Operations and Business Environment - Fresenius Medical Care

02. 2
Our Fiscal year
72
Earnings
EBITDA. Earnings before Interest, Taxes, Depreciation
and Amortization (EBITDA) were $ 1.63 billion in 2006,
an increase of 37 % over the $1.19 billion of the previous
year. The EBITDA includes the effects of the costs
of an accounting change for stock options, one-time
effects, restructuring costs and in-process R & D, and the
costs of the transformation of the legal form and preference
share conversion, as well as the gain from the
divestiture of clinics in connection with the acquisition
of Renal Care Group amounting to $11 million. Excluding
these one-time effects and the accounting change,
our EBITDA increased by 35 % to $1.64 billion.
Operating Income (EBIT). Operating income (Earnings
before Interest and Taxes – EBIT) also increased in 2006,
rising by 40 % to $1.32 billion. The aforementioned
one-time effects and the change of accounting principles
accounted for $11 million. Excluding one-time items
and the accounting change, operating income rose by
38 % to $1.33 billion in 2006. This represents an EBIT
margin of 15.6 % compared with 14.2 % in 2005. The
significantly better operating margin is the result of
a considerably higher gross profit margin as well as
stable selling and administrative costs as a percentage
of sales.
Excluding one-time effects, operating income in North
America rose by 49 % to $ 958 million last year after
EBIT of $ 644 million in 2005. The operating margin
also improved, excluding one-time costs, from 14. in
2005 to 15.9 % in 2006. The primary reasons for this
increase are the result of the improvement in
revenue rates, increased treatment volume, effects of
the RCG acquisition net of divestitures and increased
product sales, partially offset by higher personnel
expenses.
In the International region, comprising all areas outside
North America, we also recorded significant earnings
growth in 2006. Operating income in this region increased
by 22 %, rising from $ 362 million in 2005 to
$ 440 million in the year under review. We were able to
improve the operating margin from 16.5 % to 17.8 %.
This was primarily due to accelerated purchases of
product by German customers as a result of an increase
by 3 % of the German value added tax (VAT) in
2007, improvements in our operations in Latin America
and Asia Pacific, collections on previously written off
receivables, lower bad debt expense and the impact of
restructuring costs in Japan in 2005. These effects were
partially offset by income received in 2005 associated
with the cancellation of a distribution agreement and
with a patent litigation settlement.
Corporate costs for our central administration rose considerably
in 2006. These are not included in the calculations
for EBITDA and EBIT (operating income of the
operating segments). Fresenius Medical Care believes
these costs are not within the control of the individual
segments. These corporate costs relate mainly to certain
headquarters overhead charges such as accounting
and finance as well as other staff functions. The total
corporate operating cost was $ 87 million in 2006 compared
to $ 67 million in 2005. The primary reasons for
this increase are related to the accounting change
Abbreviated Statement of Earnings
$ in millions 2006 2005 Change
Net revenue
Cost of revenue
Gross profit
in % of revenue
Operating income (EBIT)
Interest expense
Earnings before income taxes
Net income
8,499
(5,621)
2,878
33.9
1,318
(351)
967
537
A detailed representation can be found in the consolidated financial statements in the financial report from page 45 onwards.
6,772
(4,564)
2,208
32.6
939
(173)
766
455
26 %
23 %
30 %
40 %
103 %
26 %
18 %
Fresenius Medical Care 2006