<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: March 31, 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 NATIONAL 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
                                                     ------------

--------------------------------------------------------------------------------
    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, all of
which are held by Fresenius Medical Care AG.






<PAGE>   3



         FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS



PART I:    FINANCIAL INFORMATION


         ITEM 1:  FINANCIAL STATEMENTS

                  Consolidated Interim Statements of Earnings
                  Consolidated Balance Sheets
                  Consolidated Statements of Cash Flows
                  Notes to Consolidated Interim 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 6  Exhibits 




<PAGE>   4


                                     PART I

                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

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


                                                 SUCCESSOR         PREDECESSOR
                                                ------------       ------------
                                                THREE MONTHS       THREE MONTHS
                                                   ENDED              ENDED
                                                  MARCH 31,          MARCH 31,
                                                    1997               1996
                                                ------------       ------------

<S>                                               <C>                <C>     
NET REVENUES
  Health care services ......................     $512,241           $488,371
  Medical supplies ..........................      112,153             39,920
                                                  --------           --------
                                                   624,394            528,291
                                                  --------           --------
EXPENSES
  Cost of health care services ..............      304,712            287,531
  Cost of medical supplies ..................       88,941             27,902
  General and administrative expenses .......       89,491            101,447
  Provision for doubtful accounts ...........       22,498             21,486
  Depreciation and amortization .............       59,191             30,628
  Research and development ..................        1,133                686
  Allocation of Grace Chemicals expenses ....            -              2,017
  Interest expense, net, and related
    financing costs .........................       41,214              7,004
                                                  --------           --------
                                                   607,180            478,701
                                                  --------           --------
EARNINGS BEFORE INCOME TAXES ................       17,214             49,590
PROVISION FOR INCOME TAXES ..................       10,577             23,145
                                                  --------           --------
NET EARNINGS ................................     $  6,637           $ 26,445
                                                  ========           ========

Earnings per share ..........................     $   0.07           $   0.27
</TABLE>


 See accompanying Notes to Unaudited, Consolidated Interim Financial Statements

                                       -1-


<PAGE>   5


         FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

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

                                                                                  SUCCESSOR
                                                                      -----------------------------------
                                                                       MARCH 31,                         
                                                                          1997               DECEMBER 31,
                                                                      (UNAUDITED)                1996    
                                                                      -----------            ------------
<S>                                                                   <C>                    <C>        
ASSETS

Current Assets:
  Cash and cash equivalents                                           $    58,412            $    50,422
  Accounts receivable, less allowances
    of $148,505 and $153,939                                              500,664                516,083
  Inventories                                                             148,364                153,480
  Deferred income taxes                                                   135,702                146,751
  Other current assets                                                     89,972                 86,907
                                                                      -----------            -----------
         Total Current Assets                                             933,114                953,643
                                                                      -----------            -----------
Properties and equipment, net                                             535,030                525,988
                                                                      -----------            -----------
Other Assets:
  Excess of cost over the fair value of net assets acquired and
    other intangible assets, net of accumulated amortization
    of $69,924 and $37,933                                              3,135,503              3,057,957
  Other assets and deferred charges                                        53,142                 58,491
                                                                      -----------            -----------
         Total Other Assets                                             3,188,645              3,116,448
                                                                      -----------            -----------
Total Assets                                                          $ 4,656,789            $ 4,596,079
                                                                      ===========            ===========

LIABILITIES AND EQUITY

Current Liabilities:
  Current portion of long-term debt and capitalized
    lease obligations                                                 $    19,638            $    56,270
  Short-term borrowings from affiliates                                         -                 12,193
  Accounts payable                                                        114,630                131,314
  Accrued liabilities                                                     378,481                421,240
  Net payable to affiliates                                                34,263                 32,590
  Accrued income taxes                                                     28,756                 18,530
                                                                      -----------            -----------
         Total Current Liabilities                                        575,768                672,137
Long-term debt                                                          1,606,514              1,420,959
Non-current borrowings from affiliates                                    483,458                504,693
Capitalized lease obligations                                              14,703                 17,246
Deferred income taxes                                                     168,539                179,290
Other liabilities                                                          35,728                 34,015
                                                                      -----------            -----------
         Total Liabilities                                              2,884,710              2,828,340
                                                                      -----------            -----------

Equity:
  Equity                                                                1,775,082              1,768,574
  Cumulative translation adjustment                                        (3,003)                  (835)
                                                                      -----------            -----------
         Total Equity                                                   1,772,079              1,767,739
                                                                      -----------            -----------
Total Liabilities and Equity                                          $ 4,656,789            $ 4,596,079
                                                                      ===========            ===========
</TABLE>

 See accompanying Notes to Unaudited, Consolidated Interim Financial Statements.

                                      -2-
<PAGE>   6


         FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

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

                                                                  SUCCESSOR              PREDECESSOR
                                                                 ------------            ------------
                                                                 THREE MONTHS            THREE MONTHS
                                                                    ENDED                    ENDED
                                                                   MARCH 31,               MARCH 31,
                                                                     1997                    1996
                                                                 ------------            -----------

<S>                                                                <C>                    <C>      
Cash Flows Provided by Operating Activities:
  Net earnings                                                     $   6,637              $  26,445
  Adjustments to reconcile net earnings to
     net cash provided by operating activities:
     Depreciation and amortization                                    59,191                 30,628
     Provision for doubtful accounts                                  22,498                 21,486
     Provision for (benefit of) deferred income taxes                    298                 (1,911)
     Loss on disposal of properties and equipment                      1,556                  1,136
Changes in operating assets and liabilities, net of
    effects of purchase acquisitions and foreign exchange:
    Decrease (increase) in accounts receivable                         1,163                (43,070)
    Decrease in inventories                                            6,286                    249
    Increase in other current assets                                  (2,901)               (12,347)
    Decrease (increase) in other assets and deferred charges           3,855                 (1,930)
    Decrease (increase) in accounts payable                          (19,537)                 5,764
    Increase in accrued income taxes                                  10,226                 10,350
    Decrease in accrued liabilities                                  (44,686)               (30,841)
    Increase in other long-term liabilities                            1,713                  4,261
    Net changes due to/from affiliates                                 1,673                      -
    Other, net                                                         5,631                    362
                                                                   ---------              ---------
  Net cash provided by operating activities                           53,603                 10,582
                                                                   ---------              ---------
Cash Flows from Investing Activities:
    Capital expenditures                                             (35,487)               (24,584)
    Payments for acquisitions, net of cash acquired                 (129,049)               (24,681)
                                                                   ---------              ---------
  Net cash used in investing activities                             (164,536)               (49,265)
Cash Flows from Financing Activities:

    Increase in borrowings from affiliates                           (33,428)                     -
    Cash dividends paid                                                 (130)                     -
    Proceeds on issuance of debt                                     594,297                 94,332
    Payments on debt and capitalized leases                         (447,916)              (126,746)
    Advances from Grace Chemicals, net                                     -                 69,367
                                                                   ---------              ---------
  Net cash provided by financing activities                          112,823                 36,953
                                                                   ---------              ---------
Effects of changes in foreign exchange rates                           6,100                  2,055
                                                                   ---------              ---------
(Decrease) increase in cash and cash equivalents                       7,990                    325
Cash and cash equivalents at beginning of period                      50,422                 33,530
                                                                   ---------              ---------
Cash and cash equivalents at end of period                         $  58,412              $  33,855
                                                                   =========              =========
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest                                                       $  40,676              $   6,828
    Income taxes                                                       3,708                  3,665
</TABLE>

 See accompanying Notes to Unaudited, Consolidated Interim Financial Statements
                                        
                                      -3-
<PAGE>   7


         FRESENIUS NATIONAL 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 National Medical Care Holdings, Inc., ("FNMC"), 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") and together with FNMC, (the
"Company"), 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 "FNMC") 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 Grace New York preferred stock
remain outstanding.

         Effective October 1, 1996, FMC contributed all of the assets and
liabilities of FUSA to FNMC. The contribution of FUSA to FNMC by FMC was
accounted for on the cost basis since FUSA was a subsidiary under control of a
common parent. These consolidated interim financial statements

                                     -4-
<PAGE>   8


include the results of FUSA's operations and cash flows for the period January
1, 1997 through March 31, 1997.

BASIS OF PRESENTATION

     Basis of Consolidation - Predecessor Basis

         The consolidated interim 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 interim financial statements of Grace
New York and its subsidiaries prior to the Reorganization (the "Grace
Consolidated Group"). Consequently, these consolidated interim 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 interim 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 interim 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 FNMC 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.


                                     -5-
<PAGE>   9


         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 preacquisition 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
March 31, 1997 approximately $700 in payments have been applied against the
preacquisition contingencies and $23,500 against the restructuring costs.

         All intercompany transactions and balances have been eliminated in
consolidation.

NOTE 2.  INVENTORIES
<TABLE>
<CAPTION>
                                                                           SUCCESSOR
                                                                  ------------------------------
                                                                  MARCH 31,         DECEMBER 31,
                                                                    1997                1996
                                                                  ---------         ------------
<S>                                                               <C>                 <C>     
Inventories
  Raw materials                                                   $ 41,312            $ 41,659
  Manufactured goods in process                                     11,755              11,837
  Manufactured and purchased inventory available for sale           61,789              64,156
                                                                  --------            --------
                                                                   114,856             117,652
  Health care supplies                                              33,508              35,828
                                                                  --------            --------
         Total                                                    $148,364            $153,480
                                                                  ========            ========
</TABLE>


NOTE 3.  DEBT

         Long-term debt to outside parties consists of:
<TABLE>
<CAPTION>
                                                                           SUCCESSOR
                                                                 -------------------------------
                                                                  MARCH 31,         DECEMBER 31,
                                                                    1997                1996
                                                                 ----------         ------------
<S>                                                              <C>                <C>       
Credit Agreement                                                 $1,605,000         $1,411,000
Third-party debt, primarily bank borrowings at
     variable interest rates (3% - 14%) with
     various maturities                                              11,942             57,101
                                                                 ----------         ----------
                                                                  1,616,942          1,468,101
Less amounts classified as current                                   10,428             47,142
                                                                 ----------         ----------
                                                                 $1,606,514         $1,420,959
                                                                 ==========         ==========
</TABLE>

                                     -6-
<PAGE>   10


NOTE 4.  EQUITY

At March 31, 1997, and December 31, 1996, respectively, the components of 
FNMC's Equity, excluding Cumulative Translation Adjustment, as presented in the
Consolidated Balance Sheet are as follows:

<TABLE>
<CAPTION>
                                                                                     Successor
                                                                           ------------------------------
                                                                            March 31,         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% Noncumulative Class B (2); 40,000 shares
           authorized; 21,483 outstanding                                       2,148              2,148
                                                                           ----------         ----------
                                                                                7,412              7,412
Preferred Stocks, $.10 par value
     -   Noncumulative 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                                                             1,723,345          1,723,345
Retained Earnings                                                             (54,581)           (61,089)
                                                                           ----------         ----------
                 Total Equity                                              $1,775,082         $1,768,574
                                                                           ==========         ==========
</TABLE>

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

NOTE 5.  COMMITMENTS AND CONTINGENCIES

     Contingent Non-NMC Liabilities of Grace New York (Now Known as Fresenius
     National 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 FNMC. Subject to
representations by Grace Chemicals, FNMC and Fresenius AG, Grace Chemicals has
agreed to indemnify FNMC for such a tax liability. Were FNMC not able to collect
on the indemnity, the tax liability would have a material adverse effect on the
financial position of FNMC and the results of its operations.

                                     -7-
<PAGE>   11


     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.

         The results of the investigation and its impact, if any, 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.

     DIAGNOSTICS SUBPOENA

         On October 31, 1996, Biotrax International Inc. ("Biotrax") and NMC
Diagnostic Services, Inc. ("DSI"), both of which are subsidiaries of FNMC,
received an investigatory subpoena from the OIG. The subpoena calls for the
production of extensive documents an 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 

                                     -8-
<PAGE>   12


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 FNMC 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 FNMC's periodic filings under the
Securities Exchange Act of 1934, as amended.

                                     -9-
<PAGE>   13


         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.

     Pennsylvania

         The Company, FNMC 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 FNMCH'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 

                                     -10-
<PAGE>   14


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, FNMC 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 March 31, 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.

     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.

                                     -11-
<PAGE>   15


         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 $149 million (net of a reserve of $47,000) and $140,000 (net of
a reserve of $41,000) as of March 31, 1997 and December 31, 1996, respectively,
and currently increasing at the rate of approximately $3,000 per month. 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.

                                     -12-
<PAGE>   16


NOTE 6.  SUBSEQUENT EVENTS

Interest Rate Swap Agreements

         National Medical Care, Inc. 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 5.85%
and 6.44% plus the applicable margin under its Credit Agreement. The swap
agreements all became effective April 3, 1997 and expire at various dates
between December 15, 1997 and January 4, 2000. NMC had agreed under its
Credit Agreement to have at least $500,000 of interest rate protection.




                                     -13-
<PAGE>   17


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



         For purposes of the following discussion, Fresenius National Medical
Care Holdings, Inc., ("FNMC") 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") and together with FNMC, (the "Company") 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 FNMC. 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 FNMC, 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
FNMC, government reimbursement, future plans and management's expectations
regarding future performance.

OVERVIEW

         FNMC is primarily engaged in (a) providing kidney dialysis services,
(b) manufacturing and distributing products and equipment for dialysis treatment
and performing clinical laboratory testing and other medical services, and (c)
providing home infusion therapy, home respiratory therapy and home health
services. Throughout FNMC's history, a significant portion of FNMC'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.

         FNMC 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 DSD'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. 

                                     -14-
<PAGE>   18

         FNMC'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 FNMC 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. FNMC'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.

         FNMC 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 FNMC
receives for its services and products.

         DSD operated or managed dialysis centers in 14 foreign countries at
March 31, 1997. In certain countries, FNMC experiences lower reimbursement rates
per treatment for dialysis services than are generally realized in the U.S.
FNMC'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.

RESULTS OF OPERATIONS

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

                                     -15-
<PAGE>   19


<TABLE>
<CAPTION>

                                                         THREE MONTHS ENDED
                                                         ------------------
                                                          1997       1996
                                                         -----       -----
                                                        (dollars in millions)
<S>                                                       <C>        <C> 
Net Revenues:
    Dialysis Services                                     $460       $419 
    Dialysis Products                                      159         80               
    NMC Homecare                                            64         78 
    Intercompany Eliminations                              (59)       (49)
                                                          ----       ----
Total Net Revenues                                        $624       $528 
                                                          ====       ==== 
                                                                          
Operating Earnings:                                                       
    Dialysis Services                                     $ 61       $ 62 
    Dialysis Products                                       19          9              
    NMC Homecare                                             4          7 
                                                          ----       ---- 
                                                            84         78 
                                                          ----       ---- 
Other Expenses:                                                           
    General Corporate,                                      24         21 
    Research and Development                                 1          1 
    Interest Expense, Net                                   41          7 
                                                          ----       ---- 
Total Other Expenses                                        66         29
                                                          ----       ---- 
Earnings Before Income Taxes                                18         49 
Provision for Income Taxes                                  11         23 
                                                          ----       ---- 
Net Earnings                                              $  7       $ 26 
                                                          ====       ==== 
</TABLE>


                                     -16-
<PAGE>   20



PROFORMA RESULTS OF OPERATIONS

         The following table represents the unaudited pro forma statements of
operations of the Company for the three months ended 1996 and the actual
statements of operations for the three months ended 1997, assuming the
Reorganization occurred on January 1, 1996.
<TABLE>

<CAPTION>
                                                             ACTUAL    PROFORMA    
                                                             ------    --------
                                                             THREE MONTHS ENDED
                                                             ------------------
                                                             1997          1996
                                                             ----          ----
<S>                                                          <C>           <C> 
Net Revenues:
     DSD                                                     $460          $419 
     Renal Products                                           159           148 
     NMC Homecare                                              64            78 
     Intercompany Eliminations                                (59)          (49)
                                                             ----          ----
                                                                                
  Total Net Revenues                                          624           596 
                                                             ====          ==== 
                                                                                
Operating Earnings                                                              
     DSD                                                       61            62 
     Renal Products                                            19            12 
     NMC Homecare                                               4             7 
                                                             ----          ---- 
                                                                                
  Total Operating Earnings                                     84            81 
                                                             ----          ---- 
                                                                                
Other Expenses                                                                  
     General Corporate                                         24            31 
     Research & Development                                     1             1 
     Interest Expense, Net                                     41            38 
                                                             ----          ---- 
                                                                                
  Total Other Expenses                                         66            70 
                                                             ----          ---- 
                                                                                
Earnings before income taxes                                   18            11 
                                                                                
Provision for Income Taxes                                     11             9 
                                                             ----          ---- 
                                                                                
Net Earnings                                                    7             2 
                                                             ====          ==== 
</TABLE>

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 for the first three months of 1996, 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 resulted in a net
increase in interest expense, including amortization of debt issuance costs and
other fees, in the amount of $31 million for the first three months of 1996 on
a pro forma basis. In connection with the Reorganization, the addition of FUSA
for the first quarter of 1996 would have resulted in increased revenues for
Renal Products of $68 million and increased operating earnings for Renal 
Products of $3 million in the first three months of 1996, on a pro forma basis.
The Reorganization would have resulted in a decrease in the Company's provision
for income taxes of $14 million in the first three months of 1996, on a pro
forma basis. As a result of the above adjustments, on a pro forma basis, the
Company would have reported net profit of $2 million in the first three months
of 1996, as compared to its actual net profit of $26 million in the first three
months of 1996.

                                     -17-
<PAGE>   21


THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

         Net revenues for the first three months of 1997 increased by 18% ($97
million) over the comparable period of 1996, with DSD and Renal Products
accounting for most of the increase. Net earnings for the first three months of
1997 decreased 73% ($19 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 three months of 1997
increased by 10% ($41 million) over the comparable period of 1996, primarily as
a result of a 12% increase in the number of treatments provided worldwide. This
increase was partially offset by a $4 million decrease in diagnostic services
revenues due to a decrease in the number of primary care treatments. LifeChem
revenues for the first three 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 three months of 1997
decreased by 2% ($1 million) over the comparable period of 1996 primarily as a
result of the aforementioned decreases in volume of diagnostic services
treatments and LifeChem testing. In addition, DSD personnel costs increased by
$3 million for the first three months of 1997 over the comparable 1996 period.
These decreases to operating earnings were partially offset by increased
treatment volume.

         Dialysis Products.

         Dialysis Products net revenues for the first three months of 1997
increased by 99% ($79 million) over the comparable period of 1996 primarily due
to $81 million of first quarter revenues of FUSA, which was contributed to FNMC
by Fresenius Medical Care AG effective October 1, 1996. During 1997,
approximately $10 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 three months of 1997
increased by 111% ($10 million) over the comparable period of 1996 entirely due
to the first quarter operating earnings of FUSA. NMC's Renal Products Division's
operating earnings increased by approximately $2 million during the quarter,
however, this increase was entirely offset by intercompany profit eliminations
now required between FUSA and the Renal Products Division.

         NMC Homecare.

         NMC Homecare's net revenues for the first three months of 1997
decreased by 18% ($14 million) as compared to the first three months of 1996.
This is primarily due to changes in Medicare qualification procedures for IDPN
patients ($10 million), and decreases in infusion therapy revenues mainly due to
continued price compression from managed care ($7 million), partially offset by
increases in respiratory therapy and other revenues ($3 million).

                                     -18-
<PAGE>   22

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

         Other Expenses.

         FNMC's other expenses for the first three months of 1997 increased by
128% ($37 million) over the comparable period of 1996. General corporate expense
increased by 14% ($3 million) due to increased amortization expenses associated
with the revaluation of intangible assets at the time of the Reorganization
($15 million), offset by reduced legal and other expense associated with the
OIG investigation ($5 million), favorable savings in foreign exchange ($5
million) and reduced provisions for long term incentive compensation ($2
million). Research and development expenses for the first three months of 1997  
were virtually the same as they were for the comparable period of 1996.
Interest expense for the first three months of 1997 increased by 485% ($34
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 quarter of 1997 ($2 million).

         Income Tax Rate.

         The effective tax rate for the first three months of 1997 (61.4%) is
significantly higher than the rate for the first three months of 1996 (46.7%)
due primarily to the large amount of non-deductible goodwill incurred as a 
result of the reorganization.

LIQUIDITY AND CAPITAL RESOURCES

         FNMC made acquisitions totaling $129 million and $25 million, during
the first three months of 1997 and 1996, respectively. FNMC made capital
expenditures for internal expansion, improvements, new furnishings and equipment
of $35 million and $25 million during the first three 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. FNMC may also make other
strategic acquisitions in the future.

         FNMC also requires capital resources for working capital purposes. FNMC
used cash to fund increases in accounts receivable of $16 million and $43
million during the first three 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.

                                     -19-
<PAGE>   23

         FNMC historically funded its acquisitions and capital expenditures with
cash advances from the Grace consolidated group and cash from operations
supplemented by financing programs, including the accounts receivable   
securitization program. FNMC generated net cash from operations of $54 million
and $11 million during the first three months of 1997 and 1996, respectively.
FNMC received net cash advances from Grace of $69 million during the first
three months of 1996. 

         Effective July 1, 1995, FNMC 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 FNMC'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 March 31, 1997. FNMC 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, FNMC may be able to rebill such
services to third-party payors and, as a result, FNMC's future results of
operations and financial position would be favorably affected by the
incremental revenue that FNMC 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 FNMC through a $249 million
equity infusion and a total of $482 million of loans to FNMC. 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.

         FNMC is party to a $200 million receivables financing arrangement. At
March 31, 1997, $180 million was outstanding under this agreement, an increase
of $32 million from December 31, 1996.

         National Medical Care, Inc. 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 

                                     -20-
<PAGE>   24
between 5.85% and 6.44% plus the applicable margin under its Credit Agreement.  
The swap agreements became effective April 3, 1997 and expire at various dates
between December 15, 1997 and January 4, 2000. NMC had agreed under its Credit
Agreement to have at least $500,000 of interest rate protection in place by
March 25, 1997.

         The liquidity of FNMC is contingent upon a number of factors,
principally FNMC's future operating results and the contingencies referred to
below. FNMC 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, FNMC may need to sell assets or obtain debt or equity financing from
additional external sources. There can be no assurance that FNMC will be able to
do so on satisfactory terms, if at all.

IMPACT OF INFLATION

         A substantial portion of FNMC'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 FNMC's business and results of
operations, possibly materially.

CONTINGENCIES

         FNMC 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 FNMC's business, financial condition
and results of operations.



                                     -21-

<PAGE>   25


                                    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 $149 million (net of a reserve of $47,000) and
$140,000 (net of a reserve of $41,000) as of March 31, 1997 and December 31,
1996, respectively and currently increasing at the rate of approximately $3,000
per month. 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.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)    Not applicable

         (b)    Report on Form 8-K
                 
                On March 27, 1997, FNMC filed a report on Form 8-K with respect
                to a change on FNMC's certifying accounting firm.






                                     -22-
<PAGE>   26


                                   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 National Medical
                                    Care Holdings, Inc.
                                   
                                   
                                   
                                   
DATE: May 13, 1997                  /s/ Ben J. Lipps
      ------------                  -------------------------------------------
                                    NAME:  Ben J. Lipps
                                    TITLE:  President (Chief Executive Officer)
                                   
                                   
                                   
                                   
DATE: May 13, 1997                  /s/ Christian Fischer
      ------------                  -------------------------------------------
                                    NAME:  Christian Fischer
                                    TITLE:  Principal Accounting Officer
                                   

                                     -23-