<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1997
                                -------------

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.

FOR THE TRANSITION PERIOD FROM ___________TO____________


                         COMMISSION FILE NUMBER: 1-3720

                      FRESENIUS MEDICAL CARE HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                 NEW YORK                                     13-3461988
                 --------                                     ----------
(State or Other Jurisdiction of Incorporation)          (I.R.S. Employer ID No.)
                                             

               TWO LEDGEMONT CENTER, 95 HAYDEN AVENUE,        
                            LEXINGTON, MA                     02173
               ---------------------------------------      ----------
               (Address of Principal Executive Office)      (Zip Code)


Registrant's Telephone Number, Including Area Code: 617-402-9000
                                                    ------------

                 FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC.
                 ----------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicated by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  X   No  
                                          ---     ---

<PAGE>   2


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 90,000,000 shares, all of 
which are held by Fresenius Medical Care AG.










                                       2



<PAGE>   3


             FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

   ITEM 1: FINANCIAL STATEMENTS

           Consolidated Statements of Earnings
           Consolidated Balance Sheets
           Consolidated Statements of Cash Flows
           Notes to Consolidated Financial Statements

   ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATION

PART II: OTHER INFORMATION

   ITEM 1: Legal Proceedings
   ITEM 4: Submission of Matters to a Vote of Security Holders
   ITEM 6: Exhibits and Reports on Form 8-K






                                       3

<PAGE>   4


                                     PART I

                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


             FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

                 UNAUDITED, CONSOLIDATED STATEMENTS OF EARNINGS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                                               SUCCESSOR   PREDECESSOR
                                                               ---------   -----------
                                                              THREE MONTHS THREE MONTHS
                                                                  ENDED       ENDED
                                                                 JUNE 30,    JUNE 30,
                                                                  1997        1996
                                                                  ----        ----

<S>                                                              <C>        <C>      
NET REVENUES
     Health care services....................................    $527,322   $511,236
     Medical supplies .......................................     118,202     40,883
                                                                 --------   --------
                                                                  645,524    552,119
                                                                 --------   --------
EXPENSES
     Cost of health care services.............................    320,250    295,456
     Cost of medical supplies ................................     76,137     27,397
     General and administrative expenses .....................     98,795    103,691
     Provision for doubtful accounts..........................     19,934     21,442
     Depreciation and amortization............................     57,478     31,533
     Research and development.................................        737        622
     Allocation of Grace Chemicals expenses...................         --      1,769
     Interest expense, net, and related financing costs.......     45,977      7,459
                                                                 --------   --------
                                                                  619,308    489,369
                                                                 --------   --------
EARNINGS BEFORE INCOME TAXES .................................     26,216     62,750
PROVISION FOR INCOME TAXES ...................................     15,682     28,832
                                                                 --------   --------
NET EARNINGS .................................................   $ 10,534   $ 33,918
                                                                 ========   ========
Earnings per share ...........................................   $   0.12   $   0.35
 
</TABLE>


          See accompanying Notes to Unaudited, Consolidated Financial Statements





                                       4



<PAGE>   5






             FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

                 UNAUDITED, CONSOLIDATED STATEMENTS OF EARNINGS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>


                                                           SUCCESSOR   PREDECESSOR
                                                           ---------   -----------
                                                          SIX MONTHS   SIX MONTHS
                                                            ENDED        ENDED
                                                           JUNE 30,     JUNE 30,
                                                             1997         1996
                                                             ----         ----

<S>                                                       <C>          <C>       
NET REVENUES
     Health care services .............................   $1,039,563   $  999,607
     Medical supplies .................................      230,355       80,803
                                                          ----------   ----------
                                                           1,269,918    1,080,410
                                                          ----------   ----------
EXPENSES
     Cost of health care  services ....................      624,962      582,987
     Cost of medical supplies .........................      165,078       55,299
     General and administrative expenses ..............      188,286      205,138
     Provision for doubtful accounts ..................       42,432       42,928
     Depreciation and amortization ....................      116,669       62,161
     Research and development .........................        1,870        1,308
     Allocation of Grace Chemicals expenses ...........         --          3,786
     Interest expense, net, and related financing costs       87,191       14,463
                                                          ----------   ----------
                                                           1,226,488      968,070
                                                          ----------   ----------
EARNINGS BEFORE INCOME TAXES ..........................       43,430      112,340
PROVISION FOR INCOME TAXES ............................       26,259       51,977
                                                          ----------   ----------
NET EARNINGS ..........................................   $   17,171   $   60,363
                                                          ----------   ----------

Earnings per share ....................................   $     0.19   $     0.62

</TABLE>



     See accompanying Notes to Unaudited, Consolidated Financial Statements






                                       5
<PAGE>   6



             FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                        SUCCESSOR
                                                                        ---------
                                                                  JUNE 30,
                                                                    1997       DECEMBER 31,
                                                                (UNAUDITED)       1996
                                                                ----------        ----
                                                                                

ASSETS
<S>                                                            <C>            <C>        
Current Assets:
     Cash and cash equivalents .............................   $    41,937    $    50,422
     Accounts receivable, less allowances of $149,876 and 
       $153,939 ............................................       549,873        516,083
     Inventories ...........................................       144,991        153,480
     Deferred income taxes .................................       123,806        146,751
     Other current assets ..................................       100,928         86,907
                                                               -----------    -----------
          Total Current Assets .............................       961,535        953,643
                                                               -----------    -----------
Properties and equipment, net ..............................       597,614        525,988
                                                               -----------    -----------

Other Assets:
     Excess of cost over the fair value of net assets
      acquired and other intangible assets, net of
      accumulated amortization of $100,468 and $37,933 .....     3,206,561      3,057,957
     Other assets and deferred charges .....................        56,932         58,491
                                                               -----------    -----------
      Total Other Assets ...................................     3,263,493      3,116,448
                                                               -----------    -----------
Total Assets ...............................................   $ 4,822,642    $ 4,596,079
                                                               ===========    ===========

LIABILITIES AND EQUITY

Current Liabilities:
     Current portion of long-term debt and capitalized lease
       obligations .........................................   $    22,819    $    56,270
     Short-term borrowings from  affiliates ................          --           12,193
     Accounts payable ......................................       109,011        131,314
     Accrued liabilities ...................................       391,430        421,240
     Net payable to affiliates .............................        28,480         32,590
     Accrued income taxes ..................................        16,165         18,530
                                                               -----------    -----------
          Total Current Liabilities ........................       567,905        672,137
Long-term debt .............................................     1,676,484      1,420,959
Non-current borrowings from affiliates .....................       574,495        504,693
Capitalized lease obligations ..............................        11,737         17,246
Deferred income taxes ......................................       152,703        179,290
Other liabilities ..........................................        31,207         34,015
                                                               -----------    -----------
          Total Liabilities ................................     3,014,531      2,828,340
                                                               -----------    -----------
Equity:
     Equity ................................................     1,819,904      1,768,574
     Cumulative translation adjustment .....................       (11,793)          (835)
                                                               -----------    -----------
       Total Equity ........................................     1,808,111      1,767,739
                                                               -----------    -----------
Total Liabilities and Equity ...............................   $ 4,822,642    $ 4,596,079
                                                               ===========    ===========
</TABLE>

     See accompanying Notes to Unaudited, Consolidated Financial Statements.






                                       6




<PAGE>   7



             FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

                UNAUDITED, CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                SUCCESSOR    PREDECESSOR
                                                                                ---------    -----------
                                                                                SIX MONTHS   SIX MONTHS
                                                                                  ENDED        ENDED
                                                                                 JUNE 30,     JUNE 30,
                                                                                   1997         1996
                                                                                   ----         ----

<S>                                                                             <C>          <C>      
    Cash Flows Provided by Operating Activities:
         Net earnings .......................................................   $  17,171    $  60,363
         Adjustments to reconcile net earnings to net cash provided by
          operating activities:
              Depreciation and amortization .................................     116,669       62,161
              Provision for doubtful accounts ...............................      42,432       42,928
              Provision for (benefit of) deferred income taxes ..............      (3,642)      (4,283)
              Loss on disposal of properties and equipment ..................       4,579        3,194

         Changes in operating assets and liabilities, net of effects of purchase
              acquisitions and foreign exchange:
              Increase in accounts receivable ...............................     (56,666)     (71,578)
              Decrease (increase) in inventories ............................      10,392         (778)
              Increase in other current assets ..............................      (7,610)     (13,440)
              Decrease (increase) in other assets and deferred charges ......       1,327         (106)
              Decrease in accounts payable ..................................     (27,105)      (5,403)
              (Decrease) increase in accrued income taxes ...................      (2,365)       9,971
              Decrease in accrued liabilities ...............................     (37,058)     (10,809)
              Decrease in other long-term liabilities .......................      (9,905)      (8,155)
              Net changes due to/from affiliates ............................      (4,110)        --   
              Other, net ....................................................      (1,919)        (225)
                                                                                ---------    ---------
         Net cash provided by operating activities ..........................      42,190       63,840
                                                                                ---------    ---------
    Cash Flows from Investing Activities:
              Capital expenditures ..........................................     (80,069)     (58,545)
              Payments for acquisitions, net of cash acquired ...............    (277,639)     (26,190)
                                                                                ---------    ---------
         Net cash used in investing activities ..............................    (357,708)     (84,735)
                                                                                ---------    ---------
    Cash Flows from Financing Activities:

              Increase in borrowings from affiliates ........................      57,609         --   
              Cash dividends paid ...........................................        (260)        --   
              Proceeds on issuance of debt ..................................     613,646      124,176
              Payments on debt and capitalized leases .......................    (399,315)    (161,540)
              Contributed capital from Fresenius Medical Care, AG ...........      34,419         --   
              Advances from Grace Chemicals, net ............................        --         61,260   
                                                                                ---------    ---------
         Net cash provided by financing activities ..........................     306,099       23,896
                                                                                ---------    ---------
    Effects of changes in foreign exchange rates ............................         934        3,508    
                                                                                ---------    ---------
    (Decrease) increase in cash and cash equivalents ........................      (8,485)       6,509
    Cash and cash equivalents at beginning of period ........................      50,422       33,530
                                                                                ---------    ---------
    Cash and cash equivalents at end of period ..............................   $  41,937    $  40,039
                                                                                =========    =========

    Supplemental disclosures of cash flow information:
         Cash paid during the period for:
              Interest ......................................................   $  60,618    $  13,429
              Income taxes ..................................................      34,919       18,340
</TABLE>

     See accompanying Notes to Unaudited, Consolidated Financial Statements
                            
       
       
         
       
       
       
                                        7
       
       
       
<PAGE>   8
       



             FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

          NOTES TO UNAUDITED, CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)

NOTE 1. THE COMPANY, REORGANIZATION AND BASIS OF PRESENTATION

THE COMPANY

     Fresenius Medical Care Holdings, Inc., ("FMCH" or the "Company"), formerly
known as W. R. Grace & Co. ("Grace New York"), together with its wholly owned
subsidiaries, National Medical Care, Inc. and its subsidiaries ("NMC") and
Fresenius USA, Inc. and its subsidiaries ("FUSA"), was formed as a result of a
series of transactions pursuant to the Agreement and Plan of Reorganization
dated as of February 4, 1996 by and between Grace New York and Fresenius AG (the
"Reorganization") which is more fully described hereunder.

     The Company is primarily engaged in (i) providing kidney dialysis services,
(ii) manufacturing and distributing products and equipment for dialysis
treatment and providing clinical laboratory testing and other medical services,
and (iii) providing home infusion therapy and home respiratory services.

THE REORGANIZATION

     The Reorganization, which was effective September 30, 1996, resulted from
the culmination of the following transactions: (1) NMC, which was a subsidiary
of W. R. Grace & Co. -- Conn. ("Grace Chemicals"), a wholly-owned subsidiary of
Grace New York, borrowed $2.3 billion and paid a cash dividend of approximately
$2.1 billion to Grace Chemicals; (2) the stock of NMC was transferred to Grace
New York, so that NMC and Grace Chemicals became sibling subsidiaries of Grace
New York; (3) the stock of Grace Chemicals was transferred to a newly formed
Delaware subsidiary of Grace New York ("New Grace") and the shares of New Grace
were spun-off to the Grace New York shareholders in a pro rata distribution; (4)
Grace New York was recapitalized such that each Grace New York shareholder
received one share of Class D Preferred Stock of Grace New York (the "Class D
Preferred Stock") for each share of Grace New York common stock held; and (5)
Grace New York, with NMC as its sole business, merged with a wholly-owned
subsidiary of Fresenius Medical Care AG ("FMC"), and Fresenius AG's worldwide
dialysis business ("FWD") was contributed as separate subsidiaries of FMC with
the result that 44.8% of the ordinary shares of FMC were exchanged for the
common stock held by Grace New York common shareholders in the merger
transaction and the balance of the ordinary shares of FMC were received by
Fresenius AG and the shareholders of FUSA, in consideration of the contribution
of FWD to FMC. All of the Grace New York [now Fresenius Medical Care Holdings,
Inc. ("FMCH")] common stock is held by FMC, while the Class D Preferred Stock
(which entitles its shareholders to a contingent dividend based on the
consolidated performance of FMC in the years 1997-2001) and other previously
issued classes of FMCH preferred stock remain outstanding.

     Effective October 1, 1996, FMC contributed all of the assets and
liabilities of FUSA to FMCH. The contribution of FUSA to FMCH by FMC was
accounted for on the cost basis since FUSA was a subsidiary under control of a
common parent. These consolidated financial statements include the results of
FUSA's operations and cash flows for the period January 1, 1997 through June 30,
1997.



                                       8



<PAGE>   9
BASIS OF PRESENTATION

BASIS OF CONSOLIDATION - PREDECESSOR BASIS

     The consolidated financial statements have been prepared as if the Company
had operated as an independent, stand alone entity for all periods presented.
Such financial statements have been prepared using the historical basis of
accounting prior to the Reorganization ("Predecessor") and include all of the
assets, liabilities, revenues, expenses and related taxes on income of the Grace
New York health care business operated by NMC (the "NMC Business") previously
included in the consolidated financial statements of Grace New York and its
subsidiaries prior to the Reorganization (the "Grace Consolidated Group").
Consequently, these consolidated financial statements include balances for
goodwill and other assets and liabilities related to the NMC Business that were
previously included in the financial statements of the Grace Consolidated Group,
except that there is no allocation to the NMC Business of Grace Chemicals'
borrowings and related interest expense. These consolidated financial statements
reflect only the borrowings and interest expense of NMC prior to the
Reorganization and interest expense of the Company after the Reorganization. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin No.
55 ("SAB 55"), the financial statements have also been adjusted to include
certain expenses incurred by Grace Chemicals on the NMC Business's behalf prior
to the Reorganization.

     These consolidated financial statements do not necessarily indicate the
financial position and results of operations that would have occurred if the NMC
Business were a stand-alone entity on the dates, and for the periods, indicated.

ACCOUNTING FOR THE REORGANIZATION - SUCCESSOR BASIS

     The issuance of FMC ordinary shares for all of the common stock of NMC has
been recorded as an acquisition in accordance with the purchase method of
accounting. Accordingly, purchase accounting adjustments recorded by FMC have
been "pushed down" to NMC, thus establishing a new basis of accounting at NMC
("Successor"). The purchase price of the acquisition was determined as the
average of the mid-points of the ranges of valuation of NMC and FMC,
respectively, as assigned by independent financial advisors to Fresenius AG and
was approximately $1,152,000. The valuation has been increased for direct costs
incurred to consummate the transaction. The excess of the purchase price over
the cost of the net identifiable assets acquired at September 30, 1996 of
$1,696,698 has been allocated to the fair value of the assets acquired and
liabilities assumed with the remaining portion recorded as goodwill.

     The Agreement and Plan for Reorganization also provides for the payment of
additional purchase price to the holders of the FMCH Class D Preferred Stock in
the form of a dividend, contingent upon the attainment of certain specific
consolidated operating results by FMC. Such future dividends, if any, will be
recorded as an increase in goodwill.

     In order to properly allocate purchase price to assets acquired, the
Company obtained an independent appraisal to fair value all assets of NMC.
Accordingly, the carrying values of specifically identified intangible assets
and certain tangible assets were adjusted upward by $186,030 and $57,768,
respectively, to approximate their fair values.

     The Company has also recorded adjustments to increase liabilities assumed
by approximately $123,000 for pre-acquisition contingencies primarily related to
legal settlements and the anticipated costs incurred in the defense of
litigation. These adjustments resulted from discussions with the government in
March 1997. The Company has provided an estimate of legal costs at the low end
of an expected range, but the ultimate costs could be significantly higher. The
Company is in discussions with the government regarding these matters. Any
difference between the final settlement and the Company's estimate would be
adjusted to goodwill, if determined within the allocation period, or charged to
income if determined thereafter. In addition, the Company has accrued
approximately $50,000 for certain costs related to the closing of certain renal
products manufacturing and distribution operations as well as the closing of
certain clinics of the Homecare Division. These restructuring costs primarily
relate to severance payments and lease commitments. Through the period ended
June 30, 1997 approximately $2,900 in payments have been applied against the
pre-acquisition contingencies and $33,500 against the restructuring costs.

OTHER

     The accompanying unaudited consolidated financial statements and related 
notes should be read in conjunction with the audited consolidated financials
which are contained in the Company's annual report on Form 10-K. In the opinion
of the Company, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation have been included in the interim financial
statements. The results for the six month period ended June 30, 1997 may not
necessarily be indicative of the results for the fiscal year ended December 31,
1997.

     All intercompany transactions and balances have been eliminated in
consolidation.

                                       9


<PAGE>   10


NOTE 2. INVENTORIES
<TABLE>
<CAPTION>

                                                         SUCCESSOR
                                                         ---------
                                                    JUNE 30,    DECEMBER 31,
                                                     1997          1996
                                                     ----          ----

<S>                                                <C>          <C>     
                 Inventories:
                   Raw materials ..................   $ 32,489     $ 41,659
                   Manufactured goods in process...      6,866       11,837
                   Manufactured and purchased .....     74,060       64,156
                                                      --------     --------
                 inventory available for sale......
                                                       113,415      117,652
                    Health care supplies ..........     31,576       35,828
                                                      --------     --------
                        Total .....................   $144,991     $153,480
                                                      ========     ========
</TABLE>

NOTE 3. DEBT

     Long-term debt to outside parties consists of:
<TABLE>
<CAPTION>

                                                             SUCCESSOR
                                                             ---------
                                                        JUNE 30,   DECEMBER 31,
                                                         1997         1996                                        
                                                         ----         ----                                        
                                                                  
                <S>                                  <C>          <C>      
                 Credit Agreement .................   $1,675,000   1,411,000
                 Third-party debt, primarily bank
                 borrowings at variable interest 
                 rates (3% - 14%) with various 
                 maturities                               14,386      57,101
                                                      ----------   ---------

                                                       1,689,386   1,468,101
                 Less amounts classified as current       12,902      47,142
                                                      ----------   ---------
                                                      $1,676,484   1,420,959
                                                      ==========   ========= 
</TABLE>

INTEREST RATE SWAP AGREEMENTS

NMC has entered into interest rate swap agreements with various commercial
banks for notational amounts totaling $1,500,000. These agreements effectively
change NMC interest rate exposure on the majority of its revolving loans to
fixed rates of interest between 5.76% and 6.60%. The first set of swap
agreements became effective on April 3, 1997. The second set of swap agreements
were entered into on June 17, 1997 and become effective on December 19, 1997
and April 3, 1998, respectively. These swap agreements expire at various dates
between December 15, 1997 and December 19, 2003. NMC had agreed under its
Credit Agreement to have at least $500,000 of interest rate protection.

NOTE 4. EQUITY

At June 30, 1997, and December 31, 1996, respectively, the components of FMCH's
Equity, excluding Cumulative Translation Adjustment, as presented in the
Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>

                                                                           SUCCESSOR
                                                                           ---------
                                                                     JUNE 30, DECEMBER 31,
                                                                        1997       1996
                                                                        ----       ----

<S>                                                              <C>                 <C>  
Preferred Stocks, $100 par value
     - 6% Cumulative (1); 40,000
         shares authorized; 36,460 outstanding ...............   $     3,646         3,646
     - 8% Cumulative Class A (2); 50,000 shares authorized;
           16,176 outstanding ................................         1,618         1,618
     - 8% Non-cumulative Class B (2); 40,000 shares
            authorized; 21,483  outstanding ..................         2,148         2,148
                                                                 -----------    ----------
                                                                       7,412         7,412
Preferred Stocks, $.10 par value - Non-cumulative Class D (3),
 100,000,000 shares authorized; 89,061,590 outstanding .......         8,906         8,906
                                                                 -----------    ----------
      Total Preferred ........................................        16,318        16,318

Common Stock, $1 par value:300,000,000 shares authorized,
  90,000,000 outstanding .....................................        90,000        90,000
Paid in Capital ..............................................     1,757,764     1,723,345
Retained Earnings (Deficit) ..................................       (44,178)      (61,089)
                                                                 -----------    ----------
          Total Equity .......................................   $ 1,819,904     1,768,574
                                                                 ===========    ==========
</TABLE>

(1)   160 votes per share
(2)   16 votes per share
(3)   1/10 vote per share

                                       10
<PAGE>   11
        
NOTE 5. COMMITMENTS AND CONTINGENCIES

CONTINGENT NON-NMC LIABILITIES OF GRACE NEW YORK (NOW KNOWN AS FRESENIUS MEDICAL
CARE HOLDINGS, INC.)

     In connection with the Reorganization, Grace Chemicals has agreed to
indemnify Grace New York and NMC against all liabilities of Grace New York,
whether relating to events occurring before or after the Reorganization, other
than liabilities arising from or relating to NMC operations. After the
Reorganization, Grace New York will remain contingently liable for certain
liabilities with respect to pre-Reorganization matters that are not related to
NMC operations. Grace New York believes that in view of the nature of the
non-NMC liabilities and the expected impact of the Reorganization on Grace
Chemicals' financial position, the risk of significant loss from non-NMC
liabilities is remote.

     Were events to violate the tax free nature of the Reorganization, the
resulting tax liability would be the obligation of FMCH. Subject to
representations by Grace Chemicals, FMCH and Fresenius AG, Grace Chemicals has
agreed to indemnify FMCH for such a tax liability. Were FMCH not able to collect
on the indemnity, the tax liability would have a material adverse effect on the
financial position of FMCH and the results of its operations.

OIG INVESTIGATIVE SUBPOENAS

     In October 1995, NMC received five investigative subpoenas from the Office
of Inspector General of the U.S. Department of Health and Human Services (the
"OIG"). The subpoenas were issued in connection with an investigation being
conducted by the OIG, the U.S. Attorney for the District of Massachusetts and
others concerning possible violations of federal laws, including the
Anti-kickback Statute and the False Claims Act. The subpoenas call for extensive
document production relating to various aspects of NMC's business. A sixth
subpoena, clarifying the scope of one originally served, was received in May
1996.

     The five subpoenas cover the following areas: (a) NMC's corporate
management, personnel and employees, organizational structure, financial
information and internal communications; (b) NMC's dialysis services business,
principally medical director contracts and compensation; (c) NMC's treatment of
credit balances resulting from overpayments received under the Medicare end
stage renal disease (ESRD) program, NMC's billing for home dialysis services and
payment of supplemental medical insurance premiums on behalf of indigent
patients; (d) NMC's LifeChem laboratory business ("LifeChem"), including
documents relating to testing procedures, marketing, customers, competition and
certain overpayments totaling approximately $4.9 million that were received by
LifeChem from the Medicare program with respect to laboratory services rendered
between 1989 and 1993; and (e) NMC's Homecare Division and, in particular,
information concerning the intradialytic parenteral nutrition ("IDPN") business
described below, including billing practices related to various services,
equipment and supplies and payments made by third parties as compensation for
administering IDPN therapy.

     On July 15, 1997, NMC received an investigatory subpoena duces tecum 
requesting production of a number of patient records, in connection with the
government's review of billing practices related to various services, equipment
and supplies and payments made by third parties as compensation for
administering IDPN therapy, described above.

     Each of the patients whose records were subpoenaed is, or was, a Medicare
beneficiary. The subpoena calls for production of the records by August 15,
1997. The Company has discussed an extended schedule for production with the
government. The result of the government's review of these records, its
duration, and its effect, if any, on NMC cannot be predicted at this time.

     In the event that a U.S. government agency believes that any wrongdoing
has occurred, civil and/or criminal proceedings could be instituted, and if any
such proceedings were to be instituted and the outcome were unfavorable, NMC
could be subject to substantial fines, penalties and damages or could become
excluded from government reimbursement programs. Any such result could have a
material adverse effect on NMC's financial position or the results of
operations of the Company.

     FMC and NMC have provided the United States government with a joint and
several guarantee of payment of the obligations, if any, arising out of the
investigation by the OIG. In support of this guarantee, NMC has delivered to the
government an irrevocable standby letter of credit in the amount of $150
million.


                                       11
<PAGE>   12

DIAGNOSTICS SUBPOENA

     On October 31, 1996, Biotrax International Inc. ("Biotrax") and NMC
Diagnostic Services, Inc. ("DSI"), both of which are subsidiaries of FMCH,
received an investigatory subpoena from the OIG. The subpoena calls for the
production of extensive documents and was issued in connection with an
investigation being conducted by the OIG in conjunction with the U.S. Attorney
for the Eastern District of Pennsylvania concerning the possible submission of
false or improper claims to, and their payment by, the Medicare program. The
subpoena calls for the production of documents by December 30, 1996 on corporate
organization, business plans, document retention, personnel files, sales and
marketing and Medicare billing issues relating to certain procedures offered by
the prior owner of the Biotrax business before its assets were acquired by NMC
in March 1994 and by DSI following the acquisition. The Company has reviewed the
subpoena with its legal counsel and has begun to make extensive document
production in response to the subpoena. The outcome of this investigation, its
duration, and its effect, if any, on NMC cannot be predicted at this time. If,
however, the results of this investigation are adverse to the Company, the
Company could face the same types of potential consequences of the OIG
investigation.

QUI TAM ACTIONS

SOUTH FLORIDA

     The Company and NMC have become aware that a qui tam action has been filed
in the United States District Court for the Southern District of Florida,
Southern Division (the "South Florida Action"). The original complaint in the
South Florida Action was filed under seal in 1996. The Relator filed an Amended
Complaint under seal on July 8, 1996. The seal with respect to the Amended
Complaint was partially lifted pursuant to court order to permit the government
to provide FMCH and NMC with a copy of the Amended Complaint. The Company and
NMC received copies of the Amended Complaint on July 10, 1996. Pursuant to a
court order dated July 26, 1996, the seal was further modified to permit the
Company to provide copies of the Amended Complaint to Fresenius AG, lenders
involved in the NMC credit facility and their respective counsel and to permit
the Company and NMC to describe the allegations of the Amended Complaint in
their securities filings with respect to the Reorganization.

     The Amended Complaint alleges, among other things, that the Company, Grace
Chemicals and NMC violated the False Claims Act in connection with certain
billing practices regarding IDPN and the administration of EPO. The Amended
Complaint alleges that as a result of this allegedly wrongful conduct, the
United States suffered actual damages in excess of $200 million and alleges that
the defendants are liable to the United States for three times the amount of the
alleged damages plus fines of up to $10,000 per false claim. The Amended
Complaint also seeks the imposition of a constructive trust on the proceeds of
the NMC dividend to Grace Chemicals for the benefit of the United States on the
ground that the Reorganization constitutes a fraudulent conveyance that will
render NMC unable to satisfy the claims asserted in the Amended Complaint.

TAMPA

     The Company and NMC have become aware that a qui tam action has been filed
in the United States District Court for the Middle District of Florida, Tampa
Division (the "Tampa Action"). The original complaint in the Tampa Action was
filed under seal in 1995. The seal with respect to the complaint was partially
lifted pursuant to court order to permit the government to provide the Company
and NMC with a copy of the complaint. Pursuant to a court order dated November
7, 1996, the seal was further modified to permit the Company and NMC to disclose
the complaint to the underwriters involved in two public securities offerings by
FMC (the "Offerings") and their counsel, to Fresenius AG, and to lending
institutions to whom NMC has contractual obligations, their successors and
assigns and their respective counsel and to disclose allegations in the
complaint in FMC's filings under the Securities Act of 1933, as amended, with
respect to the Offerings and in FMC's and FMCH's periodic filings under the
Securities Exchange Act of 1934, as amended.

     The complaint in the Tampa Action alleges, among other things, that the
Company, NMC and certain NMC subsidiaries violated the False Claims Act in
connection with the retention of overpayments made under the Medicare program,
the alleged submission of claims in violation of applicable cost caps and the
payment of supplemental Medicare insurance premiums as an inducement to patients
to obtain dialysis products and services from NMC. The complaint alleges that as
a result of this allegedly wrongful conduct, the United States suffered damages
in excess of $10 million including applicable fines, and alleges that the
defendants are liable to the United States for three times the amount of the
alleged damages plus fines of up to $10,000 per false claim.



                                       12
<PAGE>   13

PENNSYLVANIA

     The Company, FMCH and NMC have become aware that a qui tam action has been
filed in the United States District Court for the Eastern District of
Pennsylvania (the "Pennsylvania Action"). The original complaint in the
Pennsylvania Action was filed under seal in February of 1996. The seal with
respect to the complaint was partially lifted pursuant to court order to permit
the government to provide NMC with a copy of the complaint. Pursuant to a court
order dated November 15, 1996, the seal was further modified to permit the
Company and NMC to disclose the complaint to the underwriters involved in the
Offerings and their counsel, to Fresenius AG, and to lending institutions to
whom NMC has contractual obligations, their successors and assigns and their
respective counsel and to disclose allegations in the complaint in the Company's
filings under the Securities Act with respect to the Offerings and in the
Company's and FMCH's periodic filings under the Exchange Act.

     The complaint in the Pennsylvania Action alleges, among other things, that
a pharmaceutical manufacturer, an unaffiliated dialysis provider and NMC
violated the False Claims Act in connection with the submission of claims to the
Medicare program for a non-sterile intravenous drug and for intravenous drugs
which were allegedly billed in excess of permissible Medicare reimbursement
rates. The complaint also claims that the defendants violated the Medicare and
Medicaid anti-kickback statutes in connection with the receipt of discounts an
other in kind payments as alleged inducements to purchase intravenous drugs. The
complaint is focused on the business relationship between the pharmaceutical
manufacturer and several providers, one of which is NMC. The complaint claims
that as a result of the allegedly wrongful conduct, the United States suffered
damages and that the defendants are liable to the United States for three times
the amount of the alleged damages plus civil penalties of up to $10,000 per
false claim. An adverse result in the Pennsylvania Action or an adverse result
in any other qui tam action could have a material adverse affect on the
Company's business, financial condition or results of operations.

OMNIBUS BUDGET RECONCILIATION ACT OF 1993

     The Omnibus Budget Reconciliation Act of 1993 ("OBRA 93") affected the
payment of benefits under Medicare and employer health plans for certain
eligible ESRD patients. In July 1994, the Health Care Financing Administration
("HCFA") issued an instruction to Medicare claims processors to the effect that
Medicare benefits for the patients affected by OBRA 93 would be subject to a new
18- month "coordination of benefits" period. This instruction had a positive
impact on NMC's dialysis revenues because, during the 18-month coordination of
benefits period, the patient's employer health plan was responsible for payment,
which was generally at a rate higher than that provided under Medicare.

     In April 1995, HCFA issued a new instruction, reversing its original
instruction in a manner that would substantially diminish the positive effect of
the original instruction on NMC's dialysis business. Under the new instruction,
no 18-month coordination of benefits period would arise and Medicare would
remain the primary payor for the patients affected by OBRA93. HCFA further
proposed that its new instruction be effective retroactive to August 1993, the
effective date of OBRA 93. Consequently, FMCH may be required to refund payments
received from employer health plans for services provided after August 1993
under HCFA's original instruction and to re-bill Medicare for the same services,
which would result in a cumulative reduction of net revenues to NMC totaling
approximately $120,000 as of June 30, 1997. NMC believes that the April 1995
instruction letter issued by HCFA does not constitute a proper notice of final
rulemaking and, accordingly, NMC continued to recognize revenues through the end
of June 1995. If HCFA's instruction letter is adjudged by the courts to be the
equivalent of a notice of proposed rulemaking, then NMC believes that a 60-day
comment period would be required before the rule could become effective.
Therefore, NMC believes that it would be allowed to recognize the higher
reimbursement rate on dual eligible ESRD patients for 60 days subsequent to the
HCFA instruction letter, or approximately through July 1, 1995. Effective July
1, 1995, NMC ceased to recognize the incremental revenue realized under the
original instruction, which has resulted in a material reduction in NMC's
operating earnings in comparison to prior periods in which NMC recognized such
incremental revenue. However, NMC continued to bill the employer health plans as
primary payors through December 31, 1995, at which time NMC commenced billing
Medicare for the patients affected by OBRA 93.

     In May 1995, NMC filed suit in the U.S. District Court for the District of
Columbia seeking a declaratory judgment with respect to HCFA's instructions
relating to OBRA 93. In June 1995, the court granted NMC's motion for a
preliminary injunction to preclude HCFA from retroactively enforcing its new
instruction. The litigation is continuing with respect to NMC's request to
permanently enjoin HCFA's new instruction, both retroactively and prospectively.
While there can be no assurance that a permanent injunction will be issued, NMC
believes that it will ultimately prevail in its claim that the retroactive
reversal by HCFA of its original instruction relating to OBRA 93 was
impermissible under applicable law. If HCFA's revised instruction is upheld and
applied retroactively, NMC's business, financial position and results of
operations would be materially adversely affected.



                                       13
<PAGE>   14

INTRADIALYTIC PARENTERAL NUTRITION

     NMC administers IDPN therapy to chronic dialysis patients who suffer from
severe gastrointestinal malfunctions. Since late 1993, Medicare claims
processors have sharply reduced the number of IDPN claims approved for payment
as compared to prior periods. NMC believes that the reduction in IDPN claims
currently being paid by Medicare represents an unauthorized policy coverage
change. Accordingly, NMC and other IDPN providers are pursuing various
administrative and legal remedies, including administrative appeals, to address
this reduction. In November 1995, NMC filed a complaint in the U.S. District
Court for the Middle District of Pennsylvania seeking a declaratory judgment and
injunctive relief to prevent the implementation of this policy coverage change.

     NMC management believes that its IDPN claims were consistent with published
Medicare coverage guidelines and ultimately will be approved for payment. Such
claims represent substantial accounts receivable of NMC, amounting to
approximately $153 million (net of a reserve of $52,000) and $140,000 (net of a
reserve of $41,000) as of June 30, 1997 and December 31, 1996, respectively,
and currently increasing at the rate of approximately $2,000 per month. When
the coverage guidelines were revised effective July 1996, as described below,
some of NMC's claims continued to meet the more stringent coverage criteria
established in the new guidelines and will probably be approved for payment by
Medicare. NMC has reviewed the claims it has submitted for patients who started
on IDPN therapy before July 1996 and continued on therapy after July 1996, but
do not meet the new, more stringent coverage criteria, and believes that these
claims were consistent with published Medicare coverage guidelines. NMC 
recognizes, however, that the regulations and coverage guidelines are ambiguous
as to whether these patients therapy continues to be covered by Medicare after
the effective date of the new coverage criteria. NMC has continued to provide
therapy to these patients and to pursue its appeals of these claims through the
administrative process. If the government determines that continued coverage
for these patients is inappropriate, such claims ultimately will not be paid.
Amounts in receivable for these patients are approximately $12,000. If NMC is
unable to collect its IDPN receivable, or if IDPN coverage is reduced or
eliminated, depending on the amount of the receivable that is not collected
and/or the nature of the coverage change, NMC's business, financial position    
and results of operations could be materially adversely affected.

     In May 1995 the Medicare claims processors circulated a draft coverage
policy which, if implemented in the form proposed, would have limited or
precluded continued coverage of parenteral and enteral nutrition ("PEN")
therapies, including IDPN therapy. In April 1996, NMC received a copy of a
revised final version of the new coverage policy, which became effective for
services billed on and after July 1, 1996. While the new policy permits
continued coverage of IDPN and other PEN therapies, and while the potential
impact of the new policy is subject to further analysis, NMC believes that the
new policy has made it substantially more difficult to qualify patients for
future coverage by, among other things, requiring certain patients to undergo
onerous and/or invasive tests in order to qualify for coverage. NMC, together
with other interested parties, is seeking to effect certain changes in the new
policy and NMC has made changes to its patient qualification procedures in order
to comply with the policy. However, if NMC is unable to achieve changes in the
new policy, if physicians and patients fail to accept the new qualification
procedures and/or if patients fail to qualify under such procedures, the policy
could significantly reduce the number of patients eligible for Medicare coverage
of IDPN and other PEN therapies, which would have a material adverse effect on
NMC's financial position and its results of operations.

OTHER LEGAL PROCEEDINGS

     NMC has received multiple subpoenas from a federal grand jury in the
District of New Jersey investigating, among other things, NMC's efforts to
persuade the U.S. Food and Drug Administration to lift a January 1991 import
hold issued with respect to NMC's Dublin, Ireland facility, whether NMC sold
defective products, the manner in which NMC handled customer complaints and the
development of a new dialyzer product line. Grace has also received two
subpoenas relating to this investigation. In February 1996, the U.S. Attorney
for the District of New Jersey notified NMC that it is a target of the New
Jersey grand jury investigation, insofar as it relates to possible violations of
federal criminal law in connection with efforts to affect the January 1991
import hold referred to above; the material element of the import hold was
lifted in 1992. In June 1996, NMC received a letter from the U.S. Attorney for
the District of New Jersey indicating that the U.S. Attorney had declined to
prosecute NMC with respect to a submission related to NMC's effort to lift the
import ban. The letter added that NMC remains a subject of a federal grand
jury's investigation into other matters. NMC also received a subpoena in June
1996 requesting certain documents in connection NMC's imports of the FoCus
[Registered Trademark] dialyzer from January 1991 to November 1995. The outcome
of these investigations and their impact, if any, on NMC's business, financial
condition and results of operations cannot be predicted at this time. However,
the Company believes that neither the Company nor any of its employees committed
any violations of law. Accordingly, the Company does not believe that the
results of these investigations will have a material adverse effect on the
Company's financial position and results of operations.



                                       14
<PAGE>   15

NOTE 6. SUBSEQUENT EVENTS

FINANCING AGREEMENT

In July 1997, FMCH signed a letter of intent with NationsBank to establish a new
$200,000 receivables financing facility to replace the existing financing
facility with Citicorp. Proceeds from the NationsBank agreement will be used to
repay the Citicorp facility.




                                       15
<PAGE>   16



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     For purposes of the following discussion, Fresenius Medical Care Holdings,
Inc., ("FMCH" or the "Company") formerly known as W. R. Grace & Co. ("Grace New
York"), together with the wholly owned subsidiaries, National Medical Care, Inc.
and its subsidiaries ("NMC") and Fresenius USA, Inc. and its subsidiaries
("FUSA") was formed as a result of a series of transactions pursuant to the
Agreement and Plan of Reorganization dated as of February 4, 1996 by and between
Grace New York and Fresenius AG ("the Reorganization"). The following is a
discussion of the financial condition and results of operations of FMCH. The
discussion should be read in conjunction with the financial statements included
elsewhere in this document.

     This section contains certain forward-looking statements. These
forward-looking statements are made based on management's expectations and
beliefs concerning future events impacting FMCH, but no assurance can be given
that such events will occur or that the results will be as anticipated. Such
statements include, without limitation, discussions concerning the outlook of
FMCH, government reimbursement, future plans and management's expectations
regarding future performance.

OVERVIEW

     FMCH is primarily engaged in (a) providing kidney dialysis services and
performing clinical laboratory testings and other medical services, (b)
manufacturing and distributing products and equipment for dialysis treatment,
and (c) providing home infusion and respiratory therapy. Throughout FMCH's
history, a significant portion of FMCH's growth has resulted from the
development of new dialysis centers and the acquisition of existing dialysis
centers, as well as from the acquisition and development of complementary
businesses in the health care field.

     FMCH derives a significant portion of its net revenues from Medicare,
Medicaid and other government health care programs (approximately 62% in 1996).
The reimbursement rates under these programs, including the Composite Rate, the
reimbursement rate for EPO (which accounted for approximately 22% of dialysis
service's domestic net revenues in 1996), and the reimbursement rate for other
dialysis and non-dialysis related services and products, as well as other
material aspects of these programs, have in the past and may in the future be
changed as a result of deficit reduction and health care reform measures.

     FMCH's business, financial position and results of operations also could be
materially adversely effected by an adverse outcome in the OIG investigations,
any whistleblower action, the pending challenge by FMCH of changes effected by
Medicare in approving reimbursement claims relating to the administration of
IDPN or by the recent adoption of a new coverage policy that will change IDPN
coverage prospectively. FMCH's business, financial position and results of
operations would also be materially adversely affected by an adverse outcome in
the pending litigation concerning the implementation of certain provisions of
OBRA 93 relating to the coordination of benefits between Medicare and employer
health plans in the case of certain dual eligible ESRD patients.

     FMCH also derives a significant portion of its net revenues from
reimbursement by non-government payors. Historically, reimbursement rates paid
by these payors generally have been higher than Medicare and other government
program rates in all areas except for certain services provided by NMC Homecare.
However, non-government payors are imposing cost containment measures that are
creating significant downward pressure on reimbursement levels that FMCH
receives for its services and products.

     Dialysis Services operated or managed dialysis centers in 14 foreign 
countries at June 30, 1997. In certain countries, FMCH experiences lower
reimbursement rates per treatment for dialysis services than are generally
realized in the U.S. FMCH's international dialysis services operations
currently generate less operating profit per treatment than domestic dialysis
operations due to both the lower reimbursement rates in some countries and the
start-up nature of many of the centers in foreign countries.





                                       16
<PAGE>   17

RESULTS OF OPERATIONS
   The following table summarizes certain unaudited operating results of FMCH 
by principal business unit for the periods indicated. Intercompany eliminations
primarily reflect sales of medical supplies by Renal Products to DSD.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                  JUNE 30,                 JUNE 30,
                                                             ------------------         ----------------
                                                               1997       1996           1997      1996
                                                               ----       ----           ----      ----
                                                            (DOLLARS IN MILLIONS)     (DOLLARS IN MILLIONS)
<S>                                                            <C>       <C>           <C>         <C>    
    Net Revenues:
       Dialysis Services ................................      $ 484     $ 443         $   944     $   862
       Dialysis Products ................................        168        80             327         160
       NMC Homecare .....................................         55        78             119         156
       Intercompany Eliminations ........................        (61)      (49)           (120)        (98)
                                                               -----     -----         -------     -------
    Total Net Revenues ..................................      $ 646     $ 552         $ 1,270     $ 1,080
                                                               =====     =====         =======     =======
    Operating Earnings:
       Dialysis Services ................................      $  61     $  67         $   122     $   129
       Dialysis Products ................................         23        12              42          21
       NMC Homecare .....................................          2         5               5          12
                                                               -----     -----         -------     -------
    Total Operating Earnings ............................      $  86     $  84         $   169         162
                                                               =====     =====         =======     =======
    Other Expenses:
       General Corporate ................................      $  13     $  13         $    37     $    34
       Research & Development ...........................          1         1               2           1
       Interest Expense, Net ............................         46         7              87          15
                                                               -----     -----         -------     -------
    Total Other Expenses ................................      $  60     $  21         $   126     $    50
                                                               -----     -----         -------     -------
    Earnings Before Income Taxes ........................         26        63              43         112
    Provision for Income Taxes ..........................         16        29              26          52
                                                               -----     -----         -------     -------
    Net Earnings ........................................      $  10     $  34         $    17     $    60
                                                               =====     =====         =======     =======
</TABLE>
PROFORMA RESULTS OF OPERATIONS

        The following table represents the unaudited pro forma statements of
operations of the Company for the three months ended and six months ended June
1996 assuming the Reorganization occurred on January 1, 1996 and the actual
statements of operations for the three months ended and six months ended June
1996.

<TABLE>
<CAPTION>
                                                            ACTUAL    PROFORMA         ACTUAL  PROFORMA
                                                            ------    --------         ------  --------
                                                            THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                  JUNE 30,                   JUNE 30,
                                                             ------------------         ----------------
                                                              1996        1996          1996         1996
                                                              ----        ----          ----         ----
                                                            (DOLLARS IN MILLIONS)     (DOLLARS IN MILLIONS)

<S>                                                          <C>       <C>             <C>         <C>    
    Net Revenues:
       Dialysis Services ................................    $ 443     $ 443           $   862     $   862
       Dialysis Products ................................       80       150               160         298
       NMC Homecare .....................................       78        78               156         156
       Intercompany Eliminations ........................      (49)      (49)              (98)        (98)
                                                             -----     -----           -------     -------
    Total Net Revenues ..................................    $ 552     $ 622           $ 1,080     $ 1,218
                                                             =====     =====           =======     =======
    Operating Earnings:
       Dialysis Services ................................    $  67     $  67           $   129     $   129
       Dialysis Products ................................       12         8                21          21
       NMC Homecare .....................................        5         5                12          12
                                                             -----     -----           -------     -------

    Total Operating Earnings ............................    $  84     $  80           $   162     $   162
                                                             =====     =====           =======     =======
    Other Expenses:
       General Corporate ................................    $  13     $  31           $    34          63
       Research & Development ...........................        1         1                 1           3
       Interest Expense, Net ............................        7        39                15          76
                                                             -----     -----           -------     -------
    Total Other Expenses ................................    $  21     $  71           $    50     $   142
                                                             -----     -----           -------     -------
    Earnings Before Income Taxes ........................       63         9               112          20
    Provision for Income Taxes ..........................       29        11                52          20
                                                             -----     -----           -------     -------
    Net Earnings  (Loss) ................................    $  34     $  (2)          $    60        $-0-
                                                             =====     =====           =======     =======
</TABLE>

                                       17
<PAGE>   18


EFFECT OF REORGANIZATION ON RESULTS OF OPERATIONS

In accordance with U.S. GAAP relating to purchase accounting rules, the Company
adjusted to fair value its assets and liabilities which, on a pro forma basis,
would have resulted in increased amortization of approximately $15 million and
$30 million for the second quarter 1996 and first six months of 1996,
respectively, as shown in the pro forma statement of operations as part of
General Corporate expenses. In addition, as part of the Reorganization, the
Company incurred additional debt, which would have resulted in a net increase
in interest expense, including amortization of debt issuance costs and other
fees, in the amounts of $32 million and $62 million for the second quarter 1996
and the first six months of 1996, respectively, on a pro forma basis. In
connection with the Reorganization, the addition of FUSA for the first six
months of 1996 would have resulted in increased revenues for Dialysis Products
of $70 million and $138 million and decreased operating earnings for Dialysis
Products of $4 million and $0 million for the second quarter 1996 and first six
months of 1996, respectively, on a pro forma basis. The Reorganization would
have resulted in a decrease in the Company's provision for income taxes of $18
million and $32 million for the second quarter 1996 and the first six months of
1996, respectively, on a pro forma basis. As a result of the above adjustments,
on a pro forma basis, the Company would have reported a net loss of $2 million
for the second quarter 1996 and would have broken even for the first six months
of 1996. Actual results show profit of $34 million for the second quarter 1996
and $60 million the first six months of 1996.

                                       18
<PAGE>   19


THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996

     Net revenues for the second quarter of 1997 increased by 17% ($94 million)
over the comparable period of 1996, with Dialysis Services and Dialysis Products
accounting for most of the increase. Net earnings for the second quarter of 
1997 decreased 71% ($24 million) over the comparable period of 1996 as a result
of higher interest expenses and depreciation and amortization expense.

     DIALYSIS SERVICES.

     Dialysis Services net revenues for the second quarter of 1997 increased by
9% ($41 million) over the comparable period of 1996, which included a favorable
OBRA 93 adjustment ($10 million). The increase is primarily a result of a
15% increase in the number of treatments provided worldwide. This increase was
partially offset by a decline in the domestic ancillary revenue rate ($5
million), and a $1 million decrease in diagnostic services revenues due to a
decrease in the number of primary care tests. Laboratory testing revenues for
the second quarter of 1997 were essentially the same as the similar period of
1996.

     Dialysis Services operating earnings for the second quarter of 1997
decreased by 9% ($6 million) over the comparable period of 1996 primarily as a
result of the aforementioned favorable OBRA 93 adjustment in 1996 and decreased
volume of diagnostic services tests. These decreases to operating earnings were
partially offset by increased treatment volume.

     DIALYSIS PRODUCTS.

     Dialysis Products net revenues for the second quarter of 1997 increased by
110% ($88 million) over the comparable period of 1996 primarily due to $81
million of second quarter revenues of FUSA, which was contributed to FMCH by
Fresenius Medical Care AG effective October 1, 1996. During the second quarter
1997, approximately $7 million of product sales were made between FUSA and the
former Renal Products Division of NMC which have been eliminated for financial
reporting. There were no such eliminations recorded in 1996 as the two
companies were separate reporting entities.

     Dialysis Products operating earnings for the second quarter of 1997
increased by 92% ($11 million) over the comparable period of 1996 primarily due
to the second quarter operating earnings of FUSA ($6 million). NMC's Renal
Products Division's operating earnings increased by approximately $5 million
during the quarter, primarily due to a reduction in operating expenses and
distribution costs ($3 million) as well as one-time charges recorded in the
second quarter of 1996 for legal expenses ($2 million).

     NMC HOMECARE.

     NMC Homecare's net revenues for the second quarter of 1997 decreased by 30%
($23 million) as compared to the second quarter of 1996. This is primarily due
to decreased volume related to changes in Medicare qualification procedures for
IDPN patients ($15 million), decreases in infusion therapy revenues mainly due
to continued price compression from managed care ($6 million), and the effect
of the sale of Home Health business ($3 million). These decreases were
partially offset by increases in respiratory therapy revenues ($1 million).

     NMC Homecare's operating earnings for the second quarter of 1997 decreased
by $3 million as compared to the second quarter of 1996, primarily due to
continued pricing pressure resulting from managed care and the decline in the
number of Medicare patients who receive IDPN treatments.

     OTHER EXPENSES.

     FMCH's other expenses for the second quarter of 1997 increased by 186% ($39

million) over the comparable period of 1996. General corporate expense remained
the same due to reduced legal expenses ($4 million), favorable savings in 
foreign exchange ($6 million), and other cost reductions ($5 million). These
decreases to corporate expense were entirely offset by a $15 million increase
to depreciation and amortization expense associated with the revaluation of
intangible assets at the time of the Reorganization. Research and development
expenses for the second quarter of 1997 were virtually the same as they were
for the comparable period of 1996. Interest expense for the second quarter of
1997 increased by $39 million over the comparable period of 1996 mainly due to
the large amount of bank debt incurred to finance the Reorganization and the
interest expense associated with FUSA in the second quarter of 1997 ($2
million). 


                                       19
<PAGE>   20

INCOME TAX RATE.

     The effective tax rate for the second quarter (59.8%) is significantly
higher than the rate for the comparable period of 1996 (46.0%) due to the large
amount of non-deductible goodwill incurred as a result of the Reorganization.

                                       20
<PAGE>   21

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

     Net revenues for the first six months of 1997 increased by 18% ($190
million) over the comparable period of 1996, with Dialysis Services and Dialysis
Products accounting for more than all of the entire increase. Net earnings for
the first six months of 1997 decreased 72% ($43 million) over the comparable
period of 1996 as a result of higher general corporate and interest expenses.

     DIALYSIS SERVICES.

     Dialysis Services net revenues for the first six months of 1997 increased
by 10% ($82 million) over the comparable period of 1996, which included a
favorable OBRA 93 adjustment ($10 million), primarily as a result of a 14% 
increase in the number of treatments provided worldwide. This increase was
partially offset by a decline in the ancillary revenue rate ($3 million), and a
$5 million decrease in diagnostic services revenues due to a decrease in the
number of primary care tests. Laboratory testing revenues for the first six
months of 1997 decreased by $1 million compared to the similar period of 1996.
This was a result of a slight decrease in external lab testing volume.

     Dialysis Services operating earnings for the first six months of 1997
decreased by 5% ($7 million) over the comparable period of 1996 primarily as a
result of the aforementioned favorable OBRA 93 adjustment in 1996 and decreases 
in volume of diagnostic services treatments and laboratory testing. These 
decreases to operating earnings were partially offset by increased treatment 
volume.

     DIALYSIS PRODUCTS.

     Dialysis Products net revenues for the first six months of 1997 increased
by 104% ($167 million) over the comparable period of 1996, primarily due to $152
million of revenues for FUSA, which was contributed to FMCH by Fresenius Medical
Care AG effective October 1, 1996. During 1997, approximately $17 million of
product sales were made between FUSA and the former Renal Products Division of
NMC which have been eliminated for financial reporting. There were no such
eliminations recorded in 1996 as the two companies were separate reporting
entities.

Dialysis Products operating earnings for the first six months of 1997 increased
by 100% ($21 million) over the comparable period of 1996 primarily due to the
operating earnings of FUSA ($16 million). NMC's Renal Products Division's
operating earnings increased by approximately $5 million during the first six
months primarily due to a reduction in operating expenses and distribution costs
($3 million) as well as one-time charges recorded in the second quarter of 1996
for legal expenses ($2 million).

     NMC HOMECARE.

     NMC Homecare's net revenues for the first six months of 1997 decreased by
24% ($37 million) as compared to the first six months of 1996. This is
primarily due to decreased volume related to changes in Medicare qualification
procedures for IDPN patients ($25 million), decreases in infusion therapy
revenues mainly due to continued price compression from managed care ($12
million), and the effect of the sale of Home Health business ($2 million).
These decreases were partially offset by increases in respiratory therapy
revenues ($2 million).

     NMC Homecare's operating earnings for the first six months of 1997
decreased by $7 million as compared to the first six months of 1996, primarily
due to continued pricing pressure resulting from managed care and the decline
in the number of Medicare patients who receive IDPN treatments.

     OTHER EXPENSES.

     FMCH's other expenses for the first six months of 1997 increased by 152% 
($76 million) over the comparable period of 1996. General corporate expense
increased by 9% ($3 million) primarily due to increased depreciation and 
amortization expenses associated with the revaluation of intangible assets at
the time of the Reorganization ($30 million), offset by reduced legal expenses
($9 million), favorable savings in foreign exchange ($10 million), and other
cost reductions ($8 million). Research and development expenses for the first
six months of 1997 were virtually the same as they were for the comparable
period of 1996. Interest expense for the first six months of 1997 increased by
($72 million) over the comparable period of 1996 mainly due to the large amount
of bank debt incurred to finance the reorganization and the interest expense    
associated with FUSA in the first six months of 1997 ($4 million).



                                       21
<PAGE>   22

     INCOME TAX RATE.

     The effective tax rate for the first six months of 1997 (60.5%) is
significantly higher than the rate for the first six months of 1996 (46.3%) due
primarily to the large amount of non-deductible goodwill incurred as a result of
the reorganization.

LIQUIDITY AND CAPITAL RESOURCES

     FMCH made acquisitions totaling $278 million and $26 million, during the
first six months of 1997 and 1996, respectively. FMCH made capital expenditures
for internal expansion, improvements, new furnishings and equipment of $80
million and $58 million during the first six months of 1997 and 1996,
respectively. The Company intends to capitalize on the continuing shift in the
U.S. from physician-owned and hospital-based dialysis clinics to multi-center
providers by acquiring existing dialysis centers and the establishment of new or
expanded centers and, accordingly, will require significant capital resources to
pursue its growth strategy in the dialysis marketplace. FMCH may also make other
strategic acquisitions in the future.

     FMCH also requires capital resources for working capital purposes. FMCH
used cash to fund increases in accounts receivable of $57 million and $72
million during the first six months of 1997 and 1996, respectively. The
increases in accounts receivable reflect growth in NMC's business operations
and, beginning in 1994, the sharp reduction in IDPN claims approved for payment.

     FMCH during the first six months of 1997 funded its acquisitions and
captial expenditures primarily through increased borrowings under its credit
facility ($264 million) and increased borrowings from affiliates ($58 million).
In addition, FMCH received a capital contribution of $34 million from Fresenius
Medical Care, A.G, which was used in connection with an acquisition. FMCH
generated net cash from operations of $43 million and $64 million during the
first six months of 1997 and 1996, respectively. FMCH received net cash
advances from Grace of $61 million during the first six months of 1996.

     Effective July 1, 1995, FMCH ceased to recognize the incremental revenue
provided under HCFA's initial instruction under OBRA 93, although it continued
to bill private third-party payors for these amounts through December 31, 1995.
If FMCH's position with respect to the retroactive application of OBRA 93 is not
sustained, it may be required to refund amounts previously collected from
private third-party payors (approximately $190 million through June 30, 1995)
and rebill Medicare for these services, which would result in an estimated net
cash and operating earnings loss of approximately $120 million as of June 30,
1997. FMCH began billing Medicare as the primary payor for the dual eligible
ESRD patients affected by OBRA 93 effective January 1, 1996. If HCFA's revised
instruction under OBRA 93 is permanently enjoined on a prospective basis, or if
such revised instruction is sustained but given an effective date of later than
June 30, 1995, FMCH may be able to rebill such services to third-party payors
and, as a result, FMCH's future results of operations and financial position
would be favorably affected by the incremental revenue that FMCH would
recognize.

     NMC entered into a $2.5 billion Credit Agreement on September 27, 1996 with
a group of financial institutions. The Credit Agreement was used to fund a cash
dividend to Grace Chemicals of approximately $2.1 billion, finance existing
letters of credit and for general corporate purposes. In November 1996,
Fresenius Medical Care implemented two financings which raised a total of $731
million, the proceeds of which were invested in FMCH through a $249 million
equity infusion and a total of $482 million of loans to FMCH. The funds were
used to repay certain borrowings under the Credit Agreement. Also in November
1996, Fresenius Medical Care became a guarantor under the NMC Credit Agreement.
The Credit Agreement will be utilized to fund future capital requirements and
acquisitions and, to the extent necessary, general corporate requirements,
including future letters of credit, and any claims on the Company which may
result from adverse settlements with the government on the OIG or other
investigations.

     FMCH is party to a $200 million receivables financing arrangement. At June
30, 1997, $156 million was outstanding under this agreement, an increase of $8
million from December 31, 1996.

     In July 1997, FMCH signed a letter of intent with NationsBank to establish
a new $200 million receivables financing facility to replace the existing
financing facility with Citicorp. Proceeds from the NationsBank facility will
be used to repay the Citicorp facility.



                                       22
<PAGE>   23

     The liquidity of FMCH is contingent upon a number of factors, principally
FMCH's future operating results and the contingencies referred to below. FMCH
believes that its current levels of liquidity, including availability under the
NMC Credit Agreement, are sufficient to meet its foreseeable needs. If existing
sources of funds are not sufficient to provide liquidity, FMCH may need to sell
assets or obtain debt or equity financing from additional external sources.
There can be no assurance that FMCH will be able to do so on satisfactory terms,
if at all.

IMPACT OF INFLATION

     A substantial portion of FMCH's net revenue is subject to reimbursement
rates which are regulated by the federal government and do not automatically
adjust for inflation. Non-governmental payors also are exerting downward
pressure on reimbursement levels. Increased operating costs that are subject to
inflation, such as labor and supply costs, without a compensating increase in
reimbursement rates, may adversely affect FMCH's business and results of
operations, possibly materially.

CONTINGENCIES

     FMCH is the subject of investigations by several federal agencies and
authorities, is a plaintiff in litigation against the federal government with
respect to the implementation of OBRA 93 and coverage for IDPN therapy, and is
seeking to change a proposed revision to IDPN coverage policies. An adverse
outcome in any of these matters, beyond the reserves which have established,
could have a material adverse effect on FMCH's business, financial condition and
results of operations.


                                       23
<PAGE>   24

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

INTRADIALYTIC PARENTERAL NUTRITION

     NMC administers IDPN therapy to chronic dialysis patients who suffer from
severe gastrointestinal malfunctions. Since late 1993, Medicare claims
processors have sharply reduced the number of IDPN claims approved for payment
as compared to prior periods. NMC believes that the reduction in IDPN claims
currently being paid by Medicare represents an unauthorized policy coverage
change. Accordingly, NMC and other IDPN providers are pursuing various
administrative and legal remedies, including administrative appeals, to address
this reduction. In November 1995, NMC filed a complaint in the U.S. District
Court for the Middle District of Pennsylvania seeking a declaratory judgment and
injunctive relief to prevent the implementation of this policy coverage change.

     NMC management believes that its IDPN claims were consistent with published
Medicare coverage guidelines and ultimately will be approved for payment. Such
claims represent substantial accounts receivable of NMC, amounting to
approximately $153 million (net of a reserve of $52,000) and $140,000 (net of a
reserve of $41,000) as of June 30, 1997 and December 31, 1996, respectively and
currently increasing at the rate of approximately $2,000 per month. When the
coverage guidelines were revised effective July 1996, as described below, some
of NMC's claims continued to meet the more stringent coverage criteria
established in the new guidelines and will probably be approved for payment by
Medicare. NMC has reviewed the claims it has submitted for patients who started
on IDPN therapy before July 1996 and continued on therapy after July 1996, but
do not meet the new, more stringent coverage criteria, and believes that these
claims were consistent with published Medicare coverage guidelines. NMC 
recognizes, however, that the regulations and coverage guidelines are ambiguous
as to whether these patients' therapy continues to be covered by Medicare after
the effective date of the new coverage criteria. NMC has continued to provide
therapy to these patients and to pursue its appeals of these claims through the
administrative process. If the government determines that continued coverage
for these patients is inappropriate, such claims ultimately will not be paid.
Amounts in receivable for these patients are approximately $12,000. Management
believes it will be successful in the appeal of these claims. If NMC is unable
to collect its IDPN receivable, or if IDPN coverage is reduced or eliminated,
depending on the amount of the receivable that is not collected and/or the
nature of the coverage change, NMC's business, financial position     and
results of operations could be materially adversely affected.

     In May 1995 the Medicare claims processors circulated a draft coverage
policy which, if implemented in the form proposed, would have limited or
precluded continued coverage of parenteral and enteral nutrition ("PEN")
therapies, including IDPN therapy. In April 1996, NMC received a copy of a
revised final version of the new coverage policy, which became effective for
services billed on and after July 1, 1996. While the new policy permits
continued coverage of IDPN and other PEN therapies, and while the potential
impact of the new policy is subject to further analysis, NMC believes that the
new policy has made it substantially more difficult to qualify patients for
future coverage by, among other things, requiring certain patients to undergo
onerous and/or invasive tests in order to qualify for coverage. NMC, together
with other interested parties, is seeking to effect certain changes in the new
policy and NMC has made changes to its patient qualification procedures in order
to comply with the policy. However, if NMC is unable to achieve changes in the
new policy, if physicians and patients fail to accept the new qualification
procedures and/or if patients fail to qualify under such procedures, the policy
could significantly reduce the number of patients eligible for Medicare coverage
of IDPN and other PEN therapies, which would have a material adverse effect on
NMC's financial position and its results of operations.

OIG INVESTIGATIVE SUBPOENAS

     In October 1995, NMC received five investigative subpoenas from the Office
of Inspector General of the U.S. Department of Health and Human Services (the
"OIG"). The subpoenas were issued in connection with an investigation being
conducted by the OIG, the U.S. Attorney for the District of Massachusetts and
others concerning possible violations of federal laws, including the
Anti-kickback Statute and the False Claims Act. The subpoenas call for extensive
document production relating to various aspects of NMC's business. A sixth
subpoena, clarifying the scope of one originally served, was received in May
1996.



                                       24
<PAGE>   25

     The five subpoenas cover the following areas: (a) NMC's corporate
management, personnel and employees, organizational structure, financial
information and internal communications; (b) NMC's dialysis services business,
principally medical director contracts and compensation; (c) NMC's treatment of
credit balances resulting from overpayments received under the Medicare end
stage renal disease (ESRD) program, NMC's billing for home dialysis services and
payment of supplemental medical insurance premiums on behalf of indigent
patients; (d) NMC's LifeChem laboratory business ("LifeChem"), including
documents relating to testing procedures, marketing, customers, competition and
certain overpayments totaling approximately $4.9 million that were received by
LifeChem from the Medicare program with respect to laboratory services rendered
between 1989 and 1993; and (e) NMC's Homecare Division and, in particular,
information concerning the intradialytic parenteral nutrition ("IDPN") business
described below, including billing practices related to various services,
equipment and supplies and payments made by third parties as compensation for
administering IDPN therapy.

     On July 15, 1997, National Medical Care, Inc. received an investigatory
subpoena duces tecum requesting production of a number of patient records, in
connection with the government's review of billing practices related to various
services, equipment and supplies and payments made by third parties as
compensation for administering IDPN therapy, described above.

     Each of the patients whose records were subpoenaed is, or was, a Medicare
beneficiary. The subpoena calls for production of the records by August 15,
1997. The Company has discussed an extended schedule for production with the
government. The result of the government's review of these records, its
duration, and its effect, if any, on NMC cannot be predicted at this time.

     In the event that a U.S. government agency believes that any wrongdoing
has occurred, civil and/or criminal proceedings could be instituted, and if any
such proceedings were to be instituted and the outcome were unfavorable, NMC
could be subject to substantial fines, penalties and damages or could become
excluded from government reimbursement programs. Any such result could have a
material adverse effect on NMC's financial position or the results of
operations of the Company.

     FMC and NMC have provided the United States government with a joint and
several guarantee of payment of the obligations, if any, arising out of the
investigation by the OIG. In support of this guarantee, NMC has delivered to the
government an irrevocable standby letter of credit in the amount of $150
million.

                                       25
<PAGE>   26

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


(a)  ANNUAL MEETING. FMCH held its annual meeting of shareholders on June 11,
     1997 (the "Meeting").


(b)  ELECTION OF DIRECTOR. At the Meeting, the shareholders elected Ben J.
     Lipps, Ph.D. as a Class II director for a one-year term. Holders of shares
     representing 90,000,000 votes voted in favor of the election of Dr. Lipps
     to the Board of Directors, and holders of shares representing 127,136 votes
     voted against such election. There were no abstentions or broker non-votes.

     Dr. Gerd Krick and Udo Werle continued as Class III directors, whose terms
     expire in 1998. Geoffrey W. Swett and William F. Grieco continued as Class
     I directors, whose terms expire in 1999.


(c)  OTHER MATTERS. The following proposals were presented and acted upon at the
     Meeting:

<TABLE>
<CAPTION>

                                                     Votes             Votes                     Broker
          Proposal                                    For             Against    Abstentions   Non-votes
          --------                                    ---             -------    -----------   ---------


<S>                                                <C>                  <C>            <C>           <C>
     (1) To amend FMCH's Certificate of           90,000,008           127,136        0             0
         Incorporation to (i) eliminate                                                       
         classification of the Board of                                                       
         Directors and (ii) reduce the                                                        
         required number of directors                                                         
         to not less than three nor more                                                      
         than nine.                                                                            
                                                                                              
                                                                                              
     (2) To amend FMCH's Certificate              90,000,000           127,136        0             0
         of Incorporation to change the                                                       
         name of the company to "Fresenius                                                    
         Medical Care Holdings, Inc."                                                         
                                                                                              
                                                                                              
     (3) To redeem the outstanding shares            128,736        90,000,000        0             0
         of the 6% Preferred Stock of FMCH                                                    
         and the Class A and B Preferred                                                 
         Stock of FMCH.
</TABLE>

                                       26
<PAGE>   27

ITEM 5. OTHER INFORMATION

   On June 12, 1997, the Registrant amended its Certificate of Incorporation to
change Registrant's name to "Fresenius Medical Care Holdings, Inc." 


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a)    Exhibits

          Exhibit 3.1     Certificate of Amendment to Certificate of 
                          Incorporation filed June 12, 1997
 
          Exhibit 3.2     Amended and Restated By-laws of the Registrant

          Exhibit 11      Statement re Computation of Per Share Earnings

   (b)    Reports on Form 8-K

          No Reports on Form 8-K were filed during the quarter for which this
          report is filed.




                                       27
<PAGE>   28

                                   SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                     Fresenius Medical Care Holdings, Inc.



Date: August 14, 1997                 /S/ Ben J. Lipps
      ---------------                 ----------------
                                      NAME: Ben J. Lipps
                                      TITLE: President (Chief Executive Officer)




Date: August 14, 1997                 /S/ Christian Fischer
     ----------------                 ---------------------
                                      NAME: Christian Fischer
                                      TITLE: Principal Financial Officer



                                       28