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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 20-F



|  |                                                                   
|- | ------------------------------------------------------------------
|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    (g) OF THE

SECURITIES EXCHANGE ACT OF 1934


OR



|  |                                                     
|- | ----------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2003

OR



|  |                                                             
|- | ------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE

SECURITIES EXCHANGE ACT OF 1934


Commission file
number



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FRESENIUS MEDICAL CARE

AKTIENGESELLSCHAFT


(Exact name of Registrant as specified in its
charter)


FRESENIUS MEDICAL CARE CORPORATION

(Translation of Registrants name into
English)


Germany

(Jurisdiction of incorporation or organization)




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Else-Kröner Strasse 1, 61352 Bad Homburg,
Germany

(Address of principal executive offices)


Securities
registered or to be registered pursuant to Section 12(b) of
the Act:

|                                                              |  |                                          
|------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                           |  | Name of each exchange on which registered
|                                                              |  |                                          
|American Depositary Shares representing
    Preference Shares |  | New York Stock Exchange                  
|                                                             
|Preference Shares, no par value                               |  | New York Stock
    Exchange(1)           
|                                                             
|American Depositary Shares representing
    Ordinary Shares   |  | New York Stock Exchange                  
|                                                             
|Ordinary Shares, no par value                                 |  | New York Stock
    Exchange(1)           

Securities
registered or to be registered pursuant to Section 12(g) of
the Act:None



| |                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Securities for which there is a reporting
    obligation pursuant to Section 15(d) of the Act:
    7 7/8% USD Trust Preferred Securities due 2008, 7 3/8%
    DM Trust Preferred Securities due 2008, 7 7/8% USD Trust
    Preferred Securities due 2011, 7 3/8% Euro Trust Preferred
    Securities due 2011 and related guarantees






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | Not for trading, but only in connection with the
    registration of American Depositary Shares representing such
    shares.

Indicate the number
of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by
the annual report:

Preference Shares,
no par value 26,213,919

Ordinary Shares, no
par value 70,000,000

Indicate by check
mark 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 o

Indicate by check
mark which financial statement item the registrant has elected
to follow.

Item 17 o     Item 18 x



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TABLE OF CONTENTS



|             |                                                                                       |  |  |  |  |  |  | 
|------------ | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. Identity of Directors, Senior Management and Advisors                        
|             | Item 2. Other Statistics and Expected Timetable                                      
|             | Item 3. Key Information                                                              
|             | Selected Financial Data                                                              
|             | Item 8. Financial information                                                        
|             | Item 11. Quantitative and Qualitative Disclosures About Market Risk                  
|             | Item 12. Description of Securities other than Equity Securities                      
|PART II     
|             | Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|             | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|             | Item 15. Controls and Procedures                                                     
|             | Item 16A. Audit Committee Financial Expert                                           
|             | Item 16B. Code of Ethics                                                             
|             | Item 16C. Principal Accountant Fees and Services                                     
|             | Item 16D. Exemptions from the Listing Standards for Audit Committees                 
|             | Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers      
|PART III    
|             | Item 17. Financial Statements                                                        
|             | Item 18. Financial Statements                                                        
|             | Item 19. Exhibits                                                                    
|Exhibit 2.29
|Exhibit 4.19
|Exhibit 11.1
|Exhibit 12.1
|Exhibit 12.2
|Exhibit 13.1
|Exhibit 14.1



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##### Table of Contents



TABLE OF CONTENTS

|             |  |                                                                                  |  |      |    | 
|------------ |  | -------------------------------------------------------------------------------- |  | ---- | -- | 
|             |  |                                                                                  |  | Page
|             |  |                                                                                  |  |     
|INTRODUCTION |  |                                                                                  |  |      |    | 
|PART I       |  |                                                                                  |  |      |    | 
|Item  1.     |  | Identity of Directors, Senior Management and
    Advisors                        |  |      | 2  | 
|Item  2.     |  | Other Statistics and Expected Timetable                                          |  |      | 2  | 
|Item  3.     |  | Key Information                                                                  |  |      | 2  | 
|Item  4.     |  | Information on the Company                                                       |  |      | 8  | 
|Item  5.     |  | Operating and Financial Review and Prospects                                     |  |      | 34 | 
|Item  6.     |  | Directors, Senior Management and Employees                                       |  |      | 54 | 
|Item  7.     |  | Major Shareholders and Related Party Transactions                                |  |      | 60 | 
|Item  8.     |  | Financial Information                                                            |  |      | 64 | 
|Item  9.     |  | The Offer and Listing Details                                                    |  |      | 67 | 
|Item 10.     |  | Additional Information                                                           |  |      | 72 | 
|Item 11.     |  | Quantitative and Qualitative Disclosures About
    Market Risk                   |  |      | 81 | 
|Item 12.     |  | Description of Securities other than Equity
    Securities                       |  |      | 84 | 
|            
|PART II      |  |                                                                                  |  |      |    | 
|Item 13.     |  | Defaults, Dividend Arrearages and Delinquencies                                  |  |      | 84 | 
|Item 14.     |  | Material Modifications to the Rights of Security
    Holders and Use of Proceeds |  |      | 84 | 
|Item 15.     |  | Controls and Procedures                                                          |  |      | 85 | 
|Item 16.     |  | [Reserved]                                                                       |  |      |    | 
|Item 16A.    |  | Audit Committee Financial Expert                                                 |  |      | 85 | 
|Item 16B.    |  | Code of Ethics                                                                   |  |      | 85 | 
|Item 16C.    |  | Principal Accountant Fees and Services                                           |  |      | 85 | 
|Item 16D.    |  | Exemptions from the Listing Standards for Audit
    Committees                   |  |      | 86 | 
|Item 16E.    |  | Purchase of Equity Securities by the Issuer and
    Affiliated Purchasers        |  |      | 86 | 
|            
|PART III     |  |                                                                                  |  |      |    | 
|Item 17.     |  | Financial Statements                                                             |  |      | 86 | 
|Item 18.     |  | Financial Statements                                                             |  |      | 86 | 
|Item 19.     |  | Exhibits                                                                         |  |      | 86 | 

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INTRODUCTION

Forward Looking Statements

This report contains forward-looking statements
within the meaning of section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are based upon our
current expectations, assumptions, estimates and projections
about us and our industry that address, among other things:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our business development, operating development
    and financial condition;                                                                                
|
| |  | our expectations of growth in the patient
    population regarding renal dialysis products and services;                                                    
|
| |  | our expansion and acquisition plans and our
    capital expenditures budget;                                                                                
|
| |  | the impact of our expansion on our revenue
    potential, cost basis and margins;                                                                           
|
| |  | our ability to remain competitive in the markets
    for our products and services;                                                                         
|
| |  | the effects of regulatory developments, legal
    proceedings and our settlement of government investigations into
    our business;                        
|
| |  | possible changes in government reimbursement
    policies and those of private payors;                                                                      
|
| |  | our ability to develop and maintain additional
    sources of financing; and                                                                                
|
| |  | other statements of our expectations, beliefs,
    future plans and strategies, anticipated development and other
    matters that are not historical facts.

When used in this report, the words
expects, anticipates,
intends, plans, believes,
seeks, estimates and similar expressions
are generally intended to identify forward looking statements.
Although we believe that the expectations reflected in such
forward-looking statements are reasonable, forward-looking
statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Future events and actual
results, financial and otherwise, could differ materially from
those set forth in or contemplated by the forward-looking
statements contained elsewhere in this report. Important factors
that could contribute to such differences are noted in this
report under Business Overview in Item 4.
Information on the Company, Item 5. Operating
and Financial Review and Prospects and
Item 8.A.7. Legal Proceedings.

This report contains patient and other
statistical data related to end-stage renal disease and
treatment modalities, including estimates regarding the size of
the patient population and growth in that population. These data
have been included in reports published by organizations such as
the Center for Medicare and Medicaid Services of the U.S.
Department of Health and Human Services, the Japanese Society
for Dialysis Therapy and the German registry Quasi-Niere. While
we believe these surveys and statistical publications to be
reliable, we have not independently verified the data or any
assumptions on which the estimates they contain are based.

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PART I






Item 1.  Identity of
Directors, Senior Management and Advisors


Not applicable




Item 2.  Other Statistics
and Expected Timetable

Not applicable




Item 3.  Key
Information






Selected Financial Data


The following table summarizes the consolidated
financial information for our business for each of the years
1999 through 2003. We derived the selected financial information
from our consolidated financial statements. We prepared our
financial statements in accordance with accounting principles
generally accepted in the United States of America and KPMG
Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft, independent accountants,
audited these financial statements. You should read this
information together with our consolidated financial statements
and the notes to those statements appearing elsewhere in this
document and the information under Item 5. Operating
and Financial Review and Prospects.

|                                                                 |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |            | 
|---------------------------------------------------------------- | ----------------------------- | ------------- | ----- | ---------- |  | ------- | ----- | ---------- |  | ---- | ----- | ---------- |  | - | ----- | ---------- |  | - | ----- | ---------- | 
|                                                                 |                               | 2003(A)       |       | 2002(A)    |  | 2001(B) |       | 2000       |  | 1999
|                                                                 |                               |               |       |            |  |         |       |            |  |     
|                                                                 |                               |              
|                                                                 |                               | (In millions)
|Statement of Operations Data:                                    |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |           
|Net revenues                                                     |                               | $             | 5,528 |            |  | $       | 5,084 |            |  | $    | 4,859 |            |  | $ | 4,201 |            |  | $ | 3,840 |           
|Cost of revenues                                                 |                               |               | 3,699 |            |  |         | 3,428 |            |  |      | 3,220 |            |  |   | 2,734 |            |  |   | 2,463 |           
|                                                                 |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |           
|Gross profit                                                     |                               |               | 1,829 |            |  |         | 1,656 |            |  |      | 1,639 |            |  |   | 1,467 |            |  |   | 1,377 |           
|Selling, general and administrative                              |                               |               | 1,022 |            |  |         | 914   |            |  |      | 966   |            |  |   | 814   |            |  |   | 785   |           
|Research and development                                         |                               |               | 50    |            |  |         | 47    |            |  |      | 36    |            |  |   | 32    |            |  |   | 32    |           
|Special charge                                                   |                               |               |      |            |  |         |      |            |  |      | 258   |            |  |   |      |            |  |   | 601   |           
|                                                                 |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |           
|Operating income (loss)                                          |                               |               | 757   |            |  |         | 695   |            |  |      | 379   |            |  |   | 621   |            |  |   | (41   | )         
|Interest expense, net                                            |                               |               | 211   |            |  |         | 226   |            |  |      | 223   |            |  |   | 216   |            |  |   | 218   |           
|                                                                 |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |           
|Income (loss) before income taxes                                |                               |               | 546   |            |  |         | 469   |            |  |      | 156   |            |  |   | 405   |            |  |   | (259  | )         
|Net income (loss)                                                |                               | $             | 331   |            |  | $       | 290   |            |  | $    | 63    |            |  | $ | 212   |            |  | $ | (249  | )         
|                                                                 |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |           
|Weighted average of:                                             |                               |               |       |            |  |         |       |            |  |      |       |            |  |   |       |            |  |   |       |           
|                                                                 | Preference shares outstanding |               |       | 26,191,011 |  |         |       | 26,185,178 |  |      |       | 26,035,330 |  |   |       | 19,002,118 |  |   |       | 9,023,341  | 
|                                                                 | Ordinary shares outstanding   |               |       | 70,000,000 |  |         |       | 70,000,000 |  |      |       | 70,000,000 |  |   |       | 70,000,000 |  |   |       | 70,000,000 | 
|Basic income (loss) per Ordinary share                           |                               | $             | 3.42  |            |  | $       | 3.00  |            |  | $    | 0.65  |            |  | $ | 2.37  |            |  | $ | (3.15 | )         
|Fully diluted income (loss) per Ordinary
    share               |                               |               | 3.42  |            |  |         | 3.00  |            |  |      | 0.64  |            |  |   | 2.36  |            |  |   | (3.15 | )         
|Basic income (loss) per Preference share                         |                               |               | 3.49  |            |  |         | 3.06  |            |  |      | 0.70  |            |  |   | 2.43  |            |  |   | (3.15 | )         
|Fully diluted income (loss) per Preference
    share             |                               |               | 3.49  |            |  |         | 3.06  |            |  |      | 0.69  |            |  |   | 2.42  |            |  |   | (3.15 | )         
|Basic and fully diluted net income
    (loss) per Ordinary ADS   |                               |               | 1.14  |            |  |         | 1.00  |            |  |      | 0.22  |            |  |   | 0.79  |            |  |   | (1.05 | )         
|Basic and fully diluted net income
    (loss) per Preference ADS |                               |               | 1.16  |            |  |         | 1.02  |            |  |      | 0.23  |            |  |   | 0.81  |            |  |   | (1.05 | )         
|Dividends declared per Ordinary share
    ()(a)                 |                               |               | 1.02  | (b)        |  |         | 0.94  |            |  |      | 0.85  |            |  |   | 0.78  |            |  |   | 0.69  |           
|Dividends declared per Preference share
    () (a)              |                               |               | 1.08  | (b)        |  |         | 1.00  |            |  |      | 0.91  |            |  |   | 0.84  |            |  |   | 0.75  |           
|Dividends declared per Ordinary share
    ($)(a)                 |                               |               |      |            |  |         | 1.10  |            |  |      | 0.78  |            |  |   | 0.72  |            |  |   | 0.64  |           
|Dividends declared per Preference share ($)
    (a)              |                               |               |      |            |  |         | 1.17  |            |  |      | 0.84  |            |  |   | 0.78  |            |  |   | 0.69  |           

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|                                                      |  |               |       |         |  |         |       |      |  |      |       |  |  |   |       |  |  |   |       |  
|----------------------------------------------------- |  | ------------- | ----- | ------- |  | ------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | -
|                                                      |  | 2003(A)       |       | 2002(A) |  | 2001(B) |       | 2000 |  | 1999
|                                                      |  |               |       |         |  |         |       |      |  |     
|                                                      |  |              
|                                                      |  | (In millions)
|Balance Sheet Data                                    |  |               |       |         |  |         |       |      |  |      |       |  |  |   |       |  |  |   |       |  
|Working capital                                       |  | $             | 794   |         |  | $       | 526   |      |  | $    | 402   |  |  | $ | 191   |  |  | $ | (229  | )
|Total assets                                          |  |               | 7,503 |         |  |         | 6,780 |      |  |      | 6,516 |  |  |   | 5,979 |  |  |   | 5,752 |  
|Total long-term debt (c)                              |  |               | 2,354 |         |  |         | 2,234 |      |  |      | 2,165 |  |  |   | 1,611 |  |  |   | 1,618 |  
|Shareholders equity (net assets)                     |  |               | 3,244 |         |  |         | 2,807 |      |  |      | 2,617 |  |  |   | 2,679 |  |  |   | 2,002 |  
|Capital Stock  Preference
    shares  Nominal Value |  |               | 70    |         |  |         | 70    |      |  |      | 70    |  |  |   | 64    |  |  |   | 28    |  
|Capital Stock  Ordinary
    shares  Nominal Value   |  |               | 229   |         |  |         | 229   |      |  |      | 229   |  |  |   | 229   |  |  |   | 229   |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Includes the effect of an accounting change in
    2002 relating to the adoption of SFAS No. 142, Goodwill
    and Other Intangible Assets, as of January 1, 2002 (see
    Note 1 of the Notes to our Consolidated Financial
    Statements).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(B) | Includes the special charge to address 1996
    merger related legal matters, estimated liabilities and legal
    expenses arising in connection with the W.R. Grace
    Chapter 11 proceedings and the cost of resolving pending
    litigation and other disputes with certain commercial insurers.
    You can find a more detailed discussion of this special charge
    in Note 3 of the Notes to our Consolidated Financial
    Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(a) | Amounts shown for each year from 1999 to 2002
    represent dividends paid with respect to such year. The actual
    declaration and payment of the dividend was made in the
    following year, after approval of the dividend at our general
    meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(b) | Our managing board and our supervisory board have
    proposed dividends for 2003 of
    1.08 per
    Preference share and
    1.02 per
    Ordinary share. These dividends are subject to approval by our
    shareholders at our annual general meeting to be held on
    May 27, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(c) | Total long-term debt represents long-term debt
    and capital lease obligations, less current portions and
    (i) at December 31, 1999 and 2000, the mandatorily
    redeemable preferred securities of Fresenius Medical Care
    Capital Trust, Fresenius Medical Care Capital Trust II, and
    Fresenius Medical Care Capital Trust III, (ii) at
    December 31, 2001, the mandatorily redeemable preferred
    securities of Fresenius Medical Care Capital Trust, Fresenius
    Medical Care Capital Trust II, Fresenius Medical Care Capital
    Trust III, Fresenius Medical Care Capital Trust IV, and
    Fresenius Medical Care Capital Trust V, (iii) at
    December 31, 2002 and 2003 the mandatorily redeemable
    preferred securities of Fresenius Medical Care Capital Trust II,
    Fresenius Medical Care Capital Trust III, Fresenius Medical Care
    Capital Trust IV, and Fresenius Medical Care Capital Trust V. On
    February 14, 2002, we redeemed the entire $360 million
    aggregate liquidation amount of the trust preferred securities
    of Fresenius Medical Care Capital Trust.

RISK FACTORS

Risks Relating to Litigation and Regulatory
Matters in the U.S.

If we do not comply with the many
governmental regulations applicable to our business or with the
corporate integrity agreement between us and the U.S.
government, we could be excluded from government health care
reimbursement programs or our authority to conduct business
could be terminated, either of which would result in a material
decrease in our revenue

Our operations in both our provider business and
our products business are subject to extensive governmental
regulation in virtually every country in which we operate. The
applicable regulations, which differ from country to country,
relate in general to the safety and efficacy of medical products
and supplies, the operation of manufacturing facilities,
laboratories and dialysis clinics, the rate of, and accurate
reporting and billing for, government and third-party
reimbursement, and compensation of medical directors and other
financial arrangements with physicians and other referral
sources. We are also subject to other laws of general
applicability, including antitrust laws.

Fresenius Medical Care Holdings Inc.
(FMCH), our North American subsidiary, is party to a
corporate integrity agreement with the U.S. government. This
agreement requires that Fresenius Medical Care Holdings staff
and maintain a comprehensive compliance program, including a
written code of conduct, training programs, regulatory
compliance policies and procedures, annual audits and periodic
reporting to the government. The corporate integrity agreement
permits the U.S. government to exclude Fresenius Medical Care
Holdings and its subsidiaries from participation in U.S. federal
health care programs if there is a material breach of the
agreement that Fresenius Medical Care Holdings does not cure
within thirty days after Fresenius Medical Care Holdings
receives written notice of the breach. We derive approximately
43% of our consolidated revenue from U.S. federal health care
benefit programs. Consequently, if Fresenius Medical Care
Holdings commits a material breach of the corporate integrity
agreement that results in the exclusion of Fresenius Medical
Care Holdings or its

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subsidiaries from continued participation in
those programs it would significantly decrease our revenue and
have a material adverse effect on our business, financial
condition and results of operations.


While we rely upon our management structure,
regulatory and legal resources, and the effective operation of
our compliance program to direct, manage and monitor these
activities, if employees, deliberately or inadvertently, failed
to adhere to these regulations then our authority to conduct
business could be terminated or our operations could be
significantly curtailed. Any such terminations or reductions
could materially reduce our revenues with a resulting adverse
impact on our business, financial condition and results of
operations.

A reduction in U.S. government
reimbursement for dialysis care could materially decrease our
revenues

For the twelve months ended December 31,
2003 approximately 43% of our consolidated revenues resulted
from Medicare and Medicaid reimbursement. Legislative changes
may affect the reimbursement rates for the services we provide,
as well as the scope of Medicare and Medicaid coverage. A
decrease in Medicare or Medicaid reimbursement rates or covered
services could have a material adverse effect on our business,
financial condition and results of operations.

A change in reimbursement for or
utilization of EPO could materially reduce our revenue and
operating profit

Reimbursement and revenue from the administration
of erythropoetin, or EPO, accounted for approximately 23% of
dialysis care revenue in our North America segment for the
twelve months ended December 31, 2003. EPO is produced by a
single source manufacturer, Amgen Inc. Our current contract with
Amgen covers the period from January 1, 2004 to
January 31, 2006. A reduction in reimbursement for EPO, a
significant change in utilization of EPO, a reduction of the
current overfill amount in EPO vials, an interruption of supply
or our inability to obtain satisfactory purchase terms for EPO
after our current contract expires could reduce our revenues
from, or increase our costs in connection with the
administration of the EPO, which could materially adversely
affect our business, financial condition and results of
operations.

Creditors of W.R. Grace & Co. Conn.
have asserted claims against us

We were formed in 1996 as a result of a series of
transactions with W.R. Grace & Co that we refer to as the
merger. At the time of the merger, W.R. Grace & Co.-Conn.
had, and continues to have, significant liabilities arising out
of product-liability related litigation (including asbestos),
pre-merger tax claims and other claims unrelated to its dialysis
business; in connection with the merger, W.R. Grace &
Co.-Conn. and other Grace entities agreed to indemnify Fresenius
Medical Care and its subsidiaries against all liabilities of
W.R. Grace & Co., whether relating to events occurring
before or after the merger, other than liabilities arising from
or relating to National Medical Cares operations.

In addition, the merger was consummated as a tax
free organization. Pre-merger tax claims or other tax claims
that would arise if events were to violate the tax-free nature
of the merger could ultimately be the obligation of our
subsidiary, FMCH. In particular, W.R. Grace & Co. has
publicly disclosed that its tax returns for the years 1993
through 1996 are under audit by the U.S. Internal Revenue
Service, that it has paid tax and interest with respect to
certain deductions taken prior to 1993 and that similar
deductions were taken in the years under audit. Subject to
certain representations made by W.R. Grace & Co.-Conn, FMCH
and Fresenius AG, W.R. Grace & Co.-Conn. and other Grace
entities also agreed to indemnify us against any such tax
liability. W.R. Grace & Co.-Conn. and certain of its
subsidiaries have filed for reorganization under Chapter 11
of the U.S. Bankruptcy Code (Grace Chapter 11
Proceedings). If W.R. Grace & Co.-Conn.s (and
its affiliates in and out of bankruptcy) obligations to
indemnify us are terminated or limited as a result of bankruptcy
proceedings, and if we are held liable for pre-merger
obligations of W. R. Grace & Co.-Conn. or if the merger is
determined to be a taxable transaction, our business, financial
condition and results of operations could be adversely affected.

In 2002, claims were brought against W.R. Grace
& Co. and FMCH by plaintiffs claiming to be creditors of
W.R. Grace & Co.-Conn. (asbestos creditors),
principally alleging that the merger was a fraudulent
conveyance, violated the uniform fraudulent transfer act, and
constituted a conspiracy. We are also engaged in litigation with
Sealed Air Corporation (with which W. R. Grace & Co.-Conn.
conducted a multistep transaction

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subsequent to the merger) over our entitlement to
indemnification from Sealed Air for losses and expenses we incur
relating to pre-merger tax liabilities of W.R. Grace & Co.
and merger-related claims.


In 2003, the Company reached an agreement with
the asbestos creditors committees and W.R. Grace & Co.
in the Grace Chapter 11 Proceedings to settle these
fraudulent conveyance and tax claims. The settlement agreement
has been approved by the U.S. District Court. The proposed
settlement is subject to confirmation of a final plan of
reorganization of W.R. Grace & Co. that meets the
requirements of the settlement agreement or is otherwise
satisfactory to us. If the proposed settlement with the asbestos
creditors committees and W.R. Grace & Co. is not
confirmed in such a final plan of reorganization, the claims
could be reinstated. If the claims are reinstated and the merger
is determined to be a fraudulent transfer and if material
damages are proved by the plaintiffs and we are not able to
collect, in whole or in part, on the indemnity from any of our
indemnitors, a judgment could have a material adverse effect on
our business, financial condition and results of operations. We
recorded a pre-tax accrual of $172 million at
December 31, 2001 to reflect our estimated exposure for
liabilities and expenses related to the Grace Chapter 11
Proceedings. See Note 3 to our consolidated financial
statements. For additional information concerning the Grace
Chapter 11 Proceedings and the settlement agreement see
Item 8.A.7  Legal Proceedings.

As health maintenance organizations and
other managed care plans grow, amounts paid for our services and
products by non-governmental payors could decrease

We obtain a significant portion of our revenues
from reimbursement provided by non-governmental third-party
payors. Although non-governmental payors generally pay at higher
reimbursement rates than governmental payors, managed care plans
generally negotiate lower reimbursement rates than indemnity
insurance plans. Some managed care plans and indemnity plans
also utilize a capitated fee structure or limit reimbursement
for ancillary services.

As managed care programs have increased market
share, there has been increased pressure to reduce the amounts
paid for our services and products. These trends may be
accelerated if future changes to the U.S. Medicare ESRD program
require private payors to assume a greater percentage of the
total cost of care given to dialysis patients over the term of
their illness, or if managed care plans otherwise significantly
increase their enrollment of renal patients.

If managed care plans reduce reimbursements, our
revenues could decrease, and our financial condition and results
of operations could be materially adversely affected.

Proposals for health care reform could
decrease our revenues

Proposals to modify the current health care
system in the U.S. to improve access to health care and control
its costs are continually being considered by the federal and
certain state governments. See Regulatory and Legal
Matters-Reimbursement- U.S. for a discussion of the
recently enacted Medicare Prescription Drug Modernization and
Improvement Act of 2003. We anticipate that the U.S. Congress
and state legislatures will continue to review and assess
alternative health care reforms, and we cannot predict whether
these reform proposals will be adopted, when they may be adopted
or what impact they may have on us. Any spending decreases or
other significant changes in the Medicare program could reduce
our revenues and profitability and have a material adverse
effect on our business, financial condition and results of
operations.

Other countries, especially those in Western
Europe, have also considered health care reform proposals and
could materially alter their government-sponsored health care
programs by reducing reimbursement payments. Any reduction could
affect the pricing of our products and the profitability of our
services, especially as we expand our international business.
This potential development could have a material adverse effect
on our business, financial condition and results of operations.

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Risks Relating to our Business

Our competitors could develop superior
technology or impact our product sales

We face numerous competitors in both our dialysis
services business and our dialysis products business, some of
which may possess substantial financial, marketing or research
and development resources. Competition could materially
adversely affect the future pricing and sale of our products and
services. In particular, technological innovation has
historically been a significant competitive factor in the
dialysis products business. The introduction of new products by
competitors could render one or more of our products obsolete.

We are engaged in both manufacturing dialysis
products and providing dialysis services. We compete in the
dialysis services business with many customers of our products
business. As a result, independent dialysis clinics, those
operated by other chains and dialysis centers acquired by other
products manufacturers may elect to limit or terminate their
purchases of our dialysis products so as to avoid purchasing
products manufactured by a competitor. In addition, as
consolidation in the dialysis services business continues and
other vertically integrated dialysis companies expand, the
external market for our dialysis products could be reduced.
Possible purchase reductions could decrease our product
revenues, with a material adverse effect on our business,
financial condition and results of operations.

We also compete with other dialysis products and
services companies in seeking selected acquisitions. If we are
not able to continue to effect acquisitions in the provider
business in our International segment upon reasonable terms
there could be an adverse impact on the growth of our business
and our future growth prospects.

We face products liability and other claims
which could result in significant liability

Health care companies are subject to claims
alleging negligence, products liability, breach of warranty,
malpractice and other legal theories that may involve large
claims and significant defense costs whether or not liability is
ultimately imposed. Health care products may also be subject to
recalls. Although product liability claims and recalls have not
had a material adverse effect on our businesses in the past, we
cannot assure that we will not suffer one or more significant
claims or product recalls in the future. Product liability
claims or recalls could result in judgments against us or
significant compliance costs, which could materially adversely
affect our business, financial condition and results of
operations.

While we have been able to obtain liability
insurance in the past, it is possible that such insurance may
not be available in the future either on acceptable terms or at
all. A successful claim in excess of the limits of our insurance
coverage could have a material adverse effect on our results of
operations and financial condition. Liability claims, regardless
of their merit or eventual outcome, also may have a material
adverse effect on our business and reputation, which could in
turn reduce our revenues and profitability.

If physicians and other referral sources
cease referring patients to our dialysis clinics or cease
purchasing our dialysis products, our revenues would
decrease

Our dialysis services business is dependent upon
patients choosing our clinics as the location for their
treatments. Patients may select a clinic based, in whole or in
part, on the recommendation of their physician. We believe that
physicians and other clinicians typically consider a number of
factors when recommending a particular dialysis facility to an
ESRD patient, including, but not limited to, the quality of care
at a clinic, the competency of a clinics staff, convenient
scheduling, and a clinics location and physical condition.
Physicians may change their facility recommendations at any
time, which may result in the movement of our existing patients
to competing clinics, including clinics established by the
physicians themselves. At most of our clinics, a relatively
small number of physicians account for the referral of all or a
significant portion of the patient base. If a significant number
of physicians ceased referring their patients to our clinics,
this could reduce our dialysis care revenue and materially
adversely affect our overall operations. Our operations are also
affected by referrals from hospitals, managed care plans and
other sources.

The decision to purchase our dialysis products
and other services or competing dialysis products and other
services will be made in some instances by medical directors and
other referring physicians at our dialysis clinics and by the
managing medical personnel and referring physicians at other
dialysis clinics, subject to applicable

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regulatory requirements. A decline in physician
recommendations or purchases of our products or ancillary
services could reduce our dialysis product and other services
revenue, and materially adversely affect our business, financial
condition and results of operations.


If we are unable to attract and retain
skilled medical, technical and engineering personnel, we may be
unable to manage our growth or continue our technological
development

Our continued growth in the provider business
will depend upon our ability to attract and retain skilled
employees, such as highly skilled nurses and other medical
personnel. Competition for those employees is intense. Moreover,
we believe that future success in the provider business will be
significantly dependent on our ability to attract and retain
qualified physicians to serve as medical directors of our
dialysis clinics. Our dialysis products business depends on the
development of new products, technologies and treatment
concepts. Competition is also intense for skilled engineers and
other technical research and development personnel. If we are
unable to obtain the services of key personnel, the ability of
our officers and key employees to manage our growth would suffer
and our operations could suffer in other respects. These factors
could preclude us from integrating acquired companies into our
operations, which could increase our costs and prevent us from
realizing synergies from acquisitions. Lack of skilled research
and development personnel could impair our technological
development, which would increase our costs and impair our
reputation for production of technologically advanced products.

We face additional costs and uncertainties
from international operations

We intend to expand our international presence.
As a result, we expect that revenues from countries other than
the U.S. and Germany will account for an increasing portion
of future revenues.

Revenues from international operations are
subject to a number of risks, including the following:



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | Fluctuations in exchange rates could adversely
    affect profitability;                                                           
|
| |  | We could face difficulties in enforcing and
    collecting accounts receivable under some countries legal
    systems;            
|
| |  | Local regulations could restrict our ability to
    obtain a direct ownership interest in dialysis clinics or other
    operations;
|
| |  | Political instability, especially in developing
    countries, could disrupt our operations;                                       
|
| |  | Some customers and governments could have longer
    payment cycles, with resulting adverse effects on our cash flow;
    and      
|
| |  | Some countries could impose additional taxes or
    restrict the import of our products.                                           

The continuing financial crisis in Latin America
and the decline of many of its major currencies against the U.S.
dollar have affected our international operations and caused us
to test our Latin America operations for impairment. See
Item 5, Operating and Financial Review and
Prospects-Financial Condition and Results of Operations.
Any one or more of these factors, or any difficulty in
integrating businesses we acquire into our operations, could
increase our costs, reduce our revenues, or disrupt our
operations, with possible material adverse effects on our
business, financial condition and results of operations.

Other Risks

Our significant indebtedness may limit our
ability to pay dividends or implement certain elements of our
business strategy

We are substantially leveraged. As of
December 31, 2003, our total consolidated liabilities were
$4.26 billion, including obligations with respect to all
our trust preferred securities of approximately
$1.2 billion, our total consolidated assets were
$7.50 billion and our stockholders equity was $3.24
billion. Our substantial level of debt presents the risk that we
might not generate sufficient cash to service our indebtedness
or that our

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leveraged capital structure could limit our
ability to finance acquisitions and develop additional projects,
to compete effectively or to operate successfully under adverse
economic conditions.


Our senior credit agreement and the indentures
relating to our trust preferred securities include covenants
that require us to maintain certain financial ratios or meet
other financial tests. Under our senior credit agreement, we are
obligated to maintain a minimum consolidated net worth and a
minimum consolidated fixed charge ratio (ratio of consolidated
earnings before interest, taxes, depreciation, amortization and
rent (EBITDAR) to fixed charges) and we are subject to a
limit on our consolidated leverage ratio (ratio of consolidated
funded debt to EBITDA).

Our senior credit agreement and our indentures
include other covenants which, among other things, restrict or
have the effect of restricting our ability to dispose of assets,
incur debt, pay dividends, create liens or make capital
expenditures, investments or acquisitions. These covenants may
otherwise limit our activities. The breach of any of the
covenants could result in a default under the credit agreement
or the indentures, which could, in turn, create additional
defaults under the agreements relating to our other long term
indebtedness.

Because we are not organized under
U.S. law, we are subject to certain less detailed
disclosure requirements under U.S. federal securities
laws

Under pooling agreements that we have entered
into for the benefit of minority holders of our Ordinary shares
and holders of our Preference shares (including, in each case,
holders of American Depositary Receipts representing beneficial
ownership of such shares), we have agreed to file quarterly
reports with the Securities and Exchange Commission, to prepare
annual and quarterly financial statements in accordance with
U.S. generally accepted accounting principles, and to file
information with the Securities and Exchange Commission with
respect to annual and general meetings of our shareholders.
However, we are a foreign private issuer, as defined
in the Securities and Exchange Commissions regulations,
and consequently we are not subject to all of the same
disclosure requirements applicable to domestic companies. We are
exempt from the Securities and Exchange Commissions proxy
rules, and our annual reports contain less detailed disclosure
than reports of domestic issuers regarding such matters as
management, executive compensation and outstanding options,
beneficial ownership of our securities and certain related party
transactions. Also, our officers, directors and beneficial
owners of more than 10% of our equity securities are exempt from
the reporting requirements and short-swing profit recovery
provisions of Section 16 of the Securities Exchange Act of
1934. We are also generally exempt from most of the governance
rule revisions recently adopted by the New York Stock Exchange,
other than the obligation to maintain an audit committee in
accordance with Rule 10A-3 under the Securities Exchange
Act of 1934, as amended. These limits on available information
about our company may adversely affect the market prices for our
securities.

Item 4.  Information on the
Company

A.  History and Development of the
Company

General

Fresenius Medical Care AG is a stock corporation
(Aktiengesellschaft) organized under the laws of Germany. It was
incorporated on August 5, 1996. Fresenius Medical Care AG
is registered with the commercial register of the local court
(Amtsgericht)of Hof an der Saale, Germany under HRB
2460. Our registered office (Sitz)is Hof an der Saale,
Germany. Our business address is Else-Kröner-Strasse 1,
61352 Bad Homburg, Germany, telephone ++49-6172-609-0.

History

Fresenius Medical Care AG was created by the
conversion of Sterilpharma GmbH, a limited liability company
under German law organized in 1975, into a stock corporation
under German law (Aktiengesellschaft). A
shareholders meeting on April 17, 1996 adopted the
resolutions for this conversion and the commercial register
registered the conversion on August 5, 1996.

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On September 30, 1996, we completed a series
of transactions to consummate an Agreement and Plan of
Reorganization entered into on February 4, 1996 by
Fresenius AG and W.R. Grace which we refer to as the
Merger elsewhere in this report. Pursuant to that
agreement, Fresenius AG contributed Fresenius Worldwide
Dialysis, its global dialysis business, including its
controlling interest in Fresenius USA, Inc., in exchange for
35,210,000 Fresenius Medical Care Ordinary shares. Thereafter,
we acquired:



| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | all of the outstanding common stock of W.R.
    Grace, whose sole business at the time of the transaction
    consisted of National Medical Care, Inc., its global dialysis
    business, in exchange for 31,360,000 Ordinary shares; and
|
| |  | the publicly-held minority interest in Fresenius
    USA, in exchange for 3,430,000 Ordinary shares.                                                                                                                                     

Effective October 1, 1996, we contributed
all our shares in Fresenius USA to Fresenius Medical Care
Holdings, which conducts business under the trade name Fresenius
Medical Care North America, and which is the holding company for
all of our operations in the U.S. and Canada and manufacturing
operations in Mexico.

Capital Expenditures

We invested, by business segment and geographical
areas, the following amounts during the three fiscal years ended
December 31, 2003, 2002 and 2001 and have budgeted the
following amounts for the year 2004:

|                                                           |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  |  |   |     | 
|---------------------------------------------------------- | ------------- | ------------- | -------------------------- | ------ | -- | ---- | - | ---- | -- | --- | - | --- | --- | --- |  |  | - | --- | 
|                                                           |               |               |                            |       
|                                                           |               | Actual        |                            |       
|                                                           |               | (in millions) |                            |       
|                                                           |               |               |                            | Budget
|                                                           |               | 2003          |                            | 2002   |    | 2001 |   | 2004
|                                                           |               |               |                            |        |    |      |   |     
|Acquisitions                                               |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  | 
|                                                           | North America |               | $                          | 43     |    |      | $ | 38   |    |     | $ | 412 |     |     |  |  |  
|                                                           | International |               |                            |        |    |      |   |      |    |     |   |     |     |     |  |  |  
|                                                           |               | Germany       |                            |        | 13 |      |   |      |   |     |   |     |    |     |  |  |   |    
|                                                           |               | Rest of World |                            |        | 45 |      |   |      | 50 |     |   |     | 49  |     |  |  |   |    
|                                                           |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  | 
|                                                           |               |               | Total Acquisitions         |        | $  | 101  |   |      | $  | 88  |   |     | $   | 461 |  |  | $ | 100 | 
|                                                           |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  | 
|Capital expenditures for property, plant and
    equipment |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  | 
|                                                           | North America |               | $                          | 177    |    |      | $ | 130  |    |     | $ | 138 |     |     |  |  |  
|                                                           | International |               |                            |        |    |      |   |      |    |     |   |     |     |     |  |  |  
|                                                           |               | Germany       |                            |        | 28 |      |   |      | 27 |     |   |     | 34  |     |  |  |   |    
|                                                           |               | Rest of World |                            |        | 86 |      |   |      | 82 |     |   |     | 103 |     |  |  |   |    
|                                                           |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  | 
|                                                           |               |               | Total Capital Expenditures |        | $  | 291  |   |      | $  | 239 |   |     | $   | 275 |  |  | $ | 250 | 
|                                                           |               |               |                            |        |    |      |   |      |    |     |   |     |     |     |  | 

During 2003, we finished the construction of
three dialyzer assembly lines and two fiber spinning lines in
our Ogden, Utah production facility. These expenditures were
part of an effort to increase our single use dialyzer
manufacturing capacity by 200% as part of our UltraCare
program (see Business Overview  Dialysis
Care  Fresenius UltraCare Program). In Asia
Pacific we continued investment in production facilities. Other
major 2003 capital expenditures were made for the improvement of
production facilities in Germany, Italy and France. We finance
our capital expenditures through cash flow from operations or
under existing credit facilities.

In December 2003, we exercised an option to
terminate an operating lease for certain manufacturing equipment
in its Ogden, Utah, North American facility. The equipment was
purchased for approximately $66 million and is reflected as
a capital expenditure in the accompanying consolidated statement
of cash flows.

For information regarding recent acquisitions,
see Business Overview  Acquisitions.

B.  Business Overview

Our Business

We are the worlds largest kidney dialysis
company engaged in both providing dialysis care and
manufacturing dialysis products, based on publicly reported
revenues and patients treated. We provide dialysis

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treatment to over 119,000 patients at our
1,560 clinics located in 25 countries. In the
U.S. we also provide inpatient dialysis services,
therapeutic apheresis, hemoperfusion and other services under
contract to hospitals. We also develop and manufacture a
complete range of equipment, systems and disposable products,
which we sell to customers in over 100 countries. We use
the information we gain when treating patients in developing new
and improved products. We believe that our size, our activities
in both dialysis care and dialysis products and our
concentration in specific geographic areas allow us to operate
more cost-effectively than many of our competitors. For the year
ended December 31, 2003, we had net revenues of
$5.5 billion, an increase of 9% over 2002 revenues. We
derived 70% of our revenues in 2003 from our North America
operations and 30% from our International operations.


The following table summarizes net revenues for
our North America segment and our International segment as well
as our major categories of activity for the three years ended
December 31, 2003, 2002 and 2001.

|              |                      |               |       |       |  |      |       |       |  |  |       |       | 
|------------- | -------------------- | ------------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|              |                      | 2003          |       | 2002  |  | 2001
|              |                      |               |       |       |  |     
|              |                      |              
|              |                      | (in millions)
|North America |                      |               |       |       |  |      |       |       |  |  |       |      
|              | Dialysis Care        |               | $     | 3,429 |  |      | $     | 3,294 |  |  | $     | 3,131 | 
|              | Dialysis Products(1) |               |       | 426   |  |      |       | 454   |  |  |       | 471   | 
|              |                      |               |       |       |  |      |       |       |  |  |       |      
|              |                      |               | 3,855 |       |  |      | 3,748 |       |  |  | 3,602 |      
|International |                      |               |       |       |  |      |       |       |  |  |       |      
|              | Dialysis Care        |               |       | 550   |  |      |       | 415   |  |  |       | 426   | 
|              | Dialysis Products    |               |       | 1,123 |  |      |       | 921   |  |  |       | 831   | 
|              |                      |               |       |       |  |      |       |       |  |  |       |      
|              |                      |               |       | 1,673 |  |      |       | 1,336 |  |  |       | 1,257 | 






|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We evaluate North America product sales based on
    net available external market. See Item 5.A.
    Operating Results for explanation and analysis.

Renal Industry Overview

End-Stage Renal Disease

End-stage renal disease (ESRD) is the
stage of advanced chronic kidney disease that is characterized
by the irreversible loss of kidney function and requires regular
dialysis treatment or kidney transplantation to sustain life. A
normally functioning human kidney removes waste products and
excess water from the blood, which prevents toxin buildup, water
overload and the eventual poisoning of the body. A number of
conditions  diabetes, hypertension,
glomerulonephritis and inherited diseases  can cause
chronic kidney disease. Nearly 60% of all people with ESRD
acquire the disease as a complication of one or more of these
primary conditions.

There are currently only two methods for treating
ESRD: dialysis and kidney transplantation. Scarcity of
compatible kidneys limits transplants. According to data
published by the Centers for Medicare and Medicaid Services
(CMS) (formerly the Health Care Financing
Administration) of the U.S. Department of Health and Human
Services, 14,628 patients of the ESRD patient population,
received kidney transplants in the U.S. during 2001 an increase
of 2% over 2000. According to the United States Renal Data
System (USRDS) 2002 Annual Report only
2 - 3% of all incident patients received a pre-emptive
transplant in 2000. In Germany, the third biggest dialysis
market worldwide according to our own internal survey, less than
1% of all incident patients received pre-emptive transplants, as
published by the German registry Quasi-Niere. Therefore, most
patients suffering from ESRD must rely on dialysis, which is the
removal of toxic waste products and excess fluids from the body
by artificial means. There are two major dialysis methods
commonly used today, hemodialysis (HD) and
peritoneal dialysis (PD). These are described below
under Treatment Options for ESRD. Generally, an ESRD
patients physician, in consultation with the patient,
chooses the patient treatment method, which is based on the
patients medical conditions and needs.

Based on data published by the CMS, the number of
patients in the U.S. who received dialysis for chronic ESRD grew
from approximately 66,000 in 1982 to 285,982 at
December 31, 2001, a compound annual rate of 8%. We believe
that growth will continue at 4 - 6% per year. According to data
from our own internal survey, the

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number of non-U.S. chronic dialysis patients is
growing at estimated annual rates of 7 - 8% for patients
receiving dialysis. At the end of 2002, an estimated
1.2 million patients were undergoing dialysis treatment
worldwide. According to our own market surveys, Japan is the
second largest dialysis market in the world. According to data
published by the Japanese Society for Dialysis Therapy, more
than 200,000 dialysis patients were being treated at the end of
2000. In the rest of the world, we estimate that at the end of
2002 there were approximately 292,000 dialysis patients in
Europe, approximately 160,000 patients in Asia (excluding Japan)
and approximately 143,000 patients in Latin America. We believe
that the continuing growth in the number of dialysis patients is
principally attributable to:




| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | increased general life expectancy and the overall
    aging of the general U.S. and European population;           
|
| |  | shortage of donor organs for kidney transplants;                                                                   
|
| |  | improved dialysis technology that has expanded
    the patient population able to undergo life-prolonging dialysis;
|
| |  | greater access to treatment in developing
    countries.                                                           
|
| |  | better treatment and survival of patients with
    hypertension, diabetes and other illnesses that lead to ESRD.   

Treatment Options for ESRD

Hemodialysis.Hemodialysis removes toxins and excess
fluids from the blood whereby the blood flows outside the body
through plastic tubes known as bloodlines into a specially
designed filter, called a dialyzer. The dialyzer functions as an
artificial kidney by separating waste products and excess water
from the blood. Dialysis solution flowing through the dialyzer
carries away the waste products and excess water, and
supplements the blood with solutes that have been depleted due
to renal failure. The treated blood is returned to the patient.
The hemodialysis machine pumps blood, adds anti-coagulants,
regulates the purification process and controls the mixing of
dialysis solution and the rate of its flow through the system.
This machine can also monitor and record the patients
vital signs.

Hemodialysis patients generally receive treatment
three times per week, typically for around three to five hours
per treatment. The majority of hemodialysis patients receive
treatment at outpatient dialysis clinics, such as ours, where
hemodialysis treatments are performed with the assistance of a
nurse or dialysis technician under the general supervision of a
physician.

According to data from the CMS, as of
December 31, 2001, there were 4,081 Medicare-certified ESRD
treatment clinics in the U.S. Ownership of these clinics is
fragmented. We estimate that there were approximately 4,900
dialysis clinics in Europe at the end of 2002, of which almost
60% are government-owned, more than 30% are privately owned, and
around 10% are operated by health care organizations. In Latin
America, privately owned clinics predominate, comprising over
70% of all clinics providing dialysis care.

According to the CMS, as of December 31,
2001, hemodialysis patients represented about 90% of all
dialysis patients in the U.S. Our most recent studies indicate
hemodialysis patients comprise 95% of all dialysis patients in
Japan, 89% in the European Union and 85% in the rest of the
world.

Peritoneal Dialysis.Peritoneal dialysis removes toxins
from the blood using the peritoneum, the membrane lining
covering the internal organs located in the abdominal area.
Peritoneal dialysis patients administer their own treatments in
their own homes and workplaces, either by a treatment known as
continuous ambulatory peritoneal dialysis or CAPD, or by a
treatment we introduced in 1980 known as continuous cycling
peritoneal dialysis or CCPD. In both of these treatments, a
surgically implanted catheter provides access to the peritoneal
cavity. Using this catheter, the patient introduces a sterile
dialysis solution from a solution bag through a tube into the
peritoneal cavity. The peritoneum operates as the filtering
membrane and, after a specified dwell time, the solution is
drained and disposed of. A typical CAPD peritoneal dialysis
program involves the introduction and disposal of dialysis
solution four times a day. With CCPD a machine
cycles solution to and from the patients
peritoneal cavity while the patient sleeps.

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Our Strategy

Our objective is generating revenue growth that
exceeds market growth of the dialysis industry, measured by
growth in the patient population, while maintaining our leading
position in the market and increasing earnings at a faster pace
than revenues. Our dialysis care and product revenues have grown
faster than the market over the past five years, and we believe
that we are well positioned to meet our objectives by focusing
on the following strategies:



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continue to Provide High Standards of Patient
    Care.We believe that our reputation
    for providing the highest standards of patient care is a
    competitive advantage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| | Differentiated Patient Care Programs from
    those of Our Competitors.We believe
    that our UltraCare Patient Care program offered at our
    North America dialysis facilities will distinguish and
    differentiate our patient care programs from those of our
    competitors. UltraCare therapy employs single-use high
    flux polysulfone dialyzers, on-line quality measurement, and
    Ultra Pure Dialysate, all of which we feel improves mortality
    and increases the quality of patient care. The change to
    single-use dialyzers has increased our per treatment dialyzer
    costs relative to use of multi-use dialyzers. These cost
    increases have been offset, however, by our ability to achieve
    economies of scale in the production of these dialyzers, due to
    our large-scale single-use dialyzer manufacturing capacity.
    Moreover, we have implemented a new staffing model based on
    single-use that reduces our personnel costs per treatment.
    Finally, automated controls in our new 2008 Series dialysis
    machine reduces concentrate usage and associated costs.                                   
| 
| | Expand Presence in Attractive Growth Markets
    Worldwide.We intend to continue to
    take advantage of the reputation and market recognition our
    global product business has created by acquiring and
    establishing new dialysis clinics within attractive
    international markets. We believe that we will obtain an
    increasing percentage of our dialysis care growth from worldwide
    markets. We believe that increases in per capita income in
    developing countries will make general health care benefits,
    which may include payment for dialysis treatment, more widely
    available and present significant opportunities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| | Increase Our Spectrum of Dialysis Services.One of our objectives is to continue
    to expand our role within the broad spectrum of services for
    dialysis patients. We have begun to implement this strategy by
    providing expanded and enhanced patient services, including
    laboratory services, to both our own clinics and those of third
    parties. We estimate that our Spectra Renal Management division
    provides laboratory services for approximately 39% of the ESRD
    patients in the U.S. We have developed disease state management
    methodologies, which involve the coordination of total patient
    care for ESRD patients and which we believe are attractive to
    managed care payors. We have formed Optimal Renal Care, LLC, a
    joint venture with The Permanente Federation. We also formed
    Renaissance Health Care as a joint venture with participating
    nephrologists. Renaissance provides ESRD and Chronic Kidney
    Disease programs to more than 3,000 patients. We also operate a
    surgical center for the management and care of vascular access
    for patients which decreases hospitalization.
| 
| | Offer Complete Dialysis Product Lines with
    Recurring Disposable Products Revenue Streams.We offer broad and competitive
    hemodialysis and peritoneal dialysis product lines. These
    product lines enjoy broad market acceptance and enable us to
    serve as our customers single source for all of their
    dialysis machines, systems and disposable products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| | Extend Our Position as an Innovator in Product
    and Process Technology.We are
    committed to technological leadership in both hemodialysis and
    peritoneal dialysis products. We have an over 388 member
    research and development team that focuses on developing
    dialysis systems that are safer, more effective and easier to
    use and that can be easily customized to meet the differing
    needs of customers around the world. We believe that our
    extensive expertise in patient treatment and clinical data will
    further enhance our ability to develop more effective products
    and treatment methodologies. Our ability to manufacture dialysis
    products on a cost-effective and competitive basis results in
    large part from our process technologies. Over the past several
    years, we have reduced manufacturing costs per unit through
    development of proprietary manufacturing technologies that have
    streamlined and automated our production processes.                                                                                                                                            

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Dialysis Care

Dialysis Services

We provide dialysis treatment and related
laboratory and diagnostic services at our approximately
1,560 outpatient dialysis clinics, 1,110 of which are in
the U.S. and 450 of which are in 23 countries outside of
the U.S. Our operations outside the U.S. generated 14% of our
2003 dialysis care revenue. We currently operate dialysis
clinics in Argentina, Australia, Brazil, China, Colombia, Chile,
Czech Republic, France, Germany, Hungary, Hong Kong, Italy,
Singapore, Mexico, Portugal, Poland, Slovakia, Slovenia, South
Africa, Spain, Taiwan, Turkey, United Kingdom and Venezuela. Our
dialysis clinics are generally concentrated in areas of high
population density. In 2003, we acquired 42 existing clinics,
opened 76 new clinics and consolidated 38 clinics. The number of
patients we treat at our clinics increased by about 6%, from
approximately 112,200 at December 31, 2002 to approximately
119,250 at December 31, 2003.

With our large patient population, we have
developed proprietary patient statistical databases which enable
us to improve dialysis treatment outcomes, and improve the
quality and effectiveness of dialysis products. We believe that
local physicians, hospitals and managed care plans refer their
ESRD patients to our clinics for treatment due to:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | our reputation for quality patient care and
    treatment;                                                                              
|
| |  | our extensive network of dialysis clinics, which
    enables physicians to refer their patients to conveniently
    located clinics; and
|
| |  | our reputation for technologically advanced
    products for dialysis treatment.                                                        

We treat approximately 26% of the dialysis
patients in the U.S. including those patients treated in clinics
we manage. Based on publicly available reports, we believe our
next largest competitor treats approximately 15% of
U.S. dialysis patients. For the year 2003, dialysis
services accounted for 72% of our total revenue.

At our clinics, we provide hemodialysis
treatments at individual stations through the use of dialysis
machines and disposable products. A nurse attaches the necessary
tubing to the patient and the dialysis machine and monitors the
dialysis equipment and the patients vital signs. The
capacity of a clinic is a function of the number of stations and
such factors as type of treatment, patient requirements, length
of time per treatment, and local operating practices and
ordinances regulating hours of operation.

Each of our dialysis clinics is under the general
supervision of a Medical Director and, in some cases, one or
more associate Medical Directors, all of whom are physicians.
See Patients, Physician and Other Relationships.
Each dialysis clinic also has an administrator or clinical
manager who supervises the day-to-day operations of the facility
and the staff. The staff typically consists of registered
nurses, licensed practical nurses, patient care technicians, a
social worker, a registered dietician, a unit clerk and
biomedical technicians.

As part of the dialysis therapy, we provide a
variety of services to ESRD patients in the U.S. at our dialysis
clinics. These services include administering EPO, a
bioengineered protein that stimulates the production of red
blood cells. EPO is used to treat anemia, a medical complication
that ESRD patients frequently experience, and we administer EPO
to most of our patients. Revenues from EPO accounted for
approximately 23% of dialysis care revenue in our North America
segment for the year ended December 31, 2003. We receive a
substantial majority of this revenue as reimbursements through
the Medicare and Medicaid programs. Amgen Inc., is the sole
manufacturer of EPO in North America, and any interruption of
supply could materially adversely affect our business, financial
condition and results of operations. Our current contract with
Amgen covers the period from January 2004 to January 2006.

Our clinics also offer services for home dialysis
patients, the majority of whom receive peritoneal dialysis
treatment. For those patients, we provide materials, training
and patient support services, including clinical monitoring,
follow-up assistance and arranging for delivery of the supplies
to the patients residence. In the U.S. clinic services
include the supplying of EPO. See  Regulatory and
Legal Matters  Reimbursement  U.S. for a
discussion of billing for these products and services.

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We also provide dialysis services under contract
to hospitals in the U.S. on an as needed basis for
hospitalized ESRD patients and for patients suffering from acute
kidney failure. Acute kidney failure can result from trauma or
similar causes, and requires dialysis until the patients
kidneys recover their normal function. We service these patients
either at their bedside, using portable dialysis equipment, or
at the hospitals dialysis site. Contracts with hospitals
provide for payment at negotiated rates that are generally
higher than the Medicare reimbursement rates for chronic
in-clinic out-patient treatments.

We employ a centralized approach with respect to
certain administrative functions common to our operations. For
example, each dialysis clinic uses our proprietary manuals
containing our standardized operating and billing procedures. We
believe that centralizing and standardizing these functions
enhance our ability to perform services on a cost-effective
basis.

The manner in which each clinic conducts its
business depends, in large part, upon applicable laws, rules and
regulations of the jurisdiction in which the clinic is located,
as well as our clinical policies. However, a patients
attending physician, who may be the clinics Medical
Director or an unaffiliated physician with staff privileges at
the clinic, has medical discretion to prescribe the particular
treatment modality and medications for that patient. Similarly,
the attending physician has discretion in prescribing particular
medical products, although the clinic typically purchases
equipment, regardless of brand, in consultation with the Medical
Director.

Fresenius UltraCare Program

In 2002, we started a new program in the North
America dialysis services group called UltraCare. This program
combines our latest product technology with our highly trained
and skilled staff to offer our patients a superior level of
care. The basis for this form of treatment is the Optiflux
polysulfone single-use dialyzer. These dialyzers have excellent
blood detoxification properties and are the most efficient
dialyzers currently available. Optiflux dialyzers are combined
with our 2008 Hemodialysis Delivery System series, which has
advanced online patient monitoring as well as several systems to
allow the tailoring of treatment to meet individual patient
needs. Among the other capabilities of this system, staff will
be alerted if toxin clearance is less than the target prescribed
for the patient, and treatment can be adjusted accordingly.

Laboratory Services

We provide laboratory testing and marketing
services through Spectra Renal Management. Spectra Renal
Management is the leading U.S. dialysis clinical laboratory
providing blood, urine and other bodily fluid testing services
to assist physicians in determining whether a dialysis
patients therapy regimen, diet and medicines remain
optimal. Spectra Renal Management operates two laboratories,
located in New Jersey and Northern California. During the year
ended December 31, 2003, Spectra Renal Management performed
over 38 million tests for more than 120,000 dialysis
patients in 1,758 clinics across the U.S. including clinics that
we do own or operate.

Acquisitions

A significant factor in the growth in our revenue
and operating earnings in prior years has been our ability to
acquire health care businesses, particularly dialysis clinics,
on reasonable terms. Worldwide, physicians own many dialysis
clinics that are potential acquisition candidates for us. In the
U.S., doctors might determine to sell their clinics to obtain
relief from day-to-day administrative responsibilities and
changing governmental regulations, to focus on patient care and
to realize a return on their investment. Outside of the U.S.,
doctors might determine to sell and/or enter into joint ventures
or other relationships to us to achieve the same goals and to
gain a partner with extensive expertise in dialysis products and
services.

We paid aggregate cash consideration for
acquisitions of Fresenius AGs adsorber business and new
clinics of approximately $92 million in 2003 and
approximately $80 million in 2002, primarily for dialysis
clinics. In 2003, we completed new acquisitions and acquisitions
of previously managed clinics totaling 42 dialysis facilities.
These acquisitions expand our presence in selected key
geographic areas.

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We continued to enhance our presence in the U.S.
and abroad by acquiring individual or small groups of dialysis
clinics in selected markets, expanding existing clinics, and
opening new clinics.

Quality Assurance in Dialysis
Care

Beginning in 2001, our quality management
activities were primarily focused on comprehensive development
and implementation of an Integrated Quality Management System
(IMS). Our goals in this area included not only
meeting quality requirements for our dialysis clinics and
environmental concerns, but also managing the quality of our
dialysis care. This approach resulted in an IMS structure that
closely reflects existing corporate processes. We also were able
to use the IMS to fulfill many legal and normative regulations
covering service lines. In addition, the IMS offers a highly
flexible structure that allows us to adapt to future
regulations. The most important of these include, among others,
ISO 9001, EN 46001, ISO 13485, and 21 CFR 820 which establish
quality control and other performance criteria.

In 2003, internal and external auditors inspected
our dialysis clinics. They confirmed the effectiveness of our
organization and processes and documented our compliance with
relevant regulations. The use of newly developed evaluation
methods allowing simpler performance comparisons identified
additional improvement possibilities. Another focus of our
activities in 2003 was the continuing certification of our
dialysis clinics under ISO 9001, EN 46001, ISO 13485, and 21 CFR
820 .

The rapid pace of IMS integration will continue
in 2004. The integration of a new risk and complaint management
system and the further involvement of our subsidiaries in the
Asian-Pacific and Latin American regions are additional goals.

At each of our North America dialysis clinics, a
quality assurance committee is responsible for reviewing quality
of care data, setting goals for quality enhancement and
monitoring the progress of quality assurance initiatives. We
believe that we enjoy a reputation of providing high quality
care to dialysis patients. In 2003, the Company continued to
develop and implement programs to assist in achieving our
quality goals. Our Access Intervention Management Program
(AIM), started in 2001, detects and corrects
arteriovenous access failure in hemodialysis treatment, which is
the major cause of hospitalization and morbidity.

Sources of U.S. Dialysis Care Net
Revenue

The following table provides information for the
years ended December 31, 2003, 2002 and 2001 regarding the
percentage of our U.S. dialysis treatment services net
revenues from (a) the Medicare ESRD program,
(b) private/ alternative payors, such as commercial
insurance and private funds, (c) Medicaid and other
government sources and (d) hospitals.

|                                      |  |                         |        |      |  |      |        |  |  |  |        | 
|------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                      |  |                        
|                                      |  | Year Ended December 31,
|                                      |  |                        
|                                      |  | 2003                    |        | 2002 |  | 2001
|                                      |  |                         |        |      |  |     
|Medicare ESRD program                 |  |                         | 61.0%  |      |  |      | 61.5%  |  |  |  | 59.7%  | 
|Private/alternative payors            |  |                         | 29.2%  |      |  |      | 29.5%  |  |  |  | 31.2%  | 
|Medicaid and other government sources |  |                         | 3.9%   |      |  |      | 4.5%   |  |  |  | 4.6%   | 
|Hospitals                             |  |                         | 5.9%   |      |  |      | 4.5%   |  |  |  | 4.5%   | 
|                                      |  |                         |        |      |  |      |        |  |  |  |        | 
|Total                                 |  |                         | 100.0% |      |  |      | 100.0% |  |  |  | 100.0% | 
|                                      |  |                         |        |      |  |      |        |  |  |  |        | 

Under the Medicare ESRD program, Medicare
reimburses dialysis providers for the treatment of certain
individuals who are diagnosed as having ESRD, regardless of age
or financial circumstances. See Regulatory and Legal
Matters  Reimbursement.

Patient, Physician and Other
Relationships

We believe that our success in establishing and
maintaining dialysis clinics, both in the U.S. and in other
countries, depends significantly on our ability to obtain the
acceptance of and referrals from local physicians,

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hospitals and managed care plans. A dialysis
patient generally seeks treatment at a conveniently located
clinic at which the patients nephrologist has staff
privileges.


Medicare ESRD program reimbursement regulations
require that a Medical Director generally supervise treatment at
a dialysis clinic. Generally, the Medical Director must be board
certified or board eligible in internal medicine and have at
least twelve months of training or experience in the care of
patients at ESRD clinics. Our Medical Directors also maintain
their own private practices.

Competition

Dialysis Services.The dialysis services industry is
highly competitive. Our major competitors in dialysis services
include Gambro AB, DaVita, Inc. (formerly Total Renal
Care), Baxter International Inc., Renal Care Group and the
Kuratorium für Dialyse und Nierentransplantation e.V.
Ownership of dialysis clinics in the U.S. is fragmented
with a large number of operators each owning 10 or fewer clinics
and a small number of larger multi-clinic providers, of which we
are the largest. Industry consolidation has been ongoing over
the last decade. Many of our dialysis clinics are in urban
areas, where there frequently are many competing clinics in
proximity to our clinics. We experience direct competition from
time to time from former Medical Directors, former employees or
referring physicians who establish their own clinics.
Furthermore, other health care providers or product
manufacturers, some of who have significant operations, may
decide to enter the dialysis business in the future.

Because in the U.S. government programs are
the primary source of reimbursement for services to the majority
of patients, competition for patients in the U.S. is based
primarily on quality and accessibility of service and the
ability to obtain admissions from physicians with privileges at
the facilities. However, the extension of periods during which
commercial insurers are primarily responsible for reimbursement
and the growth of managed care have placed greater emphasis on
service costs for patients insured with private insurance.

In most countries other than the U.S., we compete
primarily against individual free-standing clinics and
hospital-based clinics. In many of these countries, especially
the developed countries, governments directly or indirectly
regulate prices and the opening of new clinics. Providers
compete in all countries primarily on the basis of quality and
availability of service and the development and maintenance of
relationships with referring physicians.

Laboratory Services.Spectra Renal Management competes in
the U.S. with large nationwide laboratories, dedicated
dialysis laboratories and numerous local and regional
laboratories, including hospital laboratories. In the laboratory
services market, companies compete on the basis of performance,
including quality of laboratory testing, timeliness of reporting
test results and cost-effectiveness. We believe that our
services are competitive in these areas.

Dialysis Products

We are currently the worlds largest
manufacturer and distributor of equipment and related products
for hemodialysis and the second largest manufacturer of
peritoneal dialysis products, based on publicly reported
revenues, with operations in Germany, the U.S., and in 35 other
countries. We sell our dialysis products directly and through
distributors in over 100 countries. Most of our customers
are dialysis clinics. For the year 2003, dialysis products
accounted for 28% of our total revenue.

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Overview

The following table shows the breakdown of our
dialysis product revenues into sales of hemodialysis products
and peritoneal dialysis products.

|                             |  |                            |         |       |  |          |     |       |  |          |         |       |  |  |     |  |  |   |         |  |  |  |     | 
|---------------------------- |  | -------------------------- | ------- | ----- |  | -------- | --- | ----- |  | -------- | ------- | ----- |  |  | --- |  |  | - | ------- |  |  |  | --- | 
|                             |  |                           
|                             |  | Year Ended December 31,   
|                             |  |                           
|                             |  |                            |         |       |  |         
|                             |  | 2003                       |         | 2002  |  | 2001    
|                             |  |                            |         |       |  |         
|                             |  | Total                      |         |       |  | Total    |     |       |  | Total    |         |      
|                             |  | Product                    |         | % of  |  | Product  |     | % of  |  | Product  |         | % of 
|                             |  | Revenues                   |         | Total |  | Revenues |     | Total |  | Revenues |         | Total
|                             |  |                            |         |       |  |          |     |       |  |          |         |      
|                             |  |                           
|                             |  | (U.S. dollars in millions)
|Hemodialysis Products        |  | $                          | 1,326.1 |       |  |          | 86  |       |  | $        | 1,181.0 |       |  |  | 86  |  |  | $ | 1,114.0 |  |  |  | 86  | 
|Peritoneal Dialysis Products |  |                            | 211.5   |       |  |          | 14  |       |  |          | 194.2   |       |  |  | 14  |  |  |   | 188.2   |  |  |  | 14  | 
|                             |  |                            |         |       |  |          |     |       |  |          |         |       |  |  |     |  |  |   |         |  |  |  |     | 
|Total                        |  | $                          | 1,537.6 |       |  |          | 100 |       |  | $        | 1,375.2 |       |  |  | 100 |  |  | $ | 1,302.2 |  |  |  | 100 | 
|                             |  |                            |         |       |  |          |     |       |  |          |         |       |  |  |     |  |  |   |         |  |  |  |     | 

Hemodialysis Products

We offer a comprehensive hemodialysis product
line and believe that our broad range of technologically
sophisticated hemodialysis products makes us a leader in the
hemodialysis product field. We continually strive to expand and
improve the capabilities of our hemodialysis systems to offer an
advanced treatment mode at reasonable cost.

Dialysis Machines.We sell our dialysis machines as
Series 2008H and 2008K models in North America and
Series 4008 models in the rest of the world. Our dialysis
machines offer the following features and advantages:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Volumetric dialysate balancing and
    ultrafiltration control system. This system, which we introduced
    in 1977, provides for safe and more efficient use of highly
    permeable dialyzers, permitting faster dialysis with controlled
    rates of fluid removal;                                                                                                                                                 
|
| |  | Proven hydraulic systems, providing reliable
    operation and servicing flexibility;                                                                                                                                                                                                                                                                                                                                   
|
| |  | Compatibility with all manufacturers
    dialyzers and a wide variety of blood-lines and dialysis
    solutions, permitting maximum flexibility in both treatment and
    disposable products usage;                                                                                                                                                                                                                   
|
| |  | Modular design, which permits us to offer
    dialysis clinics a broad range of options to meet specific
    patient or regional treatment requirements. Modular design also
    allows upgrading through module substitution without replacing
    the entire machine;                                                                                                                                                 
|
| |  | Specialized modules that provide monitoring and
    response capability for selected bio-physical patient
    parameters, such as body temperature, relative blood volume and
    electrolyte balances. This concept, known as physiological
    dialysis, permits hemodialysis treatments with lower incidence
    of a variety of symptoms or side effects, which still occur
    frequently in standard hemodialysis.
|
| |  | Sophisticated microprocessor controls, and
    display and readout panels that are adaptable to meet local
    language requirements;                                                                                                                                                                                                                                                                                   
|
| |  | Battery backup, which continues operation of the
    blood circuit and all protective systems up to 20 minutes
    following a power failure;                                                                                                                                                                                                                                                                           
|
| |  | Online clearance, measurement of dialyzer
    clearance for quality assurance with the On-Line Clearance
    Monitor, providing immediate effective clearance information,
    real time treatment outcome monitoring, and therapy adjustment
    during dialysis without requiring invasive procedures or blood
    samples;                                                                                           

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| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | On-line data collection capabilities and computer
    interfacing with our FINESSE module and FDS08® system. Our
    machines can:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | monitor and assess prescribed therapy;                                                                                                                                                            
|
| |  | connect a large number of hemodialysis machines
    and peripheral devices, such as patient scales, blood chemistry
    analyzers and blood pressure monitors, to a personal computer
    network;
|
| |  | enter nursing records automatically at bedside to
    register and document patient treatment records, facilitate
    billing, and improve record-keeping and staff efficiency;                   
|
| |  | adapt to new data processing devices and trends;                                                                                                                                                  
|
| |  | perform home hemodialysis with remote monitoring
    by a staff caregiver; and                                                                                                                    
|
| |  | record and analyze trends in medical outcome
    factors in hemodialysis patients.                                                                                                                

Dialyzers.We
manufacture dialyzers using hollow fiber polysulfone membranes,
a synthetic material. We are the leading worldwide producer of
polysulfone dialyzers. We believe that polysulfone offers the
following superior performance characteristics compared to other
materials used in dialyzers:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | higher biological compatibility, resulting in
    reduced incidence of adverse reactions to the fibers;                                                                                                                                                              
|
| |  | greater capacity to clear uremic toxins from
    patient blood during dialysis, permitting more thorough, more
    rapid dialysis, resulting in shorter treatment time; and                                                                                          
|
| |  | a complete range of permeability, or membrane
    pore size, which permits dialysis at prescribed rates 
    high flux, medium flux and low flux, as well as ultra flux for
    acute dialysis, and allows tailoring of dialysis therapy to
    individual patients.

Single Use Dialyzers.In North America, we have completed a
$65 million capital investment program to significantly
expand the capacity of our dialyzer manufacturing plant in
Ogden, Utah through the addition of three new dialyzer assembly
lines.

Other
Hemodialysis Products.

We manufacture and distribute arterial, venous,
single needle and pediatric bloodlines. We produce both liquid
and dry dialysate concentrates. Liquid dialysate concentrate is
mixed with purified water by the hemodialysis machine to produce
dialysis solution, which removes the toxins and excess water
from the patients blood during dialysis. Dry concentrate,
developed more recently, is less labor-intensive to use,
requires less storage space and may be less prone to bacterial
growth than liquid solutions. We also produce dialysis solutions
in bags, including solutions for priming and rinsing
hemodialysis bloodlines, as well as connection systems for
central concentrate supplies and devices for mixing dialysis
solutions and supplying them to hemodialysis machines. Other
products include solutions for disinfecting and decalcifying
hemodialysis machines, fistula needles, hemodialysis catheters,
and products for acute renal treatment.

Peritoneal Dialysis Products

We offer a full line of peritoneal dialysis
products. We manufacture peritoneal dialysis solutions in bags,
peritoneal dialysis cycling machines for CCPD and disposable
products for both CAPD and CCPD, such as tubing, sterile
solutions and sterile kits to prepare patients for dialysis. We
also distribute other manufacturers peritoneal dialysis
products, primarily to our own dialysis clinics.

CAPD Systems.We
manufacture standard and specialized peritoneal dialysis
solutions. We believe that our peritoneal dialysis products
offer significant advantages for CAPD, including:



| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ease of use and greater protection against
    contamination by touch than other peritoneal dialysis systems
    presently available. Our products incorporate our Safe-Lock
    connection system for introducing and draining dialysis solution
    into and from the abdominal cavity. Our A.N.D.Y. and A.N.D.Y.
    Plus systems,

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | which include a special drainage bag and a
    snap-off Y-shaped piece connected to the Safe-Lock connector at
    the catheter, provide protection from contamination in a
    dual-bag system;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | suitability for all peritoneal dialysis patients
    through the Inpersol and Safe-Lock product lines. Inpersol
    products are interchangeable with those of other manufacturers;
    Safe-Lock products may be used only by peritoneal dialysis
    patients whose catheters include the Safe-Lock connector, which
    attaches to a solution bag fitted with the other part;                                                                                                                                                                                                                                                                                                       
|
| |  | manufacture with Biofine, a new environmentally
    friendly, more biocompatible, plastic material for foils,
    tubings and other parts of peritoneal dialysis systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | the benefits of Biofine with protection against
    contamination through our new Stay-Safe system, launched in
    1997. The system comprises tubing, connectors and a peritoneal
    dialysis solution double bag, made entirely from Biofine. It
    uses a single switching mechanism that replaces three tubing
    clamps to control solution drainage, flushing of tubes that
    connect solution bags to catheters, and introduction of new
    solution. The single switch also provides tight closure of the
    line and, to further reduce the possibility of contamination,
    the switch seals catheter access and surrounds the catheter
    adapter with disinfectant;
|
| |  | higher solution bag volumes with our Premier
    twin-bag system which provides solution container and
    pre-attached tubing set in one package. The higher solution
    volumes permit larger dosages without increasing the number of
    required daily solution exchanges performed by the patient; and                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | improved biocompatibility with CAPD stay.safe
    Balance, a lactate-buffered peritoneal dialysis solution that
    has a pH balance in the human physiological range.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

CCPD Products.We
introduced the first peritoneal dialysis cycler machine in 1980.
In a standard CAPD program, a patient manually introduces two
liters of fresh peritoneal dialysis solution and drains the used
solution four times over a 24-hour period. Treatment occurs
seven days per week and the patient must perform the treatment
while awake. With CCPD therapy, the cycler automatically
delivers a prescribed volume of dialysis solution into the
peritoneal cavity through an implanted catheter, allows the
solution to dwell for a specified time, and completes the
process by draining the solution. CCPD therapy offers the
following benefits over CAPD:



| |   |                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Solution exchanges take place automatically,
    which may reduce the risk of peritonitis due to less frequent
    handling of the catheter and connections;                                                                                                                                                        
|
| |  | The patient can cycle at home, throughout the
    night while asleep. The patient has complete daytime freedom,
    wearing only the surgically implanted catheter and capping
    device; and                                                                                                                      
|
| |  | CCPD delivers more effective therapy than CAPD
    due to the supine position of the patient during the night,
    higher volume exchanges and preferable cycle management which
    can be particularly significant for patients who need more
    therapy due to body size, ultrafiltration loss or other reasons.

Our cycling equipment incorporates microprocessor
technology, and the patient, hospital or clinic staff can easily
program it to perform specific prescribed therapy for a given
patient. Since all components are monitored and programmable,
these machines allow the physician to prescribe any of a number
of current therapy procedures. Our CCPD products and therapies
include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Sleep-Safe Cycler, a new cycler with an
    extremely compact and light design, that we began marketing in
    late 1999. Its pumping mechanism and disposable cartridge allow
    exact delivery of the peritoneal dialysis solution;                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | PD-PLUS, a variant on CCPD therapy we introduced
    in 1994. PD-PLUS therapy provides a more tailored therapy than
    regular CCPD using a simpler nighttime cycler and, where
    necessary, includes one manual dialysis solution exchange during
    the day. We believe that PD-PLUS therapy is less costly and
    easier to administer than typical CCPD. We also believe that
    PD-PLUS therapy improves toxin removal by more than 40% compared
    to CAPD. By increasing the effectiveness of peritoneal dialysis
    treatments, PD-PLUS may also effectively prolong the time period
    during which a patient will be able to remain on

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| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | peritoneal dialysis before requiring
    hemodialysis. PD-PLUS therapy can only be performed using the
    Fresenius Freedom Cycler and special tubing using Safe-Lock
    connectors; and
|
| |  | IQcard, for use with the Freedom Cycler PD-PLUS
    to monitor CCPD therapy for a full treatment history and
    improved therapy compliance.                                             

Other Peritoneal Dialysis Products.We also manufacture and distribute
pediatric treatment systems for administration of low volumes of
dialysis solutions, assist devices to facilitate automated bag
exchange for handicapped patients, catheters, catheter
implantation instruments, silicon glue, Pack-PD, a computer
program which analyzes patient and peritoneal characteristics to
present a range of treatment options for individual therapies,
disinfectants, bag heating plates adapters, and products to
assist and enhance connector sterility. We also provide
scientific and patient information products, including support
materials, such as brochures, slides, videos, instructional
posters and training manuals.

Marketing, Distribution and
Service

We sell most of our products to clinics,
hospitals and specialized treatment clinics. With our
comprehensive product line and years of experience in dialysis,
we believe that we have been able to establish and maintain very
close relationships with our clinic customer base on a global
basis. Close interaction between our sales force and research
and development personnel enables us to integrate concepts and
ideas that originate in the field into product development. We
maintain a direct sales force of trained salespersons engaged in
the sale of both hemodialysis and peritoneal dialysis products.
This sales force engages in direct promotional efforts,
including visits to physicians, clinical specialists, hospitals,
clinics and dialysis clinics, and represents us at industry
trade shows. We also sponsor medical conferences and scientific
symposia as a means for disseminating product information. Our
clinical nurses provide clinical support, training and
assistance to customers and assist our sales force. We also use
outside distributors to provide sales coverage in countries that
our internal sales force does not service.

In our basic distribution system, we ship
products from factories to central warehouses which are
frequently located near the factories. From this central
warehouse, we distribute our dialysis products to regional
warehouses. We then distribute peritoneal dialysis products to
the patient at home, and ship hemodialysis products directly to
dialysis clinics and other customers. Local sales forces,
independent distributors, dealers and sales agents sell all our
products.

We offer customer service, training and education
in the applicable local language, and technical support such as
field service, repair shops, maintenance, and warranty
regulation for each country in which we sell dialysis products.
We provide training sessions on our equipment at our facilities
in Schweinfurt, Germany, Chicago, Illinois and Walnut Creek,
California and we also maintain regional service centers that
are responsible for day-to-day international service support.

Manufacturing Operations

We operate state-of-the-art production facilities
world wide to meet the demand for machines, cyclers, dialyzers,
solutions, concentrates, mixes, bloodlines, and disposable
tubing assemblies and equipment for water treatment in dialysis
clinics. We have invested significantly in developing
proprietary processes, technologies and manufacturing equipment
which we believe provide a competitive advantage in
manufacturing our products. We are using our facilities in St.
Wendel, Germany and Ogden, Utah as centers of competence for
development and manufacturing and to implement similar
technologies at our other facilities.

We produce and assemble hemodialysis machines and
CCPD cyclers in our Schweinfurt, Germany and our Walnut Creek,
California facilities. We also maintain facilities at our
service and local distribution centers in Argentina, Egypt,
France, Italy, The Netherlands, China, Brazil and Russia for
testing and calibrating dialysis machines manufactured or
assembled elsewhere, to meet local end user market needs. We
manufacture and assemble dialyzers and polysulfone membranes in
our St. Wendel, Germany, LArbresle, France and Inukai,
Japan facilities and at production facilities of our joint
ventures in Belarus, Saudi Arabia and Japan. At our Ogden, Utah
facilities we manufacture and assemble dialyzers and polysulfone
membranes as well as

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manufacture PD solutions. We have opened
PD production in Mexico. Our facilities are inspected on a
regular basis by national and/or international authorities.


In North America we expanded our manufacturing
capacity substantially. During 2003, we completed a
$65 million capital commitment to significantly expand the
capacity of our dialyzer manufacturing plant in Ogden, Utah
through the addition of three new dialyzer assembly lines. See
History and Development of the Company  Capital
Expenditures.

Sources of Supply

Our purchasing policy combines worldwide sourcing
of high-quality materials with the establishment of long-term
relationships with our suppliers. Additionally, we carefully
assess the reliability of all materials purchased to ensure that
they comply with the rigorous quality and safety standards
required for our dialysis products. Our International Purchasing
Consulting Center (PCC) ensures that we consistently
maintain high standards by entering into global agreements. An
interactive information system links all our global projects to
ensure that they are standardized and constantly monitored.

PCC focuses on further optimizing procurement
logistics and reducing purchasing costs. Supplemental raw
material contracts for all manufacturers of semi-finished goods
will enable us to improve purchasing terms for our complete
network. We will also intensify our use of internet-based
procurement tools by purchasing raw materials through special
on-line auctions. Our sophisticated routing software enables us
to distribute our supplies to best accommodate customer requests
while maintaining operational efficiency.

New Product Introductions

Research and development focuses strongly on the
development of new products, technologies and treatment concepts
to optimize treatment quality for dialysis patients, and on
process technology for manufacturing our products. Research and
development expenditures were $50 million in 2003,
$47 million in 2002, and $36 million in 2001.

New or enhanced products introduced in 2003
included the following:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | Patient Online (POL). A software tool to manage
    PD therapy.                            
|
| |  | MultiBic. A dialysis substitution fluid
    registered and introduced this year in Germany.

Patents, Trademarks and
Licenses

As the owner of or licensee under patents and
trademarks throughout the world, we hold rights under about
1,100 patents and patent applications relating to dialysis
technology in major markets. Patented technologies that relate
to dialyzers include our polysulfone hollow fiber, an in-line
sterilization method, and sterile closures for in-line
sterilized medical devices. The more recent generation of
DIASAFEplus filters and FX dialyzers are also the subject of
patents and pending patent applications.

The Company holds the exclusive license on
European patents/patent applications on the Autoprime technology
for the automated priming of the extracorporeal hemodialysis
blood circuit with dialyzing liquid through the membrane of the
dialyzer.

The connector system for our biBag bicarbonate
concentrate powder container has been patented in the USA,
Norway and Europe while national applications in Japan and
Finland are still pending.

Among the Companys more significant
protective rights, one patent family protects the Companys
polysulfone hollow fiber until 2007 in the United States, and
until 2005 in other main markets. The in-line sterilization
method is patented until 2010 and the biBag connector is
protected until 2013, both in Germany, in the United States, and
in other important markets. The dates given represent the
maximum life time of the corresponding patents. The Company
believes that even after expiration of these patents, our
proprietary know-how for the manufacture of these products will
continue to constitute a competitive advantage.

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For peritoneal dialysis, the Company holds
protective rights on our polyolefine film Biofine, suitable for
packaging intravenous and peritoneal dialysis fluids. These
patents have been granted in Australia, Germany, and the USA,
with patent applications pending in various other countries. A
further pending patent family describes a special film for a
peelable, non-PVC, multi chamber bag for peritoneal dialysis
solutions. A U.S. patent has already been granted.

We believe that our success will depend, in large
part, on our technology. As a standard practice, we obtain legal
protections we believe are appropriate for our intellectual
property. Intellectual property is, however, subject to
infringement or invalidation claims. In addition, technological
developments in ESRD therapy could reduce the value of our
existing intellectual property. Any such reduction could be
rapid and unanticipated. Other than as disclosed in this report,
we are not dependent to any material extent upon patents,
licenses or contracts.

Competition

The markets in which we sell our dialysis
products are highly competitive. Our competitors in the sale of
hemodialysis and peritoneal dialysis products include Gambro AB,
Baxter International, Inc., Asahi Medical Co., Ltd.,
Bellco S.p.A., a subsidiary of Sorin Biomedica S.p.A., Bieffe
Medital S.p.A., which is an affiliate of Baxter
International, Inc., B. Braun Melsungen AG, Nissho
Corporation, including Nissho Nipro Corporation Ltd.,
Nikkiso Co., Ltd., Terumo Medical Corporation and Toray
Medical Co., Ltd. Some of our competitors possess greater
financial, marketing and research and development resources than
we do.

Regulatory and Legal Matters

Regulatory Overview

Our operations are subject to extensive
governmental regulation by virtually every country in which we
operate including, most notably, in the U.S., at the federal,
state and local levels. Although these regulations differ from
country to country, in general, non-U.S. regulations are
designed to accomplish the same objectives as U.S. regulations
regarding the operation of dialysis clinics, laboratories and
manufacturing facilities, the provision of quality health care
for patients, the maintenance of occupational, health, safety
and environmental standards and the provision of accurate
reporting and billing for governmental payments and/or
reimbursement. In the U.S., some states restrict ownership of
health care providers by certain multi-level for-profit
corporate groups or establish other regulatory barriers to the
establishment of new dialysis clinics. Outside the U.S., each
country has its own payment and reimbursement rules and
procedures, and some countries prohibit ownership of health care
providers or establish other regulatory barriers to direct
ownership by foreign companies. In all jurisdictions, we work
within the framework of applicable laws to establish alternative
contractual arrangements to provide services to those facilities.

Any of the following matters could have a
material adverse effect on our business, financial condition and
results of operations:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | failure to receive required licenses,
    certifications or other approvals for new facilities or
    significant delays in such receipt;                                  
|
| |  | loss of various federal certifications or
    termination of licenses under the laws of any state or other
    governmental authority; and                                 
|
| |  | changes resulting from health care reform or
    other government actions that reduce reimbursement or reduce or
    eliminate coverage for particular services we provide.

We must comply with all U.S., German and other
legal and regulatory requirements under which we operate,
including the U.S. federal Medicare and Medicaid Fraud and Abuse
Amendments of 1977, as amended, generally referred to as the
anti-kickback statute, the federal False Claims Act,
the federal restrictions on certain physician referrals,
commonly known as the Stark Law, U.S. federal rules
under the Health Insurance Portability and Accountability Act of
1996 that protect the privacy of patient medical records and
prohibit inducements to patients to select a particular health
care provider (commonly known as HIPAA) and other
fraud and abuse laws and similar state statutes, as well as
similar laws in other countries. Moreover, there can be

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no assurance that applicable laws, or the
regulations thereunder, will not be amended, or that enforcement
agencies or the courts will not make interpretations
inconsistent with our own, any one of which could have a
material adverse effect on our business, reputation, financial
condition and results. Sanctions for violations of these
statutes may include criminal or civil penalties, such as
imprisonment, fines or forfeitures, denial of payments, and
suspension or exclusion from the Medicare and Medicaid programs.
In the U.S., these laws have been broadly interpreted by a
number of courts, and significant government funds and personnel
have been devoted to their enforcement because such enforcement
has become a high priority for the federal government and some
states. Our company, and the health care industry in general,
will continue to be subject to extensive federal, state and
foreign regulation, the full scope of which cannot be predicted.


Fresenius Medical Care Holdings has entered into
a corporate integrity agreement with the U.S. government, which
requires that Fresenius Medical Care Holdings staff and maintain
a comprehensive compliance program, including a written code of
conduct, training programs and compliance policies and
procedures. The corporate integrity agreement requires annual
audits by an independent review organization and periodic
reporting to the government. The corporate integrity agreement
permits the U.S. government to exclude Fresenius Medical Care
Holdings and its subsidiaries from participation in U.S. federal
health care programs and impose fines if there is a material
breach of the agreement that is not cured by Fresenius Medical
Care Holdings within thirty days after Fresenius Medical Care
Holdings receives written notice of the breach.

Product Regulation

U.S.

In the U.S., the Food and Drug Administration
(FDA) and comparable state regulatory agencies
impose requirements on certain of our subsidiaries as a
manufacturer and a seller of medical products and supplies under
their jurisdiction. These require that products be manufactured
in accordance with Good Manufacturing Practices and that we
comply with FDA requirements regarding the design, safety,
advertising, labeling, recordkeeping distribution, and reporting
of adverse events related to the use of our products. In
addition, in order to clinically test, produce and market
certain medical products and other disposables (including
hemodialysis and peritoneal dialysis equipment and solutions,
dialyzers, bloodlines and other disposables) for human use, we
must satisfy mandatory procedures and safety and efficacy
requirements established by the FDA or comparable state and
foreign governmental agencies. Such rules generally require that
products be approved by the FDA as safe and effective for their
intended use prior to being marketed. Our peritoneal dialysis
solutions have been designated as drugs by the FDA and, as such,
are subject to additional FDA regulation under the Food, Drug
and Cosmetic Act of 1938.

Germany and Other Non-U.S.

Most countries maintain different regulatory
regimes for pharmaceutical products and for medical devices. In
each regime, there are regulations governing manufacturers and
distributors, as well as regulations governing the final
products manufactured and distributed. Treaties or other
international law and standards and guidelines under treaties or
laws may supplement or supersede individual country regulations.

Some of our products, such as peritoneal dialysis
solutions, are considered pharmaceuticals. The European Union
has issued a directive on pharmaceuticals, No. 65/65/ EWG
(January 26, 1965), as amended. Each member of the European
Union is responsible for conforming its law to comply with this
directive. In Germany the German Drug Law
(Arzneimittelgesetz)which implements European Union
requirements, is the primary regulation applicable to
pharmaceutical products.

The provisions of the German Drug Law are typical
of the legal standards in other European countries. The German
Drug Law states the requirements for the authorization of a
company to manufacture pharmaceuticals. A manufacturer must,
among other requirements, appoint pharmacists or physicians to
be responsible for the quality, safety and efficacy of the
pharmaceuticals. At least five responsible persons must be
appointed: a marketing manager, a quality control manager, a
manufacturing manager, a safety officer, and a drug information

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officer. Each of these persons may be held
personally liable under German criminal laws for violations of
the German Drug Law.


International guidelines also govern the
manufacture of pharmaceuticals and, in many cases, overlap with
national requirements. In particular, the Pharmaceutical
Inspection Convention, an international treaty, contains rules
which are binding on most countries in which pharmaceuticals are
manufactured. Among other things, the Pharmaceutical Inspection
Convention establishes requirements for Good Manufacturing
Practices which are then adopted at the national level. Another
international guideline, which is non-binding, is the ISO
9000-9004 system for assuring quality control. This system is
more detailed than Good Manufacturing Practices. Compliance
entitles the manufacturer to utilize the CE certification of
quality control. In addition to regulating the manufacture of
pharmaceuticals, countries directly regulate marketing of the
pharmaceuticals produced. A drug needs to be registered and
authorized in every country in which it is distributed. European
Union rules govern the conditions for a registration, such as
pre-clinical and clinical testing.

Historically, medical devices have not been
regulated as strictly as pharmaceuticals, but more stringent
regulatory schemes have been adopted during the last decade. In
1995, Germany implemented the European Unions Medical
Devices Directive when it adopted the Medical Devices Act
(Medizinproduktegesetz), which is similar in many ways to
the German Drug Law. This Directive applies to both the
manufacturers quality control system and the
products technical design. Depending on the class of
medical devices, a manufacturer may choose alternative
regulatory modules to demonstrate compliance with European Union
provisions. To assure and demonstrate the high quality standards
and performance of our operations, we have subjected our entire
European business to the most comprehensive procedural module,
which is also the fastest way to launch a new product in the
European Union. This module requires the certification of a full
quality management system by a notified body charged with
supervising the quality management system. A notified body is a
group accredited and monitored by governmental agencies that
inspects manufacturing facilities and quality control systems at
regular intervals and is authorized to carry out unannounced
inspections.

When a company receives a European Union
certificate for the quality management system of a particular
facility, it may assess whether products developed and
manufactured in the facility satisfy European Union
requirements. European Union requirements for products are laid
down in harmonized European Union standards and include
conformity to safety requirements, physical and biological
properties, construction and environmental properties, and
information supplied by the manufacturer. A manufacturer must
demonstrate conformity to these requirements by pre-clinical
tests, biocompatibility tests, qualification of products and
packaging, risk analysis and well-conducted clinical
investigations approved by ethics committees.

A manufacturer having a European Union-certified
full quality management system has to declare and document
conformity of its products to the harmonized European standards.
If able to do so, the manufacturer must put a CE
mark on the products. The CE mark, which stands for
Conformité Européenne,demonstrates compliance
with the relevant European Union requirements. Products subject
to these provisions that do not bear the CE mark
cannot be imported, sold or distributed within the European
Union.

Our Series 4008, 4008B, 4008E dialysis
machines and their therapy modifications, our PD-NIGHT cycler,
and our other medical devices distributed in the European
market, as well as our dialysis filters and dialysis tubing
systems and accessories, all bear the CE mark. We
expect to continue to obtain additional certificates as they are
required.

Facilities and Operational
Regulation

U.S.

The Clinical Laboratory Improvement Amendments of
1988 (CLIA) subjects virtually all clinical
laboratory testing facilities, including ours, to the
jurisdiction of the Department of Health and Human Services.
CLIA establishes national standards for assuring the quality of
laboratories based upon the complexity of testing performed by a
laboratory. Certain of our operations are also subject to
federal laws governing the repackaging and dispensing of drugs
and the maintenance and tracking of certain life sustaining and
life-supporting equipment.

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Our operations are subject to various U.S.
Department of Transportation, Nuclear Regulatory Commission and
Environmental Protection Agency requirements and other federal,
state and local hazardous and medical waste disposal laws. As
currently in effect, laws governing the disposal of hazardous
waste do not classify most of the waste produced in connection
with the provision of dialysis, or laboratory services as
hazardous, although disposal of nonhazardous medical waste is
subject to specific state regulation. Our operations are also
subject to various air emission and wastewater discharge
regulations.

Federal, state and local regulations require us
to meet various standards relating to, among other things, the
management of facilities, personnel qualifications and
licensing, maintenance of proper records, equipment, quality
assurance programs, the operation of pharmacies, and dispensing
of controlled substances. All of our operations in the U.S. are
subject to periodic inspection by federal and state agencies and
other governmental authorities to determine if the operations,
premises, equipment, personnel and patient care meet applicable
standards. To receive Medicare reimbursement, our dialysis
centers, renal diagnostic support business and laboratories must
be certified by CMS. All of our dialysis centers, and
laboratories that furnish Medicare services have the required
certification.

Certain of our facilities and certain of their
employees are also subject to state licensing statutes and
regulations. These statutes and regulations are in addition to
federal and state rules and standards that must be met to
qualify for payments under Medicare, Medicaid and other
government reimbursement programs. Licenses and approvals to
operate these centers and conduct certain professional
activities are customarily subject to periodic renewal and to
revocation upon failure to comply with the conditions under
which they were granted.

Occupational Safety and Health Administration
(OSHA) regulations require employers to provide
employees who work with blood or other potentially infectious
materials with prescribed protections against blood-borne and
air-borne pathogens. The regulatory requirements apply to all
health care facilities, including dialysis centers and
laboratories, and require employers to make a determination as
to which employees may be exposed to blood or other potentially
infectious materials and to have in effect a written exposure
control plan. In addition, employers are required to provide
hepatitis B vaccinations, personal protective equipment,
blood-borne pathogens training, post-exposure evaluation and
follow-up, waste disposal techniques and procedures, engineering
and work practice controls and other OSHA-mandated programs for
blood-borne and air-borne pathogens.

Some states in which we operate have certificate
of need (CON) laws that require any person or entity
seeking to establish a new health care service or to expand an
existing service to apply for and receive an administrative
determination that the service is needed. We currently operate
in 13 states, as well as the District of Columbia and
Puerto Rico that have CON laws applicable to dialysis centers.
These requirements could, as a result of a states internal
determination of its dialysis services needs, prevent entry to
new companies seeking to provide services in these states, and
could constrain our ability to expand our operations in these
states.

Germany and Other Non-U.S.

Countries outside of the U.S. possess a wide
variety of operational regulation at disparate levels.
Accordingly, our operations are subject to very different
regulations in different countries. Most countries regulate
dialysis clinic operating conditions and product manufacturing.

We are subject to a broad spectrum of regulation.
Our operations must comply with various environmental and
transportation regulations in the various countries in which we
operate. Our manufacturing facilities and dialysis clinics are
also subject to various standards relating to, among other
things, facilities, management, personnel qualifications and
licensing, maintenance of proper records, equipment, quality
assurance programs, the operation of pharmacies, the protection
of workers from blood-borne diseases and the dispensing of
controlled substances. All of our operations are subject to
periodic inspection by various governmental authorities to
determine if the operations, premises, equipment, personnel and
patient care meet applicable standards. Our dialysis clinic
operations and our related activities generally require
licenses, which are subject to periodic renewal and may be
revoked for violation of applicable regulatory requirements.

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In addition, many countries impose various
investment restrictions on foreign companies. For instance,
government approval may be required to enter into a joint
venture with a local partner. Some countries do not permit
foreign investors to own a majority interest in local companies
or require that companies organized under their laws have at
least one local shareholder. Investment restrictions therefore
affect the corporate structure, operating procedures and other
characteristics of our subsidiaries and joint ventures in these
and other countries.

We believe our facilities are currently in
compliance in all material respects with the applicable national
and local requirements in the jurisdictions in which they
operate.

Reimbursement

U.S.

Dialysis Services.Our dialysis centers provide
outpatient hemodialysis treatment and related services for ESRD
patients. In addition, some of the Companys centers offer
services for the provision of peritoneal dialysis and
hemodialysis treatment at home, and dialysis for hospitalized
patients.

The Medicare program is the primary source of
Dialysis Services revenues from dialysis treatment. For example,
in 2003, approximately 55% of Dialysis Services revenues
resulted from Medicares ESRD program. As described below,
Dialysis Services is reimbursed by the Medicare program in
accordance with the Composite Rate for certain products and
services rendered at our dialysis centers. As described
hereinafter, other payment methodologies apply to Medicare
reimbursement for other products and services provided at our
dialysis centers and for products (such as those sold by us) and
support services furnished to ESRD patients receiving dialysis
treatment at home (such as those of Dialysis Products). Medicare
reimbursement rates are fixed in advance and are subject to
adjustment from time to time by the U.S. Congress. Although
this form of reimbursement limits the allowable charge per
treatment, it provides us with predictable per treatment
revenues.

Certain items and services that we furnish at our
dialysis centers are not included in the Composite Rate and are
eligible for separate Medicare reimbursement, typically on the
basis of established fee schedule amounts. Such items and
services include certain drugs (such as EPO), blood transfusions
and certain diagnostic tests.

Medicare payments are subject to change by
legislation, regulations and pursuant to deficit reduction
measures. The Composite Rate was unchanged from commencement of
the ESRD program in 1972 until 1983. From 1983 through December
1990, numerous congressional actions resulted in a net reduction
of the average reimbursement rate from $138 per treatment in
1983 to approximately $125 per treatment in 1990. Congress
increased the ESRD reimbursement rate, effective January 1,
1991, to an average rate of $126 per treatment. Effective
January 1, 2000, the reimbursement rate was increased by
1.2%. In December 2000 an additional increase of 2.4% was
approved for the year 2001. Accordingly, there was a 1.2%
reimbursement increase on January 1, 2001. A second
increase was delayed until April 1, 2001, when rates were
increased 1.6% to make up for the delay.

On December 8, 2003, the Medicare
Prescription Drug, Modernization and Improvement Act of 2003 was
enacted (the Medicare Modernization Act). This law
makes several modifications affecting payment for dialysis
services. First, it will increase the composite rate for renal
dialysis facilities by 1.6% on January 1, 2005. Second, it
requires the Secretary of the Department of Health and Human
Services (the Secretary) to establish a new case-mix
adjusted prospective payment system for dialysis services
furnished on or after January 1, 2005. This system will
adjust for a limited number of patient characteristics (the
case-mix) and will include two components: (1) those
services that currently comprise the Composite Rate; and
(2) the difference between the Medicare payment rate for
separately billable drugs and biologicals and the acquisition
costs of those drugs and biologicals, as determined by OIG
reports. The Secretary is required to adjust the basic case-mix
adjusted system payment rates by a geographic index. Separate
payment would continue to be made for drugs and biologicals that
currently are billed separately. All separately billable drugs
and biologicals will be reimbursed based upon acquisition cost
in 2005. Beginning in 2006, the Secretary is authorized to set
payment for all separately billed drugs and biologicals at
either acquisition cost or average sales price. Third, the
Secretary is required to establish a three-year demonstration
project to test the use of a fully case-mix adjusted payment
system for ESRD services, beginning January 1, 2006. Under
this project, separately billable drugs and biologicals and
related clinical

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laboratory tests would be bundled into the
facility composite rate. Participating facilities would receive
an additional 1.6% composite rate increase.


We are unable to predict what, if any, future
changes may occur in the rate of Medicare reimbursement. Any
significant decreases in the Medicare reimbursement rates could
have a material adverse effect on our provider business and,
because the demand for products is affected by Medicare
reimbursement, on our products business. Increases in operating
costs that are affected by inflation, such as labor and supply
costs, without a compensating increase in reimbursement rates,
also may adversely affect our business and results of operations.

For Medicare-primary patients, Medicare is
responsible for payment of 80% of the Composite Rate set by CMS
for dialysis treatments and the patient or third-party insurance
payors, including employer-sponsored health insurance plans,
commercial insurance carriers and the Medicaid program, are
responsible for paying any co-payment amounts for approved
services not paid by Medicare (typically the annual deductible
and 20% co-insurance), subject to the specific coverage policies
of such payors. Each third-party payor, including Medicaid,
makes payment under contractual or regulatory reimbursement
provisions which may or may not cover the full 20% co-payment or
annual deductible. Where the patient has no third-party
insurance or the third party insurance does not cover the
co-payment or deductible, the patient is responsible for paying
the co-payments or the deductible, which we frequently do not
fully collect despite reasonable collection efforts. Under an
advisory opinion from the Office of the Inspector General,
subject to specified conditions, we and other similarly situated
providers may make contributions to a non-profit organization
that has agreed to make premium payments for supplemental
medical insurance and/ or medigap insurance on behalf of
indigent ESRD patients, including some of our patients.

Laboratory Tests.Spectra Renal Management obtains a
substantial portion of its net revenue from Medicare, which pays
for clinical laboratory services provided to dialysis patients
in two ways.

First, payment for certain routine tests is
included in the Composite Rate paid to our dialysis centers. As
to such services, the dialysis centers obtain the services from
a laboratory and pay the laboratory for such services. In
accordance with industry practice, Spectra Renal Management
usually provides such testing services under capitation
agreements with its customers pursuant to which it bills a fixed
amount per patient per month to cover the laboratory tests
included in the Composite Rate at the designated frequencies. In
October 1994, the Office of Inspector General issued a special
fraud alert in which it stated its view that the industry
practice of providing tests covered by the Composite Rate at
below fair market value raised issues under the anti-kickback
statutes, as such an arrangement with an ESRD facility appeared
to be an offer of something of value (Composite Rate tests at
below market value) in return for the ordering of additional
tests billed directly to Medicare. See
 Anti-kickback Statutes, False Claims Act,
Stark Law and Fraud and Abuse Laws for a description of
this statute.

Second, laboratory tests performed by Spectra
Renal Management for Medicare beneficiaries that are not
included in the Composite Rate are separately billable directly
to Medicare. Such tests are paid at 100% of the Medicare fee
schedule amounts, which are limited by national ceilings on
payment rates, called National Limitation Amounts
(NLAs). Congress has periodically reduced the fee
schedule rates and the NLAs, with the most recent reductions in
the NLAs occurring in January 1998. (As part of the Balanced
Budget Act of 1997, Congress lowered the NLAs from 76% to 74%
effective January 1, 1998.) Congress has also approved a
five year freeze on the inflation updates based on the Consumer
Price Index (CPI) for 1998-2002.

Erythropoetin (EPO).Any of the following could adversely
affect our business, and results of operations, possibly
materially:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | future changes in the EPO reimbursement rate
    without offsetting changes to the Medicare composite rate;
|
| |  | inclusion of EPO in the Medicare composite rate
    without offsetting increases to such rate;             
|
| |  | changes in the typical dosage per administration;                                                          
|
| |  | increases in the cost of EPO after our current
    supply contract expires; or                             
|
| |  | reduction by the manufacturer of EPO of the
    amount of overfill in the EPO vials.                       

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Coordination of
Benefits.Medicare entitlement begins
for most patients in the fourth month after the initiation of
chronic dialysis treatment at a dialysis center. During the
first three months, considered to be a waiting period, the
patient or patients insurance, Medicaid or a state renal
program are responsible for payment.

Patients who are covered by Medicare and are also
covered by an employer group health plan (EGHP) are
subject to a 30-month coordination period during which the EGHP
is the primary payor and Medicare the secondary payor. During
this coordination period the EGHP pays a negotiated rate or in
the absence of such a rate, our standard rate or a rate defined
by its plan documents. The EGHP payments are generally higher
than the Medicare Composite Rate. EGHP insurance, when
available, will therefore generally cover as the primary payor a
total of 33 months, the 3-month waiting period plus the
30-month coordination period.

Possible Changes in Medicare.Legislation or regulations may be
enacted in the future that could substantially modify or reduce
the amounts paid for services and products offered by us and our
subsidiaries. It is also possible that statutes may be adopted
or regulations may be promulgated in the future that impose
additional eligibility requirements for participation in the
federal and state health care programs. Such new legislation or
regulations may adversely affect our businesses and results of
operations, possibly materially.

Germany and Other Non-U.S.

As a global company delivering dialysis care and
dialysis products in more than 100 countries world wide, we
face the challenge of addressing the needs of dialysis patients
in widely varying economic and health care environments.

Health care systems and reimbursement structures
for ESRD treatment vary by country. In general, the
government pays for health care and finances its payments
through taxes and other sources of government income, from
social contributions, or a combination of those sources.
However, not all health care systems provide for dialysis
treatment. In many developing countries, only limited subsidies
from government or charitable institutions are available, and
dialysis patients must finance all or substantially all of the
cost of their treatment. In some countries patients in need of
dialysis do not receive treatment on a regular basis but rather
when the financial resources allow it.

In the major European and British Commonwealth
countries, health care systems are generally based on one of two
models. The German model is based on mandatory employer and
employee contributions dedicated to health care financing. The
British model provides a national health care system funded by
taxes, with the result that funds allocated to health care may
vary from year to year. Within these systems provision for the
treatment of dialysis has been made either through allocation of
a national budget or a billing system reimbursing on a
fee-for-service basis. The health care systems of Japan, France,
Switzerland and the Netherlands are based on the German model.
Canada, Scandinavia, Italy and Spain established their national
health services using the British model.

Ownership of health care providers and, more
specifically dialysis care providers, varies within the
different systems and from country-to-country. In Europe almost
60% of the clinics providing dialysis care and services are
publicly owned, more than 30% are privately owned and
approximately 10% belong to a health care organization. It
should be noted that health care organizations treating a
significant patient population operate only in Germany, France
and Spain. Publicly operated clinics care for almost 100% of the
dialysis populations in Canada and Australia. Within Europe,
nearly 100% of the dialysis population is treated in public
clinics in the United Kingdom, the Netherlands and the
Scandinavian countries, while more than 50% of dialysis clinics
are privately owned in Spain and Portugal.

In Latin America privately owned clinics
predominate, constituting more than 60% of all clinics providing
dialysis care while in Asia, with the exception of Japan,
publicly owned clinics are predominant. As in the U.S., only
approximately 15% of dialysis clinics in Japan are publicly
operated. Unlike the U.S., however, Japan has a premium-based,
mandatory social insurance system, and the structure of its
health care system is more closely comparable to the German
system.

Financing policies for ESRD treatment also
differ from country-to-country. In countries with a health care
system that includes provisions for ESRD patient care, treatment
is generally financed through a government

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budget allocation or on a fee-for-service basis.
A few European countries have introduced payment systems based
on fixed fees charged according to the disease related group, an
arrangement similar to capitation. This basis for payment was
adopted from the United States where it was implemented as a
method to curtail costs.


Treatment components included in the cost of
dialysis may vary from country-to-country, depending on the
structure and cost allocation principles. Where treatment is
reimbursed on a fee-for-service basis, reimbursement rates are
allocated in accordance with the type of treatment performed. We
believe that it is not appropriate to calculate a global
reimbursement amount, because the services and costs for which
reimbursement is provided in any such global amount would be
likely to bear little relation to the actual reimbursement
system in any one country. Generally, in countries with
established dialysis programs, reimbursements range from $100 to
more than $300 per treatment. However, a comparison from country
to country would not be meaningful if made in the absence of a
detailed analysis of the cost components reimbursed, services
rendered and the structure of the dialysis clinic in each
country being compared.

Health care expenditures are consuming an ever
increasing portion of gross domestic product worldwide. In the
developed economies of Europe, Asia and Latin America, health
care spending is in the range of 5%-14% of gross domestic
product. As in the U.S., dialysis costs consume a
disproportionately high amount of health care spending and these
costs may be considered a target for implementation of cost
containment measures. Today, there is increasing awareness of
the correlation between the quality of care delivered in the
dialysis unit and the total health care expenses incurred by the
dialysis patient. Accordingly, developments in reimbursement
policies include higher reimbursement rates for practices which
are believed to improve the overall state of health of the ESRD
patient and reduce the need for additional medical treatment.

Anti-kickback Statutes, False Claims Act,
Health Care Fraud, Stark Law and Fraud and Abuse Laws in North
America

Some of our operations are subject to federal and
state statutes and regulations governing financial relationships
between health care providers and potential referral sources and
reimbursement for services and items provided to Medicare and
Medicaid patients. Such laws include the anti-kickback statute,
health care fraud statutes, the False Claims Act, the Stark Law,
other federal fraud and abuse laws and similar state laws. These
laws apply because our Medical Directors and other physicians
with whom we have financial relationships refer patients to, and
order diagnostic and therapeutic services from, our dialysis
centers and other operations. As is generally true in the
dialysis industry, at each dialysis facility a small number of
physicians account for all or a significant portion of the
patient referral base. An ESRD patient generally seeks treatment
at a center that is convenient to the patient and at which the
patients nephrologist has staff privileges.

Anti-kickback Statutes

The federal anti-kickback statute establishes
criminal prohibitions against and civil penalties for the
knowing and willful solicitation, receipt, offer or payment of
any remuneration, whether direct or indirect, in return for or
to induce the referral of patients or the ordering or purchasing
of items or services payable in whole or in part under Medicare,
Medicaid or other federal health care programs. Sanctions for
violations of the anti-kickback statute include criminal and
civil penalties, such as imprisonment or criminal fines of up to
$25,000 per violation, and civil penalties of up to $50,000 per
violation, and exclusion from the Medicare or Medicaid programs
and other federal programs. In addition, certain provisions of
federal criminal law that may be applicable provide that if a
corporation is found guilty of a criminal offense it may be
fined no more than twice any pecuniary gain to the corporation,
or, in the alternative, no more than $500,000 per offense.

Some states also have enacted statutes similar to
the anti-kickback statute, which may include criminal penalties,
applicable to referrals of patients regardless of payor source,
and may contain exceptions different from state to state and
from those contained in the federal anti-kickback statute.

False Claims Act and Related Criminal
Provisions

The federal False Claims Act (the False
Claims Act) imposes civil penalties for knowingly making
or causing to be made false claims with respect to governmental
programs, such as Medicare and Medicaid, for

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services billed but not rendered, or for
misrepresenting actual services rendered, in order to obtain
higher reimbursement. Moreover, private individuals may bring
qui tam or whistle blower suits against providers
under the False Claims Act, which authorizes the payment of a
portion of any recovery to the individual bringing suit. Such
actions are initially required to be filed under seal pending
their review by the Department of Justice. A few federal
district courts have recently interpreted the False Claims Act
as applying to claims for reimbursement that violate the anti-
kickback statute or federal physician self-referral law under
certain circumstances. The False Claims Act generally provides
for the imposition of civil penalties of $5,500 to $11,000 per
claim and for treble damages, resulting in the possibility of
substantial financial penalties for small billing errors that
are replicated in a large number of claims, as each individual
claim could be deemed to be a separate violation of the False
Claims Act. Criminal provisions that are similar to the False
Claims Act provide that if a corporation is convicted of
presenting a claim or making a statement that it knows to be
false, fictitious or fraudulent to any federal agency it may be
fined not more than twice any pecuniary gain to the corporation,
or, in the alternative, no more than $500,000 per offense. Some
states also have enacted statutes similar to the False Claims
Act which may include criminal penalties, substantial fines, and
treble damages.


The Health Insurance Portability and
Accountability Act of 1996

HIPAA was enacted in August 1996 and expanded
federal fraud and abuse laws by increasing their reach to all
federal health care programs, establishing new bases for
exclusions and mandating minimum exclusion terms, creating an
additional exception to the anti-kickback penalties for
risk-sharing arrangements, requiring the Secretary of Health and
Human Services to issue advisory opinions, increasing civil
money penalties to $10,000 (formerly $2,000) per item or service
and assessments to three times (formerly twice) the amount
claimed, creating a specific health care fraud offense and
related health fraud crimes, and expanding investigative
authority and sanctions applicable to health care fraud. It also
prohibits a provider from offering anything of value which the
provider knows or should know would be likely to induce the
patient to select the provider.

The law expands criminal sanctions for health
care fraud involving any governmental or private health benefit
program, including freezing of assets and forfeiture of property
traceable to commission of a health care offense.

HIPAA included a health care fraud provision
which prohibits knowingly and willfully executing a scheme or
artifice to defraud any health care benefit program,
which includes any public or private plan or contract affecting
commerce under which any medical benefit, item, or service is
provided to any individual, and includes any individual or
entity who is providing a medical benefit, item, or service for
which payment may be made under the plan or contract.

HIPAA regulations establish national standards
for certain electronic health care transactions, the use and
disclosure of certain individually identifiable patient health
information, and the security of the electronic systems
maintaining this information. These are commonly known as the
HIPAA transaction and code set standards, privacy standards, and
security standards. Health insurance payers and healthcare
providers like us must comply with the new HIPAA standards.
Violations of these HIPAA standards may include civil money
penalties and potential criminal sanctions.

Balanced Budget Act of 1997

The Balanced Budget Act of 1997 (the
BBA) contained material adjustments to both the
Medicare and Medicaid programs, as well as further expansion of
the federal fraud and abuse laws. Specifically, the BBA created
a civil monetary penalty for violations of the federal
anti-kickback statute whereby violations will result in damages
equal to three times the amount involved as well as a penalty of
$50,000 per violation. In addition, the new provisions
expanded the exclusion requirements so that any person or entity
convicted of three health care offenses is automatically
excluded from federally funded health care programs for life.
Individuals or entities convicted of two offenses are subject to
mandatory exclusion of 10 years, while any provider or
supplier convicted of any felony may be denied entry into the
Medicare program by the Secretary of HHS if deemed to be
detrimental to the best interests of the Medicare program or its
beneficiaries.

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The BBA also provides that any person or entity
that arranges or contracts with an individual or entity that has
been excluded from a federally funded health care program will
be subject to civil monetary penalties if the individual or
entity knows or should have known of the sanction.

Stark Law

The original Stark Law, known as
Stark I and enacted as part of the Omnibus
Budget Reconciliation Act (OBRA) of 1989, prohibits
a physician from referring Medicare patients for clinical
laboratory services to entities with which the physician (or an
immediate family member) has a financial relationship, unless an
exception applies. Sanctions for violations of the Stark Law may
include denial of payment, refund obligations, civil monetary
penalties and exclusion of the provider from the Medicare and
Medicaid programs. The Stark Law prohibits the entity receiving
the referral from filing a claim or billing for services arising
out of the prohibited referral.

Provisions of OBRA 93, known as
Stark II, amended Stark I to revise and
expand upon various statutory exceptions, to expand the services
regulated by the statute to a list of Designated Health
Services, and expanded the reach of the statute to the
Medicaid program. The provisions of Stark II generally
became effective on January 1, 1995, with the first phase
of Stark II regulations finalized on January 4, 2001.
Most portions of the first phase regulations became effective in
2002. The additional Designated Health Services include:
physical therapy services; occupational therapy services;
radiology services and certain other imaging services; durable
medical equipment and supplies; parenteral and enteral
nutrients, equipment and supplies; prosthetics, orthotics, and
prosthetic devices and supplies; home health services;
outpatient prescription drugs; and inpatient and outpatient
hospital services. The first phase of the final regulations
implementing the Stark Law contains an exception for EPO and
certain other dialysis-related outpatient prescription drugs
furnished in or by an ESRD facility under many
circumstances. Further, the final regulations also adopt a
definition of durable medical equipment which effectively
excludes ESRD equipment and supplies from the category of
Designated Health Services. Phase II of the final
regulations to the Stark Law, which will address many of the
compensation exceptions, has not yet been released.

Several states in which we operate have enacted
self-referral statutes similar to the Stark Law. Such state
self-referral laws may apply to referrals of patients regardless
of payor source and may contain exceptions different from each
other and from those contained in the Stark Law.

Other Fraud and Abuse Laws

Our operations are also subject to a variety of
other federal and state fraud and abuse laws, principally
designed to ensure that claims for payment to be made with
public funds are complete, accurate and fully comply with all
applicable program rules.

The civil monetary penalty provisions are
triggered by violations of numerous rules under the Medicare
statute, including the filing of a false or fraudulent claim and
billing in excess of the amount permitted to be charged for a
particular item or service. Violations may also result in
suspension of payments, exclusion from the Medicare and Medicaid
programs, as well as other federal health care benefit programs,
or forfeiture of assets.

In addition to the statutes described above,
other criminal statutes may be applicable to conduct that is
found to violate any of the statutes described above.

Health Care Reform

Health care reform is considered by many
countries to be a national priority. In the U.S., members of
Congress from both parties and officials from the executive
branch are continuing to consider many health care proposals,
some of which are comprehensive and far-reaching in nature.
Several states are also currently considering health care
proposals. We cannot predict what additional action, if any, the
federal government or any state may ultimately take with respect
to health care reform or when any such action will be taken.
Health care reform may bring radical changes in the financing
and regulation of the health care industry, which could have a
material adverse effect on our business and the results of our
operations.

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C.   Organizational
Structure

The following chart shows our organizational
structure and our significant subsidiaries. Fresenius Medical
Care Holdings, Inc. conducts its business as Fresenius
Medical Care North America.

(ORGANIZATIONAL CHART)

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D.  Property, plant and
equipment

Property

The table below describes our principal
facilities. We do not own the land and buildings comprising our
principal facilities in Germany. Rather, we lease those
facilities on a long-term basis from Fresenius AG or one of its
affiliates. This lease is described under Item 7.B.
Related Party Transactions  Real Property Lease.

|                                |  |                |        |              |  |            |        |     |  |                                          |  |                                                                                                                                           
|------------------------------- |  | -------------- | ------ | ------------ |  | ---------- | ------ | --- |  | ---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|                                |  |                |        | Currently    |  |            |        |    
|                                |  |                |        | Owned        |  |            |        |    
|                                |  | Floor Area     |        | or Leased    |  |            |        |    
|                                |  | (Approximate   |        | by Fresenius |  | Lease      |        |    
|Location                        |  | Square Meters) |        | Medical Care |  | Expiration |        | Use
|                                |  |                |        |              |  |            |        |    
|Bad Homburg, Germany            |  |                | 5,374  |              |  |            | leased |     |  | December 2006                            |  | Corporate headquarters and administration                                                                                                 
|St. Wendel, Germany             |  |                | 49,732 |              |  |            | leased |     |  | December 2006                            |  | Manufacture of polysulfone membranes and
    dialyzers, bloodlines, and peritoneal dialysis solutions;
    research and development       
|Schweinfurt, Germany            |  |                | 15,717 |              |  |            | leased |     |  | December 2006                            |  | Manufacture of hemodialysis machines and
    peritoneal dialysis cyclers; research and development                                        
|LArbresle, France              |  |                | 13,524 |              |  |            | owned  |     |  |                                          |  | Manufacture of polysulfone dialyzers and special
    filters dry hemodialysis concentrates                                                
|Palazzo Pignano, Italy          |  |                | 66,550 |              |  |            | owned  |     |  |                                          |  | Manufacture of bloodlines and tubing                                                                                                      
|Nottinghamshire, United Kingdom |  |                | 5,110  |              |  |            | owned  |     |  |                                          |  | Manufacture of hemodialysis concentrate solutions                                                                                         
|Barcelona, Spain                |  |                | 2,000  |              |  |            | owned  |     |  |                                          |  | Manufacture of peritoneal dialysis bags and
    concentrates                                                                              
|Ankara, Turkey                  |  |                | 1,000  |              |  |            | leased |     |  | February 2009                            |  | Manufacture of liquid hemodialysis concentrate
    solutions                                                                              
|Tunisia                         |  |                | 491    |              |  |            | leased |     |  | December 2020                            |  | Manufacture of liquid hemodialysis concentrate
    solutions                                                                              
|Buenos Aires, Argentina         |  |                | 10,100 |              |  |            | owned  |     |  |                                          |  | Manufacture of hemodialysis concentrate solutions                                                                                         
|Rio de Janeiro, Brazil          |  |                | 1,159  |              |  |            | leased |     |  | Month to Month                           |  | Manufacture of hemodialysis concentrate solutions                                                                                         
|Oita, Japan(1)                  |  |                | 24,083 |              |  |            | owned  |     |  |                                          |  | Manufacture of polysulfone membranes, dialyzers,
    dialysis solutions, dialysis machine components and assembly of
    dialysis machines
|Hong Kong                       |  |                | 1,013  |              |  |            | Leased |     |  | February 2006                            |  | Corporate headquarter and
    administration  Asia-Pacific                                                                               
|Milson Point, Australia         |  |                | 557    |              |  |            | leased |     |  | November 2007                            |  | Administration                                                                                                                            
|Smithfield, Australia           |  |                | 5,350  |              |  |            | owned  |     |  |                                          |  | Manufacture of hemodialysis concentrate solutions
    Warehouse                                                                           
|Pusat, KL, Malaysia             |  |                | 4,060  |              |  |            | leased |     |  | November 2004                            |  | Administration                                                                                                                            
|Taipei, Taiwan                  |  |                | 5,940  |              |  |            | leased |     |  | December 2006                            |  | Administration                                                                                                                            
|Tokyo, Japan                    |  |                | 1,153  |              |  |            | leased |     |  | December 2006 with 3-year renewal option |  | Administration                                                                                                                            
|Inukai, Japan                   |  |                | 2,142  |              |  |            | owned  |     |  |                                          |  | Manufacture of polysulfone dialyzers and filters                                                                                          
|Buzen, Japan                    |  |                | 8,369  |              |  |            | owned  |     |  |                                          |  | Manufacture of peritoneal dialysis solutions                                                                                              

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|                         |  |                |        |              |  |            |        |     |  |                                           |  |                                                                                                                        
|------------------------ |  | -------------- | ------ | ------------ |  | ---------- | ------ | --- |  | ----------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|                         |  |                |        | Currently    |  |            |        |    
|                         |  |                |        | Owned        |  |            |        |    
|                         |  | Floor Area     |        | or Leased    |  |            |        |    
|                         |  | (Approximate   |        | by Fresenius |  | Lease      |        |    
|Location                 |  | Square Meters) |        | Medical Care |  | Expiration |        | Use
|                         |  |                |        |              |  |            |        |    
|Seoul, South Korea       |  |                | 2,426  |              |  |            | leased |     |  | March and August 2004                     |  | Administration                                                                                                         
|Lexington, Massachusetts |  |                | 18,581 |              |  |            | leased |     |  | October 2007 with 5-year renewal option   |  | Corporate headquarters and
    administration  North America                                                          
|Walnut Creek, California |  |                | 9,522  |              |  |            | leased |     |  | June 2012 with 5-year renewal option      |  | Manufacture of Hemodialysis machines and
    peritoneal dialysis cyclers; research and development; warehouse
    space
|Ogden, Utah              |  |                | 41,807 |              |  |            | owned  |     |  |                                           |  | Manufacture polysulfone membranes and dialyzers
    and peritoneal dialysis solutions; research and development        
|Delran, New Jersey       |  |                | 3,902  |              |  |            | leased |     |  | October 2004 with 5-year renewal option   |  | Manufacture of liquid hemodialysis concentrate
    solutions                                                           
|Perrysburg, Ohio         |  |                | 3,252  |              |  |            | leased |     |  | August 2008                               |  | Manufacture of dry hemodialysis concentrates                                                                           
|Livingston, California   |  |                | 2,973  |              |  |            | leased |     |  | October 2006 with a 5-year renewal option |  | Manufacture of liquid hemodialysis concentrates                                                                        
|Freemont, California     |  |                | 6,688  |              |  |            | leased |     |  | May 2007 with 2-year renewal option       |  | Clinical laboratory testing                                                                                            
|Rockleigh, New Jersey    |  |                | 7,897  |              |  |            | leased |     |  | June 2007 with two 5-year renewal options |  | Clinical laboratory testing                                                                                            
|Miami, Florida           |  |                | 400    |              |  |            | leased |     |  | Month to Month                            |  | Administration                                                                                                         
|Irving, Texas            |  |                | 6,503  |              |  |            | leased |     |  | December 2010                             |  | Manufacture of liquid hemodialysis solution                                                                            
|Reynosa, Mexico          |  |                | 13,936 |              |  |            | leased |     |  | June 2013                                 |  | Manufacture of bloodlines                                                                                              






|    |                                                             
|--- | ------------------------------------------------------------
|(1) | We own 70% of the joint venture that owns this
    facility.

We lease most of our dialysis clinics,
manufacturing, laboratory, warehousing and distribution and
administrative and sales facilities in the U.S. and foreign
countries on terms which we believe are customary in the
industry. We own those dialysis clinics and manufacturing
facilities that we do not lease.

For information regarding plans to expand our
facilities and related capital expenditures, see
Item 4.A. History and Development of the
Company  Capital Expenditures.

Item 5.  Operating and
Financial Review and Prospects

You should read the following discussion and
analysis of the results of operations of Fresenius Medical
Care AG and its subsidiaries in conjunction with our
historical consolidated financial statements and related notes
contained elsewhere in this report. Some of the statements
contained below, including those concerning future revenue,
costs and capital expenditures and possible changes in our
industry and competitive and financial conditions include
forward-looking statements. Because such statements involve
risks and uncertainties, actual results may differ materially
from the results which the forward looking statements express or
imply.

Critical Accounting Policies

The Companys reported financial condition
and results of operations are sensitive to accounting methods,
assumptions and estimates that are the basis for our financial
statements. The critical accounting policies, the judgments made
in the creation and application of these policies, and the
sensitivities of reported results to changes in accounting
policies, assumptions and estimates are factors to be considered
along with the Companys financial statements, and the
discussion in Operating Results.

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Recoverability of Goodwill and Intangible
Assets

The growth of our business through acquisitions
has created a significant amount of intangible assets, including
goodwill, trade names and management contracts. At
December 31, 2003, the carrying amount of goodwill amounted
to $3,288 million and non-amortizable intangible assets
amounted to $431 million representing in total
approximately 50% of our total assets.

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 142 Goodwill
and Other Intangible Assetsan annual impairment test of
goodwill and non-amortizable intangible assets is performed at
least once a year for each reporting unit, or if events occur or
circumstances change that would indicate the carrying value
might be impaired (See also Note 1g in our Consolidated
Financial Statements).

To comply with the provisions of SFAS
No. 142, the fair value of the reporting unit is compared
to the reporting units carrying amount. We estimate the
fair value of each reporting unit using estimated future cash
flows for the unit discounted by a weighted average cost of
capital specific to that unit. Estimated cash flows are based on
our budgets for the next three years, and projections for the
following years based on an expected growth rate. The growth
rate is based on industry and internal projections. The discount
rates reflect any inflation in local cash flows and risks
inherent to each reporting unit.

If the fair value of the reporting unit is less
than its carrying value, a second step is performed which
compares the fair value of the reporting units goodwill to
the carrying value of its goodwill. If the fair value of the
goodwill is less than its carrying value, the difference is
recorded as an impairment.

A prolonged downturn in the healthcare industry
with lower than expected increases in reimbursement rates and/or
higher than expected costs for providing healthcare services
could adversely affect our estimated future cashflows. Future
adverse changes in a reporting units economic environment
could affect the discount rate. A decrease in our estimated
future cash flows and/or a decline in the reporting units
economic environment could result in impairment charges to
goodwill and other intangible assets which could materially and
adversely affect our future financial position and operating
results.

Legal Contingencies

We are party to litigation relating to a number
of matters as described in Note 20 Legal Proceedings
in our Consolidated Financial Statements. The outcome of these
matters may have a material effect on our financial position,
results of operations or cash flows.

We regularly analyze current information
including, as applicable, our defenses and provide accruals for
probable contingent losses including the estimated legal
expenses to resolve the matters. We use the resources of our
internal legal department as well as external lawyers for the
assessment. In making the decision, we consider the degree of
probability of an unfavorable outcome and our ability to make a
reasonable estimate of the amount of loss.

If an unfavorable outcome is probable but the
amount of loss cannot be reasonably estimated by management,
appropriate disclosure is provided, but no contingent losses are
accrued. The filing of a suit or formal assertion of a claim or
assessment does not automatically indicate that accrual of a
loss may be appropriate.

Allowance for Doubtful
Accounts

Trade accounts receivable are a significant asset
of ours and the allowance for doubtful accounts is a significant
estimate made by management. Trade accounts receivable were
$1,230 million and $914 million at December 31,
2003 and 2002, respectively, net of allowances and after sales
of accounts receivable under our accounts receivable facility
described in Note 6 Sale of Accounts Receivable in
our Consolidated Financial Statements. The allowance for
doubtful accounts was $166 million and $160 million at
December 31, 2003 and 2002, respectively. The majority of
our receivables relates to our dialysis service business in
North America.

Dialysis care revenues are recognized and billed
at amounts estimated to be received under reimbursement
arrangements with third party payors. Medicare and Medicaid
programs are billed at pre-determined net

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realizable rates per treatment that are
established by statute or regulation. Most non-governmental
payors, including contracted managed care payors, are billed at
the Companys standard rates for services net of
contractual allowances to reflect the estimated amounts to be
received under reimbursement arrangements with these payors.


Estimates for the allowances for doubtful
accounts receivable from the dialysis service business are
mainly based on past collection history. Specifically, the
allowances for the North American operations are based on an
analysis of collection experience, recognizing the differences
between payors and aging of accounts receivable. From time to
time, accounts receivable are reviewed for changes from the
historic collection experience to ensure the appropriateness of
the allowances. The allowances in the international segment and
the products business are also based on estimates and consider
various factors, including aging, creditor and past collection
history.

A significant change in our collection
experience, a deterioration in the aging of receivables and
collection difficulties could require that we increase our
estimate of the allowance for doubtful accounts. Any such
additional bad debt charges could materially and adversely
affect our future operating results.

Self Insurance Programs

The Companys largest subsidiary is
partially self-insured for professional, product and general
liability, auto and workers compensation claims under
which the company assumes responsibility for incurred claims up
to predetermined amounts above which third party insurance
applies. Reported balances for the year include estimates of the
anticipated expense for claims incurred (both reported and
incurred but not reported) based on historical experience and
existing claim activity. This experience includes both the rate
of claims incidence (number) and claim severity
(cost) and is combined with individual claim expectations
to estimate the reported amounts.

Financial Condition and Results of
Operations

This section contains forward-looking statements.
We made these forward-looking statements based on our
managements expectations and beliefs concerning future
events which may affect us, but we cannot assure that such
events will occur or that the results will be as anticipated.
Such statements include the matters that we described in the
discussion in this report entitled Forward-Looking
Statements.

Our business is also subject to other risks and
uncertainties that we describe from time to time in our public
filings. Developments in any of these areas could cause our
results to differ materially from the results that we or others
have projected or may project.

Overview

We are engaged primarily in providing dialysis
services and manufacturing and distributing products and
equipment for the treatment of end-stage renal disease. In
addition we perform clinical laboratory and renal diagnostic
testing in the U.S. Dialysis is a lifesaving treatment for
irreversible, lifelong end stage renal disease, and necessitates
multiple treatments per week for the remainder of a
patients life. The provision of dialysis services and the
distribution of dialysis products and equipment represents,
based on our estimate, an over $30 billion worldwide market
and it is expected there will be annual patient growth of 5-7%.
Patient growth is caused by factors such as the aging
population, increasing incidence of diabetes and hypertension,
improvements in treatment quality and improving standards of
living in developing countries. Key to continued growth in
revenue is our ability to attract new patients in order to
increase the number of treatments performed each year. For that
reason, we believe the number of treatments performed each year
is a strong indicator of continued revenue growth and success.
In addition the reimbursement environment significantly
influences our business. In the past we experienced and also
expect in the future generally stable reimbursements for
dialysis services. This includes the balancing of unfavorable
reimbursement changes in certain countries with favorable
changes in other countries. The majority of treatments are paid
by governmental institutions such as Medicare in the United
States. As a consequence of the pressure to decrease health care
costs, reimbursement rate increases have been limited. Our
ability to influence the pricing of our services is limited.
Profitability depends on our ability to manage rising labor,
drug and supply costs.

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On December 8, 2003, the Medicare
Prescription Drug, Modernization and Improvement Act of 2003 was
enacted. Effective January 1, 2005, (1) the dialysis
composite rate will increase 1.6%; (2) payments for
separately billable dialysis-related medications will be based
on acquisition cost, and an amount equal to the difference
between acquisition cost and what would have been received under
the 2003 reimbursement methodology will be added to the
composite rate, and this add-back amount will be subject to an
annual update based on the growth in drug spending; and
(3) composite rate payments will be subject to a case mix
adjustment system, resulting in higher composite rate payments
for patients with more complicated medical cases. We expect the
rate increase to have a positive effect on our results, and the
two remaining changes to have no effect.

Our operations are geographically organized and
accordingly we have identified three operating segments, North
America, International, and Asia Pacific. For reporting
purposes, we have aggregated the International and Asia Pacific
segments as International. We aggregated these
segments due to their similar economic characteristics. These
characteristics include same services provided and same products
sold, same type patient population, similar methods of
distribution of products and services and similar economic
environments. Our management board member responsible for the
profitability and cash flow of each segments various
businesses supervises the management of each operating segment.
The accounting policies of the operating segments are the same
as those we apply in preparing our consolidated financial
statements under accounting principles generally accepted in the
United States (U.S. GAAP).

Our management evaluates each segment using a
measure that reflects all of the segments controllable
revenues and expenses. Our management believes the most
appropriate measure in this regard is operating income, referred
to in previous filings as earnings before interest and taxes, or
EBIT, which measures our source of earnings. Financing is a
corporate function which segments do not control. Therefore, we
do not include interest expense relating to financing as a
segment measurement. We also regard income taxes to be outside
the segments control. In addition to operating income, our
management also believes that earnings before interest, taxes,
depreciation and amortization, or EBITDA, is helpful for
investors as a measurement of our segments ability to
generate cash and to service our financing obligations. EBITDA
is also the basis for determining compliance with certain
covenants contained in our senior credit agreement and the
indentures relating to our outstanding trust preferred
securities. You should not consider segment EBITDA to be an
alternative to net earnings determined in accordance with U.S.
GAAP or to cash flow from operations, investing activities or
financing activities. We believe that operating income is the
GAAP financial measure most directly comparable to our
computation of EBITDA by segment, and the information in the
table below under Results of Operations reconciles
EBITDA for each of our reporting segments to operating income
calculated in accordance with U.S. GAAP. See also Note 23 of the
Notes to Condensed Consolidated Financial Statements. Our
discussions relating to our consolidated financial position and
results of operations for 2001 reflect the effects of the
special charge recorded in that year. The discussion of the
disaggregated results of operations of the North America segment
and the discussion under Corporate exclude the
effect of those special charges.

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A. Operating Results

The following tables summarize our financial
performance and certain operating results by reporting segment
for the periods indicated. Inter-segment sales primarily reflect
sales of medical equipment and supplies from the International
segment to the North America segment. In order to facilitate a
year-to-year comparison, goodwill adjusted figures for 2001, as
if SFAS No. 142, Goodwill and Other Intangible
Assets, had been adopted as of January 1, 2001, have
also been provided. We prepared the information using a
management approach, consistent with the basis and manner in
which our management internally disaggregates financial
information to assist in making internal operating decisions and
evaluating management performance.

|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |       |       | 
|----------------------------- | -------------------------------- | -------------------------------- | ---- | ----- | ----- | ------- | ---- | ----- | ----- | - | ---- | ----- | ----- | - | ---- | ----- | ----- | 
|                              |                                  |                                 
|                              |                                  | For the years ended December 31,
|                              |                                  |                                 
|                              |                                  | 2003                             |      | 2002  |       | 2001(a) |      | 2001 
|                              |                                  |                                  |      |       |       |         |      |      
|                              |                                  |                                 
|                              |                                  | (in millions)                   
|Total revenue                 |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              | North America                    |                                  | $    | 3,857 |       |         | $    | 3,750 |       |   | $    | 3,604 |       |   | $    | 3,604 |      
|                              | International                    |                                  |      | 1,709 |       |         |      | 1,363 |       |   |      | 1,281 |       |   |      | 1,281 |      
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              |                                  | Totals                           |      |       | 5,566 |         |      |       | 5,113 |   |      |       | 4,885 |   |      |       | 4,885 | 
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Inter-segment revenue         |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              | North America                    |                                  |      | 2     |       |         |      | 2     |       |   |      | 2     |       |   |      | 2     |      
|                              | International                    |                                  |      | 36    |       |         |      | 27    |       |   |      | 24    |       |   |      | 24    |      
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              |                                  | Totals                           |      |       | 38    |         |      |       | 29    |   |      |       | 26    |   |      |       | 26    | 
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Total net revenue             |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              | North America                    |                                  |      | 3,855 |       |         |      | 3,748 |       |   |      | 3,602 |       |   |      | 3,602 |      
|                              | International                    |                                  |      | 1,673 |       |         |      | 1,336 |       |   |      | 1,257 |       |   |      | 1,257 |      
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              |                                  | Totals                           |      |       | 5,528 |         |      |       | 5,084 |   |      |       | 4,859 |   |      |       | 4,859 | 
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|EBITDA                        |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              | North America                    |                                  |      | 652   |       |         |      | 630   |       |   |      | 693   |       |   |      | 693   |      
|                              | International                    |                                  |      | 349   |       |         |      | 292   |       |   |      | 292   |       |   |      | 292   |      
|                              | Special charge for legal matters |                                  |      |      |       |         |      |      |       |   |      | (258  | )     |   |      | (258  | )    
|                              | Corporate                        |                                  |      | (27   | )     |         |      | (16   | )     |   |      | (24   | )     |   |      | (24   | )    
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              |                                  | Totals                           |      |       | 974   |         |      |       | 906   |   |      |       | 703   |   |      |       | 703   | 
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Amortization and depreciation |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              | North America                    |                                  |      | 120   |       |         |      | 139   |       |   |      | 140   |       |   |      | 247   |      
|                              | International                    |                                  |      | 95    |       |         |      | 70    |       |   |      | 62    |       |   |      | 76    |      
|                              | Corporate                        |                                  |      | 2     |       |         |      | 2     |       |   |      | 1     |       |   |      | 1     |      
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              |                                  | Totals                           |      |       | 217   |         |      |       | 211   |   |      |       | 203   |   |      |       | 324   | 
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Operating Income              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              | North America                    |                                  |      | 532   |       |         |      | 491   |       |   |      | 553   |       |   |      | 446   |      
|                              | International                    |                                  |      | 254   |       |         |      | 222   |       |   |      | 230   |       |   |      | 216   |      
|                              | Special charge for legal matters |                                  |      |      |       |         |      |      |       |   |      | (258  | )     |   |      | (258  | )    
|                              | Corporate                        |                                  |      | (29   | )     |         |      | (18   | )     |   |      | (25   | )     |   |      | (25   | )    
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                              |                                  | Totals                           |      |       | 757   |         |      |       | 695   |   |      |       | 500   |   |      |       | 379   | 
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Interest income               |                                  |                                  | 19   |       |       |         | 18   |       |       |   | 14   |       |       |   | 14   |      
|Interest expense              |                                  |                                  | (230 | )     |       |         | (244 | )     |       |   | (237 | )     |       |   | (237 | )    
|Income tax expense            |                                  |                                  | (213 | )     |       |         | (175 | )     |       |   | (109 | )     |       |   | (91  | )    
|Minority interest             |                                  |                                  | (2   | )     |       |         | (4   | )     |       |   | (2   | )     |       |   | (2   | )    
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Net income                    |                                  | $                                | 331  |       |       | $       | 290  |       |       | $ | 166  |       |       | $ | 63   |      
|                              |                                  |                                  |      |       |       |         |      |       |       |   |      |       |       |   |      |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Financial performance and certain operating
    results by principal business segment for the year ended
    December 31, 2001 as if SFAS No. 142, Goodwill and
    Other Intangible Assets was adopted on January 1, 2000.
    Management believes that presentation of our 2001 results on
    this basis is useful because it allows investors to more easily
    compare operating results for that year in a presentation
    comparable to the subsequent years presented in this report.

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Year ended December 31, 2003 compared to
year ended December 31, 2002

Highlights

The earnings increase in 2003 is characterized by
a stabilization of the operating margins. This was a result of
two developments:



| |   |                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | improving operating margin in North America.
    After significant investments into our UltraCare program, which
    included the conversion to single-use dialyzers, the program now
    provides returns which contributed to an improvement of the
    operating margin in North America from 13.1% in 2002 to 13.8% in
    2003.
|
| |  | price pressure in Germany, impact from the
    politically unstable situation in the Middle East and changes in
    the distribution system in Asia Pacific which led to a reduction
    of the operating margins in the International segment from 16.6%
    in 2002 to 15.2% in 2003.                                             

During 2003, we reached settlements on all
litigation relating to activities involving W.R. Grace before
the 1996 Merger. We believe that the 2001 special charge for
legal matters is sufficient to cover all related costs.

Cash flow provided from operations reached
$754 million and exceeded the prior years cash flow
from operations by $204 million. This favorable development
is a result of our focus on receivable collections and
$132 million of temporary liquidity provided by hedging of
certain inter-company financing transactions, which is not
expected to reoccur in that magnitude in 2004.

Consolidated Financials

Key Indicators for Consolidated
Financials

|                                                              |  |      |            |      |  |             |            |                |  |  |    |   |  |  |     | 
|------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ----------- | ---------- | -------------- |  |  | -- | - |  |  | --- | 
|                                                              |  |      |            |      |  |            
|                                                              |  |      |            |      |  | Change in %
|                                                              |  |      |            |      |  |            
|                                                              |  |      |            |      |  | as          |            | at constant   
|                                                              |  | 2003 |            | 2002 |  | reported    |            | exchange rates
|                                                              |  |      |            |      |  |             |            |               
|Number of treatments                                          |  |      | 17,821,185 |      |  |             | 16,383,615 |                |  |  | 9  | % |  |  |     | 
|Same store treatment growth in %                              |  |      | 4.9        | %    |  |             | 4.8        | %              |  |  |    |   |  |  |     | 
|Revenue in $ million                                          |  |      | 5,528      |      |  |             | 5,084      |                |  |  | 9  | % |  |  | 5%  | 
|Gross profit in % of revenue                                  |  |      | 33.1       | %    |  |             | 32.6       | %              |  |  |    |   |  |  |     | 
|Selling, general and administrative costs in % of
    revenue |  |      | 18.5       | %    |  |             | 18.0       | %              |  |  |    |   |  |  |     | 
|Net income in $ million                                       |  |      | 331        |      |  |             | 290        |                |  |  | 14 | % |  |  | 10% | 

Net revenue increased for the year ended
December 31, 2003 over the comparable period in 2002 due to
growth in revenue in both dialysis care and dialysis products.

Dialysis care revenue grew by 7% to
$3,978 million (6% at constant exchange rates) in 2003
mainly due to the growth in same store treatments, combined with
acquisitions and the transition of billing for Medicare
peritoneal dialysis patients from Method II billing to
Method I billing. In 2002, peritoneal dialysis patients in
the United States were billed by our products division
(Method II) for their treatments. Beginning on
January 1, 2003, they were billed by our services division
(Method I). Dialysis product revenue increased by 13% to
$1,549 million (3% at constant exchange rates) in the same
period.

Gross profit margin improved to 33.1% in the year
ended December 31, 2003 from 32.6% for 2002. The increase
is primarily a result of reduced dialysis care operating costs
and dialysis product margin improvements in North America
partially offset by the lower margin in the International
segment. Depreciation and amortization expense for 2003 was
$217 million compared to $211 million in 2002.

Approximately 43% of the Companys worldwide
revenues are paid by and subject to regulations under
governmental health care programs, primarily Medicare and
Medicaid, administered by the United States government in both
2003 and 2002, respectively.

Selling, general and administrative costs
increased from $914 million in 2002 to $1,022 million
in 2003. Selling, general and administrative costs as a
percentage of sales increased from 18.0% in 2002 compared to

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18.5% in 2003. This was in part due to the one
time pension curtailment gain of $12.6 million which
reduced our selling, general and administrative costs in 2002.
The remaining increase is mainly due to growth in international
regions which have higher selling, general and administrative
expenses partially offset by $19 million of amortization expense
for certain patient relationships and other intangible assets
acquired in the 1996 Merger which were fully amortized in the
fourth quarter of 2002. Net income for the period was
$331 million compared to $290 million in 2002. Net
income in 2002 was impacted by the $12 million loss
attributable to the early redemption of trust preferred
securities.


In 2003, 17.8 million treatments were
provided. This represents an increase of 9% over the same period
in 2002. Same store treatment growth was 5% with additional
growth of 3% from acquisitions. The remaining 1% increase in
dialysis treatments was due to the transition of peritoneal
dialysis patients from Method II (dialysis products) to
Method I (dialysis service) billing in North America.

At December 31, 2003 we owned, operated or
managed 1,560 clinics compared to 1,480 clinics at the end
of 2002. During 2003, we acquired 42 clinics, opened
76 clinics and combined 38 clinics. The number of patients
treated in clinics that we own, operate or manage increased from
approximately 112,200 at December 31, 2002 to 119,250 at
December 31, 2003. Average revenue per treatment for
world-wide dialysis services decreased from $226 to $223 mainly
due to the transition of peritoneal patients from Method II
billing (dialysis products) to Method I (dialysis services).

The following discussions pertain to our
business segments and the measures we use to manage these
segments.

North America Segment

Key Indicators for North America
Segment

|                                           |  |      |            |      |  |             |            |   |  |  |      | 
|------------------------------------------ |  | ---- | ---------- | ---- |  | ----------- | ---------- | - |  |  | ---- | 
|                                           |  | 2003 |            | 2002 |  | Change in %
|                                           |  |      |            |      |  |            
|Number of treatments                       |  |      | 12,366,028 |      |  |             | 11,638,740 |   |  |  | 6%   | 
|Same store treatment growth in %           |  |      | 3.8        | %    |  |             | 3.6        | % |  |  |      | 
|Revenue in $ million                       |  |      | 3,855      |      |  |             | 3,748      |   |  |  | 3%   | 
|EBITDA in $ million                        |  |      | 652        |      |  |             | 630        |   |  |  | 3%   | 
|EBITDA margin in %                         |  |      | 16.9       | %    |  |             | 16.8       | % |  |  |      | 
|Depreciation and amortization in $ million |  |      | 120        |      |  |             | 139        |   |  |  | -14% | 
|Operating income in $ million              |  |      | 532        |      |  |             | 491        |   |  |  | 8%   | 
|Operating income margin in %               |  |      | 13.8       | %    |  |             | 13.1       | % |  |  |      | 

Revenue

Net revenue for the North America segment for the
year ended December 31, 2003 grew in 2003 because dialysis
care revenue increased by 4% from $3,293 to $3,429 million.
This was partially offset by a decrease in product sales.

The increase in dialysis care revenue was driven
by a 6% increase in treatments. Same store treatment growth was
4% and 1% resulted from acquisitions. A further 2% increase in
dialysis treatments was due to a transition of peritoneal
dialysis patients from Method II (dialysis products) to
Method I (dialysis services). This was offset by a 1%
decrease in treatments lost from clinics that were sold or
closed and one less treatment day in 2003 compared to 2002. For
this year the administration of EPO represented approximately
23% of total revenue.

At the end of 2003, approximately 82,400 patients
were being treated in the 1,110 clinics that we own, operate or
manage in the North America segment, compared to approximately
79,600 patients treated in 1,080 clinics at the end of
2002. The average revenue per treatment excluding laboratory
testing revenue decreased from $274 in 2002 to $267 in 2003.
Including laboratory testing the average revenue per treatment
decreased from $285 in 2002 to $278 during 2003. This was mainly
due to the transfer of our Method II patients to
Method I.

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Dialysis product sales in both 2003 and 2002
include the sales of machines to a third-party leasing company
which are leased back by our dialysis services division.
Dialysis product sales in 2002 also includes Method II
peritoneal dialysis revenues for our dialysis services patients.
Method II patients were transferred to Method I
effective January 1, 2003. Therefore there were no similar
Method II revenues recorded in 2003. This reclassification
of patients was the main cause of a 6% decrease in dialysis
product revenue from $454 million in 2002 to $426 million
in 2003. This was offset by an increase of sales due to the
acquisition of the adsorber business of Fresenius AG in
2003. Our dialysis products division measures its external sales
performance based on its sales to the net available
external market. The net available external market
excludes machine sales to third parties for machines utilized in
the services division and Method II revenues involving our
dialysis services division as well as sales to other vertically
integrated dialysis companies and sales related to the adsorber
business. Net available external market sales increased by 4% in
2003 over the comparable period 2002. The detail is as follows:

|                                           |                                                                                                                              |                   |     |                   |   |  |     |     |  
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ----------------- | --- | ----------------- | - |  | --- | --- | -
|                                           |                                                                                                                              | Year ended        |     | Year ended       
|                                           |                                                                                                                              | December 31, 2003 |     | December 31, 2002
|                                           |                                                                                                                              |                   |     |                  
|                                           |                                                                                                                              |                  
|                                           |                                                                                                                              | (in millions)    
|Dialysis product sales                     |                                                                                                                              |                   | 426 |                   |   |  | 454 |    
|                                           | less sales to other vertically integrated
    dialysis companies and to leasing company of dialysis machines
    leased back |                   |     | (34               | ) |  |     | (42 | )
|                                           | less method II and other                                                                                                     |                   |     |                  |   |  |     | (37 | )
|                                           | less sales related to adsorber business                                                                                      |                   |     | (3                | ) |  |     |    |  
|                                           |                                                                                                                              |                   |     |                   |   |  |     |    
|Product sales to available external market |                                                                                                                              |                   | 389 |                   |   |  | 375 |    
|                                           |                                                                                                                              |                   |     |                   |   |  |     |    

EBITDA.

EBITDA margin increased by 0.1%. This improvement
in the margin is mainly a result of completion of the single-use
dialyzer conversion which resulted in a reduction of dialysis
care operating costs and an increase in product margin. Previous
periods had been adversely affected by implementation costs of
the single-use dialyzer program. This was partially offset by
the pension curtailment gain of $12.6 million in 2002.

Operating income

The increase in the operating margin was caused
by lower depreciation and amortization as a result of the
completion of amortization relating to patient relationships and
other intangible assets acquired in the 1996 merger with an
estimated useful life ending in the fourth quarter of 2002 and
by the same factors causing the increase in the EBITDA margin
stated above.

International Segment

Key Indicators for International
Segment

|                                           |  |      |           |      |  |             |           |                |  |  |    |   |  |  |    |  
|------------------------------------------ |  | ---- | --------- | ---- |  | ----------- | --------- | -------------- |  |  | -- | - |  |  | -- | -
|                                           |  |      |           |      |  |            
|                                           |  |      |           |      |  | Change in %
|                                           |  |      |           |      |  |            
|                                           |  |      |           |      |  | as          |           | at constant   
|                                           |  | 2003 |           | 2002 |  | reported    |           | exchange rates
|                                           |  |      |           |      |  |             |           |               
|Number of treatments                       |  |      | 5,455,157 |      |  |             | 4,744,875 |                |  |  | 15 | % |  |  |    |  
|Same store treatment growth in %           |  |      | 7.7       | %    |  |             | 8.1       | %              |  |  |    |   |  |  |    |  
|Revenue in $ million                       |  |      | 1,673     |      |  |             | 1,336     |                |  |  | 25 | % |  |  | 11 | %
|EBITDA in $ million                        |  |      | 349       |      |  |             | 292       |                |  |  | 20 | % |  |  | 2  | %
|EBITDA margin in %                         |  |      | 20.8      | %    |  |             | 21.8      | %              |  |  |    |   |  |  |    |  
|Depreciation and amortization in $ million |  |      | 95        |      |  |             | 70        |                |  |  | 37 | % |  |  | 18 | %
|Operating income in $ million              |  |      | 254       |      |  |             | 222       |                |  |  | 14 | % |  |  | -4 | %
|Operating income margin in %               |  |      | 15.2      | %    |  |             | 16.6      | %              |  |  |    |   |  |  |    |  

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Revenue

The increase in net revenues for the
International segment resulted from increases in both dialysis
care and dialysis product revenues. Acquisitions contributed
approximately $53 million (4%). Organic growth during the
period was 7% ($90 million) at constant exchange rates.
This increase was improved by a $193 million (14%) exchange
rate effect due to the continued strengthening of the euro
against the dollar in 2003.

Total dialysis care revenue increased by 32% (18%
at constant exchange rates) to $550 million in 2003 from
$416 million the same period of 2002. This increase is a
result of base business growth of $40 million combined with
$36 million in growth from acquisitions improved by
approximately $58 million due to exchange rate fluctuations.

As of December 31, 2003, approximately
36,850 patients were being treated at 450 clinics that we own,
operate or manage in the International segment compared to
32,600 patients treated at 400 clinics at December 31,
2002. The average revenue per treatment increased from $88 to
$101 ($90 at constant exchange rates) due to the strengthening
of the local currencies against the U.S. dollar and increased
reimbursement rates partially offset by growth in countries with
reimbursement rates below the average.

Total dialysis product revenue for 2003 increased
by 22% (7% at constant exchange rates) to $1,123 million.
Including the effects of the acquisitions, the European region
revenue increased $272 million, a 30% increase (10%
increase at constant exchange rates), the Latin America region
revenue increased $36 million or 24% (30% at constant
exchange rates), while the Asia Pacific region revenue increased
$28 million or 10% (4% at constant exchange rates).

EBITDA.

Our EBITDA margin decreased from 21.8% to 20.8%.
The main causes of this were price pressure in Europe,
especially related to reimbursement changes in Germany which
came into effect in the middle of 2003, increased cost of
revenue due to the strengthening of the euro, lost revenues due
to political instability in the Middle East and changes in the
distribution system in Asia Pacific offset by retroactive
reimbursement rate increases in Italy, Portugal and Venezuela.

Operating income

Our operating income margin decreased from 16.6%
to 15.2%, due to the factors responsible for the decrease of
EBITDA margin described above and higher depreciation and
amortization mainly as a result of the expansion of production
facilities in Europe and Asia Pacific.

Latin America

Our subsidiaries in Latin America contributed
approximately 3% of our worldwide revenue and approximately 1%
of our operating income in 2003. Our operations in Latin America
were affected by the financial crisis and currency devaluations
in nearly all currencies in Latin America whereas the Argentine
Peso has recovered slightly. Because of these issues, we are
experiencing lower than anticipated reimbursement rates, margin
pressure and foreign currency exchange losses. In addition, the
start-up of production and the entry into the peritoneal
dialysis market in Mexico had an adverse effect on our margin in
2003.

In 2003, sales in Latin America increased 24%
(30% at constant exchange rates) and operating income increased
21% (17% at constant exchange rates) compared to 2002. A
worsening of the crisis in Latin America, a further devaluation
of the Latin American currencies against the U.S. dollar or
other unfavorable economic developments in Latin America, could
result in an impairment of long lived assets and goodwill.

Corporate

We do not allocate corporate costs to
our segments in calculating segment operating income and EBITDA
as we believe that these costs are not within the control of the
individual segments. These corporate costs

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primarily relate to certain headquarters overhead
charges including accounting and finance, professional services,
etc.


Total corporate operating loss was $(29) million
in the year ended December 31, 2003 compared to $(18)
million in the same period of 2002 to a large extent due to
currency effects.

The following discussions pertain to our total
Company costs.

Interest

Interest expense for 2003 decreased 6% compared
to the same period in 2002 due to the charge recorded in the
first quarter of 2002 for the redemption of trust preferred
securities. See Note 13 Mandatorily Redeemable Trust
Preferred Securities in our Consolidated Financial
Statements.

Income Taxes

The effective tax rate for the year ended
December 31, 2003 was 39.0% compared to 37.4% during the
same period in 2002. This increase was caused by an increase of
additional tax provisions and an increase in German tax rates in
2003.

Year ended December 31, 2002 compared
year ended December 31, 2001

Net revenues for the year ended December 31,
2002 increased by 5% (6% at constant exchange rates) to
$5,084 million from $4,859 million for the comparable
period in 2001. The gross profit margin decreased from 33.7% to
32.6% in the year ended December 31, 2002 compared to the
same period in 2001. This was mainly due to lower margins in
North America and currency losses in Latin America (see also the
discussion of our operating segments). Depreciation and
amortization expense for 2002 was $211 million compared to
$324 million for 2001. Amortization expense for goodwill
and intangible assets not amortized anymore under SFAS
No. 142 was $121 million in 2001. Selling, general and
administrative costs decreased from $966 million in 2001 to
$914 million in 2002 due to the net of lower amortization
mainly as a result of the adoption of SFAS No. 142 and
higher bad debt expense and other operating expenses. Net income
for the year was $290 million as compared to
$63 million in 2001. The results of operations for 2002
reflect the implementation of SFAS No. 142 as of
January 1, 2002, and for 2001 the special charge for legal
matters. Income before extraordinary loss in 2002 was
$302 million compared to $63 million in 2001. Earnings
per Ordinary share before extraordinary loss for 2002 were $3.12
compared to $0.65 in 2001.

At December 31, 2002 we owned, operated or
managed 1,480 clinics compared to 1,400 clinics at the end of
2001. During 2002, we acquired 33 clinics treating a total of
2,223 patients, opened 90 clinics and combined 43 clinics. The
number of patients treated in clinics that we own, operate or
manage increased from approximately 105,830 at December 31,
2001 to 112,200 at December 31, 2002. Approximately
16,385,000 treatments were provided in 2002; an increase of 7%
from 15,250,000 treatments in 2001. Average revenue per
treatment for world-wide dialysis services decreased from $233
to $226 mainly due to the decline of certain currencies compared
to the U.S. dollar.

The following discussions pertain to our
business segments and the measures we use to manage these
segments.

North America Segment

Revenue

Net revenue for the North America segment for the
year ended December 31, 2002 grew by 4% from
$3,602 million to $3,748 million. Dialysis care
revenue increased 5% from $3,131 to $3,293 million. The
majority of the increase in dialysis care revenue resulted from
a 4% increase in the number of treatments, mostly from same
store growth, combined with a 1% increase due to increased
revenue per treatment.

During 2002, approximately 79,600 patients were
being treated in the 1,080 clinics that we own, operate or
manage in the North America segment, compared to approximately
76,600 patients treated in 1,030 clinics during

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2001. The average revenue per treatment excluding
laboratory testing revenue increased from $273 in 2001 to $274
in 2002. Including laboratory testing the average revenue per
treatment increased from $284 in 2001 to $285 during 2002. The
Medicare reimbursement rate has not increased since
April 1, 2001, when it was increased by 1.6%. Medicare and
Medicaid account for over 66% of North America dialysis services
revenue.


Dialysis products revenue decreased 4% from
$471 million to $454 million. Our North America
dialysis products division measures its sales performance based
on its sales to the net available external market
which is in essence patients and non-vertically integrated third
party dialysis providers. The net available external market
excludes certain product revenues relating to our dialysis
services business and sales to other vertically integrated
dialysis companies. Comparing 2002 to 2001, sales to the net
available external market increased 6%. The details are as
follows:

|                                           |                                                                                                                              |                   |     |                   |   |  |     |     |  
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ----------------- | --- | ----------------- | - |  | --- | --- | -
|                                           |                                                                                                                              | Year ended        |     | Year ended       
|                                           |                                                                                                                              | December 31, 2002 |     | December 31, 2001
|                                           |                                                                                                                              |                   |     |                  
|                                           |                                                                                                                              |                  
|                                           |                                                                                                                              | (in millions)    
|Dialysis product sales                     |                                                                                                                              |                   | 454 |                   |   |  | 471 |    
|                                           | less sales to other vertically integrated
    dialysis companies and to leasing company of dialysis machines
    leased back |                   |     | (42               | ) |  |     | (72 | )
|                                           | less method II and other                                                                                                     |                   |     | (37               | ) |  |     | (46 | )
|                                           |                                                                                                                              |                   |     |                   |   |  |     |    
|Product sales to available external market |                                                                                                                              |                   | 375 |                   |   |  | 353 |    
|                                           |                                                                                                                              |                   |     |                   |   |  |     |    

EBITDA.

EBITDA for the North America segment decreased by
9% from $693 million to $630 million. The EBITDA
margin decreased from 19.2% to 16.8%. The main reasons were
expenses related to the implementation of our UltraCare
program, an Amgen price increase for EPO, higher facilities
lease and certification expenses and higher bad debt expense. In
2002 we continued the implementation of UltraCare which
uses, among others, the latest technology of single use,
high-flux polysulfone dialyzers to improve patient outcomes and
care. The shift to single use of dialyzers in UltraCare
created a higher cost per treatment compared to re-use. See
Item 4B- Information on the Company-Dialysis Care-
Fresenius UltraCare Program. This extra cost was mitigated
through lower personnel costs combined with cost savings on
medical supplies, making the single use of dialyzers cost
neutral once implementation was completed. The implementation of
this program had a negative effect on our margin since the
additional expenses were incurred immediately, whereas the
expected cost savings have been achieved over a longer period. A
one-time pension curtailment gain was partially offset by
severance and payroll costs for workforce reductions.

Depreciation and
Amortization.

Depreciation and amortization decreased from 7%
($247 million) of revenue in 2001 to 4% ($139 million)
in 2002. The decrease in amortization expense of
$108 million related almost exclusively to the accounting
change required under SFAS No. 142.Adjusting the
year ended December 31, 2001 as if SFAS No. 142 was
implemented on January 1, 2001, amortization and
depreciation remained at about 4% of revenue for both 2001 and
2002.

Operating Income

Operating income for the North America segment
increased by 10%, from $446 million to $491 million due to
the elimination of amortization for goodwill and intangible
assets with indefinite useful lives under SFAS No. 142,
partially offset by the factors affecting EBITDA. Assuming SFAS
No. 142 had been adopted as of January 1, 2001,
operating income would have decreased 11%, from $553 million to
$491 million. The operating income margin over the same
period decreased from 15.4% to 13.1% for the same reasons as
described in EBITDA.

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International Segment

Revenue

Net revenue for the International segment during
2002 grew by 6% (12% at constant exchange rates) from
$1,257 million in 2001 to $1,336 million in 2002.
Acquisitions contributed approximately $51 million (4%).
Same store growth during the period was 8% ($104 million).
These increases in revenue were offset by a $75 million
(6%) adverse exchange rate effect, principally attributable to
currency devaluation in Argentina. Including the effects of
acquisitions, Asia Pacific region revenue increased
$53 million or 25% (26% at constant exchange rates), Latin
America region revenue decreased $95 million or 39% (an 11%
increase at constant exchange rates) while European region
revenue increased $121 million, a 15% increase (9% increase
at constant exchange rates).

Total dialysis care revenue decreased during 2002
by 2% (a 19% increase at constant exchange rates) to
$416 million from $426 million the same period of
2001. This decrease is a result of base business growth of
$42 million combined with $40 million in growth from
acquisitions offset by approximately $92 million due to exchange
rate fluctuations.

As of December 31, 2002, approximately
32,600 patients were being treated at 400 clinics that we own,
operate or manage in the International segment compared to
29,230 patients treated at 370 clinics at December 31,
2001. The average revenue per treatment decreased from $104 to
$88 due to the depression of local currencies against the U.S.
dollar. At constant exchange rates, revenue per treatment
increased $3 to $107.

Total dialysis product revenue for 2002 increased
by 11% (9% at constant exchange rates) to $921 million.
Sales of dialyzers and peritoneal dialysis equipment more than
offset a decrease in hemodialysis machine sales.

EBITDA.

EBITDA for the International segment was
$292 million for both 2002 and 2001 (a decrease of 1% at
constant exchange rates). Our EBITDA margin decreased from 23.2%
to 21.8% mainly due to the financial crisis in Latin America
combined with growth of our business in lower margin countries.

Depreciation and Amortization

Depreciation and amortization decreased slightly
from 6% ($76 million) to 5% ($70 million) of revenues
for 2002 compared to 2001 mainly as a result of the
implementation of SFAS No. 142, partially offset by
additional depreciation and amortization for expanded production
facilities in Europe and Asia Pacific. 2001 amortization expense
for goodwill and intangible assets not amortized in 2002 under
SFAS No. 142 amounted to $14 million.

Operating Income

Operating income for the International segment
for 2002 increased 3% (a 1% decrease at constant exchange rates)
to $222 million due to the implementation of SFAS
No. 142. Our operating income margin decreased slightly
from 17.2% to 16.6%. Adjusting 2001 as if SFAS No. 142 was
implemented on January 1, 2001, operating income decreased
3% (a decrease of 6% at constant exchange rates) with operating
income margin decreasing from 18.3% to 16.6%. As with EBITDA,
this decrease was caused mainly by the financial crisis in Latin
America and growth in lower margin countries.

Latin America

Our subsidiaries in Latin America contributed
approximately $149 million (3%) of our worldwide revenue in
2002 compared to approximately $244 million (5%) of our
worldwide revenue in 2001. EBITDA decreased from
$36 million in 2001 to $14 million in 2002 while
operating income decreased from $21 million to
$6 million in the same period. Our operations in Latin
America were affected by the financial crisis and the currency
devaluation in Argentina and other Latin America countries.

We considered the financial crisis in Latin
America a triggering event. In the third quarter of this year,
we completed an impairment test of our Latin America operations
as required by SFAS No. 142. As of

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September 30, 2002, there was no impairment
of long lived assets and goodwill. However, a worsening of the
crisis in Argentina, a further devaluation of the Argentine peso
or other Latin American currencies against the U.S. dollar or
other unfavorable economic developments in Latin America could
result in an impairment of long lived assets and goodwill.
Goodwill and long-lived assets amount to $26 million and
$84 million, respectively, at December 31, 2002.


Corporate

We do not allocate corporate costs to
our segments in calculating segment operating income and EBITDA
as we believe that these costs are not within the control of the
individual segments. These corporate costs primarily relate to
certain headquarters overhead charges including accounting and
finance, professional services, etc.

Total corporate operating income was
$(18) million in 2002 compared to $(25) million in
2001. Operating income improved in 2002 due to a one-time
recognition of $7 million in 2001 expenses related to 1996
Merger related legal matters.

On February 14, 2002, the Company redeemed
the entire $360 million aggregate amount outstanding of its
9% Trust Preferred Securities due 2006. The Company exercised
its option to redeem the securities at a price of
US$1,045 per $1,000 liquidation amount plus accrued
distributions of $18.25 per $1,000 for a total redemption
price of $1,063.25 per $1,000. The Company funded the
redemption utilizing its 1996 Senior Credit Agreement.

An extraordinary loss of $12 million was
incurred as a result of the early redemption of debt, consisting
of $16 million of redemption premiums plus $3 million of
associated debt issuance costs, less a $7 million tax
benefit.

The following discussions pertain to our total
Company costs.

Interest

Net interest expense for 2002 decreased 7%
compared to 2001 mainly due to the redemption of our 9% trust
preferred securities in February 2002, which we financed through
our credit agreement at lower rates.

Income Taxes

The effective tax rate for the year ending
December 31, 2002 was 37.5% compared to 58.4% during 2001.
This decrease in the effective rate was caused by the
elimination of non-deductible amortization expense due to SFAS
No. 142 combined with not being able to deduct a portion of
the special charge for legal matters in 2001.

B.  LIQUIDITY AND CAPITAL
RESOURCES

Year ended December 31, 2003 compared to
year ended December 31, 2002

Cash Flow

Operations

We generated cash from operating activities of
$754 million in 2003 and $550 million in the
comparable period in 2002, an increase of approximately 37% over
the prior year. Cash flows benefited from $132 million of
temporary liquidity provided by hedging of certain intercompany
financing transactions, which is not expected to reoccur in that
magnitude in 2004, improved accounts receivable collections and
lower prepaid expenses and other current assets. We classify the
cash outflows from our accounts receivable securitization
program in the amount of $287 million as a financing
activity.

Investing

Cash used in investing activities increased from
$281 million to $369 million mainly because of increased
purchases of property, plant and equipment. Capital expenditures
for property, plant and equipment net of disposals were
$276 million for the year ended December 31, 2003 and
$201 million for the comparable period in

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2002. In 2003, capital expenditures were
$170 million in the North America segment and
$106 million for the International segment. In 2002,
capital expenditures were $98 million in the North America
segment and $103 million for the International segment. The
majority of our capital expenditures were used for equipment in
new clinics, the buyout of the Ogden lease, improvements to
existing clinics, and expansion of production facilities. Net
capital expenditures were approximately 5% of total revenue.


In 2003, we paid approximately $92 million
($40 million for the North American segment and
$52 million for the International segment) cash for
acquisitions consisting primarily of the adsorber business
acquired from Fresenius AG and dialysis clinics. In accordance
with the requirements of the pooling agreements relating to
outstanding Ordinary shares and Preference shares, the
acquisition of the Fresenius AG adsorber business was approved
by our independent directors. See Item 10, Additional
Information  Description of the Pooling
Agreements. In the same period in 2002, we paid
approximately $80 million ($38 million for the North
American segment and $42 million for the International
segment) cash for acquisitions consisting primarily of dialysis
clinics.

Financing

Net cash used in financing was $416 million
in 2003 compared to $265 million in the same period of 2002. Our
financing needs decreased due to higher operating cash flow
partially offset by higher payments for investing activities,
higher dividend payments and payments for the redemption of the
FMCH Class D Preferred Stock. Cash on hand was
$48 million at December 31, 2003 compared to
$65 million at December 31, 2002.

On February 21, 2003, we entered into an
amended and restated bank agreement with Bank of
America N.A, Credit Suisse First Boston, Dresdner Bank
AG New York, JPMorgan Chase Bank, The Bank of Nova Scotia
and certain other lenders (collectively, the
Lenders), pursuant to which the Lenders have made
available to the Company and certain subsidiaries and affiliates
an aggregate amount of up to $1.5 billion through three
credit facilities. On August 22, 2003, the 2003 Senior
Credit Agreement was amended so that, in effect, the aggregate
amount of $1.5 billion was voluntarily reduced to
$1.4 billion and the interest rate on a new term loan
facility (Loan C) was 25 basis points lower than the
interest rate on Loan B which was repaid. Funds available
under this agreement were used to refinance the previous credit
agreements outstanding balances and to pay down
$287 million of our accounts receivable facility.

On March 28, 2003, FMCH redeemed all of its
outstanding shares of Class D Special Dividend Preferred
Stock (Class D Shares) at a total cash outflow
of approximately $9 million.

On February 14, 2002, we redeemed the entire
$360 million amount outstanding of our 9% Trust Preferred
Securities due 2006, utilizing funds borrowed under our 1996
senior credit agreement. A loss of $12 million after tax
was incurred as a result of the early redemption of debt,
consisting of $16 million of redemption premiums plus a
$4 million write-off of associated debt issuance costs,
less a $8 million tax benefit.

Further financing was provided by
Fresenius AG at different levels throughout the year. As of
December 31, 2003 the balance outstanding was
$30 million.

Dividends

Consistent with prior years, we will continue to
follow an earnings-driven dividend policy. The Managing Board
and the supervisory board will propose a dividend of
1.02 per
ordinary share (2002:
0.94) and
1.08 per
preference share (2002:
1.00) for
shareholder approval at the annual general meeting on
May 27, 2004. The total expected dividend payment is
approximately
99.7 million.
Our 2003 Senior Credit Agreement limits disbursement of
dividends and other restricted payments during 2004 to
$150 million.

Liquidity

Our primary sources of liquidity have
historically been cash from operations, cash from short-term
borrowings as well as from long-term debt from third parties and
from related parties and cash from issuance of Preference shares
and trust preferred securities. Cash from operations is impacted
by the profitability of our business and the development of our
working capital, principally receivables. The profitability of
our business

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depends significantly on reimbursement rates.
Approximately 72% of our revenues are generated from providing
dialysis treatment, a major portion of which is reimbursed by
either public health care organizations or private insurers. For
the year ended December 31, 2003, approximately 43% of our
consolidated revenues resulted from U.S. federal health care
benefit programs, such as Medicare and Medicaid reimbursement.
Legislative changes may affect all Medicare reimbursement rates
for the services we provide, as well as the scope of Medicare
coverage. A decrease in reimbursement rates could have a
material adverse effect on our business, financial condition and
results of operations and thus on our capacity to generate cash
flow. Furthermore cash from operations depends on the collection
of accounts receivable. We may face difficulties in enforcing
and collecting accounts receivable under some countries
legal systems. Some customers and governments may have longer
payment cycles. This could have a material adverse effect on our
capacity to generate cash flow.


Cash from short-term borrowings can be generated
by selling interests in accounts receivable (accounts receivable
facility) and by borrowing from our parent Fresenius AG.
Long-term financing is provided by the revolving portion and
term loans under our 2003 Senior Credit Agreement and has been
provided through the issuance of our trust preferred securities.
We believe that our existing credit facilities, cash generated
from operations and other current sources of financing are
sufficient to meet our foreseeable needs.

The proceeds of Loan C, together with cash
from operations, were used to voluntarily and permanently repay
Loan B, a $500 million term loan facility under the
2003 Senior Credit Agreement. We used the initial borrowings
under the 2003 Senior Credit Agreement to refinance outstanding
borrowings under our prior senior credit agreement and to repay
$287 million of the accounts receivable facility.

At December 31, 2003, we had approximately
$463 million of borrowing capacity available under the
revolving portion of our 2003 Senior Credit Agreement.

Our Senior Credit Agreement and the indentures
relating to our trust preferred securities include covenants
that require us to maintain certain financial ratios or meet
other financial tests. Under our 2003 Senior Credit Agreement,
we are obligated to maintain a minimum consolidated net worth
and a minimum consolidated fixed charge ratio (ratio of earnings
before interest, taxes, depreciation, amortization and rent to
fixed charges) and we have to maintain a certain consolidated
leverage ratio (ratio of consolidated funded debt to adjusted
EBITDA).

Our 2003 Senior Credit Agreement and our
indentures include other covenants which, among other things,
restrict or have the effect of restricting our ability to
dispose of assets, incur debt, pay dividends and other
restricted payments (limited to $130 million in 2003,
increasing to $150 million in 2004), create liens or make
capital expenditures, investments or acquisitions. The breach of
any of the covenants could result in a default under the 2003
Senior Credit Agreement or the notes, which could, in turn,
create additional defaults under the agreements relating to our
other long-term indebtedness. In default, the outstanding
balance under the 2003 Senior Credit Agreement becomes due at
the option of the Lenders. As of December 31, 2003, we are
in full compliance with all financial covenants under the 2003
Senior Credit Agreement.

After redemption of $360 million aggregate
liquidation amount of 9% trust preferred securities on
February 14, 2002, our long-term financing under our
remaining trust preferred securities begins to come due in
February 2008. However, Loan C under our amended 2003
Senior Credit Agreement will become due on October 31, 2007
if our trust preferred securities due February 1, 2008 are
not repaid or refinanced or their maturity is not extended prior
to that date.

National Medical Care, Inc.
(NMC), our subsidiary, has an asset securitization
facility (the accounts receivable facility) whereby
receivables of NMC and certain affiliates are sold to
NMC Funding Corporation (the Transferor), a
wholly-owned subsidiary of NMC, and subsequently the Transferor
transfers and assigns percentage ownership interests in the
receivables to certain bank investors. The amount of the
accounts receivable facility was last amended on
October 23, 2003, when we extended its maturity to
October 22, 2004. Funds from the 2003 Senior Credit
Agreement were used to pay down $287 million of the
accounts receivable facility in 2003.

Our capacity to generate cash from the accounts
receivable facility depends on the availability of sufficient
accounts receivable that meet certain criteria defined in the
agreement with the third party funding corporation. A

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lack of availability of such accounts receivable
could have a material impact on our capacity to utilize the
facility for our financial needs.


The settlement agreement with the asbestos
creditors committees on behalf of the W.R. Grace & Co.
bankruptcy estate provides for payment of $115 million upon
approval of the settlement agreement by the U.S. District Court,
which has occurred, and confirmation of a W.R. Grace & Co.
bankruptcy reorganization plan that includes the settlement.

We are subject to a tax audit in Germany and as a
result may be required to make additional tax payments. The
potential payments will not affect earnings, as the related
taxes have been fully accrued. We are currently not in a
position to determine the timing of these payments which may
become payable in 2004.

Obligations

The following table summarizes, as of
December 31, 2003, our obligations and commitments to make
future payments under our long-term debt, trust preferred
securities and other long term obligations, and our commitments
and obligations under lines of credit and letters of credit.

|                                   |  |               |       |                           |  |           |     |              |  |   |       |  |  |   |       | 
|---------------------------------- |  | ------------- | ----- | ------------------------- |  | --------- | --- | ------------ |  | - | ----- |  |  | - | ----- | 
|                                   |  |               |       |                          
|                                   |  |               |       | Payments due by period of
|                                   |  |               |       |                          
|Contractual Cash Obligations       |  | Total         |       | 1 Year                    |  | 2-5 Years |     | Over 5 Years
|                                   |  |               |       |                           |  |           |     |             
|                                   |  |              
|                                   |  | (in millions)
|Trust Preferred Securities         |  | $             | 1,242 |                           |  | $         |    |              |  | $ | 644   |  |  | $ | 598   | 
|Long Term Debt                     |  |               | 1,192 |                           |  |           | 86  |              |  |   | 709   |  |  |   | 397   | 
|Capital Lease Obligations          |  |               | 10    |                           |  |           | 4   |              |  |   | 5     |  |  |   | 1     | 
|Operating Leases                   |  |               | 1,091 |                           |  |           | 237 |              |  |   | 589   |  |  |   | 265   | 
|Unconditional Purchase Obligations |  |               | 220   |                           |  |           | 94  |              |  |   | 126   |  |  |   |      | 
|Other Long-term Obligations        |  |               | 5     |                           |  |           | 5   |              |  |   |      |  |  |   |      | 
|                                   |  |               |       |                           |  |           |     |              |  |   |       |  |  |   |       | 
|                                   |  | $             | 3,760 |                           |  | $         | 426 |              |  | $ | 2,073 |  |  | $ | 1,261 | 
|                                   |  |               |       |                           |  |           |     |              |  |   |       |  |  |   |       | 

|                               |  |       |     |                          |  |           |    |              |  |   |     |  |  |   |   | 
|------------------------------ |  | ----- | --- | ------------------------ |  | --------- | -- | ------------ |  | - | --- |  |  | - | - | 
|                               |  |       |     |                         
|                               |  |       |     | Expiration per period of
|                               |  |       |     |                         
|Available Sources of Liquidity |  | Total |     | 1 Year                   |  | 2-5 Years |    | Over 5 Years
|                               |  |       |     |                          |  |           |    |             
|Unused Senior Credit Lines     |  | $     | 463 |                          |  | $         |   |              |  | $ | 463 |  |  | $ |  | 
|Other Unused Lines of Credit   |  |       | 96  |                          |  |           | 96 |              |  |   |    |  |  |   |  | 
|                               |  |       |     |                          |  |           |    |              |  |   |     |  |  |   |   | 
|                               |  | $     | 559 |                          |  | $         | 96 |              |  | $ | 463 |  |  | $ |  | 
|                               |  |       |     |                          |  |           |    |              |  |   |     |  |  |   |   | 

The amount of guarantees and other commercial
commitments at December 31, 2003 is not significant.

Borrowings

Short-term borrowings of $89 million and
$125 million at December 31, 2003, and 2002,
respectively, represent amounts borrowed by certain of our
subsidiaries under lines of credit with commercial banks. The
average interest rates on these borrowings at December 31,
2003, and 2002 was 3.38% and 4.67%, respectively. For
information regarding short-term borrowings from affiliates see
Note 4b in our Consolidated Financial Statements.

Excluding amounts available under the 2003 Senior
Credit Agreement (as described below), at December 31,
2003, we had $96 million available under such commercial
bank agreements. Some of these lines of credit are secured by
the individual borrowers accounts receivable and contain
various covenants including, but not limited to, requirements
for maintaining defined levels of working capital, net worth,
capital expenditures and certain financial ratios.

On February 21, 2003, we entered into an
amended and restated senior credit agreement with Bank of
America N.A, Credit Suisse First Boston, Dresdner Bank AG New
York, JPMorgan Chase Bank, The Bank of Nova Scotia, and certain
other financial institutions (collectively, the
Lenders). Pursuant to the agreement, the Lenders
made available to the Company and certain subsidiaries and
affiliates an aggregate amount of up to

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$1.5 billion through three credit
facilities. On August 22, 2003 the 2003 Senior Credit
Agreement was amended so that, in effect, the aggregate amount
was voluntarily reduced to $1.4 billion and the interest
rate on a new term loan facility (Loan C) was 25 basis points
lower than Loan B, which was repaid. The credit facilities are a
revolving facility of $500 million a term loan facility of
$500 million (Loan A) and a term loan facility of
$400 million (Loan C).


In 2001, we issued four tranches of senior notes
(Euro Notes) totaling
128.5 million.
The first tranche was for
80 million
with a fixed interest rate of 6.16% and the second and third
tranches for
28 million
and
15 million,
respectively, with variable interest rates which averaged 3.84%
in 2003 and 4.78% in 2002. The final tranche was for
5 million
at a fixed rate of 5.33%. All four tranches have a maturity date
of July 13, 2005. Both floating rates are tied to the
EURIBOR rate.

Year ended December 31, 2002 compared to
year ended December 31, 2001

Cash Flow

Operations

We generated cash from operating activities of
$550 million in the year ended December 31, 2002 and
$424 million in the comparable period in 2001, an increase
of about 30% over the prior year. Cash flows benefited from
improved accounts receivable collections, especially in North
America.

Investing

Cash used in investing activities decreased from
$468 million to $281 million mainly because of lower
cash acquisition payments and net capital expenditures. In 2002,
we paid approximately $80 million ($38 million for the
North American segment and $42 million for the
International segment) cash for acquisitions consisting
primarily of dialysis clinics. In 2001, we paid approximately
$217 million ($178 million for the North American
segment and $39 million for the International segment) cash for
acquisitions consisting primarily of dialysis clinics, including
the cash portion of the purchase price for Everest.

In addition, capital expenditures for property,
plant and equipment net of disposals were $201 million for
the year ended December 31, 2002 and $251 million for the
comparable period in 2001. In 2002, capital expenditures were
$98 million in the North America segment and
$103 million for the International segment. In 2001,
capital expenditures were $123 million in the North America
segment and $128 million for the International segment. The
majority of our capital expenditures were used for the upgrading
of existing clinics and the expansion of production facilities
in North America, Germany, France, Italy, Mexico, and Brazil.
Capital expenditures were approximately 4% of total revenue.

Financing

Net cash used in financing was $265 million
in 2002 compared to cash provided by financing of
$43 million in 2001 because our financing needs decreased
due to lower borrowing for acquisitions, higher operating cash
flows and lower capital expenditure. Cash on hand was
$65 million at December 31, 2002 compared to
$62 million at December 31, 2001.

On February 14, 2002, we redeemed the entire
$360 million aggregate liquidation amount outstanding of
our 9% Trust Preferred Securities due 2006, utilizing funds
borrowed under our 1996 senior credit facility. An extraordinary
loss of $12 million was incurred as a result of the early
redemption of debt, consisting of $16 million of redemption
premiums plus a $3 million write-off of associated debt
issuance costs, less a $7 million tax benefit.

In January 2001, we completed the acquisition of
Everest. Approximately one-third of the purchase price
($365 million) was funded by the issuance of
2.25 million Preference shares ($99 million) to
Everest stockholders. The remaining purchase price was paid with
$131 million cash and debt assumed ($135 million).
This debt was subsequently retired using our senior credit
facility.

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In June 2001 we completed offerings of
$225 million aggregate liquidation amount of
dollar-denominated 7 7/8% Trust Preferred Securities due
2011 and
300 million
aggregate liquidation amount of euro-denominated 7 3/8%
trust preferred securities due 2011.

Between July 13, 2001 and December 5,
2001 we issued four tranches of senior notes totaling
128.5 million.

Dividends

Consistent with prior years, in 2002 we followed
an earnings driven dividend policy. The management board and
supervisory board proposed a dividend of
0.94 per
ordinary share (2001:
0.85) and
1.00 per
preference share (2001:
0.91) to
shareholders at the annual general meeting on May 22, 2003
and they were approved. The total dividend payment was
approximately
92 million.
Our Senior Credit Agreement limited dividend payments during
2003 to $130 million.

Liquidity

Primary sources of liquidity have historically
been cash from operations, cash from short term borrowings as
well as from long term debt from third parties and from related
parties and cash from issuance of Preference shares. We expect
that our primary source of liquidity for 2003 will be our
operations and financing activities. Cash from operations is
impacted by the profitability of our business and the
development of our working capital, principally receivables. The
profitability of our business depends significantly on
reimbursement rates. Approximately 73% of our revenues are
generated from providing dialysis treatment, a major portion of
which is reimbursed by either public health care organizations
or private insurers. For the twelve months ended
December 31, 2002, approximately 43% of our consolidated
revenues resulted from U.S. federal health care benefit
programs, such as Medicare and Medicaid reimbursement.
Legislative changes may affect all Medicare reimbursement rates
for the services we provide, as well as the scope of Medicare
coverage. A decrease in reimbursement rates could have a
material adverse effect on our business, financial condition and
results of operations and thus on our capacity to generate cash
flow. For additional information about the impact of U.S.
government reimbursement programs, see Item 4B,
Business Overview  Dialysis Care 
Sources of U.S. Dialysis Care Net Revenues. Furthermore
cash from operations depends on the collection of accounts
receivable. We may face difficulties in enforcing and collecting
accounts receivable under some countries legal systems.
Some customers and governments may have longer payment cycles.
This could have a material adverse effect on our capacity to
generate cash flow.

Cash from short-term borrowings can be generated
by selling interests in accounts receivable (accounts receivable
facility) and by borrowing from our parent Fresenius AG.
Long-term financing is provided by the revolving portion and
term loans of our senior credit facility and has been provided
through the issuance of our trust preferred securities facility.
We believe that our existing credit facilities, cash generated
from operations and other current sources of financing are
sufficient to meet our foreseeable needs.

At December 31, 2002, we had approximately
$381 million of borrowing capacity available under the
revolving portion of our senior credit facility. On
February 21, 2003, we entered into an amended and restated
senior credit agreement with Bank of America N.A, Credit
Suisse First Boston, Dresdner Bank AG New York, JPMorgan
Chase Bank, The Bank of Nova Scotia, and certain other financial
institutions. Pursuant to the agreement, the Lenders have made
available to the Company and certain subsidiaries and affiliates
an aggregate of up to $1,500 million through three credit
facilities. The three facilities are a revolving facility of
$500 million and two term loan facilities of
$500 million each. We used the initial borrowings under the
2003 Senior Credit Agreement to refinance outstanding borrowings
under our prior senior credit agreement and for general
corporate purposes (see note 25 of the Consolidated
Financial Statements).

Our 2003 Senior Credit Agreement and the
indentures relating to our trust preferred securities include
covenants that require us to maintain certain financial ratios
or meet other financial tests. Under our Senior Credit
Agreement, we are obligated to maintain a minimum consolidated
net worth and a minimum consolidated fixed charge ratio (ratio
of earnings before interest, taxes, depreciation, amortization
and rent to fixed charges) and we have to maintain a certain
consolidated leverage ratio (ratio of consolidated funded debt
to EBITDA).

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Our 2003 Senior Credit Agreement and our
indentures include other covenants which, among other things,
restrict or have the effect of restricting our ability to
dispose of assets, incur debt, pay dividends, create liens or
make capital expenditures, investments or acquisitions. The
breach of any of the covenants could result in a default under
the credit agreement or the notes, which could, in turn, create
additional defaults under the agreements relating to our other
long term indebtedness. In default, the outstanding balance
under the senior credit agreement becomes due.

After redemption of $360 million aggregate
liquidation amount of 9% trust preferred securities on
February 14, 2002, our long-term financing under our
remaining trust preferred securities begins to come due in
February 2008.

NMC, our subsidiary, has an asset securitization
facility (the accounts receivable facility) whereby
receivables of NMC and certain affiliates are sold to NMC
Funding Corporation (the Transferor), a wholly-owned
subsidiary of NMC, and subsequently the Transferor transfers and
assigns percentage ownership interests in the receivables to
certain bank investors.

Our capacity to generate cash from the accounts
receivable facility depends on the availability of sufficient
accounts receivable that meet certain criteria defined in the
agreement with the third party funding corporation. A lack of
availability of such accounts receivable may have a material
impact on our capacity to utilize the facility for our financial
needs.

The settlement agreement with the asbestos
creditors committee on behalf of the W.R. Grace &
Co. bankruptcy estate provides for payment of $115 million
upon confirmation of the W.R. Grace & Co.
bankruptcy reorganization and approval of the settlement
agreement by the U.S. Bankruptcy Court. We are subject to a tax
audit in Germany and as a result may be required to make
additional tax payments. The potential payments will not affect
earnings, as the related taxes have been fully accrued. We are
currently not in a position to determine the amount and timing
of these payments.

Recently Issued Accounting Standards

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement Obligations.SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived
asset. It applies to legal obligations associated with the
retirement of long-lived assets that result from the
acquisition, construction, development and/or normal operation
of a long-lived asset. We adopted SFAS No. 143 as of
January 1, 2003. The adoption of SFAS No. 143 did not
have a material impact on our financial statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds SFAS No. 4,
SFAS No. 64 related to classifications of gains and losses
on debt extinguishments such that most debt extinguishment gains
and losses will no longer be classified as extraordinary. SFAS
No. 145 also amends SFAS No. 13, with respect to
certain sale-leaseback transactions. We adopted SFAS
No. 145 in regard to SFAS No. 4 on January 1,
2003. In the first quarter of 2002, we recorded an extraordinary
loss of $11.8 million, net of taxes of $7.7 million,
as a result of the early redemption of debt (see Note 13).
This loss is no longer presented as an extraordinary loss upon
the adoption of SFAS No. 145. We adopted the other
provisions of SFAS No. 145 effective April 1, 2002.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when
liabilities are incurred. SFAS No. 146 replaces EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring). This
statement is applied prospectively to exit or disposal
activities initiated after December 31, 2002.

In November 2002, the Financial Accounting
Standards Board issued FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees of Indebtedness of
Others. FIN 45 also requires the guarantor to recognize
a liability for the non-contingent component of the guarantee,
that is, the obligation to stand ready to perform in the event
that special triggering events or conditions occur. The

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initial recognition and measurement provisions
are applicable prospectively to guarantees issued or modified
after December 31, 2002. FIN 45 also clarifies and
expands the disclosure requirements related to guarantees,
including product warranties. FIN 45 does not materially
impact the Companys financial statements.


On April 3, 2003, the Financial Accounting
Standards Board issued SFAS No. 149 Amendment of Statement
133 on Derivative Instruments and Hedging Activities.This
Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement is effective for
contracts entered into or modified after June 30, 2003.
This adoption did not have any impact on our financial
statements.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150 Accounting for certain
Financial Instruments with Characteristics of both Liabilities
and Equity.This Statement requires an issuer to classify
certain financial instruments with the characteristics of both
liabilities and equity as a liability (or asset in some
circumstances) instead of equity. This Statement is effective
for financial instruments entered into or modified after
May 31, 2003 and otherwise effective at the beginning of
the first interim period beginning after June 15, 2003.
This adoption did not have any impact on our financial
statements.

In December 2003 the Financial Accounting
Standards Board issued SFAS No. 132 (revised 2003)
Employers Disclosures about Pensions and Other Postretirement
Benefits  an amendment of FASB Statements
No. 87, 88 and 106. This statement extends the
publishing rules for pension liabilities according to SFAS
No. 132. The accounting and valuation principles remain
unchanged.

In December 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46R
Consolidation of Variable Interest Rate Entities (revised)(FIN 46R) which addresses how a business
enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity.
FIN 46R replaced FASB Interpretation No. 46
Consolidation of Variable Interest Rate Entitieswhich
was issued in January 2003. The Company is required to apply FIN
46R for special purpose entities as of December 31, 2003
and for all other Variable Interest Entities (VIEs)
as of March 31, 2004. The Company is not involved with any
special purpose entity which required initial consolidation as
of December 31, 2003 and will apply FIN 46R on
March 31, 2004 for all VIEs.

We are party to various arrangements with certain
dialysis clinics to provide management services, financing and
product supply. Some of these clinics are variable interest
entities. Under FIN 46R these clinics will be consolidated if we
are the primary beneficiary. We also participate in a joint
venture which is engaged in the perfusion business. The
arrangements with the joint venture partner are such that the
joint venture qualifies as a variable interest entity and we are
the primary beneficiary. These variable interest entities
generate approximately $153,000 in annual revenue. This includes
approximately $14,000 related to variable interest entities in
which we are not the primary beneficiary. We have investments,
other long term assets and receivables of approximately $42,000
which represent our maximum exposure to loss as a result of our
involvement with the variable interest entities.

C.  Research and
development

Our research and development activities aim to
improve the quality of dialysis treatment by matching it more
closely with the individual needs of the patient, while reducing
the overall cost for treatment. With our vertical integration,
our research and development department can apply our experience
as the worlds largest provider of dialysis treatments to
product development. To maintain and further enhance a
continuous stream of product innovations, we have
388 employees working in research and development worldwide
at December 31, 2003. Approximately two-thirds of our
research and development activities are based in Germany and one
third in North America.

Research and development focuses strongly on the
development of new products, technologies and treatment concepts
to optimize treatment quality for dialysis patients, and on
process technology for manufacturing our products. Research and
development expenditures were $36 million in 2001,
$47 million in 2002, and

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$50 million in 2003. For information
regarding recent product introductions, see Item 4.B.
Business Overview  New Product Introductions.


We intend to continue to maintain our central
research and development operations for disposable products at
our St. Wendel, Germany facility and for durable products
at our Schweinfurt and Bad Homburg, Germany facilities.
Local activities will continue to focus on cooperative efforts
with those facilities to develop new products and product
modifications for local markets.

In North America, we have concentrated our
business development activities on expanding our products
business in three main areas:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | pharmaceutical products utilized in treating our
    renal patient base                                                           
|
| |  | innovative products to improve vascular access
    outcomes for our renal patients                                                
|
| |  | products and technologies which leverage our core
    competencies to provide extracorporeal therapies to treat other
    diseases

D.  Trend information

For information regarding significant trends in
our business see Item 5.A. Operating Financial Review
and Prospects.

Item 6.  Directors, Senior
Management and Employees

A.  Directors and senior
management

General

In accordance with the German Stock Corporation
Act, we have a supervisory board and a management board. The two
boards are separate and no individual may simultaneously be a
member of both boards.

Our Supervisory Board

Our supervisory board consists of five members
who are elected by the holders of Ordinary shares at our annual
general meeting. Pursuant to the pooling agreements described in
the exhibits, at least one-third (but no fewer than two) of the
members of the supervisory board elected by the shareholders are
required to be independent directors as defined in the pooling
agreements, i.e., persons with no substantial business or
professional relationship with us, Fresenius AG or any affiliate
of either.

If and when either:



| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Fresenius Medical Care AG itself has more than
    500 employees; or                                                                                                     
|
| |  | we enter into a domination agreement with a
    German subsidiary having more than 500 employees, or if that
    subsidiary is integrated into Fresenius Medical Care AG;

the German employees of Fresenius Medical Care AG
and our German subsidiaries will elect one-third of the members
of the supervisory board. If and when the aggregate number of
employees of Fresenius Medical Care AG and our German
subsidiaries exceeds 2,000, the supervisory board will increase
to 12 persons and the holders of Ordinary shares and the German
employees of Fresenius Medical Care and our German subsidiaries
will elect six members each. In that case, the Chairman of the
supervisory board will be selected from the members elected by
the shareholders and will have the tie-breaking vote.

The term of a member of the supervisory board
will expire at the end of the general meeting of shareholders
after the fourth fiscal year following the year in which the
member was elected, but not counting the fiscal year in which
such members term begins. Members of the supervisory board
elected by our shareholders may be removed by a resolution of
our general meeting. This resolution requires a three-fourths
majority of the votes cast at that meeting. The supervisory
board ordinarily acts by simple majority vote and the Chairman
has a tie-breaking vote in case of any deadlock.

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The principal function of the supervisory board
is to appoint and to supervise the management board and to
approve mid-term planning, dividend payments and matters which
are not in the ordinary course of business and are of
fundamental importance to us.

The table below provides the names and ages of
the members of our supervisory board as of December 31,
2003.

|                                   |  |              |    | 
|---------------------------------- |  | ------------ | -- | 
|                                   |  | Age as of   
|                                   |  | December 31,
|Name                               |  | 2003        
|                                   |  |             
|Dr. Gerd Krick, Chairman           |  |              | 65 | 
|Dr. Dieter Schenk, Deputy Chairman |  |              | 51 | 
|Prof. Dr. Bernd Fahrholz           |  |              | 56 | 
|Walter L. Weisman(1)               |  |              | 68 | 
|Stephen M. Peck(1)                 |  |              | 68 | 

| | 
| | 
| | 



| |     |                                                               
| | --- | --------------------------------------------------------------
| | (1) | Independent Director for purposes of our pooling
    agreement

The term for each member of the supervisory board
set forth above will expire at the end of the fiscal year 2005.
Members of the supervisory board are eligible for reelection at
the 2006 Annual General Shareholders Meeting.

DR. GERD KRICK has been Chairman of our
supervisory board since January 1, 1998. From 1992 to 2003,
he was Chairman of the Fresenius AG management board. Prior to
1992, he was a Director of the Medical Systems Division of
Fresenius AG and Deputy Chairman of the Fresenius AG management
board. From September 1996 until December 1997, Dr. Krick
was Chairman of the management board of Fresenius Medical Care.
Dr. Krick is a member of the Board of Directors of Adelphi
Capital Europe Fund, of the Administrative Board of Dresdner
Bank Luxembourg S.A., of the supervisory board of Vereinte
Krankenversicherung AG, of the Advisory Board of HDI
Haftpflichtverband der deutschen Industrie and of the Board of
Trustees of the Donau Universität Krems. He is also the
Chairman of the supervisory boards of Vamed AG, Fresenius Kabi
AG and Fresenius Kabi Austria GMBH all of which are subsidiaries
of Fresenius AG.

DR. DIETER SCHENK has been Vice Chairman of
our supervisory board since 1996. He is an attorney and tax
advisor and has been a partner in the law firm of Nörr
Stiefenhofer Lutz since 1986. Dr. Schenk is also a member
of the supervisory board of Fresenius AG. He also serves as a
member and chairman of the supervisory board of Gabor Shoes AG,
a member and vice-chairman of the supervisory boards of
Greiffenberger AG and TOPTICA Photonics AG.

PROF. DR. BERND FAHRHOLZ has been a member of our
supervisory board since 1998. He is an attorney and was a member
of the management board of Dresdner Bank AG since 1998 and its
Chairman from April 2000 until he resigned in March of 2003. He
also served as the deputy chairman of the management board of
Allianz AG and chairman of the supervisory board of Advance
Holding AG until March of 2003. Dr. Fahrholz was a member
of the supervisory boards of Dresdner Kleinwort Benson North
America Inc. until February of 2003, BNP-Paribas S.A. until
March of 2003 and Dresdner Bank Luxembourg S.A. until October of
2003. He currently serves on the supervisory boards of BMW AG
and Heidelberg Cement AG.

WALTER L. WEISMAN has been a member of our
supervisory board since 1996. He is a private investor and a
former Chairman and Chief Executive Officer of American Medical
International, Inc. Mr. Weisman is on the board of
Community Care Health Network, Inc., Maguire Properties, Inc.,
and Occidental Petroleum Corporation. He is Vice-Chairman of the
Board of trustees for the California Institute of Technology,
Chairman of the Board of the Los Angeles County Museum of Art,
Chairman of the Board of the Sundance Institute, and a trustee
of the Samuel H. Kress Foundation and the Public Broadcasting
Service.

STEPHEN M. PECK was elected to our supervisory
board in 1999. He is currently a partner with Wilderness Funds
LP. He is a former managing partner of Weiss, Peck & Greer
which he co-founded in 1970. He served as Chief Investment
Officer and Director of Reliance Insurance Company, Inc. from
January 1986 to July 1988. Mr. Peck is a member of the
Board of Directors of Advance Auto Parts, Inc., Boston Life
Sciences, Inc.

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and Carnac Resource, Inc. Mr. Peck is
presently on the Board of Trustees of Mount Sinai Medical
Center, Mount Sinai Hospital, and the Mount Sinai School of
Medicine. He is a member of the Board of Trustees of Mount
Sinai/ NYU Health and The Jewish Theological Seminary.


Management Board

Each member of our management board is appointed
by the supervisory board for a maximum term of five years and is
eligible for reappointment thereafter. Their terms expire at our
annual general meeting in the years listed below.

The table below provides names, ages, positions
and terms of office of the members of our management board as of
December 31, 2003.

|                   |  |              |    |          |  |                                                                                                                                |  |  |      | 
|------------------ |  | ------------ | -- | -------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  | ---- | 
|                   |  | Age as of    |    |          |  | Year                                                                                                                          
|                   |  | December 31, |    |          |  | Term                                                                                                                          
|Name               |  | 2003         |    | Position |  | Expires                                                                                                                       
|                   |  |              |    |          |  |                                                                                                                               
|Dr. Ben J. Lipps   |  |              | 63 |          |  | Chairman of the management board, Chief Executive
    Officer of our Company and Chief Executive Officer for North
    America |  |  | 2008 | 
|Roberto Fusté      |  |              | 51 |          |  | Chief Executive Officer for Asia Pacific                                                                                       |  |  | 2006 | 
|Dr. Emanuele Gatti |  |              | 48 |          |  | Chief Executive Officer for Europe, Middle East,
    Africa and Latin America                                                  |  |  | 2005 | 
|Lawrence Rosen     |  |              | 45 |          |  | Chief Financial Officer (as of November 1,
    2003)                                                                           |  |  | 2005 | 
|Dr. Rainer Runte   |  |              | 44 |          |  | General Counsel and Chief Compliance Officer                                                                                   |  |  | 2005 | 

DR. BEN J. LIPPS has been Chairman of
the management board since May 1, 1999 and was Vice
Chairman of the management board from September 1998 until
May 1, 1999. He has been President and a director of
Fresenius Medical Care Holdings since September 1996 and
President, Chief Executive Officer, Chief Operating Officer and
a director of Fresenius USA since October 1989, and served in
various capacities with Fresenius USAs predecessor since
1985. Dr. Lipps joined Dow Chemical Company in 1966 and led the
research team that developed the first hollow fiber dialyzer
between 1967 and 1969. Prior to joining Fresenius USAs
predecessor, Dr. Lipps was a Vice President of Research and
Development for Cordis Dow Corporation.

ROBERTO FUSTÉ was appointed to our
management board effective January 1, 1999.
Mr. Fusté is responsible for the Asia-Pacific region
within the International segment, for which he assumed
responsibility in 1998. Mr. Fusté joined Fresenius AG
in 1991 when Fresenius AG acquired Nephrocontrol S.A., a Spanish
company which he founded in 1985 and of which he was Managing
Director and joint owner. After the company was acquired by
Fresenius AG, he continued as Managing Director. In 1995, he
joined the Head Office of Fresenius AG where he has held various
executive positions.

DR. EMANUELE GATTI has been a member of our
management board since May 1997 and is President and Chief
Executive Officer of Europe, Latin America, Middle East and
Africa within the International segment. Previously he was
Executive Vice President with responsibility for our dialysis
business in Southern Europe. Dr. Gatti joined the Fresenius
Group in 1989 when Fresenius AG acquired Sis-ter, an Italian
company of which he was General Manager. He has been working in
the field of dialysis since 1981 after leaving the Polytechnic
School of Milan where he was involved in teaching and biomedical
research.

LAWRENCE ROSEN joined our management board on
November 1, 2003 and is Chief Financial Officer. He served
as Group Senior Vice President for Corporate Finance and
Treasury with Aventis S.A., in Strasbourg, France before his
move to Fresenius Medical Care. In that position he was
responsible for all Corporate Finance activities as well as Risk
and Cash Management, including banking and rating agency
relationships. Lawrence Rosen worked for Aventis S.A. and its
predecessor companies since 1984 and has served in senior
finance and

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treasury positions in North America, Germany, and
France. He holds a Master of Business Administration
(MBA) from the University of Michigan, USA and a Bachelor
of Science in Economics from the State University of New York at
Brockport, USA.


DR. RAINER RUNTE was appointed a deputy
member of our management board as General Counsel and Chief
Compliance Officer effective March 15, 2002 and as of
January 1, 2004 was made a full member of the management
board responsible for law and compliance worldwide.
Dr. Runte has worked as in-house counsel within Fresenius
AG and its subsidiaries and has served as General Counsel of
Fresenius Medical Care since 1997.

On February 25, 2004, the following new
members were appointed to the Companys management board:

RICE POWELL age 48, has more than 25 years
of experience in the healthcare industry. Since 1997 he has been
the President of Renal Products division of Fresenius Medical
Care in North America including the Extracorporal Therapy and
Laboratory Services.

MATS WAHLSTROM, age 49, also has nearly
20 years of experience in the renal field. Since November
2002 he has been the President of Fresenius Medical Cares
Medical Services division in North America.

The business address of all members of our
management board and supervisory board is
Else-Kröner-Strasse 1, 61352 Bad Homburg, Germany.

B.  Compensation

Compensation of Our Management Board and
our Supervisory Board

For the year ended December 31, 2003, we
paid aggregate cash compensation to all members of the
management board of
3.4 million.
The aggregate compensation fees to all members of the
supervisory board was
0.4 million
including compensation to Dr. Krick for his duties as
Chairman of the supervisory board. We pay an annual retainer fee
to each member of the supervisory board, with the Chairman paid
twice that amount and the Deputy Chairman paid 150% of that
amount. We reimburse supervisory board members for their
reasonable travel and accommodation expenses incurred with
respect to their duties as supervisory board members. The
aggregate compensation reported above does not include amounts
paid as fees for services rendered by certain business or
professional entities with which some of the supervisory board
members are associated.

During 2003 we awarded no options to members of
the management board to purchase our preference shares without
or without stock price targets under the new FMC International
2001 Plan. At December 31, 2003 management board members
held options to acquire 99,600 Preference shares, all of which
were exercisable at a weighted average exercise price of
36.49 under
FMC 98 Plan 2 and 239,250 options, of which
27,460 are exercisable under the FMC 2001 stock incentive plan.

During 1999, the Company granted to a member of
the management board a five-year loan of $2 million with
interest at 6.0% per annum. This loan was repaid in 2003.

C.  Board Practices

For information relating to the terms of office
of our management board and our supervisory board and the
periods in which the members of those bodies have served in
office, see Item 6.A. above. We do not have a remuneration
committee. Our supervisory board carries out the functions
usually performed by the remuneration committee, and our
supervisory board reviews the compensation of the members of our
management board. On March 6, 2003 the supervisory board
created an audit committee whose members are Dr. Bernd
Fahrholz, Walter Weisman and Stephen M. Peck. The primary
function of the audit committee is to assist the Board in
fulfilling its oversight responsibilities, primarily through:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | overseeing managements conduct or our
    financial reporting process and the internal accounting and
    financial control systems and auditing of our financial
    statements;
|
| |  | monitoring our internal controls risk program;                                                                                                                                    

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| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | monitoring the independence and performance of
    our outside auditors;                                                                                                                                                 
|
| |  | providing an avenue of communication among the
    outside auditors, management and the supervisory board;                                                                                                               
|
| |  | retaining the services of our independent
    auditors (subject to the approval by our shareholders at our
    annual general meeting) and approval of their fees; and                                                   
|
| |  | pre-approval of all audit and non-audit services
    performed by KPMG Deutsche Treuhand-Gesellschaft AG
    Wirtschaftsprüfungsgesellschaft, the accounting firm which
    audits our consolidated financial statements.

D.  Employees

At December 31, 2003, we had 41,097
employees, as compared to 39,264 at December 31, 2002 and
37,331 at December 31, 2001. They are employed in our
principal segments as follows: North America 26,953 employees
and International 14,144. The following table shows the average
number of employees by segment and our major category of
activities for the last three fiscal years.

|              |                   |      |        |        |  |      |        |        |  |  |        |        | 
|------------- | ----------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|              |                   | 2003 |        | 2002   |  | 2001
|              |                   |      |        |        |  |     
|North America |                   |      |        |        |  |      |        |        |  |  |        |       
|              | Dialysis Care     |      |        | 21,986 |  |      |        | 21,628 |  |  |        | 22,382 | 
|              | Dialysis Products |      |        | 4,967  |  |      |        | 4,861  |  |  |        | 3,970  | 
|              |                   |      |        |        |  |      |        |        |  |  |        |       
|              |                   |      | 26,953 |        |  |      | 26,489 |        |  |  | 26,352 |       
|International |                   |      |        |        |  |      |        |        |  |  |        |       
|              | Dialysis Care     |      |        | 7,788  |  |      |        | 6,924  |  |  |        | 6,173  | 
|              | Dialysis Products |      |        | 6,356  |  |      |        | 5,851  |  |  |        | 4,806  | 
|              |                   |      |        |        |  |      |        |        |  |  |        |       
|              |                   |      | 14,144 |        |  |      | 12,775 |        |  |  | 10,979 |       

We are a member of the Chemical Industry
Employers Association in Germany and we are bound by union
agreements negotiated with the respective union representatives.
We are also party to additional shop agreements negotiated with
works councils at individual facilities that relate to those
facilities. In addition, approximately 2% of our U.S. employees
are covered by collective bargaining agreements. During the last
three fiscal years, we have not suffered any labor-related work
disruptions.

E.  Share ownership

As of December 31, 2003, members of the
supervisory board and the management board as a group owned
4,367 Ordinary shares (0.01% of total Ordinary shares
outstanding) and 3,200 Preference shares (0.01% of total
Preference shares outstanding). At December 31, 2003
management board members held options to acquire
338,850 Preference shares of which options to purchase
127,060 Preference shares were exercisable at a weighted
average exercise price of
42.19. Those
options expire at various dates between 2008 and 2013. None of
the members of our management board and our supervisory board
beneficially owns more than 1% of our outstanding Ordinary
shares or our outstanding Preference shares.

Options to Purchase Our Securities

Stock Option Plans

Immediately prior to the formation of Fresenius
Medical Care, we adopted a stock incentive plan (the FMC
Plan) for our key management and executive employees. As
of December 31, 2003, 53,389 preference shares were
available and exercisable with an average price range between
$55.59 and $78.33 per share. Effective September 2001, no
additional awards are granted under the FMC Plan.

During 1998, we adopted two stock incentive plans
(FMC 98 Plan 1 and FMC 98
Plan 2) for our key management and executive
employees. Under FMC 98 Plan 1, eligible employees
have the right to acquire Preference shares of the Company. The
maximum number of Preference shares that may be issued under
this plan

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is 2,443,333 less any shares issued, or subject
to issue, under the FMC Plan. Any shares available due to
forfeiture of Grants under the FMC Plan would be considered
available under FMC 98 Plan 1 as long as the total
Preference shares issued under both plans does not exceed the
2,443,333 shares noted above. Under FMC 98
Plan 2, eligible employees have the right to acquire our
Preference shares (Options). The share price of the
Preference share shall be equal to the average of the official
daily quotation prices of the Preference shares on the Frankfurt
Stock Exchange on the thirty days (30) of trading
immediately prior to the date of grant of the Option. One-third
of an Option vests on each of the second, third and fourth
anniversaries of the award date, provided that we achieve
certain performance criteria for the full fiscal year following
the grant date in comparison to the full fiscal year preceding
the grant date. On May 30, 2000, our shareholders approved
a change to the FMC 98 Plan 2 whereby the impact of
the special charge for the 1999 Settlement was excluded from the
our performance criteria relative to the EBIT growth
requirements in the plan. Options granted under FMC 98 Plan 2
have a 10-year term. The maximum number of Preference shares
that may be issued under this plan is 2,500,000 shares, of
which 500,000 are designated for management board members and
2,000,000 are for other managerial staff. Each option is
exercisable into one Preference share. Effective September 2001,
no additional Grants or Options will be awarded under FMC
Plan 98 1 or FMC Plan 98 2.


On May 23, 2001, by resolution of our annual
general meeting, the FMC 98 Plans were replaced by a new plan.
The management board was empowered to issue convertible bonds
with a total value of
10,240,000 to
the members of the management board and to other employees
entitling the holders to a total subscription of up to
4 million non-voting Preference shares. The convertible
bonds have a par value of
2.56 and are
interest bearing at a rate of 5.5%. Purchase of the bonds may be
funded by a non-recourse loan secured by the bond with respect
to which the loan was made. We have the right to offset our
obligation on a convertible bond against the employee obligation
on the related loan; therefore, the convertible bond obligations
and employee loan receivables are not reflected in our
consolidated financial statements. The bonds mature in ten years
and are generally fully convertible after three years. The bonds
may be issued either as convertible bonds which are subject to a
stock price target or convertible bonds without a stock price
target. In the case of convertible bonds which are subject to a
stock price target the conversion right is exercisable only if
the market price of the Preference shares increases by 25% or
more over the grant-date price subsequent to the day of grant
for at least one day prior to exercise. Participants have the
right to opt for convertible bonds with or without the stock
price target. In order to create an incentive to select
convertible bonds which depend on the stock price target, the
number of convertible bonds awarded to those employees who
select the bonds without a stock price target will be reduced by
15%. Each convertible bond entitles the holder thereof, upon
payment of a conversion price to convert the bond into one
Preference share. The conversion price of the convertible bonds
which are not subject to the stock price target is determined by
the average price of the Preference shares during the last 30
trading days prior to the date of grant. The conversion price of
the convertible bonds which depend on the stock price target
corresponds to the closing price of the Preference shares the
day the target was reached.

The managing board and supervisory board are
authorized to issue up to 20% of the total number of convertible
bonds each year through May 22, 2006. The plan is valid
until the last convertible bond issued under this plan is
terminated or converted. Of the 2,002,911 options
outstanding at December 31, 2003, 360,049 options were
issued under the plan with the stock price target.

Rollover options

In connection with our formation, employees of
National Medical Care exchanged options to purchase
W.R. Grace common stock and Fresenius USA employees
exchanged options to purchase Fresenius USA common stock for
equivalent options with respect to our Ordinary shares. When we
were formed, German corporate law did not allow us to reserve
Ordinary shares and issue them upon the exercise of these
rollover options, as is done by U.S. corporations. Instead,
we issued the Ordinary shares issuable upon exercise of the
options to Fresenius AG, which will hold the shares until
exercise of the options. Fresenius AG has agreed that it
will not exercise voting power, and will return any dividends
paid, with respect to the Ordinary shares underlying options
formerly related to W.R. Grace common stock. Upon exercise
of any of these options, the holder will pay the option exercise
price to us and Fresenius AG will deliver the Ordinary
shares to the depositary for the Ordinary shares against
issuance of American Depository Shares (ADSs)
representing Ordinary shares in the

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name of the option holder. Upon cancellation or
expiration without exercise of options formerly relating to
W.R. Grace common stock, Fresenius AG will transfer
the underlying Ordinary shares to us at no cost. Upon
cancellation or expiration without exercise of options formerly
relating to Fresenius USA common stock, the underlying Ordinary
shares will revert to Fresenius AG. All rollover options
expire on the same date on which the previous options to
purchase either the W.R. Grace common stock or Fresenius
USA common stock to which such rollover options relate would
have expired.


During the year ended December 31, 2003,
79,491 FMC Rollover Plan options were exercised by employees.
Rollover Plan options for 24,927 Ordinary ADSs were
outstanding and exercisable as of December 31, 2003 at a
weighted average exercise price of $13.53. Members of our
supervisory board and our management board, as a group, held no
rollover options.

Item 7.  Major Shareholders
and Related Party Transactions

A.  Major Shareholders

Security Ownership of Certain Beneficial
Owners of Fresenius Medical Care

Our outstanding share capital consists of
Ordinary shares and non-voting Preference shares that are issued
only in bearer form. Accordingly, unless we receive information
regarding acquisitions of our shares through a filing with the
Securities and Exchange Commission or through the German
statutory requirements referred to below, we have no way of
determining who our shareholders are or how many shares any
particular shareholder owns except as described below with
respect to our shares held in American Depository Receipt
(ADR) form. Because we are a foreign private issuer
under the rules of the Securities and Exchange Commission, our
directors and officers are not required to report their
ownership of our equity securities or their transactions in our
equity securities pursuant to Section 16 of the Exchange
Act. Under the German Securities Exchange Law
(Wertpapierhandelsgesetz), holders of voting securities
of a German company listed on the official market (amtlicher
Handel)of a German stock exchange or a corresponding
trading segment of a stock exchange within the European Union
are obligated to notify the company of the level of their
holding whenever such holding reaches, exceeds or falls below
certain thresholds, which have been set at 5%, 10%, 25%, 50% and
75% of a companys outstanding voting rights.

We have been informed that as of
December 31, 2003, Fresenius AG owned the majority, 50.8%,
of our Ordinary shares. At December 31, 2003
Fresenius AGs Ordinary shares represented
approximately 37% of our total share capital. JPMorgan Chase
Bank, our ADR depositary, informed us, that as of
December 31, 2003 2,079,369 Ordinary ADSs, each
representing one-third of an Ordinary share, were held of record
by 7,673 U.S. holders and 47,401 Preference ADSs, each
representing one-third of a Preference share, were held of
record by 5 U.S. holders. Ordinary shares and Preference
shares held directly by U.S. holders accounted for
approximately 1% of our Ordinary shares outstanding and less
than 1% of our Preference shares outstanding as of
December 31, 2003. For more information regarding ADRs and
ADSs see Item 10.B. Memorandum and Articles of
Association  Description of American Depositary
Receipts.

According to a Schedule 13G filed with the
Securities and Exchange Commission on February 17, 2004, by
FMR Corp., Edward C. Johnson 3d and Abigail Johnson,
at December 31, 2003, Edward C. Johnson 3d and
Abigail Johnson were the beneficial owners of 3,649,110 or 5.2%
of the common stock of Fresenius Medical Care AG.
The Schedule 13G states that 2,458,237 such shares, or 3.5%
of our common stock is beneficially owned by
Fidelity Management & Research Company
(Fidelity), 82 Devonshire Street, Boston,
MA 02109, a wholly-owned subsidiary of FMR Corp. and a
registered investment advisor to various investment companies
registered under Section 8 of the Investment Company Act of
1940.

Security Ownership of Certain Beneficial
Owners of Fresenius AG

Fresenius AGs share capital consists of
Ordinary shares and non-voting Preference shares. Both classes
of shares are issued only in bearer form. Accordingly,
Fresenius AG has no way of determining who its shareholders
are or how many shares any particular shareholder owns. However,
under the German Securities Exchange Law, holders of voting
securities of a German company listed on the official market
(amtlicher Handel)of a German

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stock exchange or a corresponding trading segment
of a stock exchange within the European Union are obligated to
notify the company of certain levels of holdings, as described
above.


Based on the most recent information available,
Vermögensverwaltungsgesellschaft Nachlass Else Kröner
mbH owns 67.4% of the Fresenius AG Ordinary shares. In addition,
Allianz Lebensversicherungs-AG informed Fresenius AG that it
owns 9.7% of the Fresenius AG Ordinary shares.

B.  Related party
transactions

In connection with the formation of Fresenius
Medical Care, and the combination of the dialysis businesses of
Fresenius AG and W.R. Grace, Fresenius AG and its
affiliates and Fresenius Medical Care and its affiliates entered
into several agreements for the purpose of giving effect to the
merger and defining our ongoing relationship. Fresenius AG and
W.R. Grace negotiated these agreements. The information below
summarizes the material aspects of certain agreements,
arrangements and transactions between Fresenius Medical Care and
Fresenius AG and their affiliates. Some of these agreements have
been previously filed with the Securities and Exchange
Commission. The following descriptions are not complete and are
qualified in their entirety by reference to the agreements,
copies of which have been filed with the Securities and Exchange
Commission and the New York Stock Exchange. We believe that the
leases, the supply agreements and the service agreements are no
less favorable to us and no more favorable to Fresenius AG than
would have been obtained in arms-length bargaining between
independent parties. The trademark and other intellectual
property agreements summarized below were negotiated by
Fresenius AG and W.R. Grace, and, taken independently, are
not necessarily indicative of market terms.

In the discussion below regarding our contractual
and other relationships with Fresenius AG:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the term we (or us) and our
    affiliates refers onlyto Fresenius Medical Care AG
    and its subsidiaries; and                                                        
|
| |  | the term Fresenius AG and its
    affiliates refers onlyto Fresenius AG and
    affiliates of Fresenius AG other thanFresenius Medical
    Care AG and its subsidiaries.

Real Property Lease

We did not acquire the land and buildings in
Germany that Fresenius Worldwide Dialysis used when we were
formed. Fresenius AG or its affiliates have leased part of the
real property to us, directly, and transferred the remainder of
that real property to two limited partnerships. Fresenius AG is
the sole limited partner of each partnership, and the sole
shareholder of the general partner of each partnership. These
limited partnerships, as landlords, have leased the properties
to us and to Fresenius AG, as applicable, for use in our
respective businesses. The aggregate annual rent payable by us
under these leases is approximately
11.8 million,
which was approximately $13.3 million as of
December 31, 2003, exclusive of maintenance and other
costs, and is subject to escalation, based upon the German cost
of living index for a four-person employee household. The leases
for manufacturing facilities have a ten-year term, followed by
two successive optional renewal terms of ten years each at our
election. The leases for the other facilities have a term of ten
years. Based upon an appraisal, we believe that the rents under
the leases represent fair market value for such properties. For
information with respect to our principal properties in Germany,
see Item 4.D. Property, plants and equipment.

Covenants Not to Compete

Each of Fresenius AG and W.R. Grace has
agreed that, for a period of ten years after our formation, it
will not compete with us in any aspect of the business of
supplying renal care-related goods and services, including
laboratories. However, Fresenius AG may continue its home
care business.

Trademarks

Fresenius AG continues to own the name and mark
Fresenius and its F logo. Fresenius AG
and Fresenius Medical Care Deutschland GmbH, our principal
German subsidiary, have entered into agreements containing the
following provisions. Fresenius AG has granted to our
German subsidiary, for our benefit and that

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of our affiliates, an exclusive, worldwide,
royalty-free, perpetual license to use Fresenius Medical
Care in our corporate names, and to use the Fresenius
marks, including some combination marks containing the Fresenius
name that were used by Fresenius AGs dialysis
business, and the Fresenius Medical Care name as a trade name,
in all aspects of the renal business. Our German subsidiary, for
our benefit and that of our affiliates, has also been granted a
worldwide, royalty-free, perpetual license:




| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to use the Fresenius Medical Care
    mark in the then current National Medical Care non-renal
    business if it is used as part of Fresenius Medical
    Care together with one or more descriptive words, such as
    Fresenius Medical Care Home Care or Fresenius
    Medical Care Diagnostics;
|
| |  | to use the F logo mark in the
    National Medical Care non-renal business, with the consent of
    Fresenius AG. That consent will not be unreasonably
    withheld if the mark using the logo includes one or more
    additional descriptive words or symbols; and                                     
|
| |  | to use Fresenius Medical Care as a
    trade name in both the renal business and the National Medical
    Care non-renal business.                                                                                                                                                                        

We and our affiliates have the right to use
Fresenius Medical Care as a trade name in other
medical businesses only with the consent of Fresenius AG.
Fresenius AG may not unreasonably withhold its consent. In the
U.S. and Canada, Fresenius AG will not use Fresenius
or the F logo as a trademark or service mark, except
that it is permitted to use Fresenius in combination
with one or more additional words such as Pharma Home
Care as a service mark in connection with its home care
business and may use the F logo as a service mark
with the consent of our principal German subsidiary. Our
subsidiary will not unreasonably withhold its consent if the
service mark includes one or more additional descriptive words
or symbols. Similarly, in the U.S. and Canada,
Fresenius AG has the right to use Fresenius as
a trade name, but not as a mark, only in connection with its
home care and other medical businesses other than the renal
business and only in combination with one or more other
descriptive words, provided that the name used by
Fresenius AG is not confusingly similar to our marks and
trade names. After the expiration of Fresenius AGs
ten-year covenant not to compete with us, Fresenius AG may use
Fresenius in its corporate names if it is used in
combination with one or more additional descriptive word or
words, provided that the name used by Fresenius AG is not
confusingly similar to the Fresenius Medical Care marks or
corporate or trade names.

Other Intellectual Property

Some of the patents, patent applications,
inventions, know-how and trade secrets that Fresenius Worldwide
Dialysis used prior to our formation were also used by other
divisions of Fresenius AG. For Biofine, the polyvinyl
chloride-free packaging material, Fresenius AG has granted to
our principal German subsidiary, for our benefit and for the
benefit of our affiliates, an exclusive license for the renal
business and a non-exclusive license for all other fields except
other non-renal medical businesses. Our German subsidiary and
Fresenius AG will share equally any royalties from licenses
of the Biofine intellectual property by either our German
subsidiary or by Fresenius AG to third parties outside the renal
business and the other non-renal medical businesses. In
addition, Fresenius AG has transferred to our German
subsidiary the other patents, patent applications, inventions,
know-how and trade secrets that were used predominantly in
Fresenius AGs dialysis business. In certain cases
Fresenius Worldwide Dialysis and the other Fresenius AG
divisions as a whole each paid a significant part of the
development costs for patents, patent applications, inventions,
know-how and trade secrets that were used by both prior to the
merger. Where our German subsidiary acquired those jointly
funded patents, patent applications, inventions, know-how and
trade secrets, our subsidiary licensed them back to
Fresenius AG exclusively in the other non-renal medical
businesses and non-exclusively in all other fields. Where
Fresenius AG retained the jointly funded patents, patent
applications, inventions, know-how and trade secrets,
Fresenius AG licensed them to our German subsidiary
exclusively in the renal business and non-exclusively in all
other fields.

Supply Agreements

We produce most of our products in our own
facilities. However, Fresenius AG manufactures some of our
products for us, principally dialysis concentrates, at
facilities that Fresenius AG retained. These facilities are

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located in Brazil and France. Conversely, a
facility in Italy that Fresenius AG transferred to us
produces products for Fresenius Kabi AG, a subsidiary of
Fresenius AG.


Our local subsidiaries and those of Fresenius AG
have entered into supply agreements for the purchase and sale of
products from the above facilities. Prices under the supply
agreements include a unit cost component for each product and an
annual fixed cost charge for each facility. The unit cost
component, which is subject to annual review by the parties, is
intended to compensate the supplier for variable costs such as
costs of materials, variable labor and utilities. The fixed cost
component generally will be based on an allocation of the 1995
fixed costs of each facility, such as rent, depreciation,
production scheduling and quality control. The fixed cost
component will be subject to adjustment by good-faith
negotiation every twenty-four months. If the parties cannot
agree upon an appropriate adjustment, the adjustment will be
made based on an appropriate consumer price index in the country
in which the facility is located.

Each supply agreement has a term that is
approximately equal to the estimated average life of the
relevant production assets, resulting in terms of four and
one-half to five years. Each supply agreement may be terminated
by the purchasing party after specified notice period, subject
to a compensation payment reflecting a portion of the relevant
fixed costs.

The parties may modify existing or enter into
additional supply agreements, arrangements and transactions. Any
future modifications, agreements, arrangements and transactions
will be negotiated between the parties and will be subject to
the approval provisions of the pooling agreements and the
regulatory provisions of German law regarding dominating
enterprises.

Services Agreement

We obtain administrative and other services from
Fresenius AG headquarters and from other divisions and
subsidiaries of Fresenius AG. These services relate to,
among other things, data processing, financial and management
accounting and audit, human resources, risk management, quality
control, production management, research and development,
marketing and logistics. For 2003, Fresenius AG charged us
approximately $26.6 million for these services. Conversely,
we have provided certain services to other divisions and
subsidiaries of Fresenius AG relating to research and
development, plant administration, patent administration and
warehousing. For 2003, we charged approximately
$11.7 million to Fresenius AGs other divisions
and subsidiaries for services we rendered to them.

We and Fresenius AG may modify existing or
enter into additional services agreements, arrangements and
transactions. Any such future modifications, agreements,
arrangements and transactions will be negotiated between the
parties and will be subject to the approval provisions of the
pooling agreements and the regulations of German law regarding
dominating enterprises.

Financing

At December 31, 2003, aggregate loans
outstanding from Fresenius AG amounted to $30 million which
bore interest at 1.165% at year end. The borrowed funds were
used for general corporate purposes. Interest paid during 2003
was $0.1 million.

Purchase of the Adsorber
Business

In 2003, we purchased the adsorber business of
Fresenius AG for a purchase price of $27.3 million,
net of cash acquired. The adsorber business manufactures
products used in the field of therapeutic apheresis. These
therapies are similar to kidney dialysis treatment in that they
consist of excorporeal blood treatment. In accordance with the
requirements of the pooling agreements relating to our
outstanding Ordinary shares and Prefered shares, the acquisition
of the Fresenius AG adsorber business was approved by our
independent directors.

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Other Interests

During 1999, we granted a member of our
management board a five-year unsecured loan in the amount of
$2 million, with interest at 6.0% per annum. This loan was
repaid in 2003.

Prof. Dr. Bernd Fahrholz, a member of our
supervisory board, was the chairman of the management board of
Dresdner Bank AG until 2003 and Dr. Manfred Schaudwet, the
retired Executive Manager of Dresdner Bank AG, is a member
of the supervisory board of Fresenius AG. See 
Security Ownership of Certain Beneficial Owners of
Fresenius AG. Dresdner Bank AG, through its New
York and Cayman branches, is a documentation agent and one of
the joint lead arrangers and book managers under 2003 Senior
Credit Agreement. It was also one of four co-arrangers of our
prior principal credit agreement and one of the managing agents
under that facility. Dresdner Bank AG also acts as
custodian under the deposit agreement for the ADSs evidencing
our Ordinary shares and under the deposit agreement for the ADSs
evidencing our Preference shares, and an affiliate of Dresdner
Kleinwort Wasserstein Securities LLC (a wholly-owned
subsidiary of Dresdner Bank AG) is the New York Stock
Exchange specialist for the ADSs evidencing our Ordinary shares.

Dr. Dieter Schenk, Deputy Chairman of our
supervisory board and a member of the supervisory board of
Fresenius AG, is a partner in the law firm of Nörr
Stiefenhofer Lutz, which has provided legal services to
Fresenius AG and Fresenius Medical Care. See 
Security Ownership of Certain Beneficial Owners of
Fresenius AG. Dr. Schenk is one of the executors
of the estate of Mrs. Else Kröner.
Vermögensverwaltungsgesellschaft Nachlass Else
Kröner mbH, a charitable foundation established under
the will of Mrs. Kröner, owns the majority of the
voting shares of Fresenius AG.

Products

During 2003, we recognized $27.3 million of
sales to Fresenius AG and its affiliates. We made purchases
from Fresenius AG in the amount of $27.2 million
during 2003.




Item 8.  Financial
information

The information called for by parts 8.A.1
through 8.A.6 of this item is in the section beginning on
Page F-1.

8.A.7.  Legal Proceedings

This section describes material legal actions and
proceedings relating to us and our business.

Commercial Litigation

We were formed as a result of a series of
transactions pursuant to the Agreement and Plan of
Reorganization (the Merger) dated as of
February 4, 1996 by and between W.R. Grace &
Co. and Fresenius AG. At the time of the Merger, a
W.R. Grace & Co. subsidiary known as
W.R. Grace & Co.-Conn. had, and continues to have,
significant potential liabilities arising out of
product-liability related litigation, pre-Merger tax claims and
other claims unrelated to NMC, which was Graces dialysis
business prior to the Merger. In connection with the Merger,
W.R. Grace & Co.-Conn. agreed to indemnify us,
FMCH, and NMC against all liabilities of
W.R. Grace & Co., whether relating to events
occurring before or after the Merger, other than liabilities
arising from or relating to NMCs operations.
W.R. Grace & Co. and certain of its subsidiaries
filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code (the Grace Chapter 11
Proceedings) on April 2, 2001.

Pre-Merger tax claims or tax claims that would
arise if events were to violate the tax-free nature of the
Merger, could ultimately be our obligation. In particular, W.
R. Grace & Co. has disclosed in its filings with
the Securities and Exchange Commission that: its tax returns for
the 1993 to 1996 tax years are under audit by the Internal
Revenue Service (the Service);
W.R. Grace & Co. has received the Services
examination report on tax periods 1993 to 1996; that during
those years Grace deducted approximately $122 million in
interest attributable to corporate owned life insurance
(COLI) policy loans; that W.R. Grace &
Co. has paid $21 million of tax and interest related to
COLI deductions taken in tax years prior to 1993; that a
U.S. District Court ruling has denied interest deductions
of a taxpayer in a similar situation and that
W.R. Grace & Co. is seeking a settlement of the
Services claims. Subject to certain representations made
by W.R. Grace & Co.,

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Fresenius Medical Care AG and
Fresenius AG, W.R. Grace & Co. and certain of
its affiliates agreed to indemnify us against this and other
pre-Merger and Merger related tax liabilities.


Prior to and after the commencement of the Grace
Chapter 11 Proceedings, class action complaints were filed
against W.R. Grace & Co. and FMCH by plaintiffs
claiming to be creditors of W.R. Grace &
Co.-Conn., and by the asbestos creditors committees on
behalf of the W.R. Grace & Co. bankruptcy estate
in the Grace Chapter 11 Proceedings, alleging among other
things that the Merger was a fraudulent conveyance, violated the
uniform fraudulent transfer act and constituted a conspiracy.
All such cases have been stayed and transferred to or are
pending before the U.S. District Court as part of the Grace
Chapter 11 Proceedings.

In 2003, we reached an agreement with the
asbestos creditors committees on behalf of the
W.R. Grace & Co. bankruptcy estate and
W.R. Grace & Co. in the matters pending in the
Grace Chapter 11 Proceedings for the settlement of all
fraudulent conveyance and tax claims against it and other claims
related to us that arise out of the bankruptcy of
W.R. Grace & Co. Under the terms of the settlement
agreement as amended (the Settlement Agreement),
fraudulent conveyance and other claims raised on behalf of
asbestos claimants will be dismissed with prejudice and we will
receive protection against existing and potential future
W.R. Grace & Co. related claims, including
fraudulent conveyance and asbestos claims, and indemnification
against income tax claims related to the non-NMC members of the
W.R. Grace & Co. consolidated tax group upon
confirmation of a W.R. Grace & Co. bankruptcy
reorganization plan that contains such provisions. Under the
Settlement Agreement, we will pay a total of $115 million
to the W.R. Grace & Co. bankruptcy estate, or as
otherwise directed by the Court, upon plan confirmation. No
admission of liability has been or will be made. The Settlement
Agreement has been approved by the U.S. District Court.
Subsequent to the Merger, W.R. Grace & Co. was involved
in a multi-step transaction involving Sealed Air Corporation
(formerly known as Grace Holding, Inc.). We are engaged in
litigation with Sealed Air Corporation (Sealed Air)
to confirm the our entitlement to indemnification from Sealed
Air for all losses and expenses incurred by us relating to
pre-Merger tax liabilities and Merger-related claims. Under the
Settlement Agreement, upon confirmation of a plan that satisfies
the conditions of our payment obligation, this litigation will
be dismissed with prejudice.

On April 4, 2003, FMCH filed a suit in the
United States District Court for the Northern District of
California, Fresenius USA, Inc., et al., v. Baxter
International Inc., et al., Case No. C 03-1431, seeking
a declaratory judgment that we do not infringe on patents held
by Baxter International Inc. and its subsidiaries and affiliates
(Baxter), that the patents are invalid, and that
Baxter is without right or authority to threaten or maintain
suit against us for alleged infringement of Baxters
patents. In general, the alleged patents concern touch screens,
conductivity alarms, power failure data storage, and balance
chambers for hemodialysis machines. Baxter has filed
counterclaims against us seeking monetary damages and injunctive
relief, and alleging that we willfully infringed on
Baxters patents. We believe our claims are meritorious,
although the ultimate outcome of any such proceedings cannot be
predicted at this time and an adverse result could have a
material adverse effect on our business, financial condition,
and results of operations.

Other Litigation and Potential
Exposures

From time to time, we are a party to or may be
threatened with other litigation arising in the ordinary course
of our business. Management regularly analyzes current
information including, as applicable, our defenses and insurance
coverage and, as necessary, provides accruals for probable
liabilities for the eventual disposition of these matters.

We, like other health care providers, conduct our
operations under intense government regulation and scrutiny. We
must comply with regulations which relate to or govern the
safety and efficacy of medical products and supplies, the
operation of manufacturing facilities, laboratories and dialysis
clinics, and environmental and occupational health and safety.
We must also comply with the Anti-Kickback Statute, the False
Claims Act, the Stark Statute, and other federal and state fraud
and abuse laws. Applicable laws or regulations may be amended,
or enforcement agencies or courts may make interpretations that
differ from ours or the manner in which we conduct our business.
In the U.S. enforcement has become a high priority for the
federal government and some states. In addition, the provisions
of the False Claims Act authorizing payment of a portion of any
recovery to the party bringing the suit encourage private
plaintiffs to commence whistle blower actions. By
virtue of this

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regulatory environment, as well as our corporate
integrity agreement with the government, we expect that our
business activities and practices will continue to be subject to
extensive review by regulatory authorities and private parties,
and expect continuing inquiries, claims and litigation relating
to our compliance with applicable laws and regulations. We may
not always be aware that an inquiry or action has begun,
particularly in the case of whistle blower actions,
which are initially filed under court seal.


We operate many facilities throughout the U.S. In
such a decentralized system, it is often difficult to maintain
the desired level of oversight and control over the thousands of
individuals employed by many affiliated companies. We rely upon
our management structure, regulatory and legal resources, and
the effective operation of our compliance program to direct,
manage and monitor the activities of these employees. On
occasion, we may identify instances where employees,
deliberately or inadvertently, have submitted inadequate or
false billings. The actions of such persons may subject us and
our subsidiaries to liability under the Anti-Kickback Statute,
the Stark Statute and the False Claims Act, among other laws.

Physicians, hospitals and other participants in
the health care industry are also subject to a large number of
lawsuits alleging professional negligence, malpractice, product
liability, workers compensation or related claims, many of
which involve large claims and significant defense costs. We
have been subject to these suits due to the nature of our
business and we expect that those types of lawsuits may
continue. Although we maintain insurance at a level which we
believe to be prudent, we cannot assure that the coverage limits
will be adequate or that insurance will cover all asserted
claims. A successful claim against us or any of our subsidiaries
in excess of insurance coverage could have a material adverse
effect upon us and the results of our operations. Any claims,
regardless of their merit or eventual outcome, also may have a
material adverse effect on our reputation and business.

We have also had claims asserted against us and
had lawsuits filed against us relating to businesses that we
have acquired or divested. These claims and suits relate both to
operation of the businesses and to the acquisition and
divestiture transactions. We have asserted our own claims, and
claims for indemnification. Although the ultimate outcome cannot
be predicted at this time, an adverse result could have a
material adverse effect upon our business, financial condition,
and results of operations.

Accrued Special Charge for Legal
Matters

At December 31, 2001, we recorded a pre-tax
special charge of $258 million to reflect anticipated
expenses associated with the defense and resolution of
pre-Merger tax claims, Merger-related claims, and commercial
insurer claims. The costs associated with the Settlement
Agreement and settlements with insurers have been charged
against this accrual. While we believe that our remaining
accruals reasonably estimate our currently anticipated costs
related to the continued defense and resolution of the remaining
matters, no assurances can be given that our actual costs
incurred will not exceed the amount of this accrual.

8.A.8.     Dividend
Policy

We generally pay annual dividends on both our
Preference shares and our Ordinary shares in amounts that we
determine on the basis of the prior year unconsolidated earnings
of Fresenius Medical Care AG as shown in the statutory financial
statements that we prepare under German law, subject to
authorization by a resolution to be passed at our general
meeting of shareholders. Under our articles of association, the
minimum dividend payable on the Preference shares is
 0.12 per
share and, if we declare dividends, holders of our Preference
shares must receive
 0.06 per
share more than the dividend on an Ordinary share. Under German
law, we must, in all cases, pay the annual dividend declared on
our Preference shares before we pay dividends declared on our
Ordinary shares.

Our management board and our supervisory board
propose dividends and the shareholders approve dividends for
payment in respect of a fiscal year at the annual general
meeting in the following year. Since all of our shares are in
bearer form, we either remit dividends to the depositary bank
(Depotbank) on behalf of the shareholders or, in the case
of shareholders holding physical certificates, we pay dividends
through the paying agents that we appoint against presentation
of the relevant dividend coupon. Details of the paying agents
are published in the German Federal Gazette
(Bundesanzeiger).

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Our senior credit agreement as well as the senior
subordinated indentures relating to our trust preferred
securities restrict our ability to pay dividends.
Item 5.B. Operating and Financial Review and
Prospects  Liquidity and Capital Resources and
the notes to our consolidated financial statements appearing
elsewhere in this report discuss this restriction.

The table below provides information regarding
the annual dividend per share that we paid on our Preference
shares and Ordinary shares. The dividends shown for each year
were paid with respect to our operations in the preceding year.

|                 |  |      |      |      |  |      |      |  |  |   |      | 
|---------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|Per Share Amount |  | 2003 |      | 2002 |  | 2001
|                 |  |      |      |      |  |     
|Preference share |  |     | 0.94 |      |  |     | 0.91 |  |  |  | 0.84 | 
|Ordinary share   |  |     | 1.00 |      |  |     | 0.85 |  |  |  | 0.78 | 

We have announced that our managing board and our
supervisory board have proposed dividends for 2003 payable in
2004 of
 1.08 per
Preference share and
 1.02 per
Ordinary share. These dividends are subject to approval by our
shareholders at our annual general meeting to be held on
May 27, 2004.

Except as described herein, holders of ADSs will
be entitled to receive dividends on the Ordinary shares and the
Preference shares represented by the respective ADSs. We will
pay any cash dividends payable to such holders to the depositary
in euros and, subject to certain exceptions, the depositary will
convert the dividends into U.S. dollars. Fluctuations in the
exchange rate between the U.S. dollar and the euro will affect
the amount of dividends that ADS holders receive. Dividends paid
on the Preference shares and dividends paid to holders and
beneficial holders of the ADSs will be subject to deduction of
German withholding tax. You can find a discussion of German
withholding tax below in Item 10.E. Taxation.

B.  Significant Changes

None

Item 9.     The
Offer and Listing Details

A.4. and C. Information regarding the trading
markets for price history of our stock

Trading Markets

The principal trading market for the Ordinary
shares and the Preference shares is the Frankfurt Stock
Exchange. All Ordinary shares and Preference shares have been
issued in bearer form. Accordingly, we have no way of
determining who our holders of Ordinary and Preference shares
are or how many shares any particular shareholder owns, with the
exception of the number of shares held in ADR form in the United
States. For more information regarding ADRs see
Item 10.B. Memorandum and articles of
association  Description of American Depositary
Receipts. However, under the German Stock Corporation and
Securities Law, holders of voting securities of a German company
listed on a stock exchange within the EU are obligated to notify
the company of certain levels of holdings as described in
Item 7.A. Major Shareholders. The Ordinary
shares have been listed on the Frankfurt Stock Exchange since
October 2, 1996. The Preference shares have been listed on
the Frankfurt Stock Exchange since November 25, 1996.

Since October 1, 1996, ADSs each
representing one-third of an Ordinary share (the Ordinary
ADSs), have been listed and traded on the New York Stock
Exchange (NYSE) under the symbol FMS. Since
November 25, 1996, ADSs, each representing one-third of a
Preference share (the Preference ADSs), have been
listed and traded on the NYSE under the symbol FMS- p. The
Depositary for both the Ordinary ADSs and the Preference ADSs is
Morgan Guaranty Trust Company of New York (the
Depositary).

Trading on the Frankfurt Stock
Exchange

Deutsche Börse AG operates the Frankfurt
Stock Exchange, which is the most significant of the eight
German stock exchanges. As of December 31, 2003, the most
recent figures available, the shares of 5,730

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companies traded on the official market,
regulated market and the regulated unofficial market of the
Frankfurt Stock Exchange. Of these 820 were German companies and
4,901 were foreign companies.


Trading on the floor of the Frankfurt Stock
Exchange begins every business day at 9:00 a.m. and ends at
8:00 p.m., Central European Time (CET).
Securities listed on the Frankfurt Stock Exchange generally
trade in the auction market, but also change hands in interbank
dealer markets. Prices are noted by publicly commissioned stock
brokers who are members of the Frankfurt Stock Exchange, but who
do not as a rule deal with the public. These prices are
determined by out-cry. The prices of actively traded securities,
including the shares of large corporations, are continuously
quoted during trading hours. For all securities, a fixed price
(Einheitspreis) is established at approximately midday on
each day the Frankfurt Stock Exchange is open for business.

FMCs shares are traded on Xetra (Exchange
Electronic Trading) in addition to being traded on the auction
market. Starting on November 3, 2003, the Deutsche
Börse AG shortened the trading hours for Xetra to between
9:00 a.m. and 5:30 p.m. CET instead of between 9:00 a.m. and
8:00 p.m. These hours are effective for one year, and will be
reviewed after 6 months to decide if they should be
continued. Only brokers and banks that have been admitted to
Xetra by the Frankfurt Stock Exchange may trade on the system.
Private investors can trade on Xetra though their banks and
brokers.

Deutsche Börse AG publishes an official
daily list of quotations (Amtliches Kursblatt) containing
the fixed prices (Einheitskurse) and other information
for all traded securities on the Internet, webpage
http://www.exchange.de.

Transactions on the Frankfurt Stock Exchange
(including transactions through the Xetra system) settle on the
second business day following the trade. Transactions off the
Frankfurt Stock Exchange (such as, for example, large trades or
transactions in which one of the parties is foreign) generally
also settle on the second business day following the trade,
although a different period may be agreed to by the parties.
Under standard terms and conditions for securities transactions
employed by German banks, customers orders for listed
securities must be executed on a stock exchange unless the
customer gives specific instructions to the contrary.

The Frankfurt Stock Exchange can suspend a
quotation if orderly trading is temporarily endangered or if a
suspension is deemed to be necessary to protect the public.

The Hessian Stock Exchange Supervisory Authority
and the Trading Monitoring Unit of the Frankfurt Stock Exchange,
which is under the control of the Stock Exchange Supervisory
Authority, both monitor trading on the Frankfurt Stock Exchange.

The Federal Supervisory Authority for Securities
Trading (Bundesaufsichtsamt für den
Wertpapierhandel), an independent federal authority, is
responsible for the general supervision of securities trading
pursuant to provisions of the German Securities Trading Act
(Wertpapierhandelsgesetz).

The table below sets forth for the periods
indicated, the high and low closing sales prices in euro for the
Ordinary shares on the Frankfurt Stock Exchange, as reported by
the Frankfurt Stock Exchange Xetra system. Since January 4,
1999, all shares on German stock exchanges trade in euro. (See
the discussion under Item 11. Quantitative and
Qualitative Disclosures about Market Risk with respect to
the rates of exchange between the Dollar, euro and deutsche
mark).

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|     |  |                |  |                    |        |     |  |  |       | 
|---- |  | -------------- |  | ------------------ | ------ | --- |  |  | ----- | 
|     |  |                |  |                   
|     |  |                |  | Price per         
|     |  |                |  | ordinary share ()
|     |  |                |  |                   
|     |  |                |  | High               |        | Low
|     |  |                |  |                    |        |    
|2004 |  | February       |  |                    | 56.63  |     |  |  | 52.14 | 
|     |  | January        |  |                    | 58.03  |     |  |  | 52.16 | 
|2003 |  | December       |  |                    | 57.00  |     |  |  | 53.07 | 
|     |  | November       |  |                    | 54.99  |     |  |  | 49.06 | 
|     |  | October        |  |                    | 52.95  |     |  |  | 48.25 | 
|     |  | September      |  |                    | 53.77  |     |  |  | 45.61 | 
|2003 |  | Fourth Quarter |  |                    | 57.00  |     |  |  | 48.25 | 
|     |  | Third Quarter  |  |                    | 53.77  |     |  |  | 42.00 | 
|     |  | Second Quarter |  |                    | 50.90  |     |  |  | 39.32 | 
|     |  | First Quarter  |  |                    | 48.79  |     |  |  | 38.00 | 
|2002 |  | Fourth Quarter |  |                    | 46.40  |     |  |  | 20.76 | 
|     |  | Third Quarter  |  |                    | 53.19  |     |  |  | 19.98 | 
|     |  | Second Quarter |  |                    | 73.00  |     |  |  | 42.00 | 
|     |  | First Quarter  |  |                    | 71.21  |     |  |  | 56.00 | 
|2003 |  | Annual         |  |                    | 57.00  |     |  |  | 38.00 | 
|2002 |  | Annual         |  |                    | 73.00  |     |  |  | 19.98 | 
|2001 |  | Annual         |  |                    | 92.90  |     |  |  | 66.77 | 
|2000 |  | Annual         |  |                    | 103.60 |     |  |  | 72.40 | 
|1999 |  | Annual         |  |                    | 88.70  |     |  |  | 47.20 | 

The average daily trading volume of the Ordinary
shares traded on the Frankfurt Stock Exchange during 2003 was
340,579 shares. The foregoing numbers are based on total
yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On February 27, 2004, the closing sales price per
Ordinary share on the Frankfurt Stock Exchange was
53.94,
equivalent to $69.25 per Ordinary share.

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The table below sets forth for the periods
indicated, the high and low closing sales prices in euro for the
Preference shares on the Frankfurt Stock Exchange, as reported
by the Frankfurt Stock Exchange. As all shares on German stock
exchanges trade in euro since January 4, 1999 (see the
discussion under Item 11. Quantitative and
Qualitative Disclosures about Market Risk with respect to
the rates of exchange between the Dollar, euro and deutsche
mark).

|     |  |                |  |                      |       |     |  |  |       | 
|---- |  | -------------- |  | -------------------- | ----- | --- |  |  | ----- | 
|     |  |                |  |                     
|     |  |                |  | Price per           
|     |  |                |  | preference share ()
|     |  |                |  |                     
|     |  |                |  | High                 |       | Low
|     |  |                |  |                      |       |    
|2004 |  | February       |  |                      | 38.33 |     |  |  | 36.20 | 
|     |  | January        |  |                      | 40.95 |     |  |  | 35.84 | 
|2003 |  | December       |  |                      | 41.00 |     |  |  | 38.25 | 
|     |  | November       |  |                      | 40.17 |     |  |  | 35.26 | 
|     |  | October        |  |                      | 39.50 |     |  |  | 35.01 | 
|     |  | September      |  |                      | 40.50 |     |  |  | 33.80 | 
|     |  | August         |  |                      | 34.58 |     |  |  | 31.40 | 
|2003 |  | Fourth Quarter |  |                      | 41.00 |     |  |  | 35.01 | 
|     |  | Third Quarter  |  |                      | 40.50 |     |  |  | 30.09 | 
|     |  | Second Quarter |  |                      | 36.00 |     |  |  | 28.50 | 
|     |  | First Quarter  |  |                      | 35.60 |     |  |  | 27.36 | 
|2002 |  | Fourth Quarter |  |                      | 33.80 |     |  |  | 15.80 | 
|     |  | Third Quarter  |  |                      | 38.00 |     |  |  | 15.17 | 
|     |  | Second Quarter |  |                      | 53.90 |     |  |  | 33.10 | 
|     |  | First Quarter  |  |                      | 53.80 |     |  |  | 41.50 | 
|2003 |  | Annual         |  |                      | 41.00 |     |  |  | 28.50 | 
|2002 |  | Annual         |  |                      | 53.90 |     |  |  | 15.17 | 
|2001 |  | Annual         |  |                      | 65.25 |     |  |  | 46.01 | 
|2000 |  | Annual         |  |                      | 58.00 |     |  |  | 38.00 | 
|1999 |  | Annual         |  |                      | 43.50 |     |  |  | 30.30 | 

The average daily trading volume of the
Preference shares traded on the Frankfurt Stock Exchange during
2003 was 34,456 shares. The foregoing numbers are based on
total yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On February 27, 2004, the closing sales price per
Preference share on the Frankfurt Stock Exchange was
36.49,
equivalent to $46.84 per Preference share.

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Trading on the New York Stock
Exchange

The table below sets forth, for the periods
indicated, the high and low closing sales prices for the
Ordinary ADSs on the NYSE:

| |      |  |  |                  |  |     |       |  |  |  |       | 
| | ---- |  |  | ---------------- |  | --- | ----- |  |  |  | ----- | 
| |      |  |  |                 
| |      |  |  | Price per       
| |      |  |  | ordinary ADS ($)
| |      |  |  |                 
| |      |  |  | High             |  | Low
| |      |  |  |                  |  |    
| | 2004 |  |  | February         |  |     | 23.90 |  |  |  | 21.90 | 
| |      |  |  | January          |  |     | 24.05 |  |  |  | 21.76 | 
| | 2003 |  |  | December         |  |     | 23.54 |  |  |  | 21.53 | 
| |      |  |  | November         |  |     | 21.66 |  |  |  | 18.80 | 
| |      |  |  | October          |  |     | 20.39 |  |  |  | 18.90 | 
| |      |  |  | September        |  |     | 20.20 |  |  |  | 16.79 | 
| | 2003 |  |  | Fourth Quarter   |  |     | 23.54 |  |  |  | 18.80 | 
| |      |  |  | Third Quarter    |  |     | 20.20 |  |  |  | 16.00 | 
| |      |  |  | Second Quarter   |  |     | 18.00 |  |  |  | 15.33 | 
| |      |  |  | First Quarter    |  |     | 17.49 |  |  |  | 13.20 | 
| | 2002 |  |  | Fourth Quarter   |  |     | 15.20 |  |  |  | 7.04  | 
| |      |  |  | Third Quarter    |  |     | 18.10 |  |  |  | 6.70  | 
| |      |  |  | Second Quarter   |  |     | 21.60 |  |  |  | 14.20 | 
| |      |  |  | First Quarter    |  |     | 21.20 |  |  |  | 16.35 | 
| | 2003 |  |  | Annual           |  |     | 23.54 |  |  |  | 13.20 | 
| | 2002 |  |  | Annual           |  |     | 21.60 |  |  |  | 6.70  | 
| | 2001 |  |  | Annual           |  |     | 28.30 |  |  |  | 19.80 | 
| | 2000 |  |  | Annual           |  |     | 30.19 |  |  |  | 22.56 | 
| | 1999 |  |  | Annual           |  |     | 29.87 |  |  |  | 15.81 | 

On February 27, 2004, the closing sales
price per Ordinary ADS on the NYSE was $22.35.

The table below sets forth, for the periods
indicated, the high and low closing sales prices for the
Preference ADSs on the NYSE:

| |      |  |  |                    |  |     |       |  |  |  |       | 
| | ---- |  |  | ------------------ |  | --- | ----- |  |  |  | ----- | 
| |      |  |  |                   
| |      |  |  | Price per         
| |      |  |  | preference ADS ($)
| |      |  |  |                   
| |      |  |  | High               |  | Low
| |      |  |  |                    |  |    
| | 2004 |  |  | February           |  |     | 16.05 |  |  |  | 14.95 | 
| |      |  |  | January            |  |     | 17.20 |  |  |  | 14.89 | 
| | 2003 |  |  | December           |  |     | 16.68 |  |  |  | 15.20 | 
| |      |  |  | November           |  |     | 15.90 |  |  |  | 13.85 | 
| |      |  |  | October            |  |     | 15.11 |  |  |  | 13.74 | 
| |      |  |  | September          |  |     | 15.00 |  |  |  | 12.40 | 
| |      |  |  | August             |  |     | 12.44 |  |  |  | 11.50 | 
| | 2003 |  |  | Fourth Quarter     |  |     | 16.68 |  |  |  | 13.74 | 
| |      |  |  | Third Quarter      |  |     | 15.00 |  |  |  | 11.50 | 
| |      |  |  | Second Quarter     |  |     | 12.60 |  |  |  | 10.90 | 
| |      |  |  | First Quarter      |  |     | 12.35 |  |  |  | 9.85  | 
| | 2002 |  |  | Fourth Quarter     |  |     | 11.10 |  |  |  | 5.30  | 
| |      |  |  | Third Quarter      |  |     | 12.11 |  |  |  | 4.90  | 
| |      |  |  | Second Quarter     |  |     | 15.70 |  |  |  | 10.90 | 
| |      |  |  | First Quarter      |  |     | 15.68 |  |  |  | 12.46 | 
| | 2003 |  |  | Annual             |  |     | 16.68 |  |  |  | 9.85  | 
| | 2002 |  |  | Annual             |  |     | 15.70 |  |  |  | 4.90  | 
| | 2001 |  |  | Annual             |  |     | 19.64 |  |  |  | 14.00 | 
| | 2000 |  |  | Annual             |  |     | 16.91 |  |  |  | 13.25 | 
| | 1999 |  |  | Annual             |  |     | 16.75 |  |  |  | 11.25 | 

On February 27, 2004, the closing sales
price per Preference ADS on the NYSE was $15.15.

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Item 10.  Additional
information

B.  Articles of
Association

Fresenius Medical Care AG is a stock corporation
(Aktiengesellschaft) organized under the laws of Germany.
Fresenius Medical Care AG is registered with the commercial
register of the local court (Amtsgericht)of Hof an der
Saale, Germany under HRB 2460. Our registered office (Sitz)is Hof an der Saale, Germany. Our business address is
Else-Kröner-Strasse 1, 61352 Bad Homburg, Germany,
telephone +49-6172-609-0.

Corporate Purposes

Under our articles of association, our corporate
purposes are:



| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | developing, producing, distributing and selling,
    health care products, systems and procedures, primarily dialysis
    products and systems;                                                                                       
|
| |  | planning, establishing, acquiring and operating
    health care businesses, including, but not limited to, dialysis
    clinics, directly or through third parties and through
    participation in joint ventures and other entities;
|
| |  | developing, producing and distributing other
    pharmaceutical products and the provision of health care
    services;                                                                                                               
|
| |  | providing advice in the medical and
    pharmaceutical areas and disseminating scientific information
    and documentation; and                                                                                                      
|
| |  | providing laboratory services for dialysis and
    non-dialysis patients and home health services.                                                                                                                                    

We conduct our business directly and through
subsidiaries within and outside Germany.

Voting Rights

Each Ordinary share entitles the holder thereof
to one vote at general meetings of our shareholders. Resolutions
are passed at a general or special meeting of our shareholders
by a majority of the votes cast, unless a higher vote is
required by law or our articles of association.

Our Preference shares do not have any voting
rights, except as described in this paragraph. If we do not pay
the minimum annual dividend payable on the Preference shares for
any year in the following year, and we do not pay both the
dividend arrearage and the dividend payable on the Preference
shares for the following year in full in the next following
year, then the Preference shares shall have the same voting
rights as the Ordinary shares (one vote for each share held or
for each three ADSs held) until all Preference share dividend
arrearages are fully paid up. In addition, holders of Preference
shares are entitled to vote on any matters affecting their
preferential rights, such as changes in the rate of the
preferential dividend. Any such vote requires the affirmative
vote of 75% of the votes cast in a meeting of holders of
Preference shares.

Dividend Rights

Our management board and supervisory board will
propose any dividends for approval at the annual general meeting
of shareholders, which must be held within the first eight
months following the end of a fiscal year. Usually the
shareholders vote on a recommendation made by our management
board and our supervisory board as to the amount of dividend to
be paid. Any dividends are paid once a year.

Under German law, dividends are payable from the
prior year unconsolidated retained earnings of Fresenius Medical
Care AG, determined in accordance with German accounting
principles (Bilanzgewinn).

Dividends are paid on presentation of the
relevant dividend coupon to us or to our paying agent or agents
appointed by us from time to time. If the Ordinary shares and
the Preference shares which are entitled to dividend payments
are held in a clearing system, the dividends will be paid in
accordance with the rules of the individual clearing system. We
will publish notice of the dividends paid and the appointment of
the paying agent or agents for this purpose in the German
Federal Gazette (Bundesanzeiger).

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In the case of holders of ADRs, the depositary
will receive all dividends and distributions on all deposited
securities and will, as promptly as practicable, distribute the
dividends and distributions to the holders of ADRs entitled to
the dividend. See  Description of American
Depositary Receipts  Share Dividends and Other
Distributions.

For each fiscal year, our management board and
the supervisory board propose the treatment of all
unappropriated profits, including the amount of our net profits
which will be distributed by way of dividends, subject to
shareholder approval. The management board and the supervisory
board may allocate up to 50% of unappropriated profits to our
free reserve (that is, they may determine not to distribute such
profits) without shareholder approval, in which case the
shareholders approve the treatment of the balance of such
profits. Under German law, we must pay the annual dividend paid
on the Preference shares, in all cases, before we pay any
dividend on the Ordinary shares.

Liquidation Rights

In accordance with the German Stock Corporation
Act (Aktiengesetz), upon a liquidation, any liquidation
proceeds remaining after paying all of our liabilities will be
distributed among the holders of Preference shares and the
holders of Ordinary shares in proportion to the total number of
the shares held by each holder. The Preference shares are not
entitled to a preference in liquidation.

Preemptive Rights

Under the German Stock Corporation Act, an
existing stockholder in a stock corporation, including a holder
of Preference shares, has a preferential right to subscribe for
any issue by that corporation of shares, debt instruments
convertible into shares and participating debt instruments in
proportion to the number of shares held by that stockholder in
the existing capital of the corporation. The German Stock
Corporation Act provides that this preferential right can only
be excluded by a resolution of the general meeting passed at the
same time as the resolution authorizing the capital increase. A
supermajority of at least three quarters of the share capital
represented at the general meeting is required for the
exclusion. The waiver of the preemptive rights of the holders of
Preference shares requires a vote of these holders of 75% of the
capital represented by Preference shares at the meeting at which
the vote is taken. In addition, a special
justification by the corporation stating that the goal
pursued by the corporation with the issuance of the new security
could not reasonably be achieved without and outweighs the
elimination of preemptive rights, is generally required for the
exclusion. A special justification is not required
for any increase in the share capital for contributions in cash
if the increase does not exceed 10% of the existing capital and
the issue price is not materially less than the price for the
shares quoted on a stock exchange.

General Meeting

Our annual general meeting must be held within
the first eight months of each fiscal year at the location of
Fresenius Medical Care AGs registered office, or in a
German city where a stock exchange is situated or at the
location of a registered office of a domestic affiliated
company. Each of our shareholders is entitled to participate in
a general meeting regardless of whether they possess voting
rights.

Description of American Depositary
Receipts

Morgan Guaranty Trust Company of New York, a New
York banking corporation, is the depositary for our Ordinary
shares and our Preference shares. Each ADS represents an
ownership interest in one-third of one Ordinary share or one
Preference share. We deposit the underlying shares with the
custodian, as agent of the depositary, under the deposit
agreements among ourselves, the depositary and all of the ADS
holders of the applicable class. Each ADS also represents any
securities, cash or other property deposited with the depositary
but not distributed by it directly to ADS holders. The ADSs are
evidenced by securities called American depositary receipts or
ADRs. An ADR may be issued in either book-entry or certificated
form by the depositary. If an ADR is issued in book-entry form,
owners will receive periodic statements from the depositary
showing their ownership interest in ADSs.

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The depositarys office is located at 60
Wall Street, New York, NY 10260.

An investor may hold ADSs either directly or
indirectly through a broker or other financial institution.
Investors who hold ADSs directly, by having an ADS registered in
their names on the books of the depositary, are ADR holders.
This description assumes an investor holds ADSs directly.
Investors who hold ADSs through their brokers or financial
institution nominees must rely on the procedures of their
brokers or financial institutions to assert the rights of an ADR
holder described in this section. Investors should consult with
their brokers or financial institutions to find out what those
procedures are.

Because the depositarys nominee will
actually be the registered owner of the shares, investors must
rely on it to exercise the rights of a shareholder on their
behalf. The obligations of the depositary and its agents are set
out in the deposit agreement. The deposit agreement and the ADSs
are governed by New York law.

The following is a summary of the material terms
of the deposit agreements. Because it is a summary, it does not
contain all the information that may be important to investors.
Except as specifically noted, the description covers both
Ordinary ADSs and Preference ADSs. For more complete
information, investors should read the entire applicable deposit
agreement and the form of ADR of the relevant class which
contains the terms of the ADSs. Investors may obtain a copy of
the deposit agreements at the SECs Public Reference Room
which is located at 450 Fifth Street, N.W., Washington, D.C.
20549.

Share Dividends and Other
Distributions

We may make various types of distributions with
respect to our Ordinary shares and our Preference shares. The
depositary has agreed to pay to investors the cash dividends or
other distributions it or the custodian receives on the shares
or other deposited securities, after deducting its expenses.
Investors will receive these distributions in proportion to the
number of underlying shares of the applicable class their ADSs
represent.

Except as stated below, to the extent the
depositary is legally permitted it will deliver distributions to
ADR holders in proportion to their interests in the following
manner:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash.The depositary
    shall convert cash distributions from foreign currency to U.S.
    dollars if this is permissible and can be done on a reasonable
    basis. The depositary will endeavor to distribute cash in a
    practicable manner, and may deduct any taxes or other
    governmental charges required to be withheld, any expenses of
    converting foreign currency and transferring funds to the United
    States, and certain other expenses and adjustments. In addition,
    before making a distribution the depositary will deduct any
    taxes withheld. If exchange rates fluctuate during a time when
    the depositary cannot convert a foreign currency, investors may
    lose some or all of the value of the distribution.
|
| |  | Shares.If we make a
    distribution in shares, the depositary will issue additional
    ADRs to evidence the number of ADSs representing the distributed
    shares. Only whole ADSs will be issued. Any shares which would
    result in fractional ADSs will be sold and the net proceeds will
    be distributed to the ADR holders otherwise entitled to receive
    fractional ADSs.                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Rights to receive additional shares.In the case of a distribution of
    rights to subscribe for Ordinary shares, Preference shares or
    other rights, if we provide satisfactory evidence that the
    depositary may lawfully distribute the rights, the depositary
    may arrange for ADR holders to instruct the depositary as to the
    exercise of the rights. However, if we do not furnish the
    required evidence or if the depositary determines it is not
    practical to distribute the rights, the depositary may                                                                                                                                                                                                                        



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | sell the rights if practicable and distribute the
    net proceeds as cash, or
|
| |  | allow the rights to lapse, in which case ADR
    holders will receive nothing.

We have no obligation to file a registration
statement under the Securities Act in order to make any rights
available to ADR holders.

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| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other Distributions.If we make a distribution of
    securities or property other than those described above, the
    depositary may either:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | distribute the securities or property in any
    manner it deems fair and equitable;                                                                      
|
| |  | after consultation with us if practicable, sell
    the securities or property and distribute any net proceeds in
    the same way it distributes cash; or
|
| |  | hold the distributed property in which case the
    ADSs will also represent the distributed property.                                                    

Any dollars will be distributed by checks drawn
on a bank in the United States for whole dollars and cents
(fractional cents will be withheld without liability for
interest and added to future cash distributions).

The depositary may choose any practical method of
distribution for any specific ADR holder, including the
distribution of foreign currency, securities or property, or it
may retain the items, without paying interest on or investing
them, on behalf of the ADR holder as deposited securities.

The depositary is not responsible if it decides
that it is unlawful or impractical to make a distribution
available to any ADR holders.

There can be no assurance that the depositary
will be able to convert any currency at a specified exchange
rate or sell any property, rights, shares or other securities at
a specified price, or that any of these transactions can be
completed within a specified time period.

Deposit, Withdrawal and Cancellation

The depositary will issue ADSs if an investor or
his broker deposits Ordinary shares or Preference shares or
evidence of rights to receive Ordinary shares or Preference
shares with the custodian. Shares deposited with the custodian
must be accompanied by certain documents, including instruments
showing that such shares have been properly transferred or
endorsed to the person on whose behalf the deposit is being made.

The custodian will hold all deposited shares for
the account of the depositary. ADR holders thus have no direct
ownership interest in the shares and only have the rights that
are contained in the deposit agreement. The custodian will also
hold any additional securities, property and cash received on or
in substitution for the deposited shares. The deposited shares
and any additional items are referred to as deposited
securities.

Upon each deposit of shares, receipt of related
delivery documentation and compliance with the other provisions
of the deposit agreement, including the payment of the fees and
charges of the depositary and any taxes or other fees or charges
owing, the depositary will issue an ADR or ADRs of the
applicable class in the name of the person entitled to them. The
ADR or ADRs will evidence the number of ADSs to which the person
making the deposit is entitled. Certificated ADRs will be
delivered at the depositarys principal New York office or
any other location that it may designate as its transfer office.

All ADSs issued will, unless specifically
requested to the contrary, be part of the depositarys
book-entry direct registration system, and a registered holder
will receive periodic statements from the depositary which will
show the number of ADSs registered in the holders name. An
ADR holder can request that the ADSs not be held through the
depositarys direct registration system and that a
certificated ADR be issued. If ADRs are in book-entry form, a
statement setting forth the holders ownership interest
will be mailed to holders by the depositary.

When an investor surrenders ADSs at the
depositarys office, the depositary will, upon payment of
certain applicable fees, charges and taxes, and upon receipt of
proper instructions, deliver the whole number of shares of the
applicable class represented by the ADSs turned in to the
account the investor directs within Clearstream Banking AG, the
central German clearing firm.

The depositary may only restrict the withdrawal
of deposited securities in connection with:



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | temporary delays caused by closing our transfer
    books or those of the depositary, or the deposit of shares in
    connection with voting at a shareholders meeting, or the
    payment of dividends,

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| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | the payment of fees, taxes and similar charges, or                                            
|
| |  | compliance with any U.S. or foreign laws or
    governmental regulations relating to the ADRs.

This right of withdrawal may not be limited by
any other provision of the applicable deposit agreement.

Voting Rights

Only the depositarys nominee is able to
exercise voting rights with respect to deposited shares. Upon
receipt of a request from the depositary for voting
instructions, a holder of ADSs may instruct the depositary how
to exercise the voting rights for the shares which underlie
their ADSs. After receiving voting materials from us, the
depositary will notify the ADR holders of any shareholder
meeting or solicitation of consents or proxies. This notice will
describe how holders may instruct the depositary to exercise
voting rights for the shares which underlie their ADSs. For
instructions to be valid, the depositary must receive them on or
before the date specified in the depositarys request for
instructions. The depositary will try, as far as is practical,
subject to the provisions of and governing the underlying shares
or other deposited securities, to vote or to have its agents
vote the shares or other deposited securities as instructed. The
depositary will only vote or attempt to vote as holders
instruct. The depositary will not itself exercise any voting
discretion. Neither the depositary nor its agents are
responsible for any failure to carry out any voting
instructions, for the manner in which any vote is cast or for
the effect of any vote.

Our Preference shares are non-voting, except in a
limited number of circumstances. In those circumstances in which
Preference shares are entitled to vote, the procedures and
limitations described above will apply in connection with the
depositarys request for voting instructions from holders
of ADSs representing Preference shares.

There is no guarantee that holders will receive
voting materials in time to instruct the depositary to vote and
it is possible that holders, or persons who hold their ADSs
through brokers, dealers or other third parties, will not have
the opportunity to exercise a right to vote.

Description of the Pooling
Agreements

The information under the heading
DESCRIPTION OF THE POOLING AGREEMENTS set forth in
the prospectus of Fresenius Medical Care AG dated July 20,
2000 is incorporated herein by reference.

C.  Material contracts

For information regarding certain of our material
contracts, see Item 7.B. Major Shareholders and
Related Party Transactions  Related Party
Transactions. For a description of our stock option plans,
see Item 6.E. Directors, Senior Management and
Employees  Share Ownership  Options to
Purchase our Securities. For a description of our 2003
Senior Credit Agreement, see Item 5B. Operating and
Financial Review and Prospects  Liquidity and Capital
Resources. Our material agreements also include the
agreements that FMCH and certain of its subsidiaries entered
into with the U.S. government when we settled a
U.S. government investigation. Our Report on Form 6-K
filed with the SEC on January 27, 2000 contains a
description of the agreements comprising the settlement,
including the plea agreements and a corporate integrity
agreement in Part II, Item 5  Other
Events  OIG Investigation, which is
incorporated herein by reference.

Our material agreements include the settlement
agreement that we, FMCH and NMC entered into with the Official
Committee of Asbestos Injury Claimants, and the Official
Committee of Asbestos Property Damage Claimants of
W.R. Grace & Co. A description of the terms of the
settlement agreement appears in Item 8.A.7 
Legal Proceedings.

D.  Exchange controls

Exchange Controls and Other Limitations
Affecting Security Holders.

At the present time, Germany does not restrict
the export or import of capital, except for investments in areas
like Iraq, Serbia, Montenegro or Sierra Leone. However, for
statistical purposes only, every resident individual or

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corporation residing in Germany must report to
the German Federal Bank (Deutsche Bundesbank), subject
only to certain immaterial exceptions, any payment received from
or made to an individual or a corporation resident outside of
Germany if such payment exceeds
12,500. In
addition, residents must report any claims against, or any
liabilities payable to, non-residents individuals or
corporations, if such claims or liabilities, in the aggregate
5 million
at the end of any month.


There are no limitations imposed by German law or
our articles of association (Satzung) on the right of a
non-resident to hold the Preference shares or the ADSs
evidencing Preference shares or Ordinary shares.

E.  Taxation

The following is a discussion of the material
United States federal income and German tax consequences to
Qualified Holders holding Fresenius Medical Care Ordinary
shares, preference shares or ADSs with respect to such
shares (collectively the shares). This discussion is
based upon existing United States federal income and German tax
law, including legislation, regulations, administrative rulings
and court decisions, as in effect on the date of this Annual
Report, all of which are subject to change, possibly with
retroactive effect. For purposes of this discussion, in general,
a Qualified Holder means a beneficial owner of
Fresenius Medical Care shares that (1) is a resident of the
United States for purposes of the United States-Germany income
tax treaty (the Income Tax Treaty), which generally
includes an individual United States resident, a corporation
created or organized under the laws of the United States, any
state thereof or the District of Columbia and a partnership,
estate or trust, to the extent its income is subject to taxation
in the United States as the income of a United States resident,
either in its hands or in the hands of its partners or
beneficiaries, (2) does not hold Fresenius Medical Care
shares as part of the business property of a permanent
establishment located in Germany or as part of a fixed base of
an individual located in Germany and used for the performance of
independent personal services and (3) if not an individual,
is not subject to the limitation on benefits restrictions in the
Income Tax Treaty. This discussion assumes that the Qualified
Holder holds Fresenius Medical Care shares as a capital asset.
This discussion does not address all aspects of United States
federal income and German taxation that may be relevant to all
Qualified Holders in light of their particular circumstances,
including for example Qualified Holders whose stock was acquired
pursuant to the exercise of an employee stock option or
otherwise as compensation or Qualified Holders who are subject
to special treatment under United States federal income tax laws
(for example, financial institutions, insurance companies,
tax-exempt organizations and broker-dealers). This discussion
also does not address any aspects of state, local or non-United
States (other than certain German) tax law.

EACH QUALIFIED HOLDER IS STRONGLY URGED TO
CONSULT HIS OR HER TAX ADVISOR AS TO THE UNITED STATES FEDERAL
INCOME AND GERMAN TAX CONSEQUENCES OF HOLDING FRESENIUS MEDICAL
CARE SHARES, INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES
THAT MAY BE UNIQUE TO SUCH QUALIFIED HOLDER, AND AS TO ANY OTHER
TAX CONSEQUENCES OF HOLDING OUR SHARES.

Taxation of Dividends

For dividends distributed in 2004 out of profits
earned in or before 2003, German corporations are required to
withhold German tax on dividends in an amount equal to 20% of
the gross amount paid to resident and non-resident stockholders.
A partial refund of this 20% withholding tax can be obtained by
Qualified Holders under the Income Tax Treaty (subject to
certain limitations). Qualified Holders are generally subject to
United States federal income tax on dividends paid by German
corporations. Subject to applicable limitations of United States
federal income tax law, Qualified Holders may be able to claim a
foreign tax credit for certain German income taxes paid. The
amount of the refund of German withholding tax and the
determination of the foreign tax credit allowable against United
States federal income tax generally depend on whether or not the
Qualified Holder is a United States corporation owning at least
10% of the voting stock of Fresenius Medical Care AG (a
10% Holder).

In the case of any Qualified Holder other than a
10% Holder, the German withholding tax on the dividends paid in
2004 is partially refunded under the Income Tax Treaty,
effectively reducing the withholding tax to 15% of the gross
amount of the dividend. Thus, for each $100 of gross dividend
paid by Fresenius Medical Care AG in

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2004 to a Qualified Holder (other than a 10%
Holder), the dividend after partial refund of the 20%
withholding tax under the Income Tax Treaty will be subject to a
German withholding tax of $15.


In the case of a 10% Holder, the 20% German
withholding tax on dividends paid in 2004 is reduced under the
Income Tax Treaty to 5% of the gross amount of the dividend.
Such 10% Holders may, therefore, apply for a refund of German
withholding tax on the dividend paid in 2002 in the amount of
15% of the gross amount of the dividend. Subject to applicable
limitations of United States federal income tax laws, a 10%
Holder may be entitled to a foreign tax credit for the 5% German
withholding tax on dividends and for the portion of the total
income taxes (trade income tax and corporation income tax,
including any surtax) paid by Fresenius Medical Care AG
attributable to distributed profits.

The German corporate imputation system that has
provided German resident individual shareholders with a tax
credit in respect of dividends paid by German corporations was
recently repealed, effective with respect to dividends paid
after 2002. Consequently, Qualified Holders are no longer be
entitled to the additional 5% treaty refund with respect to such
dividends. However, the German withholding tax was reduced to
20% with respect to such dividends.

Dividends paid in euros to a Qualified Holder of
Fresenius Medical Care shares will be included in income in a
dollar amount calculated by reference to the exchange rate in
effect on the date the dividends (including any deemed refund of
German corporate tax) are received or treated as received by
such holder. If dividends paid in euros are converted into
dollars on the date received or treated as received, Qualified
Holders generally should not be required to recognize foreign
currency gain or loss in respect of each dividend.

A surtax on the German withholding tax is
currently levied on dividend distributions paid by a German
resident company. The rate of this surtax is 5.5%, which is
1.110% (5.5% 2/3 20%) of the gross dividend amount. Under the
Income Tax Treaty, Qualified Holders are entitled to a full
refund of this surtax.

Refund Procedures

To claim the refund reflecting the current
reduction of the German withholding tax from 20% to 15%, the
additional 5% treaty refund and the refund of the effective
1.110% German surtax, when applicable, a Qualified Holder must
submit (either directly or, as described below, through the U.S.
transfer agent for Fresenius Medical Care shares or the
Depository Trust Company) a claim for refund to the German tax
authorities, with the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax
withheld within four years from the end of the calendar year in
which the dividend is received. Claims for refunds are made on a
special German claim for refund form, which must be filed with
the German tax authorities: Bundesamt für Finanzen, 53221
Bonn-Beuel, Germany. The German claim for refund forms may be
obtained from the German tax authorities at the same address
where the applications are filed or from the Embassy of the
Federal Republic of Germany, 4645 Reservoir Road, N.W.,
Washington, D.C. 20007-1998.

Qualified Holders must also submit to the German
tax authorities certification (IRS Form 6166) of their last
filed United States federal income tax return. Such
certification is obtained from the office of the Director of the
Internal Revenue Service Center by filing a request for the
certification with the Internal Revenue Service 
Philadelphia Service Center, Foreign Certification Request, P.O.
Box 16347, Philadelphia, PA 19114-0447. (Additional
information, including IRS Publication 686, can be obtained from
the Internal Revenue Service website at www.irs.gov.)
Requests for certification are to be made in writing and must
include the Qualified Holders name, social security number
or employer identification number, tax return form number and
tax period for which certification is requested. The Internal
Revenue Service will send the certification directly to the
German tax authorities if the Qualified Holder authorizes the
Internal Revenue Service to do so. This certification is valid
for three years and need only be resubmitted in a fourth year in
the event of a subsequent application for refund.

The U.S. transfer agent will receive and
distribute dividends to Qualified Holders who hold Fresenius
Medical Care shares of record and will perform administrative
functions necessary to claim the refund reflecting the current
reduction in German withholding tax from 20% to 15% (to 5% for
10% Holders), the additional 5%

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treaty refund and the refund of the effective
1.110% German surtax, when applicable, for such holders. These
arrangements may be amended or revoked at any time in the future.


Under a newly implemented simplified and
accelerated refund procedure, the U.S. transfer agent will
prepare the German claim for refund forms on behalf of Qualified
Holders and file them electronically with the German tax
authorities. In order for the U.S. transfer agent to file the
claim for refund forms, the U.S. transfer agent will prepare and
mail to these Qualified Holders, and the holders will be
requested to sign and return to the U.S. transfer agent,
(1) a statement authorizing the U.S. transfer agent to
perform these procedures and agreeing that the German tax
authorities may inform the IRS of any refunds of German taxes
and (2) a written authorization to remit the refund of
withholding to an account other than that of the Qualified
Holder. The U.S. transfer agent will attach the signed
statement and the documentation issued by the paying agency
documenting the dividend paid and the tax withheld to the claim
for refund form and file them with the German tax authorities.
Qualified Holders should also request certification (IRS
Form 6166) of their last filed United States federal income
tax return from the IRS and have it ready for presentation to
the U.S. transfer agent upon request. If the Qualified
Holder fails to present this certification within a reasonable
time after the request, the refund of the German withholding
taxes will be denied.

A simplified refund procedure for Qualified
Holders whose Fresenius Medical Care shares are registered with
brokers participating in the Depository Trust Company is in
effect between the Depository Trust Company and the German tax
authorities. Under this simplified refund procedure, the
Depository Trust Company provides the German tax authorities
with electronic certification of the U.S. taxpayer status
of such Qualified Holders based on information it receives from
its broker participants, and claims a refund on behalf of those
Qualified Holders. Accordingly, these Qualified Holders do not
need to file refund claim forms through the U.S. transfer
agent.

The German tax authorities will issue refunds
denominated in euros. The refunds will be issued in the name of
the U.S. transfer agent or the Depository Trust Company, as
the case may be, which will convert the refunds to dollars and
make corresponding refund payments to Qualified Holders and to
brokers. The brokers, in turn, will remit corresponding refund
amounts to the Qualified Holders holding Fresenius Medical Care
shares registered with such brokers. Qualified Holders of
Fresenius Medical Care shares who receive a refund attributable
to reduced withholding taxes under the Income Tax Treaty may be
required to recognize foreign currency gain or loss, which will
be treated as income or loss, to the extent that the dollar
value of the refund received or treated as received by the
Qualified Holder differs from the U.S. dollar equivalent of the
refund on the date the dividend on which such withholding taxes
were imposed was received or treated as received by the
Qualified Holder.

Taxation of Capital Gains

Under the Income Tax Treaty, a Qualified Holder
will not be liable for German tax on capital gains realized or
accrued on the sale or other disposition of Fresenius Medical
Care shares.

Upon a sale or other disposition of Fresenius
Medical Care shares, a Qualified Holder will recognize capital
gain or loss for United States federal income tax purposes equal
to the difference between the amount realized and the Qualified
Holders adjusted tax basis in the Fresenius Medical Care
shares. In the case of an individual Qualified Holder of
Fresenius Medical Care shares, any such capital gain will be
subject to a maximum United States federal income tax rate of
15%, if the individual Qualified Holders holding period in
the Fresenius Medical Care shares is more than 12 months.

German Gift and Inheritance Taxes

Under the estate, inheritance and gift tax treaty
between the United States and Germany (the Estate Tax
Treaty), a transfer of shares or ADSs generally will
not be subject to the German gift or inheritance tax so long as
neither the donor or decedent, nor heir, donee or other
beneficiary, was domiciled in Germany for the purpose of the
Estate Tax Treaty at the time of the transfer, and the shares or
ADSs were not held as part of a permanent base of fixed
establishment in Germany

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The United States-Germany estate tax treaty also
provides a credit against United States federal estate and gift
tax liability for the amount of inheritance and gift tax paid in
Germany, subject to certain limitations, in a case where the
Fresenius Medical Care shares are subject to German inheritance
or gift tax and United States federal estate or gift tax.

United States Information Reporting and Backup
Withholding

Dividends on Fresenius Medical Care shares, and
payments of the proceeds of a sale of Fresenius Medical Care
shares, paid within the United States or through certain
U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding at a 28% rate
unless the Qualified Holder (1) is a corporation or other
exempt recipient or (2) provides a taxpayer identification
number and certifies that no loss of exemption from backup
withholding has occurred.

H.  Documents on display

We file periodic reports and information with the
Securities and Exchange Commission and the New York Stock
Exchange. You may inspect a copy of these reports without charge
at the Public Reference Room of the Securities and Exchange
Commission at Room 1024, 450 Fifth Avenue, N.W.,
Washington, D.C. 20549 or at the Securities and Exchange
Commissions regional offices 233 Broadway, New York,
New York 10279 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The public may obtain
information on the operation of the Public Reference Room by
calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission also
maintains an Internet site that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the Securities and
Exchange Commission. The Securities and Exchange
Commissions World Wide Web address is
http://www.sec.gov.

The New York Stock Exchange currently lists
American Depositary Shares representing our Preference shares
and American Depositary Shares representing our Ordinary shares.
As a result, we are subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended,
and we file reports and other information with the Securities
and Exchange Commission. These reports, proxy statements and
other information and the registration statement and exhibits
and schedules thereto may be inspected without charge at, and
copies thereof may be obtained at prescribed rates from, the
public reference facilities of the Securities and Exchange
Commission and the electronic sources listed in the preceding
paragraph. In addition, these materials are available for
inspection and copying at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 1005, USA.

We prepare annual and quarterly reports, which
are then distributed to our shareholders. Our annual reports
contain financial statements examined and reported upon, with
opinions expressed by our independent auditors. The consolidated
financial statements of Fresenius Medical Care included in these
annual reports are prepared in conformity with U.S. generally
accepted accounting principles. Our annual and quarterly reports
to our shareholders are posted on our website at
http://www.fmc-ag.com. In furnishing our web site address
in this report, however, we do not intend to incorporate any
information on our web site with this report, and any
information on our web site should not be considered to be part
of this report.

We will also furnish the depositary with all
notices of shareholder meetings and other reports and
communications that are made generally available to our
shareholders. The depositary, to the extent permitted by law,
shall arrange for the transmittal to the registered holders of
American Depositary Receipts of all notices, reports and
communications, together with the governing instruments
affecting the Preference shares and any amendments thereto,
available for inspection by registered holders of American
Depositary Receipts at the principal office of the depositary,
presently located at 60 Wall Street, New York, New York,
10260, USA.

Documents referred to in this report which
related to us as well as future annual and interim reports
prepared by us may also be inspected at our offices,
Else-Kröner-Strasse 1, 61352 Bad Homburg.

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Item 11.  Quantitative and
Qualitative Disclosures About Market Risk

Market Risk

Our businesses operate in highly competitive
markets and are subject to changes in business, economic and
competitive conditions. Our business is subject to:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | changes in reimbursement rates;                                                                                            
|
| |  | intense competition;                                                                                                       
|
| |  | foreign exchange rate fluctuations;                                                                                        
|
| |  | varying degrees of acceptance of new product
    introductions;                                                            
|
| |  | technological developments in our industry;                                                                                
|
| |  | uncertainties in litigation or investigative
    proceedings and regulatory developments in the health care
    sector; and
|
| |  | the availability of financing.                                                                                             

Our business is also subject to other risks and
uncertainties that we describe from time to time in our public
filings. Developments in any of these areas could cause our
results to differ materially from the results that we or others
have projected or may project.

Reimbursement Rates

We obtained approximately 43% of our worldwide
revenue for 2003 from sources subject to regulations under U.S.
government health care programs. In the past, U.S. budget
deficit reduction and health care reform measures have changed
the reimbursement rates under these programs, including the
Medicare composite rate, the reimbursement rate for EPO, and the
reimbursement rates for other dialysis and non-dialysis related
services and products, as well as other material aspects of
these programs, and they may change in the future.

We also obtain a significant portion of our net
revenues from reimbursement by non-government payors.
Historically, these payors reimbursement rates generally
have been higher than government program rates in their
respective countries. However, non-governmental payors are
imposing cost containment measures that are creating significant
downward pressure on reimbursement levels that we receive for
our services and products.

Inflation

The effects of inflation during the periods
covered by the consolidated financial statements have not been
significant to our results of operations. However, most of our
net revenues from dialysis care are subject to reimbursement
rates regulated by governmental authorities, and a significant
portion of other revenues, especially revenues from the U.S., is
received from customers whose revenues are subject to these
regulated reimbursement rates. Non-governmental payors are also
exerting downward pressure on reimbursement rates. Increased
operation costs that are subject to inflation, such as labor and
supply costs, may not be recoverable through price increases in
the absence of a compensating increase in reimbursement rates
payable to us and our customers, and could materially adversely
affect our business, financial condition and results of
operations.

Management of Currency and Interest Rate
Risks

We are primarily exposed to market risk from
changes in foreign currency exchange rates and changes in
interest rates. In order to manage the risks from these foreign
currency exchange rate and interest rate fluctuations, we enter
into various hedging transactions with investment grade
financial institutions as authorized by the management board. We
do not contract for financial instruments for trading or other
speculative purposes.

We conduct our financial instrument activity
under the control of a single centralized department. We have
established guidelines for risk assessment procedures and
controls for the use of financial instruments. They

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include a clear segregation of duties with regard
to execution on one side and administration, accounting and
controlling on the other.


Foreign Currency Exposure

We conduct our business on a global basis in
several major international currencies, although our operations
are primarily in the United States and Germany. For financial
reporting purposes, we have chosen the U.S. dollar as our
reporting currency. Therefore, changes in the rate of exchange
between the U.S. dollar, the euro and the local currencies in
which the financial statements of our international operations
are maintained, affect our results of operations and financial
position as reported in our consolidated financial statements.
We have translated the balance sheets of our non-U.S. dollar
denominated operations into U.S. dollars at the exchange rates
prevailing at the balance sheet date. Revenues and expenses are
translated at the average exchange rates for the period.

Our exposure to market risk for changes in
foreign exchange rates relates to transactions such as sales and
purchases, and lendings and borrowings, including intercompany
borrowings. We sell significant amounts of products from our
manufacturing facilities in Germany to our other international
operations. In general, our German sales are denominated in
euro. Consequently, our subsidiaries are exposed to fluctuations
in the rate of exchange between the euro and the currency in
which their local operations are conducted. We employ, to a
limited extent, forward contracts and options to hedge our
currency exposures. Our policy, which has been consistently
followed, is that forward currency contracts and options be used
only for hedging foreign currency exposures.

Our foreign exchange contracts contain credit
risk, in that our bank counterparties may be unable to meet the
terms of the agreements. We monitor the potential risk of loss
with any one party from this type of risk. Our management does
not expect any material losses as a result of default by the
other parties. The table below provides information about our
foreign exchange forward contracts at December 31, 2003.
The information is provided in U.S. dollar equivalent amounts.
The table presents the notional amounts by year of maturity, the
fair values of the contracts, which show the unrealized net gain
(loss) on existing contracts as of December 31, 2003,
and the credit risk inherent to those contracts with positive
market values as of December 31, 2003. All contracts expire
within 36 months after the reporting date.

Foreign Currency Risk Management

December 31, 2003

(USD in thousands)


|                               |  |                |         |      |  |      |        |        |  |       |         |      |  |  |           |  |  |  |         |   |  |  |         | 
|------------------------------ |  | -------------- | ------- | ---- |  | ---- | ------ | ------ |  | ----- | ------- | ---- |  |  | --------- |  |  |  | ------- | - |  |  | ------- | 
|                               |  |                |         |      |  |      |        |       
|                               |  | Nominal amount |         |      |  |      |        |       
|                               |  |                |         |      |  | Fair |        | Credit
|                               |  | 2004           |         | 2005 |  | 2006 |        | total  |  | value |         | risk
|                               |  |                |         |      |  |      |        |        |  |       |         |     
|Purchase of EUR against USD    |  |                | 502,273 |      |  |      | 14,427 |        |  |       | 359,743 |      |  |  | 876,443   |  |  |  | 91,858  |   |  |  | 91,858  | 
|Sale of EUR against USD        |  |                | 5,908   |      |  |      |       |        |  |       |        |      |  |  | 5,908     |  |  |  | (428    | ) |  |  |        | 
|Purchase of EUR against others |  |                | 240,798 |      |  |      | 21,685 |        |  |       |        |      |  |  | 262,483   |  |  |  | 10,759  |   |  |  | 11,738  | 
|Sale of EUR against others     |  |                | 29,529  |      |  |      |       |        |  |       |        |      |  |  | 29,529    |  |  |  | 66      |   |  |  | 234     | 
|Others                         |  |                | 34,331  |      |  |      | 8,661  |        |  |       |        |      |  |  | 42,992    |  |  |  | (71     | ) |  |  | 951     | 
|                               |  |                |         |      |  |      |        |        |  |       |         |      |  |  |           |  |  |  |         |   |  |  |         | 
|Total                          |  |                | 812,839 |      |  |      | 44,773 |        |  |       | 359,743 |      |  |  | 1,217,355 |  |  |  | 102,184 |   |  |  | 104,781 | 
|                               |  |                |         |      |  |      |        |        |  |       |         |      |  |  |           |  |  |  |         |   |  |  |         | 

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A summary of the high and low exchange rates for
the Euro to U.S. dollars and the average exchange rates for the
last five years is set forth below. The Deutsche Mark
(DM) was replaced by the euro
()
in the foreign exchange markets beginning in 1999 at a fixed
conversion rate of DM 1.95583 =
1.

|                         |  |        |        |        |  |         |        |        |  |  |        |  |  |  |        | 
|------------------------ |  | ------ | ------ | ------ |  | ------- | ------ | ------ |  |  | ------ |  |  |  | ------ | 
|                         |  | Years |        | Years |  | Years  |        | Years
|Year ending December 31, |  | High   |        | Low    |  | Average |        | Close 
|                         |  |        |        |        |  |         |        |       
|1999 $ per
             |  |        | 1.1790 |        |  |         | 1.0015 |        |  |  | 1.0658 |  |  |  | 1.0046 | 
|2000 $ per
             |  |        | 1.0388 |        |  |         | 0.8252 |        |  |  | 0.9236 |  |  |  | 0.9305 | 
|2001 $ per
             |  |        | 0.9545 |        |  |         | 0.8384 |        |  |  | 0.8956 |  |  |  | 0.8813 | 
|2002 $ per
             |  |        | 1.0487 |        |  |         | 0.8578 |        |  |  | 0.9454 |  |  |  | 1.0487 | 
|2003 $ per
             |  |        | 1.2630 |        |  |         | 1.0377 |        |  |  | 1.1312 |  |  |  | 1.2630 | 

Interest Rate Exposure

We are exposed to changes in interest rates that
affect our variable-rate based borrowings. We enter into debt
obligations and into accounts receivable financings to support
our general corporate purposes including capital expenditures
and working capital needs. We enter into derivatives,
particularly interest rate swaps, to protect interest rate
exposures arising from long-term and short-term borrowings and
our accounts receivable securitization programs at floating
rates by effectively swapping them into fixed rates. Under
interest rate swaps, we agree with other parties to exchange, at
specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an
agreed notional amount.

Our subsidiary, National Medical Care, has
entered into dollar interest rate swap agreements with various
commercial banks for notional amounts totaling $950 million
as of December 31, 2003. National Medical Care entered into
all of these agreements for purposes other than trading.

The dollar interest rate swaps effectively change
National Medical Cares interest rate exposure on the
majority of its variable-rate loans under our senior credit
agreement ($912 million outstanding as of December 31,
2003), loans extended to us by Fresenius AG ($30 million
outstanding as of December 31, 2003), and the drawdowns under
our receivables financing facility (drawn as of
December 31, 2003, $158 million) to a fixed interest
rate of 5.45%. Our accounts receivable financing facility has
been reflected in our consolidated financial statements as a
reduction to accounts receivable.

The dollar interest rate swap agreements expire
at various dates between January 2004 and December 2009. At
December 31, 2003, the fair value of these agreements is
$(71.3) million.

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The table below presents principal amounts and
related weighted average interest rates by year of maturity for
the various dollar interest rate swap agreements and for our
significant fixed-rate long-term debt obligations.

Dollar Interest Rate Exposure

December 31, 2003

(U.S. dollars in millions)


|                                                                                  |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     |      |   |   |     |      |   |   |     |     |  
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ---- | -- | ----- |  | ---- | --- | ---- |  | ---- | --- | ---------- |  | ------ | --- | ---------- | - |  | - | ---- | - |  | --- | ---- | - | - | --- | ---- | - | - | --- | --- | -
|                                                                                  |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     | Fair Value
|                                                                                  |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     | Dec. 31,  
|                                                                                  |                                                                      | 2004 |    | 2005  |  | 2006 |     | 2007 |  | 2008 |     | Thereafter |  | Totals |     | 2003      
|                                                                                  |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     |           
|Principal payments on Senior Credit
    Agreement                                 |                                                                      |      | 68 |       |  |      | 104 |      |  |      | 104 |            |  |        | 254 |            |   |  | 4 |      |   |  | 378 |      |   | $ | 912 |      |   | $ | 912 |    
|                                                                                  | Variable interest rate = 3.15%                                       |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     |      |   |   |     |      |   |   |     |     |  
|Interest rate swap agreements                                                     |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     |      |   |   |     |      |   |   |     |    
|                                                                                  | Notional amount                                                      |      |    | 150   |  |      |     |      |  |      |     | 250        |  |        |     | 200        |   |  |   | 100  |   |  |     | 250  |   |   |     | 950  |   |   |     | (71 | )
|                                                                                  | Average fixed pay rate = 5.45%                                       |      |    | 6.51% |  |      |     |      |  |      |     | 4.60%      |  |        |     | 6.61       | % |  |   | 4.86 | % |  |     | 4.99 | % |   |     | 5.45 | % |   |     |     |  
|                                                                                  | Receive rate = 3-month $LIBOR                                        |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     |      |   |   |     |      |   |   |     |     |  
|Company obligated mandatorily redeemable
    preferred securities of subsidiaries |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     |      |   |   |     |      |   |   |     |    
|Fresenius Medical Care Capital
    Trusts                                         |                                                                      |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     |      |   |   |     |      |   |   |     |    
|                                                                                  | Fixed interest rate = 7.875%/issued in 1998                          |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   | 450  |   |  |     |      |   |   |     | 450  |   |   |     | 477 |  
|                                                                                  | Fixed interest rate = 7.375%/issued in 1998
    (denominated in DEM) |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   | 194  |   |  |     |      |   |   |     | 194  |   |   |     | 205 |  
|                                                                                  | Fixed interest rate = 7.875%/issued in 2001                          |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     | 225  |   |   |     | 225  |   |   |     | 241 |  
|                                                                                  | Fixed interest rate = 7.375%/issued in 2001
    (denominated in EUR) |      |    |       |  |      |     |      |  |      |     |            |  |        |     |            |   |  |   |      |   |  |     | 379  |   |   |     | 379  |   |   |     | 402 |  

Our subsidiaries FMC Japan and Fresenius Kawasumi
have entered into Yen denominated interest rate swap agreements
and a Yen-denominated interest rate cap agreement with a
commercial bank for a notional amount of Yen 1,885 million
as of December 31, 2003. The swaps change FMC Japans
and Fresenius Kawasumis interest rate exposures on their
variable-rate bank loans (Yen 1,249 million outstanding as
of December 31, 2003) to a fixed interest rate of 2.99% on
average. The Yen denominated interest rate swap agreements
expire between March 2009 and June 2011. The cap agreement
limits the interest rate risk for a notional amount of Yen
636 million as of December 31, 2003 to 2.8%. At
December 31, 2003, the fair value of these agreements is
$(0.47) million. The terms of the Yen-denominated interest
rate hedge agreements, especially the notional amounts
outstanding at any specific point of time, match the terms of
the bank loans which have been borrowed from the same bank that
is counterparty in the swap and cap agreements. The amount of
the bank borrowings and the notional amounts of both the swap
agreements and the cap agreement always coincide until the final
maturities when the bank debts are completely repaid and the
swap and cap agreements expire.






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities other than Equity
    Securities

Not applicable




PART II






|         |                                                    
|-------- | ---------------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and
    Delinquencies

None






|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|Item 14. | Material Modifications to the Rights of
    Security Holders and Use of Proceeds

None

84



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|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

The Companys management, including the
Chief Executive Officer and Chief Financial Officer, have
conducted an evaluation of the effectiveness of the
Companys disclosure controls and procedures as of the end
of the period covered by this report, as contemplated by
Securities Exchange Act Rule 13a-15. Based on that
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures
are effective in ensuring that all material information required
to be filed in this annual report has been made known to them in
a timely fashion. There have been no significant changes in
internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive
Officer and Chief Financial Officer completed their evaluation.






|          |                                     
|--------- | ------------------------------------
|Item 16A. | Audit Committee Financial
    Expert

Although our supervisory board has not officially
named a audit committee financial expert, three of
the audit committee members could qualify under Item 16A of
Form 20-F. All three of these audit committee members are
independent as defined in Rule 10A-3 under the Securities
Exchange Act of 1934, as amended.






|          |               
|--------- | --------------
|Item 16B. | Code of Ethics

In 2003 our management board adopted through our
worldwide compliance program a code of ethics, titled the
Code of Business Conduct, which applies to members of the
management board, including its chairman and the responsible
member for Finance & Controlling, other senior officers and
all Company employees. It is filed with this report as an
exhibit.






|          |                                           
|--------- | ------------------------------------------
|Item 16C. | Principal Accountant Fees and
    Services

In the annual meeting held on May 22, 2003,
our shareholders appointed KPMG Deutsche Treuhand-Gesellschaft
AG Wirtschaftsprüfungsgesellschaft (KPMG), Berlin and
Frankfurt am Main, to serve as our independent auditors for the
2003 fiscal year. KPMG billed the following fees to us for
professional services in each of the last two fiscal years:

|                   |  |      |       |      |  |   |       | 
|------------------ |  | ---- | ----- | ---- |  | - | ----- | 
|                   |  | 2003 |       | 2002
|(in thousands)     |  |      |       |     
|Audit fees         |  | $    | 3,114 |      |  | $ | 2,387 | 
|Audit related fees |  |      | 329   |      |  |   | 194   | 
|Tax fees           |  |      | 834   |      |  |   | 1,237 | 
|Other fees         |  |      | 224   |      |  |   | 50    | 
|                   |  |      |       |      |  |   |       | 
|Total              |  | $    | 4,501 |      |  | $ | 3,868 | 
|                   |  |      |       |      |  |   |       | 

Audit Fees are the aggregate fees
billed by KPMG for the audit of our consolidated and annual
financial statements, reviews of interim financial statements
and attestation services that are provided in connection with
statutory and regulatory filings or engagements.
Audit-Related Fees are fees charged by KPMG for
assurance and related services that are reasonably related to
the performance of the audit or review of our financial
statements and are not reported under Audit Fees.
This category comprises fees billed for the audit of employee
benefit plans and pension schemes, agreed-upon procedure
engagements and other attestation services subject to regulatory
requirements, certifications of accounting-related internal
controls, as well as advisory services associated with our
financial reporting. Tax Fees are fees for
professional services rendered by KPMG for tax compliance, tax
advice on actual or contemplated transactions, tax consulting
associated with international transfer prices, and expatriate
employee tax services. Fees disclosed under the category
All Other Fees are mainly related to our project
Internal Control over Financial Reporting
implementing the requirements of Section 404 of
Sarbanes-Oxley Act of 2002. This category also includes training
and other immaterial support services.

85



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Audit Committees pre-approval policies
and procedures

Our Audit Committee nominates and engages our
independent auditors to audit our financial statements. See also
the description in Item 6C. Directors, Senior
management and Employees- Board Practices. In 2003 our
Audit Committee also adopted a policy requiring management to
obtain the Committees approval before engaging our
independent auditors to provide any audit or permitted non-audit
services to us or our subsidiaries. Pursuant to this policy,
which is designed to assure that such engagements do not impair
the independence of our auditors, the Audit Committee
pre-approves annually a catalog of specific audit and non-audit
services in the categories Audit Services, Audit-Related
Services, Tax Consulting Services, and Other Services that may
be performed by our auditors as well as additional approval
requirements based on fee amount.

Our Chief Financial Officer reviews all
individual management requests to engage our auditors as a
service provider in accordance with this catalog and, if the
requested services are permitted pursuant to the catalog and fee
level, approves the request accordingly. We inform the Audit
Committee about these approvals on a quarterly basis. Services
that are not included in the catalog or exceed applicable fee
level require pre-approval by the Audit Committees
chairman or full Audit Committee on a case-by-case basis.
Neither the chairman of our Audit Committee nor full Audit
Committee is permitted to approve any engagement of our auditors
if the services to be performed either fall into a category of
services that are not permitted by applicable law or the
services would be inconsistent with maintaining the
auditors independence.






|          |                                                               
|--------- | --------------------------------------------------------------
|Item 16D. | Exemptions from the Listing Standards for
    Audit Committees

Not applicable






|          |                                                                          
|--------- | -------------------------------------------------------------------------
|Item 16E. | Purchase of Equity Securities by the Issuer
    and Affiliated Purchasers

Not Applicable




PART III






|         |                     
|-------- | --------------------
|Item 17. | Financial Statements

Not applicable. See Item 18. Financial
Statements.






|         |                     
|-------- | --------------------
|Item 18. | Financial Statements

The information called for by this item commences
on Page F-1.






|         |         
|-------- | --------
|Item 19. | Exhibits

Pursuant to the provisions of the Instructions
for the filings of Exhibits to Annual Reports on From 20-F, the
Registrant is filing the following exhibits:

1.1   Amended Memorandum and
Articles of Association (Satzung)of Fresenius Medical
Care AG (Incorporated by reference to Exhibit 1.1 to the
Registrants Report on Form 6-K filed August 14,
2003).

2.1   Deposit Agreement between
Morgan Guaranty Trust Company and Fresenius Medical Care AG
dated August 5, 1996 relating to Ordinary Share ADSs
(Incorporated by reference to Exhibit A to the
Registrants Registration Statement on Form F-6,
Registration No. 333-5356, filed August 5, 1996).

2.2   Deposit Agreement between
Morgan Guaranty Trust Company and Fresenius Medical Care AG
dated as of November 22, 1996 relating to Preference Share
ADSs (Incorporated by reference to Exhibit A to the
Registrants Registration Statement on Form F-6,
Registration No. 333-5928, filed October 30, 1996).

2.3   FMC Ordinary Shares Pooling
Agreement dated September 27, 1996 by and between Fresenius
AG, Fresenius Medical Care AG and the individuals acting from
time to time as Independent Directors. (Incorporated by
reference to Exhibit 10.1 to the Registrants Registration
Statement on Form F-1, Registration No. 333-05922, filed
November 4, 1996).

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2.4   FMC Preference Shares
Pooling Agreement dated November 27, 1996, by and between
Fresenius AG, Fresenius Medical Care AG, and the individuals
acting from time to time as Independent Directors. (Incorporated
by reference to Exhibit 2.7 to the Registrants Annual
Report on Form 20-F for the year ended December 31,
1996, filed April 7, 1997).

2.5   Senior Subordinated
Indenture (U.S. Dollar denominated) dated as of
February 19, 1998, among Fresenius Medical Care AG, FMC
Trust Finance S.à.r.l. Luxembourg, State Street Bank and
Trust Company, as Trustee, and the Subsidiary Guarantors named
therein. (Incorporated by reference to Exhibit 2.6 to the
Registrants Annual Report on Form 20-F for the year
ended December 31, 1997, filed March 27, 1998).

2.6   Senior Subordinated
Indenture (DM denominated) dated as of February 19, 1998, among
Fresenius Medical Care AG, FMC Trust Finance S.à.r.l.
Luxembourg, State Street Bank and Trust Company, as Trustee, and
the Subsidiary Guarantors named therein. (Incorporated by
reference to Exhibit 2.7 to the Registrants Annual
Report on Form 20-F for the year ended December 31,
1997, filed March 27, 1998).

2.7   Declaration of Trust
Establishing Fresenius Medical Care Capital Trust II, dated
February 12, 1998. (Incorporated by reference to
Exhibit 2.1 to the Registrants Annual Report on
Form 20-F for the year ended December 31, 1997, filed
March 27, 1998).

2.8   Declaration of Trust
Establishing Fresenius Medical Care Capital Trust III, dated
February 12, 1998. (Incorporated by reference to
Exhibit 2.2 to the Registrants Annual Report on
Form 20-F for the year ended December 31, 1997, filed
March 27, 1998).

2.9   First Amendment to
Declaration of Trust Establishing Fresenius Medical Care Capital
Trust III, dated February 12, 1998. (Incorporated by
reference to Exhibit 2.3 to the Registrants Annual
Report on Form 20-F for the year ended December 31,
1997, filed March 27, 1998).

2.10 Amended and Restated Declaration of
Trust of Fresenius Medical Care Capital Trust II, dated as of
February 19, 1998. (Incorporated by reference to
Exhibit 2.4 to the Registrants Annual Report on
Form 20-F for the year ended December 31, 1997, filed
March 27, 1998).

2.11 Amended and Restated Declaration of
Trust of Fresenius Medical Care Capital Trust III, dated as of
February 19, 1998. (Incorporated by reference to
Exhibit 2.5 to the Registrants Annual Report on
Form 20-F for the year ended December 31, 1997, filed
March 27, 1998).

2.12 Guarantee Agreement dated as of
February 19, 1998 between Fresenius Medical Care AG and
State Street Bank and Trust Company as Trustee, with respect to
Fresenius Medical Care Capital Trust II. (Incorporated by
reference to Exhibit 2.8 to the Registrants Annual
Report on Form 20-F for the year ended December 31,
1997, filed March 27, 1998).

2.13 Guarantee Agreement dated as of
February 19, 1998 between Fresenius Medical Care AG and
State Street Bank and Trust Company as Trustee, with respect to
Fresenius Medical Care Capital Trust III. (Incorporated by
reference to Exhibit 2.9 to the Registrants Annual
Report on Form 20-F for the year ended December 31,
1997, filed March 27, 1998).

2.14 Agreement as to Expenses and
Liabilities between Fresenius Medical Care AG and Fresenius
Medical Care Capital Trust II dated as of February 19,
1998. (Incorporated by reference to Exhibit 2.10 to the
Registrants Annual Report on Form 20-F for the year
ended December 31, 1997, filed March 27, 1998).

2.15 Agreement as to Expenses and
Liabilities between Fresenius Medical Care AG and Fresenius
Medical Care Capital Trust III dated as of
February 19, 1998. (Incorporated by reference to
Exhibit 2.11 to the Registrants Annual Report on
Form 20-F for the year ended December 31, 1997, filed
March 27, 1998).

2.16 Declaration of Trust of Fresenius
Medical Care Capital Trust IV, dated February 12, 1998
(Incorporated by reference to Exhibit no. 4.41 to the
Registration Statement on Form F-4 of Fresenius Medical
Care AG et al filed August 2, 2001, Registration
No. 333-66558).

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2.17 First Amendment to Declaration of Trust
of Fresenius Medical Care Capital Trust IV, dated June 5,
2001 (Incorporated by reference to Exhibit No. 4.42 to
the Registration Statement on Form F-4 of Fresenius Medical
Care AG et al filed August 2, 2001, Registration
No. 333-66558).

2.18 Declaration of Trust of Fresenius
Medical Care Capital Trust V, dated June 1, 2001
(Incorporated by reference to Exhibit No. 4.43 to the
Registration Statement on Form F-4 of Fresenius Medical
Care AG et al filed August 2, 2001, Registration
No. 333-66558).

2.19 Amended and Restated Declaration of
Trust of Fresenius Medical Care Capital Trust IV, dated as of
June 6, 2001 (Incorporated by reference to
Exhibit No. 4.44 to the Registration Statement on
Form F-4 of Fresenius Medical Care AG et al filed
August 2, 2001, Registration No. 333-66558).

2.20 Amended and Restated Declaration of
Trust of Fresenius Medical Care Capital Trust V, dated as of
June 15, 2000 (Incorporated by reference to
Exhibit No. 4.45 to the Registration Statement on
Form F-4 of Fresenius Medical Care AG et al filed
August 2, 2001, Registration No. 333-66558).

2.21 Senior Subordinated Indenture (U.S.
Dollar denominated) dated as of June 6, 2001, among
Fresenius Medical Care AG, FMC Trust Finance S.à.r.l.
Luxembourg-III, State Street Bank and Trust Company, as Trustee,
and the Subsidiary Guarantors named therein (Incorporated by
reference to Exhibit No. 4.46 to the Registration Statement
on Form F-4 of Fresenius Medical Care AG et al filed
August 2, 2001, Registration No. 333-66558).

2.22 Senior Subordinated Indenture (Euro
denominated) dated as of June 15, 2001, among Fresenius
Medical Care AG, FMC Trust Finance S.à.r.l. Luxembourg-III,
State Street Bank and Trust Company, as Trustee, and the
Subsidiary Guarantors named therein (Incorporated by reference
to Exhibit No. 4.47 to the Registration Statement on
Form F-4 of Fresenius Medical Care AG et al filed
August 2, 2001, Registration No. 333-66558).

2.23 Guarantee Agreement dated as of
June 6, 2001 between Fresenius Medical Care AG and State
Street Bank and Trust Company as Trustee, with respect to
Fresenius Medical Care Capital Trust IV (Incorporated by
reference to Exhibit No. 4.48 to the Registration
Statement on Form F-4 of Fresenius Medical Care AG et al
filed August 2, 2001, Registration No. 333-66558).

2.24 Guarantee Agreement dated as of
June 15, 2001 between Fresenius Medical Care AG and State
Street Bank and Trust Company as Trustee, with respect to
Fresenius Medical Care Capital Trust V (Incorporated by
reference to Exhibit No. 4.49 to the Registration
Statement on Form F-4 of Fresenius Medical Care AG et al
filed August 2, 2001, Registration No. 333-66558).

2.25 Agreement as to Expenses and
Liabilities between Fresenius Medical Care AG and Fresenius
Medical Care Capital Trust IV dated as of June 6, 2001
(Incorporated by reference to Exhibit No. 4.50 to the
Registration Statement on Form F-4 of Fresenius Medical
Care AG et al filed August 2, 2001, Registration
No. 333-66558).

2.26 Agreement as to Expenses and
Liabilities between Fresenius Medical Care AG and Fresenius
Medical Care Capital Trust V dated as of June 15, 2001
(Incorporated by reference to Exhibit No. 4.51 to the
Registration Statement on Form F-4 of Fresenius Medical
Care AG et al filed August 2, 2001, Registration
No. 333-66558).

2.27 Receivables Purchase Agreement dated
August 28, 1997 between National Medical Care, Inc.
and NMC Funding Corporation. (Incorporated by reference to
Exhibit 10.3 to FMCHs Quarterly Report on
Form 10-Q, for the three months ended September 30,
1997, filed November 4, 1997).

2.28 Amendment dated as of
September 28, 1998 to the Receivables Purchase Agreement
dated as of August 28, 1997, by and between NMC Funding
Corporation, as Purchaser and National Medical Care, Inc.,
as Seller. (Incorporated by reference to Exhibit 10.1 to
FMCHs Quarterly Report on Form 10-Q, for the three
months ended September 30, 1998, filed November 12,
1998).

2.29 Third Amended and Restated Transfer and
Administrative agreement dated as of October 23, 2003 among
NMC Funding Corporation, National Medical Care, Inc.,
Paradigm Funding LLC, Asset One Securitization, LLC, Liberty
Street Funding Corp., Giro Multifunding Corporation, and the
Bank Investors listed therein, and WestLB AG, New York Branch,
as administrative agent and agent (filed herewith).

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2.30 Amended and Restated Credit Agreement
dated as of February 21, 2003 among Fresenius Medical Care
AG and Fresenius Medical Care Holdings, Inc., as borrowers
and guarantors, the direct and indirect subsidiaries of
Fresenius Medical Care AG named therein as additional borrowers
and guarantors, Bank of America N.A., as Administrative
Agent, Credit Suisse First Boston, acting through its Cayman
Islands Branch, and Dresdner Bank AG New York and Grand Cayman
Branches, as Co-Documentation Agents, JPMorgan Chase Bank and
The Bank of Nova Scotia, as Co-Syndication Agents and the
Lenders party thereto (incorporated by reference to
Exhibit No. 4.1 to the Form 10-Q of Fresenius
Medical Care Holdings, Inc. for the three months ended
March 31, 2003 filed May 15, 2003).(1)

2.31 Amendment No. 1 dated as of
August 22, 2003 to the Amended and Restated Credit
Agreement dated as of February 21, 2003 among Fresenius
Medical Care AG and Fresenius Medical Care Holdings, Inc.,
as borrowers and guarantors, the direct and indirect
subsidiaries of Fresenius Medical Care AG named therein as
additional borrowers and guarantors, Bank of America N.A.,
as Administrative Agent, Credit Suisse First Boston, acting
through its Cayman Islands Branch, and Dresdner Bank AG New York
and Grand Cayman Branches, as Co-Documentation Agents, JPMorgan
Chase Bank and The Bank of Nova Scotia, as Co-Syndication Agents
and the Lenders party thereto (incorporated by reference to
Exhibit 4.2 to the Form 10-Q of Fresenius Medical Care
Holdings, Inc. for the three month period ended
September 30, 2003 filed November 13,
2003).(1)

4.1   Agreement and Plan of
Reorganization dated as of February 4, 1996 between
W.R. Grace & Co. and Fresenius AG. (Incorporated
by reference to Appendix A to the Joint Proxy
Statement-Prospectus of Fresenius Medical Care AG,
W.R. Grace & Co. and Fresenius USA, Inc.,
dated August 2, 1996).

4.2   Distribution Agreement by
and among W.R. Grace & Co., W.R., Grace &
Co.  Conn. and Fresenius AG dated as of
February 4, 1996. (Incorporated by reference to
Appendix A to the Joint Proxy Statement-Prospectus of
Fresenius Medical Care AG, W.R. Grace & Co. and
Fresenius USA, Inc., dated August 2, 1996).

4.3   Contribution Agreement by
and among Fresenius AG, Sterilpharma GmbH and W.R.
Grace & Co.  Conn. dated February 4,
1996. (Incorporated by reference to Appendix E to the Joint
Proxy Statement-Prospectus of Fresenius Medical Care AG, W.R.
Grace & Co. and Fresenius USA, Inc., dated August 2,
1996).

4.4   Post-Closing Covenants
Agreement dated September 27, 1996 among Fresenius AG, W.R.
Grace & Co., W.R. Grace & Co.  Conn., and
Fresenius Medical Care AG. (Incorporated by reference to
Exhibit 10.11 to the Registrants Registration
Statement on Form F-1, filed on November 4, 1996).

4.5   Lease Agreement for Office
Buildings dated September 30, 1996 by and between Fresenius
AG and Fresenius Medical Care Deutschland GmbH. (Incorporated by
reference to Exhibit 10.3 to the Registrants
Registration Statement on Form F-1, Registration
No. 333-05922, filed November 16, 1996).

4.6   Lease Agreement for
Manufacturing Facilities dated September 30, 1996 by and
between Fresenius Immobilien-Verwaltungs-GmbH & Co. Objekt
Schweinfurt KG and Fresenius Medical Care Deutschland GmbH.
(Incorporated by reference to Exhibit 10.4 to the
Registrants Registration Statement on Form F-1,
Registration No. 333-05922, filed November 16, 1996).

4.7   Lease Agreement for
Manufacturing Facilities dated September 30, 1996 by and
between Fresenius AG and Fresenius Medical Care Deutschland
GmbH. (Incorporated by reference to Exhibit 10.5 to the
Registrants Registration Statement on Form F-1,
Registration No. 333-05922, filed November 16, 1996).

4.8   Transition Services
Agreement dated September 27, 1996 by and between Fresenius
AG and Fresenius Medical Care. (Incorporated by reference to
Exhibit 10.6 to the Registrants Registration Statement on
Form F-1, Registration No. 333-05922, filed
November 16, 1996).

4.9   Forms of Supply Agreements
between subsidiaries of Fresenius AG and subsidiaries of
Fresenius Medical Care AG. (Incorporated by reference to
Exhibit 10.7 to the Registrants Registration
Statement on Form F-1, Registration No. 333-05922,
filed November 16, 1996).

4.10 Trademark License Agreement dated
September 27, 1996 by and between Fresenius AG and
Fresenius Medical Care AG. (Incorporated by reference to
Exhibit 10.8 to the Registrants Registration
Statement on Form F-1, Registration No. 333-05922,
filed November 16, 1996).

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4.11 Technology License Agreement (Biofine)
dated September 27, 1996 by and between Fresenius AG and
Fresenius Medical Care AG. (Incorporated by reference to
Exhibit 10.9 to the Registrants Registration
Statement on Form F-1, Registration No. 333-05922, filed
November 16, 1996).

4.12 Cross-License Agreement dated
September 27, 1996 by and between Fresenius AG and
Fresenius Medical Care AG. (Incorporated by reference to
Exhibit 10.10 to the Registrants Registration
Statement on Form F-1, Registration No. 333-05922,
filed November 16, 1996).

4.13 Lease Agreement for Office Buildings
dated September 30, 1996 by and between Fresenius AG and
Fresenius Medical Care Deutschland GmbH (Daimler Str.).
(Incorporated by reference to Exhibit 2.8 to the
Registrants Annual Report on Form 20-F for the year
ended December 31, 1996, filed April 7, 1997).

4.14 Fresenius Medical Care AG 1996 Stock
Incentive Plan , (incorporated by reference to the
Registrants Registration Statement on Form S-8, dated
October 1, 1996).

4.15 Fresenius Medical Care AG Rollover
Stock Option Plan (Incorporated by reference to the
Registrants Registration Statement on Form S-8, dated
September 30, 1996).

4.16 Fresenius Medical Care AG 1998 Stock
Incentive Plan adopted effective as of April 6, 1998.
(Incorporated by reference to Exhibit 4.8 to the
Registrants Report on Form 6-K for the three months
ended March 31, 1998, filed May 14, 1998).

4.17 Fresenius Medical Care AG Stock Option
Plan of June 10, 1998 (for non-North American employees).
(Incorporated by reference to Exhibit 1.2 to the
Registrants Annual Report on Form 20-F, for the year
ended December 31, 1998, filed March 24, 1999).

4.18 Fresenius Medical Care
Aktiengesellschaft 2001 International Stock Incentive Plan
(Incorporated by reference to Exhibit No. 10.17 to the
Registration Statement on Form F-4 of Fresenius Medical
Care AG et al filed August 2, 2001, Registration
No. 333-66558

4.19 Product Purchase Agreement, effective
January 1, 2004 between Amgen, Inc. and National
Medical Care, Inc. (filed herewith).(1)

4.20 Corporate Integrity Agreement dated
January 18, 2000 between FMCH and Office of the Inspector
General of the Department of Health and Human Services.
(Incorporated by reference to Exhibit 10.1 to FMCHs
Current Report on Form 8-K dated January 21, 2000).

4.21 Settlement Agreement dated as of
February 6, 2003 by and among Fresenius Medical Care AG,
Fresenius Medical Care Holdings, National Medical Care, Inc.,
the Official Committee of Asbestos Personal Injury Claimants,
and the Official Committee of Asbestos Property Damage Claimants
of W.R.Grace & Co. (incorporated by reference to
Exhibit No. 10.18 on Form 10-K of Fresenius
Medical Care Holdings, Inc. for the year ended December 31,
2002 filed March 17, 2002).

8.1   List of Significant
Subsidiaries. Our significant subsidiaries are identified in
Item 4.C. Information on the Company 
Orgnizational Structure.

11.1 Code of Business Conduct for Fresenius
Medical Care AG, last revised in December, 2003 (filed herewith).

12.1 Certification of Chief Executive
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).

12.2 Certification of Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).

13.1 Certification of Chief Executive
Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith). (This Exhibit
is furnished herewith, but not deemed filed for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to liability under that
section. Such certification will not be deemed to

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be incorporated by reference into any filing
under the Securities Act or the Exchange Act, except to the
extent that we explicitly incorporate it by reference.)


14.1 Consent of KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft (filed herewith).

14.2 Pages 114-116 from the final prospectus
of Fresenius Medical Care AG dated July 20, 2000,
consisting of the information under the heading
DESCRIPTION OF THE POOLING AGREEMENTS (incorporated
by reference to Exhibit No. 10.2 on the registrants
Form 20-F for the year ended December 31, 2002 filed
March 18, 2003).






|    |                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Confidential treatment has been requested as to
    certain portions of this document in accordance with the
    applicable rules of the Securities and Exchange Commission.

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SIGNATURES

The Registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.

DATE: March 2, 2004



| |                       
| | ----------------------
| | FRESENIUS MEDICAL CARE
| | AKTIENGESELLSCHAFT    



| |     |                  
| | --- | -----------------
| | By: | /s/ DR. BEN LIPPS

| |                                         
| | ----------------------------------------
| |                                         
| | Name: Dr. Ben Lipps                     
| | Title:  Chairman of the Management Board



| |     |                   
| | --- | ------------------
| | By: | /s/ LAWRENCE ROSEN

| |                                
| | -------------------------------
| |                                
| | Name: Lawrence Rosen           
| | Title:  Chief Financial Officer

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INDEX OF FINANCIAL STATEMENTS

|                                                                                                            |  |      |     | 
|----------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                            |  | Page
|                                                                                                            |  |     
|Audited Consolidated Financial
    Statements                                                               |  |      |     | 
|Independent Auditors Report                                                                                |  |      | F-2 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001              |  |      | F-3 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                            |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001              |  |      | F-5 | 
|Consolidated Statement of Shareholders
    Equity for the years ended December 31, 2003,
    2002 and 2001 |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                  |  |      | F-7 | 
|Financial Statement Schedule                                                                                |  |      | S-1 | 

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Shareholders

Fresenius Medical Care Aktiengesellschaft

Hof an der Saale, Germany:

We have audited the accompanying consolidated
balance sheets of Fresenius Medical Care Aktiengesellschaft and
subsidiaries (the Company) as of December 31,
2003 and 2002 and the related consolidated statements of
operations, cash flows and shareholders equity for each of
the years in the three-year period ended December 31, 2003.
In connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based
on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Company as of
December 31, 2003 and 2002, and the results of its
operations and its cash flows for each of the years in the
three-year period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.

As discussed in Note 1 to the consolidated
financial statement, effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

Frankfurt am Main, Germany

February 10, 2004

/s/ KPMG

Deutsche Treuhand-Gesellschaft


Aktiengesellschaft


Wirtschaftsprüfungsgesellschaft


F-2



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##### Table of Contents



Fresenius Medical Care AG

Consolidated Statements of
Operations

For the years ended December 31, 2003,
2002 and 2001


(in thousands, except share data)


|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |           |  
|----------------------------------------- | ------------------------------------------------ | ---- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | -
|                                          |                                                  | 2003 |           | 2002      |   | 2001
|                                          |                                                  |      |           |           |   |     
|Net revenue:                              |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          | Dialysis Care                                    |      | $         | 3,978,344 |   |      | $         | 3,708,903 |   |   | $         | 3,557,234 |  
|                                          | Dialysis Products                                |      |           | 1,549,165 |   |      |           | 1,375,194 |   |   |           | 1,302,084 |  
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          |                                                  |      | 5,527,509 |           |   |      | 5,084,097 |           |   |   | 4,859,318 |          
|Costs of revenue:                         |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          | Dialysis Care                                    |      |           | 2,871,592 |   |      |           | 2,713,341 |   |   |           | 2,521,075 |  
|                                          | Dialysis Products                                |      |           | 827,014   |   |      |           | 714,736   |   |   |           | 699,123   |  
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          |                                                  |      | 3,698,606 |           |   |      | 3,428,077 |           |   |   | 3,220,198 |          
|Gross profit                              |                                                  |      | 1,828,903 |           |   |      | 1,656,020 |           |   |   | 1,639,120 |          
|Operating expenses:                       |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          | Selling, general and administrative              |      |           | 1,021,781 |   |      |           | 913,620   |   |   |           | 966,044   |  
|                                          | Research and development                         |      |           | 49,687    |   |      |           | 47,433    |   |   |           | 35,700    |  
|                                          | Special charge for legal matters                 |      |           |          |   |      |           |          |   |   |           | 258,159   |  
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|Operating income                          |                                                  |      | 757,435   |           |   |      | 694,967   |           |   |   | 379,217   |          
|Other (income) expense:                   |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          | Interest income                                  |      |           | (19,089   | ) |      |           | (18,053   | ) |   |           | (14,305   | )
|                                          | Interest expense                                 |      |           | 230,848   |   |      |           | 244,570   |   |   |           | 237,234   |  
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|                                          | Income before income taxes and minority interest |      |           | 545,676   |   |      |           | 468,450   |   |   |           | 156,288   |  
|Income tax expense                        |                                                  |      | 212,714   |           |   |      | 175,074   |           |   |   | 91,202    |          
|Minority interest                         |                                                  |      | 1,782     |           |   |      | 3,586     |           |   |   | 1,732     |          
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|Net income                                |                                                  | $    | 331,180   |           |   | $    | 289,790   |           |   | $ | 63,354    |          
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|Basic income per Ordinary share           |                                                  | $    | 3.42      |           |   | $    | 3.00      |           |   | $ | 0.65      |          
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|Fully diluted income per Ordinary share   |                                                  | $    | 3.42      |           |   | $    | 3.00      |           |   | $ | 0.64      |          
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|Basic income per Preference share         |                                                  | $    | 3.49      |           |   | $    | 3.06      |           |   | $ | 0.70      |          
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          
|Fully diluted income per Preference share |                                                  | $    | 3.49      |           |   | $    | 3.06      |           |   | $ | 0.69      |          
|                                          |                                                  |      |           |           |   |      |           |           |   |   |           |          

See accompanying notes to consolidated financial
statements.

F-3



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##### Table of Contents



Fresenius Medical Care AG

Consolidated Balance Sheets

At December 31, 2003 and 2002


(in thousands, except share data)


|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ---- | --------- | --------- |  | - | --------- | ------- | 
|                                                                                                                                                                                           |                                                                                                              | 2003 |           | 2002     
|                                                                                                                                                                                           |                                                                                                              |      |           |          
|Assets                                                                                                                                                                                     |                                                                                                              |      |           |           |  |   |           |        
|Current assets:                                                                                                                                                                            |                                                                                                              |      |           |           |  |   |           |        
|                                                                                                                                                                                           | Cash and cash equivalents                                                                                    |      | $         | 48,427    |  |   | $         | 64,793  | 
|                                                                                                                                                                                           | Trade accounts receivable, less allowance for
    doubtful accounts of $166,385 in 2003 and $159,763 in 2002 |      |           | 1,229,503 |  |   |           | 914,302 | 
|                                                                                                                                                                                           | Accounts receivable from related parties                                                                     |      |           | 50,456    |  |   |           | 41,332  | 
|                                                                                                                                                                                           | Inventories                                                                                                  |      |           | 444,738   |  |   |           | 372,222 | 
|                                                                                                                                                                                           | Prepaid expenses and other current assets                                                                    |      |           | 253,365   |  |   |           | 239,172 | 
|                                                                                                                                                                                           | Deferred taxes                                                                                               |      |           | 179,639   |  |   |           | 189,879 | 
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Total current assets                                                                                                                                                                       |                                                                                                              |      | 2,206,128 |           |  |   | 1,821,700 |        
|Property, plant and equipment, net                                                                                                                                                         |                                                                                                              |      | 1,089,146 |           |  |   | 917,868   |        
|Intangible assets                                                                                                                                                                          |                                                                                                              |      | 582,103   |           |  |   | 550,321   |        
|Goodwill                                                                                                                                                                                   |                                                                                                              |      | 3,288,348 |           |  |   | 3,192,651 |        
|Deferred taxes                                                                                                                                                                             |                                                                                                              |      | 35,541    |           |  |   | 35,741    |        
|Other assets                                                                                                                                                                               |                                                                                                              |      | 302,054   |           |  |   | 261,668   |        
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Total assets                                                                                                                                                                               |                                                                                                              | $    | 7,503,320 |           |  | $ | 6,779,949 |        
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Liabilities and shareholders equity                                                                                                                                                       |                                                                                                              |      |           |           |  |   |           |        
|Current liabilities:                                                                                                                                                                       |                                                                                                              |      |           |           |  |   |           |        
|                                                                                                                                                                                           | Accounts payable                                                                                             |      | $         | 177,824   |  |   | $         | 185,949 | 
|                                                                                                                                                                                           | Accounts payable to related parties                                                                          |      |           | 128,703   |  |   |           | 98,992  | 
|                                                                                                                                                                                           | Accrued expenses and other current liabilities                                                               |      |           | 553,830   |  |   |           | 469,228 | 
|                                                                                                                                                                                           | Accrual for special charge for legal matters                                                                 |      |           | 138,154   |  |   |           | 191,130 | 
|                                                                                                                                                                                           | Short-term borrowings                                                                                        |      |           | 89,417    |  |   |           | 124,964 | 
|                                                                                                                                                                                           | Short-term borrowings from related parties                                                                   |      |           | 30,000    |  |   |           | 6,000   | 
|                                                                                                                                                                                           | Current portion of long-term debt and capital
    lease obligations                                          |      |           | 90,365    |  |   |           | 22,394  | 
|                                                                                                                                                                                           | Income tax payable                                                                                           |      |           | 178,111   |  |   |           | 178,690 | 
|                                                                                                                                                                                           | Deferred taxes                                                                                               |      |           | 26,077    |  |   |           | 18,027  | 
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Total current liabilities                                                                                                                                                                  |                                                                                                              |      | 1,412,481 |           |  |   | 1,295,374 |        
|Long-term debt and capital lease obligations,
    less current portion                                                                                                                     |                                                                                                              |      | 1,111,624 |           |  |   | 1,089,210 |        
|Other liabilities                                                                                                                                                                          |                                                                                                              |      | 128,615   |           |  |   | 154,859   |        
|Pension liabilities                                                                                                                                                                        |                                                                                                              |      | 100,052   |           |  |   | 96,152    |        
|Deferred taxes                                                                                                                                                                             |                                                                                                              |      | 250,446   |           |  |   | 169,372   |        
|Company-obligated mandatorily redeemable
    preferred securities of subsidiary Fresenius Medical Care
    Capital Trusts holding solely Company-guaranteed debentures of
    subsidiaries |                                                                                                              |      | 1,242,317 |           |  |   | 1,145,281 |        
|Minority interest                                                                                                                                                                          |                                                                                                              |      | 14,105    |           |  |   | 22,522    |        
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Total liabilities                                                                                                                                                                          |                                                                                                              |      | 4,259,640 |           |  |   | 3,972,770 |        
|Shareholders equity:                                                                                                                                                                      |                                                                                                              |      |           |           |  |   |           |        
|Preference shares, no par,
    2.56 nominal
    value, 53,597,700 shares authorized, 26,213,979 issued and
    outstanding                                                                |                                                                                                              |      | 69,616    |           |  |   | 69,540    |        
|Ordinary shares, no par,
    2.56 nominal
    value, 70,000,000 shares authorized, issued and outstanding                                                                                 |                                                                                                              |      | 229,494   |           |  |   | 229,494   |        
|Additional paid-in capital                                                                                                                                                                 |                                                                                                              |      | 2,741,362 |           |  |   | 2,736,913 |        
|Retained earnings                                                                                                                                                                          |                                                                                                              |      | 378,014   |           |  |   | 154,595   |        
|Accumulated other comprehensive loss                                                                                                                                                       |                                                                                                              |      | (174,806  | )         |  |   | (383,363  | )      
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Total shareholders equity                                                                                                                                                                 |                                                                                                              |      | 3,243,680 |           |  |   | 2,807,179 |        
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        
|Total liabilities and shareholders equity                                                                                                                                                 |                                                                                                              | $    | 7,503,320 |           |  | $ | 6,779,949 |        
|                                                                                                                                                                                           |                                                                                                              |      |           |           |  |   |           |        

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



Fresenius Medical Care AG

Consolidated Statements of Cash
Flows

For the years ended December 31, 2003,
2002 and 2001


(in thousands)


|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |          |          |  
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------ | -------- | -------- | ---- | ---- | -------- | -------- | - | ------ | -------- | -------- | -
|                                                                 |                                                                                                                  | 2003                                                                                 |        | 2002     |          | 2001
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |     
|Operating Activities:                                            |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 | Net income                                                                                                       |                                                                                      | $      | 331,180  |          |      | $    | 289,790  |          |   | $      | 63,354   |         
|                                                                 | Adjustments to reconcile net income to cash and
    cash equivalents provided by (used in) operating activities: |                                                                                      |        |          |          |      |      |          |          |   |        |          |         
|                                                                 |                                                                                                                  | Depreciation and amortization                                                        |        |          | 216,377  |      |      |          | 210,555  |   |        |          | 323,503  |  
|                                                                 |                                                                                                                  | Loss on early redemption of trust preferred
    securities, net of tax               |        |          |         |      |      |          | 11,777   |   |        |          |         |  
|                                                                 |                                                                                                                  | Change in deferred taxes, net                                                        |        |          | 91,312   |      |      |          | 58,449   |   |        |          | (46,401  | )
|                                                                 |                                                                                                                  | (Gain) loss on sale of fixed assets                                                  |        |          | (50      | )    |      |          | 690      |   |        |          | 1,010    |  
|                                                                 |                                                                                                                  | Compensation expense related to stock options                                        |        |          | 1,456    |      |      |          | 1,126    |   |        |          | 1,153    |  
|                                                                 |                                                                                                                  | Cash inflow from Hedging                                                             |        |          | 131,654  |      |      |          | 24,542   |   |        |          |         |  
|                                                                 | Changes in assets and liabilities, net of amounts
    from businesses acquired:                                  |                                                                                      |        |          |          |      |      |          |          |   |        |          |         
|                                                                 |                                                                                                                  | Trade accounts receivable, net                                                       |        |          | 53,563   |      |      |          | (13,124  | ) |        |          | (117,093 | )
|                                                                 |                                                                                                                  | Inventories                                                                          |        |          | (22,993  | )    |      |          | (6,519   | ) |        |          | (30,201  | )
|                                                                 |                                                                                                                  | Prepaid expenses, other current and non-current
    assets                           |        |          | 60,155   |      |      |          | 17,670   |   |        |          | (28,462  | )
|                                                                 |                                                                                                                  | Accounts receivable from/payable to related
    parties                              |        |          | 7,199    |      |      |          | 3,228    |   |        |          | 8,854    |  
|                                                                 |                                                                                                                  | Accounts payable, accrued expenses and other
    current and non-current liabilities |        |          | (92,316  | )    |      |          | (42,518  | ) |        |          | 183,992  |  
|                                                                 |                                                                                                                  | Income tax payable                                                                   |        |          | (23,518  | )    |      |          | (5,748   | ) |        |          | 64,539   |  
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 |                                                                                                                  | Net cash provided by operating activities                                            |        |          | 754,019  |      |      |          | 549,918  |   |        |          | 424,248  |  
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|Investing Activities:                                            |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 | Purchases of property, plant and equipment                                                                       |                                                                                      |        | (291,260 | )        |      |      | (239,160 | )        |   |        | (275,225 | )       
|                                                                 | Proceeds from sale of property, plant and
    equipment                                                          |                                                                                      |        | 14,826   |          |      |      | 37,783   |          |   |        | 24,195   |         
|                                                                 | Acquisitions and investments, net of cash acquired                                                               |                                                                                      |        | (92,190  | )        |      |      | (79,835  | )        |   |        | (216,711 | )       
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 |                                                                                                                  | Net cash used in investing activities                                                |        |          | (368,624 | )    |      |          | (281,212 | ) |        |          | (467,741 | )
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|Financing Activities:                                            |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 | Proceeds from short-term borrowings                                                                              |                                                                                      |        | 102,678  |          |      |      | 88,639   |          |   |        | 117,896  |         
|                                                                 | Repayments of short-term borrowings                                                                              |                                                                                      |        | (153,911 | )        |      |      | (68,255  | )        |   |        | (140,420 | )       
|                                                                 | Proceeds from short-term borrowings from related
    parties                                                     |                                                                                      |        | 94,787   |          |      |      | 49,120   |          |   |        | 20,588   |         
|                                                                 | Repayments of short-term borrowings from related
    parties                                                     |                                                                                      |        | (70,787  | )        |      |      | (58,125  | )        |   |        | (223,566 | )       
|                                                                 | Proceeds from long-term debt                                                                                     |                                                                                      |        | 982,825  |          |      |      | 417,098  |          |   |        | 465,906  |         
|                                                                 | Principal payments of long-term debt and capital
    lease obligations                                           |                                                                                      |        | (968,888 | )        |      |      | (246,566 | )        |   |        | (517,877 | )       
|                                                                 | Payments on obligation related to 1999 Settlement                                                                |                                                                                      |        |         |          |      |      |         |          |   |        | (85,920  | )       
|                                                                 | Proceeds from issuance of trust preferred
    securities                                                         |                                                                                      |        |         |          |      |      |         |          |   |        | 470,598  |         
|                                                                 | Redemption of trust preferred securities                                                                         |                                                                                      |        |         |          |      |      | (376,200 | )        |   |        |         |         
|                                                                 | (Decrease) increase of accounts receivable
    securitization program                                            |                                                                                      |        | (287,251 | )        |      |      | 3,249    |          |   |        | (3,464   | )       
|                                                                 | Proceeds from exercise of stock options                                                                          |                                                                                      |        | 1,600    |          |      |      | 550      |          |   |        | 6,391    |         
|                                                                 | Dividends paid                                                                                                   |                                                                                      |        | (107,761 | )        |      |      | (76,743  | )        |   |        | (65,782  | )       
|                                                                 | Redemption of Series D Preferred Stock of
    subsidiary                                                         |                                                                                      |        | (8,906   | )        |      |      |         |          |   |        |         |         
|                                                                 | Change in other minority interest                                                                                |                                                                                      |        | (266     | )        |      |      | 2,095    |          |   |        | (853     | )       
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 |                                                                                                                  | Net cash (used in) provided by financing
    activities                              |        |          | (415,880 | )    |      |          | (265,138 | ) |        |          | 43,497   |  
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                                  |                                                                                      | 14,119 |          |          |      | (347 | )        |          |   | (3,009 | )       
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|Cash and Cash Equivalents:                                       |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 | Net (decrease) increase in cash and cash
    equivalents                                                         |                                                                                      |        | (16,366  | )        |      |      | 3,221    |          |   |        | (3,005   | )       
|                                                                 | Cash and cash equivalents at beginning of period                                                                 |                                                                                      |        | 64,793   |          |      |      | 61,572   |          |   |        | 64,577   |         
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         
|                                                                 | Cash and cash equivalents at end of period                                                                       |                                                                                      | $      | 48,427   |          |      | $    | 64,793   |          |   | $      | 61,572   |         
|                                                                 |                                                                                                                  |                                                                                      |        |          |          |      |      |          |          |   |        |         

See accompanying notes to consolidated financial
statements.

F-5



---



##### Table of Contents



Fresenius Medical Care AG

Consolidated Statements of Shareholders
Equity

For the years ended December 31, 2003,
2002 and 2001


(in thousands, except share data)


|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |          |  
|-------------------------------------------------- | -------------------------------------------------------- | ----------------- | ---------- | --------------- |  | ---------- | ------ | -------- |  | ------------------ | ---------- | --------- |  | ----------- | ------- | --------- |  | --------- | --------- | ----- |  | - | -------- | ------- |  | - | -------- | -------- | - | - | ------- | ------- | - | - | ------- | ------- | - | - | --------- | -------- | -
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |          
|                                                   |                                                          |                   |            |                 |  |            |        |          |  | Accumulated other  |            |          
|                                                   |                                                          | Preference Shares |            | Ordinary Shares |  |            |        |          |  | comprehensive loss |            |          
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |          
|                                                   |                                                          |                   |            |                 |  | Additional |        | Retained |  | Foreign            |            |           |  | Minimum     |         |          
|                                                   |                                                          | Number of         |            | No par          |  | Number of  |        | No par   |  | paid in            |            | earnings  |  | currency    |         | Cash Flow |  | Pension   |           |      
|                                                   |                                                          | shares            |            | value           |  | shares     |        | value    |  | capital            |            | (deficit) |  | translation |         | Hedges    |  | Liability |           | Total
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |      
|Balance at December 31, 2000                       |                                                          |                   | 23,765,093 |                 |  | $          | 63,644 |          |  |                    | 70,000,000 |           |  | $           | 229,494 |           |  | $         | 2,634,606 |       |  | $ | (56,024  | )       |  | $ | (192,970 | )        |   | $ |        |         |   | $ |        |         |   | $ | 2,678,750 |         
|Issuance of Preference shares                      |                                                          |                   | 2,250,000  |                 |  |            | 5,498  |          |  |                    |            |           |  |             |         |           |  |           | 93,485    |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 98,983    |         
|Proceeds from exercise of options                  |                                                          |                   | 161,415    |                 |  |            | 371    |          |  |                    |            |           |  |             |         |           |  |           | 6,020     |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 6,391     |         
|Compensation expense related to stock options      |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           | 1,153     |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 1,153     |         
|Dividends paid                                     |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   | (65,782  | )       |  |   |          |          |   |   |         |         |   |   |         |         |   |   | (65,782   | )       
|Comprehensive loss                                 |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|                                                   | Net income                                               |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          | 63,354  |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           | 63,354   |  
|                                                   | Other comprehensive loss related to cash flow
    hedges |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         | (50,683 | ) |   |         |         |   |   |           | (50,683  | )
|                                                   | Foreign currency translation adjustment                  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          | (115,422 | ) |   |         |         |   |   |         |         |   |   |           | (115,422 | )
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|Comprehensive loss                                 |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | (102,751  | )       
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|Balance at December 31, 2001                       |                                                          |                   | 26,176,508 |                 |  | $          | 69,512 |          |  |                    | 70,000,000 |           |  | $           | 229,494 |           |  | $         | 2,735,265 |       |  | $ | (58,452  | )       |  | $ | (308,392 | )        |   | $ | (50,683 | )       |   | $ |        |         |   | $ | 2,616,744 |         
|Proceeds from exercise of options                  |                                                          |                   | 12,067     |                 |  |            | 28     |          |  |                    |            |           |  |             |         |           |  |           | 522       |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 550       |         
|Compensation expense related to stock options      |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           | 1,126     |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 1,126     |         
|Dividends paid                                     |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   | (76,743  | )       |  |   |          |          |   |   |         |         |   |   |         |         |   |   | (76,743   | )       
|Comprehensive income                               |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|                                                   | Net income                                               |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          | 289,790 |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           | 289,790  |  
|                                                   | Other comprehensive income related to:                   |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |          |  
|                                                   | Cash flow hedges                                         |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         | 33,501  |   |   |         |         |   |   |           | 33,501   |  
|                                                   | Foreign currency translation adjustment                  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          | (38,432  | ) |   |         |         |   |   |         |         |   |   |           | (38,432  | )
|                                                   | Minimum pension liability                                |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         | (19,357 | ) |   |           | (19,357  | )
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|Comprehensive income                               |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 265,502   |         
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|Balance at December 31, 2002                       |                                                          |                   | 26,188,575 |                 |  | $          | 69,540 |          |  |                    | 70,000,000 |           |  | $           | 229,494 |           |  | $         | 2,736,913 |       |  | $ | 154,595  |         |  | $ | (346,824 | )        |   | $ | (17,182 | )       |   | $ | (19,357 | )       |   | $ | 2,807,179 |         
|Proceeds from exercise of options                  |                                                          |                   | 25,404     |                 |  |            | 76     |          |  |                    |            |           |  |             |         |           |  |           | 1,524     |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 1,600     |         
|Compensation expense related to stock options      |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           | 1,456     |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 1,456     |         
|Dividends paid                                     |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   | (107,761 | )       |  |   |          |          |   |   |         |         |   |   |         |         |   |   | (107,761  | )       
|Transaction under common control with Fresenius AG |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           | 1,469     |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 1,469     |         
|Comprehensive income                               |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|                                                   | Net income                                               |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          | 331,180 |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           | 331,180  |  
|                                                   | Other comprehensive income related to:                   |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |          |  
|                                                   | Cash flow hedges                                         |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         | 22,029  |   |   |         |         |   |   |           | 22,029   |  
|                                                   | Foreign currency translation adjustment                  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          | 200,578  |   |   |         |         |   |   |         |         |   |   |           | 200,578  |  
|                                                   | Minimum Pension Liability                                |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         | (14,050 | ) |   |           | (14,050  | )
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|Comprehensive income                               |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   | 539,737   |         
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         
|Balance at December 31, 2003                       |                                                          |                   | 26,213,979 |                 |  | $          | 69,616 |          |  |                    | 70,000,000 |           |  | $           | 229,494 |           |  | $         | 2,741,362 |       |  | $ | 378,014  |         |  | $ | (146,246 | )        |   | $ | 4,847   |         |   | $ | (33,407 | )       |   | $ | 3,243,680 |         
|                                                   |                                                          |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |         |  |   |          |          |   |   |         |         |   |   |         |         |   |   |           |         

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



Fresenius Medical Care AG

Notes to Consolidated Financial
Statements

(in thousands, except share data)


1.   The Company and Summary of
Significant Accounting Policies

Fresenius Medical Care AG and subsidiaries
(FMS or the Company), is an integrated
provider of kidney dialysis products and dialysis care. FMS was
created by conversion of Sterilpharma GmbH, a limited liability
company incorporated in 1975, into a stock corporation
(Aktiengesellschaft). The resolutions for this conversion were
adopted by a shareholder meeting on April 17, 1996. On
September 30, 1996, FMS initiated a series of transactions
to consummate an Agreement and Plan of Reorganization entered
into on February 4, 1996 by Fresenius AG and
W.R. Grace & Co. (W.R. Grace).
Pursuant to that Agreement, Fresenius AG contributed Fresenius
Worldwide Dialysis or FWD, its global dialysis business,
including its controlling interest in Fresenius USA, Inc.
(FUSA), in exchange for FMS Ordinary shares.
Thereafter, FMS, in exchange for Ordinary shares, acquired:
(i) all of the outstanding Common stock of W.R. Grace,
whose sole business at the time of the transaction consisted of
National Medical Care, Inc. (NMC), its global
dialysis business; and (ii) the publicly-held minority
interest of FUSA.

Basis of Presentation

The accompanying consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(U.S. GAAP).

Summary of Significant Accounting
Policies

a)  Principles of
Consolidation

The consolidated financial statements include all
material companies in which the Company has legal or effective
control. The equity method of accounting is used for investments
in associated companies (20% to 50% owned). All significant
intercompany transactions and balances have been eliminated.

b)  Classifications

Certain items in prior years consolidated
financial statements may have been reclassified to conform with
the current years presentation. Net operating results have
not been affected by the reclassifications.

c)   Cash and Cash
Equivalents

Cash and cash equivalents represent cash and
certificates of deposit with original maturity dates of three
months or less at origination.

d)  Allowance for Doubtful
Accounts

Estimates for the allowances for accounts
receivable from the dialysis service business are mainly based
on past collection history. Specifically, the allowances for the
North American services division are based on an analysis of
collection experience, recognizing the differences between
payors and aging of accounts receivable. From time to time,
accounts receivable are reviewed for changes from the historic
collection experience to ensure the appropriateness of the
allowances. The allowances in the international segment and the
products business are based on estimates and consider various
factors, including aging, creditor and past collection history.

e)   Inventories

Inventories are stated at the lower of cost
(determined by using the average or first-in, first-out method)
or market value.

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f)   Property, Plant and
Equipment

Property, plant, and equipment are stated at cost
less accumulated depreciation. Significant improvements are
capitalized; repairs and maintenance costs that do not extend
the useful lives of the assets are charged to expense as
incurred. Property and equipment under capital leases are stated
at the present value of future minimum lease payments at the
inception of the lease, less accumulated depreciation.
Depreciation on property, plant and equipment is calculated
using the straight-line method over the estimated useful lives
of the assets ranging from 5 to 50 years for buildings and
improvements with a weighted average life of 12 years and 3
to 15 years for machinery and equipment with a weighted
average life of 8 years. Equipment held under capital
leases and leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the
estimated useful life of the asset. The Company capitalizes
interest on borrowed funds during construction periods. Interest
capitalized during 2003, 2002, and 2001 was $920, $3,248 and
$3,532, respectively.

g)  Goodwill and Intangible
Assets

In accordance with SFAS 141, Business
Combinations, the Company applies the purchase method for
all business combinations. Intangible assets acquired in a
purchase method business combination are recognized and reported
apart from goodwill, pursuant to the criteria specified by SFAS
No. 141.

The Company adopted SFAS No. 142,
Goodwill and Other Intangible Assets. Pursuant to SFAS
No. 142, intangible assets with finite useful lives are
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets(see m)
Impairment).

As of January 1, 2002, in accordance with
SFAS No. 142, goodwill and identifiable intangibles with
indefinite lives are no longer amortized, but tested annually
for impairment. The Company identified trade names and
management contracts as intangible assets with indefinite useful
lives.

To evaluate the recoverability of goodwill, the
Company identified its reporting units and determined the
carrying value of each reporting unit by assigning the assets
and liabilities, including the existing goodwill and intangible
assets, to those reporting units. At least once a year the
Company compares the fair value of each reporting unit to the
reporting units carrying amount. Fair value is determined
using a discounted cash flow approach. In the case that the fair
value of the reporting unit is less than its book value, a
second step is performed which compares the fair value of the
reporting units goodwill to the carrying value of its
goodwill. If the fair value of the goodwill is less than the
book value, the difference is recorded as an impairment.

To evaluate the recoverability of intangible
assets with indefinite useful lives, the Company compares the
fair values of intangible assets with their carrying value. An
intangible assets fair value is determined using a
discounted cash flow approach and other appropriate methods.

h)  Derivative Financial
Instruments

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activitiesas amended by SFAS No. 138 and SFAS 149. The
Company utilizes derivative financial instruments including
forward currency contracts and interest rate swaps. SFAS No. 133
requires all derivatives to be recognized as assets or
liabilities at fair value.

Changes in the fair value of foreign currency
forward contracts designated and qualifying as effective cash
flow hedges of forecasted transactions are reported in
accumulated other comprehensive income. These amounts are
subsequently reclassified into earnings as a component of the
forecasted transaction in the same period as the forecasted
transaction affects earnings.

Changes in the fair value of interest rate swaps
that are designated as cash flow hedges and effectively convert
variable interest payments into fixed interest payments are
deferred in accumulated other comprehensive income. The interest
rate agreements are accounted for on an accrual basis, i.e. the
interest payable and the interest rate receivable under the
terms of the swaps are accrued and recorded as an adjustment to
the interest or related expense of the designated liability or
obligation.

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Amounts due from and payable to the
counterparties of interest rate swaps are recorded on an accrual
basis at each reporting date at amounts computed by reference to
the respective interest rate swap contract. Realized gains and
losses that occur from the early termination or expiration of
contracts are deferred and recorded in income over the remaining
period of the original swap agreement if the corresponding debt
is still outstanding. Gains and losses arising from interest
differential on contracts that hedge specific borrowings are
recorded as a component of interest expense over the life of the
contract. In the event the hedged asset or liability is
terminated, sold, or otherwise disposed of, the gain or loss on
the interest rate swap would be matched with the offsetting gain
or loss of the related item (see Note 21).

i)   Foreign Currency
Translation

For purposes of these consolidated financial
statements, the U.S. dollar is the reporting currency. The
Company follows the provisions of SFAS No. 52, Foreign
Currency Translation. Substantially all assets and
liabilities of the parent company and all non-U.S. subsidiaries
are translated at year-end exchange rates, while revenues and
expenses are translated at exchange rates prevailing during the
year. Adjustments for foreign currency translation fluctuations
are excluded from net earnings and are reported in accumulated
other comprehensive income. In addition, the translation
adjustments of certain intercompany borrowings, which are
considered foreign equity investments, are reported in
accumulated other comprehensive income.

j)   Revenue Recognition
Policy

Dialysis care revenues are recognized on the date
services and related products are provided and the payor is
obligated to pay at amounts estimated to be received under
reimbursement arrangements with third party payors. Medicare and
Medicaid in North America and programs involving other
government payors in the international segment are billed at
pre-determined rates per treatment that are established by
statute or regulation. Most non-governmental payors, including
contracted managed care payors, are billed at our standard rates
for services net of contractual allowances to reflect the
estimated amounts to be received under reimbursement
arrangements with these payors.

Dialysis product revenues are recognized when
title to the product passes to the customers either at the time
of shipment, upon receipt by the customer or upon any other
terms that clearly define passage of title. As product returns
are not typical, no return allowances are established. In the
event a return is required, the appropriate reductions to sales,
accounts receivables and cost of sales are made.

A minor portion of International product revenue
are generated from arrangements which give the customer,
typically a health care provider, the right to use dialysis
machines. In the same contract the customer agrees to purchase
the related treatment disposables at a price marked up from the
standard price list. FMS does not recognize revenue for the
delivery of the dialysis machine but recognizes revenue,
including the mark-up on the sale of disposables.

k)  Research and Development
expenses

Research and development expenses are expensed as
incurred.

l)   Income
Taxes

In accordance with SFAS No. 109,
Accounting for Income Taxes, deferred tax assets and
liabilities are recognized for the future consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is
recorded to reduce the carrying amount of the deferred tax
assets unless it is more likely than not that such assets will
be realized. (see Note 18)

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m)  Impairment

The Company calculates extraordinary amortization
in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, The Company
reviews the carrying value of its long-lived assets or asset
groups with definite useful lives to be held and used for
impairment whenever events or changes in circumstances indicate
that the carrying value of these assets may not be recoverable.
Recoverability of these assets is measured by a comparison of
the carrying value of an asset to the future net cash flow
directly associated with the asset. If assets are considered to
be impaired, the impairment recognized is the amount by which
the carrying value exceeds the fair value of the asset. The
Company uses various valuation factors, including market prices
and present value techniques to assess fair value.

In accordance with SFAS No. 144, long-lived
assets to be disposed of by sale are reported at the lower of
carrying value or fair value less cost to sell and depreciation
is ceased. Long-lived assets to be disposed of other than by
sale are considered to be held and used until disposal.

n)  Debt Issuance
Costs

Costs related to the issuance of debt are
amortized over the term of the related obligation.

o)  Self-Insurance
Programs

The Companys largest subsidiary is
partially self-insured for professional, product and general
liability, auto and workers compensation claims under
which the company assumes responsibility for incurred claims up
to predetermined amounts above which third party insurance
applies. Reported balances for the year include estimates of the
anticipated expense for claims incurred (both reported and
incurred but not reported) based on historical experience and
existing claim activity. This experience includes both the rate
of claims incidence (number) and claim severity
(cost) and is combined with individual claim expectations
to estimate the reported amounts.

p)  Use of
Estimates

The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.

q)  Concentration of Credit
Risk

The Company is engaged in the manufacture and
sale of products for all forms of kidney dialysis, principally
to health care providers throughout the world, and in providing
kidney dialysis treatment, clinical laboratory testing and other
medical ancillary services. The Company performs ongoing
evaluations of its customers financial condition and,
generally, requires no collateral.

Approximately 43%, 43% and 42% of the
Companys worldwide revenues are paid by and subject to
regulations under governmental health care programs, primarily
Medicare and Medicaid, administered by the United States
government in 2003, 2002, and 2001, respectively.

r)   Earnings per Preference
share and Ordinary share

Basic net income per Preference share and basic
net income per Ordinary share for all years presented have been
calculated using the two-class method required under
U.S. GAAP based upon the weighted average number of
Ordinary and Preference shares outstanding. Basic earnings per
share are computed by dividing net income less preference
amounts by the weighted average number of Ordinary shares and
Preference shares outstanding during the year. Diluted earnings
per share include the effect of all potentially dilutive
Ordinary shares and Preference shares that would have been
outstanding during the year.

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##### Table of Contents



The awards granted under the Companys stock
incentive plans (see Note 17), are potentially dilutive equity
instruments.

s)   Stock Option
Plans

The Company accounts for its stock option plans
using the intrinsic value method in accordance with the
provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such,
compensation expense is recorded only if the current market
price of the underlying stock exceeds the exercise price on the
measurement date. For stock incentive plans which are
performance based, the Company recognizes compensation expense
over the vesting periods, based on the then current market
values of the underlying stock.

The following table illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation,to stock based
employee compensation.

|                              |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |         |      | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- | 
|                              |                                                                                                                                               | 2003        |   | 2002    |      | 2001
|                              |                                                                                                                                               |             |   |         |      |     
|Net income:                   |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | As reported                                                                                                                                   |             | $ | 331,180 |      |      | $ | 289,790 |      |  | $ | 63,354  |     
|                              | Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                |             |   | 1,456   |      |      |   | 1,126   |      |  |   | 1,153   |     
|                              | Deduct: Total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |             |   | (9,583  | )    |      |   | (11,951 | )    |  |   | (13,223 | )   
|                              |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | Pro forma                                                                                                                                     |             | $ | 323,053 |      |      | $ | 278,965 |      |  | $ | 51,284  |     
|                              |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|Basic net income per:         |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | Ordinary share                                                                                                                                |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.42 |      |   | $       | 3.00 |  |   | $       | 0.65 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 3.34 |      |   | $       | 2.88 |  |   | $       | 0.52 | 
|                              | Preference share                                                                                                                              |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.49 |      |   | $       | 3.06 |  |   | $       | 0.70 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 3.41 |      |   | $       | 2.94 |  |   | $       | 0.57 | 
|Fully diluted net income per: |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | Ordinary share                                                                                                                                |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.42 |      |   | $       | 3.00 |  |   | $       | 0.64 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 3.34 |      |   | $       | 2.88 |  |   | $       | 0.51 | 
|                              | Preference share                                                                                                                              |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.49 |      |   | $       | 3.06 |  |   | $       | 0.69 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 3.41 |      |   | $       | 2.94 |  |   | $       | 0.56 | 

t)   Recent Pronouncements
and Accounting Changes

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement Obligations.SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived
asset. It applies to legal obligations associated with the
retirement of long-lived assets that result from the
acquisition, construction, development and/or normal operation
of a long-lived asset. The Company adopted SFAS No. 143 as
of January 1, 2003. The adoption of SFAS No. 143 did not
have a material impact on the Companys financial
statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds SFAS No. 4,
SFAS No. 64 related to classifications of gains and losses
on debt extinguishments such that most debt extinguishment gains
and losses will no longer be classified as extraordinary. SFAS
No. 145 also amends SFAS No. 13, with

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respect to certain sale-leaseback transactions.
The Company adopted SFAS No. 145 in regard to SFAS
No. 4 on January 1, 2003. In the first quarter of
2002, the Company recorded an extraordinary loss of
approximately $11,800, net of taxes of approximately $7,700, as
a result of the early redemption of debt (see Note 13).
This loss is no longer presented as an extraordinary loss upon
the adoption of SFAS No. 145. The Company adopted the other
provisions of SFAS No. 145 effective April 1, 2002.


In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when
liabilities are incurred. SFAS No. 146 replaces EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring). This
statement is applied prospectively to exit or disposal
activities initiated after December 31, 2002.

In November 2002, the Financial Accounting
Standards Board issued FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees of Indebtedness of
Others. FIN 45 also requires the guarantor to recognize
a liability for the non-contingent component of the guarantee,
that is, the obligation to stand ready to perform in the event
that special triggering events or conditions occur. The initial
recognition and measurement provisions are applicable
prospectively to guarantees issued or modified after
December 31, 2002. FIN 45 also clarifies and expands
the disclosure requirements related to guarantees, including
product warranties. FIN 45 does not materially impact the
Companys financial statements.

On April 3, 2003, the Financial Accounting
Standards Board issued SFAS No. 149 Amendment of Statement
133 on Derivative Instruments and Hedging Activities.This
Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement is effective for
contracts entered into or modified after June 30, 2003.
This adoption did not have any impact on the Companys
financial statements.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150 Accounting for certain
Financial Instruments with Characteristics of both Liabilities
and Equity.This Statement requires an issuer to classify
certain financial instruments with the characteristics of both
liabilities and equity as a liability (or asset in some
circumstances) instead of equity. This Statement is effective
for financial instruments entered into or modified after
May 31, 2003 and otherwise effective at the beginning of
the first interim period beginning after June 15, 2003.
This adoption did not have any impact on the Companys
financial statements.

In December 2003 the Financial Accounting
Standards Board issued SFAS No. 132 (revised 2003) Employers
Disclosures about Pensions and Other Postretirement
Benefits  an amendment of FASB Statements
No. 87, 88 and 106. This statement extends the
publishing rules for pension liabilities according to SFAS
No. 132. The accounting and valuation principles remain
unchanged.

In December 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46R
Consolidation of Variable Interest Rate Entities (revised)(FIN 46R) which addresses how a business
enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. FIN 46R
replaced FASB Interpretation No. 46 Consolidation of
Variable Interest Rate Entitieswhich was issued in January
2003. The Company is required to apply FIN 46R for special
purpose entities as of December 31, 2003 and for all other
Variable Interest Entities (VIEs) as of
March 31, 2004. The Company is not involved with any
special purpose entity which required initial consolidation as
of December 31, 2003 and will apply FIN 46R on
March 31, 2004 for all VIEs. The Company is party to
various arrangements with certain dialysis clinics to provide
management services, financing and product supply. Some of these
clinics are variable interest entities. Under FIN 46R these
clinics will be consolidated if the Company is the primary
beneficiary. The Company also participates in a joint venture
which is engaged in the perfusion business. The arrangements
with the joint venture partner are such that it qualifies as a
variable interest entity and the Company is the primary
beneficiary. These variable interest entities generate
approximately $153,000 in annual revenue. This includes
approximately $14,000 related to variable interest entities in
which the Company is not the primary beneficiary. The Company
has investments, other long term assets and receivables of
approximately $42,000 which represent the Companys maximum
exposure to loss as a result of its involvement with the
variable interest entities.

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2.   Special Charge for 1999
Settlement

On January 18, 2000, Fresenius Medical Care
Holdings, Inc. (FMCH), NMC and certain other
affiliated companies executed definitive agreements with the
United States Government to settle (i) matters concerning
violations of federal laws then under investigation and
(ii) National Medical Care, Inc.s claims with
respect to outstanding Medicare receivables for intradialytic
parenteral nutrition therapy (collectively, the
Settlement).

In 2001, FMCH made a final payment to the
U.S. Government of $85,900 pursuant to the Settlement. In
addition, FMCH received a final payment of $5,200 in the first
quarter of 2001 from the U.S. Government, related to
FMCHs claims for outstanding Medicare receivables. A
letter of credit, purchased to secure the settlement payment
obligation, was closed out with the last payment.

3.   Special Charge for Legal
Matters

In the fourth quarter of 2001, the Company
recorded a $258,159 ($177,159 after tax) special charge to
address 1996 merger-related legal matters, estimated liabilities
and legal expenses arising in connection with the
W.R. Grace Chapter 11 Proceedings and the cost of
resolving pending litigation and other disputes with certain
commercial insurers.

The Company accrued $172,034 principally
representing a provision for income taxes payable for the years
prior to the 1996 merger for which the Company has been
indemnified by W.R. Grace, but may ultimately be obligated
to pay as a result of W.R. Graces Chapter 11
Proceedings. In addition, that amount included the estimated
costs of defending the Company in all litigation arising out of
W.R. Graces Chapter 11 Proceedings. During the
second quarter of 2003, the court supervising
W.R. Graces Chapter 11 Proceedings approved the
definitive settlement agreement entered into among the Company,
the committees representing asbestos creditors and
W.R. Grace.

The Company included $55,489 in the special
charge to provide for settlement obligations, legal expenses and
the resolution of disputed accounts receivable relating to
various insurance companies. In November of 2003, the Company
settled without litigation all claims raised by the final group
of insurance companies who had contacted the Company concerning
allegations of inappropriate billing practices and
misrepresentations. The cost of the settlement will be charged
against previously established accruals (See Note 20).

The remaining amount of the special charge
($30,636 pretax) was accrued mainly for (i) assets and
receivables that are impaired in connection with other legal
matters and (ii) anticipated expenses associated with the
continued defense and resolution of the legal matters.

Based on these developments, the Company has
reduced its estimate for the settlement and related costs of the
W.R. Grace Chapter 11 Proceedings by $39,000. This
reduction of the provision for the W.R. Grace matter has been
applied to the other components of the special charge (i.e.
reserves for settlement obligations and disputed accounts
receivable from commercial insurers and other merger-related
legal matters described in this note).

At December 31, 2003, there is a remaining
balance of $138,154 for the accrual for the special charge for
legal matters. The Company believes that these reserves are
adequate for the settlement of all matters described above.
During the year ended December 31, 2003, $52,976 in charges were
applied against the accrued special charge for legal matters.

4.   Related Party
Transactions

a)  Service
Agreements

The Company is party to service agreements with
Fresenius AG, the majority shareholder, and certain
affiliates of Fresenius AG to receive services, including, but
not limited to: administrative services, management information
services, employee benefit administration, legal and
environmental consultation and administration, insurance,
central purchasing, tax services and treasury services. For the
years 2003, 2002 and 2001, amounts charged by Fresenius AG
to FMS under the terms of the agreements are $26,172, $23,012
and $19,117, respectively. FMS also provides certain services to
Fresenius AG and certain affiliates of Fresenius AG,
including

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research and development, plant administration,
patent administration and warehousing. FMS charged $11,669,
$10,142 and $6,134 for services rendered to Fresenius AG in
2003, 2002 and 2001, respectively.


Under operating lease agreements entered into
with Fresenius AG, FMS paid Fresenius AG $13,307,
$10,401 and $9,239 during 2003, 2002 and 2001, respectively. The
majority of the leases expire in 2006 with options for renewal.

b)  Financing Provided by
Fresenius AG

At December 31, 2003, the Company had
short-term loans outstanding of $30,000, which bore interest at
an average rate of 1.165%. At December 31, 2002, the
Company had short-term loans outstanding of $6,000 which bore an
average interest rate of 2.22%. Interest expense on these
borrowings was, $59, $359 and $6,887 for the years 2003, 2002
and 2001, respectively.

c)   Products

During the years ended December 31, 2003,
2002 and 2001, the Company recognized sales of $27,306, $25,986
and $24,063, respectively, to Fresenius AG and affiliates.
During 2003, 2002 and 2001, the Company made purchases from
Fresenius AG and affiliates in the amount of $27,228,
$23,703 and $19,703, respectively.

d)  Acquisitions

During the second quarter of 2003 the Company
acquired Fresenius AGs adsorber business for a
purchase price of $23,735, net of cash acquired. The adsorber
business manufactures products used in the field of therapeutic
apheresis. These therapies are similar to kidney dialysis
treatment in that they consist of extracorporeal blood
treatments. The acquisition was accounted for as a transaction
under common control.

e)   Other

During 1999, the Company granted to a member of
the management board a five-year unsecured loan of $2,000 with
interest at 6.0% per annum. This loan was repaid in 2003.

A member of the Companys supervisory board
is a partner in a law firm which provided services to the
Company. The Company paid the law firm approximately $483, $292,
and $368 in 2003, 2002 and 2001, respectively.

A member of the Companys supervisory board
was the chairman of the management board of a bank that served
as one of two joint global coordinators of a public offering of
Preference shares conducted by the Company in 2000. An affiliate
of the bank purchased Preference shares in a private offering in
2000 and, in 2001, affiliates of the bank served as co-lead
manager, and as an initial purchaser of a global offering of
trust preferred securities. The Company paid fees and
commissions of $6,808 in total to the coordinators of the
offering. The bank is also a lender and one of the Managing
Agents under both the Companys original senior credit
agreement and the new senior credit agreement dated
February 21, 2003 (see Note 11).

The Vice Chairman of the Companys
supervisory board is a member of the supervisory board of
Fresenius AG, the majority holder of FMSs Ordinary shares.
In May of 2003, the Chief Financial Officer of the Company
resigned to assume the position of Chairman of the management
board and CEO of Fresenius AG.

5.   Acquisitions and
Investments

The Company acquired certain health care and
distribution facilities and other investments for a total
consideration of $101,250, $87,876 and $461,079 in 2003, 2002
and 2001, respectively. All acquisitions have been accounted for
as purchase transactions and, accordingly, are included in the
results of operations from the dates of acquisition. The excess
of the total acquisition costs over the fair value of the
tangible net assets acquired was approximately $83,000, $82,000
and $367,000 for 2003, 2002 and 2001, respectively.

During the year ended December 31, 2003, the
Company acquired certain health care and distribution
facilities, including the adsorber business of Fresenius AG for
$92,190 in cash and assumed debt of $9,060.

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In 2002, the Companys acquisitions
principally involved individual dialysis clinics providing
dialysis therapy. The consideration consisted of cash of $79,835
and assumed debt of $8,041.

In January 2001, the Company acquired Everest
Healthcare Services Corporation (Everest) for
$365,000. The Everest operations acquired consist of
approximately 70 clinics facilities providing dialysis
therapy to approximately 6,800 patients in the eastern and
central United States. Approximately $99,000 was funded by the
issuance of 2.25 million Fresenius Medical Care AG
Preference shares to the Everest shareholders. The remaining
purchase price was paid with $131,000 cash and assumption of
$135,000 of debt. In 2001, aggregate consideration for all
acquisitions consisted of cash of $216,711, assumed debt of
$144,889 and $99,479 in Preference shares.

6.   Sale of Accounts
Receivable

FMCH has an asset securitization facility (the
accounts receivable facility) whereby certain
receivables are sold to NMC Funding Corporation
(NMC Funding), a wholly-owned subsidiary.
NMC Funding then sells and assigns undivided percentage
ownership interests in the receivables to certain bank
investors. NMC Funding surrenders control over the
ownership interests in the accounts receivables as a result of
this sale. The ownership interests are removed from the
consolidated balance sheets in accordance with SFAS
No. 140. The retained interest in the accounts receivable
is reflected on the face of the balance sheet net of
uncollectable accounts to approximate fair value. The Company
has a servicing obligation to act as collection agent on behalf
of the bank investors. The accounts receivable facility was
amended on October 23, 2003, extending its maturity to
October 22, 2004.

At December 31, 2003 and 2002, $157,998 and
$445,249, respectively, had been received pursuant to such sales
and are reflected as reductions to accounts receivable. NMC
Funding pays interest to the bank investors, calculated based on
the commercial paper rates for the particular tranches selected.
The effective interest rate was approximately 1.31% during 2003.
Under the terms of the agreement, new interests in accounts
receivable are sold without recourse as collections reduce
previously sold accounts receivable. The costs related to such
sales are expensed as incurred and recorded as interest expense
and related financing costs.

7. Inventories

As of December 31, 2003 and 2002,
inventories consisted of the following:

|                                       |             |      |         |         |  |   |         |         | 
|-------------------------------------- | ----------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                       |             | 2003 |         | 2002   
|                                       |             |      |         |        
|Raw materials and purchased components |             | $    | 86,653  |         |  | $ | 79,760  |        
|Work in process                        |             |      | 33,778  |         |  |   | 26,233  |        
|Finished goods                         |             |      | 244,355 |         |  |   | 196,830 |        
|Health care supplies                   |             |      | 79,952  |         |  |   | 69,399  |        
|                                       |             |      |         |         |  |   |         |        
|                                       | Inventories |      | $       | 444,738 |  |   | $       | 372,222 | 
|                                       |             |      |         |         |  |   |         |        

Under the terms of certain unconditional purchase
agreements, the Company is obligated to purchase approximately
$220,204 of materials, of which $94,000 is committed at
December 31, 2003 for 2004. The terms of these agreements
run 1 to 6 years. Inventories as of December 31, 2003
include $30,894 of Erythropoietin (EPO) which is
supplied by a single source supplier in the United States.
Delays, stoppages, or interruptions in the supply of EPO could
adversely affect the operating results of the Company. Revenues
from EPO accounted for approximately 23% of total revenue in the
North America segment for both 2003 and 2002.

8.   Property, Plant and
Equipment

As of December 31, 2003 and 2002, property,
plant and equipment consisted of the following:

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|                                                                       |  |      |           |      |  |   |           |  
|---------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                       |  | 2003 |           | 2002
|                                                                       |  |      |           |     
|Land and improvements                                                  |  | $    | 28,109    |      |  | $ | 23,075    |  
|Buildings and improvements                                             |  |      | 694,327   |      |  |   | 586,251   |  
|Machinery and equipment                                                |  |      | 1,191,708 |      |  |   | 948,781   |  
|Machinery, equipment and rental equipment under
    capitalized leases |  |      | 54,101    |      |  |   | 32,221    |  
|Construction in progress                                               |  |      | 58,509    |      |  |   | 62,257    |  
|                                                                       |  |      |           |      |  |   |           |  
|                                                                       |  |      | 2,026,754 |      |  |   | 1,652,585 |  
|Accumulated depreciation                                               |  |      | (937,608  | )    |  |   | (734,717  | )
|                                                                       |  |      |           |      |  |   |           |  
|Property, plant and equipment, net                                     |  | $    | 1,089,146 |      |  | $ | 917,868   |  
|                                                                       |  |      |           |      |  |   |           |  

Depreciation expense for property, plant and
equipment amounted to $180,952, $158,126 and $147,945 for the
years ended December 31, 2003, 2002 and 2001, respectively.

Included in property, plant and equipment as of
December 31, 2003 and 2002 were $98,243 and $89,754,
respectively, of peritoneal dialysis cycler machines which the
Company leases to customers with end-stage renal disease on a
month-to-month basis and hemodialysis machines which the Company
leases to physicians under operating leases. Accumulated
depreciation related to machinery, equipment and rental
equipment under capital leases was $29,654 and $16,222 at
December 31, 2003 and 2002, respectively.

9. Intangible Assets and
Goodwill

As of December 31, 2003 and 2002, intangible
assets other than goodwill consisted of the following:

|                              |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 
|----------------------------- |  | ------------ | ------- | ------------ |  | -------- | -------- | ------------ |  | ------- | ------- |  |  | - | -------- | - |  |  | -- | 
|                              |  |              |         |              |  |         
|                              |  | December 31, |         | December 31, |  |         
|                              |  | 2003         |         | 2002         |  |         
|                              |  |              |         |              |  |         
|                              |  | Gross        |         |              |  | Gross    |          |              |  | Average
|                              |  | Carrying     |         | Accumulated  |  | Carrying |          | Accumulated  |  | Useful 
|                              |  | Amount       |         | Amortization |  | Amount   |          | Amortization |  | Life   
|                              |  |              |         |              |  |          |          |              |  |        
|Amortizable Intangible Assets |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 
|Patient relationships         |  | $            | 258,408 |              |  | $        | (208,890 | )            |  | $       | 249,069 |  |  | $ | (191,571 | ) |  |  | 14 | 
|Patents                       |  |              | 18,178  |              |  |          | (15,056  | )            |  |         | 14,395  |  |  |   | (12,317  | ) |  |  | 27 | 
|Distribution rights           |  |              | 23,920  |              |  |          | (9,548   | )            |  |         | 10,226  |  |  |   | (5,886   | ) |  |  | 12 | 
|Other                         |  |              | 170,320 |              |  |          | (86,318  | )            |  |         | 155,317 |  |  |   | (72,217  | ) |  |  | 11 | 
|                              |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 
|                              |  | $            | 470,826 |              |  | $        | (319,812 | )            |  | $       | 429,007 |  |  | $ | (281,991 | ) |  |  |    | 
|                              |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 

|                                  |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 
|--------------------------------- |  | -------- | ------- |  |  | -------- |  |  |  | - | ------- |  |  |  |  |  |  |  |  | 
|                                  |  | Carrying |         |  |  | Carrying |  |  |  |  
|                                  |  | Amount   |         |  |  | Amount   |  |  |  |  
|                                  |  |          |         |  |  |          |  |  |  |  
|Non-amortizable Intangible Assets |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 
|Tradename                         |  |          | 221,720 |  |  |          |  |  |  |   | 220,249 |  |  |  |  |  |  |  |  | 
|Management contracts              |  |          | 209,369 |  |  |          |  |  |  |   | 183,056 |  |  |  |  |  |  |  |  | 
|                                  |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 
|                                  |  | $        | 431,089 |  |  |          |  |  |  | $ | 403,305 |  |  |  |  |  |  |  |  | 
|                                  |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 

The related amortization expenses (including
amortization for goodwill, tradename and management contracts in
2001) are as follows:

Aggregate Amortization Expense

|                                     |  |   |         | 
|------------------------------------ |  | - | ------- | 
|For the year ended December 31, 2001 |  | $ | 176,260 | 
|                                     |  |   |         | 
|For the year ended December 31, 2002 |  | $ | 52,429  | 
|                                     |  |   |         | 
|For the year ended December 31, 2003 |  | $ | 34,217  | 
|                                     |  |   |         | 

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Estimated Amortization Expense

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|For the year ended December 31, 2004 |  | $ | 30,742 | 
|                                     |  |   |        | 
|For the year ended December 31, 2005 |  | $ | 27,703 | 
|                                     |  |   |        | 
|For the year ended December 31, 2006 |  | $ | 21,004 | 
|                                     |  |   |        | 
|For the year ended December 31, 2007 |  | $ | 15,138 | 
|                                     |  |   |        | 
|For the year ended December 31, 2008 |  | $ | 5,846  | 
|                                     |  |   |        | 

Goodwill

Increases in the carrying amount of goodwill are
a result of acquisitions totaling $60,738 (See Note 5). The
segment detail is as follows:

|                                |                        |         |           |               |   |       |         |        |   |   |           |         |  
|------------------------------- | ---------------------- | ------- | --------- | ------------- | - | ----- | ------- | ------ | - | - | --------- | ------- | -
|                                |                        | North   |           |               |   |      
|                                |                        | America |           | International |   | Total
|                                |                        |         |           |               |   |      
|Balance as of January 1, 2002   |                        |         | 2,899,398 |               |   |       | 206,324 |        |   |   | 3,105,722 |        
|                                | Goodwill acquired, net |         |           | 40,928        |   |       |         | 40,466 |   |   |           | 81,394  |  
|                                | Currency Translation   |         |           |              |   |       |         | 5,535  |   |   |           | 5,535   |  
|                                |                        |         |           |               |   |       |         |        |   |   |           |        
|Balance as of December 31, 2002 |                        | $       | 2,940,326 |               |   | $     | 252,325 |        |   | $ | 3,192,651 |        
|                                |                        |         |           |               |   |       |         |        |   |   |           |        
|                                | Goodwill acquired, net |         |           | 24,925        |   |       |         | 35,813 |   |   |           | 60,738  |  
|                                | Reclassifications      |         |           | (14,398       | ) |       |         | (865   | ) |   |           | (15,263 | )
|                                | Currency Translation   |         |           |              |   |       |         | 50,222 |   |   |           | 50,222  |  
|                                |                        |         |           |               |   |       |         |        |   |   |           |        
|Balance as of December 31, 2003 |                        | $       | 2,950,853 |               |   | $     | 337,495 |        |   | $ | 3,288,348 |        
|                                |                        |         |           |               |   |       |         |        |   |   |           |        

Had the Company determined amortization expense
under SFAS No. 142 in 2001, the Companys net income
in the year ended December 31, 2001 would have increased by
$102,775 ($94,958 due to goodwill amortization, $7,817 and
$7,817 due to amortization originally recorded on
indefinite-life intangible assets) to $166,129. All income per
Ordinary and Preference share, as reported in December 31,
2001 would have increased by $1.07 ($0.99 due to goodwill
amortization, $0.08 due to amortization originally recorded on
indefinite-life intangible assets) had the company adopted SFAS
No. 142 as of January 1, 2001.



|    |                                                   
|--- | --------------------------------------------------
|10. | Accrued Expenses and Other Current
    Liabilities

As at December 31, 2003 and 2002 accrued
expenses and other current liabilities consisted of the
following:

|                                                         |  |      |         |      |  |   |         | 
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                         |  | 2003 |         | 2002
|                                                         |  |      |         |     
|Accrued salaries and wages                               |  | $    | 143,747 |      |  | $ | 121,212 | 
|Unapplied cash and receivable credits                    |  |      | 65,624  |      |  |   | 63,773  | 
|Derivatives                                              |  |      | 51,446  |      |  |   | 28,656  | 
|Accrued insurance                                        |  |      | 45,015  |      |  |   | 48,165  | 
|Accrued operating expenses                               |  |      | 41,236  |      |  |   | 33,369  | 
|Accrued interest                                         |  |      | 39,448  |      |  |   | 35,861  | 
|Withholding tax and VAT                                  |  |      | 25,818  |      |  |   | 20,538  | 
|Accrued physician compensation                           |  |      | 19,844  |      |  |   | 19,211  | 
|Commissions                                              |  |      | 17,568  |      |  |   | 14,877  | 
|Deferred income                                          |  |      | 10,336  |      |  |   | 8,359   | 
|Bonuses and Rebates                                      |  |      | 10,122  |      |  |   | 10,324  | 
|Accrued legal and compliance costs                       |  |      | 7,767   |      |  |   | 5,821   | 
|Other                                                    |  |      | 75,859  |      |  |   | 59,062  | 
|                                                         |  |      |         |      |  |   |         | 
|Total accrued expenses and other current
    liabilities |  | $    | 553,830 |      |  | $ | 469,228 | 
|                                                         |  |      |         |      |  |   |         | 

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|    |                                   
|--- | ----------------------------------
|11. | Debt and Capital Lease Obligations

Short term borrowings

Short-term borrowings of $89,417 and $124,964 at
December 31, 2003, and 2002, respectively, represent
amounts borrowed by certain of the Companys subsidiaries
under lines of credit with commercial banks. The average
interest rates on these borrowings at December 31, 2003,
and 2002 was 3.38% and 4.67%, respectively. For information
regarding short-term borrowings from affiliates see Note 4b).

Excluding amounts available under the Senior
Credit Agreement (as described below), at December 31,
2003, FMS had $96,399 available under such commercial bank
agreements. Some of these lines of credit are secured by the
accounts receivable of FMS subsidiary that is party to the
agreement and contain various covenants including, but not
limited to, requirements for maintaining defined levels of
working capital, net worth, capital expenditures and certain
financial ratios.

Long-term borrowings

As of December 31, 2003 and 2002, long-term
debt and capital lease obligations consisted of the following:

|                        |  |      |           |      |  |   |           |  
|----------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                        |  | 2003 |           | 2002
|                        |  |      |           |     
|Senior Credit Agreement |  | $    | 912,300   |      |  | $ | 861,900   |  
|Capital leases          |  |      | 9,919     |      |  |   | 10,645    |  
|Euro Notes              |  |      | 162,296   |      |  |   | 134,758   |  
|Other                   |  |      | 117,474   |      |  |   | 104,301   |  
|                        |  |      |           |      |  |   |           |  
|                        |  |      | 1,201,989 |      |  |   | 1,111,604 |  
|Less current maturities |  |      | (90,365   | )    |  |   | (22,394   | )
|                        |  |      |           |      |  |   |           |  
|                        |  | $    | 1,111,624 |      |  | $ | 1,089,210 |  
|                        |  |      |           |      |  |   |           |  

2003 Senior Credit Agreement

On February 21, 2003, the Company entered
into an amended and restated bank agreement (hereafter, the
2003 Senior Credit Agreement) with Bank of America
N.A, Credit Suisse First Boston, Dresdner Bank AG New York,
JPMorgan Chase Bank, The Bank of Nova Scotia and certain other
lenders (collectively, the Lenders), replacing the
1996 Senior Credit Agreement that was scheduled to expire at
September 30, 2003. Under the terms of the 2003 Senior
Credit Agreement, the Lenders made available to the Company and
certain subsidiaries and affiliates an aggregate amount of up to
$1,500,000. On August 22, 2003, the 2003 Senior Credit
Agreement was amended (Amendment 1) so that, in effect, the
aggregate amount of $1,500,000 was voluntarily reduced to
$1,400,000 and the interest rate on a new term loan facility
(Loan C, see below) was 25 basis points lower than on Loan B,
which was repaid. The revolving loan facility and Loan A under
the 2003 Senior Credit Agreement remain outstanding and were not
affected by the amendment.

The credit facilities are:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a revolving credit facility of up to $500,000 (of
    which up to $250,000 is available for letters of credit, up to
    $300,000 is available for borrowings in certain non-U.S.
    currencies, up to $75,000 is available as swing lines in U.S.
    dollars, up to $250,000 is available as a competitive loan
    facility and up to $50,000 is available as swing lines in
    certain non-U.S. currencies, the total of which cannot exceed
    $500,000) which will be due and payable on October 31, 2007.
|
| |  | a term loan facility (Loan A) of
    $500,000, also scheduled to expire on October 31, 2007. The
    terms of the 2003 Senior Credit Agreement require payments that
    permanently reduce the term loan facility. The repayment begins
    in the third quarter of 2004 and amounts to $25,000 per quarter.
    The remaining amount outstanding is due on October 31, 2007.                                                                                                                                   
|
| |  | a term loan facility (Loan B) of
    $500,000 scheduled to expire in February 2010. Loan B was repaid
    as agreed in Amendment 1 to the 2003 Senior Credit Agreement
    under which the Lenders have made                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | available to the Company a term loan facility
    (Loan C) in the amount of $400,000. The proceeds of
    Loan C, together with cash on hand, were used to permanently
    repay Loan B under the 2003 Senior Credit Agreement.                                                                                                                                                                                                         
|
| |  | a term loan facility (Loan C) of
    $400,000 scheduled to expire February 21, 2010 subject to
    an early repayment requirement on October 31, 2007 if the
    Trust Preferred Securities due February 1, 2008 are not
    repaid or refinanced or their maturity is not extended prior to
    that date. The terms of Loan C require quarterly payments
    totaling $1,000 per quarter beginning with the third quarter of
    2003.

For the revolving credit facility and
Loan A, interest is at a rate equal to LIBOR plus an
applicable margin, or base rate, defined as the higher of the
Bank of America prime rate or the Federal Funds rate plus 0.5%
plus the applicable margin. The applicable margin is variable
and depends on the ratio of the Companys funded debt to
EBITDA as defined in the 2003 Senior Credit Agreement. The
initial interest rate for Loan B was LIBOR plus 2.5%. Fees are
also payable at a percentage (initially 0.50%) per annum on the
portion of the revolving credit facility not used. The initial
interest rate for Loan C is LIBOR plus 2.25% or the base
rate plus 1.25%, which is 25 basis points less than the former
Loan B. In addition to scheduled principal payments,
indebtedness outstanding under the 2003 Senior Credit Agreement
will be reduced by portions of the net cash proceeds from
certain sales of assets, securitization transactions other than
the Companys existing accounts receivable financing
facility and the issuance of subordinated debt.

The 2003 Senior Credit Agreement contains
affirmative and negative covenants with respect to the Company
and its subsidiaries and other payment restrictions. Some of the
covenants limit indebtedness of the Company and investments by
the Company, and require the Company to maintain certain ratios
defined in the agreement. Additionally, the 2003 Senior Credit
Agreement provides for a dividend restriction which is $150,000
for dividends paid in 2004, and increases in subsequent years.
In default, the outstanding balance under the 2003 Senior Credit
Facility becomes immediately due and payable at the option of
the Lenders. As of December 31, 2003, the Company is in
compliance with all financial covenants under the 2003 Senior
Credit Agreement.

Euro Notes

In 2001, the Company issued four tranches of
senior notes (Euro Notes) totaling
128,500 in
aggregate principal amount. The first tranche was for
80,000 with a
fixed interest rate of 6.16% and the second and third tranches
were for 28,500
and 15,000,
respectively, with variable interest rates that averaged 3.84.%
in 2003 and 4.78% in 2002. The final tranche was for
5,000 at a fixed
rate of 5.33%. All four tranches have a maturity date of
July 13, 2005. Both floating rates are tied to the EURIBOR
rate.

Annual Payments

Aggregate annual payments applicable to the 2003
Senior Credit Agreement, Euro Notes, capital leases and other
borrowings for the five years subsequent to December 31,
2003 (excluding the Companys trust preferred securities)
are:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  |   | 90,365    | 
|2005       |  |   | 293,017   | 
|2006       |  |   | 122,658   | 
|2007       |  |   | 282,813   | 
|2008       |  |   | 15,278    | 
|Thereafter |  |   | 397,858   | 
|           |  |   |           | 
|           |  | $ | 1,201,989 | 
|           |  |   |           | 

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##### Table of Contents



12. Employee Benefit Plans

Defined Benefit Pension Plans

The Company currently has two principal pension
plans, one for German employees, the other covering employees in
the United States. Plan benefits are generally based on years of
service and final salary. Consistent with predominant practice
in the Federal Republic of Germany, FMSs pension
obligations in Germany are unfunded. In the United
States NMCs non-contributory, defined benefit pension
plan was curtailed in the first quarter of 2002. Each year FMCH
contributes at least the minimum required by the Employee
Retirement Income Security Act of 1974, as amended. There is no
minimum funding requirement for FMCH for the defined benefit
plan in 2004. The following tables provides a reconciliation of
benefit obligations, plan assets, and funded status of the
plans. Benefits paid as shown in the reconciliation of plan
assets include only benefit payments from the Companys
funded benefit plans.

|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |         | 
|-------------------------------------------------- | ------------------------------------ | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                   |                                      | 2003 |         | 2002    |  | 2001
|                                                   |                                      |      |         |         |  |     
|Change in benefit obligation:                      |                                      |      |         |         |  |      |         |         |  |   |         |        
|Benefit obligation at beginning of year            |                                      | $    | 184,468 |         |  | $    | 169,623 |         |  | $ | 145,308 |        
|Translation loss (gain)                            |                                      |      | 8,870   |         |  |      | 6,484   |         |  |   | (1,483  | )      
|Service cost                                       |                                      |      | 3,486   |         |  |      | 5,137   |         |  |   | 13,251  |        
|Interest cost                                      |                                      |      | 13,419  |         |  |      | 11,208  |         |  |   | 10,210  |        
|Curtailment                                        |                                      |      | 0       |         |  |      | (22,216 | )       |  |   |        |        
|Transfer of plan participants                      |                                      |      | 1,356   |         |  |      | 84      |         |  |   | (34     | )      
|Actuarial loss                                     |                                      |      | 33,563  |         |  |      | 17,764  |         |  |   | 6,127   |        
|Benefits paid                                      |                                      |      | (3,922  | )       |  |      | (3,616  | )       |  |   | (3,756  | )      
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Benefit obligation at end of year                  |                                      | $    | 241,240 |         |  | $    | 184,468 |         |  | $ | 169,623 |        
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Change on plan assets:                             |                                      |      |         |         |  |      |         |         |  |   |         |        
|Fair value of plan assets at beginning of year     |                                      | $    | 83,191  |         |  | $    | 89,845  |         |  | $ | 88,817  |        
|Actual return on plan assets                       |                                      |      | 13,898  |         |  |      | (9,799  | )       |  |   | (4,838  | )      
|Employer contributions                             |                                      |      | 41,481  |         |  |      | 6,313   |         |  |   | 9,282   |        
|Benefits paid                                      |                                      |      | (3,323  | )       |  |      | (3,168  | )       |  |   | (3,416  | )      
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Fair value of plan assets at end of year           |                                      | $    | 135,247 |         |  | $    | 83,191  |         |  | $ | 89,845  |        
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Funded status:                                     |                                      | $    | 105,994 |         |  | $    | 101,277 |         |  | $ | 79,778  |        
|Unrecognized net loss                              |                                      |      | (61,595 | )       |  |      | (37,302 | )       |  |   | (10,232 | )      
|Unrecognized prior service cost                    |                                      |      |        |         |  |      |        |         |  |   | 3       |        
|Unrecognized transition obligation                 |                                      |      |        |         |  |      | (85     | )       |  |   | (143    | )      
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Net amount recognized                              |                                      | $    | 44,399  |         |  | $    | 63,890  |         |  | $ | 69,406  |        
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Calculation of Additional Minimum
    Liability(1) |                                      |      |         |         |  |      |         |         |  |   |         |        
|                                                   | Fair Value of plan assets            |      | $       | 135,247 |  |      | $       | 83,191  |  |   | $       | 89,845  | 
|                                                   | Accumulated benefit obligation (ABO) |      |         | 184,489 |  |      |         | 142,893 |  |   |         | 137,953 | 
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        
|Minimum Liability                                  |                                      | $    | 49,242  |         |  | $    | 59,702  |         |  | $ | 48,108  |        
|                                                   |                                      |      |         |         |  |      |         |         |  |   |         |        

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##### Table of Contents



|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |        | 
|----------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---- | ------- | ------ | - | ---- | ------- | ------ |  | - | ------ | ------ | 
|                                                                                                |                                                | 2003 |         | 2002   |   | 2001
|                                                                                                |                                                |      |         |        |   |     
|                                                                                                | Accrued benefit costs                          |      | $       | (6,411 | ) |      | $       | 27,440 |  |   | $      | 42,639 | 
|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |       
|Additional Minimum Liability                                                                    |                                                | $    | 55,653  |        |   | $    | 32,262  |        |  | $ | 5,469  |       
|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |       
|                                                                                                | Thereof accumulated other comprehensive income |      | $       | 55,653 |   |      | $       | 32,262 |  |   | $      | 5,469  | 
|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |       
|Total pension liability (at December 31)                                                        |                                                | $    | 100,052 |        |   | $    | 96,152  |        |  | $ | 74,875 |       
|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |       
|Weighted  average assumptions for
    benefit obligation as of December 31:                    |                                                |      |         |        |   |      |         |        |  |   |        |       
|Discount rate                                                                                   |                                                |      | 6.14%   |        |   |      | 6.53%   |        |  |   | 7.22%  |       
|Rate of compensation increase                                                                   |                                                |      | 4.27%   |        |   |      | 4.28%   |        |  |   | 4.50%  |       
|Components of net period benefit cost:                                                          |                                                |      |         |        |   |      |         |        |  |   |        |       
|Service cost                                                                                    |                                                | $    | 3,486   |        |   | $    | 5,137   |        |  | $ | 13,251 |       
|Interest cost                                                                                   |                                                |      | 13,419  |        |   |      | 11,208  |        |  |   | 10,210 |       
|Expected return on plan assets                                                                  |                                                |      | (7,688  | )      |   |      | (8,102  | )      |  |   | (8,815 | )     
|Amortization of transition obligation                                                           |                                                |      | 92      |        |   |      | 77      |        |  |   | 73     |       
|Amortization unrealized losses                                                                  |                                                |      | 3,971   |        |   |      | 183     |        |  |   | 188    |       
|Curtailment gain                                                                                |                                                |      |        |        |   |      | (12,620 | )      |  |   |       |       
|Net amortization                                                                                |                                                |      |        |        |   |      |        |        |  |   | (1,377 | )     
|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |       
|Net periodic benefit costs                                                                      |                                                | $    | 13,280  |        |   | $    | (4,117  | )      |  | $ | 13,530 |       
|                                                                                                |                                                |      |         |        |   |      |         |        |  |   |        |       
|Weighted  average assumptions for net
    periodic benefit cost for the year ended December 31 |                                                |      |         |        |   |      |         |        |  |   |        |       
|Discount rate                                                                                   |                                                |      | 6.52%   |        |   |      | 7.12%   |        |  |   | 7.22%  |       
|Expected return of plan assets                                                                  |                                                |      | 8.50%   |        |   |      | 9.00%   |        |  |   | 9.94%  |       
|Rate of compensation increase                                                                   |                                                |      | 4.27%   |        |   |      | 4.28%   |        |  |   | 4.50%  |       






|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | this calculation refers only to companies with
    ABO in excess of plan assets

Plan Investment Policy and
Strategy

The investment strategy for the FMS North
America pension plan is to earn a long-term rate of return on
assets of at least 7.5% compounded annually while utilizing a
target investment allocation of 50% equities and 50% long-term
U.S. bonds.

The investment policy considers that there will
be a time horizon for invested funds of more than 5 years.
The total portfolio will be measured against a policy index that
reflects the asset class benchmarks and the target asset
allocation. The performance benchmarks for the separate asset
classes include: S&P 500 Index, Russell 2000
Growth Index, MSCI EAFE Index, Lehman U.S. Long
Government/ Credit bond Index and the HFRI Fund of Funds
Index. The following schedule describes FMCHs allocation
for its plans:

|                          |                   |                 |     |                 |   |                   |     |    |   |  |     |    |  
|------------------------- | ----------------- | --------------- | --- | --------------- | - | ----------------- | --- | -- | - |  | --- | -- | -
|                          |                   | Allocation 2003 |     | Allocation 2002 |   | Target allocation
|                          |                   | in %            |     | in %            |   | in %             
|                          |                   |                 |     |                 |   |                  
|Categories of plan assets |                   |                 |     |                 |   |                   |     |    |   |  |     |   
|                          | Equity securities |                 |     | 52              | % |                   |     | 56 | % |  |     | 50 | %
|                          | Debt securities   |                 |     | 48              | % |                   |     | 44 | % |  |     | 50 | %
|Total                     |                   |                 | 100 | %               |   |                   | 100 | %  |   |  | 100 | % 

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##### Table of Contents



|                                                                   |  |                 |        | 
|------------------------------------------------------------------ |  | --------------- | ------ | 
|                                                                   |  | Long term      
|                                                                   |  | expected return
|                                                                   |  |                
|Overall expected long-term rate                                    |  |                 | 7.50%  | 
|                                                                  
|                                                                   |  |                 | 2004   | 
|                                                                   |  |                 |        | 
|Expected total contributions to plan assets for
    following year |  | $               | 10,702 | 

The measurement date used to determine pension
benefit measurements was December 31, 2003 for the plans in
the United States and September 30, 2003 for the non-U.S.
plans.

Defined Contribution Plans

FMCHs employees are eligible to join
401(k) savings plan. The Companys total contributions
for the years ended December 31, 2003, 2002 and 2001 was
$14,754, $12,974 and $10,647, respectively.

13. Mandatorily Redeemable Trust
Preferred Securities

The Company originally issued Trust Preferred
Securities through five Fresenius Medical Care Capital Trusts,
statutory business trusts organized under the laws of the State
of Delaware. FMS owns all of the common securities of these
trusts. The sole asset of each trust is a senior subordinated
note of a wholly-owned subsidiary of FMS and related guarantees
by FMS, Fresenius Medical Care Deutschland GmbH
(D-GmbH) and FMCH; D-GmbH and FMCH being the
Guarantor Subsidiaries. The Trust Preferred
Securities are guaranteed by FMS through a series of
undertakings by the Company and the Subsidiary Guarantors.

The Trust Preferred Securities entitle the
holders to distributions at a fixed annual rate of the stated
amount and are mandatorily redeemable after 10 years.
Earlier redemption may also occur upon a change of control
followed by a rating decline or defined events of default
including a failure to pay interest. Upon liquidation of the
trusts, the holders of Trust Preferred Securities are entitled
to a distribution equal to the stated amount. The Trust
Preferred Securities do not hold voting rights in the trust
except under limited circumstances.

On February 14, 2002, the Company redeemed
the entire $360,000 aggregate liquidation amount outstanding of
its 9% Trust Preferred Securities due 2006. The terms of the
securities, which were issued in 1996, provided for optional
redemption commencing December 1, 2001 at a redemption
price of 104.5% of the liquidation amount, plus distributions
accrued to the redemption date. The Company redeemed the
securities at a price of $1,045 per $1,000 liquidation
amount plus accrued distributions of $18.25 per $1,000. At
that time an extraordinary loss of $11,777 was recorded as a
result of the early redemption of debt, consisting of $16,200 of
redemption premium and $3,317 of write-off of associated debt
issuance costs, net of a $7,740 tax benefit.

As of January 1, 2003 the Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical
Correctionsin regard to SFAS No. 4. As a result, the
loss on the early redemption of the 9% Trust Preferred
Securities is no longer presented as an extraordinary loss, but
is presented in interest expense, with the related income tax
effect included in income taxes.

The Trust Preferred Securities outstanding as of
December 31 are as follows:

|                                         |  |        |      |        |  |          |            |            |  |      |       |      |  |  |                  |  |  |   |           |  |  |   |           | 
|---------------------------------------- |  | ------ | ---- | ------ |  | -------- | ---------- | ---------- |  | ---- | ----- | ---- |  |  | ---------------- |  |  | - | --------- |  |  | - | --------- | 
|                                         |  |        |      |        |  |          |            | Mandatory  |  |      |       |     
|                                         |  | Year   |      | Stated |  | Interest |            | Redemption |  |      |       |     
|                                         |  | Issued |      | Amount |  | Rate     |            | Date       |  | 2003 |       | 2002
|                                         |  |        |      |        |  |          |            |            |  |      |       |     
|Fresenius Medical Care Capital Trust II  |  |        | 1998 |        |  |          | $450,000   |            |  |      | 7 7/8 | %    |  |  | February 1, 2008 |  |  |   | 450,000   |  |  |   | 450,000   | 
|Fresenius Medical Care Capital Trust III |  |        | 1998 |        |  |          | DM 300,000 |            |  |      | 7 3/8 | %    |  |  | February 1, 2008 |  |  |   | 193,728   |  |  |   | 160,858   | 
|Fresenius Medical Care Capital Trust IV  |  |        | 2001 |        |  |          | $225,000   |            |  |      | 7 7/8 | %    |  |  | June 15, 2011    |  |  |   | 222,150   |  |  |   | 221,766   | 
|Fresenius Medical Care Capital TrustV    |  |        | 2001 |        |  |          | 300,000   |            |  |      | 7 3/8 | %    |  |  | June 15, 2011    |  |  |   | 376,439   |  |  |   | 312,657   | 
|                                         |  |        |      |        |  |          |            |            |  |      |       |      |  |  |                  |  |  |   |           |  |  |   |           | 
|                                         |  |        |      |        |  |          |            |            |  |      |       |      |  |  |                  |  |  | $ | 1,242,317 |  |  | $ | 1,145,281 | 
|                                         |  |        |      |        |  |          |            |            |  |      |       |      |  |  |                  |  |  |   |           |  |  |   |           | 

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14. Minority Interests

At December 31, 2003 and 2002, minority
interests were as follows:

|                                 |                                                                                             |      |        |       |  |   |        |       | 
|-------------------------------- | ------------------------------------------------------------------------------------------- | ---- | ------ | ----- |  | - | ------ | ----- | 
|                                 |                                                                                             | 2003 |        | 2002 
|                                 |                                                                                             |      |        |      
|FMCH Preferred Stock:            |                                                                                             |      |        |       |  |   |        |      
|Preferred Stock, $100 par value  |                                                                                             |      |        |       |  |   |        |      
|                                 | 6% Cumulative; 40,000 shares authorized; 36,460
    issued and outstanding                  |      | $      | 3,646 |  |   | $      | 3,646 | 
|                                 | 8% Cumulative Class A; 50,000 shares
    authorized; 16,176 issued and outstanding          |      |        | 1,618 |  |   |        | 1,618 | 
|                                 | 8% Noncumulative Class B; 40,000 shares
    authorized; 21,483 issued and outstanding       |      |        | 2,148 |  |   |        | 2,148 | 
|Preferred Stock, $0.10 par value |                                                                                             |      |        |       |  |   |        |      
|                                 | Noncumulative Class D; 100,000,000 shares
    authorized; 89,062,316 issued and outstanding |      |        |      |  |   |        | 8,906 | 
|                                 |                                                                                             |      |        |       |  |   |        |      
|Sub-total FMCH minority interest |                                                                                             |      | 7,412  |       |  |   | 16,318 |      
|Other minority interest          |                                                                                             |      | 6,693  |       |  |   | 6,204  |      
|                                 |                                                                                             |      |        |       |  |   |        |      
|Total minority interest          |                                                                                             | $    | 14,105 |       |  | $ | 22,522 |      
|                                 |                                                                                             |      |        |       |  |   |        |      

On February 4, 2003, the Company and FMCH
announced FMCH was exercising its right to redeem all of the
outstanding shares of the Class D Preferred Stock
(Class D Shares) of FMCH. The Class D
Shares were issued to the common shareholders of W.R. Grace
& Co. in connection with the 1996 combination of the
worldwide dialysis business of Fresenius AG with the dialysis
business of W.R. Grace to form the Company.

Commencing on March 28, 2003, Class D
Shares that were properly transferred to and received by the
redemption agent were redeemed at a redemption price of $0.10
per share. FMCH redeemed the 89 million outstanding
Class D Shares at a total cash outflow of approximately
$8,900. This transaction had no earnings impact for the Company.
After March 28, 2003 the Class D Shares ceased to be
issued and outstanding shares of FMCHs capital stock.

15. Shareholders Equity

Capital Stock

As of December 31, 2003, the Companys
capital stock consisted of 26,213,979 Preference shares
(53,597,700 shares authorized) without par value with a nominal
amount of 2.56
per share totaling $69,616 and of 70,000,000 Ordinary shares
without par value with a nominal amount of
2.56 per share
totaling $229,494.

As of December 31, 2002 and 2001, the
Companys capital stock was divided into 26,188,575 and
26,176,508 Preference shares (53,597,700 shares authorized)
amounting to $69,540 and $69,512 respectively and 70,000,000
Ordinary shares amounting to $229,494.

Under the German Stock Corporation Act, the
shareholders of a stock corporation may empower the management
board to issue shares in a specified aggregate nominal value not
exceeding 50% of the issued share capital at the time of the
passing of the resolution, in the form of Conditional Capital
(bedingtes Kapital) or Approved Capital (genehmigtes
Kapital). The authorization for the issuance of Approved
Capital is limited for a period not exceeding five years from
the date the shareholders resolution becomes effective.

The authorized and issued number of Preference
shares was impacted during the fiscal years 2003, 2002 and 2001
by the following transactions:

Approved Capital

By resolution of the annual general meetings on
May 30, 2000 and May 23, 2001, respectively, the
management board, with the approval of the supervisory board,
was authorized to increase nominal share capital by the maximum
amount of:

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30,720,
corresponding to 12,000,000 Preference shares, by issuing new
non-voting Preference shares for cash, new Approved Capital I.
As of December 31, 2003, 12,000,000 Preference shares are
available for issuance under Approved Capital I.

20,480,
corresponding to 8,000,000 Preference shares, by issuing new
non-voting Preference shares for cash or against contributions
in kind, new Approved Capital II. As of December 31,
2003, 8,000,000 Preference shares are available for issuance
under Approved Capital II.

The authorizations of Approved Capital I and
Approved Capital II are effective until May 29, 2005
and May 22, 2006, respectively.

The management board may exclude statutory
preemptive rights in connection with the issuance of Preference
shares using Approved Capital II if the shares are issued
against a contribution in kind to acquire a company or an
interest in a company or if the shares are issued for cash and
the issue price is not materially lower than the price of such
shares on the stock exchange.

Conditional Capital

By resolution of the general meeting on
May 23, 2001, FMSs share capital was conditionally
increased by up to
 10,240,
divided into a maximum of 4,000,000 new non-voting Preference
shares. This conditional capital increase may be issued only
upon exercise of grants by employees under the FMC 2001
International Stock Incentive Plan. As of December 31, 2003
all 4,000,000 Preference shares are available for issue.

In addition, conditional capital of a nominal
amount of up to
9,216
representing 514,505 non-voting Preference shares is available
for employees exercising rights granted under other stock-based
compensation plans.

Dividends

Under the German Stock Corporation Act, the
amount of dividends available for distribution to shareholders
is based upon the unconsolidated retained earnings of Fresenius
Medical Care AG as reported in its balance sheet determined in
accordance with the German Commercial Code
(Handelsgesetzbuch).

If no dividends were declared for two consecutive
years after the year for which the Preference shares are
entitled to dividends, then the holders of such Preference
shares would be entitled to the same voting rights as holders of
Ordinary shares until all arrearages are paid. In addition, the
payment of dividends by FMS is subject to limitations under the
2003 Senior Credit Agreement (see Note 11).

Cash dividends of $107,761 for 2002 in the amount
of 1.00 per
Preference share and
0.94 per
Ordinary share were paid on May 23, 2003.

Cash dividends of $76,743 for 2001 in the amount
of 0.91 per
Preference share and
0.85 per
Ordinary share were paid on May 23, 2002.

Cash dividends of $65,782 for 2000 in the amount
of 0.84 per
Preference share and
0.78 per
Ordinary share were paid on May 24, 2001.

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##### Table of Contents



16. Earnings Per Share

The following table is a reconciliation of the
numerators and denominators of the basic and diluted earnings
per share computations. At December 31, 2001, the
performance criteria for the 1998 Plan stock options granted in
2000 had not been met. Due to this, the stock options granted
are excluded from the diluted earnings per share computations.

|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |            | 
|---------------------------------------------------------- | -------------------------------------------------------------------------- | ---- | ------- | ---------- |  | ---- | ------- | ---------- |  | - | ------ | ---------- | 
|                                                           |                                                                            | 2003 |         | 2002       |  | 2001
|                                                           |                                                                            |      |         |            |  |     
|Numerators:                                                |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Net income                                                 |                                                                            | $    | 331,180 |            |  | $    | 289,790 |            |  | $ | 63,354 |           
|less:                                                      |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|                                                           | Preference on Preference shares                                            |      |         | 1,778      |  |      |         | 1,485      |  |   |        | 1,399      | 
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Income available to all class of shares                    |                                                                            | $    | 329,402 |            |  | $    | 288,305 |            |  | $ | 61,955 |           
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Denominators:                                              |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Weighted average number of:                                |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|                                                           | Ordinary shares outstanding                                                |      |         | 70,000,000 |  |      |         | 70,000,000 |  |   |        | 70,000,000 | 
|                                                           | Preference shares outstanding                                              |      |         | 26,191,011 |  |      |         | 26,185,178 |  |   |        | 26,035,330 | 
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|                                                           | Total weighted average shares outstanding                                  |      |         | 96,191,011 |  |      |         | 96,185,178 |  |   |        | 96,035,330 | 
|                                                           | Potentially dilutive Preference shares                                     |      |         | 145,861    |  |      |         | 66,120     |  |   |        | 399,697    | 
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|                                                           | Total weighted average shares outstanding
    assuming dilution            |      |         | 96,336,872 |  |      |         | 96,251,298 |  |   |        | 96,435,027 | 
|                                                           | Total weighted average Preference shares
    outstanding assuming dilution |      |         | 26,336,872 |  |      |         | 26,251,298 |  |   |        | 26,435,027 | 
|Basic income per Ordinary share                            |                                                                            | $    | 3.42    |            |  | $    | 3.00    |            |  | $ | 0.65   |           
|Plus preference per Preference share                       |                                                                            |      | 0.07    |            |  |      | 0.06    |            |  |   | 0.05   |           
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Basic income per Preference Share                          |                                                                            | $    | 3.49    |            |  | $    | 3.06    |            |  | $ | 0.70   |           
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Fully diluted income per Ordinary share                    |                                                                            | $    | 3.42    |            |  | $    | 3.00    |            |  | $ | 0.64   |           
|Plus preference per Preference share assuming
    dilution |                                                                            |      | 0.07    |            |  |      | 0.06    |            |  |   | 0.05   |           
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           
|Fully diluted income per Preference share                  |                                                                            | $    | 3.49    |            |  | $    | 3.06    |            |  | $ | 0.69   |           
|                                                           |                                                                            |      |         |            |  |      |         |            |  |   |        |           

17. Stock Options

In connection with the formation of FMS in 1996,
certain options outstanding under stock option plans of W.R.
Grace and FUSA were exchanged, for equivalent options with
respect to FMS Ordinary shares (the FMC Rollover
Plan).

During the year ended December 31, 2003,
79,491 FMC Rollover Plan options were exercised by employees. In
connection therewith, Fresenius AG transferred 26,497 Ordinary
shares to employees and remitted $631 to the Company. The $631
has been accounted for as a capital contribution within
additional paid in capital. Rollover Plan options for 24,927
Ordinary American Depository Shares were exercisable as of
December 31, 2003 at a weighted average exercise price of
$13.54.

Fresenius Medical Care Plan

In connection with the formation of the Company,
FMS adopted a stock incentive plan (the FMC Plan)
for FMSs key management and executive employees. The
options have a ten year term and vest after three or five years.
During 2003, no options were exercised. As of December 31,
2003, 53,389 options for preference shares were exercisable with
a price range between $55.59 and $78.33 per share. Effective
September 2001, no additional awards could be granted under the
FMC Plan.

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##### Table of Contents



Fresenius Medical Care 98 Plan 1 and Plan
2

During 1998, the Company adopted two stock
incentive plans (FMC 98 Plan 1 and FMC 98 Plan
2) for FMSs key management and executive employees.
Under FMC 98 Plan 1, eligible employees have the right to
acquire Preference shares of the Company. Options granted under
FMC 98 Plan 1 have a ten year term, and one third of them vest
on each of the second, third and fourth anniversaries of the
award date. The maximum number of Preference shares that may be
issued under this plan is 2,443,333 less any shares issued under
the FMC Plan. Any shares available due to forfeiture of grants
under the FMC Plan would be considered available under FMC 98
Plan 1 as long as the total Preference shares issued under both
plans does not exceed the 2,443,333 shares noted above.

Under FMC 98 Plan 2, eligible employees have the
right to acquire Preference shares (the Options) of
the Company. The share price of the Preference share shall be
equal to the average of the official daily quotation prices of
the Preference shares on the Frankfurt Stock Exchange on the
thirty days (30) of trading immediately prior to the date
of grant of the Option. One third of an Option vests on each of
the second, third and fourth anniversaries of the award date,
provided that the Company achieves certain performance criteria
for the full fiscal year following the grant date in comparison
to its performance for the full fiscal year preceding the grant
date. Options granted under FMC 98 Plan 2 have a 10-year term.
The maximum number of Preference shares that may be issued under
this plan is 2,500,000 shares, of which 500,000 are designated
for management board members and 2,000,000 are for other
managerial staff. Each Option is exercisable for one Preference
share.

The following table shows the number of
Preference shares available and the price range (in $ and
) under FMC 98
Plan 1 and FMC 98 Plan 2:

|                                 |           |                |       |             |  |             |              |             |  |   |             |             | 
|-------------------------------- | --------- | -------------- | ----- | ----------- |  | ----------- | ------------ | ----------- |  | - | ----------- | ----------- | 
|                                 |           | Options        |       | Average     |  | Average    
|                                 |           | (in thousands) |       | price range |  | price range
|                                 |           |                |       |             |  |            
|FMC 98 Plan 1                    |           |                |       |             |  |             |              |             |  |   |             |            
|Balance at December 31, 2001     |           |                | 1,690 |             |  |             | 32.90-56.24 |             |  | $ | 41.55-71.03 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|                                 | Granted   |                |       |            |  |             |              |             |  |   |             |             | 
|                                 | Exercised |                |       | 10          |  |             |              | 32.90-40.70 |  |   |             | 41.55-51.40 | 
|                                 | Forfeited |                |       | 65          |  |             |              | 32.90-56.24 |  |   |             | 41.55-71.03 | 
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|Balance at December 31, 2002     |           |                | 1,615 |             |  |             | 32.90-56.24  |             |  |   | 41.55-71.03 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|                                 | Exercised |                |       | 8           |  |             |              | 32.90       |  |   |             | 41.55       | 
|                                 | Forfeited |                |       | 110         |  |             |              | 32.90-56.24 |  |   |             | 41.55-71.03 | 
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|Balance at December 31, 2003     |           |                | 1,497 |             |  |             | 32.90-56.24 |             |  | $ | 41.55-71.03 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|Exercisable at December 31, 2003 |           |                | 1,446 |             |  |             | 32.90-56.24 |             |  | $ | 41.55-71.03 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|                                
|FMC 98 Plan 2                    |           |                |       |             |  |             |              |             |  |   |             |            
|Balance at December 31, 2001     |           |                | 782   |             |  |             | 32.41-47.64 |             |  | $ | 40.93-60.17 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|                                 | Granted   |                |       |            |  |             |              |             |  |   |             |             | 
|                                 | Exercised |                |       | 2           |  |             |              | 32.41-44.66 |  |   |             | 40.93-56.41 | 
|                                 | Forfeited |                |       | 301         |  |             |              | 32.41-47.64 |  |   |             | 40.93-60.17 | 
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|Balance at December 31, 2002     |           |                | 479   |             |  |             | 32.41-44.66  |             |  |   | 40.93-56.41 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|                                 | Exercised |                |       | 17          |  |             |              | 32.41       |  |   |             | 40.93       | 
|                                 | Forfeited |                |       | 26          |  |             |              | 32.41-44.66 |  |   |             | 40.93-56.41 | 
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|Balance at December 31, 2003     |           |                | 436   |             |  |             | 32.41-44.66 |             |  | $ | 40.93-56.41 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            
|Exercisable at December 31, 2003 |           |                | 436   |             |  |             | 32.41-44.66 |             |  | $ | 40.93-56.41 |            
|                                 |           |                |       |             |  |             |              |             |  |   |             |            

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##### Table of Contents



The following table summarizes information about
stock options outstanding for both 98 Plans at December 31,
2003:

|                              |  |             |           |                  |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|----------------------------- |  | ----------- | --------- | ---------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                              |  |             |           | Weighted average |  |                  |      |             |  |                 
|                              |  | Options     |           | remaining        |  | Weighted average |      | Options     |  | Weighted average
|Range of exercise prices in $ |  | outstanding |           | contractual life |  | exercise price   |      | exercisable |  | exercise price  
|                              |  |             |           |                  |  |                  |      |             |  |                 
|$40.01-45.00                  |  |             | 565,038   |                  |  |                  | 5.50 |             |  | $                | 41.29 |  |  |  | 565,038   |  |  | $ | 41.29 | 
|$45.01-50.00                  |  |             |          |                  |  |                  |     |             |  |                  |      |  |  |  |          |  |  |   |      | 
|$50.01-55.00                  |  |             | 117,217   |                  |  |                  | 5.90 |             |  |                  | 51.63 |  |  |  | 117,217   |  |  |   | 51.63 | 
|$55.01-60.00                  |  |             | 197,618   |                  |  |                  | 4.50 |             |  |                  | 56.41 |  |  |  | 197,618   |  |  |   | 56.41 | 
|$60.01-65.00                  |  |             | 531,438   |                  |  |                  | 6.63 |             |  |                  | 61.83 |  |  |  | 486,117   |  |  |   | 61.84 | 
|$65.01-70.00                  |  |             | 16,712    |                  |  |                  | 7.25 |             |  |                  | 66.05 |  |  |  | 11,142    |  |  |   | 66.05 | 
|$70.01-75.00                  |  |             | 504,771   |                  |  |                  | 4.40 |             |  |                  | 71.03 |  |  |  | 504,771   |  |  |   | 71.03 | 
|                              |  |             |           |                  |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|                              |  |             | 1,932,794 |                  |  |                  | 5.46 |             |  | $                | 57.09 |  |  |  | 1,881,903 |  |  | $ | 56.95 | 
|                              |  |             |           |                  |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 

Proceeds totaling $969 from exercise of 8,648
shares under FMC 98 Plan 1 and 16,756 shares under FMC 98 Plan 2
in 2002 were recorded as a capital contribution. Effective
September 2001, no additional grants or options can be awarded
under FMC 98 Plan 1 or FMC 98 Plan 2.

Fresenius Medical Care 2001 International
Stock Incentive Plan

On May 23, 2001, by resolution of the annual
general meeting, the FMC 98 Plans were replaced by a new plan.
Under the terms of this new plan, convertible bonds with a
principal of up to
10,240 may be
issued to the members of the management board and other
employees of the Company representing grants for up to
4 million non-voting Preference shares. The convertible
bonds have a par value of
2.56 and are
interest bearing at a rate of 5.5%. Purchase of the bonds may be
funded by a non-recourse loan secured by the bond with respect
to which the loan was made. The Company has the right to offset
its obligation on a convertible bond against the employee
obligation on the related loan; therefore, the convertible bond
obligations and employee loan receivables are not reflected in
the Companys consolidated financial statements. The bonds
mature in ten years and are generally convertible after four
years. The bonds may be issued either as convertible bonds which
are subject to a stock price target or convertible bonds without
a stock price target. In the case of convertible bonds which are
subject to a stock price target the conversion right is only
exercisable if the quoted price of the Preference shares exceeds
the quoted price at grant date by at least 25% at any given date
subsequent to the date of the grant. Participants have the right
to choose between convertible bonds with or without the stock
price target. The number of convertible bonds awarded to those
employees who select the bonds without a stock price target will
be reduced by 15%. Each convertible bond entitles the holder
thereof, upon payment of a conversion price to convert the bond
into one Preference share. The conversion price of the
convertible bonds which are not subject to the stock price
target is determined by the average price of the Preference
shares during the last 30 trading days prior to the date of
grant. Up to 20% of the total amount available for the issuance
of convertible bonds may be issued each year through
May 22, 2006.

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##### Table of Contents



The following table presents the number of
Preference shares available and the average price range (in $
and ) under the
FMC 2001 International Stock Incentive Plan.

|                       |                                  |                |  |             |     |             |  |              |             |  |   |             |             | 
|---------------------- | -------------------------------- | -------------- |  | ----------- | --- | ----------- |  | ------------ | ----------- |  | - | ----------- | ----------- | 
|                       |                                  | Bonds          |  | Average     |     | Average    
|                       |                                  | (in thousands) |  | price range |     | price range
|                       |                                  |                |  |             |     |            
|FMC International Plan |                                  |                |  |             |     |             |  |              |             |  |   |            
|                       | Balance at December 31, 2001     |                |  | 720         |     |             |  | 53.27-73.72  |             |  |   | 67.28-93.11 |            
|                       |                                  |                |  |             |     |             |  |              |             |  |   |            
|                       |                                  | Granted        |  |             | 771 |             |  |              | 25.13-43.16 |  |   |             | 31.74-54.51 | 
|                       |                                  | Forfeited      |  |             | 23  |             |  |              | 56.42-73.72 |  |   |             | 71.26-93.11 | 
|                       |                                  |                |  |             |     |             |  |              |             |  |   |            
|                       | Balance at December 31, 2002     |                |  | 1,468       |     |             |  | 25.13-73.72 |             |  | $ | 31.74-93.11 |            
|                       |                                  |                |  |             |     |             |  |              |             |  |   |            
|                       |                                  | Granted        |  |             | 622 |             |  |              | 29.10-37.02 |  |   |             | 36.75-46.76 | 
|                       |                                  | Forfeited      |  |             | 87  |             |  |              | 25.13-73.72 |  |   |             | 31.74-93.11 | 
|                       |                                  |                |  |             |     |             |  |              |             |  |   |            
|                       | Balance at December 31, 2003     |                |  | 2,003       |     |             |  | 25.13-73.72 |             |  | $ | 31.74-93.11 |            
|                       |                                  |                |  |             |     |             |  |              |             |  |   |            
|                       | Exercisable at December 31, 2003 |                |  | 212         |     |             |  | 53.27-73.72 |             |  | $ | 67.28-93.11 |            
|                       |                                  |                |  |             |     |             |  |              |             |  |   |            

Fair Value of Stock Options

The per share weighted-average fair value of
stock options granted during 2003, 2002 and 2001 was $14.26,
$11.11 and $16.76, respectively, on the date of the grant using
the Black-Scholes option-pricing model with the weighted-average
assumptions presented below.

|                              |                          |      |  |            |  |      |  |            |  |  |  |            | 
|----------------------------- | ------------------------ | ---- |  | ---------- |  | ---- |  | ---------- |  |  |  | ---------- | 
|                              |                          | 2003 |  | 2002       |  | 2001
|                              |                          |      |  |            |  |     
|Weighted-average assumptions: |                          |      |  |            |  |      |  |            |  |  |  |           
|                              | Expected dividend yield  |      |  | 2.60%      |  |      |  | 2.20%      |  |  |  | 1.50%      | 
|                              | Risk-free interest rate  |      |  | 3.80%      |  |      |  | 3.80%      |  |  |  | 4.90%      | 
|                              | Expected volatility      |      |  | 40.00%     |  |      |  | 40.00%     |  |  |  | 40.00%     | 
|                              | Expected life of options |      |  | 5.3  years |  |      |  | 5.3  years |  |  |  | 5.3  years | 

The Company applies APB Opinion No. 25 in
accounting for stock compensation and, accordingly, recognized
compensation expense of $1,456, $1,126 and $1,153 for stock
options granted in 2003, 2002 and 2001.

18. Income Taxes

Income before income taxes and minority interest
is attributable to the following geographic locations:

|              |  |      |         |      |  |      |         |  |  |   |         |  
|------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|              |  | 2003 |         | 2002 |  | 2001
|              |  |      |         |      |  |     
|Germany       |  | $    | 78,124  |      |  | $    | 86,701  |  |  | $ | 123,141 |  
|United States |  |      | 368,382 |      |  |      | 289,954 |  |  |   | (60,930 | )
|Other         |  |      | 99,170  |      |  |      | 91,795  |  |  |   | 94,077  |  
|              |  |      |         |      |  |      |         |  |  |   |         |  
|              |  | $    | 545,676 |      |  | $    | 468,450 |  |  | $ | 156,288 |  
|              |  |      |         |      |  |      |         |  |  |   |         |  

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Income tax expense (benefit) for the years
ended December 31, 2003, 2002, and 2001, consisted of the
following:

|          |               |      |         |         |   |      |         |        |  |   |         |         |  
|--------- | ------------- | ---- | ------- | ------- | - | ---- | ------- | ------ |  | - | ------- | ------- | -
|          |               | 2003 |         | 2002    |   | 2001
|          |               |      |         |         |   |     
|Current:  |               |      |         |         |   |      |         |        |  |   |         |        
|          | Germany       |      | $       | 51,849  |   |      | $       | 29,367 |  |   | $       | 30,094  |  
|          | United States |      |         | 22,346  |   |      |         | 53,878 |  |   |         | 87,923  |  
|          | Other         |      |         | 35,505  |   |      |         | 32,124 |  |   |         | 31,079  |  
|          |               |      |         |         |   |      |         |        |  |   |         |        
|          |               |      | 109,700 |         |   |      | 115,369 |        |  |   | 149,097 |        
|          |               |      |         |         |   |      |         |        |  |   |         |        
|Deferred: |               |      |         |         |   |      |         |        |  |   |         |        
|          | Germany       |      |         | (1,280  | ) |      |         | 10,069 |  |   |         | 7,651   |  
|          | United States |      |         | 102,142 |   |      |         | 47,437 |  |   |         | (72,455 | )
|          | Other         |      |         | 2,152   |   |      |         | 2,198  |  |   |         | 6,909   |  
|          |               |      |         |         |   |      |         |        |  |   |         |        
|          |               |      | 103,014 |         |   |      | 59,705  |        |  |   | (57,895 | )      
|          |               |      |         |         |   |      |         |        |  |   |         |        
|          |               | $    | 212,714 |         |   | $    | 175,074 |        |  | $ | 91,202  |        
|          |               |      |         |         |   |      |         |        |  |   |         |        

Under the provisions applicable as a result of
the Flood Victim Solidarity Law, for the fiscal year ended
December 31, 2003 the Company is subject to German federal
corporation income tax at a base rate of 26.5% (25% in 2002)
plus a solidarity surcharge of 5.5% on federal corporation taxes
payable. Because of this, the statutory rate for the year ended
December 31, 2003 amounted to 27.96% compared to 26.375% in
2002.

The increase of the base rate of German federal
corporation income tax from 25% to 26.5% was enacted by the
German government with the Flood Victim Solidarity Law in
September 2002. This increase was effective only for 2003 and
the tax rate returned to 25% on January 1, 2004.

The difference in income tax expense from the
amounts computed by applying the German federal corporation
income tax rate, including the solidarity surcharge, on income
before income taxes and minority interest (27.96% for fiscal
year 2003, 26.375% for fiscal years 2002 and 2001, respectively)
is as follows:

|                                                                              |  |      |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                              |  | 2003 |         | 2002 |  | 2001
|                                                                              |  |      |         |      |  |     
|Computed expected income tax expense
    at the undistributed earnings rate |  | $    | 152,571 |      |  | $    | 123,554 |   |  | $ | 41,221 |  
|Trade income taxes, net of German federal
    corporation income tax benefit  |  |      | 15,486  |      |  |      | 12,184  |   |  |   | 13,663 |  
|U.S. State income taxes, net of federal tax
    benefit                       |  |      | 13,535  |      |  |      | 10,740  |   |  |   | 420    |  
|Tax free income                                                               |  |      | (12,155 | )    |  |      | (11,078 | ) |  |   | (5,327 | )
|Non-deductible portion of special charge for
    legal matters                |  |      |        |      |  |      |        |   |  |   | 14,216 |  
|Amortization of non-tax deductible goodwill                                   |  |      |        |      |  |      |        |   |  |   | 19,678 |  
|Foreign tax rate differential                                                 |  |      | 29,904  |      |  |      | 25,929  |   |  |   | 7,538  |  
|Non-deductible expenses                                                       |  |      | 6,993   |      |  |      | 7,827   |   |  |   | 691    |  
|Other                                                                         |  |      | 6,380   |      |  |      | 5,918   |   |  |   | (898   | )
|                                                                              |  |      |         |      |  |      |         |   |  |   |        |  
|Provision for income taxes                                                    |  | $    | 212,714 |      |  | $    | 175,074 |   |  | $ | 91,202 |  
|                                                                              |  |      |         |      |  |      |         |   |  |   |        |  
|Effective tax rate                                                            |  |      | 39.0%   |      |  |      | 37.4%   |   |  |   | 58.4%  |  
|                                                                              |  |      |         |      |  |      |         |   |  |   |        |  

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The tax effects of the temporary differences that
give rise to deferred tax assets and liabilities at
December 31 are presented below:

|                                                                                                              |  |      |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | 2003 |         | 2002
|                                                                                                              |  |      |         |     
|Deferred tax assets:                                                                                          |  |      |         |      |  |   |         |  
|Accounts receivable, primarily due to allowance
    for doubtful accounts                                     |  | $    | 30,939  |      |  | $ | 25,962  |  
|Inventory, primarily due to additional costs
    capitalized for tax purposes, and inventory reserve accounts |  |      | 28,126  |      |  |   | 21,368  |  
|Accrued expenses and other liabilities for
    financial accounting purposes, not currently tax deductible    |  |      | 110,921 |      |  |   | 129,154 |  
|Special charge for legal matters                                                                              |  |      | 48,199  |      |  |   | 46,580  |  
|Net operating loss carryforwards                                                                              |  |      | 40,237  |      |  |   | 47,971  |  
|Derivatives                                                                                                   |  |      | 27,685  |      |  |   | 42,370  |  
|Other                                                                                                         |  |      | 5,327   |      |  |   | 3,975   |  
|                                                                                                              |  |      |         |      |  |   |         |  
|Total deferred tax assets                                                                                     |  | $    | 291,432 |      |  | $ | 317,380 |  
|Less: valuation allowance                                                                                     |  |      | (28,084 | )    |  |   | (23,229 | )
|                                                                                                              |  |      |         |      |  |   |         |  
|Net deferred tax assets                                                                                       |  | $    | 263,348 |      |  | $ | 294,151 |  
|                                                                                                              |  |      |         |      |  |   |         |  
|Deferred tax liabilities:                                                                                     |  |      |         |      |  |   |         |  
|Accounts receivable, primarily due to allowance
    for doubtful accounts                                     |  | $    | 32,003  |      |  | $ | 20,207  |  
|Inventory, primarily due to inventory reserve
    accounts for tax purposes                                   |  |      | 8,706   |      |  |   | 6,646   |  
|Accrued expenses and other liabilities deductible
    for tax prior to financial accounting recognition       |  |      | 19,212  |      |  |   | 23,256  |  
|Plant and equipment, principally due to
    differences in depreciation                                       |  |      | 213,907 |      |  |   | 165,264 |  
|Derivatives                                                                                                   |  |      | 36,612  |      |  |   | 31,551  |  
|Other                                                                                                         |  |      | 14,251  |      |  |   | 9,006   |  
|                                                                                                              |  |      |         |      |  |   |         |  
|Total deferred tax liabilities                                                                                |  |      | 324,691 |      |  |   | 255,930 |  
|                                                                                                              |  |      |         |      |  |   |         |  
|Net deferred tax (liabilities) assets                                                                         |  | $    | (61,343 | )    |  | $ | 38,221  |  
|                                                                                                              |  |      |         |      |  |   |         |  

During 2003, the valuation allowance increased by
$4,856. In 2002, the valuation allowance increased by $16,800
mainly attributable to currency exchange losses in Latin America.

The expiration of net operating losses is as
follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 5,523   | 
|2005       |  |   | 12,165  | 
|2006       |  |   | 4,712   | 
|2007       |  |   | 9,043   | 
|2008       |  |   | 10,528  | 
|2009       |  |   | 11,929  | 
|2010       |  |   | 5,950   | 
|2011       |  |   | 2,477   | 
|2012       |  |   | 4,152   | 
|2013       |  |   | 1,764   | 
|Thereafter |  |   | 40,874  | 
|           |  |   |         | 
|Total      |  | $ | 109,117 | 
|           |  |   |         | 

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities and projected future taxable income in
making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over
the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 2003.

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Provision has not been made for additional taxes
on approximately $267,763 undistributed earnings of foreign
subsidiaries. The majority of these earnings have been, and will
continue to be, permanently reinvested. The earnings could
become subject to additional tax if remitted or deemed remitted
as dividends; however, calculation of such additional tax is not
practical. For fiscal years ending in 2004 and afterwards,
dividends from German subsidiaries are 95% tax-exempt, i.e. 5%
of dividend income is taxable for corporate tax purposes after
recent German tax law changes. The effects of this new rule are
estimated by management as negligible, as the majority of German
investments are consolidated for tax purposes.

A 5% income inclusion has also been introduced on
capital gains realized from the disposition of shares in German
and foreign corporations and applies to fiscal years ending in
2004. Management does not anticipate significant additional
income taxation.

19. Operating Leases

The Company leases buildings and machinery and
equipment under various lease agreements expiring on dates
through 2016. Rental expense recorded for operating leases for
the years ended December 31, 2003, 2002 and 2001 was
$303,060, $270,082, and $237,174, respectively.

In December 2003, the Company exercised an option
to terminate an operating lease for certain manufacturing
equipment in its Ogden, Utah, North American facility. The
equipment was purchased for approximately $66,000 and is
reflected as a capital expenditure in the accompanying
consolidated statement of cash flows.

Future minimum rental payments under
noncancelable operating leases for the five years succeeding
December 31, 2003 and thereafter are:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 237,239   | 
|2005       |  |   | 208,087   | 
|2006       |  |   | 172,876   | 
|2007       |  |   | 119,575   | 
|2008       |  |   | 88,377    | 
|Thereafter |  |   | 265,117   | 
|           |  |   |           | 
|           |  | $ | 1,091,271 | 
|           |  |   |           | 

20. Legal Proceedings

Commercial Litigation

The Company was formed as a result of a series of
transactions pursuant to the Agreement and Plan of
Reorganization (the Merger) dated as of
February 4, 1996 by and between W.R. Grace
& Co. and Fresenius AG. At the time of the Merger, a
W.R. Grace & Co. subsidiary known as
W.R. Grace & Co.-Conn. had, and continues to have,
significant potential liabilities arising out of
product-liability related litigation, pre-Merger tax claims and
other claims unrelated to NMC, which was Graces dialysis
business prior to the Merger. In connection with the Merger,
W.R. Grace & Co.-Conn. agreed to indemnify the
Company, FMCH, and NMC against all liabilities of
W.R. Grace & Co., whether relating to events
occurring before or after the Merger, other than liabilities
arising from or relating to NMCs operations.
W.R. Grace & Co. and certain of its subsidiaries
filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code (the Grace Chapter 11 Proceedings)
on April 2, 2001.

Pre-Merger tax claims or tax claims that would
arise if events were to violate the tax-free nature of the
Merger, could ultimately be the Companys obligation. In
particular, W.R. Grace & Co. has disclosed in its
filings with the Securities and Exchange Commission that: its
tax returns for the 1993 to 1996 tax years are under audit by
the Internal Revenue Service (the Service);
W.R. Grace & Co. has received the Services
examination report on tax periods 1993 to 1996; that during
those years Grace deducted approximately $122 million in
interest attributable to corporate owned life insurance
(COLI) policy loans; that W.R. Grace
& Co. has paid $21 million of tax and interest
related to COLI deductions taken in tax years prior to 1993;
that a U.S. District

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Court ruling has denied interest deductions of a
taxpayer in a similar situation and that W.R. Grace
& Co. is seeking a settlement of the Services
claims. Subject to certain representations made by
W.R. Grace & Co., Fresenius Medical Care AG and
Fresenius AG, W.R. Grace & Co. and certain of its
affiliates agreed to indemnify the Company against this and
other pre-Merger and Merger-related tax liabilities.


Prior to and after the commencement of the Grace
Chapter 11 Proceedings, class action complaints were filed
against W.R. Grace & Co. and FMCH by plaintiffs
claiming to be creditors of W.R. Grace
& Co.-Conn., and by the asbestos creditors
committees on behalf of the W.R. Grace & Co.
bankruptcy estate in the Grace Chapter 11 Proceedings,
alleging among other things that the Merger was a fraudulent
conveyance, violated the uniform fraudulent transfer act and
constituted a conspiracy. All such cases have been stayed and
transferred to or are pending before the U.S. District Court as
part of the Grace Chapter 11 Proceedings.

In 2003, the Company reached agreement with the
asbestos creditors committees on behalf of the
W.R. Grace & Co. bankruptcy estate and
W.R. Grace & Co. in the matters pending in the
Grace Chapter 11 Proceedings for the settlement of all
fraudulent conveyance and tax claims against it and other claims
related to the Company that arise out of the bankruptcy of
W.R. Grace & Co. Under the terms of the settlement
agreement as amended (the Settlement Agreement),
fraudulent conveyance and other claims raised on behalf of
asbestos claimants will be dismissed with prejudice and the
Company will receive protection against existing and potential
future W.R. Grace & Co. related claims, including
fraudulent conveyance and asbestos claims, and indemnification
against income tax claims related to the non-NMC members of the
W.R. Grace & Co. consolidated tax group upon
confirmation of a W.R. Grace & Co. bankruptcy
reorganization plan that contains such provisions. Under the
Settlement Agreement, the Company will pay a total of
$115 million to the W.R. Grace & Co.
bankruptcy estate, or as otherwise directed by the Court, upon
plan confirmation. No admission of liability has been or will be
made. The Settlement Agreement has been approved by the U.S.
District Court. Subsequent to the Merger, W.R. Grace
& Co. was involved in a multi-step transaction
involving Sealed Air Corporation (Sealed Air,
formerly known as Grace Holding, Inc.). The Company is engaged
in litigation with Sealed Air to confirm its entitlement to
indemnification from Sealed Air for all losses and expenses
incurred by the Company relating to pre-Merger tax liabilities
and Merger-related claims. Under the Settlement Agreement, upon
confirmation of a plan that satisfies the conditions of the
Companys payment obligation, this litigation will be
dismissed with prejudice.

On April 4, 2003, FMCH filed a suit in the
United States District Court for the Northern District of
California, Fresenius USA, Inc., et al., v. Baxter
International Inc., et al., Case No. C 03-1431, seeking
a declaratory judgment that the Company does not infringe on
patents held by Baxter International Inc. and its subsidiaries
and affiliates (Baxter), that the patents are
invalid, and that Baxter is without right or authority to
threaten or maintain suit against the Company for alleged
infringement of Baxters patents. In general, the alleged
patents concern touch screens, conductivity alarms, power
failure data storage, and balance chambers for hemodialysis
machines. Baxter has filed counterclaims against the Company
seeking monetary damages and injunctive relief, and alleging
that the Company willfully infringed on Baxters patents.
The Company believes its claims are meritorious, although the
ultimate outcome of any such proceedings cannot be predicted at
this time and an adverse result could have a material adverse
effect on the Companys business, financial condition, and
results of operations.

Other Litigation and Potential
Exposures

From time to time, the Company is a party to or
may be threatened with other litigation arising in the ordinary
course of its business. Management regularly analyzes current
information including, as applicable, the Companys
defenses and insurance coverage and, as necessary, provides
accruals for probable liabilities for the eventual disposition
of these matters.

The Company, like other health care providers,
conducts its operations under intense government regulation and
scrutiny. It must comply with regulations which relate to or
govern the safety and efficacy of medical products and supplies,
the operation of manufacturing facilities, laboratories and
dialysis clinics, and environmental and occupational health and
safety. The Company must also comply with the Anti-Kickback
Statute, the False Claims Act, the Stark Statute, and other
federal and state fraud and abuse laws. Applicable laws

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or regulations may be amended, or enforcement
agencies or courts may make interpretations that differ from the
Companys or the manner in which it conducts its business.
In the U.S. enforcement has become a high priority for the
federal government and some states. In addition, the provisions
of the False Claims Act authorizing payment of a portion of any
recovery to the party bringing the suit encourage private
plaintiffs to commence whistle blower actions. By
virtue of this regulatory environment, as well as our corporate
integrity agreement with the government, the Company expects
that its business activities and practices will continue to be
subject to extensive review by regulatory authorities and
private parties, and expects continuing inquiries, claims and
litigation relating to our compliance with applicable laws and
regulations. The Company may not always be aware that an inquiry
or action has begun, particularly in the case of whistle
blower actions, which are initially filed under court seal.


The Company operates many facilities throughout
the U.S. In such a decentralized system, it is often difficult
to maintain the desired level of oversight and control over the
thousands of individuals employed by many affiliated companies.
The Company relies upon its management structure, regulatory and
legal resources, and the effective operation of its compliance
program to direct, manage and monitor the activities of these
employees. On occasion, the Company may identify instances where
employees, deliberately or inadvertently, have submitted
inadequate or false billings. The actions of such persons may
subject the Company and its subsidiaries to liability under the
Anti-Kickback Statute, the Stark Statute and the False Claims
Act, among other laws.

Physicians, hospitals and other participants in
the health care industry are also subject to a large number of
lawsuits alleging professional negligence, malpractice, product
liability, workers compensation or related claims, many of
which involve large claims and significant defense costs. The
Company has been subject to these suits due to the nature of its
business and expects that those types of lawsuits may continue.
Although the Company maintains insurance at a level which it
believes to be prudent, it cannot assure that the coverage
limits will be adequate or that insurance will cover all
asserted claims. A successful claim against the Company or any
of its subsidiaries in excess of insurance coverage could have a
material adverse effect upon it and the results of its
operations. Any claims, regardless of their merit or eventual
outcome, also may have a material adverse effect on the
Companys reputation and business.

The Company has also had claims asserted against
it and has had lawsuits filed against it relating to businesses
that it has acquired or divested. These claims and suits relate
both to operation of the businesses and to the acquisition and
divestiture transactions. The Company has asserted its own
claims, and claims for indemnification. Although the ultimate
outcome cannot be predicted at this time, an adverse result
could have a material adverse effect upon the Companys
business, financial condition, and results of operations.

Accrued Special Charge for Legal
Matters

At December 31, 2001, the Company recorded a
pre-tax special charge of $258,159 to reflect anticipated
expenses associated with the defense and resolution of
pre-Merger tax claims, Merger-related claims, and commercial
insurer claims (see Note 3). The costs associated with the
Settlement Agreement and settlements with insurers have been
charged against this accrual. While the Company believes that
its remaining accruals reasonably estimate its currently
anticipated costs related to the continued defense and
resolution of the remaining matters, no assurances can be given
that its actual costs incurred will not exceed the amount of
this accrual.

21. Financial Instruments

Market Risk

The Company is exposed to market risk from
changes in interest rates and foreign exchange rates. In order
to manage the risk of interest rate and currency exchange rate
fluctuations, the Company enters into various hedging
transactions with investment grade financial institutions as
authorized by the Companys management board. The Company
does not use financial instruments for trading purposes.

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The Company conducts its financial instrument
activity under the control of a single centralized department.
The Company established guidelines for risk assessment
procedures and controls for the use of financial instruments.
They include a clear segregation of duties with regard to
execution on one side and administration, accounting and
controlling on the other.

Foreign Exchange Risk
Management

The Company conducts business on a global basis
in several international currencies, though its operations are
mainly in Germany and the United States. For financial reporting
purposes, the Company has chosen the U.S. dollar as its
reporting currency. Therefore, changes in the rate of exchange
between the U.S. dollar, the euro and the local currencies in
which the financial statements of the Companys
international operations are maintained, affect its results of
operations and financial position as reported in its
consolidated financial statements. The Company employs, to a
limited extent, forward contracts to hedge its currency
exposure. The Companys policy, which has been consistently
followed, is that forward currency contracts and options be used
only for the purpose of hedging foreign currency exposure.

The Companys exposure to market risk for
changes in foreign exchange rates relates to transactions such
as sales and purchases, and lending and borrowings, including
intercompany borrowings. The Company sells significant amounts
of products from its manufacturing facilities in Germany to its
other international operations. In general, the German sales are
denominated in euro. This exposes the subsidiaries to
fluctuations in the rate of exchange between the euro and the
currency in which their local operations are conducted.

Changes in the value of foreign currency forward
contracts designated and qualifying as cash flow hedges of
forecasted product purchases are reported in accumulated other
comprehensive income. These amounts are subsequently
reclassified into earnings as a component of cost of revenues,
in the same period in which the hedged transaction affects
earnings. After tax gains of $4,790 ($7,205 pretax) for the year
ended December 31, 2003 are deferred in accumulated other
comprehensive income and will be reclassified into earnings
during 2004 and 2005. During 2003, the Company reclassified
after tax gains of $1,179 ($1,302 pretax) from accumulated other
comprehensive income into the statement of operations. As of
December 31, 2003, the Company had purchased derivative
financial instruments with a maximum maturity of 17 months
to hedge its exposure to the variability in future cash flows
associated with forecasted product purchases.

Changes in the fair value of foreign currency
forward contracts designated and qualifying as cash flow hedges
for forecasted intercompany financing transactions are reported
in accumulated other comprehensive income. These amounts are
subsequently reclassified into earnings as a component of
selling, general and administrative costs in the same period in
which the hedged transactions affect earnings. After tax gains
of $43,139 ($70,865 pretax) for the year ended December 31,
2003 were deferred in accumulated other comprehensive income.
The Company also entered into foreign currency forward contracts
with a fair value of approximately $8,984 as of
December 31, 2003 to hedge its currency exposure from
intercompany loans. No hedge accounting is applied to these
forward contracts. As of December 31, 2003, the Company had
purchased foreign exchange forward contracts with a maximum
maturity of 36 months. As of December 31, 2003, the
notional volume of foreign currency forwards hedging
intercompany loans was approximately $957,300. There is no
material impact on earnings due to hedge ineffectiveness.

The Companys foreign exchange contracts
contain credit risk in that its bank counterparties may be
unable to meet the terms of the agreements. The potential risk
of loss with any one party resulting from this type of credit
risk is monitored. Management does not expect any material
losses as a result of default by other parties.

Interest Rate Risk Management

The Company enters into derivatives, particularly
interest rate swaps, to protect interest rate exposures arising
from long-term and short-term borrowings and accounts receivable
securitization programs at floating rates by effectively
swapping them into fixed rates. Under interest rate swaps, the
Company agrees with other parties to exchange, at specified
intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional
amount.

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The Company enters into interest rate swap
agreements that are designated as cash flow hedges effectively
converting certain variable interest rate payments denominated
in U.S. dollars into fixed interest rate payments. After taxes
losses of $42,819 ($71,321 pretax) for the year ended
December 31, 2003, were deferred in accumulated other
comprehensive loss. Interest payable and interest receivable
under the swap terms are accrued and recorded as an adjustment
to interest expense at each reporting date. There is no material
impact on earnings due to hedge ineffectiveness.

As of December 31, 2003, the notional volume
of U.S. dollar interest rate hedge contracts totaled $950,000.
Those swap agreements, which expire at various dates between
2004 and 2009, effectively fix the Companys variable
interest rate exposure on the majority of the U.S.
dollar-denominated revolving loans and outstanding obligations
under the accounts receivable securitization program at an
average interest rate of 5.45%.

The Company enters into interest rate swap
agreements that are designated as cash flow hedges effectively
converting certain variable interest rate payments denominated
in Yen into fixed interest rate payments. After taxes losses of
$264 ($457 pretax) for year ended December 31, 2003,
were deferred in accumulated other comprehensive income. There
is no material impact on earnings due to hedge ineffectiveness.

As of December 31, 2003, the notional volume
of Yen-denominated interest rate hedge contracts entered into in
connection with a Yen-denominated floating rate borrowings by
the Companys Japanese subsidiaries totaled $17,600. The
bank borrowings and the notional amounts of the hedge agreements
always coincide until the final maturities when the bank debts
are completely repaid and the hedge contracts expire.

FMS is exposed to credit-related losses in the
event of nonperformance by counterparties to financial
instruments but does not expect any counterparties to fail to
meet their obligations. The current credit exposure of
derivatives is represented by the fair value of contracts with a
positive fair value at the reporting date.

Fair Value of Financial Instruments

The following table presents the carrying amounts
and fair values of the Companys financial instruments at
December 31, 2003 and 2002. FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments,defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale.

|               |                             |          |   |           |   |          |   |           |   |  |   |           |   |  |   |           |  
|-------------- | --------------------------- | -------- | - | --------- | - | -------- | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|               |                             |          |   |          
|               |                             | 2003     |   | 2002     
|               |                             |          |   |          
|               |                             | Carrying |   | Fair      |   | Carrying |   | Fair     
|               |                             | Amount   |   | Value     |   | Amount   |   | Value    
|               |                             |          |   |           |   |          |   |          
|Nonderivatives |                             |          |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|Assets         |                             |          |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|               | Cash and cash equivalents   |          | $ | 48,427    |   |          | $ | 48,427    |   |  | $ | 64,793    |   |  | $ | 64,793    |  
|               | Receivables                 |          |   | 1,229,503 |   |          |   | 1,229,503 |   |  |   | 914,302   |   |  |   | 914,302   |  
|Liabilities    |                             |          |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|               | Accounts payable            |          |   | 306,527   |   |          |   | 306,527   |   |  |   | 284,941   |   |  |   | 284,941   |  
|               | Income taxes payable        |          |   | 178,111   |   |          |   | 178,111   |   |  |   | 178,690   |   |  |   | 178,690   |  
|               | Debt                        |          |   | 1,039,693 |   |          |   | 1,039,693 |   |  |   | 976,846   |   |  |   | 976,846   |  
|               | Trust Preferred Securities  |          |   | 1,242,317 |   |          |   | 1,324,736 |   |  |   | 1,145,281 |   |  |   | 1,110,303 |  
|               | Notes                       |          |   | 162,296   |   |          |   | 165,730   |   |  |   | 134,758   |   |  |   | 138,328   |  
|Derivatives:   |                             |          |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|               | Foreign exchange contracts  |          |   | 102,184   |   |          |   | 102,184   |   |  |   | 94,879    |   |  |   | 94,879    |  
|               | Dollar interest rate hedges |          |   | (71,255   | ) |          |   | (71,255   | ) |  |   | (99,183   | ) |  |   | (99,183   | )
|               | Yen interest rate hedges    |          |   | (469      | ) |          |   | (469      | ) |  |   | (691      | ) |  |   | (691      | )

The carrying amounts in the table are included in
the consolidated balance sheet under the indicated captions,
except for derivatives, which are included in other assets or
liabilities.

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Estimation of Fair Values

The significant methods and assumptions used in
estimating the fair values of financial instruments are as
follows:

Short-term financial instruments are valued at
their carrying amounts included in the consolidated balance
sheet, which are reasonable estimates of fair value due to the
relatively short period to maturity of the instruments. This
approach applies to cash and cash equivalents, receivables,
accounts payable and income taxes payable.

The Companys long-term bank debt represents
borrowings primarily from a syndicated bank credit facility. The
long-term bank debt is valued at its carrying amount because the
actual drawings under the facility carry interest on a variable
basis which reflects actual money market conditions, plus
specific margins which represent Company-related performance
ratios as well as the entire set of terms and conditions
including covenants as determined in the 2003 Senior Credit
Agreement.

The fair value of the Trust Preferred Securities
is based upon market quotes.

The fair value of derivatives generally reflects
the estimated amounts that the Company would receive or pay to
terminate the contracts at the reporting date, thereby taking
into account the current unrealized gains or losses of open
contracts. Dealer quotes are available for all of the
Companys derivatives.

22. Other Comprehensive Income

The changes in the components of other
comprehensive income for the years ended December 31, 2003,
2002 and 2001 are as follows:

|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |         |  
|------------------------------------------------------------------ | --------------------------------------------------------------- | ----------------------- | ------- | ------ |  | ---- | ------- | ------- | - | ------ | ------- | ------ |  | ------ | ------- | ------ |  | --- | ------- | ------- | - | - | ------- | ------ |  | - | -------- | ------- | - | - | ------ | ------ |  | - | -------- | ------- | -
|                                                                   |                                                                 |                        
|                                                                   |                                                                 | Year ended December 31,
|                                                                   |                                                                 |                        
|                                                                   |                                                                 |                         |         |        |  |     
|                                                                   |                                                                 | 2003                    |         | 2002   |  | 2001
|                                                                   |                                                                 |                         |         |        |  |     
|                                                                   |                                                                 |                         |         | Tax    |  |      |         |         |   | Tax    |         |        |  |        |         | Tax    |  |    
|                                                                   |                                                                 | Pretax                  |         | Effect |  | Net  |         | Pretax  |   | Effect |         | Net    |  | Pretax |         | Effect |  | Net
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |    
|Other comprehensive income relating to cash flow
    hedges:       |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |        
|                                                                   | Changes in fair value of cash flow hedges during
    the period |                         |         | 28,237 |  |      |         | (11,114 | ) |        |         | 17,123 |  |        |         | 51,018 |  |     |         | (19,736 | ) |   |         | 31,282 |  |   |          | (82,915 | ) |   |        | 32,980 |  |   |          | (49,935 | )
|                                                                   | Reclassification adjustments                                    |                         |         | 8,091  |  |      |         | (3,185  | ) |        |         | 4,906  |  |        |         | 2,995  |  |     |         | (776    | ) |   |         | 2,219  |  |   |          | (1,134  | ) |   |        | 386    |  |   |          | (748    | )
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |        
|Total other comprehensive income relating to cash
    flow hedges: |                                                                 |                         | 36,328  |        |  |      | (14,299 | )       |   |        | 22,029  |        |  |        | 54,013  |        |  |     | (20,512 | )       |   |   | 33,501  |        |  |   | (84,049  | )       |   |   | 33,366 |        |  |   | (50,683  | )      
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |        
|Foreign-currency translation adjustment                            |                                                                 |                         | 200,578 |        |  |      |        |         |   |        | 200,578 |        |  |        | (38,432 | )      |  |     |        |         |   |   | (38,432 | )      |  |   | (115,422 | )       |   |   |       |        |  |   | (115,422 | )      
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |        
|Minimum pension liability                                          |                                                                 |                         | (23,391 | )      |  |      | 9,341   |         |   |        | (14,050 | )      |  |        | (32,262 | )      |  |     | 12,905  |         |   |   | (19,357 | )      |  |   |         |         |   |   |       |        |  |   |         |        
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |        
|Other comprehensive income (loss)                                  |                                                                 | $                       | 213,515 |        |  | $    | (4,958  | )       |   | $      | 208,557 |        |  | $      | (16,681 | )      |  | $   | (7,607  | )       |   | $ | (24,288 | )      |  | $ | (199,471 | )       |   | $ | 33,366 |        |  | $ | (166,105 | )      
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |         |        |  |     |         |         |   |   |         |        |  |   |          |         |   |   |        |        |  |   |          |        

23. Business Segment
Information

The Company has identified three segments, North
America, International, and Asia Pacific, which were determined
based upon how the Company manages its businesses. All segments
are primarily engaged in providing dialysis services and
manufacturing and distributing products and equipment for the
treatment of end-stage renal disease. Additionally, the North
America segment engages in performing clinical laboratory
testing and renal diagnostic services. The Company has
aggregated the International and Asia Pacific operating segments
as International. The segments are aggregated due to
their similar economic characteristics. These characteristics
include the same products sold, the same type patient
population, similar methods of distribution of products and
services and similar economic environments.

Management evaluates each segment using a measure
that reflects all of the segments controllable revenues
and expenses. Management believes that the most appropriate
measure in this regard is operating income. In addition to
operating income, management believes that earnings before
interest, taxes, depreciation and

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amortization (EBITDA) is helpful for
investors as a measurement of the segments and the
Companys ability to generate cash and to service its
financing obligations. EBITDA is also the basis for determining
compliance with certain covenants contained in the
Companys 2003 Senior Credit Agreement, Euro Notes and
indentures relating to the Companys trust preferred
securities. The information in the table below reconciles EBITDA
for each of our reporting segments to operating income, which
the Company considers to be the most directly comparable
financial measure, calculated in accordance with U.S. GAAP.


EBITDA should not be construed as an alternative
to net earnings determined in accordance with generally accepted
accounting principles or to cash flow from operations, investing
activities or financing activities or as a measure of cash flows.

Information pertaining to the Companys
business segments is set forth below. In 2001, for the purpose
of segment reporting, EBITDA and operating income exclude
special charges (see Note 3):

|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |           |  
|---- | -------------------------------------------- | ------- | - | ------------- | - | --------- | - | --------- | - |  | - | ------- | - |  | - | --------- | -
|     |                                              | North   |   |               |   |           |   |          
|     |                                              | America |   | International |   | Corporate |   | Total    
|     |                                              |         |   |               |   |           |   |          
|2003 |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Net revenue external customers               |         | $ | 3,854,606     |   |           | $ | 1,672,903 |   |  | $ |        |   |  | $ | 5,527,509 |  
|     | Inter  segment revenue                      |         |   | 1,630         |   |           |   | 36,258    |   |  |   | (37,888 | ) |  |   |          |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Total net revenue                            |         |   | 3,856,236     |   |           |   | 1,709,161 |   |  |   | (37,888 | ) |  |   | 5,527,509 |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBITDA                                       |         |   | 651,729       |   |           |   | 348,712   |   |  |   | (26,628 | ) |  |   | 973,813   |  
|     | Depreciation and amortization                |         |   | (119,467      | ) |           |   | (94,922   | ) |  |   | (1,989  | ) |  |   | (216,378  | )
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Operating Income                             |         |   | 532,262       |   |           |   | 253,790   |   |  |   | (28,617 | ) |  |   | 757,435   |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Segment assets                               |         |   | 5,286,902     |   |           |   | 2,176,039 |   |  |   | 40,379  |   |  |   | 7,503,320 |  
|     | Capital expenditures and
    acquisitions(1) |         |   | 216,613       |   |           |   | 166,821   |   |  |   | 16      |   |  |   | 383,450   |  
|2002 |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Net revenue external customers               |         | $ | 3,747,529     |   |           | $ | 1,336,568 |   |  | $ |        |   |  | $ | 5,084,097 |  
|     | Inter  segment revenue                      |         |   | 1,966         |   |           |   | 27,222    |   |  |   | (29,188 | ) |  |   |          |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Total net revenue                            |         |   | 3,749,495     |   |           |   | 1,363,790 |   |  |   | (29,188 | ) |  |   | 5,084,097 |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBITDA                                       |         |   | 630,377       |   |           |   | 291,587   |   |  |   | (16,442 | ) |  |   | 905,522   |  
|     | Depreciation and amortization                |         |   | (139,309      | ) |           |   | (69,436   | ) |  |   | (1,810  | ) |  |   | (210,555  | )
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Operating Income                             |         |   | 491,068       |   |           |   | 222,151   |   |  |   | (18,252 | ) |  |   | 694,967   |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Segment assets                               |         |   | 5,019,281     |   |           |   | 1,735,945 |   |  |   | 24,723  |   |  |   | 6,779,949 |  
|     | Capital expenditures and
    acquisitions(2) |         |   | 167,651       |   |           |   | 151,322   |   |  |   | 22      |   |  |   | 318,995   |  
|2001 |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Net revenue external customers               |         | $ | 3,602,468     |   |           | $ | 1,256,850 |   |  | $ |        |   |  | $ | 4,859,318 |  
|     | Inter  segment revenue                      |         |   | 1,702         |   |           |   | 24,344    |   |  |   | (26,046 | ) |  |   |          |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Total net revenue                            |         |   | 3,604,170     |   |           |   | 1,281,194 |   |  |   | (26,046 | ) |  |   | 4,859,318 |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBITDA (adjusted)                            |         |   | 692,906       |   |           |   | 292,147   |   |  |   | (24,174 | ) |  |   | 960,879   |  
|     | Depreciation and amortization                |         |   | (246,791      | ) |           |   | (75,847   | ) |  |   | (865    | ) |  |   | (323,503  | )
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Operating Income (adjusted)                  |         |   | 446,115       |   |           |   | 216,300   |   |  |   | (25,039 | ) |  |   | 637,376   |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Segment assets                               |         |   | 5,017,131     |   |           |   | 1,445,956 |   |  |   | 52,923  |   |  |   | 6,516,010 |  
|     | Capital expenditures and
    acquisitions(3) |         |   | 316,358       |   |           |   | 174,851   |   |  |   | 727     |   |  |   | 491,936   |  






|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | North America and International acquisitions
    exclude $3,995 and $5,065, respectively, of non-cash
    acquisitions for 2003.   
|   
|(2) | International acquisitions exclude $8,041 of
    non-cash acquisitions for 2002.                                                   
|   
|(3) | North America and International acquisitions
    exclude $233,895 and $10,473, respectively, of non-cash
    acquisitions for 2001.

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|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |          |  
|------------------------------------------------- | ------------------------------------------------------------- | ---- | - | --------- | - | ---- | - | -------- | - |  | - | -------- | -
|                                                  |                                                               | 2003 |   | 2002      |   | 2001
|                                                  |                                                               |      |   |           |   |     
|Reconciliation of measures to consolidated totals |                                                               |      |   |           |   |      |   |          |   |  |   |         
|                                                  | Total EBITDA (adjusted) of reporting segments                 |      | $ | 1,000,441 |   |      | $ | 921,964  |   |  | $ | 985,053  |  
|                                                  | Total depreciation and amortization                           |      |   | (216,378  | ) |      |   | (210,555 | ) |  |   | (323,503 | )
|                                                  | Special charge for legal matters                              |      |   |          |   |      |   |         |   |  |   | (258,159 | )
|                                                  | Corporate expenses                                            |      |   | (26,628   | ) |      |   | (16,442  | ) |  |   | (24,174  | )
|                                                  | Interest income                                               |      |   | 19,089    |   |      |   | 18,053   |   |  |   | 14,305   |  
|                                                  | Interest expense                                              |      |   | (230,848  | ) |      |   | (244,570 | ) |  |   | (237,234 | )
|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |         
|                                                  | Total income before income taxes and minority
    interest    |      | $ | 545,676   |   |      | $ | 468,450  |   |  | $ | 156,288  |  
|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |         
|                                                  | Total operating income (adjusted) of
    reporting segments   |      |   | 786,052   |   |      |   | 713,219  |   |  |   | 662,415  |  
|                                                  | Special charge for legal matters                              |      |   |          |   |      |   |         |   |  |   | (258,159 | )
|                                                  | Corporate expenses                                            |      |   | (28,617   | ) |      |   | (18,252  | ) |  |   | (25,039  | )
|                                                  | Interest income                                               |      |   | 19,089    |   |      |   | 18,053   |   |  |   | 14,305   |  
|                                                  | Interest expense                                              |      |   | (230,848  | ) |      |   | (244,570 | ) |  |   | (237,234 | )
|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |         
|                                                  | Total income before income taxes and minority
    interest    |      | $ | 545,676   |   |      | $ | 468,450  |   |  | $ | 156,288  |  
|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |         
|Depreciation and amortization                     |                                                               |      |   |           |   |      |   |          |   |  |   |         
|                                                  | Total depreciation and amortization of reporting
    segments |      |   | (214,389  | ) |      |   | (208,745 | ) |  |   | (322,638 | )
|                                                  | Corporate depreciation and amortization                       |      |   | (1,989    | ) |      |   | (1,810   | ) |  |   | (865     | )
|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |         
|                                                  | Total depreciation and amortization                           |      | $ | (216,378  | ) |      | $ | (210,555 | ) |  | $ | (323,503 | )
|                                                  |                                                               |      |   |           |   |      |   |          |   |  |   |         

For the geographic presentation, revenues are
attributed to specific countries based on the end users
location for products and the country in which the service is
provided. Information with respect to the Companys
geographic operations is set forth in the table below:

|                               |  |         |         |               |  |           |           |       |  |   |           |  |  |   |           | 
|------------------------------ |  | ------- | ------- | ------------- |  | --------- | --------- | ----- |  | - | --------- |  |  | - | --------- | 
|                               |  |         |         | United States |  | Rest of   |           |      
|                               |  | Germany |         | and Canada    |  | the World |           | Total
|                               |  |         |         |               |  |           |           |      
|2003                           |  |         |         |               |  |           |           |       |  |   |           |  |  |   |           | 
|Net revenue external customers |  | $       | 245,983 |               |  | $         | 3,854,606 |       |  | $ | 1,426,920 |  |  | $ | 5,527,509 | 
|Long-lived assets              |  |         | 148,375 |               |  |           | 4,145,453 |       |  |   | 883,752   |  |  |   | 5,177,580 | 
|2002                           |  |         |         |               |  |           |           |       |  |   |           |  |  |   |           | 
|Net revenue external customers |  | $       | 198,644 |               |  | $         | 3,747,529 |       |  | $ | 1,137,924 |  |  | $ | 5,084,097 | 
|Long-lived assets              |  |         | 125,615 |               |  |           | 4,038,613 |       |  |   | 673,333   |  |  |   | 4,837,561 | 
|2001                           |  |         |         |               |  |           |           |       |  |   |           |  |  |   |           | 
|Net revenue external customers |  | $       | 196,022 |               |  | $         | 3,602,468 |       |  | $ | 1,060,828 |  |  | $ | 4,859,318 | 
|Long-lived assets              |  |         | 111,935 |               |  |           | 4,042,406 |       |  |   | 547,348   |  |  |   | 4,701,689 | 

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24. Supplementary Cash Flow
Information

The following additional information is provided
with respect to the consolidated statements of cash flows:

|                                                        |                                                             |      |   |         |  |      |   |         |  |  |   |         | 
|------------------------------------------------------- | ----------------------------------------------------------- | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                                        |                                                             | 2003 |   | 2002    |  | 2001
|                                                        |                                                             |      |   |         |  |     
|Supplementary cash flow information :                   |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                        | Cash paid for interest                                      |      | $ | 208,429 |  |      | $ | 208,271 |  |  | $ | 219,681 | 
|                                                        |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                        | Cash paid for income taxes                                  |      | $ | 141,278 |  |      | $ | 126,429 |  |  | $ | 62,747  | 
|                                                        |                                                             |      |   |         |  |      |   |         |  |  |   |        
|Supplemental disclosures of cash flow information
    : |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                        | Details for acquisitions:                                   |      |   |         |  |      |   |         |  |  |   |         | 
|                                                        | Assets acquired                                             |      | $ | 152,570 |  |      | $ | 105,514 |  |  | $ | 540,241 | 
|                                                        | Liabilities assumed                                         |      |   | 46,685  |  |      |   | 15,881  |  |  |   | 75,024  | 
|                                                        | Transaction under common control with Fresenius AG          |      |   | 1,469   |  |      |   |        |  |  |   |        | 
|                                                        | Notes assumed in connection with acquisition                |      |   | 9,060   |  |      |   | 8,041   |  |  |   | 144,889 | 
|                                                        | Preference shares issued in connection with
    acquisition |      |   |        |  |      |   |        |  |  |   | 99,479  | 
|                                                        |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                        | Cash paid                                                   |      |   | 95,356  |  |      |   | 81,592  |  |  |   | 220,849 | 
|                                                        | Less cash acquired                                          |      |   | 3,166   |  |      |   | 1,757   |  |  |   | 4,138   | 
|                                                        |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                        | Net cash paid for acquisitions                              |      | $ | 92,190  |  |      | $ | 79,835  |  |  | $ | 216,711 | 
|                                                        |                                                             |      |   |         |  |      |   |         |  |  |   |        

25. Supplemental Condensed Combining
Information

FMC Trust Finance S.à.r.l. Luxembourg and
FMC Trust Finance S.à.r.l. Luxembourg-III, each of which is
a wholly-owned subsidiary of FMS, are the obligors on senior
subordinated debt securities which are fully and unconditionally
guaranteed, jointly and severally, on a senior subordinated
basis, by FMS and by Fresenius Medical Care Deutschland GmbH
(D-GmbH), a wholly-owned subsidiary of FMS, and by
FMCH, a substantially wholly-owned subsidiary of FMS (D-GmbH and
FMCH being Guarantor Subsidiaries). The following
combining financial information for the Company is as of
December 31, 2003 and 2002 and for the year ended
December 31, 2003, 2002 and 2001, segregated between FMS,
D-GmbH, FMCH and each of the Companys other businesses
(the Non-Guarantor Subsidiaries). For purposes of
the condensed combining information, FMS and the Guarantor
Subsidiaries carry their investments under the equity method.
Other (income) expense includes income (loss) related
to investments in consolidated subsidiaries recorded under the
equity method for purposes of the condensed combining
information. In addition, other (income) expense includes income
and losses from profit and loss transfer agreements as well as
dividends received. Separate financial statements and other
disclosures concerning FMCH and D-GmbH are not presented herein
because management believes that they are not material to
investors.

|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |           | 
|------------------------------------------------ | ----------------------------------- | ---------------------------------------------------- | ------- | ------------ | - | ------------- | ------- | ------------ |  | ---------- | ------- | -------- | - | - | --------- | --------- |  | - | -------- | ------- | - | - | --------- | --------- | 
|                                                 |                                     |                                                     
|                                                 |                                     | For the twelve months period ended December 31, 2003
|                                                 |                                     |                                                     
|                                                 |                                     |                                                      |         |              |   |              
|                                                 |                                     |                                                      |         | Guarantor    |   |              
|                                                 |                                     |                                                      |         | Subsidiaries |   |              
|                                                 |                                     |                                                      |         |              |   | Non-Guarantor |         | Combining    |  | Combined  
|                                                 |                                     | FMS AG                                               |         | D-GmbH       |   | FMCH          |         | Subsidiaries |  | Adjustment |         | Total   
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |         
|Net revenue                                      |                                     | $                                                    |        |              |   | $             | 823,632 |              |  | $          |        |          |   | $ | 5,630,923 |           |  | $ | (927,046 | )       |   | $ | 5,527,509 |          
|Cost of revenue                                  |                                     |                                                      |        |              |   |               | 520,605 |              |  |            |        |          |   |   | 4,098,272 |           |  |   | (920,271 | )       |   |   | 3,698,606 |          
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Gross profit                        |                                                      |         |             |   |               |         | 303,027      |  |            |         |         |   |   |           | 1,532,651 |  |   |          | (6,775  | ) |   |           | 1,828,903 | 
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Operating expenses:                              |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Selling, general and administrative |                                                      |         | (645,049     | ) |               |         | 114,074      |  |            |         |         |   |   |           | 883,745   |  |   |          | 669,011 |   |   |           | 1,021,781 | 
|                                                 | Research and development            |                                                      |         | 1,857        |   |               |         | 34,527       |  |            |         |         |   |   |           | 13,303    |  |   |          |        |   |   |           | 49,687    | 
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Operating income (loss)                          |                                     |                                                      | 643,192 |              |   |               | 154,426 |              |  |            |        |          |   |   | 635,603   |           |  |   | (675,786 | )       |   |   | 757,435   |          
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Other (income) expense:                          |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Interest, net                       |                                                      |         | 35,157       |   |               |         | 11,918       |  |            |         | 63,512   |   |   |           | 138,110   |  |   |          | (36,938 | ) |   |           | 211,759   | 
|                                                 | Other, net                          |                                                      |         | 229,988      |   |               |         | 83,283       |  |            |         | (251,564 | ) |   |           |          |  |   |          | (61,707 | ) |   |           |          | 
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before income taxes and minority interest |                                     |                                                      | 378,047 |              |   |               | 59,225  |              |  |            | 188,052 |          |   |   | 497,493   |           |  |   | (577,141 | )       |   |   | 545,676   |          
|                                                 | Income tax expense (benefit)        |                                                      |         | 46,867       |   |               |         | 58,320       |  |            |         | (25,405  | ) |   |           | 193,596   |  |   |          | (60,664 | ) |   |           | 212,714   | 
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income (loss) before minority interest           |                                     |                                                      | 331,180 |              |   |               | 905     |              |  |            | 213,457 |          |   |   | 303,898   |           |  |   | (516,477 | )       |   |   | 332,962   |          
|Minority interest                                |                                     |                                                      |        |              |   |               |        |              |  |            |        |          |   |   |          |           |  |   | 1,782    |         |   |   | 1,782     |          
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Net income (loss)                                |                                     | $                                                    | 331,180 |              |   | $             | 905     |              |  | $          | 213,457 |          |   | $ | 303,898   |           |  | $ | (518,259 | )       |   | $ | 331,180   |          
|                                                 |                                     |                                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          

F-39



---



##### Table of Contents



|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |           | 
|------------------------------------------------ | ----------------------------------- | ------------------------------------ | ------- | ------------ | - | ------------- | ------- | ------------ |  | ---------- | ------- | -------- | - | - | --------- | --------- |  | - | -------- | ------- | - | - | --------- | --------- | 
|                                                 |                                     |                                     
|                                                 |                                     | For the year ended December 31, 2002
|                                                 |                                     |                                     
|                                                 |                                     |                                      |         |              |   |              
|                                                 |                                     |                                      |         | Guarantor    |   |              
|                                                 |                                     |                                      |         | Subsidiaries |   |              
|                                                 |                                     |                                      |         |              |   | Non-Guarantor |         | Combining    |  | Combined  
|                                                 |                                     | FMS AG                               |         | D-GmbH       |   | FMCH          |         | Subsidiaries |  | Adjustment |         | Total   
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |         
|Net revenue                                      |                                     | $                                    |        |              |   | $             | 686,214 |              |  | $          |        |          |   | $ | 5,113,396 |           |  | $ | (715,513 | )       |   | $ | 5,084,097 |          
|Cost of revenue                                  |                                     |                                      |        |              |   |               | 414,559 |              |  |            |        |          |   |   | 3,723,926 |           |  |   | (710,408 | )       |   |   | 3,428,077 |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Gross profit                        |                                      |         |             |   |               |         | 271,655      |  |            |         |         |   |   |           | 1,389,470 |  |   |          | (5,105  | ) |   |           | 1,656,020 | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Operating expenses:                              |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Selling, general and administrative |                                      |         | (23,892      | ) |               |         | 103,295      |  |            |         |         |   |   |           | 794,209   |  |   |          | 40,008  |   |   |           | 913,620   | 
|                                                 | Research and development            |                                      |         | 198          |   |               |         | 34,745       |  |            |         |         |   |   |           | 12,490    |  |   |          |        |   |   |           | 47,433    | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Operating income                                 |                                     |                                      | 23,694  |              |   |               | 133,615 |              |  |            |        |          |   |   | 582,771   |           |  |   | (45,113  | )       |   |   | 694,967   |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Other (income) expense:                          |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Interest, net                       |                                      |         | 22,582       |   |               |         | 6,881        |  |            |         | 69,412   |   |   |           | 163,746   |  |   |          | (36,104 | ) |   |           | 226,517   | 
|                                                 | Other, net                          |                                      |         | (316,026     | ) |               |         | 76,887       |  |            |         | (202,966 | ) |   |           |          |  |   |          | 442,105 |   |   |           |          | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before income taxes and minority interest |                                     |                                      | 317,138 |              |   |               | 49,847  |              |  |            | 133,554 |          |   |   | 419,025   |           |  |   | (451,114 | )       |   |   | 468,450   |          
|                                                 | Income tax expense (benefit)        |                                      |         | 27,348       |   |               |         | 48,378       |  |            |         | (27,765  | ) |   |           | 169,349   |  |   |          | (42,236 | ) |   |           | 175,074   | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before minority interest                  |                                     |                                      | 289,790 |              |   |               | 1,469   |              |  |            | 161,319 |          |   |   | 249,676   |           |  |   | (408,878 | )       |   |   | 293,376   |          
|Minority interest                                |                                     |                                      |        |              |   |               |        |              |  |            |        |          |   |   |          |           |  |   | 3,586    |         |   |   | 3,586     |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Net income                                       |                                     | $                                    | 289,790 |              |   | $             | 1,469   |              |  | $          | 161,319 |          |   | $ | 249,676   |           |  | $ | (412,464 | )       |   | $ | 289,790   |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          

|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |           | 
|------------------------------------------------ | ----------------------------------- | ------------------------------------ | ------- | ------------ | - | ------------- | ------- | ------------ |  | ---------- | -------- | ------- | - | - | --------- | --------- |  | - | -------- | ------- | - | - | --------- | --------- | 
|                                                 |                                     |                                     
|                                                 |                                     | For the year ended December 31, 2001
|                                                 |                                     |                                     
|                                                 |                                     |                                      |         |              |   |              
|                                                 |                                     |                                      |         | Guarantor    |   |              
|                                                 |                                     |                                      |         | Subsidiaries |   |              
|                                                 |                                     |                                      |         |              |   | Non-Guarantor |         | Combining    |  | Combined  
|                                                 |                                     | FMS AG                               |         | D-GmbH       |   | FMCH          |         | Subsidiaries |  | Adjustment |          | Total  
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |        
|Net revenue                                      |                                     | $                                    |        |              |   | $             | 620,730 |              |  | $          |         |         |   | $ | 4,865,630 |           |  | $ | (627,042 | )       |   | $ | 4,859,318 |          
|Cost of revenue                                  |                                     |                                      |        |              |   |               | 367,771 |              |  |            |         |         |   |   | 3,471,425 |           |  |   | (618,998 | )       |   |   | 3,220,198 |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Gross profit                        |                                      |         |             |   |               |         | 252,959      |  |            |          |        |   |   |           | 1,394,205 |  |   |          | (8,044  | ) |   |           | 1,639,120 | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|Operating expenses:                              |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Selling, general and administrative |                                      |         | 5,012        |   |               |         | 97,530       |  |            |          |        |   |   |           | 855,786   |  |   |          | 7,716   |   |   |           | 966,044   | 
|                                                 | Research and development            |                                      |         | 344          |   |               |         | 26,868       |  |            |          |        |   |   |           | 8,488     |  |   |          |        |   |   |           | 35,700    | 
|                                                 | Special charge for Legal Matters    |                                      |         |             |   |               |         |             |  |            |          |        |   |   |           | 258,159   |  |   |          |        |   |   |           | 258,159   | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|Operating (loss) income                          |                                     |                                      | (5,356  | )            |   |               | 128,561 |              |  |            |         |         |   |   | 271,772   |           |  |   | (15,760  | )       |   |   | 379,217   |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|Other (income) expense:                          |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Interest, net                       |                                      |         | 14,028       |   |               |         | 4,047        |  |            |          | 58,584  |   |   |           | 175,652   |  |   |          | (29,382 | ) |   |           | 222,929   | 
|                                                 | Other, net                          |                                      |         | (128,411     | ) |               |         | 72,969       |  |            |          | 44,106  |   |   |           |          |  |   |          | 11,336  |   |   |           |          | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|Income before income taxes and minority interest |                                     |                                      | 109,027 |              |   |               | 51,545  |              |  |            | (102,690 | )       |   |   | 96,120    |           |  |   | 2,286    |         |   |   | 156,288   |          
|                                                 | Income tax expense (benefit)        |                                      |         | 45,673       |   |               |         | 47,647       |  |            |          | (23,434 | ) |   |           | 71,275    |  |   |          | (49,959 | ) |   |           | 91,202    | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|Income (loss) before minority interest           |                                     |                                      | 63,354  |              |   |               | 3,898   |              |  |            | (79,256  | )       |   |   | 24,845    |           |  |   | 52,245   |         |   |   | 65,086    |          
|Minority interest                                |                                     |                                      |        |              |   |               |        |              |  |            |         |         |   |   |          |           |  |   | 1,732    |         |   |   | 1,732     |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          
|Net income (loss)                                |                                     | $                                    | 63,354  |              |   | $             | 3,898   |              |  | $          | (79,256  | )       |   | $ | 24,845    |           |  | $ | 50,513   |         |   | $ | 63,354    |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |          |         |   |   |           |           |  |   |          |         |   |   |           |          

F-40



---



##### Table of Contents



|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ------------------------- | --------- | ------------ | --------- | ------------- | ------- | ------------ | ------- | ---------- | --------- | --------- | --------- |  | --------- | --------- | --------- |  | ---------- | ----------- | ---------- | - | --------- | --------- | --------- | 
|                                                                                                                                                                                           |                                                                     |                          
|                                                                                                                                                                                           |                                                                     | At December 31, 2003     
|                                                                                                                                                                                           |                                                                     |                          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |              
|                                                                                                                                                                                           |                                                                     |                           |           | Guarantor    |           |              
|                                                                                                                                                                                           |                                                                     |                           |           | Subsidiaries |           |              
|                                                                                                                                                                                           |                                                                     |                           |           |              |           | Non-Guarantor |         | Combining    |         | Combined  
|                                                                                                                                                                                           |                                                                     | FMC AG                    |           | D-GmbH       |           | FMCH          |         | Subsidiaries |         | Adjustment |           | Total    
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |          
|Current assets:                                                                                                                                                                            |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           | Cash and cash equivalents                                           |                           | $         | 3            |           |               | $       | 300          |         |            | $         |          |           |  | $         | 48,124    |           |  | $          |            |            |   | $         | 48,427    |          
|                                                                                                                                                                                           | Trade accounts receivable, less allowance for
    doubtful accounts |                           |           |             |           |               |         | 100,011      |         |            |           |          |           |  |           | 1,129,492 |           |  |            |            |            |   |           | 1,229,503 |          
|                                                                                                                                                                                           | Accounts receivable from related parties                            |                           |           | 737,938      |           |               |         | 333,712      |         |            |           | 210,337   |           |  |           | 1,381,429 |           |  |            | (2,612,960  | )          |   |           | 50,456    |          
|                                                                                                                                                                                           | Inventories                                                         |                           |           |             |           |               |         | 126,810      |         |            |           |          |           |  |           | 370,737   |           |  |            | (52,809     | )          |   |           | 444,738   |          
|                                                                                                                                                                                           | Prepaid expenses and other current assets                           |                           |           | 7,496        |           |               |         | 15,928       |         |            |           | 23        |           |  |           | 229,847   |           |  |            | 71          |            |   |           | 253,365   |          
|                                                                                                                                                                                           | Deferred taxes                                                      |                           |           |             |           |               |         |             |         |            |           |          |           |  |           | 156,542   |           |  |            | 23,097      |            |   |           | 179,639   |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           |                                                                     | Total current assets      |           |              | 745,437   |               |         |              | 576,761 |            |           |           | 210,360   |  |           |           | 3,316,171 |  |            |             | (2,642,601 | ) |           |           | 2,206,128 | 
|Property, plant and equipment, net                                                                                                                                                         |                                                                     |                           | 37        |              |           |               | 95,962  |              |         |            |          |           |           |  | 1,023,169 |           |           |  | (30,022    | )           |            |   | 1,089,146 |          
|Intangible assets                                                                                                                                                                          |                                                                     |                           | 484       |              |           |               | 5,324   |              |         |            |          |           |           |  | 576,295   |           |           |  |           |             |            |   | 582,103   |          
|Goodwill                                                                                                                                                                                   |                                                                     |                           |          |              |           |               | 3,455   |              |         |            |          |           |           |  | 3,284,893 |           |           |  |           |             |            |   | 3,288,348 |          
|Deferred taxes                                                                                                                                                                             |                                                                     |                           |          |              |           |               |        |              |         |            |          |           |           |  | 21,529    |           |           |  | 14,012     |             |            |   | 35,541    |          
|Other assets                                                                                                                                                                               |                                                                     |                           | 3,757,515 |              |           |               | 347,348 |              |         |            | 3,651,635 |           |           |  | 483,658   |           |           |  | (7,938,102 | )           |            |   | 302,054   |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           | Total assets                                                        |                           | $         | 4,503,473    |           |               | $       | 1,028,850    |         |            | $         | 3,861,995 |           |  | $         | 8,705,715 |           |  | $          | (10,596,713 | )          |   | $         | 7,503,320 |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|Current liabilities:                                                                                                                                                                       |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           | Accounts payable                                                    |                           | $         | 621          |           |               | $       | 26,540       |         |            | $         |          |           |  | $         | 150,663   |           |  | $          |            |            |   | $         | 177,824   |          
|                                                                                                                                                                                           | Accounts payable to related parties                                 |                           |           | 454,267      |           |               |         | 360,410      |         |            |           | 801,969   |           |  |           | 1,308,280 |           |  |            | (2,796,223  | )          |   |           | 128,703   |          
|                                                                                                                                                                                           | Accrued expenses and other current liabilities                      |                           |           | 49,182       |           |               |         | 73,072       |         |            |           | 2,328     |           |  |           | 427,708   |           |  |            | 1,540       |            |   |           | 553,830   |          
|                                                                                                                                                                                           | Accrual for special charge for legal matters                        |                           |           |             |           |               |         |             |         |            |           |          |           |  |           | 138,154   |           |  |            |            |            |   |           | 138,154   |          
|                                                                                                                                                                                           | Short-term borrowings                                               |                           |           | 60           |           |               |         |             |         |            |           |          |           |  |           | 89,357    |           |  |            |            |            |   |           | 89,417    |          
|                                                                                                                                                                                           | Short-term borrowings from related parties                          |                           |           |             |           |               |         |             |         |            |           |          |           |  |           | 30,000    |           |  |            |            |            |   |           | 30,000    |          
|                                                                                                                                                                                           | Current portion of long-term debt and capital
    lease obligations |                           |           | 714          |           |               |         | 1,503        |         |            |           | 54,000    |           |  |           | 34,148    |           |  |            |            |            |   |           | 90,365    |          
|                                                                                                                                                                                           | Income tax payable                                                  |                           |           | 96,875       |           |               |         |             |         |            |           |          |           |  |           | 80,588    |           |  |            | 648         |            |   |           | 178,111   |          
|                                                                                                                                                                                           | Deferred taxes                                                      |                           |           | 20,236       |           |               |         | 4,630        |         |            |           |          |           |  |           | 11,040    |           |  |            | (9,829      | )          |   |           | 26,077    |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           |                                                                     | Total current liabilities |           |              | 621,955   |               |         |              | 466,155 |            |           |           | 858,297   |  |           |           | 2,269,938 |  |            |             | (2,803,864 | ) |           |           | 1,412,481 | 
|Long term debt and capital lease obligations,
    less current portion                                                                                                                     |                                                                     |                           | 248,891   |              |           |               | 1,061   |              |         |            | 1,048,829 |           |           |  | 915,841   |           |           |  | (1,102,998 | )           |            |   | 1,111,624 |          
|Long term borrowings from related parties                                                                                                                                                  |                                                                     |                           | 383,072   |              |           |               |        |              |         |            |          |           |           |  |          |           |           |  | (383,072   | )           |            |   |          |          
|Other liabilities                                                                                                                                                                          |                                                                     |                           |          |              |           |               | 4,779   |              |         |            |          |           |           |  | 114,762   |           |           |  | 9,074      |             |            |   | 128,615   |          
|Pension liabilities                                                                                                                                                                        |                                                                     |                           | 834       |              |           |               | 49,543  |              |         |            |          |           |           |  | 54,993    |           |           |  | (5,318     | )           |            |   | 100,052   |          
|Deferred taxes                                                                                                                                                                             |                                                                     |                           | 5,041     |              |           |               | 4,328   |              |         |            |          |           |           |  | 235,297   |           |           |  | 5,780      |             |            |   | 250,446   |          
|Company-obligated mandatorily redeemable
    preferred securities of subsidiary Fresenius Medical Care
    Capital Trusts holding solely Company-guaranteed debentures of
    subsidiaries |                                                                     |                           |          |              |           |               |        |              |         |            |          |           |           |  | 1,242,317 |           |           |  |           |             |            |   | 1,242,317 |          
|Minority interest                                                                                                                                                                          |                                                                     |                           |          |              |           |               |        |              |         |            | 7,412     |           |           |  |          |           |           |  | 6,693      |             |            |   | 14,105    |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           |                                                                     | Total liabilities         |           |              | 1,259,793 |               |         |              | 525,866 |            |           |           | 1,914,538 |  |           |           | 4,833,148 |  |            |             | (4,273,705 | ) |           |           | 4,259,640 | 
|Shareholders equity:                                                                                                                                                                      |                                                                     |                           | 3,243,680 |              |           |               | 502,984 |              |         |            | 1,947,457 |           |           |  | 3,872,567 |           |           |  | (6,323,008 | )           |            |   | 3,243,680 |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          
|                                                                                                                                                                                           | Total liabilities and shareholders equity                          |                           | $         | 4,503,473    |           |               | $       | 1,028,850    |         |            | $         | 3,861,995 |           |  | $         | 8,705,715 |           |  | $          | (10,596,713 | )          |   | $         | 7,503,320 |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |             |            |   |           |          

F-41



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##### Table of Contents



|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ------------------------- | --------- | ------------ | --------- | ------------- | ------- | ------------ | ------- | ---------- | --------- | --------- | --------- |  | --------- | --------- | --------- |  | ---------- | ---------- | ---------- | - | --------- | --------- | --------- | 
|                                                                                                                                                                                           |                                                                     |                          
|                                                                                                                                                                                           |                                                                     | At December 31, 2002     
|                                                                                                                                                                                           |                                                                     |                          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |              
|                                                                                                                                                                                           |                                                                     |                           |           | Guarantor    |           |              
|                                                                                                                                                                                           |                                                                     |                           |           | Subsidiaries |           |              
|                                                                                                                                                                                           |                                                                     |                           |           |              |           | Non-Guarantor |         | Combining    |         | Combined  
|                                                                                                                                                                                           |                                                                     | FMC AG                    |           | D-GmbH       |           | FMCH          |         | Subsidiaries |         | Adjustment |           | Total    
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |          
|Current assets:                                                                                                                                                                            |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           | Cash and cash equivalents                                           |                           | $         | 488          |           |               | $       | 151          |         |            | $         |          |           |  | $         | 64,154    |           |  | $          |           |            |   | $         | 64,793    |          
|                                                                                                                                                                                           | Trade accounts receivable, less allowance for
    doubtful accounts |                           |           |             |           |               |         | 101,294      |         |            |           |          |           |  |           | 813,008   |           |  |            |           |            |   |           | 914,302   |          
|                                                                                                                                                                                           | Accounts receivable from related parties                            |                           |           | 616,292      |           |               |         | 269,637      |         |            |           | 207,337   |           |  |           | 1,254,944 |           |  |            | (2,306,878 | )          |   |           | 41,332    |          
|                                                                                                                                                                                           | Inventories                                                         |                           |           |             |           |               |         | 93,935       |         |            |           |          |           |  |           | 315,906   |           |  |            | (37,619    | )          |   |           | 372,222   |          
|                                                                                                                                                                                           | Prepaid expenses and other current assets                           |                           |           | 3,043        |           |               |         | 17,220       |         |            |           |          |           |  |           | 217,485   |           |  |            | 1,424      |            |   |           | 239,172   |          
|                                                                                                                                                                                           | Deferred taxes                                                      |                           |           |             |           |               |         |             |         |            |           |          |           |  |           | 172,401   |           |  |            | 17,478     |            |   |           | 189,879   |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           |                                                                     | Total current assets      |           |              | 619,823   |               |         |              | 482,237 |            |           |           | 207,337   |  |           |           | 2,837,898 |  |            |            | (2,325,595 | ) |           |           | 1,821,700 | 
|Property, plant and equipment, net                                                                                                                                                         |                                                                     |                           | 84        |              |           |               | 78,320  |              |         |            |          |           |           |  | 864,980   |           |           |  | (25,516    | )          |            |   | 917,868   |          
|Intangible assets                                                                                                                                                                          |                                                                     |                           | 759       |              |           |               | 5,535   |              |         |            |          |           |           |  | 544,027   |           |           |  |           |            |            |   | 550,321   |          
|Goodwill                                                                                                                                                                                   |                                                                     |                           |          |              |           |               | 2,869   |              |         |            |          |           |           |  | 3,189,782 |           |           |  |           |            |            |   | 3,192,651 |          
|Deferred taxes                                                                                                                                                                             |                                                                     |                           |          |              |           |               |        |              |         |            |          |           |           |  | 22,778    |           |           |  | 12,963     |            |            |   | 35,741    |          
|Other assets                                                                                                                                                                               |                                                                     |                           | 3,284,550 |              |           |               | 20,252  |              |         |            | 2,712,725 |           |           |  | 1,101,666 |           |           |  | (6,857,525 | )          |            |   | 261,668   |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           | Total assets                                                        |                           | $         | 3,905,216    |           |               | $       | 589,213      |         |            | $         | 2,920,062 |           |  | $         | 8,561,131 |           |  | $          | (9,195,673 | )          |   | $         | 6,779,949 |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|Current liabilities:                                                                                                                                                                       |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           | Accounts payable                                                    |                           | $         | 434          |           |               | $       | 21,505       |         |            | $         |          |           |  | $         | 164,010   |           |  | $          |           |            |   | $         | 185,949   |          
|                                                                                                                                                                                           | Accounts payable to related parties                                 |                           |           | 384,456      |           |               |         | 303,039      |         |            |           | 761,733   |           |  |           | 1,135,046 |           |  |            | (2,485,282 | )          |   |           | 98,992    |          
|                                                                                                                                                                                           | Accrued expenses and other current liabilities                      |                           |           | 32,229       |           |               |         | 58,606       |         |            |           |          |           |  |           | 374,910   |           |  |            | 3,483      |            |   |           | 469,228   |          
|                                                                                                                                                                                           | Accrual for special charge for Legal Matters                        |                           |           |             |           |               |         |             |         |            |           |          |           |  |           | 191,130   |           |  |            |           |            |   |           | 191,130   |          
|                                                                                                                                                                                           | Short-term borrowings                                               |                           |           | 13           |           |               |         |             |         |            |           |          |           |  |           | 124,951   |           |  |            |           |            |   |           | 124,964   |          
|                                                                                                                                                                                           | Short-term borrowings from related parties                          |                           |           |             |           |               |         |             |         |            |           |          |           |  |           | 6,000     |           |  |            |           |            |   |           | 6,000     |          
|                                                                                                                                                                                           | Current portion of long-term debt and capital
    lease obligations |                           |           |             |           |               |         | 1,771        |         |            |           |          |           |  |           | 20,623    |           |  |            |           |            |   |           | 22,394    |          
|                                                                                                                                                                                           | Income tax payable                                                  |                           |           | 95,715       |           |               |         |             |         |            |           |          |           |  |           | 82,975    |           |  |            |           |            |   |           | 178,690   |          
|                                                                                                                                                                                           | Deferred taxes                                                      |                           |           | 16,403       |           |               |         | 5,184        |         |            |           |          |           |  |           | 6,676     |           |  |            | (10,236    | )          |   |           | 18,027    |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           |                                                                     | Total current liabilities |           |              | 529,250   |               |         |              | 390,105 |            |           |           | 761,733   |  |           |           | 2,106,321 |  |            |            | (2,492,035 | ) |           |           | 1,295,374 | 
|Long term debt and capital lease obligations,
    less current portion                                                                                                                     |                                                                     |                           | 249,416   |              |           |               | 1,985   |              |         |            | 435,529   |           |           |  | 897,620   |           |           |  | (495,340   | )          |            |   | 1,089,210 |          
|Long term borrowings from related parties                                                                                                                                                  |                                                                     |                           | 315,979   |              |           |               |        |              |         |            |          |           |           |  |          |           |           |  | (315,979   | )          |            |   |          |          
|Other liabilities                                                                                                                                                                          |                                                                     |                           |          |              |           |               | 4,333   |              |         |            |          |           |           |  | 145,897   |           |           |  | 4,629      |            |            |   | 154,859   |          
|Pension liabilities                                                                                                                                                                        |                                                                     |                           | 567       |              |           |               | 36,299  |              |         |            |          |           |           |  | 59,286    |           |           |  |           |            |            |   | 96,152    |          
|Deferred taxes                                                                                                                                                                             |                                                                     |                           | 2,825     |              |           |               | 2,585   |              |         |            |          |           |           |  | 150,714   |           |           |  | 13,248     |            |            |   | 169,372   |          
|Company-obligated mandatorily redeemable
    preferred securities of subsidiary Fresenius Medical Care
    Capital Trusts holding solely Company-guaranteed debentures of
    subsidiaries |                                                                     |                           |          |              |           |               |        |              |         |            |          |           |           |  | 1,145,281 |           |           |  |           |            |            |   | 1,145,281 |          
|Minority interest                                                                                                                                                                          |                                                                     |                           |          |              |           |               |        |              |         |            | 16,318    |           |           |  |          |           |           |  | 6,204      |            |            |   | 22,522    |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           |                                                                     | Total liabilities         |           |              | 1,098,037 |               |         |              | 435,307 |            |           |           | 1,213,580 |  |           |           | 4,505,119 |  |            |            | (3,279,273 | ) |           |           | 3,972,770 | 
|Shareholders equity:                                                                                                                                                                      |                                                                     |                           | 2,807,179 |              |           |               | 153,906 |              |         |            | 1,706,482 |           |           |  | 4,056,012 |           |           |  | (5,916,400 | )          |            |   | 2,807,179 |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                           | Total liabilities and shareholders equity                          |                           | $         | 3,905,216    |           |               | $       | 589,213      |         |            | $         | 2,920,062 |           |  | $         | 8,561,131 |           |  | $          | (9,195,673 | )          |   | $         | 6,779,949 |          
|                                                                                                                                                                                           |                                                                     |                           |           |              |           |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          

F-42



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##### Table of Contents



|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |          |         |          |  
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------ | ------- | ------------- | --- | ------------ | ------- | ---------- | - | -------- | ------- | -------- | ------- | -------- | -------- | -------- | ----- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | -
|                                                                 |                                                                                                                  |                                                                                     
|                                                                 |                                                                                                                  | For the twelve months period ended December 31, 2003                                
|                                                                 |                                                                                                                  |                                                                                     
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |              
|                                                                 |                                                                                                                  |                                                                                      |                                                         | Guarantor    |         |              
|                                                                 |                                                                                                                  |                                                                                      |                                                         | Subsidiaries |         |              
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         | Non-Guarantor |     | Combining    |         | Combined  
|                                                                 |                                                                                                                  | FMS AG                                                                               |                                                         | D-GmbH       |         | FMCH          |     | Subsidiaries |         | Adjustment |   | Total   
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |         
|Operating Activities:                                            |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|                                                                 | Net income (loss)                                                                                                |                                                                                      | $                                                       | 331,180      |         |               | $   | 905          |         |            | $ | 213,457  |         |          | $       | 303,897  |          |          | $     | (518,259 | )       |          | $       | 331,180  |        
|                                                                 | Adjustments to reconcile net income to cash and
    cash equivalents provided by (used in) operating activities: |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |          |        
|                                                                 | Equity affiliate income                                                                                          |                                                                                      |                                                         | 386,166      |         |               |     |             |         |            |   | (251,564 | )       |          |         |         |          |          |       | (134,602 | )       |          |         |         |        
|                                                                 | Depreciation and amortization                                                                                    |                                                                                      |                                                         | 1,989        |         |               |     | 26,995       |         |            |   |         |         |          |         | 196,831  |          |          |       | (9,438   | )       |          |         | 216,377  |        
|                                                                 | Change in deferred taxes, net                                                                                    |                                                                                      |                                                         | 1,898        |         |               |     | (356         | )       |            |   |         |         |          |         | 96,630   |          |          |       | (6,860   | )       |          |         | 91,312   |        
|                                                                 | Gain on sale of investments                                                                                      |                                                                                      |                                                         | (666,779     | )       |               |     | (97          | )       |            |   |         |         |          |         |         |          |          |       | 666,876  |         |          |         |         |        
|                                                                 | Loss (gain) on sale of fixed assets                                                                              |                                                                                      |                                                         |             |         |               |     | 312          |         |            |   |         |         |          |         | (362     | )        |          |       |         |         |          |         | (50      | )      
|                                                                 | Compensation expense related to stock options                                                                    |                                                                                      |                                                         | 1,456        |         |               |     |             |         |            |   |         |         |          |         |         |          |          |       |         |         |          |         | 1,456    |        
|                                                                 | Cash Inflow from Hedging                                                                                         |                                                                                      |                                                         | 109,108      |         |               |     |             |         |            |   |         |         |          |         | 22,546   |          |          |       |         |         |          |         | 131,654  |        
|                                                                 | Changes in assets and liabilities, net of amounts
    from businesses acquired:                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |          |        
|                                                                 |                                                                                                                  | Trade accounts receivable, net                                                       |                                                         |              |        |               |     |              | 19,688  |            |   |          |        |          |         |          | 33,875   |          |       |          |        |          |         |          | 53,563  |         
|                                                                 |                                                                                                                  | Inventories                                                                          |                                                         |              |        |               |     |              | (12,252 | )          |   |          |        |          |         |          | (19,892  | )        |       |          | 9,151   |          |         |          | (22,993 | )       
|                                                                 |                                                                                                                  | Prepaid expenses and other current and
    non-current assets                        |                                                         |              | 2,659   |               |     |              | 3,691   |            |   |          | 3,524   |          |         |          | 51,061   |          |       |          | (780    | )        |         |          | 60,155  |         
|                                                                 |                                                                                                                  | Accounts receivable from/payable to related
    parties                              |                                                         |              | 37,089  |               |     |              | (12,005 | )          |   |          | 37,235  |          |         |          | 178      |          |       |          | (55,298 | )        |         |          | 7,199   |         
|                                                                 |                                                                                                                  | Accounts payable, accrued expenses and other
    current and non-current liabilities |                                                         |              | 1,198   |               |     |              | 7,473   |            |   |          | 2,328   |          |         |          | (104,212 | )        |       |          | 897     |          |         |          | (92,316 | )       
|                                                                 |                                                                                                                  | Income tax payable                                                                   |                                                         |              | (16,571 | )             |     |              |        |            |   |          | (25,405 | )        |         |          | 18,458   |          |       |          |        |          |         |          | (23,518 | )       
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|                                                                 |                                                                                                                  |                                                                                      | Net cash provided by (used in) operating
    activities |              |         | 189,393       |     |              |         | 34,354     |   |          |         | (20,425  | )       |          |          | 599,010  |       |          |         | (48,313  | )       |          |         | 754,019  |  
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|Investing Activities:                                            |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|                                                                 | Purchases of property, plant and equipment                                                                       |                                                                                      |                                                         | (16          | )       |               |     | (28,781      | )       |            |   |         |         |          |         | (272,004 | )        |          |       | 9,541    |         |          |         | (291,260 | )      
|                                                                 | Proceeds from sale of property, plant and
    equipment                                                          |                                                                                      |                                                         | 1            |         |               |     | 2,655        |         |            |   |         |         |          |         | 12,170   |          |          |       |         |         |          |         | 14,826   |        
|                                                                 | Disbursement of loans to related parties                                                                         |                                                                                      |                                                         | (18,631      | )       |               |     |             |         |            |   | (623,756 | )       |          |         |         |          |          |       | 642,387  |         |          |         |         |        
|                                                                 | Acquisitions and investments, net of cash acquired                                                               |                                                                                      |                                                         | (62,829      | )       |               |     | (6,232       | )       |            |   |         |         |          |         | (76,712  | )        |          |       | 53,583   |         |          |         | (92,190  | )      
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|                                                                 |                                                                                                                  |                                                                                      | Net cash (used in) provided by investing
    activities |              |         | (81,475       | )   |              |         | (32,358    | ) |          |         | (623,756 | )       |          |          | (336,546 | )     |          |         | 705,511  |         |          |         | (368,624 | )
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|Financing activities:                                            |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|                                                                 | Short-term borrowings, net                                                                                       |                                                                                      |                                                         | 41           |         |               |     |             |         |            |   |         |         |          |         | (27,274  | )        |          |       |         |         |          |         | (27,233  | )      
|                                                                 | Long-term debt and capital lease obligations, net                                                                |                                                                                      |                                                         | (6,077       | )       |               |     | (1,889       | )       |            |   | 653,607  |         |          |         | 10,683   |          |          |       | (642,387 | )       |          |         | 13,937   |        
|                                                                 | Decrease of accounts receivable securitization
    program                                                       |                                                                                      |                                                         |             |         |               |     |             |         |            |   |         |         |          |         | (287,251 | )        |          |       |         |         |          |         | (287,251 | )      
|                                                                 | Proceeds from exercise of stock options                                                                          |                                                                                      |                                                         | 1,600        |         |               |     |             |         |            |   |         |         |          |         |         |          |          |       |         |         |          |         | 1,600    |        
|                                                                 | Dividends paid                                                                                                   |                                                                                      |                                                         | (107,761     | )       |               |     |             |         |            |   |         |         |          |         | (39,202  | )        |          |       | 39,202   |         |          |         | (107,761 | )      
|                                                                 | Redemption of Series D Trust Preferred Stock
    of subsidiary                                                   |                                                                                      |                                                         |             |         |               |     |             |         |            |   | (8,906   | )       |          |         |         |          |          |       |         |         |          |         | (8,906   | )      
|                                                                 | Capital Increase of Non-Guarantor-Subsidiaries                                                                   |                                                                                      |                                                         |             |         |               |     |             |         |            |   |         |         |          |         | 60,342   |          |          |       | (60,342  | )       |          |         |         |        
|                                                                 | Change in minority interest                                                                                      |                                                                                      |                                                         |             |         |               |     |             |         |            |   | (520     | )       |          |         | (1,528   | )        |          |       | 1,782    |         |          |         | (266     | )      
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|                                                                 |                                                                                                                  |                                                                                      | Net cash (used in) provided by financing
    activities |              |         | (112,197      | )   |              |         | (1,889     | ) |          |         | 644,181  |         |          |          | (284,231 | )     |          |         | (661,745 | )       |          |         | (415,880 | )
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                                  |                                                                                      | 3,794                                                   |              |         |               | 42  |              |         |            |  |          |         |          | 5,736   |          |          |          | 4,547 |          |         |          | 14,119  |         
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|Cash and Cash Equivalents:                                       |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|Net (decrease) increase in cash and cash
    equivalents         |                                                                                                                  |                                                                                      | (485                                                    | )            |         |               | 149 |              |         |            |  |          |         |          | (16,031 | )        |          |          |      |          |         |          | (16,366 | )       
|Cash and cash equivalents at beginning of period                 |                                                                                                                  |                                                                                      | 488                                                     |              |         |               | 151 |              |         |            |  |          |         |          | 64,154  |          |          |          |      |          |         |          | 64,793  |         
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         
|Cash and cash equivalents at end of period                       |                                                                                                                  | $                                                                                    | 4                                                       |              |         | $             | 300 |              |         | $          |  |          |         | $        | 48,124  |          |          | $        |      |          |         | $        | 48,427  |         
|                                                                 |                                                                                                                  |                                                                                      |                                                         |              |         |               |     |              |         |            |   |          |         |          |         |          |          |          |       |          |         |          |         |         

F-43



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##### Table of Contents



|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |          |         |          |  
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | ------------ | ------- | ------------- | --- | ------------ | ------- | ---------- | - | -------- | ------- | ---- | ------ | -------- | ------- | -------- | ----- | -------- | -------- | ------- | ------ | -------- | ------- | -------- | -
|                                                                 |                                                                                                                  |                                                                                     
|                                                                 |                                                                                                                  | For the year ended December 31, 2002                                                
|                                                                 |                                                                                                                  |                                                                                     
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |              
|                                                                 |                                                                                                                  |                                                                                      |                                           | Guarantor    |         |              
|                                                                 |                                                                                                                  |                                                                                      |                                           | Subsidiaries |         |              
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         | Non-Guarantor |     | Combining    |         | Combined  
|                                                                 |                                                                                                                  | FMS AG                                                                               |                                           | D-GmbH       |         | FMCH          |     | Subsidiaries |         | Adjustment |   | Total   
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |         
|Operating Activities:                                            |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|                                                                 | Net income                                                                                                       |                                                                                      | $                                         | 289,790      |         |               | $   | 1,469        |         |            | $ | 161,319  |         |      | $      | 249,676  |         |          | $     | (412,464 | )        |         | $      | 289,790  |        
|                                                                 | Adjustments to reconcile net income to cash and
    cash equivalents provided by (used in) operating activities: |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |          |        
|                                                                 | Equity affiliate income                                                                                          |                                                                                      |                                           | (242,307     | )       |               |     |             |         |            |   | (202,966 | )       |      |        |         |         |          |       | 445,273  |          |         |        |         |        
|                                                                 |                                                                                                                  | Depreciation and amortization                                                        |                                           |              | 1,810   |               |     |              | 20,170  |            |   |          |        |      |        |          | 195,153 |          |       |          | (6,578   | )       |        |          | 210,555 |         
|                                                                 |                                                                                                                  | Loss on early redemption of trust preferred
    securities, net of tax               |                                           |              | 2,057   |               |     |              |        |            |   |          |        |      |        |          | 9,720   |          |       |          |         |         |        |          | 11,777  |         
|                                                                 |                                                                                                                  | Change in deferred taxes, net                                                        |                                           |              | (70     | )             |     |              | (505    | )          |   |          |        |      |        |          | 52,187  |          |       |          | 6,837    |         |        |          | 58,449  |         
|                                                                 |                                                                                                                  | Loss (gain) on sale of fixed assets                                                  |                                           |              |        |               |     |              | 693     |            |   |          |        |      |        |          | (3      | )        |       |          |         |         |        |          | 690     |         
|                                                                 |                                                                                                                  | (Gain) loss on investments, net                                                      |                                           |              | (74,224 | )             |     |              | 189     |            |   |          |        |      |        |          |        |          |       |          | 74,035   |         |        |          |        |         
|                                                                 |                                                                                                                  | Write-off of loans from related parties                                              |                                           |              | 36,531  |               |     |              |        |            |   |          |        |      |        |          |        |          |       |          | (36,531  | )       |        |          |        |         
|                                                                 |                                                                                                                  | Compensation expense related to stock options                                        |                                           |              | 1,126   |               |     |              |        |            |   |          |        |      |        |          |        |          |       |          |         |         |        |          | 1,126   |         
|                                                                 | Cash Inflow from Hedging                                                                                         |                                                                                      |                                           | 24,542       |         |               |     |             |         |            |   |         |         |      |        |         |         |          |       |         |          |         |        | 24,542   |        
|                                                                 | Changes in assets and liabilities, net of amounts
    from businesses acquired or disposed of:                   |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |          |        
|                                                                 |                                                                                                                  | Trade accounts receivable, net                                                       |                                           |              |        |               |     |              | (11,684 | )          |   |          |        |      |        |          | (1,440  | )        |       |          |         |         |        |          | (13,124 | )       
|                                                                 |                                                                                                                  | Inventories                                                                          |                                           |              |        |               |     |              | (3,586  | )          |   |          |        |      |        |          | (4,752  | )        |       |          | 1,819    |         |        |          | (6,519  | )       
|                                                                 |                                                                                                                  | Prepaid expenses and other current and
    non-current assets                        |                                           |              | (1,621  | )             |     |              | (1,211  | )          |   |          | 1,491   |      |        |          | 18,988  |          |       |          | 23       |         |        |          | 17,670  |         
|                                                                 |                                                                                                                  | Accounts receivable from/ payable to related
    parties                             |                                           |              | 79,893  |               |     |              | 14,916  |            |   |          | 68,441  |      |        |          | (7,832  | )        |       |          | (152,190 | )       |        |          | 3,228   |         
|                                                                 |                                                                                                                  | Accounts payable, accrued expenses and other
    current and non-current liabilities |                                           |              | (456    | )             |     |              | 7,349   |            |   |          |        |      |        |          | (51,589 | )        |       |          | 2,178    |         |        |          | (42,518 | )       
|                                                                 |                                                                                                                  | Income taxes payable                                                                 |                                           |              | 5,680   |               |     |              |        |            |   |          | (27,765 | )    |        |          | 16,337  |          |       |          |         |         |        |          | (5,748  | )       
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|                                                                 |                                                                                                                  |                                                                                      | Net cash provided by operating activities |              |         | 122,751       |     |              |         | 27,799     |   |          |         | 520  |        |          |         | 476,446  |       |          |          | (77,598 | )      |          |         | 549,918  |  
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|Investing Activities:                                            |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|                                                                 | Purchases of property, plant and equipment                                                                       |                                                                                      |                                           | (22          | )       |               |     | (26,999      | )       |            |   |         |         |      |        | (221,900 | )       |          |       | 9,761    |          |         |        | (239,160 | )      
|                                                                 | Proceeds from sale of property, plant and
    equipment                                                          |                                                                                      |                                           |             |         |               |     | 985          |         |            |   |         |         |      |        | 36,798   |         |          |       |         |          |         |        | 37,783   |        
|                                                                 | Disbursement of loans to related parties                                                                         |                                                                                      |                                           | 36,220       |         |               |     |             |         |            |   |         |         |      |        |         |         |          |       | (36,220  | )        |         |        |         |        
|                                                                 | Acquisitions and investments, net of cash acquired                                                               |                                                                                      |                                           | (78,336      | )       |               |     |             |         |            |   |         |         |      |        | (77,564  | )       |          |       | 76,065   |          |         |        | (79,835  | )      
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|                                                                 |                                                                                                                  |                                                                                      | Net cash used in investing activities     |              |         | (42,138       | )   |              |         | (26,014    | ) |          |         |     |        |          |         | (262,666 | )     |          |          | 49,606  |        |          |         | (281,212 | )
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|Financing activities:                                            |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|                                                                 | Short-term borrowings, net                                                                                       |                                                                                      |                                           | (652         | )       |               |     |             |         |            |   |         |         |      |        | 12,031   |         |          |       |         |          |         |        | 11,379   |        
|                                                                 | Long-term debt and capital lease obligations, net                                                                |                                                                                      |                                           | (1,338       | )       |               |     | (1,686       | )       |            |   |         |         |      |        | 137,336  |         |          |       | 36,220   |          |         |        | 170,532  |        
|                                                                 | Redemption of trust preferred securities                                                                         |                                                                                      |                                           |             |         |               |     |             |         |            |   |         |         |      |        | (376,200 | )       |          |       |         |          |         |        | (376,200 | )      
|                                                                 | Increase of accounts receivable securitization
    program                                                       |                                                                                      |                                           |             |         |               |     |             |         |            |   |         |         |      |        | 3,249    |         |          |       |         |          |         |        | 3,249    |        
|                                                                 | Proceeds from exercise of stock options                                                                          |                                                                                      |                                           | 550          |         |               |     |             |         |            |   |         |         |      |        |         |         |          |       |         |          |         |        | 550      |        
|                                                                 | Capital Increase of Non-Guarantor-Subsidiaries                                                                   |                                                                                      |                                           |             |         |               |     |             |         |            |   |         |         |      |        | 76,085   |         |          |       | (76,085  | )        |         |        |         |        
|                                                                 | Dividends paid                                                                                                   |                                                                                      |                                           | (76,743      | )       |               |     |             |         |            |   |         |         |      |        | (62,639  | )       |          |       | 62,639   |          |         |        | (76,743  | )      
|                                                                 | Change in minority interest                                                                                      |                                                                                      |                                           |             |         |               |     |             |         |            |   | (520     | )       |      |        | (971     | )       |          |       | 3,586    |          |         |        | 2,095    |        
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|                                                                 |                                                                                                                  |                                                                                      | Net cash used in financing activities     |              |         | (78,183       | )   |              |         | (1,686     | ) |          |         | (520 | )      |          |         | (211,109 | )     |          |          | 26,360  |        |          |         | (265,138 | )
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                                  |                                                                                      | (1,958                                    | )            |         |               | 19  |              |         |            |  |          |         |      | (40    | )        |         |          | 1,632 |          |          |         | (347   | )       
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|Cash and Cash Equivalents:                                       |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|Net increase in cash and cash equivalents                        |                                                                                                                  |                                                                                      | 472                                       |              |         |               | 118 |              |         |            |  |          |         |      | 2,631  |          |         |          |      |          |          |         | 3,221  |         
|Cash and cash equivalents at beginning of period                 |                                                                                                                  |                                                                                      | 16                                        |              |         |               | 33  |              |         |            |  |          |         |      | 61,523 |          |         |          |      |          |          |         | 61,572 |         
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         
|Cash and cash equivalents at end of period                       |                                                                                                                  | $                                                                                    | 488                                       |              |         | $             | 151 |              |         | $          |  |          |         | $    | 64,154 |          |         | $        |      |          |          | $       | 64,793 |         
|                                                                 |                                                                                                                  |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |         |          |       |          |          |         |        |         

F-44



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##### Table of Contents



|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |        |          |          |  
|--------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------ | -------- | ------------- | - | ------------ | ------- | ---------- | - | ------- | ------- | ---- | - | ------ | -------- | -------- | - | ------- | -------- | -------- | - | ------ | -------- | -------- | -
|                      |                                                                                                                  |                                                                                     
|                      |                                                                                                                  | For the year ended December 31, 2001                                                
|                      |                                                                                                                  |                                                                                     
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |              
|                      |                                                                                                                  |                                                                                      |                                                         | Guarantor    |          |              
|                      |                                                                                                                  |                                                                                      |                                                         | Subsidiaries |          |              
|                      |                                                                                                                  |                                                                                      |                                                         |              |          | Non-Guarantor |   | Combining    |         | Combined  
|                      |                                                                                                                  | FMS AG                                                                               |                                                         | D-GmbH       |          | FMCH          |   | Subsidiaries |         | Adjustment |   | Total  
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |        
|Operating Activities: |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      | Net income (loss)                                                                                                |                                                                                      | $                                                       | 63,354       |          |               | $ | 3,898        |         |            | $ | (79,256 | )       |      | $ | 24,845 |          |          | $ | 50,513  |          |          | $ | 63,354 |         
|                      | Adjustments to reconcile net income to cash and
    cash equivalents provided by (used in) operating activities: |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |        |         
|                      | Equity affiliate income                                                                                          |                                                                                      |                                                         | 8,849        |          |               |   |             |         |            |   | 44,106  |         |      |   |       |          |          |   | (52,955 | )        |          |   |       |         
|                      |                                                                                                                  | Depreciation and amortization                                                        |                                                         |              | 864      |               |   |              | 19,193  |            |   |         |        |      |   |        | 308,285  |          |   |         | (4,839   | )        |   |        | 323,503  |         
|                      |                                                                                                                  | Change in deferred taxes, net                                                        |                                                         |              | 15,815   |               |   |              | 969     |            |   |         |        |      |   |        | (60,018  | )        |   |         | (3,167   | )        |   |        | (46,401  | )       
|                      |                                                                                                                  | (Gain) loss on sale of fixed assets                                                  |                                                         |              |         |               |   |              | (484    | )          |   |         |        |      |   |        | 1,494    |          |   |         |         |          |   |        | 1,010    |         
|                      |                                                                                                                  | Gain on sale of investments                                                          |                                                         |              | (6,685   | )             |   |              |        |            |   |         |        |      |   |        |         |          |   |         | 6,685    |          |   |        |         |         
|                      |                                                                                                                  | Compensation expense related to stock options                                        |                                                         |              | 1,153    |               |   |              |        |            |   |         |        |      |   |        |         |          |   |         |         |          |   |        | 1,153    |         
|                      | Changes in assets and liabilities, net of amounts
    from businesses acquired or disposed of:                   |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |        |         
|                      |                                                                                                                  | Trade accounts receivable, net                                                       |                                                         |              |         |               |   |              | (7,049  | )          |   |         |        |      |   |        | (110,044 | )        |   |         |         |          |   |        | (117,093 | )       
|                      |                                                                                                                  | Inventories                                                                          |                                                         |              |         |               |   |              | (11,388 | )          |   |         |        |      |   |        | (19,565  | )        |   |         | 752      |          |   |        | (30,201  | )       
|                      |                                                                                                                  | Prepaid expenses, other current and non-current
    assets                           |                                                         |              | (11,723  | )             |   |              | (827    | )          |   |         | 1,491   |      |   |        | (25,857  | )        |   |         | 8,454    |          |   |        | (28,462  | )       
|                      |                                                                                                                  | Accounts receivable from/ payable to related
    parties                             |                                                         |              | (114,829 | )             |   |              | 26,219  |            |   |         | 57,613  |      |   |        | 58,725   |          |   |         | (18,874  | )        |   |        | 8,854    |         
|                      |                                                                                                                  | Accounts payable, accrued expenses and other
    current and non-current liabilities |                                                         |              | (4,803   | )             |   |              | 899     |            |   |         |        |      |   |        | 187,140  |          |   |         | 756      |          |   |        | 183,992  |         
|                      |                                                                                                                  | Income taxes payable                                                                 |                                                         |              | (6,294   | )             |   |              |        |            |   |         | (23,434 | )    |   |        | 94,267   |          |   |         |         |          |   |        | 64,539   |         
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      |                                                                                                                  |                                                                                      | Net cash (used in) provided by operating
    activities |              |          | (54,299       | ) |              |         | 31,430     |   |         |         | 520  |   |        |          | 459,272  |   |         |          | (12,675  | ) |        |          | 424,248  |  
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      | Investing Activities:                                                                                            |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |        |         
|                      |                                                                                                                  | Purchases of property, plant and equipment                                           |                                                         |              | (727     | )             |   |              | (33,628 | )          |   |         |        |      |   |        | (252,755 | )        |   |         | 11,885   |          |   |        | (275,225 | )       
|                      |                                                                                                                  | Proceeds from sale of property, plant and
    equipment                              |                                                         |              | 23       |               |   |              | 1,180   |            |   |         |        |      |   |        | 22,992   |          |   |         |         |          |   |        | 24,195   |         
|                      |                                                                                                                  | Disbursement of loans to related parties                                             |                                                         |              | (460,652 | )             |   |              |        |            |   |         |        |      |   |        |         |          |   |         | 460,652  |          |   |        |         |         
|                      |                                                                                                                  | Acquisitions and investments, net of cash acquired                                   |                                                         |              | (50,297  | )             |   |              | (417    | )          |   |         |        |      |   |        | (205,242 | )        |   |         | 39,245   |          |   |        | (216,711 | )       
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      |                                                                                                                  |                                                                                      | Net cash used in investing activities                   |              |          | (511,653      | ) |              |         | (32,865    | ) |         |         |     |   |        |          | (435,005 | ) |         |          | 511,782  |   |        |          | (467,741 | )
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      | Financing Activities:                                                                                            |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |        |         
|                      |                                                                                                                  | Short-term borrowings, net                                                           |                                                         |              | (518     | )             |   |              | (448    | )          |   |         |        |      |   |        | (224,536 | )        |   |         |         |          |   |        | (225,502 | )       
|                      |                                                                                                                  | Payments on obligation related to 1999 Settlement                                    |                                                         |              |         |               |   |              |        |            |   |         |        |      |   |        | (85,920  | )        |   |         |         |          |   |        | (85,920  | )       
|                      |                                                                                                                  | Long-term debt and capital lease obligations, net                                    |                                                         |              | 625,877  |               |   |              | 2,539   |            |   |         |        |      |   |        | (219,735 | )        |   |         | (460,652 | )        |   |        | (51,971  | )       
|                      |                                                                                                                  | Proceeds from issuance of trust preferred
    securities                             |                                                         |              |         |               |   |              |        |            |   |         |        |      |   |        | 477,169  |          |   |         | (6,571   | )        |   |        | 470,598  |         
|                      |                                                                                                                  | Decrease of accounts receivable securitization
    program                           |                                                         |              |         |               |   |              |        |            |   |         |        |      |   |        | (3,464   | )        |   |         |         |          |   |        | (3,464   | )       
|                      |                                                                                                                  | Proceeds from exercise of stock options                                              |                                                         |              | 6,391    |               |   |              |        |            |   |         |        |      |   |        |         |          |   |         |         |          |   |        | 6,391    |         
|                      |                                                                                                                  | Capital increase of Non-Guarantor-Subsidiaries                                       |                                                         |              |         |               |   |              |        |            |   |         |        |      |   |        | 38,330   |          |   |         | (38,330  | )        |   |        |         |         
|                      |                                                                                                                  | Dividends paid                                                                       |                                                         |              | (65,782  | )             |   |              |        |            |   |         |        |      |   |        | (4,714   | )        |   |         | 4,714    |          |   |        | (65,782  | )       
|                      |                                                                                                                  | Change in minority interest                                                          |                                                         |              |         |               |   |              |        |            |   |         | (520    | )    |   |        | (2,065   | )        |   |         | 1,732    |          |   |        | (853     | )       
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      |                                                                                                                  |                                                                                      | Net cash provided by (used in) financing
    activities |              |          | 565,968       |   |              |         | 2,091      |   |         |         | (520 | ) |        |          | (24,935  | ) |         |          | (499,107 | ) |        |          | 43,497   |  
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      | Effect of exchange rate changes on cash and cash
    equivalents                                                 |                                                                                      |                                                         | (137         | )        |               |   | (723         | )       |            |   |        |         |      |   | (2,149 | )        |          |   |        |          |          |   | (3,009 | )       
|                      | Cash and Cash Equivalents:                                                                                       |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |        |         
|                      | Net decrease in cash and cash equivalents                                                                        |                                                                                      |                                                         | (121         | )        |               |   | (67          | )       |            |   |        |         |      |   | (2,817 | )        |          |   |        |          |          |   | (3,005 | )       
|                      | Cash and cash equivalents at beginning of period                                                                 |                                                                                      |                                                         | 137          |          |               |   | 100          |         |            |   |        |         |      |   | 64,340 |          |          |   |        |          |          |   | 64,577 |         
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       
|                      | Cash and cash equivalents at end of period                                                                       |                                                                                      | $                                                       | 16           |          |               | $ | 33           |         |            | $ |        |         |      | $ | 61,523 |          |          | $ |        |          |          | $ | 61,572 |         
|                      |                                                                                                                  |                                                                                      |                                                         |              |          |               |   |              |         |            |   |         |         |      |   |        |          |          |   |         |          |          |   |       

F-45



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##### Table of Contents



Schedule II

Fresenius Medical Care AG

Valuations and Qualifying Accounts

(in thousands)


|                                 |                              |            |   |             |  |             |   |           |  |  |   |         |  |  |   |         | 
|-------------------------------- | ---------------------------- | ---------- | - | ----------- |  | ----------- | - | --------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |                              |            |   | (Reduction) |  |             |   |          
|                                 |                              | Balance at |   | Charge to   |  | Deductions/ |   | Balance  
|                                 |                              | Beginning  |   | Costs and   |  | Write-offs/ |   | at End   
|                                 |                              | of Period  |   | Expenses    |  | Recoveries  |   | of Period
|                                 |                              |            |   |             |  |             |   |          
|Allowance for doubtful accounts: |                              |            |   |             |  |             |   |           |  |  |   |         |  |  |   |        
|                                 | Year ended December 31, 2003 |            | $ | 159,763     |  |             | $ | 119,839   |  |  | $ | 113,217 |  |  | $ | 166,385 | 
|                                 | Year ended December 31, 2002 |            | $ | 138,128     |  |             | $ | 104,107   |  |  | $ | 82,472  |  |  | $ | 159,763 | 
|                                 | Year ended December 31, 2001 |            | $ | 111,181     |  |             | $ | 100,083   |  |  | $ | 73,136  |  |  | $ | 138,128 | 

S-1