FSMEP!!!!
FRESENIUS MEDICAL CARE AG ANNOUNCES PRELIMINARY AGREEMENT ON U.S. LEGAL ISSUES AND COMPLETE RESULTS FOR THIRD QUARTER 1999
Bad Homburg, Germany, November 22, 1999
THIRD QUARTER EARNINGS PER SHARE UP 36 PERCENT BEFORE SPECIAL CHARGE
Fresenius Medical Care AG (Frankfurt Stock Exchange: FME & FME3 / NYSE: FMS & FMS_p), the world's largest provider of dialysis products and services, today announced that it has reached a preliminary agreement with the United States Government to resolve the matters covered by the OIG investigation into the activities of National Medical Care (NMC) and its subsidiaries. The completion of the settlement is subject to the negotiation of definitive settlement documents and court approval. The settlement would also resolve the Company's claims for outstanding Medicare receivables for intradialytic parenteral nutrition (IDPN) therapy rendered before December 31, 1998. Fresenius Medical Care was formed on September 30, 1996 through the merger of the global dialysis businesses of Fresenius AG and NMC, which was owned by W.R. Grace & Co. prior to the merger. The investigation to be settled by the preliminary agreement began in 1995, before the merger. Following the merger, Fresenius Medical Care assembled a new management team and developed a comprehensive corporate compliance program to identify and correct potential regulatory problems.
The terms of the preliminary agreement anticipate that NMC and certain of its subsidiaries will agree to settle with the United States government, resulting in an estimated net settlement amount of approximately $415 million. This net settlement amount is the result of civil and criminal payments of approximately $485 million to the United States government, less a payment by the U.S. government to the Company of approximately $70 million of IDPN receivables for services rendered before December 31, 1998. The Company will continue to appeal denied claims for 1999 IDPN receivables through the administrative process in an attempt to clarify the coverage issues for this life-saving therapy on a going-forward basis. In addition, the preliminary settlement terms include criminal pleas and sanctions regarding certain subsidiaries of NMC. The Company expects to continue to provide the services and products offered by these subsidiaries through other subsidiaries that are qualified to participate in federal health care programs.
The net cash outflow of the preliminary agreement is expected to be approximately $260 million. This amount reflects a special pre-tax charge of $590 million less the anticipated disposition of the Company's IDPN receivable claims of approximately $150 million ($70 million cash collected, $80 million reserve), and the estimated cash savings for the tax effect of the special charge ($178 million), but does not reflect any payment terms. The cash savings of the tax benefit are expected to be realized in relation to the cash outflows of the settlement obligation to the United States Government and expenditures for other related costs.
As a result of the preliminary agreement, the Company has recorded the above-mentioned special pre-tax charge against consolidated earnings for the third quarter ended September 30, 1999, totaling $590 million ($412 million after tax). The special pre-tax charge includes the payment of approximately $485 million, a reserve of approximately $80 million for the resolution of the Company's IDPN receivables, and an accrual for other related costs of $25 million.
If the settlement is not completed and the Company and the United States government eventually litigate the issues, the Company currently believes that the special charge reasonably estimates the cost and expenses arising from this litigation.
Ben Lipps, Chief Executive Officer of Fresenius Medical Care AG said, "Fresenius Medical Care has achieved an important step toward putting these issues behind us and allowing us to focus all our resources on what really matters: the health of our patients. We believe that the settlement is in the best interests of the Company, our patients and our shareholders. The settlement means that we can concentrate on our position as the world's leader in dialysis and provides us a clear platform going forward."
"None of the conduct involved in this agreement relates to the quality of care provided to our patients. At no time did the Company compromise its goal of providing the very best care available to treat patients with chronic kidney failure. Our treatment quality in dialysis consistently remains among the best in the world," explained Ben Lipps.
THIRD QUARTER RESULTS
Earnings per ordinary share before the special charge reached $0.57 for the third quarter ended September 30, 1999, a 36% increase over earnings per share of $0.42 in the same period last year. The reported loss per ordinary share, including the effect of the special charge, amounted to ($4.64). Earnings per ordinary American Depositary Receipt (ADR) before the special charge rose 36% to $0.19 from $0.14 in the third quarter of 1998. The reported loss per ADR, including the effect of the special charge, was ($1.55). Three ADRs are equivalent to one share.
Net income before the special charge for the third quarter of 1999 increased 36% to $46 million, up from $34 million in the comparable period a year ago. The reported net loss after including the effect of the special charge, amounted to ($366) million for the third quarter of 1999. Net revenues for the third quarter of 1999 were $969 million, an increase of 10% on a currency-adjusted basis compared to the same period last year.
"Our solid growth in revenues across our businesses continued in the third quarter, and we are making progress in improving profitability in key areas with a keen focus on achieving cost savings and other efficiencies," Ben Lipps commented.
Revenues in North America, which accounted for 73% of total revenue, increased 8% to $708 million, from $656 million, with both Dialysis Care and Dialysis Products revenues increasing by 8% respectively. International revenues rose 11% to $261 million compared to revenues of $234 million in the third quarter of last year. On a currency-adjusted basis, International revenues advanced 17% compared to the third quarter of 1998. Within the International segment, growth in Dialysis Care revenues, which increased by 13% on a currency-adjusted basis, once again reflected the successful expansion of the International Dialysis Care business in key areas. The growth rate of 14% in International Dialysis Products revenues, 19% on a currency-adjusted basis, quite clearly surpassed the average growth rate in the markets.
Earnings before interest, taxes, depreciation and amortization (EBITDA) before the special charge were $215 million in the third quarter of this year, up 9% from $198 million in the same period of 1998. Reported EBITDA – including the effect of the special charge – showed a loss of $(375) million. Year-over-year, the EBITDA margin before the special charge remained at the 22% level. Earnings before interest and taxes (EBIT) before the special charge increased 13% to $144 million or 14.9% of revenues, from $128 million, or 14.4% of revenues, in the third quarter of 1998. Reported EBIT – including the effect of the special charge – showed a loss of $(446) million. The increase in the EBIT margin is attributable primarily to a decline in selling, general and administrative expenses as a percentage of revenues.
The Company settled an investigation by the U.S. Food and Drug Administration and the U.S. Attorney's Office for the District of New Jersey that involved late incident report filings and defects related to bloodline tubing products distributed by NMC's Medical Product Division before the merger. The settlement amount for this matter totals $3.8 million.
NINE MONTH RESULTS
For the nine months ended September 30, 1999 earnings per ordinary share from continuing operations before the special charge showed a strong increase of 32% to $1.57 from $1.19 in the same period in 1998. Earnings per ordinary ADR before the special charge were $0.52, also up 32%, compared to $0.40 recorded for the first nine months of 1998. The reported loss per ordinary share including the effect of the special charge was $(3.64) and the reported loss per ordinary ADR was $(1.21). Net income for the first nine months of 1999 before the special charge was $125 million, a 29% increase over the income from continuing operations for the same period last year. Reported net loss including the effect of the special charge was $(287) million. The 1998 results have been adjusted to exclude the operations of the U.S. Homecare and non-renal Diagnostics businesses that were divested during 1998 and the cumulative effect of a 1998 accounting change. At $2.83 billion, net revenues for the first nine months of 1999 were 10% higher than net revenues of $2.58 billion for the first nine months of 1998.
In the nine-month period just ended, North American revenues rose 9% to $2.1 billion compared to $1.9 billion the same period last year. North American Dialysis Care revenue increased by 11% to $1.7 billion with an organic revenue growth of 9%. During the period, 40 new clinics were opened and 13 clinics were acquired, bringing the total in North America to 833. North American Dialysis Product revenues, including sales to Company-owned clinics, increased 7% to $522 million compared to the first nine months of 1998.
International revenues rose to $755 million, up 13% on a currency-adjusted basis, from $685 million for the nine-month period ended September 30, 1998. Growth in International Dialysis Care revenue was especially strong, increasing by 18% adjusted for currency effects. As of September 30, 1999, the Company operated a total of 234 clinics outside of North America. In the first nine months, 18 clinics were added through acquisitions and the Company opened another 11 new clinics. Adjusted for currency, International Dialysis Products revenue, including sales to Company-owned dialysis clinics, increased 12% after currency adjustments, to $599 million as compared to $545 million in the first nine months of 1998.
EBITDA for the nine months ended September 30, 1999 was $623 before the special charge, or 11% above EBITDA of $562 million in the comparable period last year. Reported EBITDA including the effect of the special charge was $33 million. Compared to the first nine months of 1998, the EBITDA margin (before the special charge) increased from 21.7 % to 22 %. EBIT before the special charge increased 16% to $413 million, or 14.6% of revenues, from $357 million, or 13.8% of revenues for the first nine months of 1998. Reported EBIT including the effect of the special charge showed a loss of $(177) million.
For the first nine months of the current year, Fresenius Medical Care generated $260 million in cash from continuing operations. A net total of $190 million was spent on acquisitions and capital expenditures during the same period.
Fresenius Medical Care AG is the world's largest, integrated provider of products and services for individuals with chronic kidney failure, a condition that affects some 920,000 individuals worldwide. Through its network of more than 1,060 dialysis clinics in North America, Europe, Latin America and Asia-Pacific, Fresenius Medical Care provides dialysis treatment to approximately 78,500 patients around the globe. Fresenius Medical Care is also the world's leading provider of dialysis products, such as hemodialysis machines, dialyzers and related disposable products.
This release contains forward-looking statements that are subject to various risks and uncertainties. Actual results could differ materially from those described in these forward-looking statements due to certain factors, including changes in business, economic and competitive conditions, regulatory reforms, foreign exchange rate fluctuations, uncertainties in litigation or investigative proceedings, and the availability of financing. These and other risks and uncertainties are detailed in Fresenius Medical Care AG's reports filed with the U.S. Securities and Exchange Commission. Fresenius Medical Care AG does not undertake any responsibility to update the forward-looking statements in this release.
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