«Fresenius Medical Care AG & Co. KGaA Hof an der Saale Germany FRESENIUS MEDICAL CARE AG & Co. KGaA Page FINANCIAL INFORMATION Management’s ...»
Revenue Total revenue for the Latin America Segment increased by 7% (23% increase at Constant Exchange Rates) to $198 million for the three months ended March 31, 2015 as compared to $186 million for the same period of 2014. Net health care service revenue for the Latin America Segment increased by 7% during the three months ended March 31, 2015 to $146 million (23% increase at Constant Exchange Rates) as compared to $136 million in the same period of 2014. This increase is a result of contributions from increases in organic revenue per treatment (12%), acquisitions (6%) and growth in same market treatments (5%), partially offset by the negative effect of exchange rate fluctuations (16%). Dialysis treatments increased by 11% for the three months ended March 31, 2015 over the same period in 2014 mainly due to contributions from acquisitions (6%) and same market treatment growth (5%). As of March 31, 2015, we had 31,968 patients (a 10% increase over March 31,
2014) being treated at the 246 dialysis clinics that we own, operate or manage in the Latin America Segment compared to 29,051 patients treated at 231 clinics at March 31, 2014.
Dialysis product revenue for the three months ended March 31, 2015 increased by 5% (23% increase at Constant Exchange Rates) to $52 million compared to $50 million in the same period of
2014. The 23% increase at Constant Exchange Rates was driven by increased sales of dialyzers, hemodialysis solutions and concentrates and peritoneal dialysis products.
Operating income decreased slightly to $18 million for the three months ended March 31, 2015 as compared to $19 million for the same period in 2014. Operating income margin decreased to 9.0% for the three months ended March 31, 2015 from 10.0% for the same period in 2014 mainly due to unfavorable foreign exchange effects.
Delivered EBIT Delivered EBIT decreased slightly to $18 million for the three months ended March 31, 2015 as compared to $19 million for the same period in 2014 due to the impact noted above for operating income.
Three months ended March 31, 2015 compared to three months ended March 31, 2014 Our primary sources of liquidity are typically cash provided by operating activities, cash provided by short-term borrowings from third parties and related parties, as well as proceeds from the issuance of long-term debt and equity securities. We require this capital primarily to finance working capital needs, fund acquisitions and joint ventures, develop free-standing renal dialysis 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).
At March 31, 2015, we had cash and cash equivalents of $623 million. For information regarding utilization and availability of cash under our principal credit facility (the “Amended 2012 Credit Agreement”), see Note 6.
Net Cash Provided By (Used In) Operating Activities In the first three months of 2015 and 2014, we generated net cash provided by operating activities of $447 million and $112 million, respectively. Cash provided by operating activities is impacted by the profitability of our business, the development of our working capital, principally inventories, receivables and cash outflows that occur due to a number of specific items as discussed below. The increase in 2015 versus 2014 was mainly a result of the $115 million payment for the W.R. Grace bankruptcy settlement which occurred in the first quarter of 2014, the impact of other working capital items such as the timing related to the payment of payables and other liabilities as well as decreased inventory.
The profitability of our business depends significantly on reimbursement rates. Approximately 80% of our revenues are generated by providing health care services, a major portion of which is reimbursed by either public health care organizations or private insurers. For the three months ended March 31, 2015, approximately 32% of our consolidated revenues were attributable to U.S. federal health care benefit programs, such as Medicare and Medicaid reimbursement. Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide, as well as the scope of Medicare coverage. A decrease in reimbursement rates or the scope of coverage could have a material adverse effect on our business, financial condition and results of operations and thus on our capacity to generate cash flow. While we have generally experienced stable reimbursement globally, including the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries, the stability of reimbursement in the U.S. has been affected by (i) the implementation of the ESRD PPS in the U.S. in January 2011, (ii) the U.S.
federal government Sequestration cuts, (iii) commencing January 1, 2014, the reductions to the ESRD PPS rate to account for the decline in utilization of certain drugs and biologicals associated with dialysis and (iv) the enactment of PAMA (see discussion above). In the future, we expect to experience generally stable reimbursements for dialysis services globally.
Our working capital, which is defined as current assets less current liabilities, was $3,053 million at March 31, 2015 which decreased from $3,247 million at December 31, 2014. The change is primarily the result of a decrease in prepaid and other current assets as a result of income tax prepayments made in 2014; increased accrued expenses; a decrease in our trade accounts receivable; and a decrease in our accounts receivable from related parties, partially offset by increased inventories and an increase in deferred taxes. Our ratio of current assets to current liabilities was 1.86 and 1.93 at March 31, 2015 and December 31, 2014, respectively.
We intend to continue to address our current cash and financing requirements using cash provided by operating activities, our existing and future credit agreements, and the issuance of debt securities.
In addition, when funds are required for acquisitions or to meet other needs, we expect to successfully complete long-term financing arrangements, such as the issuance of senior notes, see “Net Cash Provided By (Used In) Financing Activities” below. We aim to preserve financial resources with a minimum of $300 to $500 million of committed and unutilized credit facilities.
Cash provided by operating activities depends on the collection of accounts receivable.
Commercial customers and governments generally have different payment cycles. A lengthening of their payment cycles could have a material adverse effect on our capacity to generate cash flow. In
FRESENIUS MEDICAL CARE AG & Co. KGaAaddition, we could face difficulties in enforcing and collecting accounts receivable under some countries' legal systems and due to the economic conditions in some countries. Accounts receivable balances, net of valuation allowances, represented Days Sales Outstanding (“DSO”) of 71 at March 31, 2015, a decrease as compared to 72 at December 31, 2014.
DSO by segment is calculated by dividing the segment’s accounts receivable, as converted to U.S.
dollars using the average exchange rate for the period presented, less any value added tax included in the receivables, by the average daily sales for the last twelve months of that segment, as converted to U.S. dollars using the average exchange rate for the period. Receivables and sales are adjusted for amounts related to significant acquisitions made during the periods presented. The development of
DSO by reporting segment is shown in the table below:
The DSO increase in North America to a large extent was driven by the impact of the timing of cash collections. The EMEA Segment’s DSO increase reflects payment fluctuations in the region. The Asia-Pacific Segment’s DSO decrease reflects an improvement of payment collections in China. The Latin America Segment’s DSO increase reflects periodic delays in payment collections.
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.
We are subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions. We have received notices of unfavorable adjustments and disallowances in connection with certain of the audits. We are contesting, including appealing, certain of these unfavorable determinations. If our objections and any final audit appeals are unsuccessful, we could be required to make additional tax payments, including payments to state tax authorities reflecting the adjustments made in our federal tax returns in the U.S. With respect to other potential adjustments and disallowances of tax matters currently under review, we do not anticipate that an unfavorable ruling could have a material impact on our results of operations. We are not currently able to determine the timing of these potential additional tax payments.
Net Cash Provided By (Used In) Investing Activities We used net cash of $209 million and $332 million in investing activities in the three months ended March 31, 2015 and 2014, respectively.
Capital expenditures for property, plant and equipment, net of proceeds from sales of property, plant and equipment were $197 million and $197 million in the first three months of 2015 and 2014, respectively. In the first three months of 2015, capital expenditures were $108 million in the North America Segment, $52 million at Corporate, $27 million for the EMEA Segment, $6 million for the Asia-Pacific Segment and $4 million for the Latin America Segment. Capital expenditures in the first three months of 2014 were $89 million in the North America Segment, $66 million at Corporate, $32 million for the EMEA Segment, $6 million for the Asia-Pacific Segment and $4 million for the Latin America Segment. The majority of our capital expenditures were used for maintaining existing clinics, equipping new clinics, maintenance and expansion of production facilities, primarily in the North America Segment, Germany and France and capitalization of machines provided to our customers.
Capital expenditures were approximately 5% of total revenue in the first three months of 2015 as compared to 6% for the same period in 2014.
FRESENIUS MEDICAL CARE AG & Co. KGaA
In addition to the capital expenditures discussed above, we invested in the dialysis business approximately $22 million cash in the first three months of 2015, $13 million in the North America Segment, $7 million in the Asia-Pacific Segment, $1 million in the EMEA Segment and $1 million at Corporate. Additionally, during the first three months of 2015, we received $11 million from divestitures, including $9 million from the sale of our plasma collection device manufacturing business to Fresenius Kabi USA, Inc. In the first three months of 2014, we invested approximately $137 million cash, $116 million in the North America Segment, $9 million in the EMEA Segment, $6 million in the Asia-Pacific Segment and $6 million in the Latin America Segment. The acquisitions in 2014 were mainly driven by investments in available-for-sale financial assets.
We anticipate capital expenditures of approximately $1.0 billion and expect to make acquisitions of approximately $0.4 billion in 2015. See “Report on Expected Developments” below.
Net Cash Provided By (Used In) Financing Activities Net cash used in financing activities was $237 million in the first three months of 2015 compared to net cash provided by financing activities of $116 million in the first three months of 2014.