6-K 1 a2229292z6-k.htm 6-K

Table of Contents

 

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 August 2016


  

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 –             .

   


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

 
  Page

Interim Report of Financial Condition and Results of Operations for the three and six months ended June 30, 2016 and 2015

 

 

FINANCIAL INFORMATION

 

 

Management's Discussion and Analysis

 

 

Forward-looking Statements

 

1

Financial Condition and Results of Operations

 

2

Balance Sheet Structure

 

35

Outlook

 

35

Financial Statements (unaudited)

 

 

Consolidated Statements of Income

 

38

Consolidated Statements of Comprehensive Income

 

39

Consolidated Balance Sheets

 

40

Consolidated Statements of Cash Flows

 

41

Consolidated Statement of Shareholders' Equity

 

42

Notes to Consolidated Financial Statements

 

43

Quantitative and Qualitative Disclosures About Market Risk

 

74

Controls and Procedures

 

75

OTHER INFORMATION

 

 

Legal and Regulatory Matters

 

76

Submission of Matters to a Vote of Security Holders

 

76

Exhibits

 

78

Signatures

 

79

i


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

FINANCIAL INFORMATION

Management's Discussion and Analysis

Forward-looking Statements

       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 that could cause actual results to differ from our projected results include, among others, the following:

    changes in governmental and commercial insurer reimbursement for our complete products and services portfolio, including the United States ("U.S.") Medicare reimbursement system for dialysis services;

    the outcome of government and internal investigations as well as litigation;

    risks relating to compliance with the government regulations applicable to our business including, in the U.S., the Anti-Kickback Statute, the False Claims Act, the Stark Law and the Foreign Corrupt Practices Act, the Food, Drug and Cosmetic Act and comparable regulatory regimes in many of the more than 120 countries in which we supply health care services and/or products;

    the influence of commercial insurers and managed care organizations, including efforts by these organizations to manage costs by limiting healthcare benefits, reducing provider reimbursement and/or restricting options for patient funding of premiums;

    the impact of health care reforms;

    product liability risks;

    risks relating our ability to continue to make acquisitions;

    the impact of currency fluctuations;

    changes in utilization patterns for pharmaceuticals and in our costs of purchasing pharmaceuticals;

    introduction of generic or new pharmaceuticals that compete with our pharmaceutical products;

1


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

    changes in raw material and energy costs or the ability to procure raw materials;

    collectability of our receivables, which depends primarily on the financial stability and liquidity of our governmental and commercial payors;

    our ability to achieve cost savings in various health care risk management programs in which we participate or intend to participate; and

    the greater size, market power and experience of certain competitors in certain geographic regions and business lines.

       Important factors that could contribute to such differences are noted in "Financial Condition and Results of Operations – Overview, legislation and growth – Overview" below, in Note 10 of the Notes to Consolidated Financial Statements (unaudited), "Commitments and Contingencies" included in this report, in Note 19 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies" included in our Annual Report on Form 20-F for the year ended December 31, 2015, and under "Risk Factors" 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. 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 and 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 "Financial Condition and Results of Operations – Results of Operations" below. There have been no significant changes during the six months ended June 30, 2016 to the items disclosed within the critical accounting policies and estimates in Item 5, "Operating and Financial Review and Prospects – Critical Accounting Policies" in our Annual Report on Form 20-F for the year ended December 31, 2015.

Financial Condition and Results of Operations

       You should read the following discussion and analysis of the results of operations of Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA," or 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 Annual Report on Form 20-F for the year ended December 31, 2015. The results within this discussion and analysis are unaudited. 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. 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 management, procurement and research and development. The term "Constant Currency" or at "Constant Exchange Rates" means that we have translated local currency revenues for the current reporting period into U.S. dollars using the same average foreign currency exchange rates for the conversion of revenues into U.S. dollars that we used to translate local currency revenues for the comparable reporting period of the prior year, as described below under "Non-US GAAP Measures for Presentation – Constant Currency."

2


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015


Overview, legislation and growth

Overview

       We are the world's largest kidney dialysis company. We provide dialysis care and related services to persons who suffer from end stage renal disease ("ESRD") as well as other health care services. We develop and manufacture a full range of dialysis machines, systems and disposable products, which we sell to customers in more than 120 countries and also use in our internal health care service operations. Our dialysis business is vertically integrated, providing dialysis treatment at our own dialysis clinics and supplying these clinics with a broad range of products. In addition, we sell dialysis products to other dialysis service providers. We describe our other health care services as "Care Coordination." Care Coordination currently includes coordinated delivery of pharmacy services, vascular, cardiovascular and endovascular specialty services, non-dialysis laboratory testing services, physician services, hospitalist and intensivist services, health plan services and urgent care services, which, together with dialysis care services represent our health care services. Based on publicly reported sales and number of patients treated, our health care operations in dialysis services and dialysis products make us the world's largest kidney dialysis company. We estimated the volume of the global dialysis market was approximately $73 billion in 2015. 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, which prolong patient life; and improving standards of living in developing countries, which make life-saving dialysis treatment available.

       As a global company delivering health care services and dialysis products, we face the challenge of addressing the needs of a wide variety of stakeholders, such as patients, customers, payors, regulators and legislators in very 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 for dialysis treatment. Therefore, the reimbursement systems in various countries and ancillary services utilization environment significantly influence our business.

       The majority of health care services we provide are paid for by governmental institutions. Approximately 32% of our consolidated revenues are 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 & Medicaid Services ("CMS"). Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide. To date, while we have generally experienced stable reimbursement globally, the stability of reimbursement in the U.S. has been affected by (i) the implementation of the ESRD prospective payment system ("ESRD PPS") in the U.S. 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," (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") and (iv) the enactment of Protecting Access to Medicare Act of 2014 ("PAMA"). Please see the broader discussion of these legislative developments below:

Significant Legislative Impacts on U.S. Reimbursement

    Under Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA"), for patients with Medicare coverage, all ESRD payments for dialysis treatments are made under a single bundled

3


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

      payment rate which provides a fixed payment rate, ESRD PPS, to encompass substantially all goods and services provided during the dialysis treatment. MIPPA further created the ESRD quality incentive program ("QIP") which dictates that dialysis facilities that fail to achieve quality standards established by CMS could have payments reduced by up to 2 percent.

    MIPPA also includes a provision for an annual adjustment to the ESRD PPS base rate based on changes in the costs of a "market basket" of certain health care items and services, less a productivity adjustment.

    Additionally, as a result of the Budget Control Act of 2011 ("BCA") and subsequent activity in Congress, a $1.2 trillion sequester (across-the-board spending cuts) in discretionary programs took effect on March 1, 2013 and is expected to continue through mid-2024. In particular, a 2% reduction to Medicare payments took effect on April 1, 2013 and continues in force. Spending cuts pursuant to U.S. Sequestration have adversely affected and will continue to adversely affect our revenues, earnings and cash flows.

    In 2014, as mandated by ATRA, CMS issued a final rule for the ESRD PPS, which phased in payment reductions to account for changes in utilization of certain drugs and biologicals that are included in the ESRD PPS, which were subsequently modified by PAMA. These reductions will reduce our market basket inflation adjustment by – 1.25% in 2016 and 2017, and 1% in 2018.

Significant Administrative Impacts on U.S. Reimbursement

       On November 6, 2015, CMS published a final rule to update payment policies and rates under the ESRD PPS for renal dialysis services furnished on or after January 1, 2016. In this final rule, CMS clarified that once a non-oral version of a previously oral-only drug, such as phosphate binders and calcimimetics, is approved by the Food and Drug Administration ("FDA"), such drug will cease to be considered oral-only. At such time, CMS will commence a process to issue billing codes so that both the oral and non-oral versions of the drug are billable under Part B for a period of at least two years using a transition drug add-on payment adjustment such as average sales price plus 6%, or some other mechanism set in accordance with Section 1847A of the Social Security Act. During this transition period, CMS will not pay outlier payments for these drugs, but will collect data reflecting utilization of both the oral and injectable or intravenous forms of the drugs, as well as payment patterns, in order to more accurately determine the appropriate payment rate to be included in the ESRD PPS for these drugs. At the end of this transition period, CMS will add payment for the oral and non-oral versions of the drug into the ESRD PPS through public rulemaking process similar to that used to set annual ESRD PPS rates. Any failure by CMS to provide adequate additional reimbursement for new drugs or other products that are added to the ESRD PPS could have a material adverse effect on our health care services business and results of operations.

Recent CMS ESRD PPS Payment Rates

       On November 6, 2015, CMS published the final ruling regarding the ESRD PPS rate for 2016. We and other large dialysis organizations will experience a 0.2% increase in payments. The base rate per treatment is $230.39, which represents an approximate reduction of 4%, net, from the 2015 base rate. The 2016 final ruling reflects a net market basket increase of 0.15% (2% less 1.25% PAMA reduction and 0.6% productivity adjustment), application of a wage index budget-neutrality adjustment factor of 1.000495 and application of a refinement budget-neutrality adjustment factor of 0.960319. However, the approximate 4% reduction is almost completely offset with CMS proposed case mix adjustments based upon their analysis of the fiscal years 2012 and 2013.

4


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       On June 30, 2016, CMS published a proposed ruling regarding the ESRD PPS rate for 2017. We and other large dialysis organizations will experience a 0.3% increase in payments as compared to the ESRD PPS rate for 2016. The proposed base rate per treatment is $231.04, which reflects a reduced market basket increase of 0.35%, application of a wage index budget neutrality adjustment factor of 1.0004482 and application of budget-neutrality adjustment factors of 0.999552 and 0.999729. This proposed rule also includes potential changes to the 2019 and 2020 ESRD QIP measures.

Reimbursement Expectation

       As a consequence of the pressure to decrease health care costs, government reimbursement rate increases in the U.S. have historically been limited and are expected to remain stable in the future. We have generally experienced stable reimbursement globally, including the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries. In the future, we expect to experience generally stable reimbursements for dialysis services globally. However, any significant decreases in Medicare reimbursement rates could have material adverse effects on our health care services business and, because the demand for dialysis products is affected by Medicare reimbursement, on our products business. To the extent that increases in operating costs that are affected by inflation, such as labor and supply costs, are not fully reflected in a compensating increase in reimbursement rates, our business and results of operations may be adversely affected.

Participation in new Medicare Payment Arrangements

       CMS is working with various health care providers to develop, refine and implement innovative models of care for Medicare and Medicaid beneficiaries. The extent to which the long-term operation and evolution of these care models, including Accountable Care Organizations, Bundled Payments for Care Improvement Initiative, the Comprehensive ESRD Care Model (which includes the development of ESRD Seamless Care Organizations), and other models, will impact the health care market over time is uncertain. Our U.S. health care provider businesses may choose to participate in certain of these models in certain markets either as a partner with other providers or independently. As existing and new models of care emerge and evolve both in the government and private sectors, patients may choose to be treated by or may be assigned by CMS or other insurers to another provider's care organization, which could have a materially adverse effect on our revenues, earnings and cash flow. As discussed below, we are currently participating in certain of these models.

       We participate in CMS's Comprehensive ESRD Care Model ("the CEC Model"), through ESRD Seamless Care Organizations ("ESCOs") in six markets. The CEC Model seeks to deliver better health outcomes for ESRD patients while lowering Medicare's costs. 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. Our ESCOs also share in the risk of cost increases above certain thresholds and are required to reimburse CMS a share of any such increases. The CEC Model commenced on October 1, 2015, and the initial agreement period lasts three years. Thereafter, CMS may offer to extend an ESCO's agreement for an additional two years based on the ESCO's performance.

       The Bundled Payments for Care Improvement ("BPCI") initiative is a CMS three-year pilot initiative involving bundled payments for the individual services, including acute inpatient hospital services, physician services, and post-acute services, furnished to Medicare beneficiaries during a single episode of

5


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

illness or course of treatment. Our majority-owned subsidiary, Sound Inpatient Physicians, Inc. ("Sound") commenced participation under BPCI in April 2015 in several markets. Under the BPCI, Sound has the ability to receive additional payments if its physicians are able to deliver quality care at a cost that is lower than certain established benchmarks, but it also has the risk of incurring financial penalties if it is unsuccessful. Should Sound fail to perform as required under its BPCI agreement, CMS may terminate Sound's participation in the BPCI program, in whole or in part.

       We have entered into various arrangements with both government and private sector health care insurers which involve taking risk for the complete care of certain ESRD patients in exchange for set payments. We are currently operating Medicare Advantage ESRD Chronic Special Needs Plan ("MA-CSNP") in three states. MA-CSNPs are Medicare Advantage health plans offered by private companies that contract with Medicare to provide patients with Medicare benefits. Enrollment in these plans is limited to special needs individuals with specific severe or disabling chronic conditions, such as ESRD. Our MA-CSNPs provide services, including Care Coordination services, and receive capitated payments from Medicare for the complete care of enrolled ESRD patients. On April 4, 2016, CMS finalized the 2017 payments for Medicare Advantage plans and the Part D Prescription Drug Program. CMS expects a revenue change of 0.85% without consideration for expected growth in coding acuity which typically provides an additional 2.2%.

       We also participate in sub-capitation and other shared savings arrangements with certain Medicare Advantage plans and Accountable Care organizations under which we assume risk in providing care to the plans' ESRD patients while paid on a per patient per month basis.

Company Structure

       Our operating segments are the North America Segment, the EMEA Segment, the Asia-Pacific Segment and the Latin America Segment. Our 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, our management believes that the most appropriate U.S. GAAP measures are revenue, operating income and operating income margin. We do not include income taxes as we believe this is 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 headquarter 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 management and procurement related to production are centrally managed at Corporate. The Company´s global research and development is also centrally managed at Corporate. These Corporate activities do not fulfill the definition of a segment. Products are transferred to the segments at cost; therefore no internal profit is generated. The associated internal revenues for the product transfers and their elimination are recorded as Corporate activities (See Note 13 of the Notes to Consolidated Financial Statements (unaudited) "Segment and Corporate Information" found elsewhere in this report). Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. 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, all of these items are excluded from our analysis of segment results and are discussed below in our consolidated results of operations.

6


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Results of Operations

       The following tables summarize our financial performance and certain operating results by principal reporting segment and Corporate for the periods indicated. We prepared the information using a management approach, consistent with the basis and manner in which our management internally disaggregates financial information to assist in making internal operating decisions and evaluating management performance. See the table below:

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2016   2015   2016   2015  
 
  (in millions)
  (in millions)
 
Total revenue(1)                          

North America

  $ 3,168   $ 2,946   $ 6,212   $ 5,717  

EMEA

    676     668     1,307     1,297  

Asia-Pacific

    397     376     771     729  

Latin America

    175     203     328     401  

Corporate

    4     6     8     15  

Total

    4,420     4,199     8,626     8,159  
Operating income                          

North America

    513     428     949     768  

EMEA

    139     134     269     275  

Asia-Pacific

    75     67     140     152  

Latin America

    16     16     27     34  

Corporate

    (102 )   (98 )   (204 )   (178 )

Total

    641     547     1,181     1,051  
Interest income     17     13     28     73  
Interest expense     (119 )   (115 )   (236 )   (277 )
Income tax expense     (169 )   (135 )   (306 )   (273 )
Net Income     370     310     667     574  
Less: Net Income attributable to noncontrolling interests     (76 )   (69 )   (145 )   (124 )
Net Income attributable to shareholders of FMC-AG & Co. KGaA   $ 294   $ 241   $ 522   $ 450  

(1) Net of patient service bad debt provision

7


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Three months ended June 30, 2016 compared to three months ended June 30, 2015

Consolidated Financials

Key Indicators for Consolidated Financial Statements  
 
  For the three months ended
June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  

Revenue in $ million(2)

 

 

4,420

 

 

4,199

 

 

5

%

 

7

%

Health Care(2)

   
3,571
   
3,345
   
7

%
 
8

%

Dialysis Products

   
849
   
854
   
(1

%)
 
2

%

Number of dialysis treatments

 

 

11,547,779

 

 

11,136,497

 

 

4

%

 

 

 

Same market treatment growth in %

 

 

3.1

%

 

4.3

%

 

 

 

 

 

 

Gross profit as a % of revenue

 

 

31.6

%

 

30.9

%

 

 

 

 

 

 

Selling, general and administrative costs as a % of revenue

 

 

16.6

%

 

17.2

%

 

 

 

 

 

 

Operating income in $ million

 

 

641

 

 

547

 

 

17

%

 

 

 

Operating income margin in %

 

 

14.5

%

 

13.0

%

 

 

 

 

 

 

Delivered EBIT in $ million(3)

 

 

565

 

 

478

 

 

18

%

 

 

 

Net income attributable to shareholders of FMC-AG & Co. KGaA in $ million

 

 

294

 

 

241

 

 

22

%

 

 

 

Basic earnings per share in $

 

 

0.96

 

 

0.79

 

 

22

%

 

 

 

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

       Total Revenue increased by 5% (7% increase at Constant Exchange Rates) to $4,420 million for the three months ended June 30, 2016 from $4,199 million in the same period of 2015 due to an increase in Health Care revenue.

       Health Care revenue increased by 7% to $3,571 million (8% increase at Constant Exchange Rates) for the three months ended June 30, 2016 from $3,345 million in the same period of 2015, mainly due to increases in organic revenue per treatment (4%), growth in same market treatments (3%), and contributions from acquisitions (2%), partially offset by the negative effect of exchange rate fluctuations (1%) and by the effect of closed or sold clinics (1%).

       Dialysis treatments increased by 4% for the three months ended June 30, 2016 as compared to the same period in 2015. The increase is due to same market treatment growth (3%), and contributions from acquisitions (2%) partially offset by the effect of closed or sold clinics (1%).

8


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       At June 30, 2016, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 3,504 dialysis clinics compared to 3,421 dialysis clinics at June 30, 2015. During the three months ended June 30, 2016, we acquired 58 dialysis clinics, opened 27 dialysis clinics and combined or closed 13 clinics. The number of patients treated in dialysis clinics that we own, operate or manage (excluding patients of dialysis clinics managed but not consolidated in the U.S.) increased by 4% to 301,548 at June 30, 2016 from 290,658 at June 30, 2015.

       Dialysis product revenue decreased by 1% (2% increase at Constant Exchange Rates) to $849 million as compared to $854 million in the same period of 2015. The increase at Constant Exchange Rates was driven by increased sales of dialyzers, machines, peritoneal dialysis products, bloodlines as well as hemodialysis solutions and concentrates, partially offset by lower sales of renal pharmaceuticals.

       The increase in gross profit margin to 31.6% from 30.9% primarily reflects increases in the North America Segment and the Asia-Pacific Segment. The increase in the North America Segment was mainly due to lower costs for health care supplies and a favorable impact from higher volume with commercial payors, partially offset by higher personnel expense related to dialysis services and an unfavorable impact from pharmacy services as a result of price increases for oral medications. The increase in the Asia-Pacific Segment was driven by business growth and favorable foreign exchange effects.

       Selling, general and administrative ("SG&A") expenses increased to $732 million in the three months ended June 30, 2016 from $723 million in the same period of 2015. SG&A expenses as a percentage of sales decreased to 16.6% for the three months ended June 30, 2016 in comparison with 17.2% in the same period of 2015 due to decreases in the North America Segment and the EMEA Segment. The decrease in the North America Segment was attributable to a favorable impact from endovascular and cardiovascular services related to a gain from a divestiture as well as a gain from the collection of a purchase price escrow claim, lower legal expenses and the impact from increased sales volumes related to pharmacy services, partially offset by an unfavorable impact from hospitalist and intensivist services due to infrastructure development. The decrease in the EMEA Segment was driven by a favorable foreign exchange effects and the impact from increased sales.

       Research and development ("R&D") expenses increased by 12% to $39 million for the three months ended June 30, 2016 from $34 million for the same period of 2015 driven by higher personnel expense.

       Income from equity method investees increased to $13 million for the three months ended June 30, 2016 from $7 million for the same period of 2015. This increase is primarily related to higher income from the Vifor Fresenius Medical Care Renal Pharma Ltd. joint venture due to increased revenue resulting from the expansion of its product portfolio.

       Operating income increased to $641 million for the three months ended June 30, 2016 from $547 million for the same period in 2015. Operating income margin increased to 14.5% for the three months ended June 30, 2016 as compared to 13.0% for the same period in 2015 as a result of increased gross profit margin, decreased SG&A as a percentage of revenue and increased income from equity method investees.

       Delivered EBIT increased to $565 million for the three months ended June 30, 2016 from $478 million for the same period in 2015 as a result of increased operating income, partially offset by increased noncontrolling interests driven by higher operating income of our joint ventures involving dialysis clinics and the creation of new dialysis clinic joint ventures in the North America Segment.

9


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       Interest expense increased by 4% to $119 million for the three months ended June 30, 2016 from $115 million for the same period in 2015 due to the higher impact of the valuation of the embedded derivative related to the equity- neutral convertible bonds issued in September 2014 and the related call option on our shares. Interest income increased by 32% to $17 million for the three months ended June 30, 2016 as compared to $13 million for the same period in 2015 due to the higher impact of the valuation of the derivative embedded in the convertible debt and the related call option on our shares as well as interest income related to delayed payments, partially offset by lower interest income due to the repayment of interest bearing notes receivables in the fourth quarter of 2015.

       Income tax expense increased to $169 million for the three months ended June 30, 2016 as compared to $135 million for the same period in 2015. The effective tax rate increased to 31.3% from 30.4% for the same period of 2015 mainly driven by a proportionately lower increase of tax-free income attributable to noncontrolling interests compared to a higher increase in income before taxes.

       Net income attributable to noncontrolling interests for the three months ended June 30, 2016 increased to $76 million from $69 million for the same period of 2015 primarily driven by higher operating income of joint ventures with dialysis clinics, but at lower margins and, to a lesser extent, the creation of new joint ventures in the North America Segment, partially offset by decreased noncontrolling interest expense related to Care Coordination.

       Net income attributable to shareholders of FMC-AG & Co. KGaA for the three months ended June 30, 2016 increased by 22% to $294 million from $241 million for the same period in 2015 as a result of the combined effects of the items discussed above.

       Basic earnings per share increased by 22% for the three months ended June 30, 2016 to $0.96 as compared with $0.79 for the same period in 2015 primarily due to the increase in net income attributable to shareholders of FMC-AG & Co. KGaA described above. The average weighted number of shares outstanding for the period was approximately 305.5 million in 2016 (304.2 million in 2015).

       We employed 106,556 people (full-time equivalents) as of June 30, 2016 compared to 102,893 as of June 30, 2015, an increase of 4%, primarily due to overall growth in our business.

       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.

10


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

North America Segment

Key Indicators and Business Metrics for North America Segment  
 
  For the three months
ended June 30,
   
 
 
  Change in %  
 
  2016   2015  
Total North America Segment                    
Revenue in $ million(1)     3,168     2,946     8 %

Health Care(1)

    2,938     2,722     8 %

Dialysis Products

    230     224     2 %
Operating income in $ million     513     428     20 %
Operating income margin in %     16.2 %   14.5 %      
Delivered EBIT in $ million(2)     439     362     21 %

Dialysis

 

 

 

 

 

 

 

 

 

 
Revenue in $ million(1)     2,604     2,478     5 %
Number of dialysis treatments     7,168,288     6,892,346     4 %
Same market treatment growth in %     3.0 %   4.2 %      
Operating income in $ million     488     391     25 %
Operating income margin in %     18.7 %   15.8 %      
Delivered EBIT in $ million(2)     422     338     25 %

Care Coordination

 

 

 

 

 

 

 

 

 

 
Revenue in $ million(1)     564     468     21 %
Operating income in $ million     25     37     (32 %)
Operating income margin in %     4.4 %   7.8 %      
Delivered EBIT in $ million(2)     17     24     (31 %)
Member Months Under Medical Cost Management(3)(4)     91,392     40,287     127 %
Medical Cost Under Management in $ million(3)(4)     658     432     52 %
Care Coordination Patient Encounters(3)(4)     1,338,695     1,270,257     5 %

(1) Net of patient service bad debt provision.

(2) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

(3) For further information on these metrics, please refer to the discussion below of our Care Coordination measures under "Care Coordination Business Metrics for Presentation."

(4) The 2016 metric may be understated due to a physician mapping issue related to the BPCI program within a CMS system which has not yet been resolved. Additionally, data presented for the metrics are subject to finalization by CMS, which may result in changes from previously reported metrics.

Dialysis

Revenue

       Dialysis revenue increased for the three months ended June 30, 2016 by 5% to $2,604 million from $2,478 million in the same period of 2015.

       Dialysis care revenue increased for the three months ended June 30, 2016 by 5% to $2,374 million from $2,254 million in the same period of 2015. This increase was driven by same market treatment growth (3%), increases in organic revenue per treatment (2%) and contributions from acquisitions (1%), partially offset by the effect of closed or sold clinics (1%).

11


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       Dialysis treatments increased by 4% for the three months ended June 30, 2016 as compared to the same period in 2015 primarily due to same market treatment growth (3%) and contributions from acquisitions (1%). At June 30, 2016, 186,096 patients (a 4% increase from June 30, 2015) were being treated in the 2,249 dialysis clinics that we own or operate in the North America Segment, compared to 178,766 patients treated in 2,205 dialysis clinics at June 30, 2015.

       In the U.S., the average revenue per treatment was $352 for the three months ended June 30, 2016 and $346 for the same period in 2015. The increase was mainly attributable to a favorable impact from higher volume with commercial payors.

       Cost per treatment in the U.S. decreased to $282 for the three months ended June 30, 2016 from $286 in the same period of 2015. This decrease was largely driven by a favorable impact from lower cost for health care supplies, partially offset by higher personnel expense.

       Dialysis product revenue increased by 2% to $230 million for the three months ended June 30, 2016 as compared to $224 million in the same period in 2015. This was driven by higher sales of machines, dialyzers and peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals.

Operating Income

       Dialysis operating income increased to $488 million for the three months ended June 30, 2016 as compared to $391 million in the same period in 2015. Operating income margin increased to 18.7% for the three months ended June 30, 2016 from 15.8% for the same period in 2015, due to lower costs from health care supplies, a favorable impact from higher volume with commercial payors, lower legal expenses and increased income from equity method investees, partially offset by higher personnel expense.

Delivered EBIT

       Dialysis delivered EBIT increased by 25% to $422 million for the three months ended June 30, 2016 from $338 million for the same period of 2015 mainly as the result of increased operating income, partially offset by increased noncontrolling interests driven by higher operating income of our joint ventures involving dialysis clinics, but at lower margins and, to a lesser extent, the creation of new joint ventures.

Care Coordination

Revenue

       Care Coordination revenue increased by 21% to $564 million for the three months ended June 30, 2016 from $468 million for the same period of 2015. This increase was driven by increases in organic revenue growth (17%), contributions from acquisitions (3%) and reduction of bad debt (1%).

Operating Income

       Care Coordination operating income decreased to $25 million for the three months ended June 30, 2016 from $37 million for the same period of 2015. The operating income margin decreased to 4.4% for the three months ended June 30, 2016 from 7.8% mainly driven by increased costs for hospitalist and

12


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

intensivist services due to infrastructure development, growth in lower margin health plan services as well as higher costs for supplies for laboratory services, partially offset by a favorable impact from endovascular and cardiovascular services related to a gain from a divestiture as well as a gain from the collection of a purchase price escrow claim.

Delivered EBIT

       Care Coordination delivered EBIT decreased to $17 million for the three months ended June 30, 2016 from $24 million for the same period of 2015 mainly as the result of decreased operating income partially offset by decreased noncontrolling interests effects.

Member Months Under Medical Cost Management

       Care Coordination's member months under medical cost management for the three months ended June 30, 2016 was 91,392 months as compared to 40,287 months for the same period of 2015. The increase in membership volume was due to BPCI development, the commencement of ESCOs and inclusion of ESCO amounts in the fourth quarter of 2015 as well as the contribution from MA-CSNPs in the first quarter of 2016. See note 4 to the table "Key Indicators and Business Metrics for North America Segment," above.

Medical Cost Under Management

       Care Coordination's medical cost under management for the three months ended June 30, 2016 was $658 million as compared to $432 million for the same period of 2015. The increase in medical cost under management was attributable to the commencement of ESCOs and inclusion of ESCO amounts in the fourth quarter of 2015, BPCI development as well as the contribution from MA-CSNPs in the first quarter of 2016. See note 4 to the table "Key Indicators and Business Metrics for North America Segment," above.

Care Coordination Patient Encounters

       Care Coordination's patient encounters for the three months ended June 30, 2016 were 1,338,695 encounters and procedures as compared to 1,270,257 encounters and procedures for the three months ended June 30, 2015. The increase was driven by patient encounters and procedures provided by Fresenius Medical Care Rx Bone Mineral Metabolism ("Rx BMM") program, hospitalist and intensivist services, urgent care centers, vascular procedures as well as cardiovascular and endovascular services. See note 4 to the table "Key Indicators and Business Metrics for North America Segment," above.

13


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

EMEA Segment

Key Indicators for EMEA Segment  
 
  For the three months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million(2)     676     668     1 %   3 %

Health Care(2)

   
331
   
309
   
7

%
 
9

%

Dialysis Products

   
345
   
359
   
(4

%)
 
(3

%)

Number of dialysis treatments

 

 

2,217,107

 

 

2,034,186

 

 

9

%

 

 

 

Same market treatment growth in %

 

 

3.4

%

 

3.8

%

 

 

 

 

 

 

Operating income in $ million

 

 

139

 

 

134

 

 

4

%

 

 

 

Operating income margin in %

 

 

20.6

%

 

20.1

%

 

 

 

 

 

 

Delivered EBIT in $ million(3)

 

 

139

 

 

133

 

 

4

%

 

 

 

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

Revenue

       Total revenue for the EMEA Segment increased by 1% (3% increase at Constant Exchange Rates) to $676 million for the three months ended June 30, 2016 as compared to $668 million for the same period of 2015. Health care service revenue for the EMEA Segment increased by 7% (9% increase at Constant Exchange Rates) to $331 million during the three months ended June 30, 2016 as compared to $309 million for the same period of 2015. This is a result of contributions from acquisitions (7%) and increases in organic revenue growth per treatment (3%), partially offset by the negative effect of exchange rate fluctuations (2%) and the effect of closed or sold clinics (1%). Dialysis treatments increased by 9% for the three months ended June 30, 2016 over the same period in 2015 mainly due to contributions from acquisitions (7%) and same market treatment growth (3%), partially offset by the effect of closed or sold clinics (1%). As of June 30, 2016, we had 58,528 patients (9% increase from June 30, 2015) being treated at the 700 dialysis clinics that we own, operate or manage in the EMEA Segment compared to 53,546 patients treated at 648 clinics at June 30, 2015.

       Dialysis product revenue for the three months ended June 30, 2016 decreased by 4% (3% decrease at Constant Exchange Rates) to $345 million as compared to $359 million in the same period of 2015. The decrease at Constant Exchange Rates was driven by lower sales of dialyzers, machines, renal pharmaceuticals and bloodlines, partially offset by higher sales of products for acute care treatments and peritoneal dialysis products.

14


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Operating Income

       Operating income increased to $139 million for the three months ended June 30, 2016 as compared to $134 million for the same period in 2015. Operating income margin increased to 20.6% for the three months ended June 30, 2016 from 20.1% for the same period in 2015 mainly due to favorable foreign exchange effects and a favorable impact from manufacturing driven by higher volumes and production efficiencies, partially offset by lower income from equity method investees.

Delivered EBIT

       Delivered EBIT increased by 4% to $139 million for the three months ended June 30, 2016 as compared to $133 million for the same period in 2015 due to increased operating income, partially offset by increased noncontrolling interests.

Asia-Pacific Segment

Key Indicators for Asia-Pacific Segment  
 
  For the three months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million(2)     397     376     5 %   6 %

Health Care(2)

   
177
   
164
   
8

%
 
2

%

Dialysis Products

   
220
   
212
   
4

%
 
9

%

Number of dialysis treatments

 

 

978,819

 

 

942,855

 

 

4

%

 

 

 

Same market treatment growth in %

 

 

5.0

%

 

3.3

%

 

 

 

 

 

 

Operating income in $ million

 

 

75

 

 

67

 

 

12

%

 

 

 

Operating income margin in %

 

 

18.9

%

 

17.8

%

 

 

 

 

 

 

Delivered EBIT in $ million(3)

 

 

73

 

 

65

 

 

13

%

 

 

 

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

Revenue

       Total revenue for the Asia-Pacific Segment increased by 5% (6% increase at Constant Exchange Rates) to $397 million for the three months ended June 30, 2016 as compared to $376 million for the same period of 2015. Health care service revenue for the Asia-Pacific Segment increased during the three months ended June 30, 2016 by 8% (2% increase at Constant Exchange Rates) to $177 million from $164 million in the same period of 2015. This increase is a result of the effect of exchange rate fluctuations (6%) same market treatment growth (5%), partially offset by the effect of closed or sold clinics (2%) and decreases in organic revenue growth per treatment (1%). Dialysis treatments increased by 4% for the three

15


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

months ended June 30, 2016 over the same period in 2015 mainly due to same market treatment growth (5%), partially offset by the effect of closed or sold clinics (1%). As of June 30, 2016, we had 27,007 patients (a 4% increase from June 30, 2015) being treated at the 324 dialysis clinics that we own, operate or manage in the Asia-Pacific Segment compared to 26,024 patients treated at 320 clinics at June 30, 2015.

       Dialysis product revenue for the three months ended June 30, 2016 increased by4% (9% increase at Constant Exchange Rates) to $220 million compared to $212 million in the same period of 2015. The increase at Constant Exchange Rates was driven by increased sales of dialyzers, bloodlines, peritoneal dialysis products, machines and hemodialysis solutions and concentrates.

Operating Income

       Operating income increased by 12% to $75 million for the three months ended June 30, 2016 as compared to $67 million for the same period in 2015. Operating income margin increased to 18.9% for the three months ended June 30, 2016 compared to 17.8% in the same period of 2015 due to favorable foreign exchange effects and business growth, partially offset by lower income from equity method investees.

Delivered EBIT

       Delivered EBIT increased by 13% to $73 million for the three months ended June 30, 2016 as compared to $65 million for the same period in 2015 due to increased operating income with virtually no change in noncontrolling interests.

Latin America Segment

Key Indicators for Latin America Segment  
 
  For the three months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million(2)     175     203     (14 %)   9 %

Health Care(2)

   
125
   
150
   
(17

%)
 
9

%

Dialysis Products

   
50
   
53
   
(5

%)
 
8

%

Number of dialysis treatments

 

 

1,183,565

 

 

1,267,110

 

 

(7

%)

 

 

 

Same market treatment growth in %

 

 

1.5

%

 

6.8

%

 

 

 

 

 

 

Operating income in $ million

 

 

16

 

 

16

 

 

4

%

 

 

 

Operating income margin in %

 

 

9.3

%

 

7.8

%

 

 

 

 

 

 

Delivered EBIT in $ million(3)

 

 

16

 

 

16

 

 

5

%

 

 

 

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

16


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Revenue

       Total revenue for the Latin America Segment decreased by 14% (9% increase at Constant Exchange Rates) to $175 million for the three months ended June 30, 2016 as compared to $203 million for the same period of 2015. Health care service revenue for the Latin America Segment decreased by 17% (9% increase at Constant Exchange Rates) during the three months ended June 30, 2016 to $125 million as compared to $150 million in the same period of 2015. This decrease is a result of the negative effect of exchange rate fluctuations (26%) and the effect of closed or sold clinics (mainly in Venezuela) (12%), partially offset by increases in organic revenue per treatment (17%), growth in same market treatments (2%) and contributions from acquisitions (2%). Dialysis treatments decreased by 7% for the three months ended June 30, 2016 over the same period in 2015 mainly due to the effect of closed or sold clinics (mainly in Venezuela) (10%), partially offset by same market treatment growth (2%) and contributions from acquisitions (1%). As of June 30, 2016, we had 29,917 patients (a 7% decrease from June 30, 2015) being treated at the 231 dialysis clinics that we own, operate or manage in the Latin America Segment compared to 32,322 patients treated at 248 clinics at June 30, 2015.

       Dialysis product revenue for the three months ended June 30, 2016 decreased by 5% (8% increase at Constant Exchange Rates) to $50 million compared to $53 million in the same period of 2015. The 8% increase at Constant Exchange Rates was mainly driven by higher sales of dialyzers, hemodialysis solutions and concentrates, machines and bloodlines, partially offset by lower sales of peritoneal dialysis products.

Operating Income

       Operating income remained stable at $16 million for the three months ended June 30, 2016 as compared to the same period in 2015 (this represents a 4% increase without effect from rounding). Operating income margin increased to 9.3% for the three months ended June 30, 2016 from 7.8% for the same period in 2015 mainly due to favorable foreign exchange effects and the impact from higher revenue in the region at Constant Exchange Rates, partially offset by higher costs related to inflation.

Delivered EBIT

       Delivered EBIT remained stable at $16 million for the three months ended June 30, 2016 as compared to the same period in 2015 (this represents a 5% increase without effect from rounding due to increased operating income with virtually no change in noncontrolling interests).

17


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Six months ended June 30, 2016 compared to six months ended June 30, 2015

Consolidated Financials

Key Indicators for Consolidated Financial Statements  
 
  For the six months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million(2)     8,626     8,159     6 %   8 %

Health Care(2)

   
6,985
   
6,527
   
7

%
 
9

%

Dialysis Products

   
1,641
   
1,632
   
1

%
 
4

%

Number of dialysis treatments

 

 

22,821,121

 

 

21,907,899

 

 

4

%

 

 

 

Same market treatment growth in %

 

 

3.5

%

 

4.2

%

 

 

 

 

 

 

Gross profit as a % of revenue

 

 

31.5

%

 

30.4

%

 

 

 

 

 

 

Selling, general and administrative costs as a % of revenue

 

 

17.3

%

 

16.9

%

 

 

 

 

 

 

Operating income in $ million

 

 

1,181

 

 

1,051

 

 

12

%

 

 

 

Operating income margin in %

 

 

13.7

%

 

12.9

%

 

 

 

 

 

 

Delivered EBIT in $ million(3)

 

 

1,036

 

 

927

 

 

12

%

 

 

 

Net income attributable to shareholders of FMC-AG & Co. KGaA in $ million

 

 

522

 

 

450

 

 

16

%

 

 

 

Basic earnings per share in $

 

 

1.71

 

 

1.48

 

 

15

%

 

 

 

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

       Total Revenue increased by 6% (8% increase at Constant Exchange Rates) to $8,626 million for the six months ended June 30, 2016 from $8,159 million in the same period of 2015 due to increases in Health Care revenue and dialysis product revenue.

       Health Care revenue increased by 7% to $6,985 million (9% increase at Constant Exchange Rates) for the six months ended June 30, 2016 from $6,527 million in the same period of 2015, mainly due to growth in same market treatments (4%), increases in organic revenue per treatment (3%), an increase in dialysis days (1%) and contributions from acquisitions (1%), partially offset by the negative effect of exchange rate fluctuations (2%).

       Dialysis treatments increased by 4% for the six months ended June 30, 2016 as compared to the same period in 2015. The increase is due to same market treatment growth (4%), an increase in dialysis days (1%) and contributions from acquisitions (1%) partially offset by the effect of closed or sold clinics (2%).

18


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       Dialysis product revenue increased by 1% (4% increase at Constant Exchange Rates) to $1,641 million as compared to $1,632 million in the same period of 2015. The increase at Constant Exchange Rates was driven by increased sales of dialyzers, machines, bloodlines, peritoneal dialysis products, hemodialysis solutions and concentrates and products for acute care treatments, partially offset by lower sales of renal pharmaceuticals.

       The increase in gross profit margin to 31.5% from 30.4% primarily reflects increases in the North America Segment, the Asia-Pacific Segment and the EMEA Segment. The increase in the North America Segment was mainly due to lower costs for health care supplies and a favorable impact from higher volume with commercial payors, partially offset by higher personnel expense related to dialysis services, an unfavorable impact from pharmacy services as a result of price increases in oral medications and growth in health plan services at lower than average margins. The increase in the Asia-Pacific Segment was driven by favorable foreign exchange effects. The increase in the EMEA Segment was primarily driven by a favorable impact from manufacturing related to higher volumes and production efficiencies, partially offset by unfavorable foreign exchange effects.

       Selling, general and administrative ("SG&A") expenses increased to $1,491 million in the six months ended June 30, 2016 from $ 1,378 million in the same period of 2015. SG&A expenses as a percentage of sales increased to 17.3% for the six months ended June 30, 2016 in comparison with 16.9% in the same period of 2015 due to increases in the Asia-Pacific Segment, Corporate and the EMEA Segment, partially offset by a decrease in the North America Segment. The increase in the Asia-Pacific Segment was mainly due to unfavorable foreign exchange effects, costs associated with changes in the Management Board and increased costs related to furthered sales development. The increase at Corporate was primarily driven by higher legal and consulting expenses related to compliance investigations we are conducting (see Note 10 of the Notes to the Consolidated Financial Statements (unaudited)) and higher overhead costs for manufacturing. The increase in the EMEA Segment was driven by unfavorable foreign exchange effects and higher bad debt expense, partially offset by the impact from higher sales. The decrease in the North America Segment was mainly due to lower legal expense, the impact from higher sales related to pharmacy services and a favorable impact from cardiovascular and endovascular services related to a gain from a divestiture as well as a gain from the collection of a purchase price escrow claim, partially offset by an unfavorable impact from hospitalist and intensivist services due to infrastructure development.

       Research and development ("R&D") expenses increased by 17% to $76 million for the six months ended June 30, 2016 from $65 million for the same period of 2015 driven by higher personnel expense.

       Income from equity method investees increased to $32 million for the six months ended June 30, 2016 from $13 million for the same period of 2015. This increase is primarily related to higher income from the Vifor Fresenius Medical Care Renal Pharma Ltd. joint venture due to increased revenue resulting from the expansion of its product portfolio.

       Operating income increased to $1,181 million for the six months ended June 30, 2016 from $1,051 million for the same period in 2015. Operating income margin increased to 13.7% for the six months ended June 30, 2016 as compared to 12.9% for the same period in 2015 as a result of increased gross profit margin and income from equity method investees, partially offset by an increase in SG&A as a percentage of revenue.

       Delivered EBIT increased to $1,036 million for the six months ended June 30, 2016 from $927 million for the same period in 2015 as a result of increased operating income.

19


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       Interest expense decreased by 15% to $236 million for the six months ended June 30, 2016 from $277 million for the same period in 2015 due to the lower impact of the valuation of the embedded derivative related to the equity- neutral convertible bonds issued in September 2014 and the related call option on our shares. Interest income decreased by 61% to $28 million for the six months ended June 30, 2016 as compared to $73 million for the same period in 2015 due to the lower impact of the valuation of the derivative embedded in the convertible debt and the related call option on our shares as well as the repayment of interest bearing notes receivables in the fourth quarter of 2015.

       Income tax expense increased to $306 million for the six months ended June 30, 2016 as compared to $273 million for the same period in 2015. The effective tax rate decreased to 31.5% from 32.2% for the same period of 2015 mainly driven by higher tax-free income from equity method investees and increased tax-free income attributable to noncontrolling interests.

       Net income attributable to noncontrolling interests for the six months ended June 30, 2016 increased to $145 million from $124 million for the same period of 2015 primarily driven by higher operating income of joint ventures with dialysis clinics, but at lower margins and, to a lesser extent, the creation of new dialysis clinic joint ventures in the North America Segment, partially offset by decreased noncontrolling interest expense related to Care Coordination.

       Net income attributable to shareholders of FMC-AG & Co. KGaA for the six months ended June 30, 2016 increased by 16% to $522 million from $450 million for the same period in 2015 as a result of the combined effects of the items discussed above.

       Basic earnings per share increased by 15% for the six months ended June 30, 2016 to $1.71 as compared with $1.48 for the same period in 2015 primarily due to the increase in net income attributable to shareholders of FMC-AG & Co. KGaA described above. The average weighted number of shares outstanding for the period was approximately 305.4 million in 2016 (303.9 million in 2015).

       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.

20


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

North America Segment

Key Indicators and Business Metrics for North America Segment  
 
  For the six months
ended June 30,
   
 
 
  Change in %  
 
  2016   2015  
Total North America Segment                    
Revenue in $ million(1)     6,212     5,717     9 %

Health Care(1)

    5,770     5,293     9 %

Dialysis Products

    442     424     4 %
Operating income in $ million     949     768     24 %
Operating income margin in %     15.3 %   13.4 %      
Delivered EBIT in $ million(2)     809     649     25 %

Dialysis

 

 

 

 

 

 

 

 

 

 
Revenue in $ million(1)     5,126     4,815     6 %
Number of dialysis treatments     14,221,402     13,527,268     5 %
Same market treatment growth in %     3.5 %   4.0 %      
Operating income in $ million     914     716     28 %
Operating income margin in %     17.8 %   14.9 %      
Delivered EBIT in $ million(2)     791     619     28 %

Care Coordination

 

 

 

 

 

 

 

 

 

 
Revenue in $ million(1)     1,086     902     20 %
Operating income in $ million     35     52     (32 %)
Operating income margin in %     3.2 %   5.8 %      
Delivered EBIT in $ million(2)     18     30     (39 %)
Member Months Under Medical Cost Management(3)(4)     184,767     44,592     314 %
Medical Cost Under Management in $ million(3)(4)     1,318     463     185 %
Care Coordination Patient Encounters(3)(4)     2,645,771     2,542,304     4 %

(1) Net of patient service bad debt provision.

(2) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

(3) For further information on these metrics, please refer to the discussion below of our Care Coordination measures under "Care Coordination Business Metrics for Presentation."

(4) The 2016 metric may be understated due to a physician mapping issue related to the BPCI program within a CMS system which has not yet been resolved. Additionally, data presented for the metrics are subject to finalization by CMS, which may result in changes from previously reported metrics.

Dialysis

Revenue

       Dialysis revenue increased for the six months ended June 30, 2016 by 6% to $5,126 million from $4,815 million in the same period of 2015.

       Dialysis care revenue increased for the six months ended June 30, 2016 by 7% to $4,684 million from $4,391 million in the same period of 2015. This increase was driven by same market treatment growth (3%), increases in organic revenue per treatment (2%), an increase in dialysis days (1%) and contributions from acquisitions (1%).

21


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       Dialysis treatments increased by 5% for the six months ended June 30, 2016 as compared to the same period in 2015 primarily due to same market treatment growth (3%), an increase in dialysis days (1%) and contributions from acquisitions (1%).

       In the U.S., the average revenue per treatment was $350 for the six months ended June 30, 2016 and $344 for the same period in 2015. The increase was mainly attributable to a favorable impact from higher volume with commercial payors.

       Cost per treatment in the U.S. decreased to $282 for the six months ended June 30, 2016 from $287 in the same period of 2015. This decrease was largely driven by a favorable impact from lower cost for health care supplies, partially offset by higher personnel expense.

       Dialysis product revenue increased by 4% to $442 million for the six months ended June 30, 2016 as compared to $424 million in the same period in 2015. This was driven by higher sales of machines, dialyzers and peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals.

Operating Income

       Dialysis operating income increased to $914 million for the six months ended June 30, 2016 as compared to $716 million in the same period in 2015. Operating income margin increased to 17.8% for the six months ended June 30, 2016 from 14.9% for the same period in 2015, due to lower costs from health care supplies, a favorable impact from higher volume with commercial payors, higher income from equity method investees and lower legal expenses, partially offset by higher personnel expense.

Delivered EBIT

       Dialysis delivered EBIT increased by 28% to $791 million for the six months ended June 30, 2016 from $619 million for the same period of 2015 mainly as the result of increased operating income, partially offset by increased noncontrolling interests driven by higher operating income of our joint ventures involving dialysis clinics, but at lower margins and, to a lesser extent, the creation of new joint ventures.

Care Coordination

Revenue

       Care Coordination revenue increased by 20% to $1,086 million for the six months ended June 30, 2016 from $902 million for the same period of 2015. This increase was driven by increases in organic revenue growth (17%), contributions from acquisitions (2%) and reduction of bad debt (1%).

22


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Operating Income

       Care Coordination operating income decreased to $35 million for the six months ended June 30, 2016 from $52 million for the same period of 2015. The operating income margin decreased to 3.2% for the six months ended June 30, 2016 from 5.8% mainly driven by increased costs for hospitalist and intensivist services due to infrastructure development as well as growth in lower margin health plan and urgent care services and higher costs for supplies for laboratory services, partially offset by a favorable impact from endovascular and cardiovascular services related to a gain from a divestiture as well as a gain from the collection of a purchase price escrow claim and the impact from increased sales of pharmacy services.

Delivered EBIT

       Care Coordination delivered EBIT decreased to $18 million for the six months ended June 30, 2016 from $30 million for the same period of 2015 mainly as the result of decreased operating income, partially offset by decreased noncontrolling interests effects.

Member Months Under Medical Cost Management

       Care Coordination's member months under medical cost management for the six months ended June 30, 2016 was 184,767 months as compared to 44,592 months for the same period of 2015. The increase in membership volume was attributable to BPCI development, the commencement of ESCOs and inclusion of ESCO amounts in the fourth quarter of 2015 as well as the contribution from MA-CSNPs in the first quarter of 2016. See note 4 to the table "Key Indicators and Business Metrics for North America Segment," above.

Medical Cost Under Management

       Care Coordination's medical cost under management for the six months ended June 30, 2016 was $1,318 million as compared to $463 million for the same period of 2015. The increase in medical cost under management was attributable to the commencement of ESCOs and inclusion of ESCO amounts in the fourth quarter of 2015, BPCI development as well as the contribution from MA-CSNPs in the first quarter of 2016. See note 4 to the table "Key Indicators and Business Metrics for North America Segment," above.

Care Coordination Patient Encounters

       Care Coordination's patient encounters for the six months ended June 30, 2016 were 2,645,771 encounters and procedures as compared to 2,542,304 encounters and procedures for the six months ended June 30, 2015. The increase was driven by patient encounters and procedures provided by Rx BMM program, urgent care centers, hospitalist and intensivist services, vascular procedures as well as cardiovascular and endovascular services. See note 4 to the table "Key Indicators and Business Metrics for North America Segment," above.

23


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

EMEA Segment

Key Indicators for EMEA Segment  
 
  For the six months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million(2)     1,307     1,297     1 %   4 %

Health Care(2)

    632     610     4 %   8 %

Dialysis Products

    675     687     (2 %)   1 %
Number of dialysis treatments     4,312,717     4,023,243     7 %      
Same market treatment growth in %     3.6 %   4.0 %            
Operating income in $ million     269     275     (2 %)      
Operating income margin in %     20.6 %   21.2 %            
Delivered EBIT in $ million(3)     267     274     (2 %)      

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

Revenue

       Total revenue for the EMEA Segment increased by 1% (4% increase at Constant Exchange Rates) to $1,307 million for the six months ended June 30, 2016 as compared to $1,297 million for the same period of 2015. Health care service revenue for the EMEA Segment increased by 4% (8% increase at Constant Exchange Rates) to $632 million during the six months ended June 30, 2016 as compared to $610 million for the same period of 2015. This increase is a result of contributions from acquisitions (5%), same market treatment growth (4%), and an increase in dialysis days (1%), partially offset by the negative impact of exchange rate fluctuations (4%), the effect of closed or sold clinics (1%) and decreases in organic revenue growth per treatment (1%). Dialysis treatments increased by 7% for the six months ended June 30, 2016 over the same period in 2015 mainly due to same market treatment growth (4%) and contributions from acquisitions (4%), partially offset by the effect of closed or sold clinics (1%).

       Dialysis product revenue for the six months ended June 30, 2016 decreased by 2% (1% increase at Constant Exchange Rates) to $675 million as compared to $687 million in the same period of 2015. The increase at Constant Exchange Rates was driven by increased sales of products for acute care treatments, hemodialysis solutions and concentrates, bloodlines as well as peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals, machines and dialyzers.

Operating Income

       Operating income decreased to $269 million for the three months ended June 30, 2016 as compared to $275 million for the same period in 2015. Operating income margin decreased to 20.6% for the six months ended June 30, 2016 from 21.2% for the same period in 2015 mainly due to unfavorable foreign exchange

24


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

effects, partially offset by a favorable impact from manufacturing driven by higher volumes and production efficiencies and furthered sales development at Constant Exchange Rates.

Delivered EBIT

       Delivered EBIT decreased by 2% to $267 million for the six months ended June 30, 2016 as compared to $274 million for the same period in 2015 due to decreased operating income, partially offset by increased noncontrolling interests effects.

Asia-Pacific Segment

Key Indicators for Asia-Pacific Segment  
 
  For the six months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million(2)     771     729     6 %   8 %

Health Care(2)

    345     328     5 %   3 %

Dialysis Products

    426     401     6 %   12 %
Number of dialysis treatments     1,949,115     1,862,018     5 %      
Same market treatment growth in %     5.9 %   3.0 %            
Operating income in $ million     140     152     (8 %)      
Operating income margin in %     18.2 %   20.8 %            
Delivered EBIT in $ million(3)     137     148     (7 %)      

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

Revenue

       Total revenue for the Asia-Pacific Segment increased by 6% (8% increase at Constant Exchange Rates) to $771 million for the six months ended June 30, 2016 as compared to $729 million for the same period of 2015. Health care service revenue for the Asia-Pacific Segment increased during the six months ended June 30, 2016 by 5% (3% increase at Constant Exchange Rates) to $345 million from $328 million in the same period of 2015. This increase is a result of same market treatment growth (6%) and the effect of exchange rate fluctuations (2%), partially offset by decreases in organic revenue growth per treatment (2%), and the effect of closed or sold clinics (1%). Dialysis treatments increased by 5% for the six months ended June 30, 2016 over the same period in 2015 mainly due to same market treatment growth (6%), partially offset by the effect of closed or sold clinics (1%).

       Dialysis product revenue for the six months ended June 30, 2016 increased by 6% (12% increase at Constant Exchange Rates) to $426 million compared to $401 million in the same period of 2015. The

25


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

increase at Constant Exchange Rates was driven by increased sales of dialyzers, bloodlines, machines, peritoneal dialysis products and hemodialysis solutions and concentrates.

Operating Income

       Operating income decreased by 8% to $140 million for the six months ended June 30, 2016 as compared to $152 million for the same period in 2015. Operating income margin decreased to 18.2% for the six months ended June 30, 2016 compared to 20.8% in the same period of 2015 due to costs associated with changes in the Management Board, unfavorable foreign exchange effects, an adverse impact from manufacturing driven by lower volumes of dialyzers and concentrates and increased costs related to furthered sales development.

Delivered EBIT

       Delivered EBIT decreased by 7% to $137 million for the six months ended June 30, 2016 as compared to $148 million for the same period in 2015 due to decreased operating income with virtually no change in noncontrolling interests.

Latin America Segment

Key Indicators for Latin America Segment  
 
  For the six months
ended June 30,
  Change in %  
 
  as
reported
  at Constant
Exchange
Rates(1)
 
 
  2016   2015  
Revenue in $ million     328     401     (18 %)   7 %

Health Care(2)

    238     296     (20 %)   9 %

Dialysis Products

    90     105     (14 %)   2 %
Number of dialysis treatments     2,337,887     2,495,370     (6 %)      
Same market treatment growth in %     1.8 %   6.4 %            
Operating income in $ million     27     34     (19 %)      
Operating income margin in %     8.3 %   8.4 %            
Delivered EBIT in $ million(3)     27     34     (19 %)      

(1) For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" below.

(2) Net of patient service bad debt provision.

(3) For further information on Delivered EBIT, see "Non-U.S. GAAP Measures for Presentation – Delivered EBIT" below.

Revenue

       Total revenue for the Latin America Segment decreased by 18% (7% increase at Constant Exchange Rates) to $328 million for the six months ended June 30, 2016 as compared to $401 million for the same

26


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

period of 2015. Health care service revenue for the Latin America Segment decreased by 20% (9% increase at Constant Exchange Rates) during the six months ended June 30, 2016 to $238 million as compared to $296 million for the same period of 2015. The health care service revenue decreased as a result of the negative effect of exchange rate fluctuations (29%) and the effect of closed or sold clinics (mainly in Venezuela) (10%), partially offset by increases in organic revenue per treatment (15%), growth in same market treatments (2%), contributions from acquisitions (1%) and an increase in dialysis days (1%). Dialysis treatments decreased by 6% for the six months ended June 30, 2016 over the same period in 2015 mainly due to the effect of closed or sold clinics (10%), partially offset by same market treatment growth (2%), contributions from acquisitions (1%) and an increase in dialysis days (1%).

       Dialysis product revenue for the six months ended June 30, 2016 decreased by 14% (2% increase at Constant Exchange Rates) to $90 million compared to $105 million in the same period of 2015. The 2% increase at Constant Exchange Rates was driven by increased sales of dialyzers and bloodlines, partially offset by lower sales of peritoneal dialysis products and machines.

Operating Income

       Operating income decreased by 19% to $27 million for the six months ended June 30, 2016 as compared to $34 million for the same period in 2015. Operating income margin decreased to 8.3% for the six months ended June 30, 2016 from 8.4% for the same period in 2015 mainly due to higher costs related to inflation and an unfavorable impact from manufacturing production costs driven by unfavorable foreign exchange effects and higher costs for quality development, partially offset by the impact from higher revenue in the region as well as the impact from prior year lower margin dialysis service business in Venezuela which was subsequently divested in the third quarter of 2015.

Delivered EBIT

       Delivered EBIT decreased by 19% to $27 million for the six months ended June 30, 2016 as compared to $34 million for the same period in 2015 due to the impacts noted above in operating income with virtually no change in noncontrolling interests.


Liquidity and Capital Resources

Six months ended June 30, 2016 compared to six months ended June 30, 2015

       Our primary sources of liquidity are typically cash provided by operating activities, cash provided by short-term debt 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 June 30, 2016, we had cash and cash equivalents of $723 million. For information regarding utilization and availability of cash under our principal credit facility (the "Amended 2012 Credit

27


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Agreement"), see Note 5 of the Notes to Consolidated Financial Statements (unaudited), "Long-term Debt and Capital Lease Obligations – Amended 2012 Credit Agreement," included in this report.

Net Cash Provided By (Used In) Operating Activities

       In the first six months of 2016 and 2015, we generated net cash provided by operating activities of $857 million and $832 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 2016 versus 2015 was mainly a result of increased earnings and reduced inventory levels driven by decreased volume of health care supplies, particularly due to a decrease in erythropoietin-stimulating agents inventory, partially offset by higher income tax payments due to a tax refund in the comparable period of 2015 and increased earnings in the current period as well as the timing of other working capital items.

       The profitability of our business depends significantly on reimbursement rates. Approximately 81% 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. Legislative changes could affect reimbursement rates for a significant portion of the services we provide, as well as the scope of 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.

       Our working capital, which is defined as current assets less current liabilities, was $2,358 million at June 30, 2016 which decreased from $2,619 million at December 31, 2015. The change is primarily the result of increased short-term debt due to issuance of short-term notes under our commercial paper program (see Note 4 of the Notes to Consolidated Financial Statements (unaudited), "Short-Term Debt and Short-Term Debt from Related Parties") and increased accrued expenses and other current liabilities, partially offset by increased trade accounts receivable and cash and cash equivalents due to an adjustment during the first quarter which impacted invoicing as well as increased prepaid expenses and other current assets largely related to a cost report receivable from Medicare and Medicaid. Our ratio of current assets to current liabilities was 1.48 and 1.63 at June 30, 2016 and December 31, 2015, 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, issuances under the Commercial Paper Program (See Note 4 of the Notes to the Consolidated Financial Statements, "Short-Term Debt and Short-Term Debt from Related Parties," included in this report) as well as 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. We aim to preserve financial resources with a minimum $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 addition, 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 70 at June 30, 2016, a decrease as compared to 71 at December 31, 2015.

28


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       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:

 
  June 30,
2016
  December 31,
2015

North America days sales outstanding

  54   53

EMEA days sales outstanding

 

105

 

104

Asia-Pacific days sales outstanding

 

103

 

113

Latin America days sales outstanding

 

147

 

141

FMC-AG & Co. KGaA average days sales outstanding

 

70

 

71

       The DSO increase in the North America Segment is largely due to ordinary business fluctuations. An adjustment during the first quarter which impacted invoicing was largely resolved during the second quarter. The EMEA Segment's DSO increase reflects increased sales in the region coupled with fluctuations in payments of public health care organizations. 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 of public health care organizations in certain countries.

       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

       We used net cash of $655 million and $478 million in investing activities in the six months ended June 30, 2016 and 2015, respectively.

       Capital expenditures for property, plant and equipment, net of proceeds from sales of property, plant and equipment were $498 million and $411 million in the first six months of 2016 and 2015, respectively. In the first six months of 2016, capital expenditures were $298 million in the North America Segment, $112 million at Corporate, $60 million for the EMEA Segment, $17 million for the Asia-Pacific Segment and $11 million for the Latin America Segment. Capital expenditures in the first six months of 2015 were $211 million in the North America Segment, $121 million at Corporate, $54 million for the EMEA Segment, $16 million for the Asia-Pacific Segment and $9 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 Germany, the North America Segment and France) and capitalization of machines provided to our customers and for Care Coordination. Capital expenditures were approximately 6% of total revenue in the first six months of 2016 as compared to 5% for the same period in 2015.

29


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       In addition to the capital expenditures discussed above, we invested approximately $304 million cash in the first six months of 2016, $250 million in the North America Segment, $42 million in the EMEA Segment, $8 million at Corporate and $4 million in the Latin America Segment. The investment in the first six months of 2016 is primarily related to acquisitions of dialysis clinics, available for sale financial assets, acquisitions in our hospitalist and intensivist business, and a loan provided to an equity method investee in the North America Segment as well as the acquisition of dialysis clinics in the EMEA Segment. Additionally, during the first six months of 2016, we received $147 million from divestitures, including an approximately $80 million repayment of unsecured loans provided to an equity method investee in 2015 and 2016 as well as approximately $66 million related to available for sale financial assets. In the first six months of 2015, we invested approximately $101 million cash, primarily related to the acquisition of dialysis clinics in the amount of approximately $77 million in the North America Segment, $15 million in the EMEA Segment, $7 million in the Asia-Pacific Segment and $2 million in Corporate. Additionally, during the first six months of 2015, we received $35 million from divestitures, including a $21 million repayment of an unsecured loan provided to an equity method investee in 2014 as well as $9 million from the sale of our plasma collection device manufacturing business to Fresenius Kabi USA, Inc.

       We anticipate capital expenditures of $1.0 to $1.1 billion and expect to make acquisitions of approximately $0.75 billion in 2016. See "Outlook" below.

Net Cash Provided By (Used In) Financing Activities

       Net cash used in financing activities was $51 million in the first six months of 2016 compared to net cash used in financing activities of $394 million in the first six months of 2015.

       In the six-month period ended June 30, 2016, cash was mainly used for the payment of dividends, repayments of long-term debt and capital lease obligations, repayments of short-term debt and distributions to noncontrolling interests, largely offset by proceeds from short-term debt. In the first six months of 2015, cash was mainly used for the payment of dividends, repayments of long-term debt and short-term debt as well as distributions to noncontrolling interests, partially offset by proceeds from short-term debt, proceeds from the exercise of stock options and proceeds from short-term debt from related parties.

       On May 13, 2016, we paid a dividend with respect to 2015 of €0.80 per share (for 2014 paid in 2015 €0.78). The total dividend payment was €244 million ($277 million) as compared with €237 million ($263 million) in the prior year.


Non-U.S. GAAP Measures for Presentation

Constant 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

30


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

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-over-period 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.

Delivered EBIT

       As a result of the increase of noncontrolling interest holders in our operations, we believe a measure that is meaningful to investors is operating income less noncontrolling interests ("Delivered EBIT"). Delivered EBIT approximates the operating income attributable to the shareholders of FMC-AG & Co. KGaA. As such, we believe that operating income, or EBIT, is the closest comparable U.S. GAAP

31


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

measure. Below is a table showing the reconciliation of Delivered EBIT to Operating Income for each of our reporting segments:

 
  Three months ended
June 30
  Six months ended
June 30
 
 
  2016   2015   2016   2015  
 
  (in millions, unaudited)
  (in millions, unaudited)
 

Delivered EBIT reconciliation

                         

Total

                         

Operating income (EBIT)

  $ 641   $ 547   $ 1,181   $ 1,051  

less noncontrolling interests

    (76 )   (69 )   (145 )   (124 )

Delivered EBIT

    565     478     1,036     927  

North America

   
 
   
 
   
 
   
 
 

Operating income (EBIT)

    513     428     949     768  

less noncontrolling interests

    (74 )   (66 )   (140 )   (119 )

Delivered EBIT

    439     362     809     649  

Dialysis

   
 
   
 
   
 
   
 
 

Operating income (EBIT)

    488     391     914     716  

less noncontrolling interests

    (66 )   (53 )   (123 )   (97 )

Delivered EBIT

    422     338     791     619  

Care Coordination

   
 
   
 
   
 
   
 
 

Operating income (EBIT)

    25     37     35     52  

less noncontrolling interests

    (8 )   (13 )   (17 )   (22 )

Delivered EBIT

    17     24     18     30  

EMEA

   
 
   
 
   
 
   
 
 

Operating income (EBIT)

    139     134     269     275  

less noncontrolling interests

    0     (1 )   (2 )   (1 )

Delivered EBIT

    139     133     267     274  

Asia-Pacific

   
 
   
 
   
 
   
 
 

Operating income (EBIT)

    75     67     140     152  

less noncontrolling interests

    (2 )   (2 )   (3 )   (4 )

Delivered EBIT

    73     65     137     148  

Latin America

   
 
   
 
   
 
   
 
 

Operating income (EBIT)

    16     16     27     34  

less noncontrolling interests

    0     0     0     0  

Delivered EBIT

    16     16     27     34  


Non-U.S. GAAP Measures

EBITDA

       EBITDA (earnings before interest, tax, depreciation and amortization expenses) was approximately $1,557 million, 18.1% of revenues for the six-month period ended June 30, 2016, and $1,408 million, 17.3%

32


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

of revenues for the same period of 2015. EBITDA is the basis for determining compliance with certain covenants contained in our Amended 2012 Credit Agreement, euro-denominated 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

 
  For the six months
ended June 30,
 
 
  2016   2015  
 
  (in millions)
 

Total EBITDA

  $ 1,557   $ 1,408  

Interest expense (net of interest income)

    (208 )   (204 )

Income tax expense

    (306 )   (273 )

Change in deferred taxes, net

    (26 )   (73 )

Changes in operating assets and liabilities

    (134 )   (24 )

Stock compensation expense

    8     1  

Other items, net

    (34 )   (3 )

Net cash provided by (used in) operating activities

  $ 857   $ 832  

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 as a percentage of revenue. This represents the percentage of revenue that is available for acquisitions, dividends to shareholders, or the reduction of debt financing.

33


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

       The following table shows the significant cash flow key performance indicators for the six months ended June 30, 2016 and 2015:

 
  For the six months
ended
June 30,
 
 
  2016   2015  
 
  (in millions)
 

Revenue

  $ 8,626   $ 8,159  

Net cash provided by (used in) operating activities

    857     832  

Capital expenditures

    (506 )   (418 )

Proceeds from sale of property, plant and equipment

    8     7  

Capital expenditures, net

  $ (498 ) $ (411 )

Free cash flow

    359     421  

Net cash provided by (used in) operating activities as a % of revenue

    9.9 %   10.2 %

Free cash flow as a % of revenue

    4.2 %   5.2 %


Care Coordination Business Metrics for Presentation

       The measures for our North America Segment discussed below include current and future programs that we will be participating in and will be reflected in the discussion of our business within the North America Segment. Currently, only the sub-capitation, BPCI, ESCO programs and other shared savings programs are included within the Member Months and Medical Cost Under Management calculations below. In the future, there may be other programs that could be included in the following metrics. These metrics may be developed further in future periods. Note that due to the timing required by CMS to review the BPCI program data that we provide, estimates have been used in order to report these metrics in a timely manner.

Member Months Under Medical Cost Management

       Member months under medical cost management is calculated by multiplying the number of members who are included in value-based reimbursement programs, such as Medicare Advantage plans or other value-based programs in the U.S., by the corresponding number of months these members participate in those programs ("Member Months"). In the aforementioned programs, we are assuming the risk of generating savings. The financial results will be recorded in earnings as our performance is determined. The membership offerings within Care Coordination are sub-capitation arrangements, MA-CSNPs, ESCO and BPCI programs as well as other shared savings programs. 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

       Medical cost under management represents the management of medical costs associated with our patient membership in value-based programs. For ESCO, BPCI and other shared savings programs, this is calculated by multiplying the Member Months in each program by the benchmark of expected medical cost per member per month. The sub-capitation and MA-CSNPs calculation multiplies the premium per

34


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

member of the program per month by the number of Member Months associated with the plan, as noted above.

Care Coordination Patient Encounters

       Care Coordination patient encounters represents the total patient encounters and procedures conducted by certain of our Care Coordination activities. Specifically, Care Coordination patient encounters is the sum of all encounters and procedures completed during the period by Sound, MedSpring Urgent Care, Fresenius Vascular Care, and National Cardiovascular Partners as well as patients in our Rx BMM program.


Balance Sheet Structure

       Total assets as of June 30, 2016 increased to $26,553 million from $25,365 million as compared to December 31, 2015. Current assets as a percent of total assets remained flat at 27% at June 30, 2016 as compared to December 31, 2015. The equity ratio, the ratio of our equity divided by total liabilities and shareholders' equity, remained stable at 41% at June 30, 2016 as compared to December 31, 2015.


Outlook

       Below is a table showing our growth outlook for 2016. The outlook for 2016 is based on exchange rates prevailing at the beginning of 2016:

 
  Targets 2016
Revenue(1),(2)   Growth 7 – 10% (at Constant Exchange Rates)

Operating income(3)

 

Growth > revenue growth

Delivered EBIT(3)

 

Growth > revenue growth

Net income growth(2),(3),(4)

 

15 – 20%

Basic earnings per share growth(2),(3),(4)

 

based on development of net income

Capital Expenditures

 

$1.0 – 1.1 billion

Acquisitions and investments

 

~ $0.75 billion

Net cash provided by (used in) operating activities in % of revenue(3)

 

> 10%

Free cash flow in % of revenue(3)

 

> 4%

Debt/EBITDA Ratio

 

< 3.0

Employees(5)

 

> 109,000

Research and development expenses

 

$160 – 170 million
(1)
Net of patient service bad debt provision

(2)
Targets 2016 exclude contributions from acquisitions closed in 2015 and 2016

35


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

(3)
Targets 2016 exclude special items

(4)
Net income attributable to shareholders of FMC AG & Co. KGaA

(5)
Full-time equivalents


Recently Implemented Accounting Pronouncements

       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 have implemented ASU 2015-02. These types of legal entities are predominantly utilized in the U.S. The consolidation disclosures in Note 1 of our 2016 annual report on Form 20-F will include amended disclosures in relation to this ASU.

       On November 20, 2015, FASB issued Accounting Standards Update 2015-17 ("ASU 2015-17") Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which focuses on reducing the complexity of classifying deferred taxes on the balance sheet. ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet and requires the classification of all deferred tax assets and liabilities as noncurrent. The update is effective for fiscal years and interim periods within those years beginning after December 15, 2016. We adopted this ASU as of March 31, 2016. In accordance with ASU 2015-17, deferred taxes recorded as of December 31, 2015 within current assets and liabilities have been reclassified to noncurrent assets and liabilities in the amount of $216 million and $36 million, respectively. As a result of deferred tax netting, noncurrent assets and liabilities were then adjusted in the amount of $168 million.


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). With the issuance of Accounting Standards Update 2015-14 ("ASU 2015-14"), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date on August 12, 2015, the effective date of ASU 2014-09 for public business entities, among others, was deferred from fiscal years and interim periods within those years beginning after December 15, 2016 to fiscal years and interim periods within those years beginning after December 15, 2017. Earlier adoption is permitted. We are currently evaluating the impact of ASU 2014-09, in conjunction with all amendments, on our Consolidated Financial Statements.

       On January 5, 2016, FASB issued Accounting Standards Update 2016-01 ("ASU 2016-01") Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial

36


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2016 and 2015

Liabilities. ASU 2016-01 focuses on improving the recognition and measurement of financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 affects the accounting treatment and disclosures related to financial instruments and equity instruments. The update is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Earlier adoption is generally not permitted. We are currently evaluating the impact of ASU 2016-01 on our Consolidated Financial Statements.

       On February 25, 2016, FASB issued Accounting Standards Update 2016-02 ("ASU 2016-02") Leases (Subtopic 842). ASU 2016-02 is expected to increase transparency and comparability by recognizing lease assets and lease liabilities from lessees on the balance sheet and disclosing key information about leasing arrangements in the financial statements. The lessor accounting is largely unchanged. The updates are effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early applications of the amendments in these updates are permitted. We are currently evaluating the impact of ASU 2016-02 on our Consolidated Financial Statements.

       On March 30, 2016, FASB issued Accounting Standards Update 2016-09 ("ASU 2016-09") Compensation-Stock Compensation (Topic 718): Improvements to Employee Share- Based Payment Accounting. ASU 2016-09 simplifies guidance with regard to income tax consequences for share-based payment transactions, classification of awards as equity or liabilities as well as cash flow impacts. The updates are effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact of ASU 2016-09 on our Consolidated Financial Statements.

       On June 16, 2016, FASB issued Accounting Standards Update 2016-13 ("ASU 2016-13") Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale financial assets. For Securities and Exchange Commission filers, these updates are effective for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of ASU 2016-13 on our Consolidated Financial Statements.

37


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Financial Statements

Consolidated Statements of Income

(unaudited)

(in thousands, except share data)

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2016   2015   2016   2015  
Net revenue:                          

Health Care

  $ 3,696,766   $ 3,453,921   $ 7,221,630   $ 6,742,932  

Less: Patient service bad debt provision

    125,731     109,123     236,255     215,730  

Net Health Care

    3,571,035     3,344,798     6,985,375     6,527,202  

Dialysis Products

    849,454     853,938     1,640,442     1,631,461  
      4,420,489     4,198,736     8,625,817     8,158,663  

Costs of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Care

    2,642,815     2,481,703     5,187,075     4,897,432  

Dialysis Products

    379,144     419,766     722,563     779,914  
      3,021,959     2,901,469     5,909,638     5,677,346  

Gross profit

 

 

1,398,530

 

 

1,297,267

 

 

2,716,179

 

 

2,481,317

 

Operating (income) expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative          

    732,147     722,618     1,490,602     1,377,534  

Research and development

    38,764     34,483     76,238     65,421  

Income from equity method investees

    (13,471 )   (6,797 )   (32,042 )   (13,001 )
Operating income     641,090     546,963     1,181,381     1,051,363  

Other (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

    (17,416 )   (13,169 )   (28,497 )   (73,109 )

Interest expense

    119,912     115,127     236,282     277,175  
Income before income taxes     538,594     445,005     973,596     847,297  
Income tax expense     168,395     135,372     306,700     273,233  
Net income     370,199     309,633     666,896     574,064  

Less: Net income attributable to noncontrolling interests

    76,249     68,865     144,930     123,748  
Net income attributable to shareholders of FMC-AG & Co. KGaA   $ 293,950   $ 240,768   $ 521,966   $ 450,316  
Basic earnings per share   $ 0.96   $ 0.79   $ 1.71   $ 1.48  
Fully diluted earnings per share   $ 0.96   $ 0.79   $ 1.71   $ 1.48  

See accompanying notes to unaudited consolidated financial statements.

38


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands, except share data)

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2016   2015   2016   2015  
Net Income   $ 370,199   $ 309,633   $ 666,896   $ 574,064  

Gain (loss) related to cash flow hedges

    7,747     20,986     12,314     27,938  

Actuarial gain (loss) on defined benefit pension plans

    7,490     8,106     15,367     17,335  

Gain (loss) related to foreign currency translation

    10,896     18,798     115,995     (108,635 )

Income tax (expense) benefit related to components of other comprehensive income

    (4,901 )   (8,742 )   (9,266 )   (14,666 )
Other comprehensive income (loss), net of tax     21,232     39,148     134,410     (78,028 )
Total comprehensive income   $ 391,431   $ 348,781   $ 801,306   $ 496,036  

Comprehensive income attributable to noncontrolling interests

    76,185     69,731     147,986     120,661  
Comprehensive income attributable to shareholders of FMC-AG & Co. KGaA   $ 315,246   $ 279,050   $ 653,320   $ 375,375  

See accompanying notes to unaudited consolidated financial statements.

39


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Consolidated Balance Sheets

(in thousands, except share data)

 
  June 30,
2016
  December 31,
2015
 
 
  (unaudited)
  (audited)
 
Assets              
Current assets:              

Cash and cash equivalents

  $ 722,735   $ 549,500  

Trade accounts receivable less allowance for doubtful accounts of $557,854 in 2016 and $465,790 in 2015

    3,468,559     3,285,196  

Accounts receivable from related parties

    179,008     218,285  

Inventories

    1,384,279     1,340,751  

Prepaid expenses and other current assets

    1,522,586     1,374,715  

Total current assets

    7,277,167     6,768,447  

Property, plant and equipment, net

 

 

3,662,973

 

 

3,425,574

 
Intangible assets     834,965     830,489  
Goodwill     13,425,072     13,032,750  
Deferred taxes     177,570     188,833  
Investment in equity method investees     678,833     644,709  
Other assets     496,171     474,452  

Total assets

  $ 26,552,751   $ 25,365,254  
Liabilities and shareholders' equity              
Current liabilities:              

Accounts payable

  $ 574,636   $ 627,828  

Accounts payable to related parties

    217,584     153,023  

Accrued expenses and other current liabilities

    2,652,666     2,503,137  

Short-term debt

    704,653     109,252  

Short-term debt from related parties

    3,331     19,052  

Current portion of long-term debt and capital lease obligations

    674,522     664,335  

Income tax payable

    92,184     72,819  

Total current liabilities

    4,919,576     4,149,446  

Long-term debt and capital lease obligations, less current portion

 

 

7,702,475

 

 

7,853,487

 
Other liabilities     511,767     465,625  
Pension liabilities     609,358     585,328  
Income tax payable     161,458     162,500  
Deferred taxes     595,261     624,500  

Total liabilities

    14,499,895     13,840,886  

Noncontrolling interests subject to put provisions and other temporary equity

 

 

1,223,821

 

 

1,028,368

 
Shareholders' equity:              
Ordinary shares, no par value, €1.00 nominal value, 392,462,972 shares authorized, 306,749,540 issued and 305,749,589 outstanding     380,435     387,162  
Treasury stock, at cost     (136,976 )   (505,014 )
Additional paid-in capital     3,025,702     3,470,308  
Retained earnings     8,115,771     7,870,981  
Accumulated other comprehensive income (loss)     (1,204,941 )   (1,336,295 )

Total FMC-AG & Co. KGaA shareholders' equity

    10,179,991     9,887,142  
Noncontrolling interests not subject to put provisions     649,044     608,858  

Total equity

    10,829,035     10,496,000  

Total liabilities and equity

  $ 26,552,751   $ 25,365,254  

See accompanying notes to unaudited consolidated financial statements.

40


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Consolidated Statements of Cash Flows

(unaudited, in thousands)

 
  For the six months
ended June 30,
 
 
  2016   2015  
Operating Activities:              

Net income

  $ 666,896   $ 574,064  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

    375,992     356,813  

Change in deferred taxes, net

    (25,696 )   (72,560 )

(Gain) loss on sale of fixed assets and investments

    (5,749 )   1,286  

Compensation expense related to stock options

    8,205     593  

Investments in equity method investees, net

    (28,292 )   (3,533 )

Changes in assets and liabilities, net of amounts from businesses acquired:

             

Trade accounts receivable, net

    (127,204 )   (168,463 )

Inventories

    (26,867 )   (128,741 )

Prepaid expenses, other current and non-current assets

    (91,512 )   68,165  

Accounts receivable from related parties

    (26,791 )   25,969  

Accounts payable to related parties

    61,826     48,724  

Accounts payable, accrued expenses and other current and non-current liabilities

    62,995     161,979  

Income tax payable

    13,645     (31,846 )

Net cash provided by (used in) operating activities

    857,448     832,450  
Investing Activities:              

Purchases of property, plant and equipment

    (506,099 )   (417,751 )

Proceeds from sale of property, plant and equipment

    8,106     6,314  

Acquisitions and investments, net of cash acquired, and purchases of intangible assets

    (304,248 )   (100,591 )

Proceeds from divestitures

    146,904     34,432  

Net cash provided by (used in) investing activities

    (655,337 )   (477,596 )
Financing Activities:              

Proceeds from short-term debt

    754,831     112,825  

Repayments of short-term debt

    (160,100 )   (128,635 )

Proceeds from short-term debt from related parties

    43,185     53,001  

Repayments of short-term debt from related parties

    (59,366 )    

Proceeds from long-term debt and capital lease obligations

    154     4,191  

Repayments of long-term debt and capital lease obligations

    (218,285 )   (138,625 )

Increase (decrease) of accounts receivable securitization program

    (51,000 )   14,250  

Proceeds from exercise of stock options, net

    20,938     53,762  

Dividends paid

    (277,176 )   (263,244 )

Distributions to noncontrolling interests

    (144,772 )   (123,754 )

Contributions from noncontrolling interests

    40,252     22,453  

Net cash provided by (used in) financing activities

    (51,339 )   (393,776 )
Effect of exchange rate changes on cash and cash equivalents     22,463     (12,774 )
Cash and Cash Equivalents:              

Net increase (decrease) in cash and cash equivalents

    173,235     (51,696 )

Cash and cash equivalents at beginning of period

    549,500     633,855  

Cash and cash equivalents at end of period

  $ 722,735   $ 582,159  

See accompanying notes to unaudited consolidated financial statements.

41


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Consolidated Statement of Shareholders´ Equity
For the six months ended June 30, 2016 (unaudited) and
year ended December 31, 2015 (audited)
(in thousands, except share data)

 
  Ordinary Shares   Treasury Stock    
   
  Accumulated
Other
comprehensive
income
(loss)
  Total
FMC-AG & Co.
KGaA
shareholders'
equity
   
   
 
 
   
   
  Noncontrolling
interests not
subject to put
provisions
   
 
 
  Number of
shares
  No par
value
  Number of
shares
  Amount   Additional
paid in
capital
  Retained
earnings
  Total Equity  

Balance at December 31, 2014

    311,104,251   $ 385,215     (7,548,951 ) $ (505,014 ) $ 3,546,075   $ 7,104,780   $ (1,087,743 ) $ 9,443,313   $ 585,058   $ 10,028,371  

Proceeds from exercise of options and related tax effects

    1,758,820     1,947     -     -     87,065     -     -     89,012     -     89,012  

Compensation expense related to stock options

    -     -     -     -     12,323     -     -     12,323     -     12,323  

Vested subsidiary stock incentive plans

    -     -     -     -     (4,613 )   -     -     (4,613 )   -     (4,613 )

Dividends paid

    -     -     -     -     -     (263,244 )   -     (263,244 )   -     (263,244 )

Purchase/ sale of noncontrolling interests

    -     -     -     -     7,461     -     -     7,461     7,169     14,630  

Contributions from/ to noncontrolling interests

    -     -     -     -     -     -     -     -     (100,852 )   (100,852 )

Expiration of put provisions and other reclassifications

    -     -     -     -     -     -     -     -     (5,206 )   (5,206 )

Changes in fair value of noncontrolling interests subject to put provisions

    -     -     -     -     (178,003 )   -     -     (178,003 )   -     (178,003 )

Net income

    -     -     -     -     -     1,029,445     -     1,029,445     124,577     1,154,022  

Other comprehensive income (loss)

                            -     -     (248,552 )   (248,552 )   (1,888 )   (250,440 )

Comprehensive income

    -     -     -     -     -     -     -     780,893     122,689     903,582  

Balance at December 31, 2015

    312,863,071   $ 387,162     (7,548,951 ) $ (505,014 ) $ 3,470,308   $ 7,870,981   $ (1,336,295 ) $ 9,887,142   $ 608,858   $ 10,496,000  

Proceeds from exercise of options and related tax effects

    435,469     490     -     -     20,835     -     -     21,325     -     21,325  

Compensation expense related to stock options

    -     -     -     -     8,205     -     -     8,205     -     8,205  

Vested subsidiary stock incentive plans

    -     -     -     -     (4,351 )   -     -     (4,351 )   -     (4,351 )

Withdrawal of treasury stock

    (6,549,000 )   (7,217 )   6,549,000     368,038     (360,821 )   -     -     -     -     -  

Dividends paid

    -     -     -     -     -     (277,176 )   -     (277,176 )   -     (277,176 )

Purchase/ sale of noncontrolling interests

    -     -     -     -     22,776     -     -     22,776     22,895     45,671  

Contributions from/ to noncontrolling interests

    -     -     -     -     -     -     -     -     (45,090 )   (45,090 )

Expiration of put provisions and other reclassifications

    -     -     -     -     -     -     -     -     3,848     3,848  

Changes in fair value of noncontrolling interests subject to put provisions

    -     -     -     -     (131,250 )   -     -     (131,250 )   -     (131,250 )

Net income

    -     -     -     -     -     521,966     -     521,966     56,073     578,039  

Other comprehensive income (loss)

    -     -     -     -     -     -     131,354     131,354     2,460     133,814  

Comprehensive income

    -     -     -     -     -     -     -     653,320     58,533     711,853  

Balance at June 30, 2016

    306,749,540   $ 380,435     (999,951 ) $ (136,976 ) $ 3,025,702   $ 8,115,771   $ (1,204,941 ) $ 10,179,991   $ 649,044   $ 10,829,035  

   

See accompanying notes to unaudited consolidated financial statements.

42


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, 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), is the world's largest kidney dialysis company. The Company provides dialysis treatment and related dialysis care services to persons who suffer from end-stage renal disease ("ESRD"), as well as other health care services. The Company provides dialysis products for the treatment of ESRD, including products manufactured and distributed by the Company such as hemodialysis machines, peritoneal cyclers, dialyzers, peritoneal solutions, hemodialysis concentrates, solutions and granulates, bloodlines, renal pharmaceuticals and systems for water treatment. The Company supplies dialysis clinics it owns, operates or manages with a broad range of products in addition to sales of dialysis products to other dialysis service providers. The Company describes its other health care services as "Care Coordination." Care Coordination currently includes the coordinated delivery of pharmacy services, vascular, cardiovascular and endovascular specialty services, non-dialysis laboratory testing services, physician services, hospitalist and intensivist services, health plan services and urgent care services, which, together with dialysis care services represent the Company's health care services.

       In these unaudited consolidated financial statements, "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. 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 13 "Segment and Corporate Information."

Basis of Presentation

       The accompanying consolidated financial statements have been prepared in accordance with the United States' generally accepted accounting principles ("U.S. GAAP").

       The consolidated financial statements at June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 contained in this report are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company's 2015 Annual Report on Form 20-F. The preparation of consolidated financial statements in conformity with U.S. GAAP 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.

       The accounting policies applied in the accompanying consolidated financial statements are the same as those applied in the consolidated financial statements at and for the year ended December 31, 2015, contained in the Company's 2015 Annual Report on Form 20-F.

43


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

       Certain items in the prior year's comparative consolidated financial statements have been reclassified to conform to the current year's presentation. Deferred taxes which were classified as current at December 31, 2015, were reclassified to noncurrent as of January 1, 2016 in accordance with Accounting Standards Update 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. Deferred taxes in current assets and liabilities have been reclassified to noncurrent assets and liabilities in the amount of $216,127 and $36,399, respectively. As a result of deferred tax netting, noncurrent assets and liabilities have been adjusted in the amount of $168,232.

       The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results of operations for the year ending December 31, 2016.

2.    Related Party Transactions

       The Company's parent, Fresenius SE & Co. KGaA ("Fresenius SE"), a German partnership limited by shares, owns 100% of the share capital of Fresenius Medical Care Management AG, the Company's general partner ("General Partner"). Fresenius SE is also the Company's largest shareholder and owns approximately 30.9% of the Company's outstanding shares at June 30, 2016. The Company has entered into certain arrangements for services, leases 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 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. Financing arrangements as described in item b) 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 c) below. Our related party transactions are settled through Fresenius SE's cash management system where appropriate.

a)   Service Agreements, Lease 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 the Fresenius SE Companies. The Company provides certain administrative services to one of its equity method investees. In 2015, the Company also performed marketing and distribution services for certain of its equity method investees. These related party agreements generally have a duration of 1-5 years and are renegotiated on an as needed basis when the agreement comes due.

       The Company is a party to real estate operating lease agreements with the Fresenius SE Companies, which include leases for the Company's corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany. The majority of the leases expire in 2016 and the Company intends to extend these leases.

       In addition to the above mentioned service and lease agreements, the Company sold products to the Fresenius SE Companies and made purchases from the Fresenius SE Companies and equity method investees. In addition, Fresenius Medical Care Holdings, Inc. ("FMCH") purchases heparin supplied by

44


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

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 an agreement with a Fresenius SE company for the manufacturing of plasma collection devices. The Company agreed to produce 3,500 units which can be further increased to a maximum of 4,550 units, over the length of the five year contract. On January 1, 2015, this manufacturing business was sold to Kabi USA for $9,327 for which a fairness opinion was obtained from a reputable global accounting firm. The disposal was accounted for as a transaction between parties under common control at the carrying amounts without the generation of profits.

       In December 2010, the Company formed a renal pharmaceutical company with Galenica Ltd., named Vifor Fresenius Medical Care Renal Pharma Ltd. ("VFMCRP"), an equity method investee of which the Company owns 45%. The Company has entered into exclusive supply agreements to purchase certain pharmaceuticals from VFMCRP.

       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, Lease Agreements and Products  
 
  For the six months ended
June 30, 2016
  For the six months ended
June 30, 2015
  June 30, 2016   December 31, 2015  
 
  Sales of
goods and
services
  Purchases
of
goods and
services
  Sales of
goods and
services
  Purchases
of
goods and
services
  Accounts
Receivables
  Accounts
Payables
  Accounts
Receivables
  Accounts
Payables
 
Service Agreements                                                  

Fresenius SE

    101     12,047     97     10,388     70     4,743     422     3,185  

Fresenius SE affiliates

    1,700     42,307     3,784     37,869     648     2,175     2,104     4,079  

Equity method investees

    8,392     -     8,021     -     616     -     10,180     -  

Total

  $ 10,193   $ 54,354   $ 11,902   $ 48,257   $ 1,334   $ 6,918   $ 12,706   $ 7,264  
Lease Agreements                                                  

Fresenius SE

    -     5,206     -     4,741     -     -     -     -  

Fresenius SE affiliates

    -     7,595     -     7,320     -     -     -     -  

Total

  $ -   $ 12,801   $ -   $ 12,061   $ -   $ -   $ -   $ -  
Products                                                  

Fresenius SE

    2     -     4     -     -     -     -     -  

Fresenius SE affiliates

    12,879     18,758     13,247     18,706     8,587     5,141     8,774     3,768  

Equity method investees

    -     182,820     -     54,259     -     34,583     -     8,253  

Total

  $ 12,881   $ 201,578   $ 13,251   $ 72,965   $ 8,587   $ 39,724   $ 8,774   $ 12,021  

b)   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 June 30, 2016 and December 31, 2015, the Company had accounts receivables from Fresenius SE related to short-term financing in the amount of $168,416 and $131,252, respectively. As of June 30, 2016 and December 31, 2015, the Company had accounts payables to Fresenius SE related to short-term financing in the amount of

45


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

$169,005 and $115,932, respectively. The interest rates for these cash management arrangements are set on a daily basis and are based on the then-prevailing overnight reference rate for the respective currencies.

       On August 19, 2009, the Company borrowed €1,500 ($1,665 at June 30, 2016 and $1,633 at December 31, 2015) from the General Partner on an unsecured basis at 1.335%. The loan repayment has been extended periodically and is currently due August 22, 2016 with an interest rate of 1.334%. On November 28, 2013, the Company borrowed an additional €1,500 ($1,665 at June 30, 2016 and $1,633 at December 31, 2015) with an interest rate of 1.875% from the General Partner. This loan is due on November 25, 2016 with an interest rate of 1.223%.

       The Company provided unsecured term loans to one of its equity method investees during 2015 and 2016 in the amount of CHF 78,416 ($79,840 based upon the average exchange rate for the six months ended June 30, 2016). These loans were repaid in full during the three months ended June 30, 2016.

       At June 30, 2016 and December 31, 2015, a subsidiary of Fresenius SE held unsecured Senior Notes issued by the Company in the amount of €8,300 and €8,300 ($9,215 at June 30, 2016 and $9,036 at December 31, 2015), respectively. The Senior Notes were issued in 2011 and 2012, mature in 2021 and 2019, respectively, and each has a coupon rate of 5.25% with interest payable semiannually.

       At June 30, 2016, the Company provided a cash advance to Fresenius SE in the amount of €12,200 ($13,544 at June 30, 2016) on an unsecured basis at an interest rate of 0.800%. At December 31, 2015, the Company borrowed from Fresenius SE in the amount of €14,500 ($15,786 at December 31, 2015) on an unsecured basis at an interest rate of 0.970%. For further information on these loan agreements, see Note 4. "Short-Term Debt and Short-Term Debt from Related Parties – Short-Term Debt from Related Parties."

c)    Key Management Personnel

       Due to the 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 General Partner's management board. The aggregate amount reimbursed to the General Partner was $11,967 and $7,519, respectively, for its management services during the six months ended June 30, 2016 and 2015. As of June 30, 2016 and December 31, 2015, the Company had accounts receivable from the General Partner in the amount of $671 and $486, respectively. As of June 30, 2016 and December 31, 2015, the Company had accounts payable to the General Partner in the amount of $1,937 and $17,806, respectively.

46


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA


Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

3.    Inventories

       At June 30, 2016 and December 31, 2015, inventories consisted of the following:

 
  June 30,
2016
  December 31,
2015
 
Finished goods   $ 745,230   $ 670,291  
Health care supplies     335,867     395,342  
Raw materials and purchased components     225,526     206,525  
Work in process     77,656     68,593  

Inventories

  $ 1,384,279   $ 1,340,751  

4.    Short-Term Debt and Short-Term Debt from Related Parties

       At June 30, 2016 and December 31, 2015, short-term debt and short-term debt from related parties consisted of the following:

 
  June 30,
2016
  December 31,
2015
 
Borrowings under lines of credit   $ 94,130   $ 109,230  
Commercial Paper Program     610,523     -  
Other financial liabilities     -     22  
Short-term debt   $ 704,653   $ 109,252  
Short-term debt from related parties (see Note 2.b)     3,331     19,052  
Short-term debt and short-term debt from related parties   $ 707,984   $ 128,304  

       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 June 30, 2016, there were no offsets under the cash management system. At December 31, 2015, cash and borrowings under lines of credit in the amount of $48,277 were offset under this cash management system.

       Commercial paper programs are flexible financing instruments to obtain short-term funding on the money market. Typically, commercial paper maturities range from a few days up to under two years. The Company can issue short-term notes of up to €1,000,000 ($1,110,200).

Short-term Debt from related parties

       The Company is party to an unsecured loan agreement with Fresenius SE under which the Company or its subsidiaries may request and receive one or more short-term advances up to an aggregate amount of $400,000 until maturity on October 30, 2017. The interest on the advance(s) will be at a fluctuating rate per annum equal to LIBOR or EURIBOR as applicable plus an applicable margin. Advances can be repaid and reborrowed. At June 30, 2016, there were no advances from Fresenius SE under this facility. At

47


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

December 31, 2015, the Company borrowed from Fresenius SE €14,500 ($15,786 at December 31, 2015) on an unsecured basis. For further information on short-term debt from related parties, see Note 2 b).

5.    Long-term Debt and Capital Lease Obligations

       As of June 30, 2016 and December 31, 2015, long-term debt and capital lease obligations consisted of the following:

 
  June 30,
2016
  December 31,
2015
 
Amended 2012 Credit Agreement   $ 2,480,867   $ 2,611,580  
Senior Notes     5,359,276     5,325,618  
Equity-neutral convertible bonds     419,224     407,705  
Accounts Receivable Facility     -     50,185  
Capital lease obligations     47,393     40,621  
Other     70,237     82,113  
Long-term debt and capital lease obligations   $ 8,376,997   $ 8,517,822  
Less current portion     (674,522 )   (664,335 )
Long-term debt and capital lease obligations, less current portion   $ 7,702,475   $ 7,853,487  

Amended 2012 Credit Agreement

       The following table shows the available and outstanding amounts under the Amended 2012 Credit Agreement at June 30, 2016 and December 31, 2015:

 
  Maximum Amount Available
June 30, 2016
  Balance Outstanding
June 30, 2016(1)
 
Revolving Credit USD   $ 1,000,000   $ 1,000,000   $ -   $ -  
Revolving Credit EUR   400,000   $ 444,080   -   $ -  
USD Term Loan   $ 2,200,000   $ 2,200,000   $ 2,200,000   $ 2,200,000  
EUR Term Loan   264,000   $ 293,093   264,000   $ 293,093  
          $ 3,937,173         $ 2,493,093  

 

 
  Maximum Amount Available
December 31, 2015
  Balance Outstanding
December 31, 2015(1)
 
Revolving Credit USD   $ 1,000,000   $ 1,000,000   $ 25,110   $ 25,110  
Revolving Credit EUR   400,000   $ 435,480   -   $ -  
USD Term Loan   $ 2,300,000   $ 2,300,000   $ 2,300,000   $ 2,300,000  
EUR Term Loan   276,000   $ 300,481   276,000   $ 300,481  
          $ 4,035,961         $ 2,625,591  

(1) Amounts shown are excluding debt issuance costs.

48


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

       At June 30, 2016 and December 31, 2015, the Company had letters of credit outstanding in the amount of $3,550 and $3,600, respectively, under the USD revolving credit facility, which are not included above as part of the balance outstanding at those dates, but which reduce available borrowings under the applicable revolving credit facility.

Accounts Receivable Facility

       The following table shows the available and outstanding amounts under the Accounts Receivable Facility at June 30, 2016 and at December 31, 2015:

 
  Maximum Amount
Available(1)
  Balance Outstanding(2)  
 
  June 30,
2016
  December 31,
2015
  June 30,
2016
  December 31,
2015
 
Accounts Receivable Facility   $ 800,000   $ 800,000   $ -   $ 51,000  

(1) Subject to availability of sufficient accounts receivable meeting funding criteria.

(2) Amounts shown are excluding debt issuance costs.

       The Company also had letters of credit outstanding under the Accounts Receivable Facility in the amount of $13,822 and $16,622 at June 30, 2016 and December 31, 2015, respectively. These letters of credit are not included above as part of the balance outstanding at June 30, 2016 and December 31, 2015; however, they reduce available borrowings under the Accounts Receivable Facility.

6.    Earnings Per Share

       The following table contains reconciliations of the numerator and denominators of the basic and diluted earnings per share computations for the three and six months ended June 30, 2016 and 2015:

 
  For the three months ended
June 30,
  For the six months ended
June 30,
 
 
  2016   2015   2016   2015  
Numerator:                          
Net income attributable to shareholders of FMC-AG & Co. KGaA   $ 293,950   $ 240,768   $ 521,966   $ 450,316  

Denominators:

 

 

 

 

 

 

 

 

 

 

 

 

 
Weighted average number of Ordinary shares outstanding     305,507,271     304,172,400     305,416,228     303,929,089  
Potentially dilutive Ordinary shares     258,027     1,155,218     228,752     1,052,769  
Total weighted average Ordinary shares outstanding assuming dilution     305,765,298     305,327,618     305,644,980     304,981,858  

Basic earnings per share

 

$

0.96

 

$

0.79

 

$

1.71

 

$

1.48

 
Fully diluted earnings per share   $ 0.96   $ 0.79   $ 1.71   $ 1.48  

49


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

       By resolution of the Company's annual general meeting on May 12, 2011, the Company was authorized to conduct a share buy-back program to repurchase ordinary shares. The buy-back program commenced on May 20, 2013 and was completed on August 14, 2013 after 7,548,951 shares had been repurchased in the amount of €384,966 ($505,014). On February 16, 2016, the Company retired 6,549,000 of the repurchased shares from the buy-back program at an average weighted price of €51 per share ($57 per share on February 16, 2016).

7.    Employee Benefit Plans

       The Company currently has two principal pension plans, one for German employees, the other covering employees in the United States, the latter of which was curtailed in 2002. Plan benefits are generally based on years of service and final salary. As there is no legal requirement in Germany to fund defined benefit plans, the Company's pension obligations in Germany are unfunded. Each year FMCH contributes to the plan covering United States employees at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended.

       The following table provides the calculations of net periodic benefit cost for the three and six months ended June 30, 2016 and 2015, respectively.

 
  For the three months ended
June 30,
  For the six months ended
June 30,
 
 
  2016   2015   2016   2015  
Components of net periodic benefit cost:                          
Service cost   $ 6,859   $ 6,149   $ 13,684   $ 12,521  
Interest cost     7,246     6,972     14,575     13,915  
Expected return on plan assets     (3,868 )   (4,104 )   (7,740 )   (8,202 )
Amortization of unrealized losses     7,519     8,106     15,426     17,335  
Amortization of prior service cost     (29 )   -     (59 )   -  
Net periodic benefit costs   $ 17,727   $ 17,123   $ 35,886   $ 35,569  

8.    Noncontrolling Interests Subject to Put Provisions and Other Temporary Equity

       The Company has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Company would be required to purchase all or part of third-party owners' noncontrolling interests at the appraised fair value at the time of exercise. The methodology the Company uses to estimate the fair values of the noncontrolling interest subject to put provisions 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. Additionally, there are put provisions that are valued by an external valuation firm. The external valuation estimates the fair values using a combination of discounted cash flows and a multiple of earnings and/or revenue. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate, the discounted cash flows and the implicit multiple of earnings and/or revenue at which these noncontrolling interest obligations may

50


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data)

ultimately be settled could vary significantly from our current estimates depending upon market conditions.

       At June 30, 2016 and December 31, 2015, the Company's potential obligations under these put options were $1,216,237 and $1,023,755. At June 30, 2016 and December 31, 2015, put options with an aggregate purchase obligation of $279,876 and $258,552, respectively, were exercisable. No put options were exercised during the first six months of 2016.

       The following is a roll forward of noncontrolling interests subject to put provisions for the six months ended June 30, 2016 and the year ended December 31, 2015:

 
  June 30,
2016
  December 31,
2015
 
Beginning balance as of January 1,   $ 1,023,755   $ 824,658  
Contributions to noncontrolling interests     (81,806 )   (164,830 )
Purchase/ sale of noncontrolling interests     45,472     7,915  
Contributions from noncontrolling interests     11,961     16,749  
Expiration of put provisions and other reclassifications     (3,848 )   5,206  
Changes in fair value of noncontrolling interests     131,250     178,003  
Net income     88,857     159,127  
Other compreh