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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-8350
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FRESENIUS USA, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2550576
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
2637 SHADELANDS DRIVE
WALNUT CREEK, CALIFORNIA 94598
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(510) 295-0200
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
--- ---.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the most recent
practicable date:
21,392,515 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE,
WERE ISSUED AND OUTSTANDING AT AUGUST 7, 1995.
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FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Assets June 30, December 31,
------ 1995 1994
-------- ------------
Current assets:
Cash $ 3,161 2,315
Trade accounts receivable, net 47,789 42,671
Inventories 56,766 52,704
Other current assets 4,249 1,893
-------- --------
Total current assets 111,965 99,583
Property, plant, and equipment, net 48,280 45,956
Intangible assets 38,196 39,498
Other assets 291 311
-------- --------
Total assets $198,732 185,348
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 10,536 13,128
Accounts payable to affiliates,net 44,729 33,361
Accrued expenses 9,024 12,214
Short term borrowings 26,268 22,330
Short term borrowings-Fresenius AG 4,450 4,380
Current portion long-term debt 8,369 8,356
Current portion of capital lease obligations 1,109 1,140
Income taxes payable 280 95
-------- --------
Total current liabilities 104,765 95,004
Long-term payable, less current portion 1,861 1,861
Note payable to Fresenius North America 274 274
Long-term debt, less current portion 17,593 25,963
Capital lease obligations 6,357 1,674
-------- --------
Total liabilities 130,850 124,776
Stockholders' equity:
Series F preferred stock,
$1.00 par value 200 200
Common stock, $.01 par value 213 212
Capital in excess of par value 140,007 139,510
Currency translation adjustment (74) (94)
Accumulated deficit (72,464) (79,256)
-------- --------
Total stockholders' equity 67,882 60,572
-------- --------
$198,732 185,348
======== ========
See accompanying notes to consolidated financial statements.
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FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
--------------------------
June 30, June 30,
1995 1994
----------- --------
Net sales $76,744 61,139
Cost of sales 53,788 41,917
------- -------
Gross profit 22,956 19,222
Operating expenses:
Selling, general, administrative,
and research and development 18,776 16,175
------- -------
Operating income 4,180 3,047
Other income (expense):
Interest income 57 42
Interest expense (1,212) (1,361)
Other income (expense) (48) 18
------- -------
Income before income taxes 2,977 1,746
Income tax benefit (expense) 496 (227)
------- -------
Net income $ 3,473 1,519
======= ======
Net income per common and common
equivalent share:
Primary $ .13 .07
======= =======
Fully diluted $ .13 .07
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
income per common and common
equivalent share:
Primary 25,773 21,498
======= =======
Fully diluted 26,694 21,525
======= =======
See accompanying notes to consolidated financial statements.
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FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Six Months Ended
--------------------------
June 30, June 30,
1995 1994
-------- --------
Net sales $144,920 120,828
Cost of sales 100,828 83,054
-------- --------
Gross profit 44,092 37,774
Operating expenses:
Selling, general, administrative,
and research and development 35,824 31,691
-------- --------
Operating income 8,268 6,083
Other income (expense):
Interest income 64 65
Interest expense (2,493) (2,662)
Other income (expense) (72) 27
-------- --------
Income before income taxes 5,767 3,513
Income tax benefit (expense) 1,024 (457)
-------- --------
Net income $ 6,791 3,056
======== ========
Net income per common and common
equivalent share:
Primary $ .26 .14
======== ========
Full diluted $ .26 .14
======== ========
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
income per common and common
equivalent share:
Primary 25,712 21,156
======== ========
Fully diluted 26,658 21,175
======== ========
See accompanying notes to consolidated financial statements.
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FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
--------------------------
June 30, June 30,
1995 1994
-------- --------
Net cash used in
operating activities $ (6,119) (4,122)
Cash flows from investing activities:
Purchases of property, plant and
equipment (23,617) (9,023)
-------- -------
Net cash provided by (used in)
investing activities (23,617) (9,023)
Cash flows from financing activities:
Principal payments under debt and
capital lease obligations (8,705) (8,403)
Proceeds from sale/leaseback of
property,plant and equipment 18,393 --
Proceeds from capital lease
financing arrangement 5,000 --
Change in accounts payable to
affiliates, net 11,368 1,355
Proceeds from short-term borrowings 33,818 9,395
Proceeds from short-term
borrowings-Fresenius AG 70 --
Repayment of short-term borrowings (29,880) (9,680)
Proceeds from issuance of common
stock, net 498 16,286
-------- -------
Net cash provided by
financing activities 30,562 8,953
Effect of exchange rates on cash 20 (18)
-------- -------
Net increase (decrease) in cash
and cash equivalents 846 (4,210)
Cash and cash equivalents at
beginning of period 2,315 5,552
-------- -------
Cash and cash equivalents at
end of period $ 3,161 1,342
======== =======
See accompanying notes to consolidated financial statements.
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FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(UNAUDITED)
(1) Description of Business
Fresenius USA, Inc. manufactures and distributes equipment and disposable
products for the treatment of kidney failure by hemodialysis and by peritoneal
dialysis. The Company is one of only two companies in the United States
offering a full line of both hemodialysis and peritoneal dialysis machines and
disposable products. These machines and products are used to cleanse a
patient's blood of waste products and fluids normally eliminated by properly
functioning kidneys.
(2) Net Income Per Common Share
Net income per common share was computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
(when dilutive) outstanding during each year. Stock options, common stock
warrants, and the Series F preferred stock are considered to be common stock
equivalents.
The computation of fully diluted net income per common share would also
include the effect of converting other outstanding securities such as
convertible debt, when the effect is dilutive, and the additional dilution
related to stock options when the market price at the end of the period is
higher than the average market price for the period. For the period presented,
the effect of these items has been included in the determination of fully
diluted net income per common share as they have resulted in dilution of more
than three percent.
(3) Income Taxes
At December 31, 1994, the Company had net operating loss carryforwards of
approximately $50.0 million for federal income tax reporting purposes. The
net operating losses expire in varying amounts beginning in 1998 through 2006.
The ability of the Company to use carryforwards to offset taxes on its future
income is also subject to certain annual cumulative limitations. The Company
believes that it has sufficient net loss carryforwards to offset any 1995 net
income for federal income tax reporting purposes.
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FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1994
(UNAUDITED)
(4) Inventories
Inventories are stated at the lower of cost (determined by using first-in,
first-out method) or market value, and consist of the following as of June 30,
1995 and December 31, 1994: (in thousands)
June 30, December 31,
1995 1994
-------- ------------
Raw Materials $20,430 23,071
Work in process 8,993 4,237
Finished goods 29,120 27,464
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58,543 54,772
Reserves (1,777) (2,068)
------- -------
Inventories, net $56,766 52,704
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(5) Commitments and Contingencies
In March 1994, the Company began construction of a 104,000 square foot
addition to its manufacturing facility in Ogden, Utah for the manufacture of
polysulfone dialyzers. In June, 1995, the Company completed the construction
of the addition to its manufacturing facility and commenced production of
polysulfone dialyzers at its Ogden, Utah plant. During the period from March
1994 through June 30, 1995, the Company has expended approximately $31.5
million for this construction and the expansion of its solution and device
manufacturing capability in Ogden, Utah.
On March 31, 1995 the Company entered into a sale leaseback arrangement
with a bank which covers the sale by the Company of approximately $19.0 million
of certain new equipment to the bank and the leaseback of the equipment under a
four year operating lease. As of June 30, 1995, approximately $18.4 million
of equipment had been funded under this arrangement and leased back by the
Company.
In March 1995, the Company replaced a $15.0 million line of credit
supported by Fresenius AG with a $20.0 million line of credit from a commercial
bank independent of support from Fresenius AG. This line of credit is secured
by the Company's accounts receivable.
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FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1994
(UNAUDITED)
(6) Management Representation
The accompanying unaudited consolidated condensed financial statements
have been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for
the interim periods presented. Operating results for the three and six month
periods ended June 30, 1995 are not necessarily indicative of the results to be
expected for the year.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
has been condensed or omitted pursuant to such rules and regulations. It is
suggested that these consolidated condensed financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
contained in the Company's Form 10-K for the year ended December 31, 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1995 AND 1994
(UNAUDITED)
RESULTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1995 Compared to Three Months and
Six Months Ended June 30, 1994
NET SALES. Net sales were $76.7 million for the second quarter 1995,
an increase of $15.6 million or 25.5% compared with net sales of $61.1 million
for the second quarter 1994. Net sales for the first six months of 1995 were
$144.9 million, an increase of $24.1 million or 19.9% compared with $120.8
million for the first six months of 1994. The increase in sales for the first
six months of 1995 is the result of continued higher unit sales volumes for
both hemodialysis and peritoneal dialysis products.
Net sales of hemodialysis products for the second quarter 1995 were
$52.0 million, an increase of $11.6 million or 28.8% compared to net sales for
the second quarter of 1994.
Net sales of peritoneal dialysis products for the second quarter 1995
were $22.8 million, an increase of $3.7 million or 19.4% compared to net sales
for the second quarter 1994.
GROSS PROFIT. Gross profit was $23.0 million for the second quarter
1995, an increase of $3.8 million or 19.8% compared with gross profit of $19.2
million for the second quarter 1994. Gross profit margin decreased from 31.4%
for the second quarter 1994 to 29.9% for the second quarter 1995. The
decrease in gross profit margin was primarily due to decreased production
efficiencies as a result of commencing the Ogden, Utah manufacture of
polysulfone dialyzers, and from the effects related to higher product cost as
a result of the dollar weakness against the German Mark.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AND RESEARCH AND
DEVELOPMENT EXPENSE. Selling, general and administrative expense and research
and development expense were $18.8 million for the second quarter 1995, an
increase of $2.6 million or 16.1% compared with the second quarter 1994, and
$35.8 million for the first six months in 1995, an increase of $4.1 million or
12.9% compared to the first six months in 1994. These expenses as a
percentage of net sales were 24.5% for the second quarter 1995 compared to
26.5% for the second quarter of 1994, and 24.7% for the first six months of
1995 compared with 26.2% for the first six months of 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 30, 1995 AND 1994
(UNAUDITED)
INTEREST EXPENSE (NET). Interest expense (net) was $1.2 million for
the second quarter 1995 and $2.4 million for the six months ended June 30, 1995
compared to $1.3 million and $2.6 million for the same periods of 1994.
INCOME TAX BENEFIT (EXPENSE). During the second quarter of 1995, and
for the six months ended June 30, 1995, the Company recognized a tax benefit of
$853,000, and $1.7 million, respectively, related to the Company's net
operating loss carryforward from previous years. Income tax expense for the
second quarter 1995 excluding the benefit referred to above was $357,000, an
increase of $130,000 compared to $227,000 for the second quarter of 1994.
Income tax expense for the first six months ended June 30, 1995 was $678,000,
an increase of $221,000 compared with $457,000 for the same period in 1994.
NET INCOME. Net income was $3.5 million for the second quarter 1995,
an increase of $2.0 million or 133.3% compared to net income of $1.5 million
for the second quarter 1994. Net income for the first six months was $6.8
million, an increase of $3.7 million or 119.4% compared to net income of $3.1
million for the first six months of 1994. Net income for the second quarter
1995 and for the first six months of 1995 included the above tax benefit which
resulted from recognition of a portion of the Company's deferred tax asset.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
JUNE 30, 1995 AND 1994
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations, working capital
and capital expenditures through bank borrowings obtained with credit support
from Fresenius AG, private placements of preferred stock and common stock to
Fresenius AG and internally generated funds. Since 1990, the Company has
realized $19.5 million in net proceeds from private placements of preferred and
common stock to Fresenius AG, all of which was utilized to reduce outstanding
obligations to Fresenius AG and affiliated companies.
In March 1994, the Company began construction of a 104,000 square foot
addition to its manufacturing facility in Ogden, Utah for the manufacture of
polysulfone dialyzers. In June, 1995, the Company completed the construction
of the addition to its manufacturing facility and commenced production of
polysulfone dialyzers at its Ogden, Utah plant. During the period from March
1994 through June 30, 1995, the Company has expended approximately $31.5
million for this construction and the expansion of its solution and device
manufacturing capability in Ogden, Utah.
During June 1994, the Company completed an underwritten public
offering of 3,450,000 shares of the Company's Common Stock, including 450,000
shares issued upon the exercise of the underwriter's over-allotment option.
The net proceeds of approximately $16.3 million were used to repay indebtedness
and short-term credit facilities.
During March 1995, the Company replaced an existing $15.0 million line
of credit with a commercial bank supported by Fresenius AG with a $20.0 million
line of credit from a commercial bank independent of support from Fresenius AG,
but secured, by the Company's accounts receivable. On March 31, the Company
also entered into an arrangement with a commercial bank, whereby the bank has
committed to purchase $19.0 million of the Company's manufacturing equipment in
Ogden, Utah, and lease the equipment back to the Company under a four year
renewable operating lease. As of June 30, 1995, approximately $18.4 million of
equipment had been acquired by the bank and leased back by the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
JUNE 30, 1995 AND 1994
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The present source of liquidity for the Company is its cash balances,
which totalled $3.2 million as of June 30, 1995, and amounts available under
various lines of credit. In March, the Company replaced a $15.0 million line
of credit from a commercial bank supported by Fresenius AG with a $20.0 million
line of credit from a commercial bank independent of support from Fresenius AG.
As of June 30, 1995, the Company had outstanding short term borrowings under
lines of credit of $26.3 million with six commercial banks. These lines of
credit provide for total credit availability of $47.0 million. Fresenius AG
provided credit support for $27.0 million to enable the Company to obtain these
lines of credit. In addition, at June 30, 1995, the Company had fully drawn
the amount available under a $4.5 million short-term line of credit with
Fresenius AG, the terms of which are similar to those of the lines of credit
with the six commercial banks described above.
The Company believes that its committed, and possible future bank or
other commercial financing, combined with internally generated funds, will be
sufficient to fund the Ogden, Utah plant expansion, the Company's other capital
expenditures, working capital requirements and other obligations.
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PART II
Item 4. Submissions of Matters to a Vote of Security Holders
(a) Annual Meeting
The Company held its annual meeting of shareholders on June 27, 1995.
(b) Matters Voted Upon
(1) Election of Directors:
Seven directors were elected, three of whom were elected by the
holders of the Company's Common Stock voting separately as a class, and four of
whom were elected by the holders of the Company's Series F Series Preferred
Stock voting separately as a class.
The results of the voting were as follows:
Common Directors For Against Abstaining
---------------- ---------- ------- ----------
Mr. Robert Ehrlich 15,082,866 144,000 2,704,677
Dr. James Marten 15,226,866 2,704,677
Mr. Francis Baker 15,226,866 2,704,677
Preferred Directors For Against Abstaining
------------------- ---------- ------- ----------
Dr. Gerd Krick 200,000
Dr. Ulrich Wagner 200,000
Mr. Mathias Klingler 200,000
Dr. Ben Lipps 200,000
(2) Amendment of the Company's 1993 Stock Option Plan for
Non-Employee Directors:
The shareholders approved the amendment of the Company's 1993
Stock Option Plan for Non-Employee Directors to permit non-employee directors
to elect to receive the fees paid by the Company to the non-employee directors
in the form of options for shares of the Company's Common Stock rather than in
cash. The results of the voting were as follows:
For Against Abstaining
---------- --------- ----------
16,514,951 1,416,591
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
11 Statement of Computation of Per Share Earnings
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the registrant during the
period covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fresenius USA, Inc.
August 11, 1995 /s/ Heinz Schmidt
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Vice President Finance
(Principal Financial
Officer)
/s/ Robert E. Farrell
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Vice President
Administration and
General Counsel
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EXHIBIT INDEX
Ex. 11 Statement of Computation of Per Share Earnings
Ex. 27 Financial Data Schedule