustee or Agent, as applicable, shall become effective, and the successor Trustee or Agent, as applicable, shall have all the rights, powers and duties of the Trustee or Agent, as applicable, under this Indenture. Promptly after that, the retiring Trustee or Agent, as applicable, shall transfer, after payment of all sums then owing to the Trustee or Agent, as applicable, pursuant to Section 7.6, all property held by it in its capacity as Trustee or Agent, as applicable, to the successor Trustee or Agent, as applicable, subject to the Lien provided in Section 7.6. A successor Trustee or Agent, as applicable, shall mail notice of its succession to each Holder.
If a successor Trustee does not take office within 90 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction at the sole costs and expense of the Issuer for the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.7, the Issuer’s obligations under Section 7.6 shall continue for the benefit of the retiring Trustee and the Issuer shall pay to any replaced or removed Trustee all amounts owed under Section 7.6 upon such replacement or removal.
SECTION 7.8 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by consolidation, merger or conversion to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes.
SECTION 7.9 Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United
States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power and that is subject to supervision or examination by federal or state authorities. The Trustee together with its affiliates shall at all times have a combined capital surplus of at least $50.0 million as set forth in its most recent annual report of condition.
ARTICLE VIII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.1 Option To Effect Legal Defeasance or Covenant Defeasance. The Issuer may, at the option of its Board of Directors evidenced by a Board Resolution, at any time, with respect to the Notes, elect to have either Section 8.2 or 8.3 be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article VIII.
SECTION 8.2 Legal Defeasance and Discharge. Upon the Issuer’s exercise under Section 8.1 of the option applicable to this Section 8.2, the Issuer and the Guarantors shall be deemed to have been discharged from their respective obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, “Legal Defeasance”). For this purpose, such Legal Defeasance means that the Issuer shall be deemed to have paid and discharged all the obligations relating to the outstanding Notes and the Notes shall thereafter be deemed to be “outstanding” only for the purposes of Section 8.6, Section 8.8 and the other Sections of this Indenture referred to below in this Section 8.2, and to have satisfied all of their other obligations under such Notes and this Indenture and cured all then existing Events of Default (and the Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, interest and Additional Amounts, if any, on such Notes when such payments are due or on the Redemption Date solely out of the Defeasance Trust created pursuant to this Indenture; (b) the Issuer’s obligations with respect to Notes concerning issuing temporary Notes, or, where relevant, registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; (c) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer’s or Guarantors’ obligations in connection therewith; and (d) this Article VIII and the obligations set forth in Section 8.6 hereof.
Subject to compliance with this Article VIII, the Issuer may exercise its option under Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 with respect to the Notes.
SECTION 8.3 Covenant Defeasance. Upon the Issuer’s exercise under Section 8.1 of the option applicable to this Section 8.3, the Issuer and the Guarantors shall be released from any obligations under the covenants set forth in Sections 4.3, 4.4 and 4.10, Section 5.1(4), Section 6.1(3) (with respect to Sections 4.3, 4.4, 4.10 and 5.1(4) only), Section 6.1(4) and Section 6.1 (6) (with respect to Subsidiaries of the Company other than the Issuer), hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, “Covenant Defeasance”), and the Notes shall thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall continue to be deemed “outstanding” for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, (i) with respect to the outstanding Notes, the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and (ii) payment on the Notes may not be accelerated because of an Event of Default specified in Sections 6.1(3) (with respect to Sections 4.3, 4.4, 4.10 and 5.1(4) only), 6.1(4) or 6.1(6) (with respect only to Subsidiaries of the Company other than the Issuer).
SECTION 8.4 Conditions to Legal or Covenant Defeasance. In order to exercise either of the defeasance options under Section 8.2 or Section 8.3 hereof, the Issuer must comply with the following conditions:
(1) the Issuer shall have irrevocably deposited in trust (the “Defeasance Trust”) with the Trustee for the benefit of the Holders U.S. Dollars, Designated Government Obligations or any combination thereof sufficient for the payment of principal, premium, if any, interest on the Notes to redemption or maturity, as the case may be;
(2) the Issuer shall have delivered to the Trustee an Opinion of Counsel (subject to customary exceptions and exclusions) to the effect that beneficial owners of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. In the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable U.S. federal income tax law;
(3) no Default or Event of Default (other than in the case of a defeasance of all then outstanding Notes, as the result of the incurrence of indebtedness used to defease the Notes under this Article VIII) shall have occurred and be continuing on the date of such deposit in the Defeasance Trust or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit;
(4) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of any other material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(5) the Issuer shall have delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by the Issuer with the intent of preferring the Holders over any other creditors of the Issuer or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Issuer or others; and
(6) the Issuer shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the legal defeasance or the covenant defeasance have been complied with.
SECTION 8.5 Satisfaction and Discharge of Indenture. This Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder when either (i) all such Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuer) have been delivered to the Trustee for cancellation or (ii) (A) all such Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Issuer has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust an amount of money sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued and unpaid interest and Additional Amounts, if any, to the date of maturity or redemption, (B) no Default (other than as the result of the incurrence of indebtedness used to discharge the Notes under this Section 8.5) with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuer, the Company or any of the other Guarantors is a party or by which it is bound, (C) the Issuer has paid, or caused to be paid, all sums payable by it under this Indenture, and (D) the Issuer has delivered irrevocable instructions to the Trustee under this Indenture to give the notice of redemption and apply the deposited money toward the payment of such Notes at maturity or the Redemption Date, as the case may be. In addition, the Issuer must deliver an Officers’ Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
SECTION 8.6 Survival of Certain Obligations. Notwithstanding the satisfaction and discharge of this Indenture and of the Notes in the manner referred to in Section 8.1, 8.2, 8.3, 8.4 or 8.5, the respective obligations of the Issuer, the Company, the other Guarantors and the Trustee under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 4.1 (with respect to the Trustee and, as far as the Issuer and each of the Guarantors is concerned, subject to Sections 8.2 and 8.5), 4.2, 4.6, 4.13 and 6.10, Article VII and Article VIII shall survive until the Notes are no longer outstanding, and thereafter the obligations of the Issuer, the Company, the other Guarantors and the Trustee under Articles VII and VIII shall survive. Nothing contained in this Article VIII shall abrogate any of the obligations or duties of the Trustee under this Indenture.
SECTION 8.7 Acknowledgment of Discharge by Trustee. Subject to Section 8.10, after (i) the conditions of Section 8.4 or 8.5 have been satisfied, (ii) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer and (iii) the Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i) above relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon written request shall acknowledge in writing the discharge of all of the Issuer’s, the Company’s, and the other Guarantors’ obligations under this Indenture except for those surviving obligations specified in this Article VIII.
SECTION 8.8 Application of Trust Moneys. All cash deposited with the Trustee pursuant to Section 8.4 or 8.5 in respect of Notes shall be held in trust and applied by it, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the Holders of such defeased or discharged Notes of all sums due and to become due thereon for principal, premium, if any, interest and Additional Amounts, if any, but such money need not be segregated from other funds except to the extent required by law.
The Issuer and the Guarantors, jointly and severally, shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash deposited pursuant to Section 8.4 or 8.5 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.9 Repayment to the Issuer; Unclaimed Money. The Trustee and any Paying Agent shall promptly pay or return to the Issuer upon Issuer Order any cash held by them at any time that are not required for the payment of the principal of, premium, if any, interest and Additional Amounts, if any, on any defeased or discharged Notes for which cash has been deposited pursuant to Section 8.4 or 8.5.
Any money held by the Trustee or any Paying Agent under this Article VIII, in trust for the payment of the principal of, premium, if any, interest and Additional Amounts, if any, on any Note and remaining unclaimed for two years after such principal, premium, if any, interest and Additional Amounts, if any, that has become due and payable shall be paid to the Issuer upon Issuer Order or if then held by the Issuer shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer give notice to the Holders that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification, any unclaimed balance of such money then remaining will be repaid to the Issuer). Such notice shall be mailed to Holders by first-class mail, postage prepaid, at their respective addresses as they appear on the registration books of the Registrar; provided that, so long as the Notes are in global form and are held in entirety on behalf of a clearing system, or any of its participants, such notice may be given by the delivery thereof to the clearing system, and its participants, for communication by them to the entitled accountholders. Any such notice shall be deemed to have been given to the accountholders on the third day after the day on which the said notice was given to the clearing system, and its participants.
Claims against the Issuer for the payment of principal or interest and Additional Amounts, if any, on the Notes will become void unless presentment for payment is made (where so required in this Indenture) within, in the case of principal and Additional Amounts, if any, a period of ten years, or, in the case of interest, a period of five years, in each case from the applicable original payment date therefor.
SECTION 8.10 Reinstatement. If the Trustee or Paying Agent is unable to apply any cash in accordance with Section 8.2, 8.3, 8.4 or 8.5 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer’s and the Guarantors’ obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2, 8.3, 8.4 or 8.5 until such time as the Trustee or Paying Agent is permitted to apply all such cash in accordance with Section 8.2, 8.3, 8.4 or 8.5; provided, however, that if the Issuer has made any payment of interest on, premium, if any, principal and Additional Amounts, if any, of any Notes because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 Without Consent of Holders of Notes. Notwithstanding Section 9.2 hereof, the Issuer and the Trustee together may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor entity of the obligations of the Issuer under and pursuant to this Indenture or of a Guarantor (other than the Company) under the Note Guarantees;
(3) provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code);
(4) add Note Guarantees with respect to the Notes;
(5) secure the Notes;
(6) add to the covenants of the Issuer and the Guarantors for the benefit of the Holders or to surrender any right or power conferred upon the Issuer;
(7) evidence and provide for the acceptance and appointment under this Indenture of any successor trustee;
(8) comply with the rules of any applicable securities depositary;
(9) issue Additional Notes in accordance with this Indenture;
(10) conform the text of this Indenture or the Notes to any provision of the “Description of the Notes” in the Offering Memorandum to the extent that the Trustee has received an Officers’ Certificate stating that such text constitutes an unintended conflict
with the description of the corresponding provision or provisions of such “Description of the Notes”; or
(11) make any change that does not adversely affect the rights of any Holder of Notes under this Indenture.
SECTION 9.2 With Consent of Holders of Notes. The Issuer and the Trustee may amend or supplement this Indenture, the Notes or any amended or supplemental indenture with the written consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including without limitation consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes), and, subject to Sections 6.7 and 6.10, any existing Default or Event of Default and its consequences or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including without limitation consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes). However, without the consent of each Holder of an outstanding Note adversely affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder of Notes):
(1) reduce the percentage of principal amount of Notes whose Holders must consent to an amendment;
(2) reduce the stated rate of or extend the stated time for payment of interest on any such Note;
(3) reduce the principal of or extend the Stated Maturity of any such Note;
(4) reduce the premium payable upon the redemption of any such Note or change the time at which any such Note may be redeemed as described under Section 3.1;
(5) reduce the premium payable upon the repurchase of any Note, change the time at which any Note may be repurchased, or change any of the associated definitions related to the provisions of Section 4.11 once the obligation to repurchase the Notes has arisen;
(6) make any such Note payable in money other than that stated in such Note;
(7) impair the right of any Holder to receive payment of premium, if any, principal of and interest on such Holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder’s Notes;
(8) make any change in the amendment provisions which require each Holder’s consent or in the waiver provisions; or
(9) release the Company from its Note Guarantee (other than in accordance with the terms of this Indenture).
It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.
SECTION 9.3 Notice of Amendment, Supplement or Waiver. After an amendment, supplement or waiver under Section 9.1 or 9.2 hereto becomes effective, the Issuer shall mail to the Holders of Notes a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver.
SECTION 9.4 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder of a Note. An amendment or waiver becomes effective once the requisite number of consents is received by the Issuer or the Trustee.
The Issuer may, but shall not be obligated to, fix a record date for determining which Holders of the Notes must consent to such amendment, supplement or waiver. If the Issuer fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders of Notes furnished to the Trustee prior to such solicitation pursuant to Section 2.5 or (ii) such other date as the Issuer shall designate.
SECTION 9.5 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuer in exchange for all Notes may issue and upon receipt of an Issuer Order, the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.6 Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article IX; provided, however, that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which adversely affects the Trustee’s own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive indemnity and/or security reasonably satisfactory to it, an Opinion of Counsel and an Officers’ Certificate each stating that the execution of any such amendment, supplement or waiver is authorized or permitted by this Indenture and constitutes the legal, valid and binding obligations of the Issuer and the Guarantors enforceable in accordance with its terms. The Trustee shall be fully protected in relying upon such Opinion of Counsel and Officer’s Certificate. Any Opinion of Counsel shall not be an expense of the Trustee.
With respect to any amendment, supplement or waiver under Section 9.2, the Trustee shall also be entitled to receive evidence satisfactory to it of the consent of the Holders.
ARTICLE X
NOTE GUARANTEE
SECTION 10.1 Note Guarantee.
(a) Each Guarantor hereby jointly and severally, irrevocably and unconditionally Guarantees, on a senior unsecured basis, to each Holder of a Note authenticated and delivered by the Trustee, and to the Trustee on behalf of such Holder, the due and punctual payment of the principal of (and premium, if any) and interest (including Additional Amounts, if any) on such Note when and as the same shall become due and payable, whether at the Stated Maturity, by acceleration, call for redemption, purchase or otherwise, in accordance with the terms of such Note and of this Indenture. In case of the failure of the Issuer punctually to make any such payment, each Guarantor hereby jointly and severally agrees to cause such payment to be made punctually when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, purchase or otherwise, and as if such payment were made by the Issuer. The Note Guarantee extends to the Issuer’s repurchase obligations arising from a Change of Control pursuant to Section 4.11.
Each Guarantor hereby jointly and severally agrees that its obligations hereunder shall be irrevocable and unconditional, irrespective of the validity, regularity or enforceability of such Note or this Indenture, the absence of any action to enforce the same, any exchange, release or non-perfection of any Lien on any collateral for, the effects of Bankruptcy Law applicable in the event of bankruptcy proceedings being opened with respect to the Issuer, of all or any portion of the claims of the Trustee or any of the Holders for payment of any of the Notes, any waiver or consent by the Holder of such Note or by the Trustee with respect to any provisions thereof or of this Indenture, the obtaining of any judgment against the Issuer or any action to enforce the same or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives the benefits of diligence, presentment, demand for payment, any requirement that the Trustee or any of the Holders protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Issuer or any other Person or any collateral, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest or notice with respect to such Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Note Guarantee will not be discharged in respect of such Note except by complete performance of the obligations contained in such Note and in this Note Guarantee. Each Guarantor hereby agrees that, in the event of a default in payment of principal (or premium, if any) or interest (including Additional Amounts, if any) on such Note, whether at its Stated Maturity, by acceleration, call for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Note, subject to the terms and conditions set forth in this Indenture, directly against each Guarantor to enforce the Note Guarantee without first proceeding against the Issuer. Each Guarantor agrees that, to the extent permitted by applicable law, if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders is prevented by applicable law from exercising its respective rights to accelerate the maturity of the Notes, to collect interest on the Notes, or to enforce or exercise any other right or remedy with respect to the Notes, or the Trustee or the Holders are prevented from taking any action to realize on any collateral, such Guarantor agrees to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders.
No provision of the Note Guarantee or of this Indenture shall alter or impair the Note Guarantee of any Guarantor, which is absolute and unconditional, of the due and punctual payment of the principal of (and premium, if any) and interest (including Additional Amounts, if any) on the Notes.
Each Note Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Issuer for liquidation or reorganization or equivalent proceeding under applicable law, should the Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Issuer’s assets, or the equivalent of any of the foregoing under applicable law, and shall, to the fullest extent permitted by applicable law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Notes, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes, whether as a voidable preference, fraudulent transfer, or as otherwise provided under similar laws affecting the rights of creditors generally or under applicable laws of the jurisdiction of formation of the Issuer, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee.
(b) Each Note Guarantee (other than the Company’s Note Guarantee) will be limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable Guarantor without rendering the Note Guarantee, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally or under applicable law of the jurisdiction of incorporation of such Guarantor.
SECTION 10.2 Guarantors May Consolidate, Etc., on Certain Terms. Except as set forth in Section 10.3 and in Article V hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company, the Issuer or another Guarantor or shall prevent any sale, transfer, assignment, lease, conveyance or other disposition of the property of a Guarantor as an entirety or substantially as an entirety to the Company, the Issuer or another Guarantor.
SECTION 10.3 Release of Guarantors. Subject to the limitations set forth in Sections 5.1 and 5.2 hereof,
(a) concurrently with any consolidation or merger of a Guarantor or any sale, transfer, assignment, lease, conveyance or other disposition of the property of a Guarantor as an entirety or substantially as an entirety, in each case as permitted by Sections 5.1, 5.2 and 10.2 hereof, and upon delivery by the Company or the Issuer to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the effect that such consolidation, merger, sale, transfer, assignment, conveyance or other disposition was made in accordance with Sections 5.1, 5.2 and 10.2 hereof, the Trustee shall execute any documents reasonably required in order to acknowledge the release of such Guarantor from its obligations under its Note Guarantee endorsed on the Notes and under this Indenture. Any Guarantor not released from its obligations under its Note Guarantee and under this Indenture shall remain liable for the full amount of principal of (premium, if any) and interest (including Additional Amounts, if any) on the Notes and for the other obligations of a Guarantor under its Note Guarantee endorsed on the Notes and under this Indenture. Concurrently with the defeasance of the Notes under Section 8.2 or satisfaction and discharge of this Indenture under Section 8.5 hereof, the Guarantors shall be released from all of their obligations under their Note Guarantees endorsed on the Notes and under this Indenture, without any action on the part of the Trustee or any Holder of Notes.
(b) Upon the sale or other disposition (including by way of merger or consolidation) of any Guarantor or the sale, conveyance, transfer, assignment, lease or other disposition of all or substantially all the assets of a Guarantor pursuant to Section 5.1 hereof, such Guarantor shall automatically be released from all obligations under its Note Guarantees endorsed on the Notes and under this Indenture in accordance with Sections 5.1 and 5.2.
(c) At any time a Guarantor (other than the Company) is no longer an obligor under the Credit Facility, such Guarantor will be released and relieved from all of its obligations under its Note Guarantee.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telecopier or first-class mail, postage prepaid, addressed as follows:
if to the Company, to it at:
Else-Kröner Strasse 1
61352 Bad Homburg
Germany
Facsimile: +49-6172-68 32 76
Attention: Christian Wagner
if to the Issuer:
Fresenius Medical Care US Finance III, Inc.
920 Winter Street
Waltham, Massachusetts 02451-1457
United States of America
Facsimile: +1 (781) 699-9632
Attn: Karen A. Gledhill, Esq.
if to FMCH:
920 Winter Street
Waltham, Massachusetts 02451-1457
United States of America
Facsimile: +1 (781) 699-9632
Attn: Karen A. Gledhill, Esq.
in each case, with a copy to:
Fresenius Medical Care AG & Co. KGaA
Else-Kröner Strasse 1
61352 Bad Homburg
Germany
Facsimile: +49-6172-608-5534
Attention: Dr. Peter Hennke
if to the Trustee:
U.S. Bank National Association
225 Asylum Street
Hartford, Connecticut 06103
United States of America
Attention: Melissa Vachon
Telecopier: +1-860-241-6897
Telephone: +1-860-241-6817
Each of the Issuer and the Trustee by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Issuer, shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by first class mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee); provided, that, any notice or communication delivered to the Trustee or an Agent shall be deemed effective upon actual receipt thereof and on the first date on which publication is made, if given by publication (including by posting of information on the website or online data system maintained in accordance with the provisions of this Indenture).
Any notice or communication mailed to a Holder shall be mailed to such Person by first-class mail or other equivalent means at such Person’s address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.
Notices regarding the Notes given to the Holders will be, in the event the Notes are in the form of Definitive Notes, sent by the Issuer, by first-class mail, with a copy to the Trustee, to each Holder of the Notes at such Holder’s address as it appears on the registration books of the Registrar. If and so long as any Notes are represented by one or more Global Notes and ownership of Book-Entry Interests therein are shown on the records of DTC or any successor appointed by DTC at the request of the Issuer, notices will be delivered to DTC or such successor for communication to the owners of such Book-Entry Interests. Notices given by publication will be deemed given on the first date on which any of the required publications is made and notices given by first-class mail, postage prepaid, will be deemed given five calendar days after mailing.
SECTION 11.2 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuer to the Trustee or an Agent to take any action under this Indenture, the Issuer and the Guarantors shall furnish to the Trustee at the request of the Trustee:
(1) an Officers’ Certificate, in form and substance reasonably acceptable to the Trustee (reasonableness to be determined objectively), stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied or complied with; and
(2) an Opinion of Counsel in form and substance reasonably acceptable to the Trustee or such Agent (reasonableness to be determined objectively) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied or complied with.
In any case where several matters are required to be certified by, or covered by an Opinion of Counsel of, any specified Person, it is not necessary that all such matters be certified by, or covered by the Opinion of Counsel of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an Opinion of Counsel with respect to some matters and one or more such Persons as to other matters, and any such Person may certify or give an Opinion of Counsel as to such matters in one or several documents.
Any certificate of a Responsible Officer of the Issuer may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such Responsible Officer knows, or in the exercise of reasonable care should know, that such Opinion of Counsel with respect to the matters upon which his certificate is based are erroneous. Any Opinion of Counsel may be based, and may state that it is so based, insofar as it relates to factual matters, upon a certificate of, or representations by, a Responsible Officer or Responsible Officers of the Issuer stating that
the information with respect to such factual matters is in the possession of the Issuer, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 11.3 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with.
SECTION 11.4 Rules by Trustee, Paying Agent, Registrar. The Trustee, Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.5 Legal Holidays. If a payment date is not a Business Day, payment may be made on the next succeeding day that is a Business Day, and no interest shall accrue for the intervening period.
SECTION 11.6 Governing Law. THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES, AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.7 Submission to Jurisdiction. To the fullest extent permitted by applicable law, each of the Issuer and the Guarantors irrevocably submits to the non-exclusive jurisdiction of any U.S. federal or state court in the Borough of Manhattan in the City of New York, County and State of New York, United States of America, in any suit or proceeding based on or arising under this Indenture or the Notes, and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in any such court. Each of the Issuer and the Guarantors, to the fullest extent permitted by applicable law, irrevocably and fully waives the defense of an inconvenient forum to the maintenance of such suit or proceeding and irrevocably waives to the fullest extent it may effectively do so any objection which it may now or hereafter have to the laying of venue of any such proceeding, and the Company irrevocably consents to be
served with notice and service of process by delivery or by registered mail with return receipt requested addressed to FMCH at 920 Winter Street, Waltham, Massachusetts 02451-1457 (which service of process by registered mail shall be effective so long as such return receipt is obtained, or in the event of a refusal to sign such receipt any Holder or the Trustee is able to produce evidence of attempted delivery by such means). Each of the Issuer and the Guarantors further agrees that such service of process and written notice of such service to the Issuer and the Guarantors in the circumstances described above shall be deemed in every respect effective notice and service of process upon each of the Issuer and the Guarantors in any such action or proceeding. Nothing herein shall affect the right of any Person to serve process in any other manner permitted by law. Each of the Issuer and the Guarantors agrees that a final action in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other lawful manner. Notwithstanding the foregoing, each of the Issuer and the Guarantors hereby agrees that any action arising out of or based on this Indenture or the Notes may also be instituted in any competent court in Germany, and it expressly accepts the jurisdiction of any such court in any such action.
Each of the Issuer and the Guarantors hereby irrevocably waives, to the extent permitted by law, any immunity to jurisdiction to which it may otherwise be entitled (including, without limitation, immunity to pre-judgment attachment, post-judgment attachment and execution) in any legal suit, action or proceeding against it arising out of or based on this Indenture or the Notes.
The provisions of this Section 11.7 are intended to be effective upon the execution of this Indenture without any further action by the Issuer and the Guarantors and the introduction of a true copy of this Indenture into evidence shall be conclusive and final evidence as to such matters.
SECTION 11.8 No Personal Liability of Directors, Officers, Employees and Stockholders. No member of the Board of Directors, director, officer, employee, incorporator or stockholder of the Issuer, Fresenius SE, the general partner of Fresenius SE, the Company, its General Partner or the Guarantors, as such, shall have any liability for any obligations of the Issuer or any Guarantor under the Notes, this Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder by accepting a Note waives and releases all such liability and agrees not to enforce any claim in respect of the Notes, this Indenture or the Note Guarantees to the extent that it would give rise to such personal liability. The waiver and release are part of the consideration for issuance of the Notes and the Note Guarantees.
SECTION 11.9 Successors. All agreements of the Issuer in this Indenture and the Notes and the Guarantors in this Indenture and the Note Guarantees shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.10 Counterpart Originals. All parties hereto may sign any number of copies of this Indenture. Each signed copy or counterpart shall be an original, but all of them together shall represent one and the same agreement. This Indenture may be executed by manual, facsimile and pdf or other forms of electronic imaging (including, without limitation, DocuSign or AdobeSign).
SECTION 11.11 Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 11.12 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
SECTION 11.13 Currency Indemnity. The U.S. dollar (or any of its successor currencies) is the sole currency of account and payment for all sums payable by the Issuer under this Indenture. Any amount received or recovered in a currency other than the U.S. dollar in respect of the Notes (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Issuer, any Guarantor, any Subsidiary or otherwise) by the Holder in respect of any sum expressed to be due to it from the Issuer will constitute a discharge of the Issuer only to the extent of the U.S. dollar amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not possible to make that purchase on that date, on the first date on which it is possible to do so). If that U.S. dollar amount is less than the U.S. dollar amount expressed to be due to the recipient under any Note, the Issuer will indemnify the recipient against any loss sustained by it as a result. In any event the Issuer will indemnify the recipient against the cost of making any such purchase.
For the purposes of this indemnity, it will be sufficient for the Holder to certify that it would have suffered a loss had an actual purchase of U.S. dollars been made with the amount so received in that other currency on the date of receipt or recovery (or, if a purchase of U.S. dollars on such date had not been practicable, on the first date on which it would have been practicable). These indemnities constitute a separate and independent obligation from the other obligations of the Issuer, will give rise to a separate and independent cause of action, will apply irrespective of any waiver granted by any holder and will continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note or any other judgment or order.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, as of the date first written above.
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FRESENIUS MEDICAL CARE US FINANCE III, INC. | |
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/s/ Mark Fawcett |
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Mark Fawcett |
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Sr. Vice President & Treasurer |
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FRESENIUS MEDICAL CARE AG & CO. KGaA, a | |
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FRESENIUS MEDICAL CARE MANAGEMENT AG, its general partner | |
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/s/ Helen Giza |
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Helen Giza |
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Member of the Management Board |
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/s/ Rice Powell |
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Rice Powell |
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FRESENIUS MEDICAL CARE HOLDINGS, INC. | |
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/s/ Mark Fawcett |
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Mark Fawcett |
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Sr. Vice President & Treasurer |
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U.S. BANK NATIONAL ASSOCIATION, | |
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Maryanne Y. Dufresne |
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Vice President |
EXHIBIT A
TO THE INDENTURE
[FORM OF FACE OF NOTE]
[Global Note Legend]
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY OR A NOMINEE OF THE DEPOSITORY TRUST COMPANY. THIS NOTE IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE TO THE DEPOSITORY TRUST COMPANY OR A NOMINEE OF THE DEPOSITORY TRUST COMPANY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
[Private Placement Legend]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.
FRESENIUS MEDICAL CARE US FINANCE III, INC.
2.375% Note due 2031
CUSIP No.:
No.
FRESENIUS MEDICAL CARE US FINANCE III, INC., a Delaware corporation (the “Issuer”, which term includes any successor entity), for value received, promises to pay to [·] or its registered assigns upon surrender hereof the principal sum indicated on Schedule A hereof, on February 16, 2031.
Interest Payment Dates: February 16 and August 16, commencing February 16, 2021
Record Dates: February 1 and August 1 immediately preceding the Interest Payment Dates
Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed.
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FRESENIUS MEDICAL CARE US FINANCE III, INC. | |||
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Trustee’s Certificate of Authentication
This is one of the Securities with the Guarantees endorsed thereon referred to in the within-mentioned Indenture.
U.S. BANK NATIONAL ASSOCIATION, in its capacity as Trustee
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FRESENIUS MEDICAL CARE US FINANCE III, INC.
2.375% Note due 2031
1. Interest. FRESENIUS MEDICAL CARE US FINANCE III, INC., a Delaware corporation (the “Issuer”), promises to pay interest on the principal amount of this Note at the rate and in the manner specified below. Interest on the Notes will accrue at 2.375% per annum on the principal amount then outstanding, and be payable semi-annually in cash in arrears on each February 16 and August 16, or if any such day is not a Business Day, on the next succeeding Business Day, commencing February 16, 2021, to the Holder hereof. Notwithstanding any exchange of this Note for a Definitive Note during the period starting on a Record Date relating to such Definitive Note and ending on the immediately succeeding interest payment date, the interest due on such interest payment date shall be payable to the Person in whose name this Global Note is registered at the close of business on the Record Date for such interest. Interest on the Notes will accrue from the most recent date to which interest has been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
The Issuer shall pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) and on any Additional Amounts, from time to time on demand at the rate borne by the Notes. Any interest paid on this Note shall be increased to the extent necessary to pay Additional Amounts as set forth herein.
2. Additional Amounts. All payments made under or with respect to this Note under the Indenture or pursuant to any Note Guarantee must be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the (1) the United States, Germany, Luxembourg, the United Kingdom or any political subdivision or governmental authority thereof or therein having the power to tax, (2) any jurisdiction from or through which payment on the Notes or any Note Guarantee is made, or any political subdivision or governmental authority thereof or therein having the power to tax or (3) any other jurisdiction in which the payor is organized or otherwise considered to be a resident or engaged in business for tax purposes, or any political subdivision or governmental authority thereof or therein having the power to tax (each a “Relevant Taxing Jurisdiction”), collectively, “Taxes”, unless the Issuer, relevant Guarantor or other applicable withholding agent is required to withhold or deduct Taxes by law or by the interpretation or administration thereof by the relevant government authority or agency. If the Issuer, a Guarantor or other applicable withholding agent making a payment on behalf of the Issuer or a Guarantor is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Notes or any Note Guarantee, the Issuer or such Guarantor, as the case may be, will be required to pay such amount (such amount the “Additional Amounts”) as may be necessary so that the net amount (including Additional Amounts) received by each holder after such withholding or deduction (including any withholding or deduction on such Additional Amounts) will not be less than the amount such holder would have received if such Taxes had not been withheld or deducted; provided, however, that no Additional Amounts will be payable with respect to payments made to any holder to the extent such Taxes are imposed by reason of (i) such holder or beneficial owner being considered to be or to have been
connected with a Relevant Taxing Jurisdiction, other than by the acquisition, ownership, holding or disposition of this Note, the enforcement of rights under this Note or under any Note Guarantee or the receipt of payments in respect of this Note or any Note Guarantee, or (ii) such holder or beneficial owner not completing any procedural formalities that it is legally eligible to complete and are necessary for the Issuer, Guarantors or other applicable withholding agent to make or obtain authorization to make payments without such Taxes (including, without limitation, providing prior to the receipt of any payment on or in respect of this Note or any Note Guarantee a complete, correct and executed IRS Form W-8 or W-9 or substitute or successor form, as applicable, with all appropriate attachments or a comparable form required by another Relevant Taxing Jurisdiction). Further, no Additional Amounts shall be payable with respect to (i) any Tax imposed on interest by the United States or any political subdivision or governmental authority thereof or therein by reason of any beneficial owner holding or owning, actually or constructively, 10% or more of the total combined voting power of all classes of stock of the Issuer or any Guarantor entitled to vote, (ii) any Tax imposed on interest by the United States or any political subdivision or governmental authority thereof or therein by reason of any beneficial owner being a controlled foreign corporation that is a related person within the meaning of Section 864(d)(4) of the Internal Revenue Code of 1986, as amended (the “Code”) with respect to the Issuer or any Guarantor, (iii) any Tax imposed on interest by the United States or any political subdivision or governmental authority thereof or therein by reason of any beneficial owner being a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business or (iv) any United States federal tax imposed pursuant to FATCA, (v) with respect to German tax residents any Tax withheld by a German custodian, who is required to deduct the withholding tax from such interest payments, provided that this Note is held in custody with such German custodian. The Issuer or any Guarantor (as applicable) required to withhold any Taxes will make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority as and when required in accordance with applicable law. The Issuer or any Guarantor (as applicable) will use commercially reasonable efforts to obtain certified copies of tax receipts evidencing the payment by the Issuer or such Guarantor (as applicable) of any Taxes so deducted or withheld from each Relevant Taxing Jurisdiction imposing such Taxes and will provide such certified copies to the Trustee.
Wherever in the Indenture, this Note or any Note Guarantee there are mentioned, in any context, (1) the payment of principal, (2) purchase prices in connection with a purchase of Notes under the Indenture or this Note, (3) interest or (4) any other amount payable on or with respect to this Note or any Note Guarantee, such reference shall be deemed to include payment of Additional Amounts as described under this heading to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.
At least 30 days prior to each date on which payment of principal, premium, if any, interest or other amounts on this Note is to be made (unless an obligation to pay Additional Amounts arises shortly before or after the 30th day prior to such date, in which case it shall be promptly thereafter), if the Issuer or a Guarantor will be obligated to pay Additional Amounts with respect to any such payment, the Issuer will promptly furnish the Trustee and the Paying Agent, if other than the Trustee, with an Officers’ Certificate stating that such Additional Amounts will be payable and the amounts so payable, and will set forth such other information necessary to enable the Trustee or the Paying Agent to pay such Additional Amounts to the holders on the payment date. The Issuer or a Guarantor (as applicable) will pay to the Trustee or the
Paying Agent such Additional Amounts and, if paid to a Paying Agent other than the Trustee, shall promptly provide the Trustee with documentation evidencing the payment of such Additional Amounts. Copies of such documentation shall be made available to the holders upon request.
The foregoing obligations in this Paragraph 2 will survive any termination, defeasance or discharge of the Indenture. References in this Paragraph 2 to the Issuer or any Guarantor shall apply to any successor(s) thereto.
3. Method of Payment. The Issuer shall pay interest on this Note (except defaulted interest) to the Person in whose name this Note is registered at the close of business on the Record Date for such interest. The Issuer shall pay principal and interest in U.S. dollars. Immediately available funds for the payment of the principal of (and premium, if any), interest and Additional Amounts, if any, on this Note due on any interest payment date, Maturity Date, Redemption Date or other repurchase date will be made available to the Paying Agent to permit the Paying Agent to pay such funds to the Holders on such respective dates.
4. Paying Agent and Registrar. Initially, U.S. Bank National Association will act as Paying Agent and as Registrar. In the event that a Paying Agent or transfer agent is replaced, the Issuer will mail notice thereof by first-class mail to each Holder’s registered address; provided that, so long as the Notes are in global form and are held in entirety on behalf of a clearing system, or any of its participants, such notice may be given by the delivery thereof to the clearing system, and its participants, for communication by them to the entitled accountholders. The Issuer may change any Registrar without notice to the Holders. The Issuer, the Company or any of their Subsidiaries may, subject to certain exceptions, act in the capacity of Registrar or transfer agent.
5. Indenture. The Issuer issued the Notes under an Indenture, dated as of September 16, 2020 (the “Indenture”), among the Issuer, Fresenius Medical Care AG & Co. KGaA (the “Company”) and Fresenius Medical Care Holdings, Inc. (“FMCH” and together with the Company, the “Guarantors” and each a “Guarantor”) and U.S. Bank National Association (the “Trustee”), in its capacity as Trustee. This Note is one of a duly authorized issue of Notes (as defined in the Indenture) of the Issuer designated as its 2.375% Notes due 2031. The terms of the Notes include those stated in the Indenture and terms not defined herein shall have the meanings set forth in the Indenture. Notwithstanding anything to the contrary herein, this Note is subject to all such terms, and Holders of Notes are referred to the Indenture for a statement of them. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time.
6. Ranking. The Notes will be general unsecured obligations of the Issuer and the Note Guarantees will be general unsecured obligations of the Guarantors.
7. Note Guarantee. As provided in the Indenture and subject to certain limitations set forth therein, the obligations of the Issuer under the Indenture and this Note are Guaranteed on a senior unsecured basis pursuant to the Note Guarantee set forth in the Indenture. The Indenture provides that a Guarantor shall be released from its Note Guarantee upon compliance with certain conditions.
8. Optional Redemption. Prior to November 16, 2030 (the “Par Call Date”) the Issuer may redeem all or, from time to time, a part of this Note, at its option, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued interest, if any, to (but excluding) the redemption date, plus the excess of:
(a) (a) as determined by the calculation agent (which shall initially be the Trustee), the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed that would have been due if the Notes matured on the Par Call Date, excluding accrued and unpaid interest to, but not including, the date of redemption, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 30 basis points; over
(b) 100% of the principal amount of the Notes being redeemed.
In addition, on or after the Par Call Date, this Note may be redeemed, in whole or in part, by the Issuer, upon not less than 10 nor more than 60 days’ prior notice, at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption.
If the optional redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest, if any, will be paid to the Person in whose name this Note is registered at the close of business on such record date, and no additional interest will be payable to beneficial Holders whose Notes will be subject to redemption by the Issuer.
In the case of any partial redemption, the Trustee will select the Notes for redemption in compliance with the requirements of the principal securities exchange, if any, on which such Notes are listed, and/or in compliance with the requirements of the DTC, or if such Notes are not listed, on a pro rata basis or by lot (and, in the case of Global Notes, in accordance with the applicable procedures of DTC), although no Note of $150,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, notice of redemption relating to that Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued and delivered to the Trustee, or in the case of Definitive Notes, issued in the name of the Holder thereof upon cancellation of the original Note.
9. Special Tax Redemption. The Issuer will be entitled to redeem this Note, at its option, in whole but not in part, upon not less than 10 nor more than 60 days’ notice, at 100% of the principal amount of this Note, plus accrued and unpaid interest (if any) to (but excluding) the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event the Issuer has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Notes, any Additional Amounts as a result of:
(a) any change in or amendment to the laws or regulations of any Relevant Taxing Jurisdiction; or
(b) any change in or amendment to any official position regarding the application, administration or interpretation of such laws or regulations (including by virtue of a holding, judgment or order by a court of competent jurisdiction);
which change or amendment to such laws, regulations or official position is announced and becomes effective after the issuance of the Notes (or, if the applicable Relevant Taxing Jurisdiction did not become a Relevant Taxing Jurisdiction until a later date, after such later date); provided, that the Issuer determines, in its reasonable judgment, that the obligation to pay such Additional Amounts cannot be avoided by the use of reasonable measures available to it; provided, further, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such Additional Amounts were a payment in respect of the Notes then due.
10. Notice of Redemption. At least 10 days but not more than 60 days before a Redemption Date or a Tax Redemption Date, as applicable, the Issuer shall mail a redemption notice to Holders (with a copy to the Trustee) by first-class mail, postage prepaid, at their respective addresses as they appear on the registration books of the Registrar; provided that, so long as the Notes are in global form and are held in entirety on behalf of a clearing system, or any of its participants, a redemption notice may be given by the delivery of such notice to the clearing system, and its participants, for communication by them to the entitled accountholders. Any such notice shall be deemed to have been given to the accountholders on the third day after the day on which the said notice was given to the clearing system, and its participants. At the Issuer’s request made at least 45 days before the Redemption Date or a Tax Redemption Date, as applicable (or such shorter period as the Trustee in its sole discretion shall determine), the Paying Agent shall give the notice of redemption in the Issuer’s name and at the Issuer’s expense; provided, however, that the Issuer shall deliver to the Trustee (in advance) an Officers’ Certificate requesting that the Trustee give such notice and setting forth in full the information to be stated in such notice as provided in the Indenture.
Except as set forth in the Indenture, from and after any Redemption Date or Tax Redemption Date, as the case may be, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date or Tax Redemption Date, as the case may be, then, unless the Issuer defaults in the payment of such Redemption Price, the Notes called for redemption will cease to bear interest and Additional Amounts, if any, and the only right of the Holders of such Notes will be to receive payment of the Redemption Price.
11. Change of Control. Each Holder of the Notes, upon the occurrence of a Change of Control Triggering Event, will have the right to require that the Issuer repurchase such Holder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). Holders of Notes that are subject to an offer to purchase will receive a Change of Control offer from the Company prior to any related Change of Control payment date and may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase” appearing below.
12. Denominations; Form. The Global Notes are in registered global form, without coupons, in denominations of $150,000 and integral multiples of $1,000 in excess thereof.
13. Persons Deemed Owners. The registered Holder of this Note shall be treated as the owner of it for all purposes, subject to the terms of the Indenture.
14. Unclaimed Funds. If funds for the payment of principal, interest, premium or Additional Amounts remain unclaimed for two years, the Trustee and the Paying Agents will repay the funds to the Issuer at its written request. After that, all obligations of the Trustee and such Paying Agents with respect to such funds shall cease.
15. Legal Defeasance and Covenant Defeasance. The Issuer may be discharged from its obligations under the Indenture and the Notes except for certain provisions thereof (“Legal Defeasance”), and may be discharged from its obligations to comply with certain covenants contained in the Indenture (“Covenant Defeasance”), in each case upon satisfaction of certain conditions specified in the Indenture.
16. Amendment; Supplement; Waiver. Subject to certain exceptions specified in the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding.
17. Restrictive Covenants. The Indenture imposes certain covenants that, among other things, limit the ability of the Issuer, the Guarantors and their Subsidiaries to incur or permit to subsist certain Liens and enter into certain consolidations or mergers. The limitations are subject to a number of important qualifications and exceptions. The Issuer must annually report to the Trustee on compliance with such limitations.
18. Successors. When a successor assumes all the obligations of its predecessor under the Notes and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations.
19. Defaults and Remedies. If an Event of Default (other than an Event of Default specified in clause (6) of Section 6.1 of the Indenture) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal, premium, interest and Additional Amounts, if any, including an accelerated payment) if it determines that withholding notice is in their interest.
20. Trustee Dealings with Issuer. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee.
21. No Recourse Against Others. No member of the Board of Directors, director, officer, employee, incorporator or stockholder of the Issuer, Fresenius SE, the general partner of Fresenius SE, the Guarantors, or the General Partner of the Company, as such, shall have any liability for any obligations of the Issuer or any Guarantor under this Note, the Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder by accepting this Note waives and releases all such liability and agrees not to enforce any claim in respect of the Notes, the Indenture or the Note Guarantees to the extent that it would give rise to such personal liability. The waiver and release are part of the consideration for issuance of this Note and the Note Guarantees.
22. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Note.
23. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). Unless otherwise defined herein, terms defined in the Indenture are used herein as defined therein.
24. CUSIP Numbers. The Issuer will cause the CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon.
25. Governing Law. THIS NOTE AND THE INDENTURE, AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. THE NOTE GUARANTEES WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK EXCEPT CERTAIN MATTERS CONCERNING LIMITATION THEREOF WILL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE FEDERAL REPUBLIC OF GERMANY.
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $[·]. The following decreases/increases in the principal amount at maturity of this Note have been made:
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.11 of the Indenture, check the box below:
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If you want to elect to have only part of this Note purchased by the Issuer pursuant to Section 4.11 of the Indenture, state the amount: $
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EXHIBIT B
TO THE INDENTURE
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Transfers pursuant to Section 2.7(a) of the Indenture)
Fresenius Medical Care US Finance III, Inc.
c/o U.S. Bank National Association
225 Asylum Street, 23rd Floor
Hartford, CT 06103
United States of America
Attention: Global Corporate Trust
Melissa Vachon
RE: 2.375% Notes due 2031
(the “Notes”) of Fresenius Medical Care US Finance III, Inc.
Reference is hereby made to the Indenture dated as of September 16, 2020 (the “Indenture”) among Fresenius Medical Care US Finance III, Inc., Fresenius Medical Care AG & Co. KGaA and Fresenius Medical Care Holdings, Inc. and U.S. Bank National Association, in its capacity as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to $ (being in a minimum amount of $150,000 and any integral multiple of $1,000 in excess thereof) principal amount of Notes beneficially held through interests in the Rule 144A Global Note (CUSIP No. 35805B AB4) with DTC in the name of (the “Transferor”), account number . The Transferor hereby requests that on [INSERT DATE] such beneficial interest in the Rule 144A Global Note be transferred or exchanged for an interest in the Regulation S Global Note (CUSIP No. U3149F AB5) in the same principal denomination and transferred to (account no. ). If this is a partial transfer, a minimum amount of $150,000 and any integral multiple of $1,000 in excess thereof of the Rule 144A Global Note will remain outstanding.
In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Indenture and the Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S under the Securities Act, and accordingly the Transferor further certifies that:
(A) (1) the offer of the Notes was not made to a Person in the United States;
(2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any Person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on our behalf knows that the transaction was prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(a) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act.
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(B) such transfer is being made in accordance with Rule 144 under the Securities Act.
This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act.
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EXHIBIT C
TO THE INDENTURE
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Transfers pursuant to Section 2.7(b) of the Indenture)
Fresenius Medical Care US Finance III, Inc.
c/o U.S. Bank National Association
225 Asylum Street, 23rd Floor
Hartford, CT 06103
United States of America
Attention: Global Corporate Trust
Melissa Vachon
RE: 2.375% Notes due 2031 (the “Notes”) of Fresenius Medical Care US Finance III, Inc.
Reference is hereby made to the Indenture dated as of September 16, 2020 (the “Indenture”) among Fresenius Medical Care US Finance III, Inc., Fresenius Medical Care AG & Co. KGaA and Fresenius Medical Care Holdings, Inc. and U.S. Bank National Association, in its capacity as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to $ (being in a minimum amount of $150,000 and in an integral multiple of $1,000 in excess thereof) principal amount of Notes beneficially held through interests in the Regulation S Global Note (CUSIP No. 35805B AB4) with DTC in the name of (the “Transferor”), account number . The Transferor hereby requests that on [INSERT DATE] such beneficial interest in the Regulation S Global Note be transferred or exchanged for an interest in the Rule 144A Global Note (CUSIP No. U3149F AB5) in the same principal denomination and transferred to (account no. ). If this is a partial transfer, a minimum of $150,000 and any integral multiple of $1,000 in excess thereof of the Regulation S Global Note will remain outstanding.
In connection with such request, and in respect of such Notes, the Transferor does hereby certify that such Notes are being transferred in accordance with Rule 144A under the Securities Act to a transferee that the Transferor knows or reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction.
This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer.
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CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Rice Powell, certify that:
Date: October 29, 2020
| By: | /s/ RICE POWELL Rice Powell Chief Executive Officer and Chairman of the Management Board of the General Partner |
1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Helen Giza, certify that:
Date: October 29, 2020
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By: | /s/ HELEN GIZA |
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Helen Giza Chief Financial Officer and member of the Management Board of the General Partner |
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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 October 2020 containing its unaudited financial statements as of September 30, 2020 and for the nine-months periods ending September 30, 2020 and 2019, as submitted to the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Rice Powell, Chief Executive Officer and Helen Giza, 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 |
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October 29, 2020 |
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/s/ HELEN GIZA Helen Giza Chief Financial Officer and member of the Management Board of the General Partner |
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October 29, 2020 |
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1
Document and Entity Information |
9 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Document and Entity Information | |
| Entity Registrant Name | FRESENIUS MEDICAL CARE AG & Co. KGaA |
| Entity Central Index Key | 0001333141 |
| Document Type | 6-K |
| Document Period End Date | Sep. 30, 2020 |
| Amendment Flag | false |
| Current Fiscal Year End Date | --12-31 |
| Document Fiscal Year Focus | 2020 |
| Document Fiscal Period Focus | Q3 |
Consolidated statements of income - EUR (€) € in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
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| Revenue: | ||||
| Health care services | € 3,499,437 | € 3,492,316 | € 10,707,969 | € 10,264,821 |
| Health care products | 914,331 | 926,687 | 2,750,940 | 2,631,771 |
| Revenue | 4,413,768 | 4,419,003 | 13,458,909 | 12,896,592 |
| Costs of revenue: | ||||
| Health care services | 2,596,271 | 2,666,246 | 7,988,471 | 7,777,401 |
| Health care products | 450,453 | 406,768 | 1,281,713 | 1,176,992 |
| Costs of revenue | 3,046,724 | 3,073,014 | 9,270,184 | 8,954,393 |
| Gross profit | 1,367,044 | 1,345,989 | 4,188,725 | 3,942,199 |
| Operating (income) expenses: | ||||
| Selling, general and administrative | 717,750 | 731,410 | 2,285,192 | 2,246,746 |
| (Gain) loss related to divestiture of Care Coordination activities | (3,236) | (2,462) | (32,160) | (13,862) |
| Research and development | 44,923 | 42,197 | 141,346 | 119,178 |
| Income from equity method investees | (24,173) | (20,544) | (48,487) | (63,058) |
| Operating income | 631,780 | 595,388 | 1,842,834 | 1,653,195 |
| Other (income) expense: | ||||
| Interest income | (7,531) | (20,761) | (27,469) | (46,659) |
| Interest expense | 95,223 | 125,485 | 311,320 | 373,586 |
| Income before income taxes | 544,088 | 490,664 | 1,558,983 | 1,326,268 |
| Income tax expense | 124,342 | 99,103 | 361,952 | 292,312 |
| Net income | 419,746 | 391,561 | 1,197,031 | 1,033,956 |
| Net income attributable to noncontrolling interests | 66,244 | 58,977 | 209,838 | 176,843 |
| Net income attributable to shareholders of FMC-AG & Co. KGaA | € 353,502 | € 332,584 | € 987,193 | € 857,113 |
| Basic earnings per share | € 1.21 | € 1.10 | € 3.35 | € 2.82 |
| Diluted earnings per share | € 1.21 | € 1.10 | € 3.35 | € 2.82 |
Consolidated balance sheets (Parenthetical) - € / shares |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Consolidated balance sheets | ||
| Par value | € 0 | € 0 |
| Nominal value per share | € 1.00 | € 1.00 |
| Shares authorized | 374,165,226 | 374,165,226 |
| Shares issued | 304,628,925 | 304,436,876 |
| Shares outstanding | 292,833,823 | 298,329,247 |
Consolidated statements of shareholders' equity - EUR (€) € in Thousands |
Total FMC-AG & Co. KGaA shareholders' equity
IFRS 16
|
Total FMC-AG & Co. KGaA shareholders' equity |
Ordinary shares |
Treasury stock |
Additional paid in capital |
Retained earnings
IFRS 16
|
Retained earnings |
Foreign currency translation |
Cash flow hedges |
Pensions |
Fair value changes |
Noncontrolling interests
IFRS 16
|
Noncontrolling interests |
IFRS 16 |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at beginning of period at Dec. 31, 2018 | € 11,758,411 | € 307,879 | € (50,993) | € 3,873,345 | € 8,831,930 | € (911,473) | € (1,528) | € (290,749) | € 1,143,547 | € 12,901,958 | |||||
| Balance at beginning of period (in shares) at Dec. 31, 2018 | 307,878,652 | (999,951) | |||||||||||||
| Adjustment due to initial application at Dec. 31, 2018 | € (120,809) | € (120,809) | € (15,526) | € (136,335) | |||||||||||
| Adjusted balance at Dec. 31, 2018 | 11,637,602 | € 307,879 | € (50,993) | 3,873,345 | 8,711,121 | (911,473) | (1,528) | (290,749) | 1,128,021 | 12,765,623 | |||||
| Adjusted balance (in shares) at Dec. 31, 2018 | 307,878,652 | (999,951) | |||||||||||||
| Proceeds from exercise of options and related tax effects | 12,177 | € 249 | 11,928 | 12,177 | |||||||||||
| Proceeds from exercise of options and related tax effects (in shares) | 248,665 | ||||||||||||||
| Compensation expense related to stock options | 2,203 | 2,203 | 2,203 | ||||||||||||
| Purchase of treasury stock | (457,908) | € (457,908) | (457,908) | ||||||||||||
| Purchase of treasury stock (in shares) | (6,767,773) | ||||||||||||||
| Withdrawal of treasury stock | € (3,771) | € 269,796 | (266,025) | ||||||||||||
| Withdrawal of treasury stock (in shares) | (3,770,772) | 3,770,772 | |||||||||||||
| Dividends paid | (354,636) | (354,636) | (354,636) | ||||||||||||
| Purchase/sale of noncontrolling interests | (6,872) | (6,872) | 72,232 | 65,360 | |||||||||||
| Contributions from/to noncontrolling interests | (165,149) | (165,149) | |||||||||||||
| Noncontrolling interests subject to put provisions | (2,704) | (2,704) | (2,704) | ||||||||||||
| Net income | 857,113 | 857,113 | 176,843 | 1,033,956 | |||||||||||
| Other comprehensive income (loss) related to: | |||||||||||||||
| Foreign currency translation | 600,203 | 608,582 | (350) | (8,029) | 54,561 | 654,764 | |||||||||
| Cash flow hedges, net of related tax effects | (10,266) | (10,266) | (10,266) | ||||||||||||
| Total comprehensive income | 1,447,050 | 231,404 | 1,678,454 | ||||||||||||
| Balance at end of period at Sep. 30, 2019 | 12,276,912 | € 304,357 | € (239,105) | 3,614,579 | 9,210,894 | (302,891) | (12,144) | (298,778) | 1,266,508 | 13,543,420 | |||||
| Balance at end of period (in shares) at Sep. 30, 2019 | 304,356,545 | (3,996,952) | |||||||||||||
| Balance at beginning of period at Dec. 31, 2019 | 11,957,913 | € 304,437 | € (370,502) | 3,607,662 | 9,454,861 | (664,987) | (10,460) | (363,098) | 1,269,324 | € 13,227,237 | |||||
| Balance at beginning of period (in shares) at Dec. 31, 2019 | 304,436,876 | (6,107,629) | 304,436,876 | ||||||||||||
| Proceeds from exercise of options and related tax effects | 10,066 | € 192 | 9,874 | € 10,066 | |||||||||||
| Proceeds from exercise of options and related tax effects (in shares) | 192,049 | ||||||||||||||
| Purchase of treasury stock | (365,988) | € (365,988) | (365,988) | ||||||||||||
| Purchase of treasury stock (in shares) | (5,687,473) | ||||||||||||||
| Dividends paid | (351,170) | (351,170) | (351,170) | ||||||||||||
| Purchase/sale of noncontrolling interests | (24,225) | (24,225) | (72,643) | (96,868) | |||||||||||
| Contributions from/to noncontrolling interests | (193,174) | (193,174) | |||||||||||||
| Noncontrolling interests subject to put provisions | (47,064) | (47,064) | (47,064) | ||||||||||||
| Net income | 987,193 | 987,193 | 209,838 | 1,197,031 | |||||||||||
| Other comprehensive income (loss) related to: | |||||||||||||||
| Foreign currency translation | (759,177) | (764,864) | 344 | 7,184 | € (1,841) | (50,694) | (809,871) | ||||||||
| Cash flow hedges, net of related tax effects | 3,990 | 3,990 | 3,990 | ||||||||||||
| Pensions, net of related tax effects | (14,328) | (14,328) | (14,328) | ||||||||||||
| Fair value changes | 95,901 | 11,072 | 84,829 | 95,901 | |||||||||||
| Total comprehensive income | 313,579 | 159,144 | 472,723 | ||||||||||||
| Balance at end of period at Sep. 30, 2020 | € 11,493,111 | € 304,629 | € (736,490) | € 3,593,311 | € 10,054,892 | € (1,429,851) | € (6,126) | € (370,242) | € 82,988 | € 1,162,651 | € 12,655,762 | ||||
| Balance at end of period (in shares) at Sep. 30, 2020 | 304,628,925 | (11,795,102) | 304,628,925 |
The Company and basis of presentation |
9 Months Ended |
|---|---|
Sep. 30, 2020 | |
| The Company and basis of presentation | |
| The Company and basis of presentation | 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) registered in the commercial registry of Hof an der Saale under HRB 4019, with its business address at Else-Kröner-Str. 1, 61352 Bad Homburg v. d. Höhe, is the world’s largest kidney dialysis company, based on publicly reported revenue and number of patients treated. The Company provides dialysis care and related dialysis care services to persons who suffer from end-stage renal disease (“ESRD”), as well as other health care services. The Company also develops, manufactures and distributes a wide variety of health care products, which includes dialysis and non-dialysis products. The Company’s dialysis products include hemodialysis machines, peritoneal cyclers, dialyzers, peritoneal solutions, hemodialysis concentrates, solutions and granulates, bloodlines, renal pharmaceuticals and systems for water treatment. The Company’s non-dialysis products include acute cardiopulmonary and apheresis products. The Company supplies dialysis clinics it owns, operates or manages with a broad range of products and also sells dialysis products to other dialysis service providers. The Company describes certain of its other health care services as “Care Coordination.” Care Coordination currently includes, but is not limited to, value and risk-based arrangements, pharmacy services, vascular, cardiovascular and endovascular specialty services as well as ambulatory surgery center services, physician nephrology and cardiology services, urgent care services and ambulant treatment services. All of these Care Coordination services together with dialysis care and related services represent the Company’s health care services. In these unaudited consolidated financial statements, “FMC-AG & Co. KGaA,” or the “Company” refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires. “Fresenius SE” and “Fresenius SE & Co. KGaA” refer to Fresenius SE & Co. KGaA. “Management AG” and the “General Partner” refer to Fresenius Medical Care Management AG which is FMC-AG & Co. KGaA’s general partner and is wholly owned by Fresenius SE. “Management Board” refers to the members of the management board of Management AG and, except as otherwise specified, “Supervisory Board” refers to the supervisory board of FMC-AG & Co. KGaA. The term “North America Segment” refers to the North America operating segment, the term “EMEA Segment” refers to the Europe, Middle East and Africa operating segment, the term “Asia-Pacific Segment” refers to the Asia-Pacific operating segment, and the term “Latin America Segment” refers to the Latin America operating segment. For further discussion of the Company’s operating segments, see note 10. Basis of presentation The consolidated financial statements and other financial information included in the Company’s quarterly reports furnished under cover of Form 6-K and its Annual Report on Form 20-F are prepared solely in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), using the euro as the Company's reporting currency. The quarterly financial report is prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, and contains condensed financial statements, in that it does not include all of the notes that would be required in a complete set of financial statements, but rather selected explanatory notes. However, the primary financial statements are presented in the format consistent with the consolidated financial statements as presented in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 (the "2019 Form 20-F") in accordance with IAS 1, Presentation of Financial Statements. The consolidated financial statements at September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 contained in this report are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company's 2019 Form 20-F. The preparation of consolidated financial statements in conformity with IFRS 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 period. 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. Starting on July 1, 2018, the Company’s subsidiaries in Argentina applied IAS 29, Financial Reporting in Hyperinflationary Economies, due to the inflation in Argentina. Pursuant to IAS 29, the Company recorded a loss on its net monetary position of €12,439 for the nine months ended September 30, 2020. The Company calculated the loss with the use of the Consumer Price Index (Índice de precios al consumidor) as published by the Argentine Statistics and Census Institute for the nine months ended September 30, 2020, which lists the level at 346.6 index points, a 22% increase since January 1, 2020. In the consolidated statements of income, "Selling, general and administrative" expense in the amount of €6,977 for the three months ended September 30, 2019 and €17,413 for the nine months ended September 30, 2019 have been reclassified from “Research and development” expense to conform to the current year’s presentation. The 2020 presentation of amortization related to acquired technology previously recorded in “Selling, general and administrative” expense has been adjusted to present the expense in the amount of €36,881 for the nine months ended September 30, 2020 within “Costs of Revenue.” In the consolidated statements of cash flows, a decrease in receivables from equity-method investees in the amount of €53,149 for the nine months ended September 30, 2019 has been reclassified from line item “Trade accounts and other receivables” to line item “Accounts receivable from related parties” to conform to the current year’s presentation. In the consolidated balance sheets, "Non-current provisions and other non-current liabilities" in the amount of €51,831 as of December 31, 2019 have been reclassified to line item "current provisions and other current liabilities" to conform to the current year's presentation. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations for the year ending December 31, 2020. At October 29, 2020, the Management Board authorized the consolidated financial statements to be issued. New accounting pronouncements Recently implemented accounting pronouncements The Company has prepared its consolidated financial statements at and for the nine months ended September 30, 2020 in conformity with IFRS that must be applied for the interim periods starting on or after January 1, 2020. In the nine months ended September 30, 2020, there were no recently implemented accounting pronouncements that had a material effect on the Company’s consolidated financial statements. Recent accounting pronouncements not yet adopted The IASB issued the following new standards which are relevant for the Company: IFRS 17, Insurance Contracts In May 2017, the IASB issued IFRS 17, Insurance Contracts. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure related to the issuance of insurance contracts. IFRS 17 replaces IFRS 4, Insurance Contracts, which was brought in as an interim standard in 2004. IFRS 4 permitted the use of national accounting standards for the accounting of insurance contracts under IFRS. As a result of the varied application for insurance contracts there was a lack of comparability among peer groups. IFRS 17 eliminates this diversity in practice by requiring all insurance contracts to be accounted for using current values. The frequent updates to the insurance values are expected to provide more useful information to users of financial statements. On June 25, 2020, the IASB issued amendments to IFRS 17, which among others, defer the effective date to fiscal years beginning on or after January 1, 2023. Earlier adoption is permitted for entities that have also adopted IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers. The Company is evaluating the impact of IFRS 17 on the consolidated financial statements. Amendments to IAS 1, Classification of Liabilities as Current and Non-current In January 2020, the IASB issued Amendments to IAS 1, Classification of Liabilities as Current and Non-current. The amendments clarify under which circumstances debt and other liabilities with an uncertain settlement date should be classified as current or non-current. Among others, the amendments state that liabilities shall be classified depending on rights that exist at the end of the reporting period and define under which conditions liabilities might be settled by cash, other economic resources or equity. On July 15th, the IASB deferred the effective date by one year to provide companies with more time to implement any classification changes resulting from the amendments. The Amendments to IAS 1 are now effective for annual reporting periods beginning on or after January 1, 2023. Earlier adoption is permitted. The Company is currently evaluating the impact of the amendments to IAS 1 on the consolidated financial statements. In the Company’s view, no other pronouncements issued by the IASB are expected to have a material impact on the consolidated financial statements. |
Notes to the consolidated statements of income |
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| Notes to the consolidated statements of income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to the consolidated statements of income | 2. Notes to the consolidated statements of income a) Revenue The Company has recognized the following revenue in the consolidated statement of income for the three and nine months ended September 30, 2020 and 2019: Revenue in € THOUS
b) Research and development expenses Research and development expenses of €141,346 for the nine months ended September 30, 2020 (for the nine months ended September 30, 2019: €119,178) included research and non-capitalizable development costs as well as depreciation and amortization expenses related to capitalized development costs of €3,777 (for the nine months ended September 30, 2019: €1,795). c) Earnings per share The following table contains reconciliations of the numerators and denominators of the basic and fully diluted earnings per share computations for 2020 and 2019: Reconciliation of basic and diluted earnings per share in € THOUS, except share and per share data
Share buy-back program In 2020, the Company continued to utilize the authorization granted by the Company’s Annual General Meeting on May 12, 2016 to conduct a share buy-back program. The current share buy-back program, announced on June 14, 2019 allowed for repurchase of a maximum of 12,000,000 shares at a total purchase price, excluding ancillary transaction costs, of up to €660,000 between June 17, 2019 and June 17, 2020. On April 1, 2020, the Company concluded the current buy-back program. The prior buy-back program expired on May 10, 2019 and the repurchased shares were retired. The following tabular disclosure provides the number of shares acquired in the context of the share buy-back programs as well as the retired treasury stock: Treasury Stock
As of September 30, 2020, the Company holds 11,795,102 treasury shares. These shares will be used solely to reduce the registered share capital of the Company by cancellation of the acquired shares. d) Impacts of severe acute respiratory syndrome coronavirus 2 ("COVID-19") The Company and its patient population have been impacted by the severe acute respiratory syndrome coronavirus 2 (“COVID-19”). The Company provides life-sustaining dialysis treatments and other critical healthcare services and products to patients. Its patients need regular and frequent dialysis treatments, or else they face significant health consequences that would result in either hospitalization or death. To be able to continue care for its patients, the Company determined that it needed to implement a number of measures, both operational and financial, to maintain an adequate workforce, protect its patients and employees through expanded personal protective equipment protocols and to develop surge capacity for patients suspected or confirmed to have COVID-19. Additionally, the Company experienced a loss of revenue due to the pandemic in certain parts of its business, offset by increased demand for its services and products in other parts. Various governments in regions in which the Company operates have provided economic assistance programs to address the consequences of the pandemic on companies and support healthcare providers and patients. The Company has recorded €224,449 of related reimbursement payments and funding reflecting the specific terms and regulations set forth in the local laws and regulations, primarily directly against the respective cost of revenue line item, and the rest against the selling, general and administrative expense line item in the statement of profit and loss in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In addition to the costs incurred which are eligible for government funding in various countries, the Company has been affected by impacts that COVID-19 had on the global economy and financial markets as well as effects related to lockdowns. At the same time the Company incurred lower costs in certain areas, for example for travel. Overall, including COVID-19 reimbursements, the Company concluded that COVID-19 resulted in an immaterial impact to net income attributable to shareholders of FMC-AG & Co. KGaA in the nine months ended September 30,2020. On March 27, 2020, the U.S. administration signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which provides relief funds to hospitals and other healthcare providers in connection with the impact of the on-going COVID-19 pandemic. The Company received U.S. federal relief funding under the CARES Act in the amount of $284,900 (€253,238 for the nine months ended September 30, 2020). The part of this funding that is not yet offset with qualifying costs incurred in relation to COVID-19 for the three-and-nine months ended September 30, 2020 is recorded as a liability on the Company’s consolidated balance sheet within current provisions and other current liabilities as of September 30, 2020 and will be offset against all qualifying costs that are incurred in the fourth quarter of 2020. The Company currently estimates that all funds received from grants comply with the terms and conditions associated with the funding received. Additional guidance is expected to be released from the U.S. Department of Health and Human Services with regards to the application of CARES Act relief funds which may affect the Company’s estimate as of September 30, 2020. All funding received under the CARES Act in the U.S. is to be applied solely to the Company’s U.S. operations. In accordance with the conditions of the funding received under the grants, the Company is obliged and committed to fulfilling all the requirements of the grant funding arrangements in the respective jurisdictions in which funding was received. The Company has determined that there is reasonable assurance that it will continue to be entitled to the amounts received and comply with the requirements related to the grants. Additionally, the Company received advance payments under the Centers for Medicare and Medicaid (“CMS”) Accelerated and Advance Payment program which are recorded as a contract liability upon receipt and recognized as revenue when the respective services are provided. The Company recorded a contract liability within current provisions and other current liabilities in the amount of €896,642 as of September 30, 2020. e) Previously performed impairment test in the Latin America Segment In the second quarter of 2020, the Company performed an impairment test of goodwill and non-amortizable intangible assets due to adverse changes in the Latin America Segment’s economic environment, in part exacerbated by COVID-19, specifically in relation to a negative impact from country-specific risk rates increasing the weighted average cost of capital in the Latin America Segment which the Company determined to be a triggering event in accordance with IAS 36, Impairment of Assets. At that time, the Company determined that the recoverable amount of the Latin America Segment exceeded the carrying amount by €23,096. At September 30, 2020, the Company did not identify any further triggering event which would result in an additional impairment test of goodwill for the Latin America Segment. Any adverse developments in future periods would likely lead to impairment charges on this cash-generating unit. The following table shows the key assumptions and amounts by which the key assumptions would need to change that the recoverable amount equals the carrying amount:
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Related party transactions |
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| Related party transactions | Fresenius SE is the Company’s largest shareholder and owns 32.23% of the Company’s outstanding shares, excluding treasury shares held by the Company, at September 30, 2020. The Company has entered into certain arrangements for services 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 arrangements for leases with Fresenius SE or its subsidiaries are described in item b) 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 and the Company believes that these arrangements reflect fair market terms. The Company utilizes various methods to verify the commercial reasonableness of its related party arrangements. Financing arrangements as described in item c) 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 key management personnel who are considered to be related parties is described in item d) below. Our related party transactions are settled through Fresenius SE’s cash management system where appropriate. a) Service 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 central purchasing services to Fresenius SE Companies. These related party agreements generally have a duration of 1 to 5 years and are renegotiated on an as needed basis when the agreement comes due. The Company provides administrative services to one of its equity method investees. The Company sells products to Fresenius SE Companies and purchases products from Fresenius SE Companies and equity method investees. 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 an indirect, 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. The Company entered into a ten-year agreement with a Fresenius SE Company for the manufacturing of infusion bags. In order to establish the new production line, the Company purchased machinery from the Fresenius SE company in the amount of €108 during the nine months ended September 30, 2020 and €3,853 during the nine months ended September 30, 2019. In December 2010, the Company and Galenica Ltd. (now known as Vifor Pharma Ltd.) formed the renal pharmaceutical company Vifor Fresenius Medical Care Renal Pharma Ltd., an equity method investee of which the Company owns 45%. The Company has entered into exclusive supply agreements to purchase certain pharmaceuticals from, as well as certain exclusive distribution agreements with, Vifor Fresenius Medical Care Renal Pharma Ltd. Under the CMS Comprehensive ESRD Care Model, the Company and participating physicians formed entities known as ESRD Seamless Care Organizations (“ESCOs”) as part of a payment and care delivery model that seeks to deliver better health outcomes for Medicare ESRD patients while lowering CMS’s costs. The Company has entered into participation/service agreements with these ESCOs, which are accounted for as equity method investees. 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 and products with related parties in € THOUS
b) Lease agreements In addition to the above-mentioned product and service agreements, the Company is a party to real estate lease agreements with the Fresenius SE Companies, which mainly include leases for the Company’s corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany. The leases have maturities up to the end of 2029. Below is a summary resulting from the above described lease agreements with related parties. Lease agreements with related parties in € THOUS
c) 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 September 30, 2020 and December 31, 2019, the Company had accounts receivable from Fresenius SE related to short-term financing in the amount of €51,332 and €71,078, respectively. As of September 30, 2020, the Company did not have accounts payable to Fresenius SE related to short-term financing. As of December 31, 2019, the Company had accounts payable to Fresenius SE related to short-term financing in the amount of €38,050. The interest rates for these cash management arrangements are set on a daily basis and are based on the then-prevailing overnight reference rate, with a floor of zero, for the respective currencies. On August 19, 2009, the Company borrowed €1,500 from the General Partner on an unsecured basis at 1.335%. The loan repayment has been extended periodically and is currently due August 21, 2021 with an interest rate of 0.825%. On November 28, 2013, the Company borrowed an additional €1,500 with an interest rate of 1.875% from the General Partner. The loan repayment has been extended periodically and is currently due on November 23, 2020 with an interest rate of 0.930%. At September 30, 2020 and December 31, 2019, a subsidiary of Fresenius SE held unsecured bonds issued by the Company in the amount of €1,000 and €1,000, respectively. These bonds were issued in 2011 with a coupon of 5.25% and interest payable semiannually until maturity in 2021. At September 30, 2020 , the Company borrowed from Fresenius SE €82,900 on an unsecured basis at an interest rate of 0.825%. At December 31, 2019, the Company borrowed from Fresenius SE in the amount of €18,865 on an unsecured basis at an interest rate of 0.930%. For further information on this loan agreement, see note 5. d) Key management personnel Due to the Company’s legal form of a German partnership limited by shares, the General Partner holds a key management position within the Company. In addition, as key management personnel, members of the Management Board and the Supervisory Board, 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 Management Board. The aggregate amount reimbursed to the General Partner was €21,282 and €19,532 for its management services during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020 and December 31, 2019, the Company had accounts receivable from the General Partner in the amount of €2,130 and €977, respectively. As of September 30, 2020 and December 31, 2019, the Company had accounts payable to the General Partner in the amount of €51,267 and €34,170, respectively. |
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Inventories |
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| Inventories | 4. Inventories At September 30, 2020 and December 31, 2019, inventories consisted of the following: Inventories in € THOUS
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Short-term debt and short-term debt from related parties |
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| Short-term debt and short-term debt from related parties | 5. Short-term debt and short-term debt from related parties At September 30, 2020 and December 31, 2019, short-term debt and short-term debt from related parties consisted of the following: Short-term debt and short-term debt from related parties in € THOUS
The Company and certain consolidated entities operate a multi-currency notional pooling cash management system. The Company met the conditions to offset balances within this cash pool for reporting purposes. At September 30, 2020 and December 31, 2019, cash and borrowings under lines of credit in the amount of €1,195,698 and €152,598 were offset under this cash management system. Commercial paper program The Company maintains a commercial paper program under which short-term notes of up to €1,000,000 can be issued. At September 30, 2020, the outstanding commercial paper amounted to €261,000 (December 31, 2019: €1,000,000). Other At September 30, 2020, the Company had €40 (December 31, 2019: €6,381) of other debt outstanding related to fixed payments outstanding for acquisitions. Short-term debt from related parties On July 31, 2019, the Company and one of its subsidiaries, as borrowers, and Fresenius SE, as lender, amended and restated an unsecured loan agreement to increase the aggregate amount from $400,000 to €600,000. The Company and one of its subsidiaries may request and receive one or more short-term advances until maturity on July 31, 2022. For further information on short-term debt from related parties, see note 3 c). |
Long-term debt |
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| Long-term debt | 6. Long-term debt As of September 30, 2020 and December 31, 2019, long-term debt consisted of the following: Long-term debt in € THOUS
On May 29, 2020, the Company issued bonds in two tranches with an aggregate principal amount of €1,250,000 under the European Medium-Term Notes Program:
On September 16, 2020, Fresenius Medical Care US Finance III, Inc. issued bonds with a volume of $1,000,000. The bonds have a maturity of 10 years and 5 months and a coupon of 2.375%. The bonds were issued at a price of 99.699%. The proceeds will be used for general corporate purposes, including the refinancing of outstanding indebtedness. The bonds issued by Fresenius Medical Care US Finance II, Inc. in the amount of $500,000 which were due on October 15, 2020, were redeemed prior to maturity on July 17, 2020. Amended 2012 Credit Agreement The following table shows the available and outstanding amounts under the Amended 2012 Credit Agreement at September 30, 2020 and December 31, 2019: Amended 2012 Credit Agreement - Maximum amount available and balance outstanding in THOUS
Accounts Receivable Facility The following table shows the available and outstanding amounts under the Accounts Receivable Facility at September 30, 2020 and at December 31, 2019: Accounts Receivable Facility - Maximum amount available and balance outstanding in THOUS
The Company also had letters of credit outstanding under the Accounts Receivable Facility in the amount of $12,522 and $23,460 (€10,695 and €20,883) at September 30, 2020 and December 31, 2019, respectively. These letters of credit are not included above as part of the balance outstanding at September 30, 2020 and December 31, 2019; however, they reduce available borrowings under the Accounts Receivable Facility. |
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| Capital management | 7. Capital management As of September 30, 2020 and December 31, 2019 total equity in percent of total assets was 38.3% and 40.2%, respectively, and debt and lease liabilities in percent of total assets was 39.5% and 41.8%, respectively. The Company’s financing structure and business model are reflected in the investment grade ratings. The Company is covered and rated investment grade by the three leading rating agencies, Moody’s, Standard & Poor’s and Fitch. Rating (1)
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Commitments and contingencies |
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| Commitments and contingencies | |
| Commitments and contingencies | 8. Commitments and contingencies Legal and regulatory matters The Company is routinely involved in 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 health care services and products. Legal matters that the Company currently deems to be material or noteworthy are described below. The Company records its litigation reserves for certain legal proceedings and regulatory matters to the extent that the Company determines an unfavorable outcome is probable and the amount of loss can be reasonably estimated. 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 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. Beginning in 2012, the Company received certain communications alleging conduct in countries outside the United States that might violate the Foreign Corrupt Practices Act or other anti-bribery laws. The Company conducted investigations with the assistance of outside counsel and, in a continuing dialogue, advised the Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) about these investigations. The DOJ and the SEC also conducted their own investigations, in which the Company cooperated. In the course of this dialogue, the Company identified and reported to the DOJ and the SEC, and took remedial actions with respect to, conduct that resulted in the DOJ and the SEC seeking monetary penalties including disgorgement of profits and other remedies. This conduct revolved principally around the Company's products business in countries outside the United States. The Company recorded charges of €200,000 in 2017 and €77,200 in 2018 encompassing estimates for the claims from the DOJ and the SEC for profit disgorgement, penalties, certain legal expenses, and other related costs or asset impairments believed likely to be necessary for full and final resolution, by litigation or settlement, of the claims and issues arising from the investigation. The increase recorded in 2018 took into consideration preliminary understandings with the DOJ and the SEC on the financial terms of a potential settlement. Following this increase, which takes into account incurred and anticipated legal expenses, impairments and other costs, the provision totaled €223,980 as of December 31, 2018. On March 29, 2019, the Company entered into a non-prosecution agreement with the DOJ and a separate agreement with the SEC intended to resolve fully and finally the claims against the Company arising from the investigations. The Company paid a combined total in penalties and disgorgement of approximately $231,700 to the DOJ and the SEC in connection with these agreements. The entire amount paid to the DOJ and the SEC was reserved for in charges that the Company recorded in 2017 and 2018 and announced in 2018. As part of the settlement, the Company agreed to retain an independent compliance monitor for a period of at least two years and to an additional year of self-reporting. As of July 26, 2019, the monitor was appointed and the monitorship period commenced. In 2015, the Company self-reported to the German prosecutor conduct with a potential nexus to Germany and continues to cooperate with government authorities in Germany in their review of the conduct that prompted the Company's and United States government investigations. Since 2012, the Company has made and continues to make further significant investments in its compliance and financial controls and in its compliance, legal and financial organizations. The Company's remedial actions included separation from those employees responsible for the above-mentioned conduct. The Company is dealing with post-FCPA review matters on various levels. The Company continues to be fully committed to compliance with the FCPA and other applicable anti-bribery laws. Personal injury and related litigation, including litigation by certain state government agencies, involving FMCH's acid concentrate product, labeled as Granuflo® or Naturalyte®, first arose in 2012. The matters remaining after judicial decisions favorable to FMCH and settlements, including most significantly the settlement in the federal multi-district personal injury litigation consummated in November 2017, do not present material risk. Accordingly, specific reporting on these matters has been discontinued. FMCH's insurers agreed to the settlement of the acid concentrate personal injury litigation and funded $220,000 of the settlement fund under a reciprocal reservation of rights. FMCH accrued a net expense of $60,000 in connection with the settlement, including legal fees and other anticipated costs. Following the settlement, FMCH's insurers in the AIG group initiated litigation against FMCH seeking to be indemnified by FMCH for their $220,000 outlay and FMCH initiated litigation against the AIG group to recover defense and indemnification costs FMCH had borne. National Union Fire Insurance v. Fresenius Medical Care, 2016 Index No. 653108 (Supreme Court of New York for New York County)). Discovery in the litigation is largely complete. The AIG group abandoned certain of its coverage claims and submitted expert reports on damages asserting that, if AIG prevails on all its remaining claims, it should recover $60,000. FMCH contests all of AIG’s claims and submitted expert reports supporting rights to recover $108,000 from AIG, in addition to the $220,000 already funded. A trial date has not been set in the matter. In August 2014, FMCH received a subpoena from the United States Attorney’s Office (“USAO”) for the District of Maryland inquiring into FMCH's contractual arrangements with hospitals and physicians involving contracts relating to the management of in-patient acute dialysis services. On August 27, 2020, after the USAO declined to pursue the matter by intervening, the United States District Court for Maryland unsealed a 2014 relator’s qui tam complaint that gave rise to the investigation. United States ex rel. Martin Flanagan v. Fresenius Medical Care Holdings, Inc., 2014 Civ. 00665 (D. Maryland). The relator may serve the complaint and proceed with litigation at his own expense, but to date has not done so. The time period allowed for service has not expired. In July 2015, the Attorney General for Hawaii issued a civil complaint under the Hawaii False Claims Act alleging a conspiracy pursuant to which certain Liberty Dialysis subsidiaries of FMCH overbilled Hawaii Medicaid for Liberty's Epogen® administrations to Hawaii Medicaid patients during the period from 2006 through 2010, prior to the time of FMCH's acquisition of Liberty. Hawaii v. Liberty Dialysis—Hawaii, LLC et al., Case No. 15-1-1357-07 (Hawaii 1st Circuit). The State alleges that Liberty acted unlawfully by relying on incorrect and unauthorized billing guidance provided to Liberty by Xerox State Healthcare LLC, which acted as Hawaii's contracted administrator for its Medicaid program reimbursement operations during the relevant period. With discovery concluded, the State has specified that its demands for relief relate to $7,700 in overpayments on approximately twenty thousand “claims” submitted by Liberty. After prevailing on motions by Xerox to preclude it from doing so, FMCH is pursuing third-party claims for contribution and indemnification against Xerox. The State's False Claims Act complaint was filed after Liberty initiated an administrative action challenging the State's recoupment of alleged overpayments from sums currently owed to Liberty. The civil litigation and administrative action are proceeding in parallel. Trial in the civil litigation is scheduled for March 8, 2021. On August 31, 2015, FMCH received a subpoena under the False Claims Act from the United States Attorney for the District of Colorado (Denver) inquiring into FMCH’s participation in and management of dialysis facility joint ventures in which physicians are partners. FMCH continues to cooperate in the Denver USAO investigation, which has come to focus on purchases and sales of minority interests in ongoing outpatient facilities between FMCH and physician groups. On November 25, 2015, FMCH received a subpoena under the False Claims Act from the United States Attorney for the Eastern District of New York (Brooklyn) also inquiring into FMCH’s involvement in certain dialysis facility joint ventures in New York. On September 26, 2018, the Brooklyn USAO declined to intervene on the qui tam complaint filed under seal in 2014 that gave rise to this investigation. CKD Project LLC v. Fresenius Medical Care, 2014 Civ. 06646 (E.D.N.Y. November 12, 2014). The court unsealed the complaint, allowing the relator to serve and proceed on its own. The relator—a special-purpose entity formed by law firms to pursue qui tam proceedings—has served its complaint and litigation is proceeding. Beginning October 6, 2015, the United States Attorney for the Eastern District of New York (Brooklyn) has led an investigation, through subpoenas issued under the False Claims Act, of utilization and invoicing by FMCH’s subsidiary Azura Vascular Care for a period beginning after FMCH’s acquisition of American Access Care LLC ("AAC") in October 2011. FMCH is cooperating in the Brooklyn USAO investigation. The Brooklyn USAO has indicated that its investigation is nationwide in scope and is focused on whether certain access procedures performed at Azura facilities were medically unnecessary and whether certain physician assistants employed by Azura exceeded their permissible scope of practice. Allegations against AAC arising in districts in Connecticut, Florida and Rhode Island relating to utilization and invoicing were settled in 2015. On June 30, 2016, FMCH received a subpoena from the United States Attorney for the Northern District of Texas (Dallas) seeking information under the False Claims Act about the use and management of pharmaceuticals including Velphoro(R). The investigation encompasses DaVita, Amgen, Sanofi, and other pharmaceutical manufacturers and includes inquiries into whether certain compensation transfers between manufacturers and pharmacy vendors constituted unlawful kickbacks. FMCH understands that this investigation is substantively independent of the $63,700 settlement by DaVita Rx announced on December 14, 2017 in the matter styled United States ex rel. Gallian v. DaVita Rx, 2016 Civ. 0943 (N.D. Tex.). FMCH has cooperated in the investigation. On November 18, 2016, FMCH received a subpoena under the False Claims Act from the United States Attorney for the Eastern District of New York (Brooklyn) seeking documents and information relating to the operations of Shiel Medical Laboratory, Inc. ("Shiel"), which FMCH acquired in October 2013. In the course of cooperating in the investigation and preparing to respond to the subpoena, FMCH identified falsifications and misrepresentations in documents submitted by a Shiel salesperson that relate to the integrity of certain invoices submitted by Shiel for laboratory testing for patients in long term care facilities. On February 21, 2017, FMCH terminated the employee and notified the United States Attorney of the termination and its circumstances. The terminated employee’s conduct is expected to result in demands for FMCH to refund overpayments and to pay related penalties under applicable laws, but the monetary value of such payment demands cannot yet be reasonably estimated. FMCH contends that, under the asset sale provisions of its 2013 Shiel acquisition, it is not responsible for misconduct by the terminated employee or other Shiel employees prior to the date of the acquisition. The Brooklyn USAO continues to investigate a range of issues involving Shiel, including allegations of improper compensation (kickbacks) to physicians, and has disclosed that multiple sealed qui tam complaints underlie the investigation. On December 12, 2017, FMCH sold to Quest Diagnostics certain Shiel operations that are the subject of this Brooklyn subpoena, including the misconduct reported to the United States Attorney. Under the Quest Diagnostics sale agreement, FMCH retains responsibility for responding to the Brooklyn investigation and for liabilities arising from conduct occurring after its 2013 acquisition of Shiel and prior to its sale of Shiel to Quest Diagnostics. FMCH is cooperating in the investigation. On December 14, 2016, CMS, which administers the federal Medicare program, published an Interim Final Rule ("IFR") titled "Medicare Program; Conditions for Coverage for End-Stage Renal Disease Facilities-Third Party Payment." The IFR would have amended the Conditions for Coverage for dialysis providers, like FMCH and would have effectively enabled insurers to reject premium payments made by or on behalf of patients who received grants for individual market coverage from the American Kidney Fund ("AKF" or "the Fund"). The IFR could thus have resulted in those patients losing individual insurance market coverage. The loss of coverage for these patients would have had a material and adverse impact on the operating results of FMCH. On January 25, 2017, a federal district court in Texas responsible for litigation initiated by a patient advocacy group and dialysis providers including FMCH preliminarily enjoined CMS from implementing the IFR. Dialysis Patient Citizens v. Burwell, 2017 Civ. 0016 (E.D. Texas, Sherman Div.). The preliminary injunction was based on CMS’s failure to follow appropriate notice-and-comment procedures in adopting the IFR. The injunction remains in place and the court retains jurisdiction over the dispute. On June 22, 2017, CMS requested a stay of proceedings in the litigation pending further rulemaking concerning the IFR. CMS stated, in support of its request, that it expects to publish a Notice of Proposed Rulemaking in the Federal Register and otherwise pursue a notice-and-comment process. Plaintiffs in the litigation, including FMCH, consented to the stay, which was granted by the court on June 27, 2017. On January 3, 2017, FMCH received a subpoena from the United States Attorney for the District of Massachusetts under the False Claims Act inquiring into FMCH's interactions and relationships with the AKF, including FMCH's charitable contributions to the Fund and the Fund's financial assistance to patients for insurance premiums. Thereafter, FMCH cooperated in the investigation, the USAO declined to intervene in the relator’s qui tam complaint that gave rise to the subpoena. On July 17, 2020, the relator filed a notice of dismissal without serving his complaint or otherwise pursuing his allegations and the court thereafter closed the case. On April 8, 2019, United Healthcare initiated arbitration against FMCH alleging that FMCH unlawfully "steered" patients by waiving co-payments and other means away from coverage under government-funded insurance plans including Medicare into United Healthcare's commercial plans, including Affordable Care Act exchange plans. FMCH denied and contested United’s claims. On September 16, 2020, FMCH and United entered a settlement agreement requiring (1) certain amendments to contracts between United and FMCH governing terms and conditions for dialysis treatments to be performed by FMCH for United beneficiaries and (2) dismissal of the arbitrations with each party to bear its own costs and expenses. In early May 2017, the United States Attorney for the Middle District of Tennessee (Nashville) issued identical subpoenas to FMCH and two subsidiaries under the False Claims Act concerning FMCH’s retail pharmaceutical business. The investigation is exploring allegations related to improper inducements to dialysis patients to fill oral prescriptions through FMCH’s pharmacy service, improper billing for returned pharmacy products and other allegations similar to those underlying the $63,700 settlement by DaVita Rx in Texas announced on December 14, 2017. United States ex rel. Gallian, 2016 Civ. 00943 (N.D. Tex.). FMCH is cooperating in the investigation. On March 12, 2018, Vifor Fresenius Medical Care Renal Pharma Ltd. and Vifor Fresenius Medical Care Renal Pharma France S.A.S. (collectively, “VFMCRP”) (the joint venture between Vifor Pharma and FMC-AG & Co. KGaA), filed a complaint for patent infringement against Lupin Atlantis Holdings SA and Lupin Pharmaceuticals Inc. (collectively, “Lupin”), and Teva Pharmaceuticals USA, Inc. (“Teva”) in the U.S. District Court for the District of Delaware (Case 1:18-cv-00390-MN). The patent infringement action is in response to Lupin and Teva’s filings of Abbreviated New Drug Applications ("ANDA") with the U.S. Food and Drug Administration ("FDA") for generic versions of Velphoro®. Velphoro® is protected by patents listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. The complaint was filed within the 45-day period provided for under the Hatch-Waxman legislation, and triggered a stay of FDA approval of the ANDAs for 30 months (specifically, up to July 29, 2020 for Lupin’s ANDA; and August 6, 2020 for Teva’s ANDA. In response to another ANDA being filed for a generic Velphoro®, VFMCRP filed a complaint for patent infringement against Annora Pharma Private Ltd., and Hetero Labs Ltd. (collectively, “Annora”), in the U.S. District Court for the District of Delaware on December 17, 2018. The case was settled among the parties, thus terminating the court action on August 4, 2020. On May 26, 2020, VFMCRP filed a further complaint for patent infringement against Lupin in the U.S. District Court for the District of Delaware (Case No. 1:20-cv-00697-MN) in response to Lupin’s ANDA for a generic version of Velphoro® and on the basis of a newly listed patent in the Orange Book. On July 6, 2020, VFMCRP filed an additional complaint for patent infringement against Lupin and Teva in the U.S. District Court for the District of Delaware (Case No. 1:20-cv-00911-MN) in response to the companies’ ANDA for generic versions of Velphoro® and on the basis of two newly listed patents in the Orange Book. On December 17, 2018, FMCH was served with a subpoena under the False Claims Act from the United States Attorney for the District of Colorado (Denver) as part of an investigation of allegations against DaVita, Inc. involving transactions between FMCH and DaVita. The subject transactions include sales and purchases of dialysis facilities, dialysis-related products and pharmaceuticals, including dialysis machines and dialyzers, and contracts for certain administrative services. FMCH is cooperating in the investigation. On June 28, 2019, certain FMCH subsidiaries filed a complaint against the United States seeking to recover monies owed to them by the United States Department of Defense under the Tricare program, and to preclude Tricare from recouping monies previously paid. Bio-Medical Applications of Georgia, Inc., et al. v. United States, CA 19‑947, United States Court of Federal Claims. Tricare provides reimbursement for dialysis treatments and other medical care provided to members of the military services, their dependents and retirees. The litigation challenges unpublished administrative actions by Tricare administrators reducing the rate of compensation paid for dialysis treatments provided to Tricare beneficiaries based on a recasting or “crosswalking” of codes used and followed in invoicing without objection for many years. Tricare administrators have acknowledged the unpublished administrative action and declined to change or abandon it. On July 8, 2020, the U.S. government filed its answer (and confirmed their position). The parties will proceed to discovery. The court has not yet set a date for trial in this matter. FMCH has imposed a constraint on revenue otherwise recognized from the Tricare program that it believes, in consideration of facts currently known, sufficient to account for the risk of this litigation. On May 22, 2020, CMS issued a final rule that, effective January 1, 2021, removes outpatient dialysis facilities from the time-and-distance standards applicable under the network adequacy rules for Medicare Advantage plans. On June 22, 2020, Dialysis Patient Citizens, a charitable patient advocacy organization, filed a lawsuit on behalf of all dialysis patients to challenge that rule, and on July 13, 2020, FMCH along with two other dialysis providers joined the lawsuit. Dialysis Patient Citizens, et al. v. Alex Azar, et al., U.S.D.C. D.C, 1:20-cv-01664. The plaintiffs' request for relief is that the provisions in this final rule regarding outpatient dialysis facilities be vacated and that CMS be enjoined from enforcing or administering those provisions. On August 21, 2020, FMCH was served with a subpoena from the United States Attorney for the District of Massachusetts requesting information and documents related to urgent care centers that FMCH owned, operated, or controlled as part of its ChoiceOne and Medspring urgent care operations prior to its divestiture of and exit from that line of business in 2018. The subpoena appears to be related to an ongoing investigation of alleged upcoding in the urgent care industry, which has resulted in certain published settlements under the federal False Claims Act. FMCH is cooperating in the investigation. 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 health care providers, insurance plans and suppliers, 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, dialysis clinics and other health care facilities, 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 one pending FDA warning letter. 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, the federal Civil Monetary Penalties 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 whistleblower 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 whistleblower actions, which are initially filed under court seal. The Company operates many facilities and handles the personal data ("PD") of its patients and beneficiaries throughout the United States and other parts of the world and engages with other business associates to help it carry out its health care activities. 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 and its business associates. On occasion, the Company or its business associates may experience a breach under the Health Insurance Portability and Accountability Act Privacy Rule and Security Rules, the EU’s General Data Protection Regulation and or other similar laws ("Data Protection Laws") when there has been impermissible use, access, or disclosure of unsecured PD or when the Company or its business associates neglect to implement the required administrative, technical and physical safeguards of its electronic systems and devices, or a data breach that results in impermissible use, access or disclosure of personal identifying information of its employees, patients and beneficiaries. On those occasions, the Company must comply with applicable breach notification requirements. 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 its 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, Data Protection Laws, the Health Information Technology for Economic and Clinical Health Act and the Foreign Corrupt Practices Act, among other laws and comparable state laws or laws of other countries. Physicians, hospitals and other participants in the health care industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker’s compensation or related claims, many of which involve large claims and significant defense costs. The Company has been 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 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. In Germany, the tax audits for the years 2006 through 2009 have been substantially completed. The German tax authorities have indicated a re-qualification of dividends received in connection with intercompany mandatorily redeemable preferred shares into fully taxable interest payments for these and subsequent years until 2013. The Company has defended its position and will avail itself of appropriate remedies. The Company is also subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions in the ordinary course of business. Tax authorities routinely pursue adjustments to the Company’s tax returns and disallowances of claimed tax deductions. When appropriate, the Company defends these adjustments and disallowances and asserts its own claims. A successful tax related claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition and results of operations. Other than those individual contingent liabilities mentioned above, the current estimated amount of the Company’s other known individual contingent liabilities is immaterial.
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| Financial instruments | 9. Financial instruments The following tables show the carrying amounts and fair values of the Company’s financial instruments at September 30, 2020 and December 31, 2019: Carrying amount and fair value of financial instruments in € THOUS
Carrying amount and fair value of financial instruments in € THOUS
Derivative and non-derivative financial instruments are categorised in the following three-tier fair value hierarchy that reflects the significance of the inputs in making the measurements. Level 1 is defined as observable inputs, such as quoted prices in active markets. Level 2 is defined as inputs other than quoted prices in active markets that are directly or indirectly observable. Level 3 is defined as unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions. Fair value information is not provided for financial instruments, if the carrying amount is a reasonable estimate of fair value due to the relatively short period of maturity of these instruments. Transfers between levels of the fair value hierarchy have not occurred as of September 30, 2020 and December 31, 2019. The Company accounts for transfers at the end of the reporting period. Derivative financial instruments In order to manage the risk of currency exchange rate fluctuations and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions. The Company primarily enters into foreign exchange forward contracts and interest rate swaps. Derivative contracts that do not qualify for hedge accounting are utilized for economic purposes. The Company does not use financial instruments for trading purposes. Non-derivative financial instruments The significant methods and assumptions used for the classification and measurement of non-derivative financial instruments are as follows: The Company assessed its business models and the cash flow characteristics of its financial assets. The vast majority of the non-derivative financial assets are held in order to collect the contractual cash flows. The contractual terms of the financial assets allow the conclusion that the cash flows represent payment of principle and interest only. Trade accounts and other receivables, Accounts receivable from related parties and Other financial assets are consequently measured at amortized cost. Cash and cash equivalents are comprised of cash funds and other short-term investments. Cash funds are measured at amortized cost. Short-term investments are highly liquid and readily convertible to known amounts of cash. Short-term investments are measured at fair value through profit or loss (“FVPL”). The risk of changes in fair value is insignificant. Equity investments are not held for trading. At initial recognition the Company elected, on an instrument-by-instrument basis, to represent subsequent changes in the fair value of individual strategic investments in OCI. If equity instruments are quoted in an active market, the fair value is based on price quotations at the period-end-date. From time to time the Company engages external valuation firms to determine the fair value of Level 3 equity investments. The external valuation uses a discounted cash flow model, which includes significant unobservable inputs such as investment specific forecasted financial statements, weighted average cost of capital, that reflects current market assessments as well as a terminal growth rate. The majority of the debt securities are held within a business model whose objective is achieving both contractual cash flows and sell the securities. The standard coupon bonds give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding principal amount. Subsequently these financial assets have been classified as fair value through other comprehensive income (“FVOCI”). The smaller part of debt securities does not give rise to cash flows that are solely payments of principle and interest. Consequently, these securities are measured at FVPL. In general, most of the debt securities are quoted in an active market. Long-term debt is recognized at its carrying amount. The fair values of major long-term debt are calculated on the basis of market information. Liabilities for which market quotes are available are measured using these quotes. The fair values of the other long-term debt 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. Variable payments outstanding for acquisitions are recognized at their fair value. The estimation of the individual fair values is based on the key inputs of the arrangement that determine the future contingent payment as well as the Company’s expectation of these factors. The Company assesses the likelihood and timing of achieving the relevant objectives. The underlying assumptions are reviewed regularly. Noncontrolling interests subject to put provisions are recognized at the present value of the exercise price of the option. The exercise price of the option is generally based on fair value. The methodology the Company uses to estimate the fair values 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. From time to time the Company engages external valuation firms for the valuation of the put provisions. The external valuation estimates the fair values using a combination of discounted cash flows and a multiple of earnings and/or revenue. When applicable, the obligations are discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate, and the discounted cash flows as well as the implicit multiple of earnings and/or revenue at which these noncontrolling interest obligations may ultimately be settled could vary significantly from the Company’s current estimates depending upon market conditions. For the purpose of analyzing the impact of changes in unobservable inputs on the fair value measurement of noncontrolling interest subject to put provisions, the Company assumes an increase on earnings of 10% compared to the actual estimation as of the balance sheet date. The corresponding increase in fair value of €66,795 is then compared to the total liabilities and the shareholder’s equity of the Company. This analysis shows that an increase of 10% in the relevant earnings would have an effect of less than 1% on the total liabilities and less than 1% on the shareholder’s equity of the Company. Following is a roll forward of Level 3 financial instruments at September 30, 2020 and December 31, 2019: Reconciliation from beginning to ending balance of level 3 financial instruments in € THOUS
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Segment and corporate information |
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| Segment and corporate information | 10. Segment and corporate information The Company’s operating segments are the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment. The operating segments are determined based upon how the Company manages its businesses with geographical responsibilities. All segments are primarily engaged in providing health care services and the distribution of products and equipment for the treatment of ESRD and other extracorporeal therapies. 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 measures are revenue, operating income and operating income margin. The Company does not include income taxes as it believes taxes are 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, because the Company believes that these costs are also not within the control of the individual segments. Production of products, production asset management, quality and supply chain management as well as procurement related to production are centrally managed. Products transferred to the segments are transferred at cost; therefore, no internal profit is generated. The associated internal revenue 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. The Company’s global research and development as well as its Global Medical Office (as of January 1, 2020), which seeks to standardize medical treatments and clinical processes within the Company, are also centrally managed. These corporate activities (“Corporate”) do not fulfill the definition of a segment according to IFRS 8, Operating Segments. In addition, certain revenues, investments and intangible assets, as well as any related expenses, are not allocated to a segment but are accounted for as Corporate. Information pertaining to the Company’s segment and Corporate activities for the nine months ended September 30, 2020 and 2019 is set forth below:
Segment and corporate information in € THOUS
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Events occurring after the balance sheet date |
9 Months Ended |
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Sep. 30, 2020 | |
| Events occurring after the balance sheet date | |
| Events occurring after the balance sheet date | 11. Events occurring after the balance sheet date No significant activities have taken place subsequent to the balance sheet date September 30, 2020 that have a material impact on the key figures and earnings presented. Currently, there are no significant changes in the Company’s structure, management, legal form or personnel. |
The Company and basis of presentation (Policies) |
9 Months Ended |
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Sep. 30, 2020 | |
| The Company and basis of presentation | |
| Accounting policies and methods of computation followed in interim financial statements | The consolidated financial statements and other financial information included in the Company’s quarterly reports furnished under cover of Form 6-K and its Annual Report on Form 20-F are prepared solely in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), using the euro as the Company's reporting currency. The quarterly financial report is prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, and contains condensed financial statements, in that it does not include all of the notes that would be required in a complete set of financial statements, but rather selected explanatory notes. However, the primary financial statements are presented in the format consistent with the consolidated financial statements as presented in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 (the "2019 Form 20-F") in accordance with IAS 1, Presentation of Financial Statements. |
Notes to the consolidated statements of income (Tables) |
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| Schedule of revenue |
Revenue in € THOUS
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| Schedule of reconciliation of basic and diluted earnings per share |
Reconciliation of basic and diluted earnings per share in € THOUS, except share and per share data
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| Schedule of number of shares acquired in the context of the buy-back programs as well as the repurchased treasury stock |
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| Schedule that shows the amounts by which the key assumptions would need to change individually that the recoverable amount equals the carrying amount |
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Related party transactions (Tables) |
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| Related party transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of service agreements and products with related parties |
Service agreements and products with related parties in € THOUS
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| Schedule of lease agreements with related parties |
Lease agreements with related parties in € THOUS
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Inventories (Tables) |
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Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of inventories | Inventories in € THOUS
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Short-term debt and short-term debt from related parties (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Short-term debt and short-term debt from related parties | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of short-term debt and short-term debt from related parties | Short-term debt and short-term debt from related parties in € THOUS
|
Long-term debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of long-term debt | As of September 30, 2020 and December 31, 2019, long-term debt consisted of the following: Long-term debt in € THOUS
|
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| Schedule of available and outstanding amounts under the Amended 2012 Credit Agreement |
Amended 2012 Credit Agreement - Maximum amount available and balance outstanding in THOUS
|
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| Schedule of accounts receivable facility |
Accounts Receivable Facility - Maximum amount available and balance outstanding in THOUS
|
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Capital management (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||
| Capital management | ||||||||||||||||||||||||||||||||||||
| Schedule of Company's rating |
Rating (1)
A rating is not a recommendation to buy, sell or hold securities of the Company, and may be subject to suspension, change or withdrawal at any time by the assigning rating agency. |
Financial instruments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of carrying amount and fair value of financial instruments |
Carrying amount and fair value of financial instruments in € THOUS
Carrying amount and fair value of financial instruments in € THOUS
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| Schedule of reconciliation of level 3 financial instruments | Reconciliation from beginning to ending balance of level 3 financial instruments in € THOUS
|
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Segment and corporate information (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment and corporate information | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment and corporate information |
Segment and corporate information in € THOUS
|
Notes to the consolidated statements of income - Revenue (Details) - EUR (€) € in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Revenue | ||||
| Dialysis services | € 3,099,844 | € 3,155,050 | € 9,522,094 | € 9,232,698 |
| Care Coordination | 399,593 | 337,266 | 1,185,875 | 1,032,123 |
| Health care services | 3,499,437 | 3,492,316 | 10,707,969 | 10,264,821 |
| Dialysis products | 890,603 | 906,877 | 2,675,326 | 2,576,018 |
| Non-dialysis products | 23,728 | 19,810 | 75,614 | 55,753 |
| Health care products | 914,331 | 926,687 | 2,750,940 | 2,631,771 |
| Total | 4,413,768 | 4,419,003 | 13,458,909 | 12,896,592 |
| Revenue from contracts with customers | ||||
| Revenue | ||||
| Dialysis services | 3,099,844 | 3,155,050 | 9,522,094 | 9,232,698 |
| Care Coordination | 327,560 | 271,307 | 955,851 | 849,788 |
| Health care services | 3,427,404 | 3,426,357 | 10,477,945 | 10,082,486 |
| Dialysis products | 866,144 | 877,008 | 2,599,606 | 2,479,262 |
| Non-dialysis products | 23,728 | 19,810 | 75,614 | 55,753 |
| Health care products | 889,872 | 896,818 | 2,675,220 | 2,535,015 |
| Total | 4,317,276 | 4,323,175 | 13,153,165 | 12,617,501 |
| Other revenue | ||||
| Revenue | ||||
| Care Coordination | 72,033 | 65,959 | 230,024 | 182,335 |
| Health care services | 72,033 | 65,959 | 230,024 | 182,335 |
| Dialysis products | 24,459 | 29,869 | 75,720 | 96,756 |
| Health care products | 24,459 | 29,869 | 75,720 | 96,756 |
| Total | € 96,492 | € 95,828 | € 305,744 | € 279,091 |
Notes to the consolidated statements of income - Research and development expenses (Details) - EUR (€) € in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Detailed information on intangible assets | ||||
| Research and development expense | € 44,923 | € 42,197 | € 141,346 | € 119,178 |
| Depreciation and amortisation expense | € 396,179 | € 409,285 | 1,200,726 | 1,158,662 |
| Capitalized development costs | ||||
| Detailed information on intangible assets | ||||
| Depreciation and amortisation expense | € 3,777 | € 1,795 | ||
Notes to the consolidated statements of income - Earnings per share (Details) - EUR (€) € / shares in Units, € in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Numerators: | ||||
| Net income attributable to shareholders of FMC-AG & Co. KGaA | € 353,502 | € 332,584 | € 987,193 | € 857,113 |
| Denominators: | ||||
| Weighted average number of shares outstanding | 292,817,296 | 301,440,412 | 294,458,296 | 303,832,868 |
| Potentially dilutive shares | 251,979 | 230,751 | 83,518 | |
| Basic earnings per share | € 1.21 | € 1.10 | € 3.35 | € 2.82 |
| Diluted earnings per share | € 1.21 | € 1.10 | € 3.35 | € 2.82 |
Notes to the consolidated statements of income - Treasury stock (Details) - EUR (€) € / shares in Units, € in Thousands |
1 Months Ended | 3 Months Ended | 7 Months Ended | 9 Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 30, 2020 |
Mar. 31, 2020 |
Feb. 29, 2020 |
Jan. 31, 2020 |
Dec. 31, 2019 |
Nov. 30, 2019 |
Oct. 31, 2019 |
Sep. 30, 2019 |
Aug. 31, 2019 |
Jul. 31, 2019 |
Jun. 30, 2019 |
May 31, 2019 |
Apr. 30, 2019 |
Mar. 31, 2019 |
May 31, 2019 |
Dec. 31, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Jun. 14, 2019 |
Dec. 31, 2018 |
|
| Treasury stock | ||||||||||||||||||||
| Maximum number of shares allowed to be repurchased (in shares) | 12,000,000 | |||||||||||||||||||
| Maximum purchase price of shares to be repurchased | € 660,000 | |||||||||||||||||||
| Value of treasury shares held | € 370,502 | € 370,502 | € 736,490 | |||||||||||||||||
| Value of shares repurchased | € 365,988 | € 457,908 | ||||||||||||||||||
| Treasury stock | ||||||||||||||||||||
| Treasury stock | ||||||||||||||||||||
| Average price per share, at date | € 60.66 | € 60.66 | € 62.44 | € 51.00 | ||||||||||||||||
| Average price paid per repurchased share, during period | € 63.07 | € 63.05 | € 249.10 | € 84.37 | € 63.85 | € 64.78 | € 57.85 | € 59.67 | € 57.53 | € 66.77 | € 67.11 | € 72.97 | € 72.83 | € 69.86 | € 71.55 | € 62.55 | € 64.35 | |||
| Average price per retired share, during period | € 71.55 | |||||||||||||||||||
| Number of treasury shares held | 6,107,629 | 6,107,629 | 11,795,102 | 999,951 | ||||||||||||||||
| Number of shares repurchased | 694,813 | 4,842,943 | 25,319 | 124,398 | 564,908 | 852,859 | 692,910 | 627,466 | 835,208 | 1,029,655 | 504,672 | 147,558 | 1,993,974 | 1,629,240 | 3,770,772 | 5,107,678 | 5,687,473 | 6,767,773 | ||
| Number of shares retired | 3,770,772 | 3,770,772 | ||||||||||||||||||
| Value of treasury shares held | € 370,502 | € 370,502 | € 736,490 | € 50,993 | ||||||||||||||||
| Value of shares repurchased | € 43,824 | € 305,362 | € 6,307 | € 10,495 | € 36,067 | € 55,245 | € 40,084 | € 37,445 | € 48,050 | € 68,748 | € 33,870 | € 10,766 | € 145,214 | € 113,816 | € 269,796 | € 319,509 | € 365,988 | € 457,908 | ||
| Value of shares retired | € 269,796 | € 269,796 | ||||||||||||||||||
| Fees (net of taxes) paid, included in value of shares repurchased | € 11 | |||||||||||||||||||
Notes to the consolidated statements of income - Impacts of severe acute respiratory syndrome coronavirus 2 ("COVID-19") (Details) - 9 months ended Sep. 30, 2020 € in Thousands, $ in Thousands |
USD ($) |
EUR (€) |
|---|---|---|
| Disclosure of grants | ||
| Reimbursement payments and funding | € 224,449 | |
| CARES Act | ||
| Disclosure of grants | ||
| Amount of fund received | $ 284,900 | 253,238 |
| CMS Accelerated and Advance Payment program | ||
| Disclosure of grants | ||
| Contract liabilities | € 896,642 |
Related party transactions - Service agreements and products - General (Details) - EUR (€) € in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Vifor Fresenius Medical Care Renal Pharma Ltd. | ||
| Related party transactions | ||
| Ownership in joint venture (as a percent) | 45.00% | |
| Fresenius SE | ||
| Related party transactions | ||
| Proportion of ownership interest in reporting entity (as a percent) | 32.23% | |
| Fresenius SE | Manufacturing of infusion bags | ||
| Related party transactions | ||
| Term of related party agreement | 10 years | |
| Purchase of machinery | € 108 | € 3,853 |
| Fresenius SE Companies | Minimum | ||
| Related party transactions | ||
| Term of related party agreement | 1 year | |
| Fresenius SE Companies | Maximum | ||
| Related party transactions | ||
| Term of related party agreement | 5 years | |
Related party transactions - Lease Agreements - Summary (Details) - EUR (€) € in Thousands |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
|
| Leases balances | |||
| Right-of-use asset | € 4,264,007 | € 4,325,115 | |
| Lease Agreements | |||
| Lease Transactions | |||
| Depreciation | 15,979 | € 13,004 | |
| Interest expense | 1,528 | 1,397 | |
| Lease expense | 890 | 3,207 | |
| Leases balances | |||
| Right-of-use asset | 144,415 | 122,215 | |
| Lease liability | 146,031 | 122,946 | |
| Fresenius SE | Lease Agreements | |||
| Lease Transactions | |||
| Depreciation | 6,033 | 3,620 | |
| Interest expense | 556 | 342 | |
| Lease expense | 627 | 2,815 | |
| Leases balances | |||
| Right-of-use asset | 60,932 | 30,336 | |
| Lease liability | 61,397 | 30,820 | |
| Fresenius SE affiliates | Lease Agreements | |||
| Lease Transactions | |||
| Depreciation | 9,946 | 9,384 | |
| Interest expense | 972 | 1,055 | |
| Lease expense | 263 | € 392 | |
| Leases balances | |||
| Right-of-use asset | 83,483 | 91,879 | |
| Lease liability | € 84,634 | € 92,126 | |
Related party transactions - Financing (Details) - EUR (€) € in Thousands |
Nov. 28, 2013 |
Aug. 19, 2009 |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|---|---|
| Fresenius SE | Short-term financing | ||||
| Balances | ||||
| Accounts receivable | € 51,332 | € 71,078 | ||
| Accounts payable | 0 | 38,050 | ||
| Fresenius SE | Loans | ||||
| Transactions | ||||
| Outstanding borrowings | € 82,900 | € 18,865 | ||
| Interest rate (as a percent) | 0.825% | 0.93% | ||
| General Partner | Unsecured debt - originated in 2009 | ||||
| Transactions | ||||
| Proceeds from short-term debt from related parties | € 1,500 | |||
| Interest rate (as a percent) | 1.335% | 0.825% | ||
| General Partner | Unsecured debt - originated in 2013 | ||||
| Transactions | ||||
| Proceeds from short-term debt from related parties | € 1,500 | |||
| Interest rate (as a percent) | 1.875% | 0.93% | ||
| Subsidiary of Fresenius SE | Bonds | ||||
| Transactions | ||||
| Outstanding borrowings | € 1,000 | € 1,000 | ||
| Interest rate (as a percent) | 5.25% | 5.25% |
Related party transactions - Key management personnel (Details) - General Partner - EUR (€) € in Thousands |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
|
| Transactions | |||
| Amount paid for services received from related party | € 21,282 | € 19,532 | |
| Balances | |||
| Accounts receivable | 2,130 | € 977 | |
| Accounts payable | € 51,267 | € 34,170 | |
Inventories (Details) - EUR (€) € in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Inventories | ||
| Finished goods | € 1,097,886 | € 940,407 |
| Health care supplies | 443,026 | 399,585 |
| Raw materials and purchased components | 236,381 | 227,654 |
| Work in process | 119,724 | 95,632 |
| Inventories | € 1,897,017 | € 1,663,278 |
Short-term debt and short-term debt from related parties (Details) € in Thousands, $ in Thousands |
Sep. 30, 2020
EUR (€)
|
Dec. 31, 2019
EUR (€)
|
Jul. 31, 2019
USD ($)
|
Jul. 31, 2019
EUR (€)
|
|---|---|---|---|---|
| Debt | ||||
| Short-term debt | € 307,011 | € 1,149,988 | ||
| Short-term debt from related parties | 85,900 | 21,865 | ||
| Short-term debt and short-term debt from related parties | 392,911 | 1,171,853 | ||
| Commercial paper program | ||||
| Debt | ||||
| Short-term debt | 260,961 | 999,732 | ||
| Commercial paper borrowing limit | 1,000,000 | |||
| Notional amount | 261,000 | 1,000,000 | ||
| Borrowings under lines of credit | ||||
| Debt | ||||
| Short-term debt | 46,010 | 143,875 | ||
| Borrowings offset under cash management system | 1,195,698 | 152,598 | ||
| Other | ||||
| Debt | ||||
| Short-term debt | 40 | 6,381 | ||
| Other debt relating to fixed payments for acquisitions | ||||
| Debt | ||||
| Short-term debt | € 40 | € 6,381 | ||
| Related party loan agreement | ||||
| Debt | ||||
| Short term borrowing capacity from related party | $ 400,000 | € 600,000 |
Long-term debt - Amended 2012 credit agreement (Details) € in Thousands, $ in Thousands |
May 29, 2020
EUR (€)
|
Sep. 30, 2020
USD ($)
|
Sep. 30, 2020
EUR (€)
|
Dec. 31, 2019
USD ($)
|
Dec. 31, 2019
EUR (€)
|
|---|---|---|---|---|---|
| Amended 2012 Credit Agreement | |||||
| Long-term debt | |||||
| Maximum amount available | € 2,608,398 | € 3,183,030 | |||
| Balance outstanding | 1,239,693 | 1,905,355 | |||
| Revolving credit facility USD | |||||
| Long-term debt | |||||
| Maximum amount available | $ 900,000 | 768,705 | $ 900,000 | 801,139 | |
| Balance outstanding | 138,700 | 123,464 | |||
| Revolving credit facility EUR | |||||
| Long-term debt | |||||
| Maximum amount available | 600,000 | 600,000 | |||
| USD term loan 5-year | |||||
| Long-term debt | |||||
| Maximum amount available | 1,140,000 | 973,693 | 1,230,000 | 1,094,891 | |
| Balance outstanding | $ 1,140,000 | 973,693 | $ 1,230,000 | 1,094,891 | |
| EUR term loan 5-year | |||||
| Long-term debt | |||||
| Maximum amount available | 266,000 | 287,000 | |||
| Balance outstanding | € 266,000 | 287,000 | |||
| EUR term loan 3-year | |||||
| Long-term debt | |||||
| Maximum amount available | 400,000 | ||||
| Balance outstanding | € 400,000 | ||||
| Repayment of loans | € 400,000 |
Long-term debt - Accounts Receivable Facility and Other (Details) - Accounts Receivable Facility € in Thousands, $ in Thousands |
Sep. 30, 2020
USD ($)
|
Sep. 30, 2020
EUR (€)
|
Dec. 31, 2019
USD ($)
|
Dec. 31, 2019
EUR (€)
|
|---|---|---|---|---|
| Long-term debt | ||||
| Maximum amount available | $ 900,000 | € 768,705 | $ 900,000 | € 801,139 |
| Balance outstanding | 427,000 | 380,096 | ||
| Letters of credit outstanding | $ 12,522 | € 10,695 | $ 23,460 | € 20,883 |
Capital management (Details) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2020 |
Dec. 31, 2019 |
|
| Capital management | ||
| Total equity in % of total assets | 38.30% | 40.20% |
| Debt and lease liabilities in % of total assets | 39.50% | 41.80% |