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Exhibit 99.1
FRESENIUS WORLDWIDE DIALYSIS
INTERIM COMBINED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS US $)
June 30, December 31,
ASSETS 1996 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 40,035 12,091
Trade accounts receivables, less
allowance for doubtful accounts
of $11,270 in 1996 and $12,718
in 1995 194,094 183,878
Inventories, net 190,264 182,738
Prepaid expenses and other current assets 22,903 15,048
Deferred taxes 14,273 2,019
------------ ------------
Total current assets 461,569 395,774
Property, plant and equipment, net 138,541 134,767
Intangible assets, net 63,675 67,260
Investment in affiliates 18,108 19,121
Deferred taxes 399 2,710
Other assets 38,493 24,386
------------ ------------
$ 720,785 644,018
============ ============
LIABILITIES AND NET ASSETS (EQUITY)
Current liabilities:
Accounts payable $ 34,576 38,360
Accrued expenses 70,566 63,194
Short-term borrowings 118,756 109,444
Current portion of long-term debt
and capital lease obligations 21,924 20,195
Income tax payable 1,611 922
Deferred taxes 123 ---
Other current liabilities 13,392 21,312
------------ ------------
Total current labilities 260,948 253,427
Long-term payable, less current portion 1,275 1,275
Long-term debt and capital lease obligations,
less current portion 27,771 38,812
Non-current borrowing from affiliate 274 274
Other liabilities 5,493 3,322
Pension liability 17,022 16,767
Deferred taxes 5,442 ---
Minority interest 27,441 24,516
------------ ------------
Total labilities 345,666 338,393
------------ ------------
Net assets 375,119 305,625
------------ ------------
$ 720,785 644,018
============ ============
See accompanying note to interim combined financial statements
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FRESENIUS WORLDWIDE DIALYSIS
INTERIM COMBINED STATEMENTS OF OPERATIONS AND NET ASSETS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS US $)
June 30, June 30,
1996 1995
------------ ------------
Net sales $ 471,224 431,672
Cost of sales 271,487 243,060
------------ ------------
Gross profit 199,737 188,612
Operating expenses:
Selling, general and administrative 124,583 118,262
Research and development 7,186 8,247
------------ ------------
Operating income 67,968 62,103
Other (income) expense:
Interest income (2,277) (912)
Interest expense 7,665 6,584
Other, net (4,139) (4,473)
------------ ------------
Income before income taxes 66,719 60,904
Income tax expense 22,685 23,413
------------ ------------
Income before minority interest 44,034 37,491
Minority interest 769 2,211
------------ ------------
Net income 43,265 35,280
Net assets at beginning of the period 305,625 261,337
Foreign currency translation adjustments (12,690) 21,270
Net activity with Fresenius 38,919 13,678
------------ ------------
Net assets at end of period $ 375,119 331,565
============ ============
See accompanying note to interim combined financial statements
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FRESENIUS WORLDWIDE DIALYSIS
INTERIM COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS US $)
June 30, June 30,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43,265 35,280
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 20,628 19,093
Change in deferred tax (5,026) (1,686)
Gain on sale of fixed assets (405) (750)
Changes in assets and liabilities:
Trade accounts receivable, net (15,504) (25,434)
Inventories, net (13,028) (13,179)
Prepaid expenses and other current
assets (5,409) (1,137)
Other assets (5,319) (1,849)
Accounts payable and accrued expenses 8,320 4,234
Other current and non-current liabilities (4,782) (4,745)
Income taxes payable 761 565
------------ ------------
Net cash provided by operating activities 23,501 10,392
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (30,909) (46,068)
Proceeds from sale of property, plant and
equipment 4,562 22,837
Acquisitions and investments in affiliates (61) (953)
Cash paid for pending acquisitions (9,758) ---
------------ ------------
Net cash used in investing activities (36,166) (24,184)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 61,052 61,550
Repayments of short-term borrowings (51,081) (54,721)
Proceeds from long-term debt and
capital lease obligations 8,308 10,717
Principal payments of long-term debt
and capital lease obligations (15,792) (14,333)
Proceeds from issuance of common stock 65 498
Net activity with Fresenius 37,983 13,508
Changes in minority interest 769 2,211
------------ ------------
Net cash used in financing activities 41,304 19,430
------------ ------------
Net increase(decrease) in cash and
cash equivalents 28,639 5,638
Effect of exchange rates on cash and
cash equivalents (695) 1,079
Cash and cash equivalents at beginning
of year 12,091 11,973
------------ ------------
Cash and cash equivalents at end of year $ 40,035 18,690
============ ============
See accompanying note to interim combined financial statements
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FRESENIUS WORLDWIDE DIALYSIS
Notes to Interim Combined Financial Statements
(UNAUDITED)
(IN THOUSANDS US $)
1. BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared in
accordance with United States generally accepted accounting principles
("U.S. GAAP") on a basis which reflects the combined historical
financial statements of Fresenius Worldwide Dialysis business ("FWD" or
the "Company"), including Sterilpharma GmbH, assuming that the Company,
currently a business unit of Fresenius AG, was organized for all
periods presented as follows as a separate legal entity, owning certain
net assets and certain subsidiaries and associated companies of
Fresenius. The accompanying interim combined financial statements as of
June 30, 1996 and for the six-month period ended June 30, 1996 and 1995
should be read in conjunction with the Company's combined financial
statements for the years ended December 31, 1995 and 1994 and the notes
thereto.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
The business of the Company is the development, manufacture and
distribution of equipment and related products for all forms of kidney
dialysis treatment and the providing of kidney dialysis treatment and
related service.
(b) Inventories
Inventories are stated at the lower of cost (determined by using the
average or first-in, first-out method) or market value.
The inventories consisted of the following:
June 30, December 31,
1996 1996
------------ ------------
Raw materials and
purchased components $ 64,060 69,102
Work in process 22,592 33,667
Finished goods 108,824 84,546
------------ ------------
195,476 187,315
Reserves (5,212) (4,577)
------------ ------------
Inventories, Net $ 190,264 182,738
============ ============
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FRESENIUS WORLDWIDE DIALYSIS
Notes to Interim Combined Financial Statements
(UNAUDITED)
(IN THOUSANDS US $)
(c) Other Assets
In 1995, FUSA completed construction of a dialyzer plant addition to
its manufacturing facility in Ogden, Utah. At June 30, 1996, included
in other assets are $7,989 of validation costs less accumulated
amortization of $968, incurred to qualify the products and the
associated manufacturing processes for approval by the U.S. Food and
Drug Administration. Such costs are being amortized on a straight-line
basis over an estimated useful life of 3 years upon commencement of
manufacturing.
(d) Management Representation
The accompanying interim combined financial statements which are
unaudited have been prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments (consisting only of normal recurring 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
six month period ended June 30, 1996 are not necessarily indicative of
the results to be expected for the year.
3. Pending Acquisition
On February 4, 1996, Fresenius AG and W.R. Grace & Co. ("Grace")
entered into an Agreement of Reorganization (the "Reorganization
Agreement") under which they agreed to combine FWD, including Fresenius
USA, Inc. ("FUSA"), with the health care business of Grace conducted by
its subsidiary National Medical Care, Inc. ("NMC"). Pursuant to the
Reorganization Agreement, Fresenius will retain an aggregate 50.3% of
the shares of the combined entity, to be called "Fresenius Medical
Care AG" ("FMC") and FMC will, in consideration of Ordinary Shares
equal to 49.7% of FMC's total Ordinary Shares, acquire NMC and the
minority shareholders' interest in FUSA.
In connection with the transactions contemplated by the Reorganization
Agreement, during the six-month period ended June 30, 1996 FUSA
repurchased from certain employees shares of FUSA common stock and
options to purchase shares of FUSA common stock. As a result of the
foregoing FWD capitalized $9,758 representing the excess of the cost of
the shares and options repurchased over the book value of the share of
minority interest reacquired.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1996 and 1995
(Unaudited)
Results of Operations
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
Net Sales. Net sales for the first six months of 1996 were $471.2 million,
an increase of 9.2% compared with net sales of $431.7 million for the first six
months of 1995. In local currency terms, Fresenius Worldwide Dialysis' sales
increased by 11.0%.
In the first six months of 1996, Fresenius Worldwide Dialysis'
operations in Germany experienced sales growth, including export sales, of
5.5%, or 9.5% in local currency, compared to the first six months of 1995. In
the U.S. sales growth was substantial, totaling 17.1%. Sales by Fresenius
Worldwide Dialysis' operations in the rest of the world increased by 4.6%, or
5.3% in local currency, compared to the first six months of 1995. The increase
in sales resulted primarily from higher unit volumes. Fresenius Worldwide
Dialysis' selling prices in local currencies were virtually unchanged. The sales
increase was also attributable to growth in the number of dialysis patients in
each of Fresenius Worldwide Dialysis principal markets.
Sales growth in Germany and the U.S. was mainly attributable to increased
sales of hemodialysis machines due to a high replacement rate by dialysis
centers in those markets and increased sales of dialyzers due to increased
production capacity. In addition, Fresenius Worldwide Dialysis' net sales
benefitted from strong demand in the growing markets of Eastern Europe.
In the first six months of 1996, net sales of hemodialysis machines and
related disposable products, including dialyzers, grew 13.1% to $341.3 million
from $301.7 million in the first six months of 1995. The increase resulted from
higher machine replacement rates and increased sales of dialyzers as a result
of the availability of additional manufacturing capacity.
Sales of peritoneal dialysis products and machines increased 10.8% to
$94.3 million in the first six months of 1996 compared to $85.1 million in the
first six months of 1995. The increase in sales of peritoneal dialysis products
resulted in part from the introduction of PD-NIGHT(TM). In the last quarter of
1995 and from higher sales volumes of existing products.
Sales of technical and other services decreased by 20.7% to $35.6 million
in the first six months ended 1996 compared to $44.9 million in the first six
months of 1995. The decrease resulted from one-time revenues in 1995 associated
with a construction project completed with a Fresenius Worldwide Dialysis
customer and another subsidiary of Fresenius AG.
Gross Profit. Gross profit for the first six months of 1996 was $199.7
million, an increase of 5.9% from gross profit for the first six months of
1995. Gross profit margin decreased from 43.7% for the first six months of 1995
to 42.4% for the first six months of 1996. The decrease in gross profit margin
was caused primarily by dialyzer production in the U.S. where production has
not yet reached its full capacity.
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Selling, General and Administrative Expenses. SG&A expenses were $124.6
Million in the first six months of 1996, an increase of 5.3% from the first six
months of 1995 of $118.3 million. As a percentage of net sales, SG&A expenses
decreased slightly from 27.4% in the first six months of 1995 to 26.4% in the
first six months of 1996.
Research and Development Expenses. Research and development expenses in
the first six months of 1996 decreased from $8.2 million to $7.2 million in the
first six months of 1995. The lower research and development expenses resulted
from the completion of the development of a new production line for non-PVC bags
in late 1995.
Operating Income. Operating income was $68.0 million for the first six
months of 1996, an increase of 9.4% from the first six months of 1995 of $62.1
million.
Interest Expense. Interest expense increased from $6.6 million in the
first six months of 1995 to $7.7 million in the first six months of 1996, due to
a higher level of borrowings in 1996 compared to 1995.
Income Tax Expense. Expenses for income taxes were $22.7 million in the
first six months of 1996 compared to $23.4 million in the first six months of
1995. Fresenius Worldwide Dialysis' effective tax rate decreased from 38.4% in
the first six months of 1995 to 34.0% in the first six months of 1996. Included
in the effective tax rate is the recognition of a tax benefit of approximately
$2.0 million for the first six months of 1996, compared with $1.7 million
during the same period in 1995 from Fresenius Worldwide Dialysis' U.S.
subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
During the first six months of 1996 and 1995, Fresenius Worldwide
Dialysis utilized cash flow from operations and bank borrowings to fund
investments in property, plant and equipment. During the first six months of
1996 and 1995 cash provided by operating activities was $23.5 million and $10.4
million respectively, and was generated principally from net income plus
non-cash depreciation charges of $20.6 million in the first six months of 1996
and $19.1 million in the same period of 1995 and less increase in working
capital requirements of $40.4 million and $44.0 million, respectively. At June
30, 1996, Fresenius Worldwide Dialysis had cash of $40.0 million.
Fresenius Worldwide Dialysis had capital expenditures in the first six
months of 1996 and 1995 of $30.9 Million and $46.1 million, respectively. The
expenditures in each year were principally in Germany and the U.S. Expenditures
in Germany were incurred to further automate the production processes and
increase the production capacity at the St. Wendel and the Schweinfurt facility.
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Further capital expenditures in Germany included $2.4 million for rental
equipment, of which $1.4 million were additions to capital leases. The rental
equipment consisted of hemodialysis machines leased to hospitals and dialysis
centers. To finance the rental equipment Fresenius Worldwide Dialysis enters
into sale/leaseback agreements with a leasing company which cover the sale and
leaseback of rental equipment under three-year capital leases.
In addition in 1995, Fresenius Worldwide Dialysis' U.S. subsidiary
completed construction of a 104,000 square foot addition to its manufacturing
facility for the manufacture of polysulfone dialyzers. Fresenius USA had
expended $39.5 million for the construction and equipping of the expanded
facility as of June 31, 1996. During 1995, Fresenius USA entered into a
sale/leaseback arrangement with a bank which covers the sale of approximately
$27.0 million of certain new equipment of its dialyzer manufacturing facility to
the bank and leaseback of the equipment under a four-year operating lease that
has renewal options and purchase options at fair value. Although the rent
payments on the lease are variable based on the three-month LIBOR, Fresenius USA
has effectively fixed its rent expense through the use of interest rate swap
arrangements. If Fresenius USA elects not to purchase the equipment or renew the
lease at the end of the lease term, it will be obligated to pay a termination
fee of up to $20.25 million, to be offset by sales proceeds from Fresenius USA
remarketing the equipment.
On February 4, 1996, W.R. Grace & Co. ("Grace") and Fresenius AG entered into a
definitive agreement (the "Reorganization Agreement") to combine Grace's
National Medical Care Inc. (NMC) with Fresenius Worldwide Dialysis. In
connection with the Reorganization Agreement and pursuant to a separate
agreement between Fresenius USA and Fresenius AG (the "Supplemental Agreement"),
Fresenius USA among other things, declared its intention to repurchase
sufficient vested and unvested stock purchase options held by Fresenius USA
employees and other equity securities of Fresenius USA to satisfy the condition
that, immediately prior to the Company Merger, as described in the
Reorganization Agreement, there shall be no more than 9,253,331 Fresenius USA
Common Share Equivalents. Pursuant to the Supplemental Agreement Fresenius USA
repurchased shares of Fresenius USA Common Stock and options from certain
employees of approximately $11.2 million during June 1996. As the combination of
Fresenius Worldwide Dialysis and NMC, for accounting purposes, will be treated
as a purchase of NMC by Fresenius Worldwide Dialysis, the cash paid for
repurchase of Fresenius USA Common Stock and options has been capitalized as a
cost of the acquisition.
At June 30, 1996 and December 31, 1995, Fresenius Worldwide Dialysis had
short-term borrowings of $118.8 million and $109.4 million, respectively. The
borrowings were principally under lines of credit with commercial banks.
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