33. Notes on segment reporting

General

The segment reporting tables of this annual report are an integral part of the notes.

The Fresenius Group has identified the business segments Fresenius Medical Care, Fresenius Kabi, Fresenius Helios and Fresenius Vamed which corresponds to the internal organizational and reporting structures (Management Approach) at December 31, 2009.

The key data disclosed in conjunction with segment reporting correspond to the key data of the internal reporting system of the Fresenius Group. Internal and external reporting and accounting correspond to each other; the same key data and definitions are used.

Sales and proceeds between the segments are indicative of the actual sales and proceeds agreed with third parties. Administrative services are billed in accordance with service level agreements.

The business segments were identified in accordance with ASC 280, Segment Reporting, which defines the segment reporting requirements in the annual financial statements and interim reports with regard to the operating business, product and service businesses and regions. The business segments of the Fresenius Group are as follows:

Fresenius Medical Care is the world’s leading provider of dialysis products and dialysis care for the life-saving treatment of patients with chronic kidney failure. Fresenius Medical Care treats 195,651 patients in its 2,553 own dialysis clinics.

Fresenius Kabi is a globally active company, providing infusion therapies, intravenously administered generic drugs, clinical nutrition and the related medical devices. The products are used for the therapy and care of critically and chronically ill patients in and outside the hospital. In Europe, Fresenius Kabi is the market leader in infusion therapies and clinical nutrition, in the US, the company is a leading provider of intravenously administered generic drugs.

Fresenius Helios is one of the largest private hospital operators in Germany.

Fresenius Vamed offers engineering and services for hospitals and other health care facilities.

The segment Corporate / Other mainly comprises the holding functions of Fresenius SE as well as Fresenius Netcare GmbH, which provides services in the field of information technology as well as Fresenius Biotech, which does not fulfill the characteristics of a reportable segment. In addition, the segment Corporate / Other includes intersegment consolidation adjustments as well as special items regarding the acquisition of APP.

Segment reporting by region takes account of geographical factors and the similarity of markets in terms of opportunities and risks. The allocation to a particular region is based on the domicile of the customers.

Notes on the business segments

The key figures used by the Management Board to assess segment performance, have been selected in such a way that they include all items of income and expenses which fall under the area of responsibility of the business segments. The Management Board is convinced that the most suitable performance indicator is the operating income (EBIT). The Management Board believes that, in addition to the operating income, the figure for earnings before interest, taxes and depreciation / amortization (EBITDA) can also help investors to assess the ability of the Fresenius Group to generate cash flows and to meet its financial obligations. The EBITDA figure is also the basis for assessing Fresenius Group’s compliance with the terms of its credit agreements (e. g. the Fresenius Medical Care 2006 Senior Credit Agreement or the 2008 Senior Credit Agreement).

Depreciation and amortization is presented for property, plant and equipment, intangible assets with definite useful lives of the respective business segment.

Net interest comprises interest expenses and interest income.

Net income attributable to Fresenius SE is defined as earnings after income taxes and noncontrolling interest.

The operating cash flow is the cash provided by / used in operating activities.

The cash flow before acquisitions and dividends is the operating cash flow less net capital expenditure.

Debt comprises bank loans, senior notes, trust preferred securities, capital lease obligations, liabilities relating to outstanding acquisitions as well as intercompany liabilities. The MEB and the CVR are not categorized as debt (see note 31, Supplementary information on capital management).

Capital expenditure mainly includes additions to property, plant and equipment.

Acquisitions refer to the purchase of shares in legally-independent companies and the acquisition of business divisions and intangible assets (e. g. licenses). The key figures shown with regard to acquisitions present the contractual purchase prices comprising amounts paid in cash (less cash acquired), debts assumed and the issuance of shares, whereas for the purposes of the statement of cash flows, only cash purchase price components less acquired cash and cash equivalents are reported.

The EBITDA margin is calculated as a ratio of EBITDA to sales.

The EBIT margin is calculated as a ratio of EBIT to sales.

The return on operating assets (ROOA) is defined as the ratio of EBIT to average operating assets. Operating assets are defined as total assets less deferred tax assets, trade accounts payable and advance payments from customers as well as guaranteed subsidies.

In addition, the key indicators “Depreciation and amortization in % of sales” and “Operating cash flow in % of sales” are also disclosed.

Reconciliation of key figures to consolidated earnings


in million € 2009 2008
Total EBIT of reporting segments 2,107 1,785
General corporate expenses Corporate / Other (EBIT) - 53 - 308
Group EBIT 2,054 1,477
Interest expenses - 602 - 456
Interest income 22 25
Other financial result - 31 68
Income before income taxes 1,443 1,114

in million € 2009 2008
Total EBIT of reporting segments 2,107 1,785
General corporate expenses Corporate / Other (EBIT) - 53 - 308
Group EBIT 2,054 1,477
Interest expenses - 602 - 456
Interest income 22 25
Other financial result - 31 68
Income before income taxes 1,443 1,114

Reconciliation of net debt with the consolidated statement of financial position


in million € December 31, 2009 December 31, 2008
Short-term borrowings 287 729
Short-term liabilities and loans from related parties 2 2
Current portion of long-term debt and capital lease obligations 261 431
Current portion of Senior Notes 0 100
Long-term debt and capital lease obligations, less current portion 5,228 5,716
Senior Notes, less current portion 2,066 1,354
Trust preferred securities of Fresenius Medical Care Capital Trusts 455 455
Debt 8,299 8,787
less cash and cash equivalents 420 370
Net debt 7,879 8,417

in million € December 31, 2009 December 31, 2008
Short-term borrowings 287 729
Short-term liabilities and loans from related parties 2 2
Current portion of long-term debt and capital lease obligations 261 431
Current portion of Senior Notes 0 100
Long-term debt and capital lease obligations, less current portion 5,228 5,716
Senior Notes, less current portion 2,066 1,354
Trust preferred securities of Fresenius Medical Care Capital Trusts 455 455
Debt 8,299 8,787
less cash and cash equivalents 420 370
Net debt 7,879 8,417

The following table shows the non-current assets by geographical region:

in million € December 31, 2009 December 31, 2008
1 The aggregate amount of net non-current assets is the sum of non-current assets less deferred tax assets and derivative financial instruments.
Germany 3,205 3,052
Europe (excluding Germany) 1,938 1,893
North America 9,241 9,459
Asia-Pacific 681 641
Latin America 282 221
Africa 37 31
Total non-current assets 1 15,384 15,297

in million € December 31, 2009 December 31, 2008
1 The aggregate amount of net non-current assets is the sum of non-current assets less deferred tax assets and derivative financial instruments.
Germany 3,205 3,052
Europe (excluding Germany) 1,938 1,893
North America 9,241 9,459
Asia-Pacific 681 641
Latin America 282 221
Africa 37 31
Total non-current assets 1 15,384 15,297

In 2009, the Fresenius Group generated sales of € 3,152 million (2008: € 2,793 million) in Germany.

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34. Stock options

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