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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,
2002

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






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(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 26,188,575

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 5. Operating and Financial Review and Prospects                                 
|                                         | Item 7. Major Shareholders and Related Party Transactions                            
|                                         | 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 16. [Reserved]                                                                  
|                                         | Item 17. Financial Statements                                                        
|                                         | Item 18. Financial Statements                                                        
|                                         | Item 19. Exhibits                                                                    
|CONSENt of KPMG                         
|Pages from Prospectus dated 20 July 2000
|Certification LIPPS                     
|Certification SCHEIDER                  



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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                                                       |  |      | 9  | 
|Item  5.     |  | Operating and Financial Review and Prospects                                     |  |      | 35 | 
|Item  6.     |  | Directors, Senior Management and Employees                                       |  |      | 51 | 
|Item  7.     |  | Major Shareholders and Related Party Transactions                                |  |      | 57 | 
|Item  8.     |  | Financial Information                                                            |  |      | 61 | 
|Item  9.     |  | The Offer and Listing Details                                                    |  |      | 65 | 
|Item 10.     |  | Additional Information                                                           |  |      | 69 | 
|Item 11.     |  | Quantitative and Qualitative Disclosures About
    Market Risk                   |  |      | 78 | 
|Item 12.     |  | Description of Securities other than Equity
    Securities                       |  |      | 81 | 
|            
|PART II      |  |                                                                                  |  |      |    | 
|Item 13.     |  | Defaults, Dividend Arrearages and Delinquencies                                  |  |      | 81 | 
|Item 14.     |  | Material Modifications to the Rights of Security
    Holders and Use of Proceeds |  |      | 81 | 
|Item 15.     |  | Controls and Procedures                                                          |  |      | 81 | 
|Item 16.     |  | [Reserved]                                                                       |  |      | 82 | 
|            
|PART III     |  |                                                                                  |  |      |    | 
|Item 17.     |  | Financial Statements                                                             |  |      | 82 | 
|Item 18.     |  | Financial Statements                                                             |  |      | 82 | 
|Item 19.     |  | Exhibits                                                                         |  |      | 82 | 

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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.

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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
1998 through 2002. 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.

|                                                                                                                  |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |            | 
|----------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------- | ----- | ---------- |  | ---- | ----- | ---------- |  | ------- | ----- | ---------- |  | - | ----- | ---------- |  | - | ----- | ---------- | 
|                                                                                                                  |                               | 2002(C)       |       | 2001(A)    |  | 2000 |       | 1999(B)    |  | 1998(C)
|                                                                                                                  |                               |               |       |            |  |      |       |            |  |        
|                                                                                                                  |                               |              
|                                                                                                                  |                               | (In millions)
|Statement of Operations Data:                                                                                     |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |           
|Net revenues                                                                                                      |                               | $             | 5,084 |            |  | $    | 4,859 |            |  | $       | 4,201 |            |  | $ | 3,840 |            |  | $ | 3,506 |           
|Cost of revenues                                                                                                  |                               |               | 3,428 |            |  |      | 3,220 |            |  |         | 2,734 |            |  |   | 2,463 |            |  |   | 2,243 |           
|                                                                                                                  |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |           
|Gross profit                                                                                                      |                               |               | 1,656 |            |  |      | 1,639 |            |  |         | 1,467 |            |  |   | 1,377 |            |  |   | 1,263 |           
|Selling, general and administrative                                                                               |                               |               | 914   |            |  |      | 966   |            |  |         | 814   |            |  |   | 785   |            |  |   | 743   |           
|Research and development                                                                                          |                               |               | 47    |            |  |      | 36    |            |  |         | 32    |            |  |   | 32    |            |  |   | 31    |           
|Special charge                                                                                                    |                               |               |      |            |  |      | 258   |            |  |         |      |            |  |   | 601   |            |  |   |      |           
|                                                                                                                  |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |           
|Operating income (loss)                                                                                           |                               |               | 695   |            |  |      | 379   |            |  |         | 621   |            |  |   | (41   | )          |  |   | 489   |           
|Interest expense, net                                                                                             |                               |               | 207   |            |  |      | 223   |            |  |         | 216   |            |  |   | 218   |            |  |   | 220   |           
|                                                                                                                  |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |           
|Income (loss) before income taxes, minority
    interest and extraordinary loss                                   |                               |               | 488   |            |  |      | 156   |            |  |         | 405   |            |  |   | (259  | )          |  |   | 269   |           
|Income (loss) from continuing operations before
    extraordinary loss and cumulative effect of accounting change |                               |               | 302   |            |  |      | 63    |            |  |         | 212   |            |  |   | (249  | )          |  |   | 132   |           
|Net income (loss)                                                                                                 |                               | $             | 290   |            |  | $    | 63    |            |  | $       | 212   |            |  | $ | (249  | )          |  | $ | 19    |           
|                                                                                                                  |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |           
|Weighted average of:                                                                                              |                               |               |       |            |  |      |       |            |  |         |       |            |  |   |       |            |  |   |       |           
|                                                                                                                  | Preference shares outstanding |               |       | 26,185,178 |  |      |       | 26,035,330 |  |         |       | 19,002,118 |  |   |       | 9,023,341  |  |   |       | 9,023,341  | 
|                                                                                                                  | Ordinary shares outstanding   |               |       | 70,000,000 |  |      |       | 70,000,000 |  |         |       | 70,000,000 |  |   |       | 70,000,000 |  |   |       | 70,000,000 | 
|Basic income (loss) from continuing operations
    before extraordinary loss per Ordinary share                   |                               | $             | 3.12  |            |  | $    | 0.65  |            |  | $       | 2.37  |            |  | $ | (3.15 | )          |  | $ | 1.62  |           
|Fully diluted income (loss) from continuing
    operations before extraordinary loss per Ordinary share           |                               |               | 3.12  |            |  |      | 0.64  |            |  |         | 2.36  |            |  |   | (3.15 | )          |  |   | 1.62  |           
|Basic income (loss) per Ordinary share                                                                            |                               |               | 3.00  |            |  |      | 0.65  |            |  |         | 2.37  |            |  |   | (3.15 | )          |  |   | 0.20  |           

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|                                                                                                          |  |               |       |         |  |      |       |         |  |         |       |  |  |   |       |   |  |   |       | 
|--------------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ------- |  | ---- | ----- | ------- |  | ------- | ----- |  |  | - | ----- | - |  | - | ----- | 
|                                                                                                          |  | 2002(C)       |       | 2001(A) |  | 2000 |       | 1999(B) |  | 1998(C)
|                                                                                                          |  |               |       |         |  |      |       |         |  |        
|                                                                                                          |  |              
|                                                                                                          |  | (In millions)
|Fully diluted income (loss) per Ordinary share                                                            |  |               | 3.00  |         |  |      | 0.64  |         |  |         | 2.36  |  |  |   | (3.15 | ) |  |   | 0.20  | 
|Basic income (loss) from continuing operations
    before extraordinary loss per Preference share         |  |               | 3.18  |         |  |      | 0.70  |         |  |         | 2.43  |  |  |   | (3.15 | ) |  |   | 1.78  | 
|Fully diluted income (loss) from continuing
    operations before extraordinary loss per Preference share |  |               | 3.18  |         |  |      | 0.69  |         |  |         | 2.42  |  |  |   | (3.15 | ) |  |   | 1.78  | 
|Basic income (loss) per Preference share                                                                  |  |               | 3.06  |         |  |      | 0.70  |         |  |         | 2.43  |  |  |   | (3.15 | ) |  |   | 0.36  | 
|Fully diluted income (loss) per Preference share                                                          |  |               | 3.06  |         |  |      | 0.69  |         |  |         | 2.42  |  |  |   | (3.15 | ) |  |   | 0.36  | 
|Basic and fully diluted net income (loss) per
    Ordinary ADS                                            |  |               | 1.00  |         |  |      | 0.22  |         |  |         | 0.79  |  |  |   | (1.05 | ) |  |   | 0.07  | 
|Basic and fully diluted net income (loss) per
    Preference ADS                                          |  |               | 1.02  |         |  |      | 0.23  |         |  |         | 0.81  |  |  |   | (1.05 | ) |  |   | 0.12  | 
|Dividends declared per Ordinary
    share ()(a)                                                          |  |               | 0.94  | (b)     |  |      | 0.85  |         |  |         | 0.78  |  |  |   | 0.69  |   |  |   | 0.59  | 
|Dividends declared per Preference
    share ()(a)                                                        |  |               | 1.00  | (b)     |  |      | 0.91  |         |  |         | 0.84  |  |  |   | 0.75  |   |  |   | 0.64  | 
|Dividends declared per Ordinary
    share ($)(a)                                                          |  |               |      | (b)     |  |      | 0.78  |         |  |         | 0.72  |  |  |   | 0.64  |   |  |   | 0.61  | 
|Dividends declared per Preference
    share ($)(a)                                                        |  |               |      | (b)     |  |      | 0.84  |         |  |         | 0.78  |  |  |   | 0.69  |   |  |   | 0.66  | 
|Balance Sheet Data                                                                                        |  |               |       |         |  |      |       |         |  |         |       |  |  |   |       |   |  |   |       | 
|Working capital                                                                                           |  | $             | 526   |         |  | $    | 402   |         |  | $       | 191   |  |  | $ | (229  | ) |  | $ | 448   | 
|Total assets                                                                                              |  |               | 6,780 |         |  |      | 6,516 |         |  |         | 5,979 |  |  |   | 5,752 |   |  |   | 5,679 | 
|Total long-term debt(c)                                                                                   |  |               | 2,234 |         |  |      | 2,165 |         |  |         | 1,611 |  |  |   | 1,618 |   |  |   | 2,070 | 
|Shareholders equity (net assets)                                                                         |  |               | 2,807 |         |  |      | 2,617 |         |  |         | 2,679 |  |  |   | 2,002 |   |  |   | 2,357 | 
|Capital Stock  Preference
    shares  Nominal Value                                                     |  |               | 70    |         |  |      | 70    |         |  |         | 64    |  |  |   | 28    |   |  |   | 28    | 
|Capital Stock  Ordinary
    shares  Nominal Value                                                       |  |               | 229   |         |  |      | 229   |         |  |         | 229   |  |  |   | 229   |   |  |   | 229   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | 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 Item 5.A. Operating Results  Year ended
    December 31, 2001 compared year ended December 31,
    2000  Special Charge for Legal Matters and in
    Note 3 of the Notes to our Consolidated Financial
    Statements.
|   
|(B) | Reflects the impact of the special charge
    relating to the settlement agreement with the
    U.S. government regarding U.S. government
    investigations. You can find a more detailed discussion of the
    final terms of the settlement in Note 2 of the Notes to our
    Consolidated Financial Statements.                                                                                                                                                                                                                                                                                       
|   
|(C) | Includes the effect of an accounting change. In
    1998 the accounting change relates to the early adoption of
    Statement of Position No. 98-5, Reporting on the Costs
    of Start-up Activities. The accounting change in 2002
    relates 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).                                                                                                                                                                             
|   
|(a) | Amounts shown for each year from 1998 to 2001
    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 2002 of
    1.00 per
    Preference share and
    0.94 per
    Ordinary share. These dividends are subject to approval by our
    shareholders at our annual general meeting to be held on
    May 22, 2003.                                                                                                                                                                                                                                                                                                               
|   
|(c) | Total long-term debt represents long-term debt
    and capital lease obligations, less current portions and
    (i) at December 31, 1998, 1999 and 2000, the
    mandatorily redeemable preferred securities of Fresenius Medical
    Care Capital Trust, Fresenius Medical Care Capital Trust II,                                                                                                                                                                                                                                                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 and (iii) at
    December 31, 2002, 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 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 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 would materially decrease our
revenues

For the twelve months ended December 31,
2002 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 26% of
dialysis care revenue in our North America segment for the
twelve months ended December 31, 2002. EPO is produced by a
single source manufacturer, Amgen Inc. Our current contract with
Amgen covers the

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period from January 2002 to December 2003. A
reduction in reimbursement for EPO, a significant change in
utilization of EPO, an interruption of supply or our inability
to obtain satisfactory purchase terms for EPO could reduce our
revenues from, or increase our costs in connection with the
administration of 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
principal subsidiary, Fresenius Medical Care Holdings, Inc.
(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 many of its affiliates 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
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.

Claims have been 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 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 February 2003, the Company reached an
agreement with the asbestos creditors committees in the
Grace Chapter 11 Proceedings to settle these claims. For
additional information concerning the Grace Chapter 11
Proceedings and the settlement agreement see
Item 8.A.7  Legal Proceedings. The
proposed settlement is subject to bankruptcy court approval and
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 the
Company. If the proposed settlement with the asbestos
creditors committees is not approved by the court or
confirmed in such a final plan of reorganization, the
plaintiffs claims may 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
$172,034,000 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.

We are defendants in litigation by private
insurance companies alleging inappropriate billing
practices

FMCH, National Medical Care, and subsidiaries of
National Medical Care are defendants in litigation brought by
private payors alleging inappropriate billing practices for
nutritional therapy, diagnostic and clinical laboratory tests
and misrepresentations. For information regarding these
proceedings, see Item 8.A.7  Legal
Proceedings. In July of 2002, FMCH entered into an
agreement with Aetna Life Insurance Company that

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resolves these claims and the Companys
counterclaims relating to overdue payments for services rendered
by the Company to the Aetnas beneficiaries. We are still
in litigation with some payors, and other private payors have
contacted FMCH and have asserted that National Medical Care
received excess payments and may file their own lawsuit seeking
reimbursement and other damages from National Medical Care.
Although we cannot predict the ultimate outcome on us of these
proceedings at this time, an adverse result could have a
material adverse effect on our business, financial condition and
results of operations since an adverse determination could
result in substantial liability or changes in our reimbursement
arrangements with private insurers. In light of the Aetna
agreement we established a pre-tax accrual of $55,489,000 at
December 31, 2001 to provide for the settlement of the
Aetna lawsuit and estimated legal expenses related to the
continued defense of other commercial insurer claims and
resolution of these claims, including overdue payments for
services we rendered to these insurers beneficiaries (see
Note 3 to our consolidated financial statements). We cannot
assure that the costs associated with resolving the Aetna
settlement, the overdue payments, and the other commercial
insurers claims will not exceed the $55,489,000 pre-tax
accrual.


As health maintenance organizations and
other managed care plans grow, amounts paid for our services and
products by non-governmental payors may 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 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 substantially more of our patients join
managed care plans or such plans reduce reimbursements, our
revenues from non-governmental payors 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. 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.

Risks Relating to our Business

Our competitors could develop superior
technology, impact our product sales, or drive up acquisition
prices, which would adversely affect our ability to make
acquisitions

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,

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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 upon reasonable terms, particularly in our
International segment, 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 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.

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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 may face difficulties in enforcing and
    collecting accounts receivable under some countries legal
    systems;            
|
| |  | Local regulations may 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 may 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  Year ended December 31, 2002
compared to year ended December 31, 2001. 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, 2002, our total consolidated liabilities were
$3.97 billion, including obligations with respect to all
our trust preferred securities of approximately
$1.1 billion, our total consolidated assets were
$6.78 billion and our stockholders equity was
$2.81 billion. Our substantial level of debt presents the
risk that we might not generate sufficient cash to service our
indebtedness or that our leveraged capital structure could limit
our ability to finance acquisitions and development of
additional projects, to compete effectively or to operate
successfully under adverse economic conditions.

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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. 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.

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

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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, 2002, 2001 and 2000 and have budgeted the
following amounts for the year 2003:

|                                                           |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  |  |   |     | 
|---------------------------------------------------------- | ------------- | ------------- | -------------------------- | ------ | -- | ---- | - | ---- | --- | --- | - | --- | --- | --- |  |  | - | --- | 
|                                                           |               |               |                            |       
|                                                           |               | Actual        |                            |       
|                                                           |               | (in millions) |                            |       
|                                                           |               |               |                            | Budget
|                                                           |               | 2002          |                            | 2001   |    | 2000 |   | 2003
|                                                           |               |               |                            |        |    |      |   |     
|Acquisitions                                               |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  | 
|                                                           | North America |               | $                          | 38     |    |      | $ | 412  |     |     | $ | 116 |     |     |  |  |  
|                                                           | International |               |                            |        |    |      |   |      |     |     |   |     |     |     |  |  |  
|                                                           |               | Germany       |                            |        |   |      |   |      |    |     |   |     | 11  |     |  |  |   |    
|                                                           |               | Rest of World |                            |        | 50 |      |   |      | 49  |     |   |     | 161 |     |  |  |   |    
|                                                           |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  | 
|                                                           |               |               | Total Acquisitions         |        | $  | 88   |   |      | $   | 461 |   |     | $   | 288 |  |  | $ | 100 | 
|                                                           |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  | 
|Capital expenditures for property, plant and
    equipment |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  | 
|                                                           | North America |               | $                          | 130    |    |      | $ | 138  |     |     | $ | 113 |     |     |  |  |  
|                                                           | International |               |                            |        |    |      |   |      |     |     |   |     |     |     |  |  |  
|                                                           |               | Germany       |                            |        | 27 |      |   |      | 34  |     |   |     | 24  |     |  |  |   |    
|                                                           |               | Rest of World |                            |        | 82 |      |   |      | 103 |     |   |     | 91  |     |  |  |   |    
|                                                           |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  | 
|                                                           |               |               | Total Capital Expenditures |        | $  | 239  |   |      | $   | 275 |   |     | $   | 228 |  |  | $ | 220 | 
|                                                           |               |               |                            |        |    |      |   |      |     |     |   |     |     |     |  | 

During 2002, we continued to make significant
capital commitments in 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
UltraCareTM Program). In Latin America we
continued investment in peritoneal dialysis equipment and
solutions manufacturing in Mexico. Other major 2002 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.

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 treatment to
over 112,000 patients at our 1,480 clinics located in
23 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

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concentration in specific geographic areas allow
us to operate more cost-effectively than many of our
competitors. For the year ended December 31, 2002, we had
net revenues of $5.1 billion, an increase of 5% over 2001
revenues. We derived 74% of our revenues in 2002 from our North
America operations and 26% from our International operations.


The following table summarizes 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, 2002, 2001 and 2000.

|              |                   |               |       |       |  |      |       |       |  |  |       |       | 
|------------- | ----------------- | ------------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|              |                   | 2002          |       | 2001  |  | 2000
|              |                   |               |       |       |  |     
|              |                   |              
|              |                   | (in millions)
|North America |                   |               |       |       |  |      |       |       |  |  |       |      
|              | Dialysis Care     |               | $     | 3,293 |  |      | $     | 3,131 |  |  | $     | 2,608 | 
|              | Dialysis Products |               |       | 454   |  |      |       | 471   |  |  |       | 474   | 
|              |                   |               |       |       |  |      |       |       |  |  |       |      
|              |                   |               | 3,747 |       |  |      | 3,602 |       |  |  | 3,082 |      
|International |                   |               |       |       |  |      |       |       |  |  |       |      
|              | Dialysis Care     |               |       | 416   |  |      |       | 426   |  |  |       | 336   | 
|              | Dialysis Products |               |       | 921   |  |      |       | 831   |  |  |       | 783   | 
|              |                   |               |       |       |  |      |       |       |  |  |       |      
|              |                   |               | 1,337 |       |  |      | 1,257 |       |  |  | 1,119 |      

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 routine
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%. It is our
belief that growth will continue at 5 - 7% per year.
According to data from our own internal survey, the 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 2001, an estimated 1.1 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 2001 there were
approximately 269,000 dialysis patients in Europe, approximately
146,000 patients in Asia (excluding Japan) and

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approximately 131,000 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;
|
| |  | generally stable or increased reimbursements for
    treatments in many countries; and                             
|
| |  | 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 outside the patients body. 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. The cleansed 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 may also monitor and record the patients
vital signs.

Hemodialysis patients generally receive treatment
three times per week, typically for two and one-half to four
hours or longer 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 are approximately 4,700
dialysis clinics in Europe, of which 60% are government-owned,
30% are privately owned, and 10% are operated by health care
organizations. In Latin America, privately owned clinics
predominate, comprising over 60% 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 Europe and 83% 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 and the peritoneum operates as the filtering
membrane after which 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.

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

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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 that
    of the Our Competitors.We believe
    that our UltraCareTM Patient Care program now offered
    at our North America dialysis facilities will distinguish and
    differentiate our patient care programs from that of our
    competitors. UltraCareTM Therapy employs single-use
    high flux polysulfane dialyzers, on-line quality measurement,
    and Ultra Pure Dialysate. 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
    dialzyer 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 200 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.                                                                                                                                            
|
| |  | Expand into Related Services.Fresenius Medical Care Cardiovascular
    Resources Holdings (FMC-CVR), in which we own a 45%
    equity interest, is a leading provider of perfusion and related
    cardiovascular services. The addition of this business provides
    a strong nationwide platform for expansion and innovation in the
    extracorporeal service business which complements our
    extracorporeal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | dialysis service business well. With the creation
    of our BioScience department in 2001, we expanded into therapy
    of acute liver failure. Based on our experience with dialysis
    therapy, we are working with notable scientists to develop a
    dual treatment for acute liver failure, combining a life
    preserving detoxification with a bioreactor that allows
    metabolism and protein synthesis.

Dialysis Care

Dialysis Services

We provide dialysis treatment and related
laboratory and diagnostic services at our approximately
1,480 outpatient dialysis clinics, 1,080 of which are in
the U.S. and 400 of which are in 22 countries outside
of the U.S. Our operations outside the U.S. generated
11% of our 2002 dialysis care revenue. We currently operate
dialysis clinics in Argentina, Australia, Brazil, China,
Colombia, Chile, Czech Republic, France, Germany, Hungary, Hong
Kong, Italy, Singapore, Japan, Mexico, Portugal, Slovakia,
Spain, Taiwan, Turkey, United Kingdom and Venezuela. Our
dialysis clinics are generally concentrated in areas of high
population density. In 2002, we acquired 33 existing clinics,
opened 90 new clinics and consolidated 43 clinics. The number of
patients we treat at our clinics increased by about 6%, from
approximately 105,830 at December 31, 2001 to approximately
112,200 at December 31, 2002.

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 28% 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 2002, dialysis
services accounted for 73% 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 or dialysis technician
attaches the necessary tubing to the patient 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 the 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 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 26% of dialysis care revenue in our North America
segment for the year ended December 31, 2002. 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, 2002 to December, 2003.

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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,
supply of EPO, follow-up assistance and arranging for delivery
of the supplies to the patients residence. See
 Regulatory and Legal Matters 
Reimbursement  U.S. for a discussion of billing
for these products and services.

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.

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 an unsurpassed
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. Staff will be alerted if
clearance is less than target, 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, 2002, Spectra Renal Management performed
over 36 million tests for more than 115,000 dialysis
patients in 1,713 clinics across the U.S.

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 consideration for acquisitions
of mainly clinics of approximately $88 million in 2002 and
approximately $461 million in 2001. In 2002, we completed
new acquisitions and acquisitions of previously managed clinics
totaling 33 dialysis facilities providing care to
approximately 2,223 patients. These acquisitions expand our
presence in selected key geographic areas.

We continue 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

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

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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.


In 2002, internal and external auditors inspected
our dialysis clinics. They confirmed the effectiveness of our
organization and processes and documented our compliance to the
relevant regulations. The use of newly developed evaluation
methods allowing simpler performance comparisons identified
additional improvement possibilities. Another focus of our
activities in 2002 was the continuing certification of our
dialysis clinics. Our first dialysis clinics were certified
according to ISO 9002:1994 in Hungary and in Turkey. This
year, our transport service that brings our Portuguese dialysis
patients to treatment in the dialysis clinics was also inspected
and certified in compliance with this norm. Seventeen countries
in the European Union granted more than 140 national market
approvals.

The rapid pace of IMS integration will continue
in 2003. We plan the complete introduction of our quality
management system to all European countries in which we offer
dialysis services. 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 long-term 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 2002, we 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, 2002, 2001 and 2000 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,
|                                      |  |                        
|                                      |  | 2002                    |        | 2001 |  | 2000
|                                      |  |                         |        |      |  |     
|Medicare ESRD program                 |  |                         | 61.5%  |      |  |      | 59.7%  |  |  |  | 59.1%  | 
|Private/alternative payors            |  |                         | 29.5%  |      |  |      | 31.2%  |  |  |  | 32.1%  | 
|Medicaid and other government sources |  |                         | 4.5%   |      |  |      | 4.6%   |  |  |  | 4.2%   | 
|Hospitals                             |  |                         | 4.5%   |      |  |      | 4.5%   |  |  |  | 4.6%   | 
|                                      |  |                         |        |      |  |      |        |  |  |  |        | 
|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.

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, 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 maintain their
own private practices.

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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 2002, dialysis products accounted
for 27% of our total revenue.

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,   
|                             |  |                           
|                             |  |                            |         |       |  |         
|                             |  | 2002                       |         | 2001  |  | 2000    
|                             |  |                            |         |       |  |         
|                             |  | Total                      |         |       |  | Total    |     |       |  | Total    |         |      
|                             |  | Product                    |         | % of  |  | Product  |     | % of  |  | Product  |         | % of 
|                             |  | Revenues                   |         | Total |  | Revenues |     | Total |  | Revenues |         | Total
|                             |  |                            |         |       |  |          |     |       |  |          |         |      
|                             |  |                           
|                             |  | (U.S. dollars in millions)
|Hemodialysis Products        |  | $                          | 1,181.0 |       |  |          | 86  |       |  | $        | 1,114.0 |       |  |  | 86  |  |  | $ | 1,060.3 |  |  |  | 84  | 
|Peritoneal Dialysis Products |  |                            | 194.2   |       |  |          | 14  |       |  |          | 188.2   |       |  |  | 14  |  |  |   | 196.5   |  |  |  | 16  | 
|                             |  |                            |         |       |  |          |     |       |  |          |         |       |  |  |     |  |  |   |         |  |  |  |     | 
|Total                        |  | $                          | 1,375.2 |       |  |          | 100 |       |  | $        | 1,302.2 |       |  |  | 100 |  |  | $ | 1,256.8 |  |  |  | 100 | 
|                             |  |                            |         |       |  |          |     |       |  |          |         |       |  |  |     |  |  |   |         |  |  |  |     | 

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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 the need to
    replace 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;                                                                                           
|
| |  | 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;

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| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
nearly 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.

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, 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 plastic material for foils, tubings and
    other parts of peritoneal dialysis systems. Biofine also has
    higher biocompatibility through avoidance of plasticisers, which
    can leach into dialysis solutions.                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | 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;

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| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
We believe that CCPD therapy offers benefits over CAPD therapy
for patients who need more therapy due to body size,
ultrafiltration loss or other reasons. 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.                   

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 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 hospitals,
clinics 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

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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 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 intend to use 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, Inukai, Japan
and Ogden, Utah facilities and at production facilities of our
joint ventures in Belarus, Saudi Arabia and Japan. We have
opened PD production in Mexico. Our facility in Schweinfurt is
inspected on a regular basis by national and international
authorities.

In North America we are expanding our
manufacturing capacity substantially. During 2002, we have
nearly 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.

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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 $47 million in 2002,
$36 million in 2001, and $32 million in 2000.

New or enhanced products introduced in 2002
included the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Fluid Management Tool. A software tool to avoid
    overhydration of a patient leading to hypertension and severe
    cardiovascular impairments. The bioimpedance-based system that
    was developed was evaluated in clinical studies, with results
    similar to sophisticated and time consuming clinical methods. A
    mobile, integrated device will be available in the second
    quarter of 2003.                                                                                 
|
| |  | Respiration support system. A system that
    supplies oxygen and removes carbon dioxide via excorporal blood
    circulation which allows respiration pressure to be lowered and
    reduces the deterioration of the lungs. This system is now
    available on the Model 4008 hemodialysis machine and a stand
    alone system is under development.                                                                                                                                      
|
| |  | GENIUS, an alternative dialysis equipment product
    line. GENIUS was developed in 2000 and 2001 and launched in 2002.                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We introduced the high performance, single use
    Optiflux series dialyzer in North America at the end of 2001,
    and two new models of Optiflux dialyzers in 2002. Optiflux
    polysulfone dialyzers are engineered to deliver superior small
    (urea) and middle molecular weight solute. Optiflux dialyzers
    accounted for 18% of the dialyzers we sold in the
    U.S. during 2002. The Optiflux dialyzer is the fastest
    growing, best selling dialyzer in the United States.
|
| |  | UltraCare 2008 enhancements. We added auto flow
    and idle modes to the 2008 series of machines, as well as a
    special display screens user interface.                                                                                                                                                                                                                                                                                                                                   
|
| |  | Newton IQ for Peritoneal Dialysis. A cycler
    designed to take advantage of higher flow rates available with
    gravity flow and drain. It also uses our newly improved software
    including prescription upload.                                                                                                                                                                                                                                                                        
|
| |  | Online Clearance Monitor. Monitors patient access
    flow rate without the need for additional equipment or specially
    trained personnel. It provides immediate information on
    treatment efficiency.                                                                                                                                                                                                                                                                                  
|
| |  | Premier Plus Double Bag for Peritoneal
    Dialysis. A twin bag system which incorporates solution, bag,
    and tubing. It uses our Safe-lock connect and Snap
    disconnect features resulting in fewer connections, lowering
    patient risk of infection.                                                                                                                                                                                                                            

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.

FMC 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 FMCs more significant protective
rights, one patent family protects FMC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. FMC believes

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that even after expiration of these patents, our
proprietary know-how for the manufacture of these products will
continue to constitute a competitive advantage.


For peritoneal dialysis, FMC 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 US-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, 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 prohibit
ownership of health care providers by for-profit corporations or
establish other regulatory barriers to direct ownership by
for-profit corporations. 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 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

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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 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. The 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 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 the we
comply with FDA requirements regarding the design, safety,
advertising, labeling, recordkeeping distribution, and reporting
of adverse events related to the use of its 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 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

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marketing manager, a quality control manager, a
manufacturing manager, a safety officer, and a drug information
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, and 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) subject 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

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and dispensing of drugs and the maintenance and
tracking of certain life sustaining and life-supporting
equipment.


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. However, our laboratory businesses do generate
hazardous waste which is subject to specific disposal
requirements. The 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.

The 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 may, 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
may 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

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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.


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 2002, approximately 61% 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 the
Company) 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.

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 Medicare 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

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insurance does not cover the co-payment or
deductible, the patient is responsible for paying the
co-payments or the deductible, which the Company frequently does
not fully collect despite reasonable collection efforts. Under
an advisory opinion from the Office of the Inspector General,
subject to specified conditions, the Company and the 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;           
|
| |  | inclusion of EPO in the Medicare composite rate;        
|
| |  | changes in the typical dosage per administration;
    or
|
| |  | increases in the cost of EPO.                           

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 payments are generally higher
than the Medicare Composite Rate. Insurance will therefore
generally cover 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.

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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 run 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 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 the 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

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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 services 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.

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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 provider payments which could be deemed an inducement
to patient selection of a 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 established a health care fraud statute
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 the Company 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.

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

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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 the 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)

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 |  |                  |        |    
|Location             |  | Square Meters) |        | Medical Care |  | Lease 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

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|                                |  |                |        |              |  |                  |        |     |  |                                          |  |                                                                                                                                           
|------------------------------- |  | -------------- | ------ | ------------ |  | ---------------- | ------ | --- |  | ---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|                                |  |                |        | Currently    |  |                  |        |    
|                                |  |                |        | Owned        |  |                  |        |    
|                                |  | Floor Area     |        | or Leased    |  |                  |        |    
|                                |  | (Approximate   |        | by Fresenius |  |                  |        |    
|Location                        |  | Square Meters) |        | Medical Care |  | Lease Expiration |        | Use
|                                |  |                |        |              |  |                  |        |    
|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 |     |  | June 2003                                |  | Administration                                                                                                                            
|Smithfield, Australia           |  |                | 5,350  |              |  |                  | owned  |     |  |                                          |  | Manufacture of hemodialysis concentrate solutions
    Warehouse                                                                           
|Pusat, KL, Malaysia             |  |                | 4,060  |              |  |                  | leased |     |  | March 2002 with a 2-year renewal option  |  | Administration                                                                                                                            
|Taipei, Taiwan                  |  |                | 5,940  |              |  |                  | leased |     |  | December 2003                            |  | Administration                                                                                                                            
|Tokyo, Japan                    |  |                | 1,153  |              |  |                  | leased |     |  | December 2003 with 5-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                                                                                              
|Seoul, South Korea              |  |                | 2,426  |              |  |                  | leased |     |  | March and August 2003                    |  | 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                                                                              

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|                       |  |                |        |              |  |                  |        |     |  |                                           |  |                                                
|---------------------- |  | -------------- | ------ | ------------ |  | ---------------- | ------ | --- |  | ----------------------------------------- |  | -----------------------------------------------
|                       |  |                |        | Currently    |  |                  |        |    
|                       |  |                |        | Owned        |  |                  |        |    
|                       |  | Floor Area     |        | or Leased    |  |                  |        |    
|                       |  | (Approximate   |        | by Fresenius |  |                  |        |    
|Location               |  | Square Meters) |        | Medical Care |  | Lease Expiration |        | Use
|                       |  |                |        |              |  |                  |        |    
|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 the
    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
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 judgements
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.

Recoverability of Goodwill and Intangible
Assets

The growth of our business through acquisitions
has created a significant amount of intangible assets, including
goodwill, tradenames and management contracts. At
December 31, 2002, the carrying amount of goodwill amounted
to $3,193 million and non-amortizable intangible assets
amounted to $403 million representing in total
approximately 53% of our total assets.

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 142 Goodwill
and Other Intangible Assets an 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

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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 cash flows. 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
$914 million and $885 million at December 31,
2002 and 2001, respectively, net of allowances and after sales
of accounts receivable under our accounts receivable facility.
The allowance for doubtful accounts was $160 million and
$138 million at December 31, 2002 and 2001,
respectively. The majority of our receivables relates to our
dialysis service business in North America.

Health 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 realizable 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.

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.

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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.

Financial Condition and Results of
Operations

The tables below, Fresenius Medical Care AG
Segment Data, present disaggregated information for our
company. 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.

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 have identified three operating segments,
North America, International, and Asia Pacific, that we
determined based upon how we operate and manage our businesses.
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.

Each segment engages primarily in providing
kidney 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. A 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 of America.

Management evaluates each segment using a measure
that reflects all of the segments controllable revenues
and expenses. Management believes the most appropriate measure
in this regard is earnings before interest and taxes
(EBIT). In addition to EBIT, management believes
that earnings before interest, taxes, depreciation and
amortization (EBITDA) is helpful for investors as a
measurement of the segments and our ability to generate
cash and to service financing obligations. EBITDA is also the
basis for determining compliance with certain covenants
contained in our 1996 and 2003 senior credit agreements and the
indentures relating to our outstanding trust preferred
securities. You should not consider EBITDA to be 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. We believe our EBIT calculation is the functional
equivalent of operating income. Because all companies do not
calculate EBITDA and EBIT consistently, the presentation herein
may not be comparable to other similarly titled measures of
other companies.

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 principal business
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 and 2000, as if SFAS No. 142, Goodwill and
Other Intangible Assets, had been adopted as of
January 1, 2000, have also been provided.

|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |       |       | 
|-------------------------------- | -------------------------------- | -------------------------------- | ---- | ----- | ----- | ------- | ---- | ----- | ----- | ------- | ---- | ----- | ----- | - | ---- | ----- | ----- | - | ---- | ----- | ----- | 
|                                 |                                  |                                 
|                                 |                                  | For the years ended December 31,
|                                 |                                  |                                 
|                                 |                                  | 2002                             |      | 2001  |       | 2001(a) |      | 2000  |       | 2000(a)
|                                 |                                  |                                  |      |       |       |         |      |       |       |        
|                                 |                                  |                                 
|                                 |                                  | (in millions)                   
|Total revenue                    |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 | North America                    |                                  | $    | 3,750 |       |         | $    | 3,604 |       |         | $    | 3,604 |       |   | $    | 3,084 |       |   | $    | 3,084 |      
|                                 | International                    |                                  |      | 1,363 |       |         |      | 1,281 |       |         |      | 1,281 |       |   |      | 1,156 |       |   |      | 1,156 |      
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 |                                  | Totals                           |      |       | 5,113 |         |      |       | 4,885 |         |      |       | 4,885 |   |      |       | 4,240 |   |      |       | 4,240 | 
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Inter-segment revenue            |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 | North America                    |                                  |      | 2     |       |         |      | 2     |       |         |      | 2     |       |   |      | 2     |       |   |      | 2     |      
|                                 | International                    |                                  |      | 27    |       |         |      | 24    |       |         |      | 24    |       |   |      | 37    |       |   |      | 37    |      
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 |                                  | Totals                           |      |       | 29    |         |      |       | 26    |         |      |       | 26    |   |      |       | 39    |   |      |       | 39    | 
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Total net revenue                |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 | North America                    |                                  |      | 3,748 |       |         |      | 3,602 |       |         |      | 3,602 |       |   |      | 3,082 |       |   |      | 3,082 |      
|                                 | International                    |                                  |      | 1,336 |       |         |      | 1,257 |       |         |      | 1,257 |       |   |      | 1,119 |       |   |      | 1,119 |      
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 |                                  | Totals                           |      |       | 5,084 |         |      |       | 4,859 |         |      |       | 4,859 |   |      |       | 4,201 |   |      |       | 4,201 | 
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|EBITDA                           |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 | North America                    |                                  |      | 630   |       |         |      | 693   |       |         |      | 693   |       |   |      | 652   |       |   |      | 652   |      
|                                 | International                    |                                  |      | 292   |       |         |      | 292   |       |         |      | 292   |       |   |      | 264   |       |   |      | 264   |      
|                                 | Special charge for legal matters |                                  |      |      |       |         |      | (258  | )     |         |      | (258  | )     |   |      |      |       |   |      |      |      
|                                 | Corporate                        |                                  |      | (16   | )     |         |      | (24   | )     |         |      | (24   | )     |   |      | (2    | )     |   |      | (2    | )    
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 |                                  | Totals                           |      |       | 906   |         |      |       | 703   |         |      |       | 703   |   |      |       | 914   |   |      |       | 914   | 
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Amortization and depreciation    |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 | North America                    |                                  |      | 139   |       |         |      | 247   |       |         |      | 140   |       |   |      | 223   |       |   |      | 122   |      
|                                 | International                    |                                  |      | 70    |       |         |      | 76    |       |         |      | 62    |       |   |      | 69    |       |   |      | 57    |      
|                                 | Corporate                        |                                  |      | 2     |       |         |      | 1     |       |         |      | 1     |       |   |      | 1     |       |   |      | 1     |      
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 |                                  | Totals                           |      |       | 211   |         |      |       | 324   |         |      |       | 203   |   |      |       | 293   |   |      |       | 180   | 
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|EBIT                             |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 | North America                    |                                  |      | 491   |       |         |      | 446   |       |         |      | 553   |       |   |      | 429   |       |   |      | 530   |      
|                                 | International                    |                                  |      | 222   |       |         |      | 216   |       |         |      | 230   |       |   |      | 195   |       |   |      | 207   |      
|                                 | Special charge for legal matters |                                  |      |      |       |         |      | (258  | )     |         |      | (258  | )     |   |      |      |       |   |      |      |      
|                                 | Corporate                        |                                  |      | (18   | )     |         |      | (25   | )     |         |      | (25   | )     |   |      | (3    | )     |   |      | (3    | )    
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|                                 |                                  | Totals                           |      |       | 695   |         |      |       | 379   |         |      |       | 500   |   |      |       | 621   |   |      |       | 734   | 
|Interest income                  |                                  |                                  | 18   |       |       |         | 14   |       |       |         | 14   |       |       |   | 9    |       |       |   | 9    |      
|Interest expense                 |                                  |                                  | (225 | )     |       |         | (237 | )     |       |         | (237 | )     |       |   | (225 | )     |       |   | (225 | )    
|Income tax expense               |                                  |                                  | (182 | )     |       |         | (91  | )     |       |         | (109 | )     |       |   | (190 | )     |       |   | (207 | )    
|Minority interest                |                                  |                                  | (4   | )     |       |         | (2   | )     |       |         | (2   | )     |       |   | (3   | )     |       |   | (3   | )    
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Income before extraordinary item |                                  |                                  | 302  |       |       |         | 63   |       |       |         | 166  |       |       |   | 212  |       |       |   | 308  |      
|Extraordinary item               |                                  |                                  | (12  | )     |       |         |     |       |       |         |     |       |       |   |     |       |       |   |     |      
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      
|Net income                       |                                  | $                                | 290  |       |       | $       | 63   |       |       | $       | 166  |       |       | $ | 212  |       |       | $ | 308  |      
|                                 |                                  |                                  |      |       |       |         |      |       |       |         |      |       |       |   |      |       |       |   |      |      






|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Financial performance and certain operating
    results by principal business segment for the years ended
    December 31, 2001 and 2000 as if SFAS No. 142,
    Goodwill and Other Intangible Assets was adopted on
    January 1, 2000.

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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 million 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 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%.

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
UltraCareTM program, an Amgen price increase for EPO,
higher facilities lease and certification expenses and higher
bad debt expense. We have completed the implementation of
UltraCareTM 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 UltraCareTM created a higher cost per
treatment compared to re-use. See Item 4B 

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Information on the Company  Business
Overview  Our Strategy. 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.

EBIT

EBIT 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, EBIT
would have decreased 11%, from $553 million to
$491 million. The EBIT margin over the same period
decreased from 15.4% to 13.1% for the same reasons as described
in EBITDA.

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.

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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.

EBIT

EBIT 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 EBIT margin decreased slightly from 17.2% to
16.6%. Adjusting 2001 as if SFAS No. 142 was implemented on
January 1, 2001, EBIT decreased 3% (a decrease of 6% at
constant exchange rates) with EBIT 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 EBIT
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 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 EBIT 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 EBIT was $(18) million in 2002
compared to $(25) million in 2001. EBIT 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.

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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.

Year ended December 31, 2001 compared to
year ended December 31, 2000

Net revenues for the year ended December 31,
2001 increased by 16% (17% at constant exchange rates) to
$4,859 million from $4,201 million for the comparable
period in 2000. Net income for the year was $63 million as
compared to $212 million in 2000. Excluding the effects of
the special charge for legal matters of $258 million
recorded in the fourth quarter 2001 and related prior quarter
expenses of $7 million, net income for the year 2001 would
have increased by 15% (18% at constant exchange rates) to
$245 million. Earnings per Ordinary share in 2001 were
$0.65 compared to $2.37 in the prior year. Excluding the effects
of the special charge of $258 million and related prior
quarter expenses of $7 million, earnings per Ordinary share
would have increased by 7% to $2.53 in 2001.

At December 31, 2001 we owned, operated or
managed 1,400 clinics compared to 1,270 clinics at the
end of 2000. During 2001, we acquired 88 clinics with a
total of 8,671 patients, opened 74 clinics and
disposed of 23 clinics.

The number of patients treated in clinics that we
own, operate or manage increased from approximately 91,900 at
the end of 2000 to 105,830 at the end of 2001. Approximately
15,250,000 treatments were provided in the year 2001; an
increase of 18% from 12,900,000 treatments for the comparable
period in 2000. Average revenue per treatment company wide
increased from $228 to $233.

The following discussions pertain to our
business segments and the measures we use to manage these
segments. The North America segment discussion excludes the
effects of the special charge for legal matters in
2001.

North America

Revenue

Net revenue for the North America segment for
2001 grew by 17% from $3,082 million to
$3,602 million. Dialysis care revenue increased by 20% to
$3,131 million, 10% attributable to base business revenue
growth and 10% to acquisitions. The increase in dialysis care
revenue resulted primarily from a 15% ($404 million)
increase in the number of treatments, reflecting both base
business growth and the impact of 2001 and 2000 acquisitions.
Revenue was also favorably impacted by an aggregate increase in
revenue per treatment of approximately $118 million (5%) as
a result of increased Medicare reimbursement rates, improved
ancillary services and the introduction of perfusion services.

Medicare reimbursement rates increased 1.2% as of
January 1, 2001 due to legislation passed in January 2000.
Additional legislation passed during the fourth quarter 2000
provided for an additional 1.2% rate increase. However, this
second increase was delayed until April 1, 2001 at which
time rates were increased 1.6% to make up for this delay.

At the end of 2001, approximately 76,600 patients
were treated in the 1,030 clinics that we own, operate or
manage in the North America segment, compared to approximately
67,900 patients treated in 920 clinics at the end of 2000.
The average revenue per treatment excluding laboratory testing
revenue increased from $261 in 2000 to $273 in 2001. Including
laboratory testing the average revenue per treatment increased
from $272 in 2000 to $284 in 2001. Dialysis products revenue
decreased slightly from $473 million to $471 million.
This is attributable to the continuing growth of the large
vertically integrated companies above the normal market growth
and the resulting consolidation of the available external market.

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EBITDA

EBITDA for the North America segment grew by 6%
due to increased treatment volume, improved treatment rates,
increased ancillary services and increased earnings from
laboratory testing. The EBITDA margin decreased 2%, from 21.2%
in 2000 to 19.2% in 2001. This was mainly due to a lower than
anticipated EBITDA contribution from the Everest acquisition,
expenses caused by dialysis services converting from re-use to
single use dialyzers, an increase in personnel expenses not
fully compensated for by the increase in reimbursement rates,
higher bad debt expenses relating to the changes in payor mix
and aging, and increased costs to certify new clinics. The lower
EBITDA contribution from Everest was caused by transition and
integration costs that occurred during the first half of 2001.

Depreciation and Amortization

Depreciation and amortization decreased slightly
as a percentage of revenue to just under 7% in 2001. This was
mainly due to the impact of internal revenue growth while
amortization and depreciation increased to $247 million.

EBIT

EBIT for the North America segment increased by
4% due to the increase in EBITDA. The EBIT margin decreased from
13.9% in 2000 to 12.4% in 2001 due to the same factors causing
the decrease in the EBITDA margin.

International

Revenue

Net revenue for the International segment
increased by 12% (18% at constant exchange rates) from
$1,119 million in 2000 to $1,257 million in 2001.
Acquisitions contributed $89 million (8%), approximately
$42 million in the European region, $21 million in the
Latin America region and $26 million in the Asia Pacific
region. Base business growth during the period was 4% (10% at
constant exchange rates). Asia Pacific region revenue increased
by 22% to $214 million (35% at constant exchange rates),
and Latin America region revenue increased by 14% to
$244 million (20% at constant exchange rates). European
region revenue increased by 9% from $730 million in 2000 to
$799 million in 2001 (13% increase at constant exchange
rates).

Total dialysis care revenue increased by 27% (31%
at constant exchange rates) from $336 million in 2000 to
$426 million in 2001. This increase is a result of base
business growth increasing approximately $37 million (13%),
combined with an approximate $67 million (18%) increase
from acquisitions, offset by an approximate $14 million
(4%) from exchange rate fluctuations.

At the end of 2001, approximately 29,230 patients
were treated at 370 clinics that we own, operate or manage
in the International segment compared to 24,000 patients
treated at 350 clinics at the end of 2000.

Total dialysis product revenue for 2001 increased
by 6% (12% at constant exchange rates) to $831 million.
Base business increased by approximately $70 million (9%)
and acquisitions contributed another $22 million (3%).
Product revenue increase was offset by approximately
$45 million (6%) due to exchange rate fluctuations.

EBITDA

EBITDA for the International segment for 2001
grew by 11% (15% at constant exchange rates) from
$264 million to $292 million primarily due to the
increased revenue noted above. EBITDA margin remained relatively
constant at 23% with the negative effect of the financial crisis
in Argentina and currency problems in Columbia and Brazil
leading to increased bad debt expense and higher cost of goods
sold offset by increases in dialyzer and hemodialysis machine
sales.

Depreciation and Amortization

Depreciation and amortization remained constant
at 6% of revenues for 2001 and 2000.

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EBIT

EBIT for the International segment for 2001
increased by 11% (15% at constant exchange rates) from
$195 million to $216 million due to the increased
EBITDA mentioned above and stable depreciation and amortization
as a percentage of revenue. EBIT margin remained relatively
constant at 17%, for the same reasons as EBITDA margin described
above.

Argentina

Excluding the special charge for legal matters
and related prior quarter expenses, our business in Argentina
contributed about 2.2% of EBIT and 2.6% of net income in 2001.
In January 2002, the Argentine government terminated the fixed
exchange rate between the U.S. dollar and the peso. On
January 11, 2002, currency activity resumed, and the
floating exchange rate ranged from 1.6 to 1.7 pesos to
1 U.S. dollar. In accordance with U.S. GAAP, we
used the rate of 1.7 pesos to 1 U.S. dollar for
purposes of translating Argentine peso financial statements as
of December 31, 2001. There was no effect on earnings,
since translation losses at year end are deferred in accumulated
other comprehensive income.

In 2001, Fresenius Medical Care achieved sales
growth of 19% and an earnings after tax growth of 30% in
Argentina.

Special Charge for Legal
Matters

In the fourth quarter of 2001, the Company
recognized a $258 million ($177 million after tax)
special charge to address 1996 merger related legal matters,
expected 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. We did not allocate this special
charge of $258 million to our North America business
segment.

The special charge primarily comprises three
major components:

(1) We assessed the extent of potential
liabilities as a result of the W.R. Grace Chapter 11
proceedings. The Company accrued $172 million 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
filing. In addition, that amount includes the costs of defending
the Company in litigation arising out of W.R. Graces
Chapter 11 filing.

(2) We entered into an agreement in principle
with Aetna Life Insurance Company (Aetna) to
establish a process for resolving our pending litigation with
Aetna. The Company has included in the special charge the amount
of $55 million to provide for settlement obligations, legal
expenses and disputed accounts receivable for Aetna and the
other litigants. If the Company is unable to settle the pending
matters with any of the remaining commercial insurers, whether
on the basis of the Aetna agreement in principle or otherwise,
the Company believes that this charge reasonably estimates the
costs and expenses associated with such litigation.

(3) The remaining amount of $31 million
mainly represents assets impaired due to litigation.

See also Note 3Special Charge
for Legal Matters and Note 20Legal
Proceedings in the Consolidated Financial Statements.

Corporate

We do not allocate corporate costs to
our segments in calculating segment EBIT 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, legal fees, etc.

Total corporate EBIT was $(25) million in 2001
compared to $(3) million in 2000. EBIT in 2001 was
primarily affected by $7 million expenses related to 1996
merger related legal matters recorded in quarters prior

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to the recognition of the special charge and
lower foreign currency gains which had a positive impact of
$12 million in 2000.


The following discussions pertain to our total
company costs, excluding the effects of the special charge for
legal matter in 2001.

Interest

Interest expense for 2001 increased by 3% from
$216 million to $223 million compared to the same
period in 2000 due to an increase in debt as a result of
acquisition spending.

Income Taxes

The effective tax rate for the year increased
from 46.9% in 2000 to 58.4% in 2001 due to a portion of the
special charge for legal matters not being recognized for tax
purposes. This was partially offset by a significantly lower
German tax rate.

B.  Liquidity and Capital
Resources

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.

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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.

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, we will continue to
follow an earnings driven dividend policy. The Managing Board
will propose to the Supervisory Board a dividend of
 0.94 per
ordinary share (2001:
0.85) and
1.00 per
preference share (2001:
0.91) for
shareholder approval at the annual general meeting on
May 22, 2003. The total expected dividend payment is
approximately
92 million.
Our Senior Credit Agreement limits 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 Agreement 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
new senior credit agreements to refinance outstanding borrowings
under our prior senior credit agreement and for general
corporate purposes (see note 25 of the Consolidated
Financial Statements).

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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 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).

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. 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.

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 24, 2002, when we extended its
maturity to October 24, 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 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 which may become payable in 2003.

Obligations

The following table summarizes, as of
December 31, 2002, 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
|                                   |  |       |           |                           |  |           |         |             
|Trust Preferred Securities         |  | $     | 1,145,281 |                           |  | $         |        |              |  | $ |          |  |  | $ | 1,145,281 | 
|Long Term Debt                     |  |       | 1,100,959 |                           |  |           | 17,374  |              |  |   | 1,056,004 |  |  |   | 27,581    | 
|Capital Lease Obligations          |  |       | 10,645    |                           |  |           | 5,020   |              |  |   | 5,625     |  |  |   |          | 
|Operating Leases                   |  |       | 847,211   |                           |  |           | 180,131 |              |  |   | 538,649   |  |  |   | 128,431   | 
|Unconditional Purchase Obligations |  |       | 306,195   |                           |  |           | 126,671 |              |  |   | 146,314   |  |  |   | 33,210    | 
|Other Long-term Obligations        |  |       | 5,996     |                           |  |           | 5,996   |              |  |   |          |  |  |   |          | 
|                                   |  |       |           |                           |  |           |         |              |  |   |           |  |  |   |           | 
|                                   |  | $     | 3,416,287 |                           |  | $         | 335,192 |              |  | $ | 1,746,592 |  |  | $ | 1,334,503 | 
|                                   |  |       |           |                           |  |           |         |              |  |   |           |  |  |   |           | 

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|                               |  |       |         |                          |  |           |        |              |  |   |         |  |  |   |   | 
|------------------------------ |  | ----- | ------- | ------------------------ |  | --------- | ------ | ------------ |  | - | ------- |  |  | - | - | 
|                               |  |       |         |                         
|                               |  |       |         | Expiration per period of
|                               |  |       |         |                         
|Available Sources of Liquidity |  | Total |         | 1 Year                   |  | 2-5 Years |        | Over 5 Years
|                               |  |       |         |                          |  |           |        |             
|Unused Senior Credit Lines     |  | $     | 381,445 |                          |  | $         |       |              |  | $ | 381,445 |  |  | $ |  | 
|Other Unused Lines of Credit   |  |       | 60,541  |                          |  |           | 58,012 |              |  |   | 2,529   |  |  |   |  | 
|                               |  |       |         |                          |  |           |        |              |  |   |         |  |  |   |   | 
|                               |  | $     | 441,986 |                          |  | $         | 58,012 |              |  | $ | 383,974 |  |  | $ |  | 
|                               |  |       |         |                          |  |           |        |              |  |   |         |  |  |   |   | 

The amount of guarantees and other commercial
commitments at December 31, 2002 is not significant. The
available sources of liquidity do not reflect the new FMC Senior
Credit Agreement of February 21, 2003.

Year ended December 31, 2001 compared to
year ended December 31, 2000

Cash Flow

Operations

We generated cash from operating activities of
$424 million in the year ended December 31, 2001 and
$391 million in the comparable period in 2000, an increase
of about 8% over the prior year. Cash from operations was not
impacted by the special charge for legal matters as the major
part of the charge was non-cash.

Investing

Cash used in investing activities decreased
slightly from $482 million to $468 million mainly
because of lower cash acquisition payments partly offset by
slightly higher net capital expenditures. 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. Acquisitions for the comparable period in 2000 were
$275 million, $116 million for the North America
segment and $159 million for the International segment
excluding International segment non-cash acquisitions of
$14 million.

In addition, capital expenditures for property,
plant and equipment net of disposals were $251 million for
the year ended December 31, 2001 and $207 million for
the comparable period in 2000. In 2001, capital expenditures
were $123 million in the North America segment and
$128 million for the International segment. In 2000,
capital expenditures in the North America segment were
$99 million and $109 million in the International
segment. The majority of our capital expenditures were used for
equipment for new clinics, improvements to existing clinics and
expansion of production facilities. Capital expenditures were
approximately 5% of total revenue.

Financing

Net cash provided by financing decreased to
$43 million in 2001 from $156 million in 2000 due
primarily to increased repayments of short term borrowings to
both related and third party creditors. Cash on hand was
$62 million at December 31, 2001 compared to
$65 million at December 31, 2000.

In 2000, we executed definitive agreements with
respect to the settlement of the U.S. government
investigation. The agreements required net settlement payments
totaling approximately $387 million in 2000 and about
$86 million in 2001, when the final payment was made.

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.

In June 2001 we completed offerings pursuant to
Rule 144A and Regulation S under the Securities Act of
1933 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. The net proceeds of the
offerings were approximately $471 million, which we used to
repay outstanding revolving indebtedness under our senior credit
facility, to repay short-term debt, including approximately
$120 million of short-term debt to Fresenius AG, and for
general corporate purposes.

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Between July 13, 2001 and December 5,
2001 we issued four tranches of senior notes totaling
128.5 million.
The first two tranches were issued on July 13, 2001 with
the first for
80 million
with a fixed rate of 6.16% and the second for
28.5 million
with a floating rate, at the time of issue 5.837%. The third
tranche was issued on September 15, 2001 for
15 million
at a floating rate of 5.077% at time of issue. The final tranche
was issued on December 5, 2001 for
5 million
at a fixed rate of 5.33%. All four tranches have a maturity date
of July 13, 2005. The floating interest rates are tied to
EURIBOR.

Total long-term debt net of current portion at
December 31, 2001 increased to $736 million from
$658 million at year-end 2000. This increase was mainly due
to higher borrowings under our senior credit facility.
Short-term borrowings from related parties decreased from
$218 million at December 31, 2000 to $15 million
at December 31, 2001 whereas short term borrowings from
third parties decreased from $107 million to
$93 million over the same period.

Recently Issued Accounting Standards

In July 2001, the FASB issued SFAS No. 141,
Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. The Company adopted
these statements as described in Note 1g. The effect on
prior years income is described in Note 9 of our
Consolidated Financial Statements.

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 will adopt SFAS
No. 143 as of January 1, 2003. The adoption of
SFAS No. 143 will not have a material impact on the
Companys financial statements.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. It provides new guidance that modifies
and supercedes the existing guidance in SFAS No. 121
and APB No. 30. The Company adopted
SFAS No. 144 on January 1, 2002. The adoption of
SFAS No. 144 did not have an 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 respect to certain sale-leaseback
transactions. The Company will adopt 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 $11,777, net of taxes of $7,740, as a result of the
early redemption of debt (see Note 14 of our Consolidated
Financial Statements). This loss will no longer be 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 July 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 rather than at the date of a commitment
to an exit or disposal plan. 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 to be 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 requires a guarantor to recognize a
liability measured at fair value at the inception of a guarantee
for obligations undertaken, including its obligation to stand
ready to perform over the term of the guarantee. 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. The Company adopted those disclosure
requirements as of December 31, 2002. The

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Company has guarantees of an immaterial amount.
As such, they do not materially impact the Companys
financial statements.


In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation to provide alternative methods for
a change to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure
requirement of SFAS No. 123 to require disclosures in both
annual and interim financial statements of the method of
accounting for stock-based employee compensation and the effect
the method used had on reported results. The Company adopted the
amended disclosure requirements as of December 31, 2002
(see Notes 1s and 18 of our Consolidated Financial
Statements).

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46
(FIN 46) Consolidation of Variable Interest
Entities. FIN 46 addresses the consolidation of variable
interest entities by the primary beneficiary, when the total
equity investment at risk is not sufficient to permit the entity
to finance its activities without additional subordinated
support from other parties and/or the equity investor lacks
certain essential characteristics of a controlling financial
interest. FIN 46 requires existing variable interest entities to
be consolidated if those entities do not effectively disburse
risk among the parties involved. The interpretation becomes
effective at various dates in 2003 and provides various
transition rules. The adoption of FIN 46 has no material impact
on the Companys financial statements.

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 had over 200
employees working in research and development worldwide at
December 31, 2002. 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 $32 million in 2000,
$36 million in 2001, and $47 million in 2002. 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.

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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 six 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.

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.

|                                   |  |              |    | 
|---------------------------------- |  | ------------ | -- | 
|                                   |  | Age as of   
|                                   |  | December 31,
|Name                               |  | 2002        
|                                   |  |             
|Dr. Gerd Krick, Chairman           |  |              | 64 | 
|Dr. Dieter Schenk, Deputy Chairman |  |              | 50 | 
|Prof. Dr. Bernd Fahrholz           |  |              | 54 | 
|Dr. Theo Spettmann                 |  |              | 58 | 
|Walter L. Weisman(1)               |  |              | 67 | 
|Stephen M. Peck(1)                 |  |              | 67 | 

| | 
| | 
| | 



| |     |                     
| | --- | --------------------
| | (1) | Independent Director

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.

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DR. GERD KRICK has been Chairman of our
supervisory board since January 1, 1998. Since 1992, he has
been 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 and of Fresenius
Kabi AG.

DR. DIETER SCHENK has been Deputy 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 and as a member of
the supervisory board of Deutsche BA Luftfahrtgesellschaft mbH.

PROF. DR. BERND FAHRHOLZ has been a
member of our supervisory board since 1998. He is an attorney
and has been a member of the management board of Dresdner Bank
AG since 1998 and its Chairman since April 2000. He also serves
as the vice-chairman of the management board of Allianz AG.
Dr. Fahrholz is a member of the supervisory boards of
Dresdner Kleinwort Benson North America Inc.; BMW AG;
BNP-Paribas S.A.; Heidelberger Zement AG; Advance Holding AG;
Banco General de Negocios S.A. Until December 31, 2001, he
was a member of the supervisory board of
Reuschel & Co.

DR. THEO SPETTMAN has been a member of our
supervisory board since April 1, 2000. He has been a member
of the management board of Südzucker AG since 1988 and
Spokesman of the management board of Südzucker AG since
1995. Dr. Spettman also serves on the supervisory boards of
Karlsruher Versicherungen AG, Gerling Industrie Service AG, and
is chairman of the supervisory boards of Berentzen-Group AG and
Saint Louis Sucre S.A. He is chairman of the advisory boards of
AIH Agrar-Industrie-Holding GmbH and Mönnich
GmbH & Co. KG. He is also on the board of trustees for
Südzuckergroup Export Centre S.A. as chairman ans
Raffinerie Tirlemontoise S.A.

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. and is a 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. In 2002, Mr. Weisman was
elected to the board of Occidental Petroleum Corporation.

STEPHEN M. PECK was elected to our supervisory
board in 1999. He is currently a partner with Torrey Funds LLC.
He is a former managing partner of Weiss, Peck & Greer which
he cofounded 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. and Carnac Resource, Inc. He also serves as a member of the
Advisory Board of Brown Simpson Asset Management. 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.

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

|                     |  |              |    |          |  |                                                                                                                                |  |  |      | 
|-------------------- |  | ------------ | -- | -------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  | ---- | 
|                     |  | Age as of    |    |          |  | Year                                                                                                                          
|                     |  | December 31, |    |          |  | Term                                                                                                                          
|Name                 |  | 2002         |    | Position |  | Expires                                                                                                                       
|                     |  |              |    |          |  |                                                                                                                               
|Dr. Ben J. Lipps     |  |              | 62 |          |  | Chairman of the management board, Chief Executive
    Officer of our Company and Chief Executive Officer for North
    America |  |  | 2004 | 
|Roberto Fusté        |  |              | 50 |          |  | Chief Executive Officer for Asia Pacific                                                                                       |  |  | 2006 | 
|Dr. Emanuele Gatti   |  |              | 47 |          |  | Chief Executive Officer for Europe,
    Middle East, Africa and Latin America                                                  |  |  | 2005 | 
|Dr. Ulf M. Schneider |  |              | 37 |          |  | Chief Financial Officer (until May 28, 2003)                                                                                   |  |  | 2004 | 
|Dr. Rainer Runte     |  |              | 43 |          |  | 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.

MR. 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.

Dr. ULF M. SCHNEIDER joined our
management board on November 1, 2001 and is Chief Financial
Officer. Previously he was Group Finance Director for
Gehe UK plc., a pharmaceutical wholesale and retail
distributor, in Coventry, United Kingdom. He has held several
senior executive and financial positions since 1989 with
Gehes majority shareholder, Franz Haniel &
Cie. GmbH, Duisburg, a diversified German multinational
company. On March 7, 2003, Dr. Schneider announced his
resignation to become Chairman of the Management Board of
Fresenius AG, effective May 28, 2003.

DR. RAINER RUNTE was appointed a deputy
member of our management board as General Counsel and Chief
Compliance Officer effective March 15, 2002. 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.

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

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B.  Compensation

Compensation of Our Management Board and
our Supervisory Board

For the year ended December 31, 2002, we
paid aggregate cash compensation to all members of the
Management Board of
2,886,869. The
aggregate compensation fees to all members of the Supervisory
Board was
466,860
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 2002 we awarded 99,600 options to
purchase our preference shares without stock price targets at a
weighted average exercise price of
29.68 and
57,270 options with stock price targets at a weighted
average exercise price of
37.53 under the
new FMC International 2001 Plan, none of which are exercisable.
At December 31, 2002 Management Board members held options
to acquire 111,574 Preference shares, all of which were
exercisable at a weighted average exercise price of
37.37 under
FMC 98 Plan 2 and 239,250 options, none of which
are exercisable, under the FMC 2001 stock incentive plan.

At December 31, 2002, a loan granted to a
member of our Management Board in the principal amount of
$2,000,000, bearing interest at 6% per annum, was outstanding.

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, whos members are
Dr. Dieter Schenk, Walter L. 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 of our
    financial reporting process and the internal accounting and
    financial control systems;
|
| |  | monitoring our internal controls risk management;                                                                                    
|
| |  | monitoring the independence and performance of
    our outside auditors; and                                                         
|
| |  | providing an avenue of communication among the
    outside auditors, management and the Supervisory Board.                           

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D.  Employees

At December 31, 2002, we had
39,264 employees, as compared to 37,331 at
December 31, 2001 and 35,370 at December 31, 2000.
They are employed in our principal segments as follows: North
America 26,489 employees and International 12,775. The
following table shows the average number of employees by segment
and our major category of activities for the last three fiscal
years.

|              |                   |      |        |        |  |      |        |        |  |  |        |        | 
|------------- | ----------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|              |                   | 2002 |        | 2001   |  | 2000
|              |                   |      |        |        |  |     
|North America |                   |      |        |        |  |      |        |        |  |  |        |       
|              | Dialysis Care     |      |        | 21,628 |  |      |        | 22,382 |  |  |        | 19,601 | 
|              | Dialysis Products |      |        | 4,861  |  |      |        | 3,970  |  |  |        | 3,616  | 
|              |                   |      |        |        |  |      |        |        |  |  |        |       
|              |                   |      | 26,489 |        |  |      | 26,352 |        |  |  | 23,217 |       
|International |                   |      |        |        |  |      |        |        |  |  |        |       
|              | Dialysis Care     |      |        | 6,924  |  |      |        | 6,173  |  |  |        | 5,807  | 
|              | Dialysis Products |      |        | 5,851  |  |      |        | 4,806  |  |  |        | 4,292  | 
|              |                   |      |        |        |  |      |        |        |  |  |        |       
|              |                   |      | 12,775 |        |  |      | 10,979 |        |  |  | 10,099 |       

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. During the last three fiscal years, we have not
suffered any labor-related work disruptions. In addition,
approximately 2% of our U.S. employees are covered by union
agreements.

E.  Share ownership

As of December 31, 2002, members of the
Supervisory Board and the Board of Management 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, 2002
management board members held options to acquire
350,824 Preference shares of which options to purchase
111,574 Preference shares were exercisable at a weighted
average exercise price of
37.37. Those
options expire at various dates between 2008 and 2012. 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, 2002, 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 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 anniversary of the award date, provided that we
achieve 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. 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

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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 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 is 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 1,490,377 shares outstanding at
December 31, 2002, 249,317 shares 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 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, 2002,
38,085 FMC Rollover Plan options were exercised by employees.
Rollover Plan options for 104,418 Ordinary ADSs were outstanding
and exercisable as of December 31, 2002 at a weighted
average exercise price of $9.28. Members of our supervisory
board and our management board, as a group, held no rollover
options.

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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.

To our knowledge, Fresenius AG is the only entity
that beneficially owns more than 5% of our outstanding Ordinary
shares. We have been informed that as of December 31, 2002,
Fresenius AG owned the majority, 50.8%, of our Ordinary shares.
At December 31, 2002 Fresenius AGs Ordinary shares
represented approximately 37% of our total share capital. Morgan
Guaranty Trust Company of New York, our ADR depositary, informed
us, that as of December 31, 2002 2,773,838 Ordinary ADSs,
each representing one-third of an Ordinary share, were held of
record by 7,945 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, 2002. For more information regarding ADRs and
ADSs see Item 10.B. Memorandum and Articles of
Association  Description of American Depositary
Receipts.

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 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. Fresenius AG
has also been informed that AW-Beteiligungsgesellschaft mbH,
which is controlled by Agrar Industrie Holding GmbH, owns 8.8%
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

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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 only to Fresenius Medical Care AG
    and its subsidiaries; and                                                         
|
| |  | the term Fresenius AG and its
    affiliates refers only to Fresenius AG and
    affiliates of Fresenius AG other than Fresenius 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
8.6 million,
which was approximately $9.0 million as of
December 31, 2002, 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 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.                                                                                                                                                                        

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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 the 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 concentrates, at facilities that
Fresenius AG retained. These facilities are 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.

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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 2002, Fresenius AG charged us
approximately $23.0 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 2002, we charged approximately
$10.1 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, 2002, aggregate loans
outstanding from Fresenius AG amounted to $6 million which
bore interest at 2.22% at year end. The borrowed funds were used
for general corporate purposes. Interest paid during 2002 was
$0.4 million.

Other Interests

Dr. Gerd Krick, who is Chairman of our
supervisory board, is also the Chairman of the management board
of Fresenius AG.

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. Only interest
is due during the first four years of the term, with both
principal and interest due during the fifth year. At any time
during the term of the loan, we may call the loan, and the loan
can be repaid without penalty.

Prof. Dr. Bernd Fahrholz, a member of our
supervisory board, is the chairman of the managing board of
Dresdner Bank AG 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 the amended and restated senior credit facility
that we entered into in February 2003. 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. During
2002, we listed on the Frankfurt Stock Exchange, at our expense
pursuant to a prior contractual commitment, Preference shares
held by an affiliate of Dresdner Kleinwort Wasserstein
Securities LLC and other investors issued in a private offering
completed in March 2000. The listing followed a two-year period
in which the investors had agreed not to effect any dispositions
of the shares issued in the private offering.

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. Vermögensverwaltung-

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sgesellschaft 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 2002, we recognized $26.0 million of
sales to Fresenius AG and its affiliates. We made purchases from
Fresenius AG in the amount of $23.7 million during 2002.




Item 8.  Financial
information

The information called for by this item is in the
section beginning on Page F-1.

8.A.7.  Legal Proceedings

The following section describes material legal
actions and proceedings relating to us and our business. While
we believe that it is unlikely that any pending legal
proceedings known to us will have a material adverse effect on
our business, financial condition and results of operations,
there can be no assurance, regarding the ultimate outcome of any
pending legal proceedings.

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 Fresenius
Medical Care AG, 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 obligation of Fresenius Medical
Care. 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 approximately $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.,
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.

On February 6, 2003, we reached a definitive
agreement with the asbestos creditors committees on behalf
of the W.R. Grace & Co. bankruptcy estate in the matters
pending in the Grace Chapter 11 Proceedings (the
Settlement Agreement) for the settlement of all
fraudulent conveyance 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, fraudulent
conveyance and other claims raised on behalf of asbestos
claimants will be dismissed with prejudice

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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 is subject to the
approval of the U.S. District Court. The foregoing
description of the material terms of the Settlement Agreement is
qualified in its entirety by reference to the full text of the
Settlement Agreement, which is an Exhibit to this report.


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 our entitlement to indemnification from
Sealed Air for all losses and expenses that are incurred
relating to pre-Merger tax liabilities and Merger-related
claims. Under the Settlement Agreement, upon confirmation of a
plan that satisfies the conditions to our payment obligation,
this litigation will be dismissed with prejudice.

Since 1997, Fresenius Medical Care AG, FMCH, NMC,
and certain NMC subsidiaries have been engaged in litigation
with various insurance companies concerning allegations of
inappropriate billing practices for nutritional therapy and
diagnostic and clinical laboratory tests and misrepresentations.
These claims against us seek unspecified damages and costs.
Fresenius Medical Care AG, FMCH, NMC and its subsidiaries
believe that there are substantial defenses to the claims
asserted, and intend to vigorously defend all lawsuits. We have
filed counterclaims against the plaintiffs in these matters
based on inappropriate claim denials and delays in claim
payments. Other private payors have contacted us and may assert
that NMC received excess payments and, similarly, may join the
lawsuits or file their own lawsuit seeking reimbursement and
other damages. Although we cannot predict the ultimate outcome
of these proceedings at this time, 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, the 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.

Like other health care providers, we 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 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.

Fresenius Medical Care AG operates a large number
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

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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
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 its
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
have 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 continued defense and resolution of
pre-Merger tax claims, Merger-related claims, and commercial
insurer claims. See Note 3 of the Notes to our consolidated
financial statements. The costs associated with the Settlement
Agreement will be 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 the actual costs incurred will not exceed the amount of
these accruals.

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).

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.

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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 |  | 2002 |      | 2001 |  | 2000
|                 |  |      |      |      |  |     
|Preference share |  |     | 0.91 |      |  |     | 0.84 |  |  |  | 0.75 | 
|Ordinary Share   |  |     | 0.85 |      |  |     | 0.78 |  |  |  | 0.69 | 

We have announced that our managing board and our
supervisory board have proposed dividends for 2002 payable in
2003 of
 1.00 per
Preference share and
0.94 per
Ordinary share. These dividends are subject to approval by our
shareholders at our annual general meeting to be held on
May 22, 2003.

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

2003 Senior Credit Agreement

On February 21, 2003, we entered into an
amended and restated Senior Credit Agreement (hereafter
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), pursuant to
which the Lenders have made available to us an aggregate amount
of up to $1.5 billion through three credit facilities:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a revolving credit facility of up to
    $500 million (of which up to $250 million is available
    for letters of credit, up to $300 million is available for
    borrowings in certain non-U.S. currencies, up to
    $75 million is available as swing lines in
    U.S. dollars, up to $250 million is available as a
    competitive loan facility and up to $50 million is
    available as swing lines in certain non-U.S. currencies,
    the total of which cannot exceed $500 million) which will
    be due and payable on October 31, 2007.
|
| |  | a term loan facility (Loan A) of
    $500 million, 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.
    Repayment begins in the third quarter of 2004 and amounts to
    $25 million per quarter. The remaining amount outstanding
    is due on October 31, 2007.                                                                                                                                                               
|
| |  | a term loan facility (Loan B) of
    $500 million, scheduled to expire in February 2010, subject
    to a repayment provision requiring that if by October 2007 the
    Trust Preferred Securities (see Note 14) due
    February 1, 2008 are not repaid, refinanced or have their
    maturity extended until at least August 2010, repayment will be
    due on October 31, 2007. The terms of the 2003 Senior
    Credit Agreement require repayments of 0.25% per quarter
    beginning with the second quarter of 2003.                         

Loans under the 2003 Senior Credit Agreement bear
interest at a rate determined in accordance with the agreement.
For the revolving credit facility and Loan A, interest will be
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 EBITDA
and funded debt as defined in the credit agreement. The initial
interest rate for Loan B is 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.

In addition to scheduled principal payments, the
2003 Senior Credit Agreement will be reduced by portions of the
net cash proceeds from certain sales of assets, securitization
transactions and the issuance of subordinated debt and equity
securities.

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The 2003 Senior Credit Agreement contains
affirmative and negative covenants with respect to Fresenius
Medical Care AG and our subsidiaries and other payment
restrictions substantially similar to the previous 1996 Senior
Credit Agreement. Some of the limitations imposed by the
covenants relate to our indebtedness and investments, and
require us to maintain certain ratios defined in the agreement.

Class D Preferred Stock

On February 4, 2003, we announced that FMCH
had elected to exercise 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 Fresenius Medical Care AG.

Class D Shares that have been properly
transmitted, and received by, the redemption agent will be
redeemed commencing on March 28, 2003 at a redemption price
of $0.10 per share. FMCH intends to redeem the 89 million
outstanding Class D Shares at a total cash outflow of
approximately $8.9 million. This transaction will have no
impact on our earnings. After March 28, 2003, the
Class D Shares will cease to be deemed issued and
outstanding shares of FMCH Capital Stock and will be restored to
the status of authorized but unissued shares of preferred stock.

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, 2001, the most
recent figures available, the shares of 5,777 companies
traded on the official market, regulated market, including the
Neuer Markt Segment and the regulated unofficial market of the
Frankfurt Stock Exchange. Of these 912 were German companies and
4,865 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. 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.

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FMCs shares are traded on Xetra (Exchange
Electronic Trading) in addition to being traded on the auction
market. Xetra is available daily between 9:00 a.m. and
8:00 p.m. to brokers and banks that have been admitted to
Xetra by the Frankfurt Stock Exchange. 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. For
the 1998 the share prices were translated at the official
deutsche mark/ euro exchange rate. (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     
|     |  |                |  | ordinary share
|     |  |                |  |               
|     |  |                |  | High           |        | Low
|     |  |                |  |                |        |    
|2003 |  | February       |  |                | 43.72  |     |  |  | 38.10 | 
|     |  | January        |  |                | 45.99  |     |  |  | 38.00 | 
|2002 |  | December       |  |                | 46.40  |     |  |  | 36.12 | 
|     |  | November       |  |                | 45.89  |     |  |  | 29.10 | 
|     |  | October        |  |                | 31.40  |     |  |  | 20.76 | 
|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 | 
|2001 |  | Fourth Quarter |  |                | 88.30  |     |  |  | 66.77 | 
|     |  | Third Quarter  |  |                | 92.86  |     |  |  | 75.40 | 
|     |  | Second Quarter |  |                | 84.25  |     |  |  | 69.55 | 
|     |  | First Quarter  |  |                | 90.65  |     |  |  | 75.62 | 
|2002 |  | Annual         |  |                | 73.00  |     |  |  | 19.98 | 
|2001 |  | Annual         |  |                | 92.90  |     |  |  | 66.77 | 
|2000 |  | Annual         |  |                | 103.60 |     |  |  | 72.40 | 
|1999 |  | Annual         |  |                | 88.70  |     |  |  | 47.20 | 
|1998 |  | Annual         |  |                | 73.37  |     |  |  | 30.73 | 

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The average daily trading volume of the Ordinary
shares traded on the Frankfurt Stock Exchange during 2002 was
428,112 shares. The foregoing numbers are based on total yearly
turnover statistics supplied by the Frankfurt Stock Exchange. On
February 28, 2003, the closing sales price per Ordinary
share on the Frankfurt Stock Exchange was
39.21,
equivalent to $42.19 per Ordinary share.

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, share prices
for the 1998 were translated at the official deutsche mark/euro
exchange rate (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
|     |  |                |  |                  |       |    
|2003 |  | February       |  |                  | 31.75 |     |  |  | 27.50 | 
|     |  | January        |  |                  | 33.20 |     |  |  | 27.80 | 
|2002 |  | December       |  |                  | 33.80 |     |  |  | 27.50 | 
|     |  | November       |  |                  | 33.30 |     |  |  | 23.75 | 
|     |  | October        |  |                  | 25.20 |     |  |  | 15.80 | 
|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 | 
|2001 |  | Fourth Quarter |  |                  | 63.80 |     |  |  | 48.00 | 
|     |  | Third Quarter  |  |                  | 65.25 |     |  |  | 55.70 | 
|     |  | Second Quarter |  |                  | 59.84 |     |  |  | 46.95 | 
|     |  | First Quarter  |  |                  | 56.90 |     |  |  | 46.01 | 
|2002 |  | Annual         |  |                  | 53.90 |     |  |  | 15.17 | 
|2001 |  | Annual         |  |                  | 65.25 |     |  |  | 46.01 | 
|2000 |  | Annual         |  |                  | 58.00 |     |  |  | 38.00 | 
|1999 |  | Annual         |  |                  | 43.50 |     |  |  | 30.30 | 
|1998 |  | Annual         |  |                  | 58.03 |     |  |  | 25.56 | 

The average daily trading volume of the
Preference shares traded on the Frankfurt Stock Exchange during
2002 was 153,119 shares. The foregoing numbers are based on
total yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On February 28, 2003, the closing sales price per
Preference share on the Frankfurt Stock Exchange was
28.40,
equivalent to $30.56 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
| |      |  |  |                |  |    
| | 2003 |  |  | February       |  |     | 15.69 |  |  |  | 13.91 | 
| |      |  |  | January        |  |     | 16.19 |  |  |  | 13.20 | 
| | 2002 |  |  | December       |  |     | 14.80 |  |  |  | 12.70 | 
| |      |  |  | November       |  |     | 15.20 |  |  |  | 9.83  | 
| |      |  |  | October        |  |     | 10.63 |  |  |  | 7.04  | 
| | 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 | 
| | 2001 |  |  | Fourth Quarter |  |     | 26.85 |  |  |  | 19.80 | 
| |      |  |  | Third Quarter  |  |     | 28.30 |  |  |  | 22.75 | 
| |      |  |  | Second Quarter |  |     | 25.45 |  |  |  | 21.00 | 
| |      |  |  | First Quarter  |  |     | 27.94 |  |  |  | 22.26 | 
| | 2002 |  |  | Annual         |  |     | 21.60 |  |  |  | 6.70  | 
| | 2001 |  |  | Annual         |  |     | 28.30 |  |  |  | 19.80 | 
| | 2000 |  |  | Annual         |  |     | 30.19 |  |  |  | 22.56 | 
| | 1999 |  |  | Annual         |  |     | 29.87 |  |  |  | 15.81 | 
| | 1998 |  |  | Annual         |  |     | 26.87 |  |  |  | 12.50 | 

On February 28, 2003, the closing sales
price per Ordinary ADS on the NYSE was $14.17.

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
| |      |  |  |                |  |    
| | 2003 |  |  | February       |  |     | 11.20 |  |  |  | 10.10 | 
| |      |  |  | January        |  |     | 11.70 |  |  |  | 9.85  | 
| | 2002 |  |  | December       |  |     | 11.10 |  |  |  | 9.66  | 
| |      |  |  | November       |  |     | 11.00 |  |  |  | 7.90  | 
| |      |  |  | October        |  |     | 8.10  |  |  |  | 5.30  | 
| | 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 | 
| | 2001 |  |  | Fourth Quarter |  |     | 18.25 |  |  |  | 14.55 | 
| |      |  |  | Third Quarter  |  |     | 19.64 |  |  |  | 15.75 | 
| |      |  |  | Second Quarter |  |     | 16.91 |  |  |  | 14.00 | 
| |      |  |  | First Quarter  |  |     | 17.49 |  |  |  | 14.75 | 
| | 2002 |  |  | Annual         |  |     | 15.70 |  |  |  | 4.90  | 
| | 2001 |  |  | Annual         |  |     | 19.64 |  |  |  | 14.00 | 
| | 2000 |  |  | Annual         |  |     | 16.91 |  |  |  | 13.25 | 
| | 1999 |  |  | Annual         |  |     | 16.75 |  |  |  | 11.25 | 
| | 1998 |  |  | Annual         |  |     | 21.00 |  |  |  | 12.25 | 

On February 28, 2003, the closing sales
price per Preference ADS on the NYSE was $10.37.

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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.

The 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,
|
| |  | the payment of fees, taxes and similar charges, or                                                                                                                                                       

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| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | 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. Our material agreements also
include the agreements that FMCH and certain of its subsidiaries
entered into with the U.S. government when we settled the
U.S. government investigation. A description of the
financial terms of the Settlement appears in this report under
Item 5.B. Operating and Financial Review and
Prospects  Liquidity and Capital Resources. Our
Report on Form 6-K filed with the SEC on January 27,
2000 contains a description of the other 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 or Montenegro. However, for statistical
purposes only, every resident individual or corporation residing
in Germany must report to the German Federal Bank (Deutsche
Bundesbank), subject only to certain

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immaterial exceptions, any payment received from
or made to an individual or a corporation resident outside of
Germany if such payment exceeds DM 5,000, or the equivalent
in euro. 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,
exceed DM 500,000, or the equivalent in euro, at the end of
any month. Residents must also report any direct investment made
or received from outside Germany if such investment exceeds
DM 100,000 or the equivalent amount in euro.


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 2003 out of profits
earned in or before 2002, 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
2003 is partially refunded under the Income Tax Treaty,
effectively reducing the withholding tax to 15%

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of the gross amount of the dividend. Thus, for
each $100 of gross dividend paid by Fresenius Medical Care AG in
2003 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 2003 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 from
25% 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
1.375% (5.5% 2/3 25%) 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
1.375% 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
1.375% 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
20%, 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 31% 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 2002 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. Our current contract with Amgen Inc., our sole
source supplier of EPO, covers the period from January 2002 to
December 2003.

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, 2002.
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, 2002, and the credit risk inherent to those
contracts with positive market values as of December 31,
2002. All contracts expire within 17 months after the
reporting date.

|                               |  |                                  |           |         |  |       |        |       |  |        |           |  |  |   |        |   |  |   |        | 
|------------------------------ |  | -------------------------------- | --------- | ------- |  | ----- | ------ | ----- |  | ------ | --------- |  |  | - | ------ | - |  | - | ------ | 
|                               |  |                                 
|                               |  | Foreign Currency Risk Management
|                               |  | December 31, 2002               
|                               |  | (U.S. Dollars in thousands)     
|                               |  |                                 
|                               |  |                                  |           | Nominal |  |      
|                               |  |                                  |           | Amount  |  |       |        | Fair  |  | Credit
|                               |  | 2003                             |           | 2004    |  | Total |        | Value |  | Risk  
|                               |  |                                  |           |         |  |       |        |       |  |       
|Purchase of EUR against USD    |  | $                                | 845,200   |         |  | $     | 5,034  |       |  | $      | 850,234   |  |  | $ | 89,758 |   |  | $ | 63,143 | 
|Sale of EUR against USD        |  |                                  | 3,697     |         |  |       |       |       |  |        | 3,697     |  |  |   | (163   | ) |  |   |       | 
|Purchase of EUR against others |  |                                  | 153,462   |         |  |       | 16,619 |       |  |        | 170,081   |  |  |   | 5,157  |   |  |   | 5,781  | 
|Sale of EUR against others     |  |                                  | 12,735    |         |  |       |       |       |  |        | 12,735    |  |  |   | 14     |   |  |   | 31     | 
|Others                         |  |                                  | 25,489    |         |  |       | 240    |       |  |        | 25,729    |  |  |   | 113    |   |  |   | 155    | 
|                               |  |                                  |           |         |  |       |        |       |  |        |           |  |  |   |        |   |  |   |        | 
|Total                          |  | $                                | 1,040,583 |         |  | $     | 21,893 |       |  | $      | 1,062,476 |  |  | $ | 94,879 |   |  | $ | 69,110 | 
|                               |  |                                  |           |         |  |       |        |       |  |        |           |  |  |   |        |   |  |   |        | 

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A summary of the high and low exchange rates for
the Deutsche Mark to U.S. dollars and the average exchange
rates for the last five years is set forth below. As the
Deutsche Mark (DM) was replaced by the euro
()
in the foreign exchange markets beginning in 1999, the table
includes the respective rates for the euro/Dollar quotations
which were applied to calculate the respective Deutsche
Mark/Dollar values for 1999, 2000, 2001 and 2002, using 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 
|                         |  |        |        |        |  |         |        |       
|1998 $ per DM            |  |        | 0.6256 |        |  |         | 0.5395 |        |  |  | 0.5685 |  |  |  | 0.5977 | 
|1999 $ per DM            |  |        | 0.6028 |        |  |         | 0.5121 |        |  |  | 0.5449 |  |  |  | 0.5136 | 
|$ per
                  |  |        | 1.1790 |        |  |         | 1.0015 |        |  |  | 1.0658 |  |  |  | 1.0046 | 
|2000 $ per DM            |  |        | 0.5311 |        |  |         | 0.4219 |        |  |  | 0.4722 |  |  |  | 0.4758 | 
|$ per
                  |  |        | 1.0388 |        |  |         | 0.8252 |        |  |  | 0.9236 |  |  |  | 0.9305 | 
|2001 $ per DM            |  |        | 0.4880 |        |  |         | 0.4287 |        |  |  | 0.4579 |  |  |  | 0.4506 | 
|$ per
                  |  |        | 0.9545 |        |  |         | 0.8384 |        |  |  | 0.8956 |  |  |  | 0.8813 | 
|2002 $ per DM            |  |        | 0.5362 |        |  |         | 0.4386 |        |  |  | 0.4834 |  |  |  | 0.5362 | 
|$ per
                  |  |        | 1.0487 |        |  |         | 0.8578 |        |  |  | 0.9454 |  |  |  | 1.0487 | 

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
$1,050 million as of December 31, 2002. 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 ($862 million outstanding as of December 31,
2002), loans extended to us by Fresenius AG
($6 million outstanding as of December 31, 2002), and
the drawdowns under our receivables financing facility (drawn as
of December 31, 2002, $445 million) to a fixed
interest rate of 5.51%. 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, 2002, the fair value of these agreements is
$(99.2) 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, 2002

(U.S. dollars in millions)


|                                                                                                               |                                                                       |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   |      |   |   |     |       |   |   |     |     |  
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---- | - | ---- |  | ---- | -- | ---- | - | ---- | --- | ---------- |  | ------ | --- | ---------- | - |  | --- | ---- | - |  | - | ---- | - | - | --- | ----- | - | - | --- | --- | -
|                                                                                                               |                                                                       |      |   |      |  |      |    |      |   |      |     |            |  |        |     | Fair Value
|                                                                                                               |                                                                       |      |   |      |  |      |    |      |   |      |     |            |  |        |     | Dec. 31,  
|                                                                                                               |                                                                       | 2003 |   | 2004 |  | 2005 |    | 2006 |   | 2007 |     | Thereafter |  | Totals |     | 2002      
|                                                                                                               |                                                                       |      |   |      |  |      |    |      |   |      |     |            |  |        |     |           
|Principal payments on Senior Credit
    Agreement                                                              |                                                                       | $    | 4 |      |  |      | 55 |      |   |      | 105 |            |  |        | 105 |            |   |  | 593 |      |   |  |  |      |   | $ | 862 |       |   | $ | 862 |    
|                                                                                                               | Variable interest rate = 2.67%                                        |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   |      |   |   |     |       |   |   |     |     |  
|Interest rate swap agreements                                                                                  |                                                                       |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   |      |   |   |     |       |   |   |     |    
|                                                                                                               | Notional amount                                                       |      |   |     |  |      |    | 250  |   |      |     |           |  |        |     | 250        |   |  |     | 200  |   |  |   | 350  |   |   |     | 1,050 |   |   |     | (99 | )
|                                                                                                               | Average fixed pay rate = 5.51%                                        |      |   |      |  |      |    | 6.32 | % |      |     |            |  |        |     | 4.60       | % |  |     | 6.61 | % |  |   | 4.95 | % |   |     | 5.51  | % |   |     |     |  
|                                                                                                               | Receive rate = 3-month $LIBOR                                         |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   |      |   |   |     |       |   |   |     |     |  
|Company obligated mandatorily redeemable
    preferred securities of Fresenius Medical Care Capital
    Trusts |                                                                       |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   |      |   |   |     |       |   |   |     |    
|                                                                                                               | Fixed interest rate = 7.875%/issued in 1998                           |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   | 450  |   |   |     | 450   |   |   |     | 441 |  
|                                                                                                               | Fixed interest rate = 7.375%/issued in 1998
    (denominated in DM)   |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   | 161  |   |   |     | 161   |   |   |     | 154 |  
|                                                                                                               | Fixed interest rate = 7.875%/issued in 2001                           |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   | 222  |   |   |     | 222   |   |   |     | 216 |  
|                                                                                                               | Fixed interest rate = 7.375%/issued in 2001
    (denominated in euro) |      |   |      |  |      |    |      |   |      |     |            |  |        |     |            |   |  |     |      |   |  |   | 313  |   |   |     | 313   |   |   |     | 299 |  

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 2,149 million as of December 31, 2002. The
swaps change FMC Japans and Fresenius Kawasumis
interest rate exposures on their variable-rate bank loans
(Yen 1,449 million outstanding as of December 31,
2002) to a fixed interest rate of 3.00% 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 700 million as of
December 31, 2002 to 2.8%. At December 31, 2002, the
fair value of these agreements is $(0.69) 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




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 within
90 days

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prior to filing this report, as contemplated by
Securities Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure 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 the
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 16.  [Reserved]






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 3.1 to
FMCs Registration Statement on Form F-4, Registration
No. 333-66558, filed August 2, 2001).

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 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 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 FMCs Registration
Statement on Form F-1, Registration No. 333-05922,
filed November 4, 1996).

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 FMC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
FMC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 FMC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 FMCs Annual Report on Form 20-F
for the year ended December 31, 1997, filed March 27,
1998).

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2.8   Declaration of Trust
Establishing Fresenius Medical Care Capital Trust III, dated
February 12, 1998. (Incorporated by reference to
Exhibit 2.2 to FMC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 FMC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 FMC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 FMC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 FMC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 FMC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
FMC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
FMC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).

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).

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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 14, 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 Second Amended and Restated Transfer
and Administrative agreement dated as of September 24, 2002
among NMC Funding Corporation, National Medical Care, Inc.,
Enterprise Funding Corporation, Compass US Acquisition,
LLC, Giro Multifunding Corporation, and the Bank Investors
listed therein, WestLB AG, New York Branch (formerly
know as Westdeutsche Landsbank Girozentrale, New York
Branch), as an administrative agent and Bank of America, N.A.,
as an administrative agent (incorporated by reference to
Exhibit No. 10.5 of the Form 10-Q of Fresenius
Medical Care Holdings, Inc. for the nine months ended
September 30, 2002 filed November 14, 2002).

2.30 Amendment No. 1 dated
October 22, 2002 to the Second Amended and Restated
Transfer and Administrative agreement dated as of
September 24, 2002 among NMC Funding Corporation, National
Medical Care, Inc., Enterprise Funding Corporation,
Compass US Acquisition, LLC, Giro Multifunding Corporation,
and the Bank Investors listed therein, WestLB AG,
New York Branch (formerly know as Westdeutsche Landsbank
Girozentrale, New York Branch), as an administrative agent and
Bank of America, N.A., as an administrative agent
(incorporated by reference to Exhibit No. 10.6 of the
Form 10-Q of Fresenius Medical Care Holdings, Inc. for the
nine months ended September 30, 2002 filed
November 14, 2002).

2.31 Amendment No. 2 dated as of
November 22, 2002 to the Second Amended and Restated
Transfer and Administrative agreement dated as of
September 24, 2002 among NMC Funding Corporation, National
Medical Care, Inc., Enterprise Funding Corporation,
Compass US Acquisition, LLC, Giro Multifunding
Corporation, the Bank Investors listed therein, WestLB AG,
New York Branch (formerly known as Westdeutsche Landesbank
Girozentrale, New York Branch), as an administrative agent
and Bank of America, N.A., as an administrative agent
(incorporated by reference to Exhibit No. 10.7 to the
Form 10-K of Fresenius Medical Care Holdings, Inc. for
the year ended December 31, 2002 filed with the Commission
on March 17, 2003).

2.32 Amendment No. 3 dated as of
December 18, 2002 to the Second Amended and Restated
Transfer and Administrative agreement dated as of
September 24, 2002 among NMC Funding Corporation, National
Medical

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Care, Inc., Enterprise Funding Corporation,
Compass US Acquisition, LLC, Giro Multifunding Corporation,
the Bank Investors listed therein, WestLB AG, New York
Branch (formerly known as Westdeutsche Landesbank Girozentrale,
New York Branch), as an administrative agent and Bank of
America, N.A., as an administrative agent (incorporated by
reference to Exhibit No. 10.8 to the Form 10-K of
Fresenius Medical Care Holdings, Inc. for the year ended
December 31, 2002 filed with the Commission on
March 17, 2003).


2.33 Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent and the Bank of
Nova Scotia, The Chase Manhattan Bank, N.A., Dresdner Bank
AG and NationsBank, N.A., as Managing Agents, as amended.
(Incorporated by reference to FMCs Report on Form 6-K
dated October 15, 1996)

2.34 Amendment dated as of November 26,
1996 to Credit Agreement dated as of September 27, 1996,
among National Medical Care, Inc. and Certain Subsidiaries and
Affiliates, as Borrowers, Certain Subsidiaries and Affiliates,
as Guarantors, the Lenders named therein,
NationsBank, N.A., as paying agent and the Bank of Nova
Scotia, the Chase Manhattan Bank, N.A., Dresdner
Bank AG and NationsBank, N.A. as Managing Agents, as
previously amended. (incorporated by reference to
Exhibit 4.1 to the Form 8-K of Fresenius Medical Care
Holdings, Inc (FMCH) dated December 16, 1996).

2.35 Amendment No. 2 dated
December 12, 1996 to the Credit Agreement dated as of
September 27, 1996, among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent and the Bank of
Nova Scotia, the Chase Manhattan Bank, N.A., Dresdner
Bank AG and NationsBank, N.A. as Managing Agents, as
previously amended. (Incorporated by reference, to
Exhibit 4.2 to FMCHs Annual Report on Form 10-K
for the year ended December 31, 1996, filed March 31,
1997).

2.36 Amendment No. 3 dated
June 13, 1997 to the Credit Agreement dated as of
September 27, 1996, among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent and the Bank of
Nova Scotia, the Chase Manhattan Bank, N.A., Dresdner Bank
AG and NationsBank, N.A. as Managing Agents, as previously
amended. (Incorporated by reference to Exhibit 10.1 to
FMCHs Quarterly Report on Form 10-Q, for the
three months ended September 30, 1997, filed
November 14, 1997).

2.37 Amendment No. 4, dated
August 26, 1997 to the Credit Agreement dated as of
September 27, 1996, among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent and the Bank of
Nova Scotia, the Chase Manhattan Bank, N.A., Dresdner
Bank AG and NationsBank, N.A. as Managing Agents, as
previously amended. (Incorporated by reference to
Exhibit 10.2 to FMCHs Quarterly Report on
Form 10-Q, for the three months ended
September 30, 1997, filed November 14, 1997).

2.38 Amendment No. 5 dated as of
December 12, 1997 to the Credit Agreement dated as of
September 27, 1996, among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent and the Bank of
Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and
NationsBank, N.A., as Managing Agents, as previously
amended. (Incorporated by reference to Exhibit 4.6 to
FMCHs Annual Report on Form 10-K, for the year ended
December 31, 1997, filed March 24, 1998).

2.39 Consents of Majority Banks under the
NMC Credit Agreement to increase additional subordinated
indebtedness permitted by Amendment No. 5 from
$500 million to $650 million. (Incorporated by
reference to Exhibit 1.2 to FMCs Annual Report on
Form 20-F, for the year ended December 31, 1997, filed
March 27, 1998).

2.40 Amendment No. 6, dated as of
June 30, 1998, to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc., the
other Borrowers, the Guarantors and the Lenders identified
therein, and NationsBank, N.A., as Paying Agent.
(Incorporated by reference to Exhibit 10.1 to FMCHs
Quarterly Report on Form 10-Q, for the three months
ended June 30, 1998, filed August 10, 1998).

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2.41 Amendment No. 7 dated as of
December 31, 1998 to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc. and
certain Subsidiaries and Affiliates, as Borrowers, certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent, and the Bank
of Nova Scotia, The Chase Manhattan Bank, N.A., Dresdner
Bank AG and NationsBank, N.A., as Managing Agents.
(Incorporated by reference to Exhibit 1.1 to FMCs
Annual Report on Form 20-F, for the year ended
December 31, 1998, filed March 24, 1999).

2.42 Amendment No. 8 dated as of
June 30, 1999 to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc.
and certain Subsidiaries and Affiliates, as Borrowers, certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent, and the Bank
of Nova Scotia, The Chase Manhattan Bank, N.A., Dresdner
Bank AG and NationsBank, N.A., as Managing Agents.
(Incorporated by reference to FMCHs Annual Report on
Form 10-K, for the year ended December 31, 1999, filed
March 30, 2000).

2.43 Amendment No. 9 dated as of
December 15, 1999 to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc. and
certain Subsidiaries and Affiliates, as Borrowers, certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent, and the Bank
of Nova Scotia, The Chase Manhattan Bank, N.A., Dresdner
Bank AG and Bank of America, N.A. (formerly known as)
NationsBank, N.A., as Managing Agents. (Incorporated by
reference to FMCHs Annual Report on Form 10-K, for
the year ended December 31, 1999, filed March 30,
2000).

2.44 Amendment No. 10 dated as of
September 21, 2000 to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc.
and Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates Guarantors, the Lenders named
therein, NationsBank, N.A. as paying agent and The Bank of
Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A.G.
and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agent. (Incorporated by
reference to FMCHs Quarterly Report on Form 10-Q, for
the quarter ended September 30, 2000, filed
November 13, 2000).

2.45 Amendment No. 11 dated as of
May 31, 2001 to the NMC Credit Agreement(Incorporated by
reference to Exhibit no. 4.13 to the Registration Statement
on Form F-4 of Fresenius Medical Care AG et al filed
August 2, 2001, Registration No. 333-66558).

2.46 Amendment No. 12 dated as of
June 30, 2001 to the NMC Credit Agreement (Incorporated by
reference to Exhibit no. 4.14 to the Registration Statement
on Form F-4 of Fresenius Medical Care AG et al filed
August 2, 2001, Registration No. 333-66558).

2.47 Amendment No. 13 dated as of
December 17, 2001 to the NMC Credit Agreement (Incorporated
by reference to FMCHs Annual Report on Form 10-K for
the year ended December 31, 2001 filed April 1, 2002).

2.48 Amendment No. 14 dated as of
February 22, 2002 to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc.
and Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates Guarantors, the Lenders named
therein, Bank of America, N.A. (formerly known as
NationsBank, N. A.), as paying agent and The Bank of
Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A.G.
and Bank of America, N. A. (formerly known as NationsBank,
N. A.), as Managing Agent (incorporated herein by reference
to the Form 10-Q of Fresenius Medical Care Holdings filed
with Commission on November 14, 2002).

2.49 Amendment No. 15 dated as of
December 5, 2002 to the Credit Agreement, by and among
National Medical Care, Inc. and Certain Subsidiaries and
Affiliates party to the Credit Agreement, and identified
therein, and Bank of America, N. A. (formerly known as
NationsBank, N. A.), as paying Agent for and on behalf
of the Lenders. (incorporated herein by reference to the
Form 10-K of Fresenius Medical Care Holdings for the year
ended December 31, 2002 filed with Commission on
March 17, 2003).

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).

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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 FMCs
Registration Statement on Form F-1, filed on
November 4, 1996).

4.5 Employee Benefits and Compensation
Agreement dated September 27, 1996 by among
W.R. Grace & Co., National Medical Care, Inc., and
W.R. Grace & Co.  Conn. (Incorporated
by reference to Exhibit 10.14 to FMCs Registration
Statement on Form F-1, File No. 333-05922, filed
November 4, 1996).

4.6 Product Purchase Agreement, effective
January 1, 1995, between Baxter Health Care Corporation and
National Medical Care, Inc., including the addendum thereto.
(Incorporated by reference to FMCs Form SE, dated
July 29, 1996 and the exhibits thereto).

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

4.8 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 FMCs
Registration Statement on Form F-1, Registration
No. 333-05922, filed November 16, 1996).

4.9 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 FMCs
Registration Statement on Form F-1, Registration
No. 333-05922, filed November 16, 1996).

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

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

4.12 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 FMCs Registration Statement on
Form F-1, Registration No. 333-05922, filed
November 16, 1996).

4.13 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 FMCs
Registration Statement on Form F-1, Registration
No. 333-05922, filed November 16, 1996).

4.14 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 FMCs Registration Statement on
Form F-1, Registration No. 333-05922, filed
November 16, 1996).

4.15 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 FMCs
Annual Report on Form 20-F for the year ended
December 31, 1996, filed April 7, 1997).

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

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

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

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

4.20 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

4.21 Employment Agreement dated
January 1, 1992 by and between Ben J. Lipps and
Fresenius USA, Inc. (incorporated herein by reference to the
Annual Report on Form 10-K of Fresenius USA, Inc., for the
year ended December 31, 1992).

4.22 Modification to FUSA Employment
Agreement effective as of January 1, 1998 by and between
Dr. Ben J. Lipps and Fresenius Medical Care AG.
(Incorporated by reference to Exhibit 10.1 to FMCs
Report on Form 6-K, for the three months ended
March 31, 1998, filed May 14, 1998).

4.23 Product Purchase Agreement, effective
January 1, 2002 between Amgen, Inc. and National Medical
Care, Inc. (incorporated by reference to
Exhibit No. 10.3 of the form 10-Q of Fresenius
Medical Care Holdings, Inc. for the three months ended
March 31, 2002 filed May 15, 2002).1

4.24 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).

4.25 Registration Rights Agreement dated as
of March 2, 2000 Between Fresenius Medical Care AG and the
Franconia Investors. (Incorporated by reference to
Exhibit 2.3 to FMCs Annual Report on Form 20-F
For the year ended December 31, 1999, filed June 2,
2000).

4.26 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 of the 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 
Organizational Structure.

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

10.2 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 (filed
herewith).

10.3 Certification of Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).

10.4 Certification of 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).





---

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


88



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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 18, 2003



| |                       
| | ----------------------
| | FRESENIUS MEDICAL CARE
| | AKTIENGESELLSCHAFT    
|
| | /s/ DR. BEN LIPPS     

| |     |                                           
| | --- | ------------------------------------------
| | By: | ------------------------------------------

| |                                         
| | ----------------------------------------
| | Name: Dr. Ben Lipps                     
| | Title:  Chairman of the Management Board
|
| | /s/ DR. ULF M.
    SCHNEIDER            

| |     |                                           
| | --- | ------------------------------------------
| | By: | ------------------------------------------

| |                                
| | -------------------------------
| | Name: Dr. Ulf M. Schneider     
| | Title:  Chief Financial Officer

89



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CERTIFICATIONS

Chief Executive Officer

I, Ben J. Lipps, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this Annual Report on
    Form 20-F of Fresenius Medical Care AG.                                                                                                                                                                                                                                                                    
|
| | 2. | Based on my knowledge, this Annual Report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary in order to make the statements
    made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by
    this Annual Report.
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this Annual Report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this Annual Report.                                
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange
    Act Rules 13a-14 and 15d-14) for the registrant and
    we have:                                                                                                             



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this Annual Report is being prepared;
|
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c. | presented in this Annual Report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing
    the equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this Annual Report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 18, 2003



| |                        
| | -----------------------
| | /s/ BEN J. LIPPS       
| |                        
| | Dr. Ben J. Lipps       
| | President and          
| | Chief Executive Officer

90



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##### Table of Contents



Chief Financial Officer

I, Ulf M. Schneider, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this Annual Report on
    Form 20F of Fresenius Medical Care AG.                                                                                                                                                                                                                                                                     
|
| | 2. | Based on my knowledge, this Annual Report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary in order to make the statements
    made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by
    this Annual Report.
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this Annual Report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this Annual Report.                                
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange
    Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                 



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this Annual Report is being prepared;
|
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c. | presented in this Annual Report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this Annual Report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 18, 2003



| |                        
| | -----------------------
| | /s/ ULF M. SCHNEIDER   
| |                        
| | Dr. Ulf M. Schneider   
| | Chief Financial Officer

91



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##### Table of Contents



INDEX OF FINANCIAL STATEMENTS

|                                                                                                            |  |      |     | 
|----------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                            |  | Page
|                                                                                                            |  |     
|Audited Consolidated Financial
    Statements                                                               |  |      |     | 
|Independent Auditors Report                                                                                |  |      | F-2 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000              |  |      | F-3 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                            |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000              |  |      | F-5 | 
|Consolidated Statement of Shareholders
    Equity for the years ended December 31, 2002,
    2001 and 2000 |  |      | 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,
2002 and 2001 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, 2002.
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, 2002 and 2001, and the results of its
operations and its cash flows for each of the years in the
three-year period ended December 31, 2002, 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 statements, effective January 1, 2002, Fresenius
Medical Care AG adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets.

Frankfurt am Main, Germany

February 21, 2003

/s/ KPMG

Deutsche Treuhand-Gesellschaft


Aktiengesellschaft


Wirtschaftsprüfungsgesellschaft


F-2



---



##### Table of Contents



Fresenius Medical Care AG

Consolidated Statements of
Operations

For the years ended December 31, 2002,
2001 and 2000


(in thousands, except share data)


|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |           |  
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | -
|                                                                                                       |                                                               | 2002 |           | 2001      |   | 2000
|                                                                                                       |                                                               |      |           |           |   |     
|Net revenue:                                                                                           |                                                               |      |           |           |   |      |           |           |   |   |           |          
|                                                                                                       | Dialysis Care                                                 |      | $         | 3,708,903 |   |      | $         | 3,557,234 |   |   | $         | 2,944,625 |  
|                                                                                                       | Dialysis Products                                             |      |           | 1,375,194 |   |      |           | 1,302,084 |   |   |           | 1,256,713 |  
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|                                                                                                       |                                                               |      | 5,084,097 |           |   |      | 4,859,318 |           |   |   | 4,201,338 |          
|Costs of revenue:                                                                                      |                                                               |      |           |           |   |      |           |           |   |   |           |          
|                                                                                                       | Dialysis Care                                                 |      |           | 2,713,341 |   |      |           | 2,521,075 |   |   |           | 2,040,627 |  
|                                                                                                       | Dialysis Products                                             |      |           | 714,736   |   |      |           | 699,123   |   |   |           | 693,966   |  
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|                                                                                                       |                                                               |      | 3,428,077 |           |   |      | 3,220,198 |           |   |   | 2,734,593 |          
|Gross profit                                                                                           |                                                               |      | 1,656,020 |           |   |      | 1,639,120 |           |   |   | 1,466,745 |          
|Operating expenses:                                                                                    |                                                               |      |           |           |   |      |           |           |   |   |           |          
|                                                                                                       | Selling, general and administrative                           |      |           | 913,620   |   |      |           | 966,044   |   |   |           | 813,997   |  
|                                                                                                       | Research and development                                      |      |           | 47,433    |   |      |           | 35,700    |   |   |           | 31,935    |  
|                                                                                                       | Special charge for legal matters                              |      |           |          |   |      |           | 258,159   |   |   |           |          |  
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Operating income                                                                                       |                                                               |      | 694,967   |           |   |      | 379,217   |           |   |   | 620,813   |          
|Other (income) expense:                                                                                |                                                               |      |           |           |   |      |           |           |   |   |           |          
|                                                                                                       | Interest income                                               |      |           | (18,053   | ) |      |           | (14,305   | ) |   |           | (9,411    | )
|                                                                                                       | Interest expense                                              |      |           | 225,053   |   |      |           | 237,234   |   |   |           | 195,569   |  
|                                                                                                       | Interest expense on obligation related to 1999
    Settlement |      |           |          |   |      |           |          |   |   |           | 29,947    |  
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Income before income taxes, minority interest and
    extraordinary loss                               |                                                               |      | 487,967   |           |   |      | 156,288   |           |   |   | 404,708   |          
|Income tax expense                                                                                     |                                                               |      | 182,814   |           |   |      | 91,202    |           |   |   | 189,772   |          
|Minority interest                                                                                      |                                                               |      | 3,586     |           |   |      | 1,732     |           |   |   | 2,861     |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Income before extraordinary loss                                                                       |                                                               |      | 301,567   |           |   |      | 63,354    |           |   |   | 212,075   |          
|Extraordinary loss on early redemption of trust
    preferred securities, net of tax benefit of $7,740 |                                                               |      | 11,777    |           |   |      |          |           |   |   |          |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Net income                                                                                             |                                                               | $    | 289,790   |           |   | $    | 63,354    |           |   | $ | 212,075   |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Basic income before extraordinary loss per
    Ordinary share                                          |                                                               | $    | 3.12      |           |   | $    | 0.65      |           |   | $ | 2.37      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Fully diluted income before extraordinary loss
    per Ordinary share                                  |                                                               | $    | 3.12      |           |   | $    | 0.64      |           |   | $ | 2.36      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Basic income per Ordinary share                                                                        |                                                               | $    | 3.00      |           |   | $    | 0.65      |           |   | $ | 2.37      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Fully diluted income per Ordinary share                                                                |                                                               | $    | 3.00      |           |   | $    | 0.64      |           |   | $ | 2.36      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Basic income before extraordinary loss per
    Preference share                                        |                                                               | $    | 3.18      |           |   | $    | 0.70      |           |   | $ | 2.43      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Fully diluted income before extraordinary loss
    per Preference share                                |                                                               |      | 3.18      |           |   |      | 0.69      |           |   |   | 2.42      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Basic income per Preference share                                                                      |                                                               | $    | 3.06      |           |   | $    | 0.70      |           |   | $ | 2.43      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          
|Fully diluted income per Preference share                                                              |                                                               | $    | 3.06      |           |   | $    | 0.69      |           |   | $ | 2.42      |          
|                                                                                                       |                                                               |      |           |           |   |      |           |           |   |   |           |          

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



Fresenius Medical Care AG

Consolidated Balance Sheets

At December 31, 2002 and 2001


(in thousands, except share data)


|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ---- | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                                                                                                           |                                                                                                              | 2002 |           | 2001   
|                                                                                                                                                                                           |                                                                                                              |      |           |        
|Assets                                                                                                                                                                                     |                                                                                                              |      |           |         |  |   |           |        
|Current assets:                                                                                                                                                                            |                                                                                                              |      |           |         |  |   |           |        
|                                                                                                                                                                                           | Cash and cash equivalents                                                                                    |      | $         | 64,793  |  |   | $         | 61,572  | 
|                                                                                                                                                                                           | Trade accounts receivable, less allowance for
    doubtful accounts of $159,763 in 2002 and $138,128 in 2001 |      |           | 914,302 |  |   |           | 884,727 | 
|                                                                                                                                                                                           | Accounts receivable from related parties                                                                     |      |           | 41,332  |  |   |           | 37,092  | 
|                                                                                                                                                                                           | Inventories                                                                                                  |      |           | 372,222 |  |   |           | 346,389 | 
|                                                                                                                                                                                           | Prepaid expenses and other current assets                                                                    |      |           | 239,172 |  |   |           | 222,135 | 
|                                                                                                                                                                                           | Deferred taxes                                                                                               |      |           | 189,879 |  |   |           | 227,214 | 
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Total current assets                                                                                                                                                                       |                                                                                                              |      | 1,821,700 |         |  |   | 1,779,129 |        
|Property, plant and equipment, net                                                                                                                                                         |                                                                                                              |      | 917,868   |         |  |   | 838,583   |        
|Intangible assets                                                                                                                                                                          |                                                                                                              |      | 550,321   |         |  |   | 576,301   |        
|Goodwill                                                                                                                                                                                   |                                                                                                              |      | 3,192,651 |         |  |   | 3,105,722 |        
|Deferred taxes                                                                                                                                                                             |                                                                                                              |      | 35,741    |         |  |   | 35,192    |        
|Other assets                                                                                                                                                                               |                                                                                                              |      | 261,668   |         |  |   | 181,083   |        
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Total assets                                                                                                                                                                               |                                                                                                              | $    | 6,779,949 |         |  | $ | 6,516,010 |        
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Liabilities and shareholders equity                                                                                                                                                       |                                                                                                              |      |           |         |  |   |           |        
|Current liabilities:                                                                                                                                                                       |                                                                                                              |      |           |         |  |   |           |        
|                                                                                                                                                                                           | Accounts payable                                                                                             |      | $         | 185,949 |  |   | $         | 198,287 | 
|                                                                                                                                                                                           | Accounts payable to related parties                                                                          |      |           | 98,992  |  |   |           | 80,454  | 
|                                                                                                                                                                                           | Accrued expenses and other current liabilities                                                               |      |           | 469,228 |  |   |           | 409,047 | 
|                                                                                                                                                                                           | Accrual for special charge for legal matters                                                                 |      |           | 191,130 |  |   |           | 221,812 | 
|                                                                                                                                                                                           | Short-term borrowings                                                                                        |      |           | 124,964 |  |   |           | 93,411  | 
|                                                                                                                                                                                           | Short-term borrowings from related parties                                                                   |      |           | 6,000   |  |   |           | 15,005  | 
|                                                                                                                                                                                           | Current portion of long-term debt and capital
    lease obligations                                          |      |           | 22,394  |  |   |           | 164,959 | 
|                                                                                                                                                                                           | Income tax payable                                                                                           |      |           | 178,690 |  |   |           | 176,249 | 
|                                                                                                                                                                                           | Deferred taxes                                                                                               |      |           | 18,027  |  |   |           | 17,999  | 
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Total current liabilities                                                                                                                                                                  |                                                                                                              |      | 1,295,374 |         |  |   | 1,377,223 |        
|Long-term debt and capital lease obligations,
    less current portion                                                                                                                     |                                                                                                              |      | 1,089,210 |         |  |   | 735,769   |        
|Other liabilities                                                                                                                                                                          |                                                                                                              |      | 150,685   |         |  |   | 123,845   |        
|Pension liabilities                                                                                                                                                                        |                                                                                                              |      | 100,326   |         |  |   | 70,582    |        
|Deferred taxes                                                                                                                                                                             |                                                                                                              |      | 169,372   |         |  |   | 142,846   |        
|Company-obligated mandatorily redeemable
    preferred securities of subsidiary Fresenius Medical Care
    Capital Trusts holding solely Company-guaranteed debentures of
    subsidiaries |                                                                                                              |      | 1,145,281 |         |  |   | 1,428,768 |        
|Minority interest                                                                                                                                                                          |                                                                                                              |      | 22,522    |         |  |   | 20,233    |        
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Total liabilities                                                                                                                                                                          |                                                                                                              |      | 3,972,770 |         |  |   | 3,899,266 |        
|Shareholders equity:                                                                                                                                                                      |                                                                                                              |      |           |         |  |   |           |        
|Preference shares, no par,
    2.56 nominal
    value, 53,597,700 shares authorized, 26,188,575 issued and
    outstanding                                                                |                                                                                                              |      | 69,540    |         |  |   | 69,512    |        
|Ordinary shares, no par,
    2.56 nominal
    value, 70,000,000 shares authorized, issued and outstanding                                                                                 |                                                                                                              |      | 229,494   |         |  |   | 229,494   |        
|Additional paid-in capital                                                                                                                                                                 |                                                                                                              |      | 2,736,913 |         |  |   | 2,735,265 |        
|Retained earnings (deficit)                                                                                                                                                                |                                                                                                              |      | 154,595   |         |  |   | (58,452   | )      
|Accumulated other comprehensive loss                                                                                                                                                       |                                                                                                              |      | (383,363  | )       |  |   | (359,075  | )      
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Total shareholders equity                                                                                                                                                                 |                                                                                                              |      | 2,807,179 |         |  |   | 2,616,744 |        
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        
|Total liabilities and shareholders equity                                                                                                                                                 |                                                                                                              | $    | 6,779,949 |         |  | $ | 6,516,010 |        
|                                                                                                                                                                                           |                                                                                                              |      |           |         |  |   |           |        

See accompanying notes to consolidated financial
statements.

F-4



---



##### Table of Contents



Fresenius Medical Care AG

Consolidated Statements of Cash
Flows

For the years ended December 31, 2002,
2001 and 2000


(in thousands)


|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |          |          |  
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---- | -------- | -------- | ---- | ------ | -------- | -------- | - | ------- | -------- | -------- | -
|                                                                 |                                                                                                                  | 2002                                                                                 |      | 2001     |          | 2000
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |     
|Operating Activities:                                            |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 | Net income                                                                                                       |                                                                                      | $    | 289,790  |          |      | $      | 63,354   |          |   | $       | 212,075  |         
|                                                                 | Adjustments to reconcile net income to cash and
    cash equivalents provided by (used in) operating activities: |                                                                                      |      |          |          |      |        |          |          |   |         |          |         
|                                                                 |                                                                                                                  | Depreciation and amortization                                                        |      |          | 210,555  |      |        |          | 323,503  |   |         |          | 292,854  |  
|                                                                 |                                                                                                                  | Extraordinary loss on early redemption of trust
    preferred securities, net of tax |      |          | 11,777   |      |        |          |         |   |         |          |         |  
|                                                                 |                                                                                                                  | Change in deferred taxes, net                                                        |      |          | 58,449   |      |        |          | (46,401  | ) |         |          | 76,934   |  
|                                                                 |                                                                                                                  | Loss (gain) on sale of fixed assets                                                  |      |          | 690      |      |        |          | 1,010    |   |         |          | (289     | )
|                                                                 |                                                                                                                  | Compensation expense related to stock options                                        |      |          | 1,126    |      |        |          | 1,153    |   |         |          | 3,980    |  
|                                                                 | Changes in assets and liabilities, net of amounts
    from businesses acquired or disposed of:                   |                                                                                      |      |          |          |      |        |          |          |   |         |          |         
|                                                                 |                                                                                                                  | Trade accounts receivable, net                                                       |      |          | (13,124  | )    |        |          | (117,093 | ) |         |          | (174,333 | )
|                                                                 |                                                                                                                  | Inventories                                                                          |      |          | (6,519   | )    |        |          | (30,201  | ) |         |          | (23,007  | )
|                                                                 |                                                                                                                  | Prepaid expenses, other current and non-current
    assets                           |      |          | 17,670   |      |        |          | (28,462  | ) |         |          | (8,285   | )
|                                                                 |                                                                                                                  | Accounts receivable from/ payable to related
    parties                             |      |          | 3,228    |      |        |          | 8,854    |   |         |          | (18,801  | )
|                                                                 |                                                                                                                  | Accounts payable, accrued expenses and other
    current and non-current liabilities |      |          | (17,976  | )    |        |          | 183,992  |   |         |          | (20,689  | )
|                                                                 |                                                                                                                  | Income tax payable                                                                   |      |          | (5,748   | )    |        |          | 64,539   |   |         |          | 50,827   |  
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 |                                                                                                                  | Net cash provided by operating activities                                            |      |          | 549,918  |      |        |          | 424,248  |   |         |          | 391,266  |  
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|Investing Activities:                                            |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 | Purchases of property, plant and equipment                                                                       |                                                                                      |      | (239,160 | )        |      |        | (275,225 | )        |   |         | (228,037 | )       
|                                                                 | Proceeds from sale of property, plant and
    equipment                                                          |                                                                                      |      | 37,783   |          |      |        | 24,195   |          |   |         | 20,724   |         
|                                                                 | Acquisitions and investments, net of cash acquired                                                               |                                                                                      |      | (79,835  | )        |      |        | (216,711 | )        |   |         | (274,530 | )       
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 |                                                                                                                  | Net cash used in investing activities                                                |      |          | (281,212 | )    |        |          | (467,741 | ) |         |          | (481,843 | )
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|Financing Activities:                                            |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 | Proceeds from short-term borrowings                                                                              |                                                                                      |      | 88,639   |          |      |        | 117,896  |          |   |         | 38,416   |         
|                                                                 | Repayments of short-term borrowings                                                                              |                                                                                      |      | (68,255  | )        |      |        | (140,420 | )        |   |         | (32,609  | )       
|                                                                 | Proceeds from short-term borrowings from related
    parties                                                     |                                                                                      |      | 49,120   |          |      |        | 20,588   |          |   |         | 26,000   |         
|                                                                 | Repayments of short-term borrowings from related
    parties                                                     |                                                                                      |      | (58,125  | )        |      |        | (223,566 | )        |   |         | (141,000 | )       
|                                                                 | Proceeds from long-term debt                                                                                     |                                                                                      |      | 417,098  |          |      |        | 465,906  |          |   |         | 255,224  |         
|                                                                 | Principal payments of long-term debt and capital
    lease obligations                                           |                                                                                      |      | (246,566 | )        |      |        | (517,877 | )        |   |         | (221,739 | )       
|                                                                 | Payments on obligation related to 1999 Settlement                                                                |                                                                                      |      |         |          |      |        | (85,920  | )        |   |         | (386,815 | )       
|                                                                 | Proceeds from issuance of trust preferred
    securities                                                         |                                                                                      |      |         |          |      |        | 470,598  |          |   |         |         |         
|                                                                 | Proceeds from issuance of Preference shares                                                                      |                                                                                      |      |         |          |      |        |         |          |   |         | 556,958  |         
|                                                                 | Redemption of trust preferred securities                                                                         |                                                                                      |      | (376,200 | )        |      |        |         |          |   |         |         |         
|                                                                 | Increase (decrease) of accounts receivable
    securitization program                                            |                                                                                      |      | 3,249    |          |      |        | (3,464   | )        |   |         | 111,402  |         
|                                                                 | Proceeds from exercise of stock options                                                                          |                                                                                      |      | 550      |          |      |        | 6,391    |          |   |         | 885      |         
|                                                                 | Dividends paid                                                                                                   |                                                                                      |      | (76,743  | )        |      |        | (65,782  | )        |   |         | (51,229  | )       
|                                                                 | Change in minority interest                                                                                      |                                                                                      |      | 2,095    |          |      |        | (853     | )        |   |         | 139      |         
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 |                                                                                                                  | Net cash (used in) provided by financing
    activities                              |      |          | (265,138 | )    |        |          | 43,497   |   |         |          | 155,632  |  
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                                  |                                                                                      | (347 | )        |          |      | (3,009 | )        |          |   | (35,238 | )       
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|Cash and Cash Equivalents:                                       |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 | Net increase (decrease) in cash and cash
    equivalents                                                         |                                                                                      |      | 3,221    |          |      |        | (3,005   | )        |   |         | 29,817   |         
|                                                                 | Cash and cash equivalents at beginning of period                                                                 |                                                                                      |      | 61,572   |          |      |        | 64,577   |          |   |         | 34,760   |         
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         
|                                                                 | Cash and cash equivalents at end of period                                                                       |                                                                                      | $    | 64,793   |          |      | $      | 61,572   |          |   | $       | 64,577   |         
|                                                                 |                                                                                                                  |                                                                                      |      |          |          |      |        |          |          |   |         |         

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, 2002,
2001 and 2000


(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, 1999                               |  |                   | 9,023,341  |                 |  | $          | 27,623 |          |  |                    | 70,000,000 |           |  | $           | 229,494 |           |  | $         | 2,097,480 |       |  | $ | (216,870 | ) |  | $ | (135,410 | ) |  | $ |        |   |  | $ |        |   |  | $ | 2,002,317 |  
|Issuance of Preference shares                              |  |                   | 14,724,359 |                 |  |            | 35,980 |          |  |                    |            |           |  |             |         |           |  |           | 532,302   |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   | 568,282   |  
|Proceeds from exercise of options                          |  |                   | 17,393     |                 |  |            | 41     |          |  |                    |            |           |  |             |         |           |  |           | 844       |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   | 885       |  
|Compensation expense related stock options                 |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           | 3,980     |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   | 3,980     |  
|Dividends paid                                             |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   | (51,229  | ) |  |   |          |   |  |   |         |   |  |   |         |   |  |   | (51,229   | )
|Comprehensive income                                       |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   |           |  
|Net income                                                 |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   | 212,075  |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   | 212,075   |  
|Foreign currency translation adjustment                    |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |   |  |   | (57,560  | ) |  |   |         |   |  |   |         |   |  |   | (57,560   | )
|                                                           |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   |           |  
|Comprehensive income                                       |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   | 154,515   |  
|                                                           |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   |           |  
|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 |  
|                                                           |  |                   |            |                 |  |            |        |          |  |                    |            |           |  |             |         |           |  |           |           |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |         |   |  |   |           |  

See accompanying notes to consolidated financial
statements.

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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
(FMC or the Company), is an integrated
provider of kidney dialysis products and dialysis care. FMC 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, FMC 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 FMC Ordinary shares.
Thereafter, FMC, 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. All
other investments are accounted for at cost.

b)  Classifications

Certain items in prior years consolidated
financial statements 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 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.

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 2002, 2001, and 2000 was $3,248, $3,532 and
$1,205, respectively.

g)   Intangible
Assets

In July 2001, the Financial Accounting Standards
Board (FASB) issued and the Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations. Accordingly, the
purchase method of accounting is used 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, effective
January 1, 2002. Upon adoption of SFAS No. 142,
pursuant to SFAS No. 141, the Company evaluated its
existing intangible assets and goodwill that were acquired in
prior purchase business combinations, and reclassified amounts
allocated to assembled workforce of $3,721 to goodwill in order
to conform with the new criteria in SFAS No. 141 for
recognition apart from goodwill. Upon adoption of SFAS
No. 142 the Company reassessed the useful lives and
residual values of all intangible assets acquired with finite
useful lives, and had no significant amortization period
adjustments. The Company identified trade names and management
contracts as intangible assets with indefinite useful lives.
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 Impairment).

Prior to the adoption of SFAS No. 142,
goodwill was amortized over its estimated useful life ranging
from 20 to 40 years. 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.

To accomplish the provisions of SFAS No. 142
and 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. Assembled workforce was classified into
goodwill. In the next step the Company compared 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 assets fair value is determined using a discounted
cash flow approach and other appropriate methods.

In connection with its annual impairment test the
Company determined that neither the goodwill nor the other
intangible assets were impaired. The Company did not record any
impairment charges in 2002. For further information refer to
Note 9.

h)  Derivative Financial
Instruments

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities as amended by SFAS No. 138, on
January 1, 2001. The Company utilizes derivative financial
instruments including

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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 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.

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 not denominated in U.S. dollars, which are
considered foreign equity investments, are reported in
accumulated other comprehensive income.

Gains and losses resulting from the translation
of revenues, expenses and intercompany borrowings, which are not
considered equity investments, are included in selling, general
and administrative expense. Translation losses amounted to
$7,352 in 2002, and gains amounted to $3,892 and $18,370 in 2001
and 2000, respectively.

j)   Revenue Recognition
Policy

Health 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 these third party payors.
Medicare and Medicaid programs 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.

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.

k)  Research and Development
expenses

Research and development expenses are expensed as
incurred.

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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 12)

m)  Impairment

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which was adopted by the Company
effective January 1, 2002. SFAS No. 144 modifies the
existing guidance in SFAS No. 121 and APB Opinion
No. 30. In accordance with SFAS No. 144, the Company
reviews the carrying value of its long lived assets or asset
groups 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

A major subsidiary of the Company is self-insured
for professional, product and general liability, auto and
workers compensation claims up to predetermined amounts
above which third-party insurance applies. Estimates are made
for both reported and incurred but not reported claims. The
estimates are based on actuarial projections using various
factors including recent history of claims and expected claims
development.

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%, 42% and 40% 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 2002, 2001, and 2000, respectively.

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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 and distributions earned by convertible investment
securities 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.

The awards granted under the FMC stock incentive
plans (see Note 18), 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 allowed by SFAS
No. 123, Accounting for Stock-Based Compensation,
subject to complying with the additional disclosure requirements
of SFAS No. 123 as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123. 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 to stock
based employee compensation.

|                              |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |         |      | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- | 
|                              |                                                                                                                                               | 2002        |   | 2001    |      | 2000
|                              |                                                                                                                                               |             |   |         |      |     
|Net income:                   |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | As reported                                                                                                                                   |             | $ | 289,790 |      |      | $ | 63,354  |      |  | $ | 212,075 |     
|                              | Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                |             |   | 1,126   |      |      |   | 1,153   |      |  |   | 3,980   |     
|                              | Deduct: Total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |             |   | (11,951 | )    |      |   | (13,223 | )    |  |   | (12,073 | )   
|                              |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | Pro forma                                                                                                                                     |             | $ | 278,965 |      |      | $ | 51,284  |      |  | $ | 203,982 |     
|                              |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|Basic net income per:         |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | Ordinary share                                                                                                                                |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.00 |      |   | $       | 0.65 |  |   | $       | 2.37 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 2.88 |      |   | $       | 0.52 |  |   | $       | 2.28 | 
|                              | Preference share                                                                                                                              |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.06 |      |   | $       | 0.70 |  |   | $       | 2.43 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 2.94 |      |   | $       | 0.57 |  |   | $       | 2.34 | 
|Fully diluted net income per: |                                                                                                                                               |             |   |         |      |      |   |         |      |  |   |        
|                              | Ordinary share                                                                                                                                |             |   |         |      |      |   |         |      |  |   |         |     
|                              |                                                                                                                                               | As reported |   | $       | 3.00 |      |   | $       | 0.64 |  |   | $       | 2.36 | 
|                              |                                                                                                                                               | Pro forma   |   | $       | 2.88 |      |   | $       | 0.51 |  |   | $       | 2.27 | 
|                              | Preference share                                                                                                                              |             |   |         |      |      |   |         |      |  |   |         |     
|                              | As reported                                                                                                                                   |             | $ | 3.06    |      |      | $ | 0.69    |      |  | $ | 2.42    |     
|                              | Pro forma                                                                                                                                     |             | $ | 2.94    |      |      | $ | 0.56    |      |  | $ | 2.33    |     

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t)   Recent Pronouncements
and Accounting Changes

In July 2001, the FASB issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. The Company adopted these
statements as described in Note 1g. The effect on prior
years income is described in Note 9.

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 will adopt SFAS No. 143
as of January 1, 2003. The adoption of SFAS No. 143
will not have a material impact on the Companys financial
statements.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. It provides new guidance that modifies
and supercedes the existing guidance in SFAS No. 121 and
APB No. 30. The Company adopted SFAS No. 144 on
January 1, 2002. The adoption of SFAS No. 144 did not
have an 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 respect to
certain sale-leaseback transactions. The Company will adopt 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 $11,777, net of taxes of $7,740, as a
result of the early redemption of debt (see Note 14). This
loss will no longer be 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 July 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 rather than at the date of a commitment
to an exit or disposal plan. 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 to be 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 requires a guarantor to recognize a liability
measured at fair value at the inception of a guarantee for
obligations undertaken, including its obligation to stand ready
to perform over the term of the guarantee. 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. The Company adopted those disclosure requirements as
of December 31, 2002. The Company has guarantees of an
immaterial amount, and as such do not materially impact the
Companys financial statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation-
Transition and Disclosure  an amendment of FASB Statement
No. 123. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide
alternative methods for a change to the fair value based method
of accounting for stock-based employee compensation. It also
amends the disclosure requirement of SFAS No. 123 to
require disclosures in both annual and interim financial
statements of the method of accounting for stock-based employee
compensation and the effect the method used had on reported
results. The Company adopted the amended disclosure requirements
as of December 31, 2002 (see Notes 1s and 18).

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46
(FIN 46) Consolidation of Variable Interest
Entities. FIN 46 addresses the consolidation of variable
interest entities by the primary beneficiary, when the total
equity investment at risk is not sufficient to permit the entity
to finance its

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##### Table of Contents



activities without additional subordinated
support from other parties and / or the equity investor lacks
certain essential characteristics of a controlling financial
interest. FIN 46 requires existing variable interest entities to
be consolidated if those entities do not effectively disburse
risk among the parties involved. The interpretation becomes
effective at various dates in 2003 and provides various
transition rules. The adoption of FIN 46 has no material impact
on the Companys financial statements.


2.   Special Charge for 1999
Settlement

On January 18, 2000, Fresenius Medical Care
Holdings, Inc. (FMCH), National Medical Care, Inc.
(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 anticipation of
the Settlement, the Company recorded a special pre-tax charge
against its consolidated earnings in 1999 totaling $601,000
($419,000 after tax).

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. The
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 Grace
Chapter 11 Proceedings and the cost of resolving pending
litigation and other disputes with certain commercial insurers
(see Note 20).

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 Graces Chapter 11 Proceedings.
In addition, that amount included the estimated costs of
defending the Company in all litigation arising out of
Graces Chapter 11 Proceedings (see Note 20).

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 (see Note 20).

The remaining amount of the special charge
($30,636) 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.

At December 31, 2002, there is a remaining
balance of $191,130 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, 2002, $32,973 in
payments were applied against the accrued special charge for
legal matters.

4.   Related Party
Transactions

a)  Shared Services

The Company entered into 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. In the opinion of
management, expenses for these services are indicative of the
actual expenses that would have been incurred if the Company had
been operating as an independent entity.

For the years 2002, 2001 and 2000, amounts
charged from Fresenius AG to FMC under the terms of the
agreements are $23,012, $19,117 and $19,947, respectively. FMC
also provides certain services to Fresenius AG and certain
affiliates of Fresenius AG, including research and development,
plant administration, patent

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##### Table of Contents



administration and warehousing. FMC charged
$10,142, $6,134 and $9,984 for services rendered to Fresenius AG
in 2002, 2001 and 2000, respectively.


Under operating lease agreements entered into
with Fresenius AG, FMC paid Fresenius AG $10,401, $9,239 and
$9,472 during 2002, 2001 and 2000, respectively. The majority of
the leases expire in 2006 with options for renewal.

b)  Financing Provided by
Fresenius AG

At December 31, 2002, the Company had
short-term loans outstanding of $6,000, which bore interest at
an average rate of 2.22%. At December 31, 2001, the Company
had short-term loans outstanding of $15,005 which bore an
average interest rate of 2.73%. Interest expense on these
borrowings was, $359, $6,887 and $18,571 for the years 2002,
2001 and 2000, respectively.

c)   Products

During the years ended December 31, 2002,
2001 and 2000, the Company recognized sales of $25,986, $24,063
and $28,076, respectively, to Fresenius AG and affiliates.
During 2002, 2001 and 2000, the Company made purchases from
Fresenius AG and affiliates in the amount of $23,703, $19,703
and $25,547, respectively.

d)  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. Only interest is due during the
first four years of the term, with both principal and interest
due in the fifth year. The Company may call the loan at any time
and the loan can be repaid without penalty, at any time during
the period of the loan.

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 $292, $368,
and $580 in 2002, 2001 and 2000, respectively.

A member of the Companys Supervisory Board
is 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. The Company
paid the bank $10,438 in underwriting fees and commissions in
2000. 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
Notes 11 and 25).

The Chairman and Vice Chairman of the
Companys Supervisory Board are members of the Management
Board and Supervisory Board, respectively, of Fresenius AG, the
majority holder of FMCs Ordinary shares.

5.   Acquisitions and
Investments

The Company acquired certain health care and
distribution facilities and other investments for a total
consideration of $87,876, $461,079, and $288,144 in 2002, 2001
and 2000, 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 $82,000, $367,000
and $196,000 for 2002, 2001 and 2000, respectively.

In 2002, the Company mainly acquired 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

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##### Table of Contents



consideration for all acquisitions consisted of
cash of $216,711, assumed debt of $144,889 and $99,479 in
Preference shares.


In 2000, aggregate consideration for acquisitions
consisted of cash of $274,530 and notes for $13,614.
Acquisitions in 2000 included the purchase of substantially all
of the international and non-continental U.S. operations of
Total Renal Care Holdings, Inc. The purchase price for these
operations was $145,000.

6.   Sale of Accounts
Receivable

National Medical Care (NMC), a
subsidiary of the Company, 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. NMC Funding Corporation is not
consolidated as it does not meet the control criteria of SFAS
No. 140. The retained interest in accounts receivable is
reflected on the face of the balance sheet net of uncollected
accounts to approximate fair value. The Company has a servicing
obligation to act as collection agent on behalf of the
Transferor. An amendment was made on October 24, 2002,
extending its maturity to October 23, 2003.

At December 31, 2002 and 2001, $445,249 and
$442,000, respectively, had been received pursuant to such sales
and are reflected as reductions to accounts receivable. The
Transferor pays interest to the bank investors, calculated based
on the commercial paper rates for the particular tranches
selected. The effective interest rate was approximately 1.48%
for $429,249 and 1.89% for $16,000 at year-end 2002. 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. There were no gains or losses on these
transactions.

7.   Inventories

As of December 31, 2002 and 2001,
inventories consisted of the following:

|                                       |             |      |         |         |  |   |         |         | 
|-------------------------------------- | ----------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                       |             | 2002 |         | 2001   
|                                       |             |      |         |        
|Raw materials and purchased components |             | $    | 79,760  |         |  | $ | 67,415  |        
|Work in process                        |             |      | 26,233  |         |  |   | 23,744  |        
|Finished goods                         |             |      | 196,830 |         |  |   | 181,846 |        
|Health care supplies                   |             |      | 69,399  |         |  |   | 73,384  |        
|                                       |             |      |         |         |  |   |         |        
|                                       | Inventories |      | $       | 372,222 |  |   | $       | 346,389 | 
|                                       |             |      |         |         |  |   |         |        

Under the terms of certain unconditional purchase
agreements, the Company is obligated to purchase approximately
$306,000 of materials, of which $127,000 is committed at
December 31, 2002 for fiscal year 2003. The terms of these
agreements run 1 to 6 years. Inventories as of
December 31, 2002 include $21,204 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. In 2002, revenues from EPO
accounted for approximately 23% of total revenue in the North
America segment.

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##### Table of Contents



8.   Property, Plant and
Equipment

As of December 31, 2002 and 2001, property,
plant and equipment consisted of the following:

|                                                                       |  |      |           |      |  |   |           |  
|---------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                       |  | 2002 |           | 2001
|                                                                       |  |      |           |     
|Land and improvements                                                  |  | $    | 23,075    |      |  | $ | 23,124    |  
|Buildings and improvements                                             |  |      | 586,251   |      |  |   | 479,107   |  
|Machinery and equipment                                                |  |      | 948,781   |      |  |   | 807,544   |  
|Machinery, equipment and rental equipment under
    capitalized leases |  |      | 32,221    |      |  |   | 16,884    |  
|Construction in progress                                               |  |      | 62,257    |      |  |   | 93,144    |  
|                                                                       |  |      |           |      |  |   |           |  
|                                                                       |  |      | 1,652,585 |      |  |   | 1,419,803 |  
|Accumulated depreciation                                               |  |      | (734,717  | )    |  |   | (581,220  | )
|                                                                       |  |      |           |      |  |   |           |  
|Property, plant and equipment, net                                     |  | $    | 917,868   |      |  | $ | 838,583   |  
|                                                                       |  |      |           |      |  |   |           |  

Depreciation expense for property, plant and
equipment amounted to $158,126, $147,945 and $130,278 for the
years ended December 31, 2002, 2001 and 2000, respectively.

Included in property, plant and equipment as of
December 31, 2002 and 2001 were $89,754 and $70,496,
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. Identification of
the rental income from the Companys leasing activities is
not practicable as the Companys return on the machines is
received through contractual arrangements whereby a premium is
charged for other support equipment and supplies sold during the
life of the lease.

Accumulated depreciation related to machinery,
equipment and rental equipment under capital leases was $16,222
and $7,472 at December 31, 2002 and 2001, respectively.

9.   Intangible Assets and
Goodwill

As of December 31, 2002 and 2001, intangible
assets other than goodwill consisted of the following:

|                              |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 
|----------------------------- |  | ------------ | ------- | ------------ |  | -------- | -------- | ------------ |  | ------- | ------- |  |  | - | -------- | - |  |  | -- | 
|                              |  |              |         |              |  |         
|                              |  | December 31, |         | December 31, |  |         
|                              |  | 2002         |         | 2001         |  |         
|                              |  |              |         |              |  |         
|                              |  | Gross        |         |              |  | Gross    |          |              |  | Average
|                              |  | Carrying     |         | Accumulated  |  | Carrying |          | Accumulated  |  | Useful 
|                              |  | Amount       |         | Amortization |  | Amount   |          | Amortization |  | Life   
|                              |  |              |         |              |  |          |          |              |  |        
|Amortizable Intangible Assets |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 
|Patient relationships         |  | $            | 249,069 |              |  | $        | (191,571 | )            |  | $       | 241,192 |  |  | $ | (157,173 | ) |  |  | 7  | 
|Patents                       |  |              | 14,395  |              |  |          | (12,317  | )            |  |         | 12,795  |  |  |   | (10,275  | ) |  |  | 16 | 
|Distribution rights           |  |              | 10,226  |              |  |          | (5,886   | )            |  |         | 8,115   |  |  |   | (4,004   | ) |  |  | 9  | 
|Other                         |  |              | 155,317 |              |  |          | (72,217  | )            |  |         | 138,897 |  |  |   | (56,004  | ) |  |  | 9  | 
|                              |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 
|                              |  | $            | 429,007 |              |  | $        | (281,991 | )            |  | $       | 400,999 |  |  | $ | (227,456 | ) |  |  |    | 
|                              |  |              |         |              |  |          |          |              |  |         |         |  |  |   |          |   |  |  |    | 

|                                  |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 
|--------------------------------- |  | -------- | ------- |  |  | -------- |  |  |  | - | ------- |  |  |  |  |  |  |  |  | 
|                                  |  | Carrying |         |  |  | Carrying |  |  |  |  
|                                  |  | Amount   |         |  |  | Amount   |  |  |  |  
|                                  |  |          |         |  |  |          |  |  |  |  
|Non-amortizable Intangible Assets |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 
|Tradename                         |  |          | 220,249 |  |  |          |  |  |  |   | 219,702 |  |  |  |  |  |  |  |  | 
|Management contracts              |  |          | 183,056 |  |  |          |  |  |  |   | 183,056 |  |  |  |  |  |  |  |  | 
|                                  |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 
|                                  |  | $        | 403,305 |  |  |          |  |  |  | $ | 402,758 |  |  |  |  |  |  |  |  | 
|                                  |  |          |         |  |  |          |  |  |  |   |         |  |  |  |  |  |  |  |  | 

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The related amortization expenses (including
amortization for goodwill, tradename and management contracts in
2001 and 2000) are as follows:

Aggregate Amortization Expense

|                                     |  |   |         | 
|------------------------------------ |  | - | ------- | 
|For the year ended December 31, 2000 |  | $ | 160,604 | 
|                                     |  |   |         | 
|For the year ended December 31, 2001 |  | $ | 176,260 | 
|                                     |  |   |         | 
|For the year ended December 31, 2002 |  | $ | 52,429  | 
|                                     |  |   |         | 

Estimated Amortization Expense

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|For the year ended December 31, 2003 |  | $ | 31,320 | 
|                                     |  |   |        | 
|For the year ended December 31, 2004 |  | $ | 25,897 | 
|                                     |  |   |        | 
|For the year ended December 31, 2005 |  | $ | 21,247 | 
|                                     |  |   |        | 
|For the year ended December 31, 2006 |  | $ | 16,786 | 
|                                     |  |   |        | 
|For the year ended December 31, 2007 |  | $ | 10,314 | 
|                                     |  |   |        | 

Goodwill

Increases in the carrying amount of goodwill are
a result of this years acquisitions totaling $81,394 (See
Note 5). The segment detail is as follows:

|                                |                                    |         |           |               |  |           |         |        |  |   |   |   |  |   |           |        | 
|------------------------------- | ---------------------------------- | ------- | --------- | ------------- |  | --------- | ------- | ------ |  | - | - | - |  | - | --------- | ------ | 
|                                |                                    | North   |           |               |  |           |         |       
|                                |                                    | America |           | International |  | Corporate |         | Total 
|                                |                                    |         |           |               |  |           |         |       
|Balance as of January 1, 2002   |                                    | $       | 2,899,398 |               |  | $         | 206,324 |        |  | $ |  |   |  | $ | 3,105,722 |       
|                                | Goodwill acquired during year, 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 |       
|                                |                                    |         |           |               |  |           |         |        |  |   |   |   |  |   |           |       

Had the Company determined amortization expense
under SFAS No. 142 in 2000 and 2001, the Companys net
income recognized in the years ended December 31, 2001 and
2000 would have been increased to the amounts indicated below:

|                    |  |                                 |         |      |  |      |         |  |  |   |         | 
|------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                    |  |                                
|                    |  | For the year ended December 31,
|                    |  |                                
|                    |  | 2002                            |         | 2001 |  | 2000
|                    |  |                                 |         |      |  |     
|Net income          |  | $                               | 289,790 |      |  | $    | 63,354  |  |  | $ | 212,075 | 
|Net income adjusted |  |                                 | 289,790 |      |  |      | 166,129 |  |  |   | 307,814 | 

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Reconciliation of net income to adjusted net
income and earnings per share to adjusted earnings per share:

|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |      | 
|------------------------------------------ | -------------------------------- | ------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                           |                                  |                                
|                                           |                                  | For the year ended December 31,
|                                           |                                  |                                
|                                           |                                  | 2002                            |         | 2001 |  | 2000
|                                           |                                  |                                 |         |      |  |     
|Reported net income                        |                                  | $                               | 289,790 |      |  | $    | 63,354  |      |  | $ | 212,075 |     
|Add back: Goodwill amortization            |                                  |                                 |         |      |  |      | 94,958  |      |  |   | 89,112  |     
|Add back: Tradenames amortization          |                                  |                                 |         |      |  |      | 3,797   |      |  |   | 3,808   |     
|Add back: Management contract amortization |                                  |                                 |         |      |  |      | 4,020   |      |  |   | 2,819   |     
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|Adjusted net income                        |                                  | $                               | 289,790 |      |  | $    | 166,129 |      |  | $ | 307,814 |     
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|Basic income per Ordinary share:           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Reported net income              |                                 | $       | 3.00 |  |      | $       | 0.65 |  |   | $       | 2.37 | 
|                                           | Goodwill amortization            |                                 |         |      |  |      |         | 0.99 |  |   |         | 1.00 | 
|                                           | Tradenames amortization          |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.04 | 
|                                           | Management contract amortization |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.04 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Adjusted net income              |                                 | $       | 3.00 |  |      | $       | 1.72 |  |   | $       | 3.45 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|Fully diluted income per Ordinary share:   |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Reported net income              |                                 | $       | 3.00 |  |      | $       | 0.64 |  |   | $       | 2.36 | 
|                                           | Goodwill amortization            |                                 |         |      |  |      |         | 0.99 |  |   |         | 1.00 | 
|                                           | Tradenames amortization          |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.04 | 
|                                           | Management contract amortization |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.03 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Adjusted net income              |                                 | $       | 3.00 |  |      | $       | 1.71 |  |   | $       | 3.43 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|Basic income per Preference share:         |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Reported net income              |                                 | $       | 3.06 |  |      | $       | 0.70 |  |   | $       | 2.43 | 
|                                           | Goodwill amortization            |                                 |         |      |  |      |         | 0.99 |  |   |         | 1.00 | 
|                                           | Tradenames amortization          |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.04 | 
|                                           | Management contract amortization |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.03 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Adjusted net income              |                                 | $       | 3.06 |  |      | $       | 1.77 |  |   | $       | 3.50 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|Fully diluted income per Preference share: |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Reported net income              |                                 | $       | 3.06 |  |      | $       | 0.69 |  |   | $       | 2.42 | 
|                                           | Goodwill amortization            |                                 |         |      |  |      |         | 0.99 |  |   |         | 1.00 | 
|                                           | Tradenames amortization          |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.04 | 
|                                           | Management contract amortization |                                 |         |      |  |      |         | 0.04 |  |   |         | 0.03 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     
|                                           | Adjusted net income              |                                 | $       | 3.06 |  |      | $       | 1.76 |  |   | $       | 3.49 | 
|                                           |                                  |                                 |         |      |  |      |         |      |  |   |         |     

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10. Accrued Expenses and Other Current
Liabilities

As at December 31, 2002 and 2001 accrued
expenses and other current liabilities consisted of the
following:

|                                                         |  |      |         |      |  |   |         | 
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                         |  | 2002 |         | 2001
|                                                         |  |      |         |     
|Accrued salaries and wages                               |  | $    | 121,212 |      |  | $ | 99,639  | 
|Accounts receivable credit balances                      |  |      | 63,773  |      |  |   | 57,386  | 
|Accrued insurance                                        |  |      | 48,165  |      |  |   | 39,308  | 
|Accrued interest                                         |  |      | 35,861  |      |  |   | 31,113  | 
|Accrued operating expenses                               |  |      | 33,369  |      |  |   | 29,754  | 
|Derivatives                                              |  |      | 28,656  |      |  |   | 5,910   | 
|Withholding tax and VAT                                  |  |      | 20,538  |      |  |   | 21,282  | 
|Accrued physician compensation                           |  |      | 19,211  |      |  |   | 17,481  | 
|Commissions                                              |  |      | 14,877  |      |  |   | 12,839  | 
|Bonuses and rebates                                      |  |      | 10,324  |      |  |   | 4,610   | 
|Deferred income                                          |  |      | 8,359   |      |  |   | 6,945   | 
|Accrued legal and compliance costs                       |  |      | 5,821   |      |  |   | 5,204   | 
|Other                                                    |  |      | 59,062  |      |  |   | 77,576  | 
|                                                         |  |      |         |      |  |   |         | 
|Total accrued expenses and other current
    liabilities |  | $    | 469,228 |      |  | $ | 409,047 | 
|                                                         |  |      |         |      |  |   |         | 

11. Debt and Capital Lease
Obligations

Short term borrowings

Short-term borrowings from third parties of
$124,964 and $93,411 at December 31, 2002, and 2001,
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, 2002, and 2001 was 4.67% and 6.26%,
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,
2002, FMC had $60,541 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.

Long-term borrowings

As of December 31, 2002 and 2001, long-term
debt and capital lease obligations consisted of the following:

|                             |  |      |           |      |  |   |          |  
|---------------------------- |  | ---- | --------- | ---- |  | - | -------- | -
|                             |  | 2002 |           | 2001
|                             |  |      |           |     
|1996 Senior Credit Agreement |  | $    | 861,900   |      |  | $ | 695,801  |  
|Capital leases               |  |      | 10,645    |      |  |   | 12,412   |  
|Euro Notes                   |  |      | 134,758   |      |  |   | 113,247  |  
|Other                        |  |      | 104,301   |      |  |   | 79,268   |  
|                             |  |      |           |      |  |   |          |  
|                             |  |      | 1,111,604 |      |  |   | 900,728  |  
|Less current maturities      |  |      | (22,394   | )    |  |   | (164,959 | )
|                             |  |      |           |      |  |   |          |  
|                             |  | $    | 1,089,210 |      |  | $ | 735,769  |  
|                             |  |      |           |      |  |   |          |  

1996 Senior Credit Agreement

The Company was party to a bank agreement dated
September 27, 1996 (hereafter 1996 Senior Credit
Agreement) with Bank of America, N.A., The Bank of Nova
Scotia, The Chase Manhattan Bank, Dresdner

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Bank Aktiengesellschaft and certain other lenders
(collectively, the Lenders), as amended, pursuant to
which the Lenders have made available to the Company and certain
subsidiaries and affiliates two credit facilities:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a revolving credit facility of up to $1,000,000
    (of which up to $250,000 was available for letters of credit, up
    to $450,000 was available for borrowings in certain
    non-U.S. currencies, up to $50,000 was available as swing
    lines in U.S. dollars and up to $20,000 was available as
    swing lines in certain non-U.S. currencies) which was
    scheduled to expire on September 30, 2003. At
    December 31, 2002, the Company had $618,555 outstanding
    under the revolving credit facility, including $34,155 for
    letters of credit.
|
| |  | a term loan facility of $277,500 at
    December 31, 2002, also scheduled to expire on
    September 30, 2003. The terms of the 1996 Senior Credit
    Agreement relating to the term loan facility required payments
    that permanently reduce the term loan facility. The repayment
    began in the fourth quarter of 1999 and continued with quarterly
    payments of $37,500 until February 21, 2003, when it was
    replaced and paid off with the 2003 Senior Credit Agreement (see
    Note 25).                                                         

Loans under the 1996 Senior Credit Agreement
calculated interest at a base rate determined in accordance with
the agreement, or at LIBOR, plus in either case an applicable
margin. A fee was payable to the Lenders equal to a percentage
per annum (initially 0.375%) of the portion of the 1996 Senior
Credit Agreement not used.

In addition to scheduled principal payments, the
1996 Senior Credit Agreement was reduced by certain portions of
the net cash proceeds from certain sales of assets, sales of
accounts receivable and the issuance of subordinated debt and
equity securities. The 1996 Senior Credit Agreement contained
customary affirmative and negative covenants with respect to the
Company and its subsidiaries and other payment restrictions,
mainly related to dividends. Under the terms of the agreement
the Company was restricted as to the level of dividends that
could be paid in any calendar year, which was $87,000 in 2002.
The Companys dividend distribution in 2002 for 2001 was
$76,743.

Dividends from Fresenius Medical Care Holdings,
Inc. (FMCH), a wholly owned subsidiary, were limited
as a result of a restriction on dividends from its subsidiary,
NMC and its subsidiaries. The restriction limited NMC dividends
to 50% of its consolidated net income of the preceding year.

On May 31, 2001, the 1996 Senior Credit
Agreement was amended so that the proceeds of the Preference
share offerings during 2001 (see Note 16) did not trigger
repayment obligations on the term loan. On June 30, 2001,
the Senior Credit Agreement was amended again to increase the
allowed other indebtedness of FMCH and its subsidiaries. On
November 26, 2001, the payment restrictions on the 1996
Senior Credit Agreement were amended to allow for the early
redemption of $360,000 of 9% Trust Preferred Securities on
February 14, 2002 (see Note 14). This amendment also
delayed the effectiveness of a more restrictive leverage ratio
under the facility.

On February 25, 2002, the Companys
1996 Senior Credit Agreement was amended to clarify the impact
of the special charge for legal matters (see Note 3) and
the effects of certain legal proceedings on covenant
computations under the facility. On September 6, 2002, the
Companys 1996 Senior Credit Agreement was amended to delay
the effectiveness of a more restrictive leverage ratio in order
to allow redemption of the FMCH Class D Preferred stock.

At December 31, 2002, the Company had
approximately $381,445 of additional borrowing capacity
available under the revolving credit facility of the 1996 Senior
Credit Agreement, including approximately $215,845 for
additional letters of credit. No further borrowings are
available under the term loan facility.

On February 21, 2003, the Company entered
into a new bank agreement, which replaced the 1996 Senior Credit
Agreement (see Note 25). Accordingly, the amounts due under
the 1996 Senior Credit Agreement in 2003 are excluded from
current liabilities.

Euro Notes

In 2001, the Company issued four tranches of
senior notes (Euro Notes) totaling
128,500. The
first tranche was for
80,000 with a
fixed interest rate of 6.16% and the second and third tranches
for 28,500 and

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15,000,
respectively, with variable interest rates which averaged 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.


Aggregate annual payments applicable to the 1996
Senior Credit Agreement, Euro Notes, capital leases and other
borrowings for the five years subsequent to December 31,
2002 (excluding borrowings underlying the Companys trust
preferred securities -see Note 14), taking into account the
new senior credit agreement of February 21, 2003, are:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2003       |  |   | 22,394    | 
|2004       |  |   | 80,715    | 
|2005       |  |   | 259,176   | 
|2006       |  |   | 116,138   | 
|2007       |  |   | 605,599   | 
|Thereafter |  |   | 27,582    | 
|           |  |   |           | 
|           |  | $ | 1,111,604 | 
|           |  |   |           | 

12. Income Taxes

Income (loss) before income taxes, minority
interest and extraordinary loss is attributable to the following
geographic locations:

|              |  |      |         |      |  |      |         |   |  |   |         | 
|------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | 
|              |  | 2002 |         | 2001 |  | 2000
|              |  |      |         |      |  |     
|Germany       |  | $    | 90,018  |      |  | $    | 123,141 |   |  | $ | 106,475 | 
|United States |  |      | 306,154 |      |  |      | (60,930 | ) |  |   | 220,176 | 
|Other         |  |      | 91,795  |      |  |      | 94,077  |   |  |   | 78,058  | 
|              |  |      |         |      |  |      |         |   |  |   |         | 
|              |  | $    | 487,967 |      |  | $    | 156,288 |   |  | $ | 404,708 | 
|              |  |      |         |      |  |      |         |   |  |   |         | 

Income tax expense (benefit) for the years ended
December 31, 2002, 2001, and 2000, consisted of the
following:

|          |                                           |      |         |        |  |      |         |         |   |   |         |         |  
|--------- | ----------------------------------------- | ---- | ------- | ------ |  | ---- | ------- | ------- | - | - | ------- | ------- | -
|          |                                           | 2002 |         | 2001   |  | 2000
|          |                                           |      |         |        |  |     
|Current:  |                                           |      |         |        |  |      |         |         |   |   |         |        
|          | German corporation and trade income taxes |      | $       | 30,627 |  |      | $       | 30,094  |   |   | $       | 66,754  |  
|          | United States income taxes                |      |         | 60,358 |  |      |         | 87,923  |   |   |         | 23,132  |  
|          | Other income taxes                        |      |         | 32,124 |  |      |         | 31,079  |   |   |         | 29,971  |  
|          |                                           |      |         |        |  |      |         |         |   |   |         |        
|          |                                           |      | 123,109 |        |  |      | 149,097 |         |   |   | 119,857 |        
|          |                                           |      |         |        |  |      |         |         |   |   |         |        
|Deferred: |                                           |      |         |        |  |      |         |         |   |   |         |        
|          | Germany                                   |      |         | 10,069 |  |      |         | 7,651   |   |   |         | (14,902 | )
|          | United States                             |      |         | 47,437 |  |      |         | (72,455 | ) |   |         | 81,553  |  
|          | Other income taxes                        |      |         | 2,198  |  |      |         | 6,909   |   |   |         | 3,264   |  
|          |                                           |      |         |        |  |      |         |         |   |   |         |        
|          |                                           |      | 59,705  |        |  |      | (57,895 | )       |   |   | 69,915  |        
|          |                                           |      |         |        |  |      |         |         |   |   |         |        
|          |                                           | $    | 182,814 |        |  | $    | 91,202  |         |   | $ | 189,772 |        
|          |                                           |      |         |        |  |      |         |         |   |   |         |        

For the fiscal years ended December 31, 2002
and 2001, under the provisions applicable as a result of German
tax reform, the Company is subject to German federal corporation
income tax at a base rate of 25% plus a solidarity surcharge of
5.5% on federal corporation taxes payable; as a result the
statutory rate for the years ended December 31, 2002 and
2001 amounts to 26.375%.

For the year ended December 31, 2000, German
corporation tax law applied a split rate imputation credit
system to the income taxation of corporations and their
shareholders. As a result, retained corporation income was
initially subject to a federal corporation tax rate of 40%, plus
a solidarity surcharge of 5.5% for each year on federal
corporate taxes payable. The statutory rate for the year ended
December 31, 2000 amounted to 42.2%.

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Upon distribution of retained earnings to
shareholders, the corporation income tax rate on such
distributed earnings was adjusted to 30%, plus solidarity
surcharge of 5.5%, for a total of 31.65%. This reduction was
effected by means of a refund for taxes previously paid, and was
referred to as the dividend distribution credit.


In October 2000, the German government enacted
new tax legislation which, among other changes, reduced the
Companys statutory tax rate in Germany from 40% on
retained earnings and 30% on distributed earnings to a
uniform 25% effective for the Companys year beginning
January 1, 2001. The effect of the reduction in the tax
rate and other tax law changes on the deferred tax assets and
liabilities of the Company and its German subsidiaries were
recognized in the year of enactment and resulted in a deferred
tax benefit for 2000 of $2,227. In September 2002, the German
government enacted the Flood Victim Solidarity Law. Under this
legislation, for the Companys fiscal year beginning
January 1, 2003 only, the base rate of German federal
corporation taxation is increased from 25% to 26.5%. The
statutory tax rate is scheduled to return to 25% as of
January 1, 2004. This change did not have a material effect
in 2002.

Income tax expense differs 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 (26.375% for fiscal years 2002 and
2001 and 42.2% for 2000, respectively) as follows:

|                                                                              |  |      |         |      |  |      |        |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                              |  | 2002 |         | 2001 |  | 2000
|                                                                              |  |      |         |      |  |     
|Computed expected income tax expense
    at the undistributed earnings rate |  | $    | 128,701 |      |  | $    | 41,221 |   |  | $ | 170,786 |  
|Dividend distributions credit                                                 |  |      |        |      |  |      |       |   |  |   | (9,077  | )
|Trade income taxes, net of German federal
    corporation income tax benefit  |  |      | 12,569  |      |  |      | 13,663 |   |  |   | 12,688  |  
|U.S. State income taxes, net of federal tax
    benefit                       |  |      | 10,740  |      |  |      | 420    |   |  |   | 9,962   |  
|Tax free income                                                               |  |      | (11,078 | )    |  |      | (5,327 | ) |  |   |        |  
|Non-deductible portion of special charge for
    legal matters                |  |      |        |      |  |      | 14,216 |   |  |   |        |  
|Amortization of non-tax deductible goodwill                                   |  |      |        |      |  |      | 19,678 |   |  |   | 28,380  |  
|Foreign tax rate differential                                                 |  |      | 27,326  |      |  |      | 7,538  |   |  |   | (30,773 | )
|Non-deductible expenses                                                       |  |      | 7,827   |      |  |      | 691    |   |  |   | 1,710   |  
|Other                                                                         |  |      | 6,729   |      |  |      | (898   | ) |  |   | 6,096   |  
|                                                                              |  |      |         |      |  |      |        |   |  |   |         |  
|Provision for income taxes                                                    |  | $    | 182,814 |      |  | $    | 91,202 |   |  | $ | 189,772 |  
|                                                                              |  |      |         |      |  |      |        |   |  |   |         |  
|Effective tax rate                                                            |  |      | 37.5    | %    |  |      | 58.4   | % |  |   | 46.9    | %
|                                                                              |  |      |         |      |  |      |        |   |  |   |         |  

The tax effects of the temporary differences that
give rise to deferred tax assets and liabilities at
December 31 are presented below:

|                                                                                                              |  |      |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | 2002 |         | 2001
|                                                                                                              |  |      |         |     
|Deferred tax assets:                                                                                          |  |      |         |      |  |   |         |  
|Accounts receivable, primarily due to allowance
    for doubtful accounts                                     |  | $    | 25,962  |      |  | $ | 27,155  |  
|Inventory, primarily due to additional costs
    capitalized for tax purposes, and inventory reserve accounts |  |      | 21,368  |      |  |   | 19,287  |  
|Accrued expenses and other liabilities for
    financial accounting purposes, not currently tax deductible    |  |      | 129,154 |      |  |   | 133,578 |  
|Special charge for legal matters                                                                              |  |      | 46,580  |      |  |   | 104,880 |  
|Net operating loss carryforwards                                                                              |  |      | 47,971  |      |  |   | 23,732  |  
|Derivatives                                                                                                   |  |      | 42,370  |      |  |   | 26,514  |  
|Other                                                                                                         |  |      | 3,975   |      |  |   | 6,512   |  
|                                                                                                              |  |      |         |      |  |   |         |  
|Total deferred tax assets                                                                                     |  | $    | 317,380 |      |  | $ | 341,657 |  
|Less: valuation allowance                                                                                     |  |      | (23,229 | )    |  |   | (6,428  | )
|                                                                                                              |  |      |         |      |  |   |         |  
|Net deferred tax assets                                                                                       |  | $    | 294,151 |      |  | $ | 335,230 |  
|                                                                                                              |  |      |         |      |  |   |         |  

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##### Table of Contents



|                                                                                                        |  |      |         |      |  |   |         | 
|------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                                                        |  | 2002 |         | 2001
|                                                                                                        |  |      |         |     
|Deferred tax liabilities:                                                                               |  |      |         |      |  |   |         | 
|Accounts receivable, primarily due to allowance
    for doubtful accounts                               |  | $    | 20,207  |      |  | $ | 4,019   | 
|Inventory, primarily due to inventory reserve
    accounts for tax purposes                             |  |      | 6,646   |      |  |   | 4,224   | 
|Accrued expenses and other liabilities deductible
    for tax prior to financial accounting recognition |  |      | 23,256  |      |  |   | 22,416  | 
|Plant and equipment, principally due to
    differences in depreciation                                 |  |      | 165,264 |      |  |   | 161,936 | 
|Special charge for legal matters                                                                        |  |      |        |      |  |   | 36,938  | 
|Derivatives                                                                                             |  |      | 31,551  |      |  |   |        | 
|Other                                                                                                   |  |      | 9,006   |      |  |   | 4,136   | 
|                                                                                                        |  |      |         |      |  |   |         | 
|Total deferred tax liabilities                                                                          |  |      | 255,930 |      |  |   | 233,669 | 
|                                                                                                        |  |      |         |      |  |   |         | 
|Net deferred tax asset                                                                                  |  | $    | 38,221  |      |  | $ | 101,561 | 
|                                                                                                        |  |      |         |      |  |   |         | 

During 2002, the valuation allowance increased by
$16,800 mainly attributable to currency exchange losses in Latin
America. Whereas during 2001 the valuation allowance decreased
by $2,864 primarily attributable to the utilization of operating
losses mainly in Japan.

|                                   |  |   |         | 
|---------------------------------- |  | - | ------- | 
|Expiration of net operating losses |  |  
|                                   |  |  
|2003                               |  | $ | 5,485   | 
|2004                               |  |   | 3,309   | 
|2005                               |  |   | 8,335   | 
|2006                               |  |   | 8,041   | 
|2007                               |  |   | 48,571  | 
|2008                               |  |   | 4,099   | 
|2009                               |  |   | 8,022   | 
|2010                               |  |   |        | 
|Thereafter                         |  |   | 34,801  | 
|                                   |  |   |         | 
|Total                              |  | $ | 120,663 | 
|                                   |  |   |         | 

In addition, for U.S. state tax purposes,
the Company has a net operating loss carryforward of $159,399 at
an estimated rate of 3.25%.

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, 2002.

Provision has not been made for additional taxes
on approximately $164,663 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.

13. 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 employee
years of service and final salary. Consistent with predominant
business custom in the Federal Republic of Germany, FMCs
pension obligations in Germany are unfunded. In the United
States, substantially all domestic employees are covered by
NMCs non-contributory, defined benefit pension plan until
the curtailment in February 2002. Each year NMC contributes at

F-23



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least the minimum required by the Employee
Retirement Income Security Act of 1974, as amended. Plan assets
consist primarily of publicly traded common stock, fixed income
securities and cash equivalents. In addition, NMC also sponsors
a supplemental executive retirement plan to provide certain key
executives with benefits in excess of normal pension benefits.


The following table 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.

|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                      |  | 2002 |         | 2001 |  | 2000
|                                                                      |  |      |         |      |  |     
|Change in benefit obligation:                                         |  |      |         |      |  |      |         |   |  |   |         |  
|Benefit obligation at beginning of year                               |  | $    | 155,691 |      |  | $    | 132,451 |   |  | $ | 111,753 |  
|Translation loss (gain)                                               |  |      | 6,484   |      |  |      | (1,482  | ) |  |   | (1,748  | )
|Service cost                                                          |  |      | 5,065   |      |  |      | 12,792  |   |  |   | 11,465  |  
|Interest cost                                                         |  |      | 10,358  |      |  |      | 9,397   |   |  |   | 8,148   |  
|Curtailment                                                           |  |      | (21,660 | )    |  |      |        |   |  |   |        |  
|Transfer of plan participants                                         |  |      | 84      |      |  |      | (34     | ) |  |   | (6      | )
|Actuarial loss                                                        |  |      | 17,822  |      |  |      | 5,955   |   |  |   | 5,940   |  
|Benefits paid                                                         |  |      | (3,006  | )    |  |      | (3,388  | ) |  |   | (3,103  | )
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Benefit obligation at end of year                                     |  | $    | 170,838 |      |  | $    | 155,691 |   |  | $ | 132,451 |  
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Change on plan assets:                                                |  |      |         |      |  |      |         |   |  |   |         |  
|Fair value of plan assets at beginning of year                        |  | $    | 83,354  |      |  | $    | 81,948  |   |  | $ | 86,794  |  
|Actual return on plan assets                                          |  |      | (8,830  | )    |  |      | (4,558  | ) |  |   | (2,098  | )
|Employee contributions                                                |  |      | 6,034   |      |  |      | 9,012   |   |  |   |        |  
|Benefits paid                                                         |  |      | (2,558  | )    |  |      | (3,048  | ) |  |   | (2,748  | )
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Fair value of plan assets at end of year                              |  | $    | 78,000  |      |  | $    | 83,354  |   |  | $ | 81,948  |  
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Funded status:                                                        |  | $    | (92,839 | )    |  | $    | (72,338 | ) |  | $ | (50,503 | )
|Unrecognized net (loss) gain                                          |  |      | 33,626  |      |  |      | 7,628   |   |  |   | (12,593 | )
|Unrecognized prior service cost                                       |  |      |        |      |  |      | (3      | ) |  |   | (4      | )
|Unrecognized transition obligation                                    |  |      | 85      |      |  |      | 143     |   |  |   | 226     |  
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Net amount recognized                                                 |  | $    | (59,128 | )    |  | $    | (64,570 | ) |  | $ | (62,875 | )
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Amounts recognized in statement of financial
    position consist of: |  |      |         |      |  |      |         |   |  |   |         |  
|Accrued benefit costs                                                 |  |      | (87,714 | )    |  |      | (64,570 | ) |  |   | (62,875 | )
|Accumulated other comprehensive income                                |  |      | 28,586  |      |  |      |        |   |  |   |        |  
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Net amount recognized                                                 |  |      | (59,128 | )    |  |      | (64,570 | ) |  |   | (62,875 | )
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Weighted  average assumptions as of
    December 31:                 |  |      |         |      |  |      |         |   |  |   |         |  
|Discount rate                                                         |  |      | 6.50%   |      |  |      | 7.20%   |   |  |   | 7.70%   |  
|Expected return of plan assets                                        |  |      | 8.50%   |      |  |      | 10.00%  |   |  |   | 9.70%   |  
|Rate of compensation increase                                         |  |      | 4.30%   |      |  |      | 4.50%   |   |  |   | 4.90%   |  
|Components of net period benefit cost:                                |  |      |         |      |  |      |         |   |  |   |         |  
|Service cost                                                          |  | $    | 5,065   |      |  | $    | 12,793  |   |  | $ | 11,465  |  
|Interest cost                                                         |  |      | 10,358  |      |  |      | 9,398   |   |  |   | 8,148   |  
|Expected return on plan assets                                        |  |      | (7,611  | )    |  |      | (8,430  | ) |  |   | (8,345  | )
|Amortization of transition obligation                                 |  |      | 77      |      |  |      | 73      |   |  |   | 75      |  
|Amortization unrealized losses                                        |  |      | 113     |      |  |      | 4       |   |  |   |        |  
|Curtailment gain                                                      |  |      | (12,620 | )    |  |      |        |   |  |   |        |  
|Net amortization                                                      |  |      |        |      |  |      | (1,377  | ) |  |   | (2,430  | )
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Net periodic benefit costs                                            |  | $    | (4,618  | )    |  | $    | 12,461  |   |  | $ | 8,913   |  
|                                                                      |  |      |         |      |  |      |         |   |  |   |         |  

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##### Table of Contents



During the first quarter of 2002, the Company
recorded a gain of $12,620 resulting from the curtailment of the
Companys defined benefit and supplemental executive
retirement plans. Under the curtailment amendment, no additional
defined benefits for future services will be earned by
substantially all employees eligible for the plan. The Company
has retained all employee pension obligations as of the
curtailment date for the fully-vested and frozen benefits for
all employees.

The Company recognized an additional minimum
pension liability of $28,586 for the NMC plan in the U.S. The
projected benefit obligation, accumulated benefit obligation,
fair value of the plan assets and accrued benefit cost for the
NMC pension plan with accumulated benefit obligations in excess
of the plan assets were $130,590, $129,264, $78,000 and $22,678,
respectively, as of December 31, 2002.

In addition to the principal pension plans,
certain additional separate retirement plans were offered by the
Companys North America and International subsidiaries. For
the North America plans, the Company recorded $3,675 to
accumulated other comprehensive income to recognize the
additional minimum liability for these plans related to the
excess of the accumulated benefit obligation over the fair value
of the plan assets and accrued benefit cost at December 31,
2002. No additional minimal liability was recognized at
December 31, 2001 and 2000. The total accrued pension cost
for these plans was $12,612, $6,012, and $7,095 at
December 31, 2002, 2001 and 2000, respectively.

Defined Contribution Plans

NMC and FUSAs employees are eligible to
join 401(k) savings plan once they have achieved a minimum of
90 days of service and if they have more than
900 hours of service before their one year anniversary
date. Under the provisions of the 401(k) savings plan, employees
are allowed to contribute up to 16% of their salaries. The
Company contributes 50% of employee savings up to 6% of saved
pay after one year. The Companys total contributions for
the years ended December 31, 2002, 2001 and 2000 was
$12,974, $10,647 and $8,876, respectively.

The Company does not provide any post-retirement
benefits to its employees other than those provided under the
benefit plans noted above.

14. Mandatorily Redeemable Trust
Preferred Securities

The Company issued Trust Preferred Securities
through five Fresenius Medical Care Capital Trusts, statutory
business trusts organized under the laws of the State of
Delaware. FMC owns all of the common securities of these trusts.
The sole asset of the trusts is a senior subordinated note of a
wholly-owned subsidiary of FMC and related guarantees by FMC,
Fresenius Medical Care Deutschland GmbH (D-GmbH) and
FMCH; D-GmbH and FMCH being the Subsidiary
Guarantors. The Trust Preferred Securities are guaranteed
by FMC 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 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 $11,777 was incurred as
a result of the early redemption of debt, consisting of $16,200
of redemption premiums and $3,317 of associated debt issuance
costs, net of a $7,740 tax benefit.

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##### Table of Contents



The Trust Preferred Securities outstanding as of
December 31 are as follows:

|                                         |  |        |      |        |  |          |             |                 |  |      |        |      |  |  |                        |  |  |   |           |  |  |   |           | 
|---------------------------------------- |  | ------ | ---- | ------ |  | -------- | ----------- | --------------- |  | ---- | ------ | ---- |  |  | ---------------------- |  |  | - | --------- |  |  | - | --------- | 
|                                         |  | Year   |      | Stated |  | Interest |             | Mandatory       |  |      |        |     
|                                         |  | Issued |      | Amount |  | Rate     |             | Redemption Date |  | 2002 |        | 2001
|                                         |  |        |      |        |  |          |             |                 |  |      |        |     
|Fresenius Medical Care Capital Trust     |  |        | 1996 |        |  |          | $360,000    |                 |  |      | 9%     |      |  |  | Redeemed Feb. 14, 2002 |  |  | $ | 0         |  |  | $ | 360,000   | 
|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       |  |  |   | 160,858   |  |  |   | 135,180   | 
|Fresenius Medical Care Capital Trust IV  |  |        | 2001 |        |  |          | $225,000    |                 |  |      | 7 7/8% |      |  |  | June 15, 2011          |  |  |   | 221,766   |  |  |   | 221,382   | 
|Fresenius Medical Care Capital Trust V   |  |        | 2001 |        |  |          | 300,000    |                 |  |      | 7 3/8% |      |  |  | June 15, 2011          |  |  |   | 312,657   |  |  |   | 262,206   | 
|                                         |  |        |      |        |  |          |             |                 |  |      |        |      |  |  |                        |  |  |   |           |  |  |   |           | 
|                                         |  |        |      |        |  |          |             |                 |  |      |        |      |  |  |                        |  |  | $ | 1,145,281 |  |  | $ | 1,428,768 | 
|                                         |  |        |      |        |  |          |             |                 |  |      |        |      |  |  |                        |  |  |   |           |  |  |   |           | 

15. Minority Interests

At December 31, 2002 and 2001, minority
interests were as follows:

|                                 |                                                                                             |      |        |       |  |   |        |       | 
|-------------------------------- | ------------------------------------------------------------------------------------------- | ---- | ------ | ----- |  | - | ------ | ----- | 
|                                 |                                                                                             | 2002 |        | 2001 
|                                 |                                                                                             |      |        |      
|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 |  |   |        | 8,906 | 
|                                 |                                                                                             |      |        |       |  |   |        |      
|Sub-total FMCH minority interest |                                                                                             |      | 16,318 |       |  |   | 16,318 |      
|Other minority interest          |                                                                                             |      | 6,204  |       |  |   | 3,915  |      
|                                 |                                                                                             |      |        |       |  |   |        |      
|Total minority interest          |                                                                                             | $    | 22,522 |       |  | $ | 20,233 |      
|                                 |                                                                                             |      |        |       |  |   |        |      

In conjunction with the formation of FMC, each
holder of W.R. Grace common stock received one share of a
Class D Preferred stock of FMCH for each share of stock
previously held. The Class D Preferred stock entitled the
holder to receive a one-time special dividend if (but only if)
the cumulative adjusted cash flow to ordinary shareholders
(defined as net income plus depreciation and amortization) from
January 1, 1997 through December 31, 2001 exceeded
$3,700,000. The cumulative adjusted cash flow threshold was not
met, accordingly no special dividend was be paid. The
Class D Preferred stock is redeemable by FMCH at any time
at its sole option at a redemption price of $0.10 per share. On
February 4, 2003, the Company announced it was exercising
its right to redeem all of the outstanding of the Class D
Preferred Stock (see Note 25).

16. Shareholders Equity

Capital Stock

As of December 31, 2002, the Companys
capital stock consisted of 26,188,575 Preference shares
(53,597,700 shares authorized) without par value with a nominal
amount of 2.56
per share totaling $69,540 and of 70,000,000 Ordinary shares
without par value with a nominal amount of
2.56 totaling
$229,494.

As of December 31, 2001 and 2000, the
Companys capital stock was divided into 26,176,508 and
23,765,093 Preference shares (53,597,700 and 45,497,700 shares
authorized) amounting to $69,512 and $63,644 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.

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##### Table of Contents



The authorized and issued number of Preference
shares was impacted during the fiscal years 2002, 2001 and 2000
by the following transactions:

Everest Acquisition

In January 2001, the Company issued 2,250,000
Preference shares as partial payment for the acquisition of
Everest (see Note 5).

FMC 2000 Public Offering

In July 2000, the Company completed a global
offering of 5,750,000 Preference shares for total net proceeds
of approximately $213,000.

Franconia Transaction

On March 2, 2000, the Company issued
8,974,359 non-voting Preference shares in exchange for interests
in Franconia Acquisition LLC. For financial reporting purposes,
the transaction generated net proceeds of approximately $344,000.

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:



| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, 2002, 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,
    2002, 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, FMC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 effected only upon
exercise of subscription rights granted under the FMC 2001
International Stock Incentive Plan. As of December 31, 2002
4,000,000 Preference are available for issue.

It was resolved in the Annual General Meetings of
the shareholders on June 10, 1998 and June 2, 1999 to
increase the share capital of the Company by up to
6,400 by issuing
up to 2,500,000 nonvoting bearer preference shares to the
beneficiaries of the options to be granted in accordance with
the FMC 98 Stock Option Plan. At the Annual General Meeting and
Special Meeting of the preference shareholders held on
May 23, 2001, this conditional capital was reduced to the
amount necessary to cover the stock options issued up to that
date. The conditional capital was reduced accordingly to a
nominal amount of
3,072.

A conditional increase in capital in the amount
of 12,800 was
resolved in the Annual General Meetings of the shareholders on
September 24, 1996 and June 2, 1999 by the issue of
nonvoting bearer Preference shares. The conditional increase in
capital will only be carried out to the extent that holders of
convertible bonds exercise

F-27



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##### Table of Contents



their right to convert to the new shares. At the
Annual General Meeting and Special Meeting of the preference
shareholders held on May 23, 2001, this conditional capital
was reduced to the amount necessary to cover the convertible
bonds issued up to that date. The conditional capital was
reduced accordingly to a nominal amount of
6,144.


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 dividend is declared for two consecutive
years after the year for which the Preference shares are
entitled to dividends, then the holders of such Preference
shares will be entitled to the same voting rights as holders of
Ordinary shares until all arrearages are paid. In addition, the
payment of dividends by FMC is subject to limitations under the
1996 Senior Credit Agreement (see Note 11).

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.

17. Earnings Per Share

The following table is a reconciliation of the
numerators and denominators of the basic and diluted earnings
per share computations. On May 30, 2000, the Companys
shareholders approved a change to the FMC 98 Plan 2
whereby the impact of the special charge for the 1999 Settlement
(see Note 2) was excluded from the Companys
performance criteria relative to the EBIT growth requirements in
the plan. Therefore, at December 31, 2000, the performance
criteria had been met and the stock options granted are included
in the diluted earnings per share computation for 2000. 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.

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##### Table of Contents



|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |            | 
|------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ---- | ------- | ---------- |  | ---- | ------ | ---------- |  | - | ------- | ---------- | 
|                                                                                                       |                                                                            | 2002 |         | 2001       |  | 2000
|                                                                                                       |                                                                            |      |         |            |  |     
|Numerators:                                                                                            |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Income before extraordinary loss                                                                       |                                                                            | $    | 301,567 |            |  | $    | 63,354 |            |  | $ | 212,075 |           
|less:                                                                                                  |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|                                                                                                       | Preference on Preference shares                                            |      |         | 1,485      |  |      |        | 1,399      |  |   |         | 1,056      | 
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Income available to all class of shares before
    extraordinary loss                                  |                                                                            | $    | 300,082 |            |  | $    | 61,955 |            |  | $ | 211,019 |           
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Extraordinary loss on early redemption of trust
    preferred securities, net of tax benefit of $7,740 |                                                                            | $    | 11,777  |            |  | $    |       |            |  | $ |        |           
|Denominators:                                                                                          |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Weighted average number of:                                                                            |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|                                                                                                       | Ordinary shares outstanding                                                |      |         | 70,000,000 |  |      |        | 70,000,000 |  |   |         | 70,000,000 | 
|                                                                                                       | Preference shares outstanding                                              |      |         | 26,185,178 |  |      |        | 26,035,330 |  |   |         | 19,002,118 | 
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|                                                                                                       | Total weighted average shares outstanding                                  |      |         | 96,185,178 |  |      |        | 96,035,330 |  |   |         | 89,002,118 | 
|                                                                                                       | Potentially dilutive Preference shares                                     |      |         | 66,120     |  |      |        | 399,697    |  |   |         | 302,824    | 
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|                                                                                                       | Total weighted average shares outstanding
    assuming dilution            |      |         | 96,251,298 |  |      |        | 96,435,027 |  |   |         | 89,304,942 | 
|                                                                                                       | Total weighted average Preference shares
    outstanding assuming dilution |      |         | 26,251,298 |  |      |        | 26,435,027 |  |   |         | 19,304,942 | 
|Basic income per Ordinary share before
    extraordinary loss                                          |                                                                            | $    | 3.12    |            |  | $    | 0.65   |            |  | $ | 2.37    |           
|Plus preference per Preference share                                                                   |                                                                            |      | 0.06    |            |  |      | 0.05   |            |  |   | 0.06    |           
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Basic income per Preference Share before
    extraordinary loss                                        |                                                                            | $    | 3.18    |            |  | $    | 0.70   |            |  | $ | 2.43    |           
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Extraordinary loss                                                                                     |                                                                            | $    | 0.12    |            |  | $    |       |            |  | $ |        |           
|Fully diluted income per Ordinary share before
    extraordinary loss                                  |                                                                            | $    | 3.12    |            |  | $    | 0.64   |            |  | $ | 2.36    |           
|Plus preference per Preference share assuming
    dilution                                             |                                                                            |      | 0.06    |            |  |      | 0.05   |            |  |   | 0.06    |           
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Fully diluted income per Preference share before
    extraordinary loss                                |                                                                            | $    | 3.18    |            |  | $    | 0.69   |            |  | $ | 2.42    |           
|                                                                                                       |                                                                            |      |         |            |  |      |        |            |  |   |         |           
|Extraordinary loss                                                                                     |                                                                            | $    | 0.12    |            |  | $    |       |            |  | $ |        |           

18. Stock Options

In connection with the formation of FMC in 1996,
certain options outstanding under stock option plans of W.R.
Grace and FUSA were exchanged, for equivalent options with
respect to FMC Ordinary shares (the FMC Rollover
Plan).

During the year ended December 31, 2002,
38,085 FMC Rollover Plan options were exercised by employees. In
connection therewith, Fresenius AG transferred 12,695 Ordinary
shares to employees and remitted $168 to the Company. The $168
has been accounted for as a capital contribution within
additional paid in capital. Rollover Plan options for 104,418
Ordinary American Depository Shares were exercisable as of
December 31, 2002 at a weighted average exercise price of
$9.28.

FMC Plan

Immediately prior to the formation of the
Company, FMC adopted a stock incentive plan (the FMC
Plan) for FMCs key management and executive
employees. The options have a ten year term and vest after three
or five years. During 2002, no options were exercised and as of
December 31, 2002, 53,389 options for preference shares are
outstanding, available and exercisable with a price range
between $55.59 and $78.33 per option. Effective September 2001,
no additional awards can be granted under the FMC Plan.

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FMC 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 FMC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, 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 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. On May 30, 2000, the
Companys shareholders approved a change to the FMC 98
Plan 2 whereby the impact of the special charge for the
1999 Settlement (see Note 2) was excluded from the
Companys performance criteria relative to the earnings
before interest and taxes (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.

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        |       |             |  |            
|                                 |           | (in thousands) |       | Price range |  | Price range
|                                 |           |                |       |             |  |            
|FMC 98 Plan 1                    |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 1999     |           |                | 1,456 |             |  |            | 32.90-56.24 |             |  | $ | 34.50-58.98 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|                                 | Granted   |                |       | 653         |  |             |             | 40.70-49.00 |  |   |             | 42.68-51.39 | 
|                                 | Exercised |                |       | 13          |  |             |             | 32.90-42.44 |  |   |             | 34.50-44.51 | 
|                                 | Forfeited |                |       | 303         |  |             |             | 32.90-56.24 |  |   |             | 34.50-58.98 | 
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2000     |           |                | 1,793 |             |  |             | 32.90-56.24 |             |  |   | 34.50-58.98 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|                                 | Granted   |                |       | 183         |  |             |             | 48.81-52.30 |  |   |             | 51.19-54.85 | 
|                                 | Exercised |                |       | 132         |  |             |             | 32.90-56.24 |  |   |             | 34.50-58.98 | 
|                                 | Forfeited |                |       | 154         |  |             |             | 32.90-56.24 |  |   |             | 34.50-58.98 | 
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2001     |           |                | 1,690 |             |  |             | 32.90-56.24 |             |  |   | 34.50-58.98 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|                                 | Exercised |                |       | 10          |  |             |             | 32.90-40.70 |  |   |             | 34.50-42.68 | 
|                                 | Forfeited |                |       | 65          |  |             |             | 32.90-56.24 |  |   |             | 34.50-58.98 | 
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2002     |           |                | 1,615 |             |  |            | 32.90-56.24 |             |  | $ | 34.50-58.98 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Exercisable at December 31, 2002 |           |                | 1,323 |             |  |            | 32.90-56.24 |             |  | $ | 34.50-58.98 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            

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|                                 |           |                |     |             |  |             |             |             |  |   |             |             | 
|-------------------------------- | --------- | -------------- | --- | ----------- |  | ----------- | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                 |           | Options        |     |             |  |            
|                                 |           | (in thousands) |     | Price range |  | Price range
|                                 |           |                |     |             |  |            
|FMC 98 Plan 2                    |           |                |     |             |  |             |             |             |  |   |             |            
|Balance at December 31, 1999     |           |                | 550 |             |  |            | 32.41-44.66 |             |  | $ | 33.99-46.83 |            
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|                                 | Granted   |                |     | 321         |  |             |             | 47.64       |  |   |             | 49.96       | 
|                                 | Exercised |                |     | 7           |  |             |             | 44.66       |  |   |             | 46.83       | 
|                                 | Forfeited |                |     | 47          |  |             |             | 32.41-47.64 |  |   |             | 33.99-49.96 | 
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2000     |           |                | 817 |             |  |             | 32.41-47.64 |             |  |   | 33.99-49.96 |            
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|                                 | Granted   |                |     |            |  |             |             |             |  |   |             |             | 
|                                 | Exercised |                |     | 26          |  |             |             | 32.41-44.66 |  |   |             | 33.99-46.83 | 
|                                 | Forfeited |                |     | 9           |  |             |             | 32.41-47.64 |  |   |             | 33.99-49.96 | 
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2001     |           |                | 782 |             |  |             | 32.41-47.64 |             |  |   | 33.99-49.96 |            
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|                                 | Exercised |                |     | 2           |  |             |             | 32.41-44.66 |  |   |             | 33.99-46.83 | 
|                                 | Forfeited |                |     | 301         |  |             |             | 32.41-47.64 |  |   |             | 33.99-49.96 | 
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2002     |           |                | 479 |             |  |            | 32.41-47.64 |             |  | $ | 33.99-49.96 |            
|                                 |           |                |     |             |  |             |             |             |  |   |             |            
|Exercisable at December 31, 2002 |           |                | 479 |             |  |            | 32.41-47.64 |             |  | $ | 33.99-49.96 |            
|                                 |           |                |     |             |  |             |             |             |  |   |             |            

The following table summarizes information about
stock options outstanding for both 98 Plans at December 31,
2002:

|                         |  |             |           |                  |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | ---------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |             |           | Weighted average |  |                  |      |             |  |                 
|                         |  | Options     |           | remaining        |  | Weighted average |      | Options     |  | Weighted average
|Range of exercise prices |  | outstanding |           | contractual life |  | exercise price   |      | exercisable |  | exercise price  
|                         |  |             |           |                  |  |                  |      |             |  |                 
|$30.00-35.00             |  |             | 613,817   |                  |  |                  | 6.50 |             |  | $                | 34.29 |  |  |  | 613,817   |  |  | $ | 34.29 | 
|$35.01-40.00             |  |             |          |                  |  |                  |     |             |  |                  |      |  |  |  |          |  |  |   |      | 
|$40.01-45.00             |  |             | 125,519   |                  |  |                  | 6.90 |             |  |                  | 42.87 |  |  |  | 87,967    |  |  |   | 42.95 | 
|$45.01-50.00             |  |             | 219,471   |                  |  |                  | 5.50 |             |  |                  | 46.83 |  |  |  | 219,471   |  |  |   | 46.83 | 
|$50.01-55.00             |  |             | 593,549   |                  |  |                  | 7.70 |             |  |                  | 51.43 |  |  |  | 338,139   |  |  |   | 51.41 | 
|$55.01-60.00             |  |             | 541,653   |                  |  |                  | 5.40 |             |  |                  | 58.98 |  |  |  | 541,653   |  |  |   | 58.98 | 
|                         |  |             |           |                  |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|                         |  |             | 2,094,009 |                  |  |                  | 6.50 |             |  | $                | 47.37 |  |  |  | 1,801,047 |  |  | $ | 46.88 | 
|                         |  |             |           |                  |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 

Proceeds totaling $382 from exercise of 12,067
shares under FMC 98 Plan 1 and 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.

FMC 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.
The Management Board was empowered to issue convertible bonds
with a total value of
10,240 to the
members of the Management Board and to other employees of the
Company entitling 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. 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
fully 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 exercisable only if the market
price of the Preference shares increased 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. The
number of convertible bonds awarded to those employees who
select the bonds without a stock price

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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 achieving the stock price target are 25% higher
than the conversion price of the stock options without success
hurdle.


The Managing Board and Supervisory Board are
authorized to issue up to 20% of the total number of convertible
bonds each year up to May 22, 2006. The plan is valid until
the last convertible bond issued under this plan is terminated
or converted.

The following table shows the number of
Preference shares available and the average price range (in $
and ) under the
FMC 2001 International Stock Incentive Plan.

|                                 |           |                |       |             |  |             |             |             |  |   |             |             | 
|-------------------------------- | --------- | -------------- | ----- | ----------- |  | ----------- | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                 |           | Bonds          |       |             |  |            
|                                 |           | (in thousands) |       | Price range |  | Price range
|                                 |           |                |       |             |  |            
|FMC International Plan           |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2000     |           |                |      |             |  |             |             |             |  |   |             |            
|                                 | Granted   |                |       | 763         |  |             |             | 53.27-73.72 |  |   |             | 55.86-77.31 | 
|                                 | Forfeited |                |       | 43          |  |             |             | 58.88-73.72 |  |   |             | 61.85-77.31 | 
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2001     |           |                | 720   |             |  |             | 53.27-73.72 |             |  |   | 55.86-77.31 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|                                 | Granted   |                |       | 793         |  |             |             | 25.13-43.16 |  |   |             | 26.35-45.26 | 
|                                 | Forfeited |                |       | 23          |  |             |             | 58.98-73.72 |  |   |             | 61.98-77.31 | 
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Balance at December 31, 2002     |           |                | 1,490 |             |  |            | 25.13-73.72 |             |  | $ | 26.35-77.31 |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            
|Exercisable at December 31, 2002 |           |                |      |             |  |            |            |             |  | $ |            |            
|                                 |           |                |       |             |  |             |             |             |  |   |             |            

Fair Value of Stock Options

The per share weighted-average fair value of
stock options granted during 2002, 2001 and 2000 was $11.11,
$16.76 and $13.06, respectively, on the date of the grant using
the Black-Scholes option-pricing model with the weighted-average
assumptions presented below.

|                              |                         |      |  |            |  |      |  |            |  |  |  |            | 
|----------------------------- | ----------------------- | ---- |  | ---------- |  | ---- |  | ---------- |  |  |  | ---------- | 
|                              |                         | 2002 |  | 2001       |  | 2000
|                              |                         |      |  |            |  |     
|Weighted-average assumptions: |                         |      |  |            |  |      |  |            |  |  |  |           
|                              | Expected dividend yield |      |  | 2.20%      |  |      |  | 1.50%      |  |  |  | 1.50%      | 
|                              | Risk-free interest rate |      |  | 3.80%      |  |      |  | 4.90%      |  |  |  | 5.50%      | 
|                              | Expected volatility     |      |  | 40.00%     |  |      |  | 40.00%     |  |  |  | 40.00%     | 
|                              | Expected life of option |      |  | 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 $1,126, $1,153 and $3,980 for stock
options granted in 2002, 2001 and 2000.

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, 2002, 2001 and 2000 was
$270,082, $237,174, and $192,910, respectively.

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Future minimum rental payments under
noncancelable operating leases for the five years succeeding
December 31, 2002 are:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 180,131 | 
|2004       |  |   | 202,249 | 
|2005       |  |   | 137,048 | 
|2006       |  |   | 121,702 | 
|2007       |  |   | 77,650  | 
|Thereafter |  |   | 128,431 | 
|           |  |   |         | 
|           |  | $ | 847,211 | 
|           |  |   |         | 

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 obligation of the Company. 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 $122,100 in interest attributable to corporate
owned life insurance (COLI) policy loans; that W.R.
Grace & Co. has paid $21,200 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.,
the Company 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 the Company 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.

On February 6, 2003, the Company reached a
definitive agreement with the asbestos creditors
committees on behalf of the W.R. Grace & Co. bankruptcy
estate in the matters pending in the Grace Chapter 11
Proceedings (the Settlement Agreement) for the
settlement of all fraudulent conveyance 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, 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 $115,000 to the
W.R. Grace & Co. bankruptcy estate, or as
otherwise directed by the

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Court, upon plan confirmation. No admission of
liability has been or will be made. The Settlement Agreement is
subject to the approval of the U.S. District Court. The
foregoing summary of the material terms of the Settlement
Agreement is qualified in its entirety by reference to the full
text of the Settlement Agreement. The Settlement Agreement has
been filed as an exhibit to the Companys and Fresenius
Medical Care Holdings periodic reports to the Securities
and Exchange Commission.


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.). The Company
is engaged in litigation with Sealed Air Corporation
(Sealed Air) to confirm the Companys
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 to the Companys payment obligation, this
litigation will be dismissed with prejudice.

Since 1997, the Company, FMCH, NMC, and certain
NMC subsidiaries have been engaged in litigation with various
insurance companies concerning allegations of inappropriate
billing practices for nutritional therapy and diagnostic and
clinical laboratory tests and misrepresentations. These claims
against the Company seek unspecified damages and costs. The
Company, FMCH, NMC and its subsidiaries believe that there are
substantial defenses to the claims asserted, and intend to
vigorously defend all lawsuits. The Company has filed
counterclaims against the plaintiffs in these matters based on
inappropriate claim denials and delays in claim payments. Other
private payors have contacted the Company and may assert that
NMC received excess payments and, similarly, may join the
lawsuits or file their own lawsuit seeking reimbursement and
other damages. Although the ultimate outcome on the Company of
these proceedings cannot be predicted at this time, 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. The Company 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 or regulations may be amended, or enforcement
agencies or courts may make interpretations that differ from the
Companys or the manner in which the Company conduct 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 its 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 large number 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

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subsidiaries to liability under the Anti-Kickback
Statute, the Stark Statute and 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 the Company expects that those types of lawsuits
may continue. Although the Company maintains insurance at a
level which it believes to be prudent, the Company 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 the Company
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 on the Company 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 $258,000 to reflect anticipated
expenses associated with the continued defense and resolution of
pre-Merger tax claims, Merger-related claims, and commercial
insurer claims. The costs associated with the Settlement
Agreement will be charged against this accrual. While the
Company believes that its remaining accruals reasonably estimate
the Companys currently anticipated costs related to the
continued defense and resolution of the remaining matters, no
assurances can be given that the actual costs incurred by the
Company will not exceed the amount of these accruals.

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.

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.

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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 $3,700 ($5,766 pretax) for the
year ended December 31, 2002 are deferred in accumulated
other comprehensive income and will be reclassified into
earnings during 2003 and 2004. During 2002, the Company
reclassified after tax gains of $903 ($1,292 pretax) from
accumulated other comprehensive income into the statement of
operations. As of December 31, 2002, 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 $38,936 ($63,971 pretax) for the year ended
December 31, 2002 were deferred in accumulated other
comprehensive income. The Company also entered into foreign
currency forward contracts with a fair value of $6,119 as of
December 31, 2002 to hedge its currency exposure from
intercompany loans. No hedge accounting is applied to these
forward contracts. As of December 31, 2002, the Company had
purchased foreign exchange forward contracts with a maximum
maturity of 12 months. As of December 31, 2002, the
notional volume of foreign currency forwards hedging
intercompany loans totaled $873,885. 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.

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 $59,429 ($99,103 pretax) for the year ended
December 31, 2002, 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, 2002, the notional volume
of U.S. dollar interest rate hedge contracts totaled
$1,050,000. 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 5.51%. Under the 1996 Senior
Credit Agreement, the Company agreed to maintain at least
$500,000 of interest rate protection on at least $500,000 of
debt.

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
$389 ($671 pretax) for year ended December 31, 2002, were
deferred in accumulated other comprehensive income. There is no
material impact on earnings due to hedge ineffectiveness.

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As of December 31, 2002, 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 $18,118. 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.

FMC 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, 2002 and 2001. 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.

|               |                                      |                  |   |           |   |          |   |           |   |  |   |           |   |  |   |           |  
|-------------- | ------------------------------------ | ---------------- | - | --------- | - | -------- | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|               |                                      |                  |   |          
|               |                                      | 2002             |   | 2001     
|               |                                      |                  |   |          
|               |                                      | Carrying         |   | Fair      |   | Carrying |   | Fair     
|               |                                      | Amount           |   | Value     |   | Amount   |   | Value    
|               |                                      |                  |   |           |   |          |   |          
|               |                                      |                 
|               |                                      | ($ in thousands)
|Nonderivatives |                                      |                  |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|Assets         |                                      |                  |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|               | Cash and cash equivalents            |                  | $ | 64,793    |   |          | $ | 64,793    |   |  | $ | 61,572    |   |  | $ | 61,572    |  
|               | Receivables                          |                  |   | 914,302   |   |          |   | 914,302   |   |  |   | 884,727   |   |  |   | 884,727   |  
|Liabilities    |                                      |                  |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|               | Accounts payable                     |                  |   | 284,941   |   |          |   | 284,941   |   |  |   | 278,741   |   |  |   | 278,741   |  
|               | Income taxes payable                 |                  |   | 178,690   |   |          |   | 178,690   |   |  |   | 176,249   |   |  |   | 176,249   |  
|               | Long term debt, excluding Euro-notes |                  |   | 976,846   |   |          |   | 976,846   |   |  |   | 787,481   |   |  |   | 787,481   |  
|               | Trust Preferred Securities           |                  |   | 1,145,281 |   |          |   | 1,110,303 |   |  |   | 1,428,768 |   |  |   | 1,433,274 |  
|               | Notes                                |                  |   | 134,758   |   |          |   | 138,328   |   |  |   | 113,247   |   |  |   | 114,144   |  
|Derivatives    |                                      |                  |   |           |   |          |   |           |   |  |   |           |   |  |   |          
|               | Foreign exchange contracts           |                  |   | 94,879    |   |          |   | 94,879    |   |  |   | (15,498   | ) |  |   | (15,498   | )
|               | Dollar interest rate hedges          |                  |   | (99,183   | ) |          |   | (99,183   | ) |  |   | (66,603   | ) |  |   | (66,603   | )
|               | Yen interest rate hedges             |                  |   | (691      | ) |          |   | (691      | ) |  |   | (632      | ) |  |   | (632      | )

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.

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 1996 Senior Credit
Agreement.

The fair value of the Trust Preferred Securities
is based upon market quotes.

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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, 2002,
2001 and 2000 are as follows:

|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |          |         |   |     |        |        |  |   |          |         |   |   |         |   |  |   |   |   |  |   |         |   | 
|------------------------------------------------------------------ | --------------------------------------------------------------- | ----------------------- | ------- | ------ |  | ---- | ------- | ------- | - | ------ | ------- | ------ |  | ------ | -------- | ------- | - | --- | ------ | ------ |  | - | -------- | ------- | - | - | ------- | - |  | - | - | - |  | - | ------- | - | 
|                                                                   |                                                                 |                        
|                                                                   |                                                                 | Year ended December 31,
|                                                                   |                                                                 |                        
|                                                                   |                                                                 |                         |         |        |  |     
|                                                                   |                                                                 | 2002                    |         | 2001   |  | 2000
|                                                                   |                                                                 |                         |         |        |  |     
|                                                                   |                                                                 |                         |         | 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 |                         |         | 51,018 |  |      |         | (19,736 | ) |        |         | 31,282 |  |        |          | (82,915 | ) |     |        | 32,980 |  |   |          | (49,935 | ) |   |         |  |  |   |   |  |  |   |         |  | 
|                                                                   | Reclassification adjustments                                    |                         |         | 2,995  |  |      |         | (776    | ) |        |         | 2,219  |  |        |          | (1,134  | ) |     |        | 386    |  |   |          | (748    | ) |   |         |  |  |   |   |  |  |   |         |  | 
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |          |         |   |     |        |        |  |   |          |         |   |   |         |   |  |   |   |   |  |   |         |  
|Total other comprehensive income relating to cash
    flow hedges: |                                                                 |                         | 54,013  |        |  |      | (20,512 | )       |   |        | 33,501  |        |  |        | (84,049  | )       |   |     | 33,366 |        |  |   | (50,683  | )       |   |   |        |   |  |   |  |   |  |   |        |  
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |          |         |   |     |        |        |  |   |          |         |   |   |         |   |  |   |   |   |  |   |         |  
|Foreign-currency translation adjustment                            |                                                                 |                         | (38,432 | )      |  |      |        |         |   |        | (38,432 | )      |  |        | (115,422 | )       |   |     |       |        |  |   | (115,422 | )       |   |   | (57,560 | ) |  |   |  |   |  |   | (57,560 | )
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |          |         |   |     |        |        |  |   |          |         |   |   |         |   |  |   |   |   |  |   |         |  
|Minimum pension liability                                          |                                                                 |                         | (32,262 | )      |  |      | 12,905  |         |   |        | (19,357 | )      |  |        |         |         |   |     |       |        |  |   |         |         |   |   |        |   |  |   |  |   |  |   |        |  
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |          |         |   |     |        |        |  |   |          |         |   |   |         |   |  |   |   |   |  |   |         |  
|Other comprehensive income (loss)                                  |                                                                 | $                       | (16,681 | )      |  | $    | (7,607  | )       |   | $      | (24,288 | )      |  | $      | (199,471 | )       |   | $   | 33,366 |        |  | $ | (166,105 | )       |   | $ | (57,560 | ) |  | $ |  |   |  | $ | (57,560 | )
|                                                                   |                                                                 |                         |         |        |  |      |         |         |   |        |         |        |  |        |          |         |   |     |        |        |  |   |          |         |   |   |         |   |  |   |   |   |  |   |         |  

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 kidney dialysis 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 earnings before interest and taxes
(EBIT). In addition to EBIT, management believes that earnings
before interest, taxes, depreciation and 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 1996 Senior Credit Agreement and indentures
relating to the Trust Preferred Securities. EBIT and EBITDA as
recorded in the segment table are adjusted for the 2001 special
charge.

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. The Company believes its EBIT calculation is the
functional equivalent of operating income. Because EBITDA and
EBIT are not calculated consistently by all companies, the
presentation herein may not be comparable to other similarly
titled measures of other companies.

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##### Table of Contents



Information pertaining to the Companys
business segments is set forth below. Reconciliations to
consolidated totals exclude special charges (see Note 3):

|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |           |  
|---- | -------------------------------------------- | ------- | - | ------------- | - | --------- | - | --------- | - |  | - | ------- | - |  | - | --------- | -
|     |                                              | North   |   |               |   |           |   |          
|     |                                              | America |   | International |   | Corporate |   | Total    
|     |                                              |         |   |               |   |           |   |          
|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  | )
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBIT                                         |         |   | 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(1) |         |   | 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  | )
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBIT (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(2) |         |   | 316,358       |   |           |   | 174,851   |   |  |   | 727     |   |  |   | 491,936   |  
|2000 |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Net revenue external customers               |         | $ | 3,081,825     |   |           | $ | 1,119,513 |   |  | $ |        |   |  | $ | 4,201,338 |  
|     | Inter  segment revenue                      |         |   | 2,226         |   |           |   | 36,677    |   |  |   | (38,903 | ) |  |   |          |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Total net revenue                            |         |   | 3,084,051     |   |           |   | 1,156,190 |   |  |   | (38,903 | ) |  |   | 4,201,338 |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBITDA                                       |         |   | 652,212       |   |           |   | 263,281   |   |  |   | (1,825  | ) |  |   | 913,668   |  
|     | Depreciation and amortization                |         |   | (222,769      | ) |           |   | (68,460   | ) |  |   | (1,626  | ) |  |   | (292,855  | )
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | EBIT                                         |         |   | 429,443       |   |           |   | 194,821   |   |  |   | (3,451  | ) |  |   | 620,813   |  
|     |                                              |         |   |               |   |           |   |           |   |  |   |         |   |  |   |          
|     | Segment assets                               |         |   | 4,571,069     |   |           |   | 1,375,526 |   |  |   | 32,358  |   |  |   | 5,978,953 |  
|     | Capital expenditures and
    acquisitions(3) |         |   | 228,177       |   |           |   | 274,290   |   |  |   | 100     |   |  |   | 502,567   |  






|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | International acquisitions exclude $8,041 of
    non-cash acquisitions for 2002                                                   
|   
|(2) | North America and International acquisitions
    exclude $233,895 and $10,473, respectively, of non-cash
    acquisitions for 2001
|   
|(3) | International acquisitions exclude $13,614 of
    non-cash acquisitions for 2000                                                  

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|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |          |  
|-------------------------------------------------- | ------------------------------------------------------------------------------- | ---- | - | -------- | - | ---- | - | -------- | - |  | - | -------- | -
|                                                   |                                                                                 | 2002 |   | 2001     |   | 2000
|                                                   |                                                                                 |      |   |          |   |     
|Reconciliation of measures to consolidated totals. |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|                                                   | Total EBITDA (adjusted) of reporting segments                                   |      | $ | 921,964  |   |      | $ | 985,053  |   |  | $ | 915,492  |  
|                                                   | Total depreciation and amortization                                             |      |   | (210,555 | ) |      |   | (323,503 | ) |  |   | (292,855 | )
|                                                   | Special charge for legal matters                                                |      |   |         |   |      |   | (258,159 | ) |  |   |         |  
|                                                   | Corporate expenses                                                              |      |   | (16,442  | ) |      |   | (24,174  | ) |  |   | (1,825   | )
|                                                   | Interest expense                                                                |      |   | (225,053 | ) |      |   | (237,234 | ) |  |   | (195,569 | )
|                                                   | Interest expense on obligation related to 1999
    Settlement                   |      |   |         |   |      |   |         |   |  |   | (29,947  | )
|                                                   | Interest income                                                                 |      |   | 18,053   |   |      |   | 14,305   |   |  |   | 9,411    |  
|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|                                                   | Total income before income taxes, minority
    interest, and extraordinary loss |      | $ | 487,967  |   |      | $ | 156,288  |   |  | $ | 404,708  |  
|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|                                                   | Total EBIT (adjusted) of reporting segments                                     |      |   | 713,219  |   |      |   | 662,415  |   |  |   | 624,264  |  
|                                                   | Special charge for legal matters                                                |      |   |         |   |      |   | (258,159 | ) |  |   |         |  
|                                                   | Corporate expenses                                                              |      |   | (18,252  | ) |      |   | (25,039  | ) |  |   | (3,451   | )
|                                                   | Interest expense                                                                |      |   | (225,053 | ) |      |   | (237,234 | ) |  |   | (195,569 | )
|                                                   | Interest expense on obligation related to 1999
    Settlement                   |      |   |         |   |      |   |         |   |  |   | (29,947  | )
|                                                   | Interest income                                                                 |      |   | 18,053   |   |      |   | 14,305   |   |  |   | 9,411    |  
|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|                                                   | Total income before income taxes, minority
    interest, and extraordinary loss |      | $ | 487,967  |   |      | $ | 156,288  |   |  | $ | 404,708  |  
|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|Depreciation and amortization                      |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|                                                   | Total depreciation and amortization of reporting
    segments                   |      |   | (208,745 | ) |      |   | (322,638 | ) |  |   | (291,229 | )
|                                                   | Corporate depreciation and amortization                                         |      |   | (1,810   | ) |      |   | (865     | ) |  |   | (1,626   | )
|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |         
|                                                   | Total depreciation and amortization                                             |      | $ | (210,555 | ) |      | $ | (323,503 | ) |  | $ | (292,855 | )
|                                                   |                                                                                 |      |   |          |   |      |   |          |   |  |   |         

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
|                               |  |         |         |               |  |           |           |      
|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 | 
|2000                           |  |         |         |               |  |           |           |       |  |   |           |  |  |   |           | 
|Net revenue external customers |  | $       | 193,857 |               |  | $         | 3,081,824 |       |  | $ | 925,657   |  |  | $ | 4,201,338 | 
|Long-lived assets              |  |         | 92,969  |               |  |           | 3,748,355 |       |  |   | 529,012   |  |  |   | 4,370,336 | 

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24. Supplementary Cash Flow
Information

The following additional information is provided
with respect to the consolidated statements of cash flows:

|                                                  |                                                             |      |   |         |  |      |   |         |  |  |   |         | 
|------------------------------------------------- | ----------------------------------------------------------- | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                                  |                                                             | 2002 |   | 2001    |  | 2000
|                                                  |                                                             |      |   |         |  |     
|Supplementary cash flow information               |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                  | Cash paid for interest                                      |      | $ | 208,271 |  |      | $ | 219,681 |  |  | $ | 222,826 | 
|                                                  |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                  | Cash paid for income taxes, net                             |      | $ | 126,429 |  |      | $ | 62,747  |  |  | $ | 44,715  | 
|                                                  |                                                             |      |   |         |  |      |   |         |  |  |   |        
|Supplemental disclosures of cash flow information |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                  | Details for acquisitions:                                   |      |   |         |  |      |   |         |  |  |   |         | 
|                                                  | Assets acquired                                             |      | $ | 105,514 |  |      | $ | 540,241 |  |  | $ | 346,378 | 
|                                                  | Liabilities assumed                                         |      |   | 15,881  |  |      |   | 75,024  |  |  |   | 52,843  | 
|                                                  | Debt assumed in connection with acquisition                 |      |   | 8,041   |  |      |   | 144,889 |  |  |   | 13,613  | 
|                                                  | Preference shares issued in connection with
    acquisition |      |   |        |  |      |   | 99,479  |  |  |   |        | 
|                                                  |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                  | Cash paid                                                   |      |   | 81,592  |  |      |   | 220,849 |  |  |   | 279,922 | 
|                                                  | Less cash acquired                                          |      |   | 1,757   |  |      |   | 4,138   |  |  |   | 5,392   | 
|                                                  |                                                             |      |   |         |  |      |   |         |  |  |   |        
|                                                  | Net cash paid for acquisitions                              |      | $ | 79,835  |  |      | $ | 216,711 |  |  | $ | 274,530 | 
|                                                  |                                                             |      |   |         |  |      |   |         |  |  |   |        

25. Subsequent Events

2003 Senior Credit Agreement

On February 21, 2003, the Company entered
into an amended and restated bank agreement (hereafter
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),
pursuant to which the Lenders have made available to the Company
and certain subsidiaries and affiliates an aggregate amount of
up to $1,500,000 through three credit facilities:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 with a repayment
    provision that if the Trust Preferred Securities (see
    Note 14) due February 1, 2008 are not repaid,
    refinanced or have their maturity extended, repayment will be on
    October 31, 2007. The terms of the 2003 Senior Credit
    Agreement require repayments of 0.25% per quarter beginning with
    the second quarter of 2003.                                                                  

Loans under the 2003 Senior Credit Agreement bear
interest at a rate determined in accordance with the agreement.
For the revolving credit facility and Loan A, interest will be
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 EBITDA
and funded debt as defined in the credit agreement. The initial
interest rate for Loan B is LIBOR plus 2.5%. Fees are also
payable at a percentage (initially 0.50%) per annum on the
portion of the 2003 Senior Credit Agreement not used.

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In addition to scheduled principal payments, the
2003 Senior Credit Agreement will be reduced by portions of the
net cash proceeds from certain sales of assets, securitization
transactions and the issuance of subordinated debt and equity
securities.

The 2003 Senior Credit Agreement contains
affirmative and negative covenants with respect to the Company
and its subsidiaries and other payment restrictions
substantially similar to the previous 1996 Senior Credit
Agreement. Some of the limitations imposed by the covenants are
the indebtedness of the Company, investments by the Company, and
require the Company to maintain certain ratios defined in the
agreement. Additionally, the Senior Credit Agreement provides
for a dividend restriction which amounts to $130,000 in 2003.

Class D Preferred Stock

On February 4, 2003, the Company announced
it 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.

Class D Shares that have been properly
transferred to, and received by, the redemption agent will be
redeemed commencing on March 28, 2003 at a redemption price
of $0.10 per share. FMCH intends to redeem the 89 million
outstanding Class D Shares at a total cash outflow of
approximately $8,900. This transaction will have no earnings
impact for the Company.

26. 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 FMC, are the obligors on senior
subordinated debt securities which are fully and unconditionally
guaranteed, jointly and severally, on a senior subordinated
basis, by FMC and by Fresenius Medical Care Deutschland GmbH
(D-GmbH), a wholly-owned subsidiary of FMC, and by
FMCH, a substantially wholly-owned subsidiary of FMC (D-GmbH and
FMCH being Guarantor Subsidiaries). The following
combining financial information for the Company is as of
December 31, 2002 and 2001 and for the years ended
December 31, 2002, 2001 and 2000, segregated between FMC,
D-GmbH, FMCH and each of the Companys other businesses
(the Non-Guarantor Subsidiaries). For purposes of
the condensed combining information, FMC 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 D-GmbH are not presented herein because
management believes that they are not material to investors.
FMCH is currently subject to the periodic reporting requirements
of the United States Securities Exchange Act of 1934, as
amended, and in accordance therewith files consolidated
financial statements with the United States Securities and
Exchange Commission.

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Additionally dividends from FMCH, a wholly-owned
subsidiary, were limited until February 21, 2003, as a
result of a restriction on dividends from its subsidiary,
National Medical Care, Inc., and its subsidiaries. As a result
of this restriction, parent company only financial information
is presented under the column FMC AG. Under the amended and
revised Senior Credit Agreement, intercompany dividends are no
longer limited.

|                                                                                                       |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |           | 
|------------------------------------------------------------------------------------------------------ | ----------------------------------- | ------------------------------------ | ------- | ------------ | - | ------------- | ------- | ------------ |  | ---------- | ------- | -------- | - | - | --------- | --------- |  | - | -------- | ------- | - | - | --------- | --------- | 
|                                                                                                       |                                     |                                     
|                                                                                                       |                                     | For the year ended December 31, 2002
|                                                                                                       |                                     |                                     
|                                                                                                       |                                     |                                      |         |              |   |              
|                                                                                                       |                                     |                                      |         | Guarantor    |   |              
|                                                                                                       |                                     |                                      |         | Subsidiaries |   |              
|                                                                                                       |                                     |                                      |         |              |   | Non-Guarantor |         | Combining    |  | Combined  
|                                                                                                       |                                     | FMC 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                       |                                      |         | 19,265       |   |               |         | 6,881        |  |            |         | 69,412   |   |   |           | 147,546   |  |   |          | (36,104 | ) |   |           | 207,000   | 
|                                                                                                       | Other, net                          |                                      |         | (316,026     | ) |               |         | 76,887       |  |            |         | (202,966 | ) |   |           |          |  |   |          | 442,105 |   |   |           |          | 
|                                                                                                       |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before income taxes, minority interest and
    extraordinary loss                               |                                     |                                      | 320,455 |              |   |               | 49,847  |              |  |            | 133,554 |          |   |   | 435,225   |           |  |   | (451,114 | )       |   |   | 487,967   |          
|                                                                                                       | Income tax expense                  |                                      |         | 28,608       |   |               |         | 48,378       |  |            |         | (27,765  | ) |   |           | 175,829   |  |   |          | (42,236 | ) |   |           | 182,814   | 
|                                                                                                       |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before minority interest and extraordinary
    loss                                             |                                     |                                      | 291,847 |              |   |               | 1,469   |              |  |            | 161,319 |          |   |   | 259,396   |           |  |   | (408,878 | )       |   |   | 305,153   |          
|Minority interest                                                                                      |                                     |                                      |        |              |   |               |        |              |  |            |        |          |   |   |          |           |  |   | 3,586    |         |   |   | 3,586     |          
|                                                                                                       |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before extraordinary loss                                                                       |                                     |                                      | 291,847 |              |   |               | 1,469   |              |  |            | 161,319 |          |   |   | 259,396   |           |  |   | (412,464 | )       |   |   | 301,567   |          
|                                                                                                       |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Extraordinary loss on early redemption of trust
    preferred securities, net of tax benefit of $7,740 |                                     |                                      | 2,057   |              |   |               |        |              |  |            |        |          |   |   | 9,720     |           |  |   |         |         |   |   | 11,777    |          
|                                                                                                       |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|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  
|                                                 |                                     | FMC 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                  |                                      |         | 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-43



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##### Table of Contents



|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |           | 
|------------------------------------------------ | ----------------------------------- | ------------------------------------ | ------- | ------------ | - | ------------- | ------- | ------------ |  | ---------- | ------- | -------- | - | - | --------- | --------- |  | - | -------- | ------- | - | - | --------- | --------- | 
|                                                 |                                     |                                     
|                                                 |                                     | For the year ended December 31, 2000
|                                                 |                                     |                                     
|                                                 |                                     |                                      |         |              |   |              
|                                                 |                                     |                                      |         | Guarantor    |   |              
|                                                 |                                     |                                      |         | Subsidiaries |   |              
|                                                 |                                     |                                      |         |              |   | Non-Guarantor |         | Combining    |  | Combined  
|                                                 |                                     | FMC AG                               |         | D-GmbH       |   | FMCH          |         | Subsidiaries |  | Adjustment |         | Total   
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |         
|Net revenue                                      |                                     | $                                    |        |              |   | $             | 552,747 |              |  | $          |        |          |   | $ | 4,141,565 |           |  | $ | (492,974 | )       |   | $ | 4,201,338 |          
|Cost of revenue                                  |                                     |                                      |        |              |   |               | 320,287 |              |  |            |        |          |   |   | 2,891,592 |           |  |   | (477,286 | )       |   |   | 2,734,593 |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Gross profit                        |                                      |         |             |   |               |         | 232,460      |  |            |         |         |   |   |           | 1,249,973 |  |   |          | (15,688 | ) |   |           | 1,466,745 | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Operating expenses:                              |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Selling, general and administrative |                                      |         | 15,519       |   |               |         | 88,923       |  |            |         |         |   |   |           | 714,751   |  |   |          | (5,196  | ) |   |           | 813,997   | 
|                                                 | Research and development            |                                      |         |             |   |               |         | 25,902       |  |            |         |         |   |   |           | 6,033     |  |   |          |        |   |   |           | 31,935    | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Operating (loss) income             |                                      |         | (15,519      | ) |               |         | 117,635      |  |            |         |         |   |   |           | 529,189   |  |   |          | (10,492 | ) |   |           | 620,813   | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Other (income) expense:                          |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|                                                 | Interest, net                       |                                      |         | (2,501       | ) |               |         | 5,917        |  |            |         | 58,681   |   |   |           | 155,118   |  |   |          | (1,110  | ) |   |           | 216,105   | 
|                                                 | Other, net                          |                                      |         | (286,260     | ) |               |         | 60,173       |  |            |         | (140,459 | ) |   |           | 38,118    |  |   |          | 328,428 |   |   |           |          | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before income taxes and minority interest |                                     |                                      | 273,242 |              |   |               | 51,545  |              |  |            | 81,778  |          |   |   | 335,953   |           |  |   | (337,810 | )       |   |   | 404,708   |          
|                                                 | Income tax expense (benefit)        |                                      |         | 61,167       |   |               |         | 46,019       |  |            |         | (23,472  | ) |   |           | 155,909   |  |   |          | (49,851 | ) |   |           | 189,772   | 
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Income before minority interest                  |                                     |                                      | 212,075 |              |   |               | 5,526   |              |  |            | 105,250 |          |   |   | 180,044   |           |  |   | (287,959 | )       |   |   | 214,936   |          
|Minority interest                                |                                     |                                      |        |              |   |               |        |              |  |            |        |          |   |   |          |           |  |   | 2,861    |         |   |   | 2,861     |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          
|Net income                                       |                                     | $                                    | 212,075 |              |   | $             | 5,526   |              |  | $          | 105,250 |          |   | $ | 180,044   |           |  | $ | (290,820 | )       |   | $ | 212,075   |          
|                                                 |                                     |                                      |         |              |   |               |         |              |  |            |         |          |   |   |           |           |  |   |          |         |   |   |           |          

F-44



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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, net, excluding goodwill                                                                                                                                               |                                                                     |                           | 759       |              |           |               | 5,535   |              |         |            |          |           |           |  | 544,027   |           |           |  |           |            |            |   | 550,321   |          
|Goodwill, net                                                                                                                                                                            |                                                                     |                           |          |              |           |               | 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   |              |         |            |          |           |           |  | 141,723   |           |           |  | 4,629      |            |            |   | 150,685   |          
|Pension liabilities                                                                                                                                                                      |                                                                     |                           | 567       |              |           |               | 36,299  |              |         |            |          |           |           |  | 63,460    |           |           |  |           |            |            |   | 100,326   |          
|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
    subsidiary |                                                                     |                           |          |              |           |               |        |              |         |            |          |           |           |  | 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-45



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##### Table of Contents



|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------- | --------- | ------------ | ------- | ------------- | ------- | ------------ | ------- | ---------- | --------- | --------- | --------- |  | --------- | --------- | --------- |  | ---------- | ---------- | ---------- | - | --------- | --------- | --------- | 
|                                                                                                                                                                                         |                                                                     |                          
|                                                                                                                                                                                         |                                                                     | At December 31, 2001     
|                                                                                                                                                                                         |                                                                     |                          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |              
|                                                                                                                                                                                         |                                                                     |                           |           | Guarantor    |         |              
|                                                                                                                                                                                         |                                                                     |                           |           | Subsidiaries |         |              
|                                                                                                                                                                                         |                                                                     |                           |           |              |         | Non-Guarantor |         | Combining    |         | Combined  
|                                                                                                                                                                                         |                                                                     | FMC AG                    |           | D-GmbH       |         | FMCH          |         | Subsidiaries |         | Adjustment |           | Total    
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |          
|Current assets:                                                                                                                                                                          |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         | Cash and cash equivalents                                           |                           | $         | 16           |         |               | $       | 33           |         |            | $         |          |           |  | $         | 61,523    |           |  | $          |           |            |   | $         | 61,572    |          
|                                                                                                                                                                                         | Trade accounts receivable, less allowance for
    doubtful accounts |                           |           |             |         |               |         | 75,863       |         |            |           |          |           |  |           | 808,864   |           |  |            |           |            |   |           | 884,727   |          
|                                                                                                                                                                                         | Accounts receivable from related parties                            |                           |           | 363,304      |         |               |         | 205,155      |         |            |           | 70,344    |           |  |           | 574,062   |           |  |            | (1,175,773 | )          |   |           | 37,092    |          
|                                                                                                                                                                                         | Inventories                                                         |                           |           |             |         |               |         | 75,598       |         |            |           |          |           |  |           | 303,610   |           |  |            | (32,819    | )          |   |           | 346,389   |          
|                                                                                                                                                                                         | Prepaid expenses and other current assets                           |                           |           | 11,366       |         |               |         | 19,355       |         |            |           |          |           |  |           | 189,990   |           |  |            | 1,424      |            |   |           | 222,135   |          
|                                                                                                                                                                                         | Deferred taxes                                                      |                           |           |             |         |               |         |             |         |            |           |          |           |  |           | 198,698   |           |  |            | 28,516     |            |   |           | 227,214   |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         |                                                                     | Total current assets      |           |              | 374,686 |               |         |              | 376,004 |            |           |           | 70,344    |  |           |           | 2,136,747 |  |            |            | (1,178,652 | ) |           |           | 1,779,129 | 
|Property, plant and equipment, net                                                                                                                                                       |                                                                     |                           | 123       |              |         |               | 59,585  |              |         |            |          |           |           |  | 801,145   |           |           |  | (22,270    | )          |            |   | 838,583   |          
|Intangible assets, including goodwill, net                                                                                                                                               |                                                                     |                           | 966       |              |         |               | 6,863   |              |         |            |          |           |           |  | 3,674,194 |           |           |  |           |            |            |   | 3,682,023 |          
|Deferred taxes                                                                                                                                                                           |                                                                     |                           |          |              |         |               |        |              |         |            |          |           |           |  | 22,823    |           |           |  | 12,369     |            |            |   | 35,192    |          
|Other assets                                                                                                                                                                             |                                                                     |                           | 3,034,888 |              |         |               | 12,120  |              |         |            | 2,704,775 |           |           |  | 1,358,693 |           |           |  | (6,929,393 | )          |            |   | 181,083   |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         | Total assets                                                        |                           | $         | 3,410,663    |         |               | $       | 454,572      |         |            | $         | 2,775,119 |           |  | $         | 7,993,602 |           |  | $          | (8,117,946 | )          |   | $         | 6,516,010 |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|Current liabilities:                                                                                                                                                                     |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         | Accounts payable                                                    |                           | $         | 78           |         |               | $       | 17,180       |         |            | $         |          |           |  | $         | 181,029   |           |  | $          |           |            |   | $         | 198,287   |          
|                                                                                                                                                                                         | Accounts payable to related parties                                 |                           |           | 176,152      |         |               |         | 218,348      |         |            |           | 332,754   |           |  |           | 639,969   |           |  |            | (1,286,769 | )          |   |           | 80,454    |          
|                                                                                                                                                                                         | Accrued expenses and other current liabilities                      |                           |           | 9,051        |         |               |         | 46,932       |         |            |           |          |           |  |           | 352,162   |           |  |            | 902        |            |   |           | 409,047   |          
|                                                                                                                                                                                         | Accrual for special charge for Legal Matters                        |                           |           |             |         |               |         |             |         |            |           |          |           |  |           | 221,812   |           |  |            |           |            |   |           | 221,812   |          
|                                                                                                                                                                                         | Short-term borrowings                                               |                           |           | 618          |         |               |         |             |         |            |           |          |           |  |           | 92,793    |           |  |            |           |            |   |           | 93,411    |          
|                                                                                                                                                                                         | Short-term borrowings from related parties                          |                           |           |             |         |               |         |             |         |            |           | 17,504    |           |  |           | 15,005    |           |  |            | (17,504    | )          |   |           | 15,005    |          
|                                                                                                                                                                                         | Current portion of long-term debt and capital
    lease obligations |                           |           |             |         |               |         | 1,669        |         |            |           |          |           |  |           | 163,290   |           |  |            |           |            |   |           | 164,959   |          
|                                                                                                                                                                                         | Income tax payable                                                  |                           |           | 76,469       |         |               |         |             |         |            |           |          |           |  |           | 99,780    |           |  |            |           |            |   |           | 176,249   |          
|                                                                                                                                                                                         | Deferred taxes                                                      |                           |           | 13,629       |         |               |         | 3,276        |         |            |           |          |           |  |           | (4,043    | )         |  |            | 5,137      |            |   |           | 17,999    |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         |                                                                     | Total current liabilities |           |              | 275,997 |               |         |              | 287,405 |            |           |           | 350,258   |  |           |           | 1,761,797 |  |            |            | (1,298,234 | ) |           |           | 1,377,223 | 
|Long term debt and capital lease obligations,
    less current portion                                                                                                                   |                                                                     |                           | 249,184   |              |         |               | 3,101   |              |         |            | 827,099   |           |           |  | 759,202   |           |           |  | (1,102,817 | )          |            |   | 735,769   |          
|Long term borrowings from related parties                                                                                                                                                |                                                                     |                           | 265,766   |              |         |               |        |              |         |            |          |           |           |  | (226      | )         |           |  | (265,540   | )          |            |   |          |          
|Other liabilities                                                                                                                                                                        |                                                                     |                           |          |              |         |               | 3,342   |              |         |            |          |           |           |  | 115,447   |           |           |  | 5,056      |            |            |   | 123,845   |          
|Pension liabilities                                                                                                                                                                      |                                                                     |                           | 376       |              |         |               | 26,541  |              |         |            |          |           |           |  | 43,665    |           |           |  |           |            |            |   | 70,582    |          
|Deferred taxes                                                                                                                                                                           |                                                                     |                           | 2,596     |              |         |               | 3,724   |              |         |            |          |           |           |  | 136,526   |           |           |  |           |            |            |   | 142,846   |          
|Company obligated mandatorily redeemable
    preferred securities of subsidiary Fresenius Medical Care
    Capital Trusts holding solely Company-guaranteed debentures of
    subsidiary |                                                                     |                           |          |              |         |               |        |              |         |            |          |           |           |  | 1,428,768 |           |           |  |           |            |            |   | 1,428,768 |          
|Minority interest                                                                                                                                                                        |                                                                     |                           |          |              |         |               |        |              |         |            | 16,318    |           |           |  |          |           |           |  | 3,915      |            |            |   | 20,233    |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         |                                                                     | Total liabilities         |           |              | 793,919 |               |         |              | 324,113 |            |           |           | 1,193,675 |  |           |           | 4,245,179 |  |            |            | (2,657,620 | ) |           |           | 3,899,266 | 
|Shareholders equity:                                                                                                                                                                    |                                                                     |                           | 2,616,744 |              |         |               | 130,459 |              |         |            | 1,581,444 |           |           |  | 3,748,423 |           |           |  | (5,460,326 | )          |            |   | 2,616,744 |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          
|                                                                                                                                                                                         | Total liabilities and shareholders equity                          |                           | $         | 3,410,663    |         |               | $       | 454,572      |         |            | $         | 2,775,119 |           |  | $         | 7,993,602 |           |  | $          | (8,117,946 | )          |   | $         | 6,516,010 |          
|                                                                                                                                                                                         |                                                                     |                           |           |              |         |               |         |              |         |            |           |           |           |  |           |           |           |  |            |            |            |   |           |          

F-46



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##### Table of Contents



|                                                                 |                                                                                                                      |                                                                                      |                                           |              |         |               |     |              |         |            |   |          |         |      |        |          |          |          |       |          |          |         |        |          |          |          |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | ------------ | ------- | ------------- | --- | ------------ | ------- | ---------- | - | -------- | ------- | ---- | ------ | -------- | -------- | -------- | ----- | -------- | -------- | ------- | ------ | -------- | -------- | -------- | -
|                                                                 |                                                                                                                      |                                                                                     
|                                                                 |                                                                                                                      | For the year ended December 31, 2002                                                
|                                                                 |                                                                                                                      |                                                                                     
|                                                                 |                                                                                                                      |                                                                                      |                                           |              |         |              
|                                                                 |                                                                                                                      |                                                                                      |                                           | Guarantor    |         |              
|                                                                 |                                                                                                                      |                                                                                      |                                           | Subsidiaries |         |              
|                                                                 |                                                                                                                      |                                                                                      |                                           |              |         | Non-Guarantor |     | Combining    |         | Combined  
|                                                                 |                                                                                                                      | FMC 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 net 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    |         
|                                                                 | 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 |                                           |              | 24,086  |               |     |              | 7,349   |            |   |          |        |      |        |          | (51,589  | )        |       |          | 2,178    |         |        |          | (17,976  | )       
|                                                                 |                                                                                                                      | 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-47



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##### Table of Contents



|                                                                 |                                                                                                          |                                                                                      |                                                         |              |          |               |      |              |         |            |   |         |         |      |        |          |          |          |   |          |         |          |        |          |          |          |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------ | -------- | ------------- | ---- | ------------ | ------- | ---------- | - | ------- | ------- | ---- | ------ | -------- | -------- | -------- | - | -------- | ------- | -------- | ------ | -------- | -------- | -------- | -
|                                                                 |                                                                                                          |                                                                                     
|                                                                 |                                                                                                          | For the year ended December 31, 2001                                                
|                                                                 |                                                                                                          |                                                                                     
|                                                                 |                                                                                                          |                                                                                      |                                                         |              |          |              
|                                                                 |                                                                                                          |                                                                                      |                                                         | Guarantor    |          |              
|                                                                 |                                                                                                          |                                                                                      |                                                         | Subsidiaries |          |              
|                                                                 |                                                                                                          |                                                                                      |                                                         |              |          | Non-Guarantor |      | Combining    |         | Combined  
|                                                                 |                                                                                                          | FMC 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 (loss) to
    cash flows 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-48



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##### Table of Contents



|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |          |          |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | -------- | ------------- | --- | ------------ | ------- | ---------- | - | -------- | ---- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                                 |                                                                                                   |                                                        
|                                                                 |                                                                                                   | For the year ended December 31, 2000                   
|                                                                 |                                                                                                   |                                                        
|                                                                 |                                                                                                   |                                                         |        |              |          |              
|                                                                 |                                                                                                   |                                                         |        | Guarantor    |          |              
|                                                                 |                                                                                                   |                                                         |        | Subsidiaries |          |              
|                                                                 |                                                                                                   |                                                         |        |              |          | Non-Guarantor |     | Combining    |         | Combined  
|                                                                 |                                                                                                   | FMC AG                                                  |        | D-GmbH       |          | FMCH          |     | Subsidiaries |         | Adjustment |   | Total   
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |         
|Operating Activities:                                            |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|                                                                 | Net income                                                                                        |                                                         | $      | 212,075      |          |               | $   | 5,526        |         |            | $ | 105,250  |      |   | $       | 180,044  |          |   | $       | (290,820 | )        |   | $       | 212,075  |         
|                                                                 | Adjustments to reconcile net income to cash flows
    provided by (used in) operating activities: |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |          |         
|                                                                 | Equity affiliate income                                                                           |                                                         |        | (87,521      | )        |               |     |             |         |            |   | (140,459 | )    |   |         | 38,118   |          |   |         | 189,862  |          |   |         |         |         
|                                                                 |                                                                                                   | Depreciation and amortization                           |        |              | 1,625    |               |     |              | 19,512  |            |   |          |     |   |         |          | 274,841  |   |         |          | (3,124   | ) |         |          | 292,854  |  
|                                                                 |                                                                                                   | Change in deferred taxes, net                           |        |              | (12,514  | )             |     |              | (1,298  | )          |   |          |     |   |         |          | 93,049   |   |         |          | (2,303   | ) |         |          | 76,934   |  
|                                                                 |                                                                                                   | (Gain) loss on sale of fixed assets                     |        |              | (40      | )             |     |              | (1,239  | )          |   |          |     |   |         |          | 990      |   |         |          |         |   |         |          | (289     | )
|                                                                 |                                                                                                   | Gain on sale of investments                             |        |              | (66,189  | )             |     |              |        |            |   |          |     |   |         |          |         |   |         |          | 66,189   |   |         |          |         |  
|                                                                 |                                                                                                   | Compensation expense related to stock options           |        |              | 3,980    |               |     |              |        |            |   |          |     |   |         |          |         |   |         |          |         |   |         |          | 3,980    |  
|                                                                 | Changes in assets and liabilities, net of amounts
    from businesses acquired or disposed of:    |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |          |         
|                                                                 | Trade accounts receivable, net                                                                    |                                                         |        |             |          |               |     | 2,865        |         |            |   |         |      |   |         | (177,198 | )        |   |         |         |          |   |         | (174,333 | )       
|                                                                 | Inventories                                                                                       |                                                         |        |             |          |               |     | (10,527      | )       |            |   |         |      |   |         | (17,945  | )        |   |         | 5,465    |          |   |         | (23,007  | )       
|                                                                 | Prepaid expenses, other current and non-current
    assets                                        |                                                         |        | 5,241        |          |               |     | (11,377      | )       |            |   | 1,491    |      |   |         | (4,272   | )        |   |         | 632      |          |   |         | (8,285   | )       
|                                                                 | Accounts receivable from/payable to related
    parties                                           |                                                         |        | (56,306      | )        |               |     | 6,884        |         |            |   | 56,809   |      |   |         | (44,492  | )        |   |         | 18,304   |          |   |         | (18,801  | )       
|                                                                 | Accounts payable, accrued expenses and other
    current and non-current liabilities              |                                                         |        | 5,716        |          |               |     | 14,285       |         |            |   |         |      |   |         | (39,895  | )        |   |         | (795     | )        |   |         | (20,689  | )       
|                                                                 | Income taxes payable                                                                              |                                                         |        | 52,846       |          |               |     |             |         |            |   | (23,472  | )    |   |         | 21,453   |          |   |         |         |          |   |         | 50,827   |         
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|                                                                 |                                                                                                   | Net cash provided by (used in) operating
    activities |        |              | 58,913   |               |     |              | 24,631  |            |   |          | (381 | ) |         |          | 324,693  |   |         |          | (16,590  | ) |         |          | 391,266  |  
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|Investing Activities:                                            |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|                                                                 | Purchases of property, plant and equipment                                                        |                                                         |        | (100         | )        |               |     | (23,992      | )       |            |   |         |      |   |         | (213,466 | )        |   |         | 9,521    |          |   |         | (228,037 | )       
|                                                                 | Proceeds from sale of property, plant and
    equipment                                           |                                                         |        | 49           |          |               |     | 2,352        |         |            |   |         |      |   |         | 18,323   |          |   |         |         |          |   |         | 20,724   |         
|                                                                 | Acquisitions and investments, net of cash acquired                                                |                                                         |        | (314,421     | )        |               |     | (2,619       | )       |            |   |         |      |   |         | (268,028 | )        |   |         | 310,538  |          |   |         | (274,530 | )       
|                                                                 | Disbursement of loans to related parties, net                                                     |                                                         |        | (240,139     | )        |               |     |             |         |            |   |         |      |   |         |         |          |   |         | 240,139  |          |   |         |         |         
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|                                                                 |                                                                                                   | Net cash used in investing activities                   |        |              | (554,611 | )             |     |              | (24,259 | )          |   |          |     |   |         |          | (463,171 | ) |         |          | 560,198  |   |         |          | (481,843 | )
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|Financing Activities:                                            |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|                                                                 | Short-term borrowings, net                                                                        |                                                         |        | (6,577       | )        |               |     | 441          |         |            |   |         |      |   |         | (103,057 | )        |   |         |         |          |   |         | (109,193 | )       
|                                                                 | Long-term debt and capital lease obligations, net                                                 |                                                         |        |             |          |               |     | (740         | )       |            |   | 901      |      |   |         | 257,858  |          |   |         | (224,534 | )        |   |         | 33,485   |         
|                                                                 | Payments on obligation related to 1999 Settlement                                                 |                                                         |        |              |          |               |     |             |         |            |   |         |      |   |         | (386,815 | )        |   |         |         |          |   |         | (386,815 | )       
|                                                                 | Proceeds from issuance of preference shares                                                       |                                                         |        | 556,958      |          |               |     |             |         |            |   |         |      |   |         |         |          |   |         |         |          |   |         | 556,958  |         
|                                                                 | Increase of accounts receivable securitization
    program                                        |                                                         |        |             |          |               |     |             |         |            |   |         |      |   |         | 111,402  |          |   |         |         |          |   |         | 111,402  |         
|                                                                 | Proceeds from exercise of stock options                                                           |                                                         |        | 885          |          |               |     |             |         |            |   |         |      |   |         |         |          |   |         |         |          |   |         | 885      |         
|                                                                 | Capital increase of Non-Guarantor-Subsidiaries                                                    |                                                         |        |             |          |               |     |             |         |            |   |         |      |   |         | 312,352  |          |   |         | (312,352 | )        |   |         |         |         
|                                                                 | Dividends paid                                                                                    |                                                         |        | (51,229      | )        |               |     |             |         |            |   |         |      |   |         | (6,385   | )        |   |         | 6,385    |          |   |         | (51,229  | )       
|                                                                 | Change in minority interest                                                                       |                                                         |        |             |          |               |     |             |         |            |   | (520     | )    |   |         |         |          |   |         | 659      |          |   |         | 139      |         
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|                                                                 |                                                                                                   | Net cash provided by (used in) financing
    activities |        |              | 500,037  |               |     |              | (299    | )          |   |          | 381  |   |         |          | 185,355  |   |         |          | (529,842 | ) |         |          | 155,632  |  
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                   |                                                         | (4,357 | )            |          |               | (10 | )            |         |            |  |          |      |   | (17,105 | )        |          |   | (13,766 | )        |          |   | (35,238 | )       
|Cash and Cash Equivalents:                                       |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|Net (decrease) increase in cash and cash
    equivalents         |                                                                                                   |                                                         | (18    | )            |          |               | 63  |              |         |            |  |          |      |   | 29,772  |          |          |   |        |          |          |   | 29,817  |         
|Cash and cash equivalents at beginning of period                 |                                                                                                   |                                                         | 155    |              |          |               | 37  |              |         |            |  |          |      |   | 34,568  |          |          |   |        |          |          |   | 34,760  |         
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         
|Cash and cash equivalents at end of period                       |                                                                                                   | $                                                       | 137    |              |          | $             | 100 |              |         | $          |  |          |      | $ | 64,340  |          |          | $ |        |          |          | $ | 64,577  |         
|                                                                 |                                                                                                   |                                                         |        |              |          |               |     |              |         |            |   |          |      |   |         |          |          |   |         |          |          |   |         |         

F-49



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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, 2002 |            | $ | 138,128     |  |             | $ | 104,107   |  |  | $ | 82,472 |  |  | $ | 159,763 | 
|                                 | Year ended December 31, 2001 |            | $ | 111,181     |  |             | $ | 100,083   |  |  | $ | 73,136 |  |  | $ | 138,128 | 
|                                 | Year ended December 31, 2000 |            | $ | 101,262     |  |             | $ | 69,967    |  |  | $ | 60,048 |  |  | $ | 111,181 | 

S-1