«Fresenius Medical Care AG & Co. KGaA Hof an der Saale Germany FRESENIUS MEDICAL CARE AG & Co. KGaA Page FINANCIAL INFORMATION Management’s ...»
In the three-month period ended March 31, 2015, cash was mainly used due to a reduction in the Accounts Receivable facility, distributions to noncontrolling interests and repayments of short-term borrowings and long-term debt, partially offset by proceeds from short-term borrowings and short-term borrowings from related parties, proceeds from exercise of stock options and contributions from noncontrolling interests. In the first three months of 2014, cash was provided by proceeds from longterm and short-term borrowings and proceeds from the draw-down under our Accounts Receivable facility, partially offset by the repayment of European Investment Bank Agreements, repayment of portions of long-term debt and short-term borrowings and distributions to noncontrolling interests.
Non-U.S. GAAP Measures for PresentationConstant Currency
Changes in revenue include the impact of changes in foreign currency exchange rates. We use the non-GAAP financial measure at Constant Exchange Rates or Constant Currency in our filings to show changes in our revenue without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, revenues received in local (non-U.S. dollar) currency are translated into U.S. dollars at the average exchange rate for the period presented. Once we translate the local currency revenues for the Constant Currency, we then calculate the change, as a percentage, of the current period revenues using the prior period exchange rates versus the prior period revenues. This resulting percentage is a non-GAAP measure referring to a change as a percentage at Constant Currency.
We believe that revenue growth is a key indication of how a company is progressing from period to period and that the non-GAAP financial measure Constant Currency is useful to investors, lenders, and other creditors because such information enables them to gauge the impact of currency fluctuations on a company’s revenue from period to period. However, we also believe that the usefulness of data on Constant Currency period-over-period changes is subject to limitations, particularly if the currency effects that are eliminated constitute a significant element of our revenue and significantly impact our performance. We therefore limit our use of Constant Currency period-overperiod changes to a measure for the impact of currency fluctuations on the translation of local currency revenue into U.S. dollars. We do not evaluate our results and performance without considering both Constant Currency period-over-period changes in non-U.S. GAAP revenue on the one hand and changes in revenue prepared in accordance with U.S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering data on Constant Currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenue prepared in accordance with U.S. GAAP. We present the fluctuation derived from U.S. GAAP revenue next to the fluctuation derived from non-GAAP revenue. Because the reconciliation is inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.
EBITDA (earnings before interest, tax, depreciation and amortization expenses) was approximately $680 million, 17.2% of revenues for the three-month period ended March 31, 2015, and $612 million, 17.2% of revenues for the same period of 2014. EBITDA is the basis for determining compliance with certain covenants contained in our Amended 2012 Credit Agreement, eurodenominated notes and the indentures relating to our senior notes. You should not consider EBITDA to be an alternative to net earnings determined in accordance with U.S. GAAP or to cash flow from operations, investing activities or financing activities. In addition, not all funds depicted by EBITDA are available for management's discretionary use. For example, a substantial portion of such funds are subject to contractual restrictions and functional requirements for debt service, to fund necessary capital expenditures and to meet other commitments from time to time as described in more detail elsewhere in this report. EBITDA, as calculated, may not be comparable to similarly titled measures reported by other companies. A reconciliation of EBITDA to cash flow provided by (used in) operating activities, which we believe to be the most directly comparable U.S. GAAP financial
measure, is calculated as follows:
Reconciliation of EBITDA to net cash provided by (used in) operating activities
Cash flow measures Our consolidated statement of cash flows indicates how we generated and used cash and cash equivalents. When used in conjunction with the other primary financial statements, it provides information that helps us evaluate the changes in our net assets and our financial structure (including our liquidity and solvency). The net cash provided by (used in) operating activities is used to assess whether our business can generate the cash required to make replacement and expansion investments. Net cash provided by (used in) operating activities is impacted by the profitability of our business and development of working capital, principally receivables. The financial key performance indicator of net cash provided by (used in) operating activities in percentage of revenue shows the percentage of our revenue that is available in terms of financial resources.
Free cash flow is the cash flow provided by (used in) operating activities after capital expenditures for property, plant and equipment but before acquisitions and investments. The key performance indicator used by management is free cash flow in percentage of revenue. This represents the percentage of revenue that is available for acquisitions, dividends to shareholders, or the reduction of debt financing.
Balance Sheet Structure Total assets as of March 31, 2015 decreased to $25,107 billion from $25,447 billion as compared to December 31, 2014. Current assets as a percent of total assets remained flat at 26% at March 31, 2015 as compared to December 31, 2014. The equity ratio, the ratio of our equity divided by total liabilities and shareholders’ equity, increased to 40% at March 31, 2015 as compared to 39% at December 31, 2014.
Risk and Opportunities Report
a) Risk Report For information regarding our risks please refer to Note 11 and 12 and the chapter “Financial condition and results of operations”, specifically the Forward-looking statements and Overview sections in this report. For additional information please see chapter 2 section “Risk and Opportunities Report” on pages 92-100 of the Annual Report 2014.
b) Opportunities Report In comparison to the information contained within the Annual Report 2014, there have been no material changes for the first quarter of 2015. Please refer to chapter 2 section “Risk and Opportunities Report” on pages 100-103 of the Annual Report 2014.
(1) Net income attributable to shareholders of FMC AG & Co. KGaA (2) Full-time equivalents For the year 2016 we expect an acceleration of growth to achieve our mid-term targets with increases of revenue of 9% to 12% and net income attributable to shareholders of FMC AG & Co.
KGaA growing by 15% to 20%.
Subsequent Events No significant activities have taken place since the balance sheet date March 31, 2015 that have a material impact on the key figures and business earnings presented. Currently, there are no other significant changes in the structure, management, legal form of the Company or on its personnel.
Recently Implemented Accounting Pronouncements
On January 23, 2014, FASB issued Accounting Standards Update 2014-05 (“ASU 2014-05”) Service Concession Arrangements (Topic 853). ASU 2014-05’s objective is to specify that an operating entity should not account for a service concession arrangement that is within the scope of ASU 2014-05 as a lease. The update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2014. We adopted ASU 2014-05 as of January 1, 2015. ASU 2014-05 does not have a material impact on the Company and its Consolidated Financial Statements.
On April 10, 2014 FASB issued Accounting Standards Update 2014-08 (“ASU 2014-08”) Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08’s objective is to reduce the complexity and difficulty in applying guidance for discontinued operations. ASU 2014-08’s main focus is to limit the presentation to disposals representing a strategic shift that has a major effect on operations or financial results. The update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2014. We adopted ASU 2014-08 as of January 1, 2015. ASU 2014-08 does not have material impact on our Consolidated Financial Statements.
On June 12, 2014, FASB issued Accounting Standards Update 2014-11 (“ASU 2014-11”), Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which aligns the accounting for repurchase-to-maturity transactions and repurchase
FRESENIUS MEDICAL CARE AG & Co. KGaAfinancing arrangements with the accounting for other typical repurchase agreements, i.e these transactions will be accounted for as secured borrowings. ASU 2014-11 also requires additional disclosures about repurchase agreements and other similar transactions. The update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2014. We adopted ASU 2014-11 as of January 1, 2015. ASU 2014-11 does not have a material impact on the Company and its Consolidated Financial Statements.
Recent Accounting Pronouncements Not Yet Adopted
On May 28, 2014, the FASB issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, Topic 606. Simultaneously, the IASB published its equivalent revenue standard, “IFRS 15,” Revenue from Contracts with Customers. The standards are the result of a convergence project between FASB and the IASB. This update specifies how and when companies reporting under U.S. GAAP will recognize revenue as well as providing users of financial statements with more informative and relevant disclosures. ASU 2014-09 supersedes some guidance included in topic 605, Revenue Recognition, some guidance within the scope of Topic 360, Property, Plant, and Equipment, and some guidance within the scope of Topic 350, Intangibles - Goodwill and Other. This ASU applies to nearly all contracts with customers, unless those contracts are within the scope of other standards (for example, lease contracts or insurance contracts). This update is effective for fiscal years and interim periods within those years beginning on or after December 15, 2016.
Earlier adoption is not permitted. We are currently evaluating the impact of ASU 2014-09 on our Consolidated Financial Statements.
On February 18, 2015, FASB issued Accounting Standards Update 2015-02 (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis, which focuses on clarifying guidance related to the evaluation of various types of legal entities such as limited partnerships, limited liability corporations and certain security transactions for consolidation. The update is effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2015. We are currently evaluating the impact of ASU 2015-02 on our Consolidated Financial Statements.
On April 7, 2015, FASB issued Accounting Standards Update 2015-03 (“ASU 2015-03”), Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that liability, consistent with debt discounts.
This update is effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2015. We will adopt this ASU beginning in the fiscal year 2016.