05.5
Notes to Consolidated Financial Statements
3. RELATED PARTY TRANSACTIONS
A) SERVICE AGREEMENTS AND LEASES
The Company is party to service agreements with Fresenius SE, the sole stockholder of its General Partner and its largest shareholder with approximately 36.3 % ownership of the Company’s voting shares, and certain affiliates of Fresenius SE that are not also subsidiaries of the Company to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, it services, tax services and treasury management services. For the years 2008, and 2007, amounts charged by Fresenius SE to the Company under the terms of these agreements are $59,038 and $44,143, respectively. The Company also provides certain services to Fresenius SE and certain affiliates of Fresenius SE, including research and development, central purchasing, patent administration and warehousing. The Company charged $9,798 and $9,784 for services rendered to Fresenius SE in 2008 and 2007, respectively.
Under operating lease agreements for real estate entered into with Fresenius SE, the Company paid Fresenius SE $23,485 and $19,211 during 2008 and 2007, respectively. The majority of the leases expire in 2016 and contain renewal options.
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 General Partner’s management board. The aggregate amount reimbursed to Management AG for 2008 and 2007 was $9,230 and $10,348 for its management services during those years and included and $88 and $82 as compensation for their exposure to risk as General Partner for 2008 and 2007, respectively. The Company’s Articles of Association set the annual compensation for assuming unlimited liability at 4 % of the amount of the General Partner’s invested capital (€1,500).
B) PRODUCTS
During the years ended December 31, 2008 and 2007, the Company sold products to Fresenius SE for $36,704 and $34,133, respectively. During 2008 and 2007, the Company made purchases from Fresenius SE in the amount of $45,084 and $52,280, respectively.
As a result of product recalls and production suspension by other suppliers in 2008, APP Pharmaceuticals, Inc. (“APP Inc.”), is the only remaining U.S. supplier of FDA-approved heparin used in dialysis. APP Inc. has substantially increased prices for this product. On September 10, 2008, Fresenius Kabi AG, a wholly-owned subsidiary of Fresenius SE, acquired APP Inc. The acquisition has had no impact on the Company’s purchase price of heparin. The Company currently purchases heparin supplied by APP Inc. through a group purchasing organization (“GPO”).
The Company has no direct supply agreement with APP Inc. and does not submit purchase orders directly to APP Inc. During 2008, FMCH acquired approximately $19,500 of heparin from APP Inc. through the GPO contract, which was negotiated at arm’s length.
C) FINANCING PROVIDED BY AND TO Fresenius SE
The Company receives short-term financing from and provides short-term financing to Fresenius SE. There was $1,330 and $2,287 owed to Fresenius SE at December 31, 2008 and 2007, respectively (see Note 8).
On November 7, 2008, the Company entered into a loan agreement with Fresenius SE whereby it advanced Fresenius SE $50,000 at 6.45 % interest which is due on April 30, 2009.
D) OTHER
The Company was party to a German consolidated trade tax return with Fresenius SE and certain of its German subsidiaries for the fiscal years 1998 – 2001. For this period Fresenius SE made advance tax payments of which $118,100 (€77,700) including interest is recorded as a liability due to Fresenius SE at December 31, 2008. During 2008 the final tax assessment for those years was received and on this basis the tax and interest allocation will be finally determined.
In 2007, the company acquired a production line at our Schweinfurt facility from Fresenius SE for $5,646.
The Chairman of the Company’s Supervisory Board is also the Chairman of the Supervisory Board of Fresenius SE. He is also a member of the Supervisory Board of the Company’s General Partner.
The Vice Chairman of the Company’s Supervisory Board is a member of the Supervisory Board of Fresenius SE and Vice Chairman of the Supervisory Board of the Company’s General Partner. He is also a partner in a law firm which provided services to the Company. The Company paid the law firm approximately $1,098 and $969 in 2008 and 2007, respectively. Five of the six members of the Company’s Supervisory Board are also members of the Supervisory Board of the Company’s General Partner.
